FORM 10-Q/SEPTEMBER 30, 1998
[LOGO] US BANCORP(R)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from (not applicable)
COMMISSION FILE NUMBER 1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
DELAWARE 41-0255900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
U.S. BANK PLACE,
601 SECOND AVENUE SOUTH,
MINNEAPOLIS, MINNESOTA 55402-4302
(Address of principal executive offices and Zip Code)
612-973-1111
(Registrant's telephone number, including area code)
(NOT APPLICABLE)
(Former name, former address and former fiscal year,
if changed since last report).
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Indicate by check mark whether the registrant (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 twelve months and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO _____
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding as of October 31, 1998
Common Stock, $1.25 Par Value 725,707,498 shares
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FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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September 30 September 30 September 30 September 30
(Dollars in Millions, Except Per Share Data) 1998 1997 1998 1997
====================================================================================================================
<S> <C> <C> <C> <C>
Income before nonrecurring items ..................... $ 370.3 $ 324.8 $ 1,078.5 $ 919.7
Nonrecurring items ................................... (41.2) (372.4) (100.3) (370.1)
--------------------------------------------------------------
Net income (loss) .................................... $ 329.1 $ (47.6) $ 978.2 $ 549.6
==============================================================
PER COMMON SHARE
Earnings (loss) per share ............................ $ .45 $ (.07) $ 1.33 $ .74
Diluted earnings (loss) per share .................... .44 (.07) 1.31 .73
Earnings (loss) on a cash basis (diluted)* ........... .49 (.03) 1.45 .84
Dividends paid ....................................... .175 .155 .525 .465
Common shareholders' equity .......................... 8.13 7.61
PER COMMON SHARE BEFORE NONRECURRING ITEMS
Earnings per share ................................... .50 .44 1.46 1.24
Diluted earnings per share ........................... .50 .43 1.44 1.23
Earnings on a cash basis (diluted)* .................. .55 .47 1.58 1.34
==============================================================
FINANCIAL RATIOS
Return on average assets ............................. 1.81% (.28)% 1.84% 1.07%
Return on average common equity ...................... 21.4 (3.5) 21.4 12.8
Efficiency ratio ..................................... 55.1 84.3 53.2 61.7
Net interest margin (taxable-equivalent basis) ....... 4.83 5.03 4.91 5.05
SELECTED FINANCIAL RATIOS BEFORE NONRECURRING ITEMS
Return on average assets ............................. 2.04 1.88 2.03 1.80
Return on average common equity ...................... 24.1 22.3 23.6 21.5
Efficiency ratio ..................................... 50.3 47.7 48.8 49.3
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September 30 December 31
1998 1997
-----------------------------
PERIOD END
Loans ................................................ $ 56,850 $ 54,708
Allowance for credit losses .......................... 980 1,009
Assets ............................................... 73,884 71,295
Total shareholders' equity ........................... 5,940 5,890
Tangible common equity to total assets** ............. 6.2% 7.0%
Tier 1 capital ratio ................................. 6.8 7.4
Total risk-based capital ratio ....................... 11.4 11.6
Leverage ratio ....................................... 7.0 7.3
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</TABLE>
*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.
TABLE OF CONTENTS AND FORM 10-Q CROSS-REFERENCE INDEX
<TABLE>
<S> <C>
PART I -- FINANCIAL INFORMATION
Management's Discussion and Analysis of Financial Condition and Results of Operations
(Item 2) .............................................................................. 2
Quantitative and Qualitative Disclosures About Market Risk (Item 3) ..................... 14
Financial Statements (Item 1) ........................................................... 17
PART II -- OTHER INFORMATION
Changes in Securities (Item 2) .......................................................... 30
Exhibits and Reports on Form 8-K (Item 6) ............................................... 30
Signature ............................................................................... 30
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges ......................... 31
</TABLE>
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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, Year 2000 issues, and the progress of integrating the former U. S.
Bancorp.
U.S. Bancorp 1
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MANAGEMENT'S DISCUSSION AND ANALYSIS
EARNINGS SUMMARY -- U.S. Bancorp (the "Company") reported third quarter 1998
operating earnings (net income excluding nonrecurring items) of $370.3 million,
compared with $324.8 million in the third quarter of 1997. On a diluted per
share basis, operating earnings were $.50 in the third quarter of 1998,
compared with $.43 in the third quarter of 1997, an increase of 16 percent.
Return on average assets and return on average common equity, excluding
nonrecurring items, were 2.04 percent and 24.1 percent, respectively, in the
third quarter of 1998, compared with returns of 1.88 percent and 22.3 percent
in the third quarter of 1997. Excluding nonrecurring items, the efficiency
ratio (the ratio of expenses to revenues) was 50.3 percent in the third quarter
of 1998, compared with 47.7 percent in the third quarter of 1997.
Operating earnings for the third quarter of 1998 reflected growth in core
noninterest income and a decrease in core noninterest expense from the third
quarter of 1997. Comparisons to prior periods are affected by the May 1, 1998,
acquisition of Piper Jaffray Companies Inc. ("Piper Jaffray"). Without the Piper
Jaffray acquisition, noninterest income, before nonrecurring items, increased by
$59.7 million (15 percent), reflecting growth in credit card fee revenue and
trust and investment management fees. Without the Piper Jaffray acquisition,
noninterest expense, before nonrecurring items, declined by $22.0 million (4
percent). Without the impact of investment banking and brokerage activity, the
efficiency ratio, before nonrecurring items, for the third quarter of 1998 was
43.3 percent, compared with 47.0 percent in the third quarter of 1997.
Net income was $329.1 million in the third quarter of 1998, or $.44 per
diluted share, compared with a net loss as a result of merger-related charges,
of $47.6 million or $.07 per diluted share, in the third quarter of 1997.
Nonrecurring merger-related charges decreased net income in the third quarter of
1998 by $41.2 million ($66.4 million on a pre-tax basis). Nonrecurring items
decreased net income $372.4 million ($525.8 million on a pre-tax basis) in the
third quarter of 1997. These nonrecurring items included pretax gains of $9.4
million on the sale of a credit card portfolio, offset by nonrecurring pretax
charges of $535.2 million which consisted of $440.2 million of merger-related
expenses and a $95.0 million merger-related provision for credit losses related
to the acquisition of U. S. Bancorp ("USBC") of Portland, Oregon. Additional
USBC merger-related charges of approximately $15.0 million, after tax, are
expected to be incurred in the fourth quarter of 1998. Total merger-related
charges for USBC will be approximately $475 million, after tax.
Operating earnings for the first nine months of 1998 were $1.08 billion,
compared with $919.7 million in the first nine months of 1997. On a diluted per
share basis, year-to-date 1998 operating earnings were $1.44, compared with
$1.23 for the same period of 1997, an increase of 17 percent. Year-to-date
return on average assets and return on average common equity, excluding
nonrecurring items, were 2.03 percent and 23.6 percent, respectively, compared
with returns of 1.80 percent and 21.5 percent in the first nine months of 1997.
Excluding nonrecurring items, the efficiency ratio improved to 48.8 percent in
the first nine months of 1998 from 49.3 percent in the first nine months of
1997.
Net income for the first nine months of 1998 was $978.2 million, or $1.31
per diluted share, compared with $549.6 million, or $.73 per diluted share, for
the first nine months of 1997. Year-to-date return on average assets and return
on average common equity were 1.84 percent and 21.4 percent, respectively,
compared with returns of 1.07 percent and 12.8 percent in the same period of
1997. Net nonrecurring items decreased net income by $100.3 million ($159.8
million on a pre-tax basis) in the first nine months of 1998. Year-to-date
nonrecurring items included $12.6 million of net securities gains and $172.4
million of merger-related charges. Net nonrecurring items decreased net income
by $370.1 million ($522.2 million on a pre-tax basis) in the first nine months
of 1997. In addition to the third quarter 1997 nonrecurring items discussed
above, nonrecurring items for the first nine months of 1997 included $3.6
million of pretax net securities gains.
During the quarter the U.S. Government completed its bidding process for
agency purchasing card contracts for which the Company had been the exclusive
provider. Approximately one-half of the business was retained. The new contracts
are effective during the fourth quarter and, on a pro forma basis, would reduce
earnings per share by approximately $.05 annually.
2 U.S. Bancorp
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TABLE 1 SUMMARY OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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(Taxable-Equivalent Basis; September 30 September 30 September 30 September 30
Dollars In Millions, Except Per Share Data) 1998 1997 1998 1997
=========================================================================================================================
<S> <C> <C> <C> <C>
Interest income ............................................. $ 1,382.3 $ 1,346.6 $ 4,083.0 $ 3,989.3
Interest expense ............................................ 603.4 566.8 1,758.2 1,668.0
----------------------------------------------------------
Net interest income ....................................... 778.9 779.8 2,324.8 2,321.3
Provision for credit losses ................................. 95.0 185.0 278.0 370.3
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Net interest income after provision for credit losses ..... 683.9 594.8 2,046.8 1,951.0
Securities gains ............................................ -- -- 12.6 3.6
Other nonrecurring gains .................................... -- 9.4 -- 9.4
Other noninterest income .................................... 616.9 400.3 1,623.9 1,181.7
Merger-related charges ...................................... 66.4 440.2 172.4 440.2
Other noninterest expense ................................... 702.4 562.9 1,926.6 1,727.9
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Income before income taxes ................................ 532.0 1.4 1,584.3 977.6
Taxable-equivalent adjustment ............................... 12.5 14.5 38.5 44.2
Income taxes ................................................ 190.4 34.5 567.6 383.8
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Net income (loss) ......................................... $ 329.1 $ (47.6) $ 978.2 $ 549.6
==========================================================
Return on average assets .................................... 1.81% (.28)% 1.84% 1.07%
Return on average common equity ............................. 21.4 (3.5) 21.4 12.8
Net interest margin ......................................... 4.83 5.03 4.91 5.05
Efficiency ratio ............................................ 55.1 84.3 53.2 61.7
Efficiency ratio before nonrecurring items .................. 50.3 47.7 48.8 49.3
Banking efficiency ratio before nonrecurring items* ......... 43.3 47.0 44.5 48.7
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PER COMMON SHARE:
Earnings (loss) per share ................................... $ .45 $ (.07) $ 1.33 $ .74
Dividends paid .............................................. .175 .155 .525 .465
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</TABLE>
*WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
ACQUISITION AND DIVESTITURE ACTIVITY -- On May 1, 1998, the Company completed
its acquisition of Piper Jaffray, a full-service investment banking and
securities brokerage firm. The acquisition allows the Company to offer
investment banking and institutional and retail brokerage services through a
new subsidiary to be known as U.S. Bancorp Piper Jaffray Inc. The acquisition
of Piper Jaffray was accounted for under the purchase method of accounting, and
accordingly, the purchase price of $738 million (including $719 million
aggregate cash consideration for Piper Jaffray shares outstanding) was
allocated to assets acquired and liabilities assumed based on their fair values
at the date of acquisition.
On August 1, 1997, First Bank System, Inc. completed its acquisition of
USBC and subsequently changed its name to U.S. Bancorp. The transaction was
accounted for as a pooling-of-interests. During 1997, the Company completed
three purchase acquisitions of banks within its operating region: Zappco, Inc.
of St. Cloud, Minnesota; Business and Professional Bank of Sacramento,
California; and, Sun Capital Bancorp of St. George, Utah. The Company also
acquired the bond indenture services and paying agency business of Comerica
Incorporated and sold $420 million of corporate charge card receivables during
1997.
On March 13, 1998, the Company announced an agreement to acquire Northwest
Bancshares, Inc., a privately held bank holding company headquartered in
Vancouver, Washington, with 10 banking locations and $344 million in deposits.
The acquisition is expected to close in the fourth quarter of 1998.
During the third quarter of 1998, the Company announced an agreement to
acquire Libra Investments, Inc., a privately held Los Angeles and New York based
investment bank that specializes in underwriting and trading high yield and
mezzanine securities for middle-market companies. The acquisition is pending
regulatory approval and is expected to close around year end 1998.
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, Corporate Trust and Institutional Financial Services,
and Investment Banking and Brokerage. 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
U.S. Bancorp 3
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TABLE 2 LINE OF BUSINESS FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
Commercial & Business Banking
and Private Financial Services Retail Banking
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For the Three Months Ended September 30 Percent Percent
(Dollars in Millions) 1998 1997 Change 1998 1997 Change
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income (expense)
(taxable-equivalent basis) ................ $ 348.3 $ 338.5 2.9% $ 364.9 $ 378.4 (3.6)%
Provision for credit losses ................. 11.1 15.3 (27.5) 39.6 38.9 1.8
Noninterest income .......................... 87.0 86.2 .9 124.7 124.8 (.1)
Noninterest expense ......................... 139.2 148.1 (6.0) 261.0 290.1 (10.0)
Income taxes and
taxable-equivalent adjustment ............. 108.6 101.2 72.1 66.0
---------------------- ----------------------
Income (loss) before nonrecurring items ..... $ 176.4 $ 160.1 10.2 $ 116.9 $ 108.2 8.0
====================== ======================
Net nonrecurring items (after-tax) ..........
