FORM 10-Q/MARCH 31, 1999
[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 March 31, 1999
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 April 30, 1999
Common Stock, $1.25 Par Value 726,906,462 shares
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FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Three Months Ended March 31
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(Dollars in Millions, Except Per Share Data) 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------
<S> <C> <C>
Income before nonrecurring items ........................ $ 368.6 $ 350.0
Nonrecurring items ...................................... (1.8) (21.5)
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Net income .............................................. $ 366.8 $ 328.5
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PER COMMON SHARE
Earnings per share ...................................... $ .51 $ .44
Diluted earnings per share .............................. .50 .44
Earnings on a cash basis (diluted)* ..................... .56 .48
Dividends paid .......................................... .195 .175
Common shareholders' equity ............................. 8.50 8.25
PER COMMON SHARE BEFORE NONRECURRING ITEMS
Earnings per share ...................................... .51 .47
Diluted earnings per share .............................. .51 .47
Earnings on a cash basis (diluted)* ..................... .56 .51
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FINANCIAL RATIOS
Return on average assets ................................ 1.98% 1.91%
Return on average common equity ......................... 24.4 22.1
Efficiency ratio ........................................ 50.6 49.9
Net interest margin (taxable-equivalent basis) .......... 4.82 4.98
SELECTED FINANCIAL RATIOS BEFORE NONRECURRING ITEMS
Return on average assets ................................ 1.99 2.03
Return on average common equity ......................... 24.6 23.5
Efficiency ratio ........................................ 50.4 46.1
Banking efficiency ratio** .............................. 43.3 45.2
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<CAPTION>
March 31 December 31
1999 1998
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PERIOD END
Loans ................................................... $ 59,619 $ 59,122
Allowance for credit losses ............................. 983 1,001
Assets .................................................. 76,110 76,438
Total shareholders' equity .............................. 6,177 5,970
Tangible common equity to total assets*** ............... 6.3% 6.0%
Tier 1 capital ratio .................................... 6.6 6.4
Total risk-based capital ratio .......................... 11.2 10.9
Leverage ratio .......................................... 7.0 6.8
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</TABLE>
*CALCULATED BY ADDING AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS TO
NET INCOME.
**WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
***DEFINED AS COMMON EQUITY LESS GOODWILL AS A PERCENTAGE OF TOTAL ASSETS LESS
GOODWILL.
TABLE OF CONTENTS AND FORM 10-Q CROSS-REFERENCE INDEX
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) ......... 10
Financial Statements (Item 1) ............................................... 15
PART II -- OTHER INFORMATION
Changes in Securities (Item 2) .............................................. 26
Submission of Matters to a Vote of Security Holders (Item 4) ................ 26
Exhibits and Reports on Form 8-K (Item 6) ................................... 26
Signature ................................................................... 26
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges ............. 27
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, and Year 2000 issues.
U.S. Bancorp 1
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MANAGEMENT'S DISCUSSION AND ANALYSIS
EARNINGS SUMMARY U.S. Bancorp (the "Company") reported first quarter 1999
operating earnings (net income excluding nonrecurring items) of $368.6 million,
compared with $350.0 million in the first quarter of 1998. On a diluted per
share basis, operating earnings were $.51 in the first quarter of 1999, compared
with $.47 in the first quarter of 1998, an increase of 9 percent. On a diluted
per share basis, cash operating earnings were $.56 in the first quarter of 1999,
compared with $.51 in the first quarter of 1998, an increase of 10 percent.
Return on average assets and return on average common equity, excluding
nonrecurring items, were 1.99 percent and 24.6 percent, respectively, in the
first quarter of 1999, compared with returns of 2.03 percent and 23.5 percent in
the first quarter of 1998. Excluding nonrecurring items, the efficiency ratio
(the ratio of expenses to revenues) was 50.4 percent in the first quarter of
1999, compared with 46.1 percent in the first quarter of 1998.
Comparisons to the first quarter of 1998 are affected by the acquisition
of Piper Jaffray Companies Inc. ("Piper Jaffray") and several other small
acquisitions. Net interest income on a taxable-equivalent basis in the first
quarter of 1999 was higher by $25.4 million (3 percent) than the first quarter
of 1998. Noninterest income, before nonrecurring items, increased by $180.4
million (40 percent), primarily reflecting the acquisition of Piper Jaffray,
growth in trust and investment management fees and deposit service charges,
partially offset by the loss of a portion of the U.S. Government purchasing card
business. Noninterest expense, before nonrecurring items, increased by $156.8
million (28 percent), principally due to the acquisition of Piper Jaffray. The
banking efficiency ratio (the ratio of expenses to revenues without the impact
of investment banking and brokerage activity), before nonrecurring items, for
the first quarter of 1999 was 43.3 percent, compared with 45.2 percent in the
first quarter of 1998.
Net income was $366.8 million in the first quarter of 1999, or $.50 per
diluted share, compared with $328.5 million, or $.44 per diluted share, in the
first quarter of 1998. Nonrecurring merger-related charges decreased net income
in the first quarter of 1999 by $1.8 million ($2.9 million on a pre-tax basis)
compared to a decrease of $21.5 million ($33.9 million on a pre-tax basis) in
the first quarter of 1998. Nonrecurring items included $12.6 million of net
securities gains and $46.5 million of merger-related charges in 1998.
ACQUISITION AND DIVESTITURE ACTIVITY Operating results for the first quarter of
1999 reflect the following purchase transactions. On March 16, 1999, the Company
completed its acquisition of Reliance Trust Company's corporate trust business,
which operates offices in Georgia, Florida and Tennessee. Effective January 4,
1999, the Company acquired 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. On December 15,
1998, the Company completed its acquisition of Northwest Bancshares, Inc., a
privately held bank holding company headquartered in Vancouver, Washington, with
10 banking locations and $344 million in deposits. In May 1998, the Company
completed its acquisition of Piper Jaffray, a full-service investment banking
and securities brokerage firm.
On February 18, 1999, the Company announced an agreement to acquire the
San Diego-based Bank of Commerce, one of the largest U.S. Small Business
Administration ("SBA") lenders. With $638 million in assets at year-end 1998 and
SBA loan originations in excess of $240 million on an annual basis, Bank of
Commerce operates 10 full-service branches and 23 SBA loan production offices.
The acquisition is pending regulatory approval and is expected to close at the
end of the second quarter of 1999.
2 U.S. Bancorp
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TABLE 1 SUMMARY OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended
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(Taxable-Equivalent Basis; March 31 March 31
Dollars In Millions, Except Per Share Data) 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income ................................................. $ 1,362.7 $ 1,338.2
Interest expense ................................................ 569.3 570.2
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Net interest income ........................................... 793.4 768.0
Provision for credit losses ..................................... 117.0 90.0
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Net interest income after provision for credit losses ......... 676.4 678.0
Securities gains ................................................ -- 12.6
Other noninterest income ........................................ 626.3 445.9
Merger-related charges .......................................... 2.9 46.5
Other noninterest expense ....................................... 715.9 559.1
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Income before income taxes .................................... 583.9 530.9
Taxable-equivalent adjustment ................................... 10.7 13.1
Income taxes .................................................... 206.4 189.3
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Net income .................................................... $ 366.8 $ 328.5
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Return on average assets ........................................ 1.98% 1.91%
Return on average common equity ................................. 24.4 22.1
Net interest margin ............................................. 4.82 4.98
Efficiency ratio ................................................ 50.6 49.9
Efficiency ratio before nonrecurring items ...................... 50.4 46.1
Banking efficiency ratio before nonrecurring items* ............. 43.3 45.2
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PER COMMON SHARE:
Earnings per share .............................................. $ .51 $ .44
Dividends paid .................................................. .195 .175
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</TABLE>
*WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
LINE OF BUSINESS FINANCIAL REVIEW
Within the Company, financial performance is measured by major lines of
business, which include: Wholesale and Private Financial Services, Retail
Banking, Payment Systems, Corporate Trust and Institutional Financial Services,
and Investment Banking and Brokerage. These segments are determined based on the
products and services provided to customers through various distribution
channels. Business line results are derived from the Company's business unit
profitability reporting system. Designations, assignments, and allocations may
change from time to time as management accounting systems are enhanced or
product lines change. During first quarter 1999, certain organization and
methodology changes were made and 1998 results are presented on a consistent
basis.
WHOLESALE AND PRIVATE FINANCIAL SERVICES Wholesale 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 5 percent to
$172.5 million in the first quarter of 1999, compared with $164.0 million in the
first quarter of 1998. Net tangible return on average common equity increased to
31.5 percent compared with 26.6 percent in the first quarter of the prior year.
Net interest income increased 3 percent, reflecting growth in average loan
and deposit balances partially offset by margin compression in both loans and
deposits. Noninterest income increased $3.7 million or 4 percent in the first
quarter of 1999 compared with the same period of the prior year, reflecting
increases in trust fees and deposit service charges. The efficiency ratio on a
cash basis improved to 31.1 percent in the first quarter of 1999 compared with
32.2 percent in the first quarter of 1998.
U.S. Bancorp 3
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TABLE 2 LINE OF BUSINESS FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
Wholesale and Private
Financial Services Retail Banking
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For the Three Months Ended March 31 Percent Percent
(Dollars in Millions) 1999 1998 Change 1999 1998 Change
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income (expense)
(taxable-equivalent basis) .................... $ 347.5 $ 336.4 3.3% $ 375.9 $ 368.1 2.1%
Provision for credit losses .................... 11.4 8.6 32.6 55.3 40.3 37.2
Noninterest income ............................. 87.3 83.6 4.4 135.4 133.8 1.2
Noninterest expense ............................ 148.6 146.7 1.3 260.7 270.5 (3.6)
Income taxes and
taxable-equivalent adjustment ................. 102.3 100.7 72.5 72.7
---------------------- ----------------------
Income before nonrecurring items ............... $ 172.5 $ 164.0 5.2 $ 122.8 $ 118.4 3.7
====================== ======================
Net nonrecurring items (after-tax) .............
Net income .....................................
AVERAGE BALANCE SHEET DATA:
Commercial loans ............................... $ 34,115 $ 30,689 11.2 $ 2,201 $ 2,126 3.5
Consumer loans, excluding
residential mortgage .......................... 725 600 20.8 13,840 11,938 15.9
Residential mortgage loans ..................... 354 288 22.9 2,671 3,831 (30.3)
Assets ......................................... 42,859 39,435 8.7 22,692 22,616 .3
Deposits ....................................... 11,768 10,877 8.2 34,068 34,932 (2.5)
Common equity .................................. 3,002 3,271 (8.2) 1,486 1,744 (14.8)
---------------------- ----------------------
Return on average assets ....................... 1.63% 1.69% 2.19% 2.12%
Return on average common equity ("ROCE") ....... 23.3 20.3 33.5 27.5
Net tangible ROCE** ............................ 31.5 26.6 55.8 43.7
Efficiency ratio ............................... 34.2 34.9 51.0 53.9
Efficiency ratio on a cash basis** ............. 31.1 32.2 48.4 51.5
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</TABLE>
*NOT MEANINGFUL.
**CALCULATED BY EXCLUDING GOODWILL AND OTHER INTANGIBLES AND THE RELATED
AMORTIZATION.
NOTE: NONRECURRING ITEMS ARE NOT ALLOCATED TO THE BUSINESS LINES. ALL RATIOS
ARE CALCULATED WITHOUT THE EFFECT OF NONRECURRING ITEMS.
RETAIL BANKING Retail Banking delivers products and services to the broad
consumer market and small businesses through branch offices, telemarketing,
direct mail, and automated teller machines ("ATMs"). Operating earnings
increased 4 percent in the first quarter. First quarter return on average assets
increased to 2.19 percent from 2.12 percent in the same quarter a year ago.
First quarter net tangible return on average common equity was 55.8 percent,
compared with 43.7 percent in the first quarter of the prior year.
Net interest income for the first quarter of 1999 increased 2 percent from
the first quarter of 1998, due primarily to growth in home equity loans
partially offset by the planned runoff of the residential mortgage loan
portfolio. Noninterest income increased 1 percent due primarily to increased
deposit service charges and other fees. The decrease in noninterest expense
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 48.4 percent in the first quarter of 1999 from 51.5
percent in the first quarter of the prior year.
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 2 percent in the first quarter of 1999, compared with the first
quarter a year ago. First quarter return on average assets was 2.62 percent,
compared with 2.45 percent in the first quarter of 1998. Net tangible return on
average common equity was 43.6 percent compared with 44.2 percent for the same
quarter in 1998.
