1997
1997 ANNUAL REPORT AND FORM 10-K
[LOGO]-Registered Trademark-
U.S. BANCORP
CONTENTS
--------
2 LETTER TO SHAREHOLDERS
6 BUSINESS LINE REVIEWS
6 Commercial & Business
Banking and Private
Financial Services
9 Retail Banking
12 Payment Systems
15 Corporate Trust &
Institutional Financial
Services
18 MANAGEMENT'S DISCUSSION
& ANALYSIS
41 CONSOLIDATED FINANCIAL
STATEMENTS
69 FIVE-YEAR CONSOLIDATED
FINANCIAL STATEMENTS
71 QUARTERLY CONSOLIDATED
FINANCIAL DATA
74 SUPPLEMENTAL
FINANCIAL DATA
76 FORM 10-K
80 EXECUTIVE OFFICERS
81 DIRECTORS
82 CORPORATE DATA
WHERE TO FIND U.S. BANCORP
Map of the United States. The 17 states (California, Colorado, Idaho, Illinois,
Iowa, Kansas, Minnesota, Montana, Nebraska, Nevada, North Dakota, Oregon, South
Dakota, Utah, Washington, Wisconsin, Wyoming) in which U.S. Bancorp has retail
banking offices are shaded. Also plotted are locations of 37 metro areas in 30
states with leasing offices (Birmingham, Alabama; Mesa, Arizona; Fremont and
Woodland Hills, California; Denver, Colorado; Monroe, Connecticut; Niceville and
Winter Park, Florida; Atlanta, Georgia; Boise, Idaho; St. Charles and Willow
Springs, Illinois; Overland Park, Kansas; Louisville, Kentucky; Metairie,
Louisiana; Mount Airy, Maryland; Newton, Massachusetts; Farmington Hills,
Michigan; Minneapolis, Minnesota; Billings, Montana; Oak Ridge, New Jersey;
Poughkeepsie, New York; Charlotte, North Carolina; Fargo, North Dakota;
Cincinnati, Cleveland and Columbus, Ohio; Portland, Oregon; Yardley,
Pennsylvania; Sioux Falls, South Dakota; Mount Juliet, Tennessee; Houston and
Irving, Texas; Sandy, Utah; Seattle and Spokane, Washington; and Milwaukee,
Wisconsin) and 15 corporate trust offices in 13 states (Phoenix, Arizona; Los
Angeles and San Francisco, California; Denver, Colorado; Boise, Idaho; Chicago,
Illinois; Detroit and Lansing, Michigan; St. Paul, Minnesota; Billings, Montana;
New York, New York; Portland, Oregon; Sioux Falls, South Dakota; Salt Lake City,
Utah; and Seattle, Washington).
- - - BANKING REGION
- - - CORPORATION TRUST OFFICES
- - - LEASING OFFICES
ABOUT THE COMPANY
U.S. Bancorp is a multistate bank holding company with headquarters in
Minneapolis, Minnesota. Through our bank and other subsidiaries, we offer
businesses, institutions, governments and individuals a comprehensive array of
solutions to meet their financial needs.
On August 1, 1997, First Bank System, Inc. (FBS) of Minneapolis acquired
U.S. Bancorp of Portland, Oregon, and assumed the U.S. Bancorp name. The
combined organization is the 15th largest U.S. commercial bank holding company,
with assets of $71.3 billion as of December 31, 1997. Our market capitalization
of more than $27.6 billion at year-end 1997 places us 9th among U.S. bank
holding companies.
U.S. Bancorp* also ranks among the top-performing U.S. bank holding
companies in terms of profitability and efficiency. We posted 1997 return on
average assets of 1.83 percent, return on average common equity of 22.0 percent,
and an efficiency ratio of 48.9 percent, all on a combined basis and before
nonrecurring items.
U.S. Bancorp is a market leader serving millions of customers principally
in 17 states from the Midwest to the Rocky Mountains to the Pacific Northwest.
U.S. Bancorp focuses on providing anytime, anywhere access to high-quality
products and services to our retail customers, and customized solutions to
businesses and affluent clients with more complex needs. Through our bank and
other subsidiaries, we also offer specialized expertise and leadership in
corporate trust services, electronic credit card payment systems, and
investments.
U.S. Bancorp is committed to satisfying customers and creating shareholder
value. Our four business lines--Commercial & Business Banking and Private
Financial Services, Retail Banking, Payment Systems, and Corporate Trust &
Institutional Financial Services--are focused on fulfilling these commitments to
customers and shareholders.
