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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950124-01-001114.txt : 20010307
<SEC-HEADER>0000950124-01-001114.hdr.sgml : 20010307
ACCESSION NUMBER: 0000950124-01-001114
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010301
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: US BANCORP \DE\
CENTRAL INDEX KEY: 0000036104
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 410255900
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-06880
FILM NUMBER: 1558326
BUSINESS ADDRESS:
STREET 1: FIRST BANK PL
STREET 2: 601 SECOND AVE S
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55402-4302
BUSINESS PHONE: 6129731111
MAIL ADDRESS:
STREET 1: 601 2ND AVENUE SOUTH-FIRST BANK PLACE
STREET 2: 601 2ND AVENUE SOUTH-FIRST BANK PLACE
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55402-4302
FORMER COMPANY:
FORMER CONFORMED NAME: FIRST BANK SYSTEM INC
DATE OF NAME CHANGE: 19920703
FORMER COMPANY:
FORMER CONFORMED NAME: FIRST BANK STOCK CORP
DATE OF NAME CHANGE: 19720317
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>c59511e10-k405.txt
<DESCRIPTION>ANNUAL REPORT ENDED 12/31/00
<TEXT>
<PAGE> 1
2000
ANNUAL REPORT ON FORM 10-K
[US BANCORP LOGO(R)]
<PAGE> 2
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements. Statements that are not
historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. Forward-looking statements involve
inherent risks and uncertainties, and important factors could cause actual
results to differ materially from those anticipated, including the following, in
addition to those contained elsewhere in this Form 10-K and in the Company's
other reports on file with the SEC: (i) the Company's investments in its
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.
<PAGE> 3
ANNUAL REPORT ON FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 2000
Commission File Number 1-6880
U.S. BANCORP
Incorporated in the State of Delaware
IRS Employer Identification #41-0255900
Address: 601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Telephone: (612) 973-1111
Securities registered pursuant to Section 12(b) of the Act (and listed on the
New York Stock Exchange): Common Stock, Par Value $.01. Prior to the merger of
U.S. Bancorp with Firstar Corporation, the par value of U.S. Bancorp common
stock was $1.25.
Securities registered pursuant to section 12(g) of the Act: None.
As of January 31, 2001, U.S. Bancorp had 752,745,506 shares of common stock
outstanding. The aggregate market value of common stock held by non-affiliates
as of January 31, 2001, was approximately $21,450,000,000.
U.S. Bancorp (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
The financial information included within this Form 10-K does not reflect
the merger of U.S. Bancorp with Firstar Corporation.
<TABLE>
<CAPTION>
Index Page
- -------------------------------------------------------------------
<S> <C> <C>
PART I
ITEM 1 Business
General..............................................66
Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rates and Interest
Differential.................................8-9, 62-63
Investment Portfolio.........................14, 37, 59
Loan Portfolio.................11-13, 15-20, 32, 38, 65
Summary of Loan Loss Experience.....9, 15-20, 32, 38-39
Deposits..............................14, 41, 62-63, 65
Return on Equity and Assets..........................64
Short-Term Borrowings............................14, 65
ITEM 2 Properties...........................................66
ITEM 3 Legal Proceedings..................................none
ITEM 4 Submission of Matters to a Vote of Security
Holders...........................................none
PART II
ITEM 5 Market for the Registrant's Common Equity and Related
Stockholder Matters.......................1, 23-24, 64
ITEM 6 Selected Financial Data...............................3
ITEM 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations...............2-26
ITEM 7A Quantitative and Qualitative Disclosures About Market
Risk..................................................
ITEM 8 Financial Statements and Supplementary Data......61, 67
ITEM 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...............none
PART III
ITEM 10 Directors and Executive Officers of the Registrant....*
ITEM 11 Executive Compensation................................*
ITEM 12 Security Ownership of Certain Beneficial Owners and
Management...........................................*
ITEM 13 Certain Relationships and Related Transactions........*
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K............................................67
</TABLE>
*U.S. Bancorp's definitive proxy statement for the 2001 Annual Meeting of
Shareholders is incorporated herein by reference, other than the sections
entitled "Report of the Compensation and Human Resources Committee on Executive
Compensation" and "Comparative Stock Performance."
U.S. Bancorp 1
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
SUMMARY OF 2000 RESULTS U.S. Bancorp (the "Company") reported net income of
$1.59 billion in 2000, or $2.13 per diluted share, compared with $1.51 billion,
or $2.06 per diluted share, in 1999. Return on average assets and return on
average common equity were 1.89 percent and 19.9 percent in 2000, compared with
returns of 1.96 percent and 23.0 percent in 1999. The year-over-year increase in
earnings per diluted share reflected a 12 percent growth in total revenue on a
taxable-equivalent basis, partially offset by higher growth rates in noninterest
expense and provision for credit losses. The reduction in the Company's return
on average common equity reflects the impact of recent acquisitions, which were
accounted for using purchase accounting. Net income reflects merger-related
charges of $39.6 million ($61.3 million on a pre-tax basis) in 2000 and $39.2
million ($62.4 million on a pre-tax basis) in 1999. The efficiency ratio (the
ratio of expenses to revenues) was 53.0 percent in 2000 compared with 51.6
percent in 1999.
The Company had operating earnings (net income excluding merger-related
charges) of $1.63 billion in 2000, up 6 percent from 1999 operating earnings of
$1.55 billion. On a diluted share basis, operating earnings were $2.18 in 2000,
compared with $2.11 in 1999. Operating earnings on a cash basis (calculated by
adding amortization of goodwill and other intangible assets to operating
earnings) were $2.50 per diluted share in 2000, compared with $2.33 per diluted
share in 1999. Return on average assets and return on average common equity,
excluding merger-related charges, were 1.93 percent and 20.4 percent in 2000,
compared with returns of 2.01 percent and 23.6 percent in 1999. Excluding
merger-related charges, the efficiency ratio was 52.1 percent in 2000, compared
with 50.5 percent in 1999. The banking efficiency ratio (the ratio of expenses
to revenues without the impact of investment banking and brokerage activity)
before merger-related charges, was 43.6 percent in 2000, compared with 43.2
percent in 1999. See page 10 for further discussion on merger-related charges.
The Company analyzes its performance on a net income basis determined in
accordance with accounting principles generally accepted in the United States,
as well as on an operating basis before merger-related charges referred to in
this analysis as "operating earnings." Operating earnings and related
discussions are presented as supplementary information in this analysis to
enhance the readers' understanding of, and highlight trends in, the Company's
core financial results excluding the nonrecurring effects of discrete business
acquisitions and restructuring activities. Operating earnings should not be
viewed as a substitute for net income and earnings per share as determined in
accordance with accounting principles generally accepted in the United States.
Merger-related charges 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 for 2000 reflect purchase
and divestiture transactions from or to the date of completion. On October 13,
2000, the Company acquired Scripps Financial Corporation of San Diego, which has
ten branches in San Diego county and total assets of $650 million. On September
28, 2000, the Company acquired Lyon Financial Services, Inc., a wholly owned
subsidiary of the privately held Schwan's Sales Enterprises Inc. in Marshall,
Minnesota. Lyon Financial specializes in small-ticket lease transactions and had
$1.3 billion in assets. On April 7, 2000, the Company acquired Oliver-Allen
Corporation, Inc., a privately held information technology leasing company with
total assets of $280 million. On January 14, 2000, the Company acquired
Peninsula Bank of San Diego, which had 11 branches in San Diego county and total
assets of $491 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 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 24, 1999, the Company completed the sale of 28
branches in Kansas and Iowa with aggregate deposits of $364 million. On
September 23, 1999, the Company sold $1.8 billion of indirect automobile loans.
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
2 U.S. Bancorp
<PAGE> 5
TABLE 1
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Share Data) 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income (taxable-equivalent basis).............. $3,540.8 $3,302.7 $3,111.9 $3,106.0 $3,034.7
Provision for credit losses................................. 670.0 531.0 379.0 460.3 271.2
--------------------------------------------------------
Net interest income after provision for credit losses.... 2,870.8 2,771.7 2,732.9 2,645.7 2,763.5
Available-for-sale securities gains (losses)................ 7.0 (1.3) 12.6 3.6 20.8
Merger-related gains........................................ -- -- -- -- 235.8
Other noninterest income.................................... 3,251.4 2,760.0 2,244.0 1,611.6 1,526.5
Merger-related charges...................................... 61.3 62.4 216.5 511.6 127.7
Other noninterest expense................................... 3,537.1 3,064.5 2,627.8 2,300.7 2,410.4
--------------------------------------------------------
Income before income taxes............................... 2,530.8 2,403.5 2,145.2 1,448.6 2,008.5
Taxable-equivalent adjustment............................... 69.5 42.0 51.3 57.9 64.1
Income taxes................................................ 869.3 855.0 766.5 552.2 725.7
--------------------------------------------------------
Net income............................................... $1,592.0 $1,506.5 $1,327.4 $ 838.5 $1,218.7
--------------------------------------------------------
FINANCIAL RATIOS
Return on average assets.................................... 1.89% 1.96% 1.85% 1.22% 1.81%
Return on average common equity............................. 19.9 23.0 21.9 14.6 21.1
Efficiency ratio............................................ 53.0 51.6 53.1 59.6 52.9
Net interest margin (taxable-equivalent basis).............. 4.73 4.83 4.87 5.04 5.04
PER COMMON SHARE
Earnings per share.......................................... $ 2.14 $ 2.07 $ 1.81 $ 1.13 $ 1.60
Diluted earnings per share.................................. 2.13 2.06 1.78 1.11 1.57
Dividends paid*............................................. .86 .78 .70 .62 .55
SELECTED FINANCIAL RATIOS BEFORE MERGER-RELATED ITEMS
Return on average assets.................................... 1.93% 2.01% 2.04% 1.84% 1.73%
Return on average common equity............................. 20.4 23.6 24.2 22.1 20.2
Efficiency ratio............................................ 52.1 50.5 49.1 48.8 52.8
Banking efficiency ratio**.................................. 43.6 43.2 44.2 47.8 52.2
AVERAGE BALANCE SHEET DATA
Loans....................................................... $ 66,439 $ 60,578 $ 55,979 $ 53,513 $ 50,855
Earning assets.............................................. 74,863 68,392 63,868 61,675 60,201
Assets...................................................... 84,438 76,947 71,791 68,771 67,402
Deposits.................................................... 50,681 48,099 47,327 47,336 47,252
Long-term debt.............................................. 18,571 15,077 11,481 7,527 4,908
Common equity............................................... 8,009 6,540 6,049 5,667 5,679
Total shareholders' equity.................................. 8,009 6,540 6,049 5,798 5,919
Average shares outstanding.................................. 745.1 727.5 733.9 733.6 749.2
Average diluted shares outstanding.......................... 747.9 733.0 744.2 742.9 766.2
YEAR-END BALANCE SHEET DATA
Loans....................................................... $ 69,091 $ 62,885 $ 59,122 $ 54,708 $ 52,355
Assets...................................................... 87,336 81,530 76,438 71,295 69,749
Deposits.................................................... 53,257 51,530 50,034 49,027 49,356
Long-term debt.............................................. 18,566 16,563 13,781 10,247 5,369
Common equity............................................... 8,640 7,638 5,970 5,890 5,613
Total shareholders' equity.................................. 8,640 7,638 5,970 5,890 5,763
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Dividends per share have not been restated for the Company's 1997 merger with
the former U.S. Bancorp ("USBC"). USBC paid common dividends of $139.1 million
through July of 1997 ($.62 per share) and $168.7 million in 1996 ($1.18 per
share).
**Without investment banking and brokerage activity.
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. On March 16, 1999, the Company
completed its acquisition of Reliance Trust Company's corporate trust business,
which operates offices in Georgia, Florida and Tennessee. On January 4, 1999,
the Company acquired Libra Investments, Inc., an investment banking business
that specializes in underwriting and trading high yield and mezzanine securities
for middle-market companies. These transactions were all accounted for as
purchase acquisitions.
On October 4, 2000, the Company announced that it had signed a definitive
agreement to be acquired by Firstar Corporation of Milwaukee, Wisconsin in a
tax-free exchange of shares. U.S. Bancorp shareholders received 1.265 shares of
the combined company stock for every share of U.S. Bancorp stock. The
transaction closed on February 27, 2001, and was accounted for as a pooling-
of-interests. Refer to Note C and Note D of the Notes to Consolidated Financial
Statements for additional information regarding acquisitions and divestitures.
U.S. Bancorp 3
<PAGE> 6
TABLE 2
LINE OF BUSINESS FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
Wholesale Banking Consumer Banking
----------------------------------------------------------------------------------------------
1999-2000 1999-2000
(Dollars in Millions) 2000 1999 1998 % Change 2000 1999 1998 % Change
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income
(taxable-equivalent basis).... $1,675.0 $1,456.1 $1,369.0 15.0% $1,364.1 $1,315.1 $1,253.9 3.7%
Provision for credit losses...... 126.9 105.4 93.8 20.4 210.1 207.5 136.5 1.3
Noninterest income............... 484.3 428.3 372.7 13.1 517.8 480.7 471.2 7.7
Noninterest expense.............. 861.0 754.9 689.9 14.1 881.0 837.2 851.0 5.2
Goodwill and other intangible
assets expense................ 93.9 68.7 59.3 36.7 60.3 45.3 39.9 33.1
-------------------------------- --------------------------------
Income before taxes.............. 1,077.5 955.4 898.7 12.8 730.5 705.8 697.7 3.5
Income taxes and
taxable-equivalent
adjustment.................... 398.7 353.5 341.5 12.8 270.3 261.2 265.1 3.5
-------------------------------- --------------------------------
Income before merger-related
charges....................... $ 678.8 $ 601.9 $ 557.2 12.8 $ 460.2 $ 444.6 $ 432.6 3.5
-------------------------------- --------------------------------
Net merger-related charges
(after-tax)*..................
Net income.......................
AVERAGE BALANCE SHEET DATA
Loans............................ $ 41,482 $ 35,432 $ 31,672 17.1 $ 11,150 $ 12,357 $ 11,176 (9.8)
Assets........................... 46,123 39,302 35,181 17.4 13,076 14,010 12,665 (6.7)
Deposits......................... 11,841 10,990 10,767 7.7 31,218 30,163 31,668 3.5
Common equity.................... 4,452 3,664 3,034 21.5 1,037 1,109 1,004 (6.5)
-------------------------------- --------------------------------
Return on average assets......... 1.47% 1.53% 1.58% 3.52% 3.17% 3.42%
Return on average common
equity........................ 15.2 16.4 18.4 44.4 40.1 43.1
Efficiency ratio................. 44.1 43.7 43.0 50.0 49.1 51.6
Efficiency ratio on a cash
basis**....................... 39.8 40.0 39.6 46.8 46.6 49.3
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Merger-related charges are not allocated to the business lines. All ratios are
calculated without the effect of merger-related charges.
**Calculated by excluding the amortization of goodwill and other intangibles.
***Not meaningful.
LINE OF BUSINESS FINANCIAL REVIEW
Operating segments are components of the Company about which financial
information is available and is evaluated regularly in deciding how to allocate
resources and assess performance. The Company's operating segments are Wholesale
Banking, Consumer Banking, Payment Systems, and Wealth Management and Capital
Markets. Units providing central support and other corporate activities are
reported as part of Corporate Support and allocated as appropriate.
BASIS OF FINANCIAL PRESENTATION Business line results are derived from the
Company's business unit profitability reporting system by specifically
attributing managed balance sheet assets, deposits and other liabilities and
their related interest income or expense. Funds transfer pricing methodologies
are utilized to allocate a cost for funds used or credit for funds provided to
all business line assets and liabilities using a matched funding concept. The
provision for credit losses recorded by each operating segment is primarily
based on the net charge-offs of each line of business. Based on management's
judgment, the provision may be adjusted to consider expected losses for certain
products that have a longer business cycle and for economic conditions. The
difference between the provision for credit losses determined in accordance with
accounting principles generally accepted in the United States recognized by the
Company on a consolidated basis and the provision recorded by the business lines
is recorded in Corporate Support. Noninterest income and expenses directly
related to each business line, including fees, service charges, salaries and
benefits, and other direct expenses are accounted for within each segment's
financial results in a manner similar to the consolidated financial statements.
Also, the business unit is allocated the tax-equivalent benefit of tax-exempt
products. Noninterest expenses incurred by centrally managed operations units
that directly support business lines' operations are charged to the business
lines based on standard unit costs and volume measurements. Income taxes are
assessed to each line of business at a standard tax rate with the residual tax
expense or benefit to arrive at the consolidated effective tax rate included in
Corporate Support. Merger-related charges are not identified by or allocated to
lines of business. Because the Company's decision-making process emphasizes the
creation of shareholder value, capital is allocated to each line of business
based on its inherent risks, including credit, operational and other business
risks. On- and off-balance sheet assets subject to credit risk are assigned risk
factors based upon expected loss experience and volatility taking into
consideration changes in business practices that may introduce more
4 U.S. Bancorp
<PAGE> 7
<TABLE>
<CAPTION>
Wealth Management and
Payment Systems Capital Markets
- -------------------------------------------------------------------------------------------------------------------------
1999-2000 1999-2000
2000 1999 1998 % Change 2000 1999 1998 % Change
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income
(taxable-equivalent basis)......... $365.4 $354.8 $285.3 3.0% $ 196.7 $ 165.4 $150.8 18.9%
Provision for credit losses........... 327.5 300.1 261.7 9.1 5.6 4.5 3.8 24.4
Noninterest income.................... 776.9 617.7 603.6 25.8 1,401.8 1,187.5 784.0 18.0
Noninterest expense................... 406.1 333.1 319.6 21.9 1,218.4 1,020.3 667.9 19.4
Goodwill and other intangible
assets expense..................... 56.0 35.2 31.3 59.1 25.3 16.4 13.2 54.3
------------------------ ----------------------------
Income before taxes................... 352.7 304.1 276.3 16.0 349.2 311.7 249.9 12.0
Income taxes and taxable-
equivalent adjustment.............. 130.5 112.5 105.0 16.0 129.2 115.3 95.0 12.1
------------------------ ----------------------------
Income before merger-related
charges............................ $222.2 $191.6 $171.3 16.0 $ 220.0 $ 196.4 $154.9 12.0
------------------------ ----------------------------
Net merger-related charges
(after-tax)*.......................
Net income............................
AVERAGE BALANCE SHEET DATA
Loans................................. $8,719 $7,968 $7,751 9.4 $ 3,008 $ 2,361 $1,996 27.4
Assets................................ 9,615 8,698 8,417 10.5 7,268 5,836 4,682 24.5
Deposits.............................. 120 100 87 20.0 3,815 3,304 2,551 15.5
Common equity......................... 951 742 719 28.2 1,295 1,162 951 11.4
------------------------ ----------------------------
Return on average assets.............. 2.31% 2.20% 2.04% 3.03% 3.37% 3.31%
Return on average common equity....... 23.4 25.8 23.8 17.0 16.9 16.3
Efficiency ratio...................... 40.5 37.9 39.5 77.8 76.6 72.9
Efficiency ratio on a cash basis**.... 35.6 34.3 36.0 76.2 75.4 71.4
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Corporate Support Consolidated Company
- ---------------------------------------------------------------------------------------------------------------
1999-2000
2000 1999 1998 2000 1999 1998 % Change
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income
(taxable-equivalent basis)......... $(60.4) $ 11.3 $ 52.9 $3,540.8 $3,302.7 $3,111.9 7.2%
Provision for credit losses........... (0.1) (86.5) (116.8) 670.0 531.0 379.0 26.2
Noninterest income.................... 77.6 44.5 25.1 3,258.4 2,758.7 2,256.6 18.1
Noninterest expense................... (64.9) (46.6) (44.3) 3,301.6 2,898.9 2,484.1 13.9
Goodwill and other intangible
assets expense..................... -- -- -- 235.5 165.6 143.7 42.2
------------------------- ------------------------------
Income before taxes................... 82.2 188.9 239.1 2,592.1 2,465.9 2,361.7 5.1
Income taxes and taxable-
equivalent adjustment.............. 31.8 77.7 91.3 960.5 920.2 897.9 4.4
------------------------- ------------------------------
Income before merger-related
charges............................ $ 50.4 $111.2 $ 147.8 1,631.6 1,545.7 1,463.8 5.6
-------------------------
Net merger-related charges
(after-tax)*....................... (39.6) (39.2) (136.4) 1.0
Net income............................ ------------------------------
$1,592.0 $1,506.5 $1,327.4 5.7
------------------------------
AVERAGE BALANCE SHEET DATA
Loans................................. $2,080 $2,460 $ 3,384 $ 66,439 $ 60,578 $ 55,979 9.7
Assets................................ 8,356 9,101 10,846 84,438 76,947 71,791 9.7
Deposits.............................. 3,687 3,542 2,254 50,681 48,099 47,327 5.4
Common equity......................... 274 (137) 341 8,009 6,540 6,049 22.5
------------------------- ------------------------------
Return on average assets.............. 1.93% 2.01% 2.04%
Return on average common equity....... 20.4 23.6 24.2
Efficiency ratio...................... 52.1 50.5 49.1
Efficiency ratio on a cash basis**.... 48.6 47.8 46.4
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
or less risk into the portfolio. Certain lines of business with fee-based
activities, such as Wealth Management and Capital Markets, have no significant
balance sheet components. For these business lines, capital is allocated taking
into consideration fiduciary and operational risk, capital levels of independent
organizations operating similar businesses, and regulatory minimum requirements.
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 and 1998
results are presented on a comparable basis.
WHOLESALE BANKING Wholesale Banking includes lending, treasury management,
corporate trust and other financial services to middle-market, large corporate
and public sector clients. Operating earnings increased $76.9 million (13
percent) to $678.8 million in 2000, compared with $601.9 million in 1999 and
$557.2 million in 1998. Return on average assets was 1.47 percent in 2000,
compared with 1.53 percent in 1999 and 1.58 percent in 1998, and return on
average common equity was 15.2 percent in 2000, compared with 16.4 and 18.4
percent in 1999 and 1998, respectively.
Net interest income increased $218.9 million (15 percent) in 2000 to
$1,675.0 million compared with $1,456.1 million in 1999 and $1,369.0 million in
1998. In 2000, the increase reflected core growth in average loan and deposit
balances, the margin benefit of deposits in a rising rate environment and the
impact of acquisitions. In 1999, the increase was also due to core growth in
average loan and deposit balances, but was partially offset by margin
compression in the commercial loan and deposit portfolios. During 2000, average
loan balances increased by 17 percent compared with 12 percent in 1999, while
average deposit balances increased 8 percent (2 percent in 1999), increasing net
interest income and loan fees by $140.1 million in 2000 and $125.7 million in
1999. The incremental funding benefit of deposits contributed $51.8 million in
2000.
The provision for credit losses increased $21.5 million (20 percent) to
$126.9 million in 2000 compared with $105.4 million in 1999 and $93.8 million in
1998. The increase primarily reflects growth in the loan portfolio.
Noninterest income increased $56.0 million (13 percent) in 2000 to $484.3
million, compared with $428.3 million in 1999 and $372.7 million in 1998. The
increase in 2000 reflects higher noninterest income from leasing acquisitions of
$21.6 million, revenue from sales of SBA loans of $13.8 million and other
commercial banking fees of $11.8 million. The $55.6 million increase in
noninterest income in 1999 as compared with 1998 primarily reflects core fee
growth and $36.5 million of revenue from the acquisition of Libra Investments,
Inc. in January 1999.
U.S. Bancorp 5
<PAGE> 8
Noninterest expense, excluding goodwill and other intangible assets expense,
increased $106.1 million (14 percent) in 2000 to $861.0 million, as compared
with $754.9 million in 1999 and $689.9 million in 1998. Goodwill and other
intangible assets expense increased $25.2 million (37 percent) in 2000 to $93.9
million, as compared with $68.7 million in 1999 and $59.3 million in 1998.
Acquisitions represent approximately $71.7 million of the $131.3 million
increase in total non-interest expense. The efficiency ratio for Wholesale
Banking, on a cash basis, was 39.8 percent in 2000 and 40.0 percent in 1999, as
compared with 39.6 percent in 1998.
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"). Operating
earnings were $460.2 million in 2000, compared with $444.6 million in 1999 and
$432.6 million in 1998. Return on average assets increased to 3.52 percent from
3.17 percent in 1999 and 3.42 percent in 1998. Return on average common equity
was 44.4 percent in 2000, compared with 40.1 percent in 1999 and 43.1 percent in
1998.
Net interest income increased $49.0 million (4 percent) in 2000 as compared
with 1999 primarily reflecting core growth in home equity loans, consumer
deposits, bank acquisitions and the increased value of deposits in a rising rate
environment partially offset by the expected reduction in the indirect
automobile portfolio.
The provision for credit losses increased a modest 1 percent in 2000 to
$210.1 million, compared with $207.5 million in 1999 and $136.5 million in 1998.
The slight increase in 2000 primarily reflects increasing charge-offs in the
home equity loan portfolio due to growth, partially offset by declining consumer
loan charge offs related to the divestiture of the indirect automobile portfolio
and improved fraud management.
Noninterest income increased $37.1 million (8 percent) in 2000 to $517.8
million, compared with $480.7 million in 1999 and $471.2 million in 1998,
primarily reflecting growth in deposit charges and debit card fees of $46.2
million in 2000, partially offset by lower revenues of $13.0 million from the
sale of student loans relative to 1999. Excluding acquisitions the growth rate
of noninterest income in 2000 as compared with 1999 was approximately 6 percent.
Noninterest expense, excluding goodwill and other intangible asset expense,
increased $43.8 million (5 percent) to $881.0 million in 2000, compared with
$837.2 million in 1999 and $851.0 million in 1998. Goodwill and other intangible
asset expense increased $15.0 million (33 percent) in 2000 to $60.3 million, as
compared with $45.3 million in 1999 and $39.9 million in 1998. The increase in
total noninterest expenses of $58.8 million in 2000 includes the impact of
acquisitions of approximately $37.2 million. Also during 2000, the Company
invested in a number of customer service quality initiatives and technology
enhancements designed to improve the earnings growth of the Consumer Banking
business line. As with any investment, successful achievement of the anticipated
deposit and loan growth and related contribution to earning is subject to a
number of uncertainties. The decrease in noninterest expense in 1999 as compared
with 1998 reflects cost benefits from integration of banking acquisitions. The
efficiency ratio, on a cash basis, remained relatively flat at 46.8 percent in
2000, compared with 46.6 percent in 1999 and declined from 49.3 percent in 1998.
PAYMENT SYSTEMS Payment Systems includes consumer and business credit cards,
corporate and purchasing card services, card-accessed secured and unsecured
lines of credit, ATM processing and merchant processing. Operating earnings
increased $30.6 million (16 percent) to $222.2 million in 2000, compared with
$191.6 million in 1999 and $171.3 million in 1998. Return on average assets was
2.31 percent in 2000, compared with 2.20 percent in 1999 and 2.04 percent in
1998. Return on average common equity was 23.4 percent in 2000, compared with
25.8 percent in 1999 and 23.8 percent in 1998.
Total revenue increased $169.8 million (17 percent) in 2000 and $83.6
million (9 percent) in 1999, reflecting strong growth in corporate and retail
card product fees and data processing-related revenue. Credit card fees
increased $97.9 million (17 percent) to $667.1 million in 2000 compared with
$569.3 million in 1999 and $553.8 million in 1998. Data processing revenues
increased $27.2 million in 2000, primarily attributed to the acquisition of
Mellon Network Services' electronic funds transfer processing unit in June 1999.
Growth in small business and retail credit card balances increased net interest
income approximately $28.1 million in 2000 while growth in credit card loan fees
added $14.0 million. In 1999, total revenue increased 9 percent from 1998
despite the loss of approximately one-half of the U.S. Government purchasing
card business in late 1998.
The provision for credit losses increased by $27.4 million (9 percent) in
2000 and by $38.4 million (15 percent) in 1999. The increases were primarily due
6 U.S. Bancorp
<PAGE> 9
to increased net charge-offs in credit-scored small business loans and credit
cards.
Noninterest expense, excluding goodwill and other intangible asset expense,
increased $73.0 million (22 percent) in 2000 and $13.5 million (4 percent) in
1999. The increase in 2000 was primarily due to continued growth in key
strategic co-brand partnerships, new products and technology, as well as
transaction volume. The lower growth rate of expenses in 1999 was impacted by
the loss of the U.S. Government purchasing card business. Goodwill and other
intangible asset expense increased $20.8 million (59 percent) in 2000 to $56.0
million from $35.2 million in 1999 and $31.3 million in 1998, primarily
reflecting strategic portfolio acquisitions during 2000 and the acquisition of
Mellon Network Services' electronic funds transfer processing unit in June 1999.
The efficiency ratio, on a cash basis, increased to 35.6 percent in 2000,
compared with 34.3 percent in 1999 and 36.0 percent in 1998.
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 $220.0 million in 2000, compared with $196.4 million in
1999 and $154.9 million in 1998. The return on average common equity improved
slightly to 17.0 percent in 2000, compared with 16.9 percent and 16.3 percent in
1999 and 1998, respectively.
During 2000, total revenue grew $245.6 million (18 percent) to $1.6 billion
compared with $1.4 billion in 1999 and $934.8 million in 1998, primarily due to
revenue growth in investment banking, trading account profits and commissions,
and trust fees and growth in loans and deposits in private banking. Investment
banking and brokerage revenues increased $197.7 million (25 percent) in 2000
compared with 1999 and $377.5 million (89 percent) in 1999 compared with 1998.
The growth in 1999 reflected the acquisition of Piper Jaffray Companies, Inc. in
May 1998. Trust and investment management fees increased $13.0 million (3
percent) in 2000 and $43.4 million (13 percent) in 1999. Slower growth in 2000
reflected the impact on assets under management of the volatility in the
financial markets experienced in the latter part of the year. During 2000,
average loan balances in private banking increased $567 million (25 percent)
compared with $309 million (16 percent) in 1999, while average deposit balances
increased $400 million (14 percent) in 2000 and $678 million (31 percent) in
1999.
Offsetting the positive impact of revenue growth, noninterest expense
(including goodwill and other intangible asset expense) increased $207.0 million
(20 percent) in 2000 and $355.6 million (52 percent) in 1999. The increase in
2000 was primarily due to the increase in investment banking and brokerage
activity, office expansion and other growth initiatives. The increase in 1999 is
attributed to the acquisition of Piper Jaffray Companies Inc. effective in May
1998.
CORPORATE SUPPORT Corporate Support includes the net effect of support units
after internal revenue and expense allocations, treasury management and other
corporate activities. Net interest income primarily relates to the Company's
investment and residential mortgage portfolios, and the net effect of transfer
pricing related to loan and deposit balances. The provision for credit losses
represents the residual aggregate of the credit provision allocated to the
reportable business units and the Company's recorded provision which is
determined in accordance with accounting principles generally accepted in the
United States. Refer to "Corporate Risk Profile" on pages 15 to 20 for further
discussion on the allowance for credit losses and changes in the provision for
credit losses. Noninterest income and noninterest expenses primarily reflect
certain business activities managed on a corporate basis and the elimination of
intersegment revenue and expense. Noninterest income included $55.0 million of
gains on the disposition of office buildings in Portland, Boise and Minneapolis
during 2000. Provisions for income taxes reflect the difference between the
income tax expense or benefit allocated to the other business units (37 percent
of pretax earnings in 2000, compared with 37 percent and 38 percent of pretax
earnings in 1999 and 1998, respectively) and the effective tax rate on a
consolidated basis. Refer to "Income Tax Expense" on page 10 for discussion of
the effective tax rate on a consolidated basis.
U.S. Bancorp 7
<PAGE> 10
TABLE 3
ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income, as reported............................ $3,471.3 $3,260.7 $3,060.6
Taxable-equivalent adjustment............................ 69.5 42.0 51.3
--------------------------------------
Net interest income (taxable-equivalent basis).............. $3,540.8 $3,302.7 $3,111.9
--------------------------------------
Average yields and weighted average rates
(taxable-equivalent basis)
Earning assets yield..................................... 9.05% 8.36% 8.55%
Rate paid on interest-bearing liabilities................ 5.45 4.45 4.70
--------------------------------------
Gross interest margin....................................... 3.60% 3.91% 3.85%
--------------------------------------
Net interest margin......................................... 4.73% 4.83% 4.87%
--------------------------------------
Net interest margin without taxable-equivalent increments... 4.64% 4.77% 4.79%
- ------------------------------------------------------------------------------------------------------
Average Balances:
Loans.................................................... $ 66,439 $ 60,578 $ 55,979
Earning assets........................................... 74,863 68,392 63,868
Deposits................................................. 50,681 48,099 47,327
- ------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF INCOME ANALYSIS
NET INTEREST INCOME Net interest income on a taxable-equivalent basis was $3.54
billion in 2000, compared with $3.30 billion in 1999 and $3.11 billion in 1998.
The 7 percent increase in 2000 as compared with 1999 was primarily due to growth
in earning assets. The net interest margin declined from 4.83 percent in 1999 to
4.73 percent in 2000, as lagging deposit growth relative to the growth in total
earning assets increased the Company's incremental cost of funding. Average
earning assets increased $6.5 billion (9 percent) in 2000, primarily due to
strong core loan growth and acquisitions partially offset by reductions in
indirect automobile loans, securities and residential mortgages. Average loans
were up $5.9 billion (10 percent) from 1999. Excluding indirect automobile and
residential mortgage loans, average loans in 2000 were higher by $7.9 billion
(14 percent) than 1999, reflecting growth in commercial loans, home equity and
second mortgages and acquisitions (see Consolidated Daily Average Balance Sheet
and Related Yields and Rates on pages 62 and 63).
TABLE 4
NET INTEREST INCOME -- CHANGES DUE TO RATE AND VOLUME
<TABLE>
<CAPTION>
2000 Compared with 1999 1999 Compared with 1998
-----------------------------------------------------------------------------------------
(Dollars in Millions) Volume Yield/Rate Total Volume Yield/Rate Total
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
Interest income
Loans...................... $526.9 $ 425.5 $952.4 $398.3 $(115.8) $282.5
Taxable securities......... (27.8) 7.6 (20.2) (39.7) (13.3) (53.0)
Nontaxable securities...... (3.8) (1.0) (4.8) (8.5) (2.8) (11.3)
Federal funds sold and
resale agreements....... 3.2 5.9 9.1 (6.3) (5.7) (12.0)
Other...................... 79.1 42.3 121.4 52.6 1.2 53.8
-----------------------------------------------------------------------------------------
Total................... 577.6 480.3 1,057.9 396.4 (136.4) 260.0
Interest expense
Savings deposits and time
deposits less than
$100,000................ 15.8 209.4 225.2 (28.8) (123.4) (152.2)
Time deposits over
$100,000.................. 102.8 48.7 151.5 68.2 (15.8) 52.4
Short-term borrowings...... (34.2) 53.7 19.5 8.6 (7.2) 1.4
Long-term debt............. 215.2 208.4 423.6 200.6 (39.9) 160.7
Mandatorily redeemable
preferred securities.... -- -- -- 6.9 -- 6.9
-----------------------------------------------------------------------------------------
Total................... 299.6 520.2 819.8 255.5 (186.3) 69.2
-----------------------------------------------------------------------------------------
Increase (decrease) in net
interest income......... $278.0 $ (39.9) $238.1 $140.9 $ 49.9 $190.8
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
This table shows the components of the change in net interest income by volume
and rate on a taxable-equivalent basis. The effect of changes in rates on volume
changes is allocated based on the percentage relationship of changes in volume
and changes in rate. This table does not take into account the level of
noninterest-bearing funding, nor does it fully reflect changes in the mix of
assets and liabilities.
8 U.S. Bancorp
<PAGE> 11
Average available-for-sale securities were $487 million (9 percent) lower in
2000 compared with 1999, reflecting both maturities and sales of securities.
Net interest income on a taxable-equivalent basis increased $190.8 million
(6 percent) from 1998 to 1999. Net interest margin remained relatively flat from
4.87 percent in 1998 to 4.83 percent in 1999. Average earning assets increased
$4.5 billion (7 percent) in 1999, primarily due to strong core loan growth and
consumer loan portfolio purchases in late 1998, partially offset by reductions
in securities, the sale of indirect automobile loans and continued runoff of
residential mortgages. Average loans were up $4.6 billion (8 percent) from 1998
to 1999, reflecting the impact of acquisitions and core loan growth offset by
declining residential mortgages and indirect automobile loan balances.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $670.0 million
in 2000, compared with $531.0 million in 1999 and $379.0 million in 1998. The
provision for credit losses is recorded to bring the allowance for credit losses
to a level deemed appropriate by management based on factors discussed in
"Analysis and Determination of Allowance for Credit Losses" on pages 19 and 20.
Refer to "Corporate Risk Profile" for further information on the factors
considered by the Company in assessing the credit quality of the loan portfolio
and establishing the allowance for credit losses.
NONINTEREST INCOME Noninterest income in 2000 was $3.26 billion, compared with
$2.76 billion in 1999 and $2.26 billion in 1998. The increase of $499.7 million
(18 percent) in 2000 as compared with 1999 was primarily driven by a $147.5
million (32 percent) increase in investment banking and trading activity, credit
card fee revenue growth of $120.1 million (20 percent), increased service
charges on deposit accounts of $34.7 million (8 percent), gains of $55.0 million
on the disposal of the Company's ownership in office buildings in Portland,
Boise and Minneapolis, the impact of acquisitions, revenues associated with
equity investments and other fees, partially offset by a $20.0 million
gain-on-sale of branches in Kansas and Iowa completed in 1999. Excluding the
impact of acquisitions and divestitures, noninterest income for 2000 would have
been approximately 15 percent higher than 1999.
Noninterest income in 1999 was $2.76 billion, compared with $2.26 billion in
1998, an increase of $502.1 million (22 percent). The increase was driven
primarily by the full year impact and continued growth in fee income generated
by U.S. Bancorp Piper Jaffray in its investment banking and brokerage
activities. Revenue growth related to investment banking and brokerage
activities for 1999 approximated $414.0 million. Trust and investment management
fees, acquisitions and service charges on deposit accounts also contributed to
the year-over-year growth in noninterest income. Credit card fee revenue
increased by 5 percent from 1998 despite the loss of approximately one-half of
the U.S. Government purchasing card business in late 1998.
