<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q/A
<TABLE>
<S> <C> <C>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM (NOT APPLICABLE)
COMMISSION FILE NUMBER 1-6880
U.S. BANCORP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 41-0255900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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).
---------------------------
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.
<TABLE>
<S> <C>
Class Outstanding as of July 31, 2000
Common Stock, $1.25 Par Value 745,804,608 shares
</TABLE>
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<PAGE> 2
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------------
June 30 June 30 June 30 June 30
(Dollars in Millions, Except Per Share Data) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
Income before merger-related charges and available-for-sale securities transactions $ 402.6 $ 383.8 $ 790.2 $ 752.4
Merger-related charges and available-for-sale securities transactions (9.5) (9.5) (18.1) (11.3)
--------- --------- --------- ---------
Net income $ 393.1 $ 374.3 $ 772.1 $ 741.1
========= ========= ========= =========
PER COMMON SHARE
Earnings per share $ .53 $ .52 $ 1.03 $ 1.03
Diluted earnings per share .52 .51 1.03 1.02
Dividends paid .215 .195 .43 .39
Common shareholders' equity 10.62 8.70
FINANCIAL RATIOS
Return on average assets 1.88% 1.97% 1.87% 1.98%
Return on average common equity 20.1 23.8 19.9 24.1
Efficiency ratio 53.0 50.9 53.7 50.8
Net interest margin (taxable-equivalent basis) 4.75 4.86 4.78 4.84
========= ========= ========= =========
SELECTED FINANCIAL RATIOS BEFORE MERGER-RELATED CHARGES AND
AVAILABLE-FOR-SALE SECURITIES TRANSACTIONS
Return on average assets 1.93% 2.02% 1.92% 2.01%
Return on average common equity 20.5 24.4 20.4 24.5
Efficiency ratio 52.1 49.9 52.8 50.1
Banking efficiency ratio* 44.7 42.4 45.0 42.9
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
------------------------
<S> <C> <C>
PERIOD END
Loans $ 67,384 $ 62,885
Allowance for credit losses 1,039 995
Assets 86,174 81,530
Total shareholders' equity 7,931 7,638
Tangible common equity to total assets** 6.4% 6.5%
Tier 1 capital ratio 6.6 6.8
Total risk-based capital ratio 10.7 11.1
Leverage ratio 7.2 7.4
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</TABLE>
* 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/A CROSS-REFERENCE INDEX
<TABLE>
<S> <C>
PART I -- FINANCIAL INFORMATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Item 2)........................ 2
Quantitative and Qualitative Disclosures About Market Risk
(Item 3)................................................... 14
Financial Statements (Item 1)............................... 17
PART II -- OTHER INFORMATION
Exhibits and Reports on Form 8-K (Item 6)................... 29
Signature................................................... 29
Exhibit 12 -- Computation of Ratio of Earnings to Fixed
Charges.................................................... 30
</TABLE>
FORWARD-LOOKING STATEMENTS
This Form 10-Q/A contains forward-looking statements. Statements that are
not historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. These forward-looking statements
cover, among other things, anticipated future expenses and revenues, the future
prospects of U.S. Bancorp's (the "Company's") consumer banking business and
estimated spending on growth initiatives. Forward-looking statements involve
inherent risks and uncertainties, and important factors could cause actual
results to differ materially from those anticipated, including the following, in
addition to those contained elsewhere in this Form 10-Q/A and in the Company's
other reports on file with the SEC: (i) the Company's investments in its
consumer banking, payment systems and wealth management businesses and in its
Internet development could require additional incremental spending, and might
not produce expected deposit and loan growth and anticipated contributions to
Company earnings; (ii) general economic or industry conditions could be less
favorable than expected, resulting in a deterioration in credit quality, a
change in the allowance for credit losses, or a reduced demand for credit or
fee-based products and services; (iii) changes in the domestic interest rate
environment could reduce net interest income and could increase credit losses;
(iv) the conditions of the securities markets could change, adversely affecting
revenues from capital markets businesses, the value or credit quality of the
Company's on-balance sheet and off-balance sheet assets, or the availability and
terms of funding necessary to meet the Company's liquidity needs; (v) changes in
the extensive laws, regulations and policies governing financial services
companies could alter the Company's business environment or affect operations;
(vi) 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; (vii) 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 such as the Internet, or
bank regulatory reform; and (viii) acquisitions may not produce revenue
enhancements or cost savings at levels or within time frames originally
anticipated, or may result in unforeseen integration difficulties.
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
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
EARNINGS SUMMARY U.S. Bancorp (the "Company") reported net income of $393.1
million in the second quarter of 2000, or $.52 per diluted share, compared with
$374.3 million, or $.51 per diluted share, in the second quarter of 1999.
Return on average assets and return on average common equity were 1.88 percent
and 20.1 percent, respectively, in the second quarter of 2000, compared with
returns of 1.97 percent and 23.8 percent in the second quarter of 1999. Net
income reflects merger-related charges and available-for-sale securities
transactions of $9.5 million ($14.7 million on a pre-tax basis) in the second
quarter of 2000 compared with $9.5 million ($15.0 million on a pre-tax basis) in
the second quarter of 1999.
The Company reported second quarter of 2000 operating earnings (net income
excluding merger-related charges and available-for-sale securities
transactions) of $402.6 million, compared with $383.8 million for the second
quarter of 1999. On a diluted share basis, operating earnings were $.54 in the
second quarter of 2000, compared with $.53 in the second quarter of 1999, an
increase of 2 percent. Operating earnings on a cash basis were $.62 per diluted
share in the second quarter of 2000, compared with $.58 per diluted share in the
second quarter of 1999, an increase of 7 percent. Return on average assets and
return on average common equity, excluding merger-related charges and
available-for-sale securities transactions, were 1.93 percent and 20.5 percent,
respectively, in the second quarter of 2000, compared with returns of 2.02
percent and 24.4 percent, respectively, in the second quarter of 1999. The
reduction in the Company's return on average common equity from the second
quarter of 1999 reflects the impact of recent acquisitions, which were accounted
for using the purchase method of accounting. Excluding merger-related charges,
the efficiency ratio (the ratio of expenses to revenues) was 52.1 percent in the
second quarter of 2000, compared with 49.9 percent in the second quarter of
1999. The change in the efficiency ratio was related to continuing investments
in sales, service quality and technology. The banking efficiency ratio (the
ratio of expenses to revenues without the impact of investment banking and
brokerage activity) before merger-related charges was 44.7 percent in the second
quarter of 2000, compared with 42.4 percent in the second quarter of 1999.
Total revenue on a taxable-equivalent basis, before available-for-sale
securities transactions, grew by $202.0 million, or 14 percent, over the second
quarter of 1999. The increase in total revenue was driven by core loan growth,
credit card fee revenue and acquisitions. Excluding the impact of acquisitions
and divestitures, total revenue on a taxable-equivalent basis, before
available-for-sale securities transactions, in the second quarter of 2000 would
have been approximately 9 percent higher than the second quarter of 1999.
Offsetting the growth in total revenue were increases in noninterest expense of
$138.8 million and provision for credit losses of $37.0 million over the second
quarter of 1999. The growth in expense was primarily due to an increase in
expense related to acquisitions, investment banking and brokerage activity and
additional investments in sales, service quality and technology. In addition to
the growth in the Company's ongoing technology investment in Internet-related
products and services, the second quarter of 2000 included approximately $11.2
million of Internet infrastructure-related expense. As anticipated, the Internet
infrastructure-related expense was more than offset in the second quarter by a
$35 million gain on the disposal of the Company's ownership interest in a
Portland office building.
The provision for credit losses of $163 million was an increase of $37
million from $126 million in the same quarter of 1999. Nonperforming assets
increased from $366.6 million at March 31, 2000, to $404.4 million at June 30,
2000, principally due to one commercial credit. The ratio of allowance for
credit losses to nonperforming loans was 285 percent at June 30, 2000, compared
with 310 percent at March 31, 2000 and 321 percent at December 31, 1999.
Net income in the first six months of 2000 was $772.1 million or $1.03 per
diluted share, compared with $741.1 million, or $1.02 per diluted share, in the
first six months of 1999. Return on average assets and return on average common
equity were 1.87 percent and 19.9 percent, respectively, in the first six months
of 2000, compared with returns of 1.98 percent and 24.1 percent, respectively,
in the same period of 1999. Net income reflects merger-related charges of $18.1
million ($28.1 million on a pre-tax basis) in the first half of 2000, compared
with $11.3 million ($17.9 million on a pre-tax basis) in the first half of 1999.
2 U.S. Bancorp
<PAGE> 4
TABLE 1
SUMMARY OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------
(Taxable-equivalent Basis; June 30 June 30 June 30 June 30
Dollars In Millions, Except Per Share Data) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Interest income............................................. $1,672.2 $1,395.6 $3,252.7 $2,758.3
Interest expense............................................ 792.4 572.3 1,510.6 1,141.6
----------------------------------------------
Net interest income...................................... 879.8 823.3 1,742.1 1,616.7
Provision for credit losses................................. 163.0 126.0 317.0 243.0
----------------------------------------------
Net interest income after provision for credit losses.... 716.8 697.3 1,425.1 1,373.7
Available-for-sale securities gains......................... .3 -- -- --
Other noninterest income.................................... 801.4 655.9 1,597.1 1,282.2
Merger-related charges...................................... 15.0 15.0 28.1 17.9
Other noninterest expense................................... 876.6 737.8 1,764.5 1,453.7
----------------------------------------------
Income before income taxes............................... 626.9 600.4 1,229.6 1,184.3
Taxable-equivalent adjustment............................... 17.5 10.7 34.4 21.4
Income taxes................................................ 216.3 215.4 423.1 421.8
----------------------------------------------
Net income............................................... $ 393.1 $ 374.3 $ 772.1 $ 741.1
----------------------------------------------
----------------------------------------------
FINANCIAL RATIOS
Return on average assets.................................... 1.88% 1.97% 1.87% 1.98%
Return on average common equity............................. 20.1 23.8 19.9 24.1
Net interest margin (taxable-equivalent basis).............. 4.75 4.86 4.78 4.84
Efficiency ratio............................................ 53.0 50.9 53.7 50.8
Efficiency ratio before merger-related charges.............. 52.1 49.9 52.8 50.1
Banking efficiency ratio before merger-related charges*..... 44.7 42.4 45.0 42.9
----------------------------------------------
----------------------------------------------
PER COMMON SHARE
Earnings per share.......................................... $ .53 $ .52 $ 1.03 $ 1.03
Diluted earnings per share.................................. .52 .51 1.03 1.02
Dividends paid.............................................. .215 .195 .43 .39
--------------------------------------------------------------------------------------------------------------
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</TABLE>
*Without investment banking and brokerage activity.
Operating earnings in the first six months of 2000 were $790.2 million
compared with $752.4 million in the first six months of 1999. On a diluted per
share basis, operating earnings were $1.05 in the first half of 2000, compared
with $1.03 in the first half of 1999, an increase of 2 percent. On a diluted per
share basis, cash operating earnings were $1.21 in the first six months of 2000,
compared with $1.13 in the first six months of 1999, an increase of 7 percent.
Year-to-date return on average assets and return on average common equity,
excluding merger-related charges, were 1.92 percent and 20.4 percent,
respectively, compared with returns of 2.01 percent and 24.5 percent,
respectively, in the first half of 1999. Excluding merger-related charges, the
efficiency ratio was 52.8 percent in the first six months of 2000, compared with
50.1 percent in the first six months of 1999. On a similar basis, the banking
efficiency ratio was 45.0 percent in the first six months of 2000, compared with
42.9 percent in the first six months of 1999.
The Company analyzes its performance based on amounts determined in
accordance with generally accepted accounting principles as well as on an
operating basis before merger-related charges and available-for-sale securities
transactions referred to in this analysis as "operating earnings". Operating
earnings and related per share amounts are presented as supplementary
information in this analysis to enhance the readers' understanding of, and
highlight trends in, its core financial results including the nonrecurring
effects of discreet business acquisitions and other transactions. The Company
has included these additional disclosures of operations before merger-related
charges to meet the requests of analysts, investors and other readers that
require additional information related to the comparability of the Company's
performances without the effect of these items. Operating earnings and related
per share information should not be viewed as a substitute for net income and
earnings per share as determined in accordance with generally accepted
accounting principles. Merger-related charges and other items excluded from net
income to derive operating earnings may be significant and may not be
comparable to other companies.