U.S. Bancorp is listed on the New York Stock Exchange under the ticker
symbol USB.
*The August 1, 1997 acquisition of U.S. Bancorp by First Bank System, Inc. was
accounted for as a pooling-of-interests. Accordingly, this report provides
financial information reflecting the results of the operations of the two
companies on a combined basis for all periods presented.
FINANCIAL SUMMARY
Percent Change
(Dollars in Millions, Except Per Share Data) 1997 1996 1996-1997
- - ------------------------------------------------------------------------------------------------------
Income before nonrecurring items $1,255.2 $1,142.1 9.9%
Nonrecurring items (416.7) 76.6 *
-----------------------
Net income $ 838.5 $1,218.7 (31.2)
-----------------------
PER COMMON SHARE
Net income $ 3.39 $ 4.81 (29.5)
Diluted net income 3.34 4.72 (29.2)
Earnings on a cash basis (diluted)** 3.80 5.23 (27.3)
Dividends paid 1.86 1.65 12.7
Common shareholders' equity 23.88 22.82 4.6
PER COMMON SHARE BEFORE NONRECURRING ITEMS
Income 5.09 4.50 13.1
Diluted income 5.03 4.42 13.8
Earnings on a cash basis (diluted)** 5.48 4.82 13.7
-----------------------
FINANCIAL RATIOS
Return on average assets 1.22% 1.81%
Return on average common equity 14.6 21.1
Efficiency ratio 59.6 52.9
Net interest margin (taxable-equivalent basis) 5.04 5.04
SELECTED FINANCIAL RATIOS BEFORE NONRECURRING ITEMS
Return on average assets 1.83 1.69
Return on average common equity 22.0 19.8
Efficiency ratio 48.9 52.2
-----------------------
AT YEAR END
Loans $ 54,708 $ 52,355 4.5%
Allowance for credit losses 1,009 993 1.6
Assets 71,295 69,749 2.2
Total shareholders' equity 5,890 5,763 2.2
Tangible common equity to total assets*** 7.0% 6.7%
Tier 1 capital ratio 7.4 7.6
Total risk-based capital ratio 11.6 11.9
Leverage ratio 7.3 7.5
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
* Not meaningful.
** Calculated by adding amortization of goodwill and other intangible assets
to net income.
*** Defined as common equity less goodwill as a percentage of total assets less
goodwill.
FORWARD-LOOKING STATEMENTS
This annual report and Form 10-K includes forward-looking statements that
involve inherent risks and uncertainties. U.S. Bancorp cautions readers that a
number of important factors could cause actual results to differ materially from
those in the forward-looking statements. These factors include economic
conditions and competition in the geographic and business areas in which the
Company operates, inflation, fluctuations in interest rates, legislation and
governmental regulation, and the progress of integrating the former U.S.
Bancorp.
Graphs illustrate the following information:
Return on average common equity* (percent)
1993: 14.9
1994: 15.3
1995: 18.3
1996: 19.8
1997: 22.0
Return on average assets* (percent)
1993: 1.18
1994: 1.23
1995: 1.51
1996: 1.69
1997: 1.83
Diluted earnings per share* (dollars)
1993: 2.68
1994: 2.93
1995: 3.70
1996: 4.42
1997: 5.03
Efficiency ratio* (percent)
1993: 63.7
1994: 62.1
1995: 56.3
1996: 52.2
1997: 48.9
Shareholders' equity to assets ratio (percent)
1993: 8.3
1994: 7.9
1995: 8.1
1996: 8.3
1997: 8.3
*Before nonrecurring items.
U.S. Bancorp 1
TO OUR SHAREHOLDERS
The year 1997 was transformative for U.S. Bancorp. We seized the opportunity to
create significant value for our shareholders by leveraging our high-performance
operating model across a larger customer base.
On August 1, First Bank System, Inc. (FBS) acquired U.S. Bancorp of Portland,
Oregon. We assumed the U.S. Bancorp name, which better reflects our expanded
17-state banking region extending from the Midwest to the Rocky Mountains to the
Pacific Northwest. The new U.S. Bancorp offers a broad array of high-quality
products and expert services to meet a wide range of customer needs.
The management strategies that made FBS one of the country's top-performing
bank holding companies remain in place at the new U.S. Bancorp. We focus on
providing financial solutions for customers and creating value for you, the
shareholder. Shareholder value continues to drive our management priorities and
direct virtually every decision we make.
