<PAGE>
1997
1997 ANNUAL REPORT AND FORM 10-K
[LOGO]-Registered Trademark-
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U.S. BANCORP
CONTENTS
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2 LETTER TO SHAREHOLDERS
6 BUSINESS LINE REVIEWS
6 Commercial & Business
Banking and Private
Financial Services
9 Retail Banking
12 Payment Systems
15 Corporate Trust &
Institutional Financial
Services
18 MANAGEMENT'S DISCUSSION
& ANALYSIS
41 CONSOLIDATED FINANCIAL
STATEMENTS
69 FIVE-YEAR CONSOLIDATED
FINANCIAL STATEMENTS
71 QUARTERLY CONSOLIDATED
FINANCIAL DATA
74 SUPPLEMENTAL
FINANCIAL DATA
76 FORM 10-K
80 EXECUTIVE OFFICERS
81 DIRECTORS
82 CORPORATE DATA
WHERE TO FIND U.S. BANCORP
Map of the United States. The 17 states (California, Colorado, Idaho, Illinois,
Iowa, Kansas, Minnesota, Montana, Nebraska, Nevada, North Dakota, Oregon, South
Dakota, Utah, Washington, Wisconsin, Wyoming) in which U.S. Bancorp has retail
banking offices are shaded. Also plotted are locations of 37 metro areas in 30
states with leasing offices (Birmingham, Alabama; Mesa, Arizona; Fremont and
Woodland Hills, California; Denver, Colorado; Monroe, Connecticut; Niceville and
Winter Park, Florida; Atlanta, Georgia; Boise, Idaho; St. Charles and Willow
Springs, Illinois; Overland Park, Kansas; Louisville, Kentucky; Metairie,
Louisiana; Mount Airy, Maryland; Newton, Massachusetts; Farmington Hills,
Michigan; Minneapolis, Minnesota; Billings, Montana; Oak Ridge, New Jersey;
Poughkeepsie, New York; Charlotte, North Carolina; Fargo, North Dakota;
Cincinnati, Cleveland and Columbus, Ohio; Portland, Oregon; Yardley,
Pennsylvania; Sioux Falls, South Dakota; Mount Juliet, Tennessee; Houston and
Irving, Texas; Sandy, Utah; Seattle and Spokane, Washington; and Milwaukee,
Wisconsin) and 15 corporate trust offices in 13 states (Phoenix, Arizona; Los
Angeles and San Francisco, California; Denver, Colorado; Boise, Idaho; Chicago,
Illinois; Detroit and Lansing, Michigan; St. Paul, Minnesota; Billings, Montana;
New York, New York; Portland, Oregon; Sioux Falls, South Dakota; Salt Lake City,
Utah; and Seattle, Washington).
- - - BANKING REGION
- - - CORPORATION TRUST OFFICES
- - - LEASING OFFICES
ABOUT THE COMPANY
U.S. Bancorp is a multistate bank holding company with headquarters in
Minneapolis, Minnesota. Through our bank and other subsidiaries, we offer
businesses, institutions, governments and individuals a comprehensive array of
solutions to meet their financial needs.
On August 1, 1997, First Bank System, Inc. (FBS) of Minneapolis acquired
U.S. Bancorp of Portland, Oregon, and assumed the U.S. Bancorp name. The
combined organization is the 15th largest U.S. commercial bank holding company,
with assets of $71.3 billion as of December 31, 1997. Our market capitalization
of more than $27.6 billion at year-end 1997 places us 9th among U.S. bank
holding companies.
U.S. Bancorp* also ranks among the top-performing U.S. bank holding
companies in terms of profitability and efficiency. We posted 1997 return on
average assets of 1.83 percent, return on average common equity of 22.0 percent,
and an efficiency ratio of 48.9 percent, all on a combined basis and before
nonrecurring items.
U.S. Bancorp is a market leader serving millions of customers principally
in 17 states from the Midwest to the Rocky Mountains to the Pacific Northwest.
U.S. Bancorp focuses on providing anytime, anywhere access to high-quality
products and services to our retail customers, and customized solutions to
businesses and affluent clients with more complex needs. Through our bank and
other subsidiaries, we also offer specialized expertise and leadership in
corporate trust services, electronic credit card payment systems, and
investments.
U.S. Bancorp is committed to satisfying customers and creating shareholder
value. Our four business lines--Commercial & Business Banking and Private
Financial Services, Retail Banking, Payment Systems, and Corporate Trust &
Institutional Financial Services--are focused on fulfilling these commitments to
customers and shareholders.
U.S. Bancorp is listed on the New York Stock Exchange under the ticker
symbol USB.
*The August 1, 1997 acquisition of U.S. Bancorp by First Bank System, Inc. was
accounted for as a pooling-of-interests. Accordingly, this report provides
financial information reflecting the results of the operations of the two
companies on a combined basis for all periods presented.
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FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Percent Change
(Dollars in Millions, Except Per Share Data) 1997 1996 1996-1997
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before nonrecurring items $1,255.2 $1,142.1 9.9%
Nonrecurring items (416.7) 76.6 *
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Net income $ 838.5 $1,218.7 (31.2)
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PER COMMON SHARE
Net income $ 3.39 $ 4.81 (29.5)
Diluted net income 3.34 4.72 (29.2)
Earnings on a cash basis (diluted)** 3.80 5.23 (27.3)
Dividends paid 1.86 1.65 12.7
Common shareholders' equity 23.88 22.82 4.6
PER COMMON SHARE BEFORE NONRECURRING ITEMS
Income 5.09 4.50 13.1
Diluted income 5.03 4.42 13.8
Earnings on a cash basis (diluted)** 5.48 4.82 13.7
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FINANCIAL RATIOS
Return on average assets 1.22% 1.81%
Return on average common equity 14.6 21.1
Efficiency ratio 59.6 52.9
Net interest margin (taxable-equivalent basis) 5.04 5.04
SELECTED FINANCIAL RATIOS BEFORE NONRECURRING ITEMS
Return on average assets 1.83 1.69
Return on average common equity 22.0 19.8
Efficiency ratio 48.9 52.2
-----------------------
AT YEAR END
Loans $ 54,708 $ 52,355 4.5%
Allowance for credit losses 1,009 993 1.6
Assets 71,295 69,749 2.2
Total shareholders' equity 5,890 5,763 2.2
Tangible common equity to total assets*** 7.0% 6.7%
Tier 1 capital ratio 7.4 7.6
Total risk-based capital ratio 11.6 11.9
Leverage ratio 7.3 7.5
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</TABLE>
* Not meaningful.
** Calculated by adding amortization of goodwill and other intangible assets
to net income.
*** Defined as common equity less goodwill as a percentage of total assets less
goodwill.
FORWARD-LOOKING STATEMENTS
This annual report and Form 10-K includes forward-looking statements that
involve inherent risks and uncertainties. U.S. Bancorp cautions readers that a
number of important factors could cause actual results to differ materially from
those in the forward-looking statements. These factors include economic
conditions and competition in the geographic and business areas in which the
Company operates, inflation, fluctuations in interest rates, legislation and
governmental regulation, and the progress of integrating the former U.S.
Bancorp.
Graphs illustrate the following information:
Return on average common equity* (percent)
1993: 14.9
1994: 15.3
1995: 18.3
1996: 19.8
1997: 22.0
Return on average assets* (percent)
1993: 1.18
1994: 1.23
1995: 1.51
1996: 1.69
1997: 1.83
Diluted earnings per share* (dollars)
1993: 2.68
1994: 2.93
1995: 3.70
1996: 4.42
1997: 5.03
Efficiency ratio* (percent)
1993: 63.7
1994: 62.1
1995: 56.3
1996: 52.2
1997: 48.9
Shareholders' equity to assets ratio (percent)
1993: 8.3
1994: 7.9
1995: 8.1
1996: 8.3
1997: 8.3
*Before nonrecurring items.
U.S. Bancorp 1
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TO OUR SHAREHOLDERS
The year 1997 was transformative for U.S. Bancorp. We seized the opportunity to
create significant value for our shareholders by leveraging our high-performance
operating model across a larger customer base.
On August 1, First Bank System, Inc. (FBS) acquired U.S. Bancorp of Portland,
Oregon. We assumed the U.S. Bancorp name, which better reflects our expanded
17-state banking region extending from the Midwest to the Rocky Mountains to the
Pacific Northwest. The new U.S. Bancorp offers a broad array of high-quality
products and expert services to meet a wide range of customer needs.
The management strategies that made FBS one of the country's top-performing
bank holding companies remain in place at the new U.S. Bancorp. We focus on
providing financial solutions for customers and creating value for you, the
shareholder. Shareholder value continues to drive our management priorities and
direct virtually every decision we make.
STRONG FINANCIAL RESULTS
The new U.S. Bancorp of 1997 is much larger than the First Bank System of 1996.
However, we manage for performance, not size. With fewer than two quarters under
our belt together, the new U.S. Bancorp continues to be among the leaders in our
peer group in terms of profitability and efficiency.
Photo of Gerry B. Cameron, Chairman of the Board (left)
John F. Grundhofer, President and Chief Executive Officer
U.S. Bancorp stock has continued to outperform key market indices in the
1990s. One hundred dollars invested in U.S. Bancorp (formerly FBS) common stock
on December 31, 1989, would have been worth $886 at year-end 1997. That compares
with $480 for the KBW 50 Bank Index and $342 for the S&P 500 Stock Index. The
KBW 50 Bank Index is a market-capitalization-weighted total return index of the
50 largest U.S. banks published by Keefe, Bruyette & Woods, Inc.
On a combined basis, before nonrecurring items, diluted earnings per common
share increased 13.8 percent to $5.03 in 1997 compared with the previous year.
Our goal is to sustain earnings per share growth of 12 to 15 percent over the
next several years.
In terms of key financial ratios, U.S. Bancorp continues to excel.
Excluding nonrecurring items, our return on average assets of 1.83 percent in
1997 placed us second in our peer group of 21 regional bank holding companies,
and our return on average common equity of 22.0 percent for the year placed us
second among our peers.
Stringent cost containment practices and cost takeouts resulting from the
U.S. Bancorp and other mergers
2 U.S. Bancorp
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combined to make U.S. Bancorp more productive. Our efficiency ratio (noninterest
expenses divided by total revenue) dropped to 48.9 percent in 1997, compared
with 52.2 percent in 1996. We anticipate that completion of the U.S. Bancorp
integration, which is enabling us to leverage management, products and systems
across a larger customer base, will drive our efficiency ratio down even
further. Such performance is necessary to compete with financial services
providers outside the banking industry that have lower cost structures. In
addition to cost-takeouts, our efficient organization is driven by technology
investment, revenue growth and a corporate culture that disdains waste and
embraces productivity.
The six western states added to our banking region in the
merger--California, Idaho, Nevada, Oregon, Utah and Washington--complement our
traditional midwestern base in terms of economic strength and stability, which
contributes to strong credit quality. Throughout our 17-state region, we
maintain a high level of credit quality through centralized underwriting
policies, and by identifying potential problem loans early, taking any necessary
charge-offs promptly, and maintaining strong reserve levels.
"SHAREHOLDER VALUE CONTINUES TO DRIVE OUR MANAGEMENT PRIORITIES AND DIRECT
VIRTUALLY EVERY DECISION WE MAKE."
Strong past performance has set high expectations for U.S. Bancorp among
our managers, employees, and you, our shareholders. We're excited by our
opportunity to meet and exceed those expectations as a larger, regionally
based, nationally competitive player.
STRATEGIC ACQUISITION
First Bank System and U.S. Bancorp have proven to be a great fit since we first
announced the merger on March 20, 1997. Our regions were contiguous, compatible
and in attractive growth markets. Our banks both had strong market presence. Our
business strategies were virtually identical. Our business lines and products
complemented each other. And, as we continue to learn, we each had
special skills and resources to offer the other.
We understand that complications can arise when two large banking
organizations merge. We're committed to providing a seamless transition for our
customers. Using experience from 24 previous acquisitions since 1990, we are
pursuing a disciplined, staged integration that will continue through mid-1998.
We're pleased to report that the integration is proceeding successfully on
schedule.
Pie chart illustrating what business lines contribute to U.S. Bancorp operating
earnings:
Commercial & Business Banking and Private Financial Services: 51 percent
Retail Banking: 28 percent
Payment Systems: 13 percent
Corporate Trust & Institutional Financial Services: 8 percent
Teams from both organizations began working cooperatively to combine our
organizations even before close. At close, we successfully integrated our
financial systems. In late October, we successfully completed the credit card
conversion. In January, we converted our trust systems uneventfully. We will
complete the staged conversion of our other major systems by the third quarter
of 1998, with special sensitivity to maintaining control, training employees,
and mitigating customer disruption. In keeping with our aggressive integration
timeline, we already have converted item processing to a common platform, which
will facilitate the bank conversions in the spring.
Key to our successful integration has been the retention of customer
contact and management employees, systemwide adoption of the U.S. Bank identity,
and the lack of overlapping territory between the two organizations. For the
most part, it's been business as usual for customers of the "old" U.S. Bank.
Through advertising, direct mail and contact from relationship managers, we've
kept our customers informed of integration issues every step of the way.
In early 1998, we began introducing the new U.S. Bank identity across our
First Bank, Colorado National Bank and U.S. Bank markets. Throughout the year we
will be busy building leverage for our one, strong brand identity across our
entire 17-state region. When customers see the updated U.S. Bank logo, they know
they can depend on a solutions-oriented, progressive organization that is
focused on meeting their needs.
For our retail customers, U.S. Bank offers anytime, anywhere access to
high-quality products and services.
U.S. Bancorp 3
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Individuals and small businesses can access the bank however they choose:
through our 1,000 offices, 24-hour telephone banking services, more than 2,700
ATMs, or online banking. More affluent individuals and middle-market and larger
businesses can tap into these or more customized solutions to meet their more
complex needs. Relationship managers, supported by advanced technology, provide
the expertise these clients demand. We also offer industry-leading solutions in
corporate trust services, electronic credit card payment systems, and investment
products and services.
[LOGO]
PRUDENT CAPITAL ALLOCATION
As we have written in past annual reports, allocating capital is management's
most important task. Effective capital allocation plays a central role in
creating and preserving shareholder value.
In December we announced an agreement to acquire Piper Jaffray Companies
Inc., a highly regarded Minneapolis-based securities firm that serves a
geographic territory virtually identical to ours. The transaction (subject to
approval by Piper Jaffray shareholders and regulators) will form a new
subsidiary, U.S. Bancorp Piper Jaffray Inc., that will enable us to offer a
broader array of products and services to our middle-market business and private
financial services clients. In particular, the acquisition will fill a strategic
gap in satisfying our business customers' financial needs in corporate advisory
services, securities underwriting, research, sales, trading, and mergers and
acquisitions. It also will solidify our position as the largest provider of
private financial services in our territory. Our retail customers will have the
added benefit of 89 full-service brokerage offices with 1,235 investment
executives.
We had begun to build our investment banking and securities business
internally. However, an internal build strategy is too slow given the current
competitive environment. By acquiring Piper Jaffray Companies, we will become a
full-service player with instant credibility. The Piper Jaffray transaction is
expected to close in second quarter 1998.
Also in December, we closed on our acquisition of St. Cloud,
Minnesota-based Zappco, Inc., a bank holding company with three banks, six
branches and $360 million in assets. Zappco gives us a leading market position
in the growing central Minnesota region.
In January, we solidified our position as one of the nation's largest
providers of corporate trust services by closing our acquisition of the bond
indenture and paying agency business of Comerica, Inc. This acquisition gave us
offices in Detroit and Lansing, and instant number-one market position in
Michigan. We successfully completed integration of this acquisition, our fifth
corporate trust acquisition since 1992.
In all our acquisitions, we recognize that people are critical to ongoing
success. In the U.S. Bancorp acquisition, Gary Duim and Robert Sznewajs remain
with the company as vice chairmen. We also successfully retained most key
relationship managers from the former U.S. Bank. Likewise, Piper Jaffray
Companies Chairman and CEO Addison L. Piper will lead the new U.S. Bancorp Piper
Jaffray subsidiary.
Graph illustrates the following information: USB* Cumulative Total Shareholder
Return**
Index: 12/31/89=$100
U.S. Bancorp (formerly FBS) Common Stock
Keefe, Bruyette & Woods 50 Bank Index
Standard and Poor's Index of 500 Stocks
1989: USB/100, KBW 50/100, S&P 500/100
1990: USB/83, KBW 50/72, S&P 500/97
1991: USB/159, KBW 50/114, S&P 500/126
1992: USB/193, KBW 50/145, S&P 500/136
1993: USB/217, KBW 50/153, S&P 500/150
1994: USB/243, KBW 50/145, S&P 500/152
1995: USB/375, KBW 50/232, S&P 500/209
1996: USB/529, KBW 50/329, S&P 500/257
1997: USB/886, KBW 50/480, S&P 500/342
* Formerly FBS
** Capital appreciation plus dividends
$100 invested in U.S. Bancorp (formerly FBS) common stock on December 31, 1989
would have been worth $886 at year-end 1997. That compares with $480 for the
KBW 50 Bank Index and $342 for the S&P 500 stock index.
As with any investment, past performance is no guarantee of future results.
4 U.S. Bancorp
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Acquisitions are just one way U.S. Bancorp allocates capital for maximum
shareholder benefit. We also are pursuing these key strategies:
- INVESTMENT IN CORE BUSINESSES--U.S. Bancorp invests in people,
technology and other resources to support only those businesses that hold
potential for strong, sustainable profitability. We manage our company along
four business lines: Commercial & Business Banking and Private Financial
Services, Retail Banking, Payment Systems, and Corporate Trust & Institutional
Financial Services. While our business lines focused on the U.S. Bancorp
integration in 1997, they also continued many initiatives to serve customers
better, improve profitability and increase revenues. Reviews of 1997 business
line highlights begin on page 6.
- DIVIDEND INCREASES--On February 18, 1998, the U.S. Bancorp Board of
Directors increased the quarterly dividend to 52.50 cents from 46.50 cents per
common share, an increase of 12.9 percent. It was our seventh consecutive annual
increase.
On February 18, 1998, the Board of Directors also announced its intention
to declare a three-for-one split of U.S. Bancorp common stock, pending
shareholder approval at the annual meeting of shareholders on April 22, 1998.
FOCUS ON SHAREHOLDER INTERESTS
U.S. Bancorp's commitment to creating shareholder value provides the
underpinning for everything we do. Our financial strength gives us the resources
to provide better solutions for our customers, more challenging career
opportunities for our employees, and more meaningful support to our communities.
We ended 1997 a stronger sum than our parts, a factor that will enable us to
continue to serve these constituencies better over the long term.
As we have emphasized time and again, strong employee ownership is the best
way to align employee and shareholder interests. A majority of U.S. Bancorp
employees own U.S. Bancorp stock through our Capital Accumulation Plan (a 401(k)
program), as well as through our Employee Stock Purchase Plan, which enables our
people to purchase company stock at a discount. Among senior managers, more than
340 have targets to own the equivalent of 80 percent to 550 percent of their
annual salaries in U.S. Bancorp stock. At year-end 1997, senior managers owned
more than 3 million shares of company stock worth more than $344 million.
Once again, the people of U.S. Bancorp proved they understand the rapid
consolidation and other changes sweeping the financial services industry. They
endured tremendous changes and worked diligently on your behalf in 1997 to adapt
to these changes.
We also thank our directors for recognizing a wonderful opportunity to
create a dynamic new organization. The FBS and U.S. Bancorp boards joined
cooperatively to ensure a smooth integration and guide the new U.S. Bancorp in
the right direction.
"WE ENDED 1997 A STRONGER SUM THAN OUR PARTS, A FACTOR THAT WILL ENABLE US TO
CONTINUE TO SERVE THESE CONSTITUENCIES BETTER OVER THE LONG TERM."
Thanks, too, to our customers and the communities we serve for their
patience in adapting to our changes. We promise to provide them with
increasingly better solutions to meet their needs, and to continue supporting
affordable housing and small business development.
Finally, thank you, our shareholders, for your confidence. When the dust
settles over the shifting financial services landscape, we hope you find U.S.
Bancorp to be a wise investment.
/s/ Gerry B. Cameron
Gerry B. Cameron
CHAIRMAN OF THE BOARD
/s/ John F. Grundhofer
John F. Grundhofer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
February 18, 1998
U.S. Bancorp 5
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COMMERCIAL & BUSINESS BANKING AND PFS
Pie chart illustrating that Commercial & Business Banking and Private Financial
Services accounts for 51 percent of U.S. Bancorp operating earnings.
PERCENT OF U.S. BANCORP
OPERATING EARNINGS
BUSINESS DESCRIPTION
Commercial & Business Banking and Private Financial Services (PFS)provide
customized financial solutions for middle-market and larger businesses, as well
as government entities and affluent individuals. In addition, we serve
corporations in selected national markets and niche specialties such as
asset-backed lending, agricultural credit, leasing, real estate and energy. This
business line is relationship-driven. A relationship manager, supported by a
team of professionals, is matched with each client, working in partnership to
meet unique client needs. The relationship manager also is supported by
centralized systems and product management.
(CONTINUED NEXT PAGE)
PERSPECTIVES
PEOPLE PROVIDE FOUNDATION FOR RELATIONSHIPS
In Commercial & Business Banking and Private Financial Services (PFS), the
relationship between clients and our employees is key to our success. Clients
tell us through surveys that they are loyal not only to the bank, but also to
their relationship manager. Having knowledgeable people working with a client
over time is critical to being able to understand client situations and provide
meaningful recommendations. That's why retaining key relationship personnel
ranks as a top priority for the U.S. Bancorp integration.
By communicating the opportunities resulting from the merger, as well as
providing incentives, U.S. Bancorp has retained virtually all Commercial &
Business Banking and PFS relationship managers in our newly acquired
territories. Relationship managers continue to serve the same client base, and
credit decisions continue to be made locally. Retaining relationship managers is
helping fulfill our goal of providing a smooth transition for our clients.
It's one thing to articulate a strategy of employing talented people with
whom our clients want to work, but a much more challenging task to implement.
Successful execution requires that our people's attitudes and behaviors be
aligned as a team. It requires that we continue to expand our relationship
managers' skills and knowledge, so that they keep moving from product focus and
order-taking to client focus and financial advising. Also, it requires that we
continue to segment our clients so that we can match the expertise of our
relationship managers with clients they can serve best. Client surveys tell us
we're doing well and improving on all these counts.
RESULTS
A WILLING PARTNER IN GROWTH
IN 1989 NORM AND LINDA SATHER PURCHASED TWO SMALL OIL DISTRIBUTION COMPANIES IN
WASHINGTON TO FORM PACIFIC OIL PRODUCTS COMPANY. SALES MORE THAN DOUBLED IN SIX
YEARS, AND THE SATHERS OUTGREW THEIR SMALL COMMUNITY BANK. THEY TURNED TO A
LARGER REGIONAL BANK, BUT IT PROVED UNWILLING TO FINANCE THE COMPANY'S
EXPANSION.
THE SATHERS NEEDED A STRONG FINANCIAL PARTNER TO HELP IMPROVE THEIR COMPANY'S
GROWTH AND PROFITABILITY. IN 1995 U.S. BANK EARNED THE SATHERS' BUSINESS BY
ASSEMBLING A COMPREHENSIVE FINANCIAL PACKAGE THAT INCLUDED TERM FINANCING,
OPERATING LINES, LETTERS OF CREDIT, AND CASH MANAGEMENT SERVICES. IN 1996, WHEN
THE COMPANY REORGANIZED BY SHEDDING UNPROMISING ASSETS AND ACQUIRING BUSINESS
LINES WITH MORE POTENTIAL, THE BANK FINANCED THE ACQUISITIONS WITH TERM LOANS,
INCREASED LINES, AND LEASES. PACIFIC OIL PRODUCTS' REVENUES SOARED.
U.S. BANK EVEN PROVIDED COVER IN 1997 WHEN SEVERE WEATHER TIGHTENED THE
COMPANY'S CASH FLOW. A BULGE LINE ENABLED THE SATHERS TO MEET THEIR NORMAL
TERMS WITH SUPPLIERS AND CUSTOMERS, AND THE COMPANY ONCE AGAIN IS POISED TO
EXPAND.
IN ADDITION TO RELYING ON U.S. BANK FOR THEIR BUSINESS BANKING NEEDS, THE
SATHERS ALSO WORK WITH U.S. BANK'S PRIVATE BANKING GROUP. THROUGH INNOVATIVE
FINANCING PROVIDED BY U.S. BANK, THE SATHERS HAVE ACQUIRED A PROPERTY FOR THE
DREAM HOME WHERE THEY WILL ENJOY THE FRUITS OF THEIR LABOR.
6 U.S. Bancorp
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CUSTOMIZED SOLUTION
FOR A UNIQUE CLIENT
A MINNEAPOLIS-BASED COMPANY ACQUIRES SMALL COMPANIES IN THE LEGAL PUBLISHING AND
DATA BASE INDUSTRIES. ITS GOAL IS TO BUILD VALUE THROUGH ECONOMIES OF SCALE AND
ULTIMATELY GO PUBLIC. RATHER THAN RAISE EQUITY FOR EACH ACQUISITION, THE COMPANY
HAS RAISED EQUITY CAPITAL THAT HAS BEEN SUFFICIENT, WHEN COMBINED WITH A LEVEL
OF DEBT, TO MAKE MULTIPLE ACQUISITIONS. USING THIS "LEVERAGED BUILD-UP"
STRATEGY, THE COMPANY HAS REDUCED ITS ISSUANCE COSTS BY NOT HAVING TO RAISE
ADDITIONAL DEBT AND EQUITY FOR EACH ACQUISITION.
IN 1997 THE COMPANY NEEDED ADDITIONAL CAPITAL TO PURSUE SEVERAL ACQUISITION
OPPORTUNITIES. ALSO, THE STRENGTH OF THE STOCK MARKET HEIGHTENED THE COMPANY'S
INTEREST IN CONDUCTING AN INITIAL PUBLIC OFFERING (IPO). THE COMPANY APPROACHED
U.S. BANK'S COMMERCIAL BANKING GROUP FOR A SOLUTION.
WE KNEW OUR CLIENT'S BUSINESS AND GROWTH STRATEGY, AS WELL AS THE PUBLISHING
INDUSTRY, DUE TO OUR FIVE-YEAR RELATIONSHIP. THIS KNOWLEDGE, COMBINED WITH OUR
UNDERSTANDING AND EXPERIENCE WITH MARKET TIMING, LEVERAGED COMPANIES, AND DEBT
CAPACITY, ENABLED US TO PROVIDE INCREMENTAL FINANCING TO THE COMPANY SO THAT IT
DIDN'T HAVE TO RAISE EQUITY CAPITAL PREMATURELY. WE STRUCTURED A CREDIT FACILITY
THAT WORKS WITH MULTIPLE LAYERS OF CAPITAL AND WHICH ALLOWS FLEXIBILITY FOR
CERTAIN ADDITIONAL ACQUISITIONS UNDER AGREED-UPON FINANCIAL PARAMETERS. WITH
THIS CUSTOMIZED SOLUTION TO A UNIQUE NEED, OUR CLIENT HAS SIGNIFICANTLY
INCREASED ITS SIZE, MAKING IT A MUCH MORE ATTRACTIVE CANDIDATE FOR THE IPO
MARKET.
PARTNERSHIPS DRIVE CLIENT SATISFACTION
Commercial & Business Banking clients give U.S. Bank overall high marks for a
strong banking relationship. The overall driver behind client satisfaction is
our ability to understand our clients' business issues and to provide solutions
that go beyond providing loans, treasury management, or other products and
services. This sophisticated level of service requires that we pair clients with
relationship teams that have the expertise to deliver the level of service
appropriate for each client's revenue stream, while managing expenses. To be
successful with this strategy, we must continue to recruit and retain talented
professionals with the intellectual abilities to connect with our clients. We
then provide our people with effective tools and training.
We are continuously improving client management tools that leverage the
expertise of our relationship managers. These tools include information for
monitoring client relationships. By understanding our clients' needs even
better, we can provide them with more effective recommendations.
We expect client relationships to grow stronger as we leverage the
capabilities of our combined organization across our entire 17-state banking
region. We are combining the best of our products and services and offering
them across our larger territory. For example, we are investing in new
capabilities, such as Windows-SM--based treasury management products and
services, which we plan to offer throughout our entire territory.
We will continue to monitor client satisfaction through surveys and focus
groups to ensure we are improving our ability to maintain meaningful client
relationships.
BEYOND TRADITIONAL PRODUCTS
AND SERVICES
Traditional credit products lie at the heart of many of our Commercial &
Business Banking relationships. However, we continue to offer these clients an
expanded array of noncredit services, as well as specialized credit including
asset-based lending, agricultural credit, correspondent banking, energy lending,
international
CONTINUED
BUSINESS DESCRIPTION
(CONTINUED)
COMMERCIAL & BUSINESS BANKING serves middle-market and larger businesses from
157 offices throughout U.S. Bancorp's 17-state banking region. Bankers located
in regional offices build relationships with businesses in their communities and
make credit decisions locally, controlling the terms and pricing of business
loans. We compete effectively with local community banks thanks to our
knowledgeable, responsive relationship managers, who can offer businesses the
full spectrum of U.S. Bancorp's credit, trust, investment, and treasury
management products and services.
PRIVATE FINANCIAL SERVICES (PFS) serves the affluent market with one-stop access
to private banking, investment management, personal trusts, brokerage services,
insurance, and financial planning. We focus on meeting the needs of
professionals and professional services firms, foundations, wealthy families,
and individuals with high levels of income and net worth who have complex
financial needs. PFS clients include executives of our Commercial and Business
Banking clients. Our representatives provide expert, individualized service
through 57 offices located in larger metropolitan markets throughout our banking
region.
U.S. Bancorp 7
<PAGE>
1997
HIGHLIGHTS
- - - IMPROVED EFFICIENCY RATIO ON A CASH BASIS TO 34.7 PERCENT FROM 36.5
PERCENT.
- - - IMPROVED NET TANGIBLE RETURN ON EQUITY TO 26.4 PERCENT FROM 24.4 PERCENT.
COMMERCIAL & BUSINESS BANKING
- - - INCREASED AVERAGE LOANS BY NEARLY 9.4 PERCENT TO $28.8 BILLION.
- - - SERVED AS AGENT ON TRANSACTIONS TOTALING $2.9 BILLION AND CO-AGENT ON
TRANSACTIONS TOTALING NEARLY $17.6 BILLION.
- - - MAINTAINED STRONG CREDIT QUALITY, WITH NONPERFORMING ASSETS OF $225
MILLION, OR .79 PERCENT OF LOANS PLUS OTHER REAL ESTATE OWNED.
PRIVATE FINANCIAL SERVICES
- - - ADDED PRIVATE BANKING SERVICES IN FARGO, NORTH DAKOTA, KETCHUM, IDAHO, LAS
VEGAS, NEVADA, AND SIOUX FALLS, SOUTH DAKOTA.
- - - GREW ASSETS UNDER ADMINISTRATION IN PFS 13.1 PERCENT TO $30.1 BILLION.
CONTINUED--COMMERCIAL & BUSINESS BANKING AND PRIVATE FINANCIAL SERVICES
banking, and real estate lending. These and other areas continue to distinguish
U.S. Bank in the marketplace.
Our leasing subsidiary, U.S. Bancorp Leasing & Financial, serves the nation
from offices in 30 states. The subsidiary recorded average annual growth in
outstanding loans and leases of 5 percent to end the year with more than $2.7
billion in outstandings. Our asset-based lending divisions achieved average
annual loan growth of 22.7 percent to end the year with approximately $412
million in outstandings. As one of the region's largest treasury management
services providers, we help companies achieve effective treasury operations by
providing a full range of depository, disbursement, collection, risk management
and information services.
U.S. Bancorp's pending acquisition of Piper Jaffray Companies Inc., a
highly regarded Minneapolis-based securities firm, will further enhance the
range of solutions we can provide our more than 40,000 middle-market commercial
clients. The acquisition will strengthen our ability to offer a full array of
investment banking and brokerage services through a new subsidiary, U.S. Bancorp
Piper Jaffray Inc. Piper Jaffray will add depth in equity and debt underwriting,
trading, sales and research, as well as corporate finance advisory and merger
and acquisition services. In turn, Piper Jaffray clients will have access to
U.S. Bank's commercial banking offerings. Both companies will benefit from our
combined asset management experience and expertise in providing private
financial services.
PFS: FINANCIAL PLANNING ENHANCES SERVICE
Private Financial Services (PFS) encompasses financial planning, private
banking, tailored investment management, insurance, brokerage services, and
personal trust services under one umbrella. Clients are served by a relationship
manager or by our Trust Service Center and, depending on the client's need, they
are served by other experts in areas such as financial planning, estate planning
and investments. Additional expert services are available in areas such as
foundations, real estate, mineral interests, mortgage, tax, and special needs.
Through PFS's Financial Consulting Division, we recently enhanced the
financial planning services we offer to clients in selected markets. For
financial planning we employ a team of experts using state-of-the-art software
to deliver clients a customized analysis of all their financial needs, including
cashflow analysis, asset allocation recommendation, retirement planning, and
estate planning. Each plan is prepared for each client by our financial planning
specialists, empowering clients to make informed decisions. A relationship team
then helps each client implement the plan. We will continue rolling out these
new financial planning capabilities to other markets during 1998.
8 U.S. Bancorp
<PAGE>
RETAIL BANKING
PERSPECTIVES
Pie chart illustrating that Retail Banking accounts for 28 percent of U.S.
Bancorp operating earnings.
PERCENT OF U.S. BANCORP
OPERATING EARNINGS
BUSINESS DESCRIPTION
Retail Banking provides anytime, anywhere access to a comprehensive set of
banking and other financial solutions to consumers, and small and lower
middle-market businesses in our 17-state banking region. These products include
standard consumer and small business deposit and credit products, investment
offerings, insurance products, and debit and credit cards. We follow an
operational excellence operating model--with a goal of providing high-quality
products with superior value at the greatest convenience to customers.
Our Small Business Division serves small companies that do not require a
dedicated relationship manager. Bankers throughout our branch system analyze
small business customer needs and recommend solutions. For credit needs, bankers
assist with application and rely on a centralized underwriting center for credit
approval. We offer competitive pricing and 48-hour decision-making on standard
small business credit products, including real estate loans, working capital
loans, and lines of credit.
DIRECT CHANNELS OFFER CHOICE, CONVENIENCE
Retail customers increasingly prefer and demand greater convenience, high
reliability, and an increasingly broad range of options. One of the keys to our
growth and productivity is to offer them convenient choices for conducting
business with us. These choices include telephone banking, ATMs, online banking,
direct payroll deposits, and automated bill-paying services.
Advanced telephone technology makes our centralized telephone service
centers the most cost-effective distribution channel for U.S. Bank. Our service
centers in Minneapolis-St. Paul, Fargo, Denver and Portland fielded more than 91
million calls in 1997. About 77 percent of these calls were handled by
interactive voice response units, with the remainder handled by customer service
representatives.
The telephone, in combination with advertising and direct mail, also
provides a convenient way for consumer and business customers to buy products
and services. In 1997 our telemarketing units handled approximately 1.7 million
inbound and outbound calls. Approximately 29 percent of these calls were
converted to new product sales. Our investment call center handled nearly
245,000 calls in 1997. For cobranded credit cards, such as our Northwest
Airlines WorldPerks-Registered Trademark- Visa-Registered Trademark- Card, we
are bringing our telemarketing efforts for new accounts in-house to provide a
higher level of service more cost-effectively.
"OUR SERVICE CENTERS FIELDED MORE THAN 91 MILLION CALLS, 77 PERCENT HANDLED BY
INTERACTIVE VOICE RESPONSE UNITS."
We continued to expand our ATM network, providing greater convenience to
customers. Our total ATM network grew more than 7 percent in 1997 to more than
4,800 terminals. These include more than 2,700 ATMs that are located throughout
our 17-state banking region and which are available to our banking customers
without an ATM transaction fee.
We continued to add online banking capabilities for our consumer and small
business customers. At year-end, more than 70,000 U.S. Bank customers were
enrolled in online banking. We introduced a home-banking option using Meca
Software's Managing your Money-Registered Trademark- and Quickbooks for Small
Business-Registered Trademark- in select markets. We already offered three
online banking options in some of our markets: BankNOW-TM- from America
Online-Registered Trademark-, Microsoft Money-Registered Trademark-, and
Quicken-Registered Trademark-. These options will be available to customers in
all our markets by mid-1998.
CONTINUED
U.S. Bancorp 9
<PAGE>
CONTINUED--RETAIL BANKING
Customers now have access to transaction capabilities via the U.S. Bank web
site, including most functions available through telephone banking. Customers
can apply for the Northwest Airlines WorldPerks Visa card and education loans
via the Web. Additional capabilities, including more functions for deposit,
credit and investment products, will be added during 1998.
BRANCH NETWORK FOLLOWS CUSTOMERS
While one of U.S. Bank's key strategies is to migrate customer transactions
toward alternative channels, our branch network remains key to maintaining and
building our strong market presence throughout our region.
The U.S. Bank branch network includes approximately 1,000 branches in 17
states. We continually analyze the composition of this network to determine the
optimal number, location and size of branches, as well as the most appropriate
range of products and services, to serve customers in each market. This has
resulted in new branch openings, as well as consolidations, relocations, and
remodelings to adjust branch size.
"...OUR BRANCH NETWORK REMAINS KEY TO MAINTAINING AND BUILDING OUR STRONG
MARKET PRESENCE THROUGHOUT OUR REGION."
Our challenge is to be close to where our customers live and work, and
increase sales revenue per square foot and per employee. In the future, U.S.
Bank likely will have more branches, but they will be smaller and located more
strategically. For example, in 1997 we opened 29 in-store locations for a total
of 115. As branch locations change, we will provide standard, consistent branch
environments that facilitate sales and project the U.S. Bank brand.
Within two months of closing the U.S. Bancorp acquisition, we extended our
unique branch paradigm throughout our expanded 17-state region. Branch employees
focus on sales or service, leveraging their strengths and maximizing our ability
to meet customer needs. The sales focus is combined with a new compensation plan
to encourage strong sales results, enabling us to maximize revenue.
SMALL BUSINESS FOCUS ESTABLISHED
U.S. Bank reaffirmed its commitment to serving small businesses by establishing
a Small Business Division in 1997. Our small business experts are
well-positioned to meet the needs of the 1.2 million small businesses located
near our branches. From our research, we know that proximity to a branch is a
key consideration for small businesses that highly value low
10 U.S. Bancorp
<PAGE>
travel and wait times for conducting transactions at branches. With more than
350,000 small business customers, we have an opportunity to gain market
share--as well as deepen existing relationships.
In 1998 we will introduce our U.S. Bank Simply Business-Registered
Trademark- set of products across our entire 17-state region. We believe these
products, primarily easy-to-use loans and checking accounts, will have broad
appeal. We also will improve telephone customer service for small business
customers by forming a dedicated customer service unit.
RESULTS
BANKING WITH EASE
JOANN BAILIN IS A STAY-AT-HOME MOTHER WITH TWO ACTIVE CHILDREN UNDER AGE 4. SHE
STRUGGLES TO FIND TIME TO MAINTAIN HER CONSULTING WORK, NOT TO MENTION RUNNING
HOUSEHOLD AFFAIRS. THAT'S WHY SHE ENJOYS BANKING AT U.S. BANK.
MS. BAILIN SHOPS AT HER NEIGHBORHOOD BYERLY'S GROCERY STORE IN ST. LOUIS PARK,
MINNESOTA EACH WEEK, MAKING STOPS AT THE IN-STORE U.S. BANK BRANCH VERY
CONVENIENT. THE HASSLE-FREE LOCATION ELIMINATES ANOTHER STOP SHE'D HAVE TO MAKE
WITH HER CHILDREN IN TOW.
EVEN WHEN MS. BAILIN VISITS THE IN-STORE BANK, SHE RARELY USES A TELLER. SHE CAN
CONDUCT MOST OF HER TRANSACTIONS AT THE BRANCH'S ATMS OR TELEPHONES. IN FACT,
SHE OFTEN CONDUCTS HER BANKING BUSINESS AT HOME BY TELEPHONE LATE AT NIGHT,
AFTER THE CHILDREN ARE ASLEEP.
MS. BAILIN ALSO ENJOYS THE CONVENIENCE OF HER U.S. BANK DEBIT CARD TO PURCHASE
GROCERIES AND OTHER GOODS AND SERVICES. PERHAPS THE BEST BENEFIT IS THAT SHE CAN
FILL HER CAR WITH GASOLINE AND PAY AT THE PUMP WITHOUT HAVING TO LEAVE THE
CHILDREN TO GO TO THE REGISTER.
TO MAKE MANAGING THE HOUSEHOLD FINANCES EVEN MORE EFFICIENT, MS. BAILIN AND HER
HUSBAND HAVE DIRECT DEPOSIT AND AUTOMATIC BILL PAY SERVICES. THEY'VE SIGNED UP
FOR ONLINE BANKING TO MAKE MANAGING THEIR FINANCES WITH U.S. BANK EVEN EASIER.
PURSUING A CUSTOMER-FOCUSED STRATEGY
A key to providing meaningful solutions to customers is understanding their
needs. Our Relationship Management System (RMS) enables Retail Banking to do
just that for our consumer customers. RMS is an analytical software engine that
uses customer behavioral data and predictive modeling to make better
relationship-based decisions. RMS became fully operational in March 1997 and
will be extended to our new territories as systems are converted during 1998.
First-year results indicate that RMS is increasing customer profitability
and value, improving sales effectiveness, lowering costs, and enhancing customer
satisfaction. In the handling of overdraft and nonsufficient funds (NSF) checks,
for example, RMS increases overdraft line amounts for our most profitable
customers. The bank paid 34 percent more overdraft checks using RMS, while
cutting fee waivers by 32 percent. As a result, the bank benefits from increased
fees--up 13 percent since implementation of the strategy. Meanwhile, fewer
customers must pay fees to retailers for returned checks.
RMS also has produced other significant benefits. The effectiveness of
marketing to current customers has improved, as evidenced by a 51 percent
increase in sales results with RMS-inspired marketing. Credit approval rates
were up 16 percent. Overall, RMS is helping anticipate and meet customer needs
while increasing the average value of customers to the bank for the benefit of
shareholders.
1997
HIGHLIGHTS
- - - OPENED 21 BRANCHES IN ALBERTSON'S SUPERMARKETS, AND EIGHT IN OTHER STORES,
FOR A TOTAL OF 115 IN-STORE BRANCHES.
- - - INCREASED U.S. BANK DEPOSIT TRANSACTIONS AT ATMS 14 PERCENT.
- - - INCREASED TRANSACTIONS BY U.S. BANK CUSTOMERS USING U.S. BANK-OWNED ATMS BY
11 PERCENT LAST YEAR.
- - - GREW POINT-OF-SALE TRANSACTION VOLUME 50 PERCENT.
- - - DEPLOYED MORE THAN 400 ATMS IN 11 STATES AS PART OF FIVE-YEAR AGREEMENT
WITH CHEVRON PRODUCTS COMPANY TO PROVIDE ATM PROGRAM COORDINATION AND
SWITCH PROCESSING SERVICES.
- - - RECEIVED "BEST OF THE WEB" DESIGNATION BY "SNAP!", AN ONLINE RATING SERVICE
FOR INVESTMENT SERVICES WEB SITES.
- - - GREW BALANCES FOR NONMORTGAGE CONSUMER LOANS AND LINES AT 5 PERCENT, LED BY
HOME-EQUITY LOANS AND LINES AT 12 PERCENT.
- - - AS A RESULT OF NEW EVERYDAY PRICING STRATEGY IN SELECTED MARKETS, MONTHLY
AUTOMATIC RENEWAL RATES FOR SAVINGS CERTIFICATES IN THOSE MARKETS INCREASED
BY 24 PERCENT, AND AVERAGE TERM LENGTH OF NEW AND RENEWED SAVINGS
CERTIFICATES INCREASED BY 21 PERCENT.
U.S. Bancorp 11
<PAGE>
PAYMENT SYSTEMS
PERSPECTIVES
Pie chart illustrating that Payment Systems accounts for 13 percent of U.S.
Bancorp operating earnings.
PERCENT OF U.S. BANCORP
OPERATING EARNINGS
BUSINESS DESCRIPTION
Payment Systems provides electronic transaction services for both corporate and
retail customers, creating value through information, access and cost-effective
services.
CORPORATE PAYMENT SYSTEMS offers programs that help business and government
reduce expenses by processing purchases efficiently and cost-effectively.
Employees of Fortune 1000 companies use the U.S. Bank Visa-Registered Trademark-
Corporate Card, a non-revolving charge card that enables companies to monitor
and control travel and entertainment expenses. Employees of large businesses use
the U.S. Bank Visa Purchasing Card to place orders directly with
vendors--eliminating requisitions, purchase orders, and check requests. Our
specialized purchasing card for government agencies is called
I.M.P.A.C.-Registered Trademark- Other programs include cards for payment of
costs associated with employee relocation, fleet services, and small business
travel and entertainment.
(CONTINUED NEXT PAGE)
TECHNOLOGY ENHANCES CORPORATE PAYMENT SYSTEMS
Business clients continue to re-engineer their expense reporting processes,
demanding increased automation to improve efficiency and accuracy. In 1997 we
created an Interactive Commerce Group to address electronic commerce
opportunities and continue our tradition of product innovation as new payment
models emerge.
As an example of our continuing efforts to provide innovative product
and service features, in 1997 we introduced FirstView 3.0, a Windows 95-SM-
and NT-SM-version of our popular desktop reporting system. Our U.S. Bank
Visa-Registered Trademark- Corporate and Purchasing Card clients use
FirstView 3.0 in a client/server environment or as a standalone system. The
enhanced software enables our clients' card program administrators to mine
Corporate and Purchasing Card transaction data to make quick and
well-informed decisions regarding expense and vendor management, generate
valuable tax and spending analysis reports, expedite general ledger postings,
and electronically distribute cardholder statements and other data. Among the
new features is improved capability to distribute data and cardholder
statements via electronic mail on a variety of systems. At year-end, we had
executed more than 900 license agreements for use of the updated FirstView.
Corporate and Purchasing Cards were among the First products we leveraged
across our newly acquired client base in six western states. Under a special
agreement, we began marketing Corporate and Purchasing Cards in that region even
before the U.S. Bancorp acquisition closed. Sales volume for our Corporate and
Purchasing Cards increased more than 40 percent in 1997.
RESULTS
LOCKHEED MARTIN EXPANDS CORPORATE CARD PARTNERSHIP
LOCKHEED MARTIN CORPORATION IS ONE OF THE WORLD'S LEADING DIVERSIFIED TECHNOLOGY
COMPANIES PROVIDING SPACE AND MISSILE SYSTEMS, ELECTRONICS, MILITARY AIRCRAFT
INFORMATION SYSTEMS, SYSTEMS INTEGRATION AND A BROAD RANGE OF SERVICES TO U.S.
AND INTERNATIONAL GOVERNMENTS AND COMMERCIAL CUSTOMERS. THE BETHESDA,
MARYLAND-BASED COMPANY USES THE VISA-Registered Trademark- CORPORATE CARD TO
EFFICIENTLY PROCESS TRAVEL AND ENTERTAINMENT (T&E) EXPENSES FOR ITS EMPLOYEES
WORLDWIDE. AFTER A SERIES OF MAJOR MERGERS, THE COMPANY INHERITED MULTIPLE
CORPORATE CARD RELATIONSHIPS. CONSOLIDATING THESE RELATIONSHIPS WOULD SAVE THE
COMPANY APPROXIMATELY $10 MILLION IN ADMINISTRATIVE COSTS OVER THE LIFE OF THE
CONTRACT.
IN 1997, AFTER A COMPETITIVE BIDDING PROCESS, LOCKHEED MARTIN SELECTED U.S. BANK
AS ITS EXCLUSIVE PROVIDER OF CORPORATE CARDS--ONE OF THE WORLD'S LARGEST
CORPORATE T&E CARD CONTRACTS. U.S. BANK HAD BEEN PROVIDING A CORPORATE CARD
PROGRAM THAT SERVED THE NEEDS OF MORE THAN 25,000 EMPLOYEES. NOW U.S. BANK WILL
HELP LOCKHEED MARTIN EXPAND THIS PROGRAM THROUGHOUT ITS ENTIRE ORGANIZATION. THE
PROGRAM IS EXPECTED TO INCREASE BY TENS OF THOUSANDS OF ADDITIONAL VISA
CORPORATE CARDS WITH ANTICIPATED SPENDING OF SEVERAL BILLION DOLLARS OVER THE
LENGTH OF THE CONTRACT.
WHY DID LOCKHEED MARTIN CHOOSE U.S. BANK? BECAUSE OF OUR EXPERIENCE, TECHNOLOGY,
AND PROVEN CAPABILITIES TO CARRY OUT AN INITIATIVE OF THIS MAGNITUDE
FOR A COMPANY AS DIVERSE AS LOCKHEED MARTIN.
12 U.S. Bancorp
<PAGE>
COBRANDING: A CUSTOMER FOCUSED STRATEGY
Many credit card issuers depend on mail and other direct marketing strategies to
pursue the mass market. At U.S. Bank, we focus on developing strategic
cobranding partnerships to build a client base around existing loyalty programs.
We seek partners that appeal to the same type of customer base as our banking
business.
The 1997 launch of the King Soopers Visa Card for Colorado residents
illustrates our successful cobranding strategy. King Soopers is the number-one
supermarket chain in Colorado with a 37 percent market share, and our
partnership has tremendous potential to gain new credit card customers and also
bring new customers to our Colorado banking offices. For every dollar customers
spend at King Soopers and elsewhere, they earn points toward a wide variety of
grocery, travel, and other rewards.
"AT U.S. BANK, WE FOCUS ON DEVELOPING STRATEGIC COBRANDING PARTNERSHIPS TO BUILD
A CLIENT BASE AROUND EXISTING LOYALTY PROGRAMS."
In addition to in-store promotions, direct-mail solicitations were sent to
select Colorado bank customers who were preapproved for the card using our
Relationship Management System. An impressive 10 percent of customers who
received a mailing and a follow-up call from a personal banker applied for the
new card. Approximately 35,000 King Soopers Visa cards were issued in eight
months. The King Soopers Visa further strengthens U.S. Bank's relationship with
this supermarket leader.
Other new and existing cobranded programs also had a successful 1997. We
extended our partnership with Northwest Airlines to offer WorldPerks-Registered
Trademark- Visa consumer and small business credit cards. Our new corporate
travel program in partnership with the airline features a Visa corporate charge
card program and air travel management system that will help business travelers
and travel managers better track expenses. We also introduced the Conoco Visa
Card, a rewards-based, no-annual fee credit card that offers consumers rebates
on purchases at more than 5,200 Conoco gas and convenience stores nationwide.
CUSTOMER RETENTION A PRIORITY
Consumers increasingly are inundated with credit card offers featuring
attractive rates, fees, and other services. To combat this threat to existing
cardholders, in 1997 U.S. Bank launched a Customer Retention Unit, an investment
made with the understanding that retaining existing accounts costs less than
acquiring new ones.
CONTINUED
BUSINESS DESCRIPTION
(CONTINUED)
CONSUMER PAYMENT SYSTEMS focuses on being the dominant card issuer in our
17-state banking region and building valuable cobranding relationships. This
strategy leverages the distribution power of our branch system and cobranded
partners, and is less dependent on direct mail compared to many competitors.
U.S. Bank also offers card-accessible secured lines of credit and a prepaid
international travel card.
MERCHANT PAYMENT SERVICES provides an in-house, single-source solution for
electronic transaction processing. Our merchant clients can electronically
authorize and capture transactions from bankcards, other credit cards, and debit
cards, as well as authorize checks at the point of sale.
U.S. Bancorp 13
<PAGE>
1997
HIGHLIGHTS
- - - INCREASED NONINTEREST INCOME 19.9 PERCENT.
CORPORATE PAYMENT SYSTEMS
CONTINUED TO BE THE LARGEST ISSUER OF PURCHASING CARDS AND VISA-REGISTERED
TRADEMARK- CORPORATE CARDS IN TERMS OF NUMBER OF CARDS ISSUED AND SALES
VOLUME, AND THE LEADING ISSUER OF PURCHASING CARDS TO THE FEDERAL
GOVERNMENT.
- - - INCREASED CORPORATE AND PURCHASING CARD RELATIONSHIPS TO 156 OF THE FORTUNE
500 AND 252 OF THE FORTUNE 1000.
- - - APPROVED AS PROVIDER OF PURCHASING CARD, TRAVEL AND ENTERTAINMENT, AND
FLEET CARD SERVICES BY THE U.S. GENERAL SERVICES ADMINISTRATION.
CONSUMER PAYMENT SYSTEMS
- - - CONTINUED TO BE AMONG THE NATION'S LARGEST ISSUERS OF VISA CREDIT CARDS.
- - - RANKED FIRST WITHIN THE VISA NETWORK IN SALES VOLUME FOR SMALL BUSINESS
CARDS.
- - - INCREASED SALES VOLUME ON OUR CO-BRANDED CREDIT CARDS BY MORE THAN 20
PERCENT.
MERCHANT PAYMENT SERVICES
- - - REMAINED AMONG THE TOP 10 PROCESSORS OF VISA AND MASTERCARD-REGISTERED
TRADEMARK- TRANSACTIONS, SERVING MORE THAN 75,000 MERCHANT LOCATIONS WITH
MORE THAN $20 BILLION IN CHARGE VOLUME.
- - - INCREASED DIRECT SALES REPRESENTATIVES BY APPROXIMATELY 25 PERCENT.
CONTINUED--PAYMENT SYSTEMS
At our U.S. Bancorp Service Center in Fargo, North Dakota, dedicated
retention representatives began fielding inbound calls from cardholders wanting
to terminate their accounts. They also began making outbound calls to
cardholders who write to close their accounts. Using Relationship Management
System data, the representatives are authorized to provide customized incentives
in order to retain the cardholders. The unit retained more than 50 percent of
the accounts targeted during 1997.
MERCHANT SERVICES: INVESTING IN TECHNOLOGY
In merchant processing, the competitive advantage goes to providers with
efficient technology to handle large volume and personal service to meet client
needs. At U.S. Bank, we are enhancing in-house capacity by investing in new
systems and expanding our sales and service personnel.
Expanded capacity will help us leverage our banking and credit card
relationships. Improved technology will feature automated tools, on-line access
to detailed account information, and integration with other banking products,
thereby leveraging cross-selling opportunities.
"BUSINESSES TELL US THEY PREFER THE ENHANCED INFORMATION, TIMELINESS OF
DEPOSITS, AND IMPROVED QUALITY AFFORDED BY A SINGLE, INTEGRATED OFFERING FROM
THEIR BANK."
While laying a foundation for expanded volume, we are focusing on small and
middle-market businesses in our expanded 17-state banking region. By
concentrating on our growing base of banking and credit card clients, we can
build stronger relationships with them. We believe our growth potential is
greater by building long-term, deep banking and service relationships, rather
than by acquiring other merchant processing portfolios.
Our strategy of delivering an integrated product and service offering drove
our decision to end a joint merchant processing venture entered into by the
former U.S. Bank. Businesses tell us they prefer the enhanced information,
timeliness of deposits, and improved quality afforded by a single, integrated
offering from their bank.
14 U.S. Bancorp
<PAGE>
CORPORATE TRUST & INSTITUTIONAL FINANCIAL SERVICES
PERSPECTIVES
Pie chart illustrating that Corporate Trust & Institutional Financial Services
accounts for 8 percent of U.S. Bancorp operating earnings.
PERCENT OF U.S. BANCORP
OPERATING EARNINGS
BUSINESS DESCRIPTION
CORPORATE TRUST SERVICES is one of the largest service providers in its
industry. We provide trustee services for municipal, corporate, asset-backed and
international bonds, as well as paying agent, escrow agent, and document
custodial services.
INSTITUTIONAL FINANCIAL SERVICES focuses on investment and employee benefit
clients and products. The business is organized into two groups: First American
Asset Management (FAAM) and Investment Services. FAAM provides centralized
investment management, delivery, 401(k) administration, securities lending and
business support services for all U.S. Bancorp individual and institutional
investment products. These products include First American Funds (a mutual fund
family advised by FAAM), proprietary 401(k) products, and trustee and
administrative services for employee benefit programs. Investment Services
includes foreign exchange and U.S. Bancorp Investments, a full-service broker/
dealer and registered investment advisor providing a wide array of investment
products to individual investors, and underwriting,
distribution and portfolio services to institutional clients.
CORPORATE TRUST: ACQUISITION AND DEVELOPMENT
Corporate trust customers value expert service, leading-edge technology, and
quality delivery. As one of the nation's largest providers in this industry,
U.S. Bank Corporate Trust Services is well-positioned to meet these customer
needs. We have the size and strength to invest in critical infrastructure, and
we leverage our capabilities over an increasingly large customer base.
Our growth has resulted from acquisitions and development of existing
business. In January 1997 we gained the leading market position in Michigan by
closing on our acquisition of the bond indenture and paying agent business of
Detroit-based Comerica, Inc. We maintained Comerica's offices in Detroit and
Lansing, reflecting our strategy of serving customers through local offices.
Our network of 15 offices spanning the United States from Los Angeles to
New York is supported by centralized systems and operations and gives us a
competitive edge in retaining and expanding our client base. Our offices
throughout the west, including Los Angeles, Portland, San Francisco and Seattle,
have new opportunities to leverage our expanded banking presence in that region.
U.S. Bank Corporate Trust Services is committed to making technological and
other investments that will enable integration of future acquisitions and growth
of existing business. In 1997 we completed enhancements to our bondholder
accounting and integrated customer response systems, which improve customer
service, and contribute to our efficiency and productivity. Key initiatives
under way
CONTINUED
RESULTS
LEVERAGING OUR BANK REFERRALS
IN JUNE 1996 CHEVY CHASE BANK OF BETHESDA, MARYLAND, SET OUT TO INCREASE
LIQUIDITY AND RESTRUCTURE ITS BALANCE SHEET. TO ACHIEVE THIS GOAL, CHEVY CHASE
BANK CHOSE TO ISSUE ASSET-BACKED SECURITIES, SECURITIZED BY AUTO RECEIVABLES. IT
SELECTED U.S. BANK TO ADMINISTER THE TRUST FUNCTIONS FOR THIS COMPLEX FINANCING
TECHNIQUE. BY YEAR-END 1997, U.S. BANK HAD BEEN APPOINTED TRUSTEE, PAYING AGENT,
REGISTRAR AND CUSTODIAN FOR NINE CHEVY CHASE ASSET-BACKED TRANSACTIONS.
MEANWHILE, IN EARLY 1997 B. F. SAUL REAL ESTATE INVESTMENT TRUST, AN AFFILIATE
OF CHEVY CHASE BANK, FACED AN IMPORTANT DECISION. ITS LONGSTANDING TRUSTEE WAS
EXITING THE CORPORATE TRUST BUSINESS, AND A NEW TRUSTEE WAS NEEDED TO HANDLE B.
F. SAUL'S UNIQUE, CONTINUOUSLY OFFERED NOTE PROGRAM. BASED ON THE SUCCESS OF THE
CHEVY CHASE AND U.S. BANK RELATIONSHIP, B.F. SAUL APPOINTED THE NEW YORK OFFICE
OF U.S. BANK CORPORATE TRUST SERVICES TO STEP IN AS THE SUCCESSOR TRUSTEE. OF
SPECIAL INTEREST TO B.F. SAUL: OUR STATE-OF-THE-ART, ON-LINE NOTE ISSUANCE
SYSTEM. WORKING WITH U.S. BANK CORPORATE TRUST SERVICES, B. F. SAUL HAS BEEN
ABLE TO STREAMLINE PROCESSING AND AUTOMATE PROCEDURES.
THE COMBINATION OF ADVANCED TECHNOLOGY AND FOCUS ON CUSTOMER NEEDS TURNED A
CHALLENGE INTO AN OPPORTUNITY AND RESULTED IN A PARTNERSHIP BETWEEN AN IMPORTANT
CLIENT OF U.S. BANK AND U.S. BANK CORPORATE TRUST SERVICES.
U.S. Bancorp 15
<PAGE>
CONTINUED--CORPORATE TRUST & INSTITUTIONAL FINANCIAL SERVICES
include expansion of our capacity for document custody services and a redesigned
fee billing system.
1997
HIGHLIGHTS
CORPORATE TRUST SERVICES
- - - GREW PRINCIPAL OUTSTANDING MORE THAN 10 PERCENT TO NEARLY $595 BILLION.
- - - INCREASED BOND ISSUES TO 36,000.
- - - SERVED MORE THAN 975,000 BONDHOLDERS.
- - - RANKED AS THE LARGEST MUNICIPAL CORPORATE TRUST PROVIDER IN 1997 WITH $14.8
BILLION PRINCIPAL AMOUNT IN 587 NEW BOND ISSUES.
- - - RANKED AS THE THIRD-LARGEST TRUSTEE IN THE PUBLIC ASSET-BACKED ARENA.
- - - COMPLETED ACQUISITION OF BOND INDENTURE AND PAYING AGENT BUSINESS OF
COMERICA, INC.
(Continued Next Page)
ASSET MANAGEMENT: STRONG PERFORMANCE
Institutional Financial Services offers investors a broad range of products and
services with historically strong performance. By meeting the needs of a wide
range of investors, we are achieving our objective of gathering assets and, in
turn, growing noninterest income. In 1997 assets under management increased 25
percent to more than $62 billion.
First American Funds, the mutual fund family advised by First American
Asset Management, grew to $21 billion in assets under management in 1997, a 64
percent increase. This growth includes Qualivest Funds, a $2.5 billion portfolio
acquired in the U.S. Bancorp acquisition and merged into First American Funds in
November 1997. The First American family includes 32 offerings available to both
individual and institutional investors. We're a multi-style manager with
numerous options, including unique sector funds specializing in industries such
as health care, real estate investment trusts, and technology.
First American Strategy Funds, "funds of funds" that invest primarily in
shares of other First American funds, reached more than $365 million in assets
under management. Introduced in October 1996, these no-load funds provide a
one-stop option for investors seeking portfolios with asset allocation for
income, growth and income, growth, or aggressive growth.
TRUSTED RELATIONSHIP YIELDS MORE
401(k) BUSINESS
C.H. ROBINSON, A MINNEAPOLIS-BASED TRANSPORTATION LOGISTICS COMPANY WITH MORE
THAN 100 OFFICES IN 10 COUNTRIES, PROVIDED ITS EMPLOYEES A STAND-ALONE
PROFIT-SHARING PLAN AND LATER ADDED A 401(k) RETIREMENT PLAN. HOWEVER, DIFFERENT
PEOPLE AND COMPANIES MANAGED THE TWO PLANS, AND THE COMPANY DECIDED TO EVALUATE
OUTSOURCING OPTIONS FOR ITS ENTIRE RETIREMENT PROGRAM.
THE ADVANTAGES OF A SINGLE-SOURCE PROGRAM WERE CLEAR. IT WOULD OFFER BETTER
COORDINATION AND DEMAND LESS INTERNAL MANAGEMENT TIME. ENHANCED PLAN FEATURES
WOULD INCREASE ENROLLMENT OPTIONS, EMPLOYEE EDUCATION, AND DISTRIBUTION CHOICES,
AS WELL AS ENABLE EMPLOYEES TO CHANGE THEIR INVESTMENTS, OBTAIN PLAN LOANS, AND
EASILY ACCESS THEIR ACCOUNT INFORMATION.
C.H. ROBINSON REVIEWED PROPOSALS FROM SEVERAL COMPANIES INCLUDING U.S. BANCORP,
WHOSE AFFILIATES WERE AMONG THE PROVIDERS OF TRUST AND INVESTMENT MANAGEMENT
SERVICES FOR THE COMPANY'S EXISTING RETIREMENT PROGRAMS. THE CRITERIA:
INVESTMENT PERFORMANCE, DIVERSITY IN INVESTMENT OFFERINGS, FREQUENCY OF PLAN
VALUATIONS, USE OF TECHNOLOGY, EASE OF ACCESS TO TIMELY PARTICIPANT INFORMATION,
AND SERVICE. WE EARNED THE BUSINESS ON THE STRENGTH OF OUR FIRST SELECT 401(k)
PRODUCT.
C.H. ROBINSON'S DEEP, DECADE-LONG RELATIONSHIP WITH U.S. BANCORP WAS A KEY
FACTOR IN ITS DECISION. BASED ON THIS EXPERIENCE, C.H. ROBINSON FELT CONFIDENT
THAT U.S. BANCORP WOULD PROVIDE INNOVATIVE SOLUTIONS AND THE NECESSARY
COMMITMENT TO MEET ITS RETIREMENT PROGRAM NEEDS.
16 U.S. Bancorp
<PAGE>
Once again strong, long-term performance is contributing to our growth in
assets under management. In February 1997 Barron's ranked First American Funds
the 11th-best mutual fund family, and in December Mutual Funds magazine rated
First American Funds as a five-star fund family.
"BY MEETING THE NEEDS OF A WIDE RANGE OF INVESTORS, WE ARE ACHIEVING OUR
OBJECTIVE OF GATHERING ASSETS AND, IN TURN, GROWING NONINTEREST INCOME."
The success of our 401(k) products also is due largely to the track record
of the underlying investments, First American Funds. First Select, our 401(k)
program introduced in 1996, is proving to be a successful vehicle for converting
assets from larger traditional plans. First Select offers call center
capabilities for participants, employee education, and the opportunity to invest
in First American and other mutual funds including AIM, Fidelity and Janus.
Referrals from U.S. Bank retail, private, and business bankers have fueled
sales growth for investment products. We have just begun to tap the potential of
our expanded 17-state territory through outbound calls, direct mail and other
efforts. In addition, in 1997 we expanded our sales channels by making First
American Funds available through Charles Schwab's Institutional OneSource
program, Fidelity Investments' Institutional FundsNetwork, and Jack White &
Co.'s Institutional NoFee Network.
U.S. Bancorp's pending acquisition of Piper Jaffray Companies Inc.,
a Minneapolis securities firm, will add more than $12 billion to our assets
under management. The Piper Jaffray acquisition also will contribute 89
brokerage offices and 1,235 investment executives who will distribute our
products and services. It also will accelerate our efforts to meet a wider range
of our customers' investment banking needs, including underwriting commercial
paper, asset-backed securities, and a broader range of municipal bonds.
1997 HIGHLIGHTS
(CONTINUED)
INSTITUTIONAL FINANCIAL
SERVICES
FIRST AMERICAN ASSET MANAGEMENT
- - - INCREASED ASSETS UNDER MANAGEMENT 25 PERCENT TO MORE THAN $62 BILLION,
INCLUDING $21 BILLION IN FIRST AMERICAN FUNDS.
- - - INCREASED SALES OF FIRST AMERICAN FUNDS TO 52 PERCENT FROM 32 PERCENT OF
ALL MUTUAL FUND SALES BY OUR RETAIL BROKERS.
INVESTMENT SERVICES
- - - INCREASED BROKERAGE INVESTMENT SALES REVENUE BY 50 PERCENT.
- - - SUCCESSFULLY COMPLETED THE FIRST PHASE OF A CONVERSION TO A NEW BACK-OFFICE
SYSTEM FOR SECURITIES PROCESSING, ALLOWING GREATER EFFICIENCIES, ENHANCED
POINT-OF-SALE INFORMATION, AND BETTER OVERALL CUSTOMER SERVICE.
- - - RECEIVED SECTION 20 REGULATORY APPROVAL TO UNDERWRITE COMMERCIAL PAPER,
ASSET-BACKED SECURITIES, AND A BROADER RANGE OF MUNICIPAL BONDS.
U.S. Bancorp 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
U.S. Bancorp, formerly known as First Bank System, Inc. (the "Company"), is the
organization created by the acquisition by First Bank System, Inc. ("FBS") of U.
S. Bancorp ("USBC") of Portland, Oregon. The merger was completed on August 1,
1997 as a pooling-of-interests, and prior period financial statements have been
restated to reflect the merger.
SUMMARY OF 1997 RESULTS The Company had record operating earnings (net income
excluding nonrecurring items) of $1.26 billion in 1997, up 10 percent from 1996
operating earnings of $1.14 billion. On a diluted share basis, operating
earnings were $5.03 in 1997, compared with $4.42 in 1996. Return on average
assets and return on average common equity, excluding nonrecurring items, were
1.83 percent and 22.0 percent, compared with returns of 1.69 percent and 19.8
percent in 1996. Excluding nonrecurring items, the efficiency ratio (the ratio
of expenses to revenues) improved to 48.9 percent in 1997 from
52.2 percent in 1996.
The strong 1997 results reflect growth in fee income and lower noninterest
expense. Noninterest income (before nonrecurring items) increased $171 million
(12 percent), compared with 1996. The increase was the result of growth in all
categories of fee income. Excluding the reduction in fees related to the 1997
corporate card securitization, noninterest income (before nonrecurring items)
increased by $187 million (13 percent), compared with 1996. Noninterest expense
(before nonrecurring items) decreased $31 million from 1996 reflecting benefits
of the merger.
Net income was $838.5 million in 1997, or $3.34 per diluted share,
compared with $1.22 billion, or $4.72 per diluted share, in 1996. Return on
average assets and return on average common equity were 1.22 percent and 14.6
percent, compared with returns of 1.81 percent and 21.1 percent in 1996. Net
income in 1997 reflects nonrecurring items, primarily merger-related, of $416.7
million ($593.6 million on a pre-tax basis). These 1997 nonrecurring items
include a $95.0 million merger-related provision for credit losses. Additional
merger-related charges of approximately $125.0 million are expected to be
incurred over the next three quarters. Net nonrecurring gains increased 1996 net
income by $76.6 million ($145.1 million on a pre-tax basis). See pages 23
through 25 for further discussion on nonrecurring items.
ACQUISITION AND DIVESTITURE ACTIVITY On December 15, 1997, the Company announced
the acquisition of Piper Jaffray Companies Inc. ("Piper Jaffray"), a
full-service investment banking and securities brokerage firm, in a cash
transaction for $730 million or $37.25 per Piper Jaffray common share. The
acquisition will allow the Company to offer investment banking and institutional
and retail brokerage services through a new subsidiary which will be known as
U.S. Bancorp Piper Jaffray Inc. The acquisition, which will be accounted for as
a purchase, is subject to approval by Piper Jaffray shareholders and regulators
and is expected to close in the second quarter of 1998.
During 1997, the Company completed three purchase acquisitions of banks in
its operating region: $360 million Zappco, Inc., a bank holding company
headquartered in St. Cloud, Minnesota, in December; $214 million Business and
Professional Bank of Sacramento, California in April; and, $70 million Sun
Capital Bancorp of St. George, Utah in January. The Company also acquired the
bond indenture and paying agency business of Comerica Incorporated and
securitized and sold $420 million of corporate charge card receivables during
1997.
During 1996, the Company completed two purchase acquisitions of banks in
its operating region: $1.6 billion California Bancshares, Inc., a holding
company for a multi-bank commercial banking operation serving the East San
Francisco Bay Area and the Central Valley of Northern California, in June; and,
$3.7 billion FirsTier Financial, Inc. of Omaha, Nebraska in February. As part of
the regulatory approval process for the 1995 West One Bancorp acquisition, the
Company divested 31 branches during 1996, and recognized a pre-tax gain of $28.8
million. Also during 1996, the Company recognized a $45.8 million net gain on
the sale of FBS' residential mortgage servicing and loan production business.
Refer to Note C for additional information regarding acquisitions and
divestitures.
18 U.S. Bancorp
<PAGE>
TABLE 1 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Share Data) 1997 1996 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis) . . . . . . . $3,106.0 $ 3,034.7 $2,886.6 $2,809.6 $2,658.2
Provision for credit losses. . . . . . . . . . . . . . . . . 460.3 271.2 239.1 243.7 239.3
--------------------------------------------------------------------
Net interest income after provision for credit losses. . . 2,645.7 2,763.5 2,647.5 2,565.9 2,418.9
Securities gains (losses). . . . . . . . . . . . . . . . . . 3.6 20.8 3.0 (124.2) .8
Other nonrecurring gains . . . . . . . . . . . . . . . . . . 9.4 330.6 44.8 52.6 65.1
Other noninterest income . . . . . . . . . . . . . . . . . . 1,602.2 1,431.7 1,265.5 1,186.5 1,177.9
Restructuring and merger-related charges . . . . . . . . . . 511.6 88.1 98.9 225.3 72.2
Other nonrecurring charges . . . . . . . . . . . . . . . . . -- 118.2 38.2 27.2 --
Other noninterest expense. . . . . . . . . . . . . . . . . . 2,300.7 2,331.8 2,338.8 2,479.6 2,442.7
--------------------------------------------------------------------
Income from continuing operations before income taxes. . . 1,448.6 2,008.5 1,484.9 948.7 1,147.8
Taxable-equivalent adjustment. . . . . . . . . . . . . . . . 57.9 64.1 63.9 69.0 71.1
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 552.2 725.7 523.9 311.5 374.9
--------------------------------------------------------------------
Income from continuing operations. . . . . . . . . . . . . 838.5 1,218.7 897.1 568.2 701.8
Income (loss) from discontinued operations . . . . . . . . . -- -- -- (8.5) 2.5
--------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 838.5 $ 1,218.7 $ 897.1 $ 559.7 $ 704.3
--------------------------------------------------------------------
--------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets.................................... 1.22% 1.81% 1.42% .89% 1.17%
Return on average common equity. . . . . . . . . . . . . . . 14.6 21.1 17.2 10.9 14.7
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . 59.6 52.9 59.0 67.5 64.5
Net interest margin. . . . . . . . . . . . . . . . . . . . . 5.04 5.04 5.10 4.99 4.95
SELECTED FINANCIAL RATIOS BEFORE
RESTRUCTURING AND MERGER-RELATED CHARGES
AND OTHER NONRECURRING ITEMS
Return on average assets . . . . . . . . . . . . . . . . . . 1.83 1.69 1.51 1.23 1.18
Return on average common equity. . . . . . . . . . . . . . . 22.0 19.8 18.3 15.3 14.9
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . 48.9 52.2 56.3 62.1 63.7
PER COMMON SHARE:
Income from continuing operations. . . . . . . . . . . . . . $ 3.39 $ 4.81 $ 3.56 $ 2.19 $ 2.71
Income (loss) from discontinued operations . . . . . . . . -- -- -- (.03) .01
--------------------------------------------------------------------
--------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.39 $ 4.81 $ 3.56 $ 2.16 $ 2.72
--------------------------------------------------------------------
Diluted income from continuing operations. . . . . . . . . . $ 3.34 $ 4.72 $ 3.48 $ 2.14 $ 2.64
Income (loss) from discontinued operations . . . . . . . . -- -- -- (.03) .01
--------------------------------------------------------------------
Diluted net income . . . . . . . . . . . . . . . . . . . . . $ 3.34 $ 4.72 $ 3.48 $ 2.11 $ 2.65
--------------------------------------------------------------------
--------------------------------------------------------------------
Dividends paid*. . . . . . . . . . . . . . . . . . . . . . . $ 1.86 $ 1.65 $ 1.45 $ 1.16 $ 1.00
AVERAGE BALANCE SHEET DATA:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,513 $ 50,855 $ 47,703 $ 44,584 $ 41,092
Earning assets . . . . . . . . . . . . . . . . . . . . . . . 61,675 60,201 56,556 56,233 53,726
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,771 67,402 63,084 62,708 60,187
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 47,336 47,252 44,726 46,146 46,616
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 7,527 4,908 4,162 3,796 2,916
Common equity. . . . . . . . . . . . . . . . . . . . . . . . 5,667 5,679 5,090 4,887 4,502
Total shareholders' equity . . . . . . . . . . . . . . . . . 5,798 5,919 5,345 5,180 5,012
YEAR-END BALANCE SHEET DATA:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,708 $ 52,355 $ 49,345 $ 46,375 $ 43,870
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,295 69,749 65,668 64,737 62,457
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 49,027 49,356 45,779 46,115 47,834
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 10,247 5,369 4,583 4,225 3,231
Common equity. . . . . . . . . . . . . . . . . . . . . . . . 5,890 5,613 5,089 4,837 4,758
Total shareholders' equity . . . . . . . . . . . . . . . . . 5,890 5,763 5,342 5,105 5,186
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*DIVIDENDS PER SHARE HAVE NOT BEEN RESTATED FOR THE U.S. BANCORP ("USBC") OR
METROPOLITAN FINANCIAL CORPORATION ("MFC") MERGERS. USBC PAID COMMON DIVIDENDS
OF $139.1 MILLION THROUGH JULY OF 1997 ($.62 PER SHARE), $168.7 MILLION IN 1996
($1.18 PER SHARE), $133.1 MILLION IN 1995 ($1.06 PER SHARE), $116.0 MILLION IN
1994 ($.94 PER SHARE) AND $100.8 MILLION IN 1993 ($.85 PER SHARE). MFC PAID
COMMON DIVIDENDS OF $25.1 MILLION IN 1994 ($.80 PER SHARE) AND $12.1 MILLION IN
1993 ($.39 PER SHARE).
U.S. Bancorp 19
<PAGE>
TABLE 2 LINE OF BUSINESS FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
Commercial & Business Banking
and Private Financial Services Retail Banking
-------------------------------------------------------------
Percent Percent
(Dollars in Millions) 1997 1996 Change 1997 1996 Change
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis)................ $1,341.4 $1,246.3 7.6% $1,483.4 $1,526.7 (2.8)%
Provision for credit losses. . . . . . . . . 44.0 29.3 50.2 167.6 106.8 56.9
Noninterest income . . . . . . . . . . . . . 362.6 335.0 8.2 470.0 431.1 9.0
Noninterest expense. . . . . . . . . . . . . 614.8 597.7 2.9 1,218.6 1,313.2 (7.2)
Income taxes and
taxable-equivalent adjustment . . . . . . 402.8 369.4 218.5 208.2
------------------ -----------------
Income before nonrecurring items . . . . . . $ 642.4 $ 584.9 9.8 $ 348.7 $ 329.6 5.8
------------------ -----------------
------------------ -----------------
Net nonrecurring items (after-tax) . . . . .
Net income . . . . . . . . . . . . . . . . .
AVERAGE BALANCE SHEET DATA:
Commercial loans . . . . . . . . . . . . . . $29,752 $27,130 9.7 $ 2,001 $ 1,937 3.3
Consumer loans,
excluding residential mortgage. . . . . . 555 540 2.8 10,898 10,290 5.9
Residential mortgage loans . . . . . . . . . 316 331 (4.5) 4,728 5,403 (12.5)
Assets . . . . . . . . . . . . . . . . . . . 38,035 36,068 5.5 22,508 23,448 (4.0)
Deposits . . . . . . . . . . . . . . . . . . 9,657 8,348 15.7 36,106 37,537 (3.8)
Common equity. . . . . . . . . . . . . . . . 3,064 2,981 2.8 1,720 1,891 (9.0)
------------------ -----------------
Return on average assets..................... 1.69% 1.62% 1.55% 1.41%
Return on average common equity ("ROCE")..... 21.0 19.6 20.3 17.4
Net tangible ROCE**. . . . . . . . . . . . . 26.4 24.4 35.5 27.9
Efficiency ratio . . . . . . . . . . . . . . 36.1 37.8 62.4 67.1
Efficiency ratio on a cash basis** . . . . . 34.7 36.5 59.7 64.8
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
* NOT MEANINGFUL.
**CALCULATED BY EXCLUDING GOODWILL AND OTHER INTANGIBLES AND THE RELATED
AMORTIZATION.
NOTE:PREFERRED DIVIDENDS AND NONRECURRING ITEMS ARE NOT ALLOCATED TO THE
BUSINESS LINES. ALL RATIOS ARE CALCULATED WITHOUT THE EFFECT OF NONRECURRING
ITEMS.
LINE OF BUSINESS FINANCIAL REVIEW
Financial performance is measured by major lines of business, which include:
Commercial & Business Banking and Private Financial Services, Retail Banking,
Payment Systems, and Corporate Trust and Institutional Financial Services.
Business line results are derived from the Company's business unit profitability
reporting system. Designations, assignments, and allocations may change from
time to time as management accounting systems are enhanced or product lines
change. During 1997 certain organization and methodology changes were made and
1996 results are presented on a comparable basis.
COMMERCIAL & BUSINESS BANKING AND PRIVATE FINANCIAL SERVICES Commercial &
Business Banking and Private Financial Services includes lending, treasury
management, and other financial services to middle-market, large corporate and
mortgage banking companies and private banking and personal trust clients.
Operating earnings increased 10 percent to $642.4 million in 1997, compared with
$584.9 million in 1996. Return on average assets was 1.69 percent in 1997
compared with 1.62 percent in 1996, and net tangible return on average common
equity was 26.4 percent in 1997 compared with 24.4 percent in 1996.
