FORM 10-Q/JUNE 30, 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 JUNE 30, 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 July 31, 1999
Common Stock, $1.25 Par Value 731,621,406 shares
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FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
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June 30 June 30 June 30 June 30
(Dollars in Millions, Except Per Share Data) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before nonrecurring items ........................ $ 383.8 $ 358.2 $ 752.4 $ 708.2
Nonrecurring items ...................................... (9.5) (37.6) (11.3) (59.1)
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Net income .............................................. $ 374.3 $ 320.6 $ 741.1 $ 649.1
======================================================
PER COMMON SHARE
Earnings per share ...................................... $ .52 $ .43 $ 1.03 $ .88
Diluted earnings per share .............................. .51 .43 1.02 .86
Earnings on a cash basis (diluted)* ..................... .56 .47 1.12 .96
Dividends paid .......................................... .195 .175 .39 .35
Common shareholders' equity ............................. 8.70 8.28
PER COMMON SHARE BEFORE NONRECURRING ITEMS
Earnings per share ...................................... .53 .48 1.04 .96
Diluted earnings per share .............................. .53 .48 1.03 .94
Earnings on a cash basis (diluted)* ..................... .58 .52 1.13 1.03
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FINANCIAL RATIOS
Return on average assets ................................ 1.97% 1.80% 1.98% 1.85%
Return on average common equity ......................... 23.8 20.8 24.1 21.4
Efficiency ratio ........................................ 50.9 54.1 50.8 52.1
Net interest margin (taxable-equivalent basis) .......... 4.86 4.91 4.84 4.95
SELECTED FINANCIAL RATIOS BEFORE NONRECURRING ITEMS
Return on average assets ................................ 2.02 2.01 2.01 2.02
Return on average common equity ......................... 24.4 23.2 24.5 23.4
Efficiency ratio ........................................ 49.9 49.7 50.1 48.0
Banking efficiency ratio** .............................. 42.4 45.1 42.9 45.1
======================================================
<CAPTION>
June 30 December 31
1999 1998
-------------------------
PERIOD END
Loans ................................................... $ 60,896 $ 59,122
Allowance for credit losses ............................. 968 1,001
Assets .................................................. 77,390 76,438
Total shareholders' equity .............................. 6,308 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 .......................... 11.1 10.9
Leverage ratio .......................................... 7.1 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) ......... 12
Financial Statements (Item 1) ............................................... 17
PART II -- OTHER INFORMATION
Exhibits and Reports on Form 8-K (Item 6) ................................... 29
Signature ................................................................... 29
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges ............. 30
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements. Statements that are not
historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. Forward-looking statements involve
inherent risks and uncertainties, and important factors could cause actual
results to differ materially from those anticipated, including the following:
(i) general economic conditions could be less favorable than expected, resulting
in a deterioration in credit quality or a reduced demand for credit or fee-based
products and services; (ii) changes in the domestic interest rate environment
could reduce net interest income; (iii) the conditions of the securities markets
could change, adversely affecting the availability and terms of funding
necessary to meet the Company's liquidity needs; (iv) changes in the extensive
laws, regulations and policies governing financial services companies,
particularly the adoption of proposed bank regulatory reform, could alter the
Company's business environment or affect operations; (v) the potential need to
adapt to industry changes in information technology systems, on which the
Company is highly dependent, could present operational issues or require
significant capital spending; (vi) competitive pressures could intensify and
affect the Company's profitability, including as a result of continued industry
consolidation, the increased availability of financial services from non-banks,
technological developments, or bank regulatory reform; (vii) acquisitions may
not produce revenue enhancements or cost savings at levels or within time frames
originally anticipated, or may result in unforeseen integration difficulties;
and (viii) third parties with which the Company does business may fail to remedy
their Year 2000 issues and other unforeseen Year 2000 complications may arise,
affecting the Company's operations. Forward-looking statements speak only as of
the date they are made, and the Company undertakes no obligation to update them
in light of new information or future events.
U.S. Bancorp 1
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MANAGEMENT'S DISCUSSION AND ANALYSIS
EARNINGS SUMMARY U.S. Bancorp (the "Company") reported second quarter 1999
operating earnings (net income excluding nonrecurring items) of $383.8 million,
compared with $358.2 million in the second quarter of 1998. On a diluted per
share basis, operating earnings were $.53 in the second quarter of 1999,
compared with $.48 in the second quarter of 1998, an increase of 10 percent. On
a diluted per share basis, cash operating earnings were $.58 in the second
quarter of 1999, compared with $.52 in the second quarter of 1998, an increase
of 12 percent. Return on average assets and return on average common equity,
excluding nonrecurring items, were 2.02 percent and 24.4 percent, respectively,
in the second quarter of 1999, compared with returns of 2.01 percent and 23.2
percent, respectively, in the second quarter of 1998. Excluding nonrecurring
items, the efficiency ratio (the ratio of expenses to revenues) was 49.9 percent
in the second quarter of 1999, compared with 49.7 percent in the second quarter
of 1998.
Comparisons to the second quarter and first six months of 1999 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 second quarter of 1999 was higher by $45.4 million (6 percent) than the
second quarter of 1998. Noninterest income increased by $94.8 million (17
percent), primarily reflecting both the acquisition of and growth in Piper
Jaffray and higher service charges on deposit accounts, partially offset by the
loss of a portion of the U.S. Government purchasing card business. Noninterest
expense, before nonrecurring items, increased by $72.7 million (11 percent),
principally due to growth in investment banking activities and acquisitions. The
banking efficiency ratio (the ratio of expenses to revenues without the impact
of investment banking and brokerage activity), before nonrecurring items, for
the second quarter of 1999 was 42.4 percent, compared with 45.1 percent in the
second quarter of 1998.
Net income was $374.3 million in the second quarter of 1999, or $.51 per
diluted share, compared with $320.6 million, or $.43 per diluted share, in the
second quarter of 1998. Nonrecurring merger-related charges decreased net income
in the second quarter of 1999 by $9.5 million ($15.0 million on a pre-tax basis)
compared to a decrease of $37.6 million ($59.5 million on a pre-tax basis) in
the second quarter of 1998.
Operating earnings for the first six months of 1999 were $752.4 million
compared with $708.2 million in the first six months of 1998. On a diluted per
share basis, operating earnings were $1.03 in the first half of 1999, compared
with $.94 in the first half of 1998, an increase of 10 percent. On a diluted per
share basis, cash operating earnings were $1.13 in the first six months of 1999,
compared with $1.03 in the first six months of 1998. Year-to-date return on
average assets and return on average common equity, excluding nonrecurring
items, were 2.01 percent and 24.5 percent, respectively, compared with returns
of 2.02 percent and 23.4 percent, respectively, in the first half of 1998.
Excluding nonrecurring items, the efficiency ratio was 50.1 percent in the first
six months of 1999, compared with 48.0 percent in the first six months of 1998.
Excluding nonrecurring items, the banking efficiency ratio was 42.9 percent in
the first six months of 1999, compared with 45.1 percent in the first six months
of 1998.
Net income for the first six months of 1999 was $741.1 million, or $1.02
per diluted share, compared with $649.1 million, or $.86 per diluted share, for
the first six months of 1998. Return on average assets and return on average
common equity were 1.98 percent and 24.1 percent, respectively, in the first six
months of 1999, compared with returns of 1.85 percent and 21.4 percent,
respectively, in the same period of 1998. Nonrecurring merger-related items
decreased net income by $11.3 million ($17.9 million on a pre-tax basis) in the
first half of 1999. Net nonrecurring items decreased net income by $59.1 million
($93.4 million on a pre-tax basis) in the first half of 1998. Year-to-date 1998
nonrecurring items included $12.6 million of net gains from securities
available-for-sale and $106.0 million of merger-related charges.
ACQUISITION AND DIVESTITURE ACTIVITY Operating results for the first six months
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
2 U.S. Bancorp
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TABLE 1 SUMMARY OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
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(Taxable-Equivalent Basis; June 30 June 30 June 30 June 30
Dollars In Millions, Except Per Share Data) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Interest income ................................................. $ 1,395.6 $ 1,362.5 $ 2,758.3 $ 2,700.7
Interest expense ................................................ 572.3 584.6 1,141.6 1,154.8
----------------------------------------------------
Net interest income ........................................... 823.3 777.9 1,616.7 1,545.9
Provision for credit losses ..................................... 126.0 93.0 243.0 183.0
----------------------------------------------------
Net interest income after provision for credit losses ......... 697.3 684.9 1,373.7 1,362.9
Available-for-sale securities gains ............................. -- -- -- 12.6
Other noninterest income ........................................ 655.9 561.1 1,282.2 1,007.0
Merger-related charges .......................................... 15.0 59.5 17.9 106.0
Other noninterest expense ....................................... 737.8 665.1 1,453.7 1,224.2
----------------------------------------------------
Income before income taxes .................................... 600.4 521.4 1,184.3 1,052.3
Taxable-equivalent adjustment ................................... 10.7 12.9 21.4 26.0
Income taxes .................................................... 215.4 187.9 421.8 377.2
----------------------------------------------------
Net income .................................................... $ 374.3 $ 320.6 $ 741.1 $ 649.1
====================================================
Return on average assets ........................................ 1.97% 1.80% 1.98% 1.85%
Return on average common equity ................................. 23.8 20.8 24.1 21.4
Net interest margin ............................................. 4.86 4.91 4.84 4.95
Efficiency ratio ................................................ 50.9 54.1 50.8 52.1
Efficiency ratio before nonrecurring items ...................... 49.9 49.7 50.1 48.0
Banking efficiency ratio before nonrecurring items* ............. 42.4 45.1 42.9 45.1
====================================================
PER COMMON SHARE:
Earnings per share .............................................. $ .52 $ .43 $ 1.03 $ .88
Diluted earnings per share ...................................... .51 .43 1.02 .86
Dividends paid .................................................. .195 .175 .39 .35
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</TABLE>
* WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
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. In December 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 August 4, 1999, the Company announced an agreement to acquire Voyager
Fleet Systems, Inc. The acquisition is pending regulatory approval and is
expected to close in the third quarter of 1999. On July 15, 1999, the Company
completed its acquisition of the San Diego-based Bank of Commerce. With $616
million in assets at March 31, 1999, Bank of Commerce operates 10 full-service
branches and 23 U.S. Small Business Administration ("SBA") loan production
offices. The acquisition was accounted for as a purchase transaction. On June
30, 1999, the Company completed its acquisition of Mellon Network Services'
electronic funds transfer processing unit and announced an agreement to acquire
the Investment Banking division of The John Nuveen Company, based in Chicago.