ACQUISITION AND DIVESTITURE ACTIVITY Operating results in the first six months
of 2000 reflect purchase and divestiture transactions from or to the date of
completion.
On April 7, 2000, the Company acquired Oliver-Allen Corporation, Inc., a
privately held information technology leasing company. On January 14, 2000, the
Company acquired Peninsula Bank of San Diego, which had 11 branches in San Diego
county and total assets of $456 million. On November 15, 1999, the Company
completed the acquisition of Western Bancorp. Western Bancorp had $2.5 billion
in total assets with 31 branches
U.S. Bancorp 3
<PAGE> 5
TABLE 2
LINE OF BUSINESS FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
Wholesale Consumer
Banking Banking
---------------------------------------------------------------------------
For the Three Months Ended June 30 Percent Percent
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income (taxable-equivalent basis).... $ 414.5 $ 353.7 17.2% $ 338.6 $ 329.3 2.8%
Provision for credit losses....................... 30.9 26.1 18.4 45.7 50.1 (8.8)
Noninterest income................................ 135.1 104.6 29.2 131.5 114.7 14.6
Noninterest expense............................... 212.4 184.5 15.1 223.2 206.8 7.9
Goodwill and other intangible assets expense...... 26.8 15.6 71.8 13.8 9.7 42.3
Income taxes and taxable-equivalent adjustment.... 104.1 87.3 19.2 69.8 66.8 4.5
---------------------- ---------------------
Income before merger-related charges and
available-for-sale securities transactions..... $ 175.4 $ 144.8 21.1 $ 117.6 $ 110.6 6.3
---------------------- ---------------------
---------------------- ---------------------
Net merger-related charges and available-for-sale
securities transactions (after-tax)*...........
Net income........................................
AVERAGE BALANCE SHEET DATA
Loans............................................. $ 41,264 $ 34,896 18.2 $11,158 $ 12,850 (13.2)
Assets............................................ 45,536 38,238 19.1 12,688 13,955 (9.1)
Deposits.......................................... 11,664 10,627 9.8 31,069 30,524 1.8
Common equity..................................... 4,865 3,574 36.1 1,256 1,121 12.0
---------------------- ---------------------
Return on average assets.......................... 1.55% 1.52% 3.73% 3.18%
Return on average common equity ("ROCE").......... 14.5 16.3 37.7 39.6
Efficiency ratio.................................. 43.5 43.7 50.4 48.8
Efficiency ratio on a cash basis**................ 38.6 40.3 47.5 46.6
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</TABLE>
<TABLE>
<CAPTION>
Wholesale Consumer
Banking Banking
---------------------------------------------------------------------------
For the Six Months Ended June 30 Percent Percent
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT
Net interest income (taxable-equivalent
basis)......................................... $ 814.7 $ 700.6 16.3% $ 672.3 $ 652.3 3.1%
Provision for credit losses..................... 60.6 51.6 17.4 98.4 98.2 .2
Noninterest income.............................. 237.5 208.3 14.0 249.5 218.4 14.2
Noninterest expense............................. 419.4 365.3 14.8 444.7 420.6 5.7
Goodwill and other intangible assets expense.... 52.5 31.4 67.2 27.3 19.3 41.5
Income taxes and taxable-equivalent
adjustment................................... 193.2 172.3 12.1 130.6 124.5 4.9
---------------------- ---------------------
Income before merger-related charges and
available-for-sale securities transactions..... $ 326.5 $ 288.3 13.3 $ 220.8 $ 208.1 6.1
---------------------- ---------------------
---------------------- ---------------------
Net merger-related charges and
available-for-sale securities transactions
(after-tax)*...................................
Net income......................................
AVERAGE BALANCE SHEET DATA
Loans........................................... $ 40,422 $ 34,409 17.5 $11,129 $ 12,832 (13.3)
Assets.......................................... 44,652 37,737 18.3 12,654 13,974 (9.4)
Deposits........................................ 11,606 10,790 7.6 30,921 30,745 .6
Common equity................................... 4,779 3,560 34.2 1,254 1,143 9.7
---------------------- ---------------------
Return on average assets........................ 1.47% 1.54% 3.51% 3.00%
Return on average common equity ("ROCE")........ 13.7 16.3 35.4 36.7
Efficiency ratio................................ 44.8 43.6 51.2 50.5
Efficiency ratio on a cash basis**.............. 39.9 40.2 48.2 48.3
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</TABLE>
*Merger-related charges and available-for-sale securities transactions are not
allocated to the business lines. All ratios are calculated without the effect
of merger-related charges and available-for-sale securities transactions.
**Calculated by excluding the amortization of goodwill and other intangibles.
***Not meaningful.
4 U.S. Bancorp
<PAGE> 6
<TABLE>
<CAPTION>
Payment Wealth Management and Corporate Consolidated
Systems Capital Markets Support Company
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Percent Percent Percent
2000 1999 Change 2000 1999 Change 2000 1999 2000 1999 Change
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 86.2 $ 87.4 (1.4)% $ 48.1 $ 41.7 15.3% $ (7.6) $ 11.2 $ 879.8 $ 823.3 6.9%
81.7 73.0 11.9 1.4 1.1 27.3 3.3 (24.3) 163.0 126.0 29.4
205.9 158.6 29.8 321.6 294.2 9.3 7.3 (16.2) 801.4 655.9 22.2
113.7 94.6 20.2 289.3 250.7 15.4 (20.4) (35.4) 818.2 701.2 16.7
11.0 5.9 86.4 6.8 5.4 25.9 -- -- 58.4 36.6 59.6
31.9 27.3 16.8 26.9 29.6 (9.1) 6.3 20.6 239.0 231.6 3.2
------------------- ------------------- ------------------- -------------------
$ 53.8 $ 45.2 19.0 $ 45.3 $ 49.1 (7.7) $ 10.5 $ 34.1 402.6 383.8 4.9
------------------- ------------------- -------------------
------------------- ------------------- -------------------
(9.5) (9.5) ***
-------------------
$ 393.1 $ 374.3 5.0
-------------------
-------------------
$ 8,554 $ 7,895 8.3 $ 2,945 $ 2,287 28.8 $ 2,077 $ 2,393 $ 65,998 $ 60,321 9.4
9,220 8,341 10.5 6,965 5,419 28.5 9,676 10,119 84,085 76,072 10.5
88 88 -- 3,788 3,319 14.1 3,790 3,421 50,399 47,979 5.0
947 674 40.5 1,325 1,145 15.7 (509) (202) 7,884 6,312 24.9
------------------- ------------------- ------------------- -------------------
2.35% 2.17% 2.62% 3.63% 1.93% 2.02%
22.8 26.9 13.8 17.2 20.5 24.4
42.7 40.9 80.1 76.2 52.1 49.9
38.9 38.5 78.3 74.6 48.7 47.4
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</TABLE>
<TABLE>
<CAPTION>
Payment Wealth Management and Corporate Consolidated
Systems Capital Markets Support Company
-----------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent
2000 1999 Change 2000 1999 Change 2000 1999 2000 1999 Change
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 181.1 $ 169.5 6.8% $ 95.1 $ 82.8 14.9% $ (21.1) $ 11.5 $1,742.1 $1,616.7 7.8%
156.4 149.2 4.8 2.7 2.1 28.6 (1.1) (58.1) 317.0 243.0 30.5
383.2 298.4 28.4 721.4 567.3 27.2 5.5 (10.2) 1,597.1 1,282.2 24.6
224.5 186.0 20.7 617.3 478.4 29.0 (56.4) (71.0) 1,649.5 1,379.3 19.6
20.6 11.5 79.1 14.6 12.2 19.7 -- -- 115.0 74.4 54.6
60.5 45.4 33.3 67.6 58.9 14.8 15.6 48.7 467.5 449.8 3.9
------------------- ------------------- ------------------- -------------------
$ 102.3 $ 75.8 35.0 $ 114.3 $ 98.5 16.0 $ 26.3 $ 81.7 790.2 752.4 5.0
------------------- ------------------- -------------------
------------------- ------------------- -------------------
(18.1) (11.3) ***
-------------------
$ 772.1 $ 741.1 4.2
-------------------
-------------------
$ 8,365 $ 7,782 7.5 $ 2,863 $ 2,201 30.1 $ 2,074 $ 2,481 $ 64,853 $ 59,705 8.6
8,976 8,224 9.1 6,824 5,313 28.4 9,821 10,345 82,927 75,593 9.7
85 75 13.3 3,677 3,200 14.9 3,762 2,991 50,051 47,801 4.7
896 665 34.7 1,302 1,132 15.0 (441) (300) 7,790 6,200 25.6
------------------- ------------------- ------------------- -------------------
2.29% 1.86% 3.37% 3.74% 1.92% 2.01%
23.0 23.0 17.7 17.5 20.4 24.5
43.4 42.2 77.4 75.5 52.8 50.1
39.8 39.8 75.6 73.6 49.4 47.6
-----------------------------------------------------------------------------------------------------------------------------
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</TABLE>
U.S. Bancorp 5
<PAGE> 7
in southern California in Los Angeles, Orange and San Diego counties. The
purchase price of approximately $932 million was allocated to assets acquired
and liabilities assumed based on their fair market values at the date of
acquisition. On September 17, 1999, the Company completed its acquisition of the
investment banking division of The John Nuveen Company, which became part of the
U.S. Bancorp Piper Jaffray Fixed Income Capital Markets division. On September
13, 1999, the Company completed its acquisition of Voyager Fleet Systems Inc.,
which is now part of the Payment Systems business unit. On July 15, 1999, the
Company completed its acquisition of the San Diego-based Bank of Commerce, one
of the nation's largest U.S. Small Business Administration ("SBA") lenders. On
June 30, 1999, the Company completed its acquisition of Mellon Network Services'
electronic funds transfer processing unit. These transactions were all accounted
for as purchase acquisitions.
With respect to divestiture transactions, the Company completed the sale of
28 branches in Kansas and Iowa on September 24, 1999, with aggregate deposits of
$364 million. On September 23, 1999, the Company sold $1.8 billion of indirect
automobile loans and is in the process of exiting the business.
On June 27, 2000, the Company announced an agreement to acquire Scripps
Financial Corporation which has nine branches in San Diego county and total
assets of $650 million. Pending approvals from regulators and Scripps'
shareholders, the acquisition is expected to close in the fourth quarter of
2000.
LINE OF BUSINESS FINANCIAL REVIEW
Within the Company, financial performance is measured by major lines of
business, which include: Wholesale Banking, Consumer Banking, Payment Systems,
Wealth Management and Capital Markets, and Corporate Support. These 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 2000 certain
organization and methodology changes were made and 1999 results are presented on
a consistent basis.
WHOLESALE BANKING Wholesale Banking includes lending, treasury management,
corporate trust and other financial services to middle market, large corporate
and public sector clients. The business line contributed operating earnings of
$175.4 million in the second quarter of 2000, an increase of 21 percent over the
second quarter of 1999, and $326.5 million in the first six months of 2000, a 13
percent increase over the same period of 1999. Return on average assets was 1.55
percent in the second quarter of 2000 and 1.47 percent in the first six months
of 2000, compared with 1.52 percent and 1.54 percent for the same periods of
1999. Return on average common equity was 14.5 percent in the second quarter of
2000 and 13.7 in the first six months of 2000, compared with 16.3 percent for
both of the same periods of 1999.
Net interest income increased 17 percent in the second quarter and 16
percent in the first six months of 2000, compared with the same periods of 1999.