Net interest income increased 8 percent, reflecting growth in average loan
balances. Noninterest income
20 U.S. Bancorp
<PAGE>
<TABLE>
<CAPTION>
Corporate Trust and
Institutional Financial Consolidated
Payment Systems Services Company
--------------------------------------------------------------------------------------
Percent Percent Percent
(Dollars in Millions) 1997 1996 Change 1997 1996 Change 1997 1996 Change
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis)................ $216.9 $218.8 (.9)% $ 64.3 $ 42.9 49.9% $3,106.0 $3,034.7 2.3%
Provision for credit losses. . . . . . . . . 153.7 135.1 13.8 -- -- -- 365.3 271.2 34.7
Noninterest income . . . . . . . . . . . . . 482.2 402.2 19.9 287.4 263.4 9.1 1,602.2 1,431.7 11.9
Noninterest expense. . . . . . . . . . . . . 273.8 242.8 12.8 193.5 178.1 8.6 2,300.7 2,331.8 (1.3)
Income taxes and
taxable-equivalent adjustment . . . . . . 104.7 94.1 61.0 49.6 787.0 721.3
---------------- ---------------- ------------------
Income before nonrecurring items . . . . . . $166.9 $149.0 12.0 $ 97.2 $ 78.6 23.7 1,255.2 1,142.1 9.9
---------------- ----------------
---------------- ----------------
Net nonrecurring items (after-tax) . . . . . (416.7) 76.6 *
------------------
Net income . . . . . . . . . . . . . . . . . $ 838.5 $1,218.7 (31.2)
------------------
------------------
AVERAGE BALANCE SHEET DATA:
Commercial loans . . . . . . . . . . . . . . $1,005 $1,180 (14.8) $ -- $ -- -- $ 32,758 $ 30,247 8.3
Consumer loans,
excluding residential mortgage . . . . . . 4,258 4,044 5.3 -- -- -- 15,711 14,874 5.6
Residential mortgage loans . . . . . . . . . -- -- -- -- -- -- 5,044 5,734 (12.0)
Assets . . . . . . . . . . . . . . . . . . . 6,611 6,451 2.5 1,617 1,435 12.7 68,771 67,402 2.0
Deposits . . . . . . . . . . . . . . . . . . 46 43 7.0 1,527 1,324 15.3 47,336 47,252 .2
Common equity. . . . . . . . . . . . . . . . 500 478 4.6 383 329 16.4 5,667 5,679 (.2)
---------------- ---------------- ------------------
Return on average assets..................... 2.52% 2.31% * * 1.83% 1.69%
Return on average common equity ("ROCE")..... 33.4 31.2 25.4% 23.9% 22.0 19.8
Net tangible ROCE**. . . . . . . . . . . . . 54.1 51.0 42.6 42.0 31.8 27.9
Efficiency ratio . . . . . . . . . . . . . . 39.2 39.1 55.0 58.1 48.9 52.2
Efficiency ratio on a cash basis** . . . . . 36.7 36.3 49.2 52.1 46.5 50.0
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
increased $27.6 million (8 percent) in 1997 compared with 1996. Noninterest
expense increased slightly over 1996. The efficiency ratio on a cash basis
improved to 34.7 percent in 1997, compared with 36.5 percent in 1996.
RETAIL BANKING Retail Banking delivers products and services to the broad
consumer market and small-business through branch offices, telemarketing, direct
mail, and automated teller machines ("ATM's"). Operating earnings were $348.7
million in 1997 compared with $329.6 million in 1996. Return on average assets
increased to 1.55 percent from 1.41 percent in 1996. Net tangible return on
average common equity increased to 35.5 percent in 1997 from 27.9 percent in the
previous year.
Net interest income declined 3 percent from the prior year, due primarily
to the planned runoff of the residential mortgage loan portfolio offset by the
growth in home equity loans. Noninterest income increased 9 percent due
primarily to increased service charges on deposits and investment products and
fees. Noninterest expense decreased, reflecting the benefits of continued
streamlining of branch operations, as well as the integration of recent business
combinations. The efficiency ratio on a cash basis improved to 59.7 percent in
1997 from 64.8 percent a year ago.
PAYMENT SYSTEMS Payment Systems includes consumer and business credit cards,
corporate and purchasing card services,
U.S. Bancorp 21
<PAGE>
card-accessed secured and unsecured lines of credit, ATM processing, and
merchant processing. Operating earnings increased 12 percent in 1997 to $166.9
million, compared with $149.0 million in 1996. Return on average assets was 2.52
percent compared with 2.31 percent in 1996, and net tangible return on average
common equity was 54.1 percent compared with 51.0 percent in 1996.
Fee-based noninterest income increased 20 percent in 1997 compared with
1996. Excluding the reduction in fees related to the first quarter 1997
Corporate Card securitization, fee-based noninterest income increased 24
percent. The increase was due to growth in the sales volume of the Corporate
Card, the Purchasing Card, and the Northwest Airlines WorldPerks-Registered
Trademark- credit card. Net interest income decreased due to a higher
proportion of customers who choose to pay off their credit card balance in
full each month and lower retail late fees. Noninterest expense increased due
to increased technology spending and costs related to increased sales volume.
CORPORATE TRUST AND INSTITUTIONAL FINANCIAL SERVICES Corporate Trust and
Institutional Financial Services includes institutional and corporate trust
services, investment management services, and a full-service brokerage company.
Operating earnings increased 24 percent to $97.2 million, compared with $78.6
million in the prior year. The net tangible return on average common equity was
42.6 percent in 1997, compared with 42.0 percent in 1996.
Net interest income increased 50 percent over 1996, reflecting the
acquisitions of the corporate trust businesses of BankAmerica and Comerica
Incorporated. Noninterest income increased 9 percent from 1996 due primarily to
increases in mutual fund advisory fees and corporate trust fees. The efficiency
ratio on a cash basis improved to 49.2 percent from 52.1 percent in 1996,
reflecting the effective integration of acquisitions, process re-engineering
efforts, and revenue growth.
STATEMENT OF INCOME ANALYSIS
NET INTEREST INCOME Net interest income on a taxable-equivalent basis was $3.11
billion in 1997 compared with $3.03 billion in 1996 and $2.89 billion in 1995.
The 1997 increase was primarily attributable to growth in earning assets, driven
by core commercial and consumer loan production, partially offset by reductions
in investment securities and residential mortgages. The Company expects its
balances of securities and residential mortgage loans to continue to decline, as
these assets generally have insufficient returns. Average loans were up $2.7
billion (5 percent) from 1996. See Table 7 for detail of the Company's loan
portfolio distribution. Excluding residential mortgage loan balances and the
effect of the $420 million first quarter corporate card securitization, 1997
average loans were
TABLE 3 ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
(Dollars in Millions) 1997 1996 1995
<S> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . $3,106.0 $3,034.7 $2,886.6
--------------------------------------
--------------------------------------
Average balances of earning assets supported by:
Interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . $ 48,097 $ 47,413 $ 45,211
Noninterest-bearing liabilities . . . . . . . . . . . . . . . . . . 13,578 12,788 11,345
--------------------------------------
Total earning assets . . . . . . . . . . . . . . . . . . . . . . $ 61,675 $ 60,201 $ 56,556
--------------------------------------
--------------------------------------
Average yields and weighted average rates (taxable-equivalent basis):
Earning assets yield. . . . . . . . . . . . . . . . . . . . . . . . 8.68% 8.60% 8.81%
Rate paid on interest-bearing liabilities . . . . . . . . . . . . . 4.67 4.52 4.64
--------------------------------------
Gross interest margin. . . . . . . . . . . . . . . . . . . . . . . . . 4.01% 4.08% 4.17%
--------------------------------------
--------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . . . . . . 5.04% 5.04% 5.10%
--------------------------------------
--------------------------------------
Net interest margin without taxable-equivalent increments. . . . . . . 4.94% 4.93% 4.99%
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
22 U.S. Bancorp
<PAGE>
TABLE 4 CHANGES IN RATE AND VOLUME
<TABLE>
<CAPTION>
1997 Compared with 1996 1996 Compared with 1995
---------------------------------------------------------------------------------
(Dollars in Millions) Volume Yield/Rate Total Volume Yield/Rate Total
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans. . . . . . . . . . . . . . . $238.8 $ 5.8 $244.6 $285.3 $(127.1) $158.2
Taxable securities . . . . . . . . (56.5) (18.0) (74.5) (12.4) 11.2 (1.2)
Nontaxable securities. . . . . . . (1.9) 20.3 18.4 16.1 2.7 18.8
Federal funds sold and
resale agreements . . . . . . . (16.1) 1.2 (14.9) 18.4 (2.7) 15.7
Other. . . . . . . . . . . . . . . (.8) .2 (.6) 4.7 (2.4) 2.3
---------------------------------------------------------------------------------
Total . . . . . . . . . . . . . 163.5 9.5 173.0 312.1 (118.3) 193.8
Interest expense:
Savings deposits and time
deposits less than $100,000 . . (31.8) 12.5 (19.3) 26.5 (20.8) 5.7
Time deposits over $100,000. . . . 10.9 3.8 14.7 31.4 (12.5) 18.9
Short-term borrowings. . . . . . . (105.7) 10.4 (95.3) 12.5 (24.6) (12.1)
Long-term debt . . . . . . . . . . 159.8 (4.6) 155.2 46.9 (16.5) 30.4
Mandatorily redeemable
preferred securities. . . . . . 46.4 -- 46.4 2.8 -- 2.8
---------------------------------------------------------------------------------
Total . . . . . . . . . . . . . 79.6 22.1 101.7 120.1 (74.4) 45.7
---------------------------------------------------------------------------------
Increase (decrease) in net
interest income . . . . . . . . $ 83.9 $(12.6) $ 71.3 $192.0 $ (43.9) $148.1
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS TABLE SHOWS THE COMPONENTS OF THE CHANGE IN NET INTEREST INCOME BY VOLUME
AND RATE ON A TAXABLE-EQUIVALENT BASIS. THE EFFECT OF CHANGES IN RATES ON VOLUME
CHANGES IS ALLOCATED BASED ON THE PERCENTAGE RELATIONSHIP OF CHANGES IN VOLUME
AND CHANGES IN RATE. 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.
higher by approximately $3.7 billion (8 percent) than 1996, reflecting growth in
the commercial, home equity and second mortgages, and credit card portfolios.
Other consumer loans were lower on average than 1996, primarily due to
reductions in installment loans in the northwest region. Average securities were
$850 million lower in 1997 compared with 1996, reflecting both maturities and
sales of securities, partially offset by purchases of mortgage-backed and other
securities added as a result of bank acquisitions.
The increase in net interest income from 1995 to 1996 was attributable to a
$3.2 billion increase in average loans, reflecting growth in core commercial and
consumer loans, as well as acquisitions.
The net interest margin, on a taxable-equivalent basis, was 5.04 percent in
1997 and 1996, and 5.10 percent in 1995.
PROVISION FOR CREDIT LOSSES The provision for credit losses, before the $95.0
million merger-related provision, was $365.3 million in 1997, up $94.1 million
from $271.2 million in 1996 and up $126.2 million from $239.1 million in 1995.
Net charge-offs, before merger-related net charge-offs of $62.3 million, totaled
$387.4 million in 1997, up from $261.5 million in 1996 and $195.1 million in
1995. The higher provision results from increased loan volumes discussed above
and higher commercial net charge-offs. The $95.0 million merger-related
provision and $62.3 million of charge-offs were taken as a result of an
alignment of the classification and charge-off practices of former USBC with
those of the Company. Refer to "Corporate Risk Profile" for further information
on credit quality.
NONINTEREST INCOME Noninterest income was $1.62 billion in 1997, compared with
$1.78 billion in 1996, and $1.31 billion in 1995. A number of nonrecurring gains
affected noninterest income each year as summarized in Table 5. Nonrecurring
gains in 1997 included a $9.4 million gain on the sale of USBC's $45 million
affinity credit card portfolio and $3.6 million in net securities gains.
Nonrecurring gains for 1996 included: $190.0 million, net of expenses, received
for the termination of the First Interstate Bancorp merger agreement (see Note
C); a $65.0 million state tax
U.S. Bancorp 23
<PAGE>
TABLE 5 NONINTEREST INCOME
<TABLE>
<CAPTION>
(Dollars in Millions). . . . . . . . . . . . . . 1997 1996 1995
- - -------------------------------------------------------------------------------
S> <C> <C> <C>
Credit card fee revenue. . . . . . . . . . . . . $ 418.8 $ 351.5 $ 303.9
Service charges on deposit accounts. . . . . . . 396.2 377.2 345.0
Trust and investment management fees . . . . . . 348.0 302.3 241.1
Investment products fees and commissions . . . . 65.7 59.7 49.8
Trading account profits and commissions. . . . . 30.9 29.0 28.5
Other. . . . . . . . . . . . . . . . . . . . . . 342.6 312.0 297.2
----------------------------
Subtotal. . . . . . . . . . . . . . . . . . . 1,602.2 1,431.7 1,265.5
Gain on sale of mortgage banking operations,
branches and other assets . . . . . . . . . . 9.4 71.4 39.9
Securities gains . . . . . . . . . . . . . . . . 3.6 20.8 3.0
Termination fee, net . . . . . . . . . . . . . . -- 190.0 --
State income tax refund. . . . . . . . . . . . . -- 65.0 --
Other. . . . . . . . . . . . . . . . . . . . . . -- 4.2 4.9
----------------------------
Nonrecurring gains . . . . . . . . . . . . . 13.0 351.4 47.8
----------------------------
Total noninterest income . . . . . . . . . $1,615.2 $1,783.1 $1,313.3
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
refund, including interest; a $45.8 million gain on the sale of the Company's
mortgage banking operations; a $25.6 million gain on branch and credit card
portfolio sales; a $4.2 million gain on the sale of premises; and, $20.8 million
in net securities gains. Nonrecurring gains recorded in 1995 included a $31.0
million gain on the sale of 63 branches; a $5.5 million gain on the sale of
affinity card portfolios, a $3.0 million gain on sales of adjustable-rate
mortgage loans and student loans; a $5.2 million gain on the sale of facilities;
a $1.7 million gain on the sale of mortgage loan servicing rights; $2.0 million
of losses related to the Company's import/export financing subsidiary that was
closed in 1995; and, $3.0 million in net securities gains.
Excluding nonrecurring items, noninterest income in 1997 was $1.60 billion,
a $170.5 million (12 percent) increase from $1.43 billion in 1996 and a $336.7
million (27 percent) increase from $1.27 billion in 1995. The increases resulted
from continued growth in all categories of fee revenue. Credit card fee revenue
increased as a result of higher sales volumes for Corporate and Purchasing Cards
and the Northwest Airlines WorldPerks credit card. Excluding the effect of the
$420 million corporate card securitization in the first quarter of 1997, credit
card fee income would have increased by $83.8 million (24 percent) over 1996.
Trust and investment management fees increased each year due to growth in
corporate, institutional and personal trust businesses and the Company's
corporate trust acquisition strategy. Service charges on deposit accounts
increased primarily as a result of increased demand deposits and acquisitions.
Investment product fees and commissions increased each year due to higher sales
volumes of mutual funds and annuities.
NONINTEREST EXPENSE Noninterest expense was $2.81 billion in 1997, compared with
$2.54 billion in 1996, an increase of $274.2 million, and $2.48 billion in 1995.
Total noninterest expense increased each year as a result of nonrecurring items
summarized in Table 6. Nonrecurring items in 1997 consisted of merger-related
charges of $511.6 million incurred in connection with the USBC transaction,
including: $232.3 million of severance costs; $77.2 million of
occupancy/equipment writedowns; $43.4 million of capitalized software and other
asset write-offs; $35.0 million of investment banking and other transaction
costs; $72.7 million of conversion expenses incurred; and, $51.0 million of
other merger-related expenses. Nonrecurring charges in 1996 included: merger and
integration charges of $49.5 million for the acquisitions of FirsTier Financial,
Inc., the BankAmerica corporate trust business and West One Bancorp; $38.6
million in branch distribution resizing expenses; a $29.5 million valuation
adjustment to reduce the carrying value of credit card and core deposit
intangibles to estimated fair value; $10.1 million for a one-time $750
per-employee bonus; $17.3 million to acquire credit card and revolving credit
software and to write-off other miscellaneous assets; and, a $61.3 million
one-time special assessment by the FDIC on SAIF deposits.
24 U.S. Bancorp
<PAGE>
TABLE 6 NONINTEREST EXPENSE
<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Employee Data). 1997 1996 1995
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries** . . . . . . . . . . . . . . . . . . . $ 969.3 $ 955.3 $ 927.5
Employee benefits**. . . . . . . . . . . . . . . 217.4 219.4 209.9
----------------------------
Total personnel expense . . . . . . . . . . . 1,186.7 1,174.7 1,137.4
Net occupancy. . . . . . . . . . . . . . . . . . 182.0 179.4 183.4
Furniture and equipment. . . . . . . . . . . . . 165.4 175.2 184.5
Goodwill and other intangible assets** . . . . . 113.3 100.6 76.0
Professional services**. . . . . . . . . . . . . 70.3 58.0 59.2
Other personnel costs. . . . . . . . . . . . . . 66.6 83.4 62.4
Telephone. . . . . . . . . . . . . . . . . . . . 59.7 60.2 58.4
Advertising and marketing. . . . . . . . . . . . 56.6 61.2 59.2
Postage . . . . . . . . . . . . . . . . . . . . 44.7 42.8 45.5
Third party data processing. . . . . . . . . . . 39.2 35.6 38.4
Printing, stationery and supplies. . . . . . . . 37.4 44.3 43.5
FDIC insurance . . . . . . . . . . . . . . . . . 9.0 11.9 64.5
Other**. . . . . . . . . . . . . . . . . . . . . 269.8 304.5 326.4
----------------------------
Subtotal. . . . . . . . . . . . . . . . . . . 2,300.7 2,331.8 2,338.8
Merger-related . . . . . . . . . . . . . . . . . 511.6 49.5 98.9
SAIF special assessment. . . . . . . . . . . . . -- 61.3 --
Branch distribution resizing . . . . . . . . . . -- 38.6 --
Goodwill and other intangible assets
valuation adjustment. . . . . . . . . . . . . -- 29.5 --
Special employee bonus . . . . . . . . . . . . . -- 10.1 --
Other . . . . . . . . . . . . . . . . . . . . . -- 17.3 38.2
----------------------------
Nonrecurring charges. . . . . . . . . . . . . 511.6 206.3 137.1
----------------------------
Total noninterest expense. . . . . . . . . $2,812.3 $2,538.1 $2,475.9
----------------------------
----------------------------
Efficiency ratio*. . . . . . . . . . . . . . . . 59.6% 52.9% 59.0%
Efficiency ratio before merger-related
items and nonrecurring items. . . . . . . . . 48.9 52.2 56.3
Average number of full-time equivalent
employees . . . . . . . . . . . . . . . . . . 25,858 27,157 27,795
Personnel expense per employee** . . . . . . . . $ 45,893 $ 43,256 $ 40,921
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
*COMPUTED AS NONINTEREST EXPENSE DIVIDED BY THE SUM OF NET INTEREST INCOME ON A
TAXABLE-EQUIVALENT BASIS AND NONINTEREST INCOME NET OF SECURITIES GAINS AND
LOSSES.
**BEFORE EFFECT OF NONRECURRING ITEMS IN 1996.
Nonrecurring charges in 1995 included: merger and integration charges of $98.9
million for the acquisition of West One Bancorp; the write-off of $23.0 million
of unamortized software costs related to a change in the Company's policy to
expense software costs; a $3.2 million write-down of premises vacated by the
Company's affinity card banking subsidiary; $4.0 million of business
consolidation expenses; and, an $8.0 million write-off of other miscellaneous
assets. Refer to Note M for further information on merger, integration and
resizing charges.
Excluding nonrecurring items, 1997 noninterest expense was $2.30 billion,
compared with $2.33 billion in 1996 and $2.34 billion in 1995. Total salaries
and benefits (excluding nonrecurring charges) were $1.19 billion in 1997
compared with $1.17 billion in 1996 and $1.14 billion in 1995. Average full-time
equivalent employees decreased 5 percent to 25,858 in 1997 from 27,157 in 1996.
Amortization of goodwill and other intangible assets, excluding the valuation
adjustment discussed above, was $113.3 million in 1997, $100.6 million in 1996,
and $76.0 million in 1995. The increases were primarily attributable to the
additional goodwill and intangible assets resulting from acquisitions and
portfolio purchases. The reduction in other personnel in 1997 reflects lower
contract labor expense associated with 1996 technology projects now complete.
Offsetting the favorable variance in contract labor was an increase in
professional services related to several 1997 technology initiatives which
involve third party con-
U.S. Bancorp 25
<PAGE>
TABLE 7 LOAN PORTFOLIO DISTRIBUTION
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------------------
At December 31 Percent Percent Percent Percent Percent
Dollars in Millions) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL:
Commercial. . . . . . . . $23,399 42.8% $21,393 40.9% $19,821 40.1% $17,736 38.2% $17,176 39.1%
Real estate:
Commercial mortgage . 8,025 14.7 8,022 15.3 6,864 13.9 6,189 13.4 5,550 12.7
Construction . . . . . 2,359 4.3 2,125 4.0 1,516 3.2 1,314 2.8 1,191 2.7
--------------------------------------------------------------------------------------------------
Total commercial . 33,783 61.8 31,540 60.2 28,201 57.2 25,239 54.4 23,917 54.5
CONSUMER:
Residential mortgage . . 4,480 8.2 5,225 10.0 6,722 13.6 7,177 15.5 6,775 15.4
Residential mortgage
held for sale . . . . . 193 .3 148 .3 343 .7 257 .6 1,929 4.4
Home equity and second
mortgage. . . . . . . . 5,373 9.8 4,798 9.2 4,011 8.1 3,500 7.5 2,790 6.4
Credit card . . . . . . . 4,200 7.7 3,632 6.9 3,391 6.9 3,465 7.5 2,795 6.4
Automobile . . . . . . . 3,227 5.9 3,388 6.5 3,243 6.6 3,256 7.0 2,541 5.8
Revolving credit. . . . . 1,567 2.9 1,581 3.0 1,517 3.1 1,406 3.0 1,280 2.9
Installment . . . . . . . 1,199 2.2 1,463 2.8 1,449 2.9 1,625 3.5 1,435 3.3
Student*. . . . . . . . . 686 1.2 580 1.1 468 .9 450 1.0 408 .9
--------------------------------------------------------------------------------------------------
Total consumer. . . 20,925 38.2 20,815 39.8 21,144 42.8 21,136 45.6 19,953 45.5
Total loans . . . . $54,708 100.0% $52,355 100.0% $49,345 100.0% $46,375 100.0% $43,870 100.0%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>
*ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT PERIOD
BEGINS.
sulting arrangements. Excluding nonrecurring items, the Company's efficiency
ratio improved to 48.9 percent for 1997, compared with 52.2 percent and 56.3
percent in 1996 and 1995, respectively. The keys to this high productivity are a
tight cost control culture throughout the organization and the successful
integration of acquisitions.
The Company's efforts to address issues related to the turn of the century
("Year 2000") began with technology changes initiated in the early 1990's. Many
of the Company's principal data processing applications were replaced with
licensed software packages. In addition, a Year 2000 project was initiated to
ensure that appropriate modifications are made to systems and applications to
resolve Year 2000 issues. Programming changes and testing of systems and
software packages are expected to be substantially completed by December 31,
1998. In addition, the Company's credit risk assessment includes the
consideration of incremental risk which may be posed by customers' inability, if
any, to address Year 2000 issues. The cost of the project is not significant to
the Company.
INCOME TAX EXPENSE The provision for income taxes was $552.2 million in 1997
compared with $725.7 million in 1996 and $523.9 million in 1995. The decrease in
1997 from 1996 was primarily the result of a lower level of taxable income due
to the nonrecurring items discussed above.
At December 31, 1997, the Company's net deferred tax asset was $108.2
million, compared with $174.0 million at December 31, 1996. In determining that
realization of the deferred tax asset was more likely than not, the Company gave
consideration to a number of factors, including its recent earnings history, its
expectations for earnings in the future and, where applicable, the expiration
dates associated with tax carryforwards. For further information on income
taxes, refer to Note N.
BALANCE SHEET ANALYSIS
LOANS The Company's loan portfolio increased $2.3 billion to $54.7 billion at
December 31, 1997, from $52.4 billion at December 31, 1996. Excluding
residential mortgages and the $420 million corporate card securitization,
average loans for 1997 were higher by $3.7 billion than 1996, reflecting growth
in the commercial, home equity and second mortgages and credit card portfolios.
The Company's loan portfolio carries credit risk, which may ultimately result in
loan charge-offs. The Company manages this risk through stringent, centralized
credit policies and review procedures, as well as diversification along
geographic and customer lines. See "Corporate Risk Profile" for a more detailed
discussion of the management of credit risk including the allowance for credit
losses.
26 U.S. Bancorp
<PAGE>
TABLE 8 COMMERCIAL REAL ESTATE EXPOSURE BY PROPERTY TYPE AND GEOGRAPHY
<TABLE>
<CAPTION>
Percentage of Total
at December 31
-------------------
PROPERTY TYPE 1997 1996
- - ----------------------------------------------------------------------------
<S> <C> <C>
Retail . . . . . . . . . . . . . . . . . . . . . . . . 15.1% 15.9%
Mixed-use office . . . . . . . . . . . . . . . . . . . 13.1 12.6
Office building. . . . . . . . . . . . . . . . . . . . 12.8 12.5
Multi-family . . . . . . . . . . . . . . . . . . . . . 10.2 10.6
Hotel/motel. . . . . . . . . . . . . . . . . . . . . . 8.9 9.8
Single-family residential. . . . . . . . . . . . . . . 7.8 6.2
Land . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 8.1
Other, primarily owner-occupied. . . . . . . . . . . . 25.8 24.3
-------------------
100.0% 100.0%
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
GEOGRAPHY
- - ----------------------------------------------------------------------------
Washington . . . . . . . . . . . . . . . . . . . . . . 24.3% 24.8%
Oregon . . . . . . . . . . . . . . . . . . . . . . . . 16.0 16.9
California . . . . . . . . . . . . . . . . . . . . . . 13.0 12.0
Minnesota. . . . . . . . . . . . . . . . . . . . . . . 8.9 10.4
Other States within USB Region . . . . . . . . . . . . 32.3 30.3
-------------------
Total USB Region. . . . . . . . . . . . . . . . . . 94.5 94.4
Southeast. . . . . . . . . . . . . . . . . . . . . . . 2.1 2.6
Mid-Atlantic . . . . . . . . . . . . . . . . . . . . . 1.0 .8
Other Southwest. . . . . . . . . . . . . . . . . . . . 1.0 .9
Other Midwest. . . . . . . . . . . . . . . . . . . . . .7 .5
Other West . . . . . . . . . . . . . . . . . . . . . . .7 .8
-------------------
100.0% 100.0%
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
</TABLE>
COMMERCIAL Commercial loans totaled $23.4 billion at year-end 1997, up $2.0
billion (9 percent) from year-end 1996. Year-end 1996 commercial loans were
$21.4 billion, up $1.6 billion (8 percent) from year-end 1995. The increase was
primarily attributable to growth in core commercial loans.
At December 31, 1997, the significant industry groups based on commercial
loans outstanding were consumer cyclical products and services, consumer staple
products and services, and capital goods. This diverse mix of industries is
similar to 1996 and 1995. The Company's Asian exposure at February 18, 1998
consisted primarily of bankers acceptances and trade letters of credit totaling
approximately $170 million, including approximately $140 million of Korean
exposure and $6 million of Indonesian exposure.
The geographical distribution of the commercial portfolio is concentrated
in the Company's banking region, with approximately 50 percent of amounts
outstanding to borrowers in Washington, Minnesota, and Oregon.
COMMERCIAL REAL ESTATE The Company's portfolio of commercial real estate
mortgages and construction loans grew to $10.4 billion at December 31, 1997,
compared with $10.1 billion at December 31, 1996, primarily due to an increase
in construction loans of $234 million related to successful marketing
promotions.
Commercial mortgages outstanding were $8.0 billion at December 31, 1997,
and December 31, 1996. Real estate construction loans at December 31, 1997,
totaled $2.4 billion compared with $2.1 billion from year-end 1996. Table 8
shows the detail of real estate exposures by property type and geographic
location. The Company maintains the real estate construction designation until
the project is producing sufficient cash flow to service traditional mortgage
financing, at which time, if retained, the loan is transferred to the commercial
mortgage portfolio. Approximately $65.8 million of construction loans were
transferred to the commercial mortgage portfolio in 1997.
At year-end 1997, real estate secured $170 million of tax-exempt industrial
development loans and $1.02 billion of standby letters of credit. At year-end
1996, these exposures totaled $152 million and $748 million, respectively. The
Company's commercial real estate mortgages and construction loans had combined
unfunded commitments of $2.38 billion at December 31, 1997, and $2.10 billion at
December 31, 1996.
The Company also finances the operations of real estate developers and
other entities with operations related to real estate. These loans are not
secured directly by real estate and are subject to terms and conditions similar
to commercial loans. These loans are included in the commercial loan category
and totaled $1.08 billion at December 31, 1997, and $722 million at December 31,
1996.
CONSUMER Total consumer loan outstandings increased $110 million to $20.9
billion at December 31, 1997, from $20.8 billion at December 31, 1996.
Excluding a
U.S. Bancorp 27
<PAGE>
$700 million (13 percent) decrease in residential mortgage loans, consumer loans
increased $810 million (5 percent), reflecting growth in credit card, student,
and home equity and second mortgage loans. The decrease in residential mortgages
reflects the Company's continuing emphasis on other consumer loan products.
Credit card loans increased $568 million (16 percent) reflecting increased
volumes in the Northwest Airlines WorldPerks credit card and portfolio purchases
during 1997. Home equity and second mortgages increased $575 million (12
percent) primarily due to successful marketing promotions.
Of total consumer balances outstanding, approximately 50 percent are to
customers located in Minnesota, Washington, Colorado and Oregon. See "Corporate
Risk Profile" for a discussion of the general economic conditions within the
Company's banking region.
SECURITIES At December 31, 1997, available-for-sale securities totaled $6.9
billion compared with total available-for-sale and held-to-maturity securities
of $7.3 billion at December 31, 1996, reflecting both maturities and sales of
securities, partially offset by purchases of mortgage-backed and other
securities added as a result of bank acquisitions. Mortgage-backed and state and
political securities, as a percentage of the total securities portfolio, have
increased, reflecting the fourth quarter 1997 purchases and acquisitions. The
relative mix of the remainder of the securities portfolio has not changed
significantly from prior years. The objectives of the Company's investment
portfolio are to meet business line collateral needs, offset interest rate risk
positions, provide liquidity and interest income, and generally act as a balance
sheet management tool.
TABLE 9 AVAILABLE-FOR-SALE SECURITIES PORTFOLIO AVERAGE MATURITY
<TABLE>
<CAPTION>
At December 31, 1997 Average Contractual Maturity
- - ------------------------------------------------------------------------------
<S> <C>
U.S. Treasury. . . . . . . . . . . . . . . . . . . . . . . .2 years, 10 months
Other U.S. agencies. . . . . . . . . . . . . . . . . . . . ..3 years, 6 months
State and political. . . . . . . . . . . . . . . . . . . . ..6 years, 5 months
Other* . . . . . . . . . . . . . . . . . . . . . . . . . . ..5 years, 4 months
Total . . . . . . . . . . . . . . . . . . . . . . . . . ..5 years, 2 months
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
</TABLE>
*EXCLUDES EQUITY SECURITIES THAT HAVE NO STATED MATURITY.
THE AVERAGE EFFECTIVE LIFE OF THE HOLDINGS IS EXPECTED TO BE LESS THAN THE
AVERAGE CONTRACTUAL MATURITIES SHOWN IN THE TABLE BECAUSE BORROWERS MAY HAVE
THE RIGHT TO CALL OR PREPAY OBLIGATIONS WITH OR WITHOUT CALL OR PREPAYMENT
PENALTIES. THE TABLE ABOVE DOES NOT INCLUDE MORTGAGE-BACKED SECURITIES.
28 U.S. Bancorp
<PAGE>
TABLE 10 AVAILABLE-FOR-SALE SECURITIES PORTFOLIO AMORTIZED COST, FAIR VALUE
AND YIELD BY MATURITY DATE
<TABLE>
<CAPTION>
Maturing: Within 1 Year 1-5 Years 5-10 Years
- - -----------------------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 1997 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.......... $183.6 $184.0 5.94% $ 222.4 $ 223.6 5.95% $ 222.0 $ 220.4 5.56%
Mortgage-backed*....... -- -- -- -- -- -- -- -- --
Other U.S. agencies.... 5.9 5.9 6.29 28.6 28.8 6.58 10.3 10.6 7.27
State and political**.. 95.4 96.5 8.18 502.4 514.2 7.76 426.9 439.1 7.70
Other.................. 4.3 4.3 6.56 5.2 5.3 7.24 3.4 3.4 6.38
- - --------------------------------------------------------------------------------------------------------------
$289.2 $290.7 6.70% $ 758.6 $ 771.9 7.18% $ 662.6 $ 673.5 6.97%
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
Mortgage-Backed and
Maturing: Over 10 Years Asset-Backed Securities Total
- - --------------------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 1997 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.......... $ -- $ -- --% $ -- $ -- --% $ 628.0 $ 628.0 5.81%
Mortgage-backed*....... -- -- -- 4,325.8 4,366.3 6.93 4,325.8 4,366.3 6.93
Other U.S. agencies.... .1 .1 10.25 315.0 324.3 7.61 359.9 369.7 7.49
State and political**.. 275.2 281.5 8.00 -- -- -- 1,299.9 1,331.3 7.82
Other.................. 138.9 152.7 7.49*** 23.9 24.0 6.54 175.7 189.7 6.68***
- - --------------------------------------------------------------------------------------------------------------
$414.2 $434.3 8.00%*** $4,664.7 $4,714.6 6.97% $6,789.3 $6,885.0 7.03%***
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
*VARIABLE RATE MORTGAGE-BACKED SECURITIES REPRESENTED 16% OF THE BALANCE OF
MORTGAGE-BACKED SECURITIES.
**YIELDS ON STATE AND POLITICAL OBLIGATIONS THAT ARE NOT SUBJECT TO FEDERAL
INCOME TAX HAVE BEEN ADJUSTED TO TAXABLE-EQUIVALENT USING A 35% TAX RATE.
***AVERAGE YIELD CALCULATIONS EXCLUDE EQUITY SECURITIES THAT HAVE NO STATED
YIELD.
DEPOSITS Noninterest-bearing deposits were $14.5 billion at December 31, 1997,
compared with $14.3 billion at December 31, 1996. Interest-bearing deposits
totaled $34.5 billion at December 31, 1997, compared with $35.0 billion at
December 31, 1996. The decrease in interest-bearing deposit balances reflects
customers moving funds into alternative investment vehicles and a reduction in
time certificates greater than $100,000 of $118 million.
BORROWINGS Short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings,
were $3.3 billion at December 31, 1997, down from $6.6 billion at year-end 1996.
The decrease was primarily due to the net maturity of $1.7 billion of short-term
bank notes and a $1.1 billion reduction in federal funds purchased and
securities sold under agreements to repurchase.
Long-term debt was $10.2 billion at December 31, 1997, up from $5.4 billion
at December 31, 1996. The Company issued $5.7 billion of debt, with an average
original maturity of 2.2 years, under its medium term and bank note programs
during 1997, as short-term borrowings were replaced with variable rate long-term
debt as part of the Company's liquidity management strategy. These issuances
were partially offset by $932 million of medium-term and bank note maturities
and net maturities of $151 million of Federal Home Loan Bank Advances.
CORPORATE RISK PROFILE
OVERALL RISK PROFILE Managing risk is an essential part of successfully
operating a financial services company. The most prominent risk exposures are
credit quality, interest rate sensitivity, and liquidity. Credit quality risk is
the risk of not collecting interest and/or the principal balance of a loan or
investment when it is due. Interest rate risk is the potential reduction of net
interest income as the result of changes in interest rates. Rate movements can
affect the repricing of assets and liabilities differently, as well as their
market value. Liquidity risk is the possible inability to fund obligations to
depositors, investors and borrowers.
U.S. Bancorp 29
<PAGE>
CREDIT MANAGEMENT In 1997 the Company maintained its high level of credit
quality. The ratio of nonperforming assets to loans plus other real estate was
..62 percent at year-end, compared with .61 percent and .65 percent at year-end
1996 and 1995, respectively.
The Company's strategy for credit risk management includes stringent,
centralized credit policies, and standard underwriting criteria for specialized
lending categories, such as mortgage banking, real estate construction, and
consumer credit. The strategy also emphasizes diversification on both a
geographic and customer level, regular credit examinations, and quarterly
management reviews of large loans and loans experiencing deterioration of credit
quality. The Company strives to identify potential problem loans early, take any
necessary charge-off promptly, and maintain strong reserve levels. Commercial
banking operations rely on a strong credit culture that combines prudent credit
policies and individual lender accountability. In addition, the commercial
lenders generally focus on middle-market companies within their regions. In the
Company's retail banking operations, a standard credit scoring system is used to
assess consumer credit risks and to price consumer products accordingly.
In evaluating its credit risk, the Company considers the loan portfolio
composition, the level of allowance coverage, and macroeconomic factors. Most
economic indicators in the Company's operating regions compare favorably with
national trends. Approximately 45 percent of the Company's loan portfolio
consists of credit to businesses and consumers in Minnesota, Oregon and
Washington. According to federal and state government agencies, unemployment
rates in Minnesota, Oregon and Washington were 2.8 percent, 5.3 percent and 4.4
percent, respectively, for the month of December 1997, compared with the
national unemployment rate of 4.7 percent. Through September 30, 1997, the
national foreclosure rate was 1.09 percent, compared with .57 percent in
Minnesota, .29 percent in Oregon, and .54 percent in Washington.
The Company 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,
and the processing of credit card transactions for merchants. These activities
are subject to the same credit review, analysis and approval processes as those
applied to commercial loans. For additional information on interest rate swaps,
see "Interest Rate Risk Management."
ANALYSIS AND ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES: The allowance for credit
losses provides coverage for losses inherent in the Company's loan portfolio.
Management evaluates the allowance each quarter to determine that it is adequate
to cover inherent losses. The evaluation is based on continuing assessment of
problem loans and related off-balance sheet items, recent loss experience, and
other factors, including current and anticipated economic conditions. Management
has determined that the allowance for credit losses is adequate.
At December 31, 1997, the allowance was $1.01 billion, or 1.84 percent
of loans. This compares with an allowance of $992.5 million, or 1.90 percent
of loans, at year-end 1996, and $908.0 million, or 1.84 percent of loans, at
December 31, 1995. The ratio of the allowance for credit losses to nonperforming
loans was 340 percent at December 31, 1997, compared with 369 percent at
year-end 1996 and 367 percent at year-end 1995.
Although the recent trend of steady economic growth may contribute to the
continued improvement in the credit portfolio, economic stagnation or reversals
could increase the required level of the allowance for credit losses.
Management allocates part of the allowance to certain sectors based on
relative risk characteristics of the loan portfolio. Table 12 shows the
allocation of the allowance for credit losses by loan category. Commercial
allocations are based on a quarterly review of individual loans outstanding and
binding commitments to lend, including standby letters of credit. Consumer
allocations are based on an analysis of historical and expected delinquency and
charge-off statistics.
30 U.S. Bancorp
<PAGE>
TABLE 11 SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
(Dollars in Millions) 1997 1996 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year. . . . . . . . . . . $ 992.5 $908.0 $862.3 $811.3 $811.2
CHARGE-OFFS:
Commercial:
Commercial . . . . . . . . . . . . . . . . 184.4 86.4 51.3 86.7 100.7
Real estate:
Commercial mortgage. . . . . . . . . . . 14.3 17.0 22.1 49.8 73.6
Construction . . . . . . . . . . . . . . 4.3 2.3 .4 12.2 6.2
------------------------------------------------
Total commercial . . . . . . . . . . . . 203.0 105.7 73.8 148.7 180.5
Consumer:
Residential mortgage. . . . . . . . . . . . 6.7 6.8 6.9 5.9 5.1
Credit card . . . . . . . . . . . . . . . . 172.4 150.4 123.7 115.0 109.2
Other . . . . . . . . . . . . . . . . . . . 194.3 134.3 121.6 82.2 75.4
------------------------------------------------
Total consumer . . . . . . . . . . . . . 373.4 291.5 252.2 203.1 189.7
------------------------------------------------
Total . . . . . . . . . . . . . . . . 576.4 397.2 326.0 351.8 370.2
RECOVERIES:
Commercial:
Commercial . . . . . . . . . . . . . . . . 38.8 56.0 56.6 61.6 56.6
Real estate:
Commercial mortgage. . . . . . . . . . . 30.5 25.7 18.7 22.6 17.4
Construction . . . . . . . . . . . . . . .8 1.0 2.5 2.9 3.4
------------------------------------------------
Total commercial . . . . . . . . . . . . 70.1 82.7 77.8 87.1 77.4
Consumer:
Residential mortgage. . . . . . . . . . . . 1.3 2.4 1.8 1.9 2.7
Credit card . . . . . . . . . . . . . . . . 20.2 16.6 17.1 15.7 14.6
Other . . . . . . . . . . . . . . . . . . . 35.1 34.0 34.2 26.5 24.0
------------------------------------------------
Total consumer . . . . . . . . . . . . . 56.6 53.0 53.1 44.1 41.3
------------------------------------------------
Total . . . . . . . . . . . . . . . . 126.7 135.7 130.9 131.2 118.7
NET CHARGE-OFFS:
Commercial:
Commercial . . . . . . . . . . . . . . . . 145.6 30.4 (5.3) 25.1 44.1
Real estate:
Commercial mortgage. . . . . . . . . . . (16.2) (8.7) 3.4 27.2 56.2
Construction . . . . . . . . . . . . . . 3.5 1.3 (2.1) 9.3 2.8
------------------------------------------------
Total commercial . . . . . . . . . . . . 132.9 23.0 (4.0) 61.6 103.1
Consumer:
Residential mortgage. . . . . . . . . . . . 5.4 4.4 5.1 4.0 2.4
Credit card . . . . . . . . . . . . . . . . 152.2 133.8 106.6 99.3 94.6
Other . . . . . . . . . . . . . . . . . . . 159.2 100.3 87.4 55.7 51.4
------------------------------------------------
Total consumer . . . . . . . . . . . . . 316.8 238.5 199.1 159.0 148.4
------------------------------------------------
Total . . . . . . . . . . . . . . . . 449.7 261.5 195.1 220.6 251.5
Provision charged to operating expense. . . . . . 460.3 271.2 239.1 243.7 239.3
Additions related to acquisitions and other . . . 5.6 74.8 1.7 27.9 12.3
------------------------------------------------
Balance at end of year. . . . . . . . . . . . . . $1,008.7 $992.5 $908.0 $862.3 $811.3
------------------------------------------------
------------------------------------------------
Allowance as a percentage of:
Period-end loans . . . . . . . . . . . . . . . 1.84% 1.90% 1.84% 1.86% 1.85%
Nonperforming loans. . . . . . . . . . . . . . 340 369 367 233 175
Nonperforming assets . . . . . . . . . . . . . 297 310 283 186 130
Net charge-offs as a percentage of average
loans outstanding:
Commercial . . . . . . . . . . . . . . . . . . .41% .08% (.01)% .25% .46%
Consumer . . . . . . . . . . . . . . . . . . . 1.53 1.16 .96 .80 .80
Total . . . . . . . . . . . . . . . . . . . . 84 .51 .41 .49 .61
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 31
<PAGE>
TABLE 12 ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Allocation Amount at December 31 Allocation as a Percent of Loans Outstanding
--------------------------------------------------------------------------------------------------
(Dollars in Millions) 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL:
Commercial . . . . . . . . . $ 226.2 $218.5 $179.3 $169.8 $212.2 .97% 1.02% .90% .96% 1.24%
Real estate:
Commercial mortgage. . . . 29.7 41.2 38.4 59.2 91.0 .37 .51 .56 .96 1.64
Construction . . . . . . . 15.9 12.6 7.2 8.9 9.9 .67 .59 .47 .68 .83
--------------------------------------------------------------------------------------------------
Total commercial . . . . . 271.8 272.3 224.9 237.9 313.1 .80 .86 .80 .94 1.31
CONSUMER:
Residential mortgage . . . . 7.5 8.3 8.8 11.6 14.9 .16 .15 .12 .16 .17
Credit card. . . . . . . . . 62.9 62.3 43.8 45.1 37.0 1.50 1.72 1.29 1.30 1.32
Other. . . . . . . . . . . . 73.1 59.5 56.7 51.0 39.7 .61 .50 .53 .50 .47
--------------------------------------------------------------------------------------------------
Total consumer . . . . . . 143.5 130.1 109.3 107.7 91.6 .69 .63 .52 .51 .46
--------------------------------------------------------------------------------------------------
Total allocated. . . . . . . 415.3 402.4 334.2 345.6 404.7 .76 .77 .68 .75 .92
Unallocated portion. . . . . 593.4 590.1 573.8 516.7 406.6 1.08 1.13 1.16 1.11 .93
--------------------------------------------------------------------------------------------------
Total allowance . . . . $1,008.7 $992.5 $908.0 $862.3 $811.3 1.84% 1.90% 1.84% 1.86% 1.85%
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The unallocated portion of the allowance increased to $593.4 million at
year-end 1997 from $590.1 million and $573.8 million at December 31, 1996,
and 1995. Although the allocation of the allowance is an important credit
management tool, the entire allowance for credit losses is available for the
entire loan portfolio.
ANALYSIS OF NET LOAN CHARGE-OFFS: Net loan charge-offs increased $188.2
million to $449.7 million, compared with $261.5 million in 1996. Included in
1997 net charge-offs was $62.3 million of merger-related charge-offs, taken
to align the classification and charge-off practices of the former USBC with
those of the Company. Commercial loan net charge-offs for 1997, excluding
merger-related charge-offs of $55.3 million, were $77.6 million, compared
with $23.0 million in 1996. Approximately one-half of the increase was
attributable to one large credit. Consumer loan net charge-offs in 1997,
excluding merger-related charge-offs of $7.0 million, were $309.8 million
compared with $238.5 million in 1996. A portion of the increase was due to
higher charge-offs in the northwest region's portfolio of installment loans
originated in 1995 and 1996. Credit standards on this portfolio's new
originations were tightened in 1997. The higher level of charge-offs also
reflected an increase in bankruptcies and growth in the credit card loan
portfolio. The ratio of consumer net charge-offs to average loans in 1997 was
1.53 percent, up from 1.16 percent in 1996. The ratio of total net
charge-offs to average loans was .84 percent in 1997, compared with .51
percent in 1996.
TABLE 13 NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
<TABLE>
<CAPTION>
1997 1996
- - ----------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial. . . . . . . . . . . . . . . . . . . .65% .15%
Real estate:
Commercial mortgage. . . . . . . . . . . . . (.20) (.11)
Construction . . . . . . . . . . . . . . . . .16 .08
--------------
Total commercial . . . . . . . . . . . . . . .41 .08
CONSUMER:
Residential mortgage. . . . . . . . . . . . . . .11 .08
Credit card . . . . . . . . . . . . . . . . . . 4.11 3.88
Other . . . . . . . . . . . . . . . . . . . . . 1.33 .88
--------------
Total consumer . . . . . . . . . . . . . . . 1.53 1.16
--------------
Total . . . . . . . . . . . . . . . . . . .84% .51%
- - ----------------------------------------------------------------------
- - ----------------------------------------------------------------------
</TABLE>
32 U.S. Bancorp
<PAGE>
TABLE 14 DELINQUENT LOAN RATIOS*
<TABLE>
<CAPTION>
At December 31
--------------------------------------------
90 days or more past due 1997 1996 1995 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL:
Commercial . . . . . . . . . . .78% .70% .49% .54% .89%
Real estate:
Commercial mortgage. . . . . .57 .55 1.17 2.52 2.98
Construction . . . . . . . . .67 .91 .92 3.52 5.18
--------------------------------------------
Total commercial . . . . . . .72 .68 .68 1.18 1.59
CONSUMER:
Residential mortgage . . . . . 1.43 1.35 .99 .97 .97
Credit card. . . . . . . . . . .69 .88 .88 .74 .98
Other. . . . . . . . . . . . . .42 .35 .24 .15 .24
--------------------------------------------
Total consumer . . . . . . . .70 .70 .59 .53 .66
--------------------------------------------
Total. . . . . . . . . . . .71% .69% .64% .88% 1.17%
--------------------------------------------
--------------------------------------------
</TABLE>
*RATIOS INCLUDE NONPERFORMING LOANS AND ARE EXPRESSED AS A PERCENT OF ENDING
LOAN BALANCES.
ANALYSIS OF NONPERFORMING ASSETS: Nonperforming assets include nonaccrual loans,
restructured loans, other real estate and other nonperforming assets owned by
the Company. At December 31, 1997, nonperforming assets totaled $339.5 million,
compared with $320.0 million at year-end 1996 and $320.3 million at year-end
1995. The ratio of nonperforming assets to loans plus other real estate was .62
percent at December 31, 1997, compared with .61 percent at year-end 1996 and .65
percent at year-end 1995.
In 1997, nonperforming residential mortgages decreased $5.5 million (10
percent), and other real estate decreased $13.1 million (30 percent). Interest
payments are currently received on approximately 75 percent of the Company's
nonperforming loans. The payments are typically applied against the principal
balance and not recorded as income.
Accruing loans 90 days or more past due totaled $93.8 million, compared
with $90.6 million at December 31, 1996, and $68.8 million at December 31,
1995. 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
TABLE 15 NONPERFORMING ASSETS*
<TABLE>
<CAPTION>
At December 31
----------------------------------------
(Dollars in Millions) 1997 1996 1995 1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL:
Commercial . . . . . . . . . . . $179.1 $143.7 $ 91.6 $ 92.4 $148.5
Real estate:
Commercial mortgage. . . . . . 45.4 44.4 76.5 154.0 163.7
Construction . . . . . . . . . 14.9 18.8 13.3 46.0 61.3
----------------------------------------
Total commercial . . . . . . . 239.4 206.9 181.4 292.4 373.5
CONSUMER:
Residential mortgage . . . . . . 52.1 57.6 54.2 60.9 75.3
Credit card. . . . . . . . . . . -- -- 5.7 7.5 7.6
Other. . . . . . . . . . . . . . 5.6 4.8 6.3 9.0 8.4
----------------------------------------
Total consumer . . . . . . . . 57.7 62.4 66.2 77.4 91.3
----------------------------------------
Total nonperforming loans. . 297.1 269.3 247.6 369.8 464.8
OTHER REAL ESTATE. . . . . . . . . 30.1 43.2 66.5 87.5 151.5
OTHER NONPERFORMING ASSETS . . . . 12.3 7.5 6.2 5.6 5.6
----------------------------------------
Total nonperforming assets . $339.5 $320.0 $320.3 $462.9 $621.9
----------------------------------------
----------------------------------------
Accruing loans 90 days or
more past due**. . . . . . . . . $ 93.8 $ 90.6 $ 68.8 $ 40.2 $ 47.0
Nonperforming loans to
total loans. . . . . . . . . . . .54% .51% .50% .80% 1.06%
Nonperforming assets to
total loans plus other
real estate. . . . . . . . . . . .62 .61 .65 1.00 1.41
Net interest lost on
nonperforming loans. . . . . . . $ 17.1 $ 24.8 $ 23.2 $ 24.8 $ 29.2
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
*THROUGHOUT THIS DOCUMENT, NONPERFORMING ASSETS AND RELATED RATIOS DO NOT
INCLUDE LOANS MORE THAN 90 DAYS PAST DUE AND STILL ACCRUING.
**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.
U.S. Bancorp 33
<PAGE>
expected to result in repayment or restoration to current status. Consumer loans
30 days or more past due were 2.76 percent of the total consumer portfolio at
December 31, 1997, compared with 2.55 percent of the total consumer portfolio at
December 31, 1996. Consumer loans 90 days or more past due totaled .70 percent
of the consumer loan portfolio at December 31, 1997, unchanged from year-end
1996.
INTEREST RATE RISK MANAGEMENT The Company's policy is to maintain a low interest
rate risk position. The Company limits the exposure of net interest income
associated with interest rate movements through asset/liability management
strategies. The Company's Asset and Liability Management Committee ("ALCO") uses
three methods for measuring and managing interest rate risk: Net Interest Income
Simulation Modeling, Market Value Simulation Modeling, and Repricing Mismatch
Analysis.
NET INTEREST INCOME SIMULATION MODELING: The Company uses a net interest income
simulation model to estimate near-term (next 12 months) risk due to changes in
interest rates. The model, which is updated monthly, incorporates substantially
all the Company's assets and liabilities and off-balance sheet instruments,
together with forecasted changes in the balance sheet and assumptions that
reflect the current interest rate environment. Balance sheet changes are based
on expected prepayments of loans and securities and forecasted loan and deposit
growth. ALCO uses the model to simulate the effect of immediate and sustained
parallel shifts in the yield curve of 1 percent, 2 percent and 3 percent as well
as the effect of immediate and sustained flattening or steepening of the yield
curve. ALCO also calculates the sensitivity of the simulation results to changes
in key assumptions, such as the Prime/LIBOR spread or core deposit pricing. The
results from the simulation are reviewed by ALCO monthly and are used to guide
ALCO's hedging strategies. ALCO guidelines, approved by the Company's Board of
Directors, limit the estimated change in net interest income, over the
succeeding 12 months to 2 percent of forecasted net interest income given a 1
percent change in interest rates. At December 31, 1997, the estimated effect of
an immediate 100 basis point parallel change in rates was an increase in
forecasted net interest income for twelve months of .4 percent (up 100 basis
points) and a decrease of .6 percent (down 100 basis points).
MARKET VALUE SIMULATION MODELING: The net interest income simulation model is
somewhat limited by its dependence upon accurate forecasts of future business
activity and the resulting effect on balance sheet assets and liabilities. As
a result, its usefulness is greatly diminished for periods beyond one or two
years. To better measure all interest rate risk, both short-term and
long-term, the Company uses a market value simulation model. This model
estimates the effect of one, two and three percent rate shocks on the present
value of all future cash flows of the Company's current assets, liabilities
and off-balance sheet instruments. The amount of market value risk is subject
to limits, approved by the Company's Board of Directors, of one percent of
assets for an immediate 100 basis point rate shock. Historically, the
Company's market value risk position has been substantially lower than its
limits. The Company believes the market risk in its trading portfolio is
immaterial.
TABLE 16 INTEREST RATE SWAP HEDGING PORTFOLIO NOTIONAL BALANCES AND YIELDS BY
MATURITY DATE
<TABLE>
<CAPTION>
At December 31, 1997 (Dollars in Millions)
- - --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Receive Fixed Swaps* Notional Interest Rate Interest Rate
Maturity Date Amount Received Paid
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
1998. . . . . . . . . . . . . . . . . . $1,213 5.96% 5.95%
1999. . . . . . . . . . . . . . . . . . 1,467 6.24 5.96
2000. . . . . . . . . . . . . . . . . . 388 6.57 5.95
2001. . . . . . . . . . . . . . . . . . 357 6.52 5.98
2002. . . . . . . . . . . . . . . . . . 335 6.35 5.96
After 2002. . . . . . . . . . . . . . . 1,555 6.78 5.94
------
Total . . . . . . . . . . . . . . . . . $5,315 6.39% 5.95%
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
</TABLE>
*AT DECEMBER 31, 1997, THE COMPANY HAD NO SWAPS IN ITS HEDGING PORTFOLIO THAT
REQUIRED IT TO PAY FIXED-RATE INTEREST.
34 U.S. Bancorp
<PAGE>
TABLE 17 INTEREST RATE SENSITIVITY GAP ANALYSIS
<TABLE>
<CAPTION>
Repricing Maturities
-------------------------------------------------------------------------
Less Than 3-6 6-12 1-5 More Than Non-Rate
At December 31, 1997 (Dollars in Millions) 3 Months Months Months Years 5 Years Sensitive Total
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans . . . . . . . . . . . . . . . . . . . . . $32,142 $2,628 $3,527 $11,730 $ 4,681 $ -- $54,708
Available-for-sale securities . . . . . . . . . 947 461 843 2,504 2,029 101 6,885
Other earning assets. . . . . . . . . . . . . . 1,138 8 17 153 66 -- 1,382
Nonearning assets . . . . . . . . . . . . . . . 1,082 28 294 1,038 3,120 2,758 8,320
-------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . $35,309 $3,125 $4,681 $15,425 $ 9,896 $ 2,859 $71,295
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Equity:
Deposits. . . . . . . . . . . . . . . . . . . . $19,698 $2,657 $3,267 $13,866 $ 9,539 $ -- $49,027
Other purchased funds . . . . . . . . . . . . . 3,219 54 -- 7 12 -- 3,292
Long-term debt. . . . . . . . . . . . . . . . . 7,493 101 289 581 1,783 -- 10,247
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely the junior subordinated
debentures of the parent company. . . . . . . -- -- -- -- 600 -- 600
Other liabilities . . . . . . . . . . . . . . . 69 -- 162 81 -- 1,927 2,239
Equity. . . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 5,890 5,890
-------------------------------------------------------------------------
Total liabilities and equity . . . . . . . . $30,479 $2,812 $3,718 $14,535 $11,934 $ 7,817 $71,295
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Effect of off-balance sheet hedging instruments:
Receiving fixed . . . . . . . . . . . . . . . . $ 156 $ 135 $ 922 $ 2,602 $ 1,500 $ -- $ 5,315
Paying floating . . . . . . . . . . . . . . . . (5,315) -- -- -- -- -- (5,315)
-------------------------------------------------------------------------
Total effect of off-balance sheet
hedging instruments . . . . . . . . . . . $(5,159) $ 135 $ 922 $ 2,602 $ 1,500 $ -- $ --
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Repricing gap. . . . . . . . . . . . . . . . . . . $ (329) $ 448 $1,885 $ 3,492 $ (538) $ (4,958) $ --
Cumulative repricing gap . . . . . . . . . . . . . (329) 119 2,004 5,496 4,958 -- --
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS TABLE ESTIMATES THE REPRICING MATURITIES OF THE COMPANY'S ASSETS,
LIABILITIES, AND HEDGING INSTRUMENTS BASED UPON THE COMPANY'S ASSESSMENT OF THE
REPRICING CHARACTERISTICS OF CONTRACTUAL AND NON-CONTRACTUAL INSTRUMENTS.
NON-CONTRACTUAL DEPOSIT LIABILITIES ARE ALLOCATED AMONG THE VARIOUS MATURITY
CATEGORIES AS FOLLOWS: APPROXIMATELY 40 PERCENT OF REGULAR SAVINGS, 30 PERCENT
OF INTEREST-BEARING CHECKING, 50 PERCENT OF MONEY MARKET CHECKING, AND 60
PERCENT OF MONEY MARKET SAVINGS BALANCES ARE REFLECTED IN THE LESS THAN 3 MONTHS
CATEGORY, WITH THE REMAINDER PLACED IN THE 1-5 YEARS CATEGORY. APPROXIMATELY 71
PERCENT OF DEMAND DEPOSITS AND RELATED NONEARNING ASSET ACCOUNTS IS ALLOCATED IN
THE MORE THAN 5 YEARS CATEGORY, 14 PERCENT IS ALLOCATED IN THE 1-5 YEARS
CATEGORY WITH THE REMAINING ALLOCATED IN THE LESS THAN 3 MONTHS CATEGORY.
REPRICING MISMATCH ANALYSIS: A traditional gap analysis provides a point-in-time
measurement of the relationship between the amounts of interest rate sensitive
assets and liabilities repricing in a given time period. While the analysis
provides a useful snapshot of interest rate risk, it does not capture all
aspects of interest rate risk. As a result, ALCO uses the repricing mismatch
analysis primarily for managing intermediate term interest rate risk and has
established limits, approved by the Company's Board of Directors, for gap
positions in the one- to three-year time periods of five percent of assets.
USE OF DERIVATIVES TO MANAGE INTEREST RATE RISK: While each of the interest rate
risk measurements has limitations, taken together they represent a comprehensive
view of the magnitude of the Company's interest rate risk over various time
intervals. The Company manages its interest rate risk by entering into
off-balance sheet transactions (primarily interest rate swaps), investing in
fixed rate assets or issuing variable rate liabilities. To a lesser degree, the
Company also uses interest rate caps and floors to hedge this risk. The Company
does not enter into derivative contracts for speculative purposes.
In 1997, the Company added $2.9 billion of interest rate swaps to reduce
its interest rate risk. Interest rate swap agreements involve the exchange of
fixed and floating rate payments without the exchange of the underlying
notional amount on which the interest payments are calculated. As of December
31, 1997, the Company received payments on $5.3 billion notional amount of
interest rate swap agreements based on fixed interest rates, and made
payments based on variable interest rates. These swaps had a weighted average
fixed rate received of 6.39 percent and a weighted average variable rate paid
of 5.95 percent. The remaining maturity of these agreements ranges from 2
months to 10 years with an average remaining maturity of 3.4 years. Swaps
increased net interest income for the years ended December 31, 1997, 1996,
and 1995 by $25.1 million, $32.2 million, and $16.8 million, respectively.
The Company also purchases interest rate caps and floors to minimize the
impact of fluctuating interest rates on earnings. Purchased caps can mitigate
the effects of
U.S. Bancorp 35
<PAGE>
rising interest rates. Counterparties to these agreements pay the Company when
certain short-term rates rise above a specified point or strike level. The
payment is based on the difference in current rates and strike rates and the
contract's notional amount. There were no caps outstanding at December 31, 1997.
To hedge against falling interest rates, the Company uses interest rate floors.
Floor counterparties pay the Company when specified rates fall below the strike
level. Like caps, the payment is based on the difference in current rates and
strike rates and the notional amount. The total notional amount of floor
agreements purchased as of December 31, 1997, was $750 million. LIBOR-based
floors totaled $550 million and Constant Maturity Treasury floors totaled $200
million. The impact of caps and floors on net interest income was not material
for the years ended December 31, 1997, 1996 and 1995. See Notes A and O for the
Company's accounting policy related to these types of transactions.
LIQUIDITY MANAGEMENT The objective of liquidity management is to ensure the
continuous availability of funds to meet the demands of depositors, investors
and borrowers. ALCO is responsible for structuring the balance sheet to meet
these needs. It regularly reviews current and forecasted funding needs as well
as market conditions for issuing debt to wholesale investors. Based on this
information, ALCO supervises wholesale funding activity, as well as the
maintenance of contingent funding sources.
A majority of the Company's funding comes from customer deposits within
its operating region. While the Company has funded incremental balance sheet
growth with negotiated funds, its short-term purchased funds index remained
relatively low at 9.7 percent at December 31, 1997, compared with a peer
group median of 20.4 percent at September 30, 1997. The index is calculated
as negotiated funding under one year (which includes Federal Home Loan Bank
("FHLB") borrowings, foreign branch time deposits, federal funds purchased,
bank notes, medium-term notes and repurchase agreements), net of federal
funds sold and resale agreements, divided by loans and securities.
The Company's ability to raise negotiated funding at competitive prices
is influenced by rating agencies' views of the Company's credit quality,
liquidity, capital, and earnings. As of December 31, 1997, Moody's Investors
Services, Standard & Poors, and Thomson BankWatch rated the Company's senior
debt as "A1," "A," and "A+," respectively. The debt ratings reflect the
agencies' recognition of the strong, consistent financial performance of the
Company and quality of the balance sheet.
At the parent company, funding primarily consists of long-term debt and
equity. At December 31, 1997, and 1996, long-term debt outstanding was $2.4
billion.
The parent company issued $399 million of medium-term notes during 1997.
Total parent company debt maturing in 1998 is $190 million. These debt
obligations are expected to be met through medium-term note or subordinated
debt issuances, as well as from the approximately $489 million of parent
company cash and cash equivalents at December 31, 1997. It is the Company's
practice to maintain liquid assets at the parent company sufficient to fund
its operating cash needs and near-term debt maturities.
During 1996, the Company issued $600 million of Company-obligated
mandatorily redeemable preferred securities (the "preferred securities")
through two wholly-owned subsidiary grantor trusts. The preferred securities
qualify as Tier 1 capital for bank holding companies and pay distributions
periodically at an average annual rate of 8.18 percent.
36 U.S. Bancorp
<PAGE>
TABLE 18 CAPITAL RATIOS
<TABLE>
<CAPTION>
At December 31 (Dollars in Millions) 1997 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Tangible common equity*. . . . . . . . . . . . . $4,897 $4,625 $4,498
As a percent of assets. . . . . . . . . . . . 7.0% 6.7% 6.9%
Tier 1 capital . . . . . . . . . . . . . . . . . $5,028 $4,983 $4,408
As a percent of risk-adjusted assets. . . . . 7.4% 7.6% 7.4%
Total risk-based capital . . . . . . . . . . . . $7,859 $7,777 $6,745
As a percent of risk-adjusted assets. . . . . 11.6% 11.9% 11.4%
Leverage ratio . . . . . . . . . . . . . . . . . 7.3 7.5 7.0
- - ------------------------------------------------------------------------------
</TABLE>
*DEFINED AS COMMON EQUITY LESS GOODWILL.
In 1997, the Company's bank subsidiaries established a $12 billion bank
note program. Notes issued under this program may mature within 30 days to 15
years and bear fixed or floating interest rates. Proceeds from note sales
are used for general corporate purposes. At December 31, 1997, there was $6.1
billion outstanding under this program and a previous bank note program. The
Company's lead bank also had $1.4 billion in long-term advances from the FHLB at
December 31, 1997.
CAPITAL MANAGEMENT The Company is committed to managing capital for maximum
shareholder benefit and maintaining strong protection for depositors and
creditors. At December 31, 1997, tangible common equity (common equity less
goodwill) was $4.9 billion, or 7.0 percent of assets, compared with 6.7 percent
at year-end 1996 and 6.9 percent at year-end 1995. The Tier 1 capital ratio was
7.4 percent at December 31, 1997, compared with 7.6 percent at December 31,
1996. This ratio was 7.4 percent at December 31, 1995. The total risk-based
capital ratio was 11.6 percent at December 31, 1997, compared with 11.9 percent
at December 31, 1996, and 11.4 percent at December 31, 1995. The leverage ratio
was 7.3 percent at December 31, 1997, compared with 7.5 percent and 7.0 percent
at December 31, 1996, and December 31, 1995, respectively.
On August 1, 1997, the Company issued 109.9 million shares to acquire USBC.
The Company exchanged .755 shares of its common stock for each share of USBC
common stock. USBC's outstanding stock options were also converted into stock
options for the Company's common stock. In addition, each outstanding share of
USBC cumulative preferred stock was converted into one share of preferred stock
of the combined company, having substantially identical terms.
Approximately 31.0 million common shares have been repurchased under 1996
Board authorizations, including 4.9 million during 1997. All authorizations were
either completed or rescinded prior to the USBC acquisition. Under previous
authorizations, the Company repurchased 16.9 million shares in 1995.
On November 14, 1997, the Company redeemed all outstanding shares of its
preferred stock at a redemption price of $25 per share, together with accrued
and unpaid dividends. On November 29, 1996, the Company called all remaining
shares of its Series 1991A Convertible Preferred Stock.
The measures used to assess capital include the capital ratios established
by the bank regulatory agencies, including the specific ratios for the "well
capitalized" designation. The Company manages various capital ratios to maintain
appropriate capital levels in accordance with Board-approved capital guidelines.
While the Company intends to maintain sufficient capital in each of its bank
subsidiaries to be "well capitalized" as defined by the regulatory agencies,
management ascribes the most significance to the tangible common equity ratio.
TABLE 19 SUBSIDIARY CAPITAL RATIOS
<TABLE>
<CAPTION>
At December 31, 1997
------------------------------------------
Total
Tier 1 Risk-based Total
(Dollars in Millions) Capital Capital Leverage Assets
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REGULATORY CAPITAL REQUIREMENTS:
Minimum . . . . . . . . . . . . . . 4.0% 8.0% 3.0%
Well-Capitalized. . . . . . . . . . 6.0 10.0 5.0
SIGNIFICANT BANK SUBSIDIARIES:
U.S. Bank National Association . . 7.7 11.5 7.6 $67,597
First Bank of South Dakota
(National Association). . . . . . 10.8 15.0 10.9 1,332
First Bank Montana,
National Association. . . . . . . 8.2 11.8 9.3 1,213
- - --------------------------------------------------------------------------------
</TABLE>
NOTE: THESE BALANCES AND RATIOS WERE PREPARED IN ACCORDANCE WITH REGULATORY
ACCOUNTING PRINCIPLES AS DISCLOSED IN THE SUBSIDIARIES' REGULATORY REPORTS.
U.S. Bancorp 37
<PAGE>
DIVIDENDS During 1997, total dividends on common stock were $445.7 million
compared with $406.9 million in 1996 and $327.4 million in 1995. The Company
has raised its quarterly dividend rate in each of the past five years. On a
per share basis, dividends paid to common shareholders totaled $1.86 in 1997,
$1.65 in 1996 and $1.45 in 1995. On February 18, 1998, the Board of Directors
increased the quarterly common dividend rate to $.525 from $.465 and
announced its intention to declare a three-for-one split of the Company's
common stock and to increase the number of common and preferred shares which
the Company has authority to issue from 500 million shares and 10 million
shares, respectively, to 1.5 billion shares and 50 million shares,
respectively. The increase in the number of authorized shares is subject to
shareholder approval. The stock split would be in the form of a dividend
payable May 18, 1998 to shareholders of record on May 4, 1998. The impact of
the stock split has not been reflected in the financial statements or any
share or per share data.
The Company's primary funding sources for common stock dividends are
dividends received from its bank and nonbank subsidiaries. Payment of dividends
to the Company by its depository subsidiaries is subject to ongoing review by
banking regulators and to various statutory limitations. For further
information, see Note S.
ACCOUNTING CHANGES
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES Effective January 1, 1997, the Company adopted Statement of
Financial Accounting Standards No. ("SFAS") 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The Statement
uses a "financial components" approach which focuses on control to determine
whether assets have been sold. If the entity has surrendered control over the
transferred assets, the transaction is considered a sale. Control is considered
surrendered only if the seller has no legal right to the assets, even in
bankruptcy; the buyer has the right to pledge or exchange the assets; and the
seller does not maintain effective control over the assets through an agreement
to repurchase or redeem them. If control is retained, the transaction is then
considered a financing. The adoption of SFAS 125 did not have a material effect
on the Company. SFAS 125 has been amended (SFAS 127), deferring until January 1,
1998, its adoption in the accounting for securities lending, repurchase
agreements and other secured financing transactions. The adoption of SFAS 125
relating to these transaction types is not expected to have a material effect on
the Company.
EARNINGS PER SHARE SFAS 128, "Earnings per Share," replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. Under the
new requirements, the dilutive effect of stock options is excluded from the
calculation of basic earnings per share. Diluted earnings per share is
calculated similarly to fully diluted earnings per share. SFAS 128 became
effective for the Company's 1997 year-end financial statements. All prior period
earnings per share data presented have been restated to conform to the
provisions of this statement.
38 U.S. Bancorp
<PAGE>
COMPREHENSIVE INCOME SFAS 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive income and its
components in a full set of financial statements. The Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed as prominently as other financial statements. The Statement also
requires the classification of items of other comprehensive income by their
nature in a financial statement and the display of other comprehensive income
separately from retained earnings and capital surplus in the equity section of
the balance sheet. SFAS 130 is effective January 1, 1998, with all prior periods
presented restated to conform to the provisions of this Statement.
SEGMENT DISCLOSURE SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," requires the disclosure of financial and descriptive
information about reportable operating segments. Operating segments are
components of an enterprise about which financial information is available and
is evaluated regularly in deciding how to allocate resources and assess
performance. The Statement requires the disclosure of profit or loss, certain
specific revenue and expense items, and assets of all operating segments, with
reconciliations of amounts presented in the financial statements. The Statement
also requires the disclosure of how the operating segments were determined, the
products and services provided by the segments, differences between measurements
used in reporting segment information and those used in the financial
statements, and changes in the measurement of segment amounts from period to
period. SFAS 131 is effective with the 1998 year-end financial statements, with
comparative information for prior periods required.
IMPACT OF INFLATION
The assets and liabilities of a financial institution are primarily monetary in
nature. Therefore, future changes in prices do not affect the obligations to pay
or receive fixed and determinable amounts of money. During periods of inflation,
monetary assets lose value in terms of purchasing power while monetary
liabilities have corresponding purchasing power gains. Since banks generally
have an excess of monetary assets over monetary liabilities, inflation will, in
theory, cause a loss of purchasing power in the value of shareholders' equity.
However, the concept of purchasing power is not an adequate indicator of the
effect of inflation on banks because it does not take into account changes in
interest rates, which are a more important determinant of bank earnings.
Other sections of the Management's Discussion and Analysis provide the
information necessary for an understanding of the Company's ability to react to
changing interest rates.
FOURTH QUARTER SUMMARY
In the fourth quarter of 1997, the Company reported operating earnings of $335.5
million ($1.34 per diluted share) compared with $291.8 million ($1.15 per
diluted share) in the fourth quarter of 1996. The strong results for the fourth
quarter of 1997 reflected growth in both net interest income and noninterest
income and a decrease in noninterest expense from the fourth quarter of 1996.
Including nonrecurring items related to the USBC acquisition, the Company had
net income for the fourth quarter of 1997 of $288.9 million ($1.16 per diluted
share), compared with net income of $292.1 million ($1.15 per diluted share) in
the fourth quarter of 1996.
U.S. Bancorp 39
<PAGE>
TABLE 20 FOURTH QUARTER SUMMARY
<TABLE>
<CAPTION>
Three Months Ended
December 31
---------------------
(Dollars in Millions, Except Per Share Data) 1997 1996
- - -----------------------------------------------------------------------------
<S> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis) . . . . $784.7 $778.1
Provision for credit losses . . . . . . . . . . . . . 90.0 75.5
---------------------
Net interest income after provision
for credit losses . . . . . . . . . . . . . . . 694.7 702.6
Securities gains . . . . . . . . . . . . . . . . . . . -- .5
Other noninterest income . . . . . . . . . . . . . . . 420.5 360.3
Merger, integration, and resizing. . . . . . . . . . . 71.4 --
Other noninterest expense. . . . . . . . . . . . . . . 572.8 586.9
---------------------
Income before income taxes . . . . . . . . . . . 471.0 476.5
Taxable-equivalent adjustment. . . . . . . . . . . . . 13.7 15.9
Income taxes . . . . . . . . . . . . . . . . . . . . . 168.4 168.5
---------------------
Net income . . . . . . . . . . . . . . . . . . . $288.9 $292.1
---------------------
---------------------
FINANCIAL RATIOS
Return on average assets . . . . . . . . . . . . . . . 1.64% 1.71%
Return on average common equity. . . . . . . . . . . . 20.0 20.1
Net interest margin (taxable-equivalent basis) . . . . 4.99 5.09
Efficiency ratio . . . . . . . . . . . . . . . . . . . 53.5 51.6
SELECTED FINANCIAL RATIOS BEFORE NONRECURRING ITEMS:
Return on average assets . . . . . . . . . . . . . . . 1.91 1.70
Return on average common equity. . . . . . . . . . . . 23.3 20.1
Efficiency ratio . . . . . . . . . . . . . . . . . . . 47.5 51.6
PER SHARE DATA:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 1.17 $ 1.17
Net income (diluted) . . . . . . . . . . . . . . . . . 1.16 1.15
Common dividends paid. . . . . . . . . . . . . . . . . .4650 .4125
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
Fourth quarter net interest income on a taxable- equivalent basis
increased $6.6 million to $784.7 million, compared with the fourth quarter of
1996. The increase was primarily the result of an increase in earning assets of
$1.5 billion over the fourth quarter of 1996, driven by core commercial and
consumer loan production, partially offset by reductions in investment
securities and residential mortgages. The net interest margin on a
taxable-equivalent basis was 4.99 percent compared with 5.09 percent a year ago,
reflecting growth in Payment Systems' noninterest-bearing assets, including
corporate and purchasing card loan balances.
The provision for credit losses increased to $90.0 million in the fourth
quarter of 1997, compared with $75.5 million in the fourth quarter of 1996.
Noninterest income, before nonrecurring items, increased $60.2 million
from the same quarter a year ago, to $420.5 million. The improvement resulted
from growth in all categories of fee revenue. Credit card fee revenue increased
as a result of higher sales volumes for purchasing and corporate cards and the
Northwest Airlines WorldPerks credit card, partially offset by the effect of the
first quarter corporate card securitization. Fourth quarter 1997 credit card
fees were also enhanced by the renewal of the Northwest Airlines WorldPerks
credit card program, which extended the program for five years. Trust and
investment management fees were up due to growth in the corporate, institutional
and personal trust businesses.
Fourth quarter noninterest expense, before nonrecurring items, totaled
$572.8 million, a decrease of $14.1 million from the fourth quarter of 1996.
Expense reductions in a number of categories reflected the benefits of the
merger, partially offset by incremental expense related to revenue increases.
Other personnel expense decreased, reflecting lower contract labor expense
associated with 1996 technology projects that are now complete. Offsetting the
favorable variance in contract labor was an increase in professional services,
related to several 1997 technology initiatives which involve third party
consulting arrangements. Goodwill and other intangible expense increased as a
result of several small bank and portfolio purchases during 1997. The efficiency
ratio, before nonrecurring items, for the fourth quarter of 1997 improved to
47.5 percent from 51.6 percent for the same quarter last year.
40 U.S. Bancorp
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31 (In Millions, Except Shares) 1997 1996
- - -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . $ 4,739 $ 4,813
Federal funds sold . . . . . . . . . . . . . . . . . 62 95
Securities purchased under agreements to resell. . . 630 803
Trading account securities . . . . . . . . . . . . . 195 231
Available-for-sale securities . . . . . . . . . . . 6,885 6,473
Held-to-maturity securities (fair value: 1996 - $811) -- 797
Loans. . . . . . . . . . . . . . . . . . . . . . . . 54,708 52,355
Less allowance for credit losses. . . . . . . . 1,009 993
----------------------
Net loans . . . . . . . . . . . . . . . . . . . 53,699 51,362
Bank premises and equipment. . . . . . . . . . . . . 860 1,018
Interest receivable. . . . . . . . . . . . . . . . . 405 377
Customers' liability on acceptances. . . . . . . . . 535 497
Other assets . . . . . . . . . . . . . . . . . . . . 3,285 3,283
----------------------
Total assets. . . . . . . . . . . . . . . . $71,295 $69,749
----------------------
----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . $14,544 $14,344
Interest-bearing. . . . . . . . . . . . . . . . 34,483 35,012
----------------------
Total deposits . . . . . . . . . . . . . . . 49,027 49,356
Federal funds purchased. . . . . . . . . . . . . . . 800 1,672
Securities sold under agreements to repurchase . . . 1,518 1,729
Other short-term funds borrowed. . . . . . . . . . . 974 3,191
Long-term debt . . . . . . . . . . . . . . . . . . . 10,247 5,369
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
the junior subordinated debentures of the parent
company . . . . . . . . . . . . . . . . . . . . 600 600
Acceptances outstanding. . . . . . . . . . . . . . . 535 497
Other liabilities. . . . . . . . . . . . . . . . . . 1,704 1,572
----------------------
Total liabilities. . . . . . . . . . . . . . 65,405 63,986
Shareholders' equity:
Preferred stock . . . . . . . . . . . . . . . . -- 150
Common stock, par value $1.25 a share-authorized
500,000,000 shares; issued: 1997 -
246,644,338 shares; 1996 - 252,883,487
shares . . . . . . . . . . . . . . . . . . . 308 316
Capital surplus . . . . . . . . . . . . . . . . 1,878 1,929
Retained earnings . . . . . . . . . . . . . . . 3,645 3,809
Unrealized gain on securities, net of tax . . . 59 5
Less cost of common stock in treasury: 1996 -
6,877,497 shares. . . . . . . . . . . . . . . -- (446)
----------------------
Total shareholders' equity . . . . . . . . . 5,890 5,763
----------------------
Total liabilities and shareholders' equity . $71,295 $69,749
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. Bancorp 41
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions, Except Per Share Data) 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,784.5 $4,537.7 $4,373.4
Securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . 371.5 420.5 420.3
Exempt from federal income taxes. . . . . . . . . . . . 68.1 71.0 59.8
Other interest income. . . . . . . . . . . . . . . . . . . . 69.5 85.2 67.3
--------------------------------------
Total interest income. . . . . . . . . . . . . . . 5,293.6 5,114.4 4,920.8
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,436.8 1,441.3 1,416.7
Federal funds purchased and repurchase agreements. . . . . . 183.0 197.9 218.2
Other short-term funds borrowed. . . . . . . . . . . . . . . 117.6 198.0 189.8
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 459.0 303.8 273.4
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the
junior subordinated debentures of the parent company. . 49.1 2.8 --
--------------------------------------
Total interest expense . . . . . . . . . . . . . . 2,245.5 2,143.8 2,098.1
--------------------------------------
Net interest income. . . . . . . . . . . . . . . . . . . . . 3,048.1 2,970.6 2,822.7
Provision for credit losses. . . . . . . . . . . . . . . . . 460.3 271.2 239.1
--------------------------------------
Net interest income after provision for credit losses. . . . 2,587.8 2,699.4 2,583.6
NONINTEREST INCOME
Credit card fee revenue. . . . . . . . . . . . . . . . . . . 418.8 351.5 303.9
Service charges on deposit accounts. . . . . . . . . . . . . 396.2 377.2 345.0
Trust and investment management fees . . . . . . . . . . . . 348.0 302.3 241.1
Gain on sale of mortgage banking operations, branches and
other assets. . . . . . . . . . . . . . . . . . . . . . 9.4 71.4 39.9
Securities gains . . . . . . . . . . . . . . . . . . . . . . 3.6 20.8 3.0
Termination fee. . . . . . . . . . . . . . . . . . . . . . . -- 190.0 --
State income tax refund. . . . . . . . . . . . . . . . . . . -- 65.0 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 439.2 404.9 380.4
--------------------------------------
Total noninterest income . . . . . . . . . . . . . 1,615.2 1,783.1 1,313.3
NONINTEREST EXPENSE
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . 969.3 964.5 927.5
Employee benefits. . . . . . . . . . . . . . . . . . . . . . 217.4 220.3 209.9
Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . 182.0 179.4 183.4
Furniture and equipment. . . . . . . . . . . . . . . . . . . 165.4 175.2 184.5
Goodwill and other intangible assets . . . . . . . . . . . . 113.3 130.1 76.0
Professional services. . . . . . . . . . . . . . . . . . . . 70.3 58.0 59.2
Other personnel costs. . . . . . . . . . . . . . . . . . . . 66.6 83.4 62.4
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . 9.0 11.9 64.5
Merger, integration, and resizing. . . . . . . . . . . . . . 511.6 88.1 98.9
SAIF special assessment. . . . . . . . . . . . . . . . . . . -- 61.3 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 507.4 565.9 609.6
--------------------------------------
Total noninterest expense. . . . . . . . . . . . . 2,812.3 2,538.1 2,475.9
--------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . 1,390.7 1,944.4 1,421.0
Applicable income taxes. . . . . . . . . . . . . . . . . . . 552.2 725.7 523.9
--------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 838.5 $1,218.7 $ 897.1
--------------------------------------
--------------------------------------
Net income applicable to common equity . . . . . . . . . . . $ 827.9 $1,200.3 $ 877.4
--------------------------------------
--------------------------------------
Net income per common share. . . . . . . . . . . . . . . . . $ 3.39 $ 4.81 $ 3.56
Diluted net income per common share. . . . . . . . . . . . . $ 3.34 $ 4.72 $ 3.48
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
42 U.S. Bancorp
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
Shares Preferred Common Capital
(In Millions, Except Shares) Outstanding* Stock Stock Surplus
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994. . . . . . . . . . 248,686,447 $ 268.1 $311.9 $1,928.1
Net income . . . . . . . . . . . . . . . . .