The division, which focuses on fixed income investment banking, will become a
part of the U.S. Bancorp Piper Jaffray Fixed Income Capital Markets division.
On May 19, 1999, the Company announced an agreement to acquire Newport
Beach-based Western Bancorp. With $2.5 billion in assets at March 31, 1999,
Western Bancorp has 31 branches in southern California in Los Angeles, Orange
and San Diego counties. The acquisition is pending regulatory approval and is
expected to close during the fourth quarter of 1999. On May 14, 1999, the
Company announced agreements to sell all 20 U.S. Bank branches in Kansas and
eight branches in Iowa. These divestitures will reduce the Company's total
deposits by less than 1 percent. The sales are expected to be completed in the
third quarter of 1999.
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
U.S. Bancorp 3
<PAGE>
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 June 30 Percent Percent
(Dollars in Millions) 1999 1998 Change 1999 1998 Change
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<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis) ................... $ 362.1 $ 347.2 4.3% $ 384.2 $ 371.2 3.5%
Provision for credit losses ................... 14.1 11.2 25.9 64.8 34.0 90.6
Noninterest income ............................ 70.9 75.5 (6.1) 138.4 141.1 (1.9)
Noninterest expense ........................... 150.8 149.6 .8 262.6 277.8 (5.5)
Income taxes and
taxable-equivalent adjustment ................ 100.9 100.4 73.5 76.8
-------------------------- --------------------------
Income before nonrecurring items .............. $ 167.2 $ 161.5 3.5 $ 121.7 $ 123.7 (1.6)
========================== ==========================
Net nonrecurring items (after-tax) ............
Net income ....................................
AVERAGE BALANCE SHEET DATA:
Commercial loans .............................. $ 35,256 $ 31,392 12.3 $ 2,300 $ 2,129 8.0
Consumer loans, excluding
residential mortgage ......................... 771 616 25.2 13,894 12,006 15.7
Residential mortgage loans .................... 385 298 29.2 2,415 3,496 (30.9)
Assets ........................................ 43,947 40,104 9.6 22,397 22,148 1.1
Deposits ...................................... 12,124 11,196 8.3 33,994 34,549 (1.6)
Common equity ................................. 3,161 3,170 (.3) 1,510 1,625 (7.1)
-------------------------- --------------------------
Return on average assets ...................... 1.53% 1.62% 2.18% 2.24%
Return on average common equity ("ROCE") ...... 21.2 20.4 32.3 30.5
Net tangible ROCE** ........................... 28.4 26.9 52.6 49.0
Efficiency ratio .............................. 34.8 35.4 50.2 54.2
Efficiency ratio on a cash basis** ............ 31.7 32.5 47.8 51.9
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<CAPTION>
Wholesale and
Private Financial Services Retail Banking
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For the Six Months Ended June 30 Percent Percent
(Dollars in Millions) 1999 1998 Change 1999 1998 Change
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CONDENSED INCOME STATEMENT:
Net interest income (expense)
(taxable-equivalent basis) ................... $ 709.6 $ 685.0 3.6% $ 760.3 $ 738.1 3.0%
Provision for credit losses ................... 25.5 19.8 28.8 120.1 74.4 61.4
Noninterest income ............................ 158.7 158.7 -- 274.0 275.3 (.5)
Noninterest expense ........................... 296.1 293.7 .8 531.8 550.2 (3.3)
Income taxes and
taxable-equivalent adjustment ................ 204.5 202.5 143.1 148.5
-------------------------- --------------------------
Income before nonrecurring items .............. $ 342.2 $ 327.7 4.4 $ 239.3 $ 240.3 (.4)
========================== ==========================
Net nonrecurring items (after-tax) ............
Net income ....................................
AVERAGE BALANCE SHEET DATA:
Commercial loans .............................. $ 34,688 $ 31,042 11.7 $ 2,251 $ 2,127 5.8
Consumer loans, excluding
residential mortgage ......................... 748 608 23.0 13,866 11,972 15.8
Residential mortgage loans .................... 370 293 26.3 2,542 3,663 (30.6)
Assets ........................................ 43,407 39,771 9.1 22,542 22,381 .7
Deposits ...................................... 11,948 11,027 8.4 34,029 34,706 (2.0)
Common equity ................................. 3,078 3,220 (4.4) 1,500 1,677 (10.6)
-------------------------- --------------------------
Return on average assets ...................... 1.59% 1.66% 2.14% 2.17%
Return on average common equity ("ROCE") ...... 22.4 20.5 32.2 28.9
Net tangible ROCE** ........................... 30.2 26.9 52.9 46.2
Efficiency ratio .............................. 34.1 34.8 51.4 54.3
Efficiency ratio on a cash basis** ............ 31.0 32.0 48.9 51.9
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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.
4 U.S. Bancorp
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<TABLE>
<CAPTION>
Corporate Trust and Investment Banking Consolidated
Payment Systems Institutional Financial Services and Brokerage Company
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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>
$ 59.7 $ 41.9 42.5% $ 16.7 $ 16.5 1.2% $ .6 $ 1.1 (45.5)% $ 823.3 $ 777.9 5.8%
47.1 47.8 (1.5) -- -- -- -- -- -- 126.0 93.0 35.5
149.1 148.7 .3 75.3 77.4 (2.7) 222.2 118.4 87.7 655.9 561.1 16.9
70.8 71.7 (1.3) 49.0 50.6 (3.2) 204.6 115.4 77.3 737.8 665.1 10.9
34.2 27.3 16.2 16.6 6.8 1.6 231.6 222.7
- - - - - - - - - - - - - - - - - ------------------- ------------------ ------------------ -----------------
$ 56.7 $ 43.8 29.5 $ 26.8 $ 26.7 .4 $ 11.4 $ 2.5 * 383.8 358.2 7.1
=================== ================== ==================
(9.5) (37.6) *
-----------------
$ 374.3 $ 320.6 16.7
=================
$ 1,300 $ 1,455 (10.7) $ -- $ -- -- $ -- $ -- -- $38,856 $34,976 11.1
4,000 4,008 (.2) -- -- -- -- -- -- 18,665 16,630 12.2
-- -- -- -- -- -- -- -- -- 2,800 3,794 (26.2)
6,436 6,905 (6.8) 761 685 11.1 2,531 1,604 57.8 76,072 71,446 6.5
155 94 64.9 1,706 1,587 7.5 -- -- -- 47,979 47,426 1.2
591 583 1.4 607 521 16.5 443 287 54.4 6,312 6,186 2.0
- - - - - - - - - - - - - - - - - ------------------- ------------------ ------------------ -----------------
3.53% 2.54% * * * * 2.02% 2.01%
38.5 30.1 17.7% 20.6% 10.3% 3.5% 24.4 23.2
55.0 47.6 42.7 45.4 55.5 41.5 38.2 35.6
33.9 37.6 53.3 53.9 91.8 96.6 49.9 49.7
31.6 34.2 50.1 50.9 90.8 94.5 47.4 47.0
====================================================================================================================================
<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
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
$ 115.3 $ 89.4 29.0% $ 32.3 $ 31.0 4.2% $ (.8) $ 2.4 * $1,616.7 $1,545.9 4.6%
97.4 88.8 9.7 -- -- -- -- -- -- 243.0 183.0 32.8
281.2 282.4 (.4) 150.5 146.3 2.9 417.8 144.3 * 1,282.2 1,007.0 27.3
138.8 147.7 (6.0) 96.8 94.1 2.9 390.2 138.5 * 1,453.7 1,224.2 18.7
60.0 51.6 32.2 31.8 10.0 3.1 449.8 437.5
- - - - - - - - - - - - - - - - - ------------------- ------------------ ------------------ ------------------
$ 100.3 $ 83.7 19.8 $ 53.8 $ 51.4 4.7 $ 16.8 $ 5.1 * 752.4 708.2 6.2
=================== ================== ==================
(11.3) (59.1) *
------------------
$ 741.1 $ 649.1 14.2
==================
$ 1,245 $ 1,355 (8.1) $ -- $ -- -- $ -- $ -- -- $ 38,184 $ 34,524 10.6
3,995 3,970 .6 -- -- -- -- -- -- 18,609 16,550 12.4
-- -- -- -- -- -- -- -- -- 2,912 3,956 (26.4)
6,388 6,785 (5.9) 753 604 24.7 2,503 1,097 * 75,593 70,638 7.0
137 80 71.3 1,687 1,543 9.3 -- -- -- 47,801 47,356 .9
582 587 (.9) 599 454 31.9 441 174 * 6,200 6,112 1.4
- - - - - - - - - - - - - - - - - ------------------- ------------------ ------------------ ------------------
3.17% 2.49% * * * * 2.01% 2.02%
34.8 28.8 18.1% 22.8% 7.7% 5.9% 24.5 23.4
50.6 45.3 44.0 44.4 48.4 28.6 38.9 34.6
35.0 39.7 53.0 53.1 93.6 94.4 50.1 48.0
32.5 36.0 49.8 50.0 92.1 92.7 47.6 45.2
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</TABLE>
U.S. Bancorp 5
<PAGE>
segments are determined based on the products and services provided to respond
effectively to the needs of a diverse customer base. 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 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 4 percent in
the second quarter and first six months of 1999, compared with the same periods
in 1998. Net tangible return on average common equity increased to 28.4 percent
compared with 26.9 percent in the second quarter of the prior year. Year-to-date
profitability ratios showed similar trends.
Net interest income increased 4 percent in the second quarter and first six
months of 1999, reflecting growth in average loan and deposit balances partially
offset by margin compression in both loans and deposits. Noninterest income
decreased 6 percent in the second quarter and was flat in the first six months
of 1999, compared to the same periods of the prior year. The efficiency ratio on
a cash basis improved to 31.7 percent in the second quarter and 31.0 percent in
the first six months of 1999 compared with 32.5 percent and 32.0 percent in the
same periods of 1998.
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
decreased 2 percent in the second quarter and .4 percent in the first six months
of 1999, compared to the same periods in 1998. Second quarter and year-to-date
net tangible return on average common equity was 52.6 percent and 52.9 percent,
respectively, compared with 49.0 percent and 46.2 percent in the same periods of
the prior year.