Net income (loss) ...........................
AVERAGE BALANCE SHEET DATA:
Commercial loans ............................ $ 31,950 $ 29,630 7.8 $ 2,071 $ 2,104 (1.6)
Consumer loans, excluding
residential mortgage ...................... 326 289 12.8 11,969 11,725 2.1
Residential mortgage loans .................. 338 289 17.0 3,595 4,712 (23.7)
Assets ...................................... 39,864 37,597 6.0 22,275 23,932 (6.9)
Deposits .................................... 11,064 10,058 10.0 34,071 35,476 (4.0)
Common equity ............................... 2,911 3,089 (5.8) 1,473 1,739 (15.3)
---------------------- ----------------------
Return on average assets .................... 1.76% 1.69% 2.08% 1.79%
Return on average common equity ("ROCE") .... 24.0 20.6 31.5 24.7
Net tangible ROCE** ......................... 29.2 24.7 53.5 44.1
Efficiency ratio ............................ 32.0 34.9 53.3 57.7
Efficiency ratio on a cash basis** .......... 30.8 33.6 51.4 55.7
============================================================================================================================
<CAPTION>
Commercial & Business Banking
and Private Financial Services Retail Banking
------------------------------------------------------------------------------
For the Nine Months Ended September 30 Percent Percent
(Dollars in Millions) 1998 1997 Change 1998 1997 Change
============================================================================================================================
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis) ................ $1,045.9 $1,020.2 2.5% $1,083.6 $1,101.3 (1.6)%
Provision for credit losses ................. 30.9 46.8 (34.0) 113.9 116.9 (2.6)
Noninterest income .......................... 274.3 252.2 8.8 364.2 384.9 (5.4)
Noninterest expense ......................... 422.2 454.4 (7.1) 819.0 906.0 (9.6)
Income taxes and
taxable-equivalent adjustment ............. 330.9 298.4 196.5 179.1
---------------------- ----------------------
Income before nonrecurring items ............ $ 536.2 $ 472.8 13.4 $ 318.4 $ 284.2 12.0
====================== ======================
Net nonrecurring items (after-tax) ..........
Net income ..................................
AVERAGE BALANCE SHEET DATA:
Commercial loans ............................ $ 31,339 $ 29,144 7.5 $ 2,113 $ 2,007 5.3
Consumer loans, excluding
residential mortgage ...................... 316 290 9.0 11,811 11,676 1.2
Residential mortgage loans .................. 306 281 8.9 3,902 4,864 (19.8)
Assets ...................................... 39,755 37,473 6.1 22,291 24,144 (7.7)
Deposits .................................... 11,039 10,011 10.3 34,476 35,782 (3.6)
Common equity ............................... 3,062 3,010 1.7 1,621 1,750 (7.4)
---------------------- ----------------------
Return on average assets .................... 1.80% 1.69% 1.91% 1.57%
Return on average common equity ("ROCE") .... 23.4 21.0 26.3 21.7
Net tangible ROCE** ......................... 28.3 25.4 44.4 40.1
Efficiency ratio ............................ 32.0 35.7 56.6 61.0
Efficiency ratio on a cash basis** .......... 30.8 34.4 54.6 59.0
============================================================================================================================
</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.
4 U.S. Bancorp
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<TABLE>
<CAPTION>
Corporate Trust and Investment Banking Consolidated
Payment Systems Institutional Financial Services and Brokerage Company
- ------------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent
1998 1997 Change 1998 1997 Change 1998 1997 Change 1998 1997 Change
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 49.7 $ 49.0 1.4% $ 16.3 $ 12.8 27.3% $ (.3) $ 1.1 * $ 778.9 $ 779.8 (.1)%
44.3 35.8 23.7 -- -- -- -- -- -- 95.0 90.0 5.6
156.0 113.9 37.0 77.9 62.3 25.0 171.3 13.1 * 616.9 400.3 54.1
83.1 69.5 19.6 47.1 40.8 15.4 172.0 14.4 * 702.4 562.9 24.8
29.8 22.1 18.0 13.2 (.4) (.1) 228.1 202.4
- ------------------ ------------------ ------------------- --------------------
$ 48.5 $ 35.5 36.6 $ 29.1 $ 21.1 37.9 $ (.6) $ (.1) * 370.3 324.8 14.0
================== ================== =================== (41.2) (372.4) *
--------------------
$ 329.1 $ (47.6) *
====================
$1,555 $1,140 36.4 $ -- $ -- -- $ -- $ -- -- $35,576 $32,874 8.2
4,370 3,801 15.0 -- -- -- -- -- -- 16,665 15,815 5.4
-- -- -- -- -- -- -- -- -- 3,933 5,001 (21.4)
6,983 5,816 20.1 675 577 17.0 2,286 501 * 72,083 68,423 5.3
149 42 * 1,716 1,459 17.6 -- -- -- 47,000 47,035 (.1)
654 482 35.7 623 378 64.8 439 48 * 6,100 5,736 6.3
- ------------------ ------------------ ------------------- --------------------
2.76% 2.42% * * * * 2.04% 1.88%
29.4 29.2 18.5% 22.1% (.5)% (.8)% 24.1 22.3
58.0 56.3 48.9 40.2 11.6 (.8) 38.4 32.0
40.4 42.7 50.0 54.3 100.6 101.4 50.3 47.7
36.9 39.3 37.6 43.6 98.5 101.4 47.7 45.2
====================================================================================================================================
<CAPTION>
Corporate Trust and Investment Banking Consolidated
Payment Systems Institutional Financial Services and Brokerage Company
- ------------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent
1998 1997 Change 1998 1997 Change 1998 1997 Change 1998 1997 Change
====================================================================================================================================
$146.4 $ 157.6 (7.1)% $ 46.8 $ 38.7 20.9% $ 2.1 $ 3.5 (40.0)% $2,324.8 $2,321.3 .2%
133.2 111.6 19.4 -- -- -- -- -- -- 278.0 275.3 1.0
447.0 318.3 40.4 222.9 188.4 18.3 315.5 37.9 * 1,623.9 1,181.7 37.4
237.2 200.4 18.4 137.6 126.6 8.7 310.6 40.5 * 1,926.6 1,727.9 11.5
85.1 63.4 50.4 38.9 2.7 .3 665.6 580.1
- ------------------ ------------------ ------------------- ---------------------
$137.9 $ 100.5 37.2 $ 81.7 $ 61.6 32.6 $ 4.3 $ .6 * 1,078.5 919.7 17.3
================== ================== =================== (100.3) (370.1) *
---------------------
$ 978.2 $ 549.6 78.0
=====================
$1,427 $1,296 10.1 $ -- $ -- -- $ -- $ -- -- $ 34,879 $ 32,447 7.5
4,202 3,661 14.8 -- -- -- -- -- -- 16,329 15,627 4.5
-- -- -- -- -- -- -- -- -- 4,208 5,145 (18.2)
6,933 5,656 22.6 632 563 12.3 1,515 564 * 71,126 68,400 4.0
103 44 * 1,619 1,456 11.2 -- -- -- 47,237 47,293 (.1)
633 479 32.2 542 370 46.5 250 48 * 6,108 5,657 8.0
- ------------------ ------------------ ------------------- ---------------------
2.66% 2.38% * * * * 2.03% 1.80%
29.1 28.1 20.2% 22.3% 2.3% 1.7% 23.6 21.5
61.1 46.9 43.0 40.9 26.6 1.7 35.8 31.0
40.0 42.1 51.0 55.7 97.8 97.8 48.8 49.3
35.8 39.4 39.4 45.3 95.9 97.8 46.1 47.0
====================================================================================================================================
</TABLE>
U.S. Bancorp 5
<PAGE>
lines change. During 1998 certain organization and methodology changes were made
and 1997 results are presented on a consistent 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 in the third quarter and 13 percent in
the first nine months of 1998 compared with the same periods of the prior year.
Third quarter return on average assets increased to 1.76 percent from 1.69
percent in the same quarter a year ago. Net tangible return on average common
equity increased to 29.2 percent compared with 24.7 percent in the third quarter
of the prior year. Year-to-date profitability ratios showed similar trends.
Net interest income increased 3 percent in the third quarter and first
nine months of 1998, reflecting growth in average loan and deposit balances
partially offset by margin compression in the commercial loan and deposit
portfolios. Noninterest expense decreased 6 percent and 7 percent in the third
quarter and first nine months of 1998, compared with the same periods of the
prior year, reflecting expense savings attained from the integration of USBC.
The efficiency ratio on a cash basis improved to 30.8 percent in 1998, compared
with 33.6 percent in the third quarter of 1997.
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 increased 8
percent in the third quarter and 12 percent in the first nine months of 1998.
Third quarter and year-to-date return on average assets increased to 2.08
percent and 1.91 percent, respectively, from 1.79 percent and 1.57 percent in
the same periods of the prior year. Third quarter and year-to-date net tangible
return on average common equity was 53.5 percent and 44.4 percent, compared with
44.1 percent and 40.1 percent in the same periods of 1997.
Net interest income for the third quarter and first nine months of 1998
declined 4 percent and 2 percent from the same periods of the prior year, due
primarily to the planned runoff of the residential mortgage loan portfolio and a
decline in deposits partially offset by growth in home equity loans. The
decrease in noninterest expense for both the third quarter and first nine months
of 1998, reflected 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 51.4 percent in the third quarter and 54.6 percent
in the first nine months of 1998, compared with 55.7 percent and 59.0 percent in
the same periods of 1997.
PAYMENT SYSTEMS -- 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. Operating earnings
increased 37 percent in the third quarter and first nine months of 1998 compared
with the same periods of 1997. Third quarter and year-to-date return on average
assets was 2.76 percent and 2.66 percent, compared with 2.42 percent and 2.38
percent in the same periods of 1997. Net tangible return on average common
equity was 58.0 percent and 61.1 percent in the third quarter and first nine
months of 1998, compared with 56.3 percent and 46.9 percent in the third quarter
and first nine months of 1997.
Fee-based noninterest income increased 37 percent in the third quarter and
40 percent in the first nine months of 1998 compared with the same periods of
1997. The increases were due to growth in the sales volume of the Corporate
Card, the Purchasing Card, the Northwest Airlines WorldPerks(R) credit card, and
an increase in the commercial and consumer card interchange rates as well as the
buyout of the third party interest in a merchant processing alliance. Net
interest income increased 1 percent in the third quarter of 1998 versus the
third quarter of 1997 due to an increase in loan fees related to the growth in
the Corporate Card and Purchasing Card business and the effect of purchased
retail credit card portfolios. This increase was partially offset by the sale of
a portfolio in the third quarter of 1997 and the negative effect of the growth
in Corporate Card and Purchasing Card non-earning asset balances. Noninterest
expense increased due to increased technology spending and costs related to
increased sales volume. The efficiency ratio on a cash basis improved to 36.9
percent in the third quarter and 35.8 percent in the first nine months of 1998
from 39.3 percent and 39.4 percent in the same periods of 1997.
CORPORATE TRUST AND INSTITUTIONAL FINANCIAL SERVICES -- Corporate Trust and
Institutional Financial Services includes institutional and corporate trust
services, investment management services, and the former Piper Capital
Management acquired in May of 1998. Operating earnings increased 38 percent and
33 percent in the third quarter and first nine months of 1998 compared with the
same periods of the prior year. Net tangible return on average common equity was
48.9 percent in the third quarter and 43.0 percent in the first nine months of
1998 compared with 40.2 percent in the third quarter and 40.9 percent in the
first nine months of the prior year.