Dividends declared:
Preferred. . . . . . . . . . . . . . . . .
Common . . . . . . . . . . . . . . . . . .
Purchase and retirement of treasury stock. . (16,888,542) (6.2) (169.6)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . 2,788,619 .3 4.3
Dividend reinvestment. . . . . . . . . . . 505,138 .3 8.0
Stock option and stock purchase plans. . . 2,845,176 1.6 51.1
Stock warrants exercised . . . . . . . . . 42,039
Redemption/conversion of preferred stock . . 92,479 (14.9)
Common stock issued to redeem
subordinated debt. . . . . . . . . . . . . 2,960,525 3.7 46.0
Change in unrealized gains/(losses). . . . .
---------------------------------------------------------
BALANCE DECEMBER 31, 1995. . . . . . . . . . 241,031,881 253.2 311.6 1,867.9
Net income . . . . . . . . . . . . . . . . .
Dividends declared:
Preferred. . . . . . . . . . . . . . . . .
Common . . . . . . . . . . . . . . . . . .
Purchase and retirement of treasury stock. . (26,146,456) (17.0) (688.2)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . 23,751,183 19.8 677.2
Dividend reinvestment. . . . . . . . . . . 312,878 .2 6.1
Stock option and stock purchase plans. . . 3,494,810 1.5 66.1
Redemption/conversion of preferred stock . . 3,561,694 (103.2)
Change in unrealized gains/(losses) . . . .
---------------------------------------------------------
BALANCE DECEMBER 31, 1996. . . . . . . . . . 246,005,990 150.0 316.1 1,929.1
Net income . . . . . . . . . . . . . . . . .
Dividends declared:
Preferred. . . . . . . . . . . . . . . . .
Common . . . . . . . . . . . . . . . . . .
Purchase and retirement of treasury stock. . (4,890,355) (13.7) (293.9)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . 949,295 1.2 86.2
Dividend reinvestment. . . . . . . . . . . 200,546 .3 10.1
Stock option and stock purchase plans. . . 4,378,862 4.4 146.2
Redemption of preferred stock. . . . . . . . (150.0)
Change in unrealized gains/(losses). . . . .
---------------------------------------------------------
BALANCE DECEMBER 31, 1997. . . . . . . . . . 246,644,338 $ -- $308.3 $1,877.7
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Unrealized
Gains/(Losses)
Retained on Securities, Treasury
(In Millions, Except Shares) Earnings Net of Tax Stock** Total
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994. . . . . . . . . . $2,768.6 $(145.1) $ (26.7) $ 5,104.9
Net income . . . . . . . . . . . . . . . . . 897.1 897.1
Dividends declared:
Preferred. . . . . . . . . . . . . . . . . (19.7) (19.7)
Common . . . . . . . . . . . . . . . . . . (327.4) (327.4)
Purchase and retirement of treasury stock. . (545.2) (721.0)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . (3.7) 104.7 105.6
Dividend reinvestment. . . . . . . . . . . 9.3 17.6
Stock option and stock purchase plans. . . (36.3) 54.6 71.0
Stock warrants exercised . . . . . . . . . (1.3) 1.6 .3
Redemption/conversion of preferred stock . . (2.2) 3.9 (13.2)
Common stock issued to redeem
subordinated debt. . . . . . . . . . . . . 49.7
Change in unrealized gains/(losses). . . . . 177.0 177.0
---------------------------------------------------------
BALANCE DECEMBER 31, 1995. . . . . . . . . . 3,275.1 31.9 (397.8) 5,341.9
Net income . . . . . . . . . . . . . . . . . 1,218.7 1,218.7
Dividends declared:
Preferred. . . . . . . . . . . . . . . . . (18.4) (18.4)
Common . . . . . . . . . . . . . . . . . . (406.9) (406.9)
Purchase and retirement of treasury stock. . (784.9) (1,490.1)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . (44.4) 384.2 1,036.8
Dividend reinvestment. . . . . . . . . . . 11.5 17.8
Stock option and stock purchase plans. . . (96.5) 119.7 90.8
Redemption/conversion of preferred stock . . (118.2) 221.4 --
Change in unrealized gains/(losses) . . . . (27.2) (27.2)
---------------------------------------------------------
BALANCE DECEMBER 31, 1996. . . . . . . . . . 3,809.4 4.7 (445.9) 5,763.4
Net income . . . . . . . . . . . . . . . . . 838.5 838.5
Dividends declared:
Preferred. . . . . . . . . . . . . . . . . (10.6) (10.6)
Common . . . . . . . . . . . . . . . . . . (445.7) (445.7)
Purchase and retirement of treasury stock. . (514.6) 391.2 (431.0)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . 87.4
Dividend reinvestment. . . . . . . . . . . 8.3 18.7
Stock option and stock purchase plans. . . (32.2) 46.4 164.8
Redemption of preferred stock. . . . . . . . (150.0)
Change in unrealized gains/(losses). . . . . 54.6 54.6
---------------------------------------------------------
BALANCE DECEMBER 31, 1997. . . . . . . . . . $3,644.8 $ 59.3 $ -- $ 5,890.1
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
*DEFINED AS TOTAL COMMON SHARES LESS COMMON STOCK HELD IN TREASURY.
**ENDING TREASURY SHARES WERE 6,877,497 AT DECEMBER 31, 1996 AND 8,297,756 AT
DECEMBER 31, 1995.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. Bancorp 43
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions) 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 838.5 $ 1,218.7 $ 897.1
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses . . . . . . . . . . . . . . . . . 460.3 271.2 239.1
Gains on available-for-sale securities. . . . . . . . . . . . (3.6) (20.8) (3.0)
Depreciation and amortization of bank premises and equipment 133.8 150.2 158.9
Provision for deferred income taxes . . . . . . . . . . . . . 37.6 51.0 23.5
Amortization of goodwill and other intangible assets. . . . . 113.3 130.1 76.0
Noncash portion of merger, integration, and resizing charges. 294.5 40.4 87.6
Gains on sales of mortgage banking operations, branches and
other assets . . . . . . . . . . . . . . . . . . . . . . (9.4) (71.4) (39.9)
Changes in operating assets and liabilities, excluding the
effects of purchase acquisitions:
Decrease (increase) in trading account securities. . . . 36.0 135.0 (129.7)
(Increase) decrease in loans held for sale . . . . . . . (151.0) 87.9 129.2
Decrease (increase) in accrued receivables . . . . . . . 348.3 (157.9) (28.3)
Increase in prepaid expenses . . . . . . . . . . . . . . (388.2) (38.5) (4.0)
Increase in accrued liabilities. . . . . . . . . . . . . 59.6 126.7 106.7
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . (278.3) (77.3) (62.5)
-------------------------------------
Net cash provided by operating activities . . . . . . 1,491.4 1,845.3 1,450.7
-------------------------------------
INVESTING ACTIVITIES
Net cash provided (used) by:
Interest-bearing deposits with banks. . . . . . . . . . . . . 14.9 (4.1) 30.2
Loans outstanding . . . . . . . . . . . . . . . . . . . . . . (2,283.4) (2,019.1) (3,376.9)
Securities purchased under agreements to resell . . . . . . . 173.4 (247.5) 226.6
Available-for-sale securities:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,046.7 1,694.8 3,052.8
Maturities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,569.0 2,120.9 1,138.3
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . (2,082.9) (1,419.1) (1,842.8)
Investment securities:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 3.9
Maturities. . . . . . . . . . . . . . . . . . . . . . . . . . 37.4 114.2 367.2
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (53.2)
Proceeds from sales of other real estate . . . . . . . . . . . . 62.9 127.9 120.2
Proceeds from sales of bank premises and equipment . . . . . . . 97.0 44.5 90.3
Purchases of bank premises and equipment . . . . . . . . . . . . (142.4) (165.4) (137.5)
Sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . 58.4 147.9 507.1
Purchases of loans . . . . . . . . . . . . . . . . . . . . . . . (361.2) (19.5) (4.6)
Securitization of corporate charge card balances . . . . . . . . 418.1 -- --
Cash and cash equivalents of acquired subsidiaries . . . . . . . 43.2 245.8 55.4
Acquisitions, net of cash received . . . . . . . . . . . . . . . (23.6) (38.3) (113.2)
Sales of subsidiary operations . . . . . . . . . . . . . . . . . -- (70.3) 23.1
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . (40.0) (40.3) (26.6)
-------------------------------------
Net cash (used) provided by investing activities. . . (1,412.5) 472.4 60.3
-------------------------------------
FINANCING ACTIVITIES
Net cash (used) provided by:
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . (882.8) 78.4 (118.7)
Federal funds purchased and securities sold under agreements
to repurchase . . . . . . . . . . . . . . . . . . . . . . . . (1,091.1) (697.6) (1,791.9)
Short-term borrowings . . . . . . . . . . . . . . . . . . . . (2,217.3) (868.3) 2,115.9
Sales of deposits. . . . . . . . . . . . . . . . . . . . . . . . -- -- (858.0)
Long-term debt transactions:
Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,577.5 2,004.0 1,726.6
Principal payments. . . . . . . . . . . . . . . . . . . . . . (1,718.5) (1,238.1) (1,184.6)
Issuance of Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company . . . . . . . . -- 600.0 --
Redemption of preferred stock. . . . . . . . . . . . . . . . . . (150.0) -- (13.2)
Proceeds from dividend reinvestment, stock option, and stock
purchase plans. . . . . . . . . . . . . . . . . . . . . . . . 183.5 108.6 88.9
Repurchase of common stock . . . . . . . . . . . . . . . . . . . (431.0) (1,490.1) (721.0)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . (456.3) (414.8) (344.5)
-------------------------------------
Net cash used by financing activities . . . . . . . . (186.0) (1,917.9) (1,100.5)
-------------------------------------
Change in cash and cash equivalents . . . . . . . . . (107.1) 399.8 410.5
Cash and cash equivalents at beginning of year . . . . . . . . . 4,908.1 4,508.3 4,097.8
-------------------------------------
Cash and cash equivalents at end of year. . . . . . . $ 4,801.0 $4,908.1 $4,508.3
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
44 U.S. Bancorp
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SIGNIFICANT ACCOUNTING POLICIES
U.S. Bancorp, formerly known as First Bank System, Inc., (the "Company") or
("USB") is the organization created by the acquisition by First Bank System,
Inc. of U.S. Bancorp. The Company is a regional multibank holding company that
provides banking and other financial services principally to domestic markets.
See Note C for information regarding the merger. The Company has four primary
businesses that operate principally in the 17 states of Minnesota, Oregon,
Washington, Colorado, California, Idaho, Nebraska, North Dakota, Nevada, South
Dakota, Montana, Iowa, Illinois, Utah, Wisconsin, Kansas, and Wyoming. Retail
Banking delivers products and services to the broad consumer market and
small-businesses through branch offices, telemarketing, direct mail, and
automated teller machines ("ATMs"). Payment Systems includes consumer and
business credit cards, corporate and purchasing card services, card-accessed
secured and unsecured lines of credit, ATM processing and merchant processing.
Commercial & Business Banking and PFS provides lending, treasury management, and
other financial services to middle-market, large corporate, and mortgage banking
companies. It also provides private banking and personal trust services.
Corporate Trust and Institutional Financial Services include institutional and
corporate trust services, investment management services, and a full-service
brokerage company.
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of the Company and its subsidiaries. The consolidation eliminates all
significant intercompany accounts and transactions. Certain items in prior
periods have been reclassified to conform to the current presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual experience could differ from those estimates.
SECURITIES
TRADING ACCOUNT SECURITIES Debt and equity securities held for resale are
classified as trading account securities and reported at fair value. Realized
and unrealized gains or losses are recorded in noninterest income.
AVAILABLE-FOR-SALE SECURITIES These securities are not trading account
securities but may be sold before maturity in response to changes in interest
rates, prepayment risk, and funding sources or terms, or to meet liquidity
needs. They are carried at fair value with unrealized net gains or losses
reported in shareholders' equity. When sold, the amortized cost of the specific
securities is used to compute the gain or loss.
HELD-TO-MATURITY SECURITIES Included in held-to-maturity securities are those
securities which management has the positive intent and ability to hold to
maturity. These securities are stated at cost, as adjusted for accretion of
discounts or amortization of premiums, computed by the interest method. The
adjusted cost of the specific security sold is used to compute the gains or
losses on the sale.
LOANS
Loans are reported net of unearned income. Interest income is accrued on the
unpaid principal balances. Loan and commitment fees are deferred and recognized
over the loan and/or commitment period as yield adjustments.
ALLOWANCE FOR CREDIT LOSSES Management determines the adequacy of the allowance
based on evaluations of the loan portfolio and related off-balance sheet
commitments, recent loss experience, and other pertinent factors, including
economic conditions. This evaluation is inherently subjective as it requires
estimates, including amounts of future cash collections expected on nonaccrual
loans that may be susceptible to significant change. The allowance for credit
losses relating to impaired loans is based on the loans' observable market
price, the collateral for certain collateral-dependent loans, or the discounted
cash flows using the loans' effective interest rate. The allowance is increased
through provisions charged to operating earnings and reduced by net charge-offs.
NONACCRUAL LOANS Generally commercial loans (including impaired loans) are
placed on nonaccrual status when the collection of interest or principal has
become 90 days past due or is otherwise considered doubtful. When a loan is
placed on nonaccrual status, unpaid interest is reversed. Future interest
payments are generally applied against principal. However, consumer loans other
than residential mortgages are generally charged-off at 120 days past due and
are, therefore, not placed on non-accrual status.
LEASES Certain subsidiaries engage in both direct and leveraged lease financing.
The net investment in direct financing leases is the sum of all minimum lease
payments and estimated residual values less unearned income. Unearned income is
added to interest income over the terms of the leases to produce a level yield.
U.S. Bancorp 45
<PAGE>
The investment in leveraged leases is the sum of all lease payments (less
nonrecourse debt payments) plus estimated residual values, less unearned income.
Income from leveraged leases is recognized over the term of the leases based on
the unrecovered equity investment.
LOANS AND MORTGAGES HELD FOR SALE These loans are carried at the lower of cost
or market value as determined on an aggregate basis by type of loan.
OTHER REAL ESTATE Other real estate ("ORE"), which is included in other assets,
is property acquired through foreclosure or other proceedings. ORE is initially
recorded at fair value and carried at the lower of cost or fair value, less
estimated selling costs. The property is evaluated regularly and any decreases
in the carrying amount are included in noninterest expense.
DERIVATIVE FINANCIAL INSTRUMENTS
INTEREST RATE SWAPS AND CONTRACTS The Company uses interest rate swaps and
contracts (forwards, options, caps and floors) to manage its interest rate risk
and as a financial intermediary. The Company does not enter into these contracts
for speculative purposes. Income or expense on swaps and contracts designated as
hedges of assets or liabilities is recorded as an adjustment to interest income
or expense. If the swap or contract is terminated, the gain or loss is deferred
and amortized over the remaining life of the underlying asset or liability. If
the hedged instrument is disposed of, the swap or contract agreement is marked
to market with any resulting gain or loss included with the gain or loss from
the disposition. The initial bid/offer spread on intermediated swaps is deferred
and recognized in trading account profits and commissions over the life of the
agreement. Intermediated swaps and all other interest rate contracts are marked
to market and resulting gains or losses are recorded in trading account profits
and commissions.
The Company's derivative trading activities are not material to the
consolidated financial statements; the cash flows from these activities are
included in operating activities.
OTHER SIGNIFICANT POLICIES
BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less
accumulated depreciation and amortized primarily on a straight-line method
basis.
Capital leases, less accumulated amortization, are included in bank
premises and equipment. The lease obligations are included in long-term debt.
Capitalized leases are amortized on a straight-line basis over the lease term
and the amortization is included in depreciation expense.
INTANGIBLE ASSETS Goodwill, the price paid over the book value of acquired
businesses, is included in other assets and is amortized over periods up to 25
years. Other intangible assets are amortized over their estimated useful lives,
which range from seven to fifteen years, using straight-line and accelerated
methods.
INCOME TAXES Deferred taxes are recorded to reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities and
the financial reporting amounts at each year-end.
STATEMENT OF CASH FLOWS For the purposes of reporting cash flows, cash
equivalents include cash and due from banks and federal funds sold.
STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
accordingly recognizes no compensation expense for the stock option grants.
PER SHARE CALCULATIONS Basic earnings per share is calculated by dividing net
income (less preferred stock dividends) by the weighted average number of common
shares outstanding during the year. Diluted earnings per share is calculated by
adjusting income and outstanding shares, assuming conversion of all potentially
dilutive securities, using the treasury stock method.
NOTE B ACCOUNTING CHANGES
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES Effective January 1, 1997, the Company adopted Statement of
Financial Accounting Standards No. ("SFAS") 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The Statement
uses a "financial components" approach which focuses on control to determine
whether assets have been sold. If the entity has surrendered control over the
transferred assets, the transaction is considered a sale. Control is considered
surrendered only if the seller has no legal right to the assets, even in
bankruptcy; the buyer has the right to pledge or exchange the assets; and the
seller does not maintain effective control over the assets through an agreement
to repurchase or redeem them. If control is retained, the transaction is then
considered a financing. The adoption of SFAS 125 did not have a material effect
on the Company. SFAS 125 has been amended (SFAS 127), deferring for one year its
adoption in the accounting for securities lending, repurchase agreements and
other secured financing transactions. The adoption of SFAS 125 relating to these
transaction types is not expected to have a material effect on the Company.
46 U.S. Bancorp
<PAGE>
EARNINGS PER SHARE SFAS 128, "Earnings per Share," replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. Under the
new requirements, the dilutive effect of stock options is excluded from the
calculation of basic earnings per share. Diluted earnings per share is
calculated similarly to the fully diluted earnings per share. SFAS 128 became
effective for the Company's 1997 year-end financial statements. All prior period
earnings per share data presented have been restated to conform to the
provisions of this statement.
COMPREHENSIVE INCOME SFAS 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive income and its
components in a full set of financial statements. The Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed as prominently as other financial statements. The Statement also
requires the classification of items of other comprehensive income by their
nature in a financial statement and the display of other comprehensive income
separately from retained earnings and capital surplus in the equity section of
the balance sheet. SFAS 130 is effective January 1, 1998, with all prior periods
presented restated to conform to the provisions of this Statement.
SEGMENT DISCLOSURE SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," requires the disclosure of financial and descriptive
information about reportable operating segments. Operating segments are
components of an enterprise about which financial information is available and
is evaluated regularly in deciding how to allocate resources and assess
performance. The Statement requires the disclosure of profit or loss, certain
specific revenue and expense items, and assets of all operating segments, with
reconciliations of amounts presented in the financial statements. The Statement
also requires the disclosure of how the operating segments were determined, the
products and services provided by the segments, differences between measurements
used in reporting segment information and those used in the financial
statements, and changes in the measurement of segment amounts from period to
period. SFAS 131 is effective with the 1998 year-end financial statements, with
comparative information for prior periods required.
NOTE C BUSINESS COMBINATIONS AND DIVESTITURES
U.S. BANCORP On August 1, 1997, First Bank System, Inc. ("FBS") issued 109.9
million common shares to acquire U.S. Bancorp ("USBC"). As of the acquisition
date, the combined institution, now known as U.S. Bancorp, had approximately $70
billion in assets, $49 billion in deposits and served nearly four million
households and 475,000 businesses in 17 contiguous states from Illinois to
Washington. The Company exchanged .755 shares of its common stock for each share
of USBC common stock. USBC's outstanding stock options also were converted into
stock options for the Company's common stock. In addition, each outstanding
share of USBC cumulative preferred stock was converted into one share of
preferred stock of the combined company having substantially identical terms.
The transaction was accounted for as a pooling-of-interests. Accordingly, the
Company's financial statements have been restated for all periods prior to the
acquisition to include the accounts and operations of USBC.
Operating results of FBS and USBC individually, as previously reported,
and the combined company, reflecting certain reclassifications to conform to the
current presentation, for the six months ended June 30, 1997, and the years
ended December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31
June 30 ----------------------
(In Millions, Except Per-Share Amounts) 1997 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
FBS (Unaudited)
Net interest income . . . . . $ 765.0 $1,533.0 $1,440.2
Net income. . . . . . . . . . 350.1 739.8 568.1
USBC
Net interest income . . . . . 770.1 1,466.6 1,399.4
Net income. . . . . . . . . . 247.1 478.9 329.0
Combined
Net interest income . . . . . 1,511.8 2,970.6 2,822.7
Net income. . . . . . . . . . 597.2 1,218.7 897.1
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 47
<PAGE>
PIPER JAFFRAY COMPANIES INC. On December 15, 1997, the Company announced the
acquisition of Piper Jaffray Companies Inc. ("Piper Jaffray"), a full-service
investment banking and securities brokerage firm, in a cash transaction for $730
million or $37.25 per Piper Jaffray common share. The acquisition will allow the
Company to offer investment banking and institutional and retail brokerage
services through a new subsidiary which will be known as U.S. Bancorp Piper
Jaffray Inc. The acquisition, which will be accounted for as a purchase, is
subject to approval by Piper Jaffray shareholders and regulators and is expected
to close in the second quarter of 1998.
OTHER ACQUISITIONS Effective December 12, 1997, the Company completed its
acquisition of the $360 million Zappco, Inc., a bank holding company
headquartered in St. Cloud, Minnesota. Effective April 30, 1997, USBC
completed its acquisition of the $214 million Business and Professional Bank of
Sacramento, California. On January 31, 1997, the Company completed its
acquisition of the bond indenture services and paying agency business of
Comerica Incorporated. This business serves approximately 860 municipal and
corporate clients with about 2,400 bond issues. Effective January 1, 1997, USBC
completed its acquisition of the $70 million Sun Capital Bancorp of St. George,
Utah. These transactions were accounted for as purchase acquisitions.
On June 6, 1996, USBC acquired California Bancshares, Inc. ("CBI"), a
holding company for a multi-bank commercial banking operation serving the East
San Francisco Bay Area and the Central Valley of Northern California. CBI had
$1.6 billion in assets and $1.4 billion in deposits. The total value of the
transaction, accounted for as a purchase, was approximately $325 million. On
February 16, 1996, the Company completed its acquisition of Omaha-based FirsTier
Financial, Inc. ("FirsTier"). FirsTier had $3.7 billion in assets, $2.9 billion
in deposits, and 63 offices in Nebraska and Iowa. The total value of the
transaction, accounted for as a purchase, was approximately $717 million.
SALE OF MORTGAGE BANKING OPERATIONS, BRANCHES AND OTHER ASSETS During 1996, FBS
sold its servicing and loan production business to three parties. Bank of
America, fsb, a subsidiary of BankAmerica Corporation, purchased approximately
$14 billion in mortgage servicing rights. Columbia National, Inc. of Maryland,
and Knutson Mortgage Co., of Minnesota, agreed to purchase the Company's loan
production business. The Company now delivers mortgage loan products through
bank branches and telemarketing. These transactions resulted in a net gain of
$45.8 million. In addition, the Company recognized $3.0 million of net losses on
credit card portfolio sales during 1996.
As part of the regulatory approval process for the West One Bancorp
acquisition by USBC in December 1995, USBC divested 31 branches during 1996,
primarily in Oregon, with deposits of approximately $700 million and loans of
approximately $400 million. USBC recognized a pre-tax gain of $28.8 million
related to this transaction.
FIRST INTERSTATE BANCORP On November 6, 1995, the Company and First Interstate
Bancorp ("First Interstate") announced that they had entered into a definitive
agreement whereby the Company would exchange 2.6 shares of its common stock for
each share of First Interstate common stock. On January 24, 1996, First
Interstate announced that it had terminated the merger agreement with the
Company and had entered into a definitive agreement with Wells Fargo & Company
("Wells Fargo"). Under terms of a settlement agreement, the Company received
$125 million on January 24, 1996. The Company received an additional $75 million
on April 1, 1996, upon consummation of the merger of First Interstate and Wells
Fargo. In addition, all litigation among the parties related to the acquisition
of First Interstate has been settled. The Company incurred transaction costs of
approximately $10 million in connection with the proposed merger.
NOTE D RESTRICTIONS ON CASH AND DUE FROM BANKS
Bank subsidiaries are required to maintain minimum average reserve balances with
the Federal Reserve Bank. The amount of those reserve balances was approximately
$42 million at December 31, 1997.
48 U.S. Bancorp
<PAGE>
NOTE E SECURITIES
The detail of the amortized cost, gross unrealized holding gains and losses, and
fair value of available-for-sale securities at December 31 was as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Amortized Holding Holding Fair Amortized Holding Holding Fair
(In Millions) Cost Gains Losses Value Cost Gains Losses Value
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury. . . . . . . . . $ 628 $ 2 $ (2) $ 628 $1,035 $ 2 $ (9) $1,028
Mortgage-backed. . . . . . . . 4,326 56 (16) 4,366 4,097 41 (34) 4,104
Other U.S. agencies. . . . . . 360 10 -- 370 589 9 (3) 595
State and political. . . . . . 1,300 32 (1) 1,331 574 4 (5) 573
Other. . . . . . . . . . . . . 175 23 (8) 190 167 7 (1) 173
------------------------------------------------------------------------------------------------
Total. . . . . . . . . . $6,789 $123 $(27) $6,885 $6,462 $63 $(52) $6,473
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The detail of the amortized cost, gross unrealized holding gains and
losses, and fair value of held-to-maturity securities at December 31, 1996, was
as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
(In Millions) Cost Gains Losses Value
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State and political. . . . . . $787 $17 $(3) $801
Other. . . . . . . . . . . . . 10 -- -- 10
----------------------------------------------
Total. . . . . . . . . . . $797 $17 $(3) $811
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
Securities with an amortized cost of $752.0 million and net unrealized
holding gains of $18.2 million were transferred from held-to-maturity to
available-for-sale on August 1, 1997, in connection with the acquisition of
USBC.
Securities carried at $4.4 billion at December 31, 1997, and $4.5 billion
at December 31, 1996, were pledged to secure public, private and trust deposits
and for other purposes required by law. Securities sold under agreements to
repurchase were collateralized by securities and securities purchased under
agreements to resell with an amortized cost of $1.5 billion and $1.7 billion at
December 31, 1997, and 1996, respectively. Securities carried at $197.5 million
at December 31, 1996, were pledged to secure Federal Home Loan Bank advances.
Gross realized gains and losses on securities were as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains . . . . . . . . . . $ 5.0 $ 39.7 $ 8.0
Gross realized losses. . . . . . . . . . (1.4) (18.9) (5.0)
------------------------------
Net realized gains . . . . . . . . . $ 3.6 $ 20.8 $ 3.0
------------------------------
Income taxes on realized gains . . . . . $ 1.4 $ 8.0 $ 1.2
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
For amortized cost, fair value and yield by maturity date of
available-for-sale securities outstanding as of December 31, 1997, see Table 10
on page 29 from which such information is incorporated by reference into these
Notes to Consolidated Financial Statements.
U.S. Bancorp 49
<PAGE>
NOTE F LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio at December 31 was as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- - -----------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial. . . . . . . . . . . . . . . . . . $23,399 $21,393
Real estate:
Commercial mortgage . . . . . . . . . . . . 8,025 8,022
Construction. . . . . . . . . . . . . . . . 2,359 2,125
----------------------
Total commercial . . . . . . . . . . . . 33,783 31,540
----------------------
CONSUMER:
Residential mortgage. . . . . . . . . . . . . 4,480 5,225
Residential mortgage held for sale. . . . . . 193 148
Home equity and second mortgage . . . . . . . 5,373 4,798
Credit card . . . . . . . . . . . . . . . . . 4,200 3,632
Automobile. . . . . . . . . . . . . . . . . . 3,227 3,388
Revolving credit. . . . . . . . . . . . . . . 1,567 1,581
Installment . . . . . . . . . . . . . . . . . 1,199 1,463
Student*. . . . . . . . . . . . . . . . . . . 686 580
----------------------
Total consumer . . . . . . . . . . . . . 20,925 20,815
----------------------
Total loans. . . . . . . . . . . . . . . $54,708 $52,355
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
*ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT
PERIOD BEGINS.
Loans carried at $2.7 billion at December 31, 1997, and $3.5 billion at
December 31, 1996, were pledged at the Federal Home Loan Bank and the Federal
Reserve. Nonaccrual and renegotiated loans totaled $297 million, $269 million,
and $248 million at December 31, 1997, 1996, and 1995, respectively. At December
31, 1997, and 1996, the Company had $239 million and $201 million, respectively,
in loans considered impaired under SFAS 114 classified nonaccrual loans. The
carrying value of the impaired loans was less than or equal to the appraised
collateral value or the present value of expected future cash flows and,
accordingly, no allowance for credit losses was specifically allocated to
impaired loans. For the years ended December 31, 1997, 1996, and 1995, the
average recorded investment in impaired loans was approximately $249 million,
$176 million, and $220 million, respectively. The effect of nonaccrual and
renegotiated loans on interest income was as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------
(In Millions) 1997 1996 1995
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income that would have been accrued
at original contractual rates . . . . $26.6 $32.3 $29.5
Amount recognized as interest income . . 9.5 7.5 6.3
------------------------------
Foregone revenue . . . . . . . . . . . . $17.1 $24.8 $23.2
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
Commitments to lend additional funds to customers whose loans were
classified as nonaccrual or renegotiated at December 31, 1997, totaled $17.3
million. During 1997, there were no loans that were restructured at market
interest rates and returned to a fully performing status.
Activity in the allowance for credit losses was as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year . . . . . . . . $ 992.5 $908.0 $862.3
Add:
Provision charged to operating expense. . 460.3 271.2 239.1
Deduct:
Loans charged off . . . . . . . . . . . . 576.4 397.2 326.0
Less recoveries of loans charged off. . . 126.7 135.7 130.9
---------------------------------
Net loans charged off . . . . . . . . . . 449.7 261.5 195.1
Additions from acquisitions and other. . . . 5.6 74.8 1.7
---------------------------------
Balance at end of year . . . . . . . . . . . $1,008.7 $992.5 $908.0
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
50 U.S. Bancorp
<PAGE>
NOTE G BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- - -----------------------------------------------------------------------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . $ 141 $ 158
Buildings and improvements . . . . . . . . . . . . 881 977
Furniture, fixtures and equipment. . . . . . . . . 614 957
Capitalized building and equipment leases. . . . . 103 97
--------------------
1,739 2,189
Less accumulated depreciation and amortization . . 879 1,171
--------------------
Total . . . . . . . . . . . . . . . . . . . . . $ 860 $1,018
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
NOTE H LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) at December
31 consisted of the following:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- - -----------------------------------------------------------------------------
<S> <C> <C>
U.S. BANCORP (Parent Company):
Fixed-rate subordinated notes:
8.125% due May 15, 2002 . . . . . . . . . . . . $ 150 $ 150
7.00% due March 15, 2003. . . . . . . . . . . . 150 150
6.625% due May 15, 2003 . . . . . . . . . . . . 100 100
8.00% due July 2, 2004. . . . . . . . . . . . . 125 125
7.625% due May 1, 2005. . . . . . . . . . . . . 150 150
6.75% due October 15, 2005. . . . . . . . . . . 300 300
6.875% due September 15, 2007 . . . . . . . . . 250 250
7.50% due June 1, 2026. . . . . . . . . . . . . 200 200
Floating-rate notes - due November 15, 1999. . . . 200 200
Floating-rate subordinated notes - due
November 30, 2010 . . . . . . . . . . . . . . . 107 107
Medium-term notes. . . . . . . . . . . . . . . . . 652 671
Capitalized lease obligations, mortgage
indebtedness and other. . . . . . . . . . . . . 26 27
---------------------
2,410 2,430
SUBSIDIARIES:
Fixed-rate subordinated notes:
6.00% due October 15, 2003. . . . . . . . . . . 100 100
7.55% due June 15, 2004 . . . . . . . . . . . . 100 100
8.35% due November 1, 2004. . . . . . . . . . . 100 100
6.875% due April 1, 2006. . . . . . . . . . . . 125 125
Step-up subordinated notes - due August 15, 2005 . 100 100
Floating-rate notes - due February 27, 2000. . . . 250 --
Federal Home Loan Bank advances. . . . . . . . . . 1,392 1,543
Bank notes . . . . . . . . . . . . . . . . . . . . 5,602 814
Capitalized lease obligations, mortgage
indebtedness and other. . . . . . . . . . . . . 68 57
---------------------
Total . . . . . . . . . . . . . . . . . . . . . $10,247 $5,369
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
Floating-rate notes due November 15, 1999, are the only assets of the U.S.
Bancorp Putable Asset Trust 1996-1 (the "Trust"). The Trust entered into a call
option, pursuant to which the call holder has the right to purchase the notes
from the Trust at par on November 15, 1999. If the call is exercised, the notes
would become fixed rate obligations due in 2006. If the call holder does not
exercise the call option, the Company is required to redeem the notes
immediately thereafter. The interest rate adjusts quarterly at .15 percent over
the London Interbank Offered Rate ("LIBOR") for three month United States dollar
deposits. At December 31, 1997, the interest rate was 6.15 percent.
Floating-rate subordinated notes due November 30, 2010, may be redeemed at
par at the Company's option. The annual interest rate for each quarterly period
is one-eighth of 1 percent above LIBOR for three-month Euro-dollar deposits,
subject to a minimum of 5.25 percent. At December 31, 1997, the interest rate
was 6.19 percent.
Step-up subordinated notes due August 15, 2005, are issued by the
Company's subsidiary bank, U.S. Bank National Association (the "Bank"). The
interest rate on these notes is 6.25 percent through August 14, 2000, and 7.30
percent thereafter. The notes have a one-time call feature at the option of the
Bank on August 15, 2000.
U.S. Bancorp 51
<PAGE>
Floating-rate notes due February 27, 2000, are issued by the Bank and are
the only assets of the U.S. Oregon Pass-Through Asset Trust 1997-1 (the
"Trust"). The Trust entered into a call option, pursuant to which the call
holder has the right to purchase the notes from the Trust at par on February 27,
2000. If the call is exercised, the notes would become fixed rate obligations
due in 2007. If the call holder does not exercise the call option, the Bank is
required to redeem the notes immediately thereafter. The interest rate adjusts
quarterly at .10 percent over LIBOR for three month United States dollar
deposits. At December 31, 1997, the interest rate was 5.98 percent.
Medium-term notes outstanding at December 31, 1997, mature from April 1998
through August 2001. The notes bear floating interest rates ranging from 5.53
percent to 6.93 percent. The weighted average interest rate at December 31,
1997, was 6.15 percent. Federal Home Loan Bank advances outstanding at December
31, 1997, mature from January 1998 through October 2026. The advances bear fixed
or floating interest rates ranging from 5.05 percent to 9.11 percent. The
weighted average interest rate at December 31, 1997, was 5.94 percent. Bank
notes outstanding at December 31, 1997, mature from February 1998 through
December 2002. The notes bear fixed or floating interest rates ranging from 5.66
percent to 6.38 percent. The weighted average interest rate at December 31,
1997, was 5.95 percent.
Maturities of long-term debt outstanding at December 31, 1997 were:
<TABLE>
<CAPTION>
Parent
(In Millions) Consolidated Company
- - -----------------------------------------------------------------------------
<S> <C> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . $ 2,997 $ 190
1999 . . . . . . . . . . . . . . . . . . . . . . . 1,946 373
2000 . . . . . . . . . . . . . . . . . . . . . . . 1,401 164
2001 . . . . . . . . . . . . . . . . . . . . . . . 791 131
2002 . . . . . . . . . . . . . . . . . . . . . . . 859 151
Thereafter . . . . . . . . . . . . . . . . . . . . 2,253 1,401
--------------------------
Total. . . . . . . . . . . . . . . . . . . . . $10,247 $2,410
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
</TABLE>
NOTE I COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES OF
THE PARENT COMPANY
During 1996, the Company issued $600 million of preferred securities (the
"Preferred Securities") through two wholly-owned subsidiary grantor trusts, FBS
Capital I and U.S. Bancorp Capital I (the "Trusts"). The Preferred Securities
accrue and pay distributions periodically at specified annual rates as provided
in the Indentures. The Trusts used the net proceeds from the offerings to
purchase a like amount of Junior Subordinated Deferrable Interest Debentures
(the "Debentures") of the Company. The Debentures are the sole assets of the
trusts and are eliminated, along with the related income statement effects, in
the consolidated financial statements. The Company's obligations under the
Debentures and related documents, taken together, constitute a full and
unconditional guarantee by the Company of the obligations of the Trusts. The
guarantee covers the distributions and payments on liquidation or redemption of
the Preferred Securities, but only to the extent of funds held by the Trusts.
The Preferred Securities are mandatorily redeemable upon the maturity of the
Debentures, or upon earlier redemption as provided in the Indentures. The
Company has the right to redeem the Debentures in whole, (but not in part), on
or after specific dates, at a redemption price specified in the Indentures plus
any accrued but unpaid interest to the redemption date. The Company used the
proceeds from the sales of the Debentures for general corporate purposes.
FBS Capital I completed the sale of $300 million Preferred Securities in
November 1996. The sole assets of FBS Capital I are $309 million principal
amount 8.09 percent Debentures which mature in November 2026, and are redeemable
prior to maturity at the option of the Company on or after November 15, 2006.
U.S. Bancorp Capital I completed the sale of $300 million Preferred
Securities in December 1996. The sole assets of U.S. Bancorp Capital I are $309
million principal amount 8.27 percent Debentures which mature in December 2026,
and are redeemable prior to maturity at the option of the Company on or after
December 15, 2006.
52 U.S. Bancorp
<PAGE>
NOTE J SHAREHOLDERS' EQUITY
COMMON STOCK At December 31, 1997, the Company had 23.5 million shares of common
stock reserved for future issuances under the Dividend Reinvestment Plan,
Employee Stock Purchase Plan, and the 1997 Stock Incentive Plan (see Note L).
In connection with the acquisition of USBC, the number of authorized
common shares for the Company was increased from 200 million shares to 500
million shares. The Company completed several acquisitions since 1995 with
common shares issued in exchange for the stock of the acquired banks (see Note
C).
Approximately 31.0 million common shares have been repurchased under 1996
Board authorizations, including 4.9 million during 1997. All authorizations were
either completed or rescinded prior to the USBC acquisition. Under previous
authorizations, the Company repurchased 16.9 million shares in 1995.
The Company's Dividend Reinvestment Plan provides for automatic
reinvestment of dividends and optional cash purchases of up to $60,000 worth of
additional shares per calendar year at market price.
PREFERRED STOCK The Company has issued seven classes of cumulative preferred
stock, with 10 million shares authorized. Since 1992, the Company has redeemed
or called the four classes of $1.00 par value cumulative preferred stock,
redeemed both classes of $.01 par value cumulative preferred stock, and redeemed
the $1.00 par value, 8 1/8 percent cumulative preferred stock. At December 31,
1997, the Company had no preferred stock outstanding.
On November 14, 1997, the Company redeemed all outstanding shares of its
8 1/8 percent Cumulative Preferred Stock, Series A at a redemption price of $25
per share, together with accrued and unpaid dividends.
On November 29, 1996, the Company called the remaining 1,543,025 shares of
its Series 1991A Cumulative Convertible Preferred Stock. As a result, at
December 31, 1996, the redemption date, all remaining shares had been redeemed
or converted into common stock. Prior to conversion, dividends on the Series
1991A shares, which had a $1.00 par value, were 7.125 percent per year.
In January 1995, the Company redeemed for $27.00 per share in cash, plus
accumulated and unpaid dividends, 488,750 shares of Series B, $2.875 Cumulative
Perpetual Preferred Stock. Dividends on the Series B shares, which had a $.01
par value, were $2.875 per share prior to redemption.
The preferred dividend requirement used in the calculation of earnings per
common share was $10.6 million, $18.4 million, and $19.7 million, for the years
1997, 1996, and 1995, respectively.
NOTE K EARNINGS PER SHARE
The components of earnings per share were:
<TABLE>
<CAPTION>
(Dollars In Millions, Except Per Share Data) 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS PER SHARE:
Net income . . . . . . . . . . . . . . . . . . . . . . $838.5 $1,218.7 $897.1
Preferred dividends. . . . . . . . . . . . . . . . . . (10.6) (18.4) (19.7)
------------------------------------------
Net income to common stockholders. . . . . . . . . . . $827.9 $1,200.3 $877.4
------------------------------------------
------------------------------------------
Average shares outstanding . . . . . . . . . . . . . . 244,516,964 249,726,158 246,217,723
------------------------------------------
------------------------------------------
Earnings per share . . . . . . . . . . . . . . . . . . $ 3.39 $ 4.81 $ 3.56
------------------------------------------
------------------------------------------
DILUTED EARNINGS PER SHARE:
Net income . . . . . . . . . . . . . . . . . . . . . . $838.5 $1,218.7 $897.1
Preferred dividends, excluding 1991A Preferred Stock . (10.6) (12.2) (12.2)
Interest expense on convertible securities, net. . . . -- -- 1.3
------------------------------------------
Net income to common stockholders. . . . . . . . . . . $827.9 $1,206.5 $886.2
------------------------------------------
------------------------------------------
Average shares outstanding . . . . . . . . . . . . . . 244,516,964 249,726,158 246,217,723
Net effect of the assumed purchase of stock under the
stock option and stock purchase plans - based on
the treasury stock method using average market
price . . . . . . . . . . . . . . . . . . . . . . . 3,120,948 2,599,500 3,403,576
Conversion of Series 1991A Preferred Stock . . . . . . -- 3,065,010 3,563,191
Other convertible securities . . . . . . . . . . . . . -- -- 1,702,559
------------------------------------------
Dilutive common shares outstanding . . . . . . . . . . 247,637,912 255,390,668 254,887,049
------------------------------------------
------------------------------------------
Diluted earnings per share . . . . . . . . . . . . . . $ 3.34 $ 4.72 $ 3.48
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 53
<PAGE>
NOTE L EMPLOYEE BENEFITS
RETIREMENT PLANS Pension benefits (Pension Plans) are provided to substantially
all employees based on years of service and employees' compensation while
employed with the Company. Employees are fully vested after five years of
service. The Company's funding policy is to contribute amounts to its plans
sufficient to meet the minimum funding requirements of the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the Company
determines to be appropriate. The actuarial cost method used to compute the
pension contribution is the projected unit credit method. Prior to their
acquisition dates, employees of acquired companies were covered by separate,
noncontributory pension plans that provided benefits based on years of service
and compensation. As of December 31, 1997, the Company has merged the acquired
companies' plans into its own plan with the exception of the FirsTier, USBC and
West One plans, which are expected to be merged in 1999. The Company also
maintains several unfunded, nonqualified, supplemental executive retirement
programs (Supplemental Plans) that provide additional defined pension benefits
for certain officers. The assumptions used in computing the present value of the
accumulated benefit obligation, the projected benefit obligation and net pension
expense are substantially consistent with those assumptions used for the Pension
Plans. The following table sets forth the funded status and income statement
effects for the retirement plans.
<TABLE>
<CAPTION>
December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------------
Pension Supplemental Pension Supplemental Pension Supplemental
Plans Plans Plans Plans Plans Plans
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation . . . . . . . . . . . . $ (718.8) $(60.2) $(651.1) $(36.3) $(630.2) $(30.9)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Accumulated benefit obligation. . . . . . . . . . $ (753.7) $(61.7) $(681.7) $(37.9) $(662.8) $(31.8)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Projected benefit obligation for service rendered
to date . . . . . . . . . . . . . . . . . . . . . $ (851.4) $(75.8) $(775.9) $(52.6) $(756.4) $(43.9)
Plan assets at fair value, primarily listed stocks,
U.S. bonds and mutual funds . . . . . . . . . . . 1,069.4 -- 935.3 -- 780.4 --
-----------------------------------------------------------------------
Excess (deficiency) of plan assets over projected
benefit obligation. . . . . . . . . . . . . . . . 218.0 (75.8) 159.4 (52.6) 24.0 (43.9)
Unrecognized net (gain) loss from past experience
different from that assumed and effects of
changes in assumptions. . . . . . . . . . . . . . (116.7) 21.1 (73.0) 9.4 27.1 12.5
Unrecognized net (asset) obligation at end of year
(amortized over 15 years) . . . . . . . . . . . . (10.0) (6.4) (13.7) .4 (19.3) .4
-----------------------------------------------------------------------
Prepaid (accrued) pension cost included in other assets
and other liabilities . . . . . . . . . . . . . . $ 91.3 $(61.1) $ 72.7 $(42.8) $ 31.8 $(31.0)
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net pension cost for all funded and unfunded plans is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period. . . . . . . . . . $ 38.3 $ 40.8 $ 33.6
Interest cost on projected benefit obligation . . . . . . . . . . 64.5 60.7 58.1
Actual return on plan assets. . . . . . . . . . . . . . . . . . . (172.2) (134.1) (157.2)
Net amortization and deferral . . . . . . . . . . . . . . . . . . 90.5 61.6 87.8
-------------------------------------
Net periodic pension benefit cost. . . . . . . . . . . . . . . . . . . $ 21.1 $ 29.0 $ 22.3
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate disclosures reflect the following weighted average
assumptions as each company's plans were valued separately for the years prior
to acquisition and each plan independently determined its assumptions:
<TABLE>
<CAPTION>
The Company USBC
----------------------------------
1997 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Weighted average discount rate in determining expense. . . . . . . . . . . . . . . 7.5% 7.0% 8.0% 7.8% 7.3%
Weighted average discount rate in determining benefit obligations at year end. . . 7.0 7.5 7.0 7.8 7.3
Expected long-term rate of return. . . . . . . . . . . . . . . . . . . . . . . . . 9.5 9.5 9.5 9.0 9.0
Rate of increase in future compensation. . . . . . . . . . . . . . . . . . . . . . 5.6 5.6 5.6 5.5 4.8
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
54 U.S. Bancorp
<PAGE>
OTHER POSTRETIREMENT PLANS In addition to providing pension benefits, the
Company provides certain health care and death benefits to retired employees.
Nearly all employees may become eligible for health care benefits at or after
age 55 if they have completed at least five years of service and their age plus
years of service is equal to or exceeds 65 while working for the Company. The
Company subsidizes the cost of coverage for employees who retire before age 65
with at least 10 years of service. The amount of the subsidy is based on the
employee's age and service at the time of retirement and remains fixed until the
retiree reaches age 65. After age 65 the retiree assumes responsibility for the
full cost of the coverage. The plan also contains other cost-sharing features
such as deductibles and coinsurance. The Company continues to subsidize the
coverage for employees over age 65 who retired before a plan change eliminated
the subsidy. The estimated cost of retiree benefit payments, other than
pensions, are accrued during the employees' active service. Beginning in 1996,
the Company funded the tax deductible portion of its outstanding liability.
Prior to 1996, the Company funded the postretirement benefit costs as incurred.
USBC also had a post-retirement health care plan with substantially similar
benefits and funded the postretirement benefit costs as incurred. The funded
status and income statement effects of the USBC plan have been aggregated with
the Company's plan as of December 31, in the following table:
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions) 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(140.4) $(136.0) $(141.3)
Fully eligible active plan participants . . . . . . . . . . . . . . . . . . . . . . . . (4.1) (3.7) (3.3)
Other active plan participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23.0) (20.6) (20.6)
--------------------------------
Total accumulated postretirement benefit obligation. . . . . . . . . . . . . . . . . (167.5) (160.3) (165.2)
Plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 7.1 --
--------------------------------
Total unfunded accumulated postretirement benefit obligation. . . . . . . . . . . . . . (158.0) (153.2) (165.2)
Unrecognized net loss (gain) from past experience different from that
assumed and from changes in assumptions . . . . . . . . . . . . . . . . . . . . . . . . .7 (5.8) 4.2
Unrecognized implementation asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.1) (1.4) (1.7)
--------------------------------
Accrued postretirement benefit cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . $(158.4) $(160.4) $(162.7)
--------------------------------
--------------------------------
Net periodic postretirement benefit cost includes the following components:
Service cost-benefits attributed to service during the period . . . . . . . . . . . . . $ 2.0 $ 2.2 $ 1.9
Interest cost on accumulated postretirement benefit obligation. . . . . . . . . . . . . 11.2 11.6 12.0
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.2) (.2) (.6)
--------------------------------
Total postretirement benefit cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.0 $ 13.6 $ 13.3
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1997, the assumed annual rates of increase in the cost of health care
benefits for participants under 65 and 65 and older, were 8.1 percent and 6.5
percent. For 1998 the annual rate of increase assumptions are 7.6 percent and
6.3 percent, respectively. Both rates were assumed to decrease gradually to 5.2
percent by 2003 and remain at that level thereafter. Trends in health care costs
have a significant effect on the amounts reported. For example, increasing the
health care cost trend rate assumptions by 1 percent each year increases the
accumulated postretirement benefit obligation as of December 31, 1997, by $13.9
million. In addition, the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended would
increase by $1.2 million. The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was 7.0 percent and 7.5
percent at December 31, 1997 and 1996. The long-term expected rate of return on
plan assets was 5.0 percent as of December 31, 1997.
EMPLOYEE INVESTMENT PLAN The Company provides a Capital Accumulation Plan (CAP)
which allows qualified employees, at their option, to make contributions up to
certain percentages of pre-tax base salary through salary deductions under
Section 401(k) of the Internal Revenue Code. A portion of these contributions is
matched by the Company. All of the Company's matching contributions are invested
in USB common stock. Employee contributions are invested, at the employees'
direction, among a variety of investment alternatives. Total expense was $22.5
million, $25.6 million, and $20.8 million in 1997, 1996, and 1995.
STOCK INCENTIVE AND PURCHASE PLANS The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) in accounting for its employee stock incentive and purchase plans. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized. On the date exercised, the option proceeds equal to the
par value of the shares are credited to common stock and additional proceeds are
credited to capital surplus.
U.S. Bancorp 55
<PAGE>
The Employee Stock Purchase Plan (ESPP) permits all eligible employees
with at least one year of service and directors to purchase common stock.
Plan participants can purchase stock for 85 percent to 100 percent of the
fair market value, which is based on the price at the beginning or the end of
the purchase period, whichever is lower. Any discount is determined by a
committee of the Board of Directors. In 1997, the purchase price was 85
percent of fair market value. The plan results in no compensation expense to
the Company.
In July 1997, the shareholders approved the 1997 Stock Incentive Plan
(1997 Plan) whereby all former stock incentive plans of FBS and USBC were
incorporated into the 1997 Plan. All outstanding options, restricted stock
and other awards subject to the terms of the former FBS and USBC stock
incentive plans will remain outstanding and subject to the terms and
conditions of those plans but are counted as part of the total number of
common shares awarded under the 1997 Plan, subject, in the case of the former
USBC plans, to adjustment reflecting the conversion of USBC common stock into
common stock of the Company. An additional 6 million shares were approved for
issuance by the shareholders under the 1997 Plan to meet the needs of the
Company over approximately the next two years. The 1997 Plan allows for the
granting of nonqualified stock options, incentive stock options, stock
appreciation rights (SARs), restricted stock or stock units (RSUs),
performance awards, and other stock-based awards at or above 100 percent of
the market price at the date of grant. The 1997 Plan also provides automatic
grants of stock options to nonemployee directors. The rights of restricted
stock and RSU holders to transfer shares are generally limited during the
restriction period. At December 31, 1997, there were 5.4 million shares
(subject to adjustment for forfeitures) available for grant under the Plans.
Options granted are generally exercisable up to 10 years from the date
of grant and vest over three to five years. Restricted shares generally vest
over three to seven years. The vesting of certain options and restricted
shares accelerate based on the performance of the Company in comparison to
the performance of a predetermined group of regional banks. Compensation
expense for restricted stock is based on the market price of the Company
stock at the time of the grant and amortized on a straight-line basis over
the vesting period. For the performance-based restricted shares, compensation
expense is amortized using the estimated vesting period. Compensation expense
related to the restricted stock was $8.4 million, $4.9 million and $3.4
million in 1997, 1996, and 1995.
Stock incentive plans of acquired companies are terminated at the
merger closing dates. Option holders under such plans receive the Company's
common stock, or options to buy the Company's stock, based on the conversion
terms of the various merger agreements. The historical option information
presented below has been restated to reflect the options originally granted
under acquired companies' plans.
<TABLE>
<CAPTION>
Weighted Restricted
Options Average Price Shares
Outstanding Per Share Outstanding
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,046,617 $25.35 427,944
Granted:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,852,748 41.52 --
Restricted stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 149,806
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,161,443) 25.80 --
Canceled/vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,129,138) 17.69 (22,882)
----------------------------------------
DECEMBER 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,608,784 $30.70 554,868
Granted:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,481,251 65.37 --
Restricted stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 176,408
USBC acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,525 19.97 --
FirsTier options converted . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,164 29.42 --
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,416,229) 33.20 --
Canceled/vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179,070) 47.37 (246,917)
----------------------------------------
DECEMBER 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,174,425 $52.47 484,359
Granted:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,839,948 90.40 --
Restricted stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 560,392
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,952,369) 46.92 --
Canceled/vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (439,684) 67.08 (173,357)
----------------------------------------
DECEMBER 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,622,320 $70.86 871,394
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
56 U.S. Bancorp
<PAGE>
Additional information regarding options outstanding as of December 31,
1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
---------------------------------------- -------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$7.28 - $29.99 . . . . . . . . . . . . . 1,024,780 4.8 $24.04 1,024,780 $24.04
$30.00 - $59.99. . . . . . . . . . . . . 1,887,080 7.4 41.69 1,691,377 41.05
$60.00 - $89.99. . . . . . . . . . . . . 7,361,618 9.1 72.65 2,497,969 71.32
$90.00 - $115.00 . . . . . . . . . . . . 3,348,842 9.8 97.71 953 94.99
----------------------------------------------------------------------
13,622,320 8.7 $70.86 5,215,079 $52.22
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS 123, "Accounting and Disclosure of Stock-Based Compensation"
and has been determined as if the Company had accounted for its employee stock
option and stock purchase plans (options) under the fair value method of that
Statement. The fair value of the options was estimated at the grant date using
a Black-Scholes option pricing model. Option valuation models require the input
of highly subjective assumptions. Because the Company's employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
The following weighted average assumptions were used in the valuation
model: risk-free interest rates of 6.0 percent, 6.2 percent and 6.1 percent
in 1997, 1996 and 1995; dividend yields of 2.5 percent in 1997 and 3.2
percent in both 1996 and 1995; stock price volatility factors of .22, .20 and
..18 in 1997, 1996 and 1995; and, expected life of options of 3.9 years, 4.3
years and 3.2 years in 1997, 1996 and 1995, respectively.
The pro forma disclosures include options granted in 1997, 1996 and 1995
and are not likely to be representative of the pro forma disclosures for future
years. The estimated fair value of the options is amortized to expense over the
options' vesting period.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
(In Millions, Except Per Share Data) 1997 1996 1995
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income . . . . . . . . . . $783.8 $1,183.5 $870.1
Pro forma net income (diluted) . . . . . 783.8 1,189.7 878.9
Pro forma earnings per share:
Earnings per share. . . . . . . . . . $3.21 $4.74 $3.53
Diluted earnings per share. . . . . . 3.17 4.66 3.45
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
</TABLE>
NOTE M MERGER, INTEGRATION AND RESIZING CHARGES
The Company recorded merger, integration and resizing charges of $511.6 million,
$88.1 million and $98.9 million in 1997, 1996 and 1995, respectively. Merger and
integration charges in 1997 were associated with the acquisition of USBC and
included: $232.3 million in severance costs; $77.2 million of occupancy and
equipment writedowns; $43.4 million of capitalized software and other asset
writeoffs; $35.0 million of investment banking and other transaction costs;
$72.7 million of conversion costs incurred; and, $51.0 million of other
merger-related expenses. Merger and integration charges of $49.5 million
recorded in 1996 were associated with the acquisitions of FirsTier, the
BankAmerica corporate trust business, and West One Bancorp. Resizing charges in
1996 of $38.6 million were associated with the Company's streamlining of the
branch distribution network and trust operations as the Company expands its
alternative distribution channels, including telemarketing, automated teller
machines and in-store branches. Merger and integration charges recorded in 1995
were associated with the acquisition of West One Bancorp. The components of the
charges are shown below:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Severance. . . . . . . . . . . . . . . . $232.3 $27.4 $29.4
Premises writedowns. . . . . . . . . . . 77.2 27.4 22.3
Systems conversions. . . . . . . . . . . 72.7 11.0 19.7
Other merger-related charges . . . . . . 129.4 22.3 27.5
- - -------------------------------------------------------------------------------------
Total merger, integration and
resizing charges. . . . . . . . . . . $511.6 $88.1 $98.9
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
</TABLE>
Severance charges include the cost of severance, other benefits, and
outplacement costs associated with the termination of employees primarily in
branch offices and centralized corporate support and data processing functions.
U.S. Bancorp 57
<PAGE>
Premise writedowns represent write-offs for redundant office space,
equipment and branches. Systems conversions and other merger-related expenses
are recorded as incurred and are associated with the preparation and mailing of
numerous customer communications for the acquisitions and conversion of customer
accounts, printing and distribution of training materials and policy and
procedure manuals, outside consulting fees, and similar expenses relating to the
conversions and integration of acquired branches and operations. The following
table presents a summary of activity with respect to the Company's merger,
integration and resizing accrual:
<TABLE>
<CAPTION>
Year Ended
December 31
(In Millions) 1997
- - ---------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1996 . . . . . . . . . . . . . . . . $ 33.6
Provision charged to operating expense . . . . . . . . . . . 511.6
Cash outlays . . . . . . . . . . . . . . . . . . . . . . . . (217.1)
Noncash writedowns . . . . . . . . . . . . . . . . . . . . . (123.5)
- - ---------------------------------------------------------------------------
Balance at December 31, 1997 . . . . . . . . . . . . . . . . $ 204.6
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
</TABLE>
The Company expects to incur an additional $125.0 million of merger-related
expenses through the third quarter of 1998 related to the USBC acquisition.
NOTE N INCOME TAXES
The components of income tax expense were:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
FEDERAL:
<S> <C> <C> <C>
Current tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $435.0 $586.5 $436.6
Deferred tax provision . . . . . . . . . . . . . . . . . . . . . . . . 34.9 47.9 23.6
------------------------------------
Federal income tax. . . . . . . . . . . . . . . . . . . . . . . . . 469.9 634.4 460.2
------------------------------------
STATE:
Current tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.6 88.2 63.8
Deferred tax provision (credit). . . . . . . . . . . . . . . . . . . . 2.7 3.1 (.1)
------------------------------------
State income tax. . . . . . . . . . . . . . . . . . . . . . . . . . 82.3 91.3 63.7
------------------------------------
Total income tax provision. . . . . . . . . . . . . . . . . . . . . $552.2 $725.7 $523.9
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate (35%). . . . . . . . . . . . . . . . . . . . . . $486.7 $680.5 $497.3
State income tax, at statutory rates, net of federal tax benefit . . . 53.5 59.4 41.5
Tax effect of:
Tax-exempt interest:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13.0) (4.5) (5.1)
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . (24.0) (33.5) (33.3)
Amortization of nondeductible goodwill. . . . . . . . . . . . . . . 25.7 39.9 26.7
Nondeductible merger and integration charges. . . . . . . . . . . . 39.1 -- --
Tax credits and other items . . . . . . . . . . . . . . . . . . . . (15.8) (16.1) (3.2)
------------------------------------
Applicable income taxes. . . . . . . . . . . . . . . . . . . . . . . . $552.2 $725.7 $523.9
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, for income tax purposes, the Company had federal net
operating loss carryforwards of $4.9 million available, which expire in years
1999 through 2007. In addition, the Company had aggregate state net operating
loss carryforwards of $178.1 million available, which expire in years 1998
through 2007.
During 1996, the Company received a tax refund of $65 million, including
interest, from the State of Minnesota relating to the exemption of interest
income received on investments in U.S. government securities for the period 1979
to 1983.
Deferred income tax assets and liabilities reflect the tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for the same items for income
tax reporting purposes.
58 U.S. Bancorp
<PAGE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31 were as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . $ 385.1 $ 356.3
Postretirement liability . . . . . . . . . . . . . . . . . . . . . . . 65.0 69.3
Deferred loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 36.1
Real estate and other asset basis differences. . . . . . . . . . . . . 35.7 87.5
Federal operating loss carryforward. . . . . . . . . . . . . . . . . . 1.9 10.3
Alternative minimum tax credit carryforward. . . . . . . . . . . . . . -- 11.4
Other miscellaneous accruals and reserves. . . . . . . . . . . . . . . 166.7 109.9
----------------------
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . 694.3 680.8
DEFERRED TAX LIABILITIES:
Leasing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (399.8) (344.1)
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . (42.6) (39.3)
Adjustment of available-for-sale securities to market value. . . . . . (36.4) (3.5)
Other investment basis differences . . . . . . . . . . . . . . . . . . (8.3) (27.3)
Accrued severance, pension and retirement benefits . . . . . . . . . . (2.8) (12.5)
Other deferred liabilities . . . . . . . . . . . . . . . . . . . . . . (96.2) (77.9)
----------------------
Gross deferred tax liabilities. . . . . . . . . . . . . . . . . . . (586.1) (504.6)
Deferred tax assets valuation reserve. . . . . . . . . . . . . . . . . -- (2.2)
----------------------
NET DEFERRED TAX ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $ 108.2 $ 174.0
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
Realization of the deferred tax asset over time is dependent upon the
Company generating sufficient taxable earnings in future periods. In determining
that realization of the deferred tax asset was more likely than not, the Company
gave consideration to a number of factors, including its recent earnings
history, its expectations for earnings in the future and, where applicable, the
expiration dates associated with tax carryforwards. The Company's valuation
allowance decreased $2.2 million in 1997 due to utilization of net operating
losses.
NOTE O FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CREDIT
CONCENTRATIONS
In the normal course of business, the Company uses various off-balance sheet
financial instruments to meet the needs of its customers and to manage its
interest rate risk. These instruments carry varying degrees of credit, interest
rate or liquidity risk. The contract or notional amounts of these financial
instruments at December 31 were as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,170 $24,482
Corporate and purchasing cards. . . . . . . . . . . . . . . . . . . 23,502 13,820
Consumer credit cards . . . . . . . . . . . . . . . . . . . . . . . 14,236 14,140
Other consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,661 4,665
Letters of credit:
Standby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,773 2,634
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 355
Interest rate swap contracts:
Hedges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,315 3,651
Intermediated . . . . . . . . . . . . . . . . . . . . . . . . . . . 855 590
Options contracts:
Hedge interest rate floors purchased. . . . . . . . . . . . . . . . 750 1,250
Hedge interest rate caps purchased. . . . . . . . . . . . . . . . . -- 100
Intermediated interest rate and foreign exchange caps and
floors purchased. . . . . . . . . . . . . . . . . . . . . . . . . 258 134
Intermediated interest rate and foreign exchange caps and
floors written. . . . . . . . . . . . . . . . . . . . . . . . . . 258 169
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 98
Liquidity support guarantees . . . . . . . . . . . . . . . . . . . . . -- 81
Forward contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 175 197
Commitments to sell loans. . . . . . . . . . . . . . . . . . . . . . . -- 3
Mortgages sold with recourse . . . . . . . . . . . . . . . . . . . . . 74 114
Foreign currency commitments:
Commitments to purchase . . . . . . . . . . . . . . . . . . . . . . 716 952
Commitments to sell . . . . . . . . . . . . . . . . . . . . . . . . 735 953
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 59
<PAGE>
COMMITMENTS TO EXTEND CREDIT Commitments to extend credit are legally binding
and generally have fixed expiration dates or other termination clauses. The
contractual amount represents the Company's exposure to credit loss, in the
event of default by the borrower. The Company manages this credit risk by using
the same credit policies it applies to loans. Collateral is obtained to secure
commitments based on management's credit assessment of the borrower. The
collateral may include marketable securities, receivables, inventory, equipment,
and real estate. Since the Company expects many of the commitments to expire
without being drawn, total commitment amounts do not necessarily represent the
Company's future liquidity requirements. In addition, the commitments include
consumer credit lines that are cancelable upon notification to the consumer.
LETTERS OF CREDIT Standby letters of credit are conditional commitments the
Company issues to guarantee the performance of a customer to a third party. The
guarantees frequently support public and private borrowing arrangements,
including commercial paper issuances, bond financings, and other similar
transactions. The Company issues commercial letters of credit on behalf of
customers to ensure payment or collection in connection with trade transactions.
In the event of a customer's nonperformance, the Company's credit loss exposure
is the same as in any extension of credit, up to the letter's contractual
amount. Management assesses the borrower's credit to determine the necessary
collateral, which may include marketable securities, real estate, accounts
receivable, and inventory. Since the conditions requiring the Company to fund
letters of credit may not occur, the Company expects its liquidity requirements
to be less than the total outstanding commitments.
INTEREST RATE OPTIONS AND SWAPS Interest rate swaps are contracts to exchange
fixed and floating rate interest payment obligations based on a notional
principal amount. The Company enters into swaps to hedge its balance sheet
against fluctuations in interest rates and as an intermediary for customers. At
December 31, 1997, and 1996, interest rate swaps totaling $5.3 billion and $3.7
billion, respectively, hedged loans, deposits and long-term debt.
The Company receives fixed rate interest and pays floating rate interest
on all hedges as of December 31, 1997. Activity with respect to interest rate
swap hedges was as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notional amount outstanding at
beginning of year . . . . . . . . . . $3,651 $ 4,306 $3,894
Additions. . . . . . . . . . . . . . . . 2,926 890 1,209
Maturities . . . . . . . . . . . . . . . (436) (1,208) (797)
Amortization . . . . . . . . . . . . . . -- (1) --
Terminations . . . . . . . . . . . . . . (826) (336) --
------------------------------------
Notional amount outstanding
at end of year. . . . . . . . . . . . $5,315 $ 3,651 $4,306
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
At December 31:
Weighted average interest
rates paid. . . . . . . . . . . . . . 5.95% 5.58% 5.73%
Weighted average interest
rates received. . . . . . . . . . . . 6.39 6.35 6.51
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
</TABLE>
For the hedging portfolio's notional balances and yields by maturity date
as of year-end 1997, see Table 16 on page 34. For a description of the Company's
objectives for using derivative financial instruments, refer to Use of
Derivatives to Manage Interest Rate Risk on pages 35 and 36. Such information is
incorporated by reference into these Notes
to Consolidated Financial Statements.
Interest rate caps are also used to minimize the impact of fluctuating
interest rates on earnings. There were no interest rate cap hedges outstanding
at December 31, 1997. The total notional amount of cap agreements purchased at
December 31, 1996, was $100 million with a 3-month LIBOR strike rate of 6.00
percent. The premium on caps is amortized over the life of the contract. The
impact of the caps on net interest income was not material for the years ended
December 31, 1997, 1996 and 1995.
At December 31, 1997, and 1996, purchased LIBOR based interest rate floors
totaling $550 million with an average remaining maturity of 5 months and $950
million with an average remaining maturity of 12 months, respectively, hedged
floating rate commercial loans. The strike rate on these LIBOR based floors
ranged from 3.25 percent to 4.00 percent at December 31, 1997, and December 31,
1996. At December 31, 1997, and 1996, purchased Constant Maturity Treasury (CMT)
interest rate floors totaling $200 million with an average remaining maturity of
12 months and $300 million with an average remaining maturity 18 months,
respectively, hedged the prepayment risk of fixed rate residential mortgage
loans. The strike rate on these CMT floors was 5.60 percent at December 31,
1997, and ranged from 5.60 percent to 5.70 percent at December 31, 1996. The
premium on floors is amortized over the life of the contract. The impact of the
floors on net
60 U.S. Bancorp
<PAGE>
interest income was not material for the years ended December 31, 1997, 1996 and
1995.
For swaps and options used as hedges, the Company recognizes interest
income or expense as it is accrued over the terms of the hedge. The gain or loss
on a terminated hedge is amortized over the remaining life of the original swap
or remaining life of the hedged item, whichever is shorter. The impact of the
amortization of deferred gains and losses on hedges on net interest income was
not material for the years ended December 31, 1997, 1996 and 1995. Net
unamortized deferred gains were immaterial at December 31, 1997.
In addition to utilizing swaps and options as part of its asset/liability
management strategy, the Company acts as an intermediary for swap and option
agreements on behalf of its customers. To reduce its market risk exposure, the
Company generally enters into offsetting positions. The total notional amount of
customer swap agreements, including the offsetting positions, was $855 million
and $590 million at December 31, 1997, and 1996, respectively. The total dollar
amount of futures used to offset customer swap agreements was $98.4 million at
December 31, 1996. The total notional amount of customer option agreements,
including the offsetting positions, was $516 million and $303 million at
December 31, 1997, and 1996, respectively. Market value changes on intermediated
swaps, options and futures contracts are recognized in income in the period of
change. Realized losses on intermediated transactions were not material for the
years ended December 31, 1997, 1996, and 1995.
The credit risk related to interest rate swap and option agreements is that
counterparties may be unable to meet the contractual terms. The Company
estimates this risk by calculating the present value of the cost to replace all
outstanding contracts in a gain position at current market rates, reported on a
net basis by counterparty. At December 31, 1997, and 1996, the gain position of
these contracts, in the aggregate, was approximately $91 million and $51
million, respectively.
The Company manages the credit risk of its interest rate swap and option
contracts through bilateral collateral agreements, credit approvals, limits, and
monitoring procedures. Commercial lending officers perform credit analyses and
establish counterparty limits. Senior Credit Administration periodically reviews
positions to monitor compliance with the limits. In addition, the Company
reduces the assumed counterparty credit risk through master netting agreements
that permit the Company to settle interest rate contracts with the same
counterparty on a net basis.
LIQUIDITY SUPPORT GUARANTEES Through liquidity support guarantees, the Company
agrees to provide market support for its customers' commercial paper or
tax-exempt bonds. These contracts are secured by notes receivable, bonds or
private insurance, guaranteeing payment of principal and interest on any
unreimbursed funds advanced. Since the conditions that require the Company to
fund the guarantees may not occur, total guarantee amounts do not necessarily
represent the Company's future funding obligation.
FORWARD CONTRACTS AND COMMITMENTS TO SELL MORTGAGE LOANS Forward contracts are
agreements for the delayed delivery of securities or cash settlement money
market instruments. The Company enters into these contracts to hedge the
interest rate risk of its mortgage loans held for sale. At December 31, 1997,
and 1996, forward contracts outstanding were $175 million and $197 million,
respectively. At December 31, 1997, net unamortized deferred gains on the
forward agreements were not material. The Company manages its credit risk on
forward contracts, which arises from nonperformance by counterparties, through
credit approval and limit procedures. At December 31, 1996, the Company was
committed under agreements to sell mortgage loans pursuant to master delivery
commitments. The remaining balance on those commitments at December 31, 1996 was
$3 million.
MORTGAGES SOLD WITH RECOURSE The Company is obligated under recourse provisions
related to the sale of certain residential mortgages. The contract amount of
these mortgages, excluding the Government National Mortgage Association ("GNMA")
agreements, was $74 million at December 31, 1997, and $114 million at December
31, 1996. Mortgages sold with recourse under sale/servicing agreements with GNMA
totaled $13 million at December 31, 1997, and $6 million at December 31, 1996.
The Company has secondary recourse obligations under these agreements, but the
liability is not material.
FOREIGN CURRENCY COMMITMENTS The Company uses foreign currency commitments to
help customers reduce the risks associated with changes in foreign currency
exchange rates. Through these contracts, the Company exchanges currencies at
specified rates on specified dates with various
U.S. Bancorp 61
<PAGE>
counterparties. The Company minimizes the market and liquidity risks by taking
offsetting positions. In addition, the Company controls the market risks by
limiting the net exposure through policies, procedures, and monitoring. The
Company manages its credit risk, or potential risk of loss from default by a
counterparty, through credit limit approval and monitoring procedures. The
aggregate replacement cost of contracts in a gain position at December 31, 1997,
was not significant.
CREDIT CONCENTRATIONS The Company primarily lends to borrowers in the 17 states
where it has banking offices. Approximately 90 percent of the Company's
commercial loans were made to borrowers, representing a diverse range of
industries, in this operating region. Collateral may include marketable
securities, accounts receivable, inventory, and equipment.
For detail of the Company's real estate portfolio by property type and
geography as of December 31, 1997, and 1996, see Table 8 on page 27. This
information is incorporated by reference into these Notes to Consolidated
Financial Statements. Such loans are collateralized by the related property.
Approximately 90 percent of the total consumer portfolio consists of loans
to customers in the Company's operating region. Residential mortgages, home
equity, and auto loans are secured, but other consumer loans are generally not
secured. For detail of the Company's consumer loan portfolio referenced here,
see Table 7 on page 26 under the category "Consumer" as of December 31, 1997,
and 1996, which is incorporated by reference into these Notes to Consolidated
Financial Statements.
NOTE P FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments, both on and off balance sheet, are generally defined as
cash, equity instruments or investments, and contractual obligations to pay or
receive cash or another financial instrument. The estimated fair value of
financial instruments is based on quoted market prices. When market quotes are
unavailable, valuation techniques including discounted cash flow calculations
and pricing models or services are used.
Due to the nature of its business and its customers' needs, the Company
offers a large number of financial instruments, most of which are not actively
traded. Accordingly, the Company uses several valuation techniques and
aggregation methods for valuing various products. The Company also uses various
assumptions, such as the discount rate and cash flow timing and amounts. As a
result, the fair value estimates can neither be substantiated by independent
market comparisons, nor realized by the immediate sale or settlement of the
financial instrument. Also, the estimates reflect a point in time and could
change significantly based on changes in economic factors, such as interest
rates. Furthermore, the required disclosures exclude the estimated values of
certain financial instruments and all nonfinancial instrument cash flows.
Finally, the fair value disclosure is not intended to estimate a market value of
the Company as a whole. A summary of the Company's valuation techniques and
assumptions follows.
CASH AND CASH EQUIVALENTS: The carrying value of cash, federal funds sold, and
securities under resale agreements was assumed to approximate fair value.
SECURITIES: Generally, trading securities, held-to-maturity securities and
available-for-sale securities were valued using available market quotes. In some
instances, for securities that are not widely traded, market quotes for
comparable securities were used.
LOANS: The loan portfolio consists of both variable and fixed rate loans, the
fair value of which was estimated using discounted cash flow analyses and other
valuation techniques. To calculate discounted cash flows, the loans were
aggregated into pools of similar types and expected repayment terms. The
expected cash flows were reduced for estimated historical prepayment experience.
Projected cash flows on nonaccrual loans were further reduced by the amount of
the estimated losses on the portfolio and discounted over an assumed average
remaining life of one to two years.
COMMERCIAL: The fixed rate loans in the commercial portfolio (excluding
nonaccrual loans) had a weighted average interest rate of 8.2 percent in 1997
and 8.4 percent in 1996. The duration was 1.4 years in 1997 and 1.6 years in
1996. The floating rate loans had a weighted average interest rate of 8.4
percent in 1997 and 8.2 percent in 1996. The high-grade corporate bond yield
curve was used to arrive at the discount rates applied to these loans.
62 U.S. Bancorp
<PAGE>
COMMERCIAL REAL ESTATE AND CONSTRUCTION: The fixed rate portion of this
portfolio (excluding nonaccrual loans) had a weighted average interest rate of
8.9 percent, with a duration of 3.1 years, in 1997 and 1996. The floating rate
loans (excluding nonaccrual loans) had a weighted average interest rate of 8.8
percent in 1997 and 8.6 percent in 1996. The high-grade corporate bond yield
curve was used to arrive at the discount rates applied to these loans.
RESIDENTIAL FIRST MORTGAGES: These loans were segregated into pools of similar
coupons and maturities. The pools were matched to similar mortgage-backed
securities, and market quotes were obtained. The estimated value also reflects
the related fair value of mortgage servicing rights, which was calculated using
a discounted cash flow analysis. The fixed rate portion of this portfolio had a
weighted average interest rate of 7.7 percent in 1997 and 1996. The duration was
2.1 years in 1997 and 2.4 years in 1996.
CONSUMER INSTALLMENT: The fair value of the consumer installment portfolio was
based on an approach the Company uses in evaluating potential acquisitions.
Prepayment assumptions ranging from 25 to 30 percent were applied to scheduled
cash flows, based on the Company's experience. On the fixed rate portion, the
weighted average rate was 9.3 percent in 1997 and 1996. The duration was 2.0
years in 1997 and 1.7 years in 1996. The floating rate portion of the consumer
installment portfolio had a weighted average interest rate of 7.9 percent in
1997 and 8.2 percent in 1996.
REVOLVING HOME EQUITY LINES, SECOND MORTGAGES AND CONSUMER LINES: The fair value
of revolving home equity lines, second mortgages, and consumer lines was based
on the approach the Company uses in evaluating potential acquisitions of similar
portfolios. In 1997, estimated net income adjusted for account attrition was
discounted using an estimated cost of capital of 9.9 percent for secured lines
and loans and 13.1 percent for unsecured. In 1996, the estimated cost of capital
was 11.3 percent for secured and 14.0 percent for unsecured. The home equity
lines had a weighted average interest rate of 9.8 percent in 1997 and 9.7
percent in 1996. Fixed rate second mortgages had a weighted average interest
rate of 9.7 percent in 1997 and 9.4 percent in 1996. The duration was 2.7 years
in 1997 and 1996. Retail credit cards had a weighted average interest rate of
11.8 percent in 1997 and 12.2 percent in 1996, with a duration of 2.0 years in
1997 and 1.8 years in 1996. Other revolving lines had a weighted average
interest rate of 12.0 percent in 1997 and 11.4 percent in 1996.
CORE DEPOSIT INTANGIBLE: Core deposits provide a stable, low-cost source of
funds that can be invested to earn a return that exceeds their cost. The fair
value of the Company's core deposit intangible was calculated using a discounted
cash flow model that estimates the present value of the difference between the
ongoing cost of the core deposits and alternative funds at current market rates.
This is the same method that the Company uses in calculating the value of the
core deposit intangible of an acquired financial institution.
DEPOSIT LIABILITIES: The fair value of demand deposits, savings accounts, and
certain money market deposits is equal to the amount payable on demand at
year-end. Fair values for fixed rate certificates of deposit were estimated
using a discounted cash flow analysis based on the discount rates implied by the
high-grade corporate bond yield curve.
SHORT-TERM BORROWINGS: Federal funds purchased, borrowings under repurchase
agreements, and other short-term borrowings are at variable rates or have
short-term maturities. Their carrying value is assumed to approximate their fair
value.
LONG-TERM DEBT: Medium-term notes, bank notes, Federal Home Loan Bank Advances,
capital lease obligations, and mortgage note obligations totaled $7,725 million
in 1997 and $3,094 million in 1996. Their estimated fair value was determined
using a discounted cash flow analysis based on current market rates of similar
maturity debt securities to discount cash flows. Other long-term debt
instruments were valued using available market quotes.
INTEREST RATE SWAPS, OPTIONS, FLOORS, AND CAPS: The interest rate options and
swap cash flows were estimated using a third party pricing model and discounted
based on appropriate LIBOR, Eurodollar future, and Treasury Note yield curves.
LOAN COMMITMENTS, LETTERS OF CREDIT AND GUARANTEES: The Company's commitments
have variable rates and do not expose the Company to interest rate risk. No
premium or discount was ascribed to the loan commitments because virtually all
funding would be at current market rates.
U.S. Bancorp 63
<PAGE>
The estimated fair values of the Company's financial instruments are shown in
the table below.