NONINTEREST EXPENSE Noninterest expense in 2000 was $3.60 billion compared with
$3.13 billion in 1999 and $2.84 billion in 1998. Excluding merger-related
charges, noninterest expense on an operating basis was $3.54 billion in 2000,
compared with $3.06 billion in 1999 and $2.63 billion in 1998. The increase in
noninterest expenses on an operating basis, of $472.6 million (15 percent) is
primarily attributable to growth in expenses related to investment banking and
brokerage activity of $228.6 million, the impact of acquisitions and
divestitures of $175.9 million and the planned spending on service-quality
technology and other customer initiatives. The full year 2000 also included
approximately $33.0 million of Internet infrastructure-related expense. The
efficiency ratio
TABLE 5
NONINTEREST INCOME
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Credit card fee revenue..................................... $ 723.2 $ 603.1 $ 574.8
Trust and investment management fees........................ 473.9 459.7 413.0
Service charges on deposit accounts......................... 469.3 434.6 406.0
Investment products fees and commissions.................... 359.1 347.7 229.7
Investment banking revenue.................................. 356.3 245.4 100.4
Trading account profits and commissions..................... 252.5 215.9 118.1
Available-for-sale securities gains (losses)................ 7.0 (1.3) 12.6
Other....................................................... 617.1 453.6 402.0
--------------------------------------
Total noninterest income................................. $3,258.4 $2,758.7 $2,256.6
- ------------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 9
<PAGE> 12
TABLE 6
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Salaries.................................................... $1,677.0 $1,460.9 $1,210.9
Employee benefits........................................... 279.0 248.4 222.3
Net occupancy............................................... 236.9 204.6 187.4
Furniture and equipment..................................... 167.4 160.1 153.4
Professional services....................................... 90.7 74.1 71.3
Telephone................................................... 88.4 75.4 69.7
Advertising and marketing................................... 73.0 64.3 67.2
Other personnel costs....................................... 61.5 63.2 53.0
Goodwill and other intangible assets........................ 235.5 165.6 143.7
Other....................................................... 627.7 547.9 448.9
--------------------------------
Total operating noninterest expense...................... 3,537.1 3,064.5 2,627.8
Merger-related charges...................................... 61.3 62.4 216.5
--------------------------------
Total noninterest expense................................ $3,598.4 $3,126.9 $2,844.3
--------------------------------
Efficiency ratio*........................................... 53.0% 51.6% 53.1%
Efficiency ratio before merger-related charges.............. 52.1 50.5 49.1
Banking efficiency ratio before merger-related charges**.... 43.6 43.2 44.2
Average number of full-time equivalent employees............ 28,949 26,891 26,526
- ------------------------------------------------------------------------------------------------
</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.
before merger-related charges increased slightly to 52.1 percent in 2000
compared with 50.5 percent in 1999 due to investments in Internet technology and
other customer-related initiatives.
Without the effect of investment banking and brokerage activities,
noninterest expense, on an operating basis, increased by $244.0 million in 2000.
The banking efficiency ratio before merger-related charges was 43.6 percent for
2000, essentially unchanged from 43.2 percent in 1999 and slightly improved from
44.2 percent in 1998. The improved banking efficiency ratio in 1999 compared
with 1998 reflects the results of integrating acquired banking businesses.
The Company has incurred merger-related charges in each of the last three
years in conjunction with its acquisitions. Noninterest expense included merger-
related charges of $61.3 million in 2000, compared with $62.4 million in 1999
and $216.5 million in 1998. Merger-related charges in 2000, primarily system
conversions and integration costs associated with consolidating redundant
operations, related to the Company's recent acquisitions. Merger-related charges
in 1999 related to the integration of the Company's various acquisitions,
including finalizing the integration of the former U.S. Bancorp ("USBC") after
its 1997 merger with the Company, and ongoing activities related to Piper
Jaffray and nine other acquired entities. During 1998, the Company incurred
$203.8 million of merger-related charges to integrate USBC and $11.7 million
related to the acquisition of Piper Jaffray. In 1998, employee benefit
curtailment gains of $25.6 million were offset against merger-related charges.
Refer to Note D of the Notes to Consolidated Financial Statements for further
information on these acquired businesses and merger-related charges.
INCOME TAX EXPENSE The provision for income taxes was $869.3 million in 2000,
compared with $855.0 million in 1999 and $766.5 million in 1998. The Company's
effective tax rate was 35.3 percent in 2000, compared with 36.2 percent in 1999
and 36.6 percent in 1998. The effective rate declined in 2000 as compared with
1999 and 1998, primarily due to an increase in tax-exempt income, incremental
tax credits and a decrease in the effective rate for state income taxes
resulting from changes in business mix during the year.
At December 31, 2000, the Company's net deferred tax asset was $13.2
million, compared with $158.4 million at December 31, 1999. In determining that
realization of the deferred tax asset was more likely than not, the Company gave
consideration to a number of factors, including taxable income during carryback
periods, recent earnings history, expectations for earnings in the future and,
where applicable, the expiration dates associated with tax carrybacks and
carryforwards. For further information on income taxes, refer to Note P of the
Notes to Consolidated Financial Statements.
10 U.S. Bancorp
<PAGE> 13
TABLE 7
LOAN PORTFOLIO DISTRIBUTION
<TABLE>
<CAPTION>
2000 1999 1998 1997
------------------------------------------------------------------------------------
Percent Percent Percent Percent
At December 31 (Dollars in Millions) Amount of Total Amount of Total Amount of Total Amount of Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL
Commercial........................... $29,920 43.3% $26,491 42.1% $23,703 40.1% $21,393 39.1%
Real estate
Commercial mortgage............... 10,208 14.8 9,784 15.5 8,193 13.9 8,025 14.7
Construction...................... 4,443 6.4 4,322 6.9 3,069 5.2 2,359 4.3
Lease financing...................... 4,096 5.9 2,372 3.8 2,271 3.8 2,006 3.7
------------------------------------------------------------------------------------
Total commercial............... 48,667 70.4 42,969 68.3 37,236 63.0 33,783 61.8
CONSUMER
Home equity and second mortgage...... 9,438 13.7 8,681 13.8 7,409 12.5 5,815 10.6
Credit card.......................... 4,499 6.5 4,313 6.9 4,221 7.1 4,200 7.7
Revolving credit..................... 1,868 2.7 1,815 2.9 1,686 2.9 1,567 2.9
Installment.......................... 896 1.3 999 1.6 1,168 2.0 1,199 2.2
Automobile........................... 564 .8 884 1.4 3,413 5.8 3,227 5.9
Student *............................ 674 1.0 563 .9 829 1.4 686 1.2
------------------------------------------------------------------------------------
Subtotal.......................... 17,939 26.0 17,255 27.5 18,726 31.7 16,694 30.5
Residential mortgage................. 2,485 3.6 2,661 4.2 3,160 5.3 4,231 7.7
------------------------------------------------------------------------------------
Total consumer.................... 20,424 29.6 19,916 31.7 21,886 37.0 20,925 38.2
------------------------------------------------------------------------------------
Total loans.................... $69,091 100.0% $62,885 100.0% $59,122 100.0% $54,708 100.0%
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996
------------------
Percent
At December 31 (Dollars in Millions) Amount of Total
- ---------------------------------------- ------------------
<S> <C> <C>
COMMERCIAL
Commercial........................... $19,545 37.3%
Real estate
Commercial mortgage............... 8,022 15.3
Construction...................... 2,125 4.1
Lease financing...................... 1,848 3.5
------------------
Total commercial............... 31,540 60.2
CONSUMER
Home equity and second mortgage...... 5,271 10.1
Credit card.......................... 3,632 6.9
Revolving credit..................... 1,581 3.0
Installment.......................... 1,463 2.8
Automobile........................... 3,388 6.5
Student *............................ 580 1.1
------------------
Subtotal.......................... 15,915 30.4
Residential mortgage................. 4,900 9.4
------------------
Total consumer.................... 20,815 39.8
------------------
Total loans.................... $52,355 100.0%
- -----------------------------------------------------------------------
</TABLE>
*All or part of the student loan portfolio may be sold when the repayment period
begins.
BALANCE SHEET ANALYSIS
LOANS The Company's loan portfolio increased $6.2 billion to $69.1 billion at
December 31, 2000, from $62.9 billion at December 31, 1999. Average loans
increased 10 percent to $66.4 billion in 2000 compared with $60.6 billion in
1999. Excluding indirect automobile and residential mortgages, average loans for
2000 were $7.9 billion (14 percent) higher than 1999, reflecting core loan
growth of 10 percent and the impact of acquisitions. The Company's loan
portfolio inherently has credit risk which may ultimately result in loan
charge-offs. The Company manages this risk through stringent, centralized credit
policies and review procedures, as well as diversification along geographic and
customer lines. See "Corporate Risk Profile" for a more detailed discussion of
the management of credit risk including the allowance for credit losses.
COMMERCIAL Commercial loans, including lease financing, totaled $34.0 billion at
December 31, 2000, up $5.2 billion (18 percent) from year-end 1999. The increase
reflects core growth in commercial loans, the impact of bank acquisitions and
approximately $1.4 billion of leases related to the acquisition of Lyon
Financial Services, Inc. and Oliver-Allen Corporation during 2000. At December
31, 1999, commercial loans were $28.9 billion, up $2.9 billion (11 percent) from
year-end 1998.
The Company offers a broad array of traditional commercial lending products
and specialized products such as asset-based lending, lease financing,
agricultural credit, correspondent banking and energy lending. The Company
monitors and manages the portfolio diversification by industry, customer and
geography. The commercial portfolio reflects the Company's focus of serving
small business customers, middle-market and larger corporate businesses
throughout its 16 state banking region and national customers within certain
niche industry groups.
The Company also provides financing to enable customers to grow their
businesses through acquisitions of existing businesses, buyouts or other
recapitalizations. Such leveraged financings approximated $3.2 billion at
December 31, 2000, compared with $2.4 billion at December 31, 1999. During a
business cycle with slower economic growth, businesses with leveraged capital
structures may experience insufficient cashflows to service their debt. The
Company manages its exposure to leveraged financing loans by maintaining strong
underwriting standards, portfolio diversification and effectively managing the
relationship with the customer either directly or through a reputable financial
intermediary. At December 31, 2000, approximately 96 percent of such loans
outstanding were made to existing customers or were sponsored by financial
intermediaries with an established relationship with the Company. These
leveraged financings are diversified among industry groups with no significant
industry concentrations as a percentage of these loans. The Company's
underwriting standards require businesses to maintain acceptable capital levels
and have demonstrated sufficient cash flows to support debt service of the
loans.
U.S. Bancorp 11
<PAGE> 14
Table 8 provides a summary of the significant industry groups and geographic
locations of commercial loans outstanding at December 31, 2000, and 1999. This
diverse mix of industries and geographic locations is similar to 1998. Certain
industry segments, including agricultural, paper and forestry and mortgage
banking, continue to experience economic stress. At December 31, 2000, the
Company's agricultural portfolio is diversified with 36 percent of agricultural
loans to livestock producers, 27 percent to crop producers, 24 percent to food
processors and 13 percent to wholesalers of agricultural products. Volatility in
crop and livestock prices in 2000 continued to adversely affect this category of
loans. Food processors and wholesalers have been less negatively affected by
commodity pricing. The paper and forestry sector has been stressed due to excess
capacity and softening domestic demand. This industry represents 2.7 percent of
commercial loans at December 31, 2000. The mortgage banking sector represents
approximately 2.7 percent of commercial loans at December 31, 2000, compared
with 3.5 percent at December 31, 1999. Loans to mortgage banking customers are
primarily warehouse lines which are collateralized with the underlying
mortgages. The Company regularly monitors its collateral position to manage its
risk exposure.
COMMERCIAL REAL ESTATE The Company's portfolio of commercial real estate
mortgages and construction loans grew to $14.7 billion at December 31, 2000,
compared with $14.1 billion at December 31, 1999. Commercial mortgages
outstanding increased to $10.2 billion at December 31, 2000, compared with $9.8
billion at December 31, 1999. Real estate construction loans at December 31,
2000, totaled $4.5 billion compared with $4.3 billion at year-end 1999. Table 9
provides a summary of real estate exposures by property type and geographic
location. The Company maintains the real estate construction designation until
the project is producing sufficient cash flow to service traditional mortgage
financing, at which time, if retained, the loan is transferred to the commercial
mortgage portfolio. Approximately $242.6 million of construction loans were
transferred to the commercial mortgage portfolio in 2000.
At year-end 2000, real estate secured $175 million of tax-exempt industrial
development loans and $1.1 billion of standby letters of credit. At year-end
1999, these exposures totaled $161 million and $920 million, respectively. The
Company's commercial real estate mortgages and construction loans had combined
unfunded commitments of $3.27 billion at December 31, 2000, and $3.61 billion at
December 31, 1999.
The Company also finances the operations of real estate developers and other
entities with operations related to real estate. These loans are not secured
directly by real estate and are subject to terms and conditions similar to
commercial loans. These loans are included in the commercial loan category and
totaled $1.90 billion at December 31, 2000, and $1.85 billion at December 31,
1999.
TABLE 8
COMMERCIAL LOAN EXPOSURE BY INDUSTRY GROUP AND GEOGRAPHY
<TABLE>
<CAPTION>
Percentage of Total
at December 31
---------------------
INDUSTRY TYPE 2000 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Consumer cyclical products and services..................... 18.0% 17.5%
Capital goods............................................... 11.9 12.6
Financials.................................................. 10.2 10.0
Consumer staples............................................ 9.7 10.1
Agricultural................................................ 8.6 8.8
Transportation.............................................. 4.5 4.8
Paper and forest products, mining and basic materials....... 4.4 4.8
Mortgage banking............................................ 2.7 3.5
Other....................................................... 30.0 27.9
---------------------
100.0% 100.0%
- ---------------------------------------------------------------------------------------
GEOGRAPHY
- ---------------------------------------------------------------------------------------
Minnesota................................................... 22.1% 23.2%
Washington.................................................. 14.2 16.2
California.................................................. 9.9 8.6
Oregon...................................................... 8.2 8.7
Other states within banking region.......................... 27.5 28.1
---------------------
Total banking region..................................... 81.9 84.8
Other regions............................................... 18.1 15.2
---------------------
100.0% 100.0%
- ---------------------------------------------------------------------------------------
</TABLE>
12 U.S. Bancorp
<PAGE> 15
TABLE 9
COMMERCIAL REAL ESTATE EXPOSURE BY PROPERTY TYPE AND GEOGRAPHY
<TABLE>
<CAPTION>
Percentage of Total
at December 31
-------------------
PROPERTY TYPE 2000 1999
<S> <C> <C>
- --------------------------------------------------------------------------------------
Business owner occupied..................................... 23.7% 25.0%
Multi-family................................................ 14.1 13.2
Commercial property -- office............................... 12.2 12.3
Commercial property -- retail............................... 10.2 10.2
Homebuilders................................................ 8.2 9.3
Commercial property -- industrial........................... 8.2 6.6
Hotel/motel................................................. 8.1 7.7
Other....................................................... 15.3 15.7
-------------------
100.0% 100.0%
- --------------------------------------------------------------------------------------
GEOGRAPHY
- --------------------------------------------------------------------------------------
California.................................................. 23.7% 22.1%
Washington.................................................. 21.4 21.2
Oregon...................................................... 11.9 12.6
Minnesota................................................... 7.8 9.1
Other states within banking region.......................... 29.0 29.6
-------------------
Total banking region..................................... 93.8 94.6
Other regions............................................... 6.2 5.4
-------------------
100.0% 100.0%
- --------------------------------------------------------------------------------------
</TABLE>
CONSUMER Total consumer loan outstandings increased $508 million to $20.4
billion at December 31, 2000, from $19.9 billion at December 31, 1999. Excluding
indirect automobile loans and residential mortgage loans, consumer loans
increased $993 million (6 percent). This increase reflected growth in home
equity and second mortgage loans of $757 million (9 percent), credit card loans
of $186 million (4 percent), revolving credit loans of $53 million (3 percent),
and student loans of $111 million (20 percent) from December 31, 1999, offset by
a decrease in installment loans from December 31, 1999. The decline in
residential mortgages and indirect automobile loans reflects the Company's
objective of exiting these businesses due to their lower returns.
Of the total consumer loan balances outstanding, approximately 84 percent
are to customers located in the Company's banking region.
U.S. Bancorp 13
<PAGE> 16
TABLE 10
AVAILABLE-FOR-SALE SECURITIES PORTFOLIO AVERAGE MATURITY
<TABLE>
<CAPTION>
At December 31, 2000 Average Maturity
- ---------------------------------------------------------------------------------
<S> <C>
U.S. Treasury............................................... 2 years, 1 month
Mortgage-backed............................................. 6 years, 3 months
Other U.S. agencies......................................... 3 years, 6 months
State and political......................................... 5 years, 0 months
Other*...................................................... 8 years, 0 months
Total.................................................... 5 years, 6 months
- ---------------------------------------------------------------------------------
</TABLE>
* Excludes equity securities that have no stated maturity.
The average maturity shown above is contractual maturity for all securities
except for mortgage-backed securities. The average maturity for
mortgage-backed securities includes expected prepayments reflecting current
market conditions.
SECURITIES At December 31, 2000, available-for-sale securities totaled $4.3
billion, compared with $4.9 billion at December 31, 1999, primarily reflecting
maturities and prepayments of securities. The relative mix of the type of
available-for-sale securities did not change significantly from the prior year.
The primary objectives of the Company's investment portfolio are to meet
business line collateral needs and reduce overall interest rate risk.
DEPOSITS Total deposits were $53.3 billion at December 31, 2000, up $1.7 billion
(3 percent) from year-end 1999. Noninterest-bearing deposits were $15.7 billion
at December 31, 2000, compared with $16.1 billion at December 31, 1999.
Interest-bearing deposits totaled $37.6 billion at December 31, 2000, compared
with $35.5 billion at December 31, 1999. The increase in interest-bearing
deposit balances is primarily due to acquisitions.
BORROWINGS The Company utilized both short-term and long-term borrowings to fund
core loan growth in excess of deposit growth. Short-term borrowings, which
include federal funds purchased, securities sold under agreements to repurchase
and other short-term borrowings, were $2.8 billion at December 31, 2000, up from
$2.3 billion at year-end 1999. The increase was primarily due to higher federal
funds purchased balances partially offset by a decline in securities sold under
agreements to repurchase.
Long-term debt was $18.6 billion at December 31, 2000, up from $16.6 billion
at December 31, 1999. During 2000, the Company issued $5.2 billion of debt with
an average original maturity of 2.2 years under its medium term and bank note
programs. The Company also borrowed $400 million of variable-rate advances from
the Federal Home Loan Bank. These issuances were partially offset by maturities
of $3.3 billion of medium-term and bank notes, $238 million of Federal Home Loan
Bank advances and $250 million of putable asset trust securities.
Due to lagging deposit growth, the Company continues to utilize long-term
debt to fund core asset growth.
TABLE 11
AVAILABLE-FOR-SALE SECURITIES PORTFOLIO AMORTIZED COST, FAIR VALUE AND
YIELD BY MATURITY DATE
<TABLE>
<CAPTION>
Maturing: Within 1 Year 1-5 Years 5-10 Years
- ------------------------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 2000 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury.................... $ 65 $ 65 5.48% $ 291 $ 294 5.68% $ 2 $ 2 6.41%
Mortgage-backed*................. 357 357 6.84 1,013 1,013 6.78 596 594 6.78
Other U.S. agencies.............. 35 36 7.55 77 79 7.56 30 30 7.61
State and political**............ 151 152 7.34 405 412 7.39 384 393 7.41
Other............................ 2 2 8.92 7 7 3.89 5 5 3.42
-------------------------------------------------------------------------------
Total.......................... $610 $612 6.87% $1,793 $1,805 6.76% $1,017 $1,024 7.03%
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Maturing: Over 10 Years Total
- --------------------------------- ----------------------------------------------------
Amor- Amor-
At December 31, 2000 tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield
- --------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury.................... $ -- $ -- --% $ 358 $ 361 5.65%
Mortgage-backed*................. 529 529 6.89 2,495 2,493 6.81
Other U.S. agencies.............. 7 7 7.62 149 152 7.57
State and political**............ 80 82 7.83 1,020 1,039 7.43
Other............................ 222 223 11.13*** 236 237 7.15***
----------------------------------------------------
Total.......................... $838 $841 7.08%*** $4,258 $4,282 6.89%***
- ---------------------------------------------------------------------------------------
</TABLE>
*Variable rate mortgage-backed securities represented 6% of the balance of
mortgage-backed securities.
**Yields on state and political obligations that are not subject to federal
income tax have been adjusted to taxable-equivalent using a 35% tax rate.
***Average yield calculations exclude equity securities that have no stated
yield.
14 U.S. Bancorp
<PAGE> 17
CORPORATE RISK PROFILE
OVERALL RISK PROFILE Managing risk is an essential part of successfully
operating a financial services company. The most prominent risk exposures are
credit quality, interest rate sensitivity, market and liquidity. Credit quality
risk is the risk of not collecting interest and/or the principal balance of a
loan or investment when it is due. Interest rate risk is the potential reduction
of net interest income as a result of changes in interest rates. Rate movements
can affect the repricing of assets and liabilities differently, as well as their
market value. Market risk arises from fluctuations in interest rates, foreign
exchange rates and equity prices that may result in changes in the values of
financial instruments, such as trading account securities that are accounted for
on a mark-to-market basis. Liquidity risk is the possible inability to fund
obligations to depositors, investors and borrowers.
CREDIT RISK 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 intended to measure the credit quality of individual commercial
loans. 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 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 has experienced slower growth in 2000. Corporate
earnings growth rates have slowed and credit quality indicators among certain
industry sectors have deteriorated slightly. Approximately 55 percent of the
Company's loan portfolio consists of credit to businesses and consumers in
Minnesota, Oregon, Washington and California. Although the financial markets
have experienced more volatility in 2000, most economic indicators in the
Company's operating regions are similar to or slightly favorable with national
trends. According to federal and state government agencies, unemployment rates
in Minnesota, Oregon, Washington and California were 3.1 percent, 4.2 percent,
4.9 percent and 4.6 percent, respectively, for the month of December 2000,
compared with the national unemployment rate of 4.0 percent. At September 30,
2000, the national residential foreclosure rate was .84 percent, compared with
.35 percent in Minnesota, .55 percent in Oregon, .61 percent in Washington and
.62 percent in California.
TABLE 12
NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
COMMERCIAL
Commercial............................................... .74% .50% .33% .68% .15%
Real estate:
Commercial mortgage................................... (.01) .01 (.20) (.20) (.11)
Construction.......................................... .14 .01 .11 .16 .08
Lease financing.......................................... .46 .26 .20 .28 .10
------------------------------------
Total commercial...................................... .50 .34 .18 .41 .08
CONSUMER
Credit card.............................................. 4.29 4.23 4.36 4.11 3.88
Other.................................................... 1.93 1.84 1.45 1.28 .85
------------------------------------
Subtotal.............................................. 2.50 2.37 2.14 1.93 1.54
Residential mortgage..................................... .15 .10 .17 .12 .08
------------------------------------
Total consumer........................................ 2.19 2.07 1.79 1.53 1.16
------------------------------------
Total.................................................. 1.01% .94% .78% .84% .51%
- ----------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 15
<PAGE> 18
The Company also engages in nonlending activities that may give rise to
credit risk, including interest rate swap contracts for balance sheet hedging
purposes, foreign exchange transactions and interest rate swap contracts for
customers, and the processing of credit card transactions for merchants. These
activities are subject to the same credit review, analysis and approval
processes as those applied to commercial loans. For additional information on
interest rate swaps, see "Interest Rate Risk Management."
ANALYSIS OF NET LOAN CHARGE-OFFS Net loan charge-offs increased $102.2 million
to $669.9 million in 2000, compared with $567.7 million in 1999 and $434.2
million in 1998. The ratio of total net charge-offs to average loans was 1.01
percent in 2000, compared with .94 percent in 1999 and .78 percent in 1998.
Commercial loan net charge-offs for 2000 were $233.0 million, compared with
$133.5 million in 1999 and $65.2 million in 1998. The increase in commercial
loan net charge-offs in 2000 included higher losses on a growing portfolio of
small business products, growth in the corporate card portfolio, credit losses
related to the acquired leasing businesses and lower levels of recoveries
compared with 1999.
Consumer loan net charge-offs in 2000 were $436.9 million, compared with
$434.2 million in 1999 and $369.0 million in 1998. The ratio of consumer net
charge-offs to average loans in 2000 was 2.19 percent, up from 2.07 percent in
1999 and 1.79 percent in 1998. The $2.7 million increase in consumer loan net
charge-offs in 2000 reflects expected losses associated with consumer portfolio
purchases during late 1998, offset by lower losses related to the indirect
automobile portfolio.
The increase in consumer loan net charge-offs of $168.8 million in 1999,
relative to 1998, reflects higher overdraft fraud losses in addition to expected
losses associated with consumer portfolio purchases. During 1999, the Company
modified its charge-off policy to conform with regulatory guidelines for
consumer loans. Without the change in policy, total consumer net charge-offs as
a percent of average loans outstanding would have been 2.09 percent.
ANALYSIS OF NONPERFORMING ASSETS Nonperforming assets include nonaccrual loans,
restructured loans, other real estate and other nonperforming assets owned by
the Company. Interest payments (currently received on approximately 30 percent
of the Company's nonperforming loans) are typically applied against the
principal balance and not recorded as income.
TABLE 13
NONPERFORMING ASSETS*
<TABLE>
<CAPTION>
At December 31
----------------------------------------------
(Dollars in Millions) 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
COMMERCIAL
Commercial............................................... $232.8 $142.5 $154.4 $170.4 $138.4
Real estate:
Commercial mortgage................................... 61.3 78.9 35.5 45.4 44.4
Construction.......................................... 27.3 25.3 17.2 14.9 18.8
Lease financing.......................................... 38.1 18.7 11.3 8.7 5.3
----------------------------------------------
Total commercial...................................... 359.5 265.4 218.4 239.4 206.9
CONSUMER
Residential mortgage..................................... 30.3 36.0 46.6 52.1 57.6
Other.................................................... 7.5 8.6 13.9 5.6 4.8
----------------------------------------------
Total consumer........................................ 37.8 44.6 60.5 57.7 62.4
----------------------------------------------
Total nonperforming loans....................... 397.3 310.0 278.9 297.1 269.3
OTHER REAL ESTATE........................................... 40.1 20.7 14.3 30.1 43.2
OTHER NONPERFORMING ASSETS.................................. 17.5 16.8 11.1 12.3 7.5
----------------------------------------------
Total nonperforming assets...................... $454.9 $347.5 $304.3 $339.5 $320.0
----------------------------------------------
Accruing loans 90 days or more past due**................... $187.1 $125.8 $106.8 $ 93.8 $ 90.6
Nonperforming loans to total loans.......................... .58% .49% .47% .54% .51%
Nonperforming assets to total loans plus other real
estate..................................................... .66 .55 .51 .62 .61
Net interest lost on nonperforming loans.................... $ 30.9 $ 19.7 $ 14.9 $ 17.1 $ 24.8
- --------------------------------------------------------------------------------------------------------------
</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.
16 U.S. Bancorp
<PAGE> 19
TABLE 14
DELINQUENT LOAN RATIOS*
<TABLE>
<CAPTION>
At December 31
------------------------------------
90 days or more past due 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
COMMERCIAL
Commercial............................................... .88% .57% .66% .81% .74%
Real estate:
Commercial mortgage................................... .62 .84 .44 .57 .55
Construction.......................................... .61 .59 .56 .67 .91
Lease financing.......................................... .97 .80 .55 .44 .33
------------------------------------
Total commercial...................................... .81 .65 .60 .72 .68
CONSUMER
Credit card.............................................. 1.24 .96 .74 .69 .88
Other.................................................... .75 .57 .51 .41 .34
------------------------------------
Subtotal.............................................. .87 .67 .56 .48 .46
Residential mortgage..................................... 1.44 1.57 1.86 1.58 1.48
------------------------------------
Total consumer........................................ .94 .79 .75 .70 .70
------------------------------------
Total.............................................. .85% .69% .65% .71% .69%
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Ratios include nonperforming loans and are expressed as a percentage of ending
loan balances.
At December 31, 2000, nonperforming assets totaled $454.9 million, compared
with $347.5 million at year-end 1999 and $304.3 million at year-end 1998. The
ratio of nonperforming assets to loans plus other real estate was .66 percent at
December 31, 2000, compared with .55 percent at year-end 1999 and .51 percent at
year-end 1998.
In 2000, nonperforming commercial loans increased $94.1 million, reflecting
stress in agricultural and paper and forestry portfolios. Nonperforming consumer
loans declined approximately $6.8 million, primarily related to lower levels of
nonperforming residential mortgage loans at year-end. Other real estate
increased $19.4 million, which included an agricultural-related credit that was
transferred to other real estate in the fourth quarter of 2000.
Accruing loans 90 days or more past due totaled $187.1 million, compared
with $125.8 million at December 31, 1999, and $106.8 million at December 31,
1998. The increase reflected the impact of an acquired small-ticket leasing
portfolio, higher consumer delinquencies and the economic business cycle in the
commercial portfolio. 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. Consumer loans 30 days or more past due were 2.84
percent of the total consumer portfolio at December 31, 2000, compared with 2.65
percent and 2.39 percent of the total consumer portfolio at December 31, 1999,
and 1998, respectively. Consumer loans 90 days or more past due (including non-
performing loans) totaled .94 percent of the total consumer loan portfolio at
December 31, 2000, compared with .79 percent of the total consumer loan
portfolio at December 31, 1999, and .75 percent at December 31, 1998.
U.S. Bancorp 17
<PAGE> 20
TABLE 15
SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................................ $ 995.4 $1,000.9 $1,008.7 $ 992.5 $908.0
CHARGE-OFFS
Commercial
Commercial............................................ 245.8 184.6 129.7 178.1 84.1
Real estate:
Commercial mortgage................................ 5.6 10.4 7.5 14.3 17.0
Construction....................................... 8.3 1.1 4.6 4.3 2.3
Lease financing....................................... 18.5 8.0 4.5 6.3 2.3
------------------------------------------------------
Total commercial................................... 278.2 204.1 146.3 203.0 105.7
Consumer
Credit card........................................... 193.2 188.5 196.8 172.4 150.4
Other................................................. 309.8 331.5 241.7 194.3 134.3
------------------------------------------------------
Subtotal........................................... 503.0 520.0 438.5 366.7 284.7
Residential mortgage.................................. 4.8 3.6 7.3 6.7 6.8
------------------------------------------------------
Total consumer..................................... 507.8 523.6 445.8 373.4 291.5
------------------------------------------------------
Total........................................... 786.0 727.7 592.1 576.4 397.2
RECOVERIES
Commercial
Commercial............................................ 30.9 58.2 55.1 37.7 55.4
Real estate:
Commercial mortgage................................ 6.9 9.6 23.8 30.5 25.7
Construction....................................... 2.1 .6 1.7 .8 1.0
Lease financing....................................... 5.3 2.2 .5 1.1 .6
------------------------------------------------------
Total commercial................................... 45.2 70.6 81.1 70.1 82.7
Consumer
Credit card........................................... 14.0 18.2 21.4 20.2 16.6
Other................................................. 55.9 70.3 54.4 35.1 34.0
------------------------------------------------------
Subtotal........................................... 69.9 88.5 75.8 55.3 50.6
Residential mortgage.................................. 1.0 .9 1.0 1.3 2.4
------------------------------------------------------
Total consumer..................................... 70.9 89.4 76.8 56.6 53.0
------------------------------------------------------
Total........................................... 116.1 160.0 157.9 126.7 135.7
NET CHARGE-OFFS
Commercial
Commercial............................................ 214.9 126.4 74.6 140.4 28.7
Real estate:
Commercial mortgage................................ (1.3) .8 (16.3) (16.2) (8.7)
Construction....................................... 6.2 .5 2.9 3.5 1.3
Lease financing....................................... 13.2 5.8 4.0 5.2 1.7
------------------------------------------------------
Total commercial................................... 233.0 133.5 65.2 132.9 23.0
Consumer
Credit card........................................... 179.2 170.3 175.4 152.2 133.8
Other................................................. 253.9 261.2 187.3 159.2 100.3
------------------------------------------------------
Subtotal........................................... 433.1 431.5 362.7 311.4 234.1
Residential mortgage.................................. 3.8 2.7 6.3 5.4 4.4
------------------------------------------------------
Total consumer..................................... 436.9 434.2 369.0 316.8 238.5
------------------------------------------------------
Total........................................... 669.9 567.7 434.2 449.7 261.5
Provision charged to operating expense...................... 670.0 531.0 379.0 460.3 271.2
Acquisitions and other changes.............................. 71.3 31.2 47.4 5.6 74.8
------------------------------------------------------
Balance at end of year...................................... $1,066.8 $ 995.4 $1,000.9 $1,008.7 $992.5
------------------------------------------------------
Allowance as a percentage of:
Period-end loans......................................... 1.54% 1.58% 1.69% 1.84% 1.90%
Nonperforming loans...................................... 269 321 359 340 369
Nonperforming assets..................................... 235 286 329 297 310
Net charge-offs.......................................... 159 175 231 224 380
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
18 U.S. Bancorp
<PAGE> 21
ANALYSIS AND DETERMINATION OF ALLOWANCE FOR CREDIT LOSSES 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 continuing assessment of problem loans and
related off-balance sheet items, recent loss experience, and other factors,
including regulatory guidance and economic conditions. Management has determined
that the allowance for credit losses is adequate.
At December 31, 2000, the allowance was $1.07 billion, or 1.54 percent of
loans. This compares with an allowance of $995.4 million, or 1.58 percent of
loans, at year-end 1999, and $1.00 billion, or 1.69 percent of loans, at
December 31, 1998. The ratio of the allowance for credit losses to nonperforming
loans was 269 percent at December 31, 2000, compared with 321 percent at
year-end 1999 and 359 percent at year-end 1998. The ratio of the allowance for
credit losses to net charge-offs was 159 percent at December 31, 2000, compared
with 175 percent at year-end 1999 and 231 percent at year-end 1998. The Company
considers historical charge-off levels in addition to existing conditions and
other factors when establishing the allowance for credit losses.
The recent trend of slower economic growth, financial market volatility and
softening of corporate earnings may impact the required level of the allowance
for credit losses.
Management determines the amount of allowance required for certain loan
categories based on relative risk characteristics of the loan portfolio. Table
16 shows the amount of the allowance for credit losses by loan category. The
allowance recorded for commercial loans is based on a quarterly review of
individual loans outstanding and binding commitments to lend, including standby
letters of credit. The Company's regular risk rating process is an integral
component of the methodology utilized in determining the allowance for credit
losses. An analysis of the migration of commercial loans and actual loss
experience throughout the business cycle is also conducted quarterly to assess
reserves established for credits with similar risk characteristics. An allowance
is established for pools of commercial loans based on the risk ratings assigned.
The amount is supported by the results of the migration analysis that considers
historical loss experience by risk rating, as well as current and historical
economic conditions and industry risk factors. The Company separately analyzes
the carrying value of impaired loans to determine whether the carrying value is
less than or equal to the appraised collateral value or the present value of
expected cash flows. Based on this analysis, an allowance for credit losses may
be specifically established for impaired loans. The allowance established for
commercial loan portfolios and impaired commercial loans increased $80.8 million
to $431.6 million in 2000. The change reflected growth in the commercial
portfolio during 2000, higher levels of non-performing commercial loans,
increasing sector risk in the health care industry, continued stress in the
paper and forest products sector due to excess capacity and softening domestic
demand and the deterioration in credit risk ratings associated with
participation in Shared National Credits that experienced stress during the
year.
The allowance recorded for consumer portfolios is based on an analysis of
product mix, credit scoring and risk composition of the portfolio, fraud loss
and bankruptcy experiences, economic conditions and historical and expected
delinquency and charge-off statistics for each homogenous category or group of
loans. Based on this information and analysis, an allowance is established
approximating a rolling twelve-month estimate of net charge-offs. The allowance
recorded for consumer loans declined $4.8 million to $442.2 million in 2000. The
decline primarily reflects changes in the mix of consumer loans including an
increase in home equity loans that experience lower charge-off ratios, the
impact of product mix within co-branded credit card portfolios, lower levels of
installment and automobile loans and the seasoning of consumer loan portfolios
acquired in late 1998.
Regardless of the extent of the Company's analysis of customer performance,
portfolio evaluations, trends or risk management processes established, certain
inherent but undetected losses are probable within the loan portfolio. This is
due to several factors including inherent delays in obtaining information
regarding a customer's financial condition or changes in their unique business
conditions; the judgmental nature of individual loan evaluations, collateral
assessments and the interpretation of economic trends; volatility of economic or
customer-specific conditions affecting the identification and estimation of
losses for larger non-homogeneous credits; and the sensitivity of assumptions
utilized to establish allowances for homogenous groups of loans among other
factors. For each of these factors, the estimated inherent loss is recorded as
unallocated allowance. The Company estimates a range of inherent losses related
to the existence of these exposures and for the risk in concentrations to
specific borrowers, financings of highly leveraged transactions, products or
industries. The estimates are based upon the Company's
U.S. Bancorp 19
<PAGE> 22
TABLE 16
ELEMENTS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Allocation Amount At December 31
----------------------------------------------------
(Dollars in Millions) 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
COMMERCIAL
Commercial........................ $ 362.3 $284.4 $ 190.7 $ 215.1 $222.1
Real estate
Commercial mortgage............ 35.9 43.3 25.8 29.7 42.4
Construction................... 17.3 10.9 10.9 15.9 12.5
Lease financing................... 16.1 12.2 15.2 11.1 10.8
----------------------------------------------------
Total commercial............... 431.6 350.8 242.6 271.8 287.8
CONSUMER
Credit card....................... 155.4 161.1 177.0 137.6 132.1
Other............................. 280.8 280.4 283.0 206.5 164.9
----------------------------------------------------
Subtotal....................... 436.2 441.5 460.0 344.1 297.0
Residential mortgage.............. 6.0 5.5 10.0 8.9 9.9
----------------------------------------------------
Total consumer................. 442.2 447.0 470.0 353.0 306.9
----------------------------------------------------
Total allocated................ 873.8 797.8 712.6 624.8 594.7
Unallocated portion............ 193.0 197.6 288.3 383.9 397.8
----------------------------------------------------
Total allowance................ $1,066.8 $995.4 $1,000.9 $1,008.7 $992.5
- ---------------------------------------------------------------------------------------------
<CAPTION>
Allocation as a Percent of Loans Outstanding
--------------------------------------------
(Dollars in Millions) 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
COMMERCIAL
Commercial........................ 1.21% 1.07% .80% 1.01% 1.14%
Real estate
Commercial mortgage............ .35 .44 .31 .37 .53
Construction................... .39 .25 .36 .67 .59
Lease financing................... .39 .51 .67 .55 .58
--------------------------------------------
Total commercial............... .89 .82 .65 .80 .91
CONSUMER
Credit card....................... 3.45 3.74 4.19 3.28 3.64
Other............................. 2.09 2.17 1.95 1.65 1.34
--------------------------------------------
Subtotal....................... 2.43 2.56 2.46 2.06 1.87
Residential mortgage.............. .24 .21 .32 .21 .20
--------------------------------------------
Total consumer................. 2.17 2.24 2.15 1.69 1.47
--------------------------------------------
Total allocated................ 1.26 1.27 1.21 1.14 1.14
Unallocated portion............ .28 .31 .49 .70 .76
--------------------------------------------
Total allowance................ 1.54% 1.58% 1.69% 1.84% 1.90%
- -----------------------------------------------------------------------------------
</TABLE>
evaluation of imprecision risk associated with the commercial and consumer
allowance levels and the estimated impact of the current economic environment on
portfolio segments or concentrations. The unallocated allowance decreased
slightly to $193.0 million at year-end 2000 from $197.6 million and $288.3
million at December 31, 1999, and 1998, respectively. Although the Company
determines the amount of each element of the allowance separately and this
process is an important credit management tool, the entire allowance for credit
losses is available for the entire loan portfolio. The actual amount of losses
incurred can vary significantly from the estimated amounts. The Company's
methodology includes several factors intended to minimize the differences in
estimated and actual losses. These factors allow the Company to adjust its
estimate of losses based on the most recent information available. Refer to Note
A of the Notes to Consolidated Financial Statements for accounting policies
related to the allowance for credit losses.