6 U.S. Bancorp
<PAGE>
TABLE 3 NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------------------------
September 30 September 30 September 30 September 30
(Dollars In Millions) 1998 1997 1998 1997
============================================================================================================================
<S> <C> <C> <C> <C>
Net interest income (taxable-equivalent basis) ............... $ 778.9 $ 779.8 $2,324.8 $2,321.3
=============================================================
Average balances of earning assets supported by:
Interest-bearing liabilities ............................... $49,975 $47,764 $ 49,383 $ 47,954
Noninterest-bearing liabilities ............................ 14,019 13,777 13,976 13,489
-------------------------------------------------------------
Total earning assets ...................................... $63,994 $61,541 $ 63,359 $ 61,443
=============================================================
Average yields and weighted average rates
(taxable-equivalent basis):
Earning assets yield ....................................... 8.57% 8.68% 8.62% 8.68%
Rate paid on interest-bearing liabilities .................. 4.79 4.71 4.76 4.65
-------------------------------------------------------------
Gross interest margin ........................................ 3.78% 3.97% 3.86% 4.03%
=============================================================
Net interest margin .......................................... 4.83% 5.03% 4.91% 5.05%
=============================================================
Net interest margin without taxable-equivalent increments .... 4.75% 4.93% 4.82% 4.95%
============================================================================================================================
</TABLE>
Noninterest income increased 25 percent and 18 percent from the third
quarter and first nine months of 1997 due primarily to increases in mutual fund
advisory fees and corporate trust fees. The efficiency ratio on a cash basis
improved to 37.6 percent in the third quarter and 39.4 percent in the first nine
months of 1998 from 43.6 percent and 45.3 percent in the same periods of 1997,
reflecting the effective integration of acquisitions, process re-engineering
efforts, and revenue growth.
INVESTMENT BANKING AND BROKERAGE -- Investment Banking and Brokerage includes
the U.S. Bancorp Piper Jaffray broker/dealer and U.S. Bancorp's existing
broker/dealer operations. The U.S. Bancorp Piper Jaffray broker/dealer is a
full-service brokerage company that was acquired as part of the acquisition of
Piper Jaffray Companies Inc. on May 1, 1998. Table 2 reflects the results of the
U.S. Bancorp Piper Jaffray broker/dealer since the acquisition date, including
the amortization of intangible assets and employee retention programs, and U.S.
Bancorp's existing broker/dealer operations for all periods.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME -- Third quarter net interest income on a taxable-equivalent
basis was $778.9 million compared with $779.8 million in the third quarter of
1997. Year-to-date net interest income on taxable-equivalent basis was $2.32
billion, essentially unchanged from the first nine months of 1997. The third
quarter and year-to-date average earning assets increased $2.5 billion (4
percent) and $1.9 billion (3 percent) from the same periods of 1997, driven by
core commercial and consumer loan growth, partially offset by reductions in
investment securities and residential mortgages. Average loans for the third
quarter and first nine months of 1998 were up 5 percent and 4 percent from the
same periods of the previous year. Excluding residential mortgage loans, average
loans for the third quarter and first nine months of 1998 were higher by $3.6
billion (7 percent) and $3.1 billion (7 percent), than the third quarter and
first nine months of 1997, reflecting growth in commercial loans, home equity
and second mortgages and credit card loans. However, loan growth in the Western
states has not been as great as in the Midwest and Rocky Mountain states due to
the Company's recent focus on training and conversion, as well as the impact of
Asian economic problems on the level of exports from the region. Average
securities for the third quarter and first nine months of 1998 decreased,
reflecting both maturities and sales of securities. The net interest margin in
the third quarter of 1998 of 4.83 percent was below the third quarter 1997
margin of 5.03 percent. The net interest margin for the first nine months of
1998 of 4.91 percent was below the first nine months of 1997 margin of 5.05
percent. The decreases were primarily due to growth in Payment Systems'
noninterest-bearing assets, including corporate and purchasing card loan
balances, the additional funding required by the Piper Jaffray acquisition and
the share repurchase program, and margin compression in the commercial loan
portfolio.
PROVISION FOR CREDIT LOSSES -- The provision for credit losses was $95.0
million in the third quarter and $278.0 million in the first nine months of
1998, up $5.0 million (6 percent) and $2.7 million (1 percent) from the same
periods of the prior year, before the $95.0 million merger-related provision
recorded in the third quarter of 1997 resulting from the USBC acquisition.
Third quarter and year-to-date net charge-offs totaled $106.1 million
U.S. Bancorp 7
<PAGE>
TABLE 4 NONINTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------------------
September 30 September 30 September 30 September 30
(Dollars In Millions) 1998 1997 1998 1997
============================================================================================================
<S> <C> <C> <C> <C>
Credit card fee revenue ........................ $156.1 $106.2 $ 430.5 $ 295.7
Trust and investment management fees ........... 104.8 87.4 307.7 259.2
Service charges on deposit accounts ............ 101.7 102.2 299.0 295.0
Investment products fees and commissions ....... 76.0 16.5 151.7 49.0
Trading account profits and commissions ........ 42.8 6.5 77.9 23.8
Investment banking revenue ..................... 38.3 -- 67.3 --
Gain on sale of credit card portfolio .......... -- 9.4 -- 9.4
Securities gains ............................... -- -- 12.6 3.6
Other .......................................... 97.2 81.5 289.8 259.0
----------------------------------------------------------
Total noninterest income ..................... $616.9 $409.7 $1,636.5 $1,194.7
============================================================================================================
</TABLE>
and $316.0 million, up from $102.2 million and $284.1 million in the same
periods of 1997, before third quarter 1997 merger-related net charge-offs of
$62.3 million. The increases reflect growth in consumer loans and higher fraud
losses. Refer to "Corporate Risk Management" for further information on credit
quality.
NONINTEREST INCOME -- Third quarter 1998 noninterest income was $616.9 million,
an increase of $207.2 million (51 percent), from the third quarter of 1997.
Noninterest income in the first nine months of 1998 was $1.64 billion, compared
with $1.19 billion in the first nine months of 1997. Noninterest income in the
first nine months of 1998 included nonrecurring net securities gains of $12.6
million, compared with net securities gains of $3.6 million in the first nine
months of the prior year. Third quarter 1997 noninterest income also included a
$9.4 million nonrecurring gain on the sale of a credit card portfolio.
Excluding nonrecurring items, third quarter 1998 noninterest income was
$616.9 million, an increase of $216.6 million (54 percent) from the same quarter
of 1997. Year-to-date 1998 noninterest income was $1.62 billion, an increase of
$442.2 million (37 percent) from year-to-date 1997. Excluding nonrecurring items
and the effect of the Piper Jaffray acquisition, noninterest income increases
were $59.7 million (15 percent) and $186.1 million (16 percent) for the third
quarter and year-to-date, respectively. The increases resulted principally from
growth in credit card and trust and investment management fee revenue. Third
quarter and year-to-date 1998 credit card fee revenue increased $49.9 million
(47 percent) and $134.8 million (46 percent) over the same periods of 1997,
primarily as a result of higher volumes for purchasing and corporate cards and
the Northwest Airlines WorldPerks credit card. Credit card fees were also
enhanced by the renewal of the Northwest Airlines WorldPerks program in the
fourth quarter of 1997 and the buyout of the third party interest in a merchant
processing alliance in the first quarter of 1998. Without these items, credit
card fees would have increased by 34 percent. The Company expects a more
moderate growth rate in credit card revenue in 1999 due to the loss of
approximately 50 percent of the U.S. Government purchasing card business. Trust
and investment management fees, investment products fees and commissions,
trading account profits and commissions and investment banking revenue
increased, due to core growth and the acquisition of Piper Jaffray.
NONINTEREST EXPENSE -- Noninterest expense in the third quarter and first nine
months of 1998 included nonrecurring merger-related charges of $66.4 million
and $172.4 million, compared with merger-related charges of $440.2 million in
the third quarter and first nine months of 1997.
Third quarter 1998 noninterest expense, before nonrecurring items, was
$702.4 million, an increase of $139.5 million (25 percent), from $562.9 million
in the third quarter of 1997. Year-to-date 1998 noninterest expense, before
nonrecurring items, increased $198.7 million (11 percent) to $1.93 billion from
$1.73 billion in the first nine months of 1997. Without the effect of Piper
Jaffray, noninterest expense, before nonrecurring items, decreased by $22.0
million and $63.3 million in the third quarter and first nine months of 1998,
compared with the same periods of 1997, primarily reflecting the expense
savings from the integration of USBC. The Company has now achieved 100 percent
of the originally targeted expense reduction associated with the USBC merger.
Total salaries and benefits expense increased in the third quarter and first
nine months of 1998 as a result of the Piper Jaffray acquisition. Average
full-time equivalent employees were 27,552 in the third quarter of 1998
compared with 25,477 in the third quarter of 1997. Third quarter and
year-to-date 1998 goodwill and other intangible expense was higher than the
same periods of 1997, as a result of the Piper Jaffray acquisition plus several
small bank and portfolio purchases during 1997 and the buyout of a
8 U.S. Bancorp
<PAGE>
TABLE 5 NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-----------------------------------------------------------
September 30 September 30 September 30 September 30
(Dollars In Millions, Except Per Employee Data) 1998 1997 1998 1997
==========================================================================================================================
<S> <C> <C> <C> <C>
Salaries ..................................................... $ 339.6 $ 242.2 $ 882.5 $ 729.7
Employee benefits ............................................ 55.7 49.2 168.6 167.5
-----------------------------------------------------------
Total personnel expense .................................... 395.3 291.4 1,051.1 897.2
Net occupancy ................................................ 49.2 45.3 140.6 136.3
Furniture and equipment ...................................... 39.4 40.4 114.4 127.4
Goodwill and other intangible assets ......................... 37.1 29.1 106.5 82.3
Telephone .................................................... 19.2 15.5 51.7 44.8
Third party data processing .................................. 18.3 9.0 50.2 28.0
Advertising and marketing .................................... 14.3 13.3 47.8 42.2
Professional services ........................................ 18.3 18.9 44.9 47.5
Other personnel costs ........................................ 10.4 14.3 40.3 47.1
Postage ...................................................... 11.0 11.3 33.5 34.0
Printing, stationery and supplies ............................ 13.1 8.6 33.0 28.5
FDIC insurance ............................................... 2.0 2.4 6.1 6.9
Merger-related ............................................... 66.4 440.2 172.4 440.2
Other ........................................................ 74.8 63.4 206.5 205.7
-----------------------------------------------------------
Total noninterest expense .................................. $ 768.8 $1,003.1 $2,099.0 $2,168.1
===========================================================
Efficiency ratio* ............................................ 55.1% 84.3% 53.2% 61.7%
Efficiency ratio before nonrecurring items ................... 50.3 47.7 48.8 49.3
Banking efficiency ratio before nonrecurring items** ......... 43.3 47.0 44.5 48.7
Average number of full-time equivalent employees ............. 27,552 25,477 26,408 26,171
Annualized personnel expense per employee .................... $57,390 $ 45,751 $ 53,070 $ 45,710
==========================================================================================================================
</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.
**WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
merchant processing alliance. Without the impact of investment banking and
brokerage activity, the banking efficiency ratio, before nonrecurring items, was
43.3 percent and 44.5 percent for the third quarter and first nine months of
1998, compared with 47.0 percent and 48.7 percent for the same periods a year
ago.
The Company has undertaken efforts to address the "Year 2000" computer
problem, which arose because many computer applications worldwide will not
properly recognize the date change from December 31, 1999 to January 1, 2000,
potentially causing production of erroneous data, miscalculations, system
failures and other operational problems. In the early 1990's, the Company
implemented significant technology changes and replaced many of its principal
data processing applications with licensed software packages. The Company also
undertook an organization-wide initiative to address the Year 2000 issue,
including the formation in 1996 of a dedicated project team of employees to
evaluate the Year 2000 impact on the Company's critical computer hardware and
software and embedded technologies in its physical plant and automated equipment
(such as ATMs, check sorting machines, vaults and security systems), and on its
customers. In addition to evaluating the scope of the Year 2000 issue, the
project team has prioritized tasks, developed implementation plans and
established completion and testing schedules. As a result, the Company is
replacing, modifying or reprogramming certain systems, is requiring that new
purchased hardware and software be Year 2000 compliant, and is testing systems
in an isolated environment dedicated to Year 2000 testing. Apart from the
Company's project, federal banking regulators are conducting special
examinations of FDIC-insured banks and savings associations to determine whether
they are taking necessary steps to prepare for the Year 2000 issue, and are
closely monitoring the progress made by these institutions in completing key
steps required by their individual Year 2000 plans.
The Company expects that evaluation, replacement, renovation and testing
of its critical internal computer hardware and software and embedded
technologies will be substantially completed by December 31, 1998, allowing
time for necessary refinements and additional testing before December 31, 1999.
In addition, the remediation and testing of non-critical systems is in progress
and is expected to be substantially completed during 1999. The Company
estimates that the cost of its Year 2000 project will aggregate less than $50
million over the three-year period ending December 31, 1999. The Company has
not deferred any material information technology projects as a consequence of
its Year 2000 efforts.