Net interest income for the second quarter and first half of 1999 increased
4 percent and 3 percent, respectively, from the same periods of 1998, due
primarily to growth in home equity loans partially offset by the planned runoff
of the residential mortgage loan portfolio. Noninterest expense decreased 6
percent and 3 percent in the second quarter and first half of 1999,
respectively, compared to the same periods of 1998 reflecting the benefits of
continued streamlining of branch operations, as well as the integration of
recent business combinations. The efficiency ratio on a cash basis improved to
47.8 percent in the second quarter and 48.9 percent in the first six months of
1999, compared with 51.9 percent in both periods of 1998.
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 30 percent in the second quarter and 20 percent in the first six
months of 1999, compared with the same periods of 1998. Second quarter and
year-to-date return on average assets was 3.53 percent and 3.17 percent,
respectively, compared with 2.54 percent and 2.49 percent in the same periods of
the prior year. Net tangible return on average common equity was 55.0 percent
and 50.6 percent in the second quarter and first half of 1999, respectively,
compared with 47.6 percent and 45.3 percent in the same periods of 1998.
Net interest income increased 43 percent and 29 percent in the second
quarter and first half of 1999, respectively, from the same periods of the prior
year due to lower corporate card and purchasing card non-earning asset balances
as well as higher spread rates and balances on retail card balances. Noninterest
expense decreased 1 percent and 6 percent in the second quarter and first half
of 1999, respectively, from the same periods in 1998 due primarily to lower
servicing expense. The efficiency ratio on a cash basis improved to 31.6 percent
in the second quarter and 32.5 percent in the first six months of 1999 from 34.2
percent and 36.0 percent for the same periods of the prior year.
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. Operating earnings increased .4 percent and 5 percent in the second
quarter and first six months of 1999, respectively, compared with the same
periods of 1998. Growth in investment management services in the second quarter
of 1999 was partially offset by a decline in corporate trust fees as a result of
fewer bond issuances attributable to market conditions.
Net interest income increased 1 percent and 4 percent in the second quarter
and first six months of 1999, respectively, from the same periods of the prior
year due to growth in average deposit balances. The efficiency ratio on a cash
basis improved to 50.1 percent in the second
6 U.S. Bancorp
<PAGE>
TABLE 3 ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------------------
June 30 June 30 June 30 June 30
(Dollars In Millions) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income, as reported ....................................... $ 812.6 $ 765.0 $1,595.3 $1,519.9
Taxable-equivalent adjustment ........................................ 10.7 12.9 21.4 26.0
------------------------------------------------
Net interest income (taxable-equivalent basis) ......................... $ 823.3 $ 777.9 $1,616.7 $1,545.9
================================================
Average yields and weighted average rates (taxable-equivalent basis):
Earning assets yield ................................................. 8.23% 8.61% 8.26% 8.64%
Rate paid on interest-bearing liabilities ............................ 4.25 4.74 4.30 4.75
------------------------------------------------
Gross interest margin .................................................. 3.98% 3.87% 3.96% 3.89%
================================================
Net interest margin .................................................... 4.86% 4.91% 4.84% 4.95%
================================================
Net interest margin without taxable-equivalent adjustment .............. 4.79% 4.83% 4.78% 4.86%
===========================================================================================================================
</TABLE>
quarter and 49.8 percent in the first six months of 1999, compared with 50.9
percent and 50.0 percent in the same periods of 1998.
INVESTMENT BANKING AND BROKERAGE Investment Banking and Brokerage reflects the
results of U.S. Bancorp Piper Jaffray, a full-service broker/dealer that was
acquired as part of the acquisition of Piper Jaffray on May 1, 1998. Table 2
includes the amortization of intangible assets and employee retention programs
(totaling $7.7 million and $16.7 million in the second quarter and first six
months of 1999, respectively).
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME Second quarter net interest income on a taxable-equivalent
basis was $823.3 million compared with $777.9 million in the second quarter of
1998. Year-to-date net interest income on a taxable-equivalent basis was $1.62
billion compared with $1.55 billion in the first six months of 1998. The second
quarter and year-to-date average earning assets increased 7 percent from the
same periods of 1998. The increase was driven by core commercial and consumer
loan growth and several consumer loan portfolio purchases completed in the
latter part of 1998, partially offset by reductions in securities and
residential mortgages. Net interest income rose more modestly, due to the
additional funding required for the Piper Jaffray acquisition and the share
repurchase program, as well as an increase in wholesale funding. The net
interest margin decreased from 4.91 percent and 4.95 percent in the second
quarter and first six months of 1998 to 4.86 percent and 4.84 percent in the
second quarter and first six months of 1999.
Average loans for both the second quarter and first six months of 1999 were
up 9 percent from the same periods of the previous year. Excluding residential
mortgage loans, average loans for the second quarter and first six months of
1999 were higher by $5.9 billion (11 percent) and $5.7 billion (11 percent) than
the second quarter and first half of 1998, reflecting strong growth in
commercial loans and home equity and second mortgages, in addition to the
several consumer loan portfolio purchases. Without the loan portfolio purchases,
average home equity and second mortgages were higher than second quarter and
first six months of 1998 by 9 percent and 8 percent, respectively. Average
securities available-for-sale for the second quarter and first six months of
1999 decreased by $913 million and $1.1 billion, respectively, from the second
quarter and first half of 1998, reflecting prepayments, maturities and sales of
securities.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $126.0 million
in the second quarter of 1999, up $33.0 million (35 percent) from the second
quarter of 1998, reflecting the increase in net charge-offs and nonperforming
assets. The provision for the first half of 1999 increased $60.0 million (33
percent) from the first half of 1998 to $243.0 million. Second quarter and
year-to-date net charge-offs totaled $140.3 million and $279.9 million,
respectively, up from $106.7 million and $209.9 million in the same periods of
1998. The increase in net charge-offs was due primarily to an expected increase
in losses on consumer portfolios purchased in 1998 and higher consumer fraud
losses. Refer to "Corporate Risk Management" for further information on credit
quality.
NONINTEREST INCOME Second quarter 1999 noninterest income was $655.9 million, an
increase of $94.8 million (17 percent), from the second quarter of 1998.
Noninterest income in the first six months of 1999 was $1.28 billion, compared
with $1.02 billion in the first six months of 1998. Noninterest income in the
first six months of 1998 included net gains from securities available-for-sale
of $12.6 million. Excluding these securities gains, year-to-date 1999
noninterest income was
U.S. Bancorp 7
<PAGE>
TABLE 4 NONINTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------------
June 30 June 30 June 30 June 30
(Dollars In Millions) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit card fee revenue .......................... $ 148.7 $ 147.6 $ 275.5 $ 274.4
Trust and investment management fees ............. 112.2 108.0 229.4 202.9
Service charges on deposit accounts .............. 107.5 99.4 210.9 197.3
Investment products fees and commissions ......... 91.6 57.5 180.2 75.7
Trading account profits and commissions .......... 50.5 28.0 102.0 35.1
Investment banking revenue ....................... 60.3 29.0 96.5 29.0
Available-for-sale securities gains .............. -- -- -- 12.6
Other ............................................ 85.1 91.6 187.7 192.6
---------------------------------------------
Total noninterest income ...................... $ 655.9 $ 561.1 $1,282.2 $1,019.6
==================================================================================================
</TABLE>
$1.28 billion, an increase of $275.2 million (27 percent) from the same period
of 1998.
Credit card fee revenue was flat from the second quarter and first six
months of 1998 reflecting the loss of a portion of the U.S. Government
purchasing card business. Service charges on deposit accounts increased by $8.1
million (8 percent) in the second quarter of 1999, compared with the second
quarter of 1998 and $13.6 million (7 percent) for the first six months of 1999,
compared to the same period of a year ago, reflecting pricing enhancements and
additional deposit services. Trust and investment management fees were up 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 May 1,
1998, acquisition of Piper Jaffray and overall growth in the business since
second quarter of 1998.
NONINTEREST EXPENSE Second quarter 1999 noninterest expense was $752.8 million,
an increase of $28.2 million (4 percent), from $724.6 million in the second
quarter of 1998. Year-to-date noninterest expense was $1.47 billion, an increase
of $141.4 million (11 percent), from $1.33 billion in the first half of 1998.
Noninterest expense in the second quarter and first half of 1999 included
nonrecurring merger-related charges of $15.0 million and $17.9 million,
respectively, compared with merger-related charges of $59.5 million and $106.0
million in the second quarter and first half of 1998.
Second quarter 1999 noninterest expense, before nonrecurring items, was
$737.8 million, an increase of $72.7 million (11 percent), from $665.1 million
in the second quarter of 1998. Year-to-date 1999 noninterest expense, before
nonrecurring items, increased $229.5 million (19 percent) to $1.45 billion from
$1.22 billion in the first half of 1998. The increase was principally due to the
timing of acquisitions accounted for under the purchase method of accounting and
expense increases related to the growth in investment banking activities. The
banking efficiency ratio (the ratio of expenses to revenue without the impact of
investment banking and brokerage activity), before nonrecurring items, was 42.4
percent and 42.9 percent for the second quarter and first six months of 1999,
respectively, compared with 45.1 percent for both of the same periods of 1998.
Since 1996, the Company has undertaken efforts to address the "Year 2000"
computer problem as discussed in further detail under Corporate Risk Management.
In connection with its Year 2000 project, the Company has substantially
completed the evaluation, replacement, renovation, installation and testing of
its internal computer hardware and software and embedded technologies. The
Company incurred approximately $6.0 million of direct costs associated with its
Year 2000 project during the first six months of 1999. The Company estimates
that the aggregate cost of its Year 2000 project will be less than $40 million
over the three-year period ending December 31, 1999, of which approximately
$30.0 million has been incurred. 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 $215.4 million (an
effective rate of 36.5 percent) in the second quarter and $421.8 million (an
effective rate of 36.3 percent) in the first six months of 1999, compared with
$187.9 million (an effective rate of 37.0 percent) and $377.2 million (an
effective rate of 36.8 percent) in the same periods of 1998. The increase in the
provision was primarily the result of higher levels of taxable income, as
discussed above.