Net interest income increased 17 percent in the first quarter of 1999 from
the same period of the prior year due to lower corporate card and purchasing
card non-earning asset balances as well as higher yields on retail card
balances. Fee revenue was flat from the first quarter of 1998, reflecting the
loss of a portion of the U.S. Government purchasing card business. Noninterest
expense decreased $2.5 million or 3 percent from the prior year due primarily to
lower servicing expense. The efficiency ratio on a cash basis improved to 36.0
percent in the first quarter from 37.7 percent for the same quarter in 1998.
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
1999 1998 Change 1999 1998 Change 1999 1998 Change 1999 1998 Change
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 55.7 $ 47.6 17.0% $ 15.7 $ 14.6 7.5% $ (1.4) $ 1.3 * $ 793.4 $ 768.0 3.3%
50.3 41.1 22.4 -- -- -- -- -- -- 117.0 90.0 30.0
132.7 133.7 (.7) 75.2 69.0 9.0 195.7 25.8 * 626.3 445.9 40.5
72.8 75.3 (3.3) 48.1 43.5 10.6 185.7 23.1 * 715.9 559.1 28.0
24.3 24.7 15.9 15.2 3.2 1.5 218.2 214.8
- - - - - - - - - - - - - - - - - ------------------ ----------------- ------------------ -------------------
$ 41.0 $ 40.2 2.0 $ 26.9 $ 24.9 8.0 $ 5.4 $ 2.5 * 368.6 350.0 5.3
================== ================= ==================
(1.8) (21.5) *
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$ 366.8 $ 328.5 11.7
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$1,188 $1,254 (5.3) $ -- $ -- -- $ -- $ -- -- $37,504 $34,069 10.1
3,987 3,931 1.4 -- -- -- -- -- -- 18,552 16,469 12.6
-- -- -- -- -- -- -- -- -- 3,025 4,119 (26.6)
6,337 6,664 (4.9) 744 523 42.3 2,475 583 * 75,107 69,821 7.6
120 66 81.8 1,664 1,412 17.8 -- -- -- 47,620 47,287 .7
571 582 (1.9) 589 379 55.4 439 60 * 6,087 6,036 .8
- - - - - - - - - - - - - - - - - ------------------ ----------------- ------------------ -------------------
2.62% 2.45% * * * * 1.99% 2.03%
29.1 28.0 18.5% 26.6% 5.0% 16.9% 24.6 23.5
43.6 44.2 45.4 45.2 41.9 18.0 39.6 33.6
38.6 41.5 52.9 52.0 95.6 85.2 50.4 46.1
36.0 37.7 49.8 48.7 93.7 85.2 47.8 43.3
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</TABLE>
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 8
percent to $26.9 million in the first quarter of 1999 compared with $24.9
million in the same period of the prior year. Net tangible return on average
common equity was 45.4 percent in the first quarter of 1999 compared with 45.2
percent in the first quarter of the prior year.
Net interest income increased 8 percent in the first quarter of 1999 from
the same period of the prior year due to growth in average deposit balances.
Noninterest income increased $6.2 million or 9 percent from the first quarter of
1998 due to growth in asset management fees and the acquisition of Piper Capital
Management. The increase in noninterest expense reflects the acquisition of
Piper Capital Management and growth of the core business.
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 on May 1, 1998. Table 2 includes 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 (totaling $9.0
million in the first quarter of 1999), and U.S. Bancorp's existing broker/dealer
operations for all periods.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME First quarter net interest income on a taxable-equivalent
basis was $793.4 million compared with $768.0 million in the first quarter of
1998. The first quarter average earning assets increased $4.2 billion (7
percent) from the same period of 1998, driven by core commercial and consumer
loan growth and consumer loan portfolio purchases completed in the latter part
of 1998, partially offset by reductions in securities and residential mortgages.
Average loans for the first quarter of 1999 were up 8 percent from the first
quarter of 1998. Excluding residential mortgage loans, average loans for the
first quarter of 1999 were higher by $5.5 billion (11 percent) than the first
quarter of 1998, reflecting
U.S. Bancorp 5
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TABLE 3 ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 31 March 31
(Dollars In Millions) 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income, as reported ......................................... $ 782.7 $ 754.9
Taxable-equivalent adjustment .......................................... 10.7 13.1
----------------------
Net interest income (taxable-equivalent basis) ........................... $ 793.4 $ 768.0
======================
Average yields and weighted average rates (taxable-equivalent basis):
Earning assets yield ................................................... 8.28% 8.67%
Rate paid on interest-bearing liabilities .............................. 4.35 4.75
----------------------
Gross interest margin .................................................... 3.93% 3.92%
======================
Net interest margin ...................................................... 4.82% 4.98%
======================
Net interest margin without taxable-equivalent increments ................ 4.76% 4.89%
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</TABLE>
strong growth in commercial loans and home equity and second mortgages, in
addition to the consumer loan portfolio purchases. Without the portfolio
purchases, average total consumer loans were 4 percent higher than first quarter
of 1998. Average available-for-sale securities for the first quarter of 1999
decreased by $1.3 billion from the first quarter of 1998, reflecting
prepayments, maturities and sales of securities. Net interest income rose
modestly, due to loan growth offset by additional funding required for the Piper
Jaffray acquisition, the share repurchase program, margin compression in the
commercial loan portfolio, and an increase in the portion of loan growth funded
in the wholesale markets. As a result, the net interest margin decreased from
4.98 percent in the first quarter of 1998 to 4.82 percent in the first quarter
1999.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $117.0 million
in the first quarter of 1999, up $27.0 million (30 percent) from the first
quarter of 1998. First quarter net charge-offs totaled $139.6 million, up from
$103.2 million in the same period of 1998. The increase in net charge-offs
reflects a $12.5 million credit loss on a single commercial credit, growth in
consumer loans, a $7 million increase in credit card and overdraft fraud losses
and $13 million of losses which were anticipated in association with portfolios
purchased in 1998. Refer to "Corporate Risk Management" for further information
on credit quality.
NONINTEREST INCOME First quarter 1999 noninterest income was $626.3 million, an
increase of $167.8 million (37 percent), from the first quarter of 1998.
Noninterest income in the first quarter of 1998 included nonrecurring net
securities gains of $12.6 million.
Excluding nonrecurring items, first quarter 1999 noninterest income was
$626.3 million, an increase of $180.4 million (40 percent) from the same quarter
of 1998. Credit card fee revenue was flat from the first quarter of 1998,
reflecting the loss of a portion of the U.S. Government purchasing card
business. Trust and investment management fees increased $22.3 million, or 23
percent, due to growth in the institutional and personal trust businesses and
the addition of Piper Jaffray. Investment products fees and commissions, trading
account profits and commissions and investment banking revenue increased,
reflecting the acquisition of Piper Jaffray.
TABLE 4 NONINTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended
---------------------
March 31 March 31
(Dollars In Millions) 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit card fee revenue .................................................. $ 126.8 $ 126.8
Trust and investment management fees ..................................... 117.2 94.9
Service charges on deposit accounts ...................................... 103.4 97.9
Investment products fees and commissions ................................. 88.6 18.2
Trading account profits and commissions .................................. 51.5 7.1
Investment banking revenue ............................................... 36.2 --
Securities gains ......................................................... -- 12.6
Other .................................................................... 102.6 101.0
---------------------
Total noninterest income .............................................. $ 626.3 $ 458.5
==================================================================================================
</TABLE>
6 U.S. Bancorp
<PAGE>
TABLE 5 NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31 March 31
(Dollars In Millions) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Salaries ........................................................... $ 354.1 $ 239.6
Employee benefits .................................................. 70.0 54.1
------------------------
Total personnel expense .......................................... 424.1 293.7
Net occupancy ...................................................... 50.0 43.5
Furniture and equipment ............................................ 38.1 35.4
Goodwill and other intangible assets ............................... 37.8 33.4
Telephone .......................................................... 18.0 15.5
Third party data processing ........................................ 16.3 14.0
Postage ............................................................ 15.1 10.8
Advertising and marketing .......................................... 15.0 15.7
Professional services .............................................. 14.0 11.3
Printing, stationery and supplies .................................. 13.0 9.1
Other personnel costs .............................................. 12.7 13.1
FDIC insurance ..................................................... 2.0 2.0
Merger-related ..................................................... 2.9 46.5
Other .............................................................. 59.8 61.6
------------------------
Total noninterest expense ........................................ $ 718.8 $ 605.6
========================
Efficiency ratio* .................................................. 50.6% 49.9%
Efficiency ratio before nonrecurring items ......................... 50.4 46.1
Banking efficiency ratio before nonrecurring items** ............... 43.3 45.2
Average number of full-time equivalent employees ................... 27,040 24,815
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</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.
NONINTEREST EXPENSE First quarter 1999 noninterest expense was $718.8 million,
an increase of $113.2 million (19 percent), from $605.6 million in the first
quarter of 1998. Noninterest expense in the first quarter of 1999 included
nonrecurring merger-related charges of $2.9 million, compared with
merger-related charges of $46.5 million in the first quarter of 1998. The
Company expects to incur $17 million ($11 million after-tax) of additional
merger-related expenses with respect to Piper Jaffray in 1999.
First quarter 1999 noninterest expense, before nonrecurring items, was
$715.9 million, an increase of $156.8 million (28 percent), from $559.1 million
in the first quarter of 1998. The increase was principally the result of
acquiring Piper Jaffray. Without the effect of acquisitions, expenses in the
first quarter of 1999 were lower than the first quarter of 1998 primarily
reflecting the expense savings from the integration of U.S. Bancorp of Portland,
Oregon. The banking efficiency ratio (the ratio of expenses to revenue without
the impact of investment banking and brokerage activity), before nonrecurring
items, was 43.3 percent for the first quarter of 1999, compared with 45.2
percent for the first quarter a year ago.
Since 1996, the Company has undertaken efforts to address the "Year 2000"
computer problem as discussed in further detail on pages 12 and 13 under
Corporate Risk Profile. In connection with its Year 2000 project, the Company
has substantially completed the evaluation, replacement, renovation,
installation and testing of its critical internal computer hardware and software
and embedded technologies. Remediation and testing of non-critical systems
continues to progress and is expected to be 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.
PROVISION FOR INCOME TAXES The provision for income taxes was $206.4 million (an
effective rate of 36.0 percent) in the first quarter of 1999, compared with
$189.3 million (an effective rate of 36.6 percent) in the first quarter of 1998.
The increase in the provision was primarily the result of higher levels of
taxable income, as discussed above.
BALANCE SHEET ANALYSIS
LOANS The Company's loan portfolio was $59.6 billion at March 31, 1999, compared
with $59.1 billion at December 31, 1998. Commercial loans totaled $38.2 billion
at March 31, 1999, up $961 million from
U.S. Bancorp 7
<PAGE>
December 31, 1998. The increase was primarily attributable to an acceleration in
growth in the Company's Western region and continued growth in core commercial
loans in its Central region. Total consumer loan outstandings were $21.4 billion
at March 31, 1999, compared with $21.9 billion at December 31, 1998. Excluding
residential mortgage loan balances, consumer loans were $18.5 billion at March
31, 1999, compared with $18.7 billion at December 31, 1998, reflecting seasonal
changes in credit card balances offset by improved retail sales in the Western
region. See Note E of the Notes to Consolidated Financial Statements for the
composition of the Company's loan portfolio at March 31, 1999, and December 31,
1998.
SECURITIES At March 31, 1999, available-for-sale securities were $5.3 billion
compared with $5.6 billion at December 31, 1998, reflecting prepayments,
maturities and sales of securities.
DEPOSITS Noninterest-bearing deposits were $14.2 billion at March 31, 1999,
compared with $16.4 billion at December 31, 1998. The decrease was primarily due
to seasonality of corporate and trust deposits. Interest-bearing deposits
increased to $34.5 billion at March 31, 1999, compared with $33.7 billion at
December 31, 1998, due to an increase in time certificates greater than
$100,000.
BORROWINGS Short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings,
increased to $4.2 billion at March 31, 1999, compared with $3.4 billion at
December 31, 1998, primarily due to an increase in federal funds purchased.
Long-term debt was $13.8 billion at March 31, 1999, and December 31, 1998.
The Company issued $300 million of debt, with an average original maturity of
2.1 years, under its bank note program during the first quarter of 1999. These
issuances were offset by $274 million of medium-term and bank note maturities
and $28 million of Federal Home Loan Bank advance maturities.
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 changes in
underwriting activities, if any, the loan portfolio composition, including
product mix and geographic, industry or customer-specific concentrations, trends
in loan performance, assessments of a specific customer's Year 2000 readiness,
the level of allowance coverage and macroeconomic factors. Approximately 46
percent of the Company's loan portfolio consists of credit to businesses and
consumers in Minnesota, Oregon and Washington.