U.S. Bancorp 9
<PAGE>
Ultimately, the potential impact of the Year 2000 issue will depend not
only on the success of the corrective measures the Company undertakes, but also
on the way in which the Year 2000 issue is addressed by customers, vendors,
service providers, counterparties, clearing houses, utilities (e.g., power,
telecommunications, transportation), governmental agencies and other entities
with which the Company does business. The Company is communicating with these
parties to heighten their awareness of the Year 2000 issue, to learn how they
are addressing it, and to evaluate any likely impact on the Company. For
example, the Company is conducting a Year 2000 survey of its corporate and
middle-market borrowing customers and of other significant funds takers, funds
providers and capital market/asset management counterparties, and has
implemented in its lending units uniform criteria for identifying, managing and
underwriting Year 2000 credit risk. The Company also is contacting important
vendors to receive commitment dates for their Year 2000 readiness and delivery
of compliant software and other products. In addition, the Company is monitoring
the Year 2000 preparations of entities such as the Federal Reserve, which
provides services for processing and settling payments and securities
transactions between banks. A prioritized schedule for external testing with
certain customers, vendors and service providers (including the Federal Reserve)
is being established and such testing will be ongoing during 1999.
Based on the Company's Year 2000 efforts, management presently believes
that the Year 2000 issue will not result in significant operational problems
for the Company. In addition, the Company's Year 2000 project has contingency
plans designed to mitigate the potential effects of system failures in the
event of reasonably likely worst case scenarios. These contingency plans
include back-up solutions for mission-critical operations and business
continuation plans for significant vendors and other business partners. For
example, the Company has arranged for reserve power supplies for certain vital
locations, and will have available back-up account data and alternative manual
processes for certain business line functions. Notwithstanding the Company's
efforts and such contingency plans, however, given the unprecedented nature of
the Year 2000 computer problem, there can be no assurance that Year 2000 issues
will not arise, or that any such issues will be fully mitigated. Further, the
Year 2000 efforts of third parties are not within the Company's control and
their failure to remediate Year 2000 issues successfully could result in, among
other things, business disruption, operational problems, financial loss,
increased credit risk and legal liability for the Company. At the present time,
it is not possible to determine whether any such third-party failures are likely
to occur, or to quantify any potential negative impact they may have on the
Company's future results of operations and financial condition.
The foregoing discussion regarding Year 2000, including the discussion of
the timing and effectiveness of implementation and cost of the Company's Year
2000 project, contains forward-looking statements, which are based on
management's best estimates derived using various assumptions. These
forward-looking statements involve inherent risks and uncertainties, and actual
results could differ materially from those contemplated by such statements.
Factors that might cause material differences include, but are not limited to,
the availability and cost of hardware and software and key Year 2000 personnel,
the Company's ability to locate and correct all relevant computer codes and
embedded technologies, and its ability to respond to unforeseen Year 2000
complications. Such material differences could result in business disruption,
operational problems, financial loss, legal liability and similar adverse
effects on the Company, which effects could be material.
PROVISION FOR INCOME TAXES -- The provision for income taxes was $190.4 million
in the third quarter and $567.6 million in the first nine months of 1998,
compared with $34.5 million and $383.8 million in the same periods of 1997. The
increases were primarily the result of higher levels of taxable income, as
discussed above.
BALANCE SHEET ANALYSIS
LOANS -- The Company's loan portfolio was $56.9 billion at September 30, 1998,
compared with $54.7 billion at December 31, 1997. The portfolio of commercial
loans totaled $36.3 billion at September 30, 1998, up $2.5 billion from
December 31, 1997. The increase was primarily attributable to growth in core
commercial loans. Total consumer loan outstandings were $20.6 billion at
September 30, 1998, compared with $20.9 billion at December 31, 1997. Excluding
residential mortgage loan balances, consumer loans were $16.7 billion at
September 30, 1998, compared with $16.3 billion at December 31, 1997,
reflecting growth in core consumer loans. See Note E to the Consolidated
Financial Statements for the composition of the Company's loan portfolio at
September 30, 1998 and December 31, 1997.
SECURITIES -- At September 30, 1998, available-for-sale securities were $5.5
billion compared with $6.9 billion at December 31, 1997, reflecting both
maturities and sales of securities.
DEPOSITS -- Noninterest-bearing deposits were $15.3 billion at September 30,
1998, compared with $14.5
10 U.S. Bancorp
<PAGE>
TABLE 6 NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-----------------------------------------------------------
September 30 September 30 September 30 September 30
1998 1997 1998 1997
==============================================================================================
<S> <C> <C> <C> <C>
COMMERCIAL:
Commercial ................... .39% 1.44% .32% .77%
Real estate:
Commercial mortgage ......... (.44) .02 (.21) (.20)
Construction ................ .18 .24 .18 .20
-----------------------------------------------------------
Total commercial ............ .19 1.01 .18 .49
CONSUMER:
Residential mortgage ......... .22 .13 .20 .09
Credit card .................. 4.26 4.23 4.43 4.20
Other ........................ 1.37 1.28 1.41 1.24
-----------------------------------------------------------
Total consumer .............. 1.72 1.54 1.75 1.47
-----------------------------------------------------------
Total ....................... .75% 1.22% .76% .87%
==============================================================================================
</TABLE>
billion at December 31, 1997. Interest-bearing deposits totaled $33.2 billion
at September 30, 1998, compared with $34.5 billion at December 31, 1997. The
decrease reflects customers transferring funds from certificates of deposit
into alternative investment vehicles.
BORROWINGS -- Short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings,
remained relatively flat at $3.2 billion at September 30, 1998, compared with
$3.3 billion at December 31, 1997.
Long-term debt was $12.9 billion at September 30, 1998, up from $10.2
billion at December 31, 1997. The Company issued $2.8 billion of debt, with an
average original maturity of 2.5 years, under its medium-term and bank note
programs during the first nine months of 1998, and $1.2 billion in Federal Home
Loan Bank Advances, with an average original maturity of 4.0 years. The Company
also issued $300 million of 6.50 percent fixed rate subordinated notes due
February 1, 2008 and $300 million of 6.30 percent fixed rate subordinated notes
due July 15, 2008 during the first nine months of 1998. These issuances were
partially offset by $1.6 billion of medium-term and bank note maturities and
maturities of $352 million of Federal Home Loan Bank Advances.
During the first nine months of 1998, the Company issued $350 million of
Company-obligated mandatorily redeemable preferred securities (the "preferred
securities"). The preferred securities qualify as tier 1 capital for computing
regulatory capital ratios.
CORPORATE RISK MANAGEMENT
CREDIT MANAGEMENT -- 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-offs 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 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. However, the Company has experienced lower commercial loan
growth in its Western states due, in part, to that region's higher dependency
on Asian exports. Approximately 40 percent of the Company's loan portfolio
consists of credit to businesses and consumers in Minnesota, Oregon and
Washington. The Company has minimal exposure to emerging markets and no
exposure to hedge funds.
NET CHARGE-OFFS AND ALLOWANCE FOR CREDIT LOSSES -- Net loan charge-offs totaled
$106.1 million and $316.0 million in the third quarter and first nine months of
1998, compared with $164.5 million and $346.4 million in the same periods of
1997. Included in third quarter and year-to-date 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
U.S. Bancorp 11
<PAGE>
TABLE 7 SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------------------
September 30 September 30 September 30 September 30
(Dollars in Millions) 1998 1997 1998 1997
===============================================================================================================
<S> <C> <C> <C> <C>
Balance at beginning of period ...................... $ 981.8 $ 999.4 $1,008.7 $ 992.5
CHARGE-OFFS:
Commercial:
Commercial ....................................... 40.6 93.8 100.5 156.7
Real estate:
Commercial mortgage ............................ 2.3 3.8 6.8 8.6
Construction ................................... 1.4 1.5 4.3 4.2
---------------------------------------------------------
Total commercial ............................... 44.3 99.1 111.6 169.5
Consumer:
Residential mortgage ............................. 2.5 1.9 7.4 4.4
Credit card ...................................... 48.7 44.2 147.8 128.7
Other ............................................ 57.3 47.4 166.2 137.3
---------------------------------------------------------
Total consumer ................................. 108.5 93.5 321.4 270.4
---------------------------------------------------------
Total .......................................... 152.8 192.6 433.0 439.9
RECOVERIES:
Commercial:
Commercial ....................................... 16.1 11.8 43.4 29.7
Real estate:
Commercial mortgage ............................ 11.3 3.4 19.8 20.8
Construction ................................... .2 .1 .9 .8
---------------------------------------------------------
Total commercial ............................... 27.6 15.3 64.1 51.3
Consumer:
Residential mortgage ............................. .3 .2 1.1 .9
Credit card ...................................... 4.9 4.1 15.2 15.2
Other ............................................ 13.9 8.5 36.6 26.1
---------------------------------------------------------
Total consumer ................................. 19.1 12.8 52.9 42.2
---------------------------------------------------------
Total .......................................... 46.7 28.1 117.0 93.5
NET CHARGE-OFFS:
Commercial:
Commercial ....................................... 24.5 82.0 57.1 127.0
Real estate:
Commercial mortgage ............................ (9.0) .4 (13.0) (12.2)
Construction ................................... 1.2 1.4 3.4 3.4
---------------------------------------------------------
Total commercial ............................... 16.7 83.8 47.5 118.2
Consumer:
Residential mortgage ............................. 2.2 1.7 6.3 3.5
Credit card ...................................... 43.8 40.1 132.6 113.5
Other ............................................ 43.4 38.9 129.6 111.2
---------------------------------------------------------
Total consumer ................................. 89.4 80.7 268.5 228.2
---------------------------------------------------------
Total .......................................... 106.1 164.5 316.0 346.4
Provision charged to operating expense .............. 95.0 185.0 278.0 370.3
Additions related to acquisitions and other ......... 9.4 -- 9.4 3.5
---------------------------------------------------------
Balance at end of period ............................ $980.1 $1,019.9 $ 980.1 $1,019.9
=========================================================
Allowance as a percentage of:
Period-end loans .................................. 1.72% 1.88%
Nonperforming loans ............................... 364 343
Nonperforming assets .............................. 336 302
===============================================================================================================
</TABLE>
12 U.S. Bancorp
<PAGE>
TABLE 8 DELINQUENT LOAN RATIOS*
<TABLE>
<CAPTION>
September 30 December 31
90 days or more past due 1998 1997
====================================================================================
<S> <C> <C>
COMMERCIAL:
Commercial ........................................... .61% .78%
Real estate:
Commercial mortgage ................................. .49 .57
Construction ........................................ .70 .67
--------------------------
Total commercial .................................... .59 .72
CONSUMER:
Residential mortgage ................................. 1.45 1.43
Credit card .......................................... .61 .69
Other ................................................ .53 .42
--------------------------
Total consumer ...................................... .72 .70
--------------------------
Total ............................................... .64% .71%
====================================================================================
</TABLE>
*RATIOS INCLUDE NONPERFORMING LOANS AND ARE EXPRESSED AS A PERCENT OF ENDING
LOAN BALANCES.
the Company. Commercial loan net charge-offs were $16.7 million and $47.5
million in the third quarter and first nine months of 1998, compared with $83.8
million and $118.2 million, including $55.3 million of merger-related
charge-offs recorded in the third quarter of 1997, in the same periods of the
prior year. Consumer loan net charge-offs for the quarter and year-to-date were
$89.4 million and $268.5 million, compared with $80.7 million and $228.2
million, including $7.0 million of merger-related charge-offs recorded in the
third quarter of 1997, for the same periods of 1997. The increases in consumer
loan net charge-offs reflect growth in the consumer loan portfolio and higher
fraud losses. Consumer loans 30 days or more past due declined to 2.30 percent
of the portfolio at September 30, 1998, compared with 2.76 percent at December
31, 1997.
NONPERFORMING ASSETS -- Nonperforming assets include all nonaccrual loans,
restructured loans, other real estate and other nonperforming assets owned by
the Company. At September 30, 1998, nonperforming assets totaled $292.0
million, down $47.5 million (14 percent) from December 31, 1997. The ratio of
nonperforming assets to loans and other real estate was .51 percent at
September 30, 1998, compared with .62 percent at December 31, 1997. The
percentage of consumer loans 90 days or more past due of the total consumer
loan portfolio totaled .72 percent at September 30, 1998, compared with .70
percent at December 31, 1997.