Strong growth in net interest income was primarily due to core commercial loan
growth and bank acquisitions. Average loan balances increased 18 percent in the
second quarter and 18 percent in the first six months of 2000, compared with the
same periods of 1999. Excluding acquisitions, average loan balances increased
11.0 percent and 10.6 percent for the same periods. The increase in the
provision for credit losses of 18 percent for the second quarter of 2000 and
17 percent for the first six months also reflects growth in the loan
portfolio.
Noninterest income increased 29 percent in the second quarter and 14 percent
in the first six months of 2000, compared with the same periods of the prior
year. The increase in noninterest income is primarily due to bank and leasing
acquisitions, the timing of ongoing sales of SBA loans, and earnings from
relationship-based equity investments. Acquisitions provided incremental
noninterest income of $9.1 million and $11.0 million for the second quarter and
first six months of 2000, respectively.
Noninterest expense (excluding amortization of intangible assets) increased
15 percent in the second quarter and 15 percent in the first six months of 2000,
compared with the same periods of 1999. The increase in noninterest expense was
primarily due to acquisitions. Acquisitions added incremental noninterest
expense of $14.3 million and $26.3 million in the second quarter and first six
months of 2000, respectively. Goodwill and other intangible asset expense
increased 72 percent for the second quarter of 2000, compared with the second
quarter of 1999 primarily due to the acquisitions of Bank of Commerce in July
1999, Western Bancorp in November 1999, Peninsula Bank of San Diego in January
2000, and Oliver Allen in April 2000. The efficiency ratio on a cash basis
improved to 38.6 percent in the second quarter and 39.9 percent in the first six
months of 2000, compared with 40.3 percent and 40.2 percent in the same periods
of 1999.
CONSUMER BANKING Consumer Banking delivers products and services to the broad
consumer market and small-businesses through branch offices, telemarketing,
online services, direct mail and automated teller machines ("ATMs"). The
business line contributed operating earnings of $117.6 million during the second
quarter of 2000 and $220.8 million for the first six months of 2000, increases
of 6 percent over the same periods of 1999. Second quarter and year-to-date
return on average assets improved to 3.73 percent and 3.51 percent,
respectively, compared with 3.18 percent and 3.00 percent in the same periods of
the prior year. Return on average common equity was 37.7 percent in the second
quarter and 35.4 percent in the first half of 2000, compared with 39.6 percent
and 36.7 percent in the same periods of 1999.
Total revenue grew 6 percent in both the second quarter and first six months
of 2000 compared with the same periods in 1999. The increased value of deposits
in a rising interest rate environment and growth in fee income and home equity
lending more than offset the
6 U.S. Bancorp
<PAGE> 8
reduction in the indirect automobile loan portfolio. Deposit service charges and
debit card fees increased $9.4 million or 10 percent over the second quarter
1999 and $16 million or 9 percent over the first six months of 1999. Average
home equity loan and line balances increased 14 percent in the second quarter
and 15 percent in the first six months of 2000, compared with the same period in
1999. Average balances for the indirect automobile loan portfolio decreased 75
percent and 74 percent for the same periods, due to the September 1999 sale of
$1.8 billion of indirect automobile loans and the continued run off of the
remaining portfolio. Total revenue from the indirect automobile portfolio
decreased $14.8 million or 56 percent in the second quarter and $30.2 million or
55 percent in the first six months of 2000, compared with the same periods in
1999.
A reduction in the business line's provision for credit losses, primarily due to
improved deposit fraud management and the divestiture of the indirect automobile
portfolio, also contributed to the increase in operating earnings over the
second quarter and first six months of 1999. Noninterest expense (excluding
amortization of intangible assets) for the second quarter of 2000 increased 8
percent over the second quarter of 1999, and 6 percent for the first six months
of 2000 compared with the same period of 1999. The Company is currently
investing in a number of customer service initiatives and enhanced technology
designed to improve the earnings growth of the Consumer Banking business line.
These initiatives include incremental investment in technology and processes and
the hiring of additional sales and customer service employees. As with any
investment, successful achievement of the anticipated deposit and loan growth
and related contribution to earnings is subject to a number of uncertainties.
Goodwill and other intangible asset expense increased 4.1 million or 43 percent
for the second quarter and $8.0 million or 42 percent for the first six months
of 2000, compared with the same periods of the prior year primarily due to the
acquisition of Bank of Commerce in July 1999, Western Bancorp in November 1999
and Peninsula Bank of San Diego in January 2000.
PAYMENT SYSTEMS Payment Systems includes consumer and business credit cards,
corporate and purchasing card services, consumer lines of credit, ATM processing
and merchant processing. The business line contributed operating earnings of
$53.8 million in the second quarter of 2000, an increase of 19 percent over the
second quarter of 1999, and $102.3 million for the first six months of 2000,
representing a 35 percent increase over the same period of 1999. Second quarter
and year-to-date return on average assets improved to 2.35 percent and 2.29
percent, respectively, compared with 2.17 percent and 1.86 percent in the same
periods of the prior year. Return on average common equity was 22.8 percent and
23.0 percent in the second quarter and first half of 2000, respectively,
compared with 26.9 percent and 23.0 percent in the same periods of 1999.
Total revenue grew 19 percent and 21 percent over the second quarter and
first six months of 1999, respectively. Strong growth in corporate and retail
card product fees and ATM processing-related revenue was partially offset by a
slight reduction in net interest income, reflecting the growth in the business
line's noninterest-bearing corporate card loans. Corporate and retail card
product fees increased $20.8 million or 15 percent and $52.4 million or 21
percent over the second quarter and first six months of 1999, respectively. ATM
processing-related revenue increase $17.2 million or 115 percent and $30.6
million or 100 percent over the second quarter and first six months of 1999,
respectively. This increase is due to the Mellon Network Services acquisition in
June 1999. Average noninterest-bearing corporate-card loan balances increased
$231 million or 16 percent and $178 million or 13 percent over the second
quarter and first six months of 1999, respectively.
Payment Systems' revenue growth was partially offset by increases in the
provision for credit losses and noninterest expense, reflecting continued growth
in transaction volume, marketing and investments in new products and technology.
The Mellon Network Services' electronic funds transfer processing unit acquired
in June 1999 added incremental direct noninterest expense of $6.6 million and
$16.1 million in the second quarter and first six months of 2000, respectively.
Marketing expenses increased $4.0 million or 115 percent in the second quarter
and $1.0 million or 11 percent in the first six months of 2000, compared to the
same period in 1999.
WEALTH MANAGEMENT AND CAPITAL MARKETS Wealth Management and Capital Markets
engages in equity and fixed income trading activities, offers investment banking
and underwriting services for corporate and public sector customers and provides
securities, mutual funds, annuities and insurance products to consumers and
regionally-based businesses through a network of banking centers and brokerage
offices. It also offers institutional trust, investment management services, and
private banking and personal trust services. The business line contributed
operating earnings of $45.3 million in the second quarter of 2000, a decrease of
7.7 percent compared with the second quarter of 1999, and $114.3 million for
the first six months of 2000, a 16.0 percent increase over the first six months
of 1999. Return on average common equity decreased to 13.8 percent, compared
with 17.2 percent in the second quarter of the prior year. The return on average
common equity improved slightly to 17.7 percent from 17.5 percent in the first
six months of 2000, compared with the same period of 1999.
During the second quarter of 2000, total revenue grew by 10 percent over the
second quarter of 1999 and 26 percent over the first six months of 1999 due to
increases in investment banking, trading account profits and commissions, and
growth in loans and deposits in Private Financial Services. Investment banking,
trading account profits and commissions increased $23.7 million or 12 percent
over the second quarter of 1999 and $148.8 million or 40 percent over the first
six months of 1999. Average loan balances in Private Financial Services
increased $387.2 million or 17 percent over second quarter 1999 and $434.4
million or 20 percent over the first six months of 1999, while average deposit
balances increased $235.7 million or 8 percent over second quarter 1999 and
$208.7 million or 7 percent over the first six months of 1999.
Offsetting the positive impact of revenue growth, noninterest expense
(excluding amortization of intangible assets) increased 15 percent in the second
quarter and 29 percent in the first six months of 2000, compared with the same
periods of 1999. The increases are primarily due to the increase in investment
banking and brokerage revenue, incremental office expansion and other growth
initiatives.
CORPORATE SUPPORT Corporate Support includes the net effect of support units
after internal revenue and expense allocations, balance sheet management and
other corporate activities. The variance in operating earnings in the second
quarter and first six months of 2000, compared with these periods of 1999,
primarily reflects the change in the provision for credit losses from a year ago
and residual allocations. The variance also reflects the reduction in net
interest income due to planned declines in the residential real estate portfolio
and the effect of a rising rate environment.
U.S. Bancorp 7
<PAGE> 9
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) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income, as reported............................ $862.3 $812.6 $1,707.7 $1,595.3
Taxable-equivalent adjustment............................ 17.5 10.7 34.4 21.4
----------------------------------------------
Net interest income (taxable-equivalent basis).............. $879.8 $823.3 $1,742.1 $1,616.7
----------------------------------------------
----------------------------------------------
Average yields and weighted average rates
(taxable-equivalent basis)
Earning assets yield..................................... 9.02% 8.23% 8.92% 8.26%
Rate paid on interest-bearing liabilities................ 5.38 4.25 5.22 4.30
----------------------------------------------
Gross interest margin....................................... 3.64% 3.98% 3.70% 3.96%
----------------------------------------------
----------------------------------------------
Net interest margin......................................... 4.75% 4.86% 4.78% 4.84%
----------------------------------------------
----------------------------------------------
Net interest margin without taxable-equivalent increments... 4.65% 4.79% 4.68% 4.78%
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF INCOME ANALYSIS
NET INTEREST INCOME Second quarter net interest income on a taxable-equivalent
basis was $879.8 million compared with $823.3 million in the second quarter of
1999. Year-to-date net interest income on a taxable-equivalent basis was $1.7
billion, compared with $1.6 billion in the first six months of 1999. The second
quarter and year-to-date average earning assets increased 10 percent and 9
percent, respectively, compared with the same periods of 1999. The increase was
primarily driven by core commercial, home equity and second mortgage loan growth
and bank acquisitions, partially offset by reductions in securities, indirect
automobile loans and residential mortgage loans. The net interest margin
decreased from 4.86 percent and 4.84 percent in the second quarter and first six
months of 1999 to 4.75 percent and 4.78 percent in the second quarter and first
six months of 2000. The decrease reflects margin compression on consumer asset
products and lagging deposit growth relative to the growth in earning assets.
Average loans for both the second quarter and first six months of 2000
increased 9 percent compared with the same periods of the prior year. Excluding
indirect automobile and residential mortgage loans, average loans for the second
quarter and first six months of 2000 were higher by approximately $8.2 billion
(15 percent) and $7.8 billion (15 percent), respectively, than the second
quarter and first half of 1999. The decline in indirect automobile loans
reflects a $1.8 billion loan sale completed in the third quarter of 1999. The
Company is in the process of exiting this business. Without the bank
acquisitions, average loans, excluding indirect automobile and residential
mortgage loans, were higher than the second quarter and first six months of 1999
by 10 percent for both periods. Average available-for-sale securities for the
second quarter and first six months of 2000 decreased by $378 million and $351
million, respectively, from the second quarter and first half of 1999,
reflecting both maturities and sales of securities.