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------
Carrying Fair Carrying Fair
(In Millions) Amount Value Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks. . . . $ 4,739 $ 4,739 $ 4,813 $ 4,813
Federal funds sold and resale
agreements . . . . . . . . . 692 692 898 898
Trading account securities . . 195 195 231 231
Held-to-maturity securities. . -- -- 797 811
Available-for-sale securities. 6,885 6,885 6,473 6,473
Loans:
Commercial:
Commercial. . . . . . . . 23,399 24,286 21,393 21,761
Commercial real estate
and construction. . . . 10,384 11,349 10,147 10,955
Consumer:
Residential mortgage. . . 4,480 4,647 5,225 5,237
Residential mortgage held
for sale. . . . . . . . 193 194 148 148
Home equity and second
mortgage. . . . . . . . 5,373 5,531 4,798 5,041
Credit card and revolving
lines . . . . . . . . . 5,767 6,031 5,213 5,455
Other consumer
installment . . . . . . 5,112 5,351 5,431 5,513
Allowance for credit
losses. . . . . . . . . . (1,009) -- (993) --
---------------------------------------------
Net loans . . . . . . . . 53,699 57,389 51,362 54,110
---------------------------------------------
Total financial assets. . 66,210 69,900 64,574 67,336
NONFINANCIAL ASSETS:
Core deposit intangible. . . . 160 1,400 165 1,406
Mortgage servicing portfolio . 19 22 23 28
---------------------------------------------
Total . . . . . . . . . . 66,389 $71,322 64,762 $68,770
------- -------
------- -------
Other assets . . . . . . . . . . 4,906 4,987
------- -------
Total Assets. . . . . . . $71,295 $69,749
------- -------
------- -------
FINANCIAL LIABILITIES:
Deposits:
Noninterest-bearing . . . . $14,544 $14,544 $14,344 $14,344
Interest-bearing checking
and other savings . . . . 31,199 31,199 31,610 31,610
Savings certificates and
certificates GREATER
THAN $100,000 . . . . . . 3,284 3,313 3,402 3,355
---------------------------------------------
Total deposits. . . . . . 49,027 49,056 49,356 49,309
Federal funds purchased. . . . 800 800 1,672 1,672
Securities sold under
agreements to repurchase . . 1,518 1,518 1,729 1,729
Other short-term funds
borrowed . . . . . . . . . . 974 974 3,191 3,191
Long-term debt . . . . . . . . 10,247 10,416 5,369 5,454
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely the
junior subordinated
debentures of the
parent company . . . . . . . 600 636 600 600
---------------------------------------------
Total financial
liabilities . . . . . . 63,166 $63,400 61,917 $61,955
------- -------
------- -------
NONFINANCIAL LIABILITIES . . . . 2,239 2,069
SHAREHOLDERS' EQUITY . . . . . . 5,890 5,763
------- -------
Total Liabilities and
Shareholders' Equity. . $71,295 $69,749
------- -------
------- -------
Off-Balance Sheet Financial
Instruments:
Unrecognized gain on interest
rate swaps and options . . . N/A $ 67 N/A $ 25
Unrecognized loss on interest
rate swaps and options . . . N/A -- N/A 3
Loan commitments . . . . . . . N/A -- N/A --
Letters of credit. . . . . . . N/A -- N/A --
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
64 U.S. Bancorp
<PAGE>
NOTE Q COMMITMENTS AND CONTINGENT LIABILITIES
Rental expense for operating leases amounted to $114.6 million in 1997, $116.1
million in 1996, and $112.5 million in 1995. Future minimum payments, net of
sublease rentals, under capitalized leases and noncancelable operating leases
with initial or remaining terms of one year or more, consisted of the following
at December 31, 1997:
<TABLE>
<CAPTION>
Capitalized Operating
(In Millions) Leases Leases
- - -------------------------------------------------------------------------------
<S> <C> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . $ 8.7 $ 93.6
1999 . . . . . . . . . . . . . . . . . . . . . . . 8.7 85.4
2000 . . . . . . . . . . . . . . . . . . . . . . . 8.7 77.7
2001 . . . . . . . . . . . . . . . . . . . . . . . 8.6 80.1
2002 . . . . . . . . . . . . . . . . . . . . . . . 6.9 71.6
Thereafter . . . . . . . . . . . . . . . . . . . . 61.7 387.2
-------------------
Total minimum lease payments . . . . . . . . . . . 103.3 $795.6
------
------
Less amount representing interest. . . . . . . . . 48.9
------
Present value of net minimum lease payments. . . . $ 54.4
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
Various legal proceedings are currently pending against the Company. Due to
their complex nature, it may be years before some matters are resolved. In the
opinion of management, the aggregate liability, if any, will not have a material
adverse effect on the Company's financial position, liquidity or results of
operations.
NOTE R SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET Time certificates of deposit in denominations of
$100,000 or more totaled $3,284 million and $3,402 million at December 31, 1997,
and 1996, respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS Listed below are supplemental disclosures
to the Consolidated Statement of Cash Flows.
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes paid. . . . . . . . . . . .$ 464.3 $ 508.6 $ 444.3
Interest paid. . . . . . . . . . . . . . 2,226.5 2,137.0 2,039.1
Net noncash transfers to foreclosed
property . . . . . . . . . . . . . . . 46.8 97.0 97.7
Change in unrealized gain (loss) on
available-for-sale securities,
net of taxes of $32.9 in 1997,
$16.5 in 1996 and $112.1 in 1995 . . . 54.6 (27.2) 177.0
--------------------------------
--------------------------------
Cash acquisitions of businesses:
Fair value of noncash assets
acquired . . . . . . . . . . . . . .$ 194.6 $ 38.3 $ 120.6
Liabilities assumed. . . . . . . . . . (171.0) -- (7.4)
--------------------------------
Net . . . . . . . . . . . . . . . .$ 23.6 $ 38.3 $ 113.2
--------------------------------
--------------------------------
Stock acquisitions of businesses:
Fair value of noncash assets
acquired . . . . . . . . . . . . . .$ 451.9 $ 5,284.9 $ 746.9
Net cash acquired. . . . . . . . . . . 43.2 245.8 55.4
Liabilities assumed. . . . . . . . . . (407.7) (4,493.9) (696.7)
--------------------------------
Net value of common stock issued. .$ 87.4 $ 1,036.8 $ 105.6
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
REGULATORY CAPITAL The measures used to assess capital include the capital
ratios established by bank regulatory agencies, including the specific ratios
for the "well capitalized" designation. For a description of the regulatory
capital requirements and the actual ratios as of December 31, 1997, for the
Company and its significant bank subsidiaries, see Tables 18 and 19 from which
such information is incorporated by reference into these Notes to Consolidated
Financial Statements.
U.S. Bancorp 65
<PAGE>
NOTE S U.S. BANCORP (PARENT COMPANY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (In Millions) 1997 1996
- - -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Deposits with subsidiary banks, principally
interest-bearing . . . . . . . . . . . . . . . . $ 489 $ 348
Available-for-sale securities. . . . . . . . . . . 180 179
Investments in:
Bank affiliates. . . . . . . . . . . . . . . . . 6,396 6,232
Nonbank affiliates . . . . . . . . . . . . . . . 178 136
Advances to:
Bank affiliates. . . . . . . . . . . . . . . . . 1,293 1,757
Nonbank affiliates . . . . . . . . . . . . . . . 147 122
Other assets . . . . . . . . . . . . . . . . . . . 791 758
-------------------
Total assets. . . . . . . . . . . . . . . . . $9,474 $9,532
-------------------
-------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term funds borrowed. . . . . . . . . . . . . $ -- $ 161
Advances from subsidiaries . . . . . . . . . . . . 19 25
Long-term debt . . . . . . . . . . . . . . . . . . 2,410 2,430
Junior subordinated debentures issued to
subsidiary trusts. . . . . . . . . . . . . . . . 618 618
Other liabilities. . . . . . . . . . . . . . . . . 537 535
Shareholders' equity . . . . . . . . . . . . . . . 5,890 5,763
-------------------
Total liabilities and shareholders' equity. . $9,474 $9,532
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries (including
$441.2, $1,269.4 and $927.7 from bank
subsidiaries). . . . . . . . . . . . . $488.9 $1,334.0 $ 950.0
Interest from subsidiaries . . . . . . . 139.8 97.6 71.7
Service and management fees from
subsidiaries . . . . . . . . . . . . . 201.7 204.9 232.7
Other income . . . . . . . . . . . . . . 75.7 299.0 30.5
------------------------------
Total income. . . . . . . . . . . . 906.1 1,935.5 1,284.9
EXPENSES
Interest on short-term funds borrowed. . 13.8 17.4 20.0
Interest on long-term debt . . . . . . . 180.0 154.7 132.8
Interest on junior subordinated
debentures issued to subsidiary
trusts . . . . . . . . . . . . . . . . 50.7 2.8 --
Operating expenses paid to
subsidiaries . . . . . . . . . . . . . 3.4 19.2 70.0
Merger, integration, and resizing. . . . 251.5 13.0 45.6
Other expenses . . . . . . . . . . . . . 245.1 246.0 265.0
------------------------------
Total expenses. . . . . . . . . . . 744.5 453.1 533.4
------------------------------
Income before income taxes and equity
in undistributed income of
subsidiaries . . . . . . . . . . . . . 161.6 1,482.4 751.5
Income tax (credit) expense. . . . . . . (65.7) 68.3 (58.5)
------------------------------
Income of parent company . . . . . . . . 227.3 1,414.1 810.0
Equity (deficiency) in undistributed
income of subsidiaries:
Bank affiliates. . . . . . . . . . . . 584.7 (161.4) 75.0
Nonbank affiliates . . . . . . . . . . 26.5 (34.0) 12.1
------------------------------
611.2 (195.4) 87.1
------------------------------
Net income. . . . . . . . . . . . . $838.5 $1,218.7 $ 897.1
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
66 U.S. Bancorp
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . $ 838.5 $ 1,218.7 $ 897.1
Adjustments to reconcile net income to
net cash provided by operating
activities:
(Equity) deficiency in undistributed
income of subsidiaries . . . . . . . (611.2) 195.4 (87.1)
Gains on available-for-sale
securities . . . . . . . . . . . . . (1.7) (37.5) (.5)
Depreciation and amortization of
bank premises and equipment. . . . . 17.1 19.2 19.1
(Credit) provision for deferred
income taxes . . . . . . . . . . . . (5.3) (5.2) 28.5
Amortization of goodwill and other
intangible assets. . . . . . . . . . 13.5 20.1 16.3
Decrease (increase) in accrued
receivables, net . . . . . . . . . . 4.9 165.9 (81.3)
(Decrease) increase in accrued
liabilities, net . . . . . . . . . . (13.9) 163.6 (89.0)
Other - net. . . . . . . . . . . . . . (73.9) (115.0) 40.8
--------------------------------
Net cash provided by operating
activities. . . . . . . . . . . . 168.0 1,625.2 743.9
INVESTING ACTIVITIES
Securities transactions:
Sales and maturities . . . . . . . . . 142.4 230.8 224.4
Purchases. . . . . . . . . . . . . . . (140.2) (73.9) (282.9)
Investments in subsidiaries. . . . . . . (221.2) (27.9) (142.6)
Equity distributions from subsidiaries . 769.5 304.6 111.5
Net decrease (increase) in short-term
advances to affiliates . . . . . . . . 521.6 (91.9) (65.6)
Long-term advances made to affiliates. . (80.0) (868.5) (259.7)
Principal collected on long-term
advances made to affiliates. . . . . . -- 33.5 25.2
Other - net. . . . . . . . . . . . . . . 30.8 (22.3) 10.1
--------------------------------
Net cash provided (used) by
investing activities. . . . . . . 1,022.9 (515.6) (379.6)
FINANCING ACTIVITIES
Net decrease in short-term advances
from subsidiaries. . . . . . . . . . . (9.9) (17.1) (27.7)
Net (decrease) increase in short-term
funds borrowed . . . . . . . . . . . . (161.3) (67.0) 17.7
Proceeds from long-term debt . . . . . . 307.0 552.5 1,050.5
Principal payments on long-term debt . . (331.6) (299.9) (631.5)
Proceeds from issuances of junior
subordinated debentures to subsidiary
trusts . . . . . . . . . . . . . . . . -- 618.6 --
Redemption of preferred stock. . . . . . (150.0) -- (13.2)
Proceeds from dividend reinvestment,
stock option, and stock purchase
plans. . . . . . . . . . . . . . . . . 183.5 108.6 88.9
Repurchase of common stock . . . . . . . (431.0) (1,490.1) (721.0)
Cash dividends . . . . . . . . . . . . . (456.3) (414.8) (344.5)
--------------------------------
Net cash used by financing
activities. . . . . . . . . . . .(1,049.6) (1,009.2) (580.8)
--------------------------------
Change in cash and cash
equivalents . . . . . . . . . . . 141.3 100.4 (216.5)
Cash and cash equivalents at
beginning of year. . . . . . . . . . . 348.2 247.8 464.3
--------------------------------
Cash and cash equivalents at
end of year . . . . . . . . . . .$ 489.5 $ 348.2 $ 247.8
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
The transfer of funds (dividends, loans or advances) from bank subsidiaries to
the Company is restricted. Federal law prohibits loans unless they are secured
and generally limits any loan to the Company or individual affiliate to 10
percent of the bank's equity. In aggregate, loans to the Company and all
affiliates cannot exceed 20 percent of the bank's equity.
Dividend payments to the Company by its subsidiary banks are subject to
regulatory review and statutory limitations and, in some instances, regulatory
approval. The approval of the Comptroller of the Currency is required if total
dividends by a national bank in any calendar year exceed the bank's net income
for that year combined with its retained net income for the preceding two
calendar years or if the bank's retained earnings are less than zero.
Furthermore, dividends are restricted by the Comptroller of the Currency's
minimum capital constraints for all national banks. Within these guidelines, all
bank subsidiaries have the ability to pay dividends without prior regulatory
approval.
NOTE T SUBSEQUENT EVENT
On February 18, 1998, the Company's Board of Directors announced its
intention to declare a three-for-one split of the Company's common stock and
to increase the number of common and preferred shares which the Company has
authority to issue from 500 million shares and 10 million shares,
respectively, to 1.5 billion shares and 50 million shares, respectively. The
increase in the number of authorized shares is subject to shareholder
approval. The stock split would be in the form of a dividend payable May 18,
1998 to shareholders of record on May 4,1998. The impact of the stock split has
not been reflected in the financial statements or any share or per share data.
U.S. Bancorp 67
<PAGE>
REPORT OF MANAGEMENT
The financial statements of U.S. Bancorp were prepared by management, which is
responsible for their integrity and objectivity. The statements have been
prepared in conformity with generally accepted accounting principles appropriate
in the circumstances and include amounts that are based on management's best
estimates and judgment. All financial information throughout the annual report
is consistent with that in the financial statements.
The Company maintains accounting and internal control systems that are
believed to provide reasonable assurance that assets are safeguarded and
transactions are properly authorized and recorded. To test compliance, the
Company carries out an extensive audit program. This program includes a review
for compliance with written policies and procedures and a comprehensive review
of the adequacy and effectiveness of internal control systems. However, there
are limits inherent in all systems of internal accounting control and management
recognizes that errors or irregularities may occur. Based on the recognition
that the costs of such systems should not exceed the benefits to be derived,
management believes the Company's system provides an appropriate cost/benefit
balance.
The Company's independent auditors, Ernst & Young LLP, have been engaged to
render an opinion on the financial statements and to assist in carrying out the
audit program described above. Their opinion on the financial statements is
based on procedures performed in accordance with generally accepted auditing
standards, including tests of the accounting records to the extent necessary to
allow them to report on the fairness of the financial statements. Ernst & Young
LLP has full access to the Audit Committee and the Board of Directors.
The management of the Company is committed to and has always maintained
and enforced a philosophy of high ethical standards in the conduct of its
business. Written policies covering conflicts of interest and other subjects
are formulated in a Code of Ethics which is uniformly applicable to all
officers and employees of the Company.
/s/ JOHN F. GRUNDHOFER
JOHN F. GRUNDHOFER
President and Chief Executive Officer
/s/ SUSAN E. LESTER
SUSAN E. LESTER
Executive Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
U.S. Bancorp
We have audited the accompanying consolidated balance sheets of U.S. Bancorp and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of U.S. Bancorp
and subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
January 15, 1998
68 U.S. Bancorp
<PAGE>
CONSOLIDATED BALANCE SHEET -- FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
% Change
December 31 (Dollars In Millions) 1997 1996 1995 1994 1993 1996-1997
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . $ 4,739 $ 4,813 $ 4,253 $ 3,828 $ 3,468 (1.5)%
Federal funds sold and resale
agreements . . . . . . . . . . . . . . 692 898 771 1,012 1,634 (22.9)
Trading account securities . . . . . . . 195 231 366 215 264 (15.6)
Held-to-maturity securities. . . . . . . -- 797 865 1,986 2,288 *
Available-for-sale securities:
U.S. Treasury. . . . . . . . . . . . . 628 1,028 1,686 2,106 2,776 (38.9)
Mortgage-backed. . . . . . . . . . . . 4,366 4,104 3,218 4,051 3,717 6.4
State and political. . . . . . . . . . 1,331 573 271 181 196 *
U.S. agencies and other. . . . . . . . 560 768 1,248 1,267 1,057 (27.1)
-----------------------------------------------------------
Total securities. . . . . . . . . . 6,885 6,473 6,423 7,605 7,746 6.4
Loans. . . . . . . . . . . . . . . . . . 54,708 52,355 49,345 46,375 43,870 4.5
Less allowance for credit losses . . . 1,009 993 908 863 811 1.6
-----------------------------------------------------------
Net loans . . . . . . . . . . . . . 53,699 51,362 48,437 45,512 43,059 4.6
Other assets . . . . . . . . . . . . . . 5,085 5,175 4,553 4,579 3,998 (1.7)
-----------------------------------------------------------
Total assets. . . . . . . . . . . . $71,295 $69,749 $65,668 $64,737 $62,457 2.2%
-----------------------------------------------------------
-----------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing. . . . . . . . . . $14,544 $14,344 $12,367 $11,353 $12,913 1.4%
Interest-bearing . . . . . . . . . . . 34,483 35,012 33,412 34,762 34,921 (1.5)
-----------------------------------------------------------
Total deposits. . . . . . . . . . . 49,027 49,356 45,779 46,115 47,834 (.7)
Short-term borrowings. . . . . . . . . . 3,292 6,592 7,984 7,501 4,638 (50.1)
Long-term debt . . . . . . . . . . . . . 10,247 5,369 4,583 4,225 3,231 90.9
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . 600 600 -- -- -- --
Other liabilities. . . . . . . . . . . . 2,239 2,069 1,980 1,791 1,568 8.2
-----------------------------------------------------------
Total liabilities . . . . . . . . . 65,405 63,986 60,326 59,632 57,271 2.2
Shareholders' equity . . . . . . . . . . 5,890 5,763 5,342 5,105 5,186 2.2
-----------------------------------------------------------
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . $71,295 $69,749 $65,668 $64,737 $62,457 2.2%
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*NOT MEANINGFUL
U.S. Bancorp 69
<PAGE>
CONSOLIDATED STATEMENT OF INCOME -- FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
Year Ended December 31 (Dollars % Change
in Millions) 1997 1996 1995 1994 1993 1996-1997
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans. . . . . . . . . . . . . . . . . . $4,784.5 $4,537.7 $4,373.4 $3,686.6 $3,361.7 5.4%
Securities:
Taxable. . . . . . . . . . . . . . . . 371.5 420.5 420.3 535.1 596.3 (11.7)
Exempt from federal income taxes . . . 68.1 71.0 59.8 62.8 59.7 (4.1)
Other interest income. . . . . . . . . . 69.5 85.2 67.3 63.5 63.9 (18.4)
-----------------------------------------------------------
Total interest income. . . . . . . . . 5,293.6 5,114.4 4,920.8 4,348.0 4,081.6 3.5
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . 1,436.8 1,441.3 1,416.7 1,121.1 1,174.1 (.3)
Federal funds purchased and repurchase
agreements . . . . . . . . . . . . . . 183.0 197.9 218.2 190.8 83.1 (7.5)
Other short-term funds borrowed. . . . . 117.6 198.0 189.8 68.3 53.0 (40.6)
Long-term debt . . . . . . . . . . . . . 459.0 303.8 273.4 227.2 184.3 51.1
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . 49.1 2.8 -- -- -- *
-----------------------------------------------------------
Total interest expense. . . . . . . 2,245.5 2,143.8 2,098.1 1,607.4 1,494.5 4.7
-----------------------------------------------------------
Net interest income. . . . . . . . . . . 3,048.1 2,970.6 2,822.7 2,740.6 2,587.1 2.6
Provision for credit losses . . . . . . 460.3 271.2 239.1 243.7 239.3 69.7
-----------------------------------------------------------
Net interest income after provision
for credit losses. . . . . . . . . . . 2,587.8 2,699.4 2,583.6 2,496.9 2,347.8 (4.1)
NONINTEREST INCOME
Credit card fee revenue. . . . . . . . . 418.8 351.5 303.9 248.9 204.7 19.1
Service charges on deposit accounts. . . 396.2 377.2 345.0 346.7 320.7 5.0
Trust and investment management fees . . 348.0 302.3 241.1 224.5 208.4 15.1
Gain on sale of mortgage banking operations,
branches and other assets. . . . . . . 9.4 71.4 39.9 62.9 65.1 (86.8)
Securities gains (losses). . . . . . . . 3.6 20.8 3.0 (124.2) .8 (82.7)
Termination fee. . . . . . . . . . . . . -- 190.0 -- -- -- *
State income tax refund. . . . . . . . . -- 65.0 -- -- -- *
Other. . . . . . . . . . . . . . . . . . 439.2 404.9 380.4 356.1 444.1 8.5
-----------------------------------------------------------
Total noninterest income . . . . . . . 1,615.2 1,783.1 1,313.3 1,114.9 1,243.8 (9.4)
NONINTEREST EXPENSE
Salaries . . . . . . . . . . . . . . . . 969.3 964.5 927.5 974.9 971.9 .5
Employee benefits. . . . . . . . . . . . 217.4 220.3 209.9 224.4 216.2 (1.3)
Net occupancy. . . . . . . . . . . . . . 182.0 179.4 183.4 190.7 194.3 1.4
Furniture and equipment. . . . . . . . . 165.4 175.2 184.5 184.4 171.2 (5.6)
Goodwill and other intangible assets . . 113.3 130.1 76.0 72.5 68.4 (12.9)
Professional services. . . . . . . . . . 70.3 58.0 59.2 65.9 70.1 21.2
Other personnel costs. . . . . . . . . . 66.6 83.4 62.4 60.8 57.2 (20.1)
FDIC insurance . . . . . . . . . . . . . 9.0 11.9 64.5 105.7 105.5 (24.4)
Merger, integration, and resizing. . . . 511.6 88.1 98.9 222.7 72.2 *
SAIF special assessment. . . . . . . . . -- 61.3 -- -- -- *
Other. . . . . . . . . . . . . . . . . . 507.4 565.9 609.6 630.1 587.9 (10.3)
-----------------------------------------------------------
Total noninterest expense. . . . . . . 2,812.3 2,538.1 2,475.9 2,732.1 2,514.9 10.8
-----------------------------------------------------------
Income from continuing operations before
income taxes . . . . . . . . . . . . . 1,390.7 1,944.4 1,421.0 879.7 1,076.7 (28.5)
Applicable income taxes. . . . . . . . . 552.2 725.7 523.9 311.5 374.9 (23.9)
-----------------------------------------------------------
Income from continuing operations. . . . 838.5 1,218.7 897.1 568.2 701.8 (31.2)
Income (loss) from discontinued
operations . . . . . . . . . . . . . . -- -- -- (8.5) 2.5 *
-----------------------------------------------------------
Net income . . . . . . . . . . . . . . . $ 838.5 $1,218.7 $ 897.1 $ 559.7 $ 704.3 (31.2)%
-----------------------------------------------------------
-----------------------------------------------------------
Net income applicable to common equity . $ 827.9 $1,200.3 $ 877.4 $ 534.9 $ 662.9 (31.0)%
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*NOT MEANINGFUL
70 U.S. Bancorp
<PAGE>
QUARTERLY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
(Dollars in Millions, Except Per Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Share Data)
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans . . . . . . . . . . . . . $1,222.6 $1,211.1 $1,197.6 $1,153.2 $1,167.4 $1,149.3 $1,120.7 $1,100.3
Securities:
Taxable. . . . . . . . . . . . 90.5 89.0 95.4 96.6 101.1 104.5 105.8 109.1
Exempt from federal income
taxes. . . . . . . . . . . . 16.6 16.8 17.4 17.3 17.5 18.0 19.0 16.5
Other interest income. . . . . . 18.8 15.2 18.4 17.1 17.2 22.6 22.3 23.1
-----------------------------------------------------------------------------------------------
Total interest income. . . . . 1,348.5 1,332.1 1,328.8 1,284.2 1,303.2 1,294.4 1,267.8 1,249.0
INTEREST EXPENSE
Deposits . . . . . . . . . . . . 359.1 362.3 363.6 351.8 362.6 363.6 358.3 356.8
Federal funds purchased and
repurchase agreements. . . . . 42.4 41.9 50.8 47.9 47.7 51.2 47.0 52.0
Other short-term funds borrowed. 19.4 28.2 33.1 36.9 48.8 48.2 49.6 51.4
Long-term debt . . . . . . . . . 144.4 122.1 104.2 88.3 79.1 77.5 74.0 73.2
Company-obligated mandatority
redeemable preferred securities
of subsidiary trusts holding
solely the junior subordinated
debentures of the parent
company. . . . . . . . . . . . 12.2 12.3 12.3 12.3 2.8 -- -- --
-----------------------------------------------------------------------------------------------
Total interest expense. . . 577.5 566.8 564.0 537.2 541.0 540.5 528.9 533.4
-----------------------------------------------------------------------------------------------
Net interest income. . . . . . . 771.0 765.3 764.8 747.0 762.2 753.9 738.9 715.6
Provision for credit losses . . 90.0 185.0 101.1 84.2 75.5 73.1 61.5 61.1
-----------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses. . 681.0 580.3 663.7 662.8 686.7 680.8 677.4 654.5
NONINTEREST INCOME
Credit card fee revenue. . . . . 123.1 106.2 98.8 90.7 91.3 90.1 88.7 81.4
Service charges on deposit
accounts . . . . . . . . . . . 101.2 102.2 97.4 95.4 97.4 96.4 92.9 90.5
Trust and investment management
fees . . . . . . . . . . . . . 88.8 87.4 87.2 84.6 77.3 74.2 77.4 73.4
Gain on sale of mortgage banking
operations, branches and
other assets . . . . . . . . . -- 9.4 -- -- -- -- 25.7 45.7
Securities gains . . . . . . . . -- -- 1.9 1.7 .5 .9 1.4 18.0
Termination fee. . . . . . . . . -- -- -- -- -- -- 75.0 115.0
State income tax refund. . . . . -- -- -- -- -- -- 65.0 --
Other . . . . . . . . . . . . . 107.4 104.5 122.2 105.1 94.3 99.5 103.8 107.3
-----------------------------------------------------------------------------------------------
Total noninterest income . . . 420.5 409.7 407.5 377.5 360.8 361.1 529.9 531.3
NONINTEREST EXPENSE
Salaries . . . . . . . . . . . . 239.6 242.2 246.9 240.6 240.0 238.1 243.7 242.7
Employee benefits. . . . . . . . 49.9 49.2 57.2 61.1 52.2 52.2 56.0 59.9
Net occupancy. . . . . . . . . . 45.7 45.3 45.2 45.8 45.5 44.6 43.0 46.3
Furniture and equipment. . . . . 38.0 40.4 44.2 42.8 43.8 42.1 44.5 44.8
Goodwill and other intangible
assets . . . . . . . . . . . . 31.0 29.1 25.8 27.4 27.4 27.1 24.6 51.0
Professional services. . . . . . 22.8 18.9 15.1 13.5 17.4 13.5 14.9 12.2
Other personnel costs. . . . . . 19.5 14.3 16.4 16.4 22.3 23.8 21.1 16.2
FDIC insurance . . . . . . . . . 2.1 2.4 2.4 2.1 .5 2.5 4.5 4.4
Merger, integration, and
resizing . . . . . . . . . . . 71.4 440.2 -- -- -- -- 9.8 78.3
SAIF special assessment. . . . . -- -- -- -- -- 61.3 -- --
Other . . . . . . . . . . . . . 124.2 121.1 136.3 125.8 137.8 137.1 141.2 149.8
-----------------------------------------------------------------------------------------------
Total noninterest expense. . . 644.2 1,003.1 589.5 575.5 586.9 642.3 603.3 705.6
-----------------------------------------------------------------------------------------------
Income before income taxes . . . 457.3 (13.1) 481.7 464.8 460.6 399.6 604.0 480.2
Applicable income taxes. . . . . 168.4 34.5 177.8 171.5 168.5 143.9 222.8 190.5
-----------------------------------------------------------------------------------------------
Net income (loss). . . . . . . . $ 288.9 $ (47.6) $ 303.9 $ 293.3 $ 292.1 $ 255.7 $ 381.2 $ 289.7
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net income (loss) applicable to
common equity. . . . . . . . . $ 287.5 $ (50.7) $ 300.8 $ 290.3 $ 287.7 $ 251.1 $ 376.5 $ 285.0
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net income (loss) per common
share. . . . . . . . . . . . . $ 1.17 $ (.21) $ 1.23 $ 1.18 $ 1.17 $ 1.00 $ 1.49 $ 1.15
Diluted net income (loss) per
common share . . . . . . . . . $ 1.16 $ (.21) $ 1.22 $ 1.17 $ 1.15 $ .98 $ 1.46 $ 1.13
SELECTED AVERAGE BALANCES
Loans . . . . . . . . . . . . . $ 54,386 $ 53,690 $53,515 $52,438 $52,108 $51,240 $50,605 $49,450
Earning assets . . . . . . . . . 62,365 61,541 61,859 60,886 60,854 60,639 60,148 59,147
Total assets . . . . . . . . . . 69,861 68,423 68,877 67,890 68,132 67,871 67,420 66,168
Deposits . . . . . . . . . . . . 47,468 47,035 47,688 47,160 47,784 47,573 47,444 46,197
Long-term debt . . . . . . . . . 9,534 8,008 6,768 5,751 5,119 5,020 4,847 4,629
Common equity. . . . . . . . . . 5,698 5,736 5,616 5,615 5,692 5,789 5,706 5,533
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 71
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
Year ended December 31 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------------
Interest Yields Interest Yields
(Dollars In Millions) Balance Interest and Rates Balance Interest and Rates
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Available-for-sale securities:
U.S. Treasury. . . . . . . . . . . . . $ 734 $ 42.7 5.82% $1,255 $ 74.3 5.92%
Mortgage-backed. . . . . . . . . . . . 4,239 290.5 6.85 4,158 279.7 6.73
State and political subdivisions . . . 889 69.8 7.85 555 47.0 8.47
U.S. agencies and other. . . . . . . . 595 36.1 6.07 978 65.7 6.72
---------------------- --------------------
Total available-for-sale
securities. . . . . . . . . . . . 6,457 439.1 6.80 6,946 466.7 6.72
Unrealized gain (loss) on
available-for-sale securities. . . . . 3 (21)
---------- -------
Net available-for-sale securities . 6,460 6,925
Held-to-maturity securities. . . . . . . 449 35.5 7.91 834 64.0 7.67
Trading account securities . . . . . . . 168 9.7 5.77 233 13.2 5.67
Federal funds sold and resale
agreements . . . . . . . . . . . . . . 577 31.6 5.48 872 46.5 5.33
Loans:
Commercial:
Commercial. . . . . . . . . . . . . 22,466 1,829.8 8.14 20,910 1,708.0 8.17
Real estate:
Commercial mortgage . . . . . . . 8,037 728.5 9.06 7,630 687.5 9.01
Construction. . . . . . . . . . . 2,255 216.9 9.62 1,707 165.4 9.69
---------------------- --------------------
Total commercial. . . . . . . . . 32,758 2,775.2 8.47 30,247 2,560.9 8.47
Consumer:
Residential mortgage. . . . . . . . 4,879 389.7 7.99 5,495 444.2 8.08
Residential mortgage held for
sale. . . . . . . . . . . . . . . 165 12.4 7.52 239 16.8 7.03
Home equity and second mortgage . . 5,115 493.8 9.65 4,385 416.1 9.49
Credit card . . . . . . . . . . . . 3,702 462.9 12.50 3,452 444.0 12.86
Other . . . . . . . . . . . . . . . 6,894 673.2 9.77 7,037 680.6 9.67
---------------------- --------------------
Total consumer. . . . . . . . . . 20,755 2,032.0 9.79 20,608 2001.7 9.71
---------------------- --------------------
Total loans . . . . . . . . . . . 53,513 4,807.2 8.98 50,855 4,562.6 8.97
Allowance for credit losses. . . . . . 998 973
---------- -------
Net loans . . . . . . . . . . . . . 52,515 49,882
Other earning assets . . . . . . . . . . 511 28.4 5.56 461 25.5 5.53
---------------------- --------------------
Total earning assets* . . . . . . 61,675 5,351.5 8.68 60,201 5,178.5 8.60
Cash and due from banks. . . . . . . . . 3,682 3,729
Other assets . . . . . . . . . . . . . . 4,409 4,466
---------- -------
Total assets. . . . . . . . . . . $68,771 $67,402
---------- -------
---------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits . . . . . . $12,680 $11,970
Interest-bearing deposits:
Interest checking . . . . . . . . . 5,561 92.2 1.66 5,678 90.1 1.59
Money market accounts . . . . . . . 10,440 401.9 3.85 10,068 379.4 3.77
Other savings accounts. . . . . . . 2,799 61.2 2.19 3,157 70.7 2.24
Savings certificates. . . . . . . . 12,278 668.9 5.45 12,985 703.2 5.42
Certificates over $100,000. . . . . 3,578 212.6 5.94 3,394 197.9 5.83
---------------------- --------------------
Total interest-bearing deposits . 34,656 1,436.8 4.15 35,282 1,441.3 4.09
Short-term borrowings. . . . . . . . . . 5,314 300.6 5.66 7,187 395.9 5.51
Long-term debt . . . . . . . . . . . . . 7,527 459.0 6.10 4,908 303.8 6.19
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . 600 49.1 8.18 36 2.8 8.18
---------------------- --------------------
Total interest-bearing
liabilities . . . . . . . . . . 48,097 2,245.5 4.67 47,413 2,143.8 4.52
Other liabilities. . . . . . . . . . . . 2,196 2,100
Preferred equity . . . . . . . . . . . . 131 240
Common equity. . . . . . . . . . . . . . 5,665 5,693
Unrealized gain (loss) on
available-for-sale securities,
net of tax . . . . . . . . . . . . . . 2 (14)
---------- -------
Total liabilities and
shareholders' equity. . . . . . $68,771 $67,402
---------- -------
---------- -------
Net interest income. . . . . . . . . . . $3,106.0 $3,034.7
---------- ----------
---------- ----------
Gross interest margin. . . . . . . . . . 4.01% 4.08%
-------- --------
-------- --------
Gross interest margin without
taxable-equivalent increments. . . . . 3.91% 3.98%
-------- --------
-------- --------
PERCENT OF EARNING ASSETS
Interest income. . . . . . . . . . . . . 8.68% 8.60%
Interest expense . . . . . . . . . . . . 3.64 3.56
-------- --------
Net interest margin . . . . . . . . 5.04 5.04
-------- --------
Net interest margin without
taxable-equivalent increments. . . . . 4.94% 4.93%
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
INTEREST AND RATES ARE PRESENTED ON A FULLY TAXABLE-EQUIVALENT BASIS UNDER A TAX RATE OF 35 PERCENT.
INTEREST INCOME AND RATES ON LOANS INCLUDE LOAN FEES. NONACCRUAL LOANS ARE INCLUDED IN AVERAGE LOAN BALANCES.
*BEFORE DEDUCTING THE ALLOWANCE FOR CREDIT LOSSES AND EXCLUDING THE UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES.
**NOT MEANINGFUL
***DETAIL NOT AVAILABLE
72 U.S. Bancorp
<PAGE>
YIELDS AND RATES
<CAPTION>
Year ended December 31 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------
Interest Yields Interest Yields
(Dollars In Millions) Balance Interest and Rates Balance Interest and Rates
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Available-for-sale securities:
U.S. Treasury. . . . . . . . . . . . . $ 1,864 $ 109.0 5.85% $ 2,704 $ 142.6 5.27%
Mortgage-backed. . . . . . . . . . . . 2,711 171.0 6.31 4,085 253.8 6.21
State and political subdivisions . . . 177 18.9 10.68 188 20.0 10.64
U.S. agencies and other. . . . . . . . 1,125 82.5 7.33 1,179 65.0 5.51
---------------------- --------------------
Total available-for-sale
securities. . . . . . . . . . . . 5,877 381.4 6.49 8,156 481.4 5.90
Unrealized gain (loss) on
available-for-sale securities. . . . . (69) (97)
---------- -------
Net available-for-sale securities . 5,808 8,059
Held-to-maturity securities. . . . . . . 1,833 131.7 7.18 2,162 151.1 6.99
Trading account securities . . . . . . . 266 15.8 5.94 247 13.3 5.38
Federal funds sold and resale
agreements . . . . . . . . . . . . . . 531 30.8 5.80 715 30.7 4.29
Loans:
Commercial:
Commercial. . . . . . . . . . . . . *** *** *** ***
Real estate:
Commercial mortgage . . . . . . . *** *** *** ***
Construction. . . . . . . . . . . *** *** *** ***
---------------------- --------------------
Total commercial. . . . . . . . . 27,048 2,415.2 8.93 24,630 1,934.6 7.85
Consumer:
Residential mortgage. . . . . . . . *** *** *** ***
Residential mortgage held for
sale. . . . . . . . . . . . . . . *** *** *** ***
Home equity and second mortgage . . *** *** *** ***
Credit card . . . . . . . . . . . . *** *** *** ***
Other . . . . . . . . . . . . . . . *** *** *** ***
---------------------- --------------------
Total consumer. . . . . . . . . . 20,655 1,989.2 9.63 19,954 1,785.9 8.95
---------------------- --------------------
Total loans . . . . . . . . . . . 47,703 4,404.4 9.23 44,584 3,720.5 8.34
Allowance for credit losses. . . . . . 869 847
---------- -------
Net loans . . . . . . . . . . . . . 46,834 43,737
Other earning assets . . . . . . . . . . 346 20.6 5.95 369 20.0 5.42
---------------------- --------------------
Total earning assets* . . . . . . 56,556 4,984.7 8.81 56,233 4,417.0 7.85
Cash and due from banks. . . . . . . . . 3,516 3,573
Other assets . . . . . . . . . . . . . . 3,950 3,846
---------- -------
Total assets. . . . . . . . . . . $63,084 $62,708
---------- -------
---------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits . . . . . . $10,646 $11,299
Interest-bearing deposits:
Interest checking . . . . . . . . . 5,473 88.2 1.61 5,826 85.4 1.47
Money market accounts . . . . . . . 8,952 357.5 3.99 8,600 247.1 2.87
Other savings accounts. . . . . . . 3,566 87.8 2.46 4,540 100.8 2.22
Savings certificates. . . . . . . . 13,223 704.2 5.33 13,200 551.4 4.18
Certificates over $100,000. . . . . 2,866 179.0 6.25 2,681 136.4 5.09
---------------------- --------------------
Total interest-bearing deposits . 34,080 1,416.7 4.16 34,847 1,121.1 3.22
Short-term borrowings. . . . . . . . . . 6,969 408.0 5.85 6,011 259.1 4.31
Long-term debt . . . . . . . . . . . . . 4,162 273.4 6.57 3,796 227.2 5.99
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . -- -- -- -- -- --
---------------------- --------------------
Total interest-bearing
liabilities . . . . . . . . . . 45,211 2,098.1 4.64 44,654 1,607.4 3.60
Other liabilities. . . . . . . . . . . . 1,882 1,575
Preferred equity . . . . . . . . . . . . 255 293
Common equity. . . . . . . . . . . . . . 5,134 4,948
Unrealized gain (loss) on
available-for-sale securities,
net of tax . . . . . . . . . . . . . . (44) (61)
---------- -------
Total liabilities and
shareholders' equity. . . . . . $63,084 $62,708
---------- -------
---------- -------
Net interest income. . . . . . . . . . . $2,886.6 $2,809.6
---------- ----------
---------- ----------
Gross interest margin. . . . . . . . . . 4.17% 4.25%
-------- --------
-------- --------
Gross interest margin without
taxable-equivalent increments. . . . . 4.06% 4.13%
-------- --------
-------- --------
PERCENT OF EARNING ASSETS
Interest income. . . . . . . . . . . . . 8.81% 7.85%
Interest expense . . . . . . . . . . . . 3.71 2.86
-------- --------
Net interest margin . . . . . . . . 5.10 4.99
-------- --------
Net interest margin without
taxable-equivalent increments. . . . . 4.99% 4.87%
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
INTEREST AND RATES ARE PRESENTED ON A FULLY TAXABLE-EQUIVALENT BASIS UNDER A TAX RATE OF 35 PERCENT.
INTEREST INCOME AND RATES ON LOANS INCLUDE LOAN FEES. NONACCRUAL LOANS ARE INCLUDED IN AVERAGE LOAN BALANCES.
*BEFORE DEDUCTING THE ALLOWANCE FOR CREDIT LOSSES AND EXCLUDING THE UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES.
**NOT MEANINGFUL
***DETAIL NOT AVAILABLE
U.S. Bancorp 73
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<CAPTION>
Year ended December 31 1993 1996-1997
- - -----------------------------------------------------------------------------------------------------------------------------
Interest Yields % Change
(Dollars In Millions) Balance Interest and Rates Average Balance
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Available-for-sale securities:
U.S. Treasury. . . . . . . . . . . . . $ 1,866 $ 104.8 5.62% (41.5)%
Mortgage-backed. . . . . . . . . . . . 3,323 207.8 6.25 1.9
State and political subdivisions . . . 202 22.4 11.09 60.2
U.S. agencies and other. . . . . . . . 865 52.2 6.03 (39.2)
----------------------
Total available-for-sale
securities. . . . . . . . . . . . 6,256 387.2 6.19 (7.0)
Unrealized gain (loss) on
available-for-sale securities. . . . . -- **
----------
Net available-for-sale securities . 6,256 (6.7)
Held-to-maturity securities. . . . . . . 4,603 299.8 6.51 (46.2)
Trading account securities . . . . . . . 313 14.7 4.70 (27.9)
Federal funds sold and resale
agreements . . . . . . . . . . . . . . 1,081 32.7 3.02 (33.8)
Loans:
Commercial:
Commercial. . . . . . . . . . . . . *** *** 7.4
Real estate:
Commercial mortgage . . . . . . . *** *** 5.3
Construction. . . . . . . . . . . *** *** 32.1
----------------------
Total commercial. . . . . . . . . 22,652 1,690.9 7.46 8.3
Consumer:
Residential mortgage. . . . . . . . *** *** (11.2)
Residential mortgage held for
sale. . . . . . . . . . . . . . . *** *** (31.0)
Home equity and second mortgage . . *** *** 16.6
Credit card . . . . . . . . . . . . *** *** 7.2
Other . . . . . . . . . . . . . . . *** *** (2.0)
----------------------
Total consumer. . . . . . . . . . 18,440 1,707.4 9.26 .7
Total loans . . . . . . . . . . . 41,092 3,398.3 8.27 5.2
Allowance for credit losses. . . . . . 823 2.6
----------
Net loans . . . . . . . . . . . . . 40,269 5.3
Other earning assets . . . . . . . . . . 381 20.0 5.25 10.8
----------------------
Total earning assets* . . . . . . 53,726 4,152.7 7.73 2.4
Cash and due from banks. . . . . . . . . 3,484 (1.3)
Other assets . . . . . . . . . . . . . . 3,800 (1.3)
----------
Total assets. . . . . . . . . . . $60,187 2.0%
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits . . . . . . $11,295 5.9%
Interest-bearing deposits:
Interest checking . . . . . . . . . 5,605 93.4 1.67 (2.1)
Money market accounts . . . . . . . 8,362 220.9 2.64 3.7
Other savings accounts. . . . . . . 4,323 102.9 2.38 (11.3)
Savings certificates. . . . . . . . 14,300 621.6 4.35 (5.4)
Certificates over $100,000. . . . . 2,731 135.3 4.95 5.4
----------------------
Total interest-bearing deposits . 35,321 1,174.1 3.32 (1.8)
Short-term borrowings. . . . . . . . . . 4,110 136.1 3.31 (26.1)
Long-term debt . . . . . . . . . . . . . 2,916 184.3 6.32 53.4
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . -- -- -- **
----------------------
Total interest-bearing
liabilities . . . . . . . . . . 42.347 1,494.5 3.53 1.4
Other liabilities. . . . . . . . . . . . 1,533 4.6
Preferred equity . . . . . . . . . . . . 510 (45.4)
Common equity. . . . . . . . . . . . . . 4,502 (.5)
Unrealized gain (loss) on
available-for-sale securities,
net of tax . . . . . . . . . . . . . . -- **
----------
Total liabilities and
shareholders' equity. . . . . . $60,187 2.0%
----------
---------- ------
Net interest income. . . . . . . . . . . $2,658.2
----------
----------
Gross interest margin. . . . . . . . . . 4.20%
--------
--------
Gross interest margin without
taxable-equivalent increments. . . . . 4.07%
--------
--------
PERCENT OF EARNING ASSETS
Interest income. . . . . . . . . . . . . 7.73%
Interest expense . . . . . . . . . . . . 2.78
--------
Net interest margin . . . . . . . . 4.95
--------
Net interest margin without
taxable-equivalent increments. . . . . 4.82%
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
INTEREST AND RATES ARE PRESENTED ON A FULLY TAXABLE-EQUIVALENT BASIS UNDER A TAX RATE OF 35 PERCENT.
INTEREST INCOME AND RATES ON LOANS INCLUDE LOAN FEES. NONACCRUAL LOANS ARE INCLUDED IN AVERAGE LOAN BALANCES.
*BEFORE DEDUCTING THE ALLOWANCE FOR CREDIT LOSSES AND EXCLUDING THE UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES.
**NOT MEANINGFUL
***DETAIL NOT AVAILABLE
</TABLE>
U.S. Bancorp 73
<PAGE>
SUPPLEMENTAL FINANCIAL DATA
<TABLE>
<CAPTION>
EARNINGS PER SHARE SUMMARY
1997 1996 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings per share from
continuing operations. . . . $3.39 $4.81 $3.56 $2.19 $2.71
Income (loss) from
discontinued operations. . . -- -- -- (.03) .01
Earnings per share . . . . . . $3.39 $4.81 $3.56 $2.16 $2.72
Diluted earnings per share
from continuing operations . $3.34 $4.72 $3.48 $2.14 $2.64
Income (loss) from
discontinued operations. . . -- -- -- (.03) .01
Diluted earnings per share . . $3.34 $4.72 $3.48 $2.11 $2.65
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS
1997 1996 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets . . . 1.22% 1.81% 1.42% .89% 1.17%
Return on average common
equity . . . . . . . . . . . 14.6 21.1 17.2 10.9 14.7
Average total equity to
average assets . . . . . . . 8.4 8.8 8.5 8.3 8.3
Dividends per share to net
income per share . . . . . . 54.9 34.3 40.7 53.7 36.8
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OTHER STATISTICS
1997 1996 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common shares outstanding -
year end*. . . . . . . . . . 246,644,338 246,005,990 241,031,881 248,686,447 244,023,773
Average common shares
outstanding and common
stock equivalents:
Earnings per share . . . . . 244,516,964 249,726,158 246,217,723 248,052,659 244,133,540
Diluted earnings per
share. . . . . . . . . . . 247,637,912 255,390,668 254,887,049 258,269,631 254,007,511
Number of shareholders -
year-end** . . . . . . . . . 41,657 43,353 41,701 47,911 48,585
Average number of employees
(full-time equivalents). . . 25,858 27,157 27,795 31,185 31,674
Common dividends paid
(millions) . . . . . . . . . $445.7 $406.9 $327.4 $276.5 $222.7
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
</TABLE>
* DEFINED AS TOTAL COMMON SHARES LESS COMMON STOCK HELD IN TREASURY.
**BASED ON NUMBER OF COMMON STOCK SHAREHOLDERS OF RECORD.
<TABLE>
<CAPTION>
STOCK PRICE RANGE AND DIVIDENDS
1997 1996
-----------------------------------------------------------------------------------
Sales Price Dividends Sales Price Dividends
----------------------- -----------------------
High Low Paid High Low Paid
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter. . . . . . . . . $ 84.50 $ 67.50 $.4650 $59.88 $46.00 $.4125
Second quarter . . . . . . . . 87.50 71.00 .4650 63.75 56.25 .4125
Third quarter. . . . . . . . . 97.50 85.56 .4650 68.00 55.38 .4125
Fourth quarter . . . . . . . . 116.63 92.25 .4650 74.00 63.75 .4125
Closing price - December 31. . 111.94 68.25
- - ----------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE COMMON STOCK OF U.S. BANCORP IS TRADED ON THE NEW YORK STOCK EXCHANGE, UNDER
THE TICKER SYMBOL, "USB."
74 U.S. Bancorp
<PAGE>
COMMERCIAL LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------
In 1 Year After 1 Year
(In Millions) or Less Through 5 Years After 5 Years
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, lease financing and
agricultural . . . . . . . . . $18,402 $4,097 $ 900
Real estate:
Commercial mortgage. . . . . . 4,172 2,219 1,634
Construction . . . . . . . . . 2,254 91 14
Total . . . . . . . . . . . $24,828 $6,407 $ 2,548
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
<CAPTION>
Due in Due After
One Year One Year Total
------------------------------------------
Loans at fixed interest rates. . $ 2,706 $6,764 $ 9,470
Loans at variable interest
rates. . . . . . . . . . . . . 22,122 2,191 24,313
Total . . . . . . . . . . . $24,828 $8,955 $33,783
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
</TABLE>
TIME CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS IN DENOMINATIONS OF
$100,000 OR MORE AT DECEMBER 31
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------
Under Three Six to Over
Three to Six Twelve Twelve
(In Millions) Months Months Months Months Total
- - ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 . . . . . . . . $1,077 $762 $508 $937 $3,284
1996 . . . . . . . . 1,749 573 483 597 3,402
1995 . . . . . . . . 1,226 377 432 597 2,632
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
</TABLE>
SHORT-TERM FUNDS BORROWED
<TABLE>
<CAPTION>
Average Maximum Average Weighted
Daily Outstanding Interest Rate Average
Outstanding Amount Month-End Paid During Interest Rate
(In Millions) at Year-End Outstanding Balance the Year at Year-End
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Federal funds purchased
and securities sold
under agreements to
repurchase. . . . . . . $2,318 $3,242 $4,188 5.64% 5.23%
Other. . . . . . . . . . 974 2,072 3,082 5.68 5.33
-------------------------
Total. . . . . . . . . . $3,292 $5,314 6,879 5.66 5.26
-------------------------
-------------------------
1996
Federal funds purchased
and securities sold
under agreements to
repurchase . . . . . . $3,401 $3,719 $4,114 5.32% 5.34%
Other. . . . . . . . . . 3,191 3,468 4,330 5.71 5.53
-------------------------
Total. . . . . . . . . . $6,592 $7,187 7,797 5.51 5.43
-------------------------
-------------------------
1995
Federal funds purchased
and securities sold
under agreements to
repurchase . . . . . . $3,914 $3,795 $4,649 5.75% 5.25%
Other. . . . . . . . . . 4,070 3,174 4,658 5.98 5.61
-------------------------
Total. . . . . . . . . . $7,984 $6,969 8,037 5.85 5.43
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 75
<PAGE>
ANNUAL REPORT ON FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1997.
Commission File Number 1-6880
U.S. BANCORP
Incorporated in the State of Delaware
IRS Employer Identification #41-0255900
Address: 601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Telephone: (612) 973-1111
Securities registered pursuant to Section 12(b) of the Act (and listed on the
New York Stock Exchange): Common Stock, Par Value $1.25.
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Shares of Common Stock.
As of January 31, 1998, U.S. Bancorp had 246,936,015 shares of common
stock outstanding. The aggregate market value of common stock held by
non-affiliates as of January 31, 1998, was approximately $25,838,000,000.
U.S. Bancorp (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past 90
days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
This Annual Report and Form 10-K incorporates into a single document the
requirements of the accounting profession and the Securities and Exchange
Commission. Only those sections of the Annual Report referenced in the
following cross-reference index and the information under the caption
"Forward-Looking Statements" are incorporated in the Form 10-K.
<TABLE>
<CAPTION>
Cross-Reference Page
- - ------------------------------------------------------
<S> <C> <C>
PART I
ITEM 1 Business
General. . . . . . . . . . . . . . . . . . 77
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates
and Interest Differential. . . 22-23, 72-73
Investment Portfolio . . . . . .28-29, 49, 69
Loan Portfolio . .26-28, 30-34, 45-46, 50, 75
Summary of Loan Loss Experience.23, 30-34, 50
Deposits . . . . . . . . . . . .29, 72-73, 75
Return on Equity and Assets. . . . . . . . 74
Short-Term Borrowings. . . . . . . . . . . 75
ITEM 2 Properties . . . . . . . . . . . . . . . . 77
ITEM 3 Legal Proceedings. . . . . . . . . . . . none
ITEM 4 Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . none
PART II
ITEM 5 Market for the Registrant's Common Equity
and Related Stockholder
Matters. . . . . . . . . . . .37-38, 67, 76
ITEM 6 Selected Financial Data. . . . . . . . . . 19
ITEM 7 Management's Discussion and
Analysis of Financial Condition and
Results of Operations. . . . . . . . .18-40
ITEM 7A Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . .34-36
ITEM 8 Financial Statements and
Supplementary Data . . . . . . . . . 71, 78
ITEM 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . none
PART III
ITEM 10 Directors and Executive Officers
of the Registrant. . . . . . . . . . .80-81*
ITEM 11 Executive Compensation . . . . . . . . . . . *
ITEM 12 Security Ownership of Certain
Beneficial Owners and Management . . . . . *
ITEM 13 Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . *
PART IV
ITEM 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K. . . . . . . .78-79
</TABLE>
*U.S. BANCORP'S DEFINITIVE PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF
SHAREHOLDERS IS INCORPORATED HEREIN BY REFERENCE, OTHER THAN THE SECTIONS
ENTITLED "REPORT OF THE COMPENSATION AND HUMAN RESOURCES COMMITTEE ON EXECUTIVE
COMPENSATION" AND "COMPARATIVE STOCK PERFORMANCE."
76 U.S. Bancorp
<PAGE>
GENERAL U.S. Bancorp, formerly known as First Bank System, Inc. (the "Company"),
is the organization created by the acquisition by First Bank System, Inc. of
U.S. Bancorp of Portland, Oregon. The Company is a regional, multi-state bank
holding company headquartered in Minneapolis, Minnesota. The Company was
incorporated in Delaware in 1929 and owns 100 percent of the capital stock of
each of eight banks, and eleven trust companies, having 1,009 banking offices in
Minnesota, Oregon, Washington, Colorado, California, Idaho, Nebraska, North
Dakota, Nevada, South Dakota, Montana, Iowa, Illinois, Utah, Wisconsin, Kansas,
and Wyoming. The Company also has various nonbank subsidiaries engaged in
financial services.
The banks are engaged in general commercial banking business, principally
in domestic markets. They range in size from less than $1.0 million to $48.1
billion in deposits and provide a wide variety of services to individuals,
businesses, industry, institutional organizations, governmental entities, and
other financial institutions. Depository services include checking accounts,
savings accounts, and time certificate contracts. Ancillary services such as
treasury management and receivable lockbox collection are provided for corporate
customers. The Company's bank and trust subsidiaries provide a full range of
fiduciary activities for individuals, estates, foundations, business
corporations, and charitable organizations.
The Company provides banking services through its subsidiary banks to both
domestic and foreign customers and correspondent banks. These services include
consumer banking, commercial lending, financing of import/export trade, foreign
exchange, and investment services.
The Company, through its subsidiaries, also provides services in trust,
commercial and agricultural finance, data processing, leasing, and brokerage
services.
On a full-time equivalent basis, employment during 1997 averaged a total of
25,858 employees.
COMPETITION The commercial banking business is highly competitive. Subsidiary
banks compete with other commercial banks and with other financial institutions,
including savings and loan associations, mutual savings banks, finance
companies, mortgage banking companies, credit unions, and investment companies.
In recent years, competition has increased from institutions not subject to the
same regulatory restrictions as domestic banks and bank holding companies.
GOVERNMENT POLICIES The operations of the Company's various operating units are
affected by state and federal legislative changes and by policies of various
regulatory authorities, including those of the several states in which they
operate, the United States and foreign governments. These policies include, for
example, statutory maximum legal lending rates, domestic monetary policies of
the Board of Governors of the Federal Reserve System, United States fiscal
policy, international currency regulations and monetary policies, and capital
adequacy and liquidity constraints imposed by bank regulatory agencies.
SUPERVISION AND REGULATION The Company is a registered bank holding company
under the Bank Holding Company Act of 1956 (the "Act") and is subject to the
supervision of, and regulation by, the Board of Governors of the Federal Reserve
System (the "Board").
Under the Act, a bank holding company may engage in banking, managing or
controlling banks, furnishing or performing services for banks it controls, and
conducting activities that the Board has determined to be closely related to
banking. The Company must obtain the prior approval of the Board before
acquiring more than 5 percent of the outstanding shares of another bank or bank
holding company, and must provide notice to, and in some situations obtain the
prior approval of, the Board in connection with the acquisition of more than 5
percent of the outstanding shares of a company engaged in a "bank-related"
business.
Under the Act, as amended by the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act"), the Company may
acquire banks throughout the United States, subject only to state or federal
deposit caps and state minimum-age requirements. Effective June 1, 1997, the
Interstate Act authorized interstate branching by acquisition and
consolidation in those states that had not opted out by that date.
National banks are subject to the supervision of, and are examined by, the
Comptroller of the Currency. All subsidiary banks of the Company are members of
the Federal Deposit Insurance Corporation ("FDIC"), and as such, are subject to
examination thereby. In practice, the primary federal regulator makes regular
examinations of each subsidiary bank subject to its regulatory review or
participates in joint examinations with other federal regulators. Areas subject
to regulation by federal authorities include the allowance for credit losses,
investments, loans, mergers, issuance of securities, payment of dividends,
establishment of branches and other aspects of operations.
PROPERTIES The Company and its significant subsidiaries occupy their
headquarter offices under long-term leases. The Company also leases a
freestanding operations center in St. Paul and owns operations centers in
Fargo, Portland, and Boise. At December 31, 1997, the Company's subsidiaries
owned and operated a total of 603 facilities and leased an additional 638
facilities, all of which are well maintained. Additional information with
respect to premises and equipment is presented in Notes G and Q to the
Consolidated Financial Statements.
U.S. Bancorp 77
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Financial Statements Filed Page
- - -------------------------------------------------------------------------------
<S> <C>
U.S. Bancorp and Subsidiaries
Consolidated Financial Statements 41
Notes to Consolidated Financial Statements 45
Report of Independent Auditors 68
</TABLE>
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are omitted since the required information is included in the
footnotes or is not applicable.
During the three months ended December 31, 1997, the Company filed the
following Current Reports on Form 8-K:
Form 8-K filed October 17, 1997, relating to the announcement of the
Company's third quarter 1997 earnings.
Form 8-K filed December 15, 1997, relating to the announcement of the
Company's agreement to acquire Piper Jaffray Companies Inc., the analyst
presentation made in connection with the announcement, and the merger
agreement between the Company and Piper Jaffray Companies Inc.
The following Exhibit Index lists the Exhibits to the Annual Report on Form
10-K.
<TABLE>
<S> <C>
(1)3.1 Restated Certificate of Incorporation, as amended. Filed as
Exhibit 3.1 to Form 8-K dated August 1, 1997.
3.2 Bylaws, as amended.
4.1 [Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies
of instruments defining the rights of holders of long-term
debt are not filed. U.S. Bancorp agrees to furnish a copy
thereof to the Securities and Exchange Commission upon
request.]
(1)4.2 Warrant Agreement, dated as of October 2, 1995, between U.S.
Bancorp and First Chicago Trust Company of New York, as
Warrant Agent and Form of Warrant. Filed as Exhibits 4.18 and
4.19 to Registration Statement on Form S-3, File No. 33-61667.
(1)4.3 Warrant Agreement, dated as of November 20, 1990, between
Metropolitan Financial Corporation and American Stock Transfer
and Trust Company, as Warrant Agent; Supplemental Warrant
Agreement, dated as of January 24, 1995, between U.S. Bancorp
and American Stock Transfer and Trust Company, as Warrant
Agent; and Form of Warrant. Filed as Exhibit 4E to report on
Form 10-K for the year ended December 31, 1996.
(1)10.1 Stock Purchase Agreements dated as of May 30, 1990, among
Corporate Partners, L.P.; Corporate Offshore Partners, L.P.;
The State Board of Administration of Florida and U.S. Bancorp
and related documents. Filed as Exhibits 4.8-4.15 to
Registration Statement on Form S-3, File No. 33-42650.
(2)10.2 U.S. Bancorp 1997 Stock Incentive Plan, as amended.
(1)(2)10.3 Description of U.S. Bancorp Stock Option Loan Policy. Filed as
Exhibit 10M to report on Form 10-K for the year ended December
31, 1996.
(2)10.4 U.S. Bancorp Restated Employee Stock Purchase Plan, as
amended.
(1)(2)10.5 U.S. Bancorp 1995 Executive Incentive Plan, as amended. Filed
as Exhibit 10A to report on Form 10-Q for the quarter ended
March 31, 1997.
(1)(2)10.6 U.S. Bancorp Annual Incentive Plan, as amended. Filed as
Exhibit 10E to report on Form 10-K for the year ended December
31, 1996.
(1)(2)10.7 U.S. Bancorp Executive Deferral Plan, as amended. Filed as
Exhibit 10C to report on Form 10-Q for the quarter ended March
31, 1997.
(1)(2)10.8 U.S. Bancorp Nonqualified Supplemental Executive Retirement
Plan, as amended. Filed as Exhibit 10B to report on Form 10-Q
for the quarter ended March 31, 1997.
(2)10.9 U.S. Bancorp Special Executive Deferral Plan.
(2)10.10 Amended and Restated Supplemental Benefits Plan of the former
U.S. Bancorp.
(2)10.11 1991 Executive Deferred Compensation Plan, as amended, of the
former U.S. Bancorp.
(2)10.12 Deferred Compensation Trust Agreement of the former U.S.
Bancorp.
(2)10.13 1991 Performance and Equity Incentive Plan of the former U.S.
Bancorp.
(2)10.14 Description of Retirement Benefits of Joshua Green III.
(2)10.15 Form of Director Indemnification Agreement entered into with
former Directors of the former U.S. Bancorp.
(2)10.16 Description of health insurance premium reimbursement plan for
former Directors of West One Bancorp.
(1)(2)10.17 U.S. Bancorp Independent Director Retirement and Death Benefit
Plan, as amended. Filed as Exhibit 10D to report on Form 10-Q
for the quarter ended March 31, 1997.
(2)10.18 U.S. Bancorp Deferred Compensation Plan for Directors, as
amended.
(1)(2)10.19 Form of Change-in-Control Agreement between U.S. Bancorp and
certain officers of the Company. Filed as Exhibit 10J to
report on Form 10-K for the year ended December 31, 1996.
(1)(2)10.20 Employment Agreement with Gerry B. Cameron. Filed as Exhibit
10.1 to Registration Statement on Form_S-4, File No.
333-29409.
(1)(2)10.21 Employment Agreement with John F. Grundhofer. Filed as Exhibit
10(a) to report on Form 10-Q for the quarter ended September
30, 1997.
(1)(2)10.22 Employment Agreement with Gary T. Duim. Filed as Exhibit 10.2
to Registration Statement on Form S-4, File No. 333-29409.
(1)(2)10.23 Employment Agreement with Philip G. Heasley. Filed as Exhibit
10(b) to report on Form 10-Q for the quarter ended September
30, 1997.
</TABLE>
(1) EXHIBIT HAS HERETOFORE BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS INCORPORATED HEREIN AS AN EXHIBIT BY REFERENCE.
(2) ITEMS THAT ARE MANAGEMENT CONTRACTS OR COMPENSATORY PLANS OR ARRANGEMENTS
REQUIRED TO BE FILED AS AN EXHIBIT PURSUANT TO ITEM 14(c) OF THIS
FORM 10-K.
78 U.S. Bancorp
<PAGE>
<TABLE>
<S> <C>
(1)(2)10.24 Employment Agreement with Robert D. Sznewajs. Filed as Exhibit
10.3 to Registration Statement on Form S-4, File No.
333-29409.
(1)(2)10.25 Employment Agreement with Richard A. Zona. Filed as Exhibit
10(c) to report on Form 10-Q for the quarter ended September
30, 1997.
(1)(2)10.26 Consulting Agreement with Norman M. Jones. Filed as Exhibit
10T to report on Form 10-K for the year ended December 31,
1994.
(1)10.27 Agreement and Plan of Merger, dated as of March 19, 1997, by
and between First Bank System, Inc. and U.S. Bancorp. Filed as
Exhibit 2 to report on Form 8-K dated March 19, 1997.
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
13 Annual Report to Shareholders for the year ended
December 31, 1997.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
</TABLE>
(1) EXHIBIT HAS HERETOFORE BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS INCORPORATED HEREIN AS AN EXHIBIT BY REFERENCE.
(2) ITEMS THAT ARE MANAGEMENT CONTRACTS OR COMPENSATORY PLANS OR ARRANGEMENTS
REQUIRED TO BE FILED AS AN EXHIBIT PURSUANT TO ITEM 14(c) OF THIS
FORM 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on February 18, 1998, on its behalf by the undersigned thereunto
duly authorized.
U.S. Bancorp
By: John F. Grundhofer
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 18, 1998, by the following
persons on behalf of the registrant and in the capacities indicated.
JOHN F. GRUNDHOFER
President, Chief Executive Officer, and Director
(principal executive officer)
SUSAN E. LESTER
Executive Vice President and Chief Financial Officer
(principal financial officer)
DAVID J. PARRIN
Senior Vice President and Controller
(principal accounting officer)
LINDA L. AHLERS
Director
HARRY L. BETTIS
Director
GERRY B. CAMERON
Chairman and Director
CAROLYN SILVA CHAMBERS
Director
ARTHUR D. COLLINS, JR.
Director
PETER H. COORS
Director
FRANKLIN G. DRAKE
Director
ROBERT L. DRYDEN
Director
JOHN B. FERY
Director
JOSHUA GREEN III
Director
ROGER L. HALE
Director
DELBERT W. JOHNSON
Director
NORMAN M. JONES
Director
RICHARD L. KNOWLTON
Director
JERRY W. LEVIN
Director
KENNETH A. MACKE
Director
ALLEN T. NOBLE
Director
EDWARD J. PHILLIPS
Director
PAUL A. REDMOND
Director
S. WALTER RICHEY
Director
RICHARD L. ROBINSON
Director
N. STEWART ROGERS
Director
RICHARD L. SCHALL
Director
WALTER SCOTT, JR.
Director
BENJAMIN R. WHITELEY
Director
U.S. Bancorp 79
<PAGE>
EXECUTIVE OFFICERS
GERRY B. CAMERON
Mr. Cameron, 59, has been Chairman of the Board of U.S. Bancorp since August 1,
1997. He had been Chairman, President and Chief Executive Officer of the former
U.S. Bancorp, where he previously served as Vice Chairman.
JOHN F. GRUNDHOFER
Mr. Grundhofer, 59, has been President and Chief Executive Officer of
U.S. Bancorp since August 1, 1997. From 1990 to 1997 he served as Chairman,
President and Chief Executive officer of First Bank System, Inc. (now U.S.
Bancorp).
GARY T. DUIM
Mr. Duim, 54, has been Vice Chairman of U.S. Bancorp since August 1, 1997, with
responsibilities for Commercial & Business Banking and Private Financial
Services, as well as U.S. Bancorp Leasing & Financial. He had been Executive
Vice President, Retail Banking Group, for the former U.S. Bancorp since 1996.
From 1993 to 1996 Mr. Duim headed the Corporate Banking Group of the former U.S.
Bancorp.
PHILIP G. HEASLEY
Mr. Heasley, 48, has served as Vice Chairman since 1993. He is responsible for
retail bank products, payment systems, and operations and technology.
ROBERT D. SZNEWAJS
Mr. Sznewajs, 51, has served as Vice Chairman of U.S. Bancorp since August 1,
1997 and oversees retail bank branches. He had been Vice Chairman of the former
U.S. Bancorp since 1995. From 1994 to 1995, he was Executive Vice President of
the former U.S. Bancorp in charge of the Support and Financial Services and
Products Group, as well as Executive Vice President of U.S. Bank of Oregon and
U.S. Bank of Washington. From 1989 until 1993, Mr. Sznewajs was Executive Vice
President and Manager of Retail Banking for Valley National Bank of Arizona in
Phoenix. In early 1993, he became chairman of Bank of America, N.A., the credit
card bank of BankAmerica Corporation.
RICHARD A. ZONA
Mr. Zona, 53, Vice Chairman, assumed responsibilities in 1997 for Commercial
Banking and Institutional Financial Services, in addition to his ongoing
responsibilities for Finance, Business Banking and Private Financial Services,
and Corporate Trust Services. He was named Vice Chairman-Finance in February
1996, and previously served as Vice Chairman and
Chief Financial Officer.
J. ROBERT HOFFMANN
Mr. Hoffmann, 52, has been Executive Vice President and Chief Credit Officer
since 1990.
SUSAN E. LESTER
Ms. Lester, 41, was named Executive Vice President and Chief Financial Officer
in February 1996. She had served as Executive Vice President, Finance, since
December 1995. From May 1994 to November 1995, Ms. Lester was Executive Vice
President and Chief Financial Officer of Shawmut National Corporation. Before
that, she served as Executive Vice President and Controller at First Bank
System, Inc.
LEE R. MITAU
Mr. Mitau, 49, was named Executive Vice President, General Counsel and Secretary
in 1995. Previously, he was a Partner at Dorsey & Whitney LLP.
JOHN M. MURPHY, JR.
Mr. Murphy, 56, has been Chairman and Chief Investment Officer,
U.S. Bank Trust National Association, formerly First Trust National Association,
since 1990.
DANIEL C. ROHR
Mr. Rohr, 51, was named Executive Vice President of Commercial & Business
Banking in 1997. He had been Executive Vice President of Commercial Banking
since 1990.
ROBERT H. SAYRE
Mr. Sayre, 58, has served as Executive Vice President of Human Resources
since 1990.
JOHN R. DANIELSON
Mr. Danielson, 53, has served as Senior Vice President of Investor and Corporate
Relations since 1996. He previously served as Senior Vice President of Investor
Relations.
DAVID P. GRANDSTRAND
Mr. Grandstrand, 42, has served as Senior Vice President and Treasurer since
1996. He previously served as Senior Vice President of Asset/Liability
Management and Funding.
DAVID J. PARRIN
Mr. Parrin, 42, has been Senior Vice President and Controller since 1994.
Previously, he was a Partner at Ernst & Young LLP.
80 U.S. Bancorp
<PAGE>
DIRECTORS
GERRY B. CAMERON
CHAIRMAN OF THE BOARD
U.S. Bancorp
JOHN F. GRUNDHOFER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
U.S. Bancorp
LINDA L. AHLERS
PRESIDENT
Department Store Division of Dayton Hudson Corporation
Minneapolis, Minnesota
HARRY L. BETTIS
RANCHER
Payette, Idaho
CAROLYN SILVA CHAMBERS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Chambers Communications Corp.
Eugene, Oregon
ARTHUR D. COLLINS, JR.
PRESIDENT AND CHIEF OPERATING OFFICER
Medtronic, Inc.
Minneapolis, Minnesota
PETER H. COORS
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Coors Brewing Company
Golden, Colorado
FRANKLIN G. DRAKE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Drake Management Company
Portland, Oregon
ROBERT L. DRYDEN
EXECUTIVE VICE PRESIDENT, AIRPLANE PRODUCTION
The Boeing Company
Commercial Airplane Group
Seattle, Washington
JOHN B. FERY
RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Boise Cascade Corporation
Boise, Idaho
JOSHUA GREEN III
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Joshua Green Corporation
Seattle, Washington
ROGER L. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TENNANT Company
Minneapolis, Minnesota
DELBERT W. JOHNSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pioneer Metal Finishing
Minneapolis, Minnesota
NORMAN M. JONES
CHAIRMAN
Metro Bancorp, Inc.
Minneapolis, Minnesota
RICHARD L. KNOWLTON
CHAIRMAN
The Hormel Foundation
Austin, Minnesota
JERRY W. LEVIN
CHAIRMAN
Revlon, Inc.
New York, New York
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Coleman Company, Inc.
Wichita, Kansas
KENNETH A. MACKE
GENERAL PARTNER
Macke Partners
Golden Valley, Minnesota
ALLEN T. NOBLE
PRESIDENT
Farm Development Corporation
Boise, Idaho
EDWARD J. PHILLIPS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Phillips Beverage Company
Minneapolis, Minnesota
PAUL A. REDMOND
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Washington Water Power Company
Spokane, Washington
S. WALTER RICHEY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Meritex, Inc.
Minneapolis, Minnesota
RICHARD L. ROBINSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Robinson Dairy, Inc.
Denver, Colorado
N. STEWART ROGERS
Chairman of the Board
Penford Corporation
Mercer Island, Washington
RICHARD L. SCHALL
RETIRED VICE CHAIRMAN OF THE BOARD
Dayton Hudson Corporation
Minneapolis, Minnesota
WALTER SCOTT, JR.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Peter Kiewit Sons', Inc.
Omaha, Nebraska
BENJAMIN R. WHITELEY
CHAIRMAN OF THE BOARD
Standard Insurance Company
Portland, Oregon
U.S. Bancorp 81
<PAGE>
CORPORATE DATA
EXECUTIVE OFFICES
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
ANNUAL MEETING
The annual meeting of shareholders will be held at 2:00 p.m. on Wednesday, April
22, 1998, at the Minneapolis Convention Center, 1301 Second Avenue South,
Minneapolis, Minnesota 55403.
COMMON STOCK TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York acts as transfer agent and registrar,
dividend paying agent, and dividend reinvestment plan agent for U.S. Bancorp and
maintains all shareholder records for the corporation. For information about
U.S. Bancorp stock, or if you have questions regarding your stock certificates
(including transfers), address or name changes, lost dividend checks, lost stock
certificates, or Form 1099s, please call First Chicago's Shareholder Services
Center at (800) 446-2617. Representatives are available weekdays 8:30 a.m. to
7:00 p.m. EST, and the interactive voice response system is available
24 hours a day, seven days a week. The TDD telephone number for the hearing
impaired is (201) 222-4955.
First Chicago Trust Company of New York, P.O. Box 2500, Jersey City, New Jersey
07303-2500.
Telephone: (201) 324-0498
Fax: (201) 222-4892
Internet address: http://www.fctc.com
E-mail address: [email protected]
COMMON STOCK LISTING AND TRADING
U.S. Bancorp Common Stock is listed and traded on the New York Stock Exchange
under the ticker symbol USB.
DIVIDENDS
U.S. Bancorp currently pays quarterly dividends on its Common Stock on or about
the 15th of March, June, September and December, subject to prior Board
approval. Shareholders may choose to have dividends electronically deposited
directly into their bank accounts. For enrollment information, please call First
Chicago at (800) 446-2617.
DIVIDEND REINVESTMENT PLAN
U.S. Bancorp shareholders can take advantage of a plan that provides
automatic reinvestment of dividends and/or optional cash purchases of
additional shares of U.S. Bancorp Common Stock up to $60,000 per calendar
year. For more information, please contact First Chicago Trust Company of New
York, P.O. Box 2598, Jersey City, New Jersey 07303-2598, (800) 446-2617.
INVESTMENT COMMUNITY CONTACTS
John R. Danielson
Senior Vice President, Investor and Corporate Relations
(612) 973-2261
Judith T. Murphy
Vice President, Investor Relations
(612) 973-2264
FINANCIAL INFORMATION
U.S. Bancorp news and financial results are available by fax, mail and the
company's Web site.
FAX. To access our fax-on-demand service, call (800) 758-5804. When asked,
enter U.S. Bancorp's extension number, "312402." Enter "1" for the most
current news release or "2" for a menu of news releases. Enter your fax and
telephone numbers as directed. The information will be faxed to you promptly.
MAIL. At your request, we will mail to you our quarterly earnings news
releases, quarterly financial data on Form 10-Q, and additional annual
reports. To be added to U.S. Bancorp's mailing list for quarterly earnings
news releases, or to request other information, please contact:
Investor and Corporate Relations
(612) 973-2263
U.S. Bancorp
601 Second Avenue South, MPFP1703
Minneapolis, Minnesota 55402-4302
WEB SITE. For information about U.S. Bancorp, including news and financial
results, product information, and service locations, access our home page on
the World Wide Web. The address is http://www.usbank.com.
COMMUNITY ANNUAL REPORT
For information about U.S. Bancorp's community reinvestment activities, call
U.S. Bancorp Community Relations, (612) 973-2322.
U.S. Bancorp, including each of its subsidiaries, is an Equal Opportunity
Employer and a Drug-Free Workplace.
82 U.S. Bancorp
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BYLAWS
OF
U.S. BANCORP
ARTICLE I.
OFFICES
Section 1. OFFICES.
The registered office of the Corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle, State of Delaware.
The Corporation shall have offices at such other places as the Board of
Directors may from time to time determine.
ARTICLE II.
STOCKHOLDERS
Section 1. ANNUAL MEETING.
The annual meeting of the stockholders for the election of Directors and
for the transaction of such other business as may properly come before the
meeting shall be held on such date as the Board of Directors shall each year
fix. Each such annual meeting shall be held at such place, within or without
the State of Delaware, and hour as shall be determined by the Board of
Directors. The day, place and hour of such annual meeting shall be specified in
the notice of annual meeting.
The meeting may be adjourned from time to time and place to place until its
business is completed.
Section 2. SPECIAL MEETING.
Special meetings of stockholders may be called by the Board of Directors or
the Chief Executive Officer. The notice of such meeting shall state the purpose
of such meeting and no business shall be transacted thereat except as stated in
the notice thereof. Any such meeting may be held at such place within or
without the State of Delaware as may be fixed by the Board of Directors or the
Chief Executive Officer, and as may be stated in the notice of such meeting.
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Section 3. NOTICE OF MEETING.
Notice of every meeting of the stockholders shall be given in the manner
prescribed by law.
Section 4. QUORUM.
Except as otherwise required by law, the Certificate of Incorporation or
these Bylaws, the holders of not less than one-third of the shares entitled to
vote at any meeting of the stockholders, present in person or by proxy, shall
constitute a quorum and the act of the majority of such quorum shall be deemed
the act of the stockholders.
If a quorum shall fail to attend any meeting, the chairman of the meeting
may adjourn the meeting to another place, date, or time.
Section 5. QUALIFICATION OF VOTERS.
The Board of Directors may fix a day and hour not more than sixty nor less
than ten days prior to the day of holding any meeting of the stockholders as the
time as of which the stockholders entitled to notice of and to vote at such
meeting shall be determined. Only those persons who were holders of record of
voting stock at such time shall be entitled to notice of and to vote at such
meeting.
Section 6. PROCEDURE.
The presiding officer at each meeting of stockholders shall conclusively
determine the order of business, all matters of procedure and whether or not a
proposal is proper business to be transacted at the meeting and has been
properly brought before the meeting.
The Board shall appoint two or more inspectors of election to serve at
every meeting of the stockholders at which Directors are to be elected.
Section 7. NOMINATION OF DIRECTORS.
Only persons nominated in accordance with the following procedures shall be
eligible for election by stockholders as Directors. Nominations of persons for
election as Directors at a meeting of stockholders called for the purpose of
electing Directors may be made (a) by or at the direction of the Board of
Directors or (b) by any stockholder in the manner herein provided. For a
nomination to be
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properly made by a stockholder, the stockholder must give written notice to the
Secretary of the Corporation so as to be received at the principal executive
offices of the Corporation not later than (i) with respect to an annual meeting
of stockholders, 90 days in advance of such meeting and (ii) with respect to a
special meeting of stockholders for the election of directors, the close of
business on the seventh day following the date on which the notice of such
meeting is first given to stockholders. Each such notice shall set forth (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understanding between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated,
or intended to be nominated, by the Board; and (e) the consent of each nominee
to serve as a Director of the Corporation if so elected.
ARTICLE III.
DIRECTORS
Section 1. NUMBER AND ELECTION.
The Board of Directors of the Corporation shall consist of such number of
Directors as are fixed from time to time by resolution of the Board and within
the requirements set forth in the Certificate of Incorporation. Commencing with
the annual election of Directors by the stockholders in 1986, the Directors
shall be divided into three classes: Class I, Class II and Class III, each such
class, as nearly as possible, to have the same number of Directors. The term of
office of the initial Class I Directors shall expire at the annual election of
Directors by the stockholders in 1987, the term of office of the initial Class
II Directors shall expire at the annual election of Directors by the
stockholders in 1988, and the term of office of the initial Class III Directors
shall expire at the annual election of Directors by the stockholders in 1989.
At each annual election of Directors by the stockholders held after 1985, the
Directors chosen to succeed those whose terms have then expired shall be
identified as being of the same class as the Directors they succeed and shall be
elected by the
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stockholders for a term expiring at the third succeeding annual election of
Directors. In all cases, Directors shall hold office until their respective
successors are elected by the stockholders and have qualified.