TABLE 9 NONPERFORMING ASSETS*
<TABLE>
<CAPTION>
September 30 December 31
(Dollars In Millions) 1998 1997
=================================================================================================
<S> <C> <C>
COMMERCIAL:
Commercial ....................................................... $ 149.4 $ 179.1
Real estate:
Commercial mortgage ............................................. 38.3 45.4
Construction .................................................... 19.4 14.9
--------------------------
Total commercial ................................................ 207.1 239.4
CONSUMER:
Residential mortgage ............................................. 48.5 52.1
Other ............................................................ 13.5 5.6
--------------------------
Total consumer .................................................. 62.0 57.7
--------------------------
Total nonperforming loans ....................................... 269.1 297.1
OTHER REAL ESTATE .................................................. 15.5 30.1
OTHER NONPERFORMING ASSETS ......................................... 7.4 12.3
--------------------------
Total nonperforming assets ...................................... $ 292.0 $ 339.5
==========================
Accruing loans 90 days or more past due** .......................... $ 93.9 $ 93.8
Nonperforming loans to total loans ................................. .47% .54%
Nonperforming assets to total loans plus other real estate ......... .51 .62
=================================================================================================
</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 13
<PAGE>
TABLE 10 INTEREST RATE SWAP HEDGES: NOTIONAL BALANCES AND YIELDS BY MATURITY
DATE
<TABLE>
<CAPTION>
At September 30, 1998 (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 (remaining three months) ............... $ 560 5.99% 5.57%
1999 ........................................ 2,242 6.09 5.59
2000 ........................................ 815 6.23 5.60
2001 ........................................ 357 6.52 5.58
2002 ........................................ 520 6.22 5.59
After 2002 .................................. 2,225 6.57 5.60
--------
Total ....................................... $ 6,719 6.29% 5.59%
=======================================================================================
</TABLE>
*AT SEPTEMBER 30, 1998, THE COMPANY HAD NO SWAPS IN ITS HEDGING PORTFOLIO THAT
REQUIRED IT TO PAY FIXED-RATE INTEREST.
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 consolidated interest
rate risk: Net Interest Income Simulation Modeling, Market Value Simulation
Modeling, and Repricing Mismatch Analysis. As part of Market Value Simulation
Modeling, ALCO uses a value-at-risk ("VaR") model to measure and manage market
risk in its broker/dealer activities.
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 one percent, two percent and three 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 two percent of forecasted net interest income
given a one percent change in interest rates. At September 30, 1998, the
estimated effects of an immediate 100 basis point parallel change in rates were
a decrease in forecasted net interest income for twelve months of .17 percent
(up 100 basis points) and an increase of .08 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 outstanding assets, liabilities and
off-balance sheet instruments. The amount of market value risk is subject to a
limit, 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 VaR model used to measure and manage market risk in the broker/dealer
business uses an estimate of volatility appropriate to each instrument and a
three standard deviation move in the underlying markets. The Company believes
the market risk inherent in its broker/dealer activities, including fixed
income, equities and foreign exchange, is immaterial.
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
14 U.S. Bancorp
<PAGE>
TABLE 11 CAPITAL RATIOS
<TABLE>
<CAPTION>
September 30 December 31
(Dollars in Millions) 1998 1997
=======================================================================================
<S> <C> <C>
Tangible common equity* .................................. $ 4,502 $ 4,897
As a percent of assets ................................. 6.2% 7.0%
Tier 1 capital ........................................... $ 4,943 $ 5,028
As a percent of risk-adjusted assets ................... 6.8% 7.4%
Total risk-based capital ................................. $ 8,281 $ 7,859
As a percent of risk-adjusted assets ................... 11.4% 11.6%
Leverage ratio ........................................... 7.0 7.3
=======================================================================================
</TABLE>
*DEFINED AS COMMON EQUITY LESS GOODWILL.
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.
In the third quarter and first nine months of 1998, the Company added $300
million and $2.1 billion, respectively, 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 September 30, 1998,
the Company received payments on $6.7 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 6.29 percent and a weighted average variable rate paid of 5.59 percent. The
remaining maturity of these agreements ranges from one month to 9.8 years with
an average remaining maturity of 3.3 years. Swaps increased net interest income
for the quarters ended September 30, 1998 and 1997 by $8.9 million and $6.2
million, and for the nine months ended September 30, 1998 and 1997 by $25.0
million and $18.0 million.
To hedge against falling interest rates, the Company uses interest rate
floors. Floor counterparties pay the Company when specified rates fall below a
specified point or strike level. The payment is based on the notional amount and
the difference between current rates and strike rates. The total notional amount
of floor agreements purchased as of September 30, 1998, was $700 million. LIBOR-
based floors totaled $500 million and Constant Maturity Treasury floors totaled
$200 million. The impact of floors on net interest income was not material for
the nine months ended September 30, 1998 and 1997.
CAPITAL MANAGEMENT -- At September 30, 1998, total tangible common equity was
$4.5 billion, or 6.2 percent of assets, compared with 7.0 percent at December
31, 1997. Tier 1 and total risk-based capital ratios were 6.8 percent and 11.4
percent at September 30, 1998, compared with 7.4 percent and 11.6 percent at
December 31, 1997. The September 30, 1998 leverage ratio was 7.0 percent
compared with 7.3 percent at December 31, 1997.
On June 8, 1998, the Company's Board of Directors authorized the
repurchase of up to $2.5 billion of the Company's common stock through March
31, 2000. The shares will be repurchased in the open market or through
negotiated transactions. Through September 30, 1998, the Company repurchased
18.0 million shares for $723 million.
On April 22, 1998, the Company's shareholders authorized an increase in
the Company's capital stock necessary to implement the three-for-one split of
the Company's common stock announced on February 18, 1998. The number of common
and preferred shares which the Company has authority to issue was increased
from 500 million shares and 10 million shares, respectively, to 1.5 billion
shares and 50 million shares, respectively. The stock split was in the form of
a 200 percent dividend payable May 18, 1998 to shareholders of record on May 4,
1998. The impact of the stock split has been reflected in the financial
statements for all periods presented and all share and per share data included
herein.
On August 1, 1997, the Company issued 329.7 million shares to acquire
USBC. The Company exchanged 2.265 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
U.S. Bancorp 15
<PAGE>
substantially identical terms. 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.
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," which
establishes criteria, based on legal control, to determine whether a transfer
of financial assets is considered a sale or secured borrowing. Effective
January 1, 1998, and in accordance with SFAS 127 which amended SFAS 125, the
Company adopted the provisions of SFAS 125 relating to securities lending,
repurchase agreements and other secured financing transactions. The adoption of
SFAS 125 did not have a material effect on the Company.
COMPREHENSIVE INCOME -- Effective January 1, 1998, the Company adopted SFAS
130, "Reporting Comprehensive Income," which 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 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. All prior periods presented have been restated to conform to the
provisions of this Statement.
COMPUTER SOFTWARE COSTS -- Effective January 1, 1998, the Company adopted
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use. Historically, the Company has expensed
such costs as incurred. Restatement of previously issued annual financial
statements or adoption by a cumulative catch-up adjustment is prohibited. The
adoption of SOP 98-1 did not have a material impact on the Company.
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.
PENSIONS AND OTHER POSTRETIREMENT BENEFIT DISCLOSURE -- SFAS 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable. The Statement supersedes the disclosure requirements of:
SFAS 87, "Employers' Accounting for Pensions"; SFAS 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits"; and, SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Statement addresses disclosure only and not
measurement or recognition. SFAS 132 is effective for the Company's 1998
year-end financial statements. All prior period disclosures will be restated to
conform to the provisions of this Statement.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In certain defined conditions, a derivative may be
specifically designated as a hedge for a particular exposure. The accounting
for changes in the fair value of the derivative depends on the intended use of
the derivative and the resulting designation. SFAS 133 is effective for all
quarters of fiscal years beginning after June 15, 1999, with earlier
application permitted. Retroactive application of this Statement to prior
periods is prohibited. The adoption of SFAS 133 is not expected to have a
material impact on the Company.
16 U.S. Bancorp
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30 December 31
(Dollars in Millions) 1998 1997
==================================================================================================================
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks .............................................................. $ 3,634 $ 4,739
Federal funds sold ................................................................... 1,169 62
Securities purchased under agreements to resell ...................................... 507 630
Trading account securities ........................................................... 488 195
Available-for-sale securities ........................................................ 5,498 6,885
Loans ................................................................................ 56,850 54,708
Less allowance for credit losses ................................................... 980 1,009
--------------------------
Net loans .......................................................................... 55,870 53,699
Premises and equipment ............................................................... 886 860
Interest receivable .................................................................. 424 405
Customers' liability on acceptances .................................................. 194 535
Goodwill and other intangible assets ................................................. 1,913 1,482
Other assets ......................................................................... 3,301 1,803
--------------------------
Total assets ...................................................................... $73,884 $71,295
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing ................................................................ $15,266 $14,544
Interest-bearing ................................................................... 33,230 34,483
--------------------------
Total deposits .................................................................... 48,496 49,027
Federal funds purchased .............................................................. 616 800
Securities sold under agreements to repurchase ....................................... 1,488 1,518
Other short-term funds borrowed ...................................................... 1,065 974
Long-term debt ....................................................................... 12,938 10,247
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely the junior subordinated debentures of the parent company ............ 950 600
Acceptances outstanding .............................................................. 194 535
Other liabilities .................................................................... 2,197 1,704
--------------------------
Total liabilities ................................................................. 67,944 65,405
Shareholders' equity:
Common stock, par value $1.25 a share - authorized 1,500,000,000 shares;
issued: 9/30/98 - 744,789,464 shares; 12/31/97 - 739,933,014 shares ............... 931 925
Capital surplus .................................................................... 1,269 1,261
Retained earnings .................................................................. 4,234 3,645
Accumulated other comprehensive income ............................................. 75 59
Less cost of common stock in treasury: 9/30/98 - 14,075,862 shares ................. (569) --
--------------------------
Total shareholders' equity ........................................................ 5,940 5,890
--------------------------
Total liabilities and shareholders' equity ........................................ $73,884 $71,295
==================================================================================================================
</TABLE>
U.S. Bancorp 17
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------------------
(Dollars in Millions, Except Per Share Data) September 30 September 30 September 30 September 30
(Unaudited) 1998 1997 1998 1997
====================================================================================================================================
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans ........................................................................ $1,246.8 $1,211.1 $3,676.6 $3,561.9
Securities:
Taxable .................................................................... 71.4 89.0 235.4 281.0
Exempt from federal income taxes ........................................... 15.6 16.8 47.3 51.5
Other interest income ........................................................ 36.0 15.2 85.2 50.7
-----------------------------------------------------
Total interest income ..................................................... 1,369.8 1,332.1 4,044.5 3,945.1
INTEREST EXPENSE
Deposits ..................................................................... 351.3 362.3 1,058.6 1,077.7
Federal funds purchased and repurchase agreements ............................ 41.9 41.9 117.3 140.6
Other short-term funds borrowed .............................................. 18.1 28.2 45.2 98.2
Long-term debt ............................................................... 171.8 122.1 486.0 314.6
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely the junior subordinated debentures of the parent
company .................................................................... 20.3 12.3 51.1 36.9
-----------------------------------------------------
Total interest expense .................................................... 603.4 566.8 1,758.2 1,668.0
-----------------------------------------------------
Net interest income .......................................................... 766.4 765.3 2,286.3 2,277.1
Provision for credit losses .................................................. 95.0 185.0 278.0 370.3
-----------------------------------------------------
Net interest income after provision for credit losses ........................ 671.4 580.3 2,008.3 1,906.8
NONINTEREST INCOME
Credit card fee revenue ...................................................... 156.1 106.2 430.5 295.7
Trust and investment management fees ......................................... 104.8 87.4 307.7 259.2
Service charges on deposit accounts .......................................... 101.7 102.2 299.0 295.0
Investment products fees and commissions ..................................... 76.0 16.5 151.7 49.0
Trading account profits and commissions ...................................... 42.8 6.5 77.9 23.8