STRONG FINANCIAL RESULTS
The new U.S. Bancorp of 1997 is much larger than the First Bank System of 1996.
However, we manage for performance, not size. With fewer than two quarters under
our belt together, the new U.S. Bancorp continues to be among the leaders in our
peer group in terms of profitability and efficiency.
Photo of Gerry B. Cameron, Chairman of the Board (left)
John F. Grundhofer, President and Chief Executive Officer
U.S. Bancorp stock has continued to outperform key market indices in the
1990s. One hundred dollars invested in U.S. Bancorp (formerly FBS) common stock
on December 31, 1989, would have been worth $886 at year-end 1997. That compares
with $480 for the KBW 50 Bank Index and $342 for the S&P 500 Stock Index. The
KBW 50 Bank Index is a market-capitalization-weighted total return index of the
50 largest U.S. banks published by Keefe, Bruyette & Woods, Inc.
On a combined basis, before nonrecurring items, diluted earnings per common
share increased 13.8 percent to $5.03 in 1997 compared with the previous year.
Our goal is to sustain earnings per share growth of 12 to 15 percent over the
next several years.
In terms of key financial ratios, U.S. Bancorp continues to excel.
Excluding nonrecurring items, our return on average assets of 1.83 percent in
1997 placed us second in our peer group of 21 regional bank holding companies,
and our return on average common equity of 22.0 percent for the year placed us
second among our peers.
Stringent cost containment practices and cost takeouts resulting from the
U.S. Bancorp and other mergers
2 U.S. Bancorp
combined to make U.S. Bancorp more productive. Our efficiency ratio (noninterest
expenses divided by total revenue) dropped to 48.9 percent in 1997, compared
with 52.2 percent in 1996. We anticipate that completion of the U.S. Bancorp
integration, which is enabling us to leverage management, products and systems
across a larger customer base, will drive our efficiency ratio down even
further. Such performance is necessary to compete with financial services
providers outside the banking industry that have lower cost structures. In
addition to cost-takeouts, our efficient organization is driven by technology
investment, revenue growth and a corporate culture that disdains waste and
embraces productivity.
The six western states added to our banking region in the
merger--California, Idaho, Nevada, Oregon, Utah and Washington--complement our
traditional midwestern base in terms of economic strength and stability, which
contributes to strong credit quality. Throughout our 17-state region, we
maintain a high level of credit quality through centralized underwriting
policies, and by identifying potential problem loans early, taking any necessary
charge-offs promptly, and maintaining strong reserve levels.
"SHAREHOLDER VALUE CONTINUES TO DRIVE OUR MANAGEMENT PRIORITIES AND DIRECT
VIRTUALLY EVERY DECISION WE MAKE."
Strong past performance has set high expectations for U.S. Bancorp among
our managers, employees, and you, our shareholders. We're excited by our
opportunity to meet and exceed those expectations as a larger, regionally
based, nationally competitive player.
STRATEGIC ACQUISITION
First Bank System and U.S. Bancorp have proven to be a great fit since we first
announced the merger on March 20, 1997. Our regions were contiguous, compatible
and in attractive growth markets. Our banks both had strong market presence. Our
business strategies were virtually identical. Our business lines and products
complemented each other. And, as we continue to learn, we each had
special skills and resources to offer the other.
We understand that complications can arise when two large banking
organizations merge. We're committed to providing a seamless transition for our
customers. Using experience from 24 previous acquisitions since 1990, we are
pursuing a disciplined, staged integration that will continue through mid-1998.
We're pleased to report that the integration is proceeding successfully on
schedule.
Pie chart illustrating what business lines contribute to U.S. Bancorp operating
earnings:
Commercial & Business Banking and Private Financial Services: 51 percent
Retail Banking: 28 percent
Payment Systems: 13 percent
Corporate Trust & Institutional Financial Services: 8 percent
Teams from both organizations began working cooperatively to combine our
organizations even before close. At close, we successfully integrated our
financial systems. In late October, we successfully completed the credit card
conversion. In January, we converted our trust systems uneventfully. We will
complete the staged conversion of our other major systems by the third quarter
of 1998, with special sensitivity to maintaining control, training employees,
and mitigating customer disruption. In keeping with our aggressive integration
timeline, we already have converted item processing to a common platform, which
will facilitate the bank conversions in the spring.
Key to our successful integration has been the retention of customer
contact and management employees, systemwide adoption of the U.S. Bank identity,
and the lack of overlapping territory between the two organizations. For the
most part, it's been business as usual for customers of the "old" U.S. Bank.