NET CHARGE-OFFS AND ALLOWANCE FOR CREDIT LOSSES Net loan charge-offs totaled
$139.6 million in the first quarter of 1999, compared with $103.2 million in the
first quarter of 1998. Commercial loan net charge-offs were $23.9 million in the
first quarter of 1999 and $14.1 million in the first quarter of 1998. Consumer
loan net charge-offs for the quarter were $115.7 million, compared with $89.1
million for the first quarter of 1998. The increases in net charge-offs from the
first quarter of 1998 were primarily the result of one large commercial credit,
an expected increase in losses on several consumer loan portfolios purchased in
1998 and higher consumer fraud losses. Without the losses associated with
portfolios purchased and fraud, consumer net charge-offs, excluding residential
real estate, were 2.07 percent in the first quarter of 1999 compared with 1.96
percent in the first quarter of 1998. Consumer loans 30 days or more past due
increased to 2.51 percent of the portfolio at March 31, 1999, compared with 2.39
percent at December 31, 1998. The increase was primarily due to expected
delinquencies associated with the consumer loan portfolio purchases.
8 U.S. Bancorp
<PAGE>
TABLE 6 SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31 March 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period ...................... $ 1,000.9 $ 1,008.7
CHARGE-OFFS:
Commercial:
Commercial ....................................... 43.5 27.3
Real estate:
Commercial mortgage ............................ .3 4.3
Construction ................................... .2 2.0
---------------------------
Total commercial ............................... 44.0 33.6
Consumer:
Residential mortgage ............................. 1.0 2.8
Credit card ...................................... 55.1 46.9
Other ............................................ 81.2 57.9
---------------------------
Total consumer ................................. 137.3 107.6
---------------------------
Total ......................................... 181.3 141.2
RECOVERIES:
Commercial:
Commercial ....................................... 18.4 13.1
Real estate:
Commercial mortgage ............................ 1.7 6.2
Construction ................................... -- .2
---------------------------
Total commercial ............................... 20.1 19.5
Consumer:
Residential mortgage ............................. .2 .3
Credit card ...................................... 4.8 5.7
Other ............................................ 16.6 12.5
---------------------------
Total consumer ................................. 21.6 18.5
---------------------------
Total ......................................... 41.7 38.0
NET CHARGE-OFFS:
Commercial:
Commercial ....................................... 25.1 14.2
Real estate:
Commercial mortgage ............................ (1.4) (1.9)
Construction ................................... .2 1.8
---------------------------
Total commercial ............................... 23.9 14.1
Consumer:
Residential mortgage ............................. .8 2.5
Credit card ...................................... 50.3 41.2
Other ............................................ 64.6 45.4
---------------------------
Total consumer ................................. 115.7 89.1
---------------------------
Total ......................................... 139.6 103.2
Provision charged to operating expense .............. 117.0 90.0
Additions related to acquisitions ................... 4.2 --
---------------------------
Balance at end of period ............................ $ 982.5 $ 995.5
===========================
Allowance as a percentage of:
Period-end loans .................................. 1.65% 1.81%
Nonperforming loans ............................... 324 340
Nonperforming assets .............................. 302 306
Annualized net charge-offs ....................... 174 238
===================================================================================
</TABLE>
U.S. Bancorp 9
<PAGE>
TABLE 7 NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 31 March 31
1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial ....................................................... .39% .25%
Real estate:
Commercial mortgage ............................................. (.07) (.09)
Construction .................................................... .02 .30
--------------------
Total commercial ................................................ .26 .17
CONSUMER:
Residential mortgage ............................................. .11 .25
Credit card ...................................................... 5.08 4.20
Other ............................................................ 1.80 1.47
--------------------
Total consumer .................................................. 2.17 1.76
--------------------
Total .......................................................... .96% .77%
==========================================================================================
</TABLE>
NONPERFORMING ASSETS Nonperforming assets include all nonaccrual loans,
restructured loans, other real estate and other nonperforming assets owned by
the Company. At March 31, 1999, nonperforming assets totaled $325.8 million, an
increase of $21.5 million (7 percent) from December 31, 1998. The increase in
nonperforming assets from the fourth quarter of 1998 was primarily due to one
large commercial credit. The ratio of nonperforming assets to loans and other
real estate was .55 percent at March 31, 1999, compared with .51 percent at
December 31, 1998. The percentage of consumer loans 90 days or more past due of
the total consumer loan portfolio totaled .85 percent at March 31, 1999,
compared with .75 percent at December 31, 1998.
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
TABLE 8 NONPERFORMING ASSETS*
<TABLE>
<CAPTION>
March 31 December 31
(Dollars In Millions) 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial ....................................................... $ 176.0 $ 165.7
Real estate:
Commercial mortgage ............................................. 33.1 35.5
Construction .................................................... 33.0 17.2
----------------------
Total commercial ................................................ 242.1 218.4
CONSUMER:
Residential mortgage ............................................. 47.5 46.6
Other ............................................................ 13.9 13.9
----------------------
Total consumer .................................................. 61.4 60.5
----------------------
Total nonperforming loans ..................................... 303.5 278.9
OTHER REAL ESTATE .................................................. 12.8 14.3
OTHER NONPERFORMING ASSETS ......................................... 9.5 11.1
----------------------
Total nonperforming assets .................................... $ 325.8 $ 304.3
======================
Accruing loans 90 days or more past due** .......................... $ 126.8 $ 106.8
Nonperforming loans to total loans ................................. .51% .47%
Nonperforming assets to total loans plus other real estate ......... .55 .51
=============================================================================================
</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.
10 U.S. Bancorp
<PAGE>
TABLE 9 DELINQUENT LOAN RATIOS*
<TABLE>
<CAPTION>
March 31 December 31
90 days or more past due 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial ....................................................... .69% .65%
Real estate:
Commercial mortgage ............................................. .40 .44
Construction .................................................... .95 .56
----------------------
Total commercial ................................................ .65 .60
CONSUMER:
Residential mortgage ............................................. 2.09 1.86
Credit card ...................................................... .91 .74
Other ............................................................ .58 .51
----------------------
Total consumer .................................................. .85 .75
----------------------
Total .......................................................... .72% .65%
=============================================================================================
</TABLE>
*RATIOS INCLUDE NONPERFORMING LOANS AND ARE EXPRESSED AS A PERCENT OF ENDING
LOAN BALANCES.
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 24 months) risk due to changes in
interest rates. The model, which is updated monthly, incorporates substantially
all the Company's assets and liabilities and off-balance sheet instruments,
together with forecasted changes in the balance sheet and assumptions that
reflect the current interest rate environment. Balance sheet changes are based
on expected prepayments of loans and securities and forecasted loan and deposit
growth. ALCO uses the model to simulate the effect of immediate and sustained
parallel shifts in the yield curve of 1 percent, 2 percent and 3 percent as well
as the effect of immediate and sustained flattening or steepening of the yield
curve. ALCO also calculates the sensitivity of the simulation results to changes
in key assumptions, such as the Prime/LIBOR spread or core deposit repricing.
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 1.5 percent of forecasted net interest income given a 1
percent change in interest rates. At March 31, 1999, forecasted net interest
income for the next 12 months would decrease $.2 million from an immediate 100
basis point upward parallel shift in rates and increase $2.1 million from a
downward shift of similar magnitude.
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 1 percent, 2 percent and 3 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
limits, approved by the Company's Board of Directors, of .5 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 and has
established limits, approved by the Company's Board of Directors, for gap
positions in the two- to three-year time period of 5 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
U.S. Bancorp 11
<PAGE>
TABLE 10 INTEREST RATE SWAP HEDGING PORTFOLIO NOTIONAL BALANCES AND YIELDS BY
MATURITY DATE
<TABLE>
<CAPTION>
At March 31, 1999 (Dollars in Millions)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Receive Fixed Swaps* Notional Interest Rate Interest Rate
Maturity Date Amount Received Paid
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 (remaining nine months) ........................ $ 1,617 6.10% 4.94%
2000 ................................................ 815 6.23 4.95
2001 ................................................ 857 5.90 4.94
2002 ................................................ 845 5.82 4.94
2003 ................................................ 695 5.85 4.96
After 2003 .......................................... 2,455 6.36 4.95
---------
Total ............................................... $ 7,284 6.12% 4.94%
=================================================================================================
</TABLE>
*AT MARCH 31, 1999, THE COMPANY HAD NO SWAPS IN ITS HEDGING PORTFOLIO THAT
REQUIRED IT TO PAY FIXED-RATE INTEREST.
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 first quarter of 1999, the Company added $675 million of interest
rate swaps to reduce its interest rate risk. This increase was largely offset by
$625 million of interest rate swap maturities. 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 March 31, 1999, the Company received payments on $7.3 billion notional amount
of interest rate swap agreements based on fixed interest rates, and made
payments based on variable interest rates. These swaps had a weighted average
fixed rate received of 6.12 percent and a weighted average variable rate paid of
4.94 percent. The remaining maturity of these agreements ranges from one month
to 15 years with an average remaining maturity of 3.9 years. Swaps increased net
interest income for the quarters ended March 31, 1999, and 1998 by $17.4 million
and $7.6 million, respectively.
The Company also purchases interest rate caps and floors to minimize the
impact of fluctuating interest rates on earnings. To hedge against rising
interest rates, the Company uses interest rate caps. Counterparties to these
interest rate cap agreements pay the Company when specified rates rise above a
specified point or strike level. The payment is based on the notional amount and
the difference between current rates and strike rates. There were no caps
outstanding at March 31, 1999. To hedge against falling interest rates, the
Company uses interest rate floors. Counterparties to interest rate floor
agreements pay the Company when specified rates fall below the strike level.
Like caps, the payment is based on the notional amount and the difference in
current rates and strike rates. The total notional amount of floor agreements
purchased as of March 31, 1999, all of which were LIBOR-indexed, was $500
million. The impact of floors on net interest income was not material for the
quarters ended March 31, 1999, and 1998.
YEAR 2000 RISK MANAGEMENT The Company is continuing 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 1990s, 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 prioritized tasks, developed implementation plans and established
completion and testing schedules. As a result, the Company has replaced,
modified or reprogrammed certain systems, is requiring that new purchased
hardware and software be Year 2000 ready, 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.
12 U.S. Bancorp
<PAGE>
Evaluation, replacement, renovation, installation and testing of the
Company's critical internal computer hardware and software (including software
to be remediated by vendors) and embedded technologies have been substantially
completed, in accordance with bank regulatory guidelines, allowing time for
necessary refinements and additional testing before December 31, 1999. On April
1, 1999, the Company announced that it had successfully completed a testing
phase validating the readiness of its critical internal systems. In addition,
the remediation and testing of non-critical systems continues to progress and is
expected to be completed during 1999.
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,
telecommunication, transportation), governmental agencies (including the Federal
Reserve, which provides services for processing and settling payments and
securities transactions between banks) and other entities with which the Company
does business. The Company is communicating with these parties to monitor their
efforts in addressing the Year 2000 issue and to evaluate any likely impact on
the Company. For example, the Company is conducting ongoing Year 2000 surveys
and evaluations 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 continues to review its fiduciary activities for Year 2000 risk related
to marketable securities, special assets and counterparties. The Company is
scheduling testing with critical service providers as necessary and expects such
testing to be completed by June 30, 1999. A prioritized schedule for external
testing during 1999 with certain large customers also has been established and
such testing is underway. In addition, the Company is participating in tests
organized by major industry and governmental organizations as they are scheduled
throughout 1999, including tests sponsored by the Federal Reserve, the National
Automated Clearing House Association and the Securities and Exchange Commission.
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, which are
expected to be substantially completed by June 30, 1999, in accordance with bank
regulatory guidelines, 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. The Company
also has developed a liquidity management plan to address potential increased
funding needs that may arise as the millennium approaches. 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.
The discussions regarding Year 2000 in this Form 10-Q, including the
discussions of the timing and effectiveness of implementation and cost of the
Company's Year 2000 project, contain 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 failure of third parties with which the Company does business to remedy
their own Year 2000 issues and the Company's 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.
U.S. Bancorp 13
<PAGE>
TABLE 11 CAPITAL RATIOS
<TABLE>
<CAPTION>
March 31 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Tangible common equity* ............................................ $ 4,684 $ 4,465
As a percent of assets ........................................... 6.3% 6.0%
Tier 1 capital ..................................................... $ 5,148 $ 4,917
As a percent of risk-adjusted assets ............................. 6.6% 6.4%
Total risk-based capital ........................................... $ 8,696 $ 8,343
As a percent of risk-adjusted assets ............................. 11.2% 10.9%
Leverage ratio ..................................................... 7.0 6.8
===============================================================================================
</TABLE>
*DEFINED AS COMMON EQUITY LESS GOODWILL.