Investment banking revenue ................................................... 38.3 -- 67.3 --
Gain on credit card portfolio sale ........................................... -- 9.4 -- 9.4
Securities gains ............................................................. -- -- 12.6 3.6
Other ........................................................................ 97.2 81.5 289.8 259.0
-----------------------------------------------------
Total noninterest income .................................................. 616.9 409.7 1,636.5 1,194.7
NONINTEREST EXPENSE
Salaries ..................................................................... 339.6 242.2 882.5 729.7
Employee benefits ............................................................ 55.7 49.2 168.6 167.5
Net occupancy ................................................................ 49.2 45.3 140.6 136.3
Furniture and equipment ...................................................... 39.4 40.4 114.4 127.4
Goodwill and other intangible assets ......................................... 37.1 29.1 106.5 82.3
Professional services ........................................................ 18.3 18.9 44.9 47.5
Merger-related ............................................................... 66.4 440.2 172.4 440.2
Other ........................................................................ 163.1 137.8 469.1 437.2
-----------------------------------------------------
Total noninterest expense ................................................. 768.8 1,003.1 2,099.0 2,168.1
-----------------------------------------------------
Income (loss) before income taxes ............................................ 519.5 (13.1) 1,545.8 933.4
Applicable income taxes ...................................................... 190.4 34.5 567.6 383.8
-----------------------------------------------------
Net income (loss) ............................................................ $ 329.1 $ (47.6) $ 978.2 $ 549.6
=====================================================
Net income (loss) applicable to common equity ................................ $ 329.1 $ (50.7) $ 978.2 $ 540.4
=====================================================
Earnings (loss) per share .................................................... $ .45 $ (.07) $ 1.33 $ .74
Diluted earnings (loss) per share ............................................ $ .44 $ (.07) $ 1.31 $ .73
====================================================================================================================================
</TABLE>
18 U.S. Bancorp
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
(Dollars in Millions) Common Shares Preferred Common Capital Retained Comprehensive Treasury
(Unaudited) Outstanding* Stock Stock Surplus Earnings Income Stock** Total
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 ........... 738,017,970 $150.0 $ 948.3 $1,296.9 $3,809.4 $ 4.7 $(445.9) $5,763.4
Dividends declared:
Preferred ......................... (9.2) (9.2)
Common ............................ (331.4) (331.4)
Purchase and retirement of
treasury stock .................... (14,546,718) (40.8) (266.7) (514.5) 395.8 (426.2)
Issuance of common stock:
Acquisitions ...................... 907,056 1.2 13.6 14.8
Dividend reinvestment ............. 497,838 .6 8.5 5.6 14.7
Stock option and stock
purchase plans ................... 10,213,221 9.6 102.3 (32.2) 44.5 124.2
---------------------------------------------------------------------------------------------
735,089,367 150.0 918.9 1,154.6 2,922.1 4.7 -- 5,150.3
Comprehensive income
Net income .......................... 549.6 549.6
Other comprehensive income:
Unrealized gains on securities of
$41.2 (net of $24.6 tax expense)... 41.2 41.2
--------
Total comprehensive income ....... 590.8
---------------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 1997 .......... 735,089,367 $150.0 $ 918.9 $1,154.6 $3,471.7 $ 45.9 $ -- $5,741.1
===================================================================================================================================
BALANCE DECEMBER 31, 1997 ........... 739,933,014 $ -- $ 924.9 $1,261.1 $3,644.8 $ 59.3 $ -- $5,890.1
Common dividends declared ........... (389.5) (389.5)
Purchase of treasury stock .......... (17,991,970) (724.7) (724.7)
Issuance of common stock:
Dividend reinvestment ............. 350,751 .3 9.9 3.8 14.0
Stock option and stock
purchase plans ................... 8,421,807 5.8 (1.6) 151.7 155.9
---------------------------------------------------------------------------------------------
730,713,602 -- 931.0 1,269.4 3,255.3 59.3 (569.2) 4,945.8
Comprehensive income
Net income .......................... 978.2 978.2
Other comprehensive income:
Unrealized gains on securities
of $27.1 (net of $16.2 tax
expense) net of reclassification
adjustment for gains included in
net income of $11.1 (net of
$6.4 tax expense)................. 16.0 16.0
--------
Total comprehensive income ....... 994.2
---------------------------------------------------------------------------------------------
BALANCE SEPTEMBER 30, 1998 .......... 730,713,602 $ -- $ 931.0 $1,269.4 $4,233.5 $ 75.3 $(569.2) $5,940.0
===================================================================================================================================
</TABLE>
*DEFINED AS TOTAL COMMON SHARES LESS COMMON STOCK HELD IN TREASURY.
**TREASURY SHARES WERE 14,075,862 AT SEPTEMBER 30, 1998 AND 20,632,491 AT
DECEMBER 31, 1996.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. Bancorp 19
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
(Dollars in Millions) September 30 September 30
(Unaudited) 1998 1997
====================================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities ........................................... $ 1,094.4 $ 1,075.0
---------------------------
INVESTING ACTIVITIES
Net cash (used) provided by:
Interest-bearing deposits with banks ................................................ (10.0) 3.1
Loans outstanding ................................................................... (2,057.9) (1,845.6)
Securities purchased under agreements to resell ..................................... 177.9 331.5
Available-for-sale securities:
Sales ............................................................................... 169.3 982.5
Maturities .......................................................................... 1,288.4 1,130.9
Purchases ........................................................................... (66.3) (1,629.9)
Maturities of held-to-maturity securities ............................................. -- 37.4
Proceeds from sales of other real estate .............................................. 37.3 52.2
Net purchases of bank premises and equipment .......................................... (85.6) (43.5)
Sales of loans ........................................................................ 4.9 56.0
Purchases of loans .................................................................... (513.3) (361.2)
Securitization of corporate charge card balances ...................................... -- 418.1
Cash and cash equivalents of acquired subsidiaries .................................... -- 4.5
Acquisitions, net of cash received .................................................... (685.2) (23.6)
Other-net ............................................................................. (18.2) (82.3)
---------------------------
Net cash used by investing activities ............................................... (1,758.7) (969.9)
---------------------------
FINANCING ACTIVITIES
Net cash used by:
Deposits ............................................................................ (531.2) (1,226.9)
Federal funds purchased and securities sold under agreements to repurchase .......... (253.1) (908.6)
Short-term borrowings ............................................................... (527.2) (1,186.6)
Long-term debt transactions:
Proceeds ............................................................................ 4,583.0 4,524.7
Principal payments .................................................................. (2,010.2) (1,189.5)
Issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely the junior subordinated debentures of the parent company ...... 350.0 --
Proceeds from issuance of common stock ................................................ 169.9 138.9
Repurchase of common stock ............................................................ (724.7) (426.2)
Cash dividends ........................................................................ (389.5) (340.6)
---------------------------
Net cash provided (used) by financing activities .................................... 667.0 (614.8)
---------------------------
Change in cash and cash equivalents ................................................. 2.7 (509.7)
Cash and cash equivalents at beginning of period ...................................... 4,801.0 4,908.1
---------------------------
Cash and cash equivalents at end of period ........................................... $ 4,803.7 $ 4,398.4
====================================================================================================================
</TABLE>
20 U.S. Bancorp
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes necessary for a complete presentation of
financial position, results of operations, and cash flow activity required
under generally accepted accounting principles. In the opinion of management of
the Company, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of results have been made and the Company
believes such presentation is adequate to make the information presented not
misleading. For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997. Certain amounts in prior periods have
been reclassified to conform to the current presentation.
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," which
establishes criteria, based on legal control, to determine whether a transfer
of financial assets is considered a sale or secured borrowing. Effective
January 1, 1998, and in accordance with SFAS 127 which amended SFAS 125, the
Company adopted the provisions of SFAS 125 relating to securities lending,
repurchase agreements and other secured financing transactions. The adoption of
SFAS 125 did not have a material effect on the Company.
COMPREHENSIVE INCOME -- Effective January 1, 1998, the Company adopted SFAS
130, "Reporting Comprehensive Income," which 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 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. All prior periods presented have been restated to conform to the
provisions of this Statement.
COMPUTER SOFTWARE COSTS -- Effective January 1, 1998, the Company adopted
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires the
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use. Historically, the Company has expensed
such costs as incurred. Restatement of previously issued annual financial
statements or adoption by a cumulative catch-up adjustment is prohibited. The
adoption of SOP 98-1 did not have a material effect on the Company.
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.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS DISCLOSURE -- SFAS 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable. The Statement supersedes the disclosure requirements of:
SFAS 87, "Employers' Accounting for Pensions"; SFAS 88, "Employers' Accounting
for Settlements and Curtailments
U.S. Bancorp 21
<PAGE>
of Defined Benefit Pension Plans and for Termination Benefits"; and, SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
Statement addresses disclosure only and not measurement or recognition. SFAS
132 is effective for the Company's 1998 year-end financial statements. All
prior period disclosures will be restated to conform to the provisions of this
Statement.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -- SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In certain defined conditions, a derivative may be
specifically designated as a hedge for a particular exposure. The accounting
for changes in the fair value of the derivative depends on the intended use of
the derivative and the resulting designation. SFAS 133 is effective for all
quarters of fiscal years beginning after June 15, 1999, with earlier
application permitted. Retroactive application of this Statement to prior
periods is prohibited. The adoption of SFAS 133 is not expected to have a
material impact on the Company.
NOTE C BUSINESS COMBINATIONS AND DIVESTITURES
U. S. BANCORP -- On August 1, 1997, First Bank System, Inc. ("FBS") issued
329.7 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 2.265 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.
PIPER JAFFRAY COMPANIES INC. -- On May 1, 1998, the Company completed its
acquisition of Piper Jaffray Companies Inc. ("Piper Jaffray"), a full-service
investment banking and securities brokerage firm. The acquisition allows the
Company to offer investment banking and institutional and retail brokerage
services through a new subsidiary to be known as U.S. Bancorp Piper Jaffray
Inc. The acquisition of Piper Jaffray was accounted for under the purchase
method of accounting, and accordingly, the purchase price of $738 million
(including $719 million aggregate cash consideration for Piper Jaffray shares
outstanding) was allocated to assets acquired and liabilities assumed based on
their fair market values at the date of acquisition.
NORTHWEST BANCSHARES, INC. -- On March 13, 1998, the Company announced an
agreement to acquire Northwest Bancshares, Inc., a privately held bank holding
company headquartered in Vancouver, Washington, with 10 banking locations and
$344 million in deposits. The acquisition is expected to close in the fourth
quarter of 1998.
LIBRA INVESTMENTS, INC. -- During the third quarter of 1998, the Company
announced an agreement to acquire of Libra Investments, Inc., a privately held
Los Angeles and New York based investment bank that specializes in underwriting
and trading high yield and mezzanine securities for middle market companies.
The acquisition is pending regulatory approval and is expected to close around
year end 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.
22 U.S. Bancorp
<PAGE>
NOTE D SECURITIES
The detail of the amortized cost and fair value of available-for-sale securities
consisted of the following:
September 30, 1998 December 31, 1997
-------------------------------------------
Amortized Fair Amortized Fair
(Dollars in Millions) Cost Value Cost Value
================================================================================
U.S. Treasury ...................... $ 487 $ 503 $ 628 $ 628
Mortgage-backed .................... 3,266 3,329 4,326 4,366
Other U.S. agencies ................ 275 285 360 370
State and political ................ 1,254 1,294 1,300 1,331
Other .............................. 95 87 175 190
-------------------------------------------
Total ............................. $5,377 $5,498 $6,789 $6,885
================================================================================
NOTE E LOANS
The composition of the loan portfolio was as follows:
September 30 December 31
(Dollars in Millions) 1998 1997
================================================================================
COMMERCIAL:
Commercial ....................................... $25,407 $23,399
Real estate:
Commercial mortgage ............................. 8,078 8,025
Construction .................................... 2,786 2,359
--------------------------
Total commercial .............................. 36,271 33,783
--------------------------
CONSUMER:
Residential mortgage ............................. 3,823 4,480
Residential mortgage held for sale................ 31 193
Home equity and second mortgage .................. 5,616 5,373
Credit card ...................................... 4,095 4,200
Automobile ....................................... 3,312 3,227
Revolving credit ................................. 1,709 1,567
Installment ...................................... 1,242 1,199
Student * ........................................ 751 686
--------------------------
Total consumer ................................ 20,579 20,925
--------------------------
Total loans ................................... $56,850 $54,708
================================================================================
*ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT
PERIOD BEGINS.
At September 30, 1998, the Company had $207 million in loans considered
impaired under SFAS 114 included in its 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 quarter
ended September 30, 1998, the average recorded investment in impaired loans was
approximately $208 million. No interest income was recognized on impaired loans
during the quarter.