TABLE 4
NONINTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------
June 30 June 30 June 30 June 30
(Dollars in Millions) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit card fee revenue..................................... $177.1 $148.7 $ 336.6 $ 275.5
Trust and investment management fees........................ 117.0 112.2 234.1 229.4
Service charges on deposit accounts......................... 117.5 107.5 226.5 210.9
Investment products fees and commissions.................... 81.8 91.6 198.0 180.2
Investment banking revenue.................................. 72.8 60.3 166.8 96.5
Trading account profits and commissions..................... 58.2 50.5 141.8 102.0
Other....................................................... 177.0 85.1 293.3 187.7
----------------------------------------------
Total operating noninterest income....................... 801.4 655.9 1,597.1 1,282.2
Available-for-sale securities gains......................... .3 -- -- --
----------------------------------------------
Total noninterest income................................. $801.7 $655.9 $1,597.1 $1,282.2
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
8 U.S. Bancorp
<PAGE> 10
TABLE 5
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------
June 30 June 30 June 30 June 30
(Dollars in Millions) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries.................................................... $414.1 $356.7 $ 846.2 $ 710.8
Employee benefits........................................... 69.3 53.6 145.4 123.6
Net occupancy............................................... 55.2 49.9 112.3 99.9
Furniture and equipment..................................... 40.5 39.0 81.6 77.1
Professional services....................................... 24.4 16.6 43.5 30.6
Telephone................................................... 21.8 17.4 43.1 35.4
Advertising and marketing................................... 22.0 12.7 37.8 27.7
Other personnel costs....................................... 19.2 19.8 31.5 32.5
Goodwill and other intangible assets........................ 58.4 36.6 115.0 74.4
Other....................................................... 151.7 135.5 308.1 241.7
----------------------------------------------
Total operating noninterest expense...................... 876.6 737.8 1,764.5 1,453.7
Merger-related charges...................................... 15.0 15.0 28.1 17.9
----------------------------------------------
Total noninterest expense................................ $891.6 $752.8 $1,792.6 $1,471.6
----------------------------------------------
----------------------------------------------
Efficiency ratio*........................................... 53.0% 50.9% 53.7% 50.8%
Efficiency ratio before merger-related charges.............. 52.1 49.9 52.8 50.1
Banking efficiency ratio before merger-related charges**.... 44.7 42.4 45.0 42.9
Average number of full-time equivalent employees............ 28,675 26,667 28,681 26,854
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
*Computed as noninterest expense divided by the sum of net interest income on a
taxable-equivalent basis and noninterest income excluding available-for-sale
securities gains and losses.
**Without investment banking and brokerage activity.
PROVISION FOR CREDIT LOSSES In the second quarter of 2000, the provision for
credit losses was $163.0 million, an increase of $37 million (29 percent) from
$126.0 million in the same quarter of 1999. The provision for credit losses in
the first six months of 2000 was $317.0 million, an increase of $74 million (30
percent) from $243 million in the same period of 1999. The provision for credit
losses is recorded to bring the allowance for credit losses to a level deemed
appropriate by management. Refer to "Corporate Risk Profile" for further
information on factors considered by the Company in assessing the credit quality
of the loan portfolio and establishing the allowance for credit losses.
NONINTEREST INCOME Second quarter 2000 noninterest income was $801.7 million, an
increase of $145.8 million (22 percent) from the second quarter of 1999.
Noninterest income in the first six months of 2000 was $1.60 billion, an
increase of $314.9 million (25 percent) from $1.28 billion in the first six
months of 1999. Noninterest income in the second quarter of 2000 included net
gains from available-for-sale securities transactions of $.3 million. Excluding
the impact of acquisitions and divestitures, noninterest income, before
available-for-sale securities transactions, in the second quarter and first six
months of 2000 would have been approximately 17 percent higher than the second
quarter of 1999 and 20 percent higher than the first half of 1999.
Investment banking revenue, trading account profits and commissions and
investment products fees and commissions were higher in the first six months of
2000 compared with the same period of 1999, due to growth in Wealth Management
and Capital Markets. Credit card fee revenue was higher for the second quarter
and first six months of 2000, reflecting continued growth in corporate and
retail card product fees and ATM processing-related revenue. Service charges on
deposit accounts increased $10.0 million (9 percent) in the second quarter of
2000 compared with the second quarter of 1999, and $15.6 million (7 percent) in
the first six months of 2000 compared with the same period of a year ago. The
increase in other income in 2000 included a $35.0 million second quarter gain on
the disposal of the Company's ownership interest in a Portland office building
and a $10.8 million first quarter gain on the sale of a Boise building, in
addition to growth due to acquisitions and on-going business line initiatives.
NONINTEREST EXPENSE Second quarter 2000 noninterest expense, before
merger-related charges, totaled $876.6 million, an increase of $138.8 million
(19 percent) from $737.8 million in the second quarter of 1999. Year-to-date
noninterest expense, before merger-related charges, was $1.76 billion, an
increase of
U.S. Bancorp 9
<PAGE> 11
$310.8 million (21 percent) from $1.45 billion in the first half of 1999. The
increase in noninterest expense over the second quarter and first half of 1999
was primarily the result of growth in investment banking, acquisitions and the
Company's continuing investment in sales, service quality and technology. In
addition to on-going investments in Internet-related products and services, the
second quarter and first six months of 2000 included approximately $11.2 million
and $20.2 million, respectively, of incremental spending on Internet
infrastructure-related initiatives.
The banking efficiency ratio, excluding merger-related charges, was 44.7
percent and 45.0 percent for the second quarter and first six months of 2000,
respectively, compared with 42.4 percent and 42.9 percent for the same periods
of 1999. The overall efficiency ratio increased slightly due to the planned
investments in Internet technology and other customer-related initiatives. The
Company has accelerated the development of its capabilities to deliver its
products and services over the Internet.
Second quarter of 2000 noninterest expense was $891.6 million, an increase
of $138.8 million (18 percent) from $752.8 million in the second quarter of
1999. Year-to-date noninterest expense was $1.79 billion, an increase of $321.0
million (22 percent) from $1.47 billion in the first half of 1999. Noninterest
expense in the second quarter and first half of 2000 included nonrecurring
merger-related charges of $15.0 million and $28.1 million, compared with
merger-related charges of $15.0 million and $17.9 million in the second quarter
and first half of 1999. The merger-related charges incurred in 2000 were related
to the integration of the Company's various acquisitions, including Western
Bancorp and Peninsula Bank of San Diego.
INCOME TAX EXPENSE The provision for income taxes was $216.3 million (an
effective rate of 35.5 percent) in the second quarter and $423.1 million (an
effective rate of 35.4 percent) in the first six months of 2000, compared with
$215.4 million (an effective rate of 36.5 percent) and $421.8 million (an
effective rate of 36.3 percent) in the same periods of 1999.
BALANCE SHEET ANALYSIS
LOANS The Company's loan portfolio was $67.4 billion at June 30, 2000, compared
with $62.9 billion at December 31, 1999. Commercial loans totaled $47.6 billion
at June 30, 2000, up $4.6 billion (11 percent) from December 31, 1999. The
increase was primarily attributable to continued growth in core commercial and
commercial real estate loans and bank acquisitions. Total consumer outstandings
were $19.8 billion at June 30, 2000, compared with $19.9 billion at December 31,
1999. Excluding indirect automobile loans and residential mortgage loans,
consumer loans were $16.7 billion at June 30, 2000, and $16.6 billion at
December 31, 1999.
SECURITIES At June 30, 2000, available-for-sale securities totaled $4.5 billion,
compared with $4.9 billion at December 31, 1999, reflecting both maturities and
sales of securities.
DEPOSITS Noninterest-bearing deposits were $16.2 billion at June 30, 2000,
compared with $16.1 billion at December 31, 1999. Interest-bearing deposits
totaled $36.3 billion at June 30, 2000, compared with $35.5 billion at December
31, 1999.
BORROWINGS Short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings,
decreased to $2.0 billion at June 30, 2000, compared with $2.3 billion at
December 31, 1999.
Long-term debt was $19.8 billion at June 30, 2000, up from $16.6 billion at
December 31, 1999. To fund core asset growth and replace wholesale funding
maturities during 2000, the Company issued $4.1 billion of debt with an average
original maturity of 2.3 years under its medium-term and bank note programs. In
addition, Federal Home Loan Bank advances increased by $400 million during 2000.
CORPORATE RISK PROFILE
CREDIT MANAGEMENT The Company's strategy for credit risk management includes
stringent, centralized credit policies, and uniform underwriting criteria for
all loans including specialized lending categories such as mortgage banking,
real estate construction and consumer credit. The strategy also emphasizes
diversification on both a geographic and customer level, regular credit
examinations, and quarterly management reviews of large loans and loans
experiencing deterioration of credit quality. The Company strives to identify
potential problem loans early, take any necessary charge-offs promptly and
maintain strong reserve levels. Commercial banking operations rely on a strong
credit culture that combines prudent credit policies and individual lender
accountability. In addition, the commercial lenders generally focus on
middle-market companies within their regions. The Company utilizes a credit risk
rating system in order to measure the credit quality of individual commercial
loan transactions. The risk rating system is intended to identify and measure
the credit quality of lending transactions. In the Company's retail banking
operations, standard credit scoring systems are used to assess consumer credit
risks and to price consumer products accordingly.
In evaluating its credit risk, the Company considers changes, if any, in
underwriting activities, the loan
10 U.S. Bancorp
<PAGE> 12
portfolio composition (including product mix and geographic, industry or
customer-specific concentrations), trends in loan performance, the level of
allowance coverage, and macroeconomic factors. Generally, the domestic economy
of the nation is considered strong, though financial markets have been volatile.
Approximately 56 percent of the Company's loan portfolio consists of credit to
businesses and consumers in Minnesota, Oregon, Washington and California.
NET CHARGE-OFFS AND ALLOWANCE FOR CREDIT LOSSES Net loan charge-offs totaled
$163.2 million and $317.2 million in the second quarter and first six months of
2000, respectively, compared with $140.3 million and $279.9 million in the same
periods of 1999. The ratio of total net charge-offs to average loans was .99
percent and .98 percent in the second quarter and first half of 2000,
respectively, compared with .93 and .95 percent in the same periods in 1999. Net
charge-offs in the first quarter of 2000 were $154.0 million. Nearly one-half of
the increase in net charge-offs from the first quarter of 2000 and second
quarter of 1999 was due to an expected increase in losses on the growing
credit-scored small business lending portfolio. Commercial loan net charge-offs
were $57.5 million and $102.3 million in the second quarter and first half of
2000, respectively, compared with $29.9 million and $53.8 million in the same
periods of 1999. Commercial loan net charge-offs, excluding net charge-offs of
credit-scored small business and commercial payment systems products, were $34.5
million, or .32 percent of average loans outstanding for the second quarter of
2000, and $58.6 million, or .28 percent of average loans outstanding in the
first half of 2000.
Consumer loan net charge-offs for the quarter and year-to-date were $105.7
million and $214.9 million, respectively, compared with $110.4 million and
$226.1 million for the same periods of 1999. Consumer loan net charge-offs as a
percent of average loans outstanding were 2.13 and 2.18 in the second quarter
and first half of 2000, respectively, compared with 2.06 and 2.12 for the same
periods of 1999.
The allowance for credit losses provides coverage for probable losses
inherent in the Company's loan portfolio. Management evaluates the allowance
each quarter to determine that it is adequate to cover inherent losses. The
evaluation of each element and the overall allowance is based on a continuing
assessment of problem loans and related off-balance sheet items, recent loss
experience, and other factors, including regulatory guidance and economic
conditions.
The allowance for credit losses increased to $1,039.4 million at June 30,
2000, from $995.4 million at December 31, 1999, due to additions related to bank
acquisitions and portfolio purchases. As a percentage of nonperforming loans,
the allowance was 285 percent at June 30, 2000, compared with 310 percent at
March 31, 2000 and 321 percent at December 31, 1999. Management has determined
that the allowance for credit losses is adequate.