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 December 31, 2000, forecasted net interest income for the next 12
months would decrease $12 million from an immediate 100 basis point upward
parallel shift in rates and increase $7 million from a downward shift of the
same magnitude. Forecasted net interest income for the second 12 months would
increase $1 million from an immediate 100 basis point upward parallel shift in
rates and decrease $25 million from a downward shift of the same magnitude.
20 U.S. Bancorp
<PAGE> 23
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 repricing and core deposit life. The amount of market value risk is
subject to a limit, approved by the Company's Board of Directors, of .5 percent
of assets for an immediate 100 basis point rate shock. Historically, the
Company's market value risk position has been substantially lower than its
limits.
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 2 to 3
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
TABLE 17
INTEREST RATE SENSITIVITY GAP ANALYSIS
<TABLE>
<CAPTION>
Repricing Maturities
---------------------------------------------------------------
At December 31, 2000 Less Than 3-6 6-12 1-5 More Than
(dollars in millions) 3 Months Months Months Years 5 Years
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Assets
Loans.......................... $38,948 $ 3,591 $ 4,105 $16,531 $ 5,894
Available-for-sale
securities.................... 381 174 319 1,790 1,594
Other earning assets........... 2,249 38 75 535 695
Nonearning assets.............. 622 19 324 1,490 2,230
---------------------------------------------------------------
Total assets................ $42,200 $ 3,822 $ 4,823 $20,346 $10,413
---------------------------------------------------------------
Liabilities and Equity
Deposits....................... $23,842 $ 3,095 $ 3,188 $12,917 $10,215
Other purchased funds.......... 2,800 -- 1 1 7
Long-term debt................. 13,479 239 571 2,475 1,802
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely the
junior subordinated
debentures of the parent
company..................... -- -- -- -- 950
Other liabilities.............. 39 -- 383 192 --
Equity......................... -- -- -- -- --
---------------------------------------------------------------
Total liabilities and
equity..................... $40,160 $ 3,334 $ 4,143 $15,585 $12,974
---------------------------------------------------------------
Effect of off-balance sheet
hedging instruments
Receiving fixed................ $ 328 $ 348 $ 451 $ 4,116 $ 1,375
Receiving floating............. 1,500 -- -- -- --
Paying fixed................... -- -- (500) -- --
Paying floating................ (7,618) -- -- -- --
---------------------------------------------------------------
Total effect of off-balance
sheet hedging
instruments.............. $(5,790) $ 348 $ (49) $ 4,116 $ 1,375
---------------------------------------------------------------
Repricing gap..................... $(3,750) $ 836 $ 631 $ 8,877 $(1,186)
Cumulative repricing gap.......... (3,750) (2,914) (2,283) 6,594 5,408
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Repricing Maturities
----------------------
At December 31, 2000 Non-Rate
(dollars in millions) Sensitive Total
<S> <C> <C>
- ----------------------------------
Assets
Loans.......................... $ 22 $69,091
Available-for-sale
securities.................... 24 4,282
Other earning assets........... -- 3,592
Nonearning assets.............. 5,686 10,371
----------------------
Total assets................ $ 5,732 $87,336
----------------------
Liabilities and Equity
Deposits....................... $ -- $53,257
Other purchased funds.......... -- 2,809
Long-term debt................. -- 18,566
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely the
junior subordinated
debentures of the parent
company..................... -- 950
Other liabilities.............. 2,500 3,114
Equity......................... 8,640 8,640
----------------------
Total liabilities and
equity..................... $11,140 $87,336
----------------------
Effect of off-balance sheet
hedging instruments
Receiving fixed................ $ -- $ 6,618
Receiving floating............. -- 1,500
Paying fixed................... -- (500)
Paying floating................ -- (7,618)
----------------------
Total effect of off-balance
sheet hedging
instruments.............. $ -- $ --
----------------------
Repricing gap..................... $(5,408) $ --
Cumulative repricing gap.......... -- --
- ----------------------------------------------------------
</TABLE>
This table estimates the repricing maturities of the Company's assets,
liabilities and hedging instruments based upon the Company's assessment of the
repricing characteristics of contractual and non-contractual instruments.
Non-contractual deposit liabilities are allocated among the various maturity
categories as follows: approximately 30 percent of regular savings, 20 percent
of interest-bearing checking, 40 percent of non-indexed money market checking
and 50 percent of money market savings balances are reflected in the Less Than 3
Months category, with 67 percent of the remainder placed in the 1-5 Years
category and 33 percent in the More Than 5 Years category. Approximately 57
percent of demand deposits and related nonearning asset accounts is allocated in
the More Than 5 Years category, 34 percent is allocated in the 1-5 Years
category with the remaining allocated in the Less Than 3 Months category.
U.S. Bancorp 21
<PAGE> 24
TABLE 18
INTEREST RATE SWAP HEDGING PORTFOLIO NOTIONAL BALANCES AND YIELDS BY
MATURITY DATE
<TABLE>
<CAPTION>
At December 31, 2000 (Dollars in Millions)
- -------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Notional Interest Rate Interest Rate
Maturity Date Amount Received Paid
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
2001........................................................ $ 790 6.69% 6.88%
2002........................................................ 544 6.22 6.74
2003........................................................ 1,674 6.02 6.69
2004........................................................ 1,475 6.60 6.72
2005........................................................ 700 6.48 6.69
Thereafter.................................................. 1,935 6.41 6.73
------
Total....................................................... $7,118 6.38% 6.73%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*At December 31, 2000, the Company received fixed-rate interest and paid
variable-rate interest on substantially all swaps in its hedging portfolio. In
addition, the Company had $1.0 billion in basis swaps maturing in 2002.
interest rate risk over various time intervals. The Company manages its interest
rate risk by entering into off-balance sheet transactions, primarily
receive-fixed interest rate swaps and, to a lesser degree, basis swaps and
interest rate caps and floors.
In 2000, the Company executed $770.0 million of new interest rate swaps to
reduce its interest rate risk. This was largely offset by $674.0 million of swap
terminations and $55.0 million of interest rate swap maturities. Interest rate
swaps 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 December 31, 2000, the Company received and made payments on
$7.1 billion notional amount of interest rate swaps. These swaps had a weighted
average interest rate received of 6.38 percent and a weighted average interest
rate paid of 6.73 percent. The remaining maturity of these swaps ranges from 3
months to 14.6 years with an average remaining maturity of 4.3 years. In 2000,
swaps decreased net interest income by $17.1 million, and in 1999 and 1998,
swaps increased net income by $60.7 million and $37.9 million, respectively.
The Company also purchases interest rate caps and floors and executes basis
swaps to minimize the impact of fluctuating interest rates on earnings. To hedge
against rising interest rates, the Company may use 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 December 31, 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 December 31, 2000, all of which were
LIBOR-indexed, was $500 million. Basis swaps help the Company manage the monthly
interest income at risk within each year. At December 31, 2000, the notional
amount of the Company's basis swaps totaled $1.0 billion. The impact of basis
swaps and interest rate caps and floors on net interest income was not
significant in 2000, 1999 and 1998. See Note A of the Notes to Consolidated
Financial Statements for the Company's accounting policy related to these types
of transactions.
MARKET RISK MANAGEMENT Market 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 and assumes a ninety-ninth percentile
adverse move in the underlying markets. Market risk limits are established
subject to approval by the Company's Board of Directors. The Company's VaR limit
was $40 million at December 31, 2000. The estimate of market risk in its
broker/dealer activities, including equities, fixed income, high yield
securities and foreign exchange, as estimated by the VaR analysis, was $15
million at December 31, 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.
LIQUIDITY RISK MANAGEMENT The objective of liquidity risk management is to
ensure the continuous availability of funds to meet the demands of depositors,
investors and borrowers. ALCO is responsible for structuring the balance sheet
to meet these needs. It regularly reviews current and forecasted funding needs
as well as market
22 U.S. Bancorp
<PAGE> 25
conditions for issuing debt to wholesale investors. Based on this information,
ALCO supervises wholesale funding activity as well as the maintenance of
contingent funding sources. A majority of the Company's funding comes from
customer deposits within its operating region.
The Company's ability to raise negotiated funding at competitive prices is
influenced by rating agencies' views of the Company's credit quality, liquidity,
capital and earnings. As of December 31, 2000, Moody's Investors Services,
Standard & Poors, Inc. and Fitch rated the Company's senior debt as "A1," "A"
and "A+," respectively. The debt ratings reflect the agencies' recognition of
the strong, consistent financial performance of the Company and quality of the
balance sheet.
At the parent company, funding primarily consists of long-term debt and
equity. At December 31, 2000, parent company long-term debt outstanding was $5.1
billion, compared with $3.8 billion at December 31, 1999. The parent company
issued $1.8 billion of medium-term notes during 2000, which was partially offset
by $518.2 million of debt maturities and other repayments.
Total parent company debt maturing in 2001 is $870.0 million. These debt
obligations are expected to be met through medium-term note issuances, as well
as from the approximately $1.4 billion of parent company cash and cash
equivalents at December 31, 2000. It is the Company's practice to maintain
liquid assets at the parent company sufficient to fund its operating cash needs
and prefund debt maturities for the next twelve months.
CAPITAL MANAGEMENT
The Company is committed to managing capital for maximum shareholder benefit and
maintaining strong protection for depositors and creditors. At December 31,
2000, tangible common equity (common equity less goodwill) was $5.9 billion, or
7.0 percent of assets, compared with 6.5 percent at year-end 1999 and 6.0
percent at year-end 1998. The tier 1 capital ratio was 7.1 percent at December
31, 2000, compared with 6.8 percent at December 31, 1999, and 6.4 percent at
December 31, 1998. The total risk-based capital ratio was 10.9 percent at
December 31, 2000, compared with 11.1 percent at December 31, 1999, and 10.9
percent at December 31, 1998. The leverage ratio was 7.6 percent at December 31,
2000, compared with 7.4 percent and 6.8 percent at December 31, 1999, and
December 31, 1998, respectively.
The measures used to assess capital include the capital ratios established
by the bank regulatory agencies, including the specific ratios for the "well
capitalized" designation. The Company manages various capital ratios to maintain
appropriate capital levels in accordance with Board-approved capital guidelines,
ascribing the most significance to the tangible common equity ratio. The Company
intends to maintain sufficient capital in each of its bank subsidiaries to be
"well capitalized" as defined by the regulatory agencies.
On June 8, 1998, the Company's Board of Directors authorized the repurchase
of up to $2.5 billion of the Company's common stock through March 31, 2000. On
February 16, 2000, the Company's Board of Directors replaced the authorization
with a new authorization to repurchase up to $2.5 billion of the Company's stock
through March 31, 2002. The purpose of these share repurchase programs was 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. The shares were
repurchased in the open market or through negotiated transactions. The Company
repurchased 20.2 million shares for $432.2 million in 2000 and 16.6 million
shares for $560.8 million in 1999. The share repurchase program was rescinded on
January 17, 2001, in anticipation of the Company's merger with Firstar
Corporation.
TABLE 19
CAPITAL RATIOS
<TABLE>
<CAPTION>
At December 31 (Dollars in Millions) 2000 1999 1998
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Tangible common equity*..................................... $5,887 $5,134 $4,465
As a percent of assets................................... 7.0% 6.5% 6.0%
Tier 1 capital.............................................. $6,322 $5,631 $4,917
As a percent of risk-adjusted assets..................... 7.1% 6.8% 6.4%
Total risk-based capital.................................... $9,772 $9,281 $8,343
As a percent of risk-adjusted assets..................... 10.9% 11.1% 10.9%
Leverage ratio.............................................. 7.6 7.4 6.8
- ----------------------------------------------------------------------------------------------
</TABLE>
*Defined as common equity less goodwill.
U.S. Bancorp 23
<PAGE> 26
TABLE 20
SUBSIDIARY CAPITAL RATIOS
<TABLE>
<CAPTION>
At December 31, 2000
---------------------------------------------
Total
Tier 1 Risk-based Total
(Dollars in Millions) Capital Capital Leverage Assets
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL REQUIREMENTS
Minimum..................................................... 4.0% 8.0% 3.0%
Well-Capitalized............................................ 6.0 10.0 5.0
SIGNIFICANT BANK SUBSIDIARIES
U.S. Bank National Association.............................. 7.3 11.2 7.9 $82,023
U.S. Bank National Association ND........................... 10.3 15.6 10.2 2,474
U.S. Bank National Association MT........................... 14.9 17.6 12.0 1,097
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note: These balances and ratios were prepared in accordance with regulatory
accounting principles as disclosed in the subsidiaries' regulatory reports.
On April 22, 1998, the Company's shareholders authorized an increase in the
Company's capital stock necessary to implement the three-for-one split of the
Company's common stock announced February 18, 1998. The number of common and
preferred shares that the Company has authority to issue was increased from 500
million shares and 10 million shares, respectively, to 1.5 billion shares and 50
million shares, respectively. The stock split was in the form of a 200 percent
dividend payable May 18, 1998, to shareholders of record on May 4, 1998. The
impact of the stock split has been reflected in the financial statements for all
periods presented and all share and per share data included herein.
DIVIDENDS During 2000, total dividends on common stock were $644.7 million
compared with $573.1 million in 1999 and $516.4 million in 1998. The Company has
raised its quarterly dividend rate in each of the past five years. On a per
share basis, dividends paid to common shareholders totaled $.86 in 2000, $.78 in
1999 and $.70 in 1998. On February 27, 2001, the Board of Directors set the
quarterly dividend rate for the common stock of the combined company resulting
from the merger of U.S. Bancorp with Firstar Corporation at $.1875 per share. In
the merger, holders of shares of U.S. Bancorp common stock received 1.265 shares
of the combined company common stock for each share of U.S. Bancorp common stock
they held.
The Company's primary funding sources for common stock dividends are
dividends received from its bank and nonbank subsidiaries. Payment of dividends
to the Company by its depository subsidiaries is subject to ongoing review by
banking regulators and to various statutory limitations. For further
information, see Note U of the Notes to Consolidated Financial Statements.
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. SFAS 133 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 Company adopted SFAS 133 as of January 1, 2001. The balance
sheet impact for the adoption of SFAS 133 included: a $37.5 million increase to
other assets for the fair value of interest rate swaps designated as fair value
hedges of fixed-rate debt and certificates of deposit with a corresponding
increase to the related hedged liabilities, a $12.1 million increase to other
assets and a $4.1 million increase in other liabilities for the fair value of
interest rate swaps designated as cash flow hedges of floating rate commercial
loans and debt with a corresponding net increase of $8.0 million to other
comprehensive income and deferred tax liabilities. The cumulative-effect
adjustment recorded on the income statement was not material.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES SFAS 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," established accounting and reporting
standards for sales and servicing of financial assets, securitization
transactions and the extinguishment of liabilities. The statement replaced SFAS
125 and provided clarification of issues related to qualified special purpose
entities and additional disclosures about securitizations and the residual
interests retained. SFAS 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. Disclosures required for financial statements were effective for fiscal
years ending after December 15, 2000.
24 U.S. Bancorp
<PAGE> 27
TABLE 21
FOURTH QUARTER SUMMARY
<TABLE>
<CAPTION>
Three Months Ended
December 31
---------------------
(Dollars in Millions, Except Per Share Data) 2000 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT
Net interest income (taxable-equivalent basis).............. $915.7 $841.0
Provision for credit losses................................. 180.0 146.0
---------------------
Net interest income after provision for credit losses.... 735.7 695.0
Available-for-sale securities gains......................... 6.0 2.1
Other noninterest income.................................... 828.3 761.8
Merger-related charges...................................... 17.5 27.7
Other noninterest expense................................... 888.2 843.4
---------------------
Income before income taxes............................... 664.3 587.8
Taxable-equivalent adjustment............................... 17.6 10.3
Income taxes................................................ 228.1 208.5
---------------------
Net income............................................... $418.6 $369.0
---------------------
FINANCIAL RATIOS
Return on average assets.................................... 1.92% 1.86%
Return on average common equity............................. 19.8 20.4
Net interest margin (taxable-equivalent basis).............. 4.73 4.80
Efficiency ratio............................................ 51.9 54.3
PER COMMON SHARE
Earnings per share.......................................... $ .56 $ .50
Diluted earnings per share.................................. .56 .50
Dividends paid.............................................. .215 .195
SELECTED FINANCIAL RATIOS BEFORE MERGER-RELATED CHARGES
Return on average assets.................................... 1.97% 1.94%
Return on average common equity............................. 20.3 21.4
Efficiency ratio............................................ 50.9 52.6
Banking efficiency ratio*................................... 41.4 44.7
- ---------------------------------------------------------------------------------------
</TABLE>
*Without investment banking and brokerage activity.
IMPACT OF INFLATION
The assets and liabilities of a financial institution are primarily monetary in
nature. Therefore, future changes in prices do not affect the obligations to pay
or receive fixed and determinable amounts of money. During periods of inflation,
monetary assets lose value in terms of purchasing power while monetary
liabilities have corresponding purchasing power gains. Since banks generally
have an excess of monetary assets over monetary liabilities, inflation will, in
theory, cause a loss of purchasing power in the value of shareholders' equity.
However, the concept of purchasing power is not an adequate indicator of the
effect of inflation on banks because it does not take into account changes in
interest rates, which are a more important determinant of bank earnings.
Other sections of the Management's Discussion and Analysis provide the
information necessary for an understanding of the Company's ability to react to
changing interest rates.
FOURTH QUARTER SUMMARY
In the fourth quarter of 2000, the Company had net income of $418.6 million
($.56 per diluted share), compared with $369.0 million ($.50 per diluted share)
in the fourth quarter of 1999, including merger-related charges. The Company
also reported operating earnings of $429.9 million ($.57 per diluted share) in
the fourth quarter of 2000, compared with operating net income of $386.4 million
($.52 per diluted share) in the fourth quarter of 1999. Fourth quarter net
interest income on a taxable-equivalent basis increased $74.7 million to $915.7
million, compared with fourth quarter of 1999, primarily reflecting increased
earning assets driven by core commercial, home equity and second mortgage loan
growth and bank acquisitions partially offset by a reduction in indirect auto
and residential mortgage loans. The net interest margin on a taxable-equivalent
basis decreased in the fourth quarter of 2000 to 4.73 percent, compared with
4.80 percent in the fourth quarter of 1999, as lagging deposit growth relative
to the growth in total earning assets has increased the Company's incremental
cost of funding.
U.S. Bancorp 25
<PAGE> 28
The provision for credit losses increased to $180.0 million in the fourth
quarter of 2000, compared with $146.0 million in the fourth quarter of 1999.
Noninterest income increased $70.4 million from the same quarter a year ago, to
$834.3 million. Credit card fee revenue was higher quarter over quarter by $27.5
million, or 17 percent, reflecting continued growth in corporate and retail card
product fees, merchant and ATM processing-related revenue. Investment banking
revenue, investment products fees and commissions and trading account profits
and commissions in the fourth quarter of 2000 grew in total by $9.6 million, or
4 percent, over the same period of 1999 due primarily to market-related activity
at U.S. Bancorp Piper Jaffray. Other income increased by $34.7 million, or 28
percent, over the fourth quarter of 1999, primarily reflecting the impact of
acquisitions, U.S. Bancorp Piper Jaffray managed account fees, the timing of
loan sales, and a gain from the sale of an office building located in
Minneapolis.
Fourth quarter noninterest expense, before merger-related charges, totaled
$888.2 million, an increase of $44.8 million, or 5 percent, from the fourth
quarter of 1999. Excluding the impact of acquisitions and divestitures,
noninterest expense, before merger-related charges, in the fourth quarter of
2000 would have been approximately 2 percent higher than the fourth quarter of
1999. The increase in expense over the fourth quarter of 1999 was primarily the
result of acquisitions and investment banking and brokerage activity. In
addition to ongoing investments in Internet-related products and services, the
fourth quarter of 2000 included approximately $2.3 million of incremental
spending on Internet infrastructure-related initiatives.
26 U.S. Bancorp
<PAGE> 29
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31 (Dollars in Millions) 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 4,142 $ 4,036
Federal funds sold.......................................... 108 713
Securities purchased under agreements to resell............. 349 324
Trading account securities.................................. 753 617
Available-for-sale securities............................... 4,282 4,871
Loans....................................................... 69,091 62,885
Less allowance for credit losses......................... 1,067 995
---------------------
Net loans................................................ 68,024 61,890
Premises and equipment...................................... 857 862
Interest receivable......................................... 525 433
Customers' liability on acceptances......................... 163 152
Goodwill and other intangible assets........................ 3,296 3,066
Other assets................................................ 4,837 4,566
---------------------
Total assets.......................................... $87,336 $81,530
---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing...................................... $15,653 $16,050
Interest-bearing......................................... 31,176 29,671
Time certificates of deposit greater than $100,000....... 6,428 5,809
---------------------
Total deposits........................................ 53,257 51,530
Federal funds purchased..................................... 978 297
Securities sold under agreements to repurchase.............. 965 1,235
Other short-term funds borrowed............................. 866 724
Long-term debt.............................................. 18,566 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..................................... 163 152
Other liabilities........................................... 2,951 2,441
---------------------
Total liabilities..................................... 78,696 73,892
Shareholders' equity
Common stock, par value $1.25 a share -- authorized
1,500,000,000 shares; issued: 2000 -- 758,194,161
shares; 1999 -- 754,368,668 shares..................... 948 943
Capital surplus.......................................... 1,473 1,399
Retained earnings........................................ 6,336 5,389
Accumulated other comprehensive income................... 15 (62)
Less cost of common stock in treasury: 2000 -- 6,134,300
shares; 1999 -- 1,038,456 shares........................ (132) (31)
---------------------
Total shareholders' equity............................ 8,640 7,638
---------------------
Total liabilities and shareholders' equity............ $87,336 $81,530
- -------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
U.S. Bancorp 27
<PAGE> 30
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 (Dollars in Millions, Except Per Share Data) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans.......................................................... $6,162.0 $5,208.6 $4,921.8
Securities
Taxable..................................................... 230.3 250.6 303.6
Exempt from federal income taxes............................ 54.4 57.3 62.8
Other interest income.......................................... 260.4 160.2 119.2
--------------------------------
Total interest income.................................... 6,707.1 5,676.7 5,407.4
INTEREST EXPENSE
Deposits....................................................... 1,667.9 1,291.2 1,391.0
Federal funds purchased and repurchase agreements.............. 177.4 164.2 153.6
Other short-term funds borrowed................................ 56.2 49.9 59.1
Long-term debt................................................. 1,257.0 833.4 672.7
Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely the junior subordinated
debentures of the parent company.............................. 77.3 77.3 70.4
--------------------------------
Total interest expense................................... 3,235.8 2,416.0 2,346.8
--------------------------------
Net interest income............................................ 3,471.3 3,260.7 3,060.6
Provision for credit losses.................................... 670.0 531.0 379.0
--------------------------------
Net interest income after provision for credit losses.......... 2,801.3 2,729.7 2,681.6
NONINTEREST INCOME
Credit card fee revenue........................................ 723.2 603.1 574.8
Trust and investment management fees........................... 473.9 459.7 413.0
Service charges on deposit accounts............................ 469.3 434.6 406.0
Investment products fees and commissions....................... 359.1 347.7 229.7
Investment banking revenue..................................... 356.3 245.4 100.4
Trading account profits and commissions........................ 252.5 215.9 118.1
Available-for-sale securities gains (losses)................... 7.0 (1.3) 12.6
Other.......................................................... 617.1 453.6 402.0
--------------------------------
Total noninterest income................................. 3,258.4 2,758.7 2,256.6
NONINTEREST EXPENSE
Salaries....................................................... 1,677.0 1,460.9 1,210.9
Employee benefits.............................................. 279.0 248.4 222.3
Net occupancy.................................................. 236.9 204.6 187.4
Furniture and equipment........................................ 167.4 160.1 153.4
Goodwill and other intangible assets........................... 235.5 165.6 143.7
Merger-related charges......................................... 61.3 62.4 216.5
Other.......................................................... 941.3 824.9 710.1
--------------------------------
Total noninterest expense................................ 3,598.4 3,126.9 2,844.3
--------------------------------
Income before income taxes..................................... 2,461.3 2,361.5 2,093.9
Applicable income taxes........................................ 869.3 855.0 766.5
--------------------------------
Net income..................................................... $1,592.0 $1,506.5 $1,327.4
--------------------------------
Earnings per share............................................. $ 2.14 $ 2.07 $ 1.81
Diluted earnings per share..................................... $ 2.13 $ 2.06 $ 1.78
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
28 U.S. Bancorp
<PAGE> 31
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Year Ended December 31 Common Shares Common Capital Retained Comprehensive Treasury
(Dollars in Millions) Outstanding* Stock Surplus Earnings Income Stock** Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997....... 739,933,014 $924.9 $1,261.1 $3,644.8 $ 59.3 $ -- $5,890.1
Common dividends declared....... (516.4) (516.4)
Purchase of treasury stock...... (24,658,162) (964.0) (964.0)
Issuance of common stock
Dividend reinvestment........ 574,168 .3 8.9 12.7 21.9
Stock option and stock
purchase plans............ 9,912,698 5.8 (22.8) 215.5 198.5
----------------------------------------------------------------------------------------
725,761,718 931.0 1,247.2 3,128.4 59.3 (735.8) 4,630.1
Comprehensive income
Net income...................... 1,327.4 1,327.4
Other comprehensive income
Unrealized gains on
securities of $23.6 (net
of $14.0 tax expense) net
of reclassification
adjustment for gains
included in net income of
$11.1 (net of $6.4 tax
expense).................. 12.5 12.5
--------
Total comprehensive
income................ 1,339.9
----------------------------------------------------------------------------------------
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....... (573.1) (573.1)
Purchase of treasury stock...... (16,644,892) (560.8) (560.8)
Issuance of common stock
Acquisitions................. 37,798,319 11.6 233.6 1,030.3 1,275.5
Dividend reinvestment........ 800,809 (5.6) 29.1 23.5
Stock option and stock
purchase plans............ 5,614,258 .4 (76.4) 205.7 129.7
----------------------------------------------------------------------------------------
753,330,212 943.0 1,398.8 3,882.7 71.8 (31.5) 6,264.8
Comprehensive income
Net income...................... 1,506.5 1,506.5
Other comprehensive income
Unrealized losses on
securities of $134.2 (net
of $82.3 tax benefit) net
of reclassification
adjustment for losses
included in net income of
$.6 (net of $.3 tax
benefit).................. (133.6) (133.6)
--------
Total comprehensive
income................ 1,372.9
----------------------------------------------------------------------------------------
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....... (644.7) (644.7)
Purchase of treasury stock...... (20,248,002) (432.2) (432.2)
Issuance of common stock
Acquisitions................. 14,405,249 4.0 47.6 246.0 297.6
Dividend reinvestment........ 900,792 (.3) 19.2 18.9
Stock option and stock
purchase plans............ 3,671,610 .7 27.0 66.1 93.8
----------------------------------------------------------------------------------------
752,059,861 947.7 1,473.1 4,744.5 (61.8) (132.4) 6,971.1
Comprehensive income
Net income...................... 1,592.0 1,592.0
Other comprehensive income
Unrealized gains on
securities of $101.9 (net
of $62.6 tax expense) net
of reclassification
adjustment for gains
included in net income of
$25.1 (net of $15.4 tax
expense).................. 76.8 76.8
Foreign currency translation
adjustments............... (.3) (.3)
--------
Total comprehensive
income................ 1,668.5
----------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2000....... 752,059,861 $947.7 $1,473.1 $6,336.5 $ 14.7 $ (132.4) $8,639.6
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Defined as total common shares less common stock held in treasury.
**Ending treasury shares were 6,134,300 at December 31, 2000; 1,038,456 at
December 31, 1999; and 19,036,139 at December 31, 1998.
See Notes to Consolidated Financial Statements.
U.S. Bancorp 29
<PAGE> 32
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (Dollars in Millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 1,592.0 $ 1,506.5 $ 1,327.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses.............................. 670.0 531.0 379.0
Depreciation and amortization of premises and
equipment............................................... 151.8 142.5 130.4
Provision for deferred income taxes...................... 44.6 55.7 25.9
Amortization of goodwill and other intangible assets..... 235.5 165.6 143.7
Changes in operating assets and liabilities, excluding
the effects of purchase acquisitions:
Increase in trading account securities................ (135.6) (64.8) (141.1)
(Increase) decrease in loans held for sale............ (116.2) 294.8 13.4
Decrease (increase) in accrued receivables............ 2.9 (208.2) (160.7)
Decrease (increase) in prepaid expenses............... 102.9 75.6 (59.7)
Increase in accrued liabilities....................... 314.6 114.9 20.3
Other -- net............................................. (279.4) 72.7 (306.1)
-----------------------------------
Net cash provided by operating activities.......... 2,583.1 2,686.3 1,372.5
INVESTING ACTIVITIES
Net cash (used) provided by:
Loans outstanding........................................ (4,957.1) (3,950.3) (3,021.1)
Securities purchased under agreements to resell.......... (25.3) 136.6 224.2
Available-for-sale securities
Sales.................................................... 624.2 1,000.7 226.4
Maturities............................................... 690.8 1,403.6 1,755.4
Purchases................................................ (324.9) (1,773.0) (603.5)
Proceeds from sales of other real estate.................... 25.8 33.2 46.3
Proceeds from sales of premises and equipment............... 193.9 40.0 44.1
Purchases of premises and equipment......................... (221.0) (134.0) (155.8)
Sales of loans.............................................. 616.9 1,720.9 4.9
Purchases of loans.......................................... (658.1) (254.6) (1,575.7)
Divestitures of branches.................................... -- (352.0) --
Acquisitions, net of cash received.......................... (296.0) (220.5) (780.2)
Cash and cash equivalents of acquired subsidiaries.......... 63.5 462.4 --
Other -- net................................................ (234.9) (834.5) (70.2)
-----------------------------------
Net cash used by investing activities.............. (4,502.2) (2,721.5) (3,905.2)
FINANCING ACTIVITIES
Net cash provided (used) by:
Deposits................................................. 656.4 (736.6) 668.4
Federal funds purchased and securities sold under
agreements to repurchase................................ (157.5) (1,150.2) 321.8
Short-term borrowings.................................... 137.2 33.9 (909.1)
Proceeds from long-term debt................................ 5,563.9 5,815.1 6,427.5
Principal payments on long-term debt........................ (3,815.5) (3,052.8) (3,011.6)
Issuance of Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely
the junior subordinated debentures of the parent
company.................................................. -- -- 350.0
Proceeds from dividend reinvestment, stock option and stock
purchase plans............................................. 112.7 153.2 220.4
Repurchase of common stock.................................. (432.2) (560.8) (964.0)
Cash dividends.............................................. (644.7) (573.1) (516.4)
-----------------------------------
Net cash provided (used) by financing activities... 1,420.3 (71.3) 2,587.0
-----------------------------------
Change in cash and cash equivalents................ (498.8) (106.5) 54.3
Cash and cash equivalents at beginning of year.............. 4,748.8 4,855.3 4,801.0
-----------------------------------
Cash and cash equivalents at end of year........... $ 4,250.0 $ 4,748.8 $ 4,855.3
- ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
30 U.S. Bancorp
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SIGNIFICANT ACCOUNTING POLICIES
U.S. Bancorp (the "Company") is a financial services holding company offering a
full range of financial services through banking offices in 16 states including
Minnesota, Oregon, Washington, Colorado, California, Idaho, Nebraska, North
Dakota, Nevada, South Dakota, Montana, Iowa, Illinois, Utah, Wisconsin and
Wyoming. The Company also engages in credit card and merchant processing,
insurance, trust and investment management, brokerage, leasing and investment
banking activities principally in domestic markets.
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of the Company and its subsidiaries. The consolidation eliminates all
significant intercompany accounts and transactions. Certain items in prior
periods have been reclassified to conform to the current presentation.
USES OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual experience could differ
from those estimates.
BUSINESS SEGMENTS
Within the Company, financial performance is measured by major lines of business
based on the products and services provided to customers through its
distribution channels. The Company has four reportable operating segments:
Wholesale Banking includes lending, treasury management, corporate trust,
and other financial services to middle-market, large corporate and public sector
clients.
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").
Payment Systems includes consumer and business credit cards, corporate and
purchasing card services, consumer lines of credit, ATM processing and merchant
processing.
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.
SEGMENT RESULTS 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. For detail of these methodologies
see "Basis for Financial Presentation" on page 4. 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 the
Consolidated Financial Statements.
SECURITIES
TRADING ACCOUNT SECURITIES Debt and equity securities held for resale are
classified as trading account securities and reported at fair value. Realized
and unrealized gains or losses are recorded in noninterest income.
AVAILABLE-FOR-SALE SECURITIES These securities are not trading account
securities but may be sold before maturity in response to changes in the
Company's interest rate risk profile or demand for collateralized deposits by
public entities. They are carried at fair value with unrealized net gains or
losses reported within comprehensive income in shareholders' equity. When sold,
the amortized cost of the specific securities is used to compute the gain or
loss.
U.S. Bancorp 31
<PAGE> 34
LOANS
Loans are reported net of unearned income. Interest income is accrued on the
unpaid principal balances as earned. Loan and commitment fees are deferred and
recognized over the life of the loan and/or commitment period as yield
adjustments.
ALLOWANCE FOR CREDIT LOSSES Management determines the adequacy of the allowance
based on evaluations of the loan portfolio and related off-balance sheet
commitments, recent loss experience, and other pertinent factors, including
economic conditions. This evaluation is inherently subjective as it requires
estimates, including amounts of future cash collections expected on nonaccrual
loans that may be susceptible to significant change. The allowance for credit
losses relating to impaired loans is based on the loans' observable market
price, the collateral for certain collateral-dependent loans, or the discounted
cash flows using the loans' effective interest rate.
The Company determines the amount of the allowance required for certain
sectors based on relative risk characteristics of the loan portfolio and other
financial instruments with credit exposure. The allowance recorded for
commercial loans is based on quarterly reviews of individual loans outstanding
and binding commitments to lend and an analysis of the migration of commercial
loans and actual loss experience. The allowance recorded for consumer portfolios
is based on an analysis of product mix, risk characteristics of the portfolio,
fraud loss and bankruptcy experiences, and historical losses, adjusted for
current trends, for each homogenous category or group of loans. The allowance is
increased through provisions charged to operating earnings and reduced by net
charge-offs.
NONACCRUAL LOANS Generally commercial loans (including impaired loans) are
placed on nonaccrual status when the collection of interest or principal has
become 90 days past due or is otherwise considered doubtful. When a loan is
placed on nonaccrual status, unpaid interest is reversed. Future interest
payments are generally applied against principal. Revolving consumer lines and
credit cards are charged-off by 180 days and closed-end consumer loans other
than residential mortgages are charged-off at 120 days past due and are,
therefore, not placed on non-accrual status.
LEASES The Company engages in both direct and leveraged lease financing. The net
investment in direct financing leases is the sum of all minimum lease payments
and estimated residual values less unearned income. Unearned income is added to
interest income over the terms of the leases to produce a level yield.
The investment in leveraged leases is the sum of all lease payments (less
nonrecourse debt payments) plus estimated residual values, less unearned income.
Income from leveraged leases is recognized over the term of the leases based on
the unrecovered equity investment.
LOANS HELD FOR SALE These loans are carried at the lower of cost or market value
as determined on an aggregate basis by type of loan.
OTHER REAL ESTATE Other real estate ("ORE"), which is included in other assets,
is property acquired through foreclosure or other proceedings. ORE is initially
recorded at fair value and carried at the lower of cost or fair value, less
estimated selling costs. The property is evaluated regularly and any decreases
in the carrying amount are included in noninterest expense.
DERIVATIVE FINANCIAL INSTRUMENTS
INTEREST RATE SWAPS AND CONTRACTS The Company uses interest rate swaps and
contracts (forwards, options, caps and floors) to manage its interest rate risk
and as a financial intermediary. The Company does not enter into these contracts
for speculative purposes. The Company utilizes simulation modeling and analysis
of repricing mismatches to identify exposure to changes in interest rates and
assess the effectiveness of interest rate swaps and contracts in reducing that
risk. Interest rate swaps and contracts are designated as hedges of assets or
liabilities and the Company evaluates hedge effectiveness of the derivative
instruments relative to the underlying hedged item on a regular basis. Income or
expense on swaps and contracts designated as hedges of assets or liabilities is
recorded as an adjustment to interest income or expense. If the swap or contract
is terminated, the gain or loss is deferred and amortized over the shorter of
the remaining life of the swap or the underlying asset or liability. If the
hedged instrument is disposed of, the swap or contract agreement is marked to
market with any resulting gain or loss included with the gain or loss from the
disposition.
The initial bid/offer spread on intermediated swaps is deferred and
recognized in trading account profits and commissions over the life of the
agreement. Intermediated swaps and all other interest rate contracts are marked
to market and resulting gains or losses are recorded in trading account profits
and commissions. The Company's derivative trading activities are not material to
the consolidated financial statements; the cash flows from these activities are
included in operating activities.
32 U.S. Bancorp
<PAGE> 35
OTHER SIGNIFICANT POLICIES
PREMISES AND EQUIPMENT Premises and equipment are stated at cost less
accumulated depreciation and amortized primarily on a straight-line method
basis.
Capital leases, less accumulated amortization, are included in premises and
equipment. The lease obligations are included in long-term debt. Capitalized
leases are amortized on a straight-line basis over the lease term and the
amortization is included in depreciation expense.