U.S. Bancorp 23
<PAGE>
NOTE F LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) consisted
of the following:
<TABLE>
<CAPTION>
September 30 December 31
(Dollars in Millions) 1998 1997
============================================================================================================
<S> <C> <C>
Fixed-rate subordinated notes (6.00% to 8.35%) -- maturities to June 2026 ....... $ 2,450 $ 1,850
Step-up subordinated notes -- due August 15, 2005 ............................... 100 100
Floating-rate notes -- due November 15, 1999 .................................... 200 200
Floating-rate notes -- due February 27, 2000 .................................... 250 250
Floating-rate subordinated notes -- due November 30, 2010 ....................... 107 107
Federal Home Loan Bank advances (5.05% to 9.11%) -- maturities to October 2026 .. 2,238 1,392
Medium-term notes (5.45% to 6.93%) -- maturities to July 2002 ................... 1,462 652
Bank notes (5.36% to 6.38%) -- maturities to September 2003 ..................... 5,929 5,602
Other ........................................................................... 202 94
--------------------------
Total ........................................................................ $12,938 $10,247
============================================================================================================
</TABLE>
NOTE G EARNINGS PER SHARE
The components of earnings per share were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------------------
September 30 September 30 September 30 September 30
(Dollars in Millions, Except Per Share Data) 1998 1997 1998 1997
===================================================================================================================================
<S> <C> <C> <C> <C>
EARNINGS PER SHARE:
Net income ............................................................. $ 329.1 $ (47.6) $ 978.2 $ 549.6
Preferred dividends .................................................... -- (3.1) -- (9.2)
---------------------------------------------------------
Net income to common stockholders ...................................... $ 329.1 $ (50.7) $ 978.2 $ 540.4
=========================================================
Average shares outstanding ............................................. 734,577,075 731,471,028 737,623,506 733,142,037
=========================================================
Earnings per share ..................................................... $ .45 $ (.07) $ 1.33 $ .74
=========================================================
DILUTED EARNINGS PER SHARE:
Net income ............................................................. $ 329.1 $ (47.6) $ 978.2 $ 549.6
Preferred dividends .................................................... -- (3.1) -- (9.2)
---------------------------------------------------------
Net income to common stockholders ...................................... $ 329.1 $ (50.7) $ 978.2 $ 540.4
=========================================================
Average shares outstanding ............................................. 734,577,075 731,471,028 737,623,506 733,142,037
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 .................................................. 10,163,113 -- 11,289,979 8,787,081
---------------------------------------------------------
Dilutive common shares outstanding ..................................... 744,740,188 731,471,028 748,913,485 741,929,118
=========================================================
Diluted earnings per share ............................................. $ .44 $ (.07) $ 1.31 $ .73
===================================================================================================================================
</TABLE>
NOTE H SHAREHOLDERS' EQUITY
On June 8, 1998, the Company's Board of Directors authorized the repurchase of
up to $2.5 billion of the Company's common stock through March 31, 2000. The
shares will be repurchased in the open market or through negotiated
transactions. Through September 30, 1998, the Company repurchased 18.0 million
shares for $723.4 million.
On April 22, 1998, the Company's shareholders authorized an increase in
the Company's capital stock necessary to implement the three-for-one split of
the Company's common stock announced on February 18, 1998. The number of common
and preferred shares which the Company has authority to issue was increased
from 500 million shares and 10 million shares, respectively, to 1.5 billion
shares and 50 million shares, respectively. The stock split was in the form of
a 200 percent dividend payable May 18, 1998 to shareholders of record on May 4,
1998. The impact of the stock split has been reflected in the financial
statements for all periods presented and all share and per share data included
herein.
24 U.S. Bancorp
<PAGE>
Total comprehensive income was $346.2 million for the three months ended
September 30, 1998, compared with a total comprehensive loss of $6.8 million
for the three months ended September 30, 1997. Total comprehensive income was
$994.2 million for the nine months ended September 30, 1998, compared with
$590.8 million for the nine months ended September 30, 1997.
NOTE I INCOME TAXES
The components of income tax expense were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------------------
September 30 September 30 September 30 September 30
(Dollars in Millions) 1998 1997 1998 1997
===================================================================================================================================
<S> <C> <C> <C> <C>
FEDERAL:
Current tax ............................................................ $ 165.1 $ 16.8 $ 463.1 $ 293.8
Deferred tax (credit) provision ........................................ (.3) 10.6 26.3 31.8
----------------------------------------------------------
Federal income tax ................................................... 164.8 27.4 489.4 325.6
STATE:
Current tax ............................................................ 24.1 10.1 74.6 58.6
Deferred tax provision (credit) ........................................ 1.5 (3.0) 3.6 (.4)
----------------------------------------------------------
State income tax ..................................................... 25.6 7.1 78.2 58.2
----------------------------------------------------------
Total income tax provision ........................................... $ 190.4 $ 34.5 $ 567.6 $ 383.8
===================================================================================================================================
</TABLE>
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------------------
September 30 September 30 September 30 September 30
(Dollars in Millions) 1998 1997 1998 1997
===================================================================================================================================
<S> <C> <C> <C> <C>
Tax at statutory rate (35%) ............................................ $ 181.8 $ (4.6) $ 541.0 $ 326.7
State income tax, at statutory rates, net of federal tax benefit ....... 16.6 7.5 50.8 37.8
Tax effect of:
Tax-exempt interest:
Loans ............................................................... (2.4) (9.8) (8.6) (11.7)
Securities .......................................................... (5.8) (3.6) (17.2) (18.2)
Amortization of nondeductible goodwill ............................... 8.9 5.2 23.6 19.3
Nondeductible merger and integration charges ......................... -- 39.1 -- 39.1
Tax credits and other items .......................................... (8.7) .7 (22.0) (9.2)
----------------------------------------------------------
Applicable income taxes ................................................ $ 190.4 $ 34.5 $ 567.6 $ 383.8
===================================================================================================================================
</TABLE>
The Company's net deferred tax asset was $195.7 million at September 30,
1998, and $108.2 million at December 31, 1997.
NOTE J MERGER AND INTEGRATION CHARGES
During 1998, the Company recorded merger and integration charges of $172.4
million primarily related to conversion expenses associated with the
acquisitions of USBC and Piper Jaffray. Conversion expenses are recorded as
incurred and are associated with the conversion of customer accounts 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 and integration accrual:
<TABLE>
<CAPTION>
Nine Months Ended
(Dollars in Millions) September 30, 1998
===============================================================================
<S> <C>
Balance at December 31, 1997 .............................. $ 204.6
Provision charged to operating expense .................... 172.4
Cash outlays .............................................. (248.2)
Noncash writedowns ........................................ (3.9)
------------------
Balance at September 30, 1998 ............................. $ 124.9
===============================================================================
</TABLE>
Additional merger-related expenses of approximately $15.0 million, after tax,
are expected to be incurred through the end of 1998 related to the USBC
acquisition. A similar amount is expected to be incurred with respect to Piper
Jaffray over the next 12 months.
U.S. Bancorp 25
<PAGE>
NOTE K COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS
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 were as follows:
<TABLE>
<CAPTION>
September 30 December 31
(Dollars in Millions) 1998 1997
========================================================================================================
<S> <C> <C>
Commitments to extend credit:
Commercial ................................................................ $24,518 $24,170
Corporate and purchasing cards ............................................ 27,184 23,502
Consumer credit cards ..................................................... 15,758 14,236
Other consumer ............................................................ 6,896 4,661
Letters of credit:
Standby ................................................................... 3,123 2,773
Commercial ................................................................ 425 406
Interest rate swap contracts:
Hedges .................................................................... 6,719 5,315
Intermediated ............................................................. 767 855
Options contracts:
Hedge interest rate floors purchased ...................................... 700 750
Intermediated interest rate and foreign exchange caps and floors purchased 259 258
Intermediated interest rate and foreign exchange caps and floors written .. 259 258
Futures and forward contracts ............................................... 1 175
Mortgages sold with recourse ................................................ 55 74
Foreign currency commitments:
Commitments to purchase ................................................... 805 716
Commitments to sell ....................................................... 793 735
Commitments from securities lending ......................................... 299 --
========================================================================================================
</TABLE>
The Company received fixed rate interest and paid floating rate interest
on all swap hedges as of September 30, 1998. Activity for the nine months ended
September 30, 1998, with respect to interest rate swaps which the Company uses
to hedge loans, deposits and long-term debt was as follows:
<TABLE>
<CAPTION>
(Dollars in Millions)
========================================================================================================
<S> <C>
Notional amount outstanding at December 31, 1997 ............................................. $ 5,315
Additions .................................................................................... 2,060
Maturities ................................................................................... (653)
Terminations ................................................................................. (3)
-------
Notional amount outstanding at September 30, 1998 ........................................... $ 6,719
========================================================================================================
Weighted average interest rates paid ......................................................... 5.59%
Weighted average interest rates received ..................................................... 6.29
========================================================================================================
</TABLE>
LIBOR-based interest rate floors totaling $500 million with an average
remaining maturity of 2.96 years at September 30, 1998, and $550 million with
an average remaining maturity of 5 months at December 31, 1997, hedged floating
rate commercial loans. The strike rate on these LIBOR-based floors was 4.63
percent at September 30, 1998, and ranged from 3.25 percent to 4.00 percent at
December 31, 1997. Constant Maturity Treasury ("CMT") interest rate floors
totaling $200 million with an average remaining maturity of 3 months at
September 30, 1998, and 12 months at December 31, 1997, hedged the prepayment
risk of fixed rate residential mortgage loans. The strike rate on these CMT
floors was 5.60 percent at September 30, 1998 and December 31, 1997.
Net unamortized deferred gains relating to swaps, options and futures
were immaterial at September 30, 1998.
26 U.S. Bancorp
<PAGE>
NOTE L SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET -- Time certificates of deposit in denominations of
$100,000 or more totaled $2,984 million and $3,284 million at September 30,
1998, and December 31, 1997, respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS -- Listed below are supplemental
disclosures to the Consolidated Statement of Cash Flows.
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
September 30 September 30
(Dollars in Millions) 1998 1997
=======================================================================================================================
<S> <C> <C>
Income taxes paid ........................................................................ $ 372.8 $ 441.6
Interest paid ............................................................................ 1,730.5 1,625.2
Net noncash transfers to foreclosed property ............................................. 18.4 36.7
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $9.8
in 1998 and $24.6 in 1997 16.0 41.2
Cash acquisitions of businesses: ==========================
Fair value of noncash assets acquired .................................................. $ 1,802.8 $ 194.6
Liabilities assumed .................................................................... (1,117.6) (171.0)
--------------------------
Net ................................................................................... $ 685.2 $ 23.6
==========================
Stock acquisitions of businesses:
Fair value of noncash assets acquired .................................................. $ -- $ 77.2
Net cash acquired ...................................................................... -- 4.5
Liabilities assumed .................................................................... -- (66.9)
--------------------------
Net value of common stock issued ...................................................... $ -- $ 14.8
=======================================================================================================================
</TABLE>
U.S. Bancorp 27
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
For the Three Months Ended September 30
1998 1997
----------------------------------------------------------- --------
Yields Yields % Change
(Dollars In Millions) and and Average
(Unaudited) Balance Interest Rates Balance Interest Rates Balance
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury ............................................. $ 532 $ 7.8 5.82% $ 664 $ 9.7 5.80% (19.9)%
Mortgage-backed ........................................... 3,432 57.8 6.68 4,166 71.1 6.77 (17.6)
State and political ....................................... 1,258 24.4 7.70 1,077 21.1 7.77 16.8
U.S. agencies and other ................................... 381 5.3 5.52 512 7.5 5.81 (25.6)
------------------ -------------------
Total available-for-sale securities ...................... 5,603 95.3 6.75 6,419 109.4 6.76 (12.7)
Unrealized gain on available-for-sale securities ........... 94 44 **
------- -------
Net available-for-sale securities ....................... 5,697 6,463 (11.9)
Held-to-maturity securities ................................ -- -- -- 254 5.0 7.81 **
Trading account securities ................................. 350 6.1 6.91 153 2.3 5.96 **
Federal funds sold and resale agreements ................... 622 9.0 5.74 515 6.8 5.24 20.8
Loans:
Commercial:
Commercial ............................................... 24,806 495.5 7.92 22,574 465.0 8.17 9.9
Real estate:
Commercial mortgage ..................................... 8,066 178.0 8.76 8,006 183.0 9.07 .7
Construction ............................................ 2,704 61.1 8.96 2,294 55.6 9.62 17.9
------------------ -------------------
Total commercial ........................................ 35,576 734.6 8.19 32,874 703.6 8.49 8.2
Consumer:
Residential mortgage ..................................... 3,884 76.1 7.77 4,835 96.8 7.94 (19.7)
Residential mortgage held for sale ....................... 49 1.1 8.91 166 3.2 7.65 (70.5)
Home equity and second mortgage .......................... 5,713 139.4 9.68 5,204 127.6 9.73 9.8
Credit card .............................................. 4,076 130.7 12.72 3,764 117.9 12.43 8.3
Other .................................................... 6,876 168.5 9.72 6,847 167.8 9.72 .4
------------------ -------------------
Total consumer .......................................... 20,598 515.8 9.93 20,816 513.3 9.78 (1.0)
------------------ -------------------
Total loans ............................................. 56,174 1,250.4 8.83 53,690 1,216.9 8.99 4.6
Allowance for credit losses ............................... 998 991 .7
------- -------
Net loans ................................................ 55,176 52,699 4.7
Other earning assets ....................................... 1,245 21.5 6.85 510 6.2 4.82 **
------------------ -------------------
Total earning assets* ................................... 63,994 1,382.3 8.57 61,541 1,346.6 8.68 4.0
Cash and due from banks .................................... 3,554 3,483 2.0
Other assets ............................................... 5,439 4,346 25.1
------- -------
Total assets ............................................ $72,083 $68,423 5.3%
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits ............................... $13,514 $12,620 7.1%
Interest-bearing deposits:
Interest checking ......................................... 5,603 27.0 1.91 5,410 22.8 1.67 3.6
Money market accounts ..................................... 11,374 114.6 4.00 10,453 102.0 3.87 8.8
Other savings accounts .................................... 2,424 13.1 2.14 2,736 14.9 2.16 (11.4)
Savings certificates ...................................... 11,060 152.7 5.48 12,265 169.4 5.48 (9.8)
Certificates over $100,000................................. 3,025 43.9 5.76 3,551 53.2 5.94 (14.8)
------------------ -------------------
Total interest-bearing deposits .......................... 33,486 351.3 4.16 34,415 362.3 4.18 (2.7)
Short-term borrowings ...................................... 3,881 60.0 6.13 4,741 70.1 5.87 (18.1)
Long-term debt ............................................. 11,658 171.8 5.85 8,008 122.1 6.05 45.6
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company ............. 950 20.3 8.48 600 12.3 8.18 58.3
------------------ -------------------
Total interest-bearing liabilities ...................... 49,975 603.4 4.79 47,764 566.8 4.71 4.6
Other liabilities .......................................... 2,494 2,153 15.8
Preferred equity ........................................... -- 150 **
Common equity .............................................. 6,041 5,709 5.8
Accumulated other comprehensive income ..................... 59 27 **
------- -------
Total liabilities and shareholders' equity .............. $72,083 $68,423 5.3%
======= ======= ======
Net interest income ........................................ $ 778.9 $ 779.8
======== ========
Gross interest margin ...................................... 3.78% 3.97%
====== ======
Gross interest margin without taxable-equivalent
increments ................................................ 3.70% 3.88%
====== ======
Net interest margin ........................................ 4.83% 5.03%
====== ======
Net interest margin without taxable-equivalent
increments ................................................ 4.75% 4.93%
=========================================================================================================================
</TABLE>
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 ON AVAILABLE-FOR-SALE SECURITIES.