Through advertising, direct mail and contact from relationship managers, we've
kept our customers informed of integration issues every step of the way.
In early 1998, we began introducing the new U.S. Bank identity across our
First Bank, Colorado National Bank and U.S. Bank markets. Throughout the year we
will be busy building leverage for our one, strong brand identity across our
entire 17-state region. When customers see the updated U.S. Bank logo, they know
they can depend on a solutions-oriented, progressive organization that is
focused on meeting their needs.
For our retail customers, U.S. Bank offers anytime, anywhere access to
high-quality products and services.
U.S. Bancorp 3
Individuals and small businesses can access the bank however they choose:
through our 1,000 offices, 24-hour telephone banking services, more than 2,700
ATMs, or online banking. More affluent individuals and middle-market and larger
businesses can tap into these or more customized solutions to meet their more
complex needs. Relationship managers, supported by advanced technology, provide
the expertise these clients demand. We also offer industry-leading solutions in
corporate trust services, electronic credit card payment systems, and investment
products and services.
[LOGO]
PRUDENT CAPITAL ALLOCATION
As we have written in past annual reports, allocating capital is management's
most important task. Effective capital allocation plays a central role in
creating and preserving shareholder value.
In December we announced an agreement to acquire Piper Jaffray Companies
Inc., a highly regarded Minneapolis-based securities firm that serves a
geographic territory virtually identical to ours. The transaction (subject to
approval by Piper Jaffray shareholders and regulators) will form a new
subsidiary, U.S. Bancorp Piper Jaffray Inc., that will enable us to offer a
broader array of products and services to our middle-market business and private
financial services clients. In particular, the acquisition will fill a strategic
gap in satisfying our business customers' financial needs in corporate advisory
services, securities underwriting, research, sales, trading, and mergers and
acquisitions. It also will solidify our position as the largest provider of
private financial services in our territory. Our retail customers will have the
added benefit of 89 full-service brokerage offices with 1,235 investment
executives.
We had begun to build our investment banking and securities business
internally. However, an internal build strategy is too slow given the current
competitive environment. By acquiring Piper Jaffray Companies, we will become a
full-service player with instant credibility. The Piper Jaffray transaction is
expected to close in second quarter 1998.
Also in December, we closed on our acquisition of St. Cloud,
Minnesota-based Zappco, Inc., a bank holding company with three banks, six
branches and $360 million in assets. Zappco gives us a leading market position
in the growing central Minnesota region.
In January, we solidified our position as one of the nation's largest
providers of corporate trust services by closing our acquisition of the bond
indenture and paying agency business of Comerica, Inc. This acquisition gave us
offices in Detroit and Lansing, and instant number-one market position in
Michigan. We successfully completed integration of this acquisition, our fifth
corporate trust acquisition since 1992.
In all our acquisitions, we recognize that people are critical to ongoing
success. In the U.S. Bancorp acquisition, Gary Duim and Robert Sznewajs remain
with the company as vice chairmen. We also successfully retained most key
relationship managers from the former U.S. Bank. Likewise, Piper Jaffray
Companies Chairman and CEO Addison L. Piper will lead the new U.S. Bancorp Piper
Jaffray subsidiary.
Graph illustrates the following information: USB* Cumulative Total Shareholder
Return**
Index: 12/31/89=$100
U.S. Bancorp (formerly FBS) Common Stock
Keefe, Bruyette & Woods 50 Bank Index
Standard and Poor's Index of 500 Stocks
1989: USB/100, KBW 50/100, S&P 500/100
1990: USB/83, KBW 50/72, S&P 500/97
1991: USB/159, KBW 50/114, S&P 500/126
1992: USB/193, KBW 50/145, S&P 500/136
1993: USB/217, KBW 50/153, S&P 500/150
1994: USB/243, KBW 50/145, S&P 500/152
1995: USB/375, KBW 50/232, S&P 500/209
1996: USB/529, KBW 50/329, S&P 500/257
1997: USB/886, KBW 50/480, S&P 500/342
* Formerly FBS
** Capital appreciation plus dividends
$100 invested in U.S. Bancorp (formerly FBS) common stock on December 31, 1989
would have been worth $886 at year-end 1997. That compares with $480 for the
KBW 50 Bank Index and $342 for the S&P 500 stock index.
As with any investment, past performance is no guarantee of future results.