CAPITALIZED SOFTWARE Certain costs incurred in connection with developing or
obtaining software for internal use are capitalized and amortized on a straight-
line basis over the estimated life of the software.
INTANGIBLE ASSETS Goodwill, the price paid over the net fair value of acquired
businesses, is included in other assets and is amortized over periods ranging up
to 25 years. Other intangible assets are amortized over their estimated useful
lives, which range from seven to fifteen years, using straight-line and
accelerated methods. The recoverability of goodwill and other intangible assets
is evaluated if events or circumstances indicate a possible inability to realize
the carrying amount. Such evaluation is based on various analyses, including
undiscounted cash flow projections.
INCOME TAXES Deferred taxes are recorded to reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities and
the financial reporting amounts at each year-end.
STATEMENT OF CASH FLOWS For the purposes of reporting cash flows, cash
equivalents include cash and due from banks and federal funds sold.
STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
accordingly recognizes no compensation expense for the stock option grants.
PER SHARE CALCULATIONS Earnings per share is calculated by dividing net income
(less preferred stock dividends) by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is calculated by
adjusting income and outstanding shares, assuming conversion of all potentially
dilutive securities, using the treasury stock method.
NOTE B
ACCOUNTING CHANGES
ACCOUNTING FOR 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. SFAS 133
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 Company adopted SFAS 133 as of January 1,
2001. The balance sheet impact for the adoption of SFAS 133 included: a $37.5
million increase to other assets for the fair value of interest rate swaps
designated as fair value hedges of fixed rate debt and certificates of deposit
with a corresponding increase to the related hedged liabilities, a $12.1 million
increase to other assets and a $4.1 million increase in other liabilities for
the fair value of interest rate swaps designated as cash flow hedges of floating
rate commercial loans and debt with a corresponding net increase of $8.0 million
to other comprehensive income and deferred tax liabilities. The
cumulative-effect adjustment recorded on the income statement was not material.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES SFAS 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," established accounting and reporting
standards for sales and servicing of financial assets, securitization
transactions and the extinguishment of liabilities. The statement replaced SFAS
125 and provided clarification of issues related to qualified special purpose
entities and additional disclosures about securitizations and the residual
interests retained. SFAS 140 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. Disclosures required for financial statements were effective for fiscal
years ending after December 15, 2000.
U.S. Bancorp 33
<PAGE> 36
NOTE C
BUSINESS COMBINATIONS AND DIVESTITURES
FIRSTAR CORPORATION On October 4, 2000, the Company announced that it had signed
a definitive agreement to be acquired by Firstar Corporation of Milwaukee,
Wisconsin in a tax-free exchange of shares. U.S. Bancorp shareholders will
receive 1.265 shares of the combined company stock for every share of U.S.
Bancorp stock. The transaction closed on February 27, 2001 and was accounted for
as a pooling-of-interests.
Separate results of operations for the periods prior to the merger as originally
reported and on a combined proforma basis were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST INCOME*
Firstar Corporation...................................... $ 2,744.1 $ 2,697.4 $2,595.6
U.S. Bancorp............................................. 3,540.8 3,302.7 3,111.9
----------------------------------------
Proforma combined..................................... $ 6,284.9 $ 6,000.1 $5,707.5
----------------------------------------
TOTAL REVENUE*
Firstar Corporation...................................... $ 4,250.3 $ 4,100.0 $3,960.9
U.S. Bancorp............................................. 6,799.2 6,061.4 5,368.5
----------------------------------------
Proforma combined $11,049.5 $10,161.4 $9,329.4
----------------------------------------
NET INCOME
Firstar Corporation...................................... $ 1,283.6 $ 875.3 $ 805.5
U.S. Bancorp............................................. 1,592.0 1,506.5 1,327.4
----------------------------------------
Proforma combined $ 2,875.6 $ 2,381.8 $2,132.9
----------------------------------------
EARNINGS PER COMMON SHARE
Firstar Corporation...................................... $ 1.33 $ .89 $ .83
U.S. Bancorp............................................. $ 2.14 $ 2.07 $ 1.81
Proforma combined..................................... $ 1.51 $ 1.25 $ 1.12
DILUTED EARNINGS PER COMMON SHARE
Firstar Corporation...................................... $ 1.32 $ .87 $ .81
U.S. Bancorp............................................. $ 2.13 $ 2.06 $ 1.78
Proforma combined..................................... $ 1.50 $ 1.23 $ 1.10
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Net interest income and total revenue were stated on a taxable-equivalent
basis.
ACQUISITIONS During the past three years, the Company has completed several
strategic acquisitions to enhance its presence in certain growth markets and
businesses. The acquisitions of Scripps Financial Corporation, Peninsula Bank of
San Diego and Western Bancorp added 52 branches in southern California including
Los Angeles, Orange and San Diego counties. The acquisitions of Bank of
Commerce, Oliver-Allen Corporation and Lyon Financial Services, Inc., expanded
the Company's SBA lending and leasing capabilities. Additionally, the Payment
Systems business line completed strategic acquisitions of Voyager Fleet Systems
Inc. and the Mellon Network Services' Electronic Fund Transfer Processing unit
in 1999 intended to enhance its payment processing capabilities.
The following table summarizes acquisitions by the Company completed during the
past three years:
<TABLE>
<CAPTION>
Goodwill &
Intangibles Accounting
(Dollars in Millions) Date Assets Deposits Recorded Shares Issued Method
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Scripps Financial Corporation....... 10/13/00 $ 650 $ 618 $ 113 7,435,591 Purchase
Lyon Financial Services, Inc........ 9/28/00 1,289 -- 124 -- Purchase
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
Funds Transfer Processing Unit... 6/30/99 -- -- 78 -- Purchase
Libra Investments, Inc.............. 1/4/99 33 -- 4 1,027,276 Purchase
Northwest Bancshares, Inc........... 12/15/98 377 344 90 -- Purchase
Piper Jaffray Companies, Inc........ 5/1/98 1,272 -- 555 -- Purchase
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DIVESTITURES On September 24, 1999, the Company completed the sale of 28
branches in Kansas and Iowa representing $364 million of deposits. On September
23, 1999, the Company sold $1.8 billion of indirect automobile loans and is in
the process of exiting this business.
34 U.S. Bancorp
<PAGE> 37
NOTE D
MERGER-RELATED CHARGES
The Company recorded merger-related charges of $61.3 million, $62.4 million and
$216.5 million in 2000, 1999 and 1998, respectively. Merger-related charges in
2000 and 1999 related to the Company's various acquisitions (see Note C) and
included primarily system conversion costs and integration costs associated with
consolidating redundant operations. Merger-related charges in 1998 were
primarily due to conversion costs related to the U.S. Bancorp ("USBC") and Piper
Jaffray Companies Inc. ("Piper") acquisitions. The components of the charges are
shown below:
<TABLE>
<CAPTION>
Western
(Dollars in Millions) USBC Piper Jaffray Bancorp Other Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Severance................................................... $ -- $ -- $ -- $ -- $ --
Premises and equipment writedowns........................... -- -- -- -- --
Systems conversions......................................... -- 15.2 10.5 28.7 54.4
Benefit curtailment gains................................... -- -- -- -- --
Other merger-related charges................................ -- 1.9 -- 5.0 6.9
-----------------------------------------------------
Total 2000.................................................. $ -- $17.1 $10.5 $33.7 $ 61.3
1999
Severance................................................... $ 8.0 $ -- $ -- $ -- $ 8.0
Premises and equipment writedowns........................... 1.6 -- -- -- 1.6
Systems conversions......................................... 4.4 12.5 3.3 14.0 34.2
Benefit curtailment gains................................... -- -- -- -- --
Other merger-related charges*............................... 18.6 -- -- -- 18.6
-----------------------------------------------------
Total 1999.................................................. $ 32.6 $12.5 $ 3.3 $14.0 $ 62.4
1998
Severance................................................... $ -- $ -- $ -- $ -- $ --
Premises and equipment writedowns........................... -- -- -- -- --
Systems conversions......................................... 229.4 7.5 -- -- 236.9
Benefit curtailment gains................................... (25.6) -- -- -- (25.6)
Other merger-related charges................................ -- 4.2 -- 1.0 5.2
-----------------------------------------------------
Total 1998.................................................. $203.8 $11.7 $ -- $ 1.0 $216.5
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Other merger-related charges for USBC in 1999 included $11.3 million of
consulting costs and $7.3 million of system contract and other asset writeoffs
associated with conversion of ATM deposit processing systems.
The Company determines merger-related charges and related accruals 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 USBC, 75 for Piper, 175 for Western Bancorp, and 270 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. In 1999, the
Company recognized an $8.0 million charge to establish severance associated with
the consolidation of redundant functions and other displaced employees not
considered in the initial USBC integration plan but eligible for severance under
the change-in-control provisions triggered by the merger. Other merger-related
charges for USBC in 1999 included $11.3 million of consulting costs and $7.3
million of system contract and other asset writeoffs associated with Company's
conversion of ATM processing systems. These actions completed the integration
activities related to USBC. The merger-related severance accrual will be paid in
accordance with the terms of the severance
U.S. Bancorp 35
<PAGE> 38
programs through 2001. The following table presents a summary of activity with
respect to the Company's significant acquisitions:
<TABLE>
<CAPTION>
Piper Western
(Dollars in Millions) USBC Jaffray Bancorp Other Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997................................ $189.0 $ -- $ -- $15.6 $204.6
Provision charged to operating expense................... 203.8 11.7 -- 1.0 216.5
Additions related to purchase acquisitions............... -- 30.5 -- 24.8 55.3
Cash outlays............................................. (273.6) (19.4) -- (17.2) (310.2)
Noncash writedowns and other............................. (37.9) (1.4) -- (.2) (39.5)
-----------------------------------------------
Balance at December 31, 1998................................ $ 81.3 $ 21.4 $ -- $24.0 $126.7
Provision charged to operating expense................... 32.6 12.5 3.3 14.0 62.4
Additions related to purchase acquisitions............... -- 2.4 47.7 20.1 70.2
Cash outlays............................................. (36.0) (17.9) (16.3) (28.2) (98.4)
Transfer to tax liability*............................... (33.8) -- -- -- (33.8)
Noncash writedowns and other............................. (28.2) (.9) (13.9) (12.2) (55.2)
-----------------------------------------------
Balance at December 31, 1999................................ $ 15.9 $ 17.5 $ 20.8 $17.7 $ 71.9
Provision charged to operating expense................... -- 17.1 10.5 33.7 61.3
Additions related to purchase acquisitions............... -- -- 7.6 38.5 46.1
Cash outlays............................................. (11.2) (18.8) (26.4) (50.7) (107.1)
Noncash writedowns and other............................. (4.7) (.8) (7.4) (16.2) (29.1)
-----------------------------------------------
Balance at December 31, 2000 $ -- $ 15.0 $ 5.1 $23.0 $ 43.1
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*The liability relates to certain severance related items.
The following table provides a rollforward of the merger-related accrual for
USBC throughout the integration timeframe:
<TABLE>
<CAPTION>
Severance
By Programs
--------------- Total Investment Lease Cancellations
(Dollars in millions) 1997 1999 Severance Banker Fees and related Writeoffs Other Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.......... $166.4 $ -- $ 166.4 $ 1.8 $ 20.6 $0.2 $189.0
Provision charged to operating
expense.............................. -- -- -- (1.8) -- -- (1.8)
Cash Outlays.......................... (85.1) -- (85.1) -- (10.6) -- (95.7)
Noncash items......................... -- -- -- -- (10.0) (0.2) (10.2)
---------------------------------------------------------------------------------------
Balance at December 31, 1998.......... 81.3 -- 81.3 -- -- -- 81.3
Provision charged to operating
expense.............................. -- 8.0 8.0 -- -- -- 8.0
Cash Outlays.......................... (34.4) (5.2) (39.6) -- -- -- (39.6)
Transfer to tax liability............. (33.8) -- (33.8) -- -- -- (33.8)
---------------------------------------------------------------------------------------
Balance at December 31, 1999.......... 13.1 2.8 15.9 -- -- -- 15.9
Provision charged to operating
expense.............................. -- -- -- -- -- -- --
Cash Outlays.......................... (8.4) (2.8) (11.2) -- -- -- (11.2)
Noncash items......................... (4.7) -- (4.7) -- -- -- (4.7)
---------------------------------------------------------------------------------------
Balance at December 31, 2000.......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of the merger-related accrual were as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
--------------
(Dollars in Millions) 2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
Severance................................................... $13.8 $34.6
Other employee-related costs*............................... 6.8 16.6
Lease termination and facility costs........................ 8.4 9.5
Contracts and system writeoffs.............................. 7.4 6.4
Other....................................................... 6.7 4.8
--------------
Total.................................................... $43.1 $71.9
- ------------------------------------------------------------------------------
</TABLE>
*Other employee-related costs in 1999 included $9.3 million for non-compete
arrangements.
36 U.S. Bancorp
<PAGE> 39
The merger-related accrual by significant acquisition was as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
--------------
(Dollars in Millions) 2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
Piper Jaffray............................................... $15.0 $17.5
Western Bancorp............................................. 5.1 20.8
Scripps Bank................................................ 4.6 --
Bank of Commerce............................................ 4.1 7.5
Zappco, Inc................................................. 3.3 4.1
Peninsula Bank.............................................. 3.0 --
Lyon Financial Services, Inc................................ 2.7 --
Northwest Bancshares, Inc................................... 2.3 3.5
USBC........................................................ -- 15.9
Other acquisitions.......................................... 3.0 2.6
--------------
Total.................................................... $43.1 $71.9
- ------------------------------------------------------------------------------
</TABLE>
The Company expects to incur an additional $30.6 million, pretax, of
merger-related expenses in 2001. This does not include estimated expense for the
merger with Firstar Corporation.
NOTE E
AVAILABLE-FOR-SALE SECURITIES
The detail of the amortized cost, gross unrealized holding gains and losses, and
fair value of available-for-sale securities at December 31 was as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------------------------------------------
Gross Gross Gross
Unrealized Unrealized Unrealized
Amortized Holding Holding Fair Amortized Holding
(Dollars in Millions) Cost Gains Losses Value Cost Gains
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury............................. $ 358 $ 3 $-- $ 361 $ 388 $--
Mortgage-backed........................... 2,495 14 (16) 2,493 2,971 9
Other U.S. agencies....................... 149 3 -- 152 195 3
State and political....................... 1,020 20 (1) 1,039 1,132 11
Other..................................... 236 15 (14) 237 288 3
------------------------------------------------------------------------------------
Total.................................. $4,258 $55 $(31) $4,282 $4,974 $26
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999
----------------------
Gross
Unrealized
Holding Fair
(Dollars in Millions) Losses Value
- ------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury............................. $(7) $ 381
Mortgage-backed........................... (74) 2,906
Other U.S. agencies....................... (2) 196
State and political....................... (8) 1,135
Other..................................... (38) 253
----------------------
Total.................................. ($129) $4,871
- ------------------------------------------------------------------
</TABLE>
Securities carried at $3.7 billion at December 31, 2000, and $4.1 billion at
December 31, 1999, were pledged to secure public, private and trust deposits and
for other purposes required by law. Securities sold under agreements to
repurchase, with an amortized cost of $1.0 billion and $1.2 billion at December
31, 2000, and 1999, respectively, were collateralized by securities and
securities purchased under agreements to resell.
Gross realized gains and losses on securities were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains........................................ $14.6 $14.7 $14.5
Gross realized losses....................................... (7.6) (16.0) (1.9)
-----------------------------
Net realized gains (losses).............................. $ 7.0 $(1.3) $12.6
-----------------------------
Income taxes on realized gains (losses)..................... $ 2.5 $ (.5) $ 4.7
- ---------------------------------------------------------------------------------------------
</TABLE>
For amortized cost, fair value and yield by maturity date of
available-for-sale securities outstanding as of December 31, 2000, see Table 11
on page 14 from which such information is incorporated by reference into these
Notes to Consolidated Financial Statements.
U.S. Bancorp 37
<PAGE> 40
NOTE F
RESTRICTIONS ON CASH AND DUE FROM BANKS
Bank subsidiaries are required to maintain minimum average reserve balances with
the Federal Reserve Bank. The amount of those reserve balances was approximately
$118 million at December 31, 2000, with an average balance of $158 million
during the year ended December 31, 2000.
NOTE G
LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio at December 31 was as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL
Commercial............................................... $29,920 $26,491
Real estate
Commercial mortgage................................... 10,208 9,784
Construction.......................................... 4,443 4,322
Lease financing.......................................... 4,096 2,372
---------------------
Total commercial................................... 48,667 42,969
CONSUMER
Home equity and second mortgage.......................... 9,438 8,681
Credit card.............................................. 4,499 4,313
Revolving credit......................................... 1,868 1,815
Installment.............................................. 896 999
Automobile............................................... 564 884
Student *................................................ 674 563
---------------------
Subtotal.............................................. 17,939 17,255
Residential mortgage..................................... 2,485 2,661
---------------------
Total consumer..................................... 20,424 19,916
---------------------
Total loans..................................... $69,091 $62,885
- -------------------------------------------------------------------------------------
</TABLE>
*All or part of the student loan portfolio may be sold when the repayment period
begins. Loans held for sale were $724 at December 31, 2000, and $608 at
December 31, 1999.
Loans of $6.5 billion at December 31, 2000, and $6.3 billion at December 31,
1999, were pledged at the Federal Home Loan Bank and the Federal Reserve.
Nonaccrual and renegotiated loans totaled $397 million, $310 million, and $279
million at December 31, 2000, 1999 and 1998, respectively. At December 31, 2000,
and 1999, the Company had $359 million and $265 million, respectively, of 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 years ended December 31, 2000, 1999 and 1998, the
average recorded investment in impaired loans was approximately $327 million,
$255 million and $214 million, respectively. The effect of nonaccrual and
renegotiated loans on interest income was as follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------
(Dollars in Millions) 2000 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income that would have been accrued at original
contractual rates........................................ $44.0 $32.7 $22.5
Amount recognized as interest income........................ 13.1 13.0 7.6
-----------------------------
Foregone revenue............................................ $30.9 $19.7 $14.9
- ---------------------------------------------------------------------------------------------
</TABLE>
Commitments to lend additional funds to customers whose loans were
classified as nonaccrual or renegotiated at December 31, 2000, totaled $22.3
million. During 2000, there were no loans that were restructured at market
interest rates and returned to a fully performing status.
38 U.S. Bancorp
<PAGE> 41
Activity in the allowance for credit losses was as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 995.4 $1,000.9 $1,008.7
Add:
Provision charged to operating expense................... 670.0 531.0 379.0
Deduct:
Loans charged off........................................ 786.0 727.7 592.1
Less recoveries of loans charged off..................... 116.1 160.0 157.9
--------------------------------------
Net loans charged off.................................... 669.9 567.7 434.2
Acquisitions and other changes.............................. 71.3 31.2 47.4
--------------------------------------
Balance at end of year...................................... $1,066.8 $ 995.4 $1,000.9
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTE H
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
When the Company sells selected financial assets, it may retain interest-only
strips, servicing rights, assets and/or other retained interests in the
receivables. The gain or loss on sale of the receivables depends in part on the
previous carrying amount of the financial assets involved in the transfer,
allocated between the assets sold and the retained interests based on their
relative fair values at the date of transfer. Market prices are used to
determine retained interest fair values when readily available. However, quotes
are generally not available for retained interests, so the Company estimates
fair value based on the present value of future expected cash flows using
management's best estimates of certain key assumptions including credit losses,
prepayment speeds, forward yield curves and discount rates commensurate with the
risks involved. Retained interests recorded to date have been valued using a
discounted cash flow methodology.
At least quarterly, the Company revalues the retained interests by obtaining
market prices if available or by calculating the present value of estimated
remaining cash flows. When using a present value methodology, key assumptions
from the most recent valuation, including asset specific characteristics, are
reviewed for appropriateness and updated as necessary.
During 2000, the Company sold $255.7 million of the U.S. government
guaranteed portions of loans originated under Small Business Administration
(SBA) programs, recognizing a pre-tax gain on sale of $10.6 million. The SBA
covers losses occurring on these guaranteed portions. Although the Company has
no credit recourse relating to these sales, it does continue to own a portion of
the non-guaranteed elements of the loans.
The Company continues to service the loans and is required under the SBA
programs to retain specified yield amounts. A portion of the yield is recognized
as servicing fee income as it occurs, the remainder is recorded as a servicing
asset and is included in the gain on sale calculation.
SERVICING ASSET POSITION
<TABLE>
<CAPTION>
SBA
(Dollars in Millions) Loans
- -----------------------------------------------------------------
<S> <C>
Servicing assets at December 31, 1999................... $ 4.3
Servicing assets recognized during the period........... 4.0
Amortization............................................ (1.4)
-----
Servicing assets at December 31, 2000................... $ 6.9
- -----------------------------------------------------------------
</TABLE>
No valuation allowances were required during 2000. Servicing assets are reported
in aggregate but measured on a transaction-specific basis. Market values were
determined using discounted cash flows, utilizing the assumptions noted in the
table below. Key economic assumptions used in valuing servicing assets at the
date of sale resulting from sales completed during 2000 were as follows:
<TABLE>
<CAPTION>
2000
(Dollars in Millions) SBA Loans(1)
- ------------------------------------------------------------------
<S> <C>
Fair value of assets recognized................. $7.9
Prepayment speed(2)............................. 21 CPR
Weighted average life (years)................... 3.9
Expected credit losses.......................... Not Applicable
Discount rate................................... 12%
Variable returns to transferees................. Not Applicable
- ------------------------------------------------------------------
</TABLE>
1. All loans were adjustable based on the Wall Street Journal Prime rate.
2. The Company used a prepayment vector based on loan seasoning for valuation.
The given speed was the effective prepayment speed that yields the same
weighted average life calculated using the prepayment vector.
U.S. Bancorp 39
<PAGE> 42
RESIDUAL ECONOMIC ASSUMPTIONS AND SENSITIVITY ANALYSIS
The Company has retained interests on the following asset sales: $1.8 billion
sale of indirect automobile loans on September 24, 1999, $420 million sale of
corporate and purchasing card receivables on February 27, 1997, and sales of SBA
loans since 1988.
At December 31, 2000, key economic assumptions and the sensitivity of the value
of the retained interest to immediate 10 percent and 20 percent adverse changes
in those assumptions were as follows:
<TABLE>
<CAPTION>
Indirect Corporate
Automobile SBA Card
At December 31, 2000 (Dollars in Millions) Loans Loans(1) Receivables(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Carrying amount/fair value of retained interests............ $46.2 $4.2 $8.4
Weighted-average life (in years)............................ 1.0 3.9 .1
PREPAYMENT SPEED ASSUMPTION (ANNUAL RATE)(3,4).............. 1.5 ABS 21 CPR --
Impact on fair value of 10% adverse change............... $(.3) $(.3) --
Impact on fair value of 20% adverse change............... $(.7) $(.6) --
EXPECTED CREDIT LOSSES (CUMULATIVE)......................... 1.6% -- --
Impact on fair value of 10% adverse change............... $(1.2) -- --
Impact on fair value of 20% adverse change............... $(2.4) -- --
RESIDUAL CASH FLOWS DISCOUNT RATE (ANNUAL).................. 12.0% 12.0% --
Impact on fair value of 10% adverse change............... $(.6) $(.2) --
Impact on fair value of 20% adverse change............... $(1.2) $(.3) --
INTEREST RATES ON VARIABLE AND ADJUSTABLE CONTRACTS......... NA NA --
Impact on fair value of 10% adverse change............... NA NA --
Impact on fair value of 20% adverse change............... NA NA --
- --------------------------------------------------------------------------------------------------------
</TABLE>
1. Credit losses are covered by the appropriate SBA loan program and are not
included in retained interests. Principal reductions caused by defaults are
included in the prepayment assumption.
2. Retained interest is effectively a single period receivable that is paid and
renewed each month during the revolving period. Therefore, no assumptions are
used in its estimate. Losses are recognized in the period they occur.
3. The Company uses prepayment vectors based on loan seasoning for valuation.
The given speed is the effective prepayment speed that yields the same
weighted average life calculated using the prepayment vector.
4. ABS is the absolute prepayment rate and is the auto industry's standard
measure of prepayment speed. CPR is the constant prepayment rate.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10 percent variation in
assumptions generally cannot be extrapolated because the relationship of the
change in the assumptions to the change in fair value may not be linear. Also,
in this table the effect of a variation in a particular assumption on the fair
value of the retained interest is calculated without changing any other
assumption; however, changes in one factor may result in changes in another (for
example, increases in market interest rates may result in lower prepayments and
increased credit losses), which might magnify or counteract the sensitivities.
OTHER INFORMATION
The table below summarizes certain cash flows received from and paid to special
purpose entities for the loan sales described above:
<TABLE>
<CAPTION>
Year Ended
December 31
(Dollars in Millions) 2000
- ---------------------------------------------------------------------------
<S> <C>
Proceeds from new sales..................................... $ 266.3
Proceeds from corporate card securitization(1).............. 7,433.4
Reinvestment in corporate card securitization
receivables(2)............................................. (7,328.2)
Servicing fees received..................................... 16.9
Other cash flows received on retained interests(2).......... 34.2
Purchases of delinquent or foreclosed assets................ --
- ---------------------------------------------------------------------------
</TABLE>
1. The corporate card securitization is a revolving transaction where proceeds
are reinvested until its legal termination. The indirect automobile and SBA
loan sales are amortizing transactions where the cash flow is used to pay off
amounts due to investors.
2. This amount represents total cash flows received from retained interests by
the Company other than servicing fees. Other cash flows include, for example,
all cash flows from interest-only strips and cash above the minimum required
level in cash collateral accounts.
40 U.S. Bancorp
<PAGE> 43
Quantitative information relating to loan sales and managed assets are given
below:
<TABLE>
<CAPTION>
December 31, 2000
---------------------------------------------------------------------
Period Ended Year Ended
---------------------------------------------------------------------
Total Principal Average Net Credit
Asset Type (Dollars in Millions) Balance Delinquent Balance* Balance Losses
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indirect automobile loans............................... $1,242.4 $21.0 $1,638.4 $37.6
Guaranteed SBA loans.................................... 827.8 10.6 688.5 --
Corporate card receivables.............................. 815.4 27.3 958.2 8.6
---------------------------------------------------------------------
Total loans managed..................................... $2,885.6 $58.9 $3,285.1 $46.2
Less:
Loans sold or securitized............................ 1,850.8 1,992.6
-------- --------
Loans held in portfolio.............................. $1,034.8 $1,292.5
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Principal amount 60 days or more past due.
NOTE I
PREMISES AND EQUIPMENT
Premises and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
Land........................................................ $ 131 $ 133
Buildings and improvements.................................. 710 886
Furniture, fixtures and equipment........................... 957 824
Capitalized building and equipment leases................... 171 108
----------------
1,969 1,951
Less accumulated depreciation and amortization.............. 1,112 1,089
----------------
Total....................................................... $ 857 $ 862
- --------------------------------------------------------------------------------
</TABLE>
NOTE J
DEPOSITS
The following is a summary of the Company's total deposits as of December 31:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing deposits................................ $15,653 $16,050
Savings accounts............................................ 1,801 2,096
NOW accounts................................................ 7,022 6,160
Money market deposit accounts............................... 13,032 12,487
Time deposits $100,000 and over............................. 5,784 5,595
Foreign deposits $100,000 and over.......................... 644 214
All other time deposits..................................... 9,321 8,928
------------------
Total interest-bearing deposits.......................... 37,604 35,480
------------------
Total deposits........................................... $53,257 $51,530
- ----------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 41
<PAGE> 44
NOTE K
LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) at December
31 consisted of the following:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. BANCORP (Parent Company)
Fixed-rate subordinated notes
8.125% due May 15, 2002.................................. $ 150 $ 150
7.00% due March 15, 2003................................. 150 150
6.625% due May 15, 2003.................................. 100 100
8.00% due July 2, 2004................................... 125 125
7.625% due May 1, 2005................................... 150 150
6.75% due October 15, 2005............................... 300 300
6.875% due September 15, 2007............................ 250 250
7.50% due June 1, 2026................................... 200 200
Medium-term notes........................................... 3,577 2,310
Capitalized lease obligations, mortgage indebtedness and
other...................................................... 126 70
-----------------
5,128 3,805
SUBSIDIARIES
Fixed-rate subordinated notes
6.00% due October 15, 2003............................... 100 100
7.55% due June 15, 2004.................................. 100 100
8.35% due November 1, 2004............................... 100 100
7.30% due August 15, 2005................................ 100 100
6.875% due April 1, 2006................................. 125 125
6.50% due February 1, 2008............................... 300 300
6.30% due July 15, 2008.................................. 300 300
5.70% due December 15, 2008.............................. 400 400
Federal Home Loan Bank advances............................. 2,156 1,998
Bank notes.................................................. 9,051 8,459
Euro medium-term notes due April 13, 2004................... 400 400
Floating-rate notes due February 27, 2000................... -- 250
Capitalized lease obligations, mortgage indebtedness and
other...................................................... 306 126
-----------------
Total.................................................. $18,566 $16,563
- -------------------------------------------------------------------------------
</TABLE>
Medium-term notes outstanding at December 31, 2000, mature from January 2001
through December 2004. The notes bear fixed or floating interest rates ranging
from 6.00 percent to 7.50 percent. The weighted average interest rate at
December 31, 2000, was 6.84 percent. Federal Home Loan Bank (FHLB) advances
outstanding at December 31, 2000, mature from March 2001 through October 2026.
The advances bear fixed or floating interest rates ranging from 5.54 percent to
8.25 percent. The Company has an arrangement with the FHLB whereby based on the
collateral available (residential and commercial mortgages), the Company could
have borrowed an additional $6.7 billion at December 31, 2000. The weighted
average interest rate at December 31, 2000, was 6.64 percent. Bank notes
outstanding at December 31, 2000, mature from January 2001 through November
2005. The notes bear fixed or floating interest rates ranging from 5.25 percent
to 7.02 percent. The weighted average interest rate at December 31, 2000, was
6.73 percent. Euro medium-term notes outstanding at December 31, 2000, bear
floating rate interest at three-month LIBOR plus .15 percent. The interest rate
at December 31, 2000, was 6.95 percent.
42 U.S. Bancorp
<PAGE> 45
Maturities of long-term debt outstanding at December 31, 2000, were:
<TABLE>
<CAPTION>
Parent
(Dollars in Millions) Consolidated Company
- ------------------------------------------------------------------------------------
<S> <C> <C>
2001........................................................ $ 6,977 $ 877
2002........................................................ 3,883 1,061
2003........................................................ 2,663 1,408
2004........................................................ 1,694 782
2005........................................................ 1,425 457
Thereafter.................................................. 1,924 543
----------------------
Total....................................................... $18,566 $ 5,128
- ------------------------------------------------------------------------------------
</TABLE>
NOTE L
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES
OF THE PARENT COMPANY
The Company issued $950 million of preferred securities (the "Preferred
Securities") through three separate issuances by three wholly-owned subsidiary
grantor trusts, FBS Capital I, U.S. Bancorp Capital I and USB Capital II (the
"Trusts"). The Preferred Securities accrue and pay distributions periodically at
specified rates as provided in the indentures. The Trusts used the net proceeds
from the offerings to purchase a like amount of Junior Subordinated Deferrable
Interest Debentures (the "Debentures") of the Company. The Debentures are the
sole assets of the Trusts and are eliminated, along with the related income
statement effects, in the consolidated financial statements. The Company's
obligations under the Debentures and related documents, taken together,
constitute a full and unconditional guarantee by the Company of the obligations
of the Trusts. The guarantee covers the distributions and payments on
liquidation or redemption of the Preferred Securities, but only to the extent of
funds held by the Trusts. The Preferred Securities are mandatorily redeemable
upon the maturity of the Debentures, or upon earlier redemption as provided in
the indentures. The Company has the right to redeem the Debentures in whole,
(but not in part), on or after specific dates, at a redemption price specified
in the indentures plus any accrued but unpaid interest to the redemption date.
The Company used the proceeds from the sales of the Debentures for general
corporate purposes.
USB Capital II completed the sale of $350 million Preferred Securities in
March 1998. The sole asset of USB Capital II is $361 million principal amount
7.20 percent Debentures that mature in April 2028, and are redeemable prior to
maturity at the option of the Company on or after April 1, 2003.
U.S. Bancorp Capital I completed the sale of $300 million Preferred
Securities in December 1996. The sole asset of U.S. Bancorp Capital I is $309
million principal amount 8.27 percent Debentures which mature in December 2026,
and are redeemable prior to maturity at the option of the Company on or after
December 15, 2006.
FBS Capital I completed the sale of $300 million Preferred Securities in
November 1996. The sole asset of FBS Capital I is $309 million principal amount
8.09 percent Debentures which mature in November 2026, and are redeemable prior
to maturity at the option of the Company on or after November 15, 2006.
NOTE M
SHAREHOLDERS' EQUITY
COMMON STOCK At December 31, 2000, the Company had 95.6 million shares of common
stock reserved for future issuances (see Note O).
The Company issued 14.4 million and 37.8 million shares of common stock with
an aggregate value of $.3 billion and $1.3 billion in connection with purchase
acquisitions during 2000 and 1999, respectively (see Note C).
On April 22, 1998, the Company's shareholders authorized an increase in the
Company's capital stock necessary to implement the three-for-one split of the
Company's common stock announced on February 18, 1998. The number of common and
preferred shares which the Company has authority to issue was increased from 500
million shares and 10 million shares, respectively, to 1.5 billion shares and 50
million shares, respectively. The stock split was in the form of a 200 percent
dividend payable May 18, 1998 to shareholders of record on May 4, 1998. The
impact of the stock split has been reflected in the financial statements for all
periods presented and all share and per share data included herein.
On February 16, 2000, the Company's Board of Directors authorized the
repurchase of up to $2.5 billion of the Company's common stock over a two-year
period ending March 31, 2002. The new share
U.S. Bancorp 43
<PAGE> 46
repurchase program replaced a program which was scheduled to expire on March 31,
2000. The shares were repurchased in the open market or through negotiated
transactions. The Company repurchased 20.2 million shares for $432.2 million in
2000; 16.6 million shares for $560.8 million in 1999 and 24.7 million shares for
$964.0 million in 1998. On January 17, 2001, the stock repurchase program was
rescinded in connection with the proposed merger with Firstar Corporation.
The Company's Dividend Reinvestment Plan providing for automatic
reinvestment of dividends and optional cash purchases was suspended on November
9, 2000, following the announcement of the definitive agreement to merge with
Firstar Corporation.
NOTE N
EARNINGS PER SHARE
The components of earnings per share were:
<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Share Data) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS PER SHARE
Net income to common stockholders........................... $1,592.0 $1,506.5 $1,327.4
-----------------------------------------
Average shares outstanding.................................. 745,093,996 727,530,843 733,897,845
-----------------------------------------
Earnings per share.......................................... $ 2.14 $ 2.07 $ 1.81
-----------------------------------------
DILUTED EARNINGS PER SHARE
Net income to common stockholders........................... $1,592.0 $1,506.5 $1,327.4
-----------------------------------------
Average shares outstanding.................................. 745,093,996 727,530,843 733,897,845
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.................. 2,761,628 5,459,968 10,280,298
-----------------------------------------
Dilutive common shares outstanding.......................... 747,855,624 732,990,811 744,178,143
-----------------------------------------
Diluted earnings per share.................................. $ 2.13 $ 2.06 $ 1.78
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE O
EMPLOYEE BENEFITS
RETIREMENT PLANS Pension benefits are provided to substantially all employees
based on years of service and employees' compensation while employed with the
Company. Employees are fully vested after five years of service. The Company's
funding policy is to contribute amounts to its plans sufficient to meet the
minimum funding requirements of the Employee Retirement Income Security Act of
1974, plus such additional amounts as the Company determines to be appropriate.
The actuarial cost method used to compute the pension liabilities and expense is
the projected unit credit method. Prior to their acquisition dates, employees of
certain acquired companies were covered by separate, noncontributory pension
plans that provided benefits based on years of service and compensation. During
1998, the Company merged all the acquired companies' plans into its own plan
with the exception of the FirsTier plan, which was merged in 1999. Prior to
their merger into the Company's plan, the former USBC and West One Bancorp
pension plans determined retirement benefits of participants based on their
years of service and final average compensation. Under the new plan,
participant's retirement benefits are based on a participant's average annual
compensation over his or her career with the Company. These changes resulted in
a reduction of the benefit obligation during 1998. The Company also maintains
several unfunded, nonqualified, supplemental executive retirement programs that
provide additional defined pension benefits for certain employees. The
assumptions used in computing the present value of the accumulated benefit
obligation, the projected benefit obligation and net pension expense are
substantially consistent with those assumptions used for the funded qualified
plans.
OTHER POSTRETIREMENT PLANS In addition to providing pension benefits, the
Company provides certain health care and death benefits to retired employees.
Nearly all employees may become eligible for health care benefits at or after
age 55 if they have completed at least five years of service and their age plus
years of service is equal to or exceeds 65 while working for the Company. The
Company subsidizes the cost of coverage for employees who retire before age 65
with at least 10 years of service. The amount of the subsidy is based on the
employee's age and service at the time of retirement and remains fixed until the
retiree reaches
44 U.S. Bancorp
<PAGE> 47
age 65. After age 65 the retiree assumes responsibility for the full cost of the
coverage. The plan also contains other cost-sharing features such as deductibles
and coinsurance. The Company continues to subsidize the coverage for employees
over age 65 who retired before a plan change eliminated the subsidy. The
estimated cost of these retiree benefit payments is accrued during the
employees' active service.
Information presented in the tables below reflects a measurement date of
September 30. The following table sets forth the components of net periodic
benefit cost for the retirement plans.
<TABLE>
<CAPTION>
Pension Plans Other Postretirement Benefits
---------------------------------------------------------------------
(Dollars in Millions) 2000 1999 1998 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 47.8 $ 46.3 $ 44.3 $ 1.8 $ 2.8 $ 2.2
Interest cost 66.5 61.0 61.8 10.4 10.7 10.7
Expected return on plan assets (102.9) (98.3) (90.7) (.6) (.5) (.4)
Amortization of transition (asset) obligation (2.9) (3.9) (4.0) .7 .8 .8
Amortization of prior service cost (7.7) (8.2) (2.8) (.7) (.7) (.8)
Recognized actuarial loss .7 1.9 1.9 (1.4) .2 --
---------------------------------------------------------------------
Net periodic benefit cost 1.5 (1.2) 10.5 10.2 13.3 12.5
Curtailment and settlement (gains) (11.1) (2.0) (22.6) -- -- (4.3)
---------------------------------------------------------------------
Net periodic benefit cost after curtailment and
settlement (gains) $ (9.6) $ (3.2) $(12.1) $10.2 $13.3 $ 8.2
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following tables summarize benefit obligation and plan asset activity for
the retirement plans.