8 U.S. Bancorp
<PAGE>
TABLE 5 NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------------------
June 30 June 30 June 30 June 30
(Dollars In Millions) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries ..................................................... $ 356.7 $ 303.3 $ 710.8 $ 542.9
Employee benefits ............................................ 53.6 58.8 123.6 112.9
------------------------------------------------
Total personnel expense ................................... 410.3 362.1 834.4 655.8
Net occupancy ................................................ 49.9 47.9 99.9 91.4
Furniture and equipment ...................................... 39.0 39.6 77.1 75.0
Goodwill and other intangible assets ......................... 36.6 36.0 74.4 69.4
Telephone .................................................... 17.4 17.0 35.4 32.5
Other personnel costs ........................................ 19.8 16.8 32.5 29.9
Third party data processing .................................. 14.7 17.9 31.0 31.9
Professional services ........................................ 16.6 15.3 30.6 26.6
Postage ...................................................... 12.7 11.7 27.8 22.5
Advertising and marketing .................................... 12.7 17.8 27.7 33.5
Printing, stationery and supplies ............................ 14.5 10.8 27.5 19.9
FDIC insurance ............................................... 2.0 2.1 4.0 4.1
Merger-related ............................................... 15.0 59.5 17.9 106.0
Other ........................................................ 91.6 70.1 151.4 131.7
------------------------------------------------
Total noninterest expense .................................. $ 752.8 $ 724.6 $1,471.6 $1,330.2
================================================
Efficiency ratio* ............................................ 50.9% 54.1% 50.8% 52.1%
Efficiency ratio before nonrecurring items ................... 49.9 49.7 50.1 48.0
Banking efficiency ratio before nonrecurring items** ......... 42.4 45.1 42.9 45.1
Average number of full-time equivalent employees ............. 26,667 26,858 26,854 25,837
=================================================================================================================
</TABLE>
* COMPUTED AS NONINTEREST EXPENSE DIVIDED BY THE SUM OF NET INTEREST INCOME ON
A TAXABLE-EQUIVALENT BASIS AND NONINTEREST INCOME NET OF AVAILABLE-FOR-SALE
SECURITIES GAINS AND LOSSES.
** WITHOUT INVESTMENT BANKING AND BROKERAGE ACTIVITY.
BALANCE SHEET ANALYSIS
LOANS The Company's loan portfolio was $60.9 billion at June 30, 1999, compared
with $59.1 billion at December 31, 1998. Commercial loans totaled $39.4 billion
at June 30, 1999, up $2.2 billion (6 percent) from 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 $21.5 billion at June 30,
1999, compared with $21.9 billion at December 31, 1998. Excluding residential
mortgage loan balances, consumer loans were unchanged from December 31, 1998.
This reflects an increase in home equity and second mortgage loans of $550
million (7 percent) from December 31, 1998, offset by a decrease in credit cards
loans of $199 million (5 percent) and in automobile loans of $304 million (9
percent) from December 31, 1998. See Note E of the Notes to Consolidated
Financial Statements for the composition of the Company's loan portfolio at June
30, 1999, and December 31, 1998.
SECURITIES At June 30, 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 $15.4 billion at June 30, 1999,
compared with $16.4 billion at December 31, 1998. The decrease was primarily due
to seasonality of business deposits. Interest-bearing deposits increased to
$33.9 billion at June 30, 1999, compared with $33.7 billion at December 31,
1998.
BORROWINGS Short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings,
decreased to $3.2 billion at June 30, 1999, compared with $3.4 billion at
December 31, 1998.
Long-term debt was $15.2 billion at June 30, 1999, up from $13.8 billion at
December 31, 1998. The Company issued $2.2 billion of debt, with an average
original maturity of 2.4 years, under its medium-term note and bank note
programs during the first six months of 1999. In April, the Company issued $400
million of variable-rate Euro medium-term notes due April 13, 2004. These
issuances were partially offset by $972 million of medium-term and bank note
maturities and $78 million of Federal Home Loan Bank advance maturities. Also,
in May 1999, the Company called its $107 million subordinated floating-rate
notes due November 2010.
CORPORATE RISK MANAGEMENT
CREDIT MANAGEMENT The Company's strategy for credit risk management includes
stringent, centralized credit
U.S. Bancorp 9
<PAGE>
TABLE 6 NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------------
June 30 June 30 June 30 June 30
1999 1998 1999 1998
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL:
Commercial ............................. .48% .30% .44% .28%
Real estate:
Commercial mortgage ................... (.11) (.10) (.09) (.10)
Construction .......................... .01 .06 .02 .18
--------------------------------------------
Total commercial ...................... .31 .19 .28 .18
CONSUMER:
Credit card ............................ 4.69 4.84 4.88 4.52
Other .................................. 1.73 1.29 1.76 1.38
--------------------------------------------
Subtotal .............................. 2.36 2.13 2.43 2.13
Residential mortgage ................... .09 .17 .10 .21
--------------------------------------------
Total consumer ........................ 2.06 1.77 2.12 1.76
--------------------------------------------
Total ............................... .93% .77% .95% .77%
========================================================================================
</TABLE>
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. The Company's
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, 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 45 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
$140.3 million and $279.9 million in the second quarter and first six months of
1999, respectively, compared with $106.7 million and $209.9 million in the same
periods of 1998. Commercial loan net charge-offs were $29.9 million and $53.8 in
the second quarter and first half of 1999, respectively, compared with $16.7
million and $30.8 million in the same periods of 1998. Consumer loan net
charge-offs for the quarter and year-to-date were $110.4 million and $226.1
million, respectively, compared with $90.0 million and $179.1 million for the
same periods of 1998. The increases in consumer loan net charge-offs from the
prior year reflect higher credit card and overdraft fraud losses in addition to
expected losses associated with consumer portfolio purchases, partially offset
by a decrease in losses in the base portfolio. Consumer loans 30 days or more
past due decreased to 2.24 percent of the portfolio at June 30, 1999, compared
with 2.39 percent at December 31, 1998, reflecting expected improvement in the
delinquencies of purchased portfolios and seasonal declines in credit card
delinquencies. The ratio of total net charge-offs to average loans was .93
percent and .95 percent in the second quarter and first half of 1999,
respectively, compared with .77 in both of the same periods in 1998.
The allowance for credit losses declined slightly to $968.2 million at June
30, 1999, from $1,000.9 million at December 31, 1998. As a percentage of
nonperforming assets, the allowance was 302 percent at June 30, 1999, and March
31, 1999, compared to 329 percent at December 31, 1998.
NONPERFORMING ASSETS Nonperforming assets include all nonaccrual loans,
restructured loans, other real estate and other nonperforming assets owned by
the Company. At June 30, 1999, nonperforming assets totaled $320.2 million, an
increase of $15.9 million (5 percent) from December 31, 1998. The increase in
nonperforming assets from the fourth quarter of 1998 was primarily due to
continued stress in agricultural sectors given current commodity market prices.
The ratio of nonperforming assets to loans and other real estate was .53 percent
at June 30, 1999, compared with .51 percent at
10 U.S. Bancorp
<PAGE>
TABLE 7 SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-----------------------------------------------------
June 30 June 30 June 30 June 30
(Dollars in Millions) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period .............. $ 982.5 $ 995.5 $1,000.9 $1,008.7
CHARGE-OFFS:
Commercial:
Commercial ............................... 49.9 32.6 93.4 59.9
Real estate:
Commercial mortgage .................... .3 .2 .6 4.5
Construction ........................... .2 .9 .4 2.9
-----------------------------------------------------
Total commercial ....................... 50.4 33.7 94.4 67.3
Consumer:
Credit card .............................. 51.3 52.2 106.4 99.1
Other .................................... 80.9 51.1 162.1 109.0
-----------------------------------------------------
Subtotal ............................... 132.2 103.3 268.5 208.1
Residential mortgage ..................... .8 2.0 1.8 4.8
-----------------------------------------------------
Total consumer ......................... 133.0 105.3 270.3 212.9
-----------------------------------------------------
Total ................................. 183.4 139.0 364.7 280.2
RECOVERIES:
Commercial:
Commercial ............................... 17.7 14.2 36.1 27.3
Real estate:
Commercial mortgage .................... 2.7 2.3 4.4 8.5
Construction ........................... .1 .5 .1 .7
-----------------------------------------------------
Total commercial ....................... 20.5 17.0 40.6 36.5
Consumer:
Credit card .............................. 4.7 4.6 9.5 10.3
Other .................................... 17.7 10.3 34.3 22.8
-----------------------------------------------------
Subtotal ............................... 22.4 14.9 43.8 33.1
Residential mortgage ..................... .2 .4 .4 .7
-----------------------------------------------------
Total consumer ......................... 22.6 15.3 44.2 33.8
-----------------------------------------------------
Total ................................. 43.1 32.3 84.8 70.3
NET CHARGE-OFFS:
Commercial:
Commercial ............................... 32.2 18.4 57.3 32.6
Real estate:
Commercial mortgage .................... (2.4) (2.1) (3.8) (4.0)
Construction ........................... .1 .4 .3 2.2
-----------------------------------------------------
Total commercial ....................... 29.9 16.7 53.8 30.8
Consumer:
Credit card .............................. 46.6 47.6 96.9 88.8
Other .................................... 63.2 40.8 127.8 86.2
-----------------------------------------------------
Subtotal ............................... 109.8 88.4 224.7 175.0
Residential mortgage ..................... .6 1.6 1.4 4.1
-----------------------------------------------------
Total consumer ......................... 110.4 90.0 226.1 179.1
-----------------------------------------------------
Total ................................. 140.3 106.7 279.9 209.9
Provision charged to operating expense ...... 126.0 93.0 243.0 183.0
Additions related to acquisitions ........... -- -- 4.2 --
-----------------------------------------------------
Balance at end of period .................... $ 968.2 $ 981.8 $ 968.2 $ 981.8
=====================================================
Allowance as a percentage of:
Period-end loans .......................... 1.59% 1.76%
Nonperforming loans ....................... 327 359
Nonperforming assets ...................... 302 327
Annualized net charge-offs ................ 172 229
======================================================================================================
</TABLE>
U.S. Bancorp 11
<PAGE>
TABLE 8 NONPERFORMING ASSETS*
<TABLE>
<CAPTION>
June 30 December 31
(Dollars In Millions) 1999 1998
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial ...................................................... $ 184.2 $ 165.7
Real estate:
Commercial mortgage ............................................ 37.4 35.5
Construction ................................................... 30.9 17.2
----------------------
Total commercial ............................................... 252.5 218.4
CONSUMER:
Other ........................................................... 13.7 13.9
Residential mortgage ............................................ 30.0 46.6
----------------------
Total consumer ................................................. 43.7 60.5
----------------------
Total nonperforming loans ................................... 296.2 278.9
OTHER REAL ESTATE ................................................. 14.2 14.3
OTHER NONPERFORMING ASSETS ........................................ 9.8 11.1
----------------------
Total nonperforming assets .................................. $ 320.2 $ 304.3
======================
Accruing loans 90 days or more past due** ......................... $ 100.6 $ 106.8
Nonperforming loans to total loans ................................ .49% .47%
Nonperforming assets to total loans plus other real estate ........ .53 .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.