**NOT MEANINGFUL.
28 U.S. Bancorp
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
For the Nine Months Ended September 30
1998 1997
----------------------------------------------------------- --------
Yields Yields % Change
(Dollars In Millions) and and Average
(Unaudited) Balance Interest Rates Balance Interest Rates Balance
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury ............................................. $ 591 $ 25.8 5.84% $ 776 $ 33.9 5.84% (23.8)%
Mortgage-backed ........................................... 3,765 191.2 6.79 4,207 216.8 6.89 (10.5)
State and political ....................................... 1,268 74.0 7.80 747 43.8 7.84 69.7
U.S. agencies and other ................................... 415 17.0 5.48 624 28.5 6.11 (33.5)
------------------ -------------------
Total available-for-sale securities ...................... 6,039 308.0 6.82 6,354 323.0 6.80 (5.0)
Unrealized gain (loss) on available-for-sale securities .... 92 (23) **
------- -------
Net available-for-sale securities ....................... 6,131 6,331 (3.2)
Held-to-maturity securities ................................ -- -- -- 600 35.5 7.91 **
Trading account securities ................................. 239 11.3 6.32 167 7.2 5.76 43.1
Federal funds sold and resale agreements ................... 686 28.6 5.57 587 24.3 5.53 16.9
Loans:
Commercial:
Commercial ............................................... 24,192 1,454.8 8.04 22,194 1,358.0 8.18 9.0
Real estate:
Commercial mortgage ..................................... 8,127 535.5 8.81 8,031 542.8 9.04 1.2
Construction ............................................ 2,560 177.5 9.27 2,222 159.9 9.62 15.2
------------------ -------------------
Total commercial ........................................ 34,879 2,167.8 8.31 32,447 2,060.7 8.49 7.5
Consumer:
Residential mortgage ..................................... 4,081 242.3 7.94 4,985 298.2 8.00 (18.1)
Residential mortgage held for sale ....................... 127 6.8 7.16 160 9.1 7.60 (20.6)
Home equity and second mortgage .......................... 5,599 403.8 9.64 5,041 363.5 9.64 11.1
Credit card .............................................. 4,000 379.3 12.68 3,613 339.5 12.56 10.7
Other .................................................... 6,730 488.7 9.71 6,973 508.9 9.76 (3.5)
------------------ -------------------
Total consumer .......................................... 20,537 1,520.9 9.90 20,772 1,519.2 9.78 (1.1)
------------------ -------------------
Total loans ............................................. 55,416 3,688.7 8.90 53,219 3,579.9 8.99 4.1
Allowance for credit losses ............................... 1,002 991 1.1
------- -------
Net loans ................................................ 54,414 52,228 4.2
Other earning assets ....................................... 979 46.4 6.34 516 19.4 5.03 89.7
------------------ -------------------
Total earning assets* ................................... 63,359 4,083.0 8.62 61,443 3,989.3 8.68 3.1
Cash and due from banks .................................... 3,715 3,588 3.5
Other assets ............................................... 4,962 4,383 13.2
------- -------
Total assets ............................................ $71,126 $68,400 4.0%
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits ............................... $13,285 $12,470 6.5%
Interest-bearing deposits:
Interest checking ......................................... 5,733 78.0 1.82 5,534 68.7 1.66 3.6
Money market accounts ..................................... 10,990 325.5 3.96 10,432 298.6 3.83 5.3
Other savings accounts .................................... 2,519 40.1 2.13 2,849 46.9 2.20 (11.6)
Savings certificates ...................................... 11,521 474.0 5.50 12,310 500.2 5.43 (6.4)
Certificates over $100,000................................. 3,189 141.0 5.91 3,698 163.3 5.90 (13.8)
------------------ -------------------
Total interest-bearing deposits .......................... 33,952 1,058.6 4.17 34,823 1,077.7 4.14 (2.5)
Short-term borrowings ...................................... 3,654 162.5 5.95 5,681 238.8 5.62 (35.7)
Long-term debt ............................................. 10,942 486.0 5.94 6,850 314.6 6.14 59.7
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company ............. 835 51.1 8.18 600 36.9 8.18 39.2
------------------ -------------------
Total interest-bearing liabilities ...................... 49,383 1,758.2 4.76 47,954 1,668.0 4.65 3.0
Other liabilities .......................................... 2,350 2,169 8.3
Preferred equity ........................................... -- 150 **
Common equity .............................................. 6,050 5,671 6.7
Accumulated other comprehensive income (loss) .............. 58 (14) **
------- -------
Total liabilities and shareholders' equity .............. $71,126 $68,400 4.0%
======= ======= ======
Net interest income ........................................ $2,324.8 $2,321.3
========= ========
Gross interest margin ...................................... 3.86% 4.03%
====== ======
Gross interest margin without taxable-equivalent
increments ................................................ 3.77% 3.93%
====== ======
Net interest margin ........................................ 4.91% 5.05%
===== ======
Net interest margin without taxable-equivalent
increments ................................................ 4.82% 4.95%
=========================================================================================================================
</TABLE>
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.
U.S. Bancorp 29
<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities
On July 15, 1998, the Company amended its Bylaws as described in Item 5 of
the Company's report on Form 10-Q for the quarter ended June 30, 1998 and as
set forth in Exhibit 3.1 thereto, which description and exhibit are
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Computation of Ratio of Earnings to Fixed Charges.
27 Article 9 Financial Data Schedule.*
* COPIES OF THIS EXHIBIT WILL BE FURNISHED UPON REQUEST AND PAYMENT OF THE
COMPANY'S REASONABLE EXPENSES IN FURNISHING THE EXHIBIT.
(b) Reports on Form 8-K
During the three months ended September 30, 1998, the Company filed the
following Current Reports on Form 8-K.
Form 8-K filed July 16, 1998, related to the announcement of the Company's
second quarter 1998 earnings.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. BANCORP
/s/ TERRANCE R. DOLAN
By: ------------------------------------------
Terrance R. Dolan
Senior Vice President and Controller
DATE: November 13, 1998 (Chief Accounting Officer and Duly Authorized
Officer)
30 U.S. Bancorp
<PAGE>
[LOGO] US BANCORP(R)
---------------
P.O. Box 522 First Class
Minneapolis, Minnesota U.S. Postage
55480 PAID
Permit No. 2440
http://www.usbank.com Minneapolis, MN
---------------
SHAREHOLDER INQUIRIES
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
Telephone: (612) 973-2261
E-mail address: [email protected]
Judith T. Murphy
Vice President, Investor Relations
Telephone: (612) 973-2264
E-mail address: [email protected]
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
U.S. Bancorp
601 Second Avenue South, MPFP2711
Minneapolis, Minnesota 55402-4302
Telephone: (612) 973-2263
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.
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Nine
Months Months
Ended Ended
September 30 September 30
-----------------------------
(Dollars in Millions) 1998 1998
====================================================================================================================
<S> <C> <C>
EARNINGS
1. Net income .................................................................... $ 329.1 $ 978.2
2. Applicable income taxes ....................................................... 190.4 567.6
-----------------------------
3. Net income before taxes (1 + 2) ............................................... $ 519.5 $ 1,545.8
=============================
4. Fixed charges:
a. Interest expense excluding interest on deposits ............................. $ 252.1 $ 699.6
b. Portion of rents representative of interest and amortization of debt expense 11.2 33.2
-----------------------------
c. Fixed charges excluding interest on deposits (4a + 4b) ...................... 263.3 732.8
d. Interest on deposits ........................................................ 351.3 1,058.6
-----------------------------
e. Fixed charges including interest on deposits (4c + 4d) ...................... $ 614.6 $ 1,791.4
=============================
5. Amortization of interest capitalized .......................................... $ -- $ --
6. Earnings excluding interest on deposits (3 + 4c + 5) .......................... 782.8 2,278.6
7. Earnings including interest on deposits (3 + 4e + 5) .......................... 1,134.1 3,337.2
8. Fixed charges excluding interest on deposits (4c) ............................. 263.3 732.8
9. Fixed charges including interest on deposits (4e) ............................. 614.6 1,791.4
RATIO OF EARNINGS TO FIXED CHARGES
10. Excluding interest on deposits (line 6/line 8) ................................ 2.97 3.11
11. Including interest on deposits (line 7/line 9) ................................ 1.85 1.86
====================================================================================================================
</TABLE>
U.S. Bancorp 31
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE U.S.
BANCORP SEPTEMBER 30, 1998, 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,634,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,676,000
<TRADING-ASSETS> 488,000
<INVESTMENTS-HELD-FOR-SALE> 5,498,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 56,850,000
<ALLOWANCE> 980,100
<TOTAL-ASSETS> 73,884,000
<DEPOSITS> 48,496,000
<SHORT-TERM> 3,169,000
<LIABILITIES-OTHER> 2,197,000
<LONG-TERM> 12,938,000
0
0
<COMMON> 931,000
<OTHER-SE> 5,009,000
<TOTAL-LIABILITIES-AND-EQUITY> 73,884,000
<INTEREST-LOAN> 3,676,600
<INTEREST-INVEST> 282,700
<INTEREST-OTHER> 85,200
<INTEREST-TOTAL> 4,044,500
<INTEREST-DEPOSIT> 1,058,600
<INTEREST-EXPENSE> 1,758,200
<INTEREST-INCOME-NET> 2,286,300
<LOAN-LOSSES> 278,000
<SECURITIES-GAINS> 12,600
<EXPENSE-OTHER> 2,099,000
<INCOME-PRETAX> 1,545,800
<INCOME-PRE-EXTRAORDINARY> 1,545,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 978,200
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.31
<YIELD-ACTUAL> 4.91
<LOANS-NON> 269,000
<LOANS-PAST> 93,900
<LOANS-TROUBLED> 100
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,008,700
<CHARGE-OFFS> 433,000
<RECOVERIES> 117,000
<ALLOWANCE-CLOSE> 980,100
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