<TABLE>
<CAPTION>
---------------------------------------------------------
Pension Plans Other Postretirement Plans
(Dollars in Millions) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of measurement period $ 903.8 $ 930.0 $ 149.2 $ 164.6
Service cost 47.8 46.3 1.8 2.8
Interest cost 66.5 61.0 10.4 10.7
Plan participants' contributions -- -- 6.8 3.1
Plan amendments -- (6.4) -- (.9)
Actuarial (gain) loss 16.8 (49.2) 12.9 (17.2)
Acquisitions and special termination benefits -- -- -- 2.9
Benefit payments (45.2) (43.0) (18.1) (16.8)
Settlements (51.6) (34.9) -- --
---------------------------------------------------------
Benefit obligation at end of measurement period $ 938.1 $ 903.8 $ 163.0 $ 149.2
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN FAIR VALUE OF PLAN ASSETS
Fair value at beginning of measurement period $1,152.5 $1,065.0 $ 13.4 $ 11.2
Actual return on plan assets 206.8 159.1 .9 .6
Employer contributions 10.4 6.3 18.8 15.3
Plan participants' contributions -- -- 6.8 3.1
Settlements (51.6) (34.9) -- --
Benefit payments (45.2) (43.0) (18.1) (16.8)
---------------------------------------------------------
Fair value at end of measurement period $1,272.9 $1,152.5 $ 21.8 $ 13.4
- -------------------------------------------------------------------------------------------------------------------------
FUNDED STATUS
Funded status at end of measurement period $ 334.8 $ 248.7 $(141.2) $(135.8)
Unrecognized transition (asset) obligation -- (3.1) 8.8 9.5
Unrecognized prior service cost (76.1) (83.7) (7.8) (8.4)
Unrecognized net (gain) (143.7) (68.6) (9.3) (23.4)
Fourth quarter contribution 1.2 .7 14.2 11.4
---------------------------------------------------------
Net amount recognized $ 116.2 $ 94.0 $(135.3) $(146.7)
- -------------------------------------------------------------------------------------------------------------------------
COMPONENTS OF STATEMENT OF FINANCIAL POSITION:
Prepaid benefit cost $ 203.9 $ 171.2 $ -- $ --
Accrued benefit liability (87.7) (77.2) (135.3) (146.7)
---------------------------------------------------------
Net amount recognized $ 116.2 $ 94.0 $(135.3) $(146.7)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 45
<PAGE> 48
The following table sets forth the weighted average plan assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension Plan Actuarial Computations Discount rate in
determining benefit obligations............................ 7.8% 7.5% 6.5%
Expected long-term return on plan assets................. 9.5 9.5 9.5
Rate of increase in future compensation.................. 5.6 5.6 5.6
Other Postretirement Plan Actuarial Computations
Discount rate in determining benefit obligations......... 7.8% 7.5% 6.5%
Expected long-term return on plan assets................. 5.0 5.0 5.0
Health care cost trend rate(1)
Prior to age 65....................................... 7.7 7.0 7.0
After age 65.......................................... 7.7 5.5 6.4
Effect of One Percent Increase in Health Care Cost Trend
Rate
Service and interest costs............................... $ 1.0 $ 1.3 $ 1.2
Accumulated postretirement benefit obligation............ 13.1 12.4 13.1
Effect of One Percent Decrease in Health Care Cost Trend
Rate
Service and interest costs............................... $ (.9) $(1.0) $(1.0)
Accumulated postretirement benefit obligation............ (11.6) (10.9) (11.8)
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Both rates are assumed to decrease gradually to 5.5% by 2008 and remain at
that level thereafter.
The following table provides information for pension plans with accumulated
benefit obligations in excess of plan assets:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999
- -----------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation.................. $115.7 $95.5
Accumulated benefit obligation................ 94.3 72.8
Fair value of plan assets..................... -- --
- -----------------------------------------------------------------
</TABLE>
EMPLOYEE INVESTMENT PLAN The Company provides a 401(k) Savings Plan formerly
known as the Capital Accumulation Plan which allows qualified employees, at
their option, to make contributions up to certain percentages of pre-tax base
salary through salary deductions under Section 401(k) of the Internal Revenue
Code. A portion of these contributions is matched by the Company. All of the
Company's matching contributions are invested in USB common stock. Employee
contributions are invested, at the employees' direction, among a variety of
investment alternatives. Total expense was $39.4 million, $34.7 million and
$16.6 million in 2000, 1999 and 1998, respectively.
STOCK INCENTIVE AND PURCHASE PLANS The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") in accounting for its employee stock incentive and purchase plans.
Under APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. On the date exercised, if new shares are
issued, the option proceeds equal to the par value of the shares are credited to
common stock and additional proceeds are credited to capital surplus. If
treasury shares are issued, the option proceeds equal to the average treasury
share price are credited to treasury stock and additional proceeds are credited
to capital surplus.
The Employee Stock Purchase Plan ("ESPP") permits all eligible employees
with at least one year of service and directors to purchase common stock. Plan
participants can purchase stock for 85 percent to 100 percent of the fair market
value, which is based on the price at the beginning or the end of the purchase
period, whichever is lower. Any discount is determined by a committee of the
Board of Directors. In 2000 and 1999, the purchase price was 85 percent of fair
market value. The plan results in no compensation expense to the Company. Due to
the merger with Firstar Corporation, the ESPP was terminated effective October
13, 2000.
In April 1999, the shareholders approved the 1999 Stock Incentive Plan
("1999 Plan") whereby all former stock incentive plans of U.S. Bancorp and Piper
Jaffray ("Prior Plans") were incorporated into the 1999 plan. All outstanding
options, restricted stock and other awards subject to the terms of the Prior
Plans will remain outstanding and subject to the terms and conditions of those
plans, but are counted as part of the total number of common shares awarded
under the 1999 Plan. An additional 45 million shares were approved for issuance
by the shareholders under the
46 U.S. Bancorp
<PAGE> 49
1999 Plan. The 1999 Plan allows for the granting of nonqualified stock options,
incentive stock options, stock appreciation rights ("SARs"), restricted stock or
stock units ("RSUs"), performance awards, and other stock-based awards at or
above 100 percent of the market price at the date of grant. The 1999 Plan also
provides automatic grants of stock options to nonemployee directors. The rights
of restricted stock and RSU holders to transfer shares are generally limited
during the restriction period. At December 31, 2000, there were 14.0 million
shares (subject to adjustment for forfeitures) available for grant under the
1999 Plan.
Options granted are generally exercisable up to 10 years from the date of
grant and vest over three to five years. Restricted shares vest over three to
seven years. The vesting of certain options and restricted shares accelerate
based on growth in diluted operating earnings per share and on the performance
of the Company in comparison to the performance of a predetermined group of
regional banks. Compensation expense for restricted stock is based on the market
price of the Company stock at the time of the grant and amortized on a
straight-line basis over the vesting period. For the performance-based
restricted shares, compensation expense is amortized using the estimated vesting
period. Compensation expense related to the restricted stock was $39.4 million,
$36.6 million and $27.8 million in 2000, 1999 and 1998, respectively.
Stock incentive plans of acquired companies are terminated at the merger
closing dates. Option holders under such plans receive the Company's common
stock, or options to buy the Company's stock, based on the conversion terms of
the various merger agreements. The historical option information presented below
has been restated to reflect the options originally granted under acquired
companies' plans.
<TABLE>
<CAPTION>
Weighted Restricted
Options Average Price Shares
Outstanding Per Share Outstanding
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997........................................... 40,866,960 $23.62 2,614,182
Granted:
Stock options............................................ 8,844,793 40.37 --
Restricted stock......................................... -- 1,605,649
Piper Jaffray options converted............................. 1,155,054 16.28 --
Exercised................................................... (15,083,962) 21.88 --
Canceled/vested............................................. (1,315,908) 29.62 (984,907)
-------------------------------------------------
DECEMBER 31, 1998........................................... 34,466,937 28.18 3,234,924
Granted:
Stock options............................................ 46,614,828 35.86 --
Restricted stock......................................... -- 742,932
1999 Acquisitions converted................................. 957,105 20.97 --
Exercised................................................... (7,168,493) 21.42 --
Canceled/vested............................................. (3,334,629) 35.76 (978,931)
-------------------------------------------------
DECEMBER 31, 1999........................................... 71,535,748 33.41 2,998,925
Granted:
Stock options............................................ 7,800,805 21.46
Restricted stock......................................... -- 3,191,721
2000 Acquisitions converted................................. 353,629 8.67
Exercised................................................... (1,339,645) 15.05
Canceled/vested............................................. (5,464,350) 21.82 (1,289,565)
-------------------------------------------------
DECEMBER 31, 2000........................................... 72,886,187 $32.29 4,901,081
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Additional information regarding options outstanding as of December 31, 2000 is
as follows:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
--------------------------------------------- --------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
$1.82 -- $9.99.............................. 930,829 3.0 $ 7.73 917,022 $ 7.73
$10.00 -- $19.99............................ 4,458,787 6.7 16.15 2,276,553 13.59
$20.00 -- $29.99............................ 13,558,828 7.6 23.75 7,458,898 24.34
$30.00 -- $39.99............................ 49,942,857 8.0 35.64 13,580,941 33.84
$40.00 -- $47.06............................ 3,994,886 7.5 43.00 3,826,381 43.01
------------------------------------------------------------------------------
72,886,187 7.8 $32.29 28,059,795 $30.07
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS 123, "Accounting and Disclosure of Stock-Based Compensation"
and has been determined as if the
U.S. Bancorp 47
<PAGE> 50
Company had accounted for its employee stock option and stock purchase plans
(options) under the fair value method of SFAS 123. The fair value of the options
was estimated at the grant date using a Black-Scholes option pricing model.
Option valuation models require the use of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The pro forma disclosures include options granted in 2000, 1999 and 1998 and
are not likely to be representative of the pro forma disclosures for future
years. The estimated fair value of the options is amortized to expense over the
options' vesting period.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
(Dollars in Millions, Except Per Share Data) 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income................. $1,521.7 $1,418.8 $1,254.0
Pro forma earnings per share:
Earnings per share................ $ 2.04 $ 1.95 $ 1.71
Diluted earnings per share........ 2.03 1.94 1.69
- --------------------------------------------------------------------------------
Weighted average assumptions in option
valuation
Risk-free interest rates............. 6.1% 5.4% 5.4%
Dividend yields...................... 3.0 3.5 2.3
Stock volatility factor.............. .37 .27 .25
Expected life of options (in years)... 4.7 6.1 2.3
- --------------------------------------------------------------------------------
</TABLE>
NOTE P
INCOME TAXES
The components of income tax expense were:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL
Current tax................................................. $701.1 $681.5 $612.9
Deferred tax provision...................................... 37.4 46.7 28.2
--------------------------------
Federal income tax....................................... 738.5 728.2 641.1
STATE
Current tax................................................. 123.6 117.8 127.7
Deferred tax provision (credit)............................. 7.2 9.0 (2.3)
--------------------------------
State income tax......................................... 130.8 126.8 125.4
--------------------------------
Total income tax provision............................... $869.3 $855.0 $766.5
- ------------------------------------------------------------------------------------------------
</TABLE>
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate (35%)................................. $861.5 $826.5 $732.9
State income tax, at statutory rates, net of federal tax
benefit.................................................... 85.0 82.4 81.5
Tax effect of:
Tax-exempt interest:
Loans................................................. (8.3) (8.7) (10.9)
Securities............................................ (23.3) (22.7) (23.2)
Amortization of nondeductible goodwill................... 61.1 43.9 32.5
Tax credits and other items.............................. (106.7) (66.4) (46.3)
--------------------------------
Applicable income taxes..................................... $869.3 $855.0 $766.5
- ------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 2000, for income tax purposes, the Company had federal net
operating loss carryforwards of $2.8 million available, which expire in years
2001 through 2009.
Deferred income tax assets and liabilities reflect the tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for the same items for income
tax reporting purposes.
48 U.S. Bancorp
<PAGE> 51
Significant components of the Company's deferred tax assets and liabilities as
of December 31 were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Loan loss reserves.......................................... $ 377.7 $ 382.8
Deferred fees............................................... 75.0 60.3
Postretirement liability.................................... 73.9 69.9
Real estate and other asset basis differences............... 31.9 29.0
Federal operating loss carryforward......................... 1.0 .9
Other deferred tax assets................................... 164.7 168.2
------------------
Gross deferred tax assets................................ 724.2 711.1
DEFERRED TAX LIABILITIES
Leasing activities.......................................... (525.7) (504.8)
Accelerated depreciation.................................... (57.0) (32.5)
Other investment basis differences.......................... (26.2) (16.8)
Unrealized (gain) loss on available-for-sale securities..... (9.2) 38.0
Accrued severance, pension and retirement benefits.......... (5.9) 44.4
Other deferred tax liabilities.............................. (87.0) (81.0)
------------------
Gross deferred tax liabilities (711.0) (552.7)
------------------
NET DEFERRED TAX ASSETS..................................... $ 13.2 $ 158.4
- ----------------------------------------------------------------------------------
</TABLE>
Realization of the deferred tax assets over time is dependent upon the
existence of taxable income in carryback periods or the Company generating
sufficient taxable earnings in future periods. In determining that realization
of the deferred tax assets was more likely than not, the Company gave
consideration to a number of factors, including its taxable income during
carryback periods, its recent earnings history, its expectations for earnings in
the future and, where applicable, the expiration dates associated with tax
carrybacks and carryforwards.
NOTE Q
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CREDIT
CONCENTRATIONS
In the normal course of business, the Company uses various off-balance sheet
financial instruments to 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 at December 31 were as follows:
<TABLE>
<CAPTION>
(Dollars In Millions) 2000 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit
Commercial............................................... $28,193 $28,222
Corporate and purchasing cards........................... 21,236 18,503
Consumer credit cards.................................... 14,622 14,991
Other consumer........................................... 6,049 6,388
Letters of credit
Standby.................................................. 3,631 3,222
Commercial............................................... 379 317
Swap contracts
Interest rate hedges..................................... 7,118 7,743
Basis swap hedges........................................ 1,000 --
Intermediated............................................ 2,412 556
Options contracts
Hedge interest rate floors purchased..................... 500 500
Intermediated interest rate and foreign exchange caps and
floors purchased........................................ 405 453
Intermediated interest rate and foreign exchange caps and
floors written.......................................... 405 453
Futures and forward contracts............................... 25 34
Recourse on assets sold..................................... 76 117
Foreign currency commitments
Commitments to purchase.................................. 1,412 1,137
Commitments to sell...................................... 1,407 1,141
Commitments from securities lending......................... 1,037 717
- ----------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 49
<PAGE> 52
COMMITMENTS TO EXTEND CREDIT Commitments to extend credit are legally binding
and generally have fixed expiration dates or other termination clauses. The
contractual amount represents the Company's exposure to credit loss, in the
event of default by the borrower. The Company manages this credit risk by using
the same credit policies it applies to loans. Collateral is obtained to secure
commitments based on management's credit assessment of the borrower. The
collateral may include marketable securities, receivables, inventory, equipment
and real estate. Since the Company expects many of the commitments to expire
without being drawn, total commitment amounts do not necessarily represent the
Company's future liquidity requirements. In addition, the commitments include
consumer credit lines that are cancelable upon notification to the consumer.
LETTERS OF CREDIT Standby letters of credit are conditional commitments the
Company issues to guarantee the performance of a customer to a third party. The
guarantees frequently support public and private borrowing arrangements,
including commercial paper issuances, bond financings and other similar
transactions. The Company issues commercial letters of credit on behalf of
customers to ensure payment or collection in connection with trade transactions.
In the event of a customer's nonperformance, the Company's credit loss exposure
is the same as in any extension of credit, up to the letter's contractual
amount. Management assesses the borrower's credit to determine the necessary
collateral, which may include marketable securities, real estate, accounts
receivable and inventory. Since the conditions requiring the Company to fund
letters of credit may not occur, the Company expects its liquidity requirements
to be less than the total outstanding commitments.
INTEREST RATE SWAPS AND OPTIONS Interest rate swaps are contracts to exchange
fixed- and variable-rate interest payment obligations based on a notional
principal amount. The Company enters into swaps to hedge its balance sheet
against fluctuations in interest rates and as an intermediary for customers. At
December 31, 2000, and 1999, interest rate swaps totaling $7.1 billion and $7.7
billion, respectively, hedged loans, deposits and long-term debt.
The Company received fixed-rate interest and paid floating-rate interest on
substantially all swaps in its hedging portfolio as of December 31, 2000.
Activity with respect to interest rate swap hedges was as follows:
<TABLE>
<CAPTION>
(Dollars In Millions) 2000 1999 1998
- -------------------------------------------------------------------
<S> <C> <C> <C>
Notional amount outstanding at
beginning of year................. $7,743 $ 7,239 $ 5,315
Additions.......................... 770 4,382 3,140
Maturities......................... (55) (2,142) (1,213)
Amortization....................... (666) (143) --
Terminations....................... (674) (1,593) (3)
----------------------------
Notional amount outstanding at end
of year........................... $7,118 $ 7,743 $ 7,239
- -------------------------------------------------------------------
At December 31:
Weighted average interest rate
paid.............................. 6.73% 6.45% 5.53%
Weighted average interest rate
received.......................... 6.38 6.22 6.17
- -------------------------------------------------------------------
</TABLE>
For the hedging portfolio's notional balances and yields by maturity date as
of year-end 2000, see Table 18 on page 22. For a description of the Company's
objectives for using derivative financial instruments, refer to Use of
Derivatives to Manage Interest Rate Risk on pages 21 and 22. Such information is
incorporated by reference into these Notes to Consolidated Financial Statements.
At December 31, 2000, and 1999, LIBOR-based interest rate floors totaling
$500 million with an average remaining maturity of .7 years and $500 million
with an average remaining maturity of 1.7 years, respectively, hedged floating
rate commercial loans. The strike rate on these LIBOR-based floors was 4.625
percent at December 31, 2000 and December 31, 1999. The premium on floors is
amortized over the life of the contract. The impact of the floors on net
interest income was not significant in 2000, 1999 and 1998.
For swaps and options used as hedges, the Company recognizes interest income
or expense as it is accrued over the terms of the hedge. The gain or loss on a
terminated hedge is amortized over the remaining life of the original swap or
remaining life of the hedged item, whichever is shorter. The impact of the
amortization of deferred gains and losses on hedges on net interest income was
not significant in 2000, 1999 and 1998. Net unamortized deferred losses were
$22.7 million at December 31, 2000.
In addition to utilizing swaps and options as part of its asset/liability
management strategy, the Company acts as an intermediary for swap and option
agreements on behalf of its customers. To reduce its market risk exposure, the
Company generally enters into offsetting positions. The total notional amount of
customer and trading swap agreements, including the offsetting positions, was
$2.4 billion and $556 million at December 31, 2000, and 1999, respectively. The
total notional amount of customer option agreements,
50 U.S. Bancorp
<PAGE> 53
including the offsetting positions, was $810 million and $906 million at
December 31, 2000, and 1999, respectively. Market value changes on intermediated
swaps, options and futures contracts are recognized in income in the period of
change. Realized gains or losses on intermediated transactions were not
significant in 2000, 1999 and 1998.
The credit risk related to interest rate swap and option agreements is that
counterparties may be unable to meet the contractual terms. The Company
estimates this risk by calculating the present value of the cost to replace all
outstanding contracts in a gain position at current market rates, reported on a
net basis by each counterparty. At December 31, 2000, and 1999, the gain
position of these contracts, in the aggregate, was approximately $87 million and
$19 million, respectively.
The Company manages the credit risk of its interest rate swap and option
contracts through bilateral collateral agreements, credit approvals, limits and
monitoring procedures. Commercial lending officers perform credit analyses and
establish counterparty limits. Senior Credit Administration periodically reviews
positions to monitor compliance with the limits. In addition, the Company
reduces the assumed counterparty credit risk through master netting agreements
that permit the Company to settle multiple interest rate contracts with a given
counterparty on a net basis.
FUTURES AND FORWARD CONTRACTS Futures and forward contracts are agreements for
the delayed delivery of securities or cash settlement money market instruments.
The Company enters into futures contracts to hedge the market risk on its fixed
income inventory positions. The Company enters into forward contracts to hedge
the interest rate risk of its mortgage loans held for sale. At December 31,
2000, and 1999, futures contracts outstanding were $25 million and $15 million,
respectively. There were no forward contracts outstanding at December 31, 2000.
Forward contracts outstanding at December 31, 1999 were $19 million. At December
31, 2000, net unamortized deferred gains on the forward agreements were not
significant. The Company manages its credit risk on forward contracts, which
arises from nonperformance by counterparties, through credit approval and limit
procedures.
RECOURSE ON ASSETS SOLD The Company is obligated under recourse provisions
related to the sale of certain loans. The contract amount of these loans was
$1.4 billion at December 31, 2000, and $2.0 billion at December 31, 1999. The
maximum contractual amount of recourse on these loans was $76 million at
December 31, 2000, and $117 million at December 31, 1999.
FOREIGN CURRENCY COMMITMENTS The Company uses foreign currency commitments to
help customers reduce the risks associated with changes in foreign currency
exchange rates. Through these contracts, the Company exchanges currencies at
specified rates on specified dates with various counterparties. The Company
minimizes the market and liquidity risks by taking offsetting positions. In
addition, the Company controls the market risks by limiting the net exposure
through policies, procedures, and monitoring. The Company manages its credit
risk, or potential risk of loss from default by a counterparty, through credit
limit approval and monitoring procedures. The aggregate replacement cost of
contracts in a gain position at December 31, 2000, was not significant.
COMMITMENTS FROM SECURITIES LENDING The Company participates in securities
lending activities by acting as a customer's agent involving the loan or sale of
securities. The Company indemnifies customers for the difference between the
market value of the securities lent and the market value of the collateral
received. These transactions are collateralized by cash.
CREDIT CONCENTRATIONS The Company primarily lends to borrowers in the 16 states
where it has banking offices. Approximately 85 percent of the Company's
commercial loans were made to borrowers, representing a diverse range of
industries, in this operating region. Collateral may include marketable
securities, accounts receivable, inventory and equipment. For detail of the
Company's commercial portfolio by industry type and geography as of December 31,
2000, and 1999, see Table 8 on page 12.
For detail of the Company's real estate portfolio by property type and
geography as of December 31, 2000, and 1999, see Table 9 on page 13. This
information is incorporated by reference into these Notes to Consolidated
Financial Statements. Such loans are collateralized by the related property.
Approximately 84 percent of the total consumer portfolio consists of loans
to customers in the Company's operating region. Residential mortgages, home
equity and auto loans are secured, but other consumer loans are generally not
secured. For detail of the Company's consumer loan portfolio referenced here,
see Table 7 on page 11 under the category "Consumer" as of December 31, 2000,
and 1999, which is incorporated by reference into these Notes to Consolidated
Financial Statements.
U.S. Bancorp 51
<PAGE> 54
NOTE R
FAIR VALUES OF FINANCIAL INSTRUMENTS
Due to the nature of its business and its customers' needs, the Company offers a
large number of financial instruments, most of which are not actively traded.
When market quotes are unavailable, valuation techniques including discounted
cash flow calculations and pricing models or services are used. The Company also
uses various aggregation methods and assumptions, such as the discount rate and
cash flow timing and amounts. As a result, the fair value estimates can neither
be substantiated by independent market comparisons, nor realized by the
immediate sale or settlement of the financial instrument. Also, the estimates
reflect a point in time and could change significantly based on changes in
economic factors such as interest rates. Furthermore, the disclosure of certain
financial and nonfinancial assets and liabilities are not required. Finally, the
fair value disclosure is not intended to estimate a market value of the Company
as a whole. A summary of the Company's valuation techniques and assumptions
follows.
CASH AND CASH EQUIVALENTS The carrying value of cash, federal funds sold and
securities purchased under resale agreements was assumed to approximate fair
value.
SECURITIES Generally, trading account securities and available-for-sale
securities were valued using available market quotes. In some instances, such as
for securities that are not widely traded, market quotes for comparable
securities were used.
LOANS The loan portfolio consists of both floating and fixed-rate loans, the
fair value of which was estimated using discounted cash flow analyses and other
valuation techniques. To calculate discounted cash flows, the loans were
aggregated into pools of similar types and expected repayment terms. The
expected cash flows were reduced for estimated historical prepayment experience.
Projected cash flows on nonaccrual loans were further reduced by the amount of
the estimated losses on the portfolio and discounted over an assumed average
remaining life of less than one year.
COMMERCIAL The fixed-rate loans in the commercial portfolio (excluding
nonaccrual loans) had a weighted average interest rate of 8.1 percent in 2000
and 7.7 percent in 1999. The duration was 1.8 years in 2000 and 1.9 years in
1999. The floating-rate loans had a weighted average interest rate of 9.2
percent in 2000 and 8.5 percent in 1999. The high-grade corporate bond yield
curve was used to arrive at the discount rates applied to these loans.
COMMERCIAL REAL ESTATE AND CONSTRUCTION The fixed-rate portion of this portfolio
(excluding nonaccrual loans) had a weighted average interest rate of 8.3
percent, with a duration of 3.4 years in 2000; and a weighted average interest
rate of 8.2 percent, with a duration of 3.4 years in 1999. The floating-rate
loans (excluding nonaccrual loans) had a weighted average interest rate of 9.1
percent in 2000 and 8.6 percent in 1999. The high-grade corporate bond yield
curve was used to arrive at the discount rates applied to these loans.
LEASE FINANCING The fixed-rate portion of this portfolio (excluding nonaccrual
loans) had a weighted average interest rate of 9.1 percent, with a duration of
2.7 years in 2000; and a weighted average interest rate of 7.3 percent, with a
duration of 3.1 years in 1999. The high-grade corporate bond yield curve was
used to arrive at the discount rates applied to these loans.
RESIDENTIAL FIRST MORTGAGES These loans were segregated into pools of similar
coupons and maturities. The pools were matched to similar mortgage-backed
securities, and market quotes were obtained. The fixed-rate portion of this
portfolio had a weighted average interest rate of 7.6 percent in 2000 and 7.4
percent in 1999. The duration was 2.2 years in 2000 and 3.1 years in 1999. The
floating rate loans (excluding nonaccrual loans) had a weighted average interest
rate of 7.6 percent in 2000 and 7.1 percent in 1999.
HOME EQUITY LINES AND LOANS, SECOND MORTGAGES AND CONSUMER LINES The home equity
lines had a weighted average interest rate of 10.0 percent in 2000 and 9.3
percent in 1999. Fixed-rate home equity loans and second mortgages had a
weighted average interest rate of 9.9 percent in 2000 and 10.0 percent in 1999.
The duration was 1.1 years in 2000 and 1.4 years in 1999. Retail credit cards
had a weighted average interest rate of 12.6 percent in 2000 and 1999, with a
duration of 1.2 years in 2000 and 1.5 years in 1999. Other revolving lines had a
weighted average interest rate of 13.7 percent in 2000 and 11.9 percent in 1999.
Estimated cash flows net of funding and operational costs were discounted using
an estimated cost of capital
CONSUMER INSTALLMENT Prepayment assumptions ranging from 15 to 23 percent were
applied to scheduled cash flows, based on the Company's experience. On the
fixed-rate portion, the weighted average rate was 9.4 percent in 2000 and 1999.
The duration was 1.5 years in 2000 and 1.4 years in 1999. The floating-rate
portion of the consumer installment portfolio had a weighted average interest
rate of 8.8 percent in 2000 and 7.5 percent in 1999.
52 U.S. Bancorp
<PAGE> 55
CORE DEPOSIT INTANGIBLE Core deposits provide a stable, low-cost source of funds
that can be invested to earn a return that exceeds their cost. The fair value of
the Company's core deposit intangible was calculated using a discounted cash
flow model that estimates the present value of net cash flows including the
difference between the ongoing funding cost of the core deposits and alternative
funds at current market rates.
DEPOSIT LIABILITIES The fair value of demand deposits, savings accounts and
certain money market deposits is equal to the amount payable on demand at
year-end. The fair value of fixed-rate certificates of deposit was estimated by
discounting the contractual cash flow using the discount rates implied by the
high-grade corporate bond yield curve.
SHORT-TERM BORROWINGS Federal funds purchased, securities sold under agreements
to repurchase and other short-term funds borrowed are at floating rates or have
short-term maturities. Their carrying value is assumed to approximate their fair
value.
LONG-TERM DEBT AND COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES OF THE
PARENT COMPANY Medium-term notes, Euro medium-term notes, bank notes, Federal
Home Loan Bank Advances, capital lease obligations and mortgage note obligations
totaled $15,251 million in 2000 and $13,237 million in 1999.
Their estimated fair value was determined using a discounted cash flow
analysis based on current market rates of similar maturity debt securities.
Other long-term debt instruments and company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely the junior subordinated
debentures of the parent company were valued using available market quotes.
INTEREST RATE SWAPS, BASIS SWAPS AND OPTIONS The interest rate options and swap
cash flows were estimated using a third party pricing model and discounted based
on appropriate LIBOR, Eurodollar futures, swap and Treasury Note yield curves.
LOAN COMMITMENTS, LETTERS OF CREDIT AND GUARANTEES The Company's commitments
have floating rates and do not expose the Company to interest rate risk. No
premium or discount was ascribed to the loan commitments because virtually all
funding would be at current market rates.
U.S. Bancorp 53
<PAGE> 56
The estimated fair values of the Company's financial instruments are shown in
the table below.
<TABLE>
<CAPTION>
2000 1999
------------------------------------------
Carrying Fair Carrying Fair
(Dollars in Millions) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks.................................. $ 4,142 $ 4,142 $ 4,036 $ 4,036
Federal funds sold and resale agreements................. 457 457 1,037 1,037
Trading account securities............................... 753 753 617 617
Available-for-sale securities............................ 4,282 4,282 4,871 4,871
Loans
Commercial
Commercial......................................... 29,920 31,072 26,491 27,286
Commercial real estate and construction............ 14,651 15,290 14,106 14,717
Lease financing.................................... 4,096 4,190 2,372 2,300
Consumer
Residential mortgage............................... 2,485 2,566 2,661 2,672
Home equity and second mortgage.................... 9,438 9,886 8,681 8,918
Credit card and revolving credit................... 6,367 7,448 6,128 6,865
Other consumer installment......................... 2,134 2,240 2,446 2,484
Allowance for credit losses........................... (1,067) -- (995) --
------------------------------------------
Net loans.......................................... 68,024 72,692 61,890 65,242
------------------------------------------
Total financial assets............................. 77,658 82,326 72,451 75,803
NONFINANCIAL ASSETS
Core deposit intangible.................................. 172 5,053 176 4,837
------------------------------------------
Total.............................................. 77,830 $87,379 72,627 $80,640
------- -------
Other assets............................................. 9,506 8,903
------ --------
Total assets....................................... $87,336 $81,530
------ --------
FINANCIAL LIABILITIES
Deposits
Noninterest-bearing................................... $15,653 $15,653 $16,050 $16,050
Interest-bearing checking and other savings........... 31,176 31,176 29,671 29,671
Time deposits . $100,000.............................. 6,428 6,495 5,809 5,869
------------------------------------------
Total deposits..................................... 53,257 53,324 51,530 51,590
Federal funds purchased............................... 978 978 297 297
Securities sold under agreements to repurchase........ 965 965 1,235 1,235
Other short-term funds borrowed....................... 866 866 724 724
Long-term debt........................................ 18,566 18,658 16,563 16,602
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the
junior subordinated debentures of the parent
company............................................... 950 905 950 844
------------------------------------------
Total financial liabilities........................ 75,582 $75,696 71,299 $71,292
------- -------
NONFINANCIAL LIABILITIES.................................... 3,114 2,593
SHAREHOLDERS' EQUITY........................................ 8,640 7,638
------ --------
Total liabilities and shareholders' equity......... $87,336 $81,530
------ --------
Off-balance sheet financial instruments
Unrecognized gain on interest rate swaps, basis swaps
and options........................................... N/A $ 79 N/A $ 6
Unrecognized loss on interest rate swaps, basis swaps
and options........................................... N/A 56 N/A 240
Loan commitments...................................... N/A -- N/A --
Letters of credit..................................... N/A -- N/A --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
54 U.S. Bancorp
<PAGE> 57
NOTE S
COMMITMENTS AND CONTINGENT LIABILITIES
Rental expense for operating leases amounted to $130.4 million in 2000, $111.2
million in 1999, and $121.0 million in 1998. Future minimum payments, net of
sublease rentals, under capitalized leases and noncancelable operating leases
with initial or remaining terms of one year or more, consisted of the following
at December 31, 2000:
<TABLE>
<CAPTION>
Capitalized Operating
(Dollars in Millions) Leases Leases
- ----------------------------------------------------------------------------------------
<S> <C> <C>
2001........................................................ $ 11.4 $ 149.5
2002........................................................ 10.3 137.1
2003........................................................ 8.7 117.3
2004........................................................ 7.9 90.9
2005........................................................ 6.6 77.5
Thereafter.................................................. 56.5 470.6
------------------------
Total minimum lease payments................................ $101.4 $1,042.9
--------
Less amount representing interest........................... 42.3
------
Present value of net minimum lease payments................. $ 59.1
- ----------------------------------------------------------------------------------------
</TABLE>
Various legal proceedings are currently pending against the Company. Due to
their complex nature, it may be years before some matters are resolved. In the
opinion of management, the aggregate liability, if any, will not have a material
adverse effect on the Company's financial position, liquidity or results of
operations.
NOTE T
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>
Year Ended December 31 (Dollars in Millions) 2000 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes paid........................................... $ 746.9 $ 701.7 $ 552.8
Interest paid............................................... 3,018.4 2,342.9 2,324.1
Net noncash transfers to foreclosed property................ 42.5 31.6 25.0
Change in unrealized gain (loss) on available-for-sale
securities, net of taxes of $47.2 in 2000, $82.0 in 1999
and $7.6 in 1998........................................... 76.8 (133.6) 12.5
---------------------------------
Cash acquisitions of businesses:
Fair value of noncash assets acquired.................... $ 945.1 $ 250.3 $ 2,249.7
Liabilities assumed...................................... (649.1) (29.8) (1,469.5)
---------------------------------
Net................................................... $ 296.0 $ 220.5 $ 780.2
---------------------------------
Stock acquisitions of businesses:
Fair value of noncash assets acquired.................... $1,561.2 $3,521.2 $ --
Net cash acquired........................................ 63.5 462.4 --
Liabilities assumed...................................... (1,327.1) (2,708.1) --
---------------------------------
Net value of common stock issued...................... $ 297.6 $1,275.5 $ --
- -------------------------------------------------------------------------------------------------
</TABLE>
REGULATORY CAPITAL The measures used to assess capital include the capital
ratios established by bank regulatory agencies, including the specific ratios
for the "well capitalized" designation. For a description of the regulatory
capital requirements and the actual ratios as of December 31, 2000, for the
Company and its significant bank subsidiaries, see Tables 19 and 20 from which
such information is incorporated by reference into these Notes to Consolidated
Financial Statements.
U.S. Bancorp 55
<PAGE> 58
NOTE U
U.S. BANCORP (PARENT COMPANY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (Dollars in Millions) 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Deposits with subsidiary banks, principally
interest-bearing........................................... $ 1,408 $ 469
Available-for-sale securities............................... 288 309
Investments in:
Bank affiliates.......................................... 9,120 8,128
Nonbank affiliates....................................... 880 669
Advances to:
Bank affiliates.......................................... 1,071 1,016
Nonbank affiliates....................................... 1,361 1,357
Other assets................................................ 1,368 1,236
---------------------
Total assets.......................................... $15,496 $13,184
---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term funds borrowed................................... $ -- $ 31
Advances from subsidiaries.................................. 97 111
Long-term debt.............................................. 5,128 3,805
Junior subordinated debentures issued to subsidiary
trusts..................................................... 979 979
Other liabilities........................................... 652 620
Shareholders' equity........................................ 8,640 7,638
---------------------
Total liabilities and shareholders' equity............ $15,496 $13,184
- -------------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 (Dollars in Millions) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries (including $915.0, $995.0 and
$1,290.0 from bank subsidiaries)......................... $ 923.5 $1,026.3 $1,387.1
Interest from subsidiaries.................................. 234.8 177.2 159.3
Service and management fees from subsidiaries............... 213.8 191.5 240.4
Other income................................................ 152.1 110.8 119.7
--------------------------------------
Total income.......................................... 1,524.2 1,505.8 1,906.5
EXPENSES
Interest on short-term funds borrowed....................... 5.0 15.5 16.9
Interest on long-term debt.................................. 341.0 217.9 187.2
Interest on junior subordinated debentures issued to
subsidiary trusts.......................................... 76.6 76.6 70.1
Operating expenses paid to subsidiaries..................... 15.5 9.6 78.9
Merger-related charges...................................... 20.8 13.9 25.6
Other expenses.............................................. 153.8 166.5 197.9
--------------------------------------
Total expenses........................................ 612.7 500.0 576.6
--------------------------------------
Income before income taxes and equity in undistributed
income of subsidiaries................................... 911.5 1,005.8 1,329.9
Income tax credit........................................... (8.3) (17.1) (71.0)
--------------------------------------
Income of parent company.................................... 919.8 1,022.9 1,400.9
Equity (deficiency) in undistributed income of subsidiaries:
Bank affiliates.......................................... 640.1 438.1 (101.6)
Nonbank affiliates....................................... 32.1 45.5 28.1
--------------------------------------
672.2 483.6 (73.5)
--------------------------------------
Net income............................................ $1,592.0 $1,506.5 $1,327.4
- ------------------------------------------------------------------------------------------------------
</TABLE>
56 U.S. Bancorp
<PAGE> 59
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (Dollars in Millions) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $1,592.0 $1,506.5 $1,327.4
Adjustments to reconcile net income to net cash provided by
operating activities:
(Equity) deficiency in undistributed income of
subsidiaries............................................ (672.2) (483.6) 73.5
Losses (gains) on available-for-sale securities.......... 4.1 (8.6) (12.5)
Depreciation and amortization of premises and
equipment............................................... 11.2 12.5 12.9
Provision for deferred income taxes...................... 36.3 17.0 4.4
Amortization of goodwill and other intangible assets..... 11.7 11.5 11.0
Decrease (increase) in accrued receivables............... 19.9 (19.4) (3.9)
Increase (decrease) in accrued liabilities............... 41.7 86.7 (124.0)
Other -- net............................................. (204.7) (30.8) (67.0)
--------------------------------------
Net cash provided by operating activities............. 840.0 1,091.8 1,221.8
INVESTING ACTIVITIES
Available-for-sale securities
Sales and maturities..................................... 88.6 127.5 83.0
Purchases................................................ (49.4) (323.5) (59.9)
Investments in subsidiaries................................. (4.6) (26.0) (1,114.6)
Equity distributions from subsidiaries...................... -- 145.0 325.0
Net decrease (increase) in short-term advances to
affiliates................................................. 97.2 (79.4) (496.5)
Long-term advances made to affiliates....................... (200.0) (595.0) (330.0)
Principal collected on long-term advances made to
affiliates................................................. 40.0 285.0 295.0
Other -- net................................................ (127.0) (157.0) (6.8)
--------------------------------------
Net cash used by investing activities................. (155.2) (623.4) (1,304.8)
FINANCING ACTIVITIES
Net (decrease) increase in short-term advances from
subsidiaries............................................... (15.6) 62.6 21.4
Net (decrease) increase in short-term funds borrowed........ (31.0) (16.8) 47.7
Proceeds from long-term debt................................ 1,792.5 1,068.5 1,218.3
Principal payments on long-term debt........................ (526.9) (737.7) (190.5)
Issuance of junior subordinated debentures to subsidiary
trusts..................................................... -- -- 360.8
Proceeds from dividend reinvestment, stock option and stock
purchase plans............................................. 112.7 153.2 220.4
Repurchase of common stock.................................. (432.2) (560.8) (964.0)
Cash dividends.............................................. (644.7) (573.1) (516.4)
--------------------------------------
Net cash provided (used) by financing activities...... 254.8 (604.1) 197.7
--------------------------------------
Change in cash and cash equivalents................... 939.6 (135.7) 114.7
Cash and cash equivalents at beginning of year.............. 468.5 604.2 489.5
--------------------------------------
Cash and cash equivalents at end of year.............. $1,408.1 $ 468.5 $ 604.2
- ------------------------------------------------------------------------------------------------------
</TABLE>
Transfer of funds (dividends, loans or advances) from bank subsidiaries to
the Company is restricted. Federal law prohibits loans unless they are secured
and generally limits any loan to the Company or individual affiliate to 10
percent of the bank's equity. In aggregate, loans to the Company and all
affiliates cannot exceed 20 percent of the bank's equity.