CAPITAL MANAGEMENT At March 31, 1999, total tangible common equity was $4.7
billion, or 6.3 percent of assets, compared with 6.0 percent at December 31,
1998. Tier 1 and total risk-based capital ratios were 6.6 percent and 11.2
percent at March 31, 1999, compared with 6.4 percent and 10.9 percent at
December 31, 1998. The March 31, 1999, leverage ratio was 7.0 percent compared
with 6.8 percent at December 31, 1998.
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 over the period
ending March 31, 2000. The shares will be repurchased in the open market or
through negotiated transactions. Under this program, the Company repurchased
26.0 million shares for $1.0 billion, including 1.4 million shares for $47.0
million in the first quarter of 1999.
ACCOUNTING CHANGES
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Statement of
Financial Accounting Standards No. ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities," establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded 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.
14 U.S. Bancorp
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks .................................................................... $ 4,020 $ 4,772
Federal funds sold ......................................................................... 128 83
Securities purchased under agreements to resell ............................................ 446 461
Trading account securities ................................................................. 686 537
Available-for-sale securities .............................................................. 5,253 5,577
Loans ...................................................................................... 59,619 59,122
Less allowance for credit losses ......................................................... 983 1,001
------------------------
Net loans ................................................................................ 58,636 58,121
Premises and equipment ..................................................................... 876 879
Interest receivable ........................................................................ 445 456
Customers' liability on acceptances ........................................................ 139 166
Goodwill and other intangible assets ....................................................... 1,965 1,975
Other assets ............................................................................... 3,516 3,411
------------------------
Total assets ............................................................................ $ 76,110 $ 76,438
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing ...................................................................... $ 14,194 $ 16,377
Interest-bearing ......................................................................... 34,478 33,657
------------------------
Total deposits .......................................................................... 48,672 50,034
Federal funds purchased .................................................................... 1,788 1,255
Securities sold under agreements to repurchase ............................................. 1,261 1,427
Other short-term funds borrowed ............................................................ 1,120 683
Long-term debt ............................................................................. 13,774 13,781
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely the junior subordinated debentures of the parent company .................. 950 950
Acceptances outstanding .................................................................... 139 166
Other liabilities .......................................................................... 2,229 2,172
------------------------
Total liabilities ....................................................................... 69,933 70,468
Shareholders' equity:
Common stock, par value $1.25 a share - authorized 1,500,000,000 shares;
issued: 3/31/99 and 12/31/98 - 744,797,857 shares ....................................... 931 931
Capital surplus .......................................................................... 1,213 1,247
Retained earnings ........................................................................ 4,681 4,456
Accumulated other comprehensive income ................................................... 54 72
Less cost of common stock in treasury: 3/31/99 - 18,428,964 shares; 12/31/98 -
19,036,139 shares ....................................................................... (702) (736)
------------------------
Total shareholders' equity .............................................................. 6,177 5,970
------------------------
Total liabilities and shareholders' equity .............................................. $ 76,110 $ 76,438
=======================================================================================================================
</TABLE>
U.S. Bancorp 15
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
(Dollars in Millions, Except Per Share Data) March 31 March 31
(Unaudited) 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans ................................................................................. $ 1,238.5 $ 1,204.2
Securities:
Taxable ............................................................................. 64.6 85.8
Exempt from federal income taxes .................................................... 14.7 16.1
Other interest income ................................................................. 34.2 19.0
-------------------------
Total interest income ............................................................ 1,352.0 1,325.1
INTEREST EXPENSE
Deposits .............................................................................. 311.6 355.1
Federal funds purchased and repurchase agreements ..................................... 39.4 33.6
Other short-term funds borrowed ....................................................... 12.9 12.8
Long-term debt ........................................................................ 186.1 156.4
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely the junior subordinated debentures of the parent company ............. 19.3 12.3
-------------------------
Total interest expense ........................................................... 569.3 570.2
-------------------------
Net interest income ................................................................... 782.7 754.9
Provision for credit losses ........................................................... 117.0 90.0
-------------------------
Net interest income after provision for credit losses ................................. 665.7 664.9
NONINTEREST INCOME
Credit card fee revenue ............................................................... 126.8 126.8
Trust and investment management fees .................................................. 117.2 94.9
Service charges on deposit accounts ................................................... 103.4 97.9
Investment products fees and commissions .............................................. 88.6 18.2
Trading account profits and commissions ............................................... 51.5 7.1
Investment banking revenue ............................................................ 36.2 --
Securities gains ...................................................................... -- 12.6
Other ................................................................................. 102.6 101.0
-------------------------
Total noninterest income ......................................................... 626.3 458.5
NONINTEREST EXPENSE
Salaries .............................................................................. 354.1 239.6
Employee benefits ..................................................................... 70.0 54.1
Net occupancy ......................................................................... 50.0 43.5
Furniture and equipment ............................................................... 38.1 35.4
Goodwill and other intangible assets .................................................. 37.8 33.4
Merger-related ........................................................................ 2.9 46.5
Other ................................................................................. 165.9 153.1
-------------------------
Total noninterest expense ........................................................ 718.8 605.6
-------------------------
Income before income taxes ............................................................ 573.2 517.8
Applicable income taxes ............................................................... 206.4 189.3
-------------------------
Net income ............................................................................ $ 366.8 $ 328.5
=========================
Earnings per share .................................................................... $ .51 $ .44
Diluted earnings per share ............................................................ $ .50 $ .44
===================================================================================================================
</TABLE>
16 U.S. Bancorp
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
(Dollars in Millions) Common Shares Common Capital Retained Comprehensive Treasury
(Unaudited) Outstanding* Stock Surplus Earnings Income Stock** Total
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 ...................... 739,933,014 $ 924.9 $1,261.1 $3,644.8 $ 59.3 $ -- $5,890.1
Common dividends declared ...................... (129.8) (129.8)
Purchase of treasury stock ..................... (33,411) (1.2) (1.2)
Issuance of common stock:
Dividend reinvestment ........................ 91,116 .1 3.4 3.5
Stock option and stock
purchase plans .............................. 2,465,340 3.1 29.5 1.2 33.8
----------------------------------------------------------------------------------
742,456,059 928.1 1,294.0 3,515.0 59.3 -- 5,796.4
Comprehensive income
Net income ..................................... 328.5 328.5
Other comprehensive income:
Unrealized gain on securities of $9.0 (net of
$5.1 tax expense) net of reclassification
adjustment for gains included in net income
of $11.1 (net of $6.4 tax expense) .......... (2.1) (2.1)
--------
Total comprehensive income ................ 326.4
----------------------------------------------------------------------------------
BALANCE MARCH 31, 1998 ......................... 742,456,059 $ 928.1 $1,294.0 $3,843.5 $ 57.2 $ -- $6,122.8
===================================================================================================================================
BALANCE DECEMBER 31, 1998 ...................... 725,761,718 $ 931.0 $1,247.2 $4,455.8 $ 71.8 $ (735.8) $5,970.0
Common dividends declared ...................... (141.7) (141.7)
Purchase of treasury stock ..................... (1,397,940) (47.0) (47.0)
Issuance of common stock:
Acquisitions ................................. 1,027,276 (3.6) 40.0 36.4
Dividend reinvestment ........................ 168,650 (.4) 6.4 6.0
Stock option and stock
purchase plans .............................. 809,189 (30.2) 34.5 4.3
----------------------------------------------------------------------------------
726,368,893 931.0 1,213.0 4,314.1 71.8 (701.9) 5,828.0
Comprehensive income
Net income ..................................... 366.8 366.8
Other comprehensive income:
Unrealized gain on securities of $29.2 (net of
$11.1 tax expense) .......................... (18.1) (18.1)
--------
Total comprehensive income ................ 348.7
----------------------------------------------------------------------------------
BALANCE MARCH 31, 1999 ......................... 726,368,893 $ 931.0 $1,213.0 $4,680.9 $ 53.7 $ (701.9) $6,176.7
===================================================================================================================================
</TABLE>
*DEFINED AS TOTAL COMMON SHARES LESS COMMON STOCK HELD IN TREASURY.
**ENDING TREASURY SHARES WERE 18,428,964 AT MARCH 31, 1999 AND 19,036,139 AT
DECEMBER 31, 1998.
U.S. Bancorp 17
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
------------------------
(Dollars in Millions) March 31 March 31
(Unaudited) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities .................................... $ 611.6 $ 521.0
------------------------
INVESTING ACTIVITIES
Net cash (used) provided by:
Loans outstanding ............................................................ (512.6) (249.7)
Securities purchased under agreements to resell .............................. 14.6 181.9
Available-for-sale securities:
Sales ........................................................................ 53.2 166.6
Maturities ................................................................... 455.1 352.1
Purchases .................................................................... (217.4) (37.0)
Proceeds from sales of other real estate ....................................... 7.8 13.8
Net purchases of bank premises and equipment ................................... (30.1) (34.0)
Purchases of loans ............................................................. (127.7) --
Acquisitions, net of cash received ............................................. (21.8) --
Cash and cash equivalents of acquired subsidiaries ............................. 3.6 --
Other - net .................................................................... (192.5) (145.8)
------------------------
Net cash (used) provided by investing activities ............................. (567.8) 247.9
------------------------
FINANCING ACTIVITIES
Net cash (used) provided by:
Deposits ..................................................................... (1,362.7) (469.1)
Federal funds purchased and securities sold under agreements to repurchase ... 367.2 (255.4)
Short-term borrowings ........................................................ 429.5 (33.8)
Proceeds from long-term debt ................................................... 300.0 687.3
Principal payments on long-term debt ........................................... (307.2) (522.6)
Proceeds from dividend reinvestment, stock option and stock purchase plans ..... 10.3 37.3
Repurchase of common stock ..................................................... (47.0) (1.2)
Cash dividends ................................................................. (141.7) (129.8)
------------------------
Net cash used by financing activities ........................................ (751.6) (687.3)
------------------------
Change in cash and cash equivalents .......................................... (707.8) 81.6
Cash and cash equivalents at beginning of period ............................... 4,855.3 4,801.0
------------------------
Cash and cash equivalents at end of period .................................... $4,147.5 $4,882.6
===========================================================================================================
</TABLE>
18 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, 1998. Certain amounts in prior periods have been reclassified
to conform to the current presentation.
Accounting policies for the lines of business are the same as those used
in preparation of the consolidated financial statements with respect to
activities specifically attributable to each business line. However, the
preparation of business line results requires management to establish
methodologies to allocate funding costs and benefits, expenses and other
financial elements to each line of business. Table 2 "Line of Business Financial
Performance" on pages 3 through 5 provides details of segment results. This
information is incorporated by reference into these Notes to Consolidated
Financial Statements.
NOTE B ACCOUNTING CHANGES
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 embedded 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
BANK OF COMMERCE On February 18, 1999, the Company announced an agreement to
acquire the San Diego-based Bank of Commerce, one of the largest U.S. Small
Business Administration ("SBA") lenders. With $638 million in assets at year-end
1998 and SBA loan originations in excess of $240 million on an annual basis,
Bank of Commerce operates 10 full-service branches and 23 SBA loan production
offices. The acquisition is pending regulatory approval and is expected to close
at the end of the second quarter of 1999.
OTHER ACQUISITIONS On March 16, 1999, the Company completed its acquisition of
Reliance Trust Company's corporate trust business which operates offices in
Georgia, Florida, and Tennessee. On January 4, 1999, the Company completed its
acquisition 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. Effective December
15, 1998, the Company completed its acquisition of Northwest Bancshares, Inc., a
privately held bank holding company headquartered in Vancouver, Washington, with
10 banking locations and $344 million in deposits. In May 1998, the Company
completed its acquisition of Piper Jaffray, a full-service investment banking
and securities brokerage firm. These transactions were accounted for as purchase
acquisitions.
U.S. Bancorp 19
<PAGE>
NOTE D SECURITIES
The detail of the amortized cost and fair value of available-for-sale securities
consisted of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------------- ---------------------
Amortized Fair Amortized Fair
(Dollars in Millions) Cost Value Cost Value
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury .................................. $ 456 $ 461 $ 489 $ 500
Mortgage-backed ................................ 3,224 3,253 3,395 3,438
Other U.S. agencies ............................ 236 241 252 259
State and political ............................ 1,163 1,198 1,219 1,255
Other .......................................... 87 100 106 125
--------------------- ---------------------
Total ......................................... $ 5,166 $ 5,253 $ 5,461 $ 5,577
================================================================================================
</TABLE>
NOTE E LOANS
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
March 31 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial ......................................................... $26,372 $25,974
Real estate:
Commercial mortgage ............................................... 8,367 8,193
Construction ...................................................... 3,458 3,069
-----------------------
Total commercial ................................................ 38,197 37,236
-----------------------
CONSUMER:
Home equity and second mortgage .................................... 7,604 7,409
Credit card ........................................................ 3,978 4,221
Automobile ......................................................... 3,340 3,413
Revolving credit ................................................... 1,675 1,686
Installment ........................................................ 1,105 1,168
Student* ........................................................... 843 829
-----------------------
Subtotal .......................................................... 18,545 18,726
Residential mortgage ............................................... 2,855 3,124
Residential mortgage held for sale ................................. 22 36
-----------------------
Total consumer .................................................. 21,422 21,886
-----------------------
Total loans ................................................... $59,619 $59,122
================================================================================================
</TABLE>
*ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT
PERIOD BEGINS.