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
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL
Commercial............................................... .80% .52% .73% .47%
Real estate
Commercial mortgage................................... (.14) (.11) (.08) (.09)
Construction.......................................... (.12) .01 (.07) .02
Lease financing.......................................... .69 .07 .48 .10
---------------------------------------------------
Total commercial...................................... .50 .31 .46 .28
CONSUMER
Credit card.............................................. 4.59 4.69 4.22 4.88
Other.................................................... 1.75 1.73 1.92 1.76
---------------------------------------------------
Subtotal.............................................. 2.44 2.36 2.47 2.43
Residential mortgage..................................... .12 .09 .24 .10
---------------------------------------------------
Total consumer........................................ 2.13 2.06 2.18 2.12
---------------------------------------------------
Total.............................................. .99% .93% .98% .95%
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 11
<PAGE> 13
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) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period.............................. $1,011.1 $982.5 $ 995.4 $1,000.9
CHARGE-OFFS
Commercial
Commercial............................................ 62.7 49.0 117.1 90.8
Real estate
Commercial mortgage................................ .7 .3 1.7 .6
Construction....................................... .1 .2 .1 .4
Lease financing....................................... 4.8 .9 6.7 2.6
-----------------------------------------------
Total commercial................................... 68.3 50.4 125.6 94.4
Consumer
Credit card........................................... 51.6 51.3 93.7 106.4
Other................................................. 71.8 80.9 155.7 162.1
-----------------------------------------------
Subtotal........................................... 123.4 132.2 249.4 268.5
Residential mortgage.................................. 1.0 .8 3.5 1.8
-----------------------------------------------
Total consumer..................................... 124.4 133.0 252.9 270.3
-----------------------------------------------
Total........................................... 192.7 183.4 378.5 364.7
RECOVERIES
Commercial
Commercial............................................ 4.9 17.2 15.1 34.6
Real estate
Commercial mortgage................................ 4.2 2.7 5.7 4.4
Construction....................................... 1.4 .1 1.7 .1
Lease financing....................................... .3 .5 .8 1.5
-----------------------------------------------
Total commercial................................... 10.8 20.5 23.3 40.6
Consumer
Credit card........................................... 3.8 4.7 6.8 9.5
Other................................................. 14.7 17.7 30.8 34.3
-----------------------------------------------
Subtotal........................................... 18.5 22.4 37.6 43.8
Residential mortgage.................................. .2 .2 .4 .4
-----------------------------------------------
Total consumer..................................... 18.7 22.6 38.0 44.2
-----------------------------------------------
Total........................................... 29.5 43.1 61.3 84.8
NET CHARGE-OFFS
Commercial
Commercial............................................ 57.8 31.8 102.0 56.2
Real estate
Commercial mortgage................................ (3.5) (2.4) (4.0) (3.8)
Construction....................................... (1.3) .1 (1.6) .3
Lease financing....................................... 4.5 .4 5.9 1.1
-----------------------------------------------
Total commercial................................... 57.5 29.9 102.3 53.8
Consumer
Credit card........................................... 47.8 46.6 86.9 96.9
Other................................................. 57.1 63.2 124.9 127.8
-----------------------------------------------
Subtotal........................................... 104.9 109.8 211.8 224.7
Residential mortgage.................................. .8 .6 3.1 1.4
-----------------------------------------------
Total consumer..................................... 105.7 110.4 214.9 226.1
-----------------------------------------------
Total........................................... 163.2 140.3 317.2 279.9
Provision charged to operating expense...................... 163.0 126.0 317.0 243.0
Acquisitions and other changes.............................. 28.5 -- 44.2 4.2
-----------------------------------------------
Balance at end of period.................................... $1,039.4 $968.2 $1,039.4 $ 968.2
-----------------------------------------------
-----------------------------------------------
Allowance as a percentage of:
Period-end loans......................................... 1.54% 1.59%
Nonperforming loans...................................... 285 327
Nonperforming assets..................................... 257 302
Annualized net charge-offs............................... 158 172
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
12 U.S. Bancorp
<PAGE> 14
TABLE 8
DELINQUENT LOAN RATIOS*
<TABLE>
<CAPTION>
June 30 December 31
90 days or more past due 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL
Commercial............................................... .74% .57%
Real estate
Commercial mortgage................................... .61 .84
Construction.......................................... .72 .59
Lease financing.......................................... 1.50 .81
-----------------------
Total commercial...................................... .76 .65
CONSUMER
Credit card.............................................. 1.06 .96
Other.................................................... .56 .57
-----------------------
Subtotal.............................................. .69 .67
Residential mortgage..................................... 1.53 1.57
-----------------------
Total consumer........................................ .80 .79
-----------------------
Total.............................................. .77% .69%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
*Ratios include nonperforming loans and are expressed as a percent of ending
loan balances.
NONPERFORMING ASSETS Nonperforming assets include nonaccrual loans, restructured
loans, other real estate and other nonperforming assets owned by the Company.
Nonperforming assets at June 30, 2000, totaled $404.4 million, compared with
$347.5 million at December 31, 1999. The ratio of nonperforming assets to loans
and other real estate was .60 percent at June 30, 2000, compared with .55
percent at December 31, 1999.
Accruing loans 90 days or more past due at June 30, 2000, totaled $153.4
million, compared with $125.8 million at December 31, 1999. These loans are not
included in nonperforming assets and continue to accrue interest because they
are secured by collateral
TABLE 9
NONPERFORMING ASSETS*
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL
Commercial............................................... $ 204.2 $ 142.4
Real estate
Commercial mortgage................................... 58.9 78.9
Construction.......................................... 19.8 25.3
Lease financing.......................................... 39.4 18.8
-----------------------
Total commercial...................................... 322.3 265.4
CONSUMER
Residential mortgage..................................... 35.3 36.0
Other.................................................... 7.6 8.6
-----------------------
Total consumer........................................ 42.9 44.6
-----------------------
Total nonperforming loans....................... 365.2 310.0
OTHER REAL ESTATE........................................... 22.7 20.7
OTHER NONPERFORMING ASSETS.................................. 16.5 16.8
-----------------------
Total nonperforming assets...................... $ 404.4 $ 347.5
-----------------------
-----------------------
Accruing loans 90 days or more past due**................... $ 153.4 $ 125.8
Nonperforming loans to total loans.......................... .54% .49%
Nonperforming assets to total loans plus other real
estate..................................................... .60 .55
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
*Throughout this document, nonperforming assets and related ratios do not
include accruing loans 90 days or more past due.
**These loans are not included in nonperforming assets and continue to accrue
interest because they are secured by collateral and/or are in the process of
collection and are reasonably expected to result in repayment or restoration
to current status.
U.S. Bancorp 13
<PAGE> 15
and/or are in the process of collection and are reasonably expected to result in
repayment or restoration to current status. Consumer loans 30 days or more past
due decreased to 2.58 percent of the portfolio at June 30, 2000, compared with
2.65 percent at December 31, 1999. The percentage of consumer loans 90 days or
more past due of the total consumer loan portfolio was .80 percent at June 30,
2000, compared with .79 percent at December 31, 1999.
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 of 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. 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 to 1.5 percent of forecasted net
interest income over the succeeding 12 months and 3 percent of forecasted net
interest income over the second 12 months given a 1 percent change in interest
rates. At June 30, 2000, forecasted net interest income for the next 12 months
would not be affected from an immediate 100 basis point upward parallel shift in
rates and would decrease $4 million from a downward shift of similar magnitude.
Forecasted net interest income for the second 12 months would decrease $2
million from an immediate 100 basis point upward parallel shift in rates and
would decrease $7 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. ALCO also calculates the
sensitivity of the simulation results to changes in key assumptions, such as
core deposit repricings and core deposit life. The amount of market value risk
is subject to a limit,
TABLE 10
INTEREST RATE SWAP HEDGING PORTFOLIO NOTIONAL BALANCES AND YIELDS BY
MATURITY DATE
<TABLE>
<CAPTION>
At June 30, 2000 (Dollars in Millions)
-------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Notional Interest Rate Interest Rate
Maturity Date Amount Received Paid
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000........................................................ $ 135 5.99% 6.70%
2001........................................................ 290 6.56 6.65
2002........................................................ 545 6.22 6.66
2003........................................................ 2,481 6.13 6.74
2004........................................................ 1,475 6.60 6.64
Thereafter.................................................. 2,450 6.37 6.65
------
Total....................................................... $7,376 6.32% 6.68%
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
*At June 30, 2000, the Company received fixed-rate interest and paid
variable-rate interest on substantially all swaps in its hedging portfolio.
14 U.S. Bancorp
<PAGE> 16
approved by the Company's Board of Directors, of .5 percent of assets for an
immediate 100 basis point rate shock. The Company's market value risk position
continues to be substantially lower than its limits.
REPRICING MISMATCH ANALYSIS: A traditional gap analysis provides a static
measurement of the relationship between the amounts of interest rate sensitive
assets and liabilities repricing in a given time period. While the analysis
provides a useful snapshot of interest rate risk, it does not capture all
aspects of interest rate risk. As a result, ALCO uses the repricing mismatch
analysis primarily for managing intermediate-term interest rate risk and has
established limits, approved by the Company's Board of Directors, for 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 and, to a lesser
degree, interest rate caps and floors.
During the second quarter of 2000, the Company added $145 million of receive
fixed interest rate swaps. In the first six months of 2000, the Company added
$185 million of receive fixed interest rate swaps and $500 million of pay fixed
interest rate swaps and terminated $674 million of receive fixed interest rate
swaps to reduce interest income at risk. Interest rate swap agreements involve
the exchange of fixed- and variable-rate payments without the exchange of the
underlying notional amount on which the interest payments are calculated. As of
June 30, 2000, the Company received and made payments on $7.4 billion notional
amount of interest rate swap agreements. These swaps had a weighted average
interest rate received of 6.32 percent and a weighted average interest rate paid
of 6.68 percent. The remaining maturity of these agreements ranges from 1 month
to 15 years with an average remaining maturity of 4.6 years. For the quarter and
six months ended June 30, 2000, interest rate swap agreements decreased net
interest income by $3.5 million and $1.8 million, respectively, and for the
quarter and six months ended June 30, 1999, interest rate swap agreements
increased net interest income by $19.7 million and $37.1 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 based on the notional amount and
the difference between current rates and strike rates. There were no caps
outstanding at June 30, 2000. To hedge against falling interest rates, the
Company uses interest rate floors. Like caps, counterparties to interest rate
floor agreements pay the Company based on the notional amount and the difference
between current rates and strike rates. The total notional amount of floor
agreements purchased as of June 30, 2000, all of which were LIBOR-indexed, was
$500 million. The impact of caps and floors on net interest income was not
significant for the six months ended June 30, 2000, and 1999.
MARKET RISK MANAGEMENT Market valuation risk is subject to regular monitoring by
management. The Company uses a value-at-risk ("VaR") model to measure and manage
market risk in its broker/dealer activities. The VaR model uses an estimate of
volatility appropriate to each instrument for a 10-day holding period and a
ninety-ninth percentile adverse move in the underlying markets. Market valuation
risk limits are established subject to approval by the Company's Board of
Directors. The Company's VaR limit was $40 million
U.S. Bancorp 15
<PAGE> 17
TABLE 11
CAPITAL RATIOS
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
Tangible common equity*..................................... $5,306 $5,134
As a percent of assets................................... 6.4% 6.5%
Tier 1 capital.............................................. $5,822 $5,631
As a percent of risk-adjusted assets..................... 6.6% 6.8%
Total risk-based capital.................................... $9,386 $9,281
As a percent of risk-adjusted assets..................... 10.7% 11.1%
Leverage ratio.............................................. 7.2 7.4
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
*Defined as common equity less goodwill.
at June 30, 2000. The market valuation risk inherent in its broker/dealer
activities, including equities, fixed income, high yield securities and foreign
exchange, as estimated by the VaR analysis, was $15.1 million at June 30, 2000.
In addition to the VaR analysis, the Company imposes stop loss limits and
position limits. A stress-test model is used to provide management with
perspective on market events that a VaR model does not capture. In each case,
the historical worst performance of each asset class is observed and applied to
current trading positions.
CAPITAL MANAGEMENT At June 30, 2000, tangible common equity (common equity less
goodwill) was $5.3 billion, or 6.4 percent of assets, compared with $5.1
billion, or 6.5 percent, at December 31, 1999. Tier 1 and total risk-based
capital ratios were 6.6 percent and 10.7 percent at June 30, 2000, compared with
6.8 percent and 11.1 percent at December 31, 1999. The June 30, 2000, leverage
ratio was 7.2 percent, compared with 7.4 percent at December 31, 1999.
On February 16, 2000, the Company announced a share repurchase program of up
to $2.5 billion of common stock over the period ending March 31, 2002. The new
share repurchase program replaced a program that was scheduled to expire on
March 31, 2000. The purpose of these share repurchase programs is to ensure that
appropriate capital levels are maintained. Shares acquired under the programs
may be used for: 1) dividend reinvestment programs; 2) employee stock purchase
and option programs; and 3) business acquisitions. During the first six months
of 2000, the Company repurchased 16.2 million shares under these programs for a
total dollar value of $348.7 million. During the same period, the Company issued
6.6 million shares related to acquisitions.