Dividend payments to the Company by its subsidiary banks are subject to
regulatory review and statutory limitations and, in some instances, regulatory
approval. The approval of the Comptroller of the Currency is required if total
dividends by a national bank in any calendar year exceed the bank's net income
for that year combined with its retained net income for the preceding two
calendar years or if the bank's retained earnings are less than zero.
Furthermore, dividends are restricted by the Comptroller of the Currency's
minimum capital constraints for all national banks. Within these guidelines, all
bank subsidiaries have the ability to pay dividends without prior regulatory
approval.
U.S. Bancorp 57
<PAGE> 60
REPORT OF MANAGEMENT
The financial statements of U.S. Bancorp were prepared by management, which is
responsible for their integrity and objectivity. The statements have been
prepared in conformity with accounting principles generally accepted in the
United States appropriate in the circumstances and include amounts that are
based on management's best estimates and judgment. All financial information
throughout the Annual Report on Form 10-K is consistent with that in the
financial statements.
The Company maintains accounting and internal control systems that are
believed to provide reasonable assurance that assets are safeguarded and
transactions are properly authorized and recorded. To test compliance, the
Company carries out an extensive audit program. This program includes a review
for compliance with written policies and procedures and a comprehensive review
of the adequacy and effectiveness of internal control systems. However, there
are limits inherent in all systems of internal accounting control and management
recognizes that errors or irregularities may occur. Based on the recognition
that the costs of such systems should not exceed the benefits to be derived,
management believes the Company's system provides an appropriate cost/benefit
balance.
The Company's independent auditors, Ernst & Young LLP, have been engaged to
render an opinion on the financial statements and to assist in carrying out the
audit program described above. Their opinion on the financial statements is
based on procedures performed in accordance with auditing standards generally
accepted in the United States, including tests of the accounting records to the
extent necessary to allow them to report on the fairness of the financial
statements. Ernst & Young LLP has full access to the Audit Committee and the
Board of Directors.
The management of the Company is committed to and has always maintained and
enforced a philosophy of high ethical standards in the conduct of its business.
Written policies covering conflicts of interest and other subjects are
formulated in a Code of Ethics which is uniformly applicable to all officers and
employees of the Company.
<TABLE>
<S> <C>
/s/ John F. Grundhofer /s/ Jerry A. Grundhofer
JOHN F. GRUNDHOFER JERRY A. GRUNDHOFER
Chairman President and
Chief Executive Officer
/s/ David M. Moffett /s/ Terrance R. Dolan
DAVID M. MOFFETT TERRANCE R. DOLAN
Vice Chairman and Senior Vice President and
Chief Financial Officer Controller
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
U.S. Bancorp
We have audited the accompanying consolidated balance sheets of U.S. Bancorp and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of U.S. Bancorp
and subsidiaries at December 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ ERNST & YOUNG, LLP
Minneapolis, Minnesota
January 18, 2001,
except for Note C, as to which
the date is February 27, 2001
58 U.S. Bancorp
<PAGE> 61
CONSOLIDATED BALANCE SHEET --
FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
% Change
December 31 (Dollars in Millions) 2000 1999 1998 1997 1996 1999-2000
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................... $ 4,142 $ 4,036 $ 4,772 $ 4,739 $ 4,813 2.6%
Federal funds sold and resale agreements.................. 457 1,037 544 692 898 (55.9)
Trading account securities................................ 753 617 537 195 231 22.0
Held-to-maturity securities............................... -- -- -- -- 797 --
Available-for-sale securities
U.S. Treasury.......................................... 361 381 500 628 1,028 (5.2)
Mortgage-backed........................................ 2,493 2,906 3,438 4,366 4,104 (14.2)
State and political.................................... 1,039 1,135 1,255 1,331 573 (8.5)
U.S. agencies and other................................ 389 449 384 560 768 (13.4)
---------------------------------------------------
Total available-for-sale securities................. 4,282 4,871 5,577 6,885 6,473 (12.1)
Loans..................................................... 69,091 62,885 59,122 54,708 52,355 9.9
Less allowance for credit losses....................... 1,067 995 1,001 1,009 993 7.2
---------------------------------------------------
Net loans........................................... 68,024 61,890 58,121 53,699 51,362 9.9
Other assets.............................................. 9,678 9,079 6,887 5,085 5,175 6.6
---------------------------------------------------
Total assets........................................ $87,336 $81,530 $76,438 $71,295 $69,749 7.1%
---------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing.................................... $15,653 $16,050 $16,377 $14,544 $14,344 (2.5)%
Interest-bearing....................................... 37,604 35,480 33,657 34,483 35,012 6.0
---------------------------------------------------
Total deposits...................................... 53,257 51,530 50,034 49,027 49,356 3.4
Short-term borrowings..................................... 2,809 2,256 3,365 3,292 6,592 24.5
Long-term debt............................................ 18,566 16,563 13,781 10,247 5,369 12.1
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the
junior subordinated debentures of the parent company... 950 950 950 600 600 --
Other liabilities......................................... 3,114 2,593 2,338 2,239 2,069 20.1
---------------------------------------------------
Total liabilities................................... 78,696 73,892 70,468 65,405 63,986 6.5
Shareholders' equity...................................... 8,640 7,638 5,970 5,890 5,763 13.1
---------------------------------------------------
Total liabilities and shareholders' equity.......... $87,336 $81,530 $76,438 $71,295 $69,749 7.1%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 59
<PAGE> 62
CONSOLIDATED STATEMENT OF INCOME -- FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
% Change
Year Ended December 31 (Dollars in Millions) 2000 1999 1998 1997 1996 1999-2000
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans................................................ $6,162.0 $5,208.6 $4,921.8 $4,784.5 $4,537.7 18.3%
Securities
Taxable........................................... 230.3 250.6 303.6 371.5 420.5 (8.1)
Exempt from federal income taxes.................. 54.4 57.3 62.8 68.1 71.0 (5.1)
Other interest income................................ 260.4 160.2 119.2 69.5 85.2 62.5
--------------------------------------------------------
Total interest income.......................... 6,707.1 5,676.7 5,407.4 5,293.6 5,114.4 18.2
INTEREST EXPENSE
Deposits............................................. 1,667.9 1,291.2 1,391.0 1,436.8 1,441.3 29.2
Federal funds purchased and repurchase agreements.... 177.4 164.2 153.6 183.0 197.9 8.0
Other short-term funds borrowed...................... 56.2 49.9 59.1 117.6 198.0 12.6
Long-term debt....................................... 1,257.0 833.4 672.7 459.0 303.8 50.8
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the
junior subordinated debentures of the parent
company........................................... 77.3 77.3 70.4 49.1 2.8 --
--------------------------------------------------------
Total interest expense......................... 3,235.8 2,416.0 2,346.8 2,245.5 2,143.8 33.9
--------------------------------------------------------
Net interest income.................................. 3,471.3 3,260.7 3,060.6 3,048.1 2,970.6 6.5
Provision for credit losses.......................... 670.0 531.0 379.0 460.3 271.2 26.2
--------------------------------------------------------
Net interest income after provision for credit
losses............................................ 2,801.3 2,729.7 2,681.6 2,587.8 2,699.4 2.6
NONINTEREST INCOME
Credit card fee revenue.............................. 723.2 603.1 574.8 418.8 351.5 19.9
Trust and investment management fees................. 473.9 459.7 413.0 348.0 302.3 3.1
Service charges on deposit accounts.................. 469.3 434.6 406.0 396.2 377.2 8.0
Investment products fees and commissions............. 359.1 347.7 229.7 65.7 59.7 3.3
Investment banking revenue........................... 356.3 245.4 100.4 -- -- 45.2
Trading account profits and commissions.............. 252.5 215.9 118.1 30.9 29.0 17.0
Available-for-sale securities gains (losses)......... 7.0 (1.3) 12.6 3.6 20.8 *
Gain on sale of mortgage banking operations.......... -- -- -- -- 45.8 --
Termination fee...................................... -- -- -- -- 190.0 --
Other................................................ 617.1 453.6 402.0 352.0 406.8 36.0
--------------------------------------------------------
Total noninterest income....................... 3,258.4 2,758.7 2,256.6 1,615.2 1,783.1 18.1
NONINTEREST EXPENSE
Salaries............................................. 1,677.0 1,460.9 1,210.9 969.3 964.5 14.8
Employee benefits.................................... 279.0 248.4 222.3 217.4 220.3 12.3
Net occupancy........................................ 236.9 204.6 187.4 182.0 179.4 15.8
Furniture and equipment.............................. 167.4 160.1 153.4 165.4 175.2 4.6
Goodwill and other intangible assets................. 235.5 165.6 143.7 113.3 130.1 42.2
Merger-related charges............................... 61.3 62.4 216.5 511.6 88.1 (1.8)
Other................................................ 941.3 824.9 710.1 653.3 780.5 14.1
--------------------------------------------------------
Total noninterest expense...................... 3,598.4 3,126.9 2,844.3 2,812.3 2,538.1 15.1
--------------------------------------------------------
Income before income taxes........................... 2,461.3 2,361.5 2,093.9 1,390.7 1,944.4 4.2
Applicable income taxes.............................. 869.3 855.0 766.5 552.2 725.7 1.7
--------------------------------------------------------
Net income........................................... $1,592.0 $1,506.5 $1,327.4 $ 838.5 $1,218.7 5.7
--------------------------------------------------------
Net income applicable to common equity............... $1,592.0 $1,506.5 $1,327.4 $ 827.9 $1,200.3 5.7%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not meaningful
60 U.S. Bancorp
<PAGE> 63
QUARTERLY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------------------------------------------------
(Dollars in Millions, Except Fourth Third Second First Fourth Third Second First
Per Share Data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans.......................... $1,634.7 $1,582.9 $1,517.5 $1,426.9 $1,364.6 $1,333.3 $1,272.2 $1,238.5
Securities
Taxable..................... 54.8 56.7 58.5 60.3 62.0 64.2 59.8 64.6
Exempt from federal income
taxes...................... 13.1 13.5 13.8 14.0 14.1 14.2 14.3 14.7
Other interest income.......... 65.9 67.2 64.9 62.4 47.3 40.1 38.6 34.2
----------------------------------------------------------------------------------------------
Total interest income.... 1,768.5 1,720.3 1,654.7 1,563.6 1,488.0 1,451.8 1,384.9 1,352.0
INTEREST EXPENSE
Deposits....................... 450.8 442.0 402.2 372.9 352.1 318.7 308.8 311.6
Federal funds purchased and
repurchase agreements....... 50.9 37.0 45.7 43.8 32.8 48.4 43.6 39.4
Other short-term funds
borrowed...................... 14.7 12.9 15.0 13.6 12.0 12.9 12.1 12.9
Long-term debt................. 334.7 343.5 310.2 268.6 241.1 217.8 188.4 186.1
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely the
junior subordinated
debentures of the parent
company..................... 19.3 19.4 19.3 19.3 19.3 19.3 19.4 19.3
----------------------------------------------------------------------------------------------
Total interest expense... 870.4 854.8 792.4 718.2 657.3 617.1 572.3 569.3
----------------------------------------------------------------------------------------------
Net interest income............ 898.1 865.5 862.3 845.4 830.7 834.7 812.6 782.7
Provision for credit losses.... 180.0 173.0 163.0 154.0 146.0 142.0 126.0 117.0
----------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses... 718.1 692.5 699.3 691.4 684.7 692.7 686.6 665.7
NONINTEREST INCOME
Credit card fee revenue........ 193.8 192.8 177.1 159.5 166.3 161.3 148.7 126.8
Trust and investment management
fees.......................... 119.9 119.9 117.0 117.1 116.5 113.8 112.2 117.2
Service charges on deposit
accounts...................... 122.0 120.8 117.5 109.0 111.5 112.2 107.5 103.4
Investment products fees and
commissions................... 79.8 81.3 81.8 116.2 88.0 79.5 91.6 88.6
Investment banking revenue..... 92.2 97.3 72.8 94.0 88.8 60.1 60.3 36.2
Trading account profits and
commissions................... 60.7 50.0 58.2 83.6 65.5 48.4 50.5 51.5
Available-for-sale securities
gains (losses)................ 6.0 1.0 .3 (.3) 2.1 (3.4) -- --
Other.......................... 159.9 163.9 177.0 116.3 125.2 140.7 85.1 102.6
----------------------------------------------------------------------------------------------
Total noninterest
income.................. 834.3 827.0 801.7 795.4 763.9 712.6 655.9 626.3
NONINTEREST EXPENSE
Salaries....................... 413.3 417.5 414.1 432.1 397.7 352.4 356.7 354.1
Employee benefits.............. 70.6 63.0 69.3 76.1 65.0 59.8 53.6 70.0
Net occupancy.................. 65.1 59.5 55.2 57.1 52.8 51.9 49.9 50.0
Furniture and equipment........ 42.1 43.7 40.5 41.1 42.1 40.9 39.0 38.1
Goodwill and other intangible
assets........................ 61.6 58.9 58.4 56.6 49.6 41.6 36.6 37.8
Merger-related charges......... 17.5 15.7 15.0 13.1 27.7 16.8 15.0 2.9
Other.......................... 235.5 241.8 239.1 224.9 236.2 220.8 202.0 165.9
----------------------------------------------------------------------------------------------
Total noninterest
expense................. 905.7 900.1 891.6 901.0 871.1 784.2 752.8 718.8
----------------------------------------------------------------------------------------------
Income before income taxes..... 646.7 619.4 609.4 585.8 577.5 621.1 589.7 573.2
Applicable income taxes........ 228.1 218.1 216.3 206.8 208.5 224.7 215.4 206.4
----------------------------------------------------------------------------------------------
Net income..................... $ 418.6 $ 401.3 $ 393.1 $ 379.0 $ 369.0 $ 396.4 $ 374.3 $ 366.8
----------------------------------------------------------------------------------------------
Earnings per share............. $ .56 $ .54 $ .53 $ .51 $ .50 $ .55 $ .52 $ .51
Diluted earnings per share..... $ .56 $ .54 $ .52 $ .51 $ .50 $ .54 $ .51 $ .50
SELECTED AVERAGE BALANCES
Loans.......................... $ 68,782 $ 67,233 $ 65,998 $ 63,709 $ 61,523 $ 61,349 $ 60,321 $ 59,081
Earning assets................. 77,015 75,713 74,545 72,144 69,540 69,271 67,979 66,738
Total assets................... 86,755 85,108 84,085 81,771 78,859 77,700 76,072 75,107
Deposits....................... 51,696 50,912 50,399 49,703 49,071 47,716 47,979 47,620
Long-term debt................. 18,967 19,592 18,627 17,082 16,161 15,733 14,416 13,967
Common equity.................. 8,417 8,032 7,884 7,697 7,159 6,588 6,312 6,088
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 61
<PAGE> 64
CONSOLIDATED DAILY AVERAGE BALANCE
<TABLE>
Year Ended December 31 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Yields Yields
(Dollars in Millions) Balance Interest and Rates Balance Interest and Rates
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Available-for-sale securities
U.S. Treasury................. $ 378 $ 21.4 5.66% $ 425 $ 24.1 5.67%
Mortgage-backed............... 2,755 186.8 6.78 3,138 206.9 6.59
State and political........... 1,088 81.4 7.48 1,140 86.2 7.56
U.S. agencies and other....... 445 21.1 4.74 450 18.5 4.11
----------------- -------------------
Total available-for-sale
securities.............. 4,666 310.7 6.66 5,153 335.7 6.51
Unrealized (loss) gain on
available-for-sale
securities.............. (99) 18
------ -------
Net available-for-sale
securities.............. 4,567 5,171
Held-to-maturity securities...... -- -- -- -- -- --
Trading account securities....... 779 57.6 7.39 630 41.3 6.56
Federal funds sold and resale
agreements.................... 604 32.1 5.31 535 23.0 4.30
Loans
Commercial
Commercial................. 29,074 2,518.1 8.66 25,030 1,920.1 7.67
Real estate
Commercial mortgage..... 10,123 894.9 8.84 8,645 730.9 8.45
Construction............ 4,440 427.1 9.62 3,661 324.9 8.87
Lease financing............ 2,890 227.8 7.88 2,251 160.8 7.14
----------------- -------------------
Total commercial........ 46,527 4,067.9 8.74 39,587 3,136.7 7.92
Consumer
Home equity and second
mortgage................ 9,051 876.1 9.68 8,039 758.4 9.43
Credit card................ 4,173 580.0 13.90 4,029 528.7 13.12
Other...................... 4,114 446.9 10.86 6,134 581.4 9.48
----------------- -------------------
Subtotal................ 17,338 1,903.0 10.98 18,202 1,868.5 10.27
Residential mortgage....... 2,574 201.5 7.83 2,789 214.8 7.70
----------------- -------------------
Total consumer.......... 19,912 2,104.5 10.57 20,991 2,083.3 9.92
----------------- -------------------
Total loans............. 66,439 6,172.4 9.29 60,578 5,220.0 8.62
Allowance for credit losses... 1,062 998
------ -------
Net loans............... 65,377 59,580
Other earning assets............. 2,375 203.8 8.58 1,496 98.7 6.60
----------------- -------------------
Total earning assets*... 74,863 6,776.6 9.05 68,392 5,718.7 8.36
Other assets..................... 10,736 9,535
------ -------
Total assets............ $84,438 $76,947
------ -------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Noninterest-bearing deposits..... $14,196 $13,760
Interest-bearing deposits
Interest checking............. 6,427 150.0 2.33 6,044 110.3 1.82
Money market accounts......... 12,679 547.6 4.32 12,141 428.5 3.53
Other savings accounts........ 1,941 33.5 1.73 2,223 40.1 1.80
Savings certificates.......... 9,378 552.0 5.89 9,575 479.0 5.00
Certificates over $100,000.... 6,060 384.8 6.35 4,356 233.3 5.36
----------------- -------------------
Total interest-bearing
deposits............... 36,485 1,667.9 4.57 34,339 1,291.2 3.76
Short-term borrowings............ 3,321 233.6 7.03 3,887 214.1 5.51
Long-term debt................... 18,571 1,257.0 6.77 15,077 833.4 5.53
Company-obligated mandatorily
redeemable preferred
securities.................... 950 77.3 8.14 950 77.3 8.14
----------------- -------------------
Total interest-bearing
liabilities............ 59,327 3,235.8 5.45 54,253 2,416.0 4.45
Other liabilities................ 2,906 2,394
Preferred equity................. -- --
Common equity.................... 8,067 6,528
Accumulated other comprehensive
income........................ (58) 12
------ -------
Total liabilities and
shareholders' equity... $84,438 $76,947
------ -------
Net interest income.............. $3,540.8 $3,302.7
------- -------
Gross interest margin............ 3.60% 3.91%
-------- --------
Gross interest margin without
taxable-equivalent
increments.................... 3.51% 3.85%
-------- --------
PERCENT OF EARNING ASSETS
Interest income.................. 9.05% 8.36%
Interest expense................. 4.32 3.53
-------- --------
Net interest margin.............. 4.73 4.83
-------- --------
Net interest margin without
taxable-equivalent
increments.................... 4.64% 4.77%
- -------------------------------------------------------------------------------------------------------------------
</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.
62 U.S. Bancorp
<PAGE> 65
SHEET AND RELATED YIELDS AND RATES
<TABLE>
1998 1997 1996 1999-2000
- ------------------------------------------------------------------------------------------------------------------------
%
Change
Yields Yields Yields Average
Balance Interest and Rates Balance Interest and Rates Balance Interest and Rates Balance
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 565 $ 32.8 5.81% $ 734 $ 42.7 5.82% $ 1,255 $ 74.3 5.92% (11.1)%
3,667 247.1 6.74 4,239 290.5 6.85 4,158 279.7 6.73 (12.2)
1,260 98.2 7.79 889 69.8 7.85 555 47.0 8.47 (4.6)
403 21.9 5.43 595 36.1 6.07 978 65.7 6.72 (1.1)
- -------------------- ------------------ ------------------
5,895 400.0 6.79 6,457 439.1 6.80 6,946 466.7 6.72 (9.5)
97 3 (21) **
- --------- ------- -------
5,992 6,460 6,925 (11.7)
-- -- -- 449 35.5 7.91 834 64.0 7.67 --
290 18.7 6.45 168 9.7 5.77 233 13.2 5.67 23.7
667 35.0 5.25 577 31.6 5.48 872 46.5 5.33 12.9
22,608 1,794.6 7.94 20,578 1,690.0 8.21 19,211 1,583.0 8.24 16.2
8,129 712.8 8.77 8,037 728.5 9.06 7,630 687.5 9.01 17.1
2,652 240.1 9.05 2,255 216.9 9.62 1,707 165.4 9.69 21.3
2,000 151.1 7.56 1,888 139.8 7.40 1,699 125.0 7.36 28.4
- -------------------- ------------------ ------------------
35,389 2,898.6 8.19 32,758 2,775.2 8.47 30,247 2,560.9 8.47 17.5
6,130 585.0 9.54 5,555 532.6 9.59 4,708 441.4 9.38 12.6
4,021 508.3 12.64 3,702 462.9 12.50 3,452 444.0 12.86 3.6
6,803 656.0 9.64 6,894 673.2 9.77 7,037 680.6 9.67 (32.9)
- -------------------- ------------------ ------------------
16,954 1,749.3 10.32 16,151 1,668.7 10.33 15,197 1,566.0 10.30 (4.7)
3,636 289.6 7.96 4,604 363.3 7.89 5,411 435.7 8.05 (7.7)
- -------------------- ------------------ ------------------
20,590 2,038.9 9.90 20,755 2,032.0 9.79 20,608 2,001.7 9.71 (5.1)
- -------------------- ------------------ ------------------
55,979 4,937.5 8.82 53,513 4,807.2 8.98 50,855 4,562.6 8.97 9.7
997 998 973 6.4
- --------- ------------------ -------
54,982 52,515 49,882 9.7
1,037 67.5 6.51 511 28.4 5.56 461 25.5 5.53 58.8
- -------------------- ------------------ ------------------
63,868 5,458.7 8.55 61,675 5,351.5 8.68 60,201 5,178.5 8.60 9.5
8,823 8,091 8,195 12.6
- --------- ------- -------
$71,791 $68,771 $67,402 9.7%
- --------- ------- -------
$13,497 $12,680 $11,970 3.2%
5,754 104.2 1.81 5,561 92.2 1.66 5,678 90.1 1.59 6.3
11,201 437.9 3.91 10,440 401.9 3.85 10,068 379.4 3.77 4.4
2,465 51.2 2.08 2,799 61.2 2.19 3,157 70.7 2.24 (12.7)
11,309 616.8 5.45 12,278 668.9 5.45 12,985 703.2 5.42 (2.1)
3,101 180.9 5.83 3,578 212.6 5.94 3,394 197.9 5.83 39.1
- -------------------- ------------------ ------------------
33,830 1,391.0 4.11 34,656 1,436.8 4.15 35,282 1,441.3 4.09 6.2
3,733 212.7 5.70 5,314 300.6 5.66 7,187 395.9 5.51 (14.6)
11,481 672.7 5.86 7,527 459.0 6.10 4,908 303.8 6.19 23.2
864 70.4 8.15 600 49.1 8.18 36 2.8 8.18 --
- -------------------- ------------------ ------------------
49,908 2,346.8 4.70 48,097 2,245.5 4.67 47,413 2,143.8 4.52 9.4
2,337 2,196 2,100 21.4
-- 131 240 --
5,989 5,665 5,693 23.6
60 2 (14) **
- --------- ------- -------
$71,791 $68,771 $67,402 9.7%
- --------- ------- ------- -----
$3,111.9 $3,106.0 $3,034.7
-------- -------- --------
3.85% 4.01% 4.08%
-------- -------- --------
3.77% 3.91% 3.98%
-------- -------- --------
8.55% 8.68% 8.60%
3.68 3.64 3.56
-------- -------- --------
4.87 5.04 5.04
-------- -------- --------
4.79% 4.94% 4.93%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 63
<PAGE> 66
SUPPLEMENTAL FINANCIAL DATA
<TABLE>
<CAPTION>
EARNINGS PER SHARE SUMMARY 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings per share.................................... $2.14 $2.07 $1.81 $1.13 $1.60
Diluted earnings per share............................ 2.13 2.06 1.78 1.11 1.57
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS
- ---------------------------------------------------------------------------------------------------------------------------------
Return on average assets.............................. 1.89% 1.96% 1.85% 1.22% 1.81%
Return on average common equity....................... 19.9 23.0 21.9 14.6 21.1
Average total equity to average assets................ 9.5 8.5 8.4 8.4 8.8
Dividends per share to net income per share........... 40.2 37.7 38.7 54.9 34.4
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
- ---------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding -- year-end *............... 752,059,861 753,330,212 725,761,718 739,933,014 738,017,970
Average common shares outstanding and common stock
equivalents
Earnings per share.............................. 745,093,996 727,530,843 733,897,845 733,550,892 749,178,474
Diluted earnings per share...................... 747,855,624 732,990,811 744,178,143 742,913,736 766,172,004
Number of shareholders -- year-end**.................. 47,094 38,104 38,069 41,657 43,353
Average number of employees (full-time equivalents)... 28,949 26,891 26,526 25,858 27,157
Common dividends paid (millions)...................... $644.7 $573.1 $516.4 $445.7 $406.9
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Defined as total common shares less common stock held in treasury.
**Based on number of common stock shareholders of record.
STOCK PRICE RANGE AND DIVIDENDS
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------------------------------------------------------
Sales Price Sales Price
-------------------------- Dividends -------------------------- Dividends
High Low Paid High Low Paid
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter..................... $24.00 $16.88 $ .215 $37.94 $30.13 $ .195
Second quarter.................... 27.38 19.13 .215 37.81 30.50 .195
Third quarter..................... 23.25 18.00 .215 34.81 28.06 .195
Fourth quarter.................... 30.44 19.38 .215 38.06 21.88 .195
Closing price -- December 31...... 29.19 23.81
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under
the ticker symbol "USB."
64 U.S. Bancorp
<PAGE> 67
COMMERCIAL LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
December 31, 2000
---------------------------------------------
In 1 Year After 1 Year
(Dollars in Millions) or Less Through 5 Years After 5 Years
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial.................................................. $26,200 $ 3,387 $ 333
Real estate
Commercial mortgage...................................... 4,788 3,818 1,602
Construction............................................. 4,114 245 84
Lease financing............................................. 956 2,403 737
---------------------------------------------
Total................................................. $36,058 $ 9,853 $ 2,756
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Due in Due After
One Year One Year Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans at fixed interest rates............................... $ 4,384 $ 9,453 $13,837
Loans at variable interest rates............................ 31,674 3,156 34,830
---------------------------------------------
Total................................................. $36,058 $12,609 $48,667
- -------------------------------------------------------------------------------------------------------------
</TABLE>
TIME CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS IN DENOMINATIONS OF
$100,000 OR MORE AT DECEMBER 31
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------
Under Three Six to Over
Three to Six Twelve Twelve
(Dollars in Millions) Months Months Months Months Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000.................................................... $3,615 $ 929 $1,038 $846 $6,428
1999.................................................... 3,474 1,193 566 576 5,809
1998.................................................... 1,541 365 439 478 2,823
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SHORT-TERM FUNDS BORROWED
<TABLE>
<CAPTION>
Average Maximum Average Weighted
Daily Outstanding Interest Rate Average
Outstanding Amount Month End Paid During Interest Rate
(Dollars in Millions) at Year End Outstanding Balance the Year at Year End
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Federal funds purchased and
securities sold under agreements
to repurchase................... $ 1,943 $ 2,386 $ 3,748 7.44% 5.93%
Other.............................. 866 935 1,109 6.01 5.63
--------------------------
Total..................... $ 2,809 $ 3,321 4,857 7.03 5.83
--------------------------
1999
Federal funds purchased and
securities sold under agreements
to repurchase................... $ 1,532 $ 2,877 $ 3,701 5.71% 4.74%
Other.............................. 724 1,010 1,254 4.94 4.95
--------------------------
Total..................... $ 2,256 $ 3,887 4,752 5.51 4.80
--------------------------
1998
Federal funds purchased and
securities sold under agreements
to repurchase................... $ 2,682 $ 2,582 $ 2,775 5.95% 4.60%
Other.............................. 683 1,151 1,500 5.13 4.54
--------------------------
Total..................... $ 3,365 $ 3,733 3,909 5.70 4.59
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
U.S. Bancorp 65
<PAGE> 68
BUSINESS
GENERAL U.S. Bancorp (the "Company") is a multi-state bank holding company
headquartered in Minneapolis, Minnesota. The Company was incorporated in
Delaware in 1929. In February 2001, the Company completed a merger with Firstar
Corporation of Milwaukee, Wisconsin. Following the merger, the Company owns 100
percent of the capital stock of each of seven banks and eleven trust companies
having approximately 2,200 banking offices in 24 Midwestern and Western states.
The Company offers full-service brokerage services at approximately 100 offices
through a wholly owned subsidiary. The Company also has various nonbank
subsidiaries engaged in financial services.
The banks are engaged in general commercial banking business, principally in
domestic markets. They range in size from less than $1.0 million to $53.5
billion in deposits and provide a wide variety of services to individuals,
businesses, industry, institutional organizations, governmental entities and
other financial institutions. Depository services include checking accounts,
savings accounts and time certificate contracts. Ancillary services such as
treasury management and receivable lockbox collection are provided for corporate
customers. The Company's bank and trust subsidiaries provide a full range of
fiduciary activities for individuals, estates, foundations, business
corporations and charitable organizations.
The Company provides banking services through its subsidiary banks to both
domestic and foreign customers and correspondent banks. These services include
consumer banking, commercial lending, financing of import/export trade, foreign
exchange and investment services.
The Company, through its subsidiaries, also provides services in trust,
commercial and agricultural finance, data processing, leasing and brokerage
services.
On a full-time equivalent basis during 2000, employment of the Company prior
to the merger with Firstar Corporation averaged a total of 28,949 employees.
COMPETITION The commercial banking business is highly competitive. Subsidiary
banks compete with other commercial banks and with other financial institutions,
including savings and loan associations, mutual savings banks, finance
companies, mortgage banking companies, credit unions and investment companies.
In recent years, competition has increased from institutions not subject to the
same regulatory restrictions as domestic banks and bank holding companies.
GOVERNMENT POLICIES The operations of the Company's various operating units are
affected by state and federal legislative changes and by policies of various
regulatory authorities, including those of the several states in which they
operate, the United States and foreign governments. These policies include, for
example, statutory maximum legal lending rates, domestic monetary policies of
the Board of Governors of the Federal Reserve System, United States fiscal
policy, international currency regulations and monetary policies, and capital
adequacy and liquidity constraints imposed by bank regulatory agencies.
SUPERVISION AND REGULATION The Company is a registered bank holding company
under the Bank Holding Company Act of 1956 (the "Act") and is subject to the
supervision of, and regulation by, the Board of Governors of the Federal Reserve
System (the "Board").
Under the Act, a bank holding company may engage in banking, managing or
controlling banks, furnishing or performing services for banks it controls, and
conducting activities that the Board has determined to be closely related to
banking. The Company must obtain the prior approval of the Board before
acquiring more than five percent of the outstanding shares of another bank or
bank holding company, and must provide notice to, and in some situations obtain
the prior approval of, the Board in connection with the acquisition of more than
five percent of the outstanding shares of a company engaged in a "bank-related"
business.
Under the Act, as amended by the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act"), the Company may acquire
banks throughout the United States, subject only to state or federal deposit
caps and state minimum-age requirements. The Interstate Act authorized
interstate branching by acquisition and consolidation in those states that had
not opted out of interstate branching.
The Gramm-Leach-Bliley Act of 1999 eliminates many of the restrictions
placed on the activities of certain qualified bank holding companies. Effective
March 11, 2000, a bank holding company can qualify as a "financial holding
company" and expand into a wide variety of financial services, including
securities activities, insurance and merchant banking without the prior approval
of the Board. The Company qualified as a financial holding company on March 13,
2000.
National banks are subject to the supervision of, and are examined by, the
Comptroller of the Currency. All subsidiary banks of the Company are members of
the Federal Deposit Insurance Corporation ("FDIC") and are subject to
examination by the FDIC. In practice, the primary federal regulator makes
regular examinations of each subsidiary bank subject to its regulatory review or
participates in joint examinations with other federal regulators. Areas subject
to regulation by federal authorities include the allowance for credit losses,
investments, loans, mergers, issuance of securities, payment of dividends,
establishment of branches and other aspects of operations.
PROPERTIES
The Company and its significant subsidiaries occupy their headquarter offices
through both ownership and under long-term leases. The Company leases seven
freestanding operations centers in St. Paul, Milwaukee, Nashville and Denver,
and owns operations centers in Cincinnati, Kansas City, St. Louis, Fargo and
Portland. At December 31, 2000, the subsidiaries of the Company prior to the
merger with Firstar Corporation owned and operated a total of 599 facilities and
leased an additional 780 facilities, all of which are well maintained.
Additional information with respect to premises and equipment is presented in
Notes I and S to Consolidated Financial Statements.
66 U.S. Bancorp
<PAGE> 69
EXHIBITS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS FILED Page
- ----------------------------------------------------------------
<S> <C>
U.S. Bancorp and Subsidiaries Consolidated Financial
Statements 27
Notes to Consolidated Financial Statements 31
Report of Independent Auditors 58
</TABLE>
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are omitted since the required information is included in the
footnotes or is not applicable.
During the three months ended December 31, 2000, the Company filed the
following Current Reports on Form 8-K:
Form 8-K filed October 4, 2000 announcing entry into an Agreement and Plan
of Merger with Firstar Corporation; and
Form 8-K filed October 12, 2000 attaching copy of Agreement and Plan of
Merger with Firstar Corporation.
The following Exhibit Index lists the Exhibits to the Annual Report on Form
10-K.
<TABLE>
<C> <S>
(1)2.1 Agreement and Plan of Merger, dated as of October 3,
2000, as amended, between U.S. Bancorp and Firstar
Corporation. Filed as Exhibits 2.1, 2.2 and 2.3 to
Registration Statement on Form S-4, File No.
333-48532.
(1)2.2 Stock Option Agreement, dated October 3, 2000, between
Firstar Corporation and U.S. Bancorp. Filed as Exhibit
2.4 to Registration Statement on Form S-4, File No.
333-48532.
(1)2.3 Stock Option Agreement, dated October 3, 2000, between
U.S. Bancorp and Firstar Corporation. Filed as Exhibit
2.5 to Registration Statement on Form S-4, File No.
333-48532.
3.1 Restated Certificate of Incorporation, as amended.
3.2 Restated Bylaws.
4.1 [Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K,
copies of instruments defining the rights of holders
of long-term debt are not filed. U.S. Bancorp agrees
to furnish a copy thereof to the Securities and
Exchange Commission upon request.]
(1)4.2 Warrant Agreement, dated as of October 2, 1995,
between U.S. Bancorp and First Chicago Trust Company
of New York, as Warrant Agent and Form of Warrant.
Filed as Exhibits 4.18 and 4.19 to Registration
Statement on Form S-3, File No. 33-61667.
(1)4.3 Certificate of Designation and Terms of Term
Participating Preferred Stock of U.S. Bancorp. Filed
as Exhibit 4.1 to Registration Statement on Form S-4,
File No. 333-75603.
(1)4.4 Forms of Warrant Agreements, dated as of November 5,
1996, between Monarch Bancorp (predecessor of Western
Bancorp) and certain Warrantholders, and accompanying
Forms of Warrants, assumed by U.S. Bancorp upon its
acquisition of Western Bancorp on November 15, 1999.
Filed as Exhibit 4.5 to report on Form 10-K for the
year ended December 31, 1999.
(1)(2)10.1 U.S. Bancorp 1999 Stock Incentive Plan, as amended.
Filed as Exhibit 10.2 to report on Form 10-K for the
year ended December 31, 1999.
(1)(2)10.2 Description of U.S. Bancorp Stock Option Loan Policy.
Filed as Exhibit 10M to report on Form 10-K for the
year ended December 31, 1996.
(1)(2)10.3 U.S. Bancorp 1995 Executive Incentive Plan, as
amended. Filed as Exhibit 10A to report on Form 10-Q
for the quarter ended March 31, 1997.
(1)(2)10.4 U.S. Bancorp Annual Incentive Plan, as amended. Filed
as Exhibit 10E to report on Form 10-K for the year
ended December 31, 1996.