December 31, 1998. The percentage of consumer loans 90 days or more past due of
the total consumer loan portfolio totaled .65 percent at June 30, 1999, compared
with .75 percent at December 31, 1998. This reflects expected improvements
related to purchased portfolios and seasonality.
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.
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 June 30, 1999, forecasted net
interest income for the next 12 months would decrease $17.0 million from an
immediate 100 basis point upward parallel shift in rates and increase $12.0
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
substantially 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
12 U.S. Bancorp
<PAGE>
TABLE 9 DELINQUENT LOAN RATIOS*
<TABLE>
<CAPTION>
June 30 December 31
90 days or more past due 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial ...................................................... .68% .65%
Real estate:
Commercial mortgage ............................................ .47 .44
Construction ................................................... .85 .56
--------------------
Total commercial ............................................... .65 .60
CONSUMER:
Credit card ..................................................... .74 .74
Other ........................................................... .50 .51
--------------------
Subtotal ....................................................... .55 .56
Residential mortgage ............................................ 1.31 1.86
--------------------
Total consumer ................................................. .65 .75
--------------------
Total ........................................................ .65% .65%
==========================================================================================
</TABLE>
* RATIOS INCLUDE NONPERFORMING LOANS AND ARE EXPRESSED AS A PERCENT OF ENDING
LOAN BALANCES.
an immediate 100 basis point rate shock. Historically, the Company's market
value risk position has been substantially lower than its limits.
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 a limit, approved by the Company's Board of Directors, for the two-
to three-year gap position 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 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 second quarter and first six months of 1999, the Company added $1.6
billion and $2.2 billion, respectively, of interest rate swaps to reduce its
interest rate risk. This increase was partially offset by $1.2 billion of
interest rate swap maturities and $785 million in swap terminations in the first
six months of 1999. 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 June 30, 1999, the
Company received payments on $7.5 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 6.10
percent and a weighted average variable-rate paid of 5.00 percent. The remaining
maturity of these agreements ranged from 1 month to 15 years with an average
remaining maturity of 4.4 years. Swaps increased net interest income for the
quarters ended June 30, 1999, and 1998 by $19.7 million and $8.5 million,
respectively, and the six months ended June 30, 1999, and 1998 by $37.1 million
and $16.1 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 June 30, 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 June 30, 1999, all of which were LIBOR-indexed, was $500
million. The impact of floors on net interest income was not material for the
six months ended June 30, 1999, and 1998.
MARKET RISK MANAGEMENT ALCO uses a value-at-risk ("VaR") model to measure and
manage market risk in its broker/dealer activities. The VaR model uses an
estimate
U.S. Bancorp 13
<PAGE>
TABLE 10 INTEREST RATE SWAP HEDGING PORTFOLIO NOTIONAL BALANCES AND YIELDS BY
MATURITY DATE
<TABLE>
<CAPTION>
At June 30, 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 six months) ............................ $ 982 6.04% 5.00%
2000 ................................................... 135 5.99 5.00
2001 ................................................... 872 5.90 5.00
2002 ................................................... 1,140 5.86 5.00
2003 ................................................... 945 5.95 5.00
After 2003 ............................................. 3,465 6.30 5.01
--------
Total .................................................. $7,539 6.10% 5.00%
==================================================================================================
</TABLE>
* AT JUNE 30, 1999, THE COMPANY HAD NO SWAPS IN ITS HEDGING PORTFOLIO THAT
REQUIRED IT TO PAY FIXED-RATE INTEREST.
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.
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.
Evaluation, replacement, renovation, installation and testing of the
Company's 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 July
1, 1999, the Company announced that it had successfully completed the final
regulatory testing requirements for its critical internal systems.
Ultimately, the potential impact of the Year 2000 issue will depend not
only on the success of the corrective measures the Company has undertaken, 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 and work to minimize
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.
Necessary testing with critical service providers was substantially completed as
of June 30, 1999. Prioritized testing with certain large customers will continue
throughout the remainder of the year. In addition, the Company has
14 U.S. Bancorp
<PAGE>
TABLE 11 CAPITAL RATIOS
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------
<S> <C> <C>
Tangible common equity* .................................. $ 4,772 $ 4,465
As a percent of assets ................................. 6.3% 6.0%
Tier 1 capital ........................................... $ 5,239 $ 4,917
As a percent of risk-adjusted assets ................... 6.6% 6.4%
Total risk-based capital ................................. $ 8,828 $ 8,343
As a percent of risk-adjusted assets ................... 11.1% 10.9%
Leverage ratio ........................................... 7.1 6.8
=====================================================================================
</TABLE>
* DEFINED AS COMMON EQUITY LESS GOODWILL.
successfully participated in tests organized by major industry and governmental
organizations, 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
foreseeable worst case scenarios. These contingency plans, which were
substantially completed as of 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, for example, if Year 2000
concerns cause consumers to make significant withdrawals of deposits.
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 and liquidity 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, increased credit and liquidity
risk, legal liability and similar adverse effects on the Company, which effects
could be material.
CAPITAL MANAGEMENT At June 30, 1999, total tangible common equity was $4.8
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 11.1
percent at June 30, 1999, compared with 6.4 percent and 10.9 percent at December
31, 1998. The June 30, 1999, leverage ratio was 7.1 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 has repurchased 29.0
million shares for $1.1 billion, including 4.4 million shares for $147.7 million
in the first six months of 1999.
U.S. Bancorp 15
<PAGE>
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. The effective date has been deferred for one year with the recent
issuance of SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133," which
amended SFAS 133. SFAS 133, as amended, is effective for all fiscal years
beginning after June 15, 2000, with early adoption permitted. The adoption of
SFAS 133 is not expected to have a material impact on the Company.
16 U.S. Bancorp
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks .................................................................. $ 3,748 $ 4,772
Federal funds sold ....................................................................... 139 83
Securities purchased under agreements to resell .......................................... 381 461
Trading account securities ............................................................... 639 537
Available-for-sale securities ............................................................ 5,313 5,577
Loans .................................................................................... 60,896 59,122
Less allowance for credit losses ....................................................... 968 1,001
--------------------------
Net loans .............................................................................. 59,928 58,121
Premises and equipment ................................................................... 856 879
Interest receivable ...................................................................... 438 456
Customers' liability on acceptances ...................................................... 156 166
Goodwill and other intangible assets ..................................................... 2,058 1,975
Other assets ............................................................................. 3,734 3,411
--------------------------
Total assets .......................................................................... $ 77,390 $ 76,438
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing .................................................................... $ 15,394 $ 16,377
Interest-bearing ....................................................................... 33,873 33,657
--------------------------
Total deposits ........................................................................ 49,267 50,034
Federal funds purchased .................................................................. 868 1,255
Securities sold under agreements to repurchase ........................................... 1,180 1,427
Other short-term funds borrowed .......................................................... 1,154 683
Long-term debt ........................................................................... 15,227 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 .................................................................. 156 166
Other liabilities ........................................................................ 2,280 2,172
--------------------------
Total liabilities ..................................................................... 71,082 70,468
Shareholders' equity:
Common stock, par value $1.25 a share - authorized 1,500,000,000 shares;
issued: 6/30/99 and 12/31/98 - 744,797,857 shares ..................................... 931 931
Capital surplus ........................................................................ 1,203 1,247
Retained earnings ...................................................................... 4,913 4,456
Accumulated other comprehensive income ................................................. (2) 72
Less cost of common stock in treasury: 6/30/99 - 19,775,013 shares; 12/31/98 -
19,036,139 shares ..................................................................... (737) (736)
--------------------------
Total shareholders' equity ............................................................ 6,308 5,970
--------------------------
Total liabilities and shareholders' equity ............................................ $ 77,390 $ 76,438
=======================================================================================================================
</TABLE>
U.S. Bancorp 17
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------
(Dollars in Millions, Except Per Share Data) June 30 June 30 June 30 June 30
(Unaudited) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans ............................................................................ $ 1,272.2 $ 1,225.6 $ 2,510.7 $ 2,429.8
Securities:
Taxable ........................................................................ 59.8 78.2 124.4 164.0
Exempt from federal income taxes ............................................... 14.3 15.6 29.0 31.7
Other interest income ............................................................ 38.6 30.2 72.8 49.2
----------------------------------------------
Total interest income ......................................................... 1,384.9 1,349.6 2,736.9 2,674.7
INTEREST EXPENSE
Deposits ......................................................................... 308.8 352.2 620.4 707.3
Federal funds purchased and repurchase agreements ................................ 43.6 41.8 83.0 75.4
Other short-term funds borrowed .................................................. 12.1 14.3 25.0 27.1
Long-term debt ................................................................... 188.4 157.8 374.5 314.2
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely the junior subordinated debentures of the parent company ........ 19.4 18.5 38.7 30.8
----------------------------------------------
Total interest expense ........................................................ 572.3 584.6 1,141.6 1,154.8
----------------------------------------------
Net interest income .............................................................. 812.6 765.0 1,595.3 1,519.9
Provision for credit losses ...................................................... 126.0 93.0 243.0 183.0
----------------------------------------------
Net interest income after provision for credit losses ............................ 686.6 672.0 1,352.3 1,336.9
NONINTEREST INCOME
Credit card fee revenue .......................................................... 148.7 147.6 275.5 274.4
Trust and investment management fees ............................................. 112.2 108.0 229.4 202.9
Service charges on deposit accounts .............................................. 107.5 99.4 210.9 197.3
Investment products fees and commissions ......................................... 91.6 57.5 180.2 75.7
Trading account profits and commissions .......................................... 50.5 28.0 102.0 35.1
Investment banking revenue ....................................................... 60.3 29.0 96.5 29.0
Available-for-sale securities gains .............................................. -- -- -- 12.6
Other ............................................................................ 85.1 91.6 187.7 192.6
----------------------------------------------