ACCOUNTING CHANGES
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Statement of
Financial Accounting Standards No. ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment to FASB
Statement No. 133," establish 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 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 earlier application permitted. The adoption
of SFAS 133 is not expected to have a material impact on the Company.
16 U.S. Bancorp
<PAGE> 18
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 2000 1999
---------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 3,775 $ 4,036
Federal funds sold.......................................... 653 713
Securities purchased under agreements to resell............. 384 324
Trading account securities.................................. 765 617
Available-for-sale securities............................... 4,526 4,871
Loans....................................................... 67,384 62,885
Less allowance for credit losses......................... 1,039 995
-----------------------
Net loans................................................ 66,345 61,890
Premises and equipment...................................... 855 862
Interest receivable......................................... 493 433
Customers' liability on acceptances......................... 166 152
Goodwill and other intangible assets........................ 3,188 3,066
Other assets................................................ 5,024 4,566
-----------------------
Total assets.......................................... $ 86,174 $ 81,530
-----------------------
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing...................................... $ 16,223 $ 16,050
Interest-bearing......................................... 29,842 29,671
Time certificates of deposit greater than $100,000....... 6,480 5,809
-----------------------
Total deposits........................................ 52,545 51,530
Federal funds purchased..................................... 209 297
Securities sold under agreements to repurchase.............. 998 1,235
Other short-term funds borrowed............................. 827 724
Long-term debt.............................................. 19,762 16,563
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company............ 950 950
Acceptances outstanding..................................... 166 152
Other liabilities........................................... 2,786 2,441
-----------------------
Total liabilities..................................... 78,243 73,892
Shareholders' equity
Common stock, par value $1.25 a share -- authorized
1,500,000,000 shares; issued: 6/30/00 -- 758,194,161
shares; 12/31/99 -- 754,368,668 shares................. 948 943
Capital surplus.......................................... 1,457 1,399
Retained earnings........................................ 5,839 5,389
Accumulated other comprehensive income................... (71) (62)
Less cost of common stock in treasury:
6/30/00 -- 11,137,222 shares; 12/31/99 -- 1,038,456
shares.................................................. (242) (31)
-----------------------
Total shareholders' equity............................ 7,931 7,638
-----------------------
Total liabilities and shareholders' equity............ $ 86,174 $ 81,530
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 17
<PAGE> 19
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) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans....................................................... $1,517.5 $1,272.2 $2,944.4 $2,510.7
Securities
Taxable.................................................. 58.5 59.8 118.8 124.4
Exempt from federal income taxes......................... 13.8 14.3 27.8 29.0
Other interest income....................................... 64.9 38.6 127.3 72.8
--------------------------------------
Total interest income................................. 1,654.7 1,384.9 3,218.3 2,736.9
INTEREST EXPENSE
Deposits.................................................... 402.2 308.8 775.1 620.4
Federal funds purchased and repurchase agreements........... 45.7 43.6 89.5 83.0
Other short-term funds borrowed............................. 15.0 12.1 28.6 25.0
Long-term debt.............................................. 310.2 188.4 578.8 374.5
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company.............. 19.3 19.4 38.6 38.7
--------------------------------------
Total interest expense................................ 792.4 572.3 1,510.6 1,141.6
--------------------------------------
Net interest income......................................... 862.3 812.6 1,707.7 1,595.3
Provision for credit losses................................. 163.0 126.0 317.0 243.0
--------------------------------------
Net interest income after provision for credit losses....... 699.3 686.6 1,390.7 1,352.3
NONINTEREST INCOME
Credit card fee revenue..................................... 177.1 148.7 336.6 275.5
Trust and investment management fees........................ 117.0 112.2 234.1 229.4
Service charges on deposit accounts......................... 117.5 107.5 226.5 210.9
Investment products fees and commissions.................... 81.8 91.6 198.0 180.2
Investment banking revenue.................................. 72.8 60.3 166.8 96.5
Trading account profits and commissions..................... 58.2 50.5 141.8 102.0
Available-for-sale securities gains......................... .3 -- -- --
Other....................................................... 177.0 85.1 293.3 187.7
--------------------------------------
Total noninterest income.............................. 801.7 655.9 1,597.1 1,282.2
NONINTEREST EXPENSE
Salaries.................................................... 414.1 356.7 846.2 710.8
Employee benefits........................................... 69.3 53.6 145.4 123.6
Net occupancy............................................... 55.2 49.9 112.3 99.9
Furniture and equipment..................................... 40.5 39.0 81.6 77.1
Goodwill and other intangible assets........................ 58.4 36.6 115.0 74.4
Merger-related charges...................................... 15.0 15.0 28.1 17.9
Other....................................................... 239.1 202.0 464.0 367.9
--------------------------------------
Total noninterest expense............................. 891.6 752.8 1,792.6 1,471.6
--------------------------------------
Income before income taxes.................................. 609.4 589.7 1,195.2 1,162.9
Applicable income taxes..................................... 216.3 215.4 423.1 421.8
--------------------------------------
Net income.................................................. $ 393.1 $ 374.3 $ 772.1 $ 741.1
--------------------------------------
--------------------------------------
Earnings per share.......................................... $ .53 $ .52 $ 1.03 $ 1.03
Diluted earnings per share.................................. $ .52 $ .51 $ 1.03 $ 1.02
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>
18 U.S. Bancorp
<PAGE> 20
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
(Dollars in Millions) Common Shares Common Capital Retained Comprehensive Treasury
(Unaudited) Outstanding* Stock Surplus Earnings Income Stock** Total
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 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
Change in net unrealized losses 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
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999............ 753,330,212 $943.0 $1,398.8 $5,389.2 $(61.8) $ (31.5) $7,637.7
Common dividends declared............ (322.8) (322.8)
Purchase of treasury stock........... (16,233,000) (348.7) (348.7)
Issuance of common stock
Acquisitions...................... 6,969,658 4.0 55.7 86.3 146.0
Dividend reinvestment............. 611,389 (.6) 13.0 12.4
Stock option and stock purchase
plans............................ 2,378,680 .7 3.7 38.9 43.3
---------------------------------------------------------------------------------------
747,056,939 947.7 1,457.6 5,066.4 (61.8) (242.0) 7,167.9
Comprehensive income
Net income........................... 772.1 772.1
Other comprehensive income
Foreign currency translation
adjustments...................... .7 .7
Change in net unrealized losses on
securities of $15.8 (net of $5.9
tax benefit)...................... (9.9) (9.9)
-------
Total comprehensive income..... 762.9
---------------------------------------------------------------------------------------
BALANCE JUNE 30, 2000................ 747,056,939 $947.7 $1,457.6 $5,838.5 $(71.0) $(242.0) $7,930.8
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Defined as total common shares less common stock held in treasury.
**Ending treasury shares were 11,137,222 at June 30, 2000; 1,038,456 at December
31, 1999; 19,775,013 at June 30, 1999; and 19,036,139 at December 31, 1998.
U.S. Bancorp 19
<PAGE> 21
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
----------------------
(Dollars in Millions) June 30 June 30
(Unaudited) 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities................ $ 1,150.7 $ 1,233.2
----------------------
INVESTING ACTIVITIES
Net cash (used) provided by:
Loans outstanding........................................ (3,845.9) (1,960.4)
Securities purchased under agreements to resell.......... (60.2) 79.6
Available-for-sale securities
Sales.................................................... 146.9 93.9
Maturities............................................... 344.2 868.3
Purchases................................................ (87.9) (830.1)
Proceeds from sales of other real estate.................... 13.1 18.2
Net sales (purchases) of bank premises and equipment........ 37.3 (45.0)
Sales of loans.............................................. 197.0 --
Purchases of loans.......................................... (592.9) (127.7)
Acquisitions, net of cash received.......................... -- (156.4)
Cash and cash equivalents of acquired subsidiaries.......... 24.0 3.6
Other - net................................................. (321.1) (323.1)
----------------------
Net cash used by investing activities.................... (4,145.5) (2,379.1)
----------------------
FINANCING ACTIVITIES
Net cash provided (used) by:
Deposits................................................. 562.3 (730.9)
Federal funds purchased and securities sold under
agreements to repurchase................................ (324.7) (634.4)
Short-term borrowings.................................... 103.0 463.7
Proceeds from long-term debt................................ 4,516.9 2,613.0
Principal payments on long-term debt........................ (1,567.9) (1,167.3)
Proceeds from dividend reinvestment, stock option and stock
purchase plans............................................. 55.7 65.2
Repurchase of common stock.................................. (348.7) (147.7)
Cash dividends.............................................. (322.8) (283.6)
----------------------
Net cash provided by financing activities................ 2,673.8 178.0
----------------------
Change in cash and cash equivalents...................... (321.0) (967.9)
Cash and cash equivalents at beginning of period............ 4,748.8 4,855.3
----------------------
Cash and cash equivalents at end of period............... $ 4,427.8 $ 3,887.4
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
20 U.S. Bancorp
<PAGE> 22
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 accounting
principles generally accepted in the United States. In the opinion of management
of the Company, all adjustments (consisting 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, 1999. 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," and SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an Amendment to FASB Statement No. 133," establish 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 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 earlier application permitted. The adoption
of SFAS 133 is not expected to have a material impact on the Company.
NOTE C
BUSINESS COMBINATIONS
SCRIPPS FINANCIAL CORPORATION On June 27, 2000, the Company announced an
agreement to acquire Scripps Financial Corporation. With $650 million in assets,
Scripps Financial Corporation operates nine branches in San Diego county,
California. The acquisition, which is pending regulatory and shareholder
approval, will be accounted for as a purchase and is expected to close in the
fourth quarter of 2000.
The following table summarizes acquisitions by the Company completed during the
past two years:
<TABLE>
<CAPTION>
GOODWILL &
INTANGIBLES ACCOUNTING
(Dollars in Millions) DATE ASSETS DEPOSITS RECORDED SHARES ISSUED METHOD
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oliver-Allen Corporation 4/7/00 280 -- 34 2,642,708 Purchase
Peninsula Bank 1/14/00 491 452 71 4,041,568 Purchase
Western Bancorp 11/15/99 2,508 2,105 773 27,768,465 Purchase
Voyager Fleet Systems, Inc. 9/13/99 43 -- 25 -- Purchase
Bank of Commerce 7/15/99 638 529 269 9,287,960 Purchase
Mellon Network Services' Electronic 6/30/99 -- -- 78 -- Purchase
Funds Transfer Processing Unit
Libra Investments, Inc. 1/4/99 33 -- 4 1,027,276 Purchase
</TABLE>
U.S. Bancorp 21
<PAGE> 23
NOTE D
AVAILABLE-FOR-SALE SECURITIES
The detail of the amortized cost and fair value of available-for-sale securities
consisted of the following:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------------------------------
Amortized Fair Amortized Fair
(Dollars in Millions) Cost Value Cost Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury............................................... $ 377 $ 371 $ 388 $ 381
U.S. agencies and other mortgage-backed..................... 2,749 2,663 2,971 2,906
Other U.S. agencies......................................... 175 180 195 196
State and political......................................... 1,097 1,097 1,132 1,135
Other....................................................... 248 215 288 253
--------------------------------------------------
Total...................................................... $4,646 $4,526 $4,974 $4,871
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE E
LOANS
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 2000 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial............................................... $30,333 $26,491
Real estate
Commercial mortgage................................... 10,041 9,784
Construction.......................................... 4,461 4,322
Lease financing.......................................... 2,770 2,372
--------------------------
Total commercial................................... 47,605 42,969
--------------------------
CONSUMER:
Home equity and second mortgage.......................... 9,027 8,681
Credit card.............................................. 4,190 4,313
Revolving credit......................................... 1,760 1,815
Installment.............................................. 1,139 1,245
Student.................................................. 601 563
--------------------------
Subtotal........................................... 16,717 16,617
Indirect automobile...................................... 459 638
Residential mortgage..................................... 2,603 2,661
--------------------------
Total consumer*.................................... 19,779 19,916
--------------------------
Total loans..................................... $67,384 $62,885
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
*Loans held for sale were $685 at June 30, 2000, and $608 at December 31, 1999.