4 U.S. Bancorp
Acquisitions are just one way U.S. Bancorp allocates capital for maximum
shareholder benefit. We also are pursuing these key strategies:
- INVESTMENT IN CORE BUSINESSES--U.S. Bancorp invests in people,
technology and other resources to support only those businesses that hold
potential for strong, sustainable profitability. We manage our company along
four business lines: Commercial & Business Banking and Private Financial
Services, Retail Banking, Payment Systems, and Corporate Trust & Institutional
Financial Services. While our business lines focused on the U.S. Bancorp
integration in 1997, they also continued many initiatives to serve customers
better, improve profitability and increase revenues. Reviews of 1997 business
line highlights begin on page 6.
- DIVIDEND INCREASES--On February 18, 1998, the U.S. Bancorp Board of
Directors increased the quarterly dividend to 52.50 cents from 46.50 cents per
common share, an increase of 12.9 percent. It was our seventh consecutive annual
increase.
On February 18, 1998, the Board of Directors also announced its intention
to declare a three-for-one split of U.S. Bancorp common stock, pending
shareholder approval at the annual meeting of shareholders on April 22, 1998.
FOCUS ON SHAREHOLDER INTERESTS
U.S. Bancorp's commitment to creating shareholder value provides the
underpinning for everything we do. Our financial strength gives us the resources
to provide better solutions for our customers, more challenging career
opportunities for our employees, and more meaningful support to our communities.
We ended 1997 a stronger sum than our parts, a factor that will enable us to
continue to serve these constituencies better over the long term.
As we have emphasized time and again, strong employee ownership is the best
way to align employee and shareholder interests. A majority of U.S. Bancorp
employees own U.S. Bancorp stock through our Capital Accumulation Plan (a 401(k)
program), as well as through our Employee Stock Purchase Plan, which enables our
people to purchase company stock at a discount. Among senior managers, more than
340 have targets to own the equivalent of 80 percent to 550 percent of their
annual salaries in U.S. Bancorp stock. At year-end 1997, senior managers owned
more than 3 million shares of company stock worth more than $344 million.
Once again, the people of U.S. Bancorp proved they understand the rapid
consolidation and other changes sweeping the financial services industry. They
endured tremendous changes and worked diligently on your behalf in 1997 to adapt
to these changes.
We also thank our directors for recognizing a wonderful opportunity to
create a dynamic new organization. The FBS and U.S. Bancorp boards joined
cooperatively to ensure a smooth integration and guide the new U.S. Bancorp in
the right direction.
"WE ENDED 1997 A STRONGER SUM THAN OUR PARTS, A FACTOR THAT WILL ENABLE US TO
CONTINUE TO SERVE THESE CONSTITUENCIES BETTER OVER THE LONG TERM."
Thanks, too, to our customers and the communities we serve for their
patience in adapting to our changes. We promise to provide them with
increasingly better solutions to meet their needs, and to continue supporting
affordable housing and small business development.
Finally, thank you, our shareholders, for your confidence. When the dust
settles over the shifting financial services landscape, we hope you find U.S.
Bancorp to be a wise investment.
/s/ Gerry B. Cameron
Gerry B. Cameron
CHAIRMAN OF THE BOARD
/s/ John F. Grundhofer
John F. Grundhofer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
February 18, 1998
U.S. Bancorp 5
COMMERCIAL & BUSINESS BANKING AND PFS
Pie chart illustrating that Commercial & Business Banking and Private Financial
Services accounts for 51 percent of U.S. Bancorp operating earnings.
PERCENT OF U.S. BANCORP
OPERATING EARNINGS
BUSINESS DESCRIPTION
Commercial & Business Banking and Private Financial Services (PFS)provide
customized financial solutions for middle-market and larger businesses, as well
as government entities and affluent individuals. In addition, we serve
corporations in selected national markets and niche specialties such as
asset-backed lending, agricultural credit, leasing, real estate and energy. This
business line is relationship-driven. A relationship manager, supported by a
team of professionals, is matched with each client, working in partnership to
meet unique client needs. The relationship manager also is supported by
centralized systems and product management.
(CONTINUED NEXT PAGE)
PERSPECTIVES
PEOPLE PROVIDE FOUNDATION FOR RELATIONSHIPS
In Commercial & Business Banking and Private Financial Services (PFS), the
relationship between clients and our employees is key to our success. Clients
tell us through surveys that they are loyal not only to the bank, but also to
their relationship manager. Having knowledgeable people working with a client
over time is critical to being able to understand client situations and provide
meaningful recommendations. That's why retaining key relationship personnel
ranks as a top priority for the U.S. Bancorp integration.