In the event that the holders of any class or series of stock of the
Corporation having a preference as to dividends or upon liquidation of the
Corporation shall be entitled, by a separate class vote, to elect Directors as
may be specified pursuant to Article Fourth of the Corporation's Restated
Certificate of Incorporation, then the provisions of such class or series of
stock with respect to their rights shall apply. The number of Directors that
may be elected by the holders of any such class or series of stock shall be in
addition to the number fixed pursuant to the preceding paragraph. Except as
otherwise expressly provided pursuant to Article Fourth of the Corporation's
Restated Certificate of Incorporation, the number of Directors that may be so
elected by the holders of any such class or series of stock shall be elected for
terms expiring at the next annual meeting of stockholders and without regard to
the classification of the remaining members of the Board of Directors and
vacancies among Directors so elected by the separate class vote of any such
class or series of stock shall be filled by the remaining Directors elected by
such class or series, or, if there are no such remaining Directors, by the
holders of such class or series in the same manner in which such class or series
initially elected a Director.
If at any meeting for the election of Directors, more than one class of
stock, voting separately as classes, shall be entitled to elect one or more
Directors and there shall be a quorum of only one such class of stock, that
class of stock shall be entitled to elect its quota of Directors notwithstanding
the absence of a quorum of the other class or classes of stock.
Section 2. VACANCIES.
Vacancies and newly created directorships resulting from an increase in the
number of Directors shall be filled by a majority of the Directors then in
office, although less than a quorum, or by a sole remaining Director, and such
Directors so chosen shall hold office until the next election of the class for
which such Directors shall have been chosen, and until their successors are
elected and qualified.
Section 3. REGULAR MEETINGS.
Regular meetings of the Board shall be held at such times and places as the
Board may from time to time determine.
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Section 4. SPECIAL MEETINGS.
Special meetings of the Board may be called at any time, at any place and
for any purpose by the Chairman of the Board, or the President, or by any
officer of the Corporation upon the request of a majority of the entire Board.
Section 5. NOTICE OF MEETINGS.
Notice of regular meetings of the Board need not be given.
Notice of every special meeting of the Board shall be given to the
Directors at their usual places of business, or at such other addresses as shall
have been furnished by them for the purpose. Such notice shall be given at
least twelve hours (three hours if meeting is to be conducted by conference
telephone) before the meeting by telephone or by being personally delivered,
mailed, or telegraphed. Such notice need not include a statement of the
business to be transacted at, or the purpose of, any such meeting.
Section 6. QUORUM.
Except as may be otherwise provided by law or in these Bylaws, the presence
of one-third of the entire Board shall be necessary and sufficient to constitute
a quorum for the transaction of business at any meeting of the Board, and the
act of a majority of such quorum shall be deemed the act of the Board.
Less than a quorum may adjourn any meeting of the Board from time to time
without notice.
Section 7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 8. POWERS.
The business, property, and affairs of the Corporation shall be managed by
or under the direction of its Board of Directors, which shall have and may
exercise all the powers of the Corporation to do all
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such lawful acts and things as are not by law, or by the Certificate of
Incorporation, or by these Bylaws, directed or required to be exercised or done
by the stockholders.
Section 9. COMPENSATION OF DIRECTORS.
Directors shall receive such compensation for their services as shall be
determined by a majority of the entire Board provided that Directors who are
serving the Corporation as officers or employees and who receive compensation
for their services as such officers or employees shall not receive any salary or
other compensation for their services as Directors.
Section 10. COMMITTEES OF THE BOARD.
A majority of the entire Board of Directors may designate one or more
standing or temporary committees consisting of one or more Directors. The Board
may invest such committees with such powers and authority, subject to the
limitations of law and such conditions as it may see fit.
ARTICLE IV.
EXECUTIVE COMMITTEE
Section 1. ELECTION.
At any meeting of the Board, an Executive Committee, composed of the
Chairman of the Board, the President, and not less than three other members, may
be elected by a majority vote of the entire Board to serve until the Board shall
otherwise determine. Either the Chairman of the Board or the President,
whichever is the Chief Executive Officer, shall be the Chairman of the Executive
Committee, and the other shall be the Vice Chairman thereof, unless the Board
shall otherwise determine. Members of the Executive Committee shall be members
of the Board.
Section 2. POWERS.
The Executive Committee shall have and may exercise all of the powers of
the Board of Directors when the Board is not in session, except that, unless
specifically authorized by the Board of Directors, it shall have no power to (a)
elect directors or officers; (b) alter, amend, or repeal these Bylaws or any
resolution of the Board of Directors relating to the Executive Committee; (c)
declare any dividend or make any other distribution to the stockholders of the
Corporation; (d)
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appoint any member of the Executive Committee; or (e) take any other action
which legally may be taken only by the Board.
Section 3. RULES.
The Executive Committee shall adopt such rules as it may see fit with
respect to the calling of its meetings, the procedure to be followed thereat,
and its functioning generally. Any action taken with the written consent of all
members of the Executive Committee shall be as valid and effectual as though
formally taken at a meeting of said Executive Committee.
Section 4. VACANCIES.
Vacancies in the Executive Committee may be filled at any time by a
majority vote of the entire board.
ARTICLE V.
OFFICERS
Section 1. NUMBER.
The officers of the Corporation shall be appointed or elected by the Board
of Directors. The officers shall be a Chairman of the Board, a President, one
or more Vice Chairmen, such number of Vice Presidents or other officers as the
Board may from time to time determine, a Secretary, a Treasurer, and a
Controller. The President shall be Chief Executive Officer unless the Board
shall determine otherwise. The Chairman of the Board shall preside at all
meetings of the Board and shall perform such other duties as may be assigned
from time to time by the Board. In the absence of the Chairman or if such
office shall be vacant, the President shall preside at all meetings of the
Board. In the absence of the Chairman of the Board and the President, any other
Board member designated by the Board may preside at all meetings of the
stockholders and of the Board. The Board of Directors may appoint or elect a
person as a Vice Chairman without regard to whether such person is a member of
the Board of Directors.
Section 2. STAFF AND DIVISIONAL OFFICERS.
The Chief Executive Officer may appoint at his discretion such persons to
hold the title of staff vice president, divisional chairman, divisional
president, divisional vice president or other similar designation. Such persons
shall not be officers of the Corporation and shall retain such title at the sole
discretion of the Chief Executive
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Officer who may at his will and from time to time make or revoke such
designation.
Section 3. TERMS OF OFFICE.
All officers, agents, and employees of the Corporation shall hold their
respective offices or positions at the pleasure of the Board of Directors or the
appropriate appointing authority and may be removed at any time by such
authority with or without cause.
Section 4. DUTIES.
The officers, agents, and employees shall perform the duties and exercise
the powers usually incident to the offices or positions held by them
respectively, and/or such other duties and powers as may be assigned to them
from time to time by the Board of Directors or the Chief Executive Officer.
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND EMPLOYEES
Section 1.
The Corporation shall indemnify to the full extent permitted by, and in the
manner permissible under the Delaware General Corporation Law, as amended from
time to time, any person made, or threatened to be made, a party to any action,
suit, or proceeding, whether criminal, civil, administrative, or investigative,
by reason of the fact that such person (i) is or was a director, advisory
director, or officer of the Corporation or any predecessor of the Corporation,
or (ii) is or was a director, advisory director or officer of the Corporation or
any predecessor of the Corporation and served any other corporation,
partnership, joint venture, trust or other enterprise as a director, advisory
director, officer, partner, trustee, employee or agent at the request of the
Corporation or any predecessor of the Corporation. The foregoing rights of
indemnification shall not be deemed exclusive of any other rights to which any
such director, advisory director or officer may be entitled apart from the
provisions of this Article.
The Board of Directors in its discretion shall have power on behalf of the
Corporation to indemnify any person, other than such a director, advisory
director or officer, made a party to any action, suit, or proceeding by reason
of the fact that such person, or the testator or intestate of such person, is or
was an employee of the Corporation.
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Section 2.
Expenses incurred by a director, advisory director or officer in defending
a civil or criminal action, suit or proceeding for which indemnification is
required pursuant to Section 1 shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director, advisory director or officer to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized by Delaware law. Such
expenses incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
ARTICLE VII.
STOCK
Section 1. CERTIFICATED OR UNCERTIFICATED SHARES.
The Board of Directors may authorize the issuance of stock either in
certificated or in uncertificated form. If shares are issued in uncertificated
form, each stockholder shall be entitled upon written request to a stock
certificate or certificates, representing and certifying the number and kind of
full shares held, signed as provided in Section 2 of this Article VII.
Certificates for shares of stock shall be in such form as the Board of Directors
may from time to time prescribe. The shares of the stock of the Corporation
shall be transferable on the books of the Corporation by the holder thereof in
person or by his or her attorney upon surrender for cancellation of a
certificate or certificates for the same number of shares, or other evidence
of ownership if no certificates shall have been issued, with an assignment and
power of transfer endorsed thereon or attached thereto, duly executed, and with
such proof of the validity of the signature as the Corporation or its agents
may reasonably require.
Section 2. SIGNATURES.
The certificates of stock shall be signed by the Chairman, President, or a
Vice President and by the Secretary or an Assistant Secretary, provided that if
such certificates are signed by a transfer agent or transfer clerk and by a
registrar, the signatures of such Chairman, President, Vice President,
Secretary, or Assistant Secretary may be facsimiles, engraved, or printed.
Section 3. REPLACEMENT.
No certificate for shares of stock in the Corporation shall be issued in
place of any certificate alleged to have been lost, stolen, or destroyed except
upon production of such evidence of such loss, theft, or destruction and upon
delivery to the Corporation of a bond of indemnity in such amount, and upon such
terms and secured by such
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surety as the Board of Directors or the Executive Committee in its discretion
may require.
ARTICLE VIII.
MISCELLANEOUS
Section 1. SEAL.
The Corporation seal shall bear the name of the Corporation, the date 1929
and the words "Corporate Seal, Delaware".
Section 2. FISCAL YEAR.
The fiscal year of the Corporation shall begin on the first day of January
in each year and shall end on the thirty-first day of December following.
ARTICLE IX.
AMENDMENTS
Section 1.
These Bylaws, or any of them, may from time to time be supplemented,
amended, or repealed (a) by a majority vote of the entire Board of Directors or
(b) at any annual or special meeting of the stockholders.
ARTICLE X.
EMERGENCY BYLAW
Section 1. OPERATIVE EVENT.
The Emergency Bylaw provided in this Article X shall be operative during
any emergency resulting from an attack on the United States, any nuclear or
atomic incident, or other event which creates a state of disaster of sufficient
severity to prevent the normal conduct and management of the affairs and
business of the Corporation, notwithstanding any different provision in the
preceding articles of the Bylaws or in the Certificate of Incorporation of the
Corporation or in the General Corporation Law of Delaware. To the extent not
inconsistent with this Emergency Bylaw, the Bylaws provided in the preceding
Articles shall remain in effect during such emergency and upon the termination
of such emergency the Emergency Bylaw shall cease to be operative unless and
until another such emergency shall occur.
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Section 2. NOTICE OF MEETING.
During any such emergency, any meeting of the Board of Directors may be
called by any officer of the Corporation or by any Director. Notice shall be
given by such person or by any officer of the Corporation. The notice shall
specify the place of the meeting, which shall be the head office of the
Corporation at the time if feasible and otherwise any other place specified in
the notice. The notice shall also specify the time of the meeting. Notice may
be given only to such of the Directors as it may be feasible to reach at the
time and by such means as may be feasible at the time, including publication or
radio. If given by mail, messenger, telephone, or telegram, the notice shall be
addressed to the Directors at their residences or business addresses, or such
other places as the person giving the notice shall deem most suitable. Notice
shall be similarly given, to the extent feasible, to the other persons serving
as Directors referred to in Section 3 below. Notice shall be given at least two
days before the meeting if feasible in the judgment of the person giving the
notice and otherwise on any shorter time he may deem necessary.
Section 3. QUORUM.
During any such emergency, at any meeting of the Board of Directors, a
quorum shall consist of one-third of the number of Directors fixed at the time
pursuant to Article III of the Bylaws. If the Directors present at any
particular meeting shall be fewer than the number required for such quorum,
other persons present, to the number necessary to make up such quorum, shall be
deemed Directors for such particular meeting as determined by the following
provisions and in the following order of priority:
(a) All Executive Vice Presidents of the Corporation in order of their
seniority of first election to such office, or if two or more shall have
been first elected to such office on the same day, in the order of their
seniority in age; and
(b) All Senior Vice Presidents of the Corporation in order of their
seniority of first election to such office, or if two or more shall have
been first elected to such office on the same day, in the order of their
seniority in age; and
(c) All Vice Presidents of the Corporation in order of their seniority of
first election to such office, or if two or more shall have been first
elected to such office on the same day, in the order of their seniority in
age; and
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(d) Any other persons that are designated on a list that shall have been
approved by the Board of Directors before the emergency, such persons to be
taken in such order of priority and subject to such conditions as may be
provided in the resolution approving the list.
Section 4. LINES OF MANAGEMENT SUCCESSION.
The Board of Directors, during as well as before any such emergency, may
provide and from time to time modify lines of succession in the event that
during such an emergency any or all officers or agents of the Corporation shall
for any reason be rendered incapable of discharging their duties.
Section 5. OFFICE RELOCATION.
The Board of Directors, during as well as before any such emergency, may,
effective in the emergency, change the head office or designate several
alternative head offices or regional offices, or authorize the officers to do
so.
Section 6. LIABILITY.
No officer, director, or employee acting in accordance with this Emergency
Bylaw shall be liable except for willful misconduct.
Section 7. REPEAL OR AMENDMENT.
This Emergency Bylaw shall be subject to repeal or change by further action
of the Board of Directors or by action of the stockholders, except that no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action or inaction prior to the time of such repeal or change.
Any such amendment of this Emergency Bylaw may make any further or different
provision that may be practical and necessary for the circumstances of the
emergency deems it to be in the best interest of the Corporation to do so.
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As Amended November 4, 1997
U.S. BANCORP
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; EFFECT ON PRIOR PLANS.
(a) PURPOSE. The purpose of the U.S. Bancorp 1997 Stock
Incentive Plan (the "Plan") is to aid in attracting and retaining
employees, management personnel and other personnel and members of the
Board of Directors who are not also employees ("Non-Employee Directors")
of First Bank System, Inc. (which, following the Merger as defined herein
will be renamed U.S. Bancorp) (the "Company") capable of assuring the
future success of the Company, to offer such personnel and Non-Employee
Directors incentives to put forth maximum efforts for the success of the
Company's business and to afford such personnel and Non-Employee Directors
an opportunity to acquire a proprietary interest in the Company.
(b) EFFECT ON PRIOR PLANS. First Bank System, Inc. hereby
adopts the Plan, subject to approval by the stockholders of First Bank
System, Inc., and subject further to consummation of the merger of the
current U. S. Bancorp with and into First Bank System, Inc. (the "Merger")
pursuant to the terms of the Agreement and Plan of Merger by and between
First Bank System, Inc. and the current U. S. Bancorp dated as of March 19,
1997. As so established and approved, the Plan shall be known as the 1997
Stock Incentive Plan. On the effective date of the Plan determined in
accordance with Section 10 of the Plan, for purposes of administration and
share accounting pursuant to Sections 3 and 4 of the Plan, the following
plans of First Bank System, Inc. and the current U. S. Bancorp shall be
considered to be incorporated in the Plan: the First Bank System, Inc.
1996 Stock Incentive Plan, the First Bank System, Inc. 1987 Stock Option
Plan, the 1988 Equity Participation Plan, the FirsTier Financial, Inc.
Omnibus Equity Plan (as assumed by First Bank System, Inc.), and the WCIC
1984 Stock Option and Incentive Plan (as assumed by First Bank System,
Inc.) (the "FBS Plans") and the current U. S. Bancorp's 1993 Stock
Incentive Plan, 1985 Stock Incentive Plan, 1984 Stock Incentive Plan, 1973
Stock Incentive Plan, HeartFed Option Plan, West One Option Plan, CBI
Employee Plan, 1995 Director Plan, 1993 Director Plan, 1990 Director Plan
and Subsidiary Director Plan (the "U. S. Bancorp Plans"). All outstanding
options, restricted stock and other awards issued under the FBS Plans and
the U. S. Bancorp Plans shall remain subject to the terms and conditions
of the plans under which they were issued, but shares of stock relating
to outstanding options, restricted stock or other awards issued under the
FBS Plans
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and the U. S. Bancorp Plans are considered shares of stock subject to the
Plan under Section 4 of the Plan.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings
set forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company
and (ii) any entity in which the Company has a significant equity interest,
as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award or other
Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract
or other instrument or document evidencing any Award granted under the
Plan.
(d) "Change in Control" shall have the meaning ascribed to such
term in any Award Agreement, and shall include phrases of similar meaning
such as, by way of example but not limitation, "Full Change in Control" and
"Partial Change in Control."
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of the Board of Directors
of the Company designated by such Board to administer the Plan and composed
of not less than two directors, each of whom is a "Non-Employee Director"
within the meaning of Rule 16b-3 (which term "Non-Employee Director" is
defined in this paragraph for purposes of the definition of "Committee"
only and is not intended to define such term as used elsewhere in the
Plan). Each member of the Committee shall also be an "outside director"
within the meaning of Section 162(m) of the Code.
(g) "Eligible Person" shall mean any employee, officer, director
(including any Non-Employee Director), consultant or independent contractor
providing services to the Company or any Affiliate who the Committee
determines to be an Eligible Person.
(h) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other
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securities), the fair market value of such property determined by such
methods or procedures as shall be established from time to time by the
Committee. Notwithstanding the foregoing, for purposes of the Plan,
the Fair Market Value of Shares on a given date shall be the closing
price of the Shares as reported on the New York Stock Exchange on such
date, if the Shares are then traded on the New York Stock Exchange.
(i) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of
Section 422 of the Code or any successor provision.
(j) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan, or Section 6(g) of the Plan in the case of
grants to Non-Employee Directors, that is not intended to be an Incentive
Stock Option.
(k) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
(l) "Other Stock-Based Award" shall mean any right granted
under Section 6(e) of the Plan.
(m) "Participant" shall mean an Eligible Person designated to be
granted an Award under the Plan.
(n) "Performance Award" shall mean any right granted under
Section 6(d) of the Plan.
(o) "Person" shall mean any individual, corporation,
partnership, association or trust.
(p) "Qualifying Termination" shall mean a termination of
employment under circumstances that, in the judgment of the Committee,
warrant acceleration of the exercisability of Options or the lapse of
restrictions relating to Restricted Stock or Restricted Stock Units. A
Qualifying Termination may apply to large-scale terminations of employment
involving the disposition or divestiture of businesses or legal entities or
similar circumstances.
(q) "Restricted Stock" shall mean any Share granted under
Section 6(c) of the Plan.
(r) "Restricted Stock Unit" shall mean any unit granted under
Section 6(c) of the Plan evidencing the right to receive a Share (or a cash
payment equal to the Fair Market Value of a Share) at some future date.
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(s) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934.
(t) "Shares" shall mean shares of Common Stock, $1.25 par value,
of the Company or such other securities or property as may become subject
to Awards pursuant to an adjustment made under Section 7(c) of the Plan.
(u) "Stock Appreciation Right" shall mean any right granted
under Section 6(b) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. Subject to the
terms of the Plan and applicable law, the Committee shall have full power
and authority to: (i) designate Participants; (ii) determine the type or
types of Awards to be granted to each Participant under the Plan; (iii)
determine the number of Shares to be covered by (or with respect to which
payments, rights or other matters are to be calculated in connection with)
each Award; (iv) determine the terms and conditions of any Award or Award
Agreement; (v) amend the terms and conditions of any Award or Award
Agreement and accelerate the exercisability of Options or the lapse of
restrictions relating to Restricted Stock or Restricted Stock Units;
PROVIDED, HOWEVER, that any such acceleration of exercisability or lapse of
restrictions shall be limited to accelerations relating to a Change in
Control, a Qualifying Termination, death, disability or any circumstances
set forth in an Award Agreement in effect at the time this proviso was
adopted as part of the Plan; (vi) determine whether, to what extent and
under what circumstances Awards may be exercised in cash, Shares, other
securities, other Awards or other property, or canceled, forfeited or
suspended; (vii) determine whether, to what extent and under what
circumstances cash, Shares, other securities, other Awards, other property
and other amounts payable with respect to an Award under the Plan shall be
deferred either automatically or at the election of the holder thereof or
the Committee; (viii) interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; (ix) establish,
amend, suspend or waive such rules and regulations and appoint such agents
as it shall deem appropriate for the proper administration of the Plan; and
(x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect
to the Plan
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or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of
the Company or any Affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in
Section 7(c), the total number of Shares available for granting Awards
under the Plan shall be 22,125,802 (12,894,977 of which were previously
authorized and subject to outstanding Awards under the FBS Plans or
authorized and available for grant under the First Bank System, Inc. 1996
Stock Incentive Plan, 3,230,825 of which were previously authorized and
subject to outstanding Awards under the U.S. Bancorp Plans and 6,000,000 of
which will be authorized upon stockholder approval of the Plan and subject
to consummation of the Merger); PROVIDED, HOWEVER, that the total number of
Shares authorized under the Plan shall be deemed to be reduced
automatically, as of the effective date of the Plan determined in
accordance with Section 10 of the Plan, by that number of Shares that were
subject to outstanding awards under the FBS Plans and the U. S. Bancorp
Plans, as of the date of adoption of the Plan by the First Bank System,
Inc. Board of Directors, that are no longer subject to outstanding awards
as of the date of the Merger. Not more than 1,000,000 of such Shares,
subject to adjustment as provided in Section 7(c) of the Plan, will be
available for granting additional Awards of Restricted Stock following the
effective date of the Plan determined in accordance with Section 10 of the
Plan. If any Shares covered by an Award or to which an Award relates are
not purchased or are forfeited, or if an Award otherwise terminates without
delivery of any Shares, then the number of Shares counted against the
aggregate number of Shares available under the Plan with respect to such
Award, to the extent of any such forfeiture or termination, shall again be
available for granting Awards under the Plan. In addition, any Shares that
are used by a Participant as full or partial payment to the Company of the
purchase price relating to an Award, or in connection with satisfaction of
tax obligations relating to an Award, shall again be available for granting
Awards under the Plan. For purposes of the previous two sentences, the
term "Award" shall explicitly include any awards outstanding under the FBS
Plans and the U. S. Bancorp Plans as of the effective date of the Plan
determined in accordance with Section 10 of the Plan.
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if
an Award entitles the holder thereof to receive or purchase Shares, the
number of Shares covered by such Award or to which such Award relates shall
be counted on the date of grant of such Award against the
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aggregate number of Shares available for granting Awards under the Plan.
Such Shares may again become available for granting Awards under the Plan
pursuant to the provisions of Section 4(a) of the Plan, subject to the
limitations set forth in Section 4(c) of the Plan.
(c) INCENTIVE STOCK OPTIONS. Notwithstanding the foregoing, the
number of Shares available for granting Incentive Stock Options under the
Plan, on and after the effective date of the Plan determined in accordance
with Section 10 of the Plan, shall not exceed 6,000,000, subject to
adjustment as provided in Section 7(c) of the Plan and Section 422 or 424
of the Code or any successor provisions.
(d) AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may be
granted any Award or Awards, the value of which Awards are based solely on
an increase in the value of the Shares after the date of grant of such
Awards, for more than 1,000,000 Shares (subject to adjustment as provided
in Section 7(c) of the Plan), in the aggregate, in any calendar year
beginning with the year commencing January 1, 1997. The foregoing
limitation specifically includes the grant of any "performance-based"
Awards within the meaning of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY.
Any Eligible Person, including any Eligible Person who is an
officer or director of the Company or any Affiliate, shall be eligible to
be designated a Participant; PROVIDED, HOWEVER, that an Incentive Stock
Option may only be granted to full or part-time employees (which term as
used herein includes, without limitation, officers and directors who are
also employees) and an Incentive Stock Option shall not be granted to an
employee of an Affiliate unless such Affiliate is also a "subsidiary
corporation" of the Company within the meaning of Section 424(f) of the
Code or any successor provision.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant
Options to Participants with the following terms and conditions and with
such additional terms and conditions not inconsistent with the provisions
of the Plan as the Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Share
purchasable under an Option shall be determined by the Committee;
PROVIDED, HOWEVER, that such purchase price shall not be less than
100% of the Fair Market Value of a Share on the date of grant of such
Option.
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(ii) OPTION TERM. The term of each Option shall be fixed
by the Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part and the method or methods by which, and the form or
forms (including, without limitation, cash, Shares, other securities,
other Awards or other property, or any combination thereof, having a
Fair Market Value on the exercise date equal to the relevant exercise
price) in which, payment of the exercise price with respect thereto
may be made or deemed to have been made.
(iv) RELOAD OPTIONS. The Committee may grant "reload"
options, separately or together with another Option, pursuant to
which, subject to the terms and conditions established by the
Committee and any applicable requirements of Rule 16b-3 or any other
applicable law, the Participant would be granted a new Option when the
payment of the exercise price of a previously granted option is made
by the delivery of shares of the Company's Common Stock owned by the
Participant pursuant to Section 6(a)(iii) hereof or the relevant
provisions of another plan of the Company, and/or when shares of the
Company's Common Stock are tendered or forfeited as payment of the
amount to be withheld under applicable tax laws in connection with the
exercise of an option, which new Option would be an option to
purchase the number of Shares not exceeding the sum of (A) the number
of shares of the Company's Common Stock provided as consideration upon
the exercise of the previously granted option to which such "reload"
option relates and (B) the number of shares of the Company's Common
Stock tendered or forfeited as payment of the amount to be withheld
under applicable tax laws in connection with the exercise of the
option to which such "reload" option relates. "Reload" options may be
granted with respect to options granted under this Plan or any other
stock option plan of the Company or any of its affiliates (which shall
explicitly include plans assumed by the Company in connection with
mergers and the like). Such "reload" options shall have a per share
exercise price equal to the Fair Market Value as of the date of grant
of the new Option. Any such reload options shall be subject to
availability of sufficient shares for grant under the Plan.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby
authorized to grant Stock Appreciation Rights to Participants subject to
the terms of the Plan and any applicable Award Agreement. A Stock
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Appreciation Right granted under the Plan shall confer on the holder
thereof a right to receive upon exercise thereof the excess of (i) the Fair
Market Value of one Share on the date of exercise (or, if the Committee
shall so determine, at any time during a specified period before or after
the date of exercise) over (ii) the grant price of the Stock Appreciation
Right as specified by the Committee, which price shall not be less than
100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. Subject to the terms of the Plan and any
applicable Award Agreement, the grant price, term, methods of exercise,
dates of exercise, methods of settlement and any other terms and conditions
of any Stock Appreciation Right shall be as determined by the Committee.
The Committee may impose such conditions or restrictions on the exercise of
any Stock Appreciation Right as it may deem appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee
is hereby authorized to grant Awards of Restricted Stock and Restricted
Stock Units to Participants with the following terms and conditions and
with such additional terms and conditions not inconsistent with the
provisions of the Plan as the Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock and
Restricted Stock Units shall be subject to such restrictions as the
Committee may impose (including, without limitation, any limitation on
the right to vote a Share of Restricted Stock or the right to receive
any dividend or other right or property with respect thereto), which
restrictions may lapse separately or in combination at such time or
times, in such installments or otherwise as the Committee may deem
appropriate. Except as otherwise provided herein, Awards of
Restricted Stock and Restricted Stock Units shall contain restrictions
that lapse no sooner than three years following the date of grant or,
in the case of Awards with performance-based vesting provisions, no
sooner than one year following the date of grant; PROVIDED, HOWEVER,
that restrictions may lapse sooner than such dates as to portions of
such Awards so long as restrictions as to the total number of Shares
covered by such Awards do not lapse sooner than such dates; and
PROVIDED, FURTHER, that such limitations shall not apply to Awards
granted to new employees as part of initial terms of employment,
Awards granted to new or existing employees in connection with the
acquisition of businesses or assets by the Company, or to Awards in
effect at the time this proviso was adopted as part of the Plan.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted
under the Plan shall be evidenced by issuance of a stock
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certificate or certificates, which certificate or certificates shall
be held by the Company. Such certificate or certificates shall be
registered in the name of the Participant and shall bear an
appropriate legend referring to the restrictions applicable to such
Restricted Stock. In the case of Restricted Stock Units, no Shares
shall be issued at the time such Awards are granted.
(iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise
determined by the Committee, upon termination of employment (as
determined under criteria established by the Committee) during the
applicable restriction period, all Shares of Restricted Stock and all
Restricted Stock Units at such time subject to restriction shall be
forfeited and reacquired by the Company; PROVIDED, HOWEVER, that the
Committee may, when it finds that a waiver would be in the best
interest of the Company, including, without limitation, in connection
with Changes in Control, Qualifying Terminations, death or disability,
waive in whole or in part any or all remaining restrictions with
respect to Shares of Restricted Stock or Restricted Stock Units.
Shares representing Restricted Stock that is no longer subject to
restrictions shall be delivered to the holder thereof promptly after
the applicable restrictions lapse or are waived. Upon the lapse or
waiver of restrictions and the restricted period relating to
Restricted Stock Units evidencing the right to receive Shares, such
Shares shall be issued and delivered to the holders of the Restricted
Stock Units.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to
grant Performance Awards to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Performance Award granted under the
Plan (i) may be denominated or payable in cash, Shares (including, without
limitation, Restricted Stock), other securities, other Awards or other
property and (ii) shall confer on the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such performance
goals during such performance periods as the Committee shall establish.
Subject to the terms of the Plan and any applicable Award Agreement, the
performance goals to be achieved during any performance period, the length
of any performance period, the amount of any Performance Award granted and
the amount of any payment or transfer to be made pursuant to any
Performance Award shall be determined by the Committee.
(e) OTHER STOCK-BASED AWARDS. The Committee is hereby
authorized to grant to Participants such other Awards that are denominated
or payable in, valued in whole or in part by reference to, or otherwise
based on or related to, Shares (including, without
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limitation, securities convertible into Shares), as are deemed by the
Committee to be consistent with the purpose of the Plan; PROVIDED,
HOWEVER, that such grants must comply with applicable law. Subject to
the terms of the Plan and any applicable Award Agreement, the Committee
shall determine the terms and conditions of such Awards. Shares or other
securities delivered pursuant to a purchase right granted under this
Section 6(e) shall be purchased for such consideration, which may be paid
by such method or methods and in such form or forms (including without
limitation, cash, Shares, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine, the value
of which consideration, as established by the Committee, shall not be less
than 100% of the Fair Market Value of such Shares or other securities as of
the date such purchase right is granted.
(f) GENERAL. Except as otherwise specified with respect to
Awards to Non-Employee Directors pursuant to Section 6(g) of the Plan:
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be
granted for no cash consideration or for such minimal cash
consideration as may be required by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards
may, in the discretion of the Committee, be granted either alone or
in addition to, in tandem with or in substitution for any other Award
or any award granted under any plan of the Company or any Affiliate
other than the Plan. Awards granted in addition to or in tandem with
other Awards or in addition to or in tandem with awards granted under
any such other plan of the Company or any Affiliate may be granted
either at the same time as or at a different time from the grant of
such other Awards or awards.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms
of the Plan and of any applicable Award Agreement, payments or
transfers to be made by the Company or an Affiliate upon the grant,
exercise or payment of an Award may be made in such form or forms
as the Committee shall determine (including, without limitation,
cash, Shares, other securities, other Awards or other property or
any combination thereof), and may be made in a single payment or
transfer, in installments or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee.
Such rules and procedures may include, without limitation, provisions
for the payment or crediting of reasonable interest on installment or
deferred payments.
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(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right
under any such Award shall be transferable by a Participant otherwise
than by will or by the laws of descent and distribution; PROVIDED,
HOWEVER, that, if so determined by the Committee, a Participant may,
in the manner established by the Committee, designate a beneficiary
or beneficiaries to exercise the rights of the Participant and
receive any property distributable with respect to any Award upon
the death of the Participant; and PROVIDED, FURTHER, except in the
case of an Incentive Stock Option, Awards may be transferable as
specifically provided in any applicable Award Agreement or
amendment thereto pursuant to terms determined by the Committee.
Except as otherwise provided in any applicable Award Agreement or
amendment thereto (other than an Award Agreement relating to an
Incentive Stock Option), pursuant to terms determined by the
Committee, each Award or right under any Award shall be
exercisable during the Participant's lifetime only by the
Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative. Except as
otherwise provided in any applicable Award Agreement or amendment
thereto (other than an Award Agreement relating to an Incentive
Stock Option), no Award or right under any such Award may be
pledged, alienated, attached or otherwise encumbered, and any
purported pledge, alienation, attachment or encumbrance thereof
shall be void and unenforceable against the Company or any
Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for
such period as may be determined by the Committee.
(vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All
certificates for Shares or other securities delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to
such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan or the rules, regulations and other
requirements of the Securities and Exchange Commission and any
applicable federal or state securities laws, and the Committee may
cause a legend or legends to be placed on any such certificates to
make appropriate reference to such restrictions. If the Shares
or other securities are traded on a securities exchange, the
Company shall not be required to deliver any Shares or other
securities covered by an Award unless and until such Shares or
other securities have been admitted for trading on such securities
exchange.
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(g) NON-QUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS. The
Committee shall issue Non-Qualified Stock Options to Non-Employee Directors
in accordance with this Section 6(g).
Each Non-Employee Director serving on the Company's Board of
Directors immediately prior to the Merger was granted an Option to purchase
2,500 Shares (subject to adjustment pursuant to Section 7(c) of the Plan)
pursuant to the terms of the First Bank System, Inc. 1991 Stock Incentive
Plan or the First Bank System, Inc. 1996 Stock Incentive Plan. Each
Non-Employee Director first elected or appointed to the Company's Board of
Directors following the Merger and during the term of the Plan shall be
granted, as of the date of such Director's first election or appointment to
the Board of Directors, a Non-Qualified Stock Option to purchase 2,500
Shares (subject to adjustment pursuant to Section 7(c) of the Plan). Each
Non-Employee Director shall be granted during the term of the Plan, as of
the date of each Annual Meeting of Stockholders of the Company commencing
with the 1998 Annual Meeting of Stockholders of the Company, if such
Director's term of office continues after such date, a Non-Qualified Stock
Option to purchase 1,700 Shares (subject to adjustment pursuant to Section
7(c) of the Plan).
Each Non-Qualified Stock Option granted to a Non-Employee
Director pursuant to this Section 6(g) shall be exercisable in full as of
the date of grant, shall have an exercise price equal to the Fair Market
Value of a Share on the date of grant and shall expire on the tenth
anniversary of the date of grant, except as provided below.
Except as hereinafter provided, each Option granted pursuant to
this Section 6(g) (including those Options granted pursuant to Section 6(h)
of the First Bank System, Inc. 1991 Stock Incentive Plan as provided
therein and under Section 6(g) of the First Bank System, Inc. 1996 Stock
Incentive Plan as provided therein) shall be deemed to include a provision
entitling the optionee to a further Non-Qualified Stock Option (a
"Non-Employee Director Reload Option") in the event the optionee exercises
such an Option, in whole or in part, by surrendering other Shares in
accordance with this Section 6(g) (including any predecessor provision
under the First Bank System, Inc. 1991 Stock Incentive Plan or the First
Bank System, Inc. 1996 Stock Incentive Plan) and the terms of the Option
and/or when shares of the Companys Common Stock are delivered or withheld
as payment of an amount representing tax obligations in connection with the
exercise of an option. Any such Non-Employee Director Reload Option (i)
shall be for a number of Shares equal to the sum of (x) the number of
Shares surrendered as part or all of the exercise price of the Option to
which it relates plus (y) the number of
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Shares, if any, delivered or withheld as payment of an amount representing
tax obligations in connection with the exercise of the Option to which it
relates; (ii) shall have an expiration date which is the same as the
expiration date of the Option to which it relates; (iii) shall have an
exercise price equal to the Fair Market Value of a Share on the date of
exercise of the Option to which it relates; and (iv) shall be exercisable
in full as of the date of grant. A Non-Employee Director Reload Option may
be reloaded under the same terms, provided that the original Option to
which such series of Non-Employee Director Reload Options relates may be
reloaded a maximum of three times. Non-Employee Director Reload Options
shall only be granted to a Director during such Director's term as a
Non-Employee Director. Any such Non-Employee Director Reload Option shall
be subject to availability of sufficient shares for grant under the Plan.
Shares surrendered as part or all of the exercise price of the Option to
which it relates that have been owned by the optionee less than six months
will not be counted for purposes of determining the number of Shares that
may be purchased pursuant to a Non-Employee Director Reload Option.
All grants of Non-Qualified Stock Options pursuant to this
Section 6(g) shall be automatic and non-discretionary and shall be made
strictly in accordance with the foregoing terms and the following
additional provisions:
(i) Non-Qualified Stock Options granted to a Non-Employee
Director hereunder shall terminate and may no longer be exercised if
such Director ceases to be a Non-Employee Director of the Company,
except that:
(A) If such Director's term shall be terminated for
any reason other than gross and willful misconduct, death,
disability, or retirement, such Director may at any time within a
period of three months after such termination, but not after the
termination date of the Option, exercise the Option.
(B) If such Director's term shall be terminated by
reason of gross and willful misconduct during the course of the
term, including but not limited to, wrongful appropriation of
funds of the Company or the commission of a gross misdemeanor or
felony, the Option shall be terminated as of the date of the
misconduct.
(C) If such Director's term shall be terminated by
reason of disability or retirement, such Director may exercise
the Option in accordance with the terms thereof
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as though such termination had never occurred. If such
Director shall die following any such termination, the Option may
be exercised in accordance with its terms by the personal
representatives or administrators of such Director or by any
person or persons to whom the Option has been transferred by will
or the applicable laws of descent and distribution.
(D) If such Director shall die while a Director of
the Company or within three months after termination of such
Director's term for any reason other than disability or
retirement or gross and willful misconduct, the Option may be
exercised in accordance with its terms by the personal
representatives or administrators of such Director or by any
person or persons to whom the Option has been transferred by
will or the applicable laws of descent and distribution.
(ii) Non-Qualified Stock Options granted to Non-Employee
Directors may be exercised in whole or in part from time to time by serving
written notice of exercise on the Company at its principal executive
offices, to the attention of the Company's Secretary. The notice shall
state the number of shares as to which the Option is being exercised and be
accompanied by payment of the purchase price. A Non-Employee Director may,
at such Director's election, pay the purchase price by check payable to the
Company, by promissory note, or in shares of the Company's Common Stock, or
in any combination thereof having a Fair Market Value on the exercise date
equal to the applicable exercise price. If payment or partial payment is
made by promissory note, such note shall be a full recourse note and shall
(A) be secured by the Shares to be delivered upon exercise of such Option,
(B) be limited in principal amount to the maximum amount permitted under
applicable laws, rules and regulations, (C) be for a term of six years and
(D) bear interest at the applicable federal rate (as determined in
accordance with Section 1274(d) of the Code), compounded semi-annually.
(iii) In order for a Non-Employee Director to satisfy obligations
under tax laws in connection with an Option granted pursuant to this
Section 6(g) (including any predecessor provision under the First Bank
System, Inc. 1991 Stock Incentive Plan and the First Bank System, Inc.
1996 Stock Incentive Plan), such Director may (A) elect to have the Company
withhold a portion of the Shares otherwise to be delivered upon exercise of
such Option with a Fair Market Value equal to the amount of such taxes (an
"Election") or (B) deliver
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to the Company Shares other than Shares issuable upon exercise of such
Option with a Fair Market Value equal to the amount of such taxes. An
Election, if any, must be made on or before the date that the amount of
tax to be withheld is determined.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board of Directors of the
Company may amend, alter, suspend, discontinue or terminate the Plan at any
time and from time to time; PROVIDED, HOWEVER, that, notwithstanding any
other provision of the Plan or any Award Agreement, without the approval of
the stockholders of the Company, no such amendment, alteration, suspension,
discontinuation or termination shall be made that, absent such approval:
(i) would violate the rules or regulations of the New York
Stock Exchange, any other securities exchange or the National
Association of Securities Dealers, Inc. that are applicable to the
Company; or
(ii) would cause the Company to be unable, under the Code,
to grant Incentive Stock Options under the Plan.
(b) AMENDMENTS TO AWARDS. Except as otherwise explicitly
provided herein, the Committee may waive any conditions of or rights of the
Company under any outstanding Award, prospectively or retroactively. The
Committee may not amend, alter, suspend, discontinue or terminate any
outstanding Award, prospectively or retroactively, without the consent of
the Participant or holder or beneficiary thereof, except as otherwise
herein provided. Except as provided in Section 7(c) hereof, no Option may
be amended to reduce its initial exercise price and no Option shall be
canceled and replaced with an Option or Options having a lower exercise
price without the approval of the stockholders of the Company.
(c) ADJUSTMENTS. In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company or
other similar corporate transaction or event affecting the Shares would be
reasonably likely to result in the diminution or enlargement of any of the
benefits or potential benefits intended to be made
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available under the Plan or under an Award (including, without limitation,
the benefits or potential benefits of provisions relating to the term,
vesting or exercisability of any Option, the availability of any tandem
stock appreciation rights or "reload" option rights, if any, contained in
any Option Award, and any change in control or similar provisions of any
Award), the Committee shall, in such manner as it shall deem equitable or
appropriate in order to prevent such diminution or enlargement of any such
benefits or potential benefits, adjust any or all of (i) the number and
type of Shares (or other securities or other property) which thereafter
may be made the subject of Awards, (ii) the number and type of Shares (or
other securities or other property) subject to outstanding Awards and
(iii) the purchase or exercise price with respect to any Award; PROVIDED,
HOWEVER, that the number of Shares covered by any Award or to which such
Award relates shall always be a whole number.
(d) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
SECTION 8. INCOME TAX WITHHOLDING.
In order to comply with all applicable federal or state income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all federal and
state taxes to be withheld or collected upon exercise or receipt of (or the
lapse of restrictions relating to) an Award, the Committee, in its
discretion and subject to such additional terms and conditions as it may
adopt, may permit the Participant to satisfy such tax obligation by (i)
electing to have the Company withhold a portion of the Shares otherwise to
be delivered upon exercise or receipt of (or the lapse of restrictions
relating to) such Award with a Fair Market Value equal to the amount of
such taxes or (ii) delivering to the Company Shares other than Shares
issuable upon exercise or receipt of (or the lapse of restrictions relating
to) such Award with a Fair Market Value equal to the amount of such taxes.
The election, if any, must be made on or before the date that the amount of
tax to be withheld is determined.
SECTION 9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. Except as otherwise provided in
Section 6(g) of the Plan, no Eligible Person, Participant or other Person
shall have any claim to be granted any Award under the Plan,
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and there is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Awards under the Plan. The
terms and conditions of Awards need not be the same with respect to
different Participants.
(b) DELEGATION. The Committee may delegate to one or more
officers of the Company or any Affiliate or a committee of such officers
the authority, subject to such terms and limitations as the Committee shall
determine, to grant Awards to Eligible Persons who are not officers or
directors of the Company for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended.
(c) AWARD AGREEMENTS. No Participant will have rights under an
Award granted to such Participant unless and until an Award Agreement shall
have been duly executed on behalf of the Company.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing
contained in the Plan shall prevent the Company or any Affiliate from
adopting or continuing in effect other or additional compensation
arrangements, and such arrangements may be either generally applicable or
applicable only in specific cases.
(e) NO RIGHT TO EMPLOYMENT, ETC. The grant of an Award shall
not be construed as giving a Participant the right to be retained in the
employ, or as giving a Non-Employee Director the right to continue as a
Director, of the Company or any Affiliate. In addition, the Company or an
Affiliate may at any time dismiss a Participant from employment, or
terminate the term of a Non-Employee Director, free from any liability or
any claim under the Plan, unless otherwise expressly provided in the Plan
or in any Award Agreement.
(f) GOVERNING LAW. The validity, construction and effect of the
Plan and any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of Minnesota.
(g) SEVERABILITY. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or
deemed amended without, in the determination of the Committee, materially
altering the purpose or intent of the Plan or the Award, such provision
shall be stricken as to such jurisdiction or Award, and the remainder of
the Plan or any such Award shall remain in full force and effect.
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(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind
or a fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any unsecured
general creditor of the Company or any Affiliate.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash shall be paid in lieu of any fractional Shares or
whether such fractional Shares or any rights thereto shall be canceled,
terminated or otherwise eliminated.
(j) HEADINGS. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference.
Such headings shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
(k) SECTION 16 COMPLIANCE. The Plan is intended to comply in
all respects with Rule 16b-3 or any successor provision, as in effect from
time to time and in all events the Plan shall be construed in accordance
with the requirements of Rule 16b-3. If any Plan provision does not comply
with Rule 16b-3 as hereafter amended or interpreted, the provision shall be
deemed inoperative. The Board of Directors, in its absolute discretion,
may bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan with respect to persons who are officers or directors
subject to Section 16 of the Securities and Exchange Act of 1934, as
amended, without so restricting, limiting or conditioning the Plan with
respect to other Participants.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the effective date of the
Merger, subject to prior approval by the stockholders of First Bank System,
Inc. in accordance with applicable law.
SECTION 11. TERM OF THE PLAN.
New Awards shall only be granted under the Plan during a 10-year
period beginning on the effective date of the Plan. However, unless
otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award theretofore granted may extend beyond the end of such
10-year period, and the authority of the Committee provided for hereunder
with respect to the Plan and any Awards, and
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the authority of the Board of Directors of the Company to amend the Plan,
shall extend beyond the end of such period.
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U.S. BANCORP
EMPLOYEE STOCK PURCHASE PLAN 1984
(As Amended and Restated April 24, 1991
and reflecting further amendments through
February 18, 1998)
ARTICLE I. INTRODUCTION
Section 1.01 Purpose. The purpose of this 1984 Employee Stock
Purchase Plan (as amended and restated as of April 24, 1991, and reflecting
further amendments through November 4, 1997) (the "Plan") is to provide
employees of U.S. Bancorp, a Delaware corporation (the "Company"), and certain
related corporations with an opportunity to share in the ownership of the
Company by providing them with a convenient means for regular and systematic
purchases of the Company's Common Stock, par value $1.25 per share, and, thus,
to develop a stronger incentive to work for the continued success of the
Company. The Plan shall constitute an amendment and restatement of the
Company's existing 1984 Employee Stock Purchase Plan (as amended January 31,
1987) (the "Former Plan") and as such shall supersede and replace the Former
Plan. No additional offers to purchase shares of the Company's Common Stock or
any other rights or benefits shall be provided or granted under the Former Plan;
provided, however, that the Former Plan shall deem to be outstanding to the
extent necessary solely for the purpose of determining the terms and conditions
of any such purchase offer or other rights previously granted under the Former
Plan.
Section 1.02 Rules of Interpretation. It is intended that the Plan
be an "employee stock purchase plan" as defined in Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations
promulgated thereunder, if approved by the Company's shareholders. Accordingly,
the Plan will be interpreted and administered in a manner consistent therewith
if so approved. All Participants in the Plan will have the same rights and
privileges consistent with the provisions of the Plan.
Section 1.03 Definitions. For purposes of the Plan, the following
terms will have the meanings set forth below:
(a) "ACCELERATION DATE" means the earlier of the date of shareholder
approval or approval by the Company's Board of Directors of (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Company Stock
would be converted into cash, securities or other property,
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other than a merger of the Company in which shareholders immediately prior to
the merger have the same proportionate ownership of stock in the surviving
corporation immediately after the merger; (ii) any sale lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all, of the assets of the Company; or (iii) any plan of
liquidation or dissolution of the Company.
(b) "AFFILIATE" means any parent or subsidiary corporation of the
Company, as defined in Sections 425(e) and 425(f) of the Code, whether now or
hereafter acquired or established.
(c) "COMMITTEE" means the committee appointed under Section 10.01.
(d) "COMPANY" means U.S. Bancorp, a Delaware corporation, and its
successors by merger or consolidation as contemplated by Article XI herein.
(e) "CURRENT COMPENSATION" means all gross cash compensation
(including wage, salary, incentive, bonus and overtime earnings) paid by the
Company or an Affiliate to a Participant, but excluding all expense allowances
or reimbursements and stock options, but including compensation paid in a form
other than cash and including amounts which would have constituted compensation
but for a Participant's election to defer or reduce compensation pursuant to any
deferred compensation, cafeteria, capital accumulation or any other similar plan
provided by the Company.
(f) "FAIR MARKET VALUE" as of a given date means such value of the
Common Stock as reasonably determined by the committee but which is not less
than the last sale price as reported by the New York Stock Exchange.
(g) "PARTICIPANT" means a Regular Full-Time Employee who is eligible
to participate in the Plan under Section 2.01 and who has elected to participate
in the Plan.
(h) "PARTICIPATING AFFILIATE" means an Affiliate which has been
designated by the Committee in advance of the Purchase Period in question as a
corporation whose eligible Regular Full-Time Employees may participate in the
Plan.
(i) "REGULAR FULL-TIME EMPLOYEE" means an employee of the Company or
a Participating Affiliate as of the first day of a Purchase Period, including an
officer or director who is also an employee, except an employee whose customary
employment is less than 20 hours per week or any
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employee who has not been employed by the Company or its Affiliates for more
than one (1) year.
(j) "PLAN" means the U.S. Bancorp 1984 Employee Stock Purchase Plan
as amended and restated as of April 24, 1991, and reflecting further amendments
through February 18, 1998, the provisions of which are set forth herein.
(k) "PURCHASE PERIOD" means a period beginning on such business day
as may be designated by the Committee prior thereto and ending on the earlier of
such business day as may be designated by the Committee prior to the first
business day of such Purchase Period or any Acceleration Date; provided,
however, that in no event shall the Committee designate a Purchase Period which
is less than six (6) months in duration.
(l) "STOCK" means the Company's Common Stock, $1.25 par value, as
such stock may be adjusted for changes in the stock or the Company as
contemplated by Article XI herein.
(m) "STOCK PURCHASE ACCOUNT" means the account maintained on the
books and records of the Company recording the amount received from each
Participant through payroll deductions made under the Plan.
ARTICLE II. ELIGIBILITY AND PARTICIPATION
Section 2.01 Eligible Employees. All Regular Full-Time Employees
shall be eligible to participate in the Plan beginning on the first day of the
first Purchase Period to commence after such person becomes a Regular Full-Time
Employee. Subject to the provisions of Article VI, each such employee will
continue to be eligible to participate in the Plan so long as he or she remains
a Regular Full-Time Employee.
Section 2.02 Election to Participate. An eligible Regular Full-Time
Employee may elect to participate in the Plan for a given Purchase Period by
filing with the Company, in advance of that Purchase Period and in accordance
with such terms and conditions as the Committee in its sole discretion may
impose, a form provided by the Company for such purpose (which authorizes
regular payroll deductions from Current Compensation beginning with the first
payday in that Purchase Period and continuing until the employee withdraws from
the Plan or ceases to be eligible to participate in the Plan).
Section 2.03 Limits on Stock Purchase. No employee shall be granted
any right to purchase Stock hereunder if such employee, immediately
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after such a right to purchase is granted, would own, directly or indirectly,
within the meaning of Section 423(b)(3) and Section 425(d) of the Code, stock
possessing 5% or more of the total combined voting power or value of all the
then classes of the capital stock of the Company or of all Affiliates.
Section 2.04 Voluntary Participation. Participation in the Plan on
the part of the Participant is voluntary and such participation is not a
condition of employment nor does participation in the Plan entitle a Participant
to be retained as an employee.
ARTICLE III. PAYROLL DEDUCTIONS AND
STOCK PURCHASE ACCOUNT
Section 3.01 Deduction from Pay. The form described in Section 2.02
will permit a participant to elect payroll deductions of any whole dollar amount
or whole percentage of Current Compensation for each pay period, subject to such
limitations as the Committee in its sole discretion may impose. A Participant
may cease making payroll deductions at any time, as provided in Section 6.01.
Section 3.02 Credit to Account. Payroll deductions will be credited
to the Participant's Stock Purchase Account on each payday.
Section 3.03 Interest. No interest will be paid upon payroll
deductions or on any amount credited to, or on deposit in, a Participant's Stock
Purchase Account.
Section 3.04 Nature of Account. The Stock Purchase Account is
established solely for accounting purposes, and all amounts credited to the
Stock Purchase Account will remain part of the general assets of the Company or
the Participating Affiliate (as the case may be).
Section 3.05 No Additional Contributions. A Participant may not make
any payment into the Stock Purchase Account other than the payroll deductions
made pursuant to the Plan.
ARTICLE IV. RIGHT TO PURCHASE SHARES
Section 4.01 Number of Shares. Each Participant will have the right
to purchase on the last business day of the Purchase Period all, but not less
than all, of the largest number of shares of Stock, both whole and any
fractional share, that can be purchased at the price specified in Section 4.02
with the entire credit balance in the Participant's Stock Purchase Account,
subject to the limitations that (a) no more than 5,000 shares of Stock may be
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purchased under the Plan by any one Participant for a given Purchase Period and
(b) in accordance with Section 423(b)(8) of the Code, no more than $25,000 in
Fair Market Value (determined at the beginning of each Purchase Period) of Stock
and other stock may be purchased under the Plan and all other employee stock
purchase plans (if any) of the Company and the Affiliates by any one Participant
for each calendar year. If the purchases for all Participants would otherwise
cause the aggregate number of shares of Stock to be sold under the Plan to
exceed the number specified in Section 10.03, however, each Participant shall be
allocated a pro rata portion of the Stock to be sold.
Section 4.02 Purchase Price. The purchase price for any Purchase
Period shall be that price as announced by the Committee prior to the first
business day of that Purchase Period, which price may, in the discretion of the
Committee, be a price which is not fixed or determinable as of the first
business day of that Purchase Period; provided, however, that in no event shall
the purchase price for any Purchase Period be less than (a) 85% of the Fair
Market Value of the Stock on the first business day of that Purchase Period or
(b) 85% of the Fair Market Value of the Stock on the last business day of that
Purchase Period, in each case rounded up to the next higher full cent, whichever
is lower.
ARTICLE V. EXERCISE OF RIGHT
Section 5.01 Purchase of Stock. On the last business day of a
Purchase Period, the entire credit balance in each Participant's Stock Purchase
Account will be used to purchase the largest number of both whole and any
fractional shares of Stock purchasable with such amount (subject to the
limitations of Section 4.01), unless the Participant has filed with the Company,
in advance of that date and subject to such terms and conditions as the
Committee in its sole discretion may impose, a form provided by the Company
(which elects to receive the entire credit balance in cash).
Section 5.02 Cash Distributions. Any amount remaining in a
Participant's Stock Purchase Account after the last business day of a Purchase
Period will be paid to the Participant in cash within 30 days after the end of
that Purchase Period.
Section 5.03 Notice of Acceleration Date. The Company shall use its
best efforts to notify each Participant in writing at least ten days prior to
any Acceleration Date that the then current Purchase Period will end on such
Acceleration Date.
ARTICLE VI. WITHDRAWAL FROM PLAN
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Section 6.01 Voluntary Withdrawal. A Participant may, in accordance
with such terms and conditions as the Committee in its sole discretion may
impose, withdraw from the Plan and cease making payroll deductions by filing
with the Company a form provided for this purpose. In such event, the entire
credit balance in the Participant's Stock Purchase Account will be paid to the
Participant in cash within 30 days. A Participant who withdraws from the Plan
will not be eligible to reenter the Plan until the beginning of the next
Purchase Period.
Section 6.02 Death. Subject to such terms and conditions as the
Committee in its sole discretion may impose, upon the death of a Participant, no
further amounts shall be credited to the Participant's Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such
Participant's death occurred and in accordance with Section 5.01, the entire
credit balance in such Participant's Stock Purchase Account will be used to
purchase Stock, unless Participant's estate has filed with the Company, in
advance of that day and subject to such terms and conditions as the Committee in
it sole discretion may impose, a form provided by the Company which elects to
have the entire credit balance in such Participant's Stock Purchase Account will
be used to purchase Stock, unless Participant's estate has filed with the
Company, in advance of that day and subject to such terms and conditions as the
Committee in its sole discretion may impose, a form provided by the Company
which elects to have the entire credit balance in such participant's Stock
Account distributed in cash, in accordance with Section 5.02 or at such earlier
time as the Committee in its sole discretion may decide. Each Participant,
however, may designate one or more beneficiaries who, upon death, are to receive
the stock or the amount that otherwise would have been distributed or paid to
the Participant's estate and may change or revoke any such designation from time
to time. No such designation, change or revocation will be effective unless
made by the Participant in writing and filed with the Company during the
Participant's lifetime. Unless the Participant has otherwise specified in the
beneficiary designation, the beneficiary or beneficiaries so designated will
become fixed as of death so that, if a beneficiary survives the Participant but
dies before the receipt of the payment due such beneficiary, the payment will be
made to such beneficiary's estate.
Section 6.03 Termination of Employment. Subject to such terms and
conditions as the Committee in its sole discretion may impose, upon a
Participant's normal or early retirement with the consent of the Company under
any pension or retirement plan of the Company or Participating Affiliate, no
further amounts shall be credited to the Participant's Stock Purchase Account.
Thereafter, on the last business day of the Purchase Period during which such
Participant's approved retirement occurred and in
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accordance with Section 5.01, the entire credit balance in such Participant's
Stock Purchase Account will be used to purchase Stock, unless such Participant
has filed with the Company, in advance of that day and subject to such terms and
conditions as the Committee in its sole discretion may impose, a form provided
by the Company which elects to receive the entire credit balance in such
Participant's Stock Purchase Account in cash, in accordance with Section 5.02;
provided, however, that such Participant shall have no right to purchase Stock
in the event that the last day of such a Purchase Period occurs more than three
(3) months following the termination of such Participant's employment with the
Company by reason of such an approved retirement. In the event of any other
termination of employment (other than death) with the Company or a Participatory
Affiliate by a Participant, participation in the Plan will cease on the date the
Participant ceases to be a Regular Full-Time Employee for any reason. In such
event, the entire credit balance in such Participant's Stock Purchase Account
will be paid to the Participant in cash within 30 days. For purposes of this
Section, a transfer of employment to any Affiliate, or a leave of absence which
has been approved by the Committee, will not be deemed a termination of
employment as a Regular Full-Time Employee.
ARTICLE VII. NONTRANSFERABILITY
Section 7.01 Nontransferable Right to Purchase. The right to
purchase Stock hereunder may not be assigned, transferred, pledged or
hypothecated (whether by operation of law or otherwise), except as provided in
Section 6.02, and will not be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition or levy of attachment or similar process upon the right to purchase
will be null and void and without effect.
Section 7.02 Nontransferable Account. Except as provided in Section
6.02, the amounts credited to a Stock Purchase Account may not be assigned,
transferred, pledged or hypothecated in any way, and any attempted assignment,
transfer, pledge, hypothecation or other disposition of such amount will be null
and void and without effect.
ARTICLE VIII. STOCK CERTIFICATES
Section 8.01 Delivery. Promptly after the last day of each Purchase
Period and subject to such terms and conditions as the Committee in its sole
discretion may impose, the Company will cause to be delivered to or for the
benefit of the Participant a certificate representing the Stock purchased on the
last business day of such Purchase Period or cause its
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transfer agent to provide for a book-entry credit representing such Stock for
the benefit of the Participant.
Section 8.02 Securities Laws. The Company shall not be required to
issue or deliver any certificate representing Stock prior to registration under
the Securities Act of 1933, as amended, or registration or qualification under
any state law if such registration is required. The Company will use its best
efforts to accomplish such registration (if and to the extent required) not
later than a reasonable time following the Purchase Period, and delivery of
certificates may be deferred until such registration is accomplished.
Section 8.03 Completion of Purchase. A Participant will have no
interest in the Stock purchased until a certificate representing the same is
issued to or for the benefit of the Participant or a book-entry credit has been
made for the benefit of the Participant.
Section 8.04 Form of Ownership. The certificates representing Stock
issued under the Plan will be registered in the name of the Participant or
jointly in the name of the Participant and another person, as the Participant
may direct on a form provided by the Company.
ARTICLE IX. EFFECTIVE DATE AND AMENDMENT OR
TERMINATION OF PLAN
Section 9.01 Effective Date. The Plan will become effective on
February 15, 1989, but only if the Plan is approved by the Company's
shareholders at their 1989 annual meeting.
Section 9.02 Powers of Board. The Board of Directors of the Company
may at any time amend or terminate the Plan, except that no amendment will be
made without prior approval of the shareholders which would (a) authorize an
increase in the number of shares of Stock which may be purchased under the Plan,
except as provided in Section 11.01, (b) permit the issuance of Stock before
payment therefor in full, or (c) reduce the price per share at which the Stock
may be purchased.
Section 9.03 Automatic Termination. No Purchase Period shall begin
after May 1, 2001.
ARTICLE X. ADMINISTRATION
Section 10.01 Appointment of Committee. The Board of Directors of
the Company shall appoint a Committee to administer the Plan
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consisting of two or more persons (who may, but need not be, directors of the
Company or of a Participating Affiliate). The Board will determine the size of
the Committee from time to time and will have the power to remove and replace
members thereof.
Section 10.02. Powers of Committee. Subject to the provisions of the
Plan, the Committee will have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan, to establish
deadlines by which the various administrative forms must be received in order to
be effective, and to adopt such other rules and regulations for administering
the Plan as it may deem appropriate. The Committee shall have full and complete
authority to determine whether all or any part of the Stock acquired pursuant to
the Plan shall be subject to restrictions on the transferability thereof or any
other restrictions affecting in any manner a Participant's rights with respect
thereto but any such restrictions shall be contained in the form by which a
Participant elects to participate in the Plan pursuant to Section 2.02.
Decisions of the Committee will be final and binding on all parties who have an
interest in the Plan.
Section 10.03. Stock to be Sold. The Stock to be issued and sold
under the Plan may be treasury stock or authorized but unissued Stock, or the
Company may purchase Stock in the market for sale under the Plan. Except as
provided in Section 11.01, the aggregate number of shares of Stock to be sold
under the Plan will not exceed 4,600,000 shares.
Section 10.03. Notices. Notices to the Committee should be addressed
as follows:
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402
Attn: Employee Stock Purchase Plan Committee
ARTICLE XI. ADJUSTMENT FOR CHANGES
IN STOCK OR COMPANY
Section 11.01 Stock Dividend or Reclassification. If the outstanding
shares of Stock are increased, decreased, changed into or exchanged for a
different number or kind of securities of the Company, or shares of a different
par value or without par value, through reorganization, recapitalization,
reclassification, stock dividend, stock split, amendment to the Company's
Articles of Incorporation, reverse stock split or otherwise, an appropriate
adjustment shall be made in the maximum numbers and/or
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kind of securities to be sold under this Plan with a corresponding adjustment in
the purchase price to be paid therefor.
Section 11.02 Merger or Consolidation. If the Company is merged into
or consolidated with one or more corporations during the term of the Plan,
appropriate adjustments will be made to give effect thereto on an equitable
basis in terms of issuance of shares of the corporation surviving the merger or
of the consolidated corporation, as the case may be.
ARTICLE XII. APPLICABLE LAW
Rights to purchase Stock granted under this Plan shall be construed
and shall take effect in accordance with the laws of the State of Minnesota.
ARTICLE XIII. PARTICIPATION OF NON-EMPLOYEE DIRECTORS
Section 13.01 Eligible Directors. Each director of the Company is
eligible to participate in the Plan pursuant to this Article XIII unless such
director is an employee of the Company or Affiliate. An eligible director is
herein referred to as a "non-employee Director." A Non-employee Director shall
be eligible to participate in the Plan beginning on the first day of the first
Purchase Period to commence after such person becomes a Non-employee Director.
Subject to the provisions of this Article XIII, each such Non-employee Director
will continue to be eligible to participate in the Plan so long as he or she
remains a Non-employee Director.
Section 13.02 Election to Participate. A Non-employee Director may
elect to participate in the Plan for a given Purchase Period by filing with the
Company, in advance of that Purchase Period and in accordance with such terms
and conditions as the Committee in its sole discretion may impose, a form
provided by the Company for such purpose (which authorizes the Company to deduct
for the purchase of Stock hereunder all or a portion of the Director
Compensation (as defined below) that such Non-employee Director is entitled to
receive for the period beginning with the first day in that Purchase Period and
continuing until the Non-employee Director withdraws from the Plan or ceases to
be eligible to participate in the Plan.) "Director Compensation" shall mean all
amounts which the director would be entitled to receive for serving as a
director in the relevant Purchase Period, including fees for attendance at
meetings of the Board of Directors or any committee of the Board of Directors or
for any other services as a director of the Company.
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Section 13.03. Deduction from Director Compensation. The form
described in Section 13.02 will permit a Non-employee Director to elect
deductions of any whole dollar amount or whole percentage of Director
Compensation to be used to purchase Stock hereunder. Director Compensation will
be credited to the Non-employee Director's Stock Purchase Account on each day
that Director Compensation would otherwise be paid to such Non-employee
Director, subject to Section 3.04.
Section 13.04 Interest. No interest will be paid upon deductions
from Director Compensation or on any amount credited to, or on deposit in, a
Non-employee Director's Stock Purchase Account.
Section 13.05 No Additional Contributions. A Non-employee Director
may not make any payment into the Stock Purchase Account other than the
deductions from Director Compensation made pursuant to the Plan.
Section 13.06 Purchase of Shares; Purchase Price.
(a) Each Non-employee Director will automatically purchase on the
last day of the Purchase Period all of the largest number of shares of stock,
both whole and any fractional, that can be purchased at the purchase price
specified in Section 13.06(b) with the entire credit balance in the Non-employee
Director's Stock Purchase Account, unless the Non-employee Director has filed
with the Company, in advance of that date and subject to such terms and
conditions as the Committee in its sole discretion may impose, a form provided
by the Company (which elects to receive the entire credit balance in cash). Any
amount remaining in a Non-employee Director's Stock Purchase Account after the
last business day of a Purchase Period will be paid to the Non-employee Director
in cash within 30 days after the end of that Purchase Period.
(b) The purchase price for Non-employee Directors for any Purchase
Period shall be the lower of (i) 85% of the Fair Market Value of the Stock on
the first business day of that Purchase Period or (b) 85% of the Fair Market
Value of the Stock on the last business day of that Purchase Period, in each
case rounded up to the next higher full cent.
Section 13.07 Voluntary Withdrawal. A Non-employee Director may, in
accordance with such terms and conditions as the Committee in its sole
discretion may impose, withdraw from the Plan and cease having deductions made
from Director Compensation by filing with the Company a form provided for this
purpose. In such event, the entire credit balance in the Non-employee
Director's Stock Purchase Account will be paid to the Non-employee Director in
cash within 30 days. A Non-employee Director
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who withdraws from the Plan will not be eligible to reenter the Plan until the
beginning of the next Purchase Period.
Section 13.08 Death. Upon the death of a Non-employee Director, no
further amounts shall be credited to the Non-employee Director's Stock Purchase
Account. Thereafter, on the last business day of the Purchase Period during
which such Non-employee Director's death occurred and in accordance with Section
13.06, the entire credit balance in such Non-employee Director's Stock Purchase
Account will be used to purchase Stock. Each Non-employee Director, however,
may designate one or more beneficiaries who, upon death, are to receive the
stock and any amount that otherwise would have been distributed or paid to the
Non-employee Director's estate and may change or revoke any such designation
from time to time. No such designation, change or revocation will be effective
unless made by the Non-employee Director in writing and filed with the Company
during the Non-employee Director's lifetime. Unless the Non-employee Director
has otherwise specified in the beneficiary designation, the beneficiary or
beneficiaries so designated will become fixed as of death so that, if a
beneficiary survives the Non-employee Director but dies before the receipt of
the payment due such beneficiary, the payment will be made to such beneficiary's
estate.
Section 13.10 Termination as a Director. Participation in the Plan
will cease on the date the Non-employee Director ceases to be eligible to
participate in the Plan pursuant to Section 13.01. In such event, on the last
business day of the Purchase Period during which such Non-employee Director
ceased to be eligible under Section 13.01 and in accordance with Section 13.06
the entire credit balance in such Non-employee Director's Stock Purchase Account
will be used to purchase Stock.
Section 13.11 Nontransferable Right to Purchase. The right to
purchase Stock hereunder may not be assigned, transferred, pledged or
hypothecated (whether by operation of law or otherwise), except as provided in
Section 13.08 and will not be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition or levy of attachment or similar process upon the right to purchase
will be null and void and without effect.
Section 13.12 Nontransferable Account. Except as provided in Section
13.08 the amounts credited to a Stock Purchase Account may not be assigned,
transferred, pledged or hypothecated in any way, and any attempted assignment,
transfer, pledge, hypothecation or other disposition of such amounts will be
null and void and without effect.
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Section 13.13 Stock Certificates. All matters pertaining to the
issuance and delivery of and the Non-employee Director's interest in the Stock
purchased pursuant to this Plan and the certificates representing such Stock
shall be governed by Article VIII.
Section 13.14 Tax Matters. This Article XIII is not subject to
Section 423 of the Code or any other provision of the Plan which refers to, or
is based upon, such section. For tax purposes, this Article XIII shall be
treated as separate and apart from the balance of the Plan.
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U.S. BANCORP
SPECIAL EXECUTIVE DEFERRAL PLAN
Effective November 1, 1997
<PAGE>
U.S. BANCORP
SPECIAL EXECUTIVE DEFERRAL PLAN
TABLE OF CONTENTS
PAGE
SECTION 1. INTRODUCTION 1
1.1. Statement of Plan
1.2. Definitions
1.2.1. Account
1.2.2. Affiliate
1.2.3. Annual Valuation Date
1.2.4. Beneficiary
1.2.5. Change in Control
1.2.6. Earliest Retirement Age
1.2.7. Effective Date
1.2.8. EIP
1.2.9. Employer
1.2.10. Event of Maturity
1.2.11. Normal Retirement Age
1.2.12. Participant
1.2.13. Plan
1.2.14. Plan Statement
1.2.15. Plan Year
1.2.16. Principal Sponsor
1.2.17. Termination of Employment
1.2.18. USB
1.2.19. Valuation Date
1.2.20. Service
1.3. Rules of Interpretation
SECTION 2. PARTICIPATION 4
2.1. Participation
2.2. Enrollment
2.3. Specific Exclusion
SECTION 3. ADJUSTMENT OF ACCOUNTS 5
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3.1. Establishment of Accounts
3.2. Adjustments of Accounts
3.2.1. Intermediate Distributions Subtraction
3.2.2. Investment Addition
3.2.3. Deferral Addition
3.2.4. Final Distributions Subtraction
SECTION 4. VESTING OF ACCOUNT 6
SECTION 5. MATURITY 6
5.1. Events of Maturity
5.2. Effect of Maturity upon Further Participation in Plan
SECTION 6. DISTRIBUTION 7
6.1. Form of Distribution
6.1.1. Form of Distribution
6.1.2. Time of Payment
6.1.3. Installment Amounts
6.1.4. Default
6.2. Previously Scheduled Distribution
6.2.1. Enrolling for the Distribution
6.2.2. Scheduled Distribution
6.3. Hardship Distributions
6.3.1. When Available
6.3.2. Purposes
6.3.3. Limitations
6.3.4. Forfeiture
6.4. Change in Control Distributions
6.4.1. When Available
6.4.2. Limitations
6.4.3. Forfeiture
6.5. Acceleration of Annual Installments
6.5.1. When Available
6.5.2. Forfeiture
6.6. Designation of Beneficiaries
6.6.1. Right to Designate
6.6.2. Failure of Designation
6.6.3. Disclaimers by Beneficiaries
6.6.4. Definitions
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6.6.5. Special Rules
6.6.6. No Spousal Rights
6.7. Death Prior to Full Distribution
6.8. Facility of Payment
SECTION 7. FUNDING OF PLAN 14
7.1. Unfunded Agreement
7.2. Spendthrift Provision
SECTION 8. AMENDMENT AND TERMINATION 15
SECTION 9. DETERMINATIONS -- RULES AND REGULATIONS 15
9.1. Determinations
9.2. Rules and Regulations
9.3. Method of Executing Instruments
9.4. Claims Procedure
9.4.1. Original Claim
9.4.2. Claims Review Procedure
9.4.3. General Rules
9.5. Information Furnished by Participants
SECTION 10. PLAN ADMINISTRATION 17
10.1. Employer
10.1.1. Officers
10.1.2. Chief Executive Officer
10.1.3. Board of Directors
10.2. Conflict of Interest
10.3. Administrator
10.4. Service of Process
SECTION 11. DISCLAIMERS 18
11.1. Term of Employment
11.2. Source of Payment
11.3. Delegation
APPENDIX A -- CHANGE IN CONTROL DEFINITIONS A-1
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U.S. BANCORP
SPECIAL EXECUTIVE DEFERRAL PLAN
SECTION 1
INTRODUCTION
1.1. STATEMENT OF PLAN. Effective November 1, 1997, U.S. BANCORP, a
Delaware corporation (hereinafter sometimes referred to as "Principal Sponsor")
hereby creates a nonqualified, unfunded, elective deferral plan for the purpose
of allowing a select group of management and highly compensated employees of the
Principal Sponsor and other Employers to defer the receipt of compensation which
would otherwise be paid to those employees, in order to offset the effect of
direct dividend payments made to those employees pursuant to the U.S. Bancorp
Employee Investment Plan.
1.2. DEFINITIONS. When the following terms are used herein with initial
capital letters, they shall have the following meanings:
1.2.1. ACCOUNT -- the separate bookkeeping account representing the
unfunded and unsecured general obligation of the Principal Sponsor established
with respect to each Participant to which is credited the dollar amounts
specified in Section 3 and from which are subtracted payments and forfeitures
made pursuant to Section 6. To the extent necessary to accommodate and effect
the distribution elections made by Participants pursuant to Section 2, separate
bookkeeping sub-accounts shall be established with respect to each of the
several annual deferral elections made by Participants.
1.2.2. AFFILIATE -- a business entity which is affiliated in
ownership with the Principal Sponsor or an Employer and is recognized as an
Affiliate by the Principal Sponsor for the purposes of this Plan.
1.2.3. ANNUAL VALUATION DATE -- each December 31.
1.2.4. BENEFICIARY -- a person designated by a Participant (or
automatically by operation of this Plan Statement) to receive all or a part of
the Participant's Account in the event of the Participant's death prior to full
distribution thereof. A person so designated shall not be considered a
Beneficiary until the death of the Participant.
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1.2.5. CHANGE IN CONTROL -- The definition of Change in Control, as
well as certain other definitions relating to Change in Control used herein,
appear in Appendix A to this Plan Statement.
1.2.6. EARLIEST RETIREMENT AGE -- the earlier of:
(i) the earliest date that a Participant who is at least
age fifty-five (55) years has a sum of his or her
age (in whole years) and Service (also in whole
years) that equals at least sixty-five (65), or
(ii) the date a Participant attains Normal Retirement
Age.
1.2.7. EFFECTIVE DATE -- November 1, 1997.
1.2.8. EIP -- the U.S. BANCORP EMPLOYEE INVESTMENT PLAN, or any
similar successor plan.
1.2.9. EMPLOYER -- the Principal Sponsor and any business entity
affiliated with the Principal Sponsor that employs persons who are designated
for participation in this Plan.
1.2.10. EVENT OF MATURITY -- any of the occurrences described in
Section 5 by reason of which a Participant or Beneficiary may become entitled to
a distribution from the Plan.
1.2.11. NORMAL RETIREMENT AGE -- the last day of the calendar
month in which a Participant attains age sixty-five (65) years.
1.2.12. PARTICIPANT -- an employee of the Employer who is identified
in Appendix B and elects to participate in accordance with the terms of this
Plan and becomes a Participant in the Plan in accordance with the provisions of
Section 2. An employee shall not be eligible to become a Participant unless the
employee is a member of a select group of management or highly compensated
employees. No employee is presumed or automatically eligible to participate in
this Plan. An employee who has become a Participant shall be considered to
continue as a Participant in the Plan until the date of the Participant's death
or, if earlier, the date when the Participant is no longer employed by an
Employer or an Affiliate and upon which the Participant no longer has any
Account under the Plan (that is, the Participant has received a distribution of
all of the Participant's Account).
1.2.13. PLAN -- the nonqualified, income deferral program
maintained by the Principal Sponsor established for the benefit of
Participants eligible to participate therein, as set forth in this Plan
Statement. (As used herein, "Plan" does not refer to the documents pursuant
to which the Plan is maintained. Those documents are referred to herein as
the "Plan Statement").
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The Plan shall be referred to as the "U.S. BANCORP SPECIAL EXECUTIVE DEFERRAL
PLAN."
1.2.14. PLAN STATEMENT -- this document entitled "U.S. BANCORP
SPECIAL EXECUTIVE DEFERRAL PLAN" as adopted by the Compensation and Human
Resources Committee of the Board of Directors of U.S. BANCORP effective as of
November 1, 1997, as the same may be amended from time to time thereafter.
1.2.15. PLAN YEAR -- the twelve (12) consecutive month period
ending on any Annual Valuation Date.
1.2.16. PRINCIPAL SPONSOR -- U.S. BANCORP, a Delaware corporation.
1.2.17. TERMINATION OF EMPLOYMENT -- a complete severance of an
employee's employment relationship with the Employer and all Affiliates, if
any, for any reason other than the employee's death. A transfer from
employment with the Employer to employment with an Affiliate of the Employer
shall not constitute a Termination of Employment. If an Employer who is an
Affiliate ceases to be an Affiliate because of a sale of substantially all
the stock or assets of the Employer, then Participants who are employed by
that Employer and who cease to be employed by the Principal Sponsor or an
Employer on account of the sale of substantially all the stock or assets of
the Employer shall be deemed to have thereby had a Termination of Employment
for the purpose of commencing distributions from this Plan.
1.2.18. USB -- U.S. BANCORP, a Delaware corporation, or any
successor thereto.
1.2.19. VALUATION DATE -- the last day of each calendar month of
the Plan Year.
1.2.20. SERVICE -- a measure of an employee's service with the
Employer and all Affiliates (stated as a number of years) which is equal to
the number of years of service credited to the employee for the purpose of
determining the nonforfeitable portion of the employee's benefit under the
rules of the tax-qualified defined benefit pension plan in which the employee
participates as those rules may exist at the time the Participant's Service
is being determined.
1.3. RULES OF INTERPRETATION. An individual shall be considered to have
attained a given age on such individual's birthday for that age (and not on
the day before). Individuals born on February 29 in a leap year shall be
considered to have their birthdays on February 28 in each year that is not a
leap year. Notwithstanding any other provision of this Plan Statement or any
election or designation made under the Plan, any individual who feloniously
and intentionally kills a Participant or Beneficiary shall be deemed for all
purposes of this Plan and all elections and designations made under this Plan
to have died before such Participant or Beneficiary. A
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final judgment of conviction of felonious and intentional killing is
conclusive for the purposes of this section. In the absence of a conviction
of felonious and intentional killing, the Principal Sponsor shall determine
whether the killing was felonious and intentional for the purposes of this
section. Whenever appropriate, words used herein in the singular may be read
in the plural, or words used herein in the plural may be read in the
singular; the masculine may include the feminine; and the words "hereof",
"herein" or "hereunder" or other similar compounds of the word "here" shall
mean and refer to this entire Plan Statement and not to any particular
paragraph or section of this Plan Statement unless the context clearly
indicates to the contrary. The titles given to the various sections of this
Plan Statement are inserted for convenience of reference only and are not
part of this Plan Statement, and they shall not be considered in determining
the purpose, meaning or intent of any provision hereof. This Plan Statement
shall be construed and this Plan shall be administered to create an unfunded
plan providing deferred compensation to a select group of management or
highly compensated employees so that it is exempt from the requirements of
Parts 2, 3 and 4 of Title I of ERISA and qualifies for a form of simplified,
alternative compliance with the reporting and disclosure requirements of Part
1 of Title I of ERISA. Any reference in this Plan Statement to a statute or
regulation shall be considered also to mean and refer to any subsequent
amendment or replacement of that statute or regulation. This document has
been executed and delivered in the State of MINNESOTA and has been drawn in
conformity to the laws of that State and shall be construed and enforced in
accordance with the laws of the State of MINNESOTA to the extent not
preempted by ERISA.
SECTION 2
PARTICIPATION
2.1. PARTICIPATION. Each employee of the Employer identified in Appendix B
to this Plan Statement shall be a participant in the Plan as of November 1,
1997, provided the employee has enrolled as a Participant prior to that date.
2.2. ENROLLMENT. Prior to November 1, 1997, an employee who is identified
in Appendix B to this Plan Statement may enroll for the period commencing
November 1, 1997 and ending December 31, 1997 (the "Enrollment Period"). No
subsequent enrollments shall be permitted. Each such enrollment:
(a) Shall be irrevocable once it has been received by the
Principal Sponsor.
(b) Shall designate the amount or portion of the Participant's
base compensation which is earned during the Enrollment
Period (without regard to whether it would be paid during
that or a subsequent Plan Year) which shall not be paid to
the Participant but instead shall be accumulated
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in this Plan under Section 3 and distributed from this Plan
under Section 6. The amount or portion of the base
compensation that can be designated may not exceed the
dividends paid to the Participant during 1997 pursuant to
Section 8.7 of the EIP. The amount or portion of the base
compensation that can be designated also shall not exceed
one hundred percent (100%) of the Participant's base
compensation during the Enrollment Period less all
previously authorized non-tax deductions.
(c) Shall specify the form in which distribution of the Account
shall be made under Section 6 upon the occurrence of an
Event of Maturity (and if such designation is not clearly
made to the contrary shall be deemed to have been an
election of a single lump sum distribution).
(d) Shall specify whether and what amount of the Account shall
be distributed before an Event of Maturity in accordance
with Section 6.2.
(e) Shall be made upon forms furnished by the Principal Sponsor
and shall conform to such other procedural and substantive
rules as the Principal Sponsor shall make.