This included residential mortgages held for sale and the student loan
portfolio that may be sold when the repayment periods begin.
At June 30, 2000, the Company had $322 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, 2000, the average recorded investment in impaired loans was
approximately $301 million. No interest income was recognized on impaired loans
during the quarter.
22 U.S. Bancorp
<PAGE> 24
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) 2000 1999
----------------------------------------------------------------------------------------
<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 February 27, 2000................ -- 250
Federal Home Loan Bank advances (5.54% to
8.25%) -- maturities to October 2026....................... 2,385 1,998
Medium-term notes (6.00% to 7.50%) -- maturities to December
2004....................................................... 3,577 2,310
Bank notes (5.25% to 7.16%) -- maturities to November
2005....................................................... 10,004 8,459
Euro medium-term notes -- due April 13, 2004................ 400 400
Other....................................................... 446 196
--------------------------
Total.................................................... $ 19,762 $ 16,563
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
NOTE G
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) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEDERAL
Current tax................................................. $ 170.5 $ 160.3 $ 337.9 $ 314.5
Deferred tax provision...................................... 11.3 20.3 18.4 38.2
--------------------------------------------
Federal income tax....................................... 181.8 180.6 356.3 352.7
STATE
Current tax................................................. 32.2 30.9 62.3 61.5
Deferred tax provision...................................... 2.3 3.9 4.5 7.6
--------------------------------------------
State income tax......................................... 34.5 34.8 66.8 69.1
--------------------------------------------
Total income tax provision............................... $ 216.3 $ 215.4 $ 423.1 $ 421.8
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------
June 30 June 30 June 30 June 30
(Dollars in Millions) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax at statutory rate (35%)................................. $ 213.3 $ 206.4 $ 418.3 $ 407.0
State income tax, at statutory rates, net of federal tax
benefit.................................................... 22.4 22.6 43.4 44.9
Tax effect of
Tax-exempt interest
Loans................................................. (1.9) (2.3) (3.8) (4.6)
Securities............................................ (6.0) (5.7) (12.0) (11.4)
Amortization of nondeductible goodwill................... 15.0 9.2 29.9 18.8
Tax credits and other items.............................. (26.5) (14.8) (52.7) (32.9)
--------------------------------------------
Applicable income taxes..................................... $ 216.3 $ 215.4 $ 423.1 $ 421.8
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's net deferred tax asset was $104.5 million at June 30, 2000,
and $158.4 million at December 31, 1999.
U.S. Bancorp 23
<PAGE> 25
NOTE H
MERGER AND INTEGRATION CHARGES
During 2000, the Company recorded $28.1 million of expense related to the
integration of the Company's various acquisitions. The Company determines
merger-related charges based on its integration strategy and formulated plans.
These plans are established as of the acquisition date and regularly evaluated
during the integration process. Severance charges include the cost of severance,
other benefits and outplacement costs associated with the termination of
employees primarily in branch offices and centralized corporate support and data
processing functions. The severance amounts are determined based on the
Company's existing severance pay programs and are paid out over a benefit period
of up to two years from the time of termination. The total number of employees
included in severance amounts were approximately 3,635 for U.S. Bancorp
("USBC"), 75 for Piper Jaffray Companies Inc. ("Piper"), 175 for Western Bancorp
("Western"), and 300 for other acquisitions. Premises and equipment writedowns
represent lease termination costs and impairment of assets for redundant office
space, equipment and branches that will be vacated and disposed of as part of
the integration plan. Systems conversions and other merger-related expenses are
recorded as incurred and are associated with the preparation and mailing of
numerous customer communications for the acquisitions and conversion of customer
accounts, printing and distribution of training materials and policy and
procedure manuals, outside consulting fees, and similar expenses relating to the
conversions and integration of acquired branches and operations. The following
table presents a summary of activity with respect to the Company's significant
acquisitions:
<TABLE>
<CAPTION>
Other**
(Dollars in Millions) USBC Piper Jaffray Western Acquisitions Total
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 15.9 $ 17.5 $ 20.8 $ 17.7 $ 71.9
Provision charged to operating expense* -- 4.6 7.9 15.6 28.1
Additions related to purchase acquisitions -- -- 2.3 15.9 18.2
Cash outlays (7.5) (6.8) (17.3) (27.2) (58.8)
Noncash writedowns and other -- (.1) (.2) (1.8) (2.1)
---------- ---------- ---------- ---------- ----------
Balance at June 30, 2000 $ 8.4 $ 15.2 $ 13.5 $ 20.2 $ 57.3
========== ========== ========== ========== ==========
</TABLE>
*Merger-related charges in operating expenses for other acquisitions for the six
months ending June 30, 2000, included $5.1 million for Mellon Network Services,
$3.1 million for Peninsula Bank of San Diego, $2.1 million related to a division
of John Nuveen Company and $5.3 million for other entities.
The components of the merger and integration accrual were as follows:
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 2000 1999
-------------------------------------------------------------------
<S> <C> <C>
Severance $ 26.7 $ 34.6
Other employee related costs 12.8 16.6
Lease terminations and facility costs 8.5 9.5
Contracts and system writeoffs 6.4 6.4
Other 2.9 4.8
---------- ----------
Total $ 57.3 $ 71.9
(Dollars in Millions)
------------------------------------------------------------------
USBC* $ 8.4 $ 15.9
Piper Jaffray 15.2 17.5
Western Bancorp 13.5 20.8
Peninsula Bank 5.3 --
Bank of Commerce 5.3 7.5
Zappco, Inc. 4.0 4.1
Northwest Bancshares, Inc. 3.0 3.5
Other acquisitions 2.6 2.6
---------- ----------
Total $ 57.3 $ 71.9
========== ==========
</TABLE>
* The USBC accrual represented severance related amounts only. With respect to
completed acquisitions, additional merger-related charges of approximately $34.1
million on a pre-tax basis are expected to be incurred in 2000.
NOTE I
SHAREHOLDERS' EQUITY
The Company issued 6,969,658 shares of common stock with an aggregate value of
$146.0 million in conjunction with acquisitions during the six months ended June
30, 2000.
On February 16, 2000, the Company announced a share repurchase program of up
to $2.5 billion of common stock over the period ending March 31, 2002. The new
share repurchase program replaced a program that was scheduled to expire on
March 31, 2000. The shares will be repurchased in the open market or through
negotiated transactions. Under these programs, the Company has repurchased 16.2
million shares for $348.7 million for the six months ended June 30, 2000.
NOTE J
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) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE:
Net income to common stockholders........................... $393.1 $374.3 $772.1 $741.1
--------------------------------------------------------
--------------------------------------------------------
Average shares outstanding.................................. 746,011,809 723,239,415 747,175,679 722,940,060
--------------------------------------------------------
--------------------------------------------------------
Earnings per share.......................................... $ .53 $ .52 $ 1.03 $ 1.03
--------------------------------------------------------
--------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Net income to common stockholders........................... $393.1 $374.3 $772.1 $741.1
--------------------------------------------------------
--------------------------------------------------------
Average shares outstanding.................................. 746,011,809 723,239,415 747,175,679 722,940,060
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.................. 2,883,021 6,024,282 2,706,218 5,892,992
--------------------------------------------------------
Dilutive common shares outstanding.......................... 748,894,830 729,263,697 749,881,897 728,833,052
--------------------------------------------------------
--------------------------------------------------------
Diluted earnings per share.................................. $ .52 $ .51 $ 1.03 $ 1.02
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
</TABLE>
24 U.S. Bancorp
<PAGE> 26
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 manage its interest rate and market risk and to meet
the needs of its customers. These instruments carry varying degrees of credit,
interest rate or liquidity risk. The contract or notional amounts of these
financial instruments were as follows:
<TABLE>
<CAPTION>
June 30 December 31
(Dollars in Millions) 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit
Commercial............................................... $26,886 $28,222
Corporate and purchasing cards........................... 19,778 18,503
Consumer credit cards.................................... 15,540 14,991
Other consumer........................................... 6,359 6,388
Letters of credit
Standby.................................................. 3,410 3,222
Commercial............................................... 480 317
Swap contracts
Interest rate hedges..................................... 7,376 7,743
Equity hedges............................................ 43 --
Intermediated............................................ 485 556
Options contracts
Hedge interest rate floors purchased..................... 500 500
Intermediated interest rate and foreign exchange caps and
floors purchased........................................ 394 453
Intermediated interest rate and foreign exchange caps and
floors written.......................................... 394 453
Futures and forward contracts............................... 15 34
Recourse on assets sold..................................... 94 117
Foreign currency commitments
Commitments to purchase.................................. 1,373 1,137
Commitments to sell...................................... 1,370 1,141
Commitments from securities lending......................... 790 717
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
The Company received fixed-rate interest and paid variable-rate interest on
substantially all swaps in its hedging portfolio as of June 30, 2000. Activity
for the six months ended June 30, 2000, 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, 1999............ $ 7,743
Additions................................................... 685
Terminations................................................ (674)
Amortization................................................ (358)
Maturities.................................................. (20)
-----
Notional amount outstanding at June 30, 2000................ $ 7,376
----------------------------------------------------------------------
----------------------------------------------------------------------
Weighted average interest rate paid......................... 6.68%
Weighted average interest rate received..................... 6.32
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
LIBOR-based interest rate floors totaling $500 million with an average
remaining maturity of 1.2 years and 1.7 years at June 30, 2000 and December 31,
1999, respectively, hedged floating rate commercial loans. The strike rate on
these LIBOR-based floors was 4.63 percent both at June 30, 2000, and December
31, 1999.
Net unamortized deferred losses relating to swaps, options and futures were
$27.9 million at June 30, 2000.