By communicating the opportunities resulting from the merger, as well as
providing incentives, U.S. Bancorp has retained virtually all Commercial &
Business Banking and PFS relationship managers in our newly acquired
territories. Relationship managers continue to serve the same client base, and
credit decisions continue to be made locally. Retaining relationship managers is
helping fulfill our goal of providing a smooth transition for our clients.
It's one thing to articulate a strategy of employing talented people with
whom our clients want to work, but a much more challenging task to implement.
Successful execution requires that our people's attitudes and behaviors be
aligned as a team. It requires that we continue to expand our relationship
managers' skills and knowledge, so that they keep moving from product focus and
order-taking to client focus and financial advising. Also, it requires that we
continue to segment our clients so that we can match the expertise of our
relationship managers with clients they can serve best. Client surveys tell us
we're doing well and improving on all these counts.
RESULTS
A WILLING PARTNER IN GROWTH
IN 1989 NORM AND LINDA SATHER PURCHASED TWO SMALL OIL DISTRIBUTION COMPANIES IN
WASHINGTON TO FORM PACIFIC OIL PRODUCTS COMPANY. SALES MORE THAN DOUBLED IN SIX
YEARS, AND THE SATHERS OUTGREW THEIR SMALL COMMUNITY BANK. THEY TURNED TO A
LARGER REGIONAL BANK, BUT IT PROVED UNWILLING TO FINANCE THE COMPANY'S
EXPANSION.
THE SATHERS NEEDED A STRONG FINANCIAL PARTNER TO HELP IMPROVE THEIR COMPANY'S
GROWTH AND PROFITABILITY. IN 1995 U.S. BANK EARNED THE SATHERS' BUSINESS BY
ASSEMBLING A COMPREHENSIVE FINANCIAL PACKAGE THAT INCLUDED TERM FINANCING,
OPERATING LINES, LETTERS OF CREDIT, AND CASH MANAGEMENT SERVICES. IN 1996, WHEN
THE COMPANY REORGANIZED BY SHEDDING UNPROMISING ASSETS AND ACQUIRING BUSINESS
LINES WITH MORE POTENTIAL, THE BANK FINANCED THE ACQUISITIONS WITH TERM LOANS,
INCREASED LINES, AND LEASES. PACIFIC OIL PRODUCTS' REVENUES SOARED.
U.S. BANK EVEN PROVIDED COVER IN 1997 WHEN SEVERE WEATHER TIGHTENED THE
COMPANY'S CASH FLOW. A BULGE LINE ENABLED THE SATHERS TO MEET THEIR NORMAL
TERMS WITH SUPPLIERS AND CUSTOMERS, AND THE COMPANY ONCE AGAIN IS POISED TO
EXPAND.
IN ADDITION TO RELYING ON U.S. BANK FOR THEIR BUSINESS BANKING NEEDS, THE
SATHERS ALSO WORK WITH U.S. BANK'S PRIVATE BANKING GROUP. THROUGH INNOVATIVE
FINANCING PROVIDED BY U.S. BANK, THE SATHERS HAVE ACQUIRED A PROPERTY FOR THE
DREAM HOME WHERE THEY WILL ENJOY THE FRUITS OF THEIR LABOR.
6 U.S. Bancorp
CUSTOMIZED SOLUTION
FOR A UNIQUE CLIENT
A MINNEAPOLIS-BASED COMPANY ACQUIRES SMALL COMPANIES IN THE LEGAL PUBLISHING AND
DATA BASE INDUSTRIES. ITS GOAL IS TO BUILD VALUE THROUGH ECONOMIES OF SCALE AND
ULTIMATELY GO PUBLIC. RATHER THAN RAISE EQUITY FOR EACH ACQUISITION, THE COMPANY
HAS RAISED EQUITY CAPITAL THAT HAS BEEN SUFFICIENT, WHEN COMBINED WITH A LEVEL
OF DEBT, TO MAKE MULTIPLE ACQUISITIONS. USING THIS "LEVERAGED BUILD-UP"
STRATEGY, THE COMPANY HAS REDUCED ITS ISSUANCE COSTS BY NOT HAVING TO RAISE
ADDITIONAL DEBT AND EQUITY FOR EACH ACQUISITION.