At March 31, 1999, the Company had $242 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 March 31, 1999, the average recorded investment in impaired loans was
approximately $230 million. No interest income was recognized on impaired loans
during the quarter.
20 U.S. Bancorp
<PAGE>
NOTE F LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) consisted
of the following:
<TABLE>
<CAPTION>
March 31 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed-rate subordinated notes (5.70 to 8.35%) -- maturities to June 2026 ........ $ 2,850 $ 2,850
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 (4.83% to 9.11%) -- maturities to October 2026 .. 2,159 2,187
Medium-term notes (4.81% to 6.93%) -- maturities to July 2002 ................... 1,626 1,675
Bank notes (4.79% to 6.38%) -- maturities to November 2005 ...................... 6,284 6,209
Other ........................................................................... 198 203
-----------------------
Total .......................................................................... $13,774 $13,781
==========================================================================================================
</TABLE>
NOTE G SHAREHOLDERS' EQUITY
On January 4, 1999, in conjunction with an acquisition, the Company issued
1,027,276 shares of common stock with an aggregate value of $36.4 million.
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 over the period ending March
31, 2000. The shares will be repurchased in the open market or through
negotiated transactions. Under this program, the Company repurchased 26.0
million shares for $1.0 billion, including 1.4 million shares for $47.0 million
in the first quarter of 1999.
NOTE H EARNINGS PER SHARE
The components of earnings per share were:
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
(Dollars in Millions, Except Per Share Data) 1999 1998
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
EARNINGS PER SHARE:
Net income to common stockholders ........................................... $ 366.8 $ 328.5
===========================
Average shares outstanding .................................................. 722,637,379 738,708,228
===========================
Earnings per share .......................................................... $ .51 $ .44
===========================
DILUTED EARNINGS PER SHARE:
Net income to common stockholders ........................................... $ 366.8 $ 328.5
===========================
Average shares outstanding .................................................. 722,637,379 738,708,228
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 ....................................................... 5,664,720 10,927,311
---------------------------
Dilutive common shares outstanding .......................................... 728,302,099 749,635,539
===========================
Diluted earnings per share .................................................. $ .50 $ .44
==========================================================================================================
</TABLE>
U.S. Bancorp 21
<PAGE>
NOTE I INCOME TAXES
The components of income tax expense were:
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 31 March 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL:
Current tax .............................................................. $154.2 $167.1
Deferred tax provision (credit) .......................................... 17.9 (3.5)
--------------------
Federal income tax ..................................................... 172.1 163.6
STATE:
Current tax .............................................................. 30.6 20.0
Deferred tax provision ................................................... 3.7 5.7
--------------------
State income tax ....................................................... 34.3 25.7
--------------------
Total income tax provision ............................................. $206.4 $189.3
=================================================================================================
</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
--------------------
March 31 March 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------
<S> <C> <C>
Tax at statutory rate (35%) .............................................. $200.6 $181.2
State income tax, at statutory rates, net of federal tax benefit ......... 22.3 16.7
Tax effect of:
Tax-exempt interest:
Loans ................................................................. (2.3) (2.9)
Securities ............................................................ (5.7) (5.7)
Amortization of nondeductible goodwill ................................. 9.6 6.7
Tax credits and other items ............................................ (18.1) (6.7)
--------------------
Applicable income taxes .................................................. $206.4 $189.3
=================================================================================================
</TABLE>
The Company's net deferred tax asset was $140.6 million at March 31, 1999,
and $261.3 million at December 31, 1998.
NOTE J MERGER AND INTEGRATION CHARGES
During the first quarter of 1999, the Company recorded merger and integration
charges of $2.9 million related to conversion expenses for Piper Jaffray and
several other small acquisitions. 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>
Three Months Ended
(Dollars in Millions) March 31, 1999
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------
<S> <C>
Balance at December 31, 1998 .............................. $126.7
Provision charged to operating expense .................... 2.9
Cash outlays .............................................. (18.8)
Additions related to purchase acquisitions ................ 2.4
Noncash writedowns ........................................ (1.2)
--------
Balance at March 31, 1999 ................................. $112.0
======================================================================
</TABLE>
The components of the merger and integration accrual were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) March 31, 1999 December 31, 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------
<S> <C> <C>
Severance ............................................ $ 84.2 $ 98.1
Other employee related costs ......................... 6.5 7.2
Lease terminations and
facility costs ...................................... 9.6 7.4
Contracts and system writeoffs ....................... 10.2 10.4
Other ................................................ 1.5 3.6
-----------------------------
Total ................................................ $112.0 $126.7
======================================================================================
</TABLE>
Approximately $17 million, pretax, in additional merger-related charges
are expected to be incurred with respect to Piper Jaffray in 1999.
22 U.S. Bancorp
<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>
March 31 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Commercial ..................................................................... $25,499 $25,023
Corporate and purchasing cards ................................................. 16,100 24,758
Consumer credit cards .......................................................... 15,153 14,982
Other consumer ................................................................. 6,131 7,020
Letters of credit:
Standby ........................................................................ 3,149 3,241
Commercial ..................................................................... 290 309
Interest rate swap contracts:
Hedges ......................................................................... 7,284 7,239
Intermediated .................................................................. 703 740
Options contracts:
Hedge interest rate floors purchased ........................................... 500 500
Intermediated interest rate and foreign exchange caps and floors purchased ..... 399 360
Intermediated interest rate and foreign exchange caps and floors written ....... 399 360
Futures and forward contracts .................................................... 14 10
Mortgages sold with recourse ..................................................... 50 52
Foreign currency commitments:
Commitments to purchase ........................................................ 980 812
Commitments to sell ............................................................ 978 806
Commitments from securities lending .............................................. 461 342
============================================================================================================
</TABLE>
The Company received fixed-rate interest and paid floating-rate interest on
all swap hedges as of March 31, 1999. Activity for the three months ended March
31, 1999, 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, 1998 ........................................... $ 7,239
Additions .................................................................................. 675
Maturities ................................................................................. (625)
Terminations ............................................................................... (5)
---------
Notional amount outstanding at March 31, 1999 ........................................... $ 7,284
========================================================================================================
Weighted average interest rate paid ........................................................ 4.94%
Weighted average interest rate received .................................................... 6.12
========================================================================================================
</TABLE>
LIBOR-based interest rate floors totaling $500 million with an average
remaining maturity of 2.5 years at March 31, 1999, and $500 million with an
average remaining maturity of 2.7 years at December 31, 1998, hedged
floating-rate commercial loans. The strike rate on these LIBOR-based floors was
4.63 percent at March 31, 1999, and December 31, 1998.
Net unamortized deferred gains relating to swaps, options and futures were
immaterial at March 31, 1999.
U.S. Bancorp 23
<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 $3,964 million and $2,823 million at March 31, 1999,
and December 31, 1998, respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS Listed below are supplemental disclosures
to the Consolidated Statement of Cash Flows.
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 31 March 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income taxes paid (recovered) ............................................................. $ 13.5 $ 52.4)
Interest paid ............................................................................. 546.1 540.1
Net noncash transfers to foreclosed property .............................................. 5.3 5.6
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $11.1
in 1999 and $1.3 in 1998 ................................................................. (18.1) (2.1)
====================
Cash acquisitions of businesses:
Fair value of noncash assets acquired ................................................... $ 21.8 $ --
Liabilities assumed ..................................................................... -- --
--------------------
Net .................................................................................... $ 21.8 $ --
====================
Stock acquisitions of businesses:
Fair value of noncash assets acquired ................................................... $ 42.3 $ --
Net cash acquired ....................................................................... 3.6 --
Liabilities assumed ..................................................................... (9.5) --
--------------------
Net value of common stock issued ....................................................... $ 36.4 $ --
==================================================================================================================
</TABLE>
24 U.S. Bancorp
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
For the Three Months Ended March 31
1999 1998
--------------------------------------------------------------- --------
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
Available-for-sale securities:
U.S. Treasury ....................................... $ 482 $ 6.8 5.72% $ 632 $ 9.2 5.90% (23.7)%
Mortgage-backed ..................................... 3,240 53.4 6.68 4,112 69.7 6.87 (21.2)
State and political ................................. 1,177 22.2 7.65 1,284 25.2 7.96 (8.3)
U.S. agencies and other ............................. 332 4.1 5.01 456 6.4 5.69 (27.2)
--------------------- -------------------
Total available-for-sale securities ................ 5,231 86.5 6.71 6,484 110.5 6.91 (19.3)
Unrealized gain on available-for-sale securities ..... 106 97 9.3
------- -------
Net available-for-sale securities ................. 5,337 6,581 (18.9)
Trading account securities ........................... 558 9.2 6.69 149 1.8 4.90 **
Federal funds sold and resale agreements ............. 519 4.8 3.75 719 9.7 5.47 (27.8)
Loans:
Commercial:
Commercial ......................................... 26,018 479.9 7.48 23,491 468.5 8.09 10.8
Real estate:
Commercial mortgage ............................... 8,234 173.5 8.55 8,173 181.0 8.98 .7
Construction ...................................... 3,252 71.0 8.85 2,405 56.5 9.53 35.2
-------------------- -------------------
Total commercial .................................. 37,504 724.4 7.83 34,069 706.0 8.40 10.1
Consumer:
Home equity and second mortgage .................... 7,484 174.4 9.45 5,812 137.7 9.61 28.8
Credit card ........................................ 4,013 123.3 12.46 3,982 125.4 12.77 .8
Other .............................................. 7,055 161.7 9.30 6,675 158.7 9.64 5.7
-------------------- -------------------
Subtotal .......................................... 18,552 459.4 10.04 16,469 421.8 10.39 12.6
Residential mortgage ............................... 2,996 57.4 7.77 3,936 77.7 8.01 (23.9)
Residential mortgage held for sale ................. 29 .3 4.20 183 3.1 6.87 (84.2)
-------------------- -------------------
Total consumer .................................... 21,577 517.1 9.72 20,588 502.6 9.90 4.8
-------------------- -------------------
Total loans ....................................... 59,081 1,241.5 8.52 54,657 1,208.6 8.97 8.1
Allowance for credit losses ......................... 998 1,014 (1.6)
------- -------
Net loans .......................................... 58,083 53,643 8.3
Other earning assets ................................. 1,349 20.7 6.22 563 7.6 5.47 **
-------------------- -------------------
Total earning assets* ............................. 66,738 1,362.7 8.28 62,572 1,338.2 8.67 6.7
Other assets ......................................... 9,261 8,166 13.4
------- -------
Total assets ...................................... $75,107 $69,821 7.6%
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits ......................... $13,544 $12,954 4.6%
Interest-bearing deposits:
Interest checking ................................... 6,026 25.5 1.72 5,766 24.8 1.74 4.5
Money market accounts ............................... 12,180 105.8 3.52 10,695 104.3 3.96 13.9
Other savings accounts .............................. 2,281 10.0 1.78 2,603 13.6 2.12 (12.4)
Savings certificates ................................ 10,123 125.3 5.02 11,982 163.4 5.53 (15.5)
Certificates over $100,000........................... 3,466 45.0 5.27 3,287 49.0 6.05 5.4
-------------------- -------------------
Total interest-bearing deposits .................... 34,076 311.6 3.71 34,333 355.1 4.19 (.7)
Short-term borrowings ................................ 4,104 52.3 5.17 3,203 46.4 5.88 28.1
Long-term debt ....................................... 13,967 186.1 5.40 10,534 156.4 6.02 32.6
Company-obligated mandatorily redeemable preferred
securities .......................................... 950 19.3 8.24 600 12.3 8.18 58.3
-------------------- -------------------
Total interest-bearing liabilities ................ 53,097 569.3 4.35 48,670 570.2 4.75 9.1
Other liabilities .................................... 2,378 2,161 10.0
Common equity ........................................ 6,022 5,976 .8
Accumulated other comprehensive income ............... 66 60 10.0
------- -------
Total liabilities and shareholders' equity ........ $75,107 $69,821 7.6%
======= ======= =====
Net interest income .................................. $ 793.4 $ 768.0
======== ========
Gross interest margin ................................ 3.93% 3.92%
====== ======
Gross interest margin without taxable-equivalent
increments .......................................... 3.87% 3.84%
====== ======
Net interest margin .................................. 4.82% 4.98%
====== ======
Net interest margin without taxable-equivalent
increments .......................................... 4.76% 4.89%
=========================================================================================================================
</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.