2.3. SPECIFIC EXCLUSION. Notwithstanding anything apparently to the
contrary in this Plan Statement or in any written communication, summary,
resolution or document or oral communication, no individual shall be a
Participant in this Plan, develop benefits under this Plan or be entitled to
receive benefits under this Plan (either for himself or herself or his or her
survivors) unless such individual is a member of a select group of management or
highly compensated employees (as that expression is used in ERISA). If a court
of competent jurisdiction, any representative of the U.S. Department of Labor or
any other governmental, regulatory or similar body makes any direct or indirect,
formal or informal, determination that an individual is not a member of a select
group of management or highly compensated employees (as that expression is used
in ERISA), such individual shall not be (and shall not have ever been) a
Participant in this Plan at any time. If any person not so defined has been
erroneously treated as a Participant in this Plan, upon discovery of such error
such person's erroneous participation shall immediately terminate AB INITIO and
the Employer shall distribute the individual's Account immediately.
SECTION 3
ADJUSTMENT OF ACCOUNTS
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3.1. ESTABLISHMENT OF ACCOUNTS. There shall be established for each
Participant an unfunded bookkeeping Account which shall be adjusted each
Valuation Date.
3.2. ADJUSTMENTS OF ACCOUNTS. As of each Valuation Date (the "current
Valuation Date"), the value of each Account determined as of the immediately
preceding Valuation Date (the "initial Account value") shall be increased (or
decreased) by the following adjustments made in the following sequence:
3.2.1. INTERMEDIATE DISTRIBUTIONS SUBTRACTION. The initial Account
value shall be reduced by the total amount distributed in fact to (or with
respect to) the Participant (or forfeited in connection with a distribution)
from such Account as of a date subsequent to the immediately preceding Valuation
Date but prior to the current Valuation Date.
3.2.2. INVESTMENT ADDITION. The initial Account value (as adjusted
above) shall be increased by interest.
(a) The rate shall be determined from time to time by the
Principal Sponsor. Except as provided in Section 8, the
rate may be changed by the Principal Sponsor by amendment of
the Plan Statement without notice to or the consent of any
Participant, former Participant or any Beneficiary.
(b) Beginning November 1, 1997, the rate for each month in a
Plan Year shall be equal to the monthly equivalent of one
hundred percent (100%) of the 120 month rolling average of
the 10-year Treasury Note determined as of September 30 of
the preceding Plan Year.
(c) This rate shall be uniform for all Participants for the same
Valuation Date but may change from Valuation Date to
Valuation Date.
3.2.3. DEFERRAL ADDITION. The initial Account value (as adjusted
above) shall be increased by the total amount of compensation, if any, which
would have been paid to the Participant as of a date subsequent to the
immediately preceding Valuation Date but prior to or coincident with the current
Valuation Date but for the enrollment agreement signed by the Participant
pursuant to Section 2. No increases shall be made pursuant to this Section
3.2.3 for amounts paid as of a date after December 31, 1997.
3.2.4. FINAL DISTRIBUTIONS SUBTRACTION. The initial Account value
(as adjusted above) shall be reduced by the total amount distributed in fact to
(or with respect to) the Participant (or forfeited in connection with a
distribution) from such Account as of the current Valuation Date.
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SECTION 4
VESTING OF ACCOUNT
Except as provided in Section 6.2 and Section 6.4 (relating to the forfeiture
for hardship or Change in Control distributions) and Section 8 (relating to the
ability to amend the Plan Statement and terminate the Plan), the Account of each
Participant shall be fully (100%) vested and nonforfeitable at all times.
SECTION 5
MATURITY
5.1. EVENTS OF MATURITY. A Participant's Account shall mature and shall
become distributable in accordance with Section 6 upon the earliest occurrence
of any of the following events while in the employment of the Employer or an
Affiliate:
(a) his or her death, or
(b) his or her Termination of Employment from the Employer, or
(c) termination of the Plan;
provided, however, that a transfer of employment to an Affiliate that is not an
Employer shall not constitute an Event of Maturity.
5.2. EFFECT OF MATURITY UPON FURTHER PARTICIPATION IN PLAN. On the
occurrence of an Event of Maturity, a Participant shall cease to have any
interest in the Plan other than the right to receive payment of his or her
Account as provided in Section 6 hereof, adjusted from time to time as provided
in Section 3.
SECTION 6
DISTRIBUTION
6.1. FORM OF DISTRIBUTION. Upon the occurrence of an Event of Maturity
effective as to a Participant, the Principal Sponsor shall commence payment of
such Participant's Account (reduced by the amount of any applicable payroll,
withholding and other taxes) in the form
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designated by the Participant in his or her enrollment. A Participant shall not
be required to make application to receive payment. Distribution shall not be
made to any Beneficiary, however, until such Beneficiary shall have filed a
written application for benefits in a form acceptable to the Principal Sponsor
and such application shall have been approved by the Principal Sponsor.
6.1.1. FORM OF DISTRIBUTION. Distribution shall be made in
whichever of the following forms as the Participant shall have designated in
writing at the time of his or her enrollment (to the extent that such election
is consistent with the rules of this Plan Statement):
(a) TERM CERTAIN INSTALLMENTS TO PARTICIPANT. If the
Distributee is a Participant, the Account at the Termination
of Employment is at least Twenty Thousand Dollars ($20,000)
and the Participant had attained Earliest Retirement Age at
the Termination of Employment, in a series of annual
installments payable over fifteen (15) years.
(b) CONTINUED TERM CERTAIN INSTALLMENTS TO BENEFICIARY. If the
Distributee is a Beneficiary of a deceased Participant and
distribution had commenced to the deceased Participant
before his or her death over a fifteen (15) year period as
specified in paragraph (a) above, in a series of annual
installments payable over the remainder of the fifteen (15)
year period.
(c) LUMP SUM. If the Distributee is a Participant, in a single
lump sum. If the Distributee is a Beneficiary of a deceased
Participant and distribution had not commenced to the
deceased Participant before his or her death, in a single
lump sum payment.
6.1.2. TIME OF PAYMENT. Payment shall be made or commenced to a
Participant in accordance with the following rules:
(a) RETIREMENT. If the Participant's Termination of Employment
is on a date on or after the Participant's Earliest
Retirement Age, payment shall be made or commenced as of the
Annual Valuation Date coincident with or immediately
following the Participant's Termination of Employment and
shall be made or commenced as soon as practicable after such
Annual Valuation Date.
(b) DEATH. If the payment is made or commenced on account of
the Participant's death, payment shall be made or commenced
as of the Annual Valuation Date coincident with or
immediately following the
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Participant's Termination of Employment and shall be made or
commenced as soon as practicable after such Annual Valuation
Date.
(c) OTHER. In all other cases, payment to the Participant shall
be made as of the second Valuation Date subsequent to the
Participant's Termination of Employment and shall be made as
soon as practicable after such second Valuation Date.
(d) CODE SECTION 162(m) DELAY. If the Principal Sponsor
determines that delaying the time of the initial payments
are made or commenced would increase the probability that
such payments would be fully deductible for federal or state
income tax purposes, the Principal Sponsor may unilaterally
delay the time of the making or commencement of payments for
up to twenty-four (24) months after the date such payments
would otherwise be payable.
6.1.3. INSTALLMENT AMOUNTS. The amount of the annual installments
shall be determined by dividing the amount of the Account as of the Annual
Valuation Date as of which the installment is being paid by the number of
remaining installment payments to be made (including the payment being
determined).
6.1.4. DEFAULT. If for any reason a Participant shall have failed
to make a timely written designation of form for distribution (including reasons
entirely beyond the control of the Participant), the distribution shall be made
in a single lump sum. No spouse, former spouse, Beneficiary or other person
shall have any right to participate in the Participants selection of a form of
benefit.
6.2. PREVIOUSLY SCHEDULED DISTRIBUTION.
6.2.1. ENROLLING FOR THE DISTRIBUTION. At the time of enrollment,
each enrolling Participant shall have the opportunity to elect to cause the Plan
to make a scheduled distribution to the Participant from the Account of a fixed
dollar amount or percentage of Account (not less than $2,000) as of an Annual
Valuation Date designated by the Participant in the enrollment which
distribution shall be made as soon as practicable after such Annual Valuation
Date.
6.2.2. SCHEDULED DISTRIBUTION. As of the Annual Valuation Date
designated by the Participant in his or her enrollment, there shall be
distributed from the Account to the Participant such amount as the Participant
shall have elected to receive from the Account when the Participant enrolled.
Notwithstanding the dollar amount designated by the Participant in his or her
enrollment, if a scheduled distribution is required as of an Annual Valuation
Date and the value of the portion of the Account that is attributable to the
Participants deferrals on such
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Annual Valuation Date is less than Five Thousand Dollars ($5,000) the entire
Account attributable to that Participant's deferrals shall be distributed.
In no event shall such scheduled distributions occur after the death of the
Participant or after any other Event of Maturity with respect to the
Participant. In no event shall such scheduled distributions made pursuant to
an enrollment for a Plan Year exceed the Account attributable to that Plan
Year.
6.3. HARDSHIP DISTRIBUTIONS.
6.3.1. WHEN AVAILABLE. A Participant may receive a hardship
distribution from his or her Account if the Principal Sponsor determines that
such hardship distribution is for a purpose described in Section 6.3.2 and the
conditions in Section 6.3.3 and Section 6.3.4 have been fulfilled. To receive
such a distribution, the Participant must file a written hardship distribution
application with the Principal Sponsor and furnish such documentation as the
Principal Sponsor may require. In the application, the Participant shall
specify the basis for the distribution and the dollar amount to be distributed.
If such hardship distribution is approved by the Principal Sponsor, distribution
shall be made as of the Valuation Date coincident with or next following the
approval of a completed application by the Principal Sponsor and such hardship
distribution shall be made in a lump sum cash payment as soon as
administratively feasible after such Valuation Date.
6.3.2. PURPOSES. Hardship distributions shall be allowed under
Section 6.3.1 only if the Participant establishes that the hardship distribution
is to be made on account of an immediate and heavy financial need of the
Participant for which the Participant does not have other available resources.
6.3.3. LIMITATIONS. The amount of the hardship distribution shall
not exceed the amount of the Participant's proven immediate and heavy financial
need. A hardship distribution shall not be made after the death of the
Participant or after the occurrence of any other Event of Maturity. The amount
of approved hardship distribution (and the forfeiture described below) shall not
exceed the value of the Account.
6.3.4. FORFEITURE. Upon the approval of a hardship distribution,
there shall be irrevocably forfeited from the Account of the Participant an
amount equal to ten percent (10%) of the amount approved for distribution.
6.4. CHANGE IN CONTROL DISTRIBUTIONS.
6.4.1. WHEN AVAILABLE. A Participant or Beneficiary may receive a
distribution of his or her entire Account (after reduction for the forfeiture
described in Section 6.4.3) if a Full Change in Control or a Qualifying
Termination has occurred and the condition in Section 6.4.2 has been fulfilled
(a "Change in Control Distribution"). To receive such a distribution, the
Participant or Beneficiary must file a written distribution application with the
Principal Sponsor.
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The Principal Sponsor shall approve the Change in Control Distribution if such
application has been filed and a Full Change in Control or a Qualifying
Termination has occurred. Distribution of the entire Account (after reduction
for the forfeiture described in Section 6.4.3) shall be made as of the
Valuation Date coincident with or next following the approval of a completed
application by the Principal Sponsor. Such distribution shall be made in a lump
sum cash payment as soon as administratively feasible after such Valuation Date.
6.4.2. LIMITATIONS. The amount of approved Change in Control
Distribution (and the forfeiture described below) shall not exceed the value of
the Account.
6.4.3. FORFEITURE. Upon the approval of a Change in Control
Distribution, there shall be irrevocably forfeited from the Account of the
Participant or Beneficiary an amount equal to five percent (5%) of the Account.
6.5. ACCELERATION OF ANNUAL INSTALLMENTS.
6.5.1. WHEN AVAILABLE. A Participant or Beneficiary who is
receiving annual installments may receive an accelerated payment of his or her
entire Account (after reduction for the forfeiture described in Section 6.5.2).
To receive such an accelerated payment, the Participant or Beneficiary must file
a written payment application with the Principal Sponsor. Payment of the
accelerated payment (after reduction for the forfeiture described in Section
6.5.2) shall be made as of the Annual Valuation Date coincident with or next
following the approval of a completed application by the Principal Sponsor.
Such accelerated payment shall be made in a lump sum cash payment as soon as
administratively feasible after such Valuation Date. The amount of the
accelerated payment shall be equal to the value of the Account as of such
Annual Valuation Date (after reduction for the forfeiture described below).
6.5.2. FORFEITURE. Upon the approval of an accelerated payment,
there shall be irrevocably forfeited from the Account of the Participant or
Beneficiary an amount equal to ten percent (10%) of the Account.
6.6. DESIGNATION OF BENEFICIARIES.
6.6.1. RIGHT TO DESIGNATE. Each Participant may designate, upon
forms to be furnished by and filed with the Principal Sponsor, one or more
primary Beneficiaries or alternative Beneficiaries to receive all or a
specified part of such Participant's Account in the event of such
Participant's death. The Participant may change or revoke any such
designation from time to time without notice to or consent from any
Beneficiary. No such designation, change or revocation shall be effective
unless executed by the Participant and received by the Principal Sponsor
during the Participant's lifetime.
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6.6.2. FAILURE OF DESIGNATION. If a Participant:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such
designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such
Beneficiaries so designated fail to survive the Participant,
such Participant's Account, or the part thereof as to which such
Participant's designation fails, as the case may be, shall be payable to the
first class of the following classes of automatic Beneficiaries with a member
surviving the Participant and (except in the case of surviving issue) in
equal shares if there is more than one member in such class surviving the
Participant:
Participant's surviving spouse
Participant's surviving issue per stirpes and not per capita
Participant's surviving parents
Participant's surviving brothers and sisters
Representative of Participant's estate.
6.6.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to
a distribution of all or a portion of a deceased Participant's Account may
disclaim an interest therein subject to the following requirements. To be
eligible to disclaim, a Beneficiary must be a natural person, must not have
received a distribution of all or any portion of the Account at the time such
disclaimer is executed and delivered, and must have attained at least age
twenty-one (21) years as of the date of the Participant's death. Any
disclaimer must be in writing and must be executed personally by the
Beneficiary before a notary public. A disclaimer shall state that the
Beneficiary's entire interest in the undistributed Account is disclaimed or
shall specify what portion thereof is disclaimed. To be effective, duplicate
original executed copies of the disclaimer must be both executed and actually
delivered to the Principal Sponsor after the date of the Participant's death
but not later than one hundred eighty (180) days after the date of the
Participant's death. A disclaimer shall be irrevocable when delivered to the
Principal Sponsor. A disclaimer shall be considered to be delivered to the
Principal Sponsor only when actually received by the Principal Sponsor. The
Principal Sponsor shall be the sole judge of the content, interpretation and
validity of a purported disclaimer. Upon the filing of a valid disclaimer,
the Beneficiary shall be considered not to have survived the Participant as
to the interest disclaimed. A disclaimer by a Beneficiary shall not be
considered to be a transfer of an interest in violation of the provisions of
Section 6 and shall not be considered to be an assignment or alienation of
benefits in violation of federal law prohibiting the assignment or alienation
of benefits under this Plan. No other form of attempted disclaimer shall be
recognized by the Principal Sponsor.
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6.6.4. DEFINITIONS. When used herein and, unless the
Participant has otherwise specified in the Participant's Beneficiary
designation, when used in a Beneficiary designation, "issue" means all
persons who are lineal descendants of the person whose issue are referred to,
including legally adopted descendants and their descendants but not including
illegitimate descendants and their descendants; "child" means an issue of the
first generation; "per stirpes" means in equal shares among living children
of the person whose issue are referred to and the issue (taken collectively)
of each deceased child of such person, with such issue taking by right of
representation of such deceased child; and "survive" and "surviving" mean
living after the death of the Participant.
6.6.5. SPECIAL RULES. Unless the Participant has otherwise
specified in the Participant's Beneficiary designation, the following rules
shall apply:
(a) If there is not sufficient evidence that a Beneficiary was
living at the time of the death of the Participant, it shall
be deemed that the Beneficiary was not living at the time of
the death of the Participant.
(b) The automatic Beneficiaries specified in Section 6.6.2 and
the Beneficiaries designated by the Participant shall become
fixed at the time of the Participant's death so that, if a
Beneficiary survives the Participant but dies before the
receipt of all payments due such Beneficiary hereunder, such
remaining payments shall be payable to the representative of
such Beneficiary's estate.
(c) If the Participant designates as a Beneficiary the person
who is the Participant's spouse on the date of the
designation, either by name or by relationship, or both, the
dissolution, annulment or other legal termination of the
marriage between the Participant and such person shall
automatically revoke such designation. (The foregoing shall
not prevent the Participant from designating a former spouse
as a Beneficiary on a form executed by the Participant and
received by the Principal Sponsor after the date of the
legal termination of the marriage between the Participant
and such former spouse, and during the Participant's
lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is
accompanied by a description of relationship to the
Participant shall be given effect without regard to whether
the relationship to the Participant exists either then or at
the Participant's death.
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(e) Any designation of a Beneficiary only by statement of
relationship to the Participant shall be effective only to
designate the person or persons standing in such
relationship to the Participant at the Participant's death.
A Beneficiary designation is permanently void if it either is executed or is
filed by a Participant who, at the time of such execution or filing, is then a
minor under the law of the state of the Participant's legal residence. The
Principal Sponsor shall be the sole judge of the content, interpretation and
validity of a purported Beneficiary designation.
6.6.6. NO SPOUSAL RIGHTS. No spouse or surviving spouse of a
Participant and no person designated to be a Beneficiary shall have any rights
or interest in the benefits accumulated under this Plan including, but not
limited to, the right to be the sole Beneficiary or to consent to the
designation of Beneficiaries (or the changing of designated Beneficiaries) by
the Participant.
6.7. DEATH PRIOR TO FULL DISTRIBUTION. If, at the death of the
Participant, any payment to the Participant was due or otherwise pending but not
actually paid, the amount of such payment shall be included in the Account which
are payable to the Beneficiary (and shall not be paid to the Participant's
estate).
6.8. FACILITY OF PAYMENT. In case of the legal disability, including
minority, of a Participant or Beneficiary entitled to receive any distribution
under the Plan, payment shall be made, if the Principal Sponsor shall be advised
of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal
representative of such Participant or Beneficiary, or
(b) to a person or institution entrusted with the care or
maintenance of the incompetent or disabled Participant or
Beneficiary, provided such person or institution has
satisfied the Principal Sponsor that the payment will be
used for the best interest and assist in the care of such
Participant or Beneficiary, and provided further, that no
prior claim for said payment has been made by a duly
appointed guardian, conservator or other legal
representative of such Participant or Beneficiary.
Any payment made in accordance with the foregoing provisions of this section
shall constitute a complete discharge of any liability or obligation of the
Principal Sponsor therefor.
SECTION 7
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FUNDING OF PLAN
7.1. UNFUNDED AGREEMENT. The obligation of the Employer to make
payments under this Plan constitutes only the unsecured (but legally
enforceable) promise of the Employer to make such payments. The Participant
shall have no lien, prior claim or other security interest in any property of
the Employer. The Employer is not required to establish or maintain any
fund, trust or account (other than a bookkeeping account or reserve) for the
purpose of funding or paying the benefits promised under this Plan. If such
a fund is established, the property therein shall remain the sole and
exclusive property of the Employer. The Employer will pay the cost of this
Plan out of its general assets. All references to accounts, accruals, gains,
losses, income, expenses, payments, custodial funds and the like are included
merely for the purpose of measuring the Employer's obligation to Participants
in this Plan and shall not be construed to impose on the Employer the
obligation to create any separate fund for purposes of this Plan.
If the Employer elects to finance all or a portion of its costs in connection
with this Plan through the purchase of life insurance or other similar
investments, the Participant agrees, as a condition of participation in this
Plan, to cooperate with the Employer in the purchase of such investment to any
extent reasonably required by the Employer and relinquishes any claim he or she
may have either for himself or herself or any beneficiary to the proceeds of any
such investment or any other rights or interests in such investment. If a
Participant fails or refuses to cooperate, then notwithstanding any other
provision of this Plan Statement (including, without limiting the generality of
the foregoing, Section 4) the Employer shall distribute the individual's
Account immediately and the Participant shall not be eligible to enroll in the
Plan again.
7.2. SPENDTHRIFT PROVISION. No Participant or Beneficiary shall have any
interest in any Account which can be transferred nor shall any Participant or
Beneficiary have any power to anticipate, alienate, dispose of, pledge or
encumber the same while in the possession or control of the Employer, nor shall
the Employer recognize any assignment thereof, either in whole or in part, nor
shall any Account be subject to attachment, garnishment, execution following
judgment or other legal process while in the possession or control of the
Employer.
The power to designate Beneficiaries to receive the Account of a Participant
in the event of such Participant's death shall not permit or be construed to
permit such power or right to be exercised by the Participant so as thereby
to anticipate, pledge, mortgage or encumber such Participant's Account or any
part thereof, and any attempt of a Participant so to exercise said power in
violation of this provision shall be of no force and effect and shall be
disregarded by the Employer.
This section shall not prevent the Employer from exercising, in its discretion,
any of the applicable powers and options granted to it upon the occurrence of an
Event of Maturity, as such powers may be conferred upon it by any applicable
provision hereof.
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SECTION 8
AMENDMENT AND TERMINATION
The Principal Sponsor reserves the power to amend the Plan Statement or
terminate the Plan prior to a Full Change in Control. No such amendment of
the Plan Statement or termination of the Plan, however, shall reduce a
Participant's Account earned as of the date of such amendment unless the
Participant so affected consents in writing to the amendment. After a Full
Change in Control, the Plan cannot be amended or terminated (as applied to
Participants who are Participants on the date of the Full Change in Control)
unless:
(a) all Accounts of all Participants as of the date of the Full
Change in Control have been paid, or
(b) eighty percent (80%) of all the Participants as of the date
of the Full Change in Control give written consent to such
amendment or termination.
SECTION 9
DETERMINATIONS -- RULES AND REGULATIONS
9.1. DETERMINATIONS. The Principal Sponsor shall make such determinations
as may be required from time to time in the administration of the Plan. The
Principal Sponsor shall have the discretionary authority and responsibility to
interpret and construe the Plan Statement and to determine all factual and legal
questions under the Plan, including but not limited to the entitlement of
Participants and Beneficiaries, and the amounts of their respective interests.
Each interested party may act and rely upon all information reported to them
hereunder and need not inquire into the accuracy thereof, nor be charged with
any notice to the contrary.
9.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with
the provisions hereof may be adopted by the Principal Sponsor.
9.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or
written notices to be made or consents to be given by the Principal Sponsor
pursuant to any provision of this Plan Statement may be signed in the name of
the Principal Sponsor by any officer who has been authorized to make such
certification or to give such notices or consents.
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9.4. CLAIMS PROCEDURE. The claims procedure set forth in this Section 9.4
shall be the exclusive procedure for the disposition of claims for benefits
arising under the Plan until such time as a Full Change in Control occurs.
9.4.1. ORIGINAL CLAIM. Any employee, former employee or
beneficiary of such employee or former employee may, if he or she so desires,
file with the Principal Sponsor a written claim for benefits under the Plan.
Within ninety (90) days after the filing of such a claim, the Principal Sponsor
shall notify the claimant in writing whether the claim is upheld or denied in
whole or in part or shall furnish the claimant a written notice describing
specific special circumstances requiring a specified amount of additional time
(but not more than one hundred eighty days from the date the claim was filed) to
reach a decision on the claim. If the claim is denied in whole or in part, the
Principal Sponsor shall state in writing:
(a) the specific reasons for the denial;
(b) the specific references to the pertinent provisions of this
Plan Statement on which the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(d) an explanation of the claims review procedure set forth in
this section.
9.4.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after
receipt of notice that the claim has been denied in whole or in part, the
claimant may file with the Principal Sponsor a written request for a review and
may, in conjunction therewith, submit written issues and comments. Within sixty
(60) days after the filing of such a request for review, the Principal Sponsor
shall notify the claimant in writing whether, upon review, the claim was upheld
or denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred twenty days from the date the
request for review was filed) to reach a decision on the request for review.
9.4.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a
request for a review of a denied claim unless made in
accordance with the claims procedure. The Principal Sponsor
may require that any claim for benefits and any request for
a review of a denied claim be filed on forms to be furnished
by the Principal Sponsor upon request.
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(b) All decisions on claims and on requests for a review of
denied claims shall be made by the Principal Sponsor.
(c) the Principal Sponsor may, in its discretion, hold one or
more hearings on a claim or a request for a review of a
denied claim.
(d) A claimant may be represented by a lawyer or other
representative (at the claimant's own expense), but the
Principal Sponsor reserves the right to require the claimant
to furnish written authorization. A claimant's
representative shall be entitled to copies of all notices
given to the claimant.
(e) The decision of the Principal Sponsor on a claim and on a
request for a review of a denied claim shall be served on
the claimant in writing. If a decision or notice is not
received by a claimant within the time specified, the claim
or request for a review of a denied claim shall be deemed to
have been denied.
(f) Prior to filing a claim or a request for a review of a
denied claim, the claimant or his or her representative
shall have a reasonable opportunity to review a copy of this
Plan Statement and all other pertinent documents in the
possession of the Principal Sponsor.
9.5. INFORMATION FURNISHED BY PARTICIPANTS. The Principal Sponsor shall
not be liable or responsible for any error in the computation of the Account of
a Participant resulting from any misstatement of fact made by the Participant,
directly or indirectly, to the Principal Sponsor, and used by it in determining
the Participant's Account. The Principal Sponsor shall not be obligated or
required to increase the Account of such Participant which, on discovery of the
misstatement, is found to be understated as a result of such misstatement of the
Participant. However, the Account of any Participant which are overstated by
reason of any such misstatement shall be reduced to the amount appropriate in
view of the truth.
SECTION 10
PLAN ADMINISTRATION
10.1. EMPLOYER.
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10.1.1. OFFICERS. Except as hereinafter provided, functions
generally assigned to the Principal Sponsor shall be discharged by its officers
or delegated and allocated as provided herein.
10.1.2. CHIEF EXECUTIVE OFFICER. Except as hereinafter provided,
the Chief Executive Officer of the Principal Sponsor may delegate or redelegate
and allocate and reallocate to one or more persons or to a committee of persons
jointly or severally, and whether or not such persons are directors, officers or
employees, such functions assigned to the Employer generally hereunder as the
Chief Executive Officer may from time to time deem advisable.
10.1.3. BOARD OF DIRECTORS. Notwithstanding the foregoing, the
Compensation and Human Resources Committee of the Board of Directors of the
Principal Sponsor shall have the exclusive authority, which may not be
delegated, to act for the Principal Sponsor to amend this Plan Statement, to
terminate this Plan, and to determine eligibility to participate in the Plan
under Section 2.
10.2. CONFLICT OF INTEREST. If any officer or employee of the Employer, or
any member of the Compensation and Human Resources Committee of the Board of
Directors of the Employer to whom authority has been delegated or redelegated
hereunder shall also be a Participant in the Plan, such Participant shall have
no authority as such officer, employee or member with respect to any matter
specially affecting such Participant's individual interest hereunder or the
interest of a person superior to him or her in the organization (as
distinguished from the interests of all Participants and Beneficiaries or a
broad class of Participants and Beneficiaries), all such authority being
reserved exclusively to the other officers, employees or members as the case may
be, to the exclusion of such Participant, and such Participant shall act only in
such Participant's individual capacity in connection with any such matter.
10.3. ADMINISTRATOR. U.S. BANCORP shall be the administrator for purposes
of section 3(16)(A) of the Employee Retirement Income Security Act of 1974.
10.4. SERVICE OF PROCESS. In the absence of any designation to the contrary
by the Employer, the Secretary of U.S. BANCORP is designated as the appropriate
and exclusive agent for the receipt of service of process directed to the Plan
in any legal proceeding, including arbitration, involving the Plan.
SECTION 11
DISCLAIMERS
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11.1. TERM OF EMPLOYMENT. Neither the terms of this Plan Statement nor the
benefits hereunder nor the continuance thereof shall be a term of the employment
of any employee. The Employer shall not be obliged to continue the Plan. The
terms of this Plan Statement shall not give any employee the right to be
retained in the employment of the Employer.
11.2. SOURCE OF PAYMENT. Neither the Employer nor any of its officers nor
any member of the Compensation and Human Resources Committee of the Board of
Directors in any way secure or guarantee the payment of any benefit or amount
which may become due and payable hereunder to any Participant or to any
Beneficiary or to any creditor of a Participant or a Beneficiary. Each
Participant, Beneficiary or other person entitled at any time to payments
hereunder shall look solely to the assets of the Employer for such payments or
to the Accounts distributed to any Participant or Beneficiary, as the case may
be, for such payments. In each case where Accounts shall have been distributed
to a former Participant or a Beneficiary or to the person or any one of a group
of persons entitled jointly to the receipt thereof and which purports to cover
in full the benefit hereunder, such former Participant or Beneficiary, or such
person or persons, as the case may be, shall have no further right or interest
in the other assets of the Employer. Neither the Employer nor any of its
officers nor any member of its Board of Directors shall be under any liability
or responsibility for failure to effect any of the objectives or purposes of the
Plan by reason of the insolvency of the Employer.
11.3. DELEGATION. The Employer and its officers and the members of its
Board of Directors shall not be liable for an act or omission of another person
with regard to a responsibility that has been allocated to or delegated to such
other person pursuant to the terms of this Plan Statement or pursuant to
procedures set forth in this Plan Statement.
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APPENDIX A
CHANGE IN CONTROL DEFINITIONS
SECTION 1
1.1. ACQUIRING PERSON -- any Person who or which, together with all
Affiliates (CIC) and Associates of such person, is the Beneficial Owner,
directly or indirectly, of securities of USB representing 20% or more of the
combined voting power of USB's then outstanding securities, but shall not
include any Company Entity.
1.2. AFFILIATE (CIC) -- shall have the meaning ascribed to the term
"Affiliate" in Rule 12b-2 promulgated under the Exchange Act.
1.3. ASSOCIATE -- shall have the meaning ascribed to such term in Rule
12b-2 promulgated under the Exchange Act.
1.4. BENEFICIAL OWNER -- shall have the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.
1.5. BOARD OF DIRECTORS -- the board of directors of USB.
1.6. COMPANY ENTITY -- USB, any subsidiary of USB or any employee
benefit plan of USB or of any subsidiary of USB or any entity holding shares
of the voting capital stock of USB organized, appointed or established for,
or pursuant to the terms of, any such plan.
1.7. CONTINUING DIRECTOR -- any person who is a member of the Board of
Directors, while such person is a member of the Board of Directors, who is not
an Acquiring Person or an Affiliate (CIC) or Associate of an Acquiring Person,
or a representative of an Acquiring Person or of any such Affiliate (CIC) or
Associate, and who (x) was a member of the Board of Directors as of July 17,
1996 or (y) subsequently becomes a member of the Board of Directors, if such
person's initial nomination for election or initial election to the Board of
Directors has been approved in advance by the Continuing Directors; provided
that any director designated by or on behalf of a Person who has entered into an
agreement with USB (or who is contemplating entering into such an agreement) to
effect a consolidation or merger of USB or a Company Entity, or other
reorganization, with or into one or more entities which are not Company
Entities, and any director that serves in connection with the act of the Board
of Directors of increasing the number of directors and filling vacancies in
connection with, or in contemplation of, any such transaction, shall not be
deemed to have received such advance approval for initial nomination or
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<PAGE>
election, and any such director shall not be deemed to be a Continuing
Director; provided, further, that any such director shall subsequently become
a Continuing Director at such time as a new term of office as a director is
approved by USB's shareholders at an annual meeting of shareholders occurring
subsequent to the completion of any such transaction (and excluding any
annual meeting at which the shareholders approve any such transaction); and,
provided, further, that in the case of a Permitted Transaction, any such
director shall not become a Continuing Director until the later of (i) the
end of the three-year period following consummation of such Permitted
Transaction or (ii) such time as a new term of office as a director is
approved by USB's shareholders at an annual meeting of shareholders occurring
subsequent to the completion of such Permitted Transaction.
1.8. EXCHANGE ACT -- the Securities Exchange Act of 1934, as amended.
1.9. FULL CHANGE IN CONTROL -- shall mean:
(a) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report
filed pursuant to Section 13(d) of the Exchange Act) by USB
or any Person that a Person (other than a Company Entity)
has become the Beneficial Owner, directly or indirectly, of
securities of USB (x) representing 20% or more, but not more
than 50%, of the combined voting power of USB's then
outstanding securities unless the transaction resulting in
such ownership has been approved in advance by the
Continuing Directors or (y) representing more than 50% of
the combined voting power of USB's then outstanding
securities (regardless of any approval by the Continuing
Directors); or
(b) the Continuing Directors cease to constitute a majority of
the Board of Directors of USB or the Resulting Corporation,
except in accordance with the terms of a Permitted
Transaction and except as a result of the death, retirement
or disability of one or more Continuing Directors (unless
any such death, retirement or disability occurs following a
Permitted Transaction and any vacancies created thereby are
not filled in accordance with the terms of the written
agreement governing such Permitted Transaction); or
(c) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the consolidated assets of USB and its
subsidiaries or the adoption of any plan of liquidation or
dissolution of USB.
1.10. PARTIAL CHANGE IN CONTROL -- shall mean:
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(a) a consolidation or merger of USB or a Company Entity, or
other reorganization, with or into one or more entities
which are not Company Entities, as a result of which less
than 60% of the outstanding voting securities of the
Resulting Corporation are, or are to be, owned by former
shareholders of USB as determined immediately prior to
consummation of such transaction (excluding voting
securities of the Resulting Corporation owned, or to be
owned, by such shareholders by reason of their ownership
prior to such transaction of securities of any entity other
than USB) and as a result of which the Continuing Directors
constitute (i) more than 50% of the Board of Directors of
the Resulting Corporation or (ii) exactly 50% of the Board
of Directors of the Resulting Corporation if the transaction
resulting in such event is a Permitted Transaction; or
(b) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report
filed pursuant to Section 13(d) of the Exchange Act) by USB
or any Person that a Person (other than a Company Entity)
has become the Beneficial Owner, directly or indirectly, of
securities of USB representing 20% or more, but not more
than 50%, of the combined voting power of USB's then
outstanding securities if the transaction resulting in such
ownership has been approved in advance by the Continuing
Directors.
1.11. PERMITTED TRANSACTION -- a transaction in which, pursuant to a
written agreement between USB and all Persons who have entered into an
agreement with USB to effect a transaction described in paragraph (a) of the
definition of Partial Change in Control, it is agreed that (w) the Chief
Executive Officer of USB immediately prior to the consummation of such
transaction shall be the Chief Executive Officer of the Resulting Corporation
for not less than three years following consummation of such transaction, (x)
upon termination of service of any Continuing Director for any reason,
including upon death, disability or retirement, prior to the expiration of
such director's term during such three-year period, the vacancy thereby
created shall be filled by a nominee selected solely by the Continuing
Directors, (y) upon expiration of the term of any such director during such
three-year period, the nominee to succeed such director shall be selected
solely by the Continuing Directors and (z) the parties will take other
appropriate steps to ensure that the Board of Directors of the Resulting
Corporation will be evenly divided between Continuing Directors and all
directors designated by other parties to the transaction during such
three-year period.
1.12. PERSON -- shall have the meaning ascribed to such term as such term
is used in Sections 13(d) and 14(d) of the Exchange Act.
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1.13. QUALIFYING TERMINATION -- a termination of employment of a
Participant prior to a Full Change in Control or prior to or following a
Partial Change in Control that results in such Participant becoming entitled
to receive change in control related severance payments pursuant to the terms
of the change in control provisions of an employment contract, an individual
change in control severance agreement, the U.S. Bancorp Senior Management
Change in Control Severance Pay Plan (including any successor plan thereto),
the U.S. Bancorp Middle Management Change in Control Severance Pay Program
(including any successor program thereto) or the U.S. Bancorp Broad-Based
Change in Control Severance Pay Program (including any successor program
thereto).
1.14. RESULTING CORPORATION -- the surviving corporation in any
consolidation, merger or other reorganization to which USB is a party;
provided, however, that if the surviving corporation in any such transaction
is a subsidiary of another corporation, then the Resulting Corporation is the
ultimate parent corporation of such surviving corporation; and provided,
further, that in the event of a consolidation, merger or other reorganization
to which a Company Entity (other than USB) is a party, then USB shall be
deemed the Resulting Corporation.
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U. S. BANCORP
AMENDED AND RESTATED
SUPPLEMENTAL BENEFITS PLAN
EFFECTIVE FEBRUARY 15, 1996
(WORKING COPY INCORPORATING AMENDMENTS 1, 2 AND 3)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I PURPOSE OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II NATURE OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III SPONSORING EMPLOYERS . . . . . . . . . . . . . . . . . . . . 2
ARTICLE IV ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE V PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE VI BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6.1 Retirement Plan-Related Benefit . . . . . . . . . . . . . . . . 3
6.1.1 Retirement Benefits . . . . . . . . . . . . . . . . . 3
(a) Restoration Benefit . . . . . . . . . . . . . . . 4
(b) Early Retirement Subsidy Benefit . . . . . . . . . 5
(c) Additional Benefit Service Benefit . . . . . . . . 6
(d) Change in Control Benefits . . . . . . . . . . . . 6
(1) Benefit . . . . . . . . . . . . . . . . . . . 6
(2) Change in Control Defined . . . . . . . . . . 8
(3) Cause Defined . . . . . . . . . . . . . . . . 11
(4) Good Reason Defined . . . . . . . . . . . . . 12
(e) Additional Eligibility Service Benefit . . . . . . 15
(f) Enhanced Retirement Benefit. . . . . . . . . . . . 15
(1) Definitions . . . . . . . . . . . . . . . . . 15
(2) Benefit . . . . . . . . . . . . . . . . . . . 16
(3) Benefit Service Credit. . . . . . . . . . . . 18
(4) Prior Employer Benefits . . . . . . . . . . . 18
(5) Early Retirement Reduction . . . . . . . . . 18
(6) Vesting . . . . . . . . . . . . . . . . . . . 19
(7) Effect of Change in Control . . . . . . . . . 19
(8) Credit for Additional Benefit Service. . . . 20
(g) Gross-Up Payment . . . . . . . . . . . . . . . . . 21
(1) Definitions . . . . . . . . . . . . . . . . . 21
(2) General . . . . . . . . . . . . . . . . . . . 21
(3) Determination of Excise Tax . . . . . . . . . 22
(4) Determining Amount of Gross-Up Payment. . . . 22
(5) Effect of Other Agreements. . . . . . . . . . 22
(6) Limitation. . . . . . . . . . . . . . . . . . 22
<PAGE>
(h) Special Retirement Opportunity Benefit . . . . . . 23
(1) Definitions . . . . . . . . . . . . . . . . . 23
(2) Designation in Connection with Other Benefit. 24
(3) Benefit . . . . . . . . . . . . . . . . . . . 24
(4) Termination Date. . . . . . . . . . . . . . . 25
6.1.2 Coordination of Benefits . . . . . . . . . . . . . . . 25
6.1.3 Time and Manner of Payment . . . . . . . . . . . . . . 26
(a) Joint and Survivor Annuity . . . . . . . . . . . . 27
(b) Supplemental Income Option . . . . . . . . . . . . 28
6.1.4 Early Retirement Reduction . . . . . . . . . . . . . . 28
6.1.5 Benefit Forfeitability . . . . . . . . . . . . . . . . 29
6.1.6 Preretirement Death Benefit. . . . . . . . . . . . . . 30
6.1.7 Lump-Sum Payments of Small Benefits. . . . . . . . . . 31
6.1.8 Arbitration . . . . . . . . . . . . . . . . . . . . . 32
6.2 Investment Plan-Related Benefit. . . . . . . . . . . . . . . . . 32
6.2.1 Annual Credit. . . . . . . . . . . . . . . . . . . . . 32
(a) Deferred Compensation Credit . . . . . . . . . . . 33
(b) Section 415 Limitation Credit. . . . . . . . . . . 33
(c) Before-Tax Contribution Limitation Credit. . . . . 33
(d) Matching Credit. . . . . . . . . . . . . . . . . . 34
6.2.2 Investment Plan Benefit Account . . . . . . . . . . . 35
6.2.3 Time and Manner of Payment . . . . . . . . . . . . . . 35
6.2.4 Death Benefit. . . . . . . . . . . . . . . . . . . . . 35
6.3 FBS Change in Control Benefit. . . . . . . . . . . . . . . . . . 35
6.3.1 Benefit for Participant in Retirement Plan . . . . . . 35
(a) Participants Designated for a Restoration Benefit. 35
(b) Participants not Designated for a Restoration
Benefit . . . . . . . . . . . . . . . . . . . . . 36
(c) Treatment of FBS Change in Control Benefit . . . . 37
6.3.2 Benefit for Participant in WO Retirement Plan or
WO SERP. . . . . . . . . . . . . . . . . . . . . . . . 38
(a) Participants Participating in WO SERP . . . . . . 38
(b) Participants not Participating in WO SERP. . . . . 39
(c) Time and Manner of Payment . . . . . . . . . . . . 40
(c) Preretirement Death Benefit. . . . . . . . . . . . 41
(d) Lump-Sum Payments of Small Benefits. . . . . . . . 42
6.3.3 Two Year Assumption . . . . . . . . . . . . . . . . . 42
6.4 Special Retirement Plan Make-Up Benefits . . . . . . . . . . . . 42
6.4.1 Benefit for Participant in Retirement Plan . . . . . . 42
(a) Amount of Special Retirement Plan Make-Up Benefit. 42
(b) Treatment of Special Retirement Plan Make-Up
Benefit . . . . . . . . . . . . . . . . . . . . . 43
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6.4.2 Benefit for Participant in WO Retirement Plan. . . . . 43
(a) Amount of Special Retirement Plan Make-Up Benefit. 43
(b) Distribution of Special Retirement Plan Make-Up
Benefit . . . . . . . . . . . . . . . . . . . . . 44
(c) Preretirement Death Benefit. . . . . . . . . . . . 45
(d) Lump-Sum Payments of Small Benefits . . . . . . . 45
ARTICLE VII VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VIII SOURCE OF BENEFITS . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IX ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . 47
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.1 Nonassignability of Benefits . . . . . . . . . . . . . 48
10.2 Governing Law. . . . . . . . . . . . . . . . . . . . . 48
10.3 No Right of Continued Employment . . . . . . . . . . . 48
10.4 Withholding Taxes. . . . . . . . . . . . . . . . . . . 48
10.5 Severability . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE XI CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . 49
11.1 Initial Claim. . . . . . . . . . . . . . . . . . . . . 49
11.2 Decision on Initial Claim. . . . . . . . . . . . . . . 49
11.2.1 Time Period for Denial Notice . . . . . . . 49
11.2.2 Contents of Notice. . . . . . . . . . . . . 49
11.2.3 Deemed Denied . . . . . . . . . . . . . . . 50
11.3 Review of Denied Claim . . . . . . . . . . . . . . . . 50
11.4 Decision on Review . . . . . . . . . . . . . . . . . . 51
ARTICLE XII AMENDMENTS AND TERMINATION. . . . . . . . . . . . . . . . . . 52
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U. S. BANCORP
AMENDED AND RESTATED
SUPPLEMENTAL BENEFITS PLAN
THIS SUPPLEMENTAL BENEFITS PLAN (the "Plan") is amended and restated
by U. S. Bancorp, an Oregon corporation ("Bancorp"), effective February 15,
1996. Whenever used herein, the term "Bancorp" also refers to any successor of
Bancorp that maintains this Plan.
ARTICLE I
PURPOSE OF PLAN
The continued growth and success of Bancorp are dependent upon its
ability to attract and retain the services of key executives of the highest
competence and to provide incentives for their effective service and superior
performance. The purpose of this Plan is to advance the interests of Bancorp
and its shareholders through a supplemental compensation program that will
attract, motivate, and retain key executives.
ARTICLE II
NATURE OF PLAN
This Plan is intended to be and shall be administered and maintained
by Bancorp as an income tax nonqualified, unfunded plan primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees within the meaning of Sections 201(2), 301(a)(3)
and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as
amended.
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Notwithstanding any other provision of this Plan, no benefit shall be
payable under this Plan that would cause the Plan to not be a select group
plan.
ARTICLE III
SPONSORING EMPLOYERS
Any corporation in which Bancorp owns (directly or indirectly) stock
possessing 50 percent or more of the combined voting power may, by resolution
of its board of directors, sponsor and maintain this Plan for its executives.
Such corporations shall be referred to as "Sponsoring Employers."
ARTICLE IV
ELIGIBILITY
Any key executive (including officers who may also be directors) of
Bancorp and the Sponsoring Employers who is a member of a select group of
management or highly compensated employees shall be eligible to participate in
this Plan.
ARTICLE V
PARTICIPATION
A "Participant" is an eligible employee who has been designated to
receive one or more benefits under this Plan for one or more years. The
Compensation Committee of Bancorp's Board of Directors (the "Compensation
Committee") shall have the exclusive power to make and revise benefit
designations, if any, with respect to Bancorp's Chairman of the Board, its
Chief Executive Officer, and the members of Bancorp's Executive Committee (the
"Executive Committee") and with respect to all benefit designations under
6.1.1(d) and 6.1.1(f). The Compensation Committee may, in its discretion,
delegate by resolution to the Executive Committee
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the power to make and revise benefit designations, if any, for all other
eligible employees, other than benefit designations under 6.1.1(d) and 6.1.1(f).
In the absence of such delegation, the Compensation Committee shall retain the
power and authority to make and revise all benefit designations under the Plan.
By sponsoring and maintaining the Plan for its employees, the Board of Directors
of each Sponsoring Employer expressly delegates to the Compensation Committee
and the Executive Committee, respectively, the authority to make and revise
benefit designations under the Plan for all employees of the Sponsoring
Employer. Notwithstanding the foregoing, all eligible employees who are both
employed in a position that is covered by the First Bank System, Inc. Senior
Management Change in Control Severance Pay Plan (the "FBS Change in Control
Plan") and participants in any of the West One Bancorp Employee Retirement
Plan (the "WO Retirement Plan"), the West One Bancorp Supplemental Executive
Retirement Plan (the "WO SERP") or participants in the U. S. Bancorp Retirement
Plan ("Retirement Plan") are hereby designated to receive an "FBS Change in
Control Benefit" under Section 6.3.
ARTICLE VI
BENEFITS
6.1 RETIREMENT PLAN-RELATED BENEFIT.
6.1.1 RETIREMENT BENEFITS. Except as otherwise provided, a
Participant shall receive a monthly U. S. Bancorp Retirement Plan-Related
Benefit for the Participant's life only equal to the sum of the "Restoration
Benefit," "Early Retirement Subsidy Benefit," "Additional Benefit Service
Benefit," "Change in Control Benefits," "Additional Eligibility Service
Benefit," and "Enhanced Retirement Benefit," as defined below, for which the
Participant is designated. For purposes of this 6.1.1, any reference to a
Participant's Retirement Plan benefit shall include any portion of such
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Retirement Plan benefit payable to an alternate payee pursuant to a qualified
domestic relations order.
(a) RESTORATION BENEFIT. A Participant designated to receive a
"Restoration Benefit" (previously referred to as the "Additional Benefit")
under this Plan shall receive a monthly benefit equal to the sum of:
(1) the amount by which such Participant's early, normal, or delayed
retirement benefit under the Retirement Plan, as set forth in Exhibit A
attached hereto and incorporated by reference herein, is reduced by
application of federal law limiting benefits under income tax qualified
plans as provided in the Retirement Plan; and
(2) the difference (to the extent such difference is not included in
6.1.1(a)(1) above) between:
(i) the early, normal, or delayed retirement benefit that would
have been payable to the Participant under the Retirement Plan:
A) had deferred compensation (other than deferred
compensation under the U. S. Bancorp Long-Term Management
Incentive Plan or the U. S. Bancorp 1993 Stock Incentive Plan)
counted as Compensation under the Retirement Plan at the time at
which such compensation would have been paid had it not been
deferred; and
B) had any nondeferred awards payable to the Participant
after retirement under the U. S. Bancorp Executive Annual
Incentive Plan or Management Annual Incentive Plan (an
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<PAGE>
"Annual Plan") counted as Compensation under the Retirement Plan
at the time such awards were earned or accrued in lieu of the
corresponding award for the first year of the five-year period
for which Average Monthly Compensation is computed; and
(ii) the Participant's actual early, normal, or delayed
retirement benefit under the Retirement Plan.
In calculating the benefit described in 6.1.1(a)(2)(i), the period of time used
to determine a Participant's Average Monthly Compensation may be different than
the period of time used to determine the Participant's Average Monthly
Compensation in calculating the benefit actually payable under the Retirement
Plan. Also, an award under an Annual Plan for a year shall be treated as
earned pro-rata over the 12 months of the year (or such lesser portion of the
year that the award relates to).
Notwithstanding the foregoing, no Participant shall have a lesser
monthly Restoration Benefit than the amount required to ensure that the sum of
the Participant's early, normal, or delayed retirement benefit under the
Retirement Plan plus the Participant's Restoration Benefit under this Plan is
not less than the sum of such benefits as of December 31, 1988.
(b) EARLY RETIREMENT SUBSIDY BENEFIT. Upon early retirement at or
after a designated age, a Participant designated to receive an "Early
Retirement Subsidy Benefit" under this Plan, who was eligible for early
retirement under the Retirement Plan on ceasing to be an employee of Bancorp
and its affiliates, shall receive a monthly benefit equal to the amount by
which such Participant's normal retirement benefit under the Retirement Plan is
reduced by reason of such early retirement.
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(c) ADDITIONAL BENEFIT SERVICE BENEFIT. Upon retirement at or after
a designated age with less than 25 years of Benefit Service, a Participant
designated to receive an "Additional Benefit Service Benefit" under this Plan,
who was eligible for retirement under the Retirement Plan on ceasing to be an
employee of Bancorp and its affiliates, shall receive a monthly benefit equal
to the difference between:
(1) the early, normal, or delayed retirement benefit that would have
been payable to the Participant under the Retirement Plan based on the
lesser of:
(i) 25 years of Benefit Service; or
(ii) a designated number of years of Benefit Service; and
(2) the Participant's actual early, normal, or delayed retirement
benefit under the Retirement Plan.
(d) CHANGE IN CONTROL BENEFITS. The purpose of the benefits
provided by this 6.1.1(d) is to encourage the designated Participants to
continue in the employment of Bancorp. The designated Participants are
innovative, highly experienced, and knowledgeable banking executives whose
creativity, expertise, and effort have been instrumental in the development of
the business and growth of Bancorp. For purposes of this 6.1.1(d), references
to Bancorp or a Sponsoring Employer shall include any successor to Bancorp or
the Sponsoring Employer.
(1) BENEFIT. Upon termination from employment with Bancorp or a
Sponsoring Employer within two years from the date of occurrence of any
event constituting a "Change in Control" (it being recognized that more
than one such event may occur in which case the two-year period shall run
from the
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date of occurrence of each such event), other than termination by
Bancorp or a Sponsoring Employer for "Cause" or by the Participant without
"Good Reason," as those terms are defined below, a designated Participant
who is vested by meeting the "Applicable Service Requirement," as
described below, at termination of employment shall receive the benefit
under (i) and/or (ii) below. A Participant may be designated for either
or both of the following benefits:
(i) A monthly benefit (a "Change in Control Early Retirement
Subsidy Benefit") equal to the amount by which such Participant's
normal retirement benefit under the Exhibit A Retirement Plan is
reduced by reason of early retirement due to the termination.
(ii) A monthly benefit (a "Change in Control Additional Benefit
Service Benefit") equal to the difference between:
A) the early, normal, or delayed retirement (which is the
same as the type of actual retirement under 6.1.1(d)(1)(ii)B))
benefit that would have been payable to the Participant under
the Exhibit A Retirement Plan based on the lesser of:
1) 25 years of Benefit Service; or
2) a designated number of years of Benefit Service;
and
B) the Participants actual early, normal, or delayed
retirement benefit under the Exhibit A Retirement Plan.
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For purposes of the Change in Control Early Retirement Subsidy Benefit
described in 6.1.1(d)(1)(i), the Applicable Service Requirement is at
least ten years of Eligibility Service. For purposes of the Change in
Control Additional Benefit Service Benefit described in 6.1.1(d)(1)(ii),
the Applicable Service Requirement is at least five years of Eligibility
Service. Participants continue to earn Eligibility Service after a Change
in Control. The benefits in this 6.1.1(d) cannot be eliminated by
amendment or termination of this Plan after a Change in Control.
(2) CHANGE IN CONTROL DEFINED. A "Change in Control" of Bancorp
shall mean:
(i) The acquisition by any Acquiring Person of beneficial
ownership (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 (the "Exchange Act")) of 20 percent or more of
the combined voting power of the then outstanding Voting Securities;
provided, however, that for purposes of this paragraph (i) the
following acquisitions shall not constitute a Change in Control: (a)
any acquisition directly from Bancorp, (b) any acquisition by
Bancorp, (c) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Bancorp or any corporation
controlled by Bancorp, or (d) any acquisition by any corporation
pursuant to a transaction that complies with clauses (a), (b), and
(c) of paragraph (iii) of this definition of Change in Control; or
(ii) During any period of 12 consecutive calendar months,
individuals who at the beginning of such period constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
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majority of the Board; provided, however, that any individual who
becomes a director during the period whose election, or nomination
for election, by Bancorp's shareholders was approved by a vote of at
least a majority of the directors then constituting the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(iii) Consummation of a reorganization, merger, or
consolidation or sale or other disposition of all or substantially
all of the assets of Bancorp (a "Business Combination") in each case,
unless, following such Business Combination, (a) all or substantially
all of the individuals and entities who were the beneficial owners of
the Voting Securities outstanding immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50
percent of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns Bancorp or all or substantially all
of Bancorp's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the
voting Securities, (b) no Person (excluding any
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<PAGE>
employee benefit plan, or related trust, of Bancorp or such
corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20 percent or more of, respectively,
the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination and (c) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination
were members of Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) Approval by the shareholders of Bancorp of any plan or
proposal for the liquidation or dissolution of Bancorp.
For purposes of this "Change in Control" definition, the term "Acquiring
Person" means any person or related person or related persons which
constitute a "group" for purposes of Section 13(d) and Rule 13d-5 under
the Exchange Act; provided, however, that the term Acquiring Person shall
not include (a) Bancorp or any of its subsidiaries, (b) any employee
benefit plan or related trust of Bancorp or any of its subsidiaries, (c)
any entity holding voting capital stock of Bancorp for or pursuant to the
term of any such employee benefit plan, or (d) any person or group solely
because such person or group has voting power with respect to capital
stock of Bancorp arising from a revocable proxy or consent given in
response to a public proxy or consent solicitation made pursuit to the
Exchange Act.
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(3) CAUSE DEFINED. For purposes of 6.1.1(d), "Cause" for
termination of employment means:
(i) A material act of fraud or dishonesty by the Participant
within the course of performing his or her duties for Bancorp or a
Sponsoring Employer;
(ii) Gross negligence or intentional misconduct by the
Participant in the performance of material duties for Bancorp or a
Sponsoring Employer;
(iii) Commission of an act (or failure to take an action)
intentionally against the interest of Bancorp or a Sponsoring
Employer that causes Bancorp or a Sponsoring Employer material
injury; or
(iv) An act of serious moral turpitude that causes Bancorp or a
Sponsoring Employer material injury.
Notwithstanding the foregoing, a Participant shall not be deemed to have
been terminated for Cause unless and until there have been delivered to
the Participant a copy of a resolution duly adopted by Bancorp's Board of
Directors (the "Board") at a meeting of the Board called and held for that
purpose (after reasonable notice to the Participant and an opportunity for
the Participant, together with the Participant's counsel, to be heard
before the Board) finding that in the good faith opinion of the Board, the
Participant was guilty of conduct constituting Cause as defined in this
Plan and specifying the particulars thereof in detail.
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<PAGE>
Any dispute as to whether a designated Participant was terminated for
Cause shall be submitted to arbitration pursuant to 6.1.8.
(4) GOOD REASON DEFINED. Termination by a designated Participant of
employment for "Good Reason" shall mean termination based on any of the
following:
(i) A change in the Participant's duties or position or
positions with Bancorp which represents a demotion from his or her
duties or position or positions as in effect immediately prior to the
Change in Control, or a change in the Participant's duties or
responsibilities which is inconsistent with such duties or position
or positions, or any removal of the Participant from or any failure
to reappoint or reelect the Participant to such position or
positions, except in connection with the termination of the
Participant's employment for Cause or disability or as a result of
the Participant's death or the termination by the Participant other
than for Good Reason;
(ii) A reduction by Bancorp in the Participant's base salary as
in effect immediately prior to the Change in Control;
(iii) The failure by Bancorp to continue in effect any
benefit plan (as defined below) in which the Participant is
participating at the time of the Change in Control (or Benefit Plans
providing the Participant with at least substantially similar
benefits), other than as a result of the normal expiration of any
such Benefit Plan in accordance with its terms or a modification of
such Benefit Plan which modification is applicable to all employees
who participate in such Benefit Plan, as in
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effect at the time of the Change in Control, or the taking of any
action, or the failure to act, by Bancorp which would adversely affect
the Participant's continued participation in any of such Benefit Plans
on at least as favorable a basis to the Participant as is the case on
the date of the Change in Control or which would materially reduce the
Participants benefits in the future under any of such Benefit Plans
or deprive the Participant of any material benefit enjoyed by the
Participant at the time of the Change in Control;
(iv) The failure by Bancorp to provide and credit the
Participant with the number of paid vacation days to which the
Participant is then entitled in accordance with Bancorp's normal
vacation policy an in effect immediately prior to the Change in
Control;
(v) Bancorp's requiring the Participant to be based anywhere
more than 35 miles from where the Participant's office is located
immediately prior to the Change in Control except for required travel
on Bancorp's business to an extent substantially consistent with the
business travel obligations which the Participant undertook on behalf
of Bancorp prior to the Change in Control;
(vi) The failure by Bancorp to obtain from any successor the
assent to this 6.1.1(d);
(vii) Any purported termination by Bancorp of a
Participant's employment which is not effected pursuant to a Notice
of Termination as defined below; and for purposes of this 6.1.1(d),
no such purported termination shall be effective; or
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(viii) Any refusal by Bancorp to continue to allow the
participant to attend to matters or engage in activities not directly
related to the business of Bancorp which, prior to the Change in
Control, the Participant was permitted by the Board to attend to or
engage in.
For purposes of this "Good Reason" definition, "Notice of Termination"
means any notice of any termination of the Participant's employment shall
be communicated by written Notice of Termination to the other party. A
"Notice of Termination" of a Participant's employment by Bancorp shall
mean a notice which shall indicate the specific termination provision
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Participant's employment under the provision so indicated. "Benefit Plan"
shall mean any compensation plan (including this Plan) providing for
incentive or deferred compensation, stock options or other stock or
stock-related grants or awards, or any employee benefit plan such as a
thrift, investment, savings, pension, profit sharing, medical, disability,
accident, life insurance, cafeteria, or relocation plan or any other plan,
policy, or program of Bancorp providing similar types of benefits to
employees of Bancorp.
Any dispute as to whether a designated Participant has Good Reason
for termination of employment shall be submitted to arbitration pursuant
to 6.1.8.
(e) ADDITIONAL ELIGIBILITY SERVICE BENEFIT. A Participant
designated to receive an "Additional Eligibility Service Benefit" shall be
treated as having years of Eligibility Service equal to the designated
Participant's actual years of Eligibility Service plus a designated number of
additional years of Eligibility Service. The total of the actual and the
additional designated years of Eligibility Services will be referred
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to as the "Designated Total." Upon ceasing to be an employee of Bancorp and its
affiliates, a participant designated for an Additional Eligibility Service
Benefit:
(1) shall receive a monthly benefit equal to the difference between:
(i) the early, normal, or delayed retirement (which is the same
as the type of actual retirement under 6.1.1(e)(1)(ii)) benefit that
would have been payable to the Participant under the Retirement Plan
had the Participant retired with the Designated Total number of years
of Eligibility Service; and
(ii) the Participant's actual early, normal, or delayed
retirement benefits, if any, under the Retirement Plan; and
(2) shall be treated as having the Designated Total number of years
of Eligibility Service for purposes of any other Retirement Plan-Related
Benefit under this Plan for which the Participant is designated.
(f) ENHANCED RETIREMENT BENEFIT.
(1) DEFINITIONS. As used in this 6.1.1(f), the following terms
shall have the definitions set forth below:
"ADJUSTED AVERAGE MONTHLY COMPENSATION" means Average Monthly
Compensation (as defined in Exhibit A to this Plan) adjusted in the manner
described in 6.1.1(a).
"CAUSE" has the meaning defined in 6.1.1(d)(3).
"CHANGE IN CONTROL" has the meaning defined in 6.1.1(d)(2).
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<PAGE>
"CHANGE IN CONTROL DATE" means the date of occurrence of an event
constituting a Change in Control (it being recognized that more than one
such event may occur, in which case the date of occurrence of each such
event is a Change in Control Date).
"EARLY RETIREMENT REDUCTION" has the meaning described in
6.1.1(f)(5).
"GOOD REASON" has the meaning defined in 6.1.1(d)(4).
"PRIOR EMPLOYER BENEFITS" has the meaning described in 6.1.1(f)(4).
"TARGET BENEFIT" means a monthly benefit equal to 2.75 percent of a
Participant's Adjusted Average Monthly Compensation multiplied by the
Participant's years, and fractions thereof, of Benefit Service up to
20 years.
"TERMINATION DATE" means the date a Participant ceased to be an
employee of Bancorp or a Sponsoring Employer.
(2) BENEFIT. A Participant designated to receive an "Enhanced
Retirement Benefit" under this Plan shall receive, upon termination of
employment with Bancorp or a Sponsoring Employer after attaining age 55
(providing the Participant is vested in such benefit as provided in
6.1.1(f)(6)), a monthly benefit equal to the Target Benefit, adjusted (in
the event the Participant terminates employment before attaining age 62)
by the amount, if any, of Early Retirement Reduction, and then reduced by
the sum of the following:
(i) A hypothetical Social Security benefit payable as of the
Participant's age on the Termination Date or, if later, age 62,
calculated
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based on the law in effect on the Termination Date assuming (A) that
the Participant' s covered compensation equaled or exceeded the
Social Security wage base for all prior years and (B) the Participant
will have no compensation in any year (or portion of a year) following
the Termination Date;
(ii) An amount equal to the single life annuity equivalent of
the Retirement Plan benefit which would have become payable to the
Participant as of the Termination Date had the Participant elected
retirement under the Retirement Plan as of the Termination Date;
(iii) The amount of Prior Employer Benefits payable to the
Participant for such month or attributable to such month as described
in 6.1.1(f)(4); and
(iv) The amounts payable to the Participant as other Retirement
Plan-Related Benefits under this Plan as described in 6.1.2(e).
(3) BENEFIT SERVICE CREDIT. For purposes of this 6.1.1(f), the
Compensation Committee may, at the time a Participant is designated for an
Enhanced Retirement Benefit, or at any time thereafter, credit the
Participant with years of Benefit Service for service with a prior
employer. The number of years, and fractions thereof, of Benefit Service
credited shall be specified by resolution of the Compensation Committee.
(4) PRIOR EMPLOYER BENEFITS. Whenever the Compensation Committee
gives a Participant Benefit Service credit for service with a former
employer, the Compensation Committee shall by resolution specify the
amount
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of Prior Service Benefits, if any, to be offset against the Participant's
Enhanced Retirement Benefit. Prior Service Benefits shall be a monthly
offset amount determined by, or at the direction of, the Compensation
Committee to reflect the Participant's accrued and vested benefits
attributable to service with the prior employer from qualified and
nonqualified pension, profit sharing, and similar deferred compensation
arrangements (but excluding any such benefits attributable to the
Participant's own contributions, whether made on a before-tax or after-tax
basis). The Compensation Committee, or its delegates, shall determine for
each Prior Employer Benefit a monthly offset amount based on a single life
annuity form equivalent to the Prior Employer Benefit (assuming the same
commencement date as the Participant's Enhanced Retirement Benefit).
(5) EARLY RETIREMENT REDUCTION. If a Participant who is otherwise
vested in an Enhanced Retirement Benefit (as provided in 6.1.1(f)(6))
terminates employment with Bancorp or a Sponsoring Employer prior to
attaining age 62, the Participant's Target Benefit shall be reduced by an
Early Retirement Reduction equal to the accrued Target Benefit multiplied
by the product of a Reduction Percentage (as described below) and the
difference (in years and a fraction of a year based on whole calendar
months) between the Participant's age at the Termination Date and 62. The
Reduction Percentage shall be 7 percent except where a Participant's
retirement or termination of employment is approved by the Compensation
Committee, in which case the Reduction Percentage shall be 3 percent.
However, the Compensation Committee may, in extraordinary circumstances,
designate a different Reduction Percentage between 0 percent and 7
percent.
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(6) VESTING. Except as provided in 6.1.1(f)(7), a Participant's
right to an Enhanced Retirement Benefit is vested and nonforfeitable when
the Participant both attains age 55 and has at least 10 years of
Eligibility Service while still an employee of Bancorp or a Sponsoring
Employer. If a Participant designated for an Enhanced Retirement Benefit
ceases to be an employee of Bancorp or a Sponsoring Employer either (a)
before the Participant has 10 years of Eligibility Service or (b) before
the Participant attains age 55, the Participant shall not receive any
Enhanced Retirement Benefit.
(7) EFFECT OF CHANGE IN CONTROL. Upon termination from Bancorp or a
Sponsoring Employer within two years after a Change in Control Date, other
than termination for Cause or without Good Reason, the Enhanced Retirement
Benefit for a designated Participant shall be subject to the following
provisions:
(i) Notwithstanding 6.1.1(f)(6), upon a Change in Control, a
Participant designated for an Enhanced Retirement Benefit who has at
least five years of Eligibility Service shall become immediately
vested in the accrued Enhanced Retirement Benefit, whether or not the
Participant had attained age 55 as of the later of the Change in
Control Date or the Termination Date.
(ii) If a Participant has not attained age 55 as of the
Termination Date, the Participant's Enhanced Retirement Benefit shall
commence on the first day of the calendar month in which the
Participant attains age 55.
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(iii) For purposes of computing a Participant's Target
Benefit, a Participant will continue to accrue Benefit Service after
a Change in Control.
(iv) The Early Retirement Reduction Percentage for each
Participant vested in an Enhanced Retirement Benefit (pursuant to
6.1.1(f)(6) or 6.1.1(f)(7)) shall be 3 percent.
(v) The provisions of this 6.1.1(f)(7) cannot be eliminated by
amendment or termination of this Plan after a Change in Control.
(8) CREDIT FOR ADDITIONAL BENEFIT SERVICE. For purposes of
computing a designated Participant's Target Benefit, the Committee may, in
special circumstances, credit the Participant with an additional number of
years of Benefit Service as determined by the Committee.
(g) GROSS-UP PAYMENT.
(1) DEFINITIONS. As used in this 6.1.1(g), the following terms have
the definitions set forth below:
"CHANGE IN CONTROL" has the meaning defined in 6.1.1(d)(2).
"CODE" means the Internal Revenue Code of 1986, as amended. Any
reference to a Code provision will include any successor provision.
"EXCISE TAX" means a tax imposed by Section 4999(a) of the Code with
respect to Excess Parachute Payments.
"GROSS-UP PAYMENT" means a payment described in 6.1.1(g)(2) with
respect to an Excise Tax.
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<PAGE>
"OUTSIDE TAX COUNSEL" means outside tax counsel selected by Bancorp
and reasonably satisfactory to a Participant.
"SERP BENEFITS" means all benefits payable to a Participant pursuit
to this Plan.
(2) GENERAL. Subject to the provisions of this 6.1.1(g), in the
event any portion of the SERP Benefits payable to a Participant will be
subject to the Excise Tax, Bancorp will pay the Participant an additional
amount (the "Gross-Up Payment") equal to:
(a) The Excise Tax imposed on the Participant with respect to
the portion of the SERP Benefits that constitutes an Excess Parachute
Payment; plus
(b) All federal, state, and local taxes and Excise Tax imposed
on the Participant with respect to the Gross-Up Payment.
(3) DETERMINATION OF EXCISE TAX. For purposes of determining
whether any portion of the SERP Benefits will constitute an Excess
Parachute Payment subject to the Excise Tax and the amount of any Excise
Tax, the entire amount of the SERP Benefits will be treated as an Excess
Parachute Payment unless and to the extent, in the written opinion of
Outside Tax Counsel, the SERP Benefits, in whole or in part, do not
constitute an Excess Parachute Payment and thus are not subject to the
Excise Tax.
(4) DETERMINING AMOUNT OF GROSS-UP PAYMENT. For purposes of
determining the amount of a Gross-Up Payment for a Participant, the
Participant will be deemed to pay federal, state, and local income taxes
(for the
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state and locality of the Participant's residence at the date the
Gross-Up Payment is made) at the highest marginal rates applicable to
individuals (including any applicable surtaxes and taking into account any
applicable loss or reduction of deductions or exemptions) for the calendar
year in which the Gross-Up Payment will be made.
(5) EFFECT OF OTHER AGREEMENTS. No Gross-Up Payment will be due
under this Plan if, or to the extent, a Participant is entitled to a
similar payment with respect to the SERP Benefits under any other
agreement or arrangement with Bancorp, a person whose actions result in a
Change in Control of Bancorp, or any person affiliated with Bancorp or
such person.
(6) LIMITATION. Bancorp shall have no obligation to make any
payments pursuant to 6.1.1(d), 6.1.1(f), or this 6.1.1(g) in connection
with a Change in Control of Bancorp if, or to the extent, any such
payments are prohibited by any applicable law or regulation, including
without limitation the FDIC's regulations regarding Golden Parachute and
Indemnification Payments promulgated under the Comprehensive Thrift and
Bank Fraud Prosecution and Taxpayer Recovery Act of 1990.
(h) SPECIAL RETIREMENT OPPORTUNITY BENEFIT.
(1) DEFINITIONS. As used in this 6.1.1(h), the following terms
shall have the definitions set forth below:
"DEEMED AGE" means an age equal to five years more than a designated
Participant's actual age as of August 31, 1994.
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<PAGE>
"DEEMED BENEFIT YEARS" means a number of years of Benefit Service, as
defined in the Retirement Plan, equal to 5.667 years more than a
designated Participant's actual years of Benefit Service as of
December 31, 1993.
"DEEMED ELIGIBILITY YEARS" means a number of years of Eligibility
Service, as defined in the Retirement Plan, equal to six years more than a
designated Participant's actual years of Eligibility Service as of
December 31, 1993.
"SRO AVERAGE MONTHLY COMPENSATION" means the greater of:
(i) The monthly average of the designed Participant's
Compensation (adjusted as described in 6.1.1(a)) during the highest
consecutive five of the ten Plan Years beginning in 1984; or
(ii) The monthly average of the designated Participant's
Compensation (adjusted as described in 6.1.1(a)) for the 60 months
ending August 31, 1994, based on:
A) The Participant's bonuses paid during the eight
calendar months ending August 31, 1994, plus eight times the
Participant's monthly base salary as in effect on January 1,
1994;
B) The Participant's base salary and bonuses paid during
calendar years 1990 through 1993; and
C) A portion equal to four-twelfths (4/12) of the
Participant's base salary (excluding bonuses) paid in calendar
year 1989.
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<PAGE>
"SRO CONNECTED BENEFIT" means the Benefit (either a Restoration
Benefit, an Enhanced Retirement Benefit, or both) under the Plan in
connection with which a Participant is designated for a Special Retirement
Opportunity Benefit.
(2) DESIGNATION IN CONNECTION WITH OTHER BENEFIT. A Special
Retirement Opportunity Benefit shall be in connection with either (or
both) of the following benefits for which the designated Participant is
also designated: a Restoration Benefit under 6.1.1(a) or an Enhanced
Retirement Benefit under 6.1.1(f).
(3) BENEFIT. If a Participant is designated for a Special
Retirement Opportunity Benefit under this 6.1.1(h), the Participant's SRO
Connected Benefit (or Benefits) shall be based on treating the
Participant;
(i) As having attained the greater of the Participant's actual
age as of the Annuity Starting Date (as defined in the Retirement
Plan) or the Deemed Age;
(ii) As having the Deemed Eligibility Years and the Deemed
Benefit Years; and
(iii) As having Average Monthly Compensation equal to the
SRO Average Monthly Compensation.
(4) TERMINATION DATE. The Committee may, in its discretion,
condition the designation of a Participant for a Special Retirement
Opportunity Benefit upon the Participant's termination of employment not
later than a date specified by the Committee.
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<PAGE>
6.1.2 COORDINATION OF BENEFITS. The following rules shall apply
where a Participant is designated for more than one benefit under 6.1.1:
(a) If a Participant receives an Early Retirement Subsidy Benefit
under 6.1.1(b) or a Change in Control Early Retirement Subsidy Benefit under
6.1.1(d)(1), there shall be no early retirement reduction with respect to the
Participant's benefits, if any, described in 6.1.1(a), 6.1.1(c), and
6.1.1(d)(2).
(b) If a Participant receives an Additional Benefit Service Benefit
under 6.1.1(c) or a Change in Control Additional Benefit Service under
6.1.1(d)(2), the Participant's benefits, if any, described in 6.1.1(a),
6.1.1(b), and 6.1.1(d)(1) shall be based on the lesser of 25 years of Benefit
Service or the designated number of years of Benefit Service.
(c) If a Participant is designated for an Early Retirement Subsidy
Benefit under 6.1.1(b) and a Change in Control Early Retirement Subsidy Benefit
under 6.1.1(d)(1), the Participant's Change in Control Early Retirement Subsidy
Benefit under 6.1.1(d)(l) shall be reduced by the amount payable as an Early
Retirement Subsidy Benefit under 6.1.1(b).
(d) If a Participant is designated for an Additional Benefit Service
Benefit under 6.1.1(c) and a Change in Control Additional Benefit Service
Benefit under 6.1.1(d)(2), the Participant's Change in Control Additional
Benefit Service Benefit under 6.1.1(d)(2) shall be reduced by the amount
payable as an Additional Benefit Service Benefit under 6.1.1(c).
(e) If a Participant is designated for an Enhanced Retirement
Benefit under 6.1.1(f) and is also designated for any other Retirement
Plan-Related Benefit under 6.1.1, the Participant's Enhanced Retirement Benefit
under 6.1.1(f) shall be
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reduced by the aggregate amounts payable as any other Retirement Plan-Related
Benefits under 6.1.1 (after taking into account any other applicable
coordination provisions of this 6.1.2).
6.1.3 TIME AND MANNER OF PAYMENT. A vested Participant's
Retirement Plan-Related Benefit (other than an Enhanced Retirement Benefit
pursuant to 6.1.1(f)) shall be paid after his or her ceasing to be an employee
of Bancorp or a Sponsoring Employer, beginning with the earlier of the first
day of the month after the Participant is age 55 and not yet age 65 and has at
least ten years of Eligibility Service ("early retirement date") or after the
Participant is at least age 65 and is vested or has had the fifth anniversary
of the Participant's commencement of participation.
A Participant who is vested in an Enhanced Retirement Benefit shall
be paid such Enhanced Retirement Benefit after the Participant ceases to be an
employee of Bancorp or a Sponsoring Employer, beginning with the first day of
the first calendar month after the Participant terminates employment.
A Participant's Retirement Plan-Related Benefit under the Plan is
earned in the single life annuity form with no benefit payable to anyone on the
Participant's post-retirement death. A Participant may make a one-time
election to receive that benefit in one of the forms provided below. The
Participant's election must be made before the Participant's commencing
participation. If no election is made by that latest election date, then the
Participant's benefit shall be paid in the single life annuity form. The
following optional forms are available:
(a) JOINT AND SURVIVOR ANNUITY. An actuarial equivalent reduced
monthly benefit for life to the Participant with 50 percent or 100 percent, as
elected, of that amount payable to the survivor designated at retirement, if
then living, for life
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after the death of the Participant. The straight life annuity is converted to a
50 percent survivor annuity by multiplying the straight life annuity amount by:
[.94 + .004 x (spouse's age - Participant's age at death)]; not
greater than 1.000.
The straight life annuity is converted to a 100 percent survivor
annuity by multiplying it by:
[.89 + .006 x (beneficiary's age - retired Participant's age)];
not greater than 1.000.
If the designated survivor dies before the Participant retires, then the
Participant shall select another survivor within 30 days. Except for death of
the survivor the Participant shall have no power to name a new survivor. If
there is no living designated survivor on the Participant's retirement, the
benefit shall be paid in the straight life annuity form. If the designated
survivor dies after the Participant retires but before the Participant dies,
then payments will continue to the Participant in the same reduced amount and
another survivor cannot be selected. No payments will be made to anyone after
the death of both the Participant and the designated survivor.
(b) SUPPLEMENTAL INCOME OPTION. An actuarial equivalent benefit
whereby monthly straight life annuity or joint and survivor annuity payments to
the Participant before the Participant is first eligible for Social Security
benefits are greater than the remaining Participant life annuity payments so as
to provide approximately equal payments throughout the Participant's life
annuity payment period, including payments from Social Security. The actuarial
equivalent factors are as follows:
Amount of straight life annuity equivalent to $1 of temporary
annuity to age 62 and 1/12 equals $.006 times months of
payments.
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If this benefit form is elected in conjunction with a benefit form that
provides payments after the Participant's death, the post-death payments shall
be based on the payments that would have been made to the Participant after
first eligibility for Social Security whether the retired Participant dies
before or after such eligibility.
6.1.4 EARLY RETIREMENT REDUCTION. Except as provided in 6.1.2,
if a Participant's Retirement Plan-Related Benefit (other than an Enhanced
Retirement Benefit under 6.1.1(f)) starts before the first of the month after
age 65 ("normal retirement date") and the Participant was eligible for early
retirement an terminating Bancorp employment, and the Participant is not
eligible for an Early Retirement Subsidy Benefit under 6.1.1(b), the
Participant's Retirement Plan-Related Benefit calculated under 6.1 shall be
reduced by 1/3 of 1 percent of such normal retirement benefit for each month by
which the early retirement date precedes the following reference age:
<TABLE>
<CAPTION>
YEARS OF ELIGIBILITY SERVICE REFERENCE AGE
------------------------------ ---------------
<S> <C>
Less than 25 65
25 or more 62
</TABLE>
No reduction shall be made if the Participant is at least age 62 and has at
least 25 years of Eligibility Service. If a Participant was not eligible for
early retirement on terminating Bancorp employment, the 6.1 benefit shall be
reduced by .5833 percent for each full month from age 60 to age 65 and 1/3 of 1
percent from age 55 to age 60 by which the early retirement date precedes the
normal retirement date.
6.1.5 BENEFIT FORFEITABILITY. A Participant shall forfeit the
entire amount of the Participant's Retirement Plan-Related Benefit described in
6.1.1(b) and
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6.1.1(c) or, if payments of said benefits have already begun, any
remaining payments, if the Participant, either directly or indirectly, on the
Participant's own behalf or as a partner, officer, employee, consultant,
financier, stockholder (except by ownership of less than 1 percent of the
outstanding stock of a publicly held corporation), director, or trustee of any
person, firm, or corporation, or otherwise, engages in any business competing
with the business carried on by Bancorp or any of its affiliates at the time of
the Participant's termination of employment with Bancorp and its affiliates
during the period ending on the later of (i) the date that is ten years after
the Participant's termination of employment with Bancorp and its affiliates, or
(ii) the Participant's normal retirement date under the Retirement Plan.
6.1.6 PRERETIREMENT DEATH BENEFIT. If a vested Participant dies
prior to retirement under this Plan and has a surviving spouse, such surviving
spouse or designated nonspouse beneficiary, shall receive a monthly
preretirement death benefit equal to one-half of the Participant's straight
life annuity calculated as provided below. No preretirement death benefit is
payable to a designated nonspouse beneficiary if the Participant is not married
on the date of death.
The preretirement death benefit shall begin to be paid within 30 days
after the Manager of the Human Resources Group or his or her designee (the
"Manager") is notified of the Participant's death, if the Participant was an
employee of Bancorp or a Sponsoring Employer at death, and if not, then within
30 days after the Participant would have first been eligible for early or
normal retirement under this Plan had the Participant survived to that date,
whether or not the corresponding benefit has begun under the Retirement Plan,
and shall be payable for the life of the spouse.
For Retirement Plan-Related Benefits other than an Enhanced
Retirement Benefit, if the Participant was not an employee of Bancorp or
Sponsoring
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Employer and was not yet age 65 on the date of death, then the
Participant's age 65 single life annuity benefit shall be reduced by the
reduction factors in 6.1.3 for a Participant who is not eligible for early
retirement on terminating employment. If the Participant was an employee of
Bancorp or a Sponsoring Employer on the date of death then the Participant's
age 65 single life annuity benefit shall be reduced by the reduction factors in
6.1.3 for a Participant who was eligible for early retirement on terminating
Bancorp employment, but there shall be no reduction below age 55 if the
Participant died before age 55.
For Enhanced Retirement Benefits under 6.1.1(f), if the Participant
was an employee of Bancorp or a Sponsoring Employer on the date of death and
was vested in an Enhanced Retirement Benefit, the Participant's Target Benefit
shall be reduced by applying the reduction factors in 6.1.1(f)(5) as if the
Compensation Committee had approved the Participant's retirement or termination
of employment.