Total noninterest income ...................................................... 655.9 561.1 1,282.2 1,019.6
NONINTEREST EXPENSE
Salaries ......................................................................... 356.7 303.3 710.8 542.9
Employee benefits ................................................................ 53.6 58.8 123.6 112.9
Net occupancy .................................................................... 49.9 47.9 99.9 91.4
Furniture and equipment .......................................................... 39.0 39.6 77.1 75.0
Goodwill and other intangible assets ............................................. 36.6 36.0 74.4 69.4
Merger-related ................................................................... 15.0 59.5 17.9 106.0
Other ............................................................................ 202.0 179.5 367.9 332.6
----------------------------------------------
Total noninterest expense ..................................................... 752.8 724.6 1,471.6 1,330.2
----------------------------------------------
Income before income taxes ....................................................... 589.7 508.5 1,162.9 1,026.3
Applicable income taxes .......................................................... 215.4 187.9 421.8 377.2
----------------------------------------------
Net income ....................................................................... $ 374.3 $ 320.6 $ 741.1 $ 649.1
==============================================
Earnings per share ............................................................... $ .52 $ .43 $ 1.03 $ .88
Diluted earnings per share ....................................................... $ .51 $ .43 $ 1.02 $ .86
=================================================================================================================================
</TABLE>
18 U.S. Bancorp
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Compre-
(Dollars in Millions) Common Shares Common Capital Retained hensive 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 ........................ (260.1) (260.1)
Purchase of treasury stock ....................... (6,654,765) (276.4) (276.4)
Issuance of common stock:
Dividend reinvestment .......................... 253,759 .3 9.7 10.0
Stock option and stock
purchase plans ................................ 6,189,912 5.8 87.3 22.3 115.4
--------------------------------------------------------------------------------
739,721,920 931.0 1,358.1 3,384.7 59.3 (254.1) 5,479.0
Comprehensive income
Net income ....................................... 649.1 649.1
Other comprehensive income:
Unrealized gain on securities of $10.0 (net of
$5.8 tax expense) net of reclassification
adjustment for gains included in net income
of $11.1 (net of $6.4 tax expense) ............ (1.1) (1.1)
--------
Total comprehensive income .................. 648.0
--------------------------------------------------------------------------------
BALANCE JUNE 30, 1998 ............................ 739,721,920 $ 931.0 $1,358.1 $4,033.8 $ 58.2 $ (254.1) $6,127.0
===================================================================================================================================
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 ........................ (283.6) (283.6)
Purchase of treasury stock ....................... (4,417,940) (147.7) (147.7)
Issuance of common stock:
Acquisitions ................................... 1,027,276 (3.6) 40.0 36.4
Dividend reinvestment .......................... 351,915 (1.5) 13.4 11.9
Stock option and stock
purchase plans ................................ 2,299,875 (39.3) 92.6 53.3
--------------------------------------------------------------------------------
725,022,844 931.0 1,202.8 4,172.2 71.8 (737.5) 5,640.3
Comprehensive income
Net income ....................................... 741.1 741.1
Other comprehensive income:
Unrealized loss on securities of $118.7 (net of
$45.1 tax benefit) ............................ (73.6) (73.6)
--------
Total comprehensive income .................. 667.5
--------------------------------------------------------------------------------
BALANCE JUNE 30, 1999 ............................ 725,022,844 $ 931.0 $1,202.8 $4,913.3 $ (1.8) $ (737.5) $6,307.8
===================================================================================================================================
</TABLE>
* DEFINED AS TOTAL COMMON SHARES LESS COMMON STOCK HELD IN TREASURY.
** ENDING TREASURY SHARES WERE 19,775,013 AT JUNE 30, 1999; 19,036,139 AT
DECEMBER 31, 1998; AND 5,067,544 AT JUNE 30, 1998.
U.S. Bancorp 19
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
(Dollars in Millions) June 30 June 30
(Unaudited) 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities ............................................... $ 1,233.2 $ 745.0
-------------------------
INVESTING ACTIVITIES
Net cash provided (used) by:
Interest-bearing deposits with banks .................................................... 2.2 (4.9)
Loans outstanding ....................................................................... (1,960.4) (1,132.6)
Securities purchased under agreements to resell ......................................... 79.6 90.6
Available-for-sale securities:
Sales ................................................................................... 93.9 169.2
Maturities .............................................................................. 868.3 823.4
Purchases ............................................................................... (830.1) (49.5)
Proceeds from sales of other real estate .................................................. 18.2 25.5
Net purchases of bank premises and equipment .............................................. (45.0) (65.8)
Purchases of loans ........................................................................ (127.7) (144.7)
Acquisitions, net of cash received ........................................................ (156.4) (685.2)
Cash and cash equivalents of acquired subsidiaries ........................................ 3.6 --
Other - net ............................................................................... (325.3) (117.6)
-------------------------
Net cash used by investing activities ................................................... (2,379.1) (1,091.6)
-------------------------
FINANCING ACTIVITIES
Net cash (used) provided by:
Deposits ................................................................................ (730.9) 279.4
Federal funds purchased and securities sold under agreements to repurchase .............. (634.4) (351.2)
Short-term borrowings ................................................................... 463.7 (108.1)
Proceeds from long-term debt .............................................................. 2,613.0 2,443.0
Principal payments on long-term debt ...................................................... (1,167.3) (1,377.2)
Issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely the junior subordinated debentures of the parent company .......... -- 350.0
Proceeds from dividend reinvestment, stock option, and stock purchase plans ............... 65.2 125.4
Repurchase of common stock ................................................................ (147.7) (276.4)
Cash dividends ............................................................................ (283.6) (260.1)
-------------------------
Net cash provided by financing activities ............................................... 178.0 824.8
-------------------------
Change in cash and cash equivalents ..................................................... (967.9) 478.2
Cash and cash equivalents at beginning of period .......................................... 4,855.3 4,801.0
-------------------------
Cash and cash equivalents at end of period ............................................... $ 3,887.4 $ 5,279.2
========================================================================================================================
</TABLE>
20 U.S. Bancorp
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flow activity required under generally
accepted accounting principles. In the opinion of management of the Company, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of results have been made, and the Company believes such
presentation is adequate to make the information presented not misleading. For
further information, refer to the consolidated financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 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 4 through
7 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. The effective date has been deferred for one year
with the recent issuance of SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133,"
which amended SFAS 133. SFAS 133, as amended, is effective for all fiscal years
beginning after June 15, 2000, with early adoption permitted. The adoption of
SFAS 133 is not expected to have a material impact on the Company.
NOTE C BUSINESS COMBINATIONS AND DIVESTITURES
WESTERN BANCORP On May 19, 1999, the Company announced an agreement to acquire
Newport Beach- based Western Bancorp. With $2.5 billion in assets at March 31,
1999, Western Bancorp has 31 branches in southern California in Los Angeles,
Orange and San Diego counties. The acquisition, which is pending regulatory
approval, will be accounted for as a purchase and is expected to close during
the fourth quarter of 1999.
BANK OF COMMERCE On July 15, 1999, the Company completed its acquisition of San
Diego-based Bank of Commerce. With $616 million in assets at March 31, 1999,
Bank of Commerce operates 10 full-service branches and 23 SBA loan production
offices. The transaction was accounted for as a purchase acquisition.
OTHER ACQUISITIONS AND DIVESTITURES On May 14, 1999, the Company announced
agreements to sell all 20 U.S. Bank branches in Kansas and eight branches in
Iowa. These divestitures will reduce the Company's total deposits by less than
1 percent. The sales are expected to be completed in the third quarter of 1999.
On June 30, 1999, the Company announced an agreement to acquire the
Investment Banking division of The John Nuveen Company, based in Chicago. The
division, which focuses on fixed income investment banking, will become part of
the U.S. Bancorp Piper Jaffray Fixed Income Capital Markets division. On August
4, 1999, the Company announced an agreement to acquire Voyager Fleet Systems,
Inc.
On June 30, 1999, the Company completed its acquisition of Mellon Network
Services' electronic funds transfer processing unit. On March 16, 1999, the
Company completed its acquisition of Reliance Trust Company's corporate trust
business, which operates
U.S. Bancorp 21
<PAGE>
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.
NOTE D SECURITIES
The detail of the amortized cost and fair value of available-for-sale securities
consisted of the following:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------------------------------------------
Amortized Fair Amortized Fair
(Dollars in Millions) Cost Value Cost Value
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury .......................... $ 389 $ 388 $ 489 $ 500
Mortgage-backed ........................ 3,263 3,234 3,395 3,438
Other U.S. agencies .................... 221 226 252 259
State and political .................... 1,132 1,148 1,219 1,255
Other .................................. 311 317 106 125
------------------------------------------------
Total ................................. $ 5,316 $ 5,313 $ 5,461 $ 5,577
===========================================================================================
</TABLE>
NOTE E LOANS
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial .................................................... $27,375 $25,974
Real estate:
Commercial mortgage .......................................... 8,384 8,193
Construction ................................................. 3,656 3,069
---------------------
Total commercial ........................................... 39,415 37,236
---------------------
CONSUMER:
Home equity and second mortgage ............................... 7,959 7,409
Credit card ................................................... 4,022 4,221
Automobile .................................................... 3,109 3,413
Revolving credit .............................................. 1,762 1,686
Installment ................................................... 1,037 1,168
Student* ...................................................... 854 829
---------------------
Subtotal ..................................................... 18,743 18,726
Residential mortgage .......................................... 2,722 3,124
Residential mortgage held for sale ............................ 16 36
---------------------
Total consumer ............................................. 21,481 21,886
---------------------
Total loans .............................................. $60,896 $59,122
===========================================================================================
</TABLE>
* ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT
PERIOD BEGINS.
At June 30, 1999, the Company had $253 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 June 30, 1999, the average recorded investment in impaired loans was
approximately $247 million. No interest income was recognized on impaired loans
during the quarter.
22 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>
June 30 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
Federal Home Loan Bank advances (4.82% to 9.11%) -- maturities to October 2026 .... 2,108 2,187
Medium-term notes (4.87% to 6.93%) -- maturities to June 2004 ..................... 2,340 1,675
Bank notes (4.85% to 6.38%) -- maturities to November 2005 ........................ 6,784 6,209
Euro medium-term notes -- due April 13, 2004 ...................................... 400 --
Other ............................................................................. 195 203
---------------------
Total ............................................................................ $15,227 $13,781
=============================================================================================================
</TABLE>
In May 1999, the Company called $107 million of its floating-rate
subordinated notes due November 30, 2010, in accordance with its call
provisions.