U.S. Bancorp 25
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES -- On January 4, 1999, the Company issued 1,027,
276 shares of common stock with an aggregate value of $36.4 million and 56,586
shares of term participating preferred stock with restrictions with an aggregate
value of $20.0 million as consideration in connection with a merger transaction.
The preferred stock ranks prior to the Company's common stock with respect to
the payment of dividends and distribution of assets upon dissolution,
liquidation or winding up of the Company. Each preferred share has an attached
right allowing the holder to receive a number of shares of common stock upon
maturity of the term participating preferred stock. These common and preferred
shares were issued in a private placement transaction exempt from registration
under Section 4(2) of the Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- The 1999 Annual
Meeting of Shareholders of U.S. Bancorp was held on Tuesday, April 20, 1999, at
the Minneapolis Convention Center. John F. Grundhofer, Chairman, President and
Chief Executive Officer, presided.
The holders of 623,535,296 shares of common stock, 85.9 percent of the
726,039,362 outstanding shares entitled to vote as of the record date, were
represented at the meeting in person or by proxy. The candidates for election as
Class I Directors listed in the proxy statement were elected to serve three-year
terms expiring at the 2002 annual shareholders' meeting. The proposal to ratify
the appointment of Ernst & Young LLP as the Company's independent auditors for
the year ending December 31, 1999, was approved. The proposal to approve the
U.S. Bancorp 1999 Stock Incentive Plan was approved. The shareholder proposal
for the annual election of all Directors and the elimination of the Company's
classified Board of Directors, was not approved.
SUMMARY OF MATTERS VOTED UPON BY SHAREHOLDERS
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------
For Withheld
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Election of Class I Directors:
Linda L. Ahlers 618,136,921 5,398,375
Robert L. Dryden 618,101,994 5,433,302
Joel W. Johnson 617,984,240 5,551,056
Edward J. Phillips 618,116,029 5,419,267
Warren R. Staley 618,048,294 5,487,002
----------- ---------
<CAPTION>
For Against Abstain Non-Vote
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------
Other Matters:
Ratification of appointment of Ernst & Young LLP
as independent auditors 612,960,104 5,636,998 4,938,194 0
Approval of 1999 Stock Incentive Plan 456,299,343 73,580,919 7,679,509 85,975,525
Proposal for the annual election of all Directors 250,068,474 265,953,687 21,484,271 86,028,864
</TABLE>
For a copy of the meeting minutes, please write to the Office of the Secretary,
U.S. Bancorp, 601 Second Avenue South, Minneapolis, Minnesota 55402-4302.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(1) 4.1 Certificate of Designation and Terms of Term Participating
Preferred Stock of U.S. Bancorp. Filed as Exhibit 4.1 to
Registration Statement on Form S-4, File No. 333-75603.
10.1 U.S. Bancorp 1999 Stock Incentive Plan*
12 Computation of Ratio of Earnings to Fixed Charges.
27 Article 9 Financial Data Schedule.*
(1) EXHIBIT HAS HERETOFORE BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS INCORPORATED HEREIN AS AN EXHIBIT BY REFERENCE.
* 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 March 31, 1999, the Company filed the
following Current Report on Form 8-K.
Form 8-K dated January 20, 1999, relating to the announcement of the
Company's fourth quarter and full year 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
By: /s/ TERRANCE R. DOLAN
----------------------------------------
Terrance R. Dolan
Senior Vice President and Controller
DATE: May 13, 1999 (Chief Accounting Officer and Duly
Authorized Officer)
26 U.S. Bancorp
<PAGE>
----------------
[LOGO] US BANCORP(R) First Class
U.S. Postage
U.S. Bank Place PAID
601 Second Avenue South Permit No. 2440
Minneapolis, Minnesota Minneapolis, MN
55402-4302 ----------------
www.usbank.com
SHAREHOLDER INQUIRIES
COMMON STOCK TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York, a division of EquiServe, 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 Trust's Shareholder Services Center at (800) 446-2617.
Representatives are available weekdays 8:30 a.m. to 7:00 p.m. Eastern time, 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
c/o EquiServe
Mailing address: P.O. Box 2500, Jersey City,
New Jersey 07303-2500.
Telephone: (201) 324-0498
Fax: (201) 222-4892
Internet address: http://www.equiserve.com
E-mail address: [email protected]
If you own shares in a book-entry or plan account maintained by First Chicago
Trust, you can access your account information on the Internet through First
Chicago Trust's Web site. To obtain a password that provides you secured access
to your account, please call First Chicago Trust toll free at (877) THE-WEB7
(outside North America call (201) 536-8071).
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 Trust 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, c/o EquiServe, P.O. Box
2598, Jersey City, New Jersey, 07303-2598, (800) 446-2617.
INVESTMENT COMMUNITY CONTACTS
John R. Danielson
Senior Vice President, Investor Relations
(612) 973-2261
[email protected]
Judith T. Murphy
Vice President, Investor Relations
(612) 973-2264
[email protected]
FINANCIAL INFORMATION
U.S. Bancorp news and financial results are available through the Company's Web
site, fax, and mail.
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.
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 Relations
(612) 973-2263
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
EXHIBIT 10.1
U.S. BANCORP
1999 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; EFFECT ON PRIOR PLANS.
(a) PURPOSE. The purpose of the U.S. Bancorp 1999 Stock
Incentive Plan (the "Plan") is to aid in attracting and retaining employees,
management personnel and other personnel and members of the Board of Directors
who are not also employees ("Non-Employee Directors") of U.S. Bancorp (the
"Company") capable of assuring the future success of the Company, to offer such
personnel and Non-Employee Directors incentives to put forth maximum efforts for
the success of the Company's business and to afford such personnel and
Non-Employee Directors an opportunity to acquire a proprietary interest in the
Company.
(b) EFFECT ON PRIOR PLANS. The Company hereby adopts the Plan,
subject to approval by the stockholders of the Company. As so established and
approved, the Plan shall be known as the 1999 Stock Incentive Plan. On the
effective date of the Plan determined in accordance with Section 10 of the Plan,
for purposes of administration and share accounting pursuant to Sections 3 and 4
of the Plan, the following plans of the Company shall be considered to be
incorporated in the Plan: the U.S. Bancorp 1997 Stock Incentive Plan, as amended
(including all plans incorporated therein), and the Piper Jaffray Companies Inc.
1993 Omnibus Stock Plan (as assumed by the Company), as amended (together, the
"Prior Plans"). All outstanding options, restricted stock and other awards
issued under the Prior Plans shall remain subject to the terms and conditions of
the plans under which they were issued, but shares of stock relating to
outstanding options, restricted stock or other awards issued under the Prior
Plans are considered shares of stock subject to the Plan under Section 4 of the
Plan.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity interest, as
determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award or other Stock-Based
Award granted under the Plan.
<PAGE>
(c) "Award Agreement" shall mean any written agreement,
contract or other instrument or document evidencing any Award granted under the
Plan.
(d) "Change in Control" shall have the meaning ascribed to
such term in any Award Agreement, and shall include phrases of similar meaning
such as, by way of example but not limitation, "Full Change in Control" and
"Partial Change in Control."
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of the Board of
Directors of the Company designated by such Board to administer the Plan and
composed of not less than two directors.
(g) "Eligible Person" shall mean any employee, officer,
director (including any Non-Employee Director), consultant or independent
contractor providing services to the Company or any Affiliate who the Committee
determines to be an Eligible Person.
(h) "Fair Market Value" shall mean, with respect to any
property (including, without limitation, any Shares or other securities), the
fair market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee. Notwithstanding the
foregoing, for purposes of the Plan, the Fair Market Value of Shares on a given
date shall be the closing price of the Shares as reported on the New York Stock
Exchange on such date, if the Shares are then traded on the New York Stock
Exchange.
(i) "Incentive Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is intended to meet the requirements of
Section 422 of the Code or any successor provision.
(j) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan, or Section 6(g) of the Plan in the case of
automatic grants to Non-Employee Directors, that is not intended to be an
Incentive Stock Option.
(k) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
(l) "Other Stock-Based Award" shall mean any right granted
under Section 6(e) of the Plan.
-2-
<PAGE>
(m) "Participant" shall mean an Eligible Person designated to
be granted an Award under the Plan.
(n) "Performance Award" shall mean any right granted under
Section 6(d) of the Plan.
(o) "Person" shall mean any individual, corporation,
partnership, association or trust.
(p) "Qualifying Termination" shall mean a termination of
employment under circumstances that, in the judgment of the Committee, warrant
acceleration of the exercisability of Options or the lapse of restrictions
relating to Restricted Stock or Restricted Stock Units. A Qualifying Termination
may apply to large-scale terminations of employment involving the disposition or
divestiture of businesses or legal entities or similar circumstances.
(q) "Restricted Stock" shall mean any Share granted under
Section 6(c) of the Plan.
(r) "Restricted Stock Unit" shall mean any unit granted under
Section 6(c) of the Plan evidencing the right to receive a Share (or a cash
payment equal to the Fair Market Value of a Share) at some future date.
(s) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
(t) "Shares" shall mean shares of Common Stock, $1.25 par
value, of the Company or such other securities or property as may become subject
to Awards pursuant to an adjustment made under Section 7(c) of the Plan.
(u) "Stock Appreciation Right" shall mean any right granted
under Section 6(b) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. Subject to
the terms of the Plan and applicable law, the Committee shall have full power
and authority to: (i) designate Participants; (ii) determine the type or types
of Awards to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by (or with respect to which payments, rights or
other matters are to be calculated in connection with) each Award; (iv)
determine the terms and conditions of any Award or Award Agreement; (v) amend
the terms and conditions of any Award or Award Agreement and accelerate the
-3-
<PAGE>
exercisability of Options or the lapse of restrictions relating to Restricted
Stock or Restricted Stock Units; PROVIDED, HOWEVER, that any such acceleration
of exercisability or lapse of restrictions shall be limited to accelerations
relating to a Change in Control, a Qualifying Termination, death, disability or
any circumstances set forth in an Award Agreement in effect on the effective
date of the Plan determined in accordance with Section 10 of the Plan; (vi)
determine whether, to what extent and under what circumstances Awards may be
exercised in cash, Shares, other securities, other Awards or other property, or
canceled, forfeited or suspended; (vii) determine whether, to what extent and
under what circumstances cash, Shares, other securities, other Awards, other
property and other amounts payable with respect to an Award under the Plan shall
be deferred either automatically or at the election of the holder thereof or the
Committee; (viii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (ix) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (x) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon any Participant, any holder or beneficiary of
any Award and any employee of the Company or any Affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in
Section 7(c), the total number of Shares available for granting Awards under the
Plan shall be 92,891,502 (47,891,502 of which were previously authorized and
subject to outstanding Awards under the Prior Plans or authorized and available
for grant under the U.S. Bancorp 1997 Stock Incentive Plan, as amended
(including all plans incorporated therein), and 45,000,000 of which will be
authorized upon stockholder approval of the Plan); PROVIDED, HOWEVER, that the
total number of Shares authorized under the Plan shall be deemed to be reduced
automatically, as of the effective date of the Plan determined in accordance
with Section 10 of the Plan, by that number of Shares that were subject to
outstanding awards under the Prior Plans, as of January 31, 1999, that are no
longer subject to outstanding awards as of the effective date of the Plan
determined in accordance with Section 10 of the Plan. Not more than 7,000,000 of
such Shares, subject to adjustment as provided in Section 7(c) of the Plan, will
be available for granting additional Awards of Restricted Stock following the
effective date of the Plan determined in accordance with Section 10 of the Plan;
PROVIDED, HOWEVER, that any Shares covered by an Award of Restricted Stock that
are forfeited shall again be available for purposes of the limitation on grants
of additional Awards of Restricted Stock. If any Shares covered by an Award or
to which an Award relates are not purchased or are forfeited, or if an
-4-
<PAGE>
Award otherwise terminates without delivery of any Shares, then the number of
Shares counted against the aggregate number of Shares available under the Plan
with respect to such Award, to the extent of any such forfeiture or termination,
shall again be available for granting Awards under the Plan. In addition, if any
Shares are used by a Participant as full or partial payment to the Company of
the purchase price relating to an Award, whether by actual delivery or
attestation, or in connection with satisfaction of tax obligations relating to
an Award, whether by actual delivery, attestation or having shares withheld from
the Award, only the number of Shares issued net of the Shares tendered or
withheld shall be deemed delivered for purposes of determining the maximum
number of Shares available for granting of Awards under the Plan. For purposes
of the previous two sentences, the term "Award" shall explicitly include any
awards outstanding under the Prior Plans as of the effective date of the Plan
determined in accordance with Section 10 of the Plan.