IN 1997 THE COMPANY NEEDED ADDITIONAL CAPITAL TO PURSUE SEVERAL ACQUISITION
OPPORTUNITIES. ALSO, THE STRENGTH OF THE STOCK MARKET HEIGHTENED THE COMPANY'S
INTEREST IN CONDUCTING AN INITIAL PUBLIC OFFERING (IPO). THE COMPANY APPROACHED
U.S. BANK'S COMMERCIAL BANKING GROUP FOR A SOLUTION.
WE KNEW OUR CLIENT'S BUSINESS AND GROWTH STRATEGY, AS WELL AS THE PUBLISHING
INDUSTRY, DUE TO OUR FIVE-YEAR RELATIONSHIP. THIS KNOWLEDGE, COMBINED WITH OUR
UNDERSTANDING AND EXPERIENCE WITH MARKET TIMING, LEVERAGED COMPANIES, AND DEBT
CAPACITY, ENABLED US TO PROVIDE INCREMENTAL FINANCING TO THE COMPANY SO THAT IT
DIDN'T HAVE TO RAISE EQUITY CAPITAL PREMATURELY. WE STRUCTURED A CREDIT FACILITY
THAT WORKS WITH MULTIPLE LAYERS OF CAPITAL AND WHICH ALLOWS FLEXIBILITY FOR
CERTAIN ADDITIONAL ACQUISITIONS UNDER AGREED-UPON FINANCIAL PARAMETERS. WITH
THIS CUSTOMIZED SOLUTION TO A UNIQUE NEED, OUR CLIENT HAS SIGNIFICANTLY
INCREASED ITS SIZE, MAKING IT A MUCH MORE ATTRACTIVE CANDIDATE FOR THE IPO
MARKET.
PARTNERSHIPS DRIVE CLIENT SATISFACTION
Commercial & Business Banking clients give U.S. Bank overall high marks for a
strong banking relationship. The overall driver behind client satisfaction is
our ability to understand our clients' business issues and to provide solutions
that go beyond providing loans, treasury management, or other products and
services. This sophisticated level of service requires that we pair clients with
relationship teams that have the expertise to deliver the level of service
appropriate for each client's revenue stream, while managing expenses. To be
successful with this strategy, we must continue to recruit and retain talented
professionals with the intellectual abilities to connect with our clients. We
then provide our people with effective tools and training.
We are continuously improving client management tools that leverage the
expertise of our relationship managers. These tools include information for
monitoring client relationships. By understanding our clients' needs even
better, we can provide them with more effective recommendations.
We expect client relationships to grow stronger as we leverage the
capabilities of our combined organization across our entire 17-state banking
region. We are combining the best of our products and services and offering
them across our larger territory. For example, we are investing in new
capabilities, such as Windows-SM--based treasury management products and
services, which we plan to offer throughout our entire territory.
We will continue to monitor client satisfaction through surveys and focus
groups to ensure we are improving our ability to maintain meaningful client
relationships.
BEYOND TRADITIONAL PRODUCTS
AND SERVICES
Traditional credit products lie at the heart of many of our Commercial &
Business Banking relationships. However, we continue to offer these clients an
expanded array of noncredit services, as well as specialized credit including
asset-based lending, agricultural credit, correspondent banking, energy lending,
international
CONTINUED
BUSINESS DESCRIPTION
(CONTINUED)
COMMERCIAL & BUSINESS BANKING serves middle-market and larger businesses from
157 offices throughout U.S. Bancorp's 17-state banking region. Bankers located
in regional offices build relationships with businesses in their communities and
make credit decisions locally, controlling the terms and pricing of business
loans. We compete effectively with local community banks thanks to our
knowledgeable, responsive relationship managers, who can offer businesses the
full spectrum of U.S. Bancorp's credit, trust, investment, and treasury
management products and services.
PRIVATE FINANCIAL SERVICES (PFS) serves the affluent market with one-stop access
to private banking, investment management, personal trusts, brokerage services,
insurance, and financial planning. We focus on meeting the needs of
professionals and professional services firms, foundations, wealthy families,
and individuals with high levels of income and net worth who have complex
financial needs. PFS clients include executives of our Commercial and Business
Banking clients. Our representatives provide expert, individualized service
through 57 offices located in larger metropolitan markets throughout our banking
region.
U.S. Bancorp 7
1997
HIGHLIGHTS
- - - IMPROVED EFFICIENCY RATIO ON A CASH BASIS TO 34.7 PERCENT FROM 36.5
PERCENT.
- - - IMPROVED NET TANGIBLE RETURN ON EQUITY TO 26.4 PERCENT FROM 24.4 PERCENT.