In April, the Company issued $400 million variable-rate Euro medium-term
notes due April 13, 2004. The interest rate for each quarterly period is three
month LIBOR plus .15 percent. The initial coupon rate was 5.15 percent.
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 has repurchased 29.0
million shares for $1.1 billion, including 4.4 million shares for $147.7 million
for the six months ended June 30, 1999.
NOTE H EARNINGS PER SHARE
The components of earnings per share were:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------------------------
June 30 June 30 June 30 June 30
(Dollars in Millions, Except Per Share Data) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE:
Net income to common stockholders ..................................... $ 374.3 $ 320.6 $ 741.1 $ 649.1
=========================================================
Average shares outstanding ............................................ 723,239,415 739,630,613 722,940,060 739,171,968
=========================================================
Earnings per share .................................................... $ .52 $ .43 $ 1.03 $ .88
=========================================================
DILUTED EARNINGS PER SHARE:
Net income to common stockholders ..................................... $ 374.3 $ 320.6 $ 741.1 $ 649.1
=========================================================
Average shares outstanding ............................................ 723,239,415 739,630,613 722,940,060 739,171,968
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 ................................................. 6,024,282 12,779,512 5,892,992 12,877,294
---------------------------------------------------------
Dilutive common shares outstanding .................................... 729,263,697 752,410,125 728,833,052 752,049,262
=========================================================
Diluted earnings per share ............................................ $ .51 $ .43 $ 1.02 $ .86
==================================================================================================================================
</TABLE>
U.S. Bancorp 23
<PAGE>
NOTE I INCOME TAXES
The components of income tax expense were:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------------
June 30 June 30 June 30 June 30
(Dollars in Millions) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEDERAL:
Current tax .............................................................. $ 160.3 $ 130.9 $ 314.5 $ 298.0
Deferred tax provision ................................................... 20.3 30.1 38.2 26.6
---------------------------------------------
Federal income tax ..................................................... 180.6 161.0 352.7 324.6
STATE:
Current tax .............................................................. 30.9 30.5 61.5 50.5
Deferred tax provision (credit) .......................................... 3.9 (3.6) 7.6 2.1
---------------------------------------------
State income tax ....................................................... 34.8 26.9 69.1 52.6
---------------------------------------------
Total income tax provision ............................................ $ 215.4 $ 187.9 $ 421.8 $ 377.2
===========================================================================================================================
</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 Six Months Ended
-----------------------------------------------
June 30 June 30 June 30 June 30
(Dollars in Millions) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax at statutory rate (35%) ............................................ $ 206.4 $ 178.0 $ 407.0 $ 359.2
State income tax, at statutory rates, net of federal tax benefit ....... 22.6 17.5 44.9 34.2
Tax effect of:
Tax-exempt interest:
Loans ............................................................... (2.3) (3.3) (4.6) (6.2)
Securities .......................................................... (5.7) (5.7) (11.4) (11.4)
Amortization of nondeductible goodwill ............................... 9.2 8.0 18.8 14.7
Tax credits and other items .......................................... (14.8) (6.6) (32.9) (13.3)
-----------------------------------------------
Applicable income taxes ................................................ $ 215.4 $ 187.9 $ 421.8 $ 377.2
===========================================================================================================================
</TABLE>
The Company's net deferred tax asset was $151.1 million at June 30, 1999,
and $261.3 million at December 31, 1998.
NOTE J MERGER AND INTEGRATION CHARGES
During 1999, the Company recorded $17.9 million of nonrecurring expense related
to the integration of the Company's various acquisitions. The following table
presents a summary of activity with respect to the Company's merger and
integration accrual:
<TABLE>
<CAPTION>
Six Months Ended
(Dollars in Millions) June 30, 1999
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1998 ............................................ $ 126.7
Provision charged to operating expense .................................. 17.9
Cash outlays ............................................................ (38.2)
Transfer to tax liabilities* ............................................ (33.8)
Additions related to purchase acquisitions .............................. 2.4
Noncash writedowns ...................................................... (10.0)
-----------
Balance at June 30, 1999 ................................................ $ 65.0
======================================================================================
</TABLE>
* THE LIABILITY RELATES TO CERTAIN SEVERANCE RELATED ITEMS.
The components of the merger and integration accrual were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) June 30, 1999 December 31, 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------
<S> <C> <C>
Severance ........................................... $ 36.9 $ 98.1
Other employee related costs ........................ 4.8 7.2
Lease terminations and
facility costs ..................................... 11.9 7.4
Contracts and system writeoffs....................... 10.0 10.4
Other ............................................... 1.4 3.6
------------------------------
Total ............................................... $ 65.0 $ 126.7
=====================================================================================
</TABLE>
Employee termination plans were developed in connection with the
acquisitions of U.S. Bancorp of Portland, Oregon, Piper Jaffray Companies Inc.,
Northwest Bancshares, Inc., Zappco, Inc. and other restructurings. Employee
terminations have been substantially completed for each of these acquisitions as
24 U.S. Bancorp
<PAGE>
of June 30, 1999. The severance amounts are determined based on the Company's
existing severance pay programs under which benefits are paid out over a period
of up to two years from the time of termination.
Approximately $30 million, pretax, in additional merger-related charges are
expected to be incurred with respect to Piper Jaffray, Mellon Network Services
and other bank acquisitions in 1999.
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 and market risk. These instruments carry varying degrees of
credit, interest rate and liquidity risk. The contract or notional amounts of
these financial instruments were as follows:
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Commercial ................................................................... $ 26,177 $ 25,023
Corporate and purchasing cards ............................................... 17,194 24,758
Consumer credit cards ........................................................ 15,141 14,982
Other consumer ............................................................... 6,266 7,020
Letters of credit:
Standby ...................................................................... 3,165 3,241
Commercial ................................................................... 410 309
Interest rate swap contracts:
Hedges ....................................................................... 7,539 7,239
Intermediated ................................................................ 615 740
Options contracts:
Hedge interest rate floors purchased ......................................... 500 500
Intermediated interest rate and foreign exchange caps and floors purchased ... 382 360
Intermediated interest rate and foreign exchange caps and floors written ..... 382 360
Futures and forward contracts .................................................. 19 10
Mortgages sold with recourse ................................................... 40 52
Foreign currency commitments:
Commitments to purchase ...................................................... 1,053 812
Commitments to sell .......................................................... 1,044 806
Commitments from securities lending ............................................ 585 342
=========================================================================================================
</TABLE>
The Company received fixed-rate interest and paid floating-rate interest on
all swap hedges as of June 30, 1999. Activity for the six months ended June 30,
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 ................................................................................... 2,245
Maturities .................................................................................. (1,160)
Terminations ................................................................................ (785)
----------
Notional amount outstanding at June 30, 1999 ............................................. $ 7,539
=========================================================================================================
Weighted average interest rate paid ......................................................... 5.00%
Weighted average interest rate received ..................................................... 6.10
=========================================================================================================
</TABLE>
LIBOR-based interest rate floors totaling $500 million with an average
remaining maturity of 2.2 years at June 30, 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 June 30, 1999, and December 31, 1998.
Net unamortized deferred gains relating to swaps, options and futures were
immaterial at June 30, 1999.