U.S. Bancorp 25
<PAGE> 27
NOTE L
SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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) 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Income taxes paid........................................... $ 264.3 $ 218.4
Interest paid............................................... 1,431.0 1,118.7
Net noncash transfers to foreclosed property................ 13.8 16.2
Change in unrealized gain (loss) on available-for-sale
securities, net of taxes of $5.9 in 2000 and $45.1 in
1999....................................................... (9.9) (73.6)
-----------------------
-----------------------
Cash acquisitions of businesses
Fair value of noncash assets acquired.................... $ -- $ 156.4
Liabilities assumed...................................... -- --
-----------------------
Net................................................... $ -- $ 156.4
-----------------------
-----------------------
Stock acquisitions of businesses
Fair value of noncash assets acquired.................... $ 810.7 $ 42.3
Net cash acquired........................................ 24.0 3.6
Liabilities assumed...................................... (688.7) (9.5)
-----------------------
Net value of common stock issued...................... $ 146.0 $ 36.4
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
26 U.S. Bancorp
<PAGE> 28
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
For the Three Months Ended June 30
2000 1999
---------------------------------------------------------------------------------------------------------------------------------
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> <C>
ASSETS
Available-for-sale securities
U.S. Treasury.......................... $ 378 $ 5.3 5.64% $ 434 $ 6.2 5.73% (12.9)%
U.S. agencies and other
mortgage-backed...................... 2,808 47.5 6.80 3,129 49.6 6.36 (10.3)
State and political.................... 1,098 20.6 7.55 1,146 21.5 7.52 (4.2)
U.S. agencies and other................ 464 5.4 4.68 417 3.8 3.66 11.3
--------------------- -------------------
Total available-for-sale
securities......................... 4,748 78.8 6.68 5,126 81.1 6.35 (7.4)
Unrealized (loss) gain on
available-for-sale securities...... (139) 67 **
------ -------
Net available-for-sale securities.... 4,609 5,193 (11.2)
Trading account securities.............. 755 13.7 7.30 582 9.8 6.75 29.7
Federal funds sold and resale
agreements............................. 659 8.8 5.37 525 5.7 4.35 25.5
Loans
Commercial
Commercial........................... 28,952 621.8 8.64 24,629 458.4 7.47 17.6
Real estate
Commercial mortgage................ 10,055 220.8 8.83 8,387 174.8 8.36 19.9
Construction....................... 4,429 107.5 9.76 3,595 77.9 8.69 23.2
Lease financing...................... 2,629 49.6 7.59 2,245 40.3 7.20 17.1
--------------------- -------------------
Total commercial................... 46,065 999.7 8.73 38,856 751.4 7.76 18.6
Consumer
Home equity and second mortgage...... 8,934 214.4 9.65 7,804 182.3 9.37 14.5
Credit card.......................... 4,184 144.0 13.84 3,988 127.6 12.83 4.9
Other................................ 4,200 111.0 10.63 6,873 159.1 9.28 (38.9)
--------------------- -------------------
Subtotal........................... 17,318 469.4 10.90 18,665 469.0 10.08 (7.2)
Residential mortgage................. 2,615 50.8 7.81 2,800 54.8 7.85 (6.6)
--------------------- -------------------
Total consumer..................... 19,933 520.2 10.50 21,465 523.8 9.79 (7.1)
--------------------- -------------------
Total loans........................ 65,998 1,519.9 9.26 60,321 1,275.2 8.48 9.4
Allowance for credit losses............ 1,047 993 5.4
------ -------
Net loans............................ 64,951 59,328 9.5
Other earning assets.................... 2,385 51.0 8.60 1,425 23.8 6.70 67.4
--------------------- -------------------
Total earning assets*.............. 74,545 1,672.2 9.02 67,979 1,395.6 8.23 9.7
Other assets............................ 10,726 9,019 18.9
------ -------
Total assets....................... $84,085 $76,072 10.5%
------ -------
------ -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits............ $14,254 $13,553 5.2%
Interest-bearing deposits
Interest checking...................... 6,478 36.3 2.25 6,098 26.6 1.75 6.2
Money market accounts.................. 12,421 130.3 4.22 12,132 100.9 3.34 2.4
Other savings accounts................. 1,970 8.6 1.76 2,211 9.5 1.72 (10.9)
Savings certificates................... 9,359 134.9 5.80 9,652 116.6 4.85 (3.0)
Certificates over $100,000............. 5,917 92.1 6.26 4,333 55.2 5.11 36.6
--------------------- -------------------
Total interest-bearing deposits.... 36,145 402.2 4.48 34,426 308.8 3.60 5.0
Short-term borrowings................... 3,515 60.7 6.95 4,257 55.7 5.25 (17.4)
Long-term debt.......................... 18,627 310.2 6.70 14,416 188.4 5.24 29.2
Company-obligated mandatorily redeemable
preferred. securities 950 19.3 8.17 950 19.4 8.19 --
--------------------- -------------------
Total interest-bearing
liabilities...................... 59,237 792.4 5.38 54,049 572.3 4.25 9.6
Other liabilities....................... 2,710 2,158 25.6
Common equity........................... 7,965 6,271 27.0
Accumulated other comprehensive
income................................. (81) 41 **
------ -------
Total liabilities and shareholders'
equity........................... $84,085 $76,072 10.5%
------ ------- ----------
------ ------- ----------
Net interest income..................... $ 879.8 $ 823.3
------- -------
------- -------
Gross interest margin................... 3.64% 3.98%
------ ------
------ ------
Gross interest margin without
taxable-equivalent increments.......... 3.55% 3.92%
------ ------
------ ------
Net interest margin..................... 4.75% 4.86%
------ ------
------ ------
Net interest margin without
taxable-equivalent increments.......... 4.65% 4.79%
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</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
(loss) gain on available-for-sale securities.
**Not meaningful.
U.S. Bancorp 27
<PAGE> 29
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
For the Six Months Ended June 30
2000 1999
---------------------------------------------------------------------------------------------------------------------------------
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> <C>
ASSETS
Available-for-sale securities
U.S. Treasury.......................... $ 381 $ 10.7 5.65% $ 458 $ 13.0 5.72% (16.8)%
U.S. agencies and other
mortgage-backed...................... 2,862 96.8 6.80 3,184 103.0 6.52 (10.1)
State and political.................... 1,107 41.6 7.56 1,161 43.7 7.59 (4.7)
U.S. agencies and other................ 477 10.7 4.51 375 7.9 4.25 27.2
------------------- -------------------
Total available-for-sale
securities......................... 4,827 159.8 6.66 5,178 167.6 6.53 (6.8)
Unrealized (loss) gain on
available-for-sale securities...... (140) 86 **
------ -------
Net available-for-sale securities.... 4,687 5,264 (11.0)
Trading account securities.............. 728 29.0 8.01 570 19.0 6.72 27.7
Federal funds sold and resale
agreements............................. 614 15.4 5.04 522 10.5 4.06 17.6
Loans
Commercial
Commercial........................... 28,094 1,184.0 8.48 24,212 898.5 7.48 16.0
Real estate
Commercial mortgage................ 10,034 435.4 8.73 8,311 348.3 8.45 20.7
Construction....................... 4,398 207.5 9.49 3,424 148.9 8.77 28.4
Lease financing...................... 2,478 90.6 7.35 2,237 80.1 7.22 10.8
------------------- -------------------
Total commercial................... 45,004 1,917.5 8.57 38,184 1,475.8 7.79 17.9
Consumer
Home equity and second mortgage...... 8,839 423.5 9.64 7,645 356.7 9.41 15.6
Credit card.......................... 4,139 286.1 13.90 4,001 250.9 12.65 3.4
Other................................ 4,246 220.5 10.44 6,963 320.8 9.29 (39.0)
------------------- -------------------
Subtotal........................... 17,224 930.1 10.86 18,609 928.4 10.06 (7.4)
Residential mortgage................. 2,625 101.5 7.78 2,912 112.5 7.79 (9.9)
------------------- -------------------
Total consumer..................... 19,849 1,031.6 10.45 21,521 1,040.9 9.75 (7.8)
------------------- -------------------
Total loans........................ 64,853 2,949.1 9.14 59,705 2,516.7 8.50 8.6
Allowance for credit losses............ 1,038 995 4.3
------ -------
Net loans............................ 63,815 58,710 8.7
Other earning assets.................... 2,322 99.4 8.61 1,387 44.5 6.47 67.4
------------------- -------------------
Total earning assets*.............. 73,344 3,252.7 8.92 67,362 2,758.3 8.26 8.9
Other assets............................ 10,761 9,140 17.7
------ -------
Total assets....................... $82,927 $75,593 9.7%
------ -------
------ -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits............ $14,174 $13,549 4.6%
Interest-bearing deposits
Interest checking...................... 6,344 68.6 2.17 6,062 52.1 1.73 4.7
Money market accounts.................. 12,504 255.1 4.10 12,156 206.7 3.43 2.9
Other savings accounts................. 2,033 18.0 1.78 2,246 19.5 1.75 (9.5)
Savings certificates................... 9,305 260.7 5.63 9,886 241.9 4.93 (5.9)
Certificates over $100,000............. 5,691 172.7 6.10 3,902 100.2 5.18 45.8
----------------- -------------------
Total interest-bearing deposits.... 35,877 775.1 4.34 34,252 620.4 3.65 4.7
Short-term borrowings................... 3,554 118.1 6.68 4,181 108.0 5.21 (15.0)
Long-term debt.......................... 17,855 578.8 6.52 14,193 374.5 5.32 25.8
Company-obligated mandatorily redeemable
preferred. securities 950 38.6 8.17 950 38.7 8.21 --
----------------- -------------------
Total interest-bearing
liabilities...................... 58,236 1,510.6 5.22 53,576 1,141.6 4.30 8.7
Other liabilities....................... 2,727 2,268 20.2
Common equity........................... 7,874 6,147 28.1
Accumulated other comprehensive
income................................. (84) 53 **
------ -------
Total liabilities and shareholders'
equity........................... $82,927 $75,593 9.7%
------ ------- ----------
------ ------- ----------
Net interest income..................... $1,742.1 $1,616.7
------- -------
------- -------
Gross interest margin................... 3.70% 3.96%
------ ------
------ ------
Gross interest margin without
taxable-equivalent increments.......... 3.60% 3.89%
------ ------
------ ------
Net interest margin..................... 4.78% 4.84%
------ ------
------ ------
Net interest margin without
taxable-equivalent increments.......... 4.68% 4.78%
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</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
(loss) gain on available-for-sale securities.
**Not meaningful.
28 U.S. Bancorp
<PAGE> 30
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Amended and Restated Employment Agreement with John F. Grundhofer.
12 Computation of Ratio of Earnings to Fixed Charges.
27 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, 2000, 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
Authorized Officer)
DATE: January 10, 2001
U.S. Bancorp 29
<PAGE> 31
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) 2000 2000
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<S> <C> <C>
EARNINGS
1. Net income.............................................. $ 393.1 $ 772.1
2. Applicable income taxes................................. 216.3 423.1
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3. Net income before taxes (1 + 2)......................... $ 609.4 $1,195.2
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4. Fixed charges:
a. Interest expense excluding interest on deposits...... $ 390.2 $ 735.5
b. Portion of rents representative of interest and
amortization of debt expense........................... 14.9 27.8
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c. Fixed charges excluding interest on deposits (4a +
4b).................................................... 405.1 763.3
d. Interest on deposits................................. 402.2 775.1
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e. Fixed charges including interest on deposits (4c +
4d).................................................... $ 807.3 $1,538.4
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5. Amortization of interest capitalized.................... $ -- $ --
6. Earnings excluding interest on deposits (3 + 4c + 5).... 1,014.5 1,958.5
7. Earnings including interest on deposits (3 + 4e + 5).... 1,416.7 2,733.6
8. Fixed charges excluding interest on deposits (4c)....... 405.1 763.3
9. Fixed charges including interest on deposits (4e)....... 807.3 1,538.4
RATIO OF EARNINGS TO FIXED CHARGES
10. Excluding interest on deposits (line 6/line 8).......... 2.50 2.57
11. Including interest on deposits (line 7/line 9).......... 1.75 1.78
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</TABLE>
30 U.S. Bancorp
<PAGE> 32
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[US BANCORP LOGO(R)] First Class
U.S. Bank Place U.S. Postage
601 Second Avenue South PAID
Minneapolis, Minnesota Permit No. 2440
55402-4302 Minneapolis, MN
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: www.equiserve.com
E-mail address: [email protected]
If you own shares in a book-entry or plan account maintained by First Chicago
Trust, you can access your account information on the Internet through First
Chicago Trust's Web site. To obtain a password that provides you secured access
to your account, please call First Chicago Trust toll free at (877) THE-WEB7
(outside North America call (201) 536-8071).
COMMON STOCK LISTING AND TRADING
U.S. Bancorp Common Stock is listed and traded on the New York Stock Exchange
under the ticker symbol USB.
DIVIDENDS
U.S. Bancorp currently pays quarterly dividends on its Common Stock on or about
the 15th of March, June, September and December, subject to prior Board
approval. Shareholders may choose to have dividends electronically deposited
directly into their bank accounts. For enrollment information, please call First
Chicago Trust at (800) 446-2617.
DIVIDEND REINVESTMENT PLAN
U.S. Bancorp shareholders can take advantage of a plan that provides automatic
reinvestment of dividends and/or optional cash purchases of additional shares of
U.S. Bancorp Common Stock up to $60,000 per calendar year. For more information,
please contact First Chicago Trust Company of New York, c/o EquiServe, P.O. Box
2598, Jersey City, New Jersey, 07303-2598, (800) 446-2617.
INVESTMENT COMMUNITY CONTACTS
John R. Danielson
Senior Vice President, Investor Relations
(612) 973-2261
[email protected]
Judith T. Murphy
Vice President, Investor Relations
(612) 973-2264
[email protected]
FINANCIAL INFORMATION
U.S. Bancorp news and financial results are available through the Company's Web
site, fax and mail.
Web site. For information about U.S. Bancorp, including news and financial
results, product information and service locations, access our home page on the
Internet at 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 new
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
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
(612) 973-2263
[email protected]