(1)(2)10.5 U.S. Bancorp Executive Deferral Plan, as amended.
Filed as Exhibit 10.7 to report on Form 10-K for the
year ended December 31, 1999.
(1)(2)10.6 U.S. Bancorp Nonqualified Supplemental Executive
Retirement Plan, as amended. Filed as Exhibit 10.8 to
report on Form 10-K for the year ended December 31,
1999.
(1)(2)10.7 U.S. Bancorp Special Executive Deferral Plan, as
amended. Filed as Exhibit 10.9 to report on Form 10-K
for the year ended December 31, 1999.
(1)(2)10.8 Amended and Restated Supplemental Benefits Plan of the
former U.S. Bancorp. Filed as Exhibit 10.10 to report
on Form 10-K for the year ended December 31, 1997.
(1)(2)10.9 1991 Executive Deferred Compensation Plan, as amended,
of the former U.S. Bancorp. Filed as Exhibit 10.11 to
report on Form 10-K for the year ended December 31,
1997.
(1)(2)10.10 Deferred Compensation Trust Agreement of the former
U.S. Bancorp. Filed as Exhibit 10.12 to report on Form
10-K for the year ended December 31, 1997.
(1)(2)10.11 1991 Performance and Equity Incentive Plan of the
former U.S. Bancorp. Filed as Exhibit 10.13 to report
on Form 10-K for the year ended December 31, 1997.
(1)(2)10.12 Description of Retirement Benefits of Joshua Green
III. Filed as Exhibit 10.14 to report on Form 10-K for
the year ended December 31, 1997.
(1)(2)10.13 Form of Director Indemnification Agreement entered
into with former Directors of the former U.S. Bancorp.
Filed as Exhibit 10.15 to report on Form 10-K for the
year ended December 31, 1997.
(1)(2)10.14 Description of health insurance premium reimbursement
plan for former Directors of West One Bancorp. Filed
as Exhibit 10.16 to report on Form 10-K for the year
ended December 31, 1997.
(1)(2)10.15 U.S. Bancorp Independent Director Retirement and Death
Benefit Plan, as amended. Filed as Exhibit 10.17 to
report on Form 10-K for the year ended December 31,
1999.
(1)(2)10.16 U.S. Bancorp Deferred Compensation Plan for Directors,
as amended. Filed as Exhibit 10.18 to report on Form
10-K for the year ended December 31, 1999.
(1)(2)10.17 Form of Change-in-Control Agreement between U.S.
Bancorp and certain officers of the Company. Filed as
Exhibit 10.19 to report on Form 10-K for the year
ended December 31, 1999.
(1)(2)10.18 Amended and Restated Employment Agreement with John F.
Grundhofer. Filed as Exhibit 10.1 to report on Form
10-Q for the quarter ended June 30, 2000.
(1)(2)10.19 Employment Agreement with Andrew S. Duff. Filed as
Exhibit 10.24 to report on Form 10-K for the year
ended December 31, 1999.
(2)10.20 Separation Agreement and General Release with Philip
G. Heasley.
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
</TABLE>
(1) Exhibit has heretofore been filed with the Securities and Exchange
Commission and is incorporated herein as an exhibit by reference.
(2) Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.
U.S. Bancorp 67
<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on February
27, 2001, on its behalf by the undersigned thereunto duly authorized.
U.S. Bancorp
By: John F. Grundhofer
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 27, 2001, by the following persons on behalf
of the registrant and in the capacities indicated.
JERRY A. GRUNDHOFER
President, Chief Executive Officer and Director
(principal executive officer)
DAVID M. MOFFETT
Vice Chairman and Chief Financial Officer
(principal financial officer)
TERRANCE R. DOLAN
Senior Vice President and Controller
(principal accounting officer)
JOHN F. GRUNDHOFER
Chairman and Director
LINDA L. AHLERS
Director
ARTHUR D. COLLINS, JR.
Director
PETER H. COORS
Director
JOHN C. DANNEMILLER
Director
VICTORIA BUYNISKI GLUCKMAN
Director
JOSHUA GREEN III
Director
J.P. HAYDEN, JR.
Director
ROGER L. HOWE
Director
THOMAS H. JACOBSEN
Director
DELBERT W. JOHNSON
Director
JOEL W. JOHNSON
Director
JERRY W. LEVIN
Director
SHELDON B. LUBAR
Director
FRANK LYON, JR.
Director
DANIEL F. MCKEITHAN, JR.
Director
DAVID B. O'MALEY
Director
O'DELL M. OWENS, M.D., M.P.H.
Director
THOMAS E. PETRY
Director
RICHARD G. REITEN
Director
S. WALTER RICHEY
Director
WARREN R. STALEY
Director
JOHN J. STOLLENWERK
Director
PATRICK T. STOKES
Director
68 U.S. Bancorp
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>c59511ex3-1.txt
<DESCRIPTION>RESTATED CERTIFICATE OF INCORPORATION
<TEXT>
<PAGE> 1
COMPOSITE COPY
(As filed 8/1/97 and
amended through 2/27/01)
RESTATED
CERTIFICATE OF INCORPORATION
OF
U.S. BANCORP
FIRST: The name of this corporation is U.S. Bancorp.
SECOND: The registered office of the corporation in the State of
Delaware is to be located at 1209 Orange Street in the City of Wilmington,
County of New Castle. The name of the registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any part of the
world in any capacity in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware, and the corporation
shall be authorized to exercise and enjoy all powers, rights and privileges
which corporations organized under the General Corporation Law of Delaware may
have under the laws of the State of Delaware as in force from time to time,
including without limitation all powers, rights and privileges necessary or
convenient to carry out all those acts and activities in which it may lawfully
engage.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue is 4,050,000,000, consisting of
50,000,000 shares of Preferred Stock of the par value of $1.00 each and
4,000,000,000 shares of Common Stock of the par value of $.01 each.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of each class of stock are
as follows:
The Board of Directors is expressly authorized at any time, and from
time to time, to provide for the issuance of shares of preferred stock in one or
more series, with such voting powers, full or limited, or without voting powers
and with such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions providing for
the issue thereof adopted by the board of directors, subject to the limitations
prescribed by law and in accordance with the provisions hereof, including (but
without limiting the generality thereof) the following:
<PAGE> 2
(a) The designation of the series and the number of shares to
constitute the series.
(b) The dividend rate of the series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes of stock, and
whether such dividends shall be cumulative or noncumulative.
(c) Whether the shares of the series shall be subject to redemption by
the corporation and, if made subject to such redemption, the times, prices and
other terms and conditions of such redemption.
(d) The terms and amount of any sinking fund provided for the purchase
or redemption of the shares of the series.
(e) Whether or not the shares of the series shall be convertible into
or exchangeable for shares of any other class or classes or of any other series
of any class or classes of stock of the corporation, and, if provision be made
for conversion or exchange, the times, prices, rates, adjustments and other
terms and conditions of such conversion or exchange.
(f) The extent, if any, to which the holders of the shares of the
series shall be entitled to vote with respect to the election of directors or
otherwise.
(g) The restrictions, if any on the issue or reissue of any additional
preferred stock.
(h) The rights of the holders of the shares of the series upon the
dissolution, liquidation, or winding up of the corporation.
Subject to the prior or equal rights, if any, of the preferred stock of
any and all series stated and expressed by the board of directors in the
resolution or resolutions providing for the issuance of such preferred stock,
the holders of common stock shall be entitled (i) to receive dividends when and
as declared by the board of directors out of any funds legally available
therefore, (ii) in the event of any dissolution, liquidation or winding up of
the corporation, to receive the remaining assets of the corporation, ratably
according to the number of shares of common stock held, and (iii) to one vote
for each share of common stock held. No holder of common stock shall have any
preemptive right to purchase or subscribe for any part of any issue of stock or
of securities of the corporation convertible into stock of any class whatsoever,
whether now or hereafter authorized.
2
<PAGE> 3
Pursuant to the authority conferred by this Article FOURTH, the
following series of Preferred Stock have been designated, each such series
consisting of such number of shares, with such voting powers and with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof as are stated
and expressed in the exhibit with respect to such series attached hereto as
specified below and incorporated herein by reference:
Exhibit A Adjustable Rate Cumulative Preferred Stock, Series
1990A
Exhibit B 8 1/8% Cumulative Preferred Stock, Series A
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To fix, determine and vary from time to time the amount to be
maintained as surplus and the amount or amounts to be set apart as working
capital.
(b) To adopt, amend, alter or repeal by-laws of the corporation,
without any action on the part of the shareholders. The by-laws adopted by the
directors may be amended, altered, changed, added to or repealed by the
shareholders.
(c) To authorize and cause to be executed mortgages and liens, without
limit as to amount, upon the real and personal property of this corporation.
(d) To sell, assign, convey or otherwise dispose of a part of the
property, assets and effects of this corporation, less than the whole, or less
than substantially the whole thereof, on such terms and conditions as they shall
deem advisable, without the assent of the shareholders; and also to sell,
assign, transfer, convey and otherwise dispose of the whole or substantially the
whole of the property, assets, effects, franchises and good will of this
corporation on such terms and conditions as they shall deem advisable, but only
pursuant to the affirmative vote of the holders of a majority in amount of the
stock then having voting power and at the time issued and outstanding, but in
any event not less than the amount required by law.
(e) All of the powers of this corporation, insofar as the same lawfully
may be vested by this certificate in the board of directors, are hereby
conferred upon the board of directors of this corporation.
3
<PAGE> 4
SIXTH: The affairs of the Corporation shall be conducted by a Board of
Directors. Except as otherwise provided by this Article Sixth, the number of
directors, not less than twelve (12) nor more than thirty (30), shall be fixed
from time to time by the Bylaws. Commencing with the annual election of
directors by the stockholders in 1986, the directors shall be divided into three
classes: Class I, Class II and Class III, each such class, as nearly as
possible, to have the same number of directors. Such classified directors may be
removed by vote of the stockholders only for cause. The term of office of the
initial Class I directors shall expire at the annual election of directors by
the stockholders in 1987, the term of office of the initial Class II directors
shall expire at the annual election of directors by the stockholders in 1988,
and the term of office of the initial Class III directors shall expire at the
annual election of directors by the stockholders in 1989. At each annual
election of directors by the stockholders held after 1985, the directors chosen
to succeed those whose terms have then expired shall be identified as being of
the same class as the directors they succeed and shall be elected by the
stockholders for a term expiring at the third succeeding annual election of
directors. In all cases, directors shall hold office until their respective
successors are elected by the stockholders and have qualified.
In the event that the holders of any class or series of stock of the
Corporation having a preference as to dividends or upon liquidation of the
Corporation shall be entitled, by a separate class vote, to elect directors as
may be specified pursuant to Article Fourth, then the provisions of such class
or series of stock with respect to their rights shall apply. The number of
directors that may be elected by the holders of any such class or series of
stock shall be in addition to the number fixed pursuant to the preceding
paragraph of this Article Sixth. Except as otherwise expressly provided pursuant
to Article Fourth, the number of directors that may be so elected by the holders
of any such class or series of stock shall be elected for terms expiring at the
next annual meeting of stockholders and without regard to the classification of
the remaining members of the Board of Directors and vacancies among directors so
elected by the separate class vote of any such class or series of stock shall be
filled by the remaining directors elected by such class or series, or, if there
are no such remaining directors, by the holders of such class or series in the
same manner in which such class or series initially elected a director.
If at any meeting for the election of directors, more than one class of
stock, voting separately as classes, shall be entitled to elect one or more
directors and there shall be a quorum of only one such class of stock, that
class of stock shall be entitled to elect its quota of directors notwithstanding
the absence of a quorum of the other class or classes of stock.
4
<PAGE> 5
Vacancies and newly created directorships resulting from an increase in
the number of directors, subject to the provision of Article Fourth, shall be
filled by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director, and such directors so chosen shall hold
office until the next election of the class for which such directors shall have
been chosen, and until their successors shall be elected and shall have
qualified.
Notwithstanding any other provisions of this Amended Certificate of
Incorporation or the Bylaws of the Corporation (and notwithstanding that a
lesser percentage may be specified by law), the provisions of this Article Sixth
may not be amended or repealed (except an amendment hereto to reduce the maximum
number of directors of the Corporation to not less than the greater of (A) the
number of directors then in office and (B) twenty-four (24)) unless such action
is approved by the affirmative vote of the holders of not less than eighty
percent (80%) of the voting power of all of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors, considered for purposes of this Article Sixth as a single class.
SEVENTH: No action required to be taken or which may be taken at any
annual meeting or special meeting of stockholders may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
EIGHTH: (a) In addition to the requirements of the provision of any
series of preferred stock which may be outstanding, and whether or not a vote of
the stockholders is otherwise required, the affirmative vote of the holders of
not less than eighty percent (80%) of the voting power of the Voting Stock shall
be required for the approval or authorization of any Business Transaction with a
Related Person, or any Business Transaction in which a Related Person has an
interest (other than only a proportionate interest as a stockholder of the
Corporation); provided, however, that the eighty percent (80%) voting
requirement shall not be applicable if (i) the Business Transaction is Duly
Approved by the Continuing Directors, or (ii) all of the following conditions
are satisfied:
(A) the Business Transaction is a merger or consolidation or sale of
substantially all of the assets of the corporation, and the aggregate amount of
cash and the fair market value of the property, securities or other
consideration to be received per share (on the date of effectiveness of such
merger or consolidation or on the date of distribution to stockholders of the
Corporation of the proceeds from such sale of assets) by holders of common stock
of the corporation (other than such Related Person) in connection with such
Business
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<PAGE> 6
Transaction is at least equal in value to such Related Person's Highest Common
Stock Purchase Price;
(B) after such Related Person has become the Beneficial Owner of not
less than ten percent (10%) of the voting power of the Voting Stock and prior to
the consummation of such Business Transaction, such Related Person shall not
have become the Beneficial Owner of any additional shares of Voting Stock or
securities convertible into Voting Stock, except (i) as a part of the
transaction which resulted in such Related Person becoming the Beneficial Owner
of not less than ten percent (10%) of the voting power of the Voting Stock, or
(ii) as a result of a pro rata stock dividend or stock split; and
(C) prior to the consummation of such Business Transaction, such
Related Person shall not have, directly or indirectly, (i) received the benefit
(other than only a proportionate benefit as a stockholder of the Corporation) of
any loans, advances, guarantees, pledges or other financial assistance or tax
credits provided by the corporation or any of its subsidiaries, (ii) caused any
material change in the corporation's business or equity capital structure,
including, without limitation, the issuance of shares of capital stock of the
corporation or (iii) except as Duly Approved by the Continuing Directors, caused
the corporation to fail to declare and pay quarterly cash dividends on the
outstanding common stock on a per share basis at least equal to the cash
dividends being paid thereon by the corporation immediately prior to the date on
which the Related Person became a Related Person.
(b) For the purpose of this Article Eighth:
(i) The term "Business Transaction" shall mean (a) any merger or
consolidation involving the corporation or a subsidiary of the corporation, (b)
any sale, lease, exchange, transfer or other disposition (in one transaction or
a series of related transactions), including, without limitation, a mortgage or
any other security device, of all or any Substantial Part of the assets either
of the corporation or of a subsidiary of the corporation, (c) any sale, lease,
exchange, transfer or other disposition (in one transaction or a series of
related transactions) of all or any Substantial Part of the assets of an entity
to the corporation or a subsidiary of the corporation, (d) the issuance, sale,
exchange, transfer or other disposition (in one transaction or a series of
related transactions) by the corporation or a subsidiary of the corporation of
any securities of the corporation or any subsidiary of the corporation having an
aggregate fair market value of $100 million or more, (e) any recapitalization or
reclassification of the securities of the Corporation (including, without
limitation, any reverse stock split) or other transaction that would have the
effect of increasing the voting power of a Related Person or reducing the number
of shares of each class of Voting
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<PAGE> 7
Securities outstanding, (f) any liquidation, spinoff, splitoff, splitup or
dissolution of the corporation, and (g) any agreement, contract or other
arrangement providing for any of the transactions described in this definition
of Business Transaction.
(ii) The term "Related Persons" shall mean and include (a) any
individual, corporation, partnership, group, association or other person or
entity which, together with its Affiliates and Associates, is the Beneficial
Owner of not less than ten percent (10%) of the voting power of the Voting Stock
or was the Beneficial Owner of not less than ten percent (10%) of the voting
power of the Voting Stock (x) at the time the definitive agreement providing for
the Business Transaction (including any amendment thereof) was entered into, (y)
at the time a resolution approving the Business Transaction was adopted by the
Board of Directors of the Corporation or (z) as of the record date for the
determination of stockholders entitled to notice of and vote on, or consent to,
the Business Transaction, and (b) any Affiliate or Associate of any such
individual, corporation, partnership, group, association or other person or
entity; provided, however, and notwithstanding anything in the foregoing to the
contrary, the term "Related Person" shall not include the corporation, a
wholly-owned subsidiary of the corporation, any employee stock ownership or
other employee benefit plan of the corporation or any wholly-owned subsidiary of
the corporation, or any trustee of, or fiduciary with respect to, any such plan
when acting in such capacity.
(iii) The term "Beneficial Owner" shall be defined by reference to Rule
13d-3 under the Securities Exchange Act of 1934, as in effect on January 16,
1986; provided, however, that any individual, corporation, partnership, group,
association or other person or entity which has the right to acquire any Voting
Stock at any time in the future, whether such right is contingent or absolute,
pursuant to any agreement, arrangement or understanding or upon exercise of
conversion rights, warrants or options, or otherwise, shall be deemed the
Beneficial Owner of Voting Stock.
(iv) The term "Highest Common Stock Purchase Price" shall mean the
highest amount of consideration paid by such Related Person for a share of
Common Stock of the Corporation (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) in the transaction which resulted in such
Related Person becoming a Related Person or within one year prior to the date
such Related Person became a Related Person, whichever is higher; provided,
however, that the Highest Common Stock Purchase Price shall be appropriately
adjusted to reflect the occurrence of any reclassification, recapitalization,
stock split, reverse stock split or other similar corporate readjustment in the
number of outstanding shares of common stock of the
7
<PAGE> 8
corporation between the last date upon which such Related Person paid the
Highest Common Stock Purchase Price to the effective date of the merger or
consolidation or the date of distribution to stockholders of the corporation of
the proceeds from the sale of substantially all of the assets of the corporation
referred to in subparagraph (A) of Section 1 of this Article Eighth.
(v) The term "Substantial Part" shall mean more than twenty percent
(20%) of the fair market value of the total assets of the entity in question, as
reflected on the most recent consolidated balance sheet of such entity existing
at the time the stockholders of the corporation would be required to approve or
authorize the Business Transaction involving the assets constituting any such
Substantial Part.
(vi) In the event of a merger in which the corporation is the surviving
corporation, for the purpose of subparagraph (A) of Section 1 of this Article
Eighth, the phrase "property, securities or other consideration to be received"
shall include, without limitation, Common Stock of the Corporation retained by
its stockholders (other than such Related Person).
(vii) The term "Voting Stock" shall mean all outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors, considered for the purpose of this Article Eighth as one class.
(viii) The term "Preferred Stock" shall mean each class or series of
capital stock which may from time to time be authorized in or by Article Fourth
of the Amended and Restated Certificate of Incorporation which is not designated
as "Common Stock".
(ix) The term "Continuing Director" shall mean a director who either
was a member of the Board of Directors of the corporation on April 24, 1986 or
who became a director of the corporation subsequent to such date and whose
election, or nomination for election by the corporation's stockholders, was Duly
Approved by the Continuing Directors then on the Board either by a specific vote
or by approval of the proxy statement issued by the corporation on behalf of the
Board of Directors in which such person is named as nominee for director,
without due objection to such nomination; provided, however, that in no event
shall a director be considered a "Continuing Director" if such director is a
Related Person and the Business Transaction to be voted upon is with such
Related Person or is one in which such Related Person has an interest (other
than only a proportionate interest as a stockholder of the corporation).
(x) The term "Duly Approved by the Continuing Directors" shall mean an
action approved by the vote of at least a majority of the Continuing Directors
8
<PAGE> 9
then on the Board, except, if the votes of such Continuing Directors in favor of
such action would be insufficient to constitute an act of the Board of Directors
(if a vote by the entire Board of Directors were to have been taken), then such
term shall mean an action approved by the unanimous vote of the Continuing
Directors so long as there are at least three Continuing Directors on the Board
at the time of such unanimous vote.
(xi) The term "Affiliate", used to indicate a relationship to a
specified person, shall mean a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, such specified person.
(xii) The term "Associate", used to indicate a relationship with a
specified person, shall mean (A) any Corporation, partnership or other
organization of which such specified person is an officer or partner (B) any
trust or other estate in which such specified person has a substantial
beneficial interest or as to which such specified person serves as trustee or in
a similar fiduciary capacity, (C) any relative or spouse of such specified
person, or any relative of such spouse, who has the same home as such specified
person or who is a director or officer of the Corporation or any of its
subsidiaries, and (D) any person who is a director, officer or partner of such
specified person or of any corporation (other than the corporation or any
wholly-owned subsidiary of the corporation), partnership or other entity which
is an Affiliate of such specified person.
(c) For the purpose of this Article Eighth, so long as Continuing
Directors constitute at least two-thirds of the entire Board of Directors, the
Board of Directors shall have the power to make a good faith determination, on
the basis of information known to them, of: (i) the number of shares of Voting
Stock of which any person is the Beneficial Owner, (ii) whether a person is a
Related Person or is an Affiliate or Associate of another, (iii) whether a
person has an agreement, arrangement or understanding with another as to the
matters referred to in the definition of Beneficial Owner herein, (iv) whether
the assets subject to any Business Transaction constitute a Substantial Part,
(v) whether any Business Transaction is with a Related Person or is one in which
a Related Person has an interest (other than only a proportionate interest as a
stockholder of the corporation), (vi) whether a Related Person has, directly or
indirectly, received the benefits or caused any of the changes referred to in
subparagraph (C) of Section 1 of this Article Eighth, and (vii) such other
matters with respect to which a determination is required under this Article
Eighth; and such determination by the Board of Directors shall be conclusive and
binding for all purposes of this Article Eighth.
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<PAGE> 10
(d) Nothing contained in this Article Eighth shall be construed to
relieve any Related Person of any fiduciary obligation imposed by law.
(e) The fact that any Business Transaction complies with the provisions
of Section 1 of this Article Eighth shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or any
member thereof, to approve such Business Transaction or recommend its adoption
or approval to the stockholders of the corporation.
(f) Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or the Bylaws of the Corporation (and
notwithstanding that a lesser percentage may be specified by law), the
provisions of this Article Eighth may not be repealed or amended in any respect,
unless such action is approved by the affirmative vote of the holders of not
less than eighty percent (80%) of the Voting Stock.
NINTH: No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article Ninth
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article Ninth shall apply to or have any effect
on the liability or alleged liability of any director of the corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
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Exhibit A
U.S. Bancorp
Adjustable Rate Cumulative Preferred Stock, Series 1990A
(a) Designation. The designation of the series of Preferred
Stock created by this resolution shall be "Adjustable Rate Cumulative Preferred
Stock, Series 1990A" (hereinafter referred to as this "Series") and the number
of shares constituting this Series shall be twelve thousand seven hundred fifty
(12,750). The number of authorized shares of this Series may be increased or
reduced by further resolution duly adopted by the Board of Directors of the
Corporation or any duly authorized committee of the Board of Directors of the
Corporation and by the filing of a certificate pursuant to the provisions of the
General Corporation Law of the State of Delaware stating that such reduction or
increase, as the case may be, has been so authorized.
(b) Dividends. (1) Dividend periods ("Dividend Periods") shall
commence on January 1, April 1, July 1, and October 1 in each year and shall end
on and include the day next preceding the first day of the next Dividend Period.
Such dividends shall be cumulative from the date of original issue of shares of
this Series and shall be payable, when and as declared by the Board of Directors
or by any duly authorized committee of the Board of Directors of the
Corporation, on March 31, June 30, September 30 and December 31 of each year,
commencing [insert first dividend payment date]. Each such dividend shall be
paid to the holders of record of shares of this Series as they appear on the
stock register of the Corporation on such record date, not exceeding 30 days
preceding the payment date thereof, as shall be fixed by the Board of Directors
of the Corporation or by any duly authorized committee of the Board of Directors
of the Corporation. Dividends on account of arrears for any past Dividend
Periods may be declared and paid at any time, without reference to any regular
dividend payment date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors of
the Corporation or by any duly authorized committee of the Board of Directors of
the Corporation.
(2) No full dividends shall be declared or paid or set apart
for payment on the Preferred Stock of any series ranking, as to dividends, on a
parity with or junior to this Series for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on the shares
of this Series for all dividend payment periods terminating on or prior to the
date of payment of such full cumulative dividends. When dividends are not paid
in full, as aforesaid, upon the shares of this Series and any other Preferred
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<PAGE> 12
Stock ranking on a parity as to dividends with this Series, all dividends
declared upon shares of this Series and any other Preferred Stock ranking on a
parity as to dividends with this Series shall be declared pro rata so that the
amount of dividends declared per share on this Series and such other Preferred
Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and such other Preferred Stock
bear to each other. Except as provided in the preceding sentence, unless full
cumulative dividends on all outstanding shares of this Series shall have been
paid or declared and set aside for payment for the then-current dividend payment
period and all past dividend payment periods, no dividends (other than a
dividend in the Common Stock, par value $1.25 per share, of the Corporation (the
"Common Stock"), or another stock ranking junior to this Series as to dividends
and upon liquidation) shall be declared or paid or set aside for payment or
other distribution declared or made upon the Common Stock or upon any other
stock of the Corporation ranking junior to or on a parity with this Series as to
dividends or upon liquidation, nor shall any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation (except
by conversion into or exchange for stock of the Corporation ranking junior to
this Series as to dividends and upon liquidation). Holders of shares of this
Series shall not be entitled to any dividend, whether payable in cash, property
or stock, in excess of full cumulative dividends, as herein provided, on this
Series. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments which may be in arrears.
(3) Dividends payable on this Series for each full Dividend
Period shall be computed by dividing the dividend rate for such Dividend Period
(stated on an annualized basis) by four (4) and applying such rate against the
liquidation preference per share of this Series. Dividends payable on this
Series for any period less than a full Dividend Period, including the Initial
Dividend Period (as defined in Section (c) below), shall be computed on the
basis of 30-day months, a 360-day year, and the actual number of days elapsed in
the period.
(c) Dividend Rate. (1) The dividend rate on the shares of this
Series shall be: (i) for the period (the "Initial Dividend Period") from the
date of original issue thereof to and including [insert first dividend payment
date], [insert rate for Initial Dividend Period]% per annum of the liquidation
preference thereof (excluding any accrued but unpaid dividends) and (ii) for
each Dividend Period thereafter a rate per annum of the liquidation preference
thereof (excluding any accrued but unpaid dividends) equal to the Applicable
Rate (as
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<PAGE> 13
defined in paragraph (2) of this Section (c)) in respect of such Dividend
Period, in each case, as adjusted as described under paragraph 9 of this Section
(c).
(2) Except as provided below in this paragraph, the
"Applicable Rate" for any Dividend Period shall be (a) [insert amount]% greater
than (b) the highest of the Treasury Bill Rate, the Ten Year Constant Maturity
Rate or the Thirty Year Constant Maturity Rate (each as hereinafter defined) for
such Dividend Period. If the Corporation determines in good faith that for any
reason one or more of such rates cannot be determined for any Dividend Period,
then the Applicable Rate for such Dividend Period shall be [insert amount]%
greater than the higher of whichever of such rates can be so determined. If the
Corporation determines in good faith that for any reason none of such rates can
be determined for any Dividend Period, then the Applicable Rate in effect for
the preceding Dividend Period shall be continued for such Dividend Period.
Anything herein to the contrary notwithstanding, the Applicable Rate for any
Dividend Period shall in no event be less than [insert minimum rate]% per annum.
(3) Except as provided below in this paragraph, the "Treasury
Bill Rate" for each Dividend Period shall be the arithmetic average of the two
most recent weekly per annum market discount rates (or the one weekly per annum
market discount rate, if only one such rate shall be published during the
relevant Calendar Period (as defined below)) for three-month U.S. Treasury
bills, as published weekly by the Federal Reserve Board during the Calendar
Period immediately prior to the last ten calendar days immediately preceding the
first day of the Dividend Period for which the dividend rate on this Series is
being determined. In the event that the Federal Reserve Board does not publish
such a weekly per annum market discount rate during such Calendar Period, then
the Treasury Bill Rate for such Dividend Period shall be the arithmetic average
of the two most recent weekly per annum market discount rates (or the one weekly
per annum market discount rate, if only one such rate shall be published during
the relevant Calendar Period) for three-month U.S. Treasury bills, as published
weekly during such Calendar Period by any Federal Reserve Bank or any U.S.
Government department or agency selected by the Corporation. In the event that a
per annum market discount rate for three-month U.S. Treasury bills shall not be
published by the Federal Reserve Board or by any Federal Reserve Bank or by any
U.S. Government department or agency during such Calendar Period, then the
Treasury Bill Rate for such Dividend Period shall be the arithmetic average of
the two most recent weekly per annum market discount rates (or the one weekly
per annum market discount rate, if only one such rate shall be published during
the relevant Calendar Period) for all of the U.S. Treasury bills then having
maturities of not less than 80 nor more than 100 days, as published during such
Calendar Period by the Federal Reserve Board or, if the Federal Reserve Board
shall not publish during such rates, by any Federal Reserve Bank
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<PAGE> 14
or by any U.S. Government department or agency selected by the Corporation. In
the event that the Corporation determines in good faith that for any reason no
such U.S. Treasury bill rates are published as provided above during such
Calendar Period, then the Treasury Bill Rate for such Dividend Period shall be
the arithmetic average of the per annum market discount rates based upon the
closing bids during such Calendar Period for each of the issues of marketable
noninterest bearing U.S. Treasury securities with a maturity of not less than 80
nor more than 100 days from the date of each such quotation, as chosen and
quoted daily for each business day in New York City (or less frequently if daily
quotations shall not be generally available) to the Corporation by at least
three recognized dealers in U.S. Government securities selected by the
Corporation. In the event that the Corporation determines in good faith that for
any reason the Corporation cannot determine the Treasury Bill Rate for any
Dividend Period as provided above in this paragraph, the Treasury Bill Rate for
such Dividend Period shall be the arithmetic average of the per annum market
discount rates based upon the closing bids during such Calendar Period for each
of the issues of marketable interest-bearing U.S. Treasury securities with a
maturity of not less than 80 nor more than 100 days, as chosen and quoted daily
for each business day in New York City (or less frequently if daily quotations
shall not be generally available) to the Corporation by at least three
recognized dealers in U.S. Government securities selected by the Corporation.
(4) Except as provided below in this paragraph, the "Ten Year
Constant Maturity Rate" for each Dividend Period shall be the arithmetic average
of the two most recent weekly per annum Ten Year Average Yields (as defined
below) (or the one weekly per annum Ten Year Average Yield, if only one such
Yield shall be published during the relevant Calendar Period), as published
weekly by the Federal Reserve Board during the Calendar Period immediately prior
to the last ten calendar days immediately preceding the first day of the
Dividend Period for which the dividend rate on this Series is being determined.
In the event that the Federal Reserve Board does not publish such weekly per
annum Ten Year Average Yield during such Calendar Period, then the Ten Year
Constant Maturity Rate for such Dividend Period shall be the arithmetic average
of the two most recent weekly per annum Ten Year Average Yields (or the one
weekly per annum Ten Year Average Yield, if only such Yield shall be published
during the relevant Calendar Period), as published weekly during such Calendar
Period by any Federal Reserve Bank or by any U.S. Government department or
agency selected by the Corporation. In the event that a per annum Ten Year
Average Yield shall not be published by the Federal Reserve Board or by any
Federal Reserve Bank or by any U.S. Government department or agency during such
Calendar Period, then the Ten Year Constant Maturity Rate for such Dividend
Period shall be the arithmetic average of the two most recent weekly per annum
average yields to maturity (or the one weekly per annum average yield to
maturity, if only one such yield shall be
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<PAGE> 15
published during the relevant Calendar Period) for all of the actively traded
marketable U.S. Treasury fixed interest rate securities (other than Special
Securities (as defined below)) then having maturities of not less than eight nor
more than twelve years, as published during such Calendar Period by the Federal
Reserve Board or, if the Federal Reserve Board shall not publish such yields, by
any Federal Reserve Bank or by any U.S. Government department or agency selected
by the Corporation. In the event that the Corporation determines in good faith
that for any reason the Corporation cannot determine the Ten Year Constant
Maturity Rate for any Dividend Period as provided above in this paragraph, then
the Ten Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the per annum average yields to maturity based upon the
closing bids during such Calendar Period for each of the issues of actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) with a final maturity date not less than eight nor more than
twelve years from the date of each such quotation, as chosen and quoted daily
for each business day in New York City (or less frequently if daily quotations
shall not be generally available) to the Corporation by at least three
recognized dealers in U.S. Government securities selected by the Corporation.
(5) Except as provided below in this paragraph, the "Thirty
Year Constant Maturity Rate" for each Dividend Period shall be the arithmetic
average of the two most recent weekly per annum Thirty Year Average Yields (as
defined below) (or the one weekly per annum Thirty Year Average Yield, if only
one such Yield shall be published during the relevant Calendar Period), as
published weekly by the Federal Reserve Board during the Calendar Period
immediately prior to the last ten calendar days immediately preceding the first
day of the Dividend Period for which the dividend rate on this Series is being
determined. In the event that the Federal Reserve Board does not publish such a
weekly per annum Thirty Year Average Yield during such Calendar Period, then the
Thirty Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the two most recent weekly per annum Thirty Year Average
Yields (or the one weekly per annum Thirty Year Average Yield, if only one such
Yield shall be published during the relevant Calendar Period), as published
weekly during such Calendar Period by any Federal Reserve Bank or by any U.S.
Government department or agency selected by the Corporation. In the event that a
per annum Thirty Year Average Yield shall not be published by the Federal
Reserve Board or by any Federal Reserve Bank or by any U.S. Government
department or agency during such Calendar Period, then the Thirty Year Constant
Maturity Rate for such Dividend Period will be the arithmetic average of the two
most recent weekly per annum average yields to maturity (or the one weekly per
annum average yield to maturity, if only one such yield shall be published
during the relevant Calendar Period) for all of the actively traded marketable
U.S. Treasury fixed interest rate securities (other than Special
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<PAGE> 16
Securities) then having maturities of not less than twenty-eight nor more than
thirty years, as published during such Calendar Period by the Federal Reserve
Board or, if the Federal Reserve Board shall not publish such yields, by any
Federal Reserve Bank or by any U.S. Government department or agency selected by
the Corporation. In the event that the Corporation determines in good faith that
for any reason the Corporation cannot determine the Thirty Year Constant
Maturity Rate for any Dividend Period as provided above in this paragraph, then
the Thirty Year Constant Maturity Rate for such Dividend Period shall be the
arithmetic average of the per annum average yields to maturity based upon the
closing bids during such Calendar Period for each of the issues of actively
traded marketable U.S. Treasury fixed interest rate securities (other than
Special Securities) with a final maturity date not less than twenty-eight nor
more than thirty years from the date of each such quotation, as chosen and
quoted daily for each business day in New York City (or less frequently if daily
quotations shall not be generally available) to the Corporation by at least
three recognized dealers in U.S. Government securities selected by the
Corporation.
(6) The Treasury Bill Rate, the Ten Year Constant Maturity
Rate and the Thirty Year Constant Maturity Rate shall each be rounded to the
nearest five one-hundredths of a percentage point.
(7) For purposes of paragraphs (3) through (6) of this Section
(c), the term
(i) "Calendar Period" means 14 calendar days;
(ii) "Special Securities" means securities which can,
at the option of the holder, be surrendered at face value in payment of
any Federal estate tax or which provide tax benefits to the holder and
are priced to reflect such tax benefits or which were originally issued
at a deep or substantial discount;
(iii) "Ten Year Average Yield" means the average
yield to maturity for actively traded marketable U.S. Treasury fixed
interest rate securities (adjusted to constant maturities of ten
years); and
(iv) "Thirty Year Average Yield" means the average
yield to maturity for actively traded marketable U.S. Treasury fixed
interest rate securities (adjusted to constant maturities of thirty
years).
(8) The Corporation will calculate the Applicable Rate with
respect to each Dividend Period as promptly as practicable prior to the
commencement thereof according to the appropriate method described herein. The
Corporation will cause notice of such Applicable Rate to be enclosed with the
dividend payment checks next mailed to the holders of shares of this Series.
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<PAGE> 17
(9) If, after the day on which shares of this Series are first
issued, one or more amendments to the Internal Revenue Code of 1986, as amended
(the "Code"), are enacted that change the percentage specified in Section
243(a)(1) of the Code or any successor provision (the "Dividends Received
Percentage"), the amount of each dividend payable per share of this Series after
the effective date of any such change shall be adjusted by multiplying the
amount of dividends determined as described under Section (c)(1) (before
adjustment) by a factor, which shall be the number determined in accordance with
the following formula, and rounding the result to the nearest cent:
1 - FTR (1 - OLD)
-----------------
1 - FTR (1 - DRP)
For the purposes of the above formula, "FTR" means the federal
income tax rate applicable to corporations under the Code as in effect on the
date shares of this Series are first issued, "OLD" means the Dividend Received
Percentage as in effect on such date and "DRP" means the Dividends Received
Percentage applicable to the dividend in question. Notwithstanding the foregoing
provisions, in the event that, with respect to any such amendment, the
Corporation shall receive either an unqualified opinion of independent
recognized tax counsel or a private letter ruling or similar form of
authorization from the Internal Revenue Service to the effect that such an
amendment would not apply to dividends payable on this Series, then any such
amendment shall not result in the adjustment provided for pursuant to this
Section (c)(9). For purposes of these Resolutions, all references to dividends
shall mean dividends as adjusted pursuant to the provisions of this Section
(c)(9). The Corporation's calculations of the dividends payable as so adjusted
and as certified accurate as to calculation and reasonable as to method by the
independent certified public accountants then regularly engaged by the
Corporation, shall be final and not subject to review.
In the event that the amount of dividends payable per share of
this Series shall be adjusted pursuant to the provisions of the foregoing
paragraph, the Corporation shall cause notice of each such adjustment, together
with the Applicable Rate with respect to such dividend, to be included with the
dividend payment checks next mailed to the holders of this Series, each as
provided in Section (c)(8) of these Resolutions.
(d) Redemption.