U.S. Bancorp 25
<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 $4,536 million and $2,823 million at June 30, 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>
Six Months Ended
-------------------------
June 30 June 30
(Dollars in Millions) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income taxes paid ........................................................................ $ 218.4 $ 272.6
Interest paid ............................................................................ 1,118.7 1,155.9
Net noncash transfers to foreclosed property ............................................. 16.2 10.9
Change in unrealized gain (loss) on available-for-sale securities, net of taxes of
$45.1 in 1999 and $.7 in 1998 .......................................................... (73.6) (1.1)
=========================
Cash acquisitions of businesses:
Fair value of noncash assets acquired .................................................. $ 156.4 $ 1,802.8
Liabilities assumed .................................................................... -- (1,117.6)
-------------------------
Net ................................................................................... $ 156.4 $ 685.2
=========================
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>
26 U.S. Bancorp
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
For the Three Months Ended June 30
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 ...................................... $ 434 $ 6.2 5.73% $ 611 $ 8.8 5.78% (29.0)%
Mortgage-backed .................................... 3,129 49.6 6.36 3,758 63.7 6.80 (16.7)
State and political ................................ 1,146 21.5 7.52 1,263 24.4 7.75 (9.3)
U.S. agencies and other ............................ 417 3.8 3.66 407 5.3 5.22 2.5
-------------------- --------------------
Total available-for-sale securities ............... 5,126 81.1 6.35 6,039 102.2 6.79 (15.1)
Unrealized gain on available-for-sale securities .. 67 85 (21.2)
--------- ---------
Net available-for-sale securities ................. 5,193 6,124 (15.2)
Trading account securities .......................... 582 9.8 6.75 217 3.4 6.28 **
Federal funds sold and resale agreements ............ 525 5.7 4.35 719 9.9 5.52 (27.0)
Loans:
Commercial:
Commercial ........................................ 26,874 498.7 7.44 24,264 490.8 8.11 10.8
Real estate:
Commercial mortgage .............................. 8,387 174.8 8.36 8,143 176.5 8.69 3.0
Construction ..................................... 3,595 77.9 8.69 2,569 59.9 9.35 39.9
-------------------- --------------------
Total commercial ................................. 38,856 751.4 7.76 34,976 727.2 8.34 11.1
Consumer:
Home equity and second mortgage ................... 7,804 182.3 9.37 6,053 143.7 9.52 28.9
Credit card ....................................... 3,988 127.6 12.83 3,941 123.2 12.54 1.2
Other ............................................. 6,873 159.1 9.28 6,636 161.5 9.76 3.6
-------------------- --------------------
Subtotal ......................................... 18,665 469.0 10.08 16,630 428.4 10.33 12.2
Residential mortgage .............................. 2,786 54.5 7.85 3,643 71.5 7.87 (23.5)
Residential mortgage held for sale ................ 14 .3 8.59 151 2.6 6.91 (90.7)
-------------------- --------------------
Total consumer ................................... 21,465 523.8 9.79 20,424 502.5 9.87 5.1
-------------------- --------------------
Total loans ...................................... 60,321 1,275.2 8.48 55,400 1,229.7 8.90 8.9
Allowance for credit losses ........................ 993 994 (.1)
--------- ---------
Net loans ......................................... 59,328 54,406 9.0
Other earning assets ................................ 1,425 23.8 6.70 1,119 17.3 6.20 27.3
-------------------- --------------------
Total earning assets* ............................ 67,979 1,395.6 8.23 63,494 1,362.5 8.61 7.1
Other assets ........................................ 9,019 8,861 1.8
--------- ---------
Total assets ..................................... $ 76,072 $ 71,446 6.5%
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits ........................ $ 13,553 $ 13,381 1.3%
Interest-bearing deposits:
Interest checking .................................. 6,098 26.6 1.75 5,831 26.2 1.80 4.6
Money market accounts .............................. 12,132 100.9 3.34 10,895 106.6 3.92 11.4
Other savings accounts ............................. 2,211 9.5 1.72 2,531 13.4 2.12 (12.6)
Savings certificates ............................... 9,652 116.6 4.85 11,531 157.9 5.49 (16.3)
Certificates over $100,000 ......................... 4,333 55.2 5.11 3,257 48.1 5.92 33.0
-------------------- --------------------
Total interest-bearing deposits ................... 34,426 308.8 3.60 34,045 352.2 4.15 1.1
Short-term borrowings ............................... 4,257 55.7 5.25 3,865 56.1 5.82 10.1
Long-term debt ...................................... 14,416 188.4 5.24 10,564 157.8 5.99 36.5
Company-obligated mandatorily redeemable preferred
securities ......................................... 950 19.4 8.19 950 18.5 7.82 --
-------------------- --------------------
Total interest-bearing liabilities ............... 54,049 572.3 4.25 49,424 584.6 4.74 9.4
Other liabilities ................................... 2,158 2,455 (12.1)
Common equity ....................................... 6,271 6,132 2.3
Accumulated other comprehensive income .............. 41 54 (24.1)
--------- ---------
Total liabilities and shareholders' equity ....... $ 76,072 $ 71,446 6.5%
========= ========= ========
Net interest income ................................. $ 823.3 $ 777.9
========= =========
Gross interest margin ............................... 3.98% 3.87%
========= =========
Gross interest margin without taxable-equivalent
increments ......................................... 3.92% 3.79%
========= =========
Net interest margin ................................. 4.86% 4.91%
========= =========
Net interest margin without taxable-equivalent
increments ......................................... 4.79% 4.83%
=========================================================================================================================
</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 27
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
For the Six Months Ended June 30
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 ...................................... $ 458 $ 13.0 5.72% $ 621 $ 18.0 5.85% (26.2)%
Mortgage-backed .................................... 3,184 103.0 6.52 3,934 133.4 6.84 (19.1)
State and political ................................ 1,161 43.7 7.59 1,274 49.6 7.85 (8.9)
U.S. agencies and other ............................ 375 7.9 4.25 432 11.7 5.46 (13.2)
-------------------- --------------------
Total available-for-sale securities ............... 5,178 167.6 6.53 6,261 212.7 6.85 (17.3)
Unrealized gain on available-for-sale securities .. 86 91 (5.5)
--------- ---------
Net available-for-sale securities ................. 5,264 6,352 (17.1)
Trading account securities .......................... 570 19.0 6.72 183 5.2 5.73 **
Federal funds sold and resale agreements ............ 522 10.5 4.06 719 19.6 5.50 (27.4)
Loans:
Commercial:
Commercial ........................................ 26,449 978.6 7.46 23,879 959.3 8.10 10.8
Real estate:
Commercial mortgage .............................. 8,311 348.3 8.45 8,158 357.5 8.84 1.9
Construction ..................................... 3,424 148.9 8.77 2,487 116.4 9.44 37.7
-------------------- --------------------
Total commercial ................................. 38,184 1,475.8 7.79 34,524 1,433.2 8.37 10.6
Consumer:
Home equity and second mortgage ................... 7,645 356.7 9.41 5,933 281.4 9.56 28.9
Credit card ....................................... 4,001 250.9 12.65 3,961 248.6 12.66 1.0
Other ............................................. 6,963 320.8 9.29 6,656 320.2 9.70 4.6
-------------------- --------------------
Subtotal ......................................... 18,609 928.4 10.06 16,550 850.2 10.36 12.4
Residential mortgage .............................. 2,890 111.9 7.81 3,789 149.2 7.94 (23.7)
Residential mortgage held for sale ................ 22 .6 5.50 167 5.7 6.88 (86.8)
-------------------- --------------------
Total consumer ................................... 21,521 1,040.9 9.75 20,506 1,005.1 9.88 4.9
-------------------- --------------------
Total loans ...................................... 59,705 2,516.7 8.50 55,030 2,438.3 8.94 8.5
Allowance for credit losses ........................ 995 1,004 (.9)
--------- ---------
Net loans ......................................... 58,710 54,026 8.7
Other earning assets ................................ 1,387 44.5 6.47 842 24.9 5.96 64.7
-------------------- --------------------
Total earning assets* ............................ 67,362 2,758.3 8.26 63,035 2,700.7 8.64 6.9
Other assets ........................................ 9,140 8,516 7.3
--------- ---------
Total assets ..................................... $ 75,593 $ 70,638 7.0%
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits ........................ $ 13,549 $ 13,168 2.9%
Interest-bearing deposits:
Interest checking .................................. 6,062 52.1 1.73 5,799 51.0 1.77 4.5
Money market accounts .............................. 12,156 206.7 3.43 10,795 210.9 3.94 12.6
Other savings accounts ............................. 2,246 19.5 1.75 2,567 27.0 2.12 (12.5)
Savings certificates ............................... 9,886 241.9 4.93 11,755 321.3 5.51 (15.9)
Certificates over $100,000 ......................... 3,902 100.2 5.18 3,272 97.1 5.98 19.3
-------------------- --------------------
Total interest-bearing deposits ................... 34,252 620.4 3.65 34,188 707.3 4.17 .2
Short-term borrowings ............................... 4,181 108.0 5.21 3,539 102.5 5.84 18.1
Long-term debt ...................................... 14,193 374.5 5.32 10,563 314.2 6.00 34.4
Company-obligated mandatorily redeemable preferred
securities ......................................... 950 38.7 8.21 776 30.8 7.96 22.4
-------------------- --------------------
Total interest-bearing liabilities ............... 53,576 1,141.6 4.30 49,066 1,154.8 4.75 9.2
Other liabilities ................................... 2,268 2,292 (1.0)
Common equity ....................................... 6,147 6,055 1.5
Accumulated other comprehensive income .............. 53 57 (7.0)
--------- ---------
Total liabilities and shareholders' equity ....... $ 75,593 $ 70,638 7.0%
========= ========= ========
Net interest income ................................. $1,616.7 $1,545.9
========= ========
Gross interest margin ............................... 3.96% 3.89%
========= =========
Gross interest margin without taxable-equivalent
increments ......................................... 3.89% 3.81%
========= =========
Net interest margin ................................. 4.84% 4.95%
========= =========
Net interest margin without taxable-equivalent
increments ......................................... 4.78% 4.86%
=========================================================================================================================
</TABLE>
INTEREST AND RATES ARE PRESENTED ON A FULLY TAXABLE-EQUIVALENT BASIS UNDER A
TAX RATE OF 35 PERCENT.
INTEREST INCOME AND RATES ON LOANS INCLUDE LOAN FEES. NONACCRUAL LOANS ARE
INCLUDED IN AVERAGE LOAN BALANCES.
* BEFORE DEDUCTING THE ALLOWANCE FOR CREDIT LOSSES AND EXCLUDING THE UNREALIZED
GAIN ON AVAILABLE-FOR-SALE SECURITIES.
** NOT MEANINGFUL.
28 U.S. Bancorp
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 Computation of Ratio of Earnings to Fixed Charges.
27 Article 9 Financial Data Schedule.*
* COPIES OF THIS EXHIBIT WILL BE FURNISHED UPON REQUEST AND PAYMENT OF THE
COMPANY'S REASONABLE EXPENSES IN FURNISHING THE EXHIBIT.
(b) Reports on Form 8-K
During the three months ended June 30, 1999, the Company filed no Current
Reports on Form 8-K.
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
(Chief Accounting Officer and Duly
DATE: August 12, 1999 Authorized Officer)
U.S. Bancorp 29
<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 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 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Six
Months Months
Ended Ended
June 30 June 30
-----------------------
(Dollars in Millions) 1999 1999
==============================================================================================================
<S> <C> <C>
EARNINGS
1. Net income .................................................................... $ 374.3 $ 741.1
2. Applicable income taxes ....................................................... 215.4 421.8
-----------------------
3. Net income before taxes (1 + 2) ............................................... $ 589.7 $ 1,162.9
=======================
4. Fixed charges:
a Interest expense excluding interest on deposits ............................. $ 263.5 $ 521.2
b. Portion of rents representative of interest and amortization of debt expense 13.5 25.0
-----------------------
c. Fixed charges excluding interest on deposits (4a + 4b) ...................... 277.0 546.2
d. Interest on deposits ........................................................ 308.8 620.4
-----------------------
e. Fixed charges including interest on deposits (4c + 4d) ...................... $ 585.8 $ 1,166.6
=======================
5. Amortization of interest capitalized .......................................... $ -- $ --
6. Earnings excluding interest on deposits (3 + 4c + 5) .......................... 866.7 1,709.1
7. Earnings including interest on deposits (3 + 4e + 5) .......................... 1,175.5 2,329.5
8. Fixed charges excluding interest on deposits (4c) ............................. 277.0 546.2
9. Fixed charges including interest on deposits (4e) ............................. 585.8 1,166.6
RATIO OF EARNINGS TO FIXED CHARGES
10. Excluding interest on deposits (line 6/line 8) ................................ 3.13 3.13
11. Including interest on deposits (line 7/line 9) ................................ 2.01 2.00
==============================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE U.S.
BANCORP JUNE 30, 1999, 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,748,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 520,000
<TRADING-ASSETS> 639,000
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<LOANS> 60,896,000
<ALLOWANCE> 968,200
<TOTAL-ASSETS> 77,390,000
<DEPOSITS> 49,267,000
<SHORT-TERM> 3,202,000
<LIABILITIES-OTHER> 2,280,000
<LONG-TERM> 15,227,000
0
0
<COMMON> 931,000
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</TABLE>