COMMERCIAL & BUSINESS BANKING
- - - INCREASED AVERAGE LOANS BY NEARLY 9.4 PERCENT TO $28.8 BILLION.
- - - SERVED AS AGENT ON TRANSACTIONS TOTALING $2.9 BILLION AND CO-AGENT ON
TRANSACTIONS TOTALING NEARLY $17.6 BILLION.
- - - MAINTAINED STRONG CREDIT QUALITY, WITH NONPERFORMING ASSETS OF $225
MILLION, OR .79 PERCENT OF LOANS PLUS OTHER REAL ESTATE OWNED.
PRIVATE FINANCIAL SERVICES
- - - ADDED PRIVATE BANKING SERVICES IN FARGO, NORTH DAKOTA, KETCHUM, IDAHO, LAS
VEGAS, NEVADA, AND SIOUX FALLS, SOUTH DAKOTA.
- - - GREW ASSETS UNDER ADMINISTRATION IN PFS 13.1 PERCENT TO $30.1 BILLION.
CONTINUED--COMMERCIAL & BUSINESS BANKING AND PRIVATE FINANCIAL SERVICES
banking, and real estate lending. These and other areas continue to distinguish
U.S. Bank in the marketplace.
Our leasing subsidiary, U.S. Bancorp Leasing & Financial, serves the nation
from offices in 30 states. The subsidiary recorded average annual growth in
outstanding loans and leases of 5 percent to end the year with more than $2.7
billion in outstandings. Our asset-based lending divisions achieved average
annual loan growth of 22.7 percent to end the year with approximately $412
million in outstandings. As one of the region's largest treasury management
services providers, we help companies achieve effective treasury operations by
providing a full range of depository, disbursement, collection, risk management
and information services.
U.S. Bancorp's pending acquisition of Piper Jaffray Companies Inc., a
highly regarded Minneapolis-based securities firm, will further enhance the
range of solutions we can provide our more than 40,000 middle-market commercial
clients. The acquisition will strengthen our ability to offer a full array of
investment banking and brokerage services through a new subsidiary, U.S. Bancorp
Piper Jaffray Inc. Piper Jaffray will add depth in equity and debt underwriting,
trading, sales and research, as well as corporate finance advisory and merger
and acquisition services. In turn, Piper Jaffray clients will have access to
U.S. Bank's commercial banking offerings. Both companies will benefit from our
combined asset management experience and expertise in providing private
financial services.
PFS: FINANCIAL PLANNING ENHANCES SERVICE
Private Financial Services (PFS) encompasses financial planning, private
banking, tailored investment management, insurance, brokerage services, and
personal trust services under one umbrella. Clients are served by a relationship
manager or by our Trust Service Center and, depending on the client's need, they
are served by other experts in areas such as financial planning, estate planning
and investments. Additional expert services are available in areas such as
foundations, real estate, mineral interests, mortgage, tax, and special needs.
Through PFS's Financial Consulting Division, we recently enhanced the
financial planning services we offer to clients in selected markets. For
financial planning we employ a team of experts using state-of-the-art software
to deliver clients a customized analysis of all their financial needs, including
cashflow analysis, asset allocation recommendation, retirement planning, and
estate planning. Each plan is prepared for each client by our financial planning
specialists, empowering clients to make informed decisions. A relationship team
then helps each client implement the plan. We will continue rolling out these
new financial planning capabilities to other markets during 1998.
8 U.S. Bancorp
RETAIL BANKING
PERSPECTIVES
Pie chart illustrating that Retail Banking accounts for 28 percent of U.S.
Bancorp operating earnings.
PERCENT OF U.S. BANCORP
OPERATING EARNINGS
BUSINESS DESCRIPTION
Retail Banking provides anytime, anywhere access to a comprehensive set of
banking and other financial solutions to consumers, and small and lower
middle-market businesses in our 17-state banking region. These products include
standard consumer and small business deposit and credit products, investment
offerings, insurance products, and debit and credit cards. We follow an
operational excellence operating model--with a goal of providing high-quality
products with superior value at the greatest convenience to customers.
Our Small Business Division serves small companies that do not require a
dedicated relationship manager. Bankers throughout our branch system analyze
small business customer needs and recommend solutions. For credit needs, bankers
assist with application and rely on a centralized underwriting center for credit
approval. We offer competitive pricing and 48-hour decision-making on standard
small business credit products, including real estate loans, working capital
loans, and lines of credit