If the beneficiary is the spouse, then the above death benefit shall
be paid for the life of the spouse with no further payments made after the
spouse's death. If the beneficiary is a person other than the spouse and the
beneficiary is more than five years younger than the Participant, then the
survivor benefit shall be paid for the life of the nonspouse survivor but not
to exceed the life expectancy of a beneficiary who is exactly five years
younger than the Participant. If the nonspouse beneficiary is five or less
years younger than the Participant, then the survivor shall receive the death
benefit for life with no payments after the survivor's death.
6.1.7 LUMP-SUM PAYMENTS OF SMALL BENEFITS. Notwithstanding any
other provision of this Plan, the Retirement Plan-Related Benefit or the
preretirement death benefit shall be paid in an actuarial equivalent lump sum
within 30 days after the Manager determines that the present value of such
benefit is less than an amount
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fixed and revised from time to time, in the Manager's discretion. The
actuarial equivalent shall be determined using the 1971 TPF&C forecast
mortality for males, set back five years for the Participant and one year for
the survivor, if any, at the "applicable interest rate". The "applicable
interest rate" shall mean the interest rate or rates that would have been
used as of the first day of the calendar year that contains the distribution
date by the Pension Benefit Guaranty Corporation ("PBGC") for the purpose of
determining the present value of the Participant's benefits under the Plan,
assuming the Plan was insured by the PBGC even though it is not, and
terminated on the date distribution commences with insufficient assets to
provide benefits guaranteed by the PBGC on that date.
6.1.8 ARBITRATION. Any dispute with respect to whether a
Participant designated for a benefit described in 6.1.1(d) or 6.1.1(f ) was
terminated for "Cause" or terminated employment with "Good Reason," as those
terms are defined in 6.1.1(d), shall, after compliance with the claims
procedure set forth in Article XI of this Plan, be submitted to arbitration for
a binding determination by a single arbitrator agreed upon by the Participant
and the Board, or if the Participant and the Board are unable to agree upon an
arbitrator within 20 days after either the Participant or the Board demands
arbitration, appointed by the presiding judge of the Circuit Court of the State
of Oregon for Multnomah County. After the appointment of an arbitrator, the
arbitration proceedings shall follow the rules of the American Arbitration
Association but shall not be conducted under its auspices. The arbitrator
shall have the power to grant limited discovery in his or her discretion upon
good cause shown by the party seeking discovery.
6.2 INVESTMENT PLAN-RELATED BENEFIT.
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6.2.1 ANNUAL CREDIT. Each Participant shall receive, for each
calendar year commencing prior to January 1, 1998 for which the Participant has
been designated for this benefit, a credit to the Participant's "Investment
Plan Benefit Account" of an amount equal to the sum of the Participant's
"Deferred Compensation Credit," "Section 415 Limitation Credit," "Before-Tax
Contribution Limitation Credit," and "Matching Credit," to the extent such
credits are not duplicative, as described below.
(a) DEFERRED COMPENSATION CREDIT. The amount of the Deferred
Compensation Credit is the amount of the employer matching contribution that
would have been allocated to the Participant's Bancorp Contribution Account
under the U. S. Bancorp Employee Investment Plan (the "Investment Plan") had
deferred compensation counted as nondeferred compensation under the Investment
Plan. In computing the amount that would have been so allocated, the whole
number percentage that has been actually elected by the Participant to
determine the elective before-tax contribution under the Investment Plan shall
be used. Furthermore, computation of the Participant's Deferred Compensation
Credit shall not take into account (i) the limitation on annual additions
required by Section 415 of the Internal Revenue Code, (ii) the federal income
tax limitations on the amount of compensation that can be taken into account
under the Investment Plan, and (iii) the federal income tax limitations on the
amount of elective before-tax contributions.
(b) SECTION 415 LIMITATION CREDIT. The amount of the Section 415
Limitation Credit is the amount by which the employer matching contribution
that would have been allocated to the Participant's Bancorp Contribution
Account under the terms of the Investment Plan is reduced by application of the
limitation on annual additions required by Section 415 of the Internal Revenue
Code.
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(c) BEFORE-TAX CONTRIBUTION LIMITATION CREDIT. The amount of the
Before-Tax Contribution Limitation Credit is the difference between:
(1) the amount of the employer matching contribution that would have
been allocated to the Participant's Bancorp Contribution Account under the
Investment Plan based on the Participant's actual compensation and the
whole number percentage that has been actually elected by the Participant
to determine the elective before-tax contribution, before application of
federal income tax limitations on the amount of compensation that can be
taken into account under the Investment Plan and the amount of elective
before-tax contributions, and
(2) the amount of the employer matching contribution actually
allocated to the Participant's Bancorp Contribution Account under the
Investment Plan.
(d) MATCHING CREDIT. For any Participants not eligible to
participate in the Investment Plan, the amount of the Matching Credit is the
amount of the employer matching contribution that would have been allocated to
the Participant's Bancorp Contribution Account under the Investment Plan had
the Participant's deferred compensation under any applicable plan or plans
counted as elective before-tax contributions under the Investment Plan. For
this purpose, an applicable plan is a deferred compensation plan approved by
the Board that specifically provides that compensation deferred under the plan
is to be taken into account in determining the Matching Credit under this Plan.
Also, computation of the Participant's Matching Credit shall not take into
account (i) the limitation on annual addition required by Section 415 of the
Internal Revenue Code, (ii) the federal income tax limitations on the amount of
compensation that can be taken into account under the Investment Plan,
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and (iii) the federal income tax limitations on the amount of elective
before-tax contributions.
6.2.2 INVESTMENT PLAN BENEFIT ACCOUNT. An Investment Plan
Benefit Account shall be maintained for each Participant designated for the
benefits described under 6.2.1. The balance in the Investment Plan Benefit
Account shall be adjusted upward or downward as of each Investment Plan
valuation date by the same percentage amount as the Participant's actual
Bancorp Contribution Account under the Investment Plan is adjusted.
6.2.3 TIME AND MANNER OF PAYMENT. The Investment Plan Benefit
Account shall be paid to the Participant in a lump sum within 30 days after
termination of employment with Bancorp and its affiliates (or as soon
thereafter as practical), except that if prior to the adoption of this amended
and restated Plan the Participant had terminated such employment and elected to
receive payment of that Account on a date specific, then such Account shall be
paid on that date.
6.2.4 DEATH BENEFIT. In the event of a Participant's death, the
Investment Plan Benefit Account shall be paid to the beneficiary named in
accordance with procedures established by the Manager or, in the absence of a
named beneficiary, to the Participant's beneficiary under the terms of the
Investment Plan, in a lump sum within 30 days after the Participant's death.
6.3 FBS CHANGE IN CONTROL BENEFIT.
6.3.1 BENEFIT FOR PARTICIPANT IN RETIREMENT PLAN.
(a) PARTICIPANTS DESIGNATED FOR A RESTORATION BENEFIT. A
Participant who is designated to receive both an "FBS Change in Control
Benefit" and a
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"Restoration Benefit" under this Plan shall receive a monthly
FBS Change in Control Benefit equal to the difference between:
(1) the benefit the Participant would have received under Section
6.1.1(a) had such benefit been calculated after inserting the following
paragraphs C and D immediately after paragraph B in Section
6.1.1(a)(2)(i):
C) had the Participant accrued two additional years of Benefit
Service, as defined in the Retirement Plan, as of his or her
termination date; and
D) had the Participant's Average Monthly Compensation, as
defined in the Retirement Plan, been calculated by assuming that the
Participant remained employed by Bancorp or a Sponsoring Employer for
an additional two years and received Compensation, as defined in the
Retirement Plan, over that period in the amount determined in
accordance with the first paragraph of Section 4.2 of the FBS Change
in Control Plan (such Compensation to be treated as having been
earned and paid at such time(s) as the Manager of Human Resources (or
his or her designee) may determine); and
(2) the Participant's actual benefit under Section 6.1.1(a).
(b) PARTICIPANTS NOT DESIGNATED FOR A RESTORATION BENEFIT. A
Participant who is designated to receive an "FBS Change in Control Benefit,"
but not a Restoration Benefit, under this Plan and who is a participant in the
Retirement Plan shall receive a monthly FBS Change in Control Benefit equal to
the difference between:
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(1) the early, normal, or delayed retirement benefit that would have
been payable to the Participant under the Retirement Plan:
A) had the Participant accrued two additional years of Benefit
Service, as defined in the Retirement Plan, as of his or her
termination date; and
B) had the Participant's Average Monthly Compensation, as
defined in the Retirement Plan, been calculated by assuming that the
Participant remained employed by Bancorp or a Sponsoring Employer for
an additional two years and received Compensation, as defined in the
Retirement Plan, over that period in the amount determined in
accordance with the first paragraph of Section 4.2 of the FBS Change
in Control Plan (such Compensation to be treated as having been
earned and paid at such time(s) as the Manager of Human Resources (or
his or her designee) may determine); and
(2) the Participant's actual early, normal, or delayed retirement
benefit under the Retirement Plan.
In calculating the benefit described in this Section 6.3.1(b), the period of
time used to determine a Participant's Average Monthly Compensation may be
different than the period of time used to determine the Participant's Average
Monthly Compensation in calculating the benefit actually payable under the
Retirement Plan.
(c) TREATMENT OF FBS CHANGE IN CONTROL BENEFIT. Except as provided
in Section 6.3.3, a Participant's FBS Change in Control Benefit shall be
treated for all purposes, including, but not limited to, distribution,
reduction for early commencement, forfeitability, death benefits and small
benefit cash out, as if it were a
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Restoration Benefit; provided, however, that with respect to a Participant
whose FBS Change in Control Benefit is calculated under Section 6.3.1(b), such
benefit shall be distributed in the form of a single life annuity payable over
the Participant's lifetime with no benefit payable to anyone on the
Participant's death, unless the Manager of Human Resources (or his or her
designee), in his or her sole discretion, approves the Participant's request
(prior to benefit commencement) of one of the other forms of payment provided
in Section 6.1.3.
6.3.2 BENEFIT FOR PARTICIPANT IN WO RETIREMENT PLAN OR WO SERP.
(a) PARTICIPANTS PARTICIPATING IN WO SERP. A Participant who is
designated to receive an "FBS Change in Control Benefit" under this Plan and
who is a participant in the WO SERP, but who is not eligible for a benefit
under Section 6.3.1 shall receive a monthly FBS Change in Control Benefit equal
to the difference between:
(1) the benefit to which such Participant would have been entitled
under the WO SERP had:
A) the Participant's Final Average Earnings, as defined in the
WO SERP, for purposes of calculating 65% thereof, been calculated by
assuming that the Participant had remained employed by Bancorp or a
Sponsoring Employer for an additional two years and received
Earnings, as defined in the WO SERP, over that period in the amount
determined in accordance with the first paragraph of Section 4.2 of
the FBS Change in Control Plan (such Earnings to be treated as having
been earned and paid at such time(s) as the Manager of Human
Resources (or his or her designee) may determine); and
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B) for purposes of calculating any reduction related to years
of Credited Service, as defined in the WO SERP, the Participant
accrued two additional years of Credited Service as of his or her
termination date; and
(2) the Participant's actual benefit under the WO SERP.
In calculating the benefit described in this Section 6.3.2(a), the period of
time used to determine a Participant's Final Average Earnings may be different
than the period of time used to determine the Participant's Final Average
Earnings in calculating the benefit actually payable under the WO SERP.
(b) PARTICIPANTS NOT PARTICIPATING IN WO SERP. A Participant who is
designated to receive an "FBS Change in Control Benefit" and who is a
participant in the WO Retirement Plan, but who is not a participant in the WO
SERP and who is not eligible for a benefit under Section 6.3.1, shall receive a
monthly FBS Change in Control Benefit equal to the difference between:
(1) the benefit to which such Participant would have been entitled
under the WO Retirement Plan:
A) had the Participant accrued two additional years of
Credited Service, as defined in the WO Retirement Plan, as of his
termination date; and
B) had the Participant's Final Average Earnings, as defined in
the WO Retirement Plan, been calculated by assuming that the
Participant had remained employed by Bancorp or a Sponsoring Employer
for an additional two years and received Earnings, as defined
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in the WO Retirement Plan, over that period in the amount determined
in accordance with the first paragraph of Section 4.2 of the FBS
Change in Control Plan (such Compensation to be treated as having been
earned and paid at such time(s) as the Manager of Human Resources (or
his or her designee) may determine); and
(2) the Participant's actual benefit under the WO Retirement Plan.
In calculating the benefit described in this Section 6.3.2(b), the period of
time used to determine a Participant's Final Average Earnings may be different
than the period of time used to determine the Participant's Final Average
Earnings in calculating the benefit actually payable under the WO Retirement
Plan.
(c) TIME AND MANNER OF PAYMENT. Although Sections 6.3.2(a) and
6.3.2(b) calculate a Participant's FBS Change in Control Benefit as a single
life annuity, with no benefits payable to anyone after the Participant's post-
termination death, such benefit shall be paid as follows:
A) With respect to any Participant whose FBS Change in Control
Benefit is calculated under Section 6.3.2(a), such benefit shall be paid
in the form and at the time such Participant's benefit under the WO SERP
is paid. In the event such payment is an a form other than a single life
annuity payable for the Participant's life, the monthly benefit amount
shall be the actuarial equivalent, determined using the factors and
assumptions used under the WO SERP, of the amount calculated under Section
6.3.2(a). Furthermore, in the event such payment commences prior to the
Participant's normal retirement (within the meaning of the WO SERP), the
monthly benefit amount shall be
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reduced for such early commencement in accordance with the applicable
reduction factors in the WO SERP.
B) With respect to any Participant whose FBS Change in Control
Benefit is calculated under Section 6.3.2(b), such benefit shall be paid
at the time it would have been paid had it been provided under the WO SERP
and in the form of a single life annuity payable over the Participant's
lifetime with no benefit payable to anyone on the Participant's death,
unless the Manager of Human Resources (or his or her designee), in his or
her sole discretion, approves the Participant's request (prior to benefit
commencement) of one of the other forms of payment provided under the WO
SERP (which form must be in the form of an annuity, except as provided in
Section 6.3.2(d)). In the event such payment is an a form other than a
single life annuity payable for the Participant's life, the monthly
benefit amount shall be the actuarial equivalent, determined using the
factors and assumptions used under the WO SERP, of the amount calculated
under Section 6.3.2(b). Furthermore, in the event such payment commences
prior to the Participant's normal retirement (within the meaning of the WO
SERP), the monthly benefit amount shall be reduced for such early
commencement in accordance with the applicable reduction factors in the WO
SERP.
(c) PRERETIREMENT DEATH BENEFIT. If a vested Participant who is
entitled to an FBS Change in Control Benefit under this Section 6.3.2 dies
before such benefit is paid or commences to be paid and has a surviving spouse,
such surviving spouse shall be entitled to receive a monthly preretirement
death benefit equal to the portion of the FBS Change in Control Benefit that
would have been payable as a death
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benefit under the WO SERP were such benefit to be paid as a death benefit under
the WO SERP in addition to any other benefit payable thereunder.
(d) LUMP-SUM PAYMENTS OF SMALL BENEFITS. Notwithstanding any other
provision of this Plan, any FBS Change in Control Benefit or the preretirement
death benefit calculated under this Section 6.3.3 shall be subject to the
provisions of Section 6.1.7 as if it were a Retirement Plan-Related Benefit (or
a preretirement death benefit related to such a benefit).
6.3.3 TWO YEAR ASSUMPTION. The FBS Change in Control Benefit of
any Participant is calculated assuming that such benefit commences at least two
years after the date on which the Participant ceases to be an employee of
Bancorp or a Sponsoring Employer. In the event that such benefit commences
within two years of such date, it shall be reduced in a manner determined by
the Manager of Human Resources (or his or her designee) to reflect such early
commencement.
6.4 SPECIAL RETIREMENT PLAN MAKE-UP BENEFIT
6.4.1 BENEFIT FOR PARTICIPANT IN RETIREMENT PLAN.
(a) AMOUNT OF SPECIAL RETIREMENT PLAN MAKE-UP BENEFIT. A
Participant who is designated to receive a "Special Retirement Plan Make-Up
Benefit," under this Plan and who is an active participant in the Retirement
Plan on January 1, 1998 shall receive a monthly Special Retirement Make-Up
Benefit equal to the difference between:
(1) the early, normal, or delayed retirement benefit that would have
been payable to the Participant under the Retirement Plan had any
compensation deferred by the Participant under the U. S. Bancorp Executive
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Deferral Plan after December 31, 1997 counted as Compensation under the
Retirement Plan at the time at which such compensation would have been
paid had it not been deferred; and
(2) the Participant's actual early, normal, or delayed retirement
benefit under the Retirement Plan.
(b) TREATMENT OF SPECIAL RETIREMENT PLAN MAKE-UP BENEFIT. A
Participant's Special Retirement Plan Make-Up Benefit shall be treated for all
purposes, including, but not limited to, distribution, reduction for early
commencement, forfeitability, death benefits and small benefit cash out, as if
it were a Restoration Benefit; provided, however, that unless Section 6.1.7
applies, such benefit shall be distributed in the form of a single life annuity
payable over the Participant's lifetime with no benefit payable to anyone on
the Participant's death, unless the Manager of Human Resources (or his or her
designee), in his or her sole discretion, approves the Participant's request
(prior to benefit commencement) of one of the other forms of payment provided
in Section 6.1.3.
6.4.2 BENEFIT FOR PARTICIPANT IN WO RETIREMENT PLAN.
(a) AMOUNT OF SPECIAL RETIREMENT PLAN MAKE-UP BENEFIT. A
Participant who is designated to receive a "Special Retirement Plan Make-Up
Benefit" and who is an active participant in the WO Retirement Plan on January
1, 1998 shall receive a monthly Special Retirement Plan Make-Up Benefit equal
to the difference between:
(1) the benefit that would have been payable to the Participant
under the WO Retirement Plan had any compensation deferred by the
Participant under the U. S. Bancorp Executive Deferral Plan after December
31, 1997
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counted as Earnings under the WO Retirement Plan at the time at which such
compensation would have been paid had it not been deferred; and
(2) the Participant's actual benefit under the WO Retirement Plan.
(b) DISTRIBUTION OF SPECIAL RETIREMENT PLAN MAKE-UP BENEFIT.
Although Section 6.4.2(a) calculates a Participant's Special Retirement Plan
Make-Up Benefit as a single life annuity, with no benefits payable to anyone
after the Participant's post-termination death, such benefit shall be paid as
follows:
(1) With respect to any Participant who is an active participant in
the WO Retirement Plan on January 1, 1998 and who is a participant in the
WO SERP, the Participant's Special Retirement Plan Make-Up Benefit shall
be paid in the form and at the time such Participant's benefit under the
WO SERP is paid. In the event such payment is in a form other than a
single life annuity payable for the Participant's life, the monthly
benefit amount shall be the actuarial equivalent, determined using the
factors and assumptions used under the WO SERP, of the amount calculated
under Section 6.4.2(a). Furthermore, in the event such payment commences
prior to the Participant's normal retirement (within the meaning of the WO
SERP), the monthly benefit amount shall be reduced for such early
commencement in accordance with the applicable reduction factors in the WO
SERP.
(2) With respect to any Participant who is an active participant in
the WO Retirement Plan on January 1, 1998, but who is not a participant in
the WO SERP, the Participant's Special Retirement Plan Make-Up Benefit
shall be paid at the time it would have been paid had it been provided
under the WO SERP and in the form of a single life annuity payable over
the Participant's
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lifetime with no benefit payable to anyone on the Participant's death,
unless the Manager of Human Resources (or his or her designee), in his or
her sole discretion, approves the Participant's request (prior to benefit
commencement) of one of the other forms of payment provided under the WO
SERP. In the event such payment is in a form other than a single life
annuity payable for the Participant's life, the monthly benefit amount
shall be the actuarial equivalent, determined using the factors and
assumptions used under the WO SERP, of the amount calculated under
Section 6.4.2. Furthermore, in the event such payment commences prior
to the Participant's normal retirement (within the meaning of the WO
SERP), the monthly benefit amount shall be reduced for such early
commencement in accordance with the applicable reduction factors in
the WO SERP.
(c) PRERETIREMENT DEATH BENEFIT. If a vested Participant who is
entitled to a Special Retirement Plan Make-Up Benefit under this Section 6.4.2
dies before such benefit is paid or commences to be paid and has a surviving
spouse, such surviving spouse shall be entitled to receive a monthly
preretirement death benefit equal to the portion of the Special Retirement Plan
Make-Up Benefit that would have been payable as a death benefit under the WO
SERP were such benefit to be paid as a death benefit under the WO SERP in
addition to any other benefit payable thereunder.
(d) LUMP-SUM PAYMENTS OF SMALL BENEFITS. Notwithstanding any other
provision of this Plan, any Special Retirement Plan Make-Up Benefit or
preretirement death benefit calculated under this Section 6.4.2 shall be
subject to the provisions of Section 6.1.7 as if it were a Retirement Plan-
Related Benefit (or a preretirement death benefit related to such a benefit).
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ARTICLE VII
VESTING
Except as provided in 6.1.1(d), 6.1.1(f), 6.1.4, and in this
Article VII, a Participant's right to any benefit under the Plan is vested and
nonforfeitable at the same time as and to the same extent as the Participant is
vested in related plan benefits. In connection with the designation of a
Participant for any benefit under the Plan, the Compensation Committee or the
Executive Committee may specify different vesting provisions for a particular
benefit.
ARTICLE VIII
SOURCE OF BENEFITS
This Plan and the benefits payable hereunder shall be unfunded and
shall be payable only from the general assets of Bancorp or a Sponsoring
Employer. Bancorp and Sponsoring Employers do not represent that a specific
portion of their assets will be used to provide the benefits hereunder.
Participants, surviving spouses, and beneficiaries shall have no interest in
any specific assets of Bancorp or any Sponsoring Employer. Nothing contained
herein shall be deemed to create a trust of any kind or create any fiduciary
relationship. To the extent that any person acquires a right to receive
payments from Bancorp or any Sponsoring Employer under this Plan, such rights
shall be no greater than the rights of their unsecured general creditors.
Notwithstanding the foregoing, Bancorp and the Sponsoring Employer may deposit
moneys under the U. S. Bancorp Deferred Compensation Trust Agreement (the
"Trust") for the purpose of paying benefits hereunder from these moneys and the
income thereon, unless such Trust assets are required to satisfy the
obligations of Bancorp and the Sponsoring Employers to their general creditors.
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ARTICLE IX
ADMINISTRATION OF THE PLAN
Except for matters specifically reserved to the Compensation
Committee, the Plan shall be administered by the Executive Committee. Except
as otherwise provided and subject to review and supervision by the Compensation
Committee, the Executive Committee shall have the authority and responsibility
for all matters in connection with the operation and administration of the
Plan. The Executive Committee's powers and duties shall include, but shall not
be limited to, the following:
(a) Responsibility for the compilation and maintenance of all
records necessary in connection with the Plan, including records of
Participant designations;
(b) Authorizing the payment of all benefits and expenses of the Plan
as they become payable under the Plan; and
(c) Authority to engage such legal, accounting, and other
professional services as it may deem proper. Decisions by the Executive
Committee shall be final and binding upon all parties affected by the
Plan, including the surviving spouses and beneficiaries of Participants.
The Executive Committee may rely on information and recommendations
provided by supervisory management. The Executive Committee may delegate to a
subcommittee composed of less than all Executive Committee members or to
supervisory management who are not Executive Committee members, the
responsibility for decisions that it may make or actions that it may take under
the
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terms of the Plan, subject to the reserved right of the Executive Committee
and the Compensation Committee to review such decisions or actions and modify
them when necessary or appropriate under the circumstances. The Executive
Committee shall not allow any employee to engage directly or indirectly in any
decisions or actions that affect that employee's Plan benefits.
ARTICLE X
MISCELLANEOUS
10.1 NONASSIGNABILITY OF BENEFITS. Benefits under this Plan cannot
be sold, transferred, anticipated, assigned, pledged, hypothecated, seized by
legal process, subjected to claims of creditors in any way, or otherwise
disposed of.
10.2 GOVERNING LAW. This Plan and any amendments shall be construed,
administered, and governed in all respects in accordance with applicable
federal law and the laws of the State of Oregon.
10.3 NO RIGHT OF CONTINUED EMPLOYMENT. Nothing in this Plan shall be
construed to give a Participant the right to remain an employee of Bancorp or
any of its affiliates, and Bancorp and its affiliates reserve the right to
discharge a Participant with or without cause at any time.
10.4 WITHHOLDING TAXES. Bancorp or the Sponsoring Employer shall
withhold any taxes required by law to be withheld in connection with payment of
benefits under this Plan.
10.5 SEVERABILITY. The invalidity or unenforceability of any
provision of this Plan shall not affect the validity or enforceability of any
other provision of this
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Plan, and each provision of this Plan shall be severable and enforceable to
the extent permitted by law.
ARTICLE XI
CLAIMS PROCEDURE
11.1 INITIAL CLAIM. Any person claiming a benefit under this
Plan ("Claimant") shall present the claim in writing to the Manager. Any
dispute with respect to a claim for benefits under 6.1.1(d) as to whether the
designated Participant's termination was for "Cause" or with "Good Reason"
shall, after compliance with the claims procedure of this Article XI, be
submitted to binding arbitration pursuant to 6.1.8.
11.2 DECISION ON INITIAL CLAIM.
11.2.1 TIME PERIOD FOR DENIAL NOTICE. A decision shall be made on
the claim as noon as practicable and shall be communicated in writing by the
Manager to the Claimant within a reasonable period after receipt of the claim
by the Manager. In no Parent shall the decision on an initial claim be given
more than 90 days after the date the claim was filed, unless special
circumstances require an extension of time for processing. If there is an
extension, the Claimant shall be notified of such within 90 days of the date
the claim was filed. The extension notice shall indicate the special
circumstances and the date by which a decision is expected. The extension
shall not exceed 90 days from the end of the initial response period.
11.2.2 CONTENTS OF NOTICE. If the claim is wholly or partially
denied, the notice of denial shall indicate:
(a) The specific reasons for the denial;
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(b) The specific references to pertinent Plan provisions on which
the denial is based;
(c) A description of additional material or information necessary
for the Claimant to perfect the claim and an explanation of why such
material or information is necessary; and
(d) An explanation of the Plan's claim review procedure.
11.2.3 DEEMED DENIED. If written notice of the decision wholly or
partially denying the claim has not been furnished within 90 days after the
claim is filed or there has been an extension and no notice of a decision is
furnished by the end of the extension period, and if the claim has not been
granted within such period, the claim shall be deemed denied as of the end of
the 90-day or 180-day period for purposes of proceeding to the review stage
described in 11.3 and 11.4.
11.3 REVIEW OF DENIED CLAIM. If a Claimant receives a notice of
denial or his or her claim is deemed denied pursuant to 11.2 above, the
Claimant may request a review of the claim. The request for review is made by
personally delivering or mailing a written request for review, prepared by
either the Claimant or his or her authorized representative, to the Executive
Committee. The Claimant's request for review must be made within a reasonable
period of time taking into consideration the nature of the benefit that is the
Subject of the claim and other attendant circumstances. In no event shall the
period for requesting review expire less than 60 days after receipt of the
notice of denial or the date on which the claim is deemed denied if no notice
is received. If the written request for review is not made on a timely basis,
the Claimant shall be deemed to waive his or her right to review. The Claimant
or his or
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her duly authorized representative may, at or after the time of making the
request, review all pertinent documents and submit issues and comments in
writing.
11.4 DECISION ON REVIEW. A review shall be promptly made by the
Executive Committee after receipt of a timely filed request for review. A
decision on review shall be made and furnished in writing to the Claimant. The
decision shall be made not later than 60 days after receipt of the request for
review. If special circumstances require an extension of time for processing
(such as the need to hold a hearing), a decision shall be made and furnished to
the Claimant not later than 120 days after such receipt. If an extension is
required, the Claimant shall be notified of such within 60 days after the
request for review was filed. The written decision shall include the reasons
for such decision with reference to the provisions of the Plan upon which the
decision is based. The decision shall be final and binding upon the Claimant
and Bancorp and its affiliates and all other persons involved. If the decision
on review is not furnished within the applicable time period, the claim shall
be deemed denied on review.
The scope of any subsequent review of the benefit claim, judicial or
otherwise, shall be limited to a determination as to whether the Executive
Committee acted arbitrarily or capriciously in the exercise of its discretion.
In no event shall any such further review be on a de novo basis as the
Executive Committee has discretionary authority to determine eligibility for
benefits and to construe the terms of this Plan.
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ARTICLE XII
AMENDMENTS AND TERMINATION
Except as expressly provided in 6.1.1(d)(1) and 6.1.1(f)(7)(vi), the
Board has the power to terminate this Plan at any time or to amend this Plan at
any time and in any manner that it may deem advisable.
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U. S. BANCORP
1991 EXECUTIVE DEFERRED COMPENSATION PLAN
FIRST RESTATEMENT
This RESTATED 1991 EXECUTIVE DEFERRED COMPENSATION PLAN (the "Plan") is
adopted by U. S. Bancorp, an Oregon corporation ("Bancorp"), effective February
21, 1991.
ARTICLE I
PURPOSE OF PLAN
The continued growth and success of Bancorp are dependent upon its ability
to attract and retain the services of key executives of the highest competence
and to provide incentives for their effective service and superior performance.
The purpose of the Plan is to advance the interests of Bancorp and its
shareholders through a deferred compensation program that will attract and
retain key executives.
ARTICLE II
NATURE OF PLAN
This Plan is intended to be and shall be administered by Bancorp as an
income tax nonqualified, unfunded plan primarily for the purpose of providing
deferred compensation for a "select group of management or highly compensated
employees" within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of
the Employee Retirement Income Security Act of 1974, as amended.
ARTICLE III
SPONSORING EMPLOYERS
The corporations whose employees are covered by the Plan (the "Sponsoring
Employers") are Bancorp and those subsidiaries of Bancorp that adopt the U. S.
Bancorp Supplemental Benefits Plan or adopt this Plan.
ARTICLE IV
ELIGIBILITY
Any key executive (including officers who may also be directors) of Bancorp
and the Sponsoring Employers who is (or will be) for one or more calendar years
a participant in the U. S. Bancorp Supplemental Benefits Plan, and any other key
employee of Bancorp or a Sponsoring Employer who is designated by Bancorp's
Executive Management Committee (the "Committee") as eligible to participate in
the Plan for one or more calendar years, shall be eligible to participate in
this Plan ("Eligible Employees").
<PAGE>
ARTICLE V
PARTICIPATION
5.1 ELECTION. An Eligible Employee may participate in the Plan by filing
with Bancorp an election, on a form provided by Bancorp (an "Election"), to
participate in the Plan for one or more calendar years. An Eligible Employee
who makes an Election for a calendar year shall be a "Participant" for such
year. For purposes of this Plan, the period from April 1, 1991, through
December 31, 1991 (the "1991 Plan Year"), shall be treated as a calendar year.
Each Election shall be in a form prescribed by the Manager of Bancorp's Human
Resources Group or his or her delegate (the "Manager"), and shall set forth the
Participant's election to participate in the Plan for one or more calendar
years, the percentage or amount of Compensation (as defined in Section 5.4) to
be deferred for each such calendar year, and a payment method pursuant to
Section 8.1. A Participant may elect to defer all or any specified portion of
Compensation for a calendar year. The portion of a Participant's Compensation
deferred under the Plan shall be referred to as the "Deferred Amount."
5.2 ELECTION FOR 1991 PLAN YEAR. A Participant must file an Election to
defer a specified portion of Compensation during the 1991 Plan Year on or prior
to March 31, 1991.
5.3 TIME FOR FILING ELECTION; AMENDMENT OR TERMINATION OF ELECTION. An
Election to defer Compensation for any calendar year after 1991 must be filed
with the Manager on or before December 31 next preceding such calendar year. An
Election covering one or more calendar years may be amended or terminated by
filing an Amendment or Termination of Deferral Election in a form prescribed by
the Manager not later than December 31 next preceding the first calendar year
covered by such amended or terminated Election. An Election for any calendar
year may not be amended, modified, revoked, or terminated after the beginning of
such calendar year. A Participant who has made an Election covering more than
one calendar year and who ceases to be an Eligible Employee shall be deemed to
have terminated his or her Election for all remaining calendar years covered by
his or her Election which begin after the Participant ceases to be an Eligible
Employee.
5.4 COMPENSATION. For purposes of this Article V, "Compensation" means
regular cash compensation, including any awards or bonuses payable under any
incentive compensation plan or program maintained by the Sponsoring Employers,
other than the plans described in paragraph (d) of this Section 5.4. For
purposes of this Section 5.4, "Compensation" does not include:
(a) employee elected contributions towards the purchase of any
benefit in lieu of cash under the U. S. Bancorp U-Select Plan or any other
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cafeteria plan of Bancorp as defined in Section 125 of the Internal Revenue
Code of 1986 (the "Code");
(b) any employee elected contributions under the U. S. Bancorp
Employee Investment Plan or any other plan under Code Section 401(k);
(c) any other similar employee elected contribution or purchase of
benefits under any plan specifically designated for such purpose by the
Committee; or
(d) incentive compensation under any plan or program of the
Sponsoring Employers which is designated by the Committee as ineligible for
deferral under the Plan.
ARTICLE VI
DEFERRED ACCOUNTS
6.1 DEFERRED ACCOUNTS. All Deferred Amounts shall be withheld and
credited to the Participant's "Deferred Account" at the time the Compensation
would otherwise be payable. Each Deferred Account shall be maintained solely
for recordkeeping purposes.
6.2 INTEREST. With respect to Deferred Amounts credited to a Deferred
Account prior to December 31, 1995, each Deferred Account shall accrue an
additional amount (computed like interest compounded quarterly) from the date
Deferred Amounts are credited to the Deferred Account pursuant to Section 5.1
until:
(a) With respect to Participants for whom payment of their Deferred
Accounts becomes due or commences on or before January 1, 1996, the date of
final payment of the balance of the Deferred Account; and
(b) With respect to all other Participants, December 31, 1995.
The rate of interest during a calendar year shall equal the monthly average
interest rate on five-year Treasury Notes for the month of November prior to
that calendar year, as published in the Federal Reserve Statistical Release G.13
(or a corresponding successor publication as determined by the Committee), plus
75 basis points.
6.3 ADDITIONAL AMOUNTS CREDITED AS GROWTH FACTOR.
(a) General. For all periods beginning on or after January 1, 1996,
each Deferred Account (other than Deferred Accounts in payout status on
December 31, 1995) will accrue an additional amount as described in this
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section ("Growth Factor") from the date Deferred Amounts are credited to
the Deferred Account pursuant to Section 5.1 until the date of final
payment of the balance of the Deferred Account.
(b) Growth Factor. For each Deferred Account, the Growth Factor for
any period will be the amount of investment income that would have been
realized had an amount equal to the total balance of the Deferred Account
as of the first day of the period been invested in the Hypothetical
Investment or Investments (as described in Section 6.3(c)) specified for
that period by the Participant.
(c) Hypothetical Investments. For purposes of measuring Growth
Factor, a Participant may designate one or a combination of Hypothetical
Investments authorized from time to time by, or at the direction of, the
Manager. The Hypothetical Investment or combination of Hypothetical
Investments designated by a Participant will be referred to as the
Participant's "Investment Selection." Pursuant to forms and procedures to
be adopted by or at the direction of the Manager, a Participant may modify
the Investment Section from time to time, effective as of the first day of
any calendar quarter. The Manager may designate a Hypothetical Investment
that will be effective if a Participant does not otherwise make an
effective Investment Selection. A Participant's Investment Selection will
be effective for all amounts credited to the Participant's Deferred
Account, including previous Deferred Amounts and accrued Growth Factor as
well as future Deferred Amounts.
(d) No Beneficial Interest. Hypothetical Investments are solely for
the purpose of determining the amount of Growth Factor to be credited to
Deferred Accounts. The Sponsoring Employers have no obligation to make
actual investments corresponding to the Hypothetical Investments. In the
event that, for measurement purposes, the Sponsoring Employers (directly or
through the U. S. Bancorp Deferred Compensation Trust) make actual
investments corresponding to the Investment Selections of the Participants,
no Participant will have any rights or beneficial interest in such actual
investments greater than the rights of an unsecured creditor of Bancorp or
the Sponsoring Employer.
ARTICLE VII
SOURCE OF BENEFITS
7.1 UNFUNDED PLAN. This Plan and the benefits payable hereunder shall be
unfunded and shall be payable only from the general assets of Bancorp or
Sponsoring Employers. Bancorp and the Sponsoring Employers do not represent
that a specific portion of their assets will be used to provide the benefits
hereunder. Participants or beneficiaries shall not have any interest in any
assets of Bancorp or a
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Sponsoring Employer. Nothing contained herein shall be deemed to create a trust
of any kind or create any fiduciary relationship. To the extent that any person
acquires a right to receive payments from Bancorp or any Sponsoring Employer
under this Plan, such rights shall be no greater than the right of any unsecured
general creditor of Bancorp or such Sponsoring Employer.
7.2 TRUST. Notwithstanding the foregoing, Bancorp and its Sponsoring
Employers may deposit monies under the U. S. Bancorp Deferred Compensation Trust
Agreement (the "Trust") for the purpose of paying benefits hereunder from those
monies and the income thereon, unless such Trust assets are required to satisfy
the obligations of Bancorp and its Sponsoring Employers to their general
creditors.
ARTICLE VIII
PAYMENT OF DEFERRED COMPENSATION
8.1 PAYMENT OPTIONS.
(A) ELECTION. Each Participant shall set forth in each Election an
irrevocable election of one of the methods of payment of the accrued balance of
the Participant's Deferred Account described in Section 8.1(b). If no method of
payment is effectively elected, a Participant's Deferred Account shall be paid
in cash in a single lump sum within 30 days following the Retirement Year.
(B) PAYMENT METHODS. A Participant may elect one of the following payment
methods:
(i) A lump-sum cash payment to be made within 30 days following the
calendar year in which the Participant retires under the U. S. Bancorp
Retirement Plan (the "Retirement Year"); or
(ii) Payment in ten annual installments as described below beginning
within 30 days following the Retirement Year:
(A) The first installment will be an amount equal to one-tenth
of the total balance of the Deferred Account as of the last day of the
Retirement Year;
(B) The second (and subsequent) installments will be an amount
equal to one-ninth (and then one-eighth, etc.) of the total balance of
the Deferred Account as of the end of the calendar year preceding the
installment payment date; and
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(C) The tenth and final installment will be the total remaining
balance of the Deferred Account.
During the 10-year payout period, the Deferred Account will continue to
accrue Growth Factor, and the Participant may continue to make or modify
Investment Selections, as provided in Section 6.3.
8.2 DEATH BENEFIT. If a Participant dies before receiving full payment of
the Deferred Account, the balance shall be paid in a lump-sum cash payment to
the Participant's beneficiary or, if no beneficiary has been effectively
designated, to the Participant's estate within 30 days after a Participant's
death.
8.3 ACCELERATION OF PAYMENT. The Committee, in its sole discretion, may
accelerate payment of the balance of a Deferred Account if a Participant
requests payment and the Committee finds that an unforeseeable emergency exists,
but only to the extent needed to satisfy the emergency. An unforeseeable
emergency is a severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or of a dependent
(as defined in Section 152(a) of the Code) of the Participant, loss of the
Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Participant. The circumstances that will constitute an unforeseeable
emergency will depend upon the facts of each case, but, in any case, payment may
not be made to the extent that such hardship is or may be relieved--
(a) Through reimbursement or compensation by insurance or
otherwise;
(b) By liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial
hardship; or
(c) By cessation of deferrals under the Plan. Examples of what are
not considered to be unforeseeable emergencies include the need to send a
Participant's child to college or the desire to purchase a home.
8.4 TERMINATION. If a Participant ceases to be employed by Bancorp and
its subsidiaries for any reason other than death or retirement, the Committee
shall pay the balance of the Participant's Deferred Account in a lump-sum cash
payment within 30 days after the Participant's termination.
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ARTICLE IX
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
the exclusive authority and responsibility for all matters in connection with
the operation and administration of the Plan. The Committee's powers and duties
shall include, but shall not be limited to, the following:
(a) Responsibility for the compilation and maintenance of all records
necessary in connection with the Plan;
(b) Authorizing the payment of all benefits and expenses of the Plan
as they become payable under the Plan; and
(c) Authority to engage such legal, accounting, and other
professional services as it may deem proper.
Decisions by the Committee shall be final and binding upon all parties
affected by the Plan, including Participants and the beneficiaries of
Participants.
The Committee may rely on information and recommendations provided by
supervisory management. The Committee may delegate to a subcommittee composed
of less than all Committee members or to supervisory management who are not
Committee members the responsibility for decisions that it may make or actions
that it may take under the terms of the Plan, subject to the Committee's
reserved right to review such decisions or actions and modify them when
necessary or appropriate under the circumstances. The Committee shall not allow
any employee to obtain control over decisions or actions that affect that
employee's Plan benefits.
ARTICLE X
MISCELLANEOUS
10.1 NONASSIGNABILITY OF BENEFITS. A Participant's benefits under the
Plan, including the right to receive payment of the Deferred Account, cannot be
sold, transferred, anticipated, assigned, pledged, hypothecated, seized by legal
process, subjected to claims of creditors in any way, or otherwise disposed of.
10.2 GOVERNING LAW. This Plan and any amendments shall be construed,
administered, and governed in all respects in accordance with applicable federal
law and the laws of the State of Oregon.
10.3 NO RIGHT OF CONTINUED EMPLOYMENT. Nothing in the Plan shall confer
upon any person the right to continue in the employ of Bancorp or any
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Sponsoring Employer or interfere in any way with the right of Bancorp or any
Sponsoring Employer to terminate the person's employment at any time.
10.4 WITHHOLDING TAXES. Bancorp or the Sponsoring Employer shall
withhold any taxes required by law to be withheld in connection with payment of
deferred compensation under this Plan. In the event Bancorp or any Sponsoring
Employer shall be required to withhold taxes with respect to amounts deferred
pursuant to the Plan, Bancorp or the Sponsoring Employer shall have the right to
require a Participant to reimburse them for any such taxes.
ARTICLE XI
CLAIMS PROCEDURE
11.1 INITIAL CLAIM. Any person claiming any benefit under this Plan (the
"Claimant") shall present a claim in writing (a "Claim") to the Manager of the
Human Resources Group (the "Manager").
11.2 DECISION ON INITIAL CLAIM.
(a) Time Period for Denial Notice. A decision shall be made on the
Claim as soon as practicable and shall be communicated in writing by the
Manager to the Claimant within a reasonable period after receipt of the
Claim by the Manager. In no event shall the decision on an initial Claim
be given more than 90 days after the date the Claim was filed, unless
special circumstances require an extension of time for processing. If
there is an extension, the Claimant shall be notified of such within 90
days of the date the Claim was filed. The extension notice shall indicate
the special circumstances and the date by which a decision is expected.
The extension shall not exceed 90 days from the end of the initial response
period.
(b) Contents of Notice. If the Claim is wholly or partially
denied, the Claimant shall be given a written notice of denial which shall
indicate:
(1) The specific reasons for the denial;
(2) The specific references to pertinent Plan provisions on
which the denial is based;
(3) A description of additional material or information
necessary for the Claimant to perfect the Claim and an explanation
of why such material or information is necessary; and
(4) An explanation of the Plan's Claim review procedure.
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<PAGE>
(c) Deemed Denied. If written notice of the decision wholly or
partially denying the Claim has not been furnished within 90 days after the
Claim is filed or there has been an extension and no notice of a decision
is furnished by the end of the extension period, and if the Claim has not
been granted within such period, the Claim shall be deemed denied as of the
end of the 90-day or 180-day period for purposes of proceeding to the
review stage described in 11.3 and 11.4.
11.3 REVIEW OF DENIED CLAIM. If a Claimant receives a notice of denial
or his or her Claim is deemed denied pursuant to 11.2 above, the Claimant may
request a review of the Claim. The request for review is made by personally
delivering or mailing a written request for review, prepared by either the
Claimant or his or her authorized representative, to the Committee. The
Claimant's request for review must be made within a reasonable period of time
taking into consideration the nature of the benefit which is the subject of the
Claim and other attendant circumstances. In no event shall the period for
requesting review expire less than 60 days after receipt of the notice of denial
or the date on which the Claim is deemed denied if no notice is received. If
the written request for review is not made on a timely basis, the Claimant shall
be deemed to waive his or her right to review. The Claimant or his or her duly
authorized representative may, at or after the time of making the request,
review all pertinent documents and submit issues and comments in writing.
11.4 DECISION ON REVIEW. A review shall be promptly made by the
Committee after receipt of a timely filed request for review. A decision on
review shall be made and furnished in writing to the Claimant. The decision
shall be made not later than 60 days after receipt of the request for review.
If special circumstances require an extension of time for processing (such as
the need to hold a hearing), a decision shall be made and furnished to the
Claimant not later than 120 days after such receipt. If an extension is
required, the Claimant shall be notified of such within 60 days after the
request for review was filed. The written decision shall include the reasons
for such decision with reference to the provisions of the Plan upon which the
decision is based. The decision shall be final and binding upon the Claimant
and Bancorp and its subsidiaries and all other persons involved. If the
decision on review is not furnished within the applicable time period, the Claim
shall be deemed denied on review.
The scope of any subsequent review of the benefit Claim, judicial or
otherwise, shall be limited to a determination as to whether the Committee acted
arbitrarily or capriciously in the exercise of its discretion. In no event
shall any such further review be on a de novo basis as the Committee has
discretionary authority to determine eligibility for benefits and to construe
the terms of this Plan.
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ARTICLE XII
AMENDMENTS AND TERMINATION
Bancorp's Board of Directors has the power to terminate this Plan at any
time or to amend this Plan at any time and in any manner that it may deem
advisable. In the event of termination of the Plan, compensation deferred
pursuant to the Plan prior to the effective date of the termination shall
continue to be subject to the provisions of the Plan as if the Plan had not been
terminated.
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U. S. BANCORP
1991 EXECUTIVE DEFERRED COMPENSATION PLAN
FIRST RESTATEMENT
FIRST AMENDMENT
THIS FIRST AMENDMENT is adopted by U. S. Bancorp, an Oregon corporation
("Bancorp"), effective October 15, 1992.
RECITALS
A. Bancorp adopted the First Restatement of the U. S. Bancorp 1991
Deferred Compensation Plan (the "Plan") effective February 21, 1991; and
B. Bancorp desires to amend the Plan effective October 15, 1992.
AMENDMENT
Pursuant to Article XII of the Plan, Bancorp amends the Plan effective
October 15, 1992, as follows:
ARTICLE V - PARTICIPATION
Section 5.4 is revised at pages 3, 4, and 4a.
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U. S. BANCORP
1991 EXECUTIVE DEFERRED COMPENSATION PLAN
FIRST RESTATEMENT
SECOND AMENDMENT
THIS SECOND AMENDMENT is adopted by U. S. Bancorp, an Oregon corporation
("Bancorp"), effective December 15, 1992.
RECITALS
A. Bancorp adopted the First Restatement of the U. S. Bancorp 1991
Deferred Compensation Plan (the "Plan") effective February 21, 1991;
B. Bancorp previously amended the Plan effective October 15, 1992; and
C. Bancorp desires to further amend the Plan effective December 15,
1992.
AMENDMENT
Pursuant to Article XII of the Plan, Bancorp amends the Plan effective
December 15, 1992, as follows:
(1) Article IV is revised at page 2.
(2) Sections 5.1 and 5.3 of Article V are revised at pages 2, 3,
and 3a.
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U. S. BANCORP
1991 EXECUTIVE DEFERRED COMPENSATION PLAN
FIRST RESTATEMENT
THIRD AMENDMENT
THIS THIRD AMENDMENT is adopted by U. S. Bancorp, an Oregon corporation
("Bancorp"), effective November 16, 1995.
RECITALS
A. Bancorp adopted the First Restatement of the U. S. Bancorp 1991
Deferred Compensation Plan (the "Plan") effective February 21, 1991;
B. Bancorp previously amended the Plan effective October 15, 1992, and
December 15, 1992; and
C. Bancorp desires to further amend the Plan effective November 16,
1995.
AMENDMENT
Pursuant to Article XII of the Plan, Bancorp amends the Plan effective
November 16, 1995, as follows:
(1) Articles III and IV are revised at page 2.
(2) Section 5.4(d) of Article V is revised at page 4.
(3) Section 6.2 of Article VI is revised at page 4a.
(4) New Section 6.3 is added to Article VI at pages 5, 5a, and 5b.
(5) Section 8.1 of Article VIII is amended at pages 6 and 6a.
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U. S. BANCORP
DEFERRED COMPENSATION
TRUST AGREEMENT
THIS TRUST AGREEMENT effective January 1, 1990, between U. S. BANCORP,
(hereinafter called "Trustor"), and UNITED STATES NATIONAL BANK OF OREGON,
(hereinafter called "Trustee"),
W I T N E S S E T H :
WHEREAS, certain employees of Trustor and certain of its affiliates
(hereinafter called "Employees" and "Employers" respectively) and certain
members of the boards of directors of Employers (hereinafter called
"Directors") are entitled to benefits (hereinafter called "Benefits") under
certain income tax nonqualified, unfunded plans (hereinafter called "Plans")
and individual employment agreements (hereinafter called "Agreements"); and
WHEREAS, the amount and the timing of payments to Employees, Directors, and
their surviving spouses or other beneficiaries, if any, (hereinafter
individually and collectively called "Trust Beneficiaries") of Benefits to which
they are entitled, are specified in the Plans and Agreements which are listed in
Exhibit A and attached hereto as Exhibits B through I and by this reference are
made a part hereof; and
WHEREAS, Trustor wishes to establish a trust (hereinafter called the
"Trust") so that each Employer that, by resolution of its board of directors,
agrees to be bound to the terms of this Trust may, in its discretion, transfer
to the Trust assets which shall be held therein, subject to the claims of such
Employer's general creditors in the event such Employer becomes Insolvent (as
defined in Section 3.1), until paid to
<PAGE>
Trust Beneficiaries as Benefits in such manner and at such times as specified in
the Plans and Agreements;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held, and disposed of as follows:
ARTICLE I
TRUST FUND
1.1 INITIAL PRINCIPAL. Subject to the claims of its general creditors as
set forth in Article III, Trustor hereby deposits with Trustee in trust One
Dollar ($1.00), which shall become the initial principal of the Trust to be
held, administered and disposed of by Trustee as provided in this Trust
Agreement.
1.2 DATE TRUST IS IRREVOCABLE. The Trust hereby established shall be
revocable in writing by Trustor at any time until the earliest of: (i) thirty
(30) days following the issuance by the Internal Revenue Service of tax rulings
requested by Trustor in conjunction with the establishment of this Trust; or
(ii) the date of a change in control of Trustor. Thereafter, this Trust shall
be irrevocable.
1.3 SEPARATE FUND. The principal of the Trust, and any earnings thereon
which are not paid to an Employer as provided in Article IV, shall be held
separate and apart from other funds of Employers and shall be used exclusively
for the uses and purposes herein set forth.
1.4 UNSECURED CONTRACTUAL CLAIMS. Neither the Trust Beneficiaries, nor
the Plans and Agreements, shall have any preferred claim on, or any beneficial
ownership or interest in, any assets of the Trust prior to the time such assets
are paid
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to the Trust Beneficiaries as Benefits as provided in Article II. All rights
created under the Plans and Agreements and this Trust Agreement shall be mere
unsecured contractual rights of the Trust Beneficiaries against the respective
Employer.
1.5 EMPLOYER DEPOSITS OF CASH IN TRUST. Each Employer may, in its sole
discretion, make deposits of cash in trust with the Trustee from time to time
(including when a change in control occurs) to provide for the projected
Benefits of the Trust Beneficiaries. These deposits shall be held, administered
and disposed of by Trustee as provided in this Trust Agreement. Trustee shall
establish and maintain a separate account with respect to each Employer
(hereinafter called an "Account") to which such Employer's contributions are
credited pursuant to 6.2.
ARTICLE II
PAYMENTS TO TRUST BENEFICIARIES
2.1 TRUSTEE MAKES PAYMENTS IF EMPLOYER IS NOT INSOLVENT AND EMPLOYER IS
NOT MAKING PAYMENTS. Trustee shall make payments of Benefits to Trust
Beneficiaries in accordance with the Plans and Agreements from the Account of
the Employer which is responsible for the Benefit liability, provided (i) such
Employer is not Insolvent as defined in Section 3.1 and (ii) such Employer is
not making payment of such Benefits.
2.2 TRUST BENEFICIARIES HAVE NO RIGHTS AGAINST TRUST IF TRUST FUNDS NOT
SUFFICIENT. If an Employer's Account is not sufficient to make payments of
Benefits to Trust Beneficiaries pursuant to Section 2.1, such Trust
Beneficiaries shall have no further rights against this Trust.
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ARTICLE III
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO
TRUST BENEFICIARIES WHEN EMPLOYER INSOLVENT
3.1 DEFINITION OF INSOLVENT. An Employer shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) the Employer is unable to pay its
debts as they mature, or (ii) the Employer is a debtor in a case under the
Bankruptcy Code or a receiver is appointed for the Employer.
3.2 TRUST FUNDS SUBJECT TO CLAIMS OF GENERAL CREDITORS. At all times
during the continuance of this Trust, an Employer's Account shall be subject to
claims of general creditors of the Employer as hereinafter set forth. At any
time Trustee has determined pursuant to Section 3.4 that an Employer is
Insolvent, Trustee shall deliver the Employer's Account to satisfy such claims
as a court of competent jurisdiction may direct.
3.3 DUTY OF BOARD TO NOTIFY TRUSTEE OF EMPLOYER INSOLVENCY. The board of
directors of an Employer and its chief executive officer shall immediately
notify the Trustee in writing if that Employer becomes Insolvent.
3.4 TRUSTEE DUTY TO DISCONTINUE PAYMENTS AND INDEPENDENTLY DETERMINE
INSOLVENCY. On receipt of such notice or any other written allegation of an
Employer's Insolvency (such as from a creditor), Trustee shall independently
determine, within thirty (30) days after receipt of such notice, whether the
Employer is Insolvent. Pending such determination, Trustee (i) shall
discontinue payments of Benefits to Trust Beneficiaries of that Employer, (ii)
shall hold the Trust assets
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allocable to that Employer for the benefit of the affected Employer's creditors,
and (iii) shall resume payments of Benefits to Trust Beneficiaries of that
Employer in accordance with Article II of this Trust Agreement only after
Trustee has determined that the affected Employer is not Insolvent (or is no
longer Insolvent, if Trustee initially determined the Employer to be Insolvent).
In the event that an involuntary petition in bankruptcy or an application for
appointment of a receiver is filed, the Trustee shall be entitled to delay
determination of whether the Employer is Insolvent and not resume payments until
the court or agency determines whether an order for relief should be entered or
a receiver should be appointed. In such event, the Trustee shall abide by the
determination of the court or agency.
3.5 TRUSTEE DETERMINATION OF EMPLOYER INSOLVENCY. Unless Trustee has
actual knowledge or has received other written allegation of an Employer's
Insolvency as provided in Sections 3.3 and 3.4, Trustee shall have no duty to
inquire whether an Employee is Insolvent. Trustee may in all events rely on
such evidence concerning an Employer's solvency as may be furnished to Trustee
which will give Trustee a reasonable basis for making a determination concerning
an Employer's solvency. For purposes of this Trust Agreement, Trustee shall be
considered to possess only such knowledge or information concerning an Employer
as is in the possession of Trustee's trust department. In particular, Trustee
shall not be considered to possess any knowledge or information that is in
possession of Trustee's other departments.
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3.6 RIGHTS OF TRUST BENEFICIARIES AS CREDITORS OF AN EMPLOYER. Nothing in
this Trust Agreement shall in any way diminish any rights of Trust Beneficiaries
to pursue their rights as creditors of an Employer with respect to Benefits or
otherwise.
3.7 AMOUNT OF FIRST PAYMENT AFTER DISCONTINUANCE. If Trustee discontinues
payments of Benefits to Trust Beneficiaries of an Employer pursuant to Section
3.4 and subsequently resumes such payments, the first payment following the
discontinuance shall include the difference (together with interest thereon as
defined below) between: (i) the aggregate amount of all payments that would
have been made to the Trust Beneficiaries in accordance with the Plans and
Agreements during the period of the discontinuance, and (ii) the aggregate
amount of payments made to Trust Beneficiaries by the affected Employer in lieu
of the payments provided for hereunder during any such period of discontinuance.
The rate of interest during a calendar year shall initially equal the monthly
average interest rate on five-year Treasury Notes for the month of November
prior to that calendar year as published in the Federal Reserve Statistical
Release G.13, plus 75 basis points. This rate of interest may be changed from
time to time by Trustor. Trustor shall provide Trustee with advance written
notice of changes in this rate of interest.
ARTICLE IV
PAYMENTS TO EMPLOYERS
An Employer shall have no right or power to direct Trustee to return to the
Employer or to divert to others any portion of the other Employers' Accounts.
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Except as provided below and in Sections 1.2 and 10.4, an Employer shall have no
right or power to direct Trustee to return to the Employer or to divert to
others any of the Employer's Account before all payments of Benefits for which
that Employer is responsible have been made to Trust Beneficiaries pursuant to
the Plans and Agreements. In the event that the Employer's Account exceeds 125
percent of the present value (determined by an actuary in accordance with
Section 7.3) of the accrued Benefits of such Employer's Trust Beneficiaries, all
or a part of the Employer's Account in excess of 125 percent may, at the
discretion of the Employer, be returned to the Employer, unless the Trustee
determines otherwise to protect the Trust Beneficiaries.
ARTICLE V
INVESTMENT OF TRUST FUNDS
Prior to a change in control of Trustor, Trustee shall invest the mingled
principal contributed by Employers to the Trust, and any earnings thereon, as
Trustor prescribes, other than in securities or obligations issued by Trustor.
The Trustee shall act only as administrative agent in carrying out directed
investment transactions and shall not be responsible for investment decisions.
If a directed investment transaction violates any duty to diversify, to maintain
liquidity, or to meet any other investment standard under this Trust or
applicable law, the entire responsibility shall rest upon Trustor. Trustee
shall be fully protected in acting upon or complying with any investment
objectives, guidelines, restrictions, or directions provided by Trustor in
accordance with this paragraph. If Trustor does
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<PAGE>
not respond to Trustee's written request for investment direction, Trustee shall
direct investment of the Trust fund.
After a change in control of Trustor, Trustee shall direct investment of
the Trust fund. Trustor shall no longer be entitled to direct Trustee with
respect to investment of the Trust fund, unless the written consent of a
majority of Trust Beneficiaries is obtained. If such written consent is not
obtained, the Trust fund shall be invested by Trustee in accordance with
Section 7.1.
ARTICLE VI
ACCOUNTING BY TRUSTEE
6.1 TRUSTEE RECORDKEEPING RESPONSIBILITIES. Trustee shall keep accurate
and detailed records of all investments, receipts, disbursements, and all other
transactions required to be done, including such specific records as shall be
agreed upon in writing between Trustor and Trustee.
6.2 EMPLOYER ACCOUNTS. An Employer's contributions to the Trust shall be
credited to the Employer's Account. Also, each Employer's Account will be
credited with its proportionate share of Trust earnings (as of each December 31
or such other valuation date as determined by the Trustee) based on the average
amount of moneys in such Account throughout the valuation period. An Employer's
Account will be debited with its proportionate share of general Trust expenses
based on the average amount of moneys in such Account throughout the expense
period (or such other method as determined by the Trustee to be a reasonably
equitable method of allocating general Trust expenses). An Employer's Account
will also be
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debited with expenses specifically allocable to that Account, such as the
payment of Benefits arising from employment with that Employer.
6.3 INSPECTION OF BOOKS AND RECORDS. All such Accounts, books and records
shall be open to inspection and audit at all reasonable times by Trustor and
Employers.
6.4 ANNUAL ACCOUNTING BY TRUSTEE. Within sixty (60) days following the
close of each calendar year and within sixty (60) days after the removal or
resignation of Trustee, Trustee shall deliver to Trustor a written account of
its administration of the Trust during such year or during the period from the
close of the last accounting period to the date of such removal or resignation,
setting forth all investments, receipts, disbursements and other transactions
effected by it, including a description of all securities and investments
purchased and sold with the cost or net proceeds of such purchases or sales
(accrued interest paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust at the end of such year or
as of the date of such removal or resignation, as the case may be.
ARTICLE VII
RESPONSIBILITY OF TRUSTEE
7.1 PRUDENT MAN RULE. In acquiring, investing, reinvesting, exchanging,
retaining, selling and managing property for the benefit of another, Trustee
shall exercise the judgment and care under the circumstances then prevailing,
which persons of prudence, discretion and intelligence exercise in the
management of their
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own affairs, not in regard to speculation but in regard to the permanent
disposition of their funds, considering the probable income as well as the
probable safety of their capital.
7.2 INDEMNIFICATION FOR LITIGATION COSTS. Trustee shall not be required
to undertake or to defend any litigation arising in connection with this Trust
Agreement, unless it be first indemnified by the affected Employer against its
prospective costs, expenses and liability, including reasonable attorneys' fees,
and the Employers hereby agree to indemnify Trustee for such costs, expenses,
and liability. In no event shall Employers indemnify Trustee for litigation
for breach of Trustee's responsibilities under this Trust Agreement.
7.3 ADVICE TO ACTUARY. The Trustee may consult with an actuary in order
to determine whether (based upon reasonable actuarial assumptions) certain Trust
assets exceed 125 percent of the present value of the accrued Benefits under
Article IV, and shall be fully protected in acting or refraining from acting in
accordance with the advice of such actuary. Prior to a change in control of
Trustor, the actuary shall be selected by Trustor. After a change in control of
Trustor, the actuary shall be selected by Trustee, provided the Trustor may
select the actuary with written consent of a majority of Trust Beneficiaries.
7.4 AUTHORITY TO HIRE. Trustee may hire, at the expense of the Trust,
agents, accountants, legal counsel, actuaries and financial consultants, subject
to Trustor's prior approval in writing. Trustee shall have no power to conduct
a business under the provisions of this Trust.
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7.5 GENERAL POWERS. Except as provided in Section 7.6, Trustee shall
have, without exclusion, all powers conferred on trustees by applicable law
unless expressly provided otherwise herein.
7.6 INSURANCE POLICIES. If an insurance policy is held as an asset of the
Trust, Trustee shall have no power, except in accordance with Section 1.2 or
Article IV hereof, to name a beneficiary of the policy other than the Trust, to
assign the policy (as distinct from conversion of the policy to a different
form) other than to a successor Trustee, or to loan to any person the proceeds
of any borrowing against such policy.
7.7 DOCUMENTS PROVIDED TO TRUSTEE. Trustor shall provide to Trustee with
copies of the following documents: (i) the Plans and Agreements; (ii) all
amendments to Plans and Agreements; and (iii) a list, updated annually, of all
employees who participate in each Plan and Agreement under this Trust Agreement.
ARTICLE VIII
COMPENSATION AND EXPENSES OF TRUSTEE
Trustee shall receive such reasonable compensation for its services as
shall be agreed upon in writing by Trustor and Trustee, including Trustee's
reasonable expenses incurred with respect to the administration of the Trust.
Trustee shall notify Trustor periodically of expenses and fees and Trustor may
elect to pay them and may allocate the cost among the Employers. Otherwise the
compensation and expenses shall be charged to the Trust to the extent permitted
by law.
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ARTICLE IX
REPLACEMENT OF TRUSTEE
9.1 RESIGNATION AND REMOVAL. Trustee may resign at any time by written
notice to Trustor, which shall be effective in 60 days or on such earlier or
later date agreed to by Trustor and Trustee. Upon a change of control of
Trustor, United States National Bank of Oregon shall resign as Trustee.
Trustee may be removed at any time by Trustor by written notice.
9.2 APPOINTMENT OF SUCCESSOR. Trustor shall appoint a national or state
bank or trust company that is independent of Trustor as a successor to replace
Trustee upon resignation or removal. The appointment shall be effective when
accepted in writing by the successor Trustee.
ARTICLE X
AMENDMENT OR TERMINATION
10.1 AMENDMENT. Prior to a change in control of Trustor, this Trust
Agreement may be amended any time and to any extent by a written instrument
executed by Trustor. In particular, Trustor may amend this Trust Agreement to
change the Plans and Agreements subject to it.
After a change in control of Trustor, this Trust Agreement may be amended
only with (i) the written consent of a majority of the Trust Beneficiaries on
the date of such amendment, (ii) as required to obtain a favorable ruling from
the Internal Revenue Service with respect to the tax consequences of this Trust,
or (iii) as necessary to obtain an opinion of counsel that the Trust does not
cause the Plans
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and Agreements to be funded deferred compensation arrangements. In particular,
Trustor may not amend this Trust Agreement to add any additional Plans or
Agreements or Trust Beneficiaries unless a separate Employer's Account is
provided for such additional Trust Beneficiaries. Notwithstanding the
foregoing, any Trust amendment may be made by written consent of Trustor and
Trustee without written consent of a majority of the Trust Beneficiaries if such
amendment will not have a material adverse effect on the rights of the Trust
Beneficiary.
10.2 TERMINATION. Unless revoked sooner pursuant to Section 1.2, this
Trust shall not terminate until the date on which (i) Trust Beneficiaries are
entitled to no more Benefits, (ii) the Trust assets are exhausted, or (iii) the
Trust terminates pursuant to Section 11.1.
10.3 DISTRIBUTION OF ASSETS UPON TERMINATION. Upon termination of the
Trust as provided in Section 10.2, any assets remaining in the Trust shall be
returned to the Employers based on each Employer's Account.
10.4 SALE OF DISPOSITION OF EMPLOYER. In the event of a sale or
disposition of an Employer any assets remaining in the Employer's Account shall
remain in this Trust.
10.5 CHANGE IN CONTROL. For purposes of this Trust, a change in control
of Trustor shall be deemed to have occurred upon receipt by Trustee of written
notice to that effect or that a potential change in control has occurred from
Trustor's board of directors.
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ARTICLE XI
SEVERABILITY AND ALIENATION
11.1 SEVERABILITY. Any provision of this Trust Agreement prohibited by
law shall be ineffective to the extent of such prohibition without invalidating
the remaining provisions of the Trust; except that if the remaining provisions
of the Trust would not substantially achieve the purpose of Trustor in
establishing this Trust, then this Trust shall terminate.
11.2 ALIENATION. The right of a Trust Beneficiary to receive payments
under this Agreement may not be anticipated, assigned (either at law or equity),
pledged, alienated or subject to attachment, garnishment, levy, execution or
other legal or equitable process.
ARTICLE XII
GOVERNING LAW
This Trust Agreement shall be governed by and construed in accordance with
the laws of Oregon.
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WEST ONE BANCORP
1991 PERFORMANCE AND EQUITY INCENTIVE PLAN
AS AMENDED AND RESTATED
EFFECTIVE FEBRUARY 27, 1991
<PAGE>
WEST ONE BANCORP
1991 PERFORMANCE AND EQUITY INCENTIVE PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT; AMENDMENT AND RESTATEMENT. West One Bancorp
("Corporation") established the West One Bancorp 1991 Performance and Equity
Incentive Plan (the "Plan"), effective as of January 17, 1991, and amended and
restated the Plan as set forth herein effective February 27, 1991, subject to
shareholder approval as provided in Article 18.
1.2 PURPOSE. The purpose of the Plan is to promote and advance the
interest of Corporation and its shareholders by enabling Corporation to attract,
retain, and reward key employees and directors of Corporation and its
subsidiaries. It is also intended to strengthen the mutuality of interests
between such employees and directors and Corporation's shareholders. The Plan
is designed to meet this intent by offering performance-based stock and cash
incentives and other equity-based incentive awards, thereby providing a
proprietary interest in pursuing the long-term growth, profitability, and
financial success of Corporation.
ARTICLE 2
DEFINITIONS
2.1 DEFINED TERMS. For purposes of the Plan, the following terms
shall have the meanings set forth below:
"AWARD" means an award or grant made to a Participant of the Options,
Stock Appreciation Rights, Restricted Awards, Performance Awards, or Other
Stock-Based Awards pursuant to the Plan.
"AWARD AGREEMENT" means an agreement as described in Section 6.3.
"BOARD" means the Board of Directors of Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor thereto, together with rules,
regulations, and interpretations promulgated thereunder. Where the context so
requires, any reference to a particular Code Section shall be construed to refer
to the successor provision to such Code section.
"COMMITTEE" means the committee appointed by the Board to administer
the Plan as provided in Article 3 of the Plan.
<PAGE>
"COMMON STOCK" means the Common Stock, $1.00 par value, of Corporation
or any security of Corporation issued in substitution, exchange, or lieu
thereof.
"CONTINUING RESTRICTION" means a Restriction contained in
Sections 6.4(g), 17.4, 17.5, and 17.7 of the Plan and any other Restrictions
expressly designated by the Committee in an Award Agreement as a Continuing
Restriction.
"CORPORATION" means West One Bancorp, an Idaho corporation, or any
successor corporation.
"DEFERRED COMPENSATION OPTION" means a Nonqualified Option granted
with an option price less than Fair Market Value on the date of grant pursuant
to Section 7.9 of the Plan.
"DISABILITY" means disability as determined by the Committee in
accordance with standards and procedures similar to those under Corporation's
long-term disability plan. However, the Committee may change the foregoing
definition of "Disability" or may adopt a different definition for purposes of
specific Awards.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute. Where the context so
requires, any reference to a particular section of the Exchange Act, or to any
rule promulgated under the Exchange Act, shall be construed to refer to
successor provisions to such section or rule.
"FAIR MARKET VALUE" means on any given date, the average of the high
and low sale prices of Common Stock, as reported for such date by the National
Market System of the NASDAQ (or such exchange on which the Common Stock may be
listed) or, if Common Stock was not traded on such date, on the next preceding
day on which Common Stock was traded.
"INCENTIVE STOCK OPTION" or "ISO" means any Option granted pursuant to
the Plan that is intended to be and is specifically designated in its Award
Agreement as an "incentive stock option" within the meaning of Section 422A of
the Code.
"NON-EMPLOYEE BOARD DIRECTOR" means a member of the Board who is not
an employee of Corporation or any Subsidiary.
"NON-EMPLOYEE DIRECTOR" means either a Non-Employee Board Director or
a Non-Employee Subsidiary Director.
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"NON-EMPLOYEE SUBSIDIARY DIRECTOR" means a member of the board of
directors of a Subsidiary who is neither an employee of Corporation or a
Subsidiary nor a member of the Board.
"NON-QUALIFIED OPTION" or NQO" means any Option, including a Deferred
Compensation Option, granted pursuant to the Plan that is not an Incentive Stock
Option.
"OPTION" means an ISO, an NQO, or a Deferred Compensation Option.
"PARTICIPANT" means an employee of Corporation or a Subsidiary or a
Non-Employee Director who is granted an Award under the Plan.
"PERFORMANCE AWARD" means an Award granted pursuant to the provisions
of Article 10 of the Plan, the Vesting of which is contingent on performance
attainment.
"PERFORMANCE CYCLE" means a designated performance period pursuant to
the provisions of Section 10.3 of the Plan.
"PERFORMANCE GOAL" means a designated performance objective pursuant
to the provisions of Section 10.4 of the Plan.
"PLAN" means this West One Bancorp 1991 Performance and Equity
Incentive Plan, as set forth herein and as it may be hereafter amended and from
time to time in effect.
"REPORTING PERSON" means a Participant who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
"RESTRICTED AWARD" means a Restricted Share or a Restricted Unit
granted pursuant to Article 9 of the Plan.
"RESTRICTED SHARE" means an Award described in Section 9.1(a) of the
Plan.
"RESTRICTED UNIT" means an Award of units representing Shares
described in Section 9.1(b) of the Plan.
"RESTRICTION" means a provision in the Plan or in an Award Agreement
which limits the exercisability or transferability, or which governs the
forfeiture, of an Award or the Shares, cash, or other property payable pursuant
to an Award.
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"RETIREMENT" means:
(a) for Participants who are employees, retirement from active
employment with Corporation and its Subsidiaries on or after the normal
retirement date specified in Corporation's retirement plan for salaried
employees or such earlier retirement date as approved by the Committee for
purposes of the Plan; and
(b) for Participants who are Non-Employee Directors, retirement from
the applicable board of directors after attaining the maximum age specified
in the articles of incorporation or bylaws of the applicable corporation.
However, the Committee may change the foregoing definition of "Retirement" or
may adopt a different definition for purposes of specific Awards.
"SHARE" means a share of Common Stock.
"STOCK APPRECIATION RIGHT" or "SAR" means an Award to benefit from the
appreciation of Common Stock granted pursuant to the provisions of Article 8 of
the Plan.
"SUBSIDIARY" means a "subsidiary corporation" of Corporation, within
the meaning of Section 425 of the Code, namely any corporation in which
Corporation directly or indirectly controls 50 percent or more of the total
combined voting power of all classes of stock having voting power.
"VEST" or "VESTED" means:
(a) In the case of an Award that requires exercise, to be or to
become immediately and fully exercisable and free of all Restrictions
(other than Continuing Restrictions);
(b) In the case of an Award that is subject to forfeiture, to be or
to become nonforfeitable, freely transferable, and free of all Restrictions
(other than Continuing Restrictions);
(c) In the case of an Award that is required to be earned by
attaining specified Performance Goals, to be or to become earned and
nonforfeitable, freely transferable, and free of all Restrictions (other
than Continuing Restrictions); or
(d) In the case of any other Award as to which payment is not
dependent solely upon the exercise of a right, election, exercise, or
option, to
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be or to become immediately payable and free of all Restrictions
(except Continuing Restrictions).
2.2 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine or feminine terminology used in the Plan shall also
include the opposite gender; and the definition of any term in Section 2.1 in
the singular shall also include the plural, and vice versa.
ARTICLE 3
ADMINISTRATION
3.1 GENERAL. The Plan shall be administered by a Committee composed
as described in Section 3.2.
3.2 COMPOSITION OF THE COMMITTEE. The Committee shall be appointed
by the Board and shall consist of not less than a sufficient number of
disinterested members of the Board so as to qualify the Committee to administer
the Plan as contemplated by Rule 16b-3 under the Exchange Act, or any successor
or replacement rule. The Board may from time to time remove members from, or
add members to, the Committee. Vacancies on the Committee, however caused,
shall be filled by the Board. The initial members of the Committee shall be the
members of the Corporation's existing Compensation and Benefits Committee. The
Board may at any time replace the Compensation and Benefits Committee with
another Committee. In the event that the Compensation and Benefits Committee
shall cease to satisfy the requirements of Rule 16b-3, the Board shall appoint
another Committee satisfying such requirements.
3.3 AUTHORITY OF THE COMMITTEE. The Committee shall have full power
and authority (subject to such orders or resolutions as may be issued or adopted
from time to time by the Board) to administer the Plan in its sole discretion,
including the authority to:
(a) Construe and interpret the Plan and any Award Agreement;
(b) Promulgate, amend, and rescind rules and procedures relating to
the implementation of the Plan;
(c) Select the employees and Non-Employee Subsidiary Directors who
shall be granted Awards;
(d) Determine the number and types of Awards to be granted to each
Participant;
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(e) Determine the number of Shares, or Share equivalents, to be
subject to each Award;
(f) Determine the option price, purchase price, base price, or
similar feature for any Award; and
(g) Determine all the terms and conditions of all Award Agreements,
consistent with the requirements of the Plan.
Decisions of the Committee, or any delegate as permitted by the Plan, shall be
final, conclusive, and binding on all Participants.
3.4 ACTION BY THE COMMITTEE. A majority of the members of the
Committee shall constitute a quorum for the transaction of business. Action
approved by a majority of the members present at any meeting at which a quorum
is present, or action in writing by a majority of the members of the Committee,
shall be the valid acts of the Committee.
3.5 DELEGATION. Notwithstanding the foregoing, the Committee may
delegate to one or more officers of Corporation the authority to determine the
recipients, types, amounts, and terms of Awards granted to Participants who are
not Reporting Persons.
3.6 LIABILITY OF COMMITTEE MEMBERS. No member of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan, any Award, or any Participant.
3.7 AWARDS TO NON-EMPLOYEE BOARD MEMBERS. The Committee shall have
no discretion as to any aspects of Awards to Non-Employee Board Directors which
shall be governed by Article 14.
3.8 COSTS OF PLAN. The costs and expenses of administering the Plan
shall be borne by Corporation.
ARTICLE 4
DURATION OF THE PLAN AND SHARES SUBJECT TO THE PLAN
4.1 DURATION OF THE PLAN. The Plan is effective January 17, 1991,
subject to approval by Corporation's shareholders as provided in Article 18.
The Plan shall remain in effect until Awards have been granted covering all the
available Shares or the Plan is otherwise terminated by the Board. Termination
of the Plan shall not affect outstanding Awards.
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4.2 SHARES SUBJECT TO THE PLAN. The shares which may be made
subject to Awards under the Plan shall be Shares of Common Stock, which may
be either authorized and unissued Shares or reacquired Shares. No fractional
Shares shall be issued under the Plan. The maximum number of Shares for
which Awards may be granted under the Plan shall be 850,000 Shares, plus any
Shares available for grant under Corporation's existing Executive Incentive
Program, subject to adjustment pursuant to Article 15. If an Award under the
Plan or under the Executive Incentive Program is canceled or expires for any
reason prior to having been fully Vested or exercised by a Participant or is
settled in cash in lieu of Shares or is exchanged for other Awards, all
Shares covered by such Awards shall be made available for future Awards under
the Plan. Furthermore, any Shares used as full or partial payment to
Corporation by a Participant of the option, purchase, or other exercise price
of an Award and any Shares covered by a Stock Appreciation Right which are
not issued upon exercise shall become available for future Awards.
ARTICLE 5
ELIGIBILITY
5.1 EMPLOYEES AND NON-EMPLOYEE SUBSIDIARY DIRECTORS. Officers and
other key employees of Corporation and its Subsidiaries (who may also be
directors of Corporation or a Subsidiary) and Non-Employee Subsidiary Directors
who, in the Committee's judgment, are or will be contributors to the long-term
success of Corporation shall be eligible to receive Awards under the Plan.
5.2 NON-EMPLOYEE BOARD DIRECTORS. All Non-Employee Board Directors
shall be eligible to receive Awards pursuant to Article 14 of the Plan.
ARTICLE 6
AWARDS
6.1 TYPES OF AWARDS. The types of Awards that may be granted under
the Plan are:
(a) Options governed by Article 7 of the Plan;
(b) Stock Appreciation Rights governed by Article 8 of the Plan;
(c) Restricted Awards governed by Article 9 of the Plan;
(d) Performance Awards governed by Article 10 of the Plan; and
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(e) Other Stock-Based Awards or Combination Awards governed by
Article 11 of the Plan.
In the discretion of the Committee, any Award may be granted alone, in addition
to, or in tandem with other Awards under the Plan.
6.2 GENERAL. Subject to the limitations of the Plan, the Committee
may cause Corporation to grant Awards to such Participants, at such times, of
such types, in such amounts, for such periods, with such option prices, purchase
prices, or base prices, and subject to such terms, conditions, limitations, and
restrictions as the Committee, in its discretion, shall deem appropriate.
Awards may be granted as additional compensation to a Participant or in lieu of
other compensation to such Participant. A Participant may receive more than one
Award and more than one type of Award under the Plan.
6.3 NONUNIFORM DETERMINATIONS. The Committee's determinations under
the Plan or under one or more Award Agreements, including without limitation,
(a) the selection of Participants to receive Awards, (b) the type, form, amount,
and timing of Awards, (c) the terms of specific Award Agreements, and
(d) elections and determinations made by the Committee with respect to exercise
or payments of Awards, need not be uniform and may be made by the Committee
selectively among Participants and Awards, whether or not Participants are
similarly situated.
6.4 AWARD AGREEMENTS. Each Award shall be evidenced by a written
Award Agreement between Corporation and the Participant. Award Agreements may,
subject to the provisions of the Plan, contain any provision approved by the
Committee.
6.5 PROVISIONS GOVERNING ALL AWARDS. All Awards shall be subject to
the following provisions:
(a) ALTERNATIVE AWARDS. If any awards are designated in their
Award Agreements as alternative to each other, the exercise of all or
part of one Award automatically shall cause an immediate equal (or pro
rata) corresponding termination of the other alternative Award or
Awards.
(b) RIGHTS AS SHAREHOLDERS. No Participant shall have any
rights of a shareholder with respect to Shares subject to an Award
until such Shares are issued in the name of the Participant.
(c) EMPLOYMENT RIGHTS. Neither the adoption of the Plan nor the
granting of any Award shall confer on any person the right to
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continued employment with Corporation or any Subsidiary or the right
to remain as a director of Corporation or any Subsidiary, as the case
may be, nor shall it interfere in any way with the right of
Corporation or a Subsidiary to terminate such person's employment or
to remove such person as a director at any time for any reason, with
or without cause.
(d) NONTRANSFERABLE. Each Award (other than Restricted Shares
after they Vest) shall not be transferable otherwise than by will or
the laws of descent and distribution and shall be exercisable (if
exercise is required) during the lifetime of the Participant, only by
the Participant or, in the event the Participant becomes legally
incompetent, by the Participant's guardian or legal representative.
(e) TERMINATION OF EMPLOYMENT. The terms and conditions under
which an Award may be exercised, if at all, after a Participant's
termination of employment or service as a Non-Employee Director shall
be determined by the Committee and specified in the applicable Award
Agreement.