(1) Except as set forth in Section (d)(2), the shares of this
Series shall not be redeemable prior to the date that is the tenth anniversary
of the day on which shares of this Series are first issued. The Corporation, at
its option, may redeem shares of this Series, as a whole or in part, at any time
or from time to time on or after such date, at a redemption price equal to the
aggregate
17
<PAGE> 18
liquidation value of the shares so redeemed, plus, in each case, accrued and
unpaid dividends thereon to the date fixed for redemption.
(2) Notwithstanding the provisions of Section (d)(1), in the
event that an amendment to the Code is enacted that would effect a change in the
Dividends Received Percentage so as to result in the amount of dividend payable
being adjusted upward pursuant to Section (c)(9), the Corporation, at its
option, may redeem the issued and outstanding shares of this Series as a whole,
at any time after the effective date of any such change in the Dividends
Received Percentage, at a redemption price of $100,000 per share, plus, in each
case, an amount equal to accrued and unpaid dividends (whether or not declared)
to the date fixed for redemption.
(3) In the event that fewer than all the outstanding shares of
this Series are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors of the Corporation or any duly authorized
committee of the Board of Directors of the Corporation and the shares to be
redeemed shall be determined by lot or pro rata as may be determined by the
Board of Directors of the Corporation or any duly authorized committee of the
Board of Directors of the Corporation or by any other method as may be
determined by the Board of Directors of the Corporation or any duly authorized
committee of the Board of Directors of the Corporation in its sole discretion to
be equitable, provided that such method satisfies any applicable requirements of
any securities exchange on which this Series is listed.
(4) In the event the Corporation shall redeem shares of this
Series, notice of such redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the redemption
date, to each holder of record of the shares to be redeemed, at such holder's
address as the same appears on the stock register of the Corporation. Each such
notice shall state: (i) the redemption date; (ii) the number of shares of this
Series to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder; (iii)
the redemption price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on the redemption
date.
(5) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in providing
money for the payment of the applicable redemption price) dividends on the
shares of this Series so called for redemption shall cease to accrue, and said
shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the applicable redemption price) shall cease. Upon
surrender in
18
<PAGE> 19
accordance with said notice of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors of the
Corporation or any duly authorized committee of the Board of Directors of the
Corporation shall so require and the notice shall so state), such shares shall
be redeemed by the Corporation at the applicable redemption price. In case fewer
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof.
(6) Any shares of this Series which shall at any time have
been redeemed shall, after such redemption, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors of the Corporation or any duly authorized committee of the Board of
Directors of the Corporation.
(7) Notwithstanding the foregoing provisions of this Section
(d), in the event that full cumulative dividends on the shares of this Series
have not been paid, no shares of this Series shall be redeemed unless all
outstanding shares of this Series are simultaneously redeemed, and the
Corporation shall not purchase or acquire any shares of this Series otherwise
than pursuant to a purchase or exchange offer made on the same terms to all
holders of outstanding shares of this Series.
(e) Conversion or Exchange. The holders of shares of this
Series shall not have any rights to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of any
class or classes of capital stock of the Corporation.
(f) Voting Rights. The shares of this Series shall not have
any voting powers either general or special, except as expressly required by
applicable law and except that:
(1) Unless the vote or consent of the holders of a greater
number of shares shall then be required by law, the affirmative vote or consent
of the holders of at least 66-2/3% of all of the shares of this Series at the
time outstanding, voting separately as a class, shall be required to authorize
any amendment of the Certificate of Incorporation or of any certificate
amendatory thereof or supplemental thereto (including any certificate of
designation or any similar document relating to any series of Preferred Stock)
which will adversely affect the powers, preferences, privileges or rights of
this Series;
(2) Unless the vote or consent of the holders of a greater
number of shares shall then be required by law, the affirmative vote or consent
of the holders of at least 66-2/3% of all of the shares of this Series and all
other series of
19
<PAGE> 20
shares of Preferred Stock ranking on a parity with the shares of this Series,
either as to dividends or upon liquidation, at the time outstanding, voting as a
single class without regard to series, shall be required to issue, authorize or
increase the authorized amount of, or to issue or authorize any obligation or
security convertible into or evidencing the right to purchase, any additional
class or series of stock ranking prior to the shares of this Series as to
dividends or upon liquidation; and
(3) If at the time of any annual meeting of stockholders for
the election of directors a default in preference dividends on the shares of
this Series shall exist, the number of directors constituting the Board of
Directors of the Corporation shall be increased by one, and the holders of the
shares of this Series shall have the right at such meeting, voting together as a
single class, to the exclusion of the holders of Common Stock, to elect one
director of the Corporation to fill such newly created directorship. Such right
shall continue until there are no dividends in arrears upon the shares of this
Series. Each director elected by the holders of shares of this Series (herein
called a "Preferred Director") shall continue to serve as such director for the
full term for which he shall have been elected, notwithstanding that prior to
the end of such term a default in preference dividends shall cease to exist. Any
Preferred Director may be removed by, and shall not be removed except by, the
vote of the holders of record of the outstanding shares of this Series, voting
together as a single class, at a meeting of the stockholders, or of the holders
of shares of this Series, called for the purpose. So long as a default in any
preference dividends on the shares of this Series shall exist any vacancy in the
office of a Preferred Director may be filled by the vote of the holders of the
outstanding shares of this Series voting together as a single class, at a
meeting of the stockholders or of the holders of shares of this Series called
for the purpose. Whenever the term of office of the Preferred Director shall end
and a default in preference dividends shall no longer exist, the number of
directors constituting the Board of Directors of the Corporation shall be
reduced by one. For the purposes hereof, a "default in preference dividends" on
the shares of this Series shall be deemed to have occurred whenever the amount
of accrued but unpaid dividends on such shares shall be equivalent to six full
quarter-yearly dividends or more, and, having so occurred, such default shall be
deemed to exist thereafter until, but only until, all accrued dividends on all
such shares then outstanding shall have been paid to the end of the last
preceding dividend period. Notwithstanding anything contained in this
Certificate of Designation or any other Certificate of Designation, whether
currently in effect or adopted hereafter, or the Certificate of Incorporation,
as amended from time to time, to the contrary, the holders of shares of this
Series shall not be entitled to vote for the election of directors except as set
forth in this Section (f)(3).
20
<PAGE> 21
(g) Liquidation Rights.
(1) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of this Series shall be
entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, before any payment or distribution of assets
shall be made on the Common Stock or on any other class of stock of the
Corporation ranking junior to this Series upon liquidation, the amount of
$100,000 per share, plus a sum equal to all dividends (whether or not earned or
declared) on such shares accrued and unpaid thereon to the date of final
distribution.
(2) For the purposes of this Section (g), a voluntary or
involuntary liquidation, dissolution or winding up of the Corporation shall not
include the consolidation or merger of the Corporation with or into any other
corporation, or any sale, lease or conveyance of all or any part of the property
or business of the Corporation.
(3) After the payment to the holders of the shares of this
Series of the full preferential amounts provided for in this Section (g), the
holders of this Series as such shall not be entitled to any further
participation in any distribution of assets of the Corporation.
(4) If upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to the holders of shares of this Series and of any
other shares of stock of the Corporation ranking on a parity with this Series
upon liquidation shall not be sufficient to pay in full all amounts to which
such holders are entitled pursuant to paragraph (1) of this Section (g), the
holders of shares of this Series and of such other shares shall share ratably in
any such distribution of assets of the Corporation in proportion to the full
respective preferential amounts to which they are entitled.
(h) Relative Rank. For purposes of this resolution, any stock
of any class or classes of the Corporation shall be deemed to rank:
(1) Prior to the shares of this Series, either as to dividends
or upon liquidation, if the holders of such class or classes shall be entitled
to the receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the holders of shares of this Series;
(2) On a parity with shares of this Series, either as to
dividends or upon liquidation, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share or sinking fund
provisions, if any, be different from those of this Series, if the holders of
such stock shall be entitled
21
<PAGE> 22
to the receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in proportion
to their respective dividend rates or liquidation prices, without preference or
priority, one over the other, as between the holders of such stock and the
holders of shares of this Series; and
(3) Junior to shares of this Series, either as to dividends or
upon liquidation, if such class shall be Common Stock or if the holders of
shares of this Series shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of such
class or classes.
The outstanding shares of the Corporation's Adjustable Rate
Cumulative Preferred Stock, Series 1983A, the Corporation's Adjustable Rate
Cumulative Preferred Stock, Series 1989A, the Corporation's Adjustable Rate
Cumulative Preferred Stock, Series 1989B and the Corporation's Adjustable Rate
Cumulative Preferred Stock, Series 1990B shall be deemed to rank on a parity
with the outstanding shares of this Series with respect to the payment of
dividends and upon liquidation. The Series A Junior Participating Preferred
Stock shall be deemed to rank junior to this Series with respect to the payment
of dividends and upon liquidation.
22
<PAGE> 23
Exhibit B
U.S. Bancorp
8 1/8% Cumulative Preferred Stock, Series A
Section 1. Designation and Amount. The shares of the series shall be
designated as the 8 1/8% Cumulative Preferred Stock, Series A (the "Series"),
and the number of shares constituting the Series shall be 6,000,000. The number
of shares constituting the Series may be decreased from time to time by action
of the Board, but not below the number of shares of the Series then outstanding.
The Series shall rank senior to the common stock, par value $1.25 per share
("Common Stock"), of the Corporation and on a parity with the Adjustable Rate
Cumulative Preferred Stock, Series 1990A, par value $1.00 per share, of the
Corporation, as to dividends and upon liquidation.
Section 2. Dividends.
(a) Right to Receive Cash Dividends. The holders of shares of
the Series shall be entitled to receive when, as and if declared by the Board
out of assets legally available therefor, cumulative cash dividends, payable
quarterly in arrears on the fifteenth day of February, May, August and November
of each year (each quarterly period ending on any such date being hereinafter
referred to as a "dividend period") commencing on the First Payment Date (as
defined below) at the rate per annum set forth in Section 2(b). Each such
dividend shall be paid to the holders of record of shares of the Series as they
appear on the stock books of the Corporation on such record dates, not exceeding
45 days preceding the dividend payment dates therefor, as shall be fixed by the
Board. Dividends on shares of the Series shall be cumulative from the date of
original issuance of the shares of 8 1/8% Cumulative Preferred Stock, Series A
(the "Old Shares"), of U. S. Bancorp, an Oregon corporation ("Old USB") from
which the Series shares are converted in the merger (the "Merger") of Old USB
and the Corporation and shall include any arrearage on the Old Shares whether or
not there shall be assets legally available for the payment of such dividends;
provided, that if Old USB shall have set a record date with respect to the Old
Shares which record date is prior to the effective date of the Merger for a
dividend payment date after the effective date of the Merger, dividends in
respect of the Old Shares shall be deemed to accrue to such dividend payment
date notwithstanding the intervening occurrence of the Merger, and no dividends
shall accrue on the shares of the Series until the first date following such
dividend payment date.
The "First Payment Date" shall be (i) if Old USB shall have
set a record date with respect to the Old Shares which record date is prior to
the effective date of the Merger for a dividend payment date after the effective
date of the Merger, the next succeeding dividend payment date following such
23
<PAGE> 24
dividend payment date; provided, that the Corporation shall pay the dividend
declared on the Old Shares to the holders of record of Old Shares as of such
record date or (ii) if no such record date shall have been set by Old USB, the
first dividend payment date after the effective date of the Merger (it being the
intention that no dividend shall be payable with respect to both the Old Shares
and the shares of the Series with respect to the same period of time or that any
loss of dividends result from the conversion of Old Shares into shares of the
Series).
(b) Rate. The dividend rate per annum on the shares of the
Series shall be 8 1/8% of the liquidating preference of $25 per share.
(c) Restrictions. No full dividends shall be declared or paid
or set aside for payment on any stock of the Corporation ranking, as to
dividends, on a parity with or junior to the Series for any period unless full
cumulative dividends on the Series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set aside for
such payment on the Series for all dividend periods terminating on or prior to
the date of payment of such dividends. When dividends are not paid in full on
the Series and any other preferred stock of the Corporation ranking on a parity
as to dividends with the Series, all dividends declared or paid upon shares of
the Series and such other preferred stock shall be declared and paid pro rata so
that the amount of dividends declared and paid per share on the Series and such
other preferred stock shall in all cases bear to each other the same ratio that
accrued dividends per share (which in the case of noncumulative preferred stock
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods) on shares of the Series and such other preferred stock bear to
each other. Except as provided in the preceding sentence, unless full cumulative
dividends on the Series have been paid or declared and set aside for payment, no
dividends (other than dividends or distributions paid in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Common Stock or any
other stock of the Corporation ranking junior to the Series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment or any
other distribution declared or made upon the Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Series as to dividends
or upon liquidation. No Common Stock or any other stock of the Corporation
ranking junior to or on a parity with the Series as to dividends or upon
liquidation shall be redeemed, purchased or otherwise acquired for any
consideration (and no moneys shall be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the Corporation
(except by conversion into or exchange for stock of the Corporation ranking
junior to the Series as to dividends and upon liquidation) unless, in each case,
the full cumulative dividends on the Series shall have been paid or declared and
set aside for payment. Holders of shares of the Series shall not be entitled to
any
24
<PAGE> 25
dividend, whether payable in cash, property or stock, in excess of the full
dividends on such shares. No interest shall be payable in respect of any
dividend payment which may be in arrears on the Series.
(d) Computation. Dividends payable on shares of the Series (i)
for any period other than a full dividend period, shall be computed on the basis
of a 360-day year consisting of twelve 30-day months and (ii) for each full
dividend period, shall be computed by dividing the annual dividend rate by four.
Any dividend payment made on shares of the Series shall first be credited
against the earliest accumulated but unpaid dividend due with respect to shares
of the Series.
Section 3. Redemption.
(a) Redemption Prices and Dates. The Corporation at its option
may redeem shares of the Series, at any time or from time to time, on or after
July 23, 1997, at a cash redemption price of $25 per share plus an amount equal
to any accrued and unpaid dividends (including any accumulated dividends)
thereon to and including the date fixed for redemption (the "Redemption Price").
Notwithstanding the foregoing, if at the time the Corporation
proposes to give a notice of redemption pursuant to Section 3(d), the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), or a
successor Federal agency responsible for supervision of bank holding companies
under the Bank Holding Company Act of 1956, as amended, requires that, in order
to be counted as "Tier 1" or "core" capital for capital adequacy purposes, bank
holding company preferred stock may not be redeemed without the prior approval
of the Federal Reserve Board or such successor agency, then the Corporation may
not redeem any shares of the Series or give a notice of redemption unless the
Federal Reserve Board or such successor agency shall have consented to such
redemption.
(b) Pro Rata Redemption. If fewer than all the outstanding
shares of the Series are to be redeemed, the shares to be redeemed shall be
selected pro rata as nearly as practicable or by lot as may be determined by the
Board or by any other method as the Board may determine to be fair and
appropriate.
(c) Restrictions on Redemption. Notwithstanding the foregoing,
if any quarterly dividend payable on shares of the Series shall be in arrears
and until all such dividends in arrears shall have been paid or declared and a
sum sufficient for the payment thereof set aside for payment, the Corporation
shall not redeem any shares of the Series unless all outstanding shares of the
Series are simultaneously redeemed and shall not purchase or
25
<PAGE> 26
otherwise acquire any shares of the Series except pursuant to a purchase or
exchange offer made on the same terms to all holders of shares of the Series for
the purchase of all outstanding shares thereof.
(d) Notice. Notice of any redemption shall be given by first
class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior
to the redemption date to each record holder of the shares to be redeemed at the
address of such holder appearing in the stock books of the Corporation. Each
such notice shall state: (1) the redemption date, (2) the number of shares of
the Series to be redeemed, (3) the Redemption Price, (4) that dividends on the
shares to be redeemed shall cease to accrue on such redemption date and (5) the
place or places where certificates for such shares are to be surrendered for
payment of the Redemption Price. If fewer than all the shares of the Series held
by any holder are to be redeemed, the notice mailed to such holder shall also
specify the number of shares to be redeemed from such holder.
(e) Cessation of Dividends. If notice of redemption has been
given, from and after the redemption date for the shares of the Series called
for redemption (unless default shall be made by the Corporation in providing for
the payment of the Redemption Price of the shares so called for redemption),
dividends on the shares of the Series so called for redemption shall cease to
accrue and such shares shall no longer be deemed to be outstanding, and all
rights of the holders thereof (except the right to receive the Redemption Price)
shall cease. Upon surrender in accordance with such notice of the certificates
representing any shares of the Series so redeemed (properly endorsed or assigned
for transfer, if the Board shall so require and the notice shall so state), the
applicable Redemption Price shall be paid out of funds provided by the
Corporation. If fewer than all of the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
(f) Status of Redeemed and Reacquired Shares. Shares of the
Series which have been redeemed or otherwise acquired by the Corporation shall
be retired and canceled and shall be restored to the status of authorized but
unissued shares of preferred stock, par value $1.00 per share, without
designation as to series, and may thereafter be issued, but not as shares of the
Series.
Section 4. Liquidation Rights.
(a) Payment on Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of shares of the Series shall be entitled to receive out of the assets
of the Corporation available for distribution to shareholders, before any
distribution of
26
<PAGE> 27
assets is made to holders of the Common Stock or any other class or series of
stock of the Corporation ranking junior to the Series upon liquidation, a
liquidating distribution in an amount equal to $25 per share plus an amount
equal to any accrued and unpaid dividends (including any accumulated dividends)
thereon to and including the date of such distribution. If, upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to the holders of shares of
the Series and any other preferred stock of the Corporation ranking as to any
such distribution on a parity with the Series shall be insufficient to pay in
full all amounts to which such holders are entitled, the holders of shares of
the Series and other preferred stock shall share ratably in such distribution of
assets of the Corporation in proportion to the sums that would be payable to
such holders if all sums were paid in full. After payment of the full amount of
the liquidation distribution plus accrued and unpaid dividends to which they are
entitled, the holders of shares of the Series shall have no right or claim to
any of the remaining assets of the Corporation.
(b) Definition. None of the consolidation or merger of the
Corporation into or with another corporation or corporations, or the sale, lease
or exchange of all or substantially all of the Corporation's assets, shall be
deemed a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 4.
Section 5. Voting Rights.
(a) Generally. Except as hereinafter provided or as expressly
required by applicable law, the holders of shares of the Series will not be
entitled to vote. When holders of shares of the Series are entitled to vote,
each holder shall be entitled to one vote per share.
(b) Arrearages. If at any time the equivalent of six quarterly
dividends, whether or not consecutive, payable on the Series are unpaid or not
declared and set aside for payment, the number of directors of the Corporation
shall be increased by two and the holders of shares of the Series outstanding at
the time (voting separately as a single class with the holders of shares of any
one or more series of preferred stock of the Corporation ranking on a parity
with the Series as to dividends or upon liquidation and upon which like voting
rights have been conferred and are exercisable) shall have the right to elect
two directors to serve as such until all arrearages of dividends on the Series
have been paid or declared and set aside for payment at which time the terms of
office of the two directors so elected shall terminate and the number of
directors of the Corporation shall be reduced by two (subject to any additional
rights as to the election of directors provided for the holders of shares of
other preferred stock of the Corporation). Any director so elected may be
removed by, and shall not be
27
<PAGE> 28
removed except by, the vote of the holders of shares of the Series outstanding
at the time (voting separately as a single class with the holders of shares of
any one or more series of preferred stock of the Corporation ranking on a parity
with the Series as to dividends or upon liquidation and upon which like voting
rights have been conferred and are exercisable).
(c) Certain Corporate Actions. So long as any shares of the
Series remain outstanding, the Corporation shall not, without the affirmative
vote or consent of the holders of at least two-thirds of the shares of the
Series and of any other similarly affected series of preferred stock of the
Corporation ranking on a parity with the Series as to dividends or upon
liquidation and upon which like voting rights have been conferred and are
exercisable outstanding at the time (voting separately as a single class without
regard to series), given in person or by proxy, either in writing or at a
meeting, (i) authorize, create or issue, or increase the authorized or issued
amount of, any class or series of stock ranking prior to the Series as to
dividends or upon liquidation or (ii) amend, alter or repeal, whether by merger
or otherwise, the provisions of the Certificate so as to materially and
adversely affect any of the preferences, limitations, and relative rights of the
Series; provided, however, that any increase in the amount of the authorized
preferred stock of the Corporation or the creation and issuance of other series
of preferred stock of the Corporation, in each case ranking on a parity with or
junior to the Series as to dividends or upon liquidation, will not be deemed to
materially and adversely affect such preferences, limitations and relative
rights. Without limiting the foregoing, under any circumstances in which the
Series would have additional rights under Oregon law if the Corporation were
incorporated under the Oregon Business Corporation Act (rather than the Delaware
General Corporation Law), holders of shares of the Series shall be entitled to
such rights, including, without limitation, voting rights under Section 60.441,
voting and notice rights under Section 60.487 and dissenters' rights under
Sections 60.551-60.594 of the Oregon Business Corporation Act (as such Sections
may be amended from time to time).
Section 6. No Sinking Fund. Shares of the Series are not subject to a
sinking fund or other obligation of the Corporation to redeem or retire the
Series.
28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>3
<FILENAME>c59511ex3-2.txt
<DESCRIPTION>RESTATED BYLAWS
<TEXT>
<PAGE> 1
RESTATED
BYLAWS
OF
U.S. BANCORP
ARTICLE I.
OFFICES
Section 1. Offices.
The registered office of the Corporation in the State of
Delaware shall be in the City of Wilmington, County of New Castle, State of
Delaware.
The Corporation shall have offices at such other places as the
Board of Directors may from time to time determine.
ARTICLE II.
STOCKHOLDERS
Section 1. Annual Meeting.
The annual meeting of the stockholders for the election of
Directors and for the transaction of such other business as may properly come
before the meeting shall be held on such date as the Board of Directors shall
each year fix. Each such annual meeting shall be held at such place, within or
without the State of Delaware, and hour as shall be determined by the Board of
Directors. The day, place and hour of such annual meeting shall be specified in
the notice of annual meeting.
The meeting may be adjourned from time to time and place to
place until its business is completed.
Section 2. Special Meeting.
Special meetings of stockholders may be called by the Board of
Directors or the Chief Executive Officer. The notice of such meeting shall state
the purpose of such meeting and no business shall be transacted thereat except
as stated in the notice thereof. Any such meeting may be held at such place
within or without the State of Delaware as may be fixed by the Board of
Directors or the Chief Executive Officer, and as may be stated in the notice of
such meeting.
Section 3. Notice of Meeting.
Notice of every meeting of the stockholders shall be given in
the manner prescribed by law.
<PAGE> 2
Section 4. Quorum.
Except as otherwise required by law, the Certificate of
Incorporation or these Bylaws, the holders of not less than one-third of the
shares entitled to vote at any meeting of the stockholders, present in person or
by proxy, shall constitute a quorum and the act of the majority of such quorum
shall be deemed the act of the stockholders.
If a quorum shall fail to attend any meeting, the chairman of
the meeting may adjourn the meeting to another place, date, or time.
Section 5. Qualification of Voters.
The Board of Directors may fix a day and hour not more than
sixty nor less than ten days prior to the day of holding any meeting of the
stockholders as the time as of which the stockholders entitled to notice of and
to vote at such meeting shall be determined. Only those persons who were holders
of record of voting stock at such time shall be entitled to notice of and to
vote at such meeting.
Section 6. Procedure.
The presiding officer at each meeting of stockholders shall
conclusively determine the order of business, all matters of procedure and
whether or not a proposal is proper business to be transacted at the meeting and
has been properly brought before the meeting.
The Board shall appoint two or more inspectors of election to
serve at every meeting of the stockholders at which Directors are to be elected.
Section 7. Nomination of Directors.
Only persons nominated in accordance with the following
procedures shall be eligible for election by stockholders as Directors.
Nominations of persons for election as Directors at a meeting of stockholders
called for the purpose of electing Directors may be made (a) by or at the
direction of the Board of Directors or (b) by any stockholder in the manner
herein provided. For a nomination to be properly made by a stockholder, the
stockholder must give written notice to the Secretary of the Corporation so as
to be received at the principal executive offices of the Corporation not less
than (i) with respect to an annual meeting of stockholders, 120 days in advance
of the date of the Corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders, except that
if no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, such notice must be so received a
reasonable time before the solicitation is made, and (ii) with respect to a
special meeting of stockholders for the election of Directors, the close of
business on the seventh day following the date on which the notice of such
meeting is first given to stockholders. Each such notice shall set forth (a) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (b) a representation that the stockholder
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings
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between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; (d) such other Information regarding each nominee
proposed by such stockholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by the
Board; and (e) the consent of each nominee to serve as a Director of the
Corporation if so elected.
Section 8. Business at Annual Meeting.
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors; (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors; (c) in the case of a nomination for
Director, properly brought in accordance with the procedures set forth in
Section 7 of Article II hereof; or (d) otherwise properly brought before the
meeting by a stockholder entitled to vote at such meeting. For business other
than a nomination for Director to be properly brought before an annual meeting
by a stockholder, the stockholder must have given written notice to the
Secretary of the Corporation so as to be received at the principal executive
offices of the Corporation not less than 120 days in advance of the date of the
Corporation's proxy statement released to stockholders in connection with the
previous year's annual meeting of stockholders, except that if no annual meeting
was held in the previous year or the date of the annual meeting has been changed
by more than 30 days from the date contemplated at the time of the previous
year's proxy statement, such notice must be so received a reasonable time before
the solicitation is made. Each such notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (v) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (w) the name and address of
the stockholder proposing such business; (x) the class and number of shares of
the Corporation which are beneficially owned by the stockholder; (y) any
material interest of the stockholder in such business; and (z) such other
information regarding such business as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the matter been proposed by the Board of Directors.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
considered properly brought before an annual meeting by a stockholder unless it
is brought in accordance with the procedures set forth in this Section 8 of
Article II.
ARTICLE III.
DIRECTORS
Section 1. Number and Election.
The Board of Directors of the Corporation shall consist of
such number of Directors as are fixed from time to time by resolution of the
Board and within the requirements set forth in the Certificate of Incorporation.
Commencing with the annual election of Directors by the stockholders in 1986,
the Directors shall be divided into three classes: Class I, Class II
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and Class III, each such class, as nearly as possible, to have the same number
of Directors. The term of office of the initial Class I Directors shall expire
at the annual election of Directors by the stockholders in 1987, the term of
office of the initial Class II Directors shall expire at the annual election of
Directors by the stockholders in 1988, and the term of office of the initial
Class III Directors shall expire at the annual election of Directors by the
stockholders in 1989. At each annual election of Directors by the stockholders
held after 1985, the Directors chosen to succeed those whose terms have then
expired shall be identified as being of the same class as the Directors they
succeed and shall be elected by the stockholders for a term expiring at the
third succeeding annual election of Directors. In all cases, Directors shall
hold office until their respective successors are elected by the stockholders
and have qualified.
In the event that the holders of any class or series of stock
of the Corporation having a preference as to dividends or upon liquidation of
the Corporation shall be entitled, by a separate class vote, to elect Directors
as may be specified pursuant to Article Fourth of the Corporation's Restated
Certificate of Incorporation, then the provisions of such class or series of
stock with respect to their rights shall apply. The number of Directors that may
be elected by the holders of any such class or series of stock shall be in
addition to the number fixed pursuant to the preceding paragraph. Except as
otherwise expressly provided pursuant to Article Fourth of the Corporation's
Restated Certificate of Incorporation, the number of Directors that may be so
elected by the holders of any such class or series of stock shall be elected for
terms expiring at the next annual meeting of stockholders and without regard to
the classification of the remaining members of the Board of Directors and
vacancies among Directors so elected by the separate class vote of any such
class or series of stock shall be filled by the remaining Directors elected by
such class or series, or, if there are no such remaining Directors, by the
holders of such class or series in the same manner in which such class or series
initially elected a Director.
If at any meeting for the election of Directors, more than one
class of stock, voting separately as classes, shall be entitled to elect one or
more Directors and there shall be a quorum of only one such class of stock, that
class of stock shall be entitled to elect its quota of Directors notwithstanding
the absence of a quorum of the other class or classes of stock.
Section 2. Vacancies.
Vacancies and newly created directorships resulting from an
increase in the number of Directors shall be filled by a majority of the
Directors then in office, although less than a quorum, or by a sole remaining
Director, and such Directors so chosen shall hold office until the next election
of the class for which such Directors shall have been chosen, and until their
successors are elected and qualified.
Section 3. Regular Meetings.
Regular meetings of the Board shall be held at such times and
places as the Board may from time to time determine.
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Section 4. Special Meetings.
Special meetings of the Board may be called at any time, at
any place and for any purpose by the Chairman of the Board, or the President, or
by any officer of the Corporation upon the request of a majority of the entire
Board.
Section 5. Notice of Meetings.
Notice of regular meetings of the Board need not be given.
Notice of every special meeting of the Board shall be given to
the Directors at their usual places of business, or at such other addresses as
shall have been furnished by them for the purpose. Such notice shall be given at
least twelve hours (three hours if meeting is to be conducted by conference
telephone) before the meeting by telephone or by being personally delivered,
mailed, or telegraphed. Such notice need not include a statement of the business
to be transacted at, or the purpose of, any such meeting.
Section 6. Quorum.
Except as may be otherwise provided by law or in these Bylaws,
the presence of one-third of the entire Board shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of the
Board, and the act of a majority of such quorum shall be deemed the act of the
Board.
Less than a quorum may adjourn any meeting of the Board from
time to time without notice.
Section 7. Participation in Meetings by Conference Telephone.
Members of the Board, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 8. Powers.
The business, property, and affairs of the Corporation shall
be managed by or under the direction of its Board of Directors, which shall have
and may exercise all the powers of the Corporation to do all such lawful acts
and things as are not by law, or by the Certificate of Incorporation, or by
these Bylaws, directed or required to be exercised or done by the stockholders.
Section 9. Compensation of Directors.
Directors shall receive such compensation for their services
as shall be determined by a majority of the entire Board provided that Directors
who are serving the Corporation as officers or employees and who receive
compensation for their services as such
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officers or employees shall not receive any salary or other compensation for
their services as Directors.
Section 10. Committees of the Board.
A majority of the entire Board of Directors may designate one
or more standing or temporary committees consisting of one or more Directors.
The Board may invest such committees with such powers and authority, subject to
the limitations of law and such conditions as it may see fit.
ARTICLE IV.
EXECUTIVE COMMITTEE
Section 1. Election.
At any meeting of the Board, an Executive Committee, composed
of the Chairman of the Board, the President, and not less than three other
members, may be elected by a majority vote of the entire Board to serve until
the Board shall otherwise determine. Either the Chairman of the Board or the
President, whichever is the Chief Executive Officer, shall be the Chairman of
the Executive Committee, and the other shall be the Vice Chairman thereof,
unless the Board shall otherwise determine. Members of the Executive Committee
shall be members of the Board.
Section 2. Powers.
The Executive Committee shall have and may exercise all of the
powers of the Board of Directors when the Board is not in session, except that,
unless specifically authorized by the Board of Directors, it shall have no power
to (a) elect directors or officers; (b) alter, amend, or repeal these Bylaws or
any resolution of the Board of Directors relating to the Executive Committee;
(c) declare any dividend or make any other distribution to the stockholders of
the Corporation; (d) appoint any member of the Executive Committee; or (e) take
any other action which legally may be taken only by the Board.
Section 3. Rules.
The Executive Committee shall adopt such rules as it may see
fit with respect to the calling of its meetings, the procedure to be followed
thereat, and its functioning generally. Any action taken with the written
consent of all members of the Executive Committee shall be as valid and
effectual as though formally taken at a meeting of said Executive Committee.
Section 4. Vacancies.
Vacancies in the Executive Committee may be filled at any time
by a majority vote of the entire board.
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ARTICLE V.
OFFICERS
Section 1. Number.
The officers of the Corporation shall be appointed or elected
by the Board of Directors. The officers shall be a Chairman of the Board, a
President, one or more Vice Chairmen, such number of Vice Presidents or other
officers as the Board may from time to time determine, a Secretary, a Treasurer,
and a Controller. The President shall be Chief Executive Officer unless the
Board shall determine otherwise. The Chairman of the Board shall preside at all
meetings of the Board and shall perform such other duties as may be assigned
from time to time by the Board. In the absence of the Chairman or if such office
shall be vacant, the President shall preside at all meetings of the Board. In
the absence of the Chairman of the Board and the President, any other Board
member designated by the Board may preside at all meetings of the stockholders
and of the Board. The Board of Directors may appoint or elect a person as a Vice
Chairman without regard to whether such person is a member of the Board of
Directors.
Section 2. Staff and Divisional Officers.
The Chief Executive Officer may appoint at his discretion such
persons to hold the title of staff vice president, divisional chairman,
divisional president, divisional vice president or other similar designation.
Such persons shall not be officers of the Corporation and shall retain such
title at the sole discretion of the Chief Executive Officer who may at his will
and from time to time make or revoke such designation.
Section 3. Terms of Office.
All officers, agents, and employees of the Corporation shall
hold their respective offices or positions at the pleasure of the Board of
Directors or the appropriate appointing authority and may be removed at any time
by such authority with or without cause.
Section 4. Duties.
The officers, agents, and employees shall perform the duties
and exercise the powers usually incident to the offices or positions held by
them respectively, and/or such other duties and powers as may be assigned to
them from time to time by the Board of Directors or the Chief Executive Officer.
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND EMPLOYEES
Section 1. General.
The Corporation shall indemnify to the full extent permitted
by and in the manner permissible under the Delaware General Corporation Law, as
amended from time to time (but, in
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the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), any person made,
or threatened to be made, a party to any action, suit, or proceeding, whether
criminal, civil, administrative, or investigative, by reason of the fact that
such person (i) is or was a director, advisory director, or officer of the
Corporation or any predecessor of the Corporation, or (ii) is or was a director,
advisory director or officer of the Corporation or any predecessor of the
Corporation and served any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise as a director, advisory director,
officer, partner, trustee, employee or agent at the request of the Corporation
or any predecessor of the Corporation; provided, however, that except as
provided in Section 4 of this Article VI, the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors.
Section 2. Advancement of Expenses.
The right to indemnification conferred in this Article VI
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition, such advances to be paid by the Corporation within 20
days after the receipt by the Corporation of a statement or statements from the
claimant requesting such advance or advances from time to time; provided,
however, that if the General Corporation Law of the State of Delaware requires,
the payment of such expenses incurred by a director, advisory director or
officer in his or her capacity as a director, advisory director or officer (and
not in any other capacity in which service was or is rendered by such person
while a director, advisory director or officer, including, without limitation,
service to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking by or on behalf of such director, advisory director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director, advisory director or officer is not entitled to be indemnified under
this Article VI or otherwise.
Section 3. Procedure for Indemnification.
To obtain indemnification under this Article VI, a claimant
shall submit to the Corporation a written request, including therein or
therewith such documentation and information as is reasonably available to the
claimant and is reasonably necessary to determine whether and to what extent the
claimant is entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this Section 3, a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by a majority vote
of the Disinterested Directors (as hereinafter defined), even though less than a
quorum, or by a majority vote of a committee of Disinterested Directors
designated by a majority vote of Disinterested Directors, even though less than
a quorum, or (ii) if there are no Disinterested Directors or if the
Disinterested Directors so direct, by Independent Counsel in a written opinion
to the Board of Directors, a copy of which shall be delivered to the claimant,
or (iii) if the Disinterested Directors so direct, by the stockholders of the
Corporation. In the event
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the determination of entitlement to indemnification is to be made by Independent
Counsel at the request of the claimant, the Independent Counsel shall be
selected by the Board of Directors unless there shall have occurred within two
years prior to the date of the commencement to the action, suit or proceeding
for which indemnification is claimed a "Change of Control of the Corporation" as
defined in the Firstar Corporation 1998 Executive Stock Incentive Plan, in which
case the Independent Counsel shall be selected by the claimant unless the
claimant shall request that such selection be made by the Board of Directors. If
it is so determined that the claimant is entitled to indemnification, payment to
the claimant shall be made within 10 days after such determination.
Section 4. Certain Remedies.
If a claim under Section 1 of this Article VI is not paid in
full by the Corporation within thirty days after a written claim pursuant to
Section 3 of this Article VI has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
Independent Counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, Independent
Counsel or stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 5. Binding Effect.
If a determination shall have been made pursuant to Section 3
of this Article VI that the claimant is entitled to indemnification, the
Corporation shall be bound by such determination in any judicial proceeding
commenced pursuant to Section 4 of this Article VI.
Section 6. Validity of this Article VI.
The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to Section 4 of this Article VI that the
procedures and presumptions of this Article VI are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this Article VI.
Section 7. Nonexclusivity, etc.
The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article VI shall not be exclusive
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of any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote
of stockholders or Disinterested Directors or otherwise. No repeal or
modification of this Article VI shall in any way diminish or adversely affect
the rights of any present or former director, advisory director, officer,
employee or agent of the Corporation or any predecessor thereof hereunder in
respect of any occurrence or matter arising prior to any such repeal or
modification.
Section 8. Insurance.
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware. To the extent that
the Corporation maintains any policy or policies providing such insurance, each
such director or officer, and each such agent or employee to whom rights to
indemnification have been granted as provided in Section 9 of this Article VI,
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage thereunder for any such director,
officer, employee or agent.
Section 9. Indemnification of Other Persons.
The Corporation may grant rights to indemnification, and
rights to be paid by the Corporation the expenses incurred in defending any
proceeding in advance of its final disposition, to any present or former
employee or agent of the Corporation or any predecessor of the Corporation to
the fullest extent of the provisions of this Article VI with respect to the
indemnification and advancement of expenses of directors, advisory directors and
officers of the Corporation.
Section 10. Severability.
If any provision or provisions of this Article VI shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of this
Article VI (including, without limitation, each portion of any paragraph of this
Article VI containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Article VI (including, without
limitation, each such portion of any paragraph of this Article VI containing any
such provision held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 11. Certain Definitions.
For purposes of this Article VI:
(1) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the matter in
respect of which indemnification is sought by the claimant.
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(2) "Independent Counsel" means a law firm, a member
of a law firm, or an independent practitioner that is
experienced in matters of corporation law and shall include
any such person who, under the applicable standards of
professional conduct then prevailing, would not have a
conflict of interest in representing either the Corporation or
the claimant in an action to determine the claimant's rights
under this Article VI.
Section 12. Notices.
Any notice, request or other communication required or
permitted to be given to the Corporation under this Article VI shall be in
writing and either delivered in person or sent by telecopy, telex, telegram,
overnight mail or courier service, or certified or registered mail, postage
prepaid, return receipt requested, to the Secretary of the Corporation and shall
be effective only upon receipt by the Secretary.
ARTICLE VII.
STOCK
Section 1. Certificated or Uncertificated Shares.
The Board of Directors may authorize the issuance of stock
eith