(b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if
an Award entitles the holder thereof to receive or purchase Shares, the number
of Shares covered by such Award or to which such Award relates shall be counted
on the date of grant of such Award against the aggregate number of Shares
available for granting Awards under the Plan. Such Shares may again become
available for granting Awards under the Plan pursuant to the provisions of
Section 4(a) of the Plan, subject to the limitations set forth in Section 4(c)
of the Plan.
(c) INCENTIVE STOCK OPTIONS. Notwithstanding the foregoing,
the number of Shares available for granting Incentive Stock Options under the
Plan, on and after the effective date of the Plan determined in accordance with
Section 10 of the Plan, shall not exceed 45,000,000, subject to adjustment as
provided in Section 7(c) of the Plan and Section 422 or 424 of the Code or any
successor provisions.
(d) AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may
be granted any Award or Awards, the value of which Awards are based solely on an
increase in the value of the Shares after the date of grant of such Awards, for
more than 5,000,000 Shares (subject to adjustment as provided in Section 7(c) of
the Plan), in the aggregate, in any calendar year beginning with the year
commencing January 1, 1999. The foregoing limitation specifically includes the
grant of any "performance-based" Awards within the meaning of ss.162(m) of the
Code.
SECTION 5. ELIGIBILITY.
Any Eligible Person, including any Eligible Person who is an
officer or director of the Company or any Affiliate, shall be eligible to be
designated a Participant; PROVIDED, HOWEVER, that an Incentive Stock Option may
only be granted to full or part-time employees (which term as used herein
includes, without limitation, officers and
-5-
<PAGE>
directors who are also employees) and an Incentive Stock Option shall not be
granted to an employee of an Affiliate unless such Affiliate is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code or any successor provision.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant
Options to Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the Plan
as the Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Share purchasable
under an Option shall be determined by the Committee; PROVIDED,
HOWEVER, that such purchase price shall not be less than 100% of the
Fair Market Value of a Share on the date of grant of such Option.
(ii) OPTION TERM. The term of each Option shall be fixed by
the Committee.
(iii) TIME AND METHOD OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in
whole or in part and the method or methods by which, and the form or
forms (including, without limitation, cash, Shares, other securities,
other Awards or other property, or any combination thereof, having a
Fair Market Value on the exercise date equal to the relevant exercise
price) in which, payment of the exercise price with respect thereto may
be made or deemed to have been made.
(iv) RELOAD OPTIONS. The Committee may grant "reload" options,
separately or together with another Option, pursuant to which, subject
to the terms and conditions established by the Committee and any
applicable requirements of Rule 16b-3 or any other applicable law, the
Participant would be granted a new Option when the payment of the
exercise price of a previously granted option is made by the delivery
of shares of the Company's Common Stock owned by the Participant
pursuant to Section 6(a)(iii) hereof or the relevant provisions of
another plan of the Company, and/or when shares of the Company's Common
Stock are tendered or forfeited as payment of the amount to be withheld
under applicable tax laws in connection with the exercise of an option,
which new Option would be an option to purchase the number of Shares
not exceeding the sum of (A) the number of shares of the Company's
Common Stock provided as consideration upon the exercise of the
previously granted option to which such "reload" option relates and (B)
the number of shares of the Company's Common Stock tendered or
forfeited as payment of the amount to be withheld under
-6-
<PAGE>
applicable tax laws in connection with the exercise of the option to
which such "reload" option relates. "Reload" options may be granted
with respect to options granted under this Plan or any other stock
option plan of the Company or any of its affiliates (which shall
explicitly include plans assumed by the Company in connection with
mergers and the like). Such "reload" options shall have a per share
exercise price equal to the Fair Market Value as of the date of grant
of the new Option. Any such reload options shall be subject to
availability of sufficient shares for grant under the Plan.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby
authorized to grant Stock Appreciation Rights to Participants subject to the
terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right
granted under the Plan shall confer on the holder thereof a right to receive
upon exercise thereof the excess of (i) the Fair Market Value of one Share on
the date of exercise (or, if the Committee shall so determine, at any time
during a specified period before or after the date of exercise) over (ii) the
grant price of the Stock Appreciation Right as specified by the Committee, which
price shall not be less than 100% of the Fair Market Value of one Share on the
date of grant of the Stock Appreciation Right. Subject to the terms of the Plan
and any applicable Award Agreement, the grant price, term, methods of exercise,
dates of exercise, methods of settlement and any other terms and conditions of
any Stock Appreciation Right shall be as determined by the Committee. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it may deem appropriate.
(c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee
is hereby authorized to grant Awards of Restricted Stock and Restricted Stock
Units to Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the Plan
as the Committee shall determine:
(i) RESTRICTIONS. Shares of Restricted Stock and Restricted
Stock Units shall be subject to such restrictions as the Committee may
impose (including, without limitation, any limitation on the right to
vote a Share of Restricted Stock or the right to receive any dividend
or other right or property with respect thereto), which restrictions
may lapse separately or in combination at such time or times, in such
installments or otherwise as the Committee may deem appropriate. Except
as otherwise provided herein, Awards of Restricted Stock and Restricted
Stock Units shall contain restrictions that lapse no sooner than three
years following the date of grant or, in the case of Awards with
performance-based vesting provisions, no sooner than one year following
the date of grant; PROVIDED, HOWEVER, that restrictions may lapse
sooner than such dates as to portions of such Awards so long as
restrictions as to the total number of Shares covered by such Awards do
not lapse sooner than such dates; and PROVIDED, FURTHER, that such
limitations shall
-7-
<PAGE>
not apply to Awards granted to new employees as part of initial terms
of employment, Awards granted to new or existing employees in
connection with the acquisition of businesses or assets by the Company,
or to Awards in effect on the effective date of the Plan determined in
accordance with Section 10 of the Plan.
(ii) STOCK CERTIFICATES. Any Restricted Stock granted under
the Plan shall be evidenced by issuance of a stock certificate or
certificates, which certificate or certificates shall be held by the
Company. Such certificate or certificates shall be registered in the
name of the Participant and shall bear an appropriate legend referring
to the restrictions applicable to such Restricted Stock. In the case of
Restricted Stock Units, no Shares shall be issued at the time such
Awards are granted.
(iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise
determined by the Committee, upon termination of employment (as
determined under criteria established by the Committee) during the
applicable restriction period, all Shares of Restricted Stock and all
Restricted Stock Units at such time subject to restriction shall be
forfeited and reacquired by the Company; PROVIDED, HOWEVER, that the
Committee may, when it finds that a waiver would be in the best
interest of the Company, including, without limitation, in connection
with Changes in Control, Qualifying Terminations, death or disability,
waive in whole or in part any or all remaining restrictions with
respect to Shares of Restricted Stock or Restricted Stock Units. Shares
representing Restricted Stock that is no longer subject to restrictions
shall be delivered to the holder thereof promptly after the applicable
restrictions lapse or are waived. Upon the lapse or waiver of
restrictions and the restricted period relating to Restricted Stock
Units evidencing the right to receive Shares, such Shares shall be
issued and delivered to the holders of the Restricted Stock Units.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to
grant Performance Awards to Participants subject to the terms of the Plan and
any applicable Award Agreement. A Performance Award granted under the Plan (i)
may be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan and
any applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted and the amount of any payment or transfer to be made
pursuant to any Performance Award shall be determined by the Committee.
-8-
<PAGE>
(e) OTHER STOCK-BASED AWARDS. The Committee is hereby
authorized to grant to Participants such other Awards that are denominated or
payable in, valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities convertible into
Shares), as are deemed by the Committee to be consistent with the purpose of the
Plan; PROVIDED, HOWEVER, that such grants must comply with applicable law.
Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(e) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without limitation,
cash, Shares, other securities, other Awards or other property or any
combination thereof), as the Committee shall determine, the value of which
consideration, as established by the Committee, shall not be less than 100% of
the Fair Market Value of such Shares or other securities as of the date such
purchase right is granted.
(f) GENERAL. Except as otherwise specified with respect to
Awards to Non-Employee Directors pursuant to Section 6(g) of the Plan:
(i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted
for no cash consideration or for such minimal cash consideration as may
be required by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may,
in the discretion of the Committee, be granted either alone or in
addition to, in tandem with or in substitution for any other Award or
any award granted under any plan of the Company or any Affiliate other
than the Plan. Awards granted in addition to or in tandem with other
Awards or in addition to or in tandem with awards granted under any
such other plan of the Company or any Affiliate may be granted either
at the same time as or at a different time from the grant of such other
Awards or awards.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of
the Plan and of any applicable Award Agreement, payments or transfers
to be made by the Company or an Affiliate upon the grant, exercise or
payment of an Award may be made in such form or forms as the Committee
shall determine (including, without limitation, cash, Shares, other
securities, other Awards or other property or any combination thereof),
and may be made in a single payment or transfer, in installments or on
a deferred basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments.
-9-
<PAGE>
(iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under
any such Award shall be transferable by a Participant otherwise than by
will or by the laws of descent and distribution; PROVIDED, HOWEVER,
that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, designate a beneficiary or
beneficiaries to exercise the rights of the Participant and receive any
property distributable with respect to any Award upon the death of the
Participant; and PROVIDED, FURTHER, except in the case of an Incentive
Stock Option, Awards may be transferable as specifically provided in
any applicable Award Agreement or amendment thereto pursuant to terms
determined by the Committee. Except as otherwise provided in any
applicable Award Agreement or amendment thereto (other than an Award
Agreement relating to an Incentive Stock Option), pursuant to terms
determined by the Committee, each Award or right under any Award shall
be exercisable during the Participant's lifetime only by the
Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative. Except as otherwise
provided in any applicable Award Agreement or amendment thereto (other
than an Award Agreement relating to an Incentive Stock Option), no
Award or right under any such Award may be pledged, alienated, attached
or otherwise encumbered, and any purported pledge, alienation,
attachment or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(v) TERM OF AWARDS. The term of each Award shall be for such
period as may be determined by the Committee.
(vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All
certificates for Shares or other securities delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such
stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations and other
requirements of the Securities and Exchange Commission and any
applicable federal or state securities laws, and the Committee may
cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions. If the Shares or other
securities are traded on a securities exchange, the Company shall not
be required to deliver any Shares or other securities covered by an
Award unless and until such Shares or other securities have been
admitted for trading on such securities exchange.
(g) NON-QUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS. The
Committee shall issue Non-Qualified Stock Options to Non-Employee Directors in
accordance with this Section 6(g).
Each Non-Employee Director first elected or appointed to the
Company's Board of Directors following the effective date of the Plan determined
in accordance with
-10-
<PAGE>
Section 10 of the Plan and during the term of the Plan shall be granted, as of
the date of such Director's first election or appointment to the Board of
Directors, a Non-Qualified Stock Option to purchase 7,500 Shares (subject to
adjustment pursuant to Section 7(c) of the Plan). Each Non-Employee Director
shall be granted during the term of the Plan, as of the date of each Annual
Meeting of Stockholders of the Company commencing with the 1999 Annual Meeting
of Stockholders of the Company, if such Director's term of office continues
after such date, a Non-Qualified Stock Option to purchase 5,100 Shares (subject
to adjustment pursuant to Section 7(c) of the Plan).
Each Non-Qualified Stock Option granted to a Non-Employee
Director pursuant to this Section 6(g) shall be exercisable in full as of the
date of grant, shall have an exercise price equal to the Fair Market Value of a
Share on the date of grant and shall expire on the tenth anniversary of the date
of grant, except as provided below. Each Option granted pursuant to this Section
6(g) may be transferable pursuant to terms established by the Committee
consistent with Section 6(f)(iv) of the Plan.
Except as hereinafter provided, each Option granted pursuant
to this Section 6(g) (including those Options granted pursuant to Section 6(h)
of the First Bank System, Inc. 1991 Stock Incentive Plan as provided therein,
under Section 6(g) of the First Bank System, Inc. 1996 Stock Incentive Plan as
provided therein and under Section 6(g) of the U.S. Bancorp 1997 Stock Incentive
Plan as provided therein) shall be deemed to include a provision entitling the
optionee to a further Non-Qualified Stock Option (a "Non-Employee Director
Reload Option") in the event the optionee exercises such an Option, in whole or
in part, by surrendering other Shares in accordance with this Section 6(g)
(including any predecessor provision under the First Bank System, Inc. 1991
Stock Incentive Plan, the First Bank System, Inc. 1996 Stock Incentive Plan or
the U.S. Bancorp 1997 Stock Incentive Plan) and the terms of the Option and/or
when shares of the Company's Common Stock are delivered or withheld as payment
of an amount representing tax obligations in connection with the exercise of an
option. Any such Non-Employee Director Reload Option (i) shall be for a number
of Shares equal to the sum of (x) the number of Shares surrendered as part or
all of the exercise price of the Option to which it relates plus (y) the number
of Shares, if any, delivered or withheld as payment of an amount representing
tax obligations in connection with the exercise of the Option to which it
relates; (ii) shall have an expiration date which is the same as the expiration
date of the Option to which it relates; (iii) shall have an exercise price equal
to the Fair Market Value of a Share on the date of exercise of the Option to
which it relates; and (iv) shall be exercisable in full as of the date of grant.