(f) CHANGE IN CONTROL. The Committee, in its discretion, may
provide in any Award Agreement that in the event of a change in
control of Corporation (as the Committee may define such term in the
Award Agreement), as of the date of such change in control:
(i) All, or a specified portion of, Awards requiring exercise
shall become fully and immediately exercisable, notwithstanding any
other limitations on exercise;
(ii) All, or a specified portion of, Awards subject to
Restrictions shall become fully Vested; and
(iii) All, or a specified portion of, Awards subject to
Performance Goals shall be deemed to have been fully earned.
The Committee, in its discretion, may include change in control provisions
in some Award Agreements and not in others, may include different change in
control provisions in different Award Agreements, and may include change in
control provisions for some Awards or some Participants and not for others.
(g) REPORTING PERSONS. With respect to all Awards granted to
Reporting Persons, the Award Agreement shall comply with any
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applicable restrictions imposed by Rule 16b-3 under the Exchange Act
and any amendments to such rule.
ARTICLE 7
OPTIONS
7.1 TYPES OF OPTIONS. Options granted under the Plan may be in the
form of Incentive Stock Options or Non-Qualified Options (including Deferred
Compensation Options). The grant of each Option and the Award Agreement
governing each Option shall identify the Option as an ISO or an NQO. In the
event the Code is amended to provide for tax-favored forms of stock options
other than or in addition to Incentive Stock Options, the Committee may grant
Options under the Plan meeting the requirements of such forms of options.
7.2 GENERAL. Options shall be subject to the terms and conditions
set forth in Article 6 and this Article 7 and shall contain such additional
terms and conditions, not inconsistent with the express provisions of the Plan,
as the Committee shall deem desirable.
7.3 OPTION PRICE. Each Award Agreement for Options shall state the
option exercise price per Share of Common Stock purchasable under the Option,
which shall not be less than:
(a) the par value of a Share, in the case of a Deferred
Compensation Option; or
(b) 100 percent of the Fair Market Value of a Share on the date
of grant for all other Options.
7.4 OPTION TERM. The Award Agreement for each Option shall specify
the term of each Option, which may be unlimited or may have a specified period
during which the Option may be exercised, as determined by the Committee.
7.5 TIME OF EXERCISE. The Award Agreement for each Option shall
specify, as determined by the Committee:
(a) the time or times when the Option shall become exercisable
and whether the Option shall become exercisable in full or in
graduated amounts over a period specified in the Award Agreement;
(b) such other terms, conditions, and restrictions as to when
the Option may be exercised as shall be determined by the Committee;
and
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(c) the extent, if any, that the Option shall remain exercisable
after the Participant ceases to be an employee or director of
Corporation or a Subsidiary.
An Award Agreement for an Option may, in the discretion of the Committee,
provide whether, and to what extent, the Option will become immediately and
fully exercisable (i) in the event of the death, Disability, or Retirement of
the Participant or (ii) upon the occurrence of a change in control of
Corporation.
7.6 METHOD OF EXERCISE. The Award Agreement for each Option shall
specify the method or methods of payment acceptable upon exercise of an Option.
An Award Agreement may provide that the option price is payable in full in cash
or, at the discretion of the Committee:
(a) in installments on such terms and over such period as the
Committee shall determine;
(b) in previously acquired Shares (including Restricted Shares);
(c) by surrendering outstanding Awards under the Plan denominated in
Shares or in Share equivalent units;
(d) by delivery (in a form approved by the Committee) of an
irrevocable direction to a securities broker acceptable to the Committee:
(i) to sell Shares subject to the Option and to deliver all or a
part of the sales proceeds to Corporation in payment of all or a part
of the option price and withholding taxes due; or
(ii) to pledge Shares subject to the Option to the broker as
security for a loan and to deliver all or a part of the loan proceeds
to Corporation in payment of all or a part of the option price and
withholding taxes due; or
(e) in any combination of the foregoing or in any other form approved
by the Committee.
If Restricted Shares are surrendered in full or partial payment of an option
price, a corresponding number of the Shares issued upon exercise of the Option
shall be Restricted Shares subject to the same Restrictions as the surrendered
Restricted Shares.
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7.7 SPECIAL RULES FOR INCENTIVE STOCK OPTIONS. In the case of an
Option designated as an Incentive Stock Option, the terms of the Option and the
Award Agreement shall be in conformance with the statutory and regulatory
requirements specified in Section 422A of the Code, as in effect on the date
such ISO is granted. ISOs may not be granted under the Plan after January 16,
2001, unless the 10-year limitation of Section 422A(b)(2) of the Code is removed
or extended.
7.8 RESTRICTED SHARES. In the discretion of the Committee, the
Shares issuable upon exercise of an Option may be Restricted Shares if so
provided in the Award Agreement.
7.9 DEFERRED COMPENSATION OPTIONS. The Committee may, in its
discretion, grant Deferred Compensation Options with an option price less than
Fair Market Value to provide a means for deferral of compensation to future
dates. The option price shall be determined by the Committee subject to Section
7.3 of the Plan. The number of Shares subject to a Deferred Compensation Option
shall be determined by the Committee, in its discretion, by dividing the amount
of compensation to be deferred by the difference between the Fair Market Value
of a Share on the date of grant and the option price of the Deferred
Compensation Option. Amounts of compensation deferred with Deferred
Compensation Options may include amounts earned under Awards granted under the
Plan or under any other compensation program or arrangement of Corporation as
permitted by the Committee. The Committee shall grant Deferred Compensation
Options only if it reasonably determines that the recipient of such an Option is
not likely to be deemed to be in constructive receipt for income tax purposes of
the income being deferred.
7.10 RELOAD OPTIONS. The Committee, in its discretion, may provide in
an Award Agreement for an Option that in the event all or a portion of the
Option is exercised by the Participant using previously acquired Shares, the
Participant shall automatically be granted a replacement Option (with an option
price equal to the Fair Market Value of a Share on the date of such exercise)
for a number of Shares equal to (or equal to a portion of) the number of shares
surrendered upon exercise of the Option. Such reload Option features may be
subject to such terms and conditions as the Committee shall determine, including
without limitation, a condition that the Participant retain the Shares issued
upon exercise of the Option for a specified period of time.
ARTICLE 8
STOCK APPRECIATION RIGHTS
8.1 GENERAL. Stock Appreciation Rights shall be subject to the terms
and conditions set forth in Article 6 and this Article 8 and shall contain such
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additional terms and conditions, not inconsistent with the express terms of the
Plan, as the Committee shall deem desirable.
8.2 NATURE OF STOCK APPRECIATION RIGHT. A Stock Appreciation Right
is an Award entitling a Participant to receive an amount equal to the excess (or
if the Committee shall determine at the time of grant, a portion of the excess)
of the Fair Market Value of a Share of Common Stock on the date of exercise of
the SAR over the Base Price, as described below, on the date of grant of the
SAR, multiplied by the number of Shares with respect to which the SAR shall have
been exercised. The Base Price shall be designated by the Committee in the
Award Agreement for the SAR and may be the Fair Market Value of a Share on the
grant date of the SAR or such other higher or lower price as the Committee shall
determine.
8.3 EXERCISE. A Stock Appreciation Right may be exercised by a
Participant in accordance with procedures established by the Committee. The
Committee may also provide that a SAR shall be automatically exercised on one or
more specified dates or upon the satisfaction of one or more specified
conditions. In the case of SARs granted to Reporting Persons, exercise of the
SAR shall be limited by the Committee to the extent required to comply with the
applicable requirements of Rule 16b-3 under the Exchange Act.
8.4 FORM OF PAYMENT. Payment upon exercise of a Stock Appreciation
Right may be made in cash, in installments, in Shares of Common Stock, by
issuance of a Deferred Compensation Option, or in any combination of the
foregoing or in any other form as the Committee shall determine.
ARTICLE 9
RESTRICTED AWARDS
9.1 TYPES OF RESTRICTED AWARDS. Restricted Awards granted under the
Plan may be in the form of either Restricted Shares or Restricted Units.
(a) RESTRICTED SHARES. A Restricted Share is an Award of Shares
transferred to a Participant subject to such terms and conditions as the
Committee deems appropriate, including without limitation, restrictions on
the sale, assignment, transfer, or other disposition of such Restricted
Shares and may include a requirement that the Participant forfeit such
Restricted Shares back to Corporation upon termination of Participant's
employment (or service as a director) for specified reasons within a
specified period of time or upon other conditions, as set forth in the
Award Agreement for such Restricted Shares. Each Participant receiving a
Restricted Share shall be issued a stock certificate in respect of such
Shares, registered in the name of such Participant, and shall execute a
stock power in blank with respect to the Shares evidenced by such
certificate. The certificate evidencing such
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Restricted Shares and the stock power shall be held in custody by
Corporation until the Restrictions thereon shall have lapsed.
(b) RESTRICTED UNITS. A Restricted Unit is an Award of units
(with each unit having a value equivalent to one Share) granted to a
Participant subject to such terms and conditions as the Committee deems
appropriate and may include a requirement that the Participant forfeit
such Restricted Units upon termination of Participant's employment (or
service as a director) for specified reasons within a specified period
of time or upon other conditions, as set forth in the Award Agreement
for such Restricted Units.
9.2 GENERAL. Restricted Awards shall be subject to the terms and
conditions of Article 6 and this Article 9 and shall contain such additional
terms and conditions, not inconsistent with the express provisions of the Plan,
as the Committee shall deem desirable.
9.3 RESTRICTION PERIOD. Restricted Awards shall provide that such
Awards, and the Shares subject to such Awards, may not be transferred and may
provide that in order for a Participant to Vest in such Awards, the Participant
must remain in the employment (or a director) of Corporation or its
Subsidiaries, subject to relief for reasons specified in the Award Agreement,
for a period commencing on the date of the Award and ending on such later date
or dates as the Committee may designate at the time of the Award (the
"Restriction Period"). During the Restriction Period, a Participant may not
sell, assign, transfer, pledge, encumber, or otherwise dispose of Shares
received under or governed by a Restricted Award grant. The Committee, in its
sole discretion, may provide for the lapse of restrictions in installments
during the Restriction Period. Upon expiration of the applicable Restriction
Period (or lapse of restrictions during the Restriction Period where the
restrictions lapse in installments) the Participant shall be entitled to
settlement of the Restricted Award or portion thereof, as the case may be.
Although Restricted Awards shall usually Vest based on continued employment (or
service as a director) and Performance Awards under Article 10 shall usually
Vest based on attainment of Performance Goals, the Committee, in its discretion,
may condition Vesting of Restricted Awards on attainment of Performance Goals as
well as continued employment (or service as a director). In such case, the
Restriction Period for such a Restricted Award shall include the period prior to
satisfaction of the Performance Goals.
9.4 FORFEITURE. If a Participant ceases to be an employee or
Non-Employee Director of Corporation or a Subsidiary during the Restriction
Period for any reason other than reasons which may be specified in an Award
Agreement (such as death, Disability, or Retirement) the Award Agreement may
require that all non-Vested Restricted Awards previously granted to the
Participant be forfeited and returned to Corporation.
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9.5 SETTLEMENT OF RESTRICTED AWARDS.
(a) RESTRICTED SHARES. Upon Vesting of a Restricted Share Award, the
legend on such Shares will be removed and the Participant's stock power will be
returned and the Shares will no longer be Restricted Shares. The Committee may
also, in its discretion, permit a Participant to receive, in lieu of
unrestricted Shares at the conclusion of the Restriction Period, payment in
cash, installments, or by issuance of a Deferred Compensation Option equal to
the Fair Market Value of the Restricted Shares as of the date the Restrictions
lapse.
(b) RESTRICTED UNITS. Upon Vesting of a Restricted Unit Award, a
Participant shall be entitled to receive payment for Restricted Units in an
amount equal to the aggregate Fair Market Value of the Shares covered by such
Restricted Units at the expiration of the Applicable Restriction Period.
Payment in settlement of a Restricted Unit shall be made as soon as practicable
following the conclusion of the applicable Restriction Period in cash, in
installments, in Shares equal to the number of Restricted Units, by issuance of
a Deferred Compensation Option, or in any other manner or combination of such
methods as the Committee, in its sole discretion, shall determine.
9.6 RIGHTS AS A SHAREHOLDER. A Participant shall have, with respect
to unforfeited Shares received under a grant of Restricted Shares, all the
rights of a shareholder of Corporation, including the right to vote the shares,
and the right to receive any cash dividends. Stock dividends issued with
respect to Restricted Shares shall be treated as additional Shares covered by
the grant of Restricted Shares and shall be subject to the same Restrictions.
ARTICLE 10
PERFORMANCE AWARDS
10.1 GENERAL. Performance Awards shall be subject to the terms and
conditions set forth in Article 6 and this Article 10 and shall contain such
other terms and conditions not inconsistent with the express provisions of the
Plan, as the Committee shall deem desirable.
10.2 NATURE OF PERFORMANCE AWARDS. A Performance Award is an Award
of units (with each unit having a value equivalent to one Share) granted to a
Participant subject to such terms and conditions as the Committee deems
appropriate, including without limitation, the requirement that the
Participant forfeit such Performance Award or a portion thereof in the event
specified performance criteria are not met within a designated period of time.
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10.3 PERFORMANCE CYCLES. For each Performance Award, the Committee
shall designate a performance period (the "Performance Cycle") with a duration
to be determined by the Committee in its discretion within which specified
Performance Goals are to be attained. There may be several Performance Cycles
in existence at any one time and the duration of Performance Cycles may differ
from each other.
10.4 PERFORMANCE GOALS. The Committee shall establish Performance
Goals for each Performance Cycle on the basis of such criteria and to accomplish
such objectives as the Committee may from time to time select. Performance
Goals may be based on performance criteria for Corporation, a Subsidiary, or an
operating group, or based on a Participant's individual performance.
Performance Goals may include objective and subjective criteria. During any
Performance Cycle, the Committee may adjust the Performance Goals for such
Performance Cycle as it deems equitable in recognition of unusual or
nonreoccurring events affecting Corporation, changes in applicable tax laws or
accounting principles, or such other factors as the Committee may determine.
10.5 DETERMINATION OF AWARDS. As soon as practicable after the end of
a Performance Cycle, the Committee shall determine the extent to which
Performance Awards which have been earned on the basis of performance in
relation to the established Performance Goals.
10.6 TIMING AND FORM OF PAYMENT. Settlement of earned Performance
Awards shall be made to the Participant as soon as practicable after the
expiration of the Performance Cycle and the Committee's determination under
Section 10.5, in the form of cash, installments, Shares, Deferred Compensation
Options, or any combination of the foregoing or in any other form as the
Committee shall determine.
ARTICLE 11
OTHER STOCK-BASED AND COMBINATION AWARDS
11.1 OTHER STOCK-BASED AWARDS. The Committee may grant other
Awards under the Plan pursuant to which Shares are or may in the future be
acquired, or Awards denominated in or measured by Share equivalent units,
including Awards valued using measures other than the market value of Shares.
Such Other Stock-Based Awards may be granted either alone, in addition to,
or in tandem with, any other type of Award granted under the Plan.
11.2 COMBINATION AWARDS. The Committee may also grant Awards under
the Plan in tandem or combination with other Awards or in exchange of Awards, or
in tandem or combination with, or as alternatives to grants or rights under any
other employee plan of Corporation, including the plan of any acquired
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entity. No action authorized by this section shall reduce the amount of any
existing benefits or change the terms and conditions thereof without the
Participant's consent.
ARTICLE 12
DEFERRAL ELECTIONS
The Committee may permit a Participant to elect to defer receipt of
the payment of cash or the delivery of Shares that would otherwise be due to
such Participant by virtue of the exercise, earn out, or Vesting of an Award
made under the Plan. If any such election is permitted, the Committee shall
establish rules and procedures for such payment deferrals, including but not
limited to: (a) payment or crediting of reasonable interest on such deferred
amounts credited in cash, (b) the payment or crediting of dividend equivalents
in respect of deferrals credited in Share equivalent units, or (c) granting of
Deferred Compensation Options.
ARTICLE 13
DIVIDEND EQUIVALENTS
Any Awards may, at the discretion of the Committee, earn dividend
equivalents. In respect of any such Award which is outstanding on a dividend
record date for Common Stock, the Participant may be credited with an amount
equal to the amount of cash or stock dividends that would have been paid on the
Shares covered by such Award, had such covered Shares been issued and
outstanding on such dividend record date. The Committee shall establish such
rules and procedures governing the crediting of dividend equivalents, including
the timing, form of payment, and payment contingencies of such dividend
equivalents, as it deems are appropriate or necessary.
ARTICLE 14
NON-EMPLOYEE BOARD DIRECTORS
14.1 GENERAL. Awards shall be made to Non-Employee Board Directors
only under this Article 14. No person, including the members of the Board or
the Committee, shall have any discretion as to the selection of eligible
recipients or the determination of the type, amount, or terms of Awards pursuant
to this Article 14.
14.2 ELIGIBILITY. The persons eligible to receive Awards pursuant to
this Article 14 are all Non-Employee Board Directors.
14.3 ELECTIVE RESTRICTED SHARES. Each Non-Employee Board Director
shall have the right to elect (as provided in Section 14.4 of the Plan) to
receive in lieu of all or a portion of his or her annual retainer fee or
attendance fees, or both,
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for service on the Board an Award of Restricted Shares in an amount equal to
the specified portion of the amounts otherwise payable as retainer or
attendance fees divided by the Fair Market Value of a Share on the date such
fee is otherwise payable. If, or to the extent, a Non-Employee Board
Director does not elect to receive Restricted Shares, the retainer and
attendance fees shall be payable in cash.
14.4 ELECTION. Each Non-Employee Board Director may elect to receive
Restricted Shares pursuant to Section 14.3 by a written notice to the Committee
(the "Election"). The Election shall specify the percentage portion, if any, of
the retainer fee and the percentage portion, if any, of the attendance fees
otherwise payable in cash to such Non-Employee Board Director which shall be
payable in Restricted Shares. Each election shall specify the calendar year or
years (or a portion of a calendar year beginning on a specified date) to be
covered by the Election. Each Election must be made not later than six months
prior to the first day of the first calendar year (or the specified beginning of
a portion of a calendar year) covered by the Election. Elections may be revoked
only effective as of a specified date which is more than six months after the
date of a written notice to the Committee of such revocation.
14.5 AWARD AGREEMENTS. Each Award of Restricted Shares made pursuant
to a Non-Employee Board Director's Election, shall be governed by and shall be
subject to the Restrictions, terms, and conditions set forth in an Award
Agreement in the form attached to this Plan as Appendix A. Except to the extent
otherwise provided in this Article 14 or in such Award Agreement, each such
Award shall be governed by Article 9 of the Plan.
ARTICLE 15
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.
15.1 PLAN DOES NOT RESTRICT CORPORATION. The existence of the Plan
and the Awards granted hereunder shall not affect or restrict in any way the
right or power of the Board or the shareholders of Corporation to make or
authorize any adjustment, recapitalization, reorganization, or other change in
Corporation's capital structure or its business, any merger or consolidation of
the Corporation, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting Corporation's capital stock or the rights thereof,
the dissolution or liquidation of Corporation or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding.
15.2 ADJUSTMENTS BY THE COMMITTEE. In the event of any change in
capitalization affecting the Common Stock of Corporation, such as a stock
dividend, stock split, recapitalization, merger, consolidation, split-up,
combination or exchange of shares or other form of reorganization, or any other
change affecting the Common Stock, such proportionate adjustments, if any, as
the Committee in its
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discretion may deem appropriate to reflect such change, shall be made with
respect to the aggregate number of Shares for which Awards in respect thereof
may be granted under the Plan, the maximum number of Shares which may be sold
or awarded to any Participant, the number of Shares covered by each
outstanding Award, and the price per Share in respect of outstanding Awards.
The Committee may also make such adjustments in the number of Shares covered
by, and price or other value of any outstanding Awards in the event of a
spin-off or other distribution (other than normal cash dividends) of
Corporation Assets to shareholders.
ARTICLE 16
AMENDMENT AND TERMINATION
Without further approval of Corporation's shareholders, the Board may
at any time terminate the Plan, or may amend it from time to time in such
respects as the Board may deem advisable, except that the Board may not, without
approval of the shareholders, make any amendment which would (i) materially
increase the benefits accruing to Participants under the Plan, (ii) materially
increase the aggregate number of shares of Common Stock which may be issued
under the Plan (except for adjustments pursuant to Article 15 of the Plan) or
(iii) materially modify the requirements as to eligibility for participation in
the Plan. Without further shareholder approval, the Board may amend the Plan to
take into account changes in applicable securities, federal income tax laws, and
other applicable laws. Further, should the provisions of Rule 16b-3, or any
successor rule, under the Exchange Act be amended, the Board, without further
shareholder approval, may amend the Plan as necessary to comply with any
modifications to such rule. The provisions of Article 14 of the Plan shall not
be amended more than once every six months, other than to comport with changes
in the Code or in Rule 16b-3 under the Exchange Act.
ARTICLE 17
MISCELLANEOUS
17.1 TAX WITHHOLDING.
(a) GENERAL. Corporation shall have the right to deduct from any
settlement, including the delivery or vesting of Shares, made under the Plan any
federal, state, or local taxes of any kind required by law to be withheld with
respect to such payments or to take such other action as may be necessary in the
opinion of Corporation to satisfy all obligation for the payment of such taxes.
The recipient of any payment or distribution under the Plan shall make
arrangements satisfactory to Corporation for the satisfaction of any such
withholding tax obligations. Corporation shall not be required to make any such
payment or distribution under the Plan until such obligations are satisfied.
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(b) STOCK WITHHOLDING. The Committee, in its sole discretion, may
Permit a Participant to satisfy all or a part of the withholding tax obligations
incident to the settlement of an Award involving payment or delivery of Shares
to the Participant by having Corporation withhold a portion of the Shares that
would otherwise be issuable to the Participant. Such shares shall be valued
based on their Fair Market Value on the date the tax withholding is required to
be made. Any stock withholding with respect to a Reporting Person shall be
subject to such limitations as the Committee may impose to comply with the
requirements of the Exchange Act.
17.2 UNFUNDED PLAN. The Plan shall be unfunded and Corporation shall
not be required to segregate any assets that may at any time be represented by
Awards under the Plan. Any liability of Corporation to any person with respect
to any Award under the Plan shall be based solely upon any contractual
obligations that may be effected pursuant to the Plan. No such obligation of
Corporation shall be deemed to be secured by any pledge of, or other encumbrance
on, any property of Corporation.
17.3 PAYMENTS TO TRUST. The Committee is authorized to cause to be
established a trust agreement or several trust agreements whereunder the
Committee may make payments of amounts due or to become due to Participants in
the Plan.
17.4 ANNULMENT OF AWARDS. The grant of any Award under the Plan
payable in cash is provisional until cash is paid in settlement thereof. The
grant of any Award payable in Shares is provisional until the Participant
becomes entitled to the certificate in settlement thereof. In the event the
employment (or membership on the Board or the board of directors of a
Subsidiary) of a Participant is terminated for cause (as defined below), any
Award which is provisional shall be annulled as of the date of such termination
for cause. For the purpose of this Section 17.4, the term "terminated for
cause" means any discharge (or removal) for material or flagrant violation of
the policies and procedures of Corporation or for other job performance or
conduct which is materially detrimental to the best interests of Corporation, as
determined by the Committee.
17.5 ENGAGING IN COMPETITION WITH THE CORPORATION. In the event a
Participant terminates employment with Corporation or a Subsidiary for any
reason whatsoever, and within 18 months after the date thereof accepts
employment with any competitor of, or otherwise engages in competition with,
Corporation, the Committee, in its sole discretion, may require such Participant
to return to Corporation the economic value of any Award which is realized or
obtained (measured at the date of exercise, Vesting, or payment) by such
Participant at any
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time during the period beginning on that date which is six months prior to
the date of such Participant's termination of employment with Corporation.
17.6 OTHER CORPORATION BENEFIT AND COMPENSATION PROGRAMS. Payments
and other benefits received by a Participant under an Award made pursuant to the
Plan shall not be deemed a part of a Participant's regular, recurring
compensation for purposes of the termination indemnity or severance pay law of
any country and shall not be included in, nor have any effect on, the
determination of benefits under any other employee benefit plan or similar
arrangement provided by Corporation or a Subsidiary unless expressly so provided
by such other plan or arrangements, or except where the Committee expressly
determines that inclusion of an Award or portion of an Award should be included
to accurately reflect competitive compensation practices or to recognize that an
Award has been made in lieu of a portion of competitive annual cash
compensation. Awards under the Plan may be made in combination with or in
tandem with, or as alternatives to, grants, awards, or payments under any other
Corporation or Subsidiary plans, arrangements, or programs. The Plan
notwithstanding, Corporation or any Subsidiary may adopt such other compensation
programs and additional compensation arrangements as it deems necessary to
attract, retain, and reward employees and directors for their service with
Corporation and its Subsidiaries.
17.7 SECURITIES LAW RESTRICTIONS. No Shares shall be issued under
the Plan unless counsel for Corporation shall be satisfied that such issuance
will be in compliance with applicable federal and state securities laws.
Certificates for Shares delivered under the Plan may be subject to such
stop-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed, and any applicable federal or state securities law.
The Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
17.8 GOVERNING LAW. Except with respect to references to the Code or
federal securities laws, the Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Idaho.
ARTICLE 18
SHAREHOLDER APPROVAL
The adoption of the Plan and the grant of Awards under the Plan are
expressly subject to the approval of the Plan by the affirmative vote of the
holders of at least two-thirds (2/3) of the shares entitled to vote thereon at
the 1991 annual meeting of Corporation's shareholders.
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AMENDMENT
TO
AWARD AGREEMENTS UNDER THE
WEST ONE BANCORP
1991 PERFORMANCE AND EQUITY INCENTIVE PLAN
NON-QUALIFIED STOCK OPTIONS
THIS AMENDMENT made effective November 17, 1995, by West One Bancorp
("Corporation").
1. DEFINITIONS. For purposes of this Amendment, the following terms
have the meanings specified below:
- "EFFECTIVE TIME" means the time and date the Merger is
consummated.
- "EXCHANGE RATIO" means the ratio that Corporation's Common Stock
will be converted into U.S. Bancorp Common Stock pursuant to the Merger, namely
1.47 shares of U.S. Bancorp Common Stock for each share of Corporation's Common
Stock.
- "EXISTING OPTIONS" means the Non-Qualified Stock Options and
Non-Qualified Reload Stock Options granted under the Plan for which an Award
Agreement is identified on Appendix A to this Amendment.
- "MERGER" means the proposed merger of Corporation with and into
U.S. Bancorp, an Oregon corporation, pursuant to the Merger Agreement.
- "MERGER AGREEMENT" means the Plan and Agreement of Merger between
Corporation and U.S. Bancorp dated as of May 5, 1995.
<PAGE>
- "PARTICIPANT" means each Participant named on Appendix A to
this Amendment who entered into an Award Agreement with Corporation with respect
to one or more Existing Options.
- "PLAN" means the West One Bancorp 1991 Performance and Equity
Incentive Plan.
- "SUBSTITUTE OPTION" means a stock option to purchase U.S. Bancorp
Common Stock, as described in Section 3 of this Amendment.
2. AMENDMENT TO SECTION 5. Section 5 of the Award Agreement for
each Existing Option is amended as follows:
Notwithstanding the fifth sentence of the second paragraph of
Section 5, the Award will not terminate or cease to be exercisable as of
the Effective Time.
3. CONVERSION. As of the Effective Time, each Existing Option will
be converted to and become a Substitute Option with the following terms and
conditions:
(a) The shares covered by each Substituted Option will be the number
of shares of U.S. Bancorp Common Stock equal to the product of the number
of shares of Corporation's Common Stock covered by the Existing Option
multiplied by the Exchange Ratio, rounded down to the nearest share;
(b) The exercise price per share of U.S. Bancorp Common Stock subject
to each Substitute Option will be equal to the exercise price per share
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of Corporation's Common Stock under the Existing Option divided by the
Exchange Ratio, rounded to the nearest cent;
(c) To the extent not previously exercised, each Substitute Option
will remain vested and fully exercisable after the Merger; and
(d) The duration and other terms and conditions of each Substitute
Option will otherwise be governed by the Award Agreement for the Existing
Option.
The foregoing Amendment to each Award Agreement for each Existing
Option is approved and adopted as of the date first set forth above by the
Corporation's Compensation and Benefits Committee.
WEST ONE BANCORP
By
-------------------------------
Its
------------------------------
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NOTICE TO PARTICIPANTS
UNDER THE
WEST ONE BANCORP
1991 PERFORMANCE AND EQUITY INCENTIVE PLAN
1. The Board of Directors and Shareholders of West One Bancorp
("Corporation") have approved a Plan and Agreement of Merger of Corporation with
and into U.S. Bancorp in which U.S. Bancorp will be the surviving corporation.
2. Under the original terms of Section 5 of the Award Agreements for
Non-Qualified Stock Options and Non-Qualified Reload Stock Options ("Existing
Options") granted under the Corporation's 1991 Performance and Equity Incentive
Plan (the "Plan"):
(a) Each Existing Option has become immediately and fully vested and
exercisable; and
(b) Each Existing Option, to the extent not exercised before the
consummation of the merger of Corporation into U.S. Bancorp (the "Merger"),
would terminate and cease to be exercisable as of the effective date of the
Merger.
3. Effective November 17, 1995, West One Bancorp amended the Award
Agreement for each Existing Option to provide:
(a) Each Existing Option remains fully vested and exercisable;
(b) Notwithstanding the original terms of the Award Agreement for
Existing Options, the Existing Options will remain exercisable after the
Merger; and
<PAGE>
(c) As of the effective date of the Merger, each Existing Option will
be automatically converted into an option to purchase U.S. Bancorp Common
Stock with the following terms and conditions:
(i) The number of shares of U.S. Bancorp Common Stock subject
to the option will be the number of shares of Corporation's Common
Stock covered by the option multiplied by 1.47 (the "Exchange Ratio"
under the Merger), rounded down to the nearest share;
(ii) The exercise price per share of U.S. Bancorp Common Stock
subject to the option will be equal to the exercise price per share of
Corporation's Common Stock divided by 1.47, rounded to the nearest
cent; and
(iii) The duration and other terms of each option will
otherwise continue to be governed by the original Option Agreement.
3. A copy of the Amendment described above is attached to this
Notice and should be retained with the original Award Agreement.
Dated: November 17, 1995.
WEST ONE BANCORP
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DESCRIPTION OF RETIREMENT BENEFITS OF
JOSHUA GREEN III
On June 17, 1993, the Board of Directors approved the award to Joshua
Green III, a director and former executive officer, commencing as of April 1,
1993, of a retirement benefit in the amount of $170,886 per year ($14,240.50 per
month), reduced by the amounts otherwise payable to Mr. Green, or his surviving
spouse, under the U. S. Bancorp Retirement Plan, the U. S. Bancorp Supplemental
Benefits Plan, and the Social Security supplemental retirement benefit awarded
to Mr. Green on February 18, 1993, pursuant to which he is entitled to a monthly
benefit of $900 from the date of his retirement until he reaches age 62 or, if
earlier, his death (at which time he will be eligible for Social Security
benefits).
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement made this _____ day of June, 1988, between U. S. Bancorp,
an Oregon corporation ("Bancorp"), and ______________________________
("Director").
WHEREAS, Director is a member of the board of directors ("Board") of
Bancorp and in such capacity is performing a valuable service for Bancorp;
WHEREAS, the shareholders of Bancorp have adopted an amendment to Bancorp's
articles of incorporation providing for the indemnification of directors as
authorized by the Oregon Business Corporation Act ("Act");
WHEREAS, said amendment and Section 60.414 of the Act are by their terms
not exclusive and expressly recognize that agreements may be entered into
between a corporation and its directors with respect to indemnification;
WHEREAS, both Bancorp and Director recognize the increased risk of
litigation and other claims being asserted against directors of public
corporations; and
WHEREAS, Bancorp has determined that it is in the best interests of Bancorp
to enter into this Agreement in recognition of Director's need for substantial
protection against personal liability in order to assure Director's continued
service to Bancorp in an effective manner and to provide contractual assurance
that such protection will be available to Director notwithstanding any amendment
of the Act or Bancorp's articles of incorporation.
NOW, THEREFORE, in consideration of Director's continued service as a
member of the Board after the date of this Agreement, the parties hereto agree
as follows:
1. BASIC INDEMNITY. Subject to the exclusions in Section 6, Bancorp
hereby agrees to hold harmless and indemnify Director and the estate or personal
representative of Director to the full extent authorized or permitted by (i) the
Act or any other applicable law or Bancorp's articles of incorporation or bylaws
as in effect on the date hereof, or (ii) by any amendment thereof or other
statutory provisions authorizing or permitting such indemnification adopted
after the date hereof.
2. MAINTENANCE OF INSURANCE. Bancorp presently has in effect policies of
director and officer liability insurance ("D&O Insurance") in amounts
satisfactory to Director. Subject to Section 3, Bancorp agrees that, so long as
Director continues to serve as a director of Bancorp and thereafter so long as
Director is subject to any possible Claim (as hereinafter defined), it will
purchase and maintain in effect for the benefit of Director one or more valid,
binding and enforceable policies of D&O
<PAGE>
Insurance providing coverage at least comparable to the coverage provided by the
existing policies.
3. SELF INSURANCE. Notwithstanding Section 2, Bancorp shall not be
required to maintain in effect policies of D&O Insurance if such insurance is
not reasonably available or if, in the reasonable business judgment of the then
members of the Board, either (i) the premium cost for such insurance is
substantially disproportionate to the amount of coverage or (ii) the coverage
provided by such insurance is so limited by exclusions, deductions or otherwise
that there is insufficient benefit to warrant the cost of maintaining such
insurance. In the event Bancorp does not maintain such insurance in effect,
Bancorp agrees to hold harmless and indemnify Director and the estate and
personal representative of Director to the full extent of the coverage provided
by the existing policies of D&O Insurance. Anything in this Agreement to the
contrary notwithstanding, to the extent and so long as Bancorp or any parent of
Bancorp shall choose to maintain in effect any policy or policies of D&O
Insurance while Director is subject to any possible Claim, Bancorp shall be
required to maintain in effect similar and equivalent policies for the benefit
of Director, whether more or less favorable to Director than the existing
policies of D&O Insurance.
4. ADDITIONAL INDEMNITY. Subject to the exclusions in Section 6 and
without limiting Bancorp's obligations under Section 1, Bancorp hereby agrees to
hold harmless and indemnify Director and the estate and personal representative
of Director against all Liability (as hereinafter defined) incurred in
connection with any Claim including, without limiting the generality of the
foregoing, a Claim by or in the right of Bancorp.
5. ADVANCEMENT OF EXPENSES. Bancorp shall, if requested by Director, pay
all costs and expenses (including attorneys' fees) incurred by Director in
investigating, defending or appealing any Claim in advance of the final
disposition of a Claim. If required by the Act or other applicable statute, any
such request shall be accompanied by a written affirmation of Director's good
faith belief that Director has met the standard of conduct described in Section
60.391 of the Act. Bancorp shall pay any statement for such costs and expenses
within 20 days after receipt of the statement. Director agrees to repay Bancorp
for all costs and expenses paid by Bancorp pursuant to this Section 5 in the
event and only to the extent that it is ultimately determined that Director is
not entitled to be indemnified by Bancorp for such costs and expenses.
6. EXCLUSIONS. No indemnity pursuant to Sections 1 or 4 shall be paid by
Bancorp:
6.1. If a final decision by a court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
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6.2. On account of acts or omissions by Director which are finally
adjudged to have been not in good faith or to have involved intentional
misconduct or a knowing violation of law.
6.3. On account of any Liability arising under Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or any similar
provision of federal or state statutory law.
7. NOTIFICATION AND DEFENSE OF CLAIMS. Promptly after receipt by Director
of notice of the commencement of any action, suit or proceeding, Director will,
if a claim in respect thereof is to be made under this Agreement, notify Bancorp
of the commencement thereof; but the omission so to notify Bancorp will not
relieve it from its obligations to Director under this Agreement unless Bancorp
shall be prejudiced by reason of such omission. With respect to any such
action, suit or proceeding as to which Director notifies Bancorp of the
commencement thereof:
7.1. Bancorp shall be entitled to participate therein at its own
expense.
7.2. Except as otherwise provided below, Bancorp jointly with any
other indemnifying party similarly notified will be entitled to assume the
defense thereof, with counsel reasonably satisfactory to Director. After
notice from Bancorp to Director of its election to assume the defense
thereof, Bancorp will not be liable to Director under this Agreement for
any legal or other expenses subsequently incurred by Director in connection
with the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Director shall have no right to employ counsel
in such action, suit or proceeding, but the fees and expenses of such
counsel incurred after notice from Bancorp of its assumption of the defense
thereof shall be at the expense of Director unless (i) the employment of
counsel by Director has been authorized by Bancorp, (ii) Director shall
have reasonably concluded that there may be a conflict of interest between
Bancorp and Director in the conduct of the defense of such action or (iii)
Bancorp shall not in fact have employed counsel reasonably satisfactory to
Director to assume the defense of such action, in each of which cases the
fees and expenses of counsel employed by Director shall be at the expense
of Bancorp. Bancorp shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of Bancorp or as to
which Director shall have the right to employ counsel at Bancorp's expense
pursuant to clause (ii) or (iii) above.
7.3. Bancorp shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any Claim effected without
its written consent. Bancorp shall not settle any Claim in any manner
which would impose any penalty or limitation on Director without Director's
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written consent. Neither Bancorp nor Director will unreasonably withhold
their consent to any proposed settlement.
8. PARTIAL INDEMNITY; BURDEN OF PROOF. If Director is entitled under any
provision of this Agreement to indemnification by Bancorp for a portion of the
Liability incurred in connection with a Claim but not, however, for the total
amount thereof, Bancorp shall nevertheless indemnify Director for the portion
thereof to which Director is entitled. Moreover, notwithstanding any other
provision of this Agreement, to the extent that Director has been successful on
the merits or otherwise in defense of any Claim or in defense of any issue or
matter therein, including dismissal without prejudice, Director shall be
indemnified against all expenses incurred in connection therewith. In
connection with any determination by the Board or otherwise as to whether
Director is entitled to be indemnified under this Agreement, the burden of proof
shall be on Bancorp to establish that Director is not so entitled.
9. NO PRESUMPTION. For purposes of this Agreement, the termination of any
Claim by judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Director did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
10. NONEXCLUSIVITY, ETC. The rights of Director hereunder shall be in
addition to any other rights Director may have under the articles of
incorporation or bylaws of Bancorp, the Act or otherwise.
11. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of Bancorp or any affiliate of
Bancorp against Director or the estate or personal representative of Director
after the expiration of two years from the date of accrual of such cause of
action, and any claim or cause of action of Bancorp or its affiliate shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
12. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver.
13. SUBROGATION. In the event of payment under this Agreement, Bancorp
shall be subrogated to the extent of such payment to all of the rights of
recovery of
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Director, who shall execute all papers required and shall do everything that may
be necessary to secure such rights, including the execution of such documents
necessary to enable Bancorp effectively to bring suit to enforce such rights.
14. NO DUPLICATION OF PAYMENTS. Bancorp shall not be liable under this
Agreement to make any payment in connection with any Claim to the extent
Director has otherwise actually received payment (under any insurance policy or
otherwise) of the amounts otherwise indemnifiable hereunder.
15. CONTINUATION OF AGREEMENT. All agreements and obligations of Bancorp
contained herein shall continue during the period Director is a director of
Bancorp and shall continue thereafter so long as Director is subject to any
possible Claim.
16. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto, the assigns, estate
and personal representative of Director, and the successors and assigns of
Bancorp including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or a substantial part of the business and/or
assets of Bancorp. Bancorp shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all or a
substantial part of the business and/or assets of Bancorp, by written agreement
in form and substance satisfactory to Director, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that Bancorp
would be required to perform if no such succession had taken place; provided,
however, that the failure of any successor to enter into any such written
agreement shall not prejudice any of the rights of Director hereunder or relieve
such successor of any of its obligations hereunder. This Agreement shall
continue in effect regardless of whether Director continues to serve as a
director of Bancorp.
17. ATTORNEYS' FEES. In the event Director is required to bring any
action to enforce rights or to collect moneys due under this Agreement and is
successful in such action, Bancorp shall reimburse Director for all of
Director's reasonable fees and expenses at trial and on appeal in bringing and
pursuing such action.
18. SEPARABILITY. The parties intend this Agreement to be enforced as
written; however (i) if any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court having jurisdiction, then
the remainder of this Agreement or the application of such portion or provision
in circumstances other than those as to which it is so declared illegal or
unenforceable, shall not be affected thereby, and each portion and provision of
this Agreement shall be valid and be enforceable to the fullest extent permitted
by laws, and (ii) if any provision, or any part thereof, is held to be
unenforceable because of the scope of indemnification, Bancorp and Director
agree that the court making such
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determination shall have the power to reduce the scope of such provision, and in
its reduced form such provision shall then be enforceable and shall be enforced.
19. CERTAIN DEFINITIONS. For the purposes of this Agreement, the
following terms have the meanings indicated:
19.1. "Claim" means any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal, arising out of or related to the fact that
Director is or was a director, officer, fiduciary, employee or agent of
Bancorp or is or was serving at Bancorp's request as a director, officer,
partner, fiduciary, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprises.
19.2. "Liability" means the obligation to pay a judgment, settlement,
penalty or fine, including any excise tax assessed with respect to any
employee benefit plan, or reasonable expenses (including attorneys' fees).
20. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of Oregon without giving
effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
U. S. BANCORP
By
-----------------------------
Bancorp
---------------------------------
Director
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DESCRIPTION OF HEALTH INSURANCE PREMIUM
REIMBURSEMENT PLAN FOR U. S. BANCORP DIRECTORS
U. S. Bancorp shall reimburse or subsidize a portion of the cost of premiums
incurred by non-employee directors of U.S. Bancorp who were former directors of
West One Bancorp for health care insurance coverage of such directors and his or
her dependents upon the director's request, provided that no portion of such
premiums are reimbursed or subsidized by any other employer. Such reimbursement
and the criteria for eligibility shall be subject to the same conditions and
limits as are applicable to active employees of U. S. Bancorp.
<PAGE>
U.S. BANCORP
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(1998 RESTATEMENT)
First Effective January 1, 1988
As Amended and Restated Effective January 1, 1998
<PAGE>
U.S. BANCORP
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(1998 RESTATEMENT)
TABLE OF CONTENTS
PAGE
SECTION 1. INTRODUCTION 1
1.1. Restatement of Plan
1.2. Definitions
1.2.1. Account
1.2.2. Annual Valuation Date
1.2.3. Beneficiary
1.2.4. Director
1.2.5. Event of Maturity
1.2.6. Plan
1.2.7. Plan Statement
1.2.8. Plan Year
1.2.9. Prior Plan Statement
1.2.10. USB
1.2.11. Valuation Date
1.3. Rules of Interpretation
1.4. Additional Definitions
1.4.1. Acquiring Person
1.4.2. Affiliate
1.4.3. Associate
1.4.4. Beneficial Owner
1.4.5. Board of Directors
1.4.6. Company Entity
1.4.7. Continuing Director
1.4.8. Exchange Act
1.4.9. Full Change In Control
1.4.10. Partial Change in Control
1.4.11. Permitted Transaction
1.4.12. Person
1.4.13. Resulting Corporation
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SECTION 2. PARTICIPATION 5
2.1. Participation
2.2. Enrollment
2.3. Revocation
2.4. Prior Years' Enrollments
SECTION 3. ADDITIONS TO ACCOUNTS 6
SECTION 4. ESTABLISHMENT AND ADJUSTMENT OF ACCOUNTS 6
4.1. Establishment of Accounts
4.2. Payment of Accounts
4.2.1. Intermediate Distributions Adjustment
4.2.2. Investment Adjustment for Account
4.2.3. Contribution Adjustment
4.2.4. Final Distributions Adjustment
SECTION 5. VESTING OF ACCOUNT 7
SECTION 6. MATURITY 7
6.1. Events of Maturity
6.2. Determination of Account
6.3. Effect of Maturity upon Further Participation in Plan
SECTION 7. DISTRIBUTION 8
7.1. Time of Distribution
7.1.1. Form of Distribution
7.1.2. Time of Distribution
7.1.3. Substantially Equal
7.1.4. Default
7.1.5. Change In Control
7.2. Designation of Beneficiaries
7.2.1. Right To Designate
7.2.2. Failure of Designation
7.2.3. Disclaimers by Beneficiaries
7.2.4. Definitions
7.2.5. Special Rules
7.2.6. No Spousal Rights
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7.3. Death Prior to Full Distribution
7.4. Facility of Payment
SECTION 8. FUNDING OF PLAN 12
8.1. Unfunded Agreement
8.2. Spendthrift Provision
SECTION 9. AMENDMENT AND TERMINATION 13
SECTION 10. DETERMINATIONS -- RULES AND REGULATIONS 13
10.1. Determinations
10.2. Rules and Regulations
10.3. Method of Executing Instruments
10.4. Information Furnished by Directors
SECTION 11. PLAN ADMINISTRATION 14
11.1. USB
11.2. Conflict of Interest
SECTION 12. DISCLAIMERS 14
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U.S. BANCORP
DEFERRED COMPENSATION PLAN FOR DIRECTORS
(1998 RESTATEMENT)
SECTION 1
INTRODUCTION
1.1. RESTATEMENT OF PLAN. Effective January 1, 1988, FIRST BANK SYSTEM,
INC., a Delaware corporation (hereinafter sometimes referred to as "FBS")
authorized the creation of a nonqualified, unfunded, directors' deferral plan
for the purpose of allowing Directors who are not full-time salaried
employees of FBS to defer the receipt of directors' fees which would otherwise
be paid to the Director. FBS created and established a series of
substantially identical annual directors' deferral plans, effective as of
January 1, 1988. They were set forth in documents referred to collectively
as the "Prior Plan Statement." On August 1, 1997, following its merger with
U.S. Bancorp, an Oregon corporation, FBS changed its name to U.S. BANCORP
("USB"). USB has reserved the power to amend and terminate the Prior Plan
Statement from time to time. USB now desires to exercise that reserved power
of amendment by the adoption of this Plan Statement effective as of January
1, 1998.
1.2. DEFINITIONS. When the following terms are used herein with initial
capital letters, they shall have the following meanings:
1.2.1. ACCOUNT -- the separate bookkeeping account representing the
unfunded and unsecured general obligation of USB established with respect to
each Director to which is credited the dollar amounts specified in Section 3 and
Section 4 and from which are subtracted payments made pursuant to Section 5 and
Section 7. To the extent necessary to accommodate different distribution
elections made pursuant to Section 2, the Account shall be maintained as
separate sub-accounts in sufficient number to accommodate each such distribution
election.
1.2.2. ANNUAL VALUATION DATE -- each December 31.
1.2.3. BENEFICIARY -- a person designated by a Director (or
automatically by operation of this Plan Statement) to receive all or a part of
the Director's Account in the event of the Director's death prior to full
distribution thereof. A person so designated shall not be considered a
Beneficiary until the death of the Director.
1.2.4. DIRECTOR -- an individual serving on the Board of Directors
of USB who is not at the same time a common law employee of USB or any of its
subsidiary corporations.
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1.2.5. EVENT OF MATURITY -- any of the occurrences described in
Section 6 by reason of which a Director or Beneficiary may become entitled to a
distribution from the Plan.
1.2.6. PLAN -- the income deferral program maintained by USB
established for the benefit of Directors eligible to participate therein, as
first set forth in the Prior Plan Statement and as amended and restated in
this Plan Statement. (As used herein, "Plan" does not refer to the documents
pursuant to which the Plan is maintained. Those documents are referred to
herein as the "Prior Plan Statement" and the "Plan Statement"). The Plan shall
be referred to as the "U.S. BANCORP DEFERRED COMPENSATION PLAN FOR DIRECTORS."
1.2.7. PLAN STATEMENT -- this document entitled "U.S. BANCORP
DEFERRED COMPENSATION PLAN FOR DIRECTORS (1998 Restatement)" as adopted by the
Board of Directors of U.S. BANCORP effective as of January 1, 1998, as the
same may be amended from time to time thereafter.
1.2.8. PLAN YEAR -- the twelve (12) consecutive month period ending
on any Annual Valuation Date.
1.2.9. PRIOR PLAN STATEMENT -- the series of documents pursuant to
which the Plan was established effective as of January 1, 1988, and operated
thereafter until January 1, 1998.
1.2.10. USB -- U.S. BANCORP (formerly known as FIRST BANK SYSTEM,
INC.), a Delaware corporation, or any successor thereto.
1.2.11. VALUATION DATE -- the last day of each calendar month of the
Plan Year.
1.3. RULES OF INTERPRETATION. Whenever appropriate, words used herein
in the singular may be read in the plural, or words used herein in the plural
may be read in the singular; the masculine may include the feminine; and the
words "hereof," "herein" or "hereunder" or other similar compounds of the
word "here" shall mean and refer to this entire Plan Statement and not to any
particular paragraph or section of this Plan Statement unless the context
clearly indicates to the contrary. The titles given to the various sections
of this Plan Statement are inserted for convenience of reference only and are
not part of this Plan Statement, and they shall not be considered in
determining the purpose, meaning or intent of any provision hereof. Any
reference in this Plan Statement to a statute or regulation shall be
considered also to mean and refer to any subsequent amendment or replacement
of that statute or regulation. This document has been executed and delivered
in the State of MINNESOTA and has been drawn in conformity to the laws of
that State and shall be construed and enforced in accordance with the laws of
the State of MINNESOTA.
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1.4. ADDITIONAL DEFINITIONS. When the following terms are used herein with
initial capital letters, they shall have the following meanings:
1.4.1. ACQUIRING PERSON -- any Person who or which, together
with all Affiliates and Associates of such person, is the Beneficial Owner,
directly or indirectly, of securities of USB representing 20% or more of the
combined voting power of USB's then outstanding securities, but shall not
include any Company Entity.
1.4.2. AFFILIATE -- shall have the meaning ascribed to the term
"Affiliate" in Rule 12b-2 promulgated under the Exchange Act.
1.4.3. ASSOCIATE -- shall have the meaning ascribed to such term in
Rule 12b-2 promulgated under the Exchange Act.
1.4.4. BENEFICIAL OWNER -- shall have the meaning ascribed to such
term in Rule 13d-3 promulgated under the Exchange Act.
1.4.5. BOARD OF DIRECTORS -- the board of directors of USB.
1.4.6. COMPANY ENTITY -- USB, any subsidiary of USB or any employee
benefit plan of USB or of any subsidiary of USB or any entity holding shares of
the voting capital stock of USB organized, appointed or established for, or
pursuant to the terms of, any such plan.
1.4.7. CONTINUING DIRECTOR -- any person who is a member of the
Board of Directors, while such person is a member of the Board of Directors,
who is not an Acquiring Person or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or of any such Affiliate
or Associate, and who (x) was a member of the Board of Directors as of July 17,
1996 or (y) subsequently becomes a member of the Board of Directors, if
such person's initial nomination for election or initial election to the Board
of Directors has been approved in advance by the Continuing Directors;
provided that any director designated by or on behalf of a Person who has
entered into an agreement with USB (or who is contemplating entering into
such an agreement) to effect a consolidation or merger of USB or a Company
Entity, or other reorganization, with or into one or more entities which are
not Company Entities, and any director that serves in connection with the act
of the Board of Directors of increasing the number of directors and filling
vacancies in connection with, or in contemplation of, any such transaction,
shall not be deemed to have received such advance approval for initial
nomination or election, and any such director shall not be deemed to be a
Continuing Director; provided, further, that any such director shall
subsequently become a Continuing Director at such time as a new term of
office as a director is approved by USB's shareholders at an annual meeting of
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shareholders occurring subsequent to the completion of any such transaction (and
excluding any annual meeting at which the shareholders approve any such
transaction); and, provided, further, that in the case of a Permitted
Transaction, any such director shall not become a Continuing Director until the
later of (i) the end of the three-year period following consummation of such
Permitted Transaction or (ii) such time as a new term of office as a director is
approved by USB's shareholders at an annual meeting of shareholders occurring
subsequent to the completion of such Permitted Transaction.
1.4.8. EXCHANGE ACT -- the Securities Exchange Act of 1934, as
amended.
1.4.9. FULL CHANGE IN CONTROL -- shall mean:
(a) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report
filed pursuant to Section 13(d) of the Exchange Act) by USB
or any Person that a Person (other than a Company Entity)
has become the Beneficial Owner, directly or indirectly, of
securities of USB (x) representing 20% or more, but not more
than 50%, of the combined voting power of USB's then
outstanding securities unless the transaction resulting in
such ownership has been approved in advance by the
Continuing Directors or (y) representing more than 50% of
the combined voting power of USB's then outstanding
securities (regardless of any approval by the Continuing
Directors); or
(b) the Continuing Directors cease to constitute a majority of
the Board of Directors of USB or the Resulting Corporation,
except in accordance with the terms of a Permitted
Transaction and except as a result of the death, retirement
or disability of one or more Continuing Directors (unless
any such death, retirement or disability occurs following a
Permitted Transaction and any vacancies created thereby are
not filled in accordance with the terms of the written
agreement governing such Permitted Transaction); or
(c) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the consolidated assets of USB and its
subsidiaries or the adoption of any plan of liquidation or
dissolution of USB.
1.4.10. PARTIAL CHANGE IN CONTROL -- shall mean:
(a) a consolidation or merger of USB or a Company Entity, or
other reorganization, with or into one or more entities
which are not Company
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Entities, as a result of which less than 60% of the
outstanding voting securities of the Resulting Corporation
are, or are to be, owned by former shareholders of USB as
determined immediately prior to consummation of such
transaction (excluding voting securities of the Resulting
Corporation owned, or to be owned, by such shareholders by
reason of their ownership prior to such transaction of
securities of any entity other than USB) and as a result of
which the Continuing Directors constitute (i) more than 50%
of the Board of Directors of the Resulting Corporation or
(ii) exactly 50% of the Board of Directors of the Resulting
Corporation if the transaction resulting in such event is a
Permitted Transaction; or
(b) the public announcement (which, for purposes of this
definition, shall include, without limitation, a report
filed pursuant to Section 13(d) of the Exchange Act) by USB
or any Person that a Person (other than a Company Entity)
has become the Beneficial Owner, directly or indirectly, of
securities of USB representing 20% or more, but not more
than 50%, of the combined voting power of USB's then
outstanding securities if the transaction resulting in such
ownership has been approved in advance by the Continuing
Directors.
1.4.11. PERMITTED TRANSACTION -- a transaction in which, pursuant
to a written agreement between USB and all Persons who have entered into an
agreement with USB to effect a transaction described in paragraph (a) of the
definition of Partial Change in Control, it is agreed that (w) the Chief
Executive Officer of USB immediately prior to the consummation of such
transaction shall be the Chief Executive Officer of the Resulting Corporation
for not less than three years following consummation of such transaction, (x)
upon termination of service of any Continuing Director for any reason,
including upon death, disability or retirement, prior to the expiration of
such director's term during such three-year period, the vacancy thereby
created shall be filled by a nominee selected solely by the Continuing
Directors, (y) upon expiration of the term of any such director during such
three-year period, the nominee to succeed such director shall be selected
solely by the Continuing Directors and (z) the parties will take other
appropriate steps to ensure that the Board of Directors of the Resulting
Corporation will be evenly divided between Continuing Directors and all
directors designated by other parties to the transaction during such
three-year period.
1.4.12. PERSON -- shall have the meaning ascribed to such term as
such term is used in Sections 13(d) and 14(d) of the Exchange Act.
1.4.13. RESULTING CORPORATION -- the surviving corporation in any
consolidation, merger or other reorganization to which USB is a party; provided,
however, that if the surviving corporation in any such transaction is a
subsidiary of another corporation, then the Resulting
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Corporation is the ultimate parent corporation of such surviving corporation;
and provided, further, that in the event of a consolidation, merger or other
reorganization to which a Company Entity (other than USB) is a party, then USB
shall be deemed the Resulting Corporation.
SECTION 2
PARTICIPATION
2.1. PARTICIPATION. Each Director of USB shall be a participant in the
Plan as of the first day the Director first becomes a Director.
2.2. ENROLLMENT. Prior to the first day of participation, the Director may
enroll in the Plan for the remainder of that Plan Year. Prior to the first day
of any subsequent Plan Year, a Director may make a new enrollment for that Plan
Year. Once made, the enrollment shall be irrevocable for the remainder of the
Plan Year with respect to which it is made. Each such enrollment, whether for
the initial Plan Year or for a subsequent Plan Year, shall designate in writing:
(a) the amount or portion of the Director's annual retainer and
meeting fees which shall not be paid to the Director but
instead shall be accumulated in this Plan under Section 3
and Section 4 and distributed from this Plan under Section 6
and Section 7; and
(b) the time and form in which the Account or portion of Account
attributable to such Plan Year's accumulation shall be paid
to the Director in accordance with Section 7.
2.3. REVOCATION. A Director's written enrollment for the 1998 Plan Year or
any later Plan Year shall continue in effect after the Plan Year with respect to
which it is made until an Event of Maturity occurs as to the Director or until
the last day of the Plan Year in which the Director files a written revocation
of the Director's enrollment, whichever occurs first.
2.4. PRIOR YEARS' ENROLLMENTS. Notwithstanding the forgoing, elections
made by Directors about the payment of benefits under the Prior Plan Statement
attributable to accumulations for Plan Years ending before January 1, 1998,
shall not be modified by the adoption of this Plan Statement.
SECTION 3
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ADDITIONS TO ACCOUNTS
USB shall credit monthly to the Account of each Director such amount as the
Director in his or her sole discretion shall have determined in accordance with
Section 2.2. The amount shall be separately determined by each Director and
need not be equal or bear a uniform relationship to the deferrals of other
Directors. The amount so allocated to a Director shall be credited to such
Director's Account as of the Valuation Date in the month for which it is made.
SECTION 4
ESTABLISHMENT AND ADJUSTMENT OF ACCOUNTS
4.1. ESTABLISHMENT OF ACCOUNTS. There shall be established for each
Director an unfunded bookkeeping Account which shall be adjusted each Valuation
Date.
4.2. ADJUSTMENT OF ACCOUNTS. As of each Valuation Date (the "current
Valuation Date"), the value of each Account determined as of the immediately
preceding Valuation Date (the "initial Account value") shall be increased (or
decreased) by the following adjustments made in the following sequence:
4.2.1. INTERMEDIATE DISTRIBUTIONS ADJUSTMENT. The initial Account
value shall be reduced by the total amount distributed in fact to (or with
respect to) the Director from such Account as of a date subsequent to the
immediately preceding Valuation Date but prior to the current Valuation Date.
4.2.2. INVESTMENT ADJUSTMENT FOR ACCOUNT. The initial Account
value of each Director's Account (as adjusted above) shall be increased by
interest. The rate shall be determined from time to time by USB. The rate may
be changed by USB without amendment of the Plan Statement and without notice to
or the consent of any Director, former Director or any Beneficiary. Beginning
January 1, 1998, the rate for each month in a Plan Year shall be equal to the
monthly equivalent of one hundred percent (100%) of the 120 month rolling
average of the 10-year Treasury Note, determined as of September 30 of the
immediately preceding Plan Year. This percentage shall be uniform for all
Directors for the same Valuation Date but may change from Valuation Date to
Valuation Date.
4.2.3. CONTRIBUTION ADJUSTMENT. The initial Account value (as
adjusted above) shall be increased by the total amount, if any, credited to such
Account under Section 3 as of the current Valuation Date.
-11-
<PAGE>
4.2.4. FINAL DISTRIBUTIONS ADJUSTMENT. The initial Account value
(as adjusted above) shall be reduced by the total amount distributed in fact to
(or with respect to) the Director from such Account as of the current Valuation
Date.
SECTION 5
VESTING OF ACCOUNT
The Account of each Director shall be fully (100%) vested at all times.
SECTION 6
MATURITY
6.1. EVENTS OF MATURITY. A Director's Account shall mature and shall
become distributable in accordance with Section 7 upon the earliest
occurrence of any of the following events while in the employment of USB or
an Affiliate:
(a) his or her death, or
(b) his or her removal or resignation from the Board of
Directors of USB, whether voluntary or involuntary, or
(c) his or her Disability, or
(d) termination of the Plan.
6.2. DETERMINATION OF ACCOUNT. Upon the occurrence of an Event of Maturity
effective as to a Director, the value of such Director's Account as of the
Valuation Date coincident with or next following the Event of Maturity shall be
determined.
6.3. EFFECT OF MATURITY UPON FURTHER PARTICIPATION IN PLAN. On the
occurrence of an Event of Maturity, a Director shall cease to have any interest
in the Plan other than the right to receive payment of his or her Account as
provided in Section 7 hereof, adjusted from time to time as provided in Section
4.
SECTION 7
-12-
<PAGE>
DISTRIBUTION
7.1. TIME OF DISTRIBUTION. Upon the occurrence of an Event of Maturity
effective as to a Director, USB shall commence payment of such Director's
Account in the manner designated by the Director in his or her enrollment.
7.1.1. FORM OF DISTRIBUTION. Distribution shall be made in
whichever of the following forms as the Director shall have designated in
writing:
(a) In a series of substantially equal annual installments
payable over ten (10) years.
(b) In a single, lump sum payment.
7.1.2. TIME OF DISTRIBUTION. Distribution shall be made (in the
case of a single lump sum) or commenced (in the case of installments) as of the
first business day of January after the Director's Event of Maturity.
7.1.3. SUBSTANTIALLY EQUAL. Distributions shall be considered
to be substantially equal if the amount of the distribution required to be
made for each calendar year (the "distribution year") is determined by
dividing the amount of the Account as of the last Valuation Date in the
calendar year immediately preceding the distribution year (such preceding
calendar year being the "valuation year") by the number of remaining
installment payments to be made (including the distribution being
determined). The amount of the Account as of such Valuation Date shall be
decreased by the amount of any distributions made in the valuation year and
after such Valuation Date.
7.1.4. DEFAULT. If for any reason a Director shall have failed to
make a written designation of form and time for distribution (including reasons
entirely beyond the control of the Director), the distribution shall be made in
a single lump sum during the January following the date the Director shall have
had an Event of Maturity. No spouse, former spouse, Beneficiary or other person
shall have any right to participate in the Director's selection of a form of
benefit.
7.1.5. CHANGE IN CONTROL. Notwithstanding the foregoing provisions
of this Section or any designation made by a Director, in the event of a Full
Change in Control the Plan shall be automatically terminated and every Account
shall be paid in a single lump sum distribution within thirty (30) days after
the Full Change in Control.
7.2. DESIGNATION OF BENEFICIARIES.
-13-
<PAGE>
7.2.1. RIGHT TO DESIGNATE. Each Director may designate, upon forms
to be furnished by and filed with USB, one or more primary Beneficiaries or
alternative Beneficiaries to receive all or a specified part of such Director's
Account in the event of such Director's death. The Director may change or
revoke any such designation from time to time without notice to or consent from
any Beneficiary. No such designation, change or revocation shall be effective
unless executed by the Director and received by USB during the Director's
lifetime.
7.2.2. FAILURE OF DESIGNATION. If a Director:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such
designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such
Beneficiaries so designated fail to survive the Director,
such Director's Account, or the part thereof as to which such Director's
designation fails, as the case may be, shall be payable to the first class of
the following classes of automatic Beneficiaries with a member surviving the
Director and (except in the case of surviving issue) in equal shares if there is
more than one member in such class surviving the Director:
Director's surviving spouse
Director's surviving issue per stirpes and not per capita
Director's surviving parents
Director's surviving brothers and sisters
Representative of Director's estate.
7.2.3. DISCLAIMERS BY BENEFICIARIES. A Beneficiary entitled to a
distribution of all or a portion of a deceased Director's Account may disclaim
an interest therein subject to the following requirements. To be eligible to
disclaim, a Beneficiary must be a natural person, must not have received a
distribution of all or any portion of the Account at the time such disclaimer is
executed and delivered, and must have attained at least age twenty-one (21)
years as of the date of the Director's death. Any disclaimer must be in writing
and must be executed personally by the Beneficiary before a notary public. A
disclaimer shall state that the Beneficiary's entire interest in the
undistributed Account is disclaimed or shall specify what portion thereof is
disclaimed. To be effective, duplicate original executed copies of the
disclaimer must be both executed and actually delivered to USB after the date of
the Director's death but not later than one hundred eighty (180) days after the
date of the Director's death. A disclaimer shall be irrevocable when delivered
to USB. A disclaimer shall be considered to be delivered to USB only when
actually received by USB. USB shall be the sole judge of the content,
interpretation and
-14-
<PAGE>
validity of a purported disclaimer. Upon the filing of a valid disclaimer, the
Beneficiary shall be considered not to have survived the Director as to the
interest disclaimed. A disclaimer by a Beneficiary shall not be considered to
be a transfer of an interest in violation of the provisions of Section 8. No
other form of attempted disclaimer shall be recognized by USB.
7.2.4. DEFINITIONS. When used herein and, unless the Director
has otherwise specified in the Director's Beneficiary designation, when used
in a Beneficiary designation, "issue" means all persons who are lineal
descendants of the person whose issue are referred to, including legally
adopted descendants and their descendants but not including illegitimate
descendants and their descendants; "child" means an issue of the first
generation; "per stirpes" means in equal shares among living children of the
person whose issue are referred to and the issue (taken collectively) of each
deceased child of such person, with such issue taking by right of
representation of such deceased child; and "survive" and "surviving" mean
living after the death of the Director.
7.2.5. SPECIAL RULES. Unless the Director has otherwise specified
in the Director's Beneficiary designation, the following rules shall apply:
(a) If there is not sufficient evidence that a Beneficiary was
living at the time of the death of the Director, it shall be
deemed that the Beneficiary was not living at the time of
the death of the Director.
(b) The automatic Beneficiaries specified in Section 7.2.2 and
the Beneficiaries designated by the Director shall become
fixed at the time of the Director's death so that, if a
Beneficiary survives the Director but dies before the
receipt of all payments due such Beneficiary hereunder, such
remaining payments shall be payable to the representative of
such Beneficiary's estate.
(c) If the Director designates as a Beneficiary the person who
is the Director's spouse on the date of the designation,
either by name or by relationship, or both, the dissolution,
annulment or other legal termination of the marriage between
the Director and such person shall automatically revoke such
designation. (The foregoing shall not prevent the Director
from designating a former spouse as a Beneficiary on a form
executed by the Director and received by USB after the date
of the legal termination of the marriage between the
Director and such former spouse, and during the Director's
lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is
accompanied by a description of relationship to the Director
shall be given effect
-15-
<PAGE>
without regard to whether the relationship to the Director
exists either then or at the Director's death.
(e) Any designation of a Beneficiary only by statement of
relationship to the Director shall be effective only to
designate the person or persons standing in such
relationship to the Director at the Director's death.
USB shall be the sole judge of the content, interpretation and validity of a
purported Beneficiary designation.
7.2.6. NO SPOUSAL RIGHTS. No spouse or surviving spouse of a
Director and no person designated to be a Beneficiary shall have any rights or
interest in the benefits accumulated under this Plan including, but not limited
to, the right to be the sole Beneficiary or to consent to the designation of
Beneficiaries (or the changing of designated Beneficiaries) by the Director.
7.3. DEATH PRIOR TO FULL DISTRIBUTION. If a Director dies after an Event
of Maturity but before distribution of such Director's Account has been
completed, the remaining undistributed Account shall be distributed in the same
manner as hereinbefore provided in Section 7.1. If, at the death of the
Director, any payment to the Director was due or otherwise pending but not
actually paid, the amount of such payment shall be included in the Account which
are payable to the Beneficiary (and shall not be paid to the Director's estate).
7.4. FACILITY OF PAYMENT. In case of the legal disability of a Director or
Beneficiary entitled to receive any distribution under the Plan, payment shall
be made, if USB shall be advised of the existence of such condition:
(a) to the duly appointed guardian, conservator or other legal
representative of such Director or Beneficiary, or
(b) to a person or institution entrusted with the care or
maintenance of the incompetent or disabled Director or
Beneficiary, provided such person or institution has
satisfied USB that the payment will be used for the best
interest and assist in the care of such Director or
Beneficiary, and provided further, that no prior claim for
said payment has been made by a duly appointed guardian,
conservator or other legal representative of such Director
or Beneficiary.
Any payment made in accordance with the foregoing provisions of this section
shall constitute a complete discharge of any liability or obligation of USB
therefor.
SECTION 8
-16-
<PAGE>
FUNDING OF PLAN
8.1. UNFUNDED AGREEMENT. The obligations of USB to make payments under
this Plan constitute only the unsecured (but legally enforceable) promise of USB
to make such payments. The Director shall have no lien, prior claim or other
security interest in any property of USB. USB is not required to establish or
maintain any fund, trust or account (other than a bookkeeping account or
reserve) for the purpose of funding or paying the benefits promised under this
Plan. If such a fund is established, the property therein shall remain the sole
and exclusive property of USB. USB will pay the cost of this Plan out of its
general assets. All references to accounts, accruals, gains, losses, income,
expenses, payments, custodial funds and the like are included merely for the
purpose of measuring USB's obligation to Directors in this Plan and shall not be
construed to impose on USB the obligation to create any separate fund for
purposes of this Plan.
8.2. SPENDTHRIFT PROVISION. No Director or Beneficiary shall have any
transmissible interest in any Account nor shall any Director or Beneficiary have
any power to anticipate, alienate, dispose of, pledge or encumber the same while
in the possession or control of USB, nor shall USB recognize any assignment
thereof, either in whole or in part, nor shall any Account be subject to
attachment, garnishment, execution following judgment or other legal process
while in the possession or control of USB.
The power to designate Beneficiaries to receive the Account of a Director in the
event of such Director's death shall not permit or be construed to permit such
power or right to be exercised by the Director so as thereby to anticipate,
pledge, mortgage or encumber such Director's Account or any part thereof, and
any attempt of a Director so to exercise said power in violation of this
provision shall be of no force and effect and shall be disregarded by USB.
This section shall not prevent USB from exercising, in its discretion, any of
the applicable powers and options granted to it upon the occurrence of an Event
of Maturity, as such powers may be conferred upon it by any applicable provision
hereof.
SECTION 9
AMENDMENT AND TERMINATION
USB reserves the power to amend or terminate the Plan prior to a Full Change
in Control. No amendment or termination of the Plan, however, shall reduce a
Director's Account earned as of the date of such amendment unless the
Director so affected consents thereto in writing. A Director's Account
earned as of the date of an amendment or termination shall be determined as
if the Director had an Event of Maturity on that date. After a Full Change
in Control, the Plan
-17-
<PAGE>
cannot be amended or terminated (as applied to Directors who are Directors on
the date of the Full Change in Control) unless:
(a) all Accounts of all Directors as of the date of the Full
Change in Control have been paid, or
(b) eighty percent (80%) of all the Directors as of the date of
the Full Change in Control give written consent to such
amendment or termination.
SECTION 10
DETERMINATIONS -- RULES AND REGULATIONS
10.1. DETERMINATIONS. USB shall make such determinations as may be required
from time to time in the administration of the Plan. USB, in its sole
discretion, shall have the authority and responsibility to interpret and
construe the Plan Statement and to determine all factual and legal questions
under the Plan, including but not limited to the entitlement of Directors and
Beneficiaries, and the amounts of their respective interests. Each interested
party may act and rely upon all information reported to them hereunder and need
not inquire into the accuracy thereof, nor be charged with any notice to the
contrary.
10.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with
the provisions hereof may be adopted by USB.
10.3. METHOD OF EXECUTING INSTRUMENTS. Information to be supplied or
written notices to be made or consents to be given by USB pursuant to any
provision of this Plan Statement may be signed in the name of USB by any officer
or director thereof who has been authorized to make such certification or to
give such notices or consents.
10.4. INFORMATION FURNISHED BY DIRECTORS. USB shall not be liable or
responsible for any error in the computation of the Account of a Director
resulting from any misstatement of fact made by the Director, directly or
indirectly, to USB, and used by it in determining the Director's Account. USB
shall not be obligated or required to increase the Account of such Director
which, on discovery of the misstatement, is found to be understated as a result
of such misstatement of the Director. However, the Account of any Director
which are overstated by reason of any such misstatement shall be reduced to the
amount appropriate in view of the truth.
SECTION 11
-18-
<PAGE>
PLAN ADMINISTRATION
11.1. USB. Except as hereinafter provided, functions generally assigned to
USB shall be discharged by the Compensation and Human Resources Committee of the
Board of Directors or delegated and allocated as provided herein.
11.2. CONFLICT OF INTEREST. If any member of the Board of Directors of USB
to whom authority has been delegated or redelegated hereunder shall have an
Account in the Plan, such Director shall have no authority as such Director with
respect to any matter specially affecting such Directors individual interest
hereunder (as distinguished from the interests of all Director's and
Beneficiaries or a broad class of Directors and Beneficiaries), all such
authority being reserved exclusively to the other Directors, to the exclusion of
such Director, and such Director shall act only in such Director's individual
capacity in connection with any such matter.
SECTION 12
DISCLAIMERS
Neither the terms of this Plan Statement nor the benefits hereunder nor the
continuance thereof shall be an obligation of any Director. USB shall not be
obliged to continue the Plan. The terms of this Plan Statement shall not give
any Director the right to be retained on the Board of Directors of USB. Neither
USB nor any of its officers nor any member of its Board of Directors in any way
secure or guarantee the payment of any benefit or amount which may become due
and payable hereunder to any Director or to any Beneficiary or to any creditor
of a Director or a Beneficiary. Each Director, Beneficiary or other person
entitled at any time to payments hereunder shall look solely to the assets of
USB for such payments or to the Account distributed to any Director or
Beneficiary, as the case may be, for such payments. In each case where an
Account shall have been distributed to a former Director or a Beneficiary or to
the person or any one of a group of persons entitled jointly to the receipt
thereof and which purports to cover in full the benefit hereunder, such former
Director or Beneficiary, or such person or persons, as the case may be, shall
have no further right or interest in the other assets of USB. Neither USB nor
any of its officers nor any member of its Board of Directors shall be under any
liability or responsibility for failure to effect any of the objectives or
purposes of the Plan by reason of the insolvency of USB. USB and its officers
and the members of its Board of Directors shall not be liable for an act or
omission of another person with regard to a responsibility that has been
allocated to or delegated to such other person pursuant to the terms of this
Plan Statement or pursuant to procedures set forth in this Plan Statement.
-19-
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31 (Dollars in Millions) 1997 1996 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS
<S> <C> <C> <C> <C> <C>
1. Net income from continuing operations $838.5 $1,218.7 $897.1 $568.2 $701.8
2. Applicable income taxes 552.2 725.7 523.9 311.5 374.9
-------------------------------------------------------------
3. Income before taxes (1 + 2) $1,390.7 $1,944.4 $1,421.0 $879.7 $1,076.7
-------------------------------------------------------------
-------------------------------------------------------------
4. Fixed charges:
a. Interest expense excluding interest on deposits $808.7 $702.5 $681.4 $486.3 $320.4
b. Portion of rents representative of interest and amortization
of debt expense 41.2 45.4 46.6 48.7 52.1
-------------------------------------------------------------
c. Fixed charges excluding interest on deposits (4a + 4b) 849.9 747.9 728.0 535.0 372.5
d. Interest on deposits 1,436.8 1,441.3 1,416.7 1,121.1 1,174.1
-------------------------------------------------------------
e. Fixed charges including interest on deposits (4c + 4d) $2,286.7 $2,189.2 $2,144.7 $1,656.1 $1,546.6
-------------------------------------------------------------
-------------------------------------------------------------
5. Amortization of interest capitalized $ -- $ -- $ -- $.1 $.1
6. Earnings excluding interest on deposits (3 + 4c + 5) 2,240.6 2,692.3 2,149.0 1,414.8 1,449.3
7. Earnings including interest on deposits (3 + 4e + 5) 3,677.4 4,133.6 3,565.7 2,535.9 2,623.4
8. Fixed charges excluding interest on deposits (4c) 849.9 747.9 728.0 535.0 372.5
9. Fixed charges including interest on deposits (4e) 2,286.7 2,189.2 2,144.7 1,656.1 1,546.6
RATIO OF EARNINGS TO FIXED CHARGES
10. Excluding interest on deposits (line 6 / line 8) 2.64 3.60 2.95 2.64 3.89
11. Including interest on deposits (line 7 / line 9) 1.61 1.89 1.66 1.53 1.70
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 13
Pursuant to General Instruction (H) to form 10-K the Company is filing an
integrated Annual Report on Form 10-K. See page 76 for 10-K cover page for the
sections of the Annual Report incorporated into the Form 10-K.
<PAGE>
Exhibit 21
U.S. BANCORP
BANKING AND NON-BANKING SUBSIDIARIES
BANK AND TRUST OPERATIONS
MINNESOTA
U.S. Bank National Association - Has branches in Minnesota, Oregon,
Washington, Colorado, California, Idaho, Nebraska, North Dakota,
Nevada, South Dakota, Montana, Iowa, Illinois, Utah, Wisconsin,
Kansas and Wyoming. Does business under the names First Bank ,
Colorado National Bank and U.S. Bank.
Melrose State Bank
The First National Bank of Little Falls
Zapp National Bank of St. Cloud
First Trust National Association
ARIZONA
First Trust of Arizona, National Association
CALIFORNIA
First Trust of California, National Association
ILLINOIS
First Trust National Association
MONTANA
First Bank Montana, National Association
First Trust Company of Montana National Association
NEW YORK
First Trust of New York, National Association
NORTH DAKOTA
First Bank National Association ND
First Trust Company of North Dakota National Association
OREGON
First State Bank of Oregon
U.S. Bank Trust Company, National Association
SOUTH DAKOTA
First Bank of South Dakota (National Association)
UTAH
West One Trust Company
WASHINGTON
First Trust National Association
WYOMING
Wyoming Trust and Management Company
<PAGE>
NON-BANKING SUBSIDIARIES
State of
Subsidiary Incorporation
---------- -------------
FBS Capital I Delaware
FBS Card Services, Inc. Minnesota
FBS Community Development Corporation Minnesota
FBS Information Services Corporation Minnesota
FBS Merchant Banking Co. Minnesota
FBS Portfolio, Inc. Minnesota
FBS Service Center, Inc. North Dakota
FBS Trade Services Limited Hong Kong
FBS Venture Capital Corporation Minnesota
First Bank System Foundation Minnesota
First Building Corporation Minnesota
First Group Royalties, Inc. Minnesota
First System Services, Inc. Minnesota
Boulevard Technical Services, Incorporated Illinois
U.S. Bancorp Capital I Delaware
U.S. Bancorp Insurance Services, Inc. Delaware
U.S. Trade Services, Inc. Oregon
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements and related Prospectuses of U.S. Bancorp (formerly First Bank
System, Inc.) of our report dated January 15, 1998, with respect to the
consolidated financial statements of U.S. Bancorp included in this Annual
Report (Form 10-K) for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Registration
Form Statement No. Purpose
- - ------------------------------------------------------------------------------
<S> <C> <C>
S-8 33-16242 1987 Stock Option Plan
S-8 33-42333 Employee Stock Purchase Plan
S-8 33-55932 WCIC Options
S-8 33-52835 1988 Equity Participation Plan
S-8 333-01099 FirsTier Financial, Inc. Omnibus Equity Plan
(as assumed by U.S. Bancorp)
S-8 333-01421 1994 & 1991 Stock Incentive Plan
S-8 333-02623 1996 Stock Incentive Plan
S-8 333-02621 Amended & Restated Employee Stock Purchase Plan
S-8 333-21291 Capital Accumulation Plan
S-8 333-32653 Employee Investment Plan
S-8 333-32635 1997 Stock Incentive Plan
S-3 33-33508 Dividend Reinvestment Plan
S-3 33-57169 Metropolitan Financial Corporation warrants
S-3 33-61667 Warrants for settlement of Edina Realty litigation
S-3 333-02983 Automatic Dividend Reinvestment and Common Stock
Purchase Plan
S-3 333-32701 Automatic Dividend Reinvestment and Common Stock
Purchase Plan (1997 DRIP)
S-3 333-45211 Universal Shelf Registration
</TABLE>
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE U.S.
BANCORP DECEMBER 31, 1997, 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,739,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 692,000
<TRADING-ASSETS> 195,000
<INVESTMENTS-HELD-FOR-SALE> 6,885,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 54,708,000
<ALLOWANCE> 1,008,700
<TOTAL-ASSETS> 71,295,000
<DEPOSITS> 49,027,000
<SHORT-TERM> 3,292,000
<LIABILITIES-OTHER> 1,704,000
<LONG-TERM> 10,247,000
0
0
<COMMON> 308,000
<OTHER-SE> 5,582,000
<TOTAL-LIABILITIES-AND-EQUITY> 71,295,000
<INTEREST-LOAN> 4,784,500
<INTEREST-INVEST> 439,600
<INTEREST-OTHER> 69,500
<INTEREST-TOTAL> 5,293,600
<INTEREST-DEPOSIT> 1,436,800
<INTEREST-EXPENSE> 2,245,500
<INTEREST-INCOME-NET> 3,048,100
<LOAN-LOSSES> 460,300
<SECURITIES-GAINS> 3,600
<EXPENSE-OTHER> 2,812,300
<INCOME-PRETAX> 1,390,700
<INCOME-PRE-EXTRAORDINARY> 838,500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 838,500
<EPS-PRIMARY> 3.39
<EPS-DILUTED> 3.34
<YIELD-ACTUAL> 5.04
<LOANS-NON> 293,100
<LOANS-PAST> 93,800
<LOANS-TROUBLED> 4,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 992,500
<CHARGE-OFFS> 576,400
<RECOVERIES> 126,700
<ALLOWANCE-CLOSE> 1,008,700
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