A Non-Employee Director Reload Option may be reloaded under the same terms,
provided that the original Option to which such series of Non-Employee Director
Reload Options relates may be reloaded a maximum of three times. Non-Employee
Director Reload Options shall only be granted to a Director during such
Director's term as a Non-Employee Director. Any such Non-Employee Director
Reload Option shall be subject to availability of sufficient shares for grant
under the Plan.
-11-
<PAGE>
Shares surrendered as part or all of the exercise price of the Option to which
it relates that have been owned by the optionee less than six months will not be
counted for purposes of determining the number of Shares that may be purchased
pursuant to a Non-Employee Director Reload Option.
All grants of Non-Qualified Stock Options pursuant to this
Section 6(g) shall be automatic and non-discretionary and shall be made strictly
in accordance with the foregoing terms and the following additional provisions:
(i) Non-Qualified Stock Options granted to a Non-Employee
Director hereunder shall terminate and may no longer be exercised if
such Director ceases to be a Non-Employee Director of the Company,
except that:
(A) If such Director's term shall be terminated for
any reason other than gross and willful misconduct, death,
disability, or retirement, such Director may at any time
within a period of three months after such termination, but
not after the termination date of the Option, exercise the
Option.
(B) If such Director's term shall be terminated by
reason of gross and willful misconduct during the course of
the term, including but not limited to, wrongful appropriation
of funds of the Company or the commission of a gross
misdemeanor or felony, the Option shall be terminated as of
the date of the misconduct.
(C) If such Director's term shall be terminated by
reason of disability or retirement, such Director may exercise
the Option in accordance with the terms thereof as though such
termination had never occurred. If such Director shall die
following any such termination, the Option may be exercised in
accordance with its terms by the personal representatives or
administrators of such Director or by any person or persons to
whom the Option has been transferred by will or the applicable
laws of descent and distribution.
(D) If such Director shall die while a Director of
the Company or within three months after termination of such
Director's term for any reason other than disability or
retirement or gross and willful misconduct, the Option may be
exercised in accordance with its terms by the personal
representatives or administrators of such Director or by any
person or persons to whom the Option has been transferred by
will or the applicable laws of descent and distribution.
-12-
<PAGE>
(ii) Non-Qualified Stock Options granted to Non-Employee
Directors may be exercised in whole or in part from time to time by
serving written notice of exercise on the Company at its principal
executive offices, to the attention of the Company's Secretary. The
notice shall state the number of shares as to which the Option is being
exercised and be accompanied by payment of the purchase price. A
Non-Employee Director may, at such Director's election, pay the
purchase price by check payable to the Company, by promissory note, or
in shares of the Company's Common Stock, or in any combination thereof
having a Fair Market Value on the exercise date equal to the applicable
exercise price. If payment or partial payment is made by promissory
note, such note shall be a full recourse note and shall (A) be secured
by the Shares to be delivered upon exercise of such Option, (B) be
limited in principal amount to the maximum amount permitted under
applicable laws, rules and regulations, (C) be for a term of six years
and (D) bear interest at the applicable federal rate (as determined in
accordance with Section 1274(d) of the Code), compounded semi-annually.
(iii) In order for a Non-Employee Director to satisfy
obligations under tax laws in connection with an Option granted
pursuant to this Section 6(g) (including any predecessor provision
under the First Bank System, Inc. 1991 Stock Incentive Plan, the First
Bank System, Inc. 1996 Stock Incentive Plan and the U.S. Bancorp 1997
Stock Incentive Plan), such Director may (A) elect to have the Company
withhold a portion of the Shares otherwise to be delivered upon
exercise of such Option with a Fair Market Value equal to the amount of
such taxes (an "Election") or (B) deliver to the Company Shares other
than Shares issuable upon exercise of such Option with a Fair Market
Value equal to the amount of such taxes. An Election, if any, must be
made on or before the date that the amount of tax to be withheld is
determined.
SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board of Directors of the
Company may amend, alter, suspend, discontinue or terminate the Plan at any time
and from time to time; PROVIDED, HOWEVER, that, notwithstanding any other
provision of the Plan or any Award Agreement, without the approval of the
stockholders of the Company, no such amendment, alteration, suspension,
discontinuation or termination shall be made that, absent such approval:
-13-
<PAGE>
(i) would violate the rules or regulations of the New York
Stock Exchange, any other securities exchange or the National
Association of Securities Dealers, Inc. that are applicable to the
Company; or
(ii) would cause the Company to be unable, under the Code, to
grant Incentive Stock Options under the Plan.
(b) AMENDMENTS TO AWARDS. Except as otherwise explicitly
provided herein, the Committee may waive any conditions of or rights of the
Company under any outstanding Award, prospectively or retroactively. The
Committee may not amend, alter, suspend, discontinue or terminate any
outstanding Award, prospectively or retroactively, without the consent of the
Participant or holder or beneficiary thereof, except as otherwise herein
provided. Except as provided in Section 7(c) hereof, no Option may be amended to
reduce its initial exercise price and no Option shall be canceled and replaced
with an Option or Options having a lower exercise price without the approval of
the stockholders of the Company.
(c) ADJUSTMENTS. In the event that any dividend or other
distribution (whether in the form of cash, Shares, other securities or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase or exchange
of Shares or other securities of the Company or other similar corporate
transaction or event affecting the Shares would be reasonably likely to result
in the diminution or enlargement of any of the benefits or potential benefits
intended to be made available under the Plan or under an Award (including,
without limitation, the benefits or potential benefits of provisions relating to
the term, vesting or exercisability of any Option, the availability of any
tandem stock appreciation rights or "reload" option rights, if any, contained in
any Option Award, and any "change in control" or similar provisions of any
Award), the Committee shall, in such manner as it shall deem equitable or
appropriate in order to prevent such diminution or enlargement of any such
benefits or potential benefits, adjust any or all of (i) the number and type of
Shares (or other securities or other property) which thereafter may be made the
subject of Awards, (ii) the number and type of Shares (or other securities or
other property) subject to outstanding Awards and (iii) the purchase or exercise
price with respect to any Award; PROVIDED, HOWEVER, that the number of Shares
covered by any Award or to which such Award relates shall always be a whole
number.
(d) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
-14-
<PAGE>
SECTION 8. INCOME TAX WITHHOLDING.
In order to comply with all applicable federal, state or local
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state or local payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all federal and state
taxes to be withheld or collected upon exercise or receipt of (or the lapse of
restrictions relating to) an Award, the Committee, in its discretion and subject
to such additional terms and conditions as it may adopt, may permit the
Participant to satisfy such tax obligation by (i) electing to have the Company
withhold a portion of the Shares otherwise to be delivered upon exercise or
receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes or (ii) delivering to the Company
Shares other than Shares issuable upon exercise or receipt of (or the lapse of
restrictions relating to) such Award with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the date
that the amount of tax to be withheld is determined.
SECTION 9. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. Except as otherwise provided in
Section 6(g) of the Plan, no Eligible Person, Participant or other Person shall
have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to different Participants.
(b) DELEGATION. The Committee may delegate to one or more
officers of the Company or any Affiliate or a committee of such officers, but
only to the extent such officer or officers are also members of the Board of
Directors of the Company, the authority, subject to such terms and limitations
as the Committee shall determine, to grant Awards to Eligible Persons who are
not officers or directors of the Company for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended.
(c) AWARD AGREEMENTS. No Participant will have rights under an
Award granted to such Participant unless and until an Award Agreement shall have
been duly executed on behalf of the Company.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
-15-
<PAGE>
(e) NO RIGHT TO EMPLOYMENT, ETC. The grant of an Award shall
not be construed as giving a Participant the right to be retained in the employ,
or as giving a Non-Employee Director the right to continue as a Director, of the
Company or any Affiliate. In addition, the Company or an Affiliate may at any
time dismiss a Participant from employment, or terminate the term of a
Non-Employee Director, free from any liability or any claim under the Plan,
unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) GOVERNING LAW. The validity, construction and effect of
the Plan and any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of Minnesota.
(g) SEVERABILITY. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering the purpose
or intent of the Plan or the Award, such provision shall be stricken as to such
jurisdiction or Award, and the remainder of the Plan or any such Award shall
remain in full force and effect.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash shall be paid in lieu of any fractional Shares or whether
such fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(j) HEADINGS. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision thereof.
(k) SECTION 16 COMPLIANCE. The Plan is intended to comply in
all respects with Rule 16b-3 or any successor provision, as in effect from time
to time and in all events the Plan shall be construed in accordance with the
requirements of Rule 16b-3. If any Plan provision does not comply with Rule
16b-3 as hereafter amended or interpreted,
-16-
<PAGE>
the provision shall be deemed inoperative. The Board of Directors, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan with respect to persons who are
officers or directors subject to Section 16 of the Securities and Exchange Act
of 1934, as amended, without so restricting, limiting or conditioning the Plan
with respect to other Participants.
SECTION 10. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the date of approval by the
stockholders of the Company in accordance with applicable law.
SECTION 11. TERM OF THE PLAN.
New Awards shall only be granted under the Plan during a
10-year period beginning on the effective date of the Plan. However, unless
otherwise expressly provided in the Plan or in an applicable Award Agreement,
any Award theretofore granted may extend beyond the end of such 10-year period,
and the authority of the Committee provided for hereunder with respect to the
Plan and any Awards, and the authority of the Board of Directors of the Company
to amend the Plan, shall extend beyond the end of such period.
-17-
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three
Months
Ended
March 31
-----------
(Dollars in Millions) 1999
======================================================================================================
<S> <C>
EARNINGS
1. Net income ........................................................................ $ 366.8
2. Applicable income taxes ........................................................... 206.4
-----------
3. Net income before taxes (1 + 2) ................................................... $ 573.2
===========
4. Fixed charges:
a Interest expense excluding interest on deposits ................................ $ 257.7
b. Portion of rents representative of interest and amortization of debt expense ... 11.5
-----------
c. Fixed charges excluding interest on deposits (4a + 4b) ......................... 269.2
d. Interest on deposits ........................................................... 311.6
-----------
e. Fixed charges including interest on deposits (4c + 4d) ......................... $ 580.8
===========
5. Amortization of interest capitalized .............................................. $ --
6. Earnings excluding interest on deposits (3 + 4c + 5) .............................. 842.4
7. Earnings including interest on deposits (3 + 4e + 5) .............................. 1,154.0
8. Fixed charges excluding interest on deposits (4c) ................................. 269.2
9. Fixed charges including interest on deposits (4e) ................................. 580.8
RATIO OF EARNINGS TO FIXED CHARGES
10. Excluding interest on deposits (line 6/line 8) .................................... 3.13
11. Including interest on deposits (line 7/line 9) .................................... 1.99
======================================================================================================
</TABLE>
U.S. Bancorp 27
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE U.S.
BANCORP MARCH 31, 1999, 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,020,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 574,000
<TRADING-ASSETS> 686,000
<INVESTMENTS-HELD-FOR-SALE> 5,253,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 59,619,000
<ALLOWANCE> 982,500
<TOTAL-ASSETS> 76,110,000
<DEPOSITS> 48,672,000
<SHORT-TERM> 4,169,000
<LIABILITIES-OTHER> 2,229,000
<LONG-TERM> 13,774,000
0
0
<COMMON> 931,000
<OTHER-SE> 5,246,000
<TOTAL-LIABILITIES-AND-EQUITY> 76,110,000
<INTEREST-LOAN> 1,238,500
<INTEREST-INVEST> 79,300
<INTEREST-OTHER> 34,200
<INTEREST-TOTAL> 1,352,000
<INTEREST-DEPOSIT> 311,600
<INTEREST-EXPENSE> 569,300
<INTEREST-INCOME-NET> 782,700
<LOAN-LOSSES> 117,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 718,800
<INCOME-PRETAX> 573,200
<INCOME-PRE-EXTRAORDINARY> 573,200
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,800
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 4.82
<LOANS-NON> 303,500
<LOANS-PAST> 126,800
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,000,900
<CHARGE-OFFS> 181,300
<RECOVERIES> 41,700
<ALLOWANCE-CLOSE> 982,500
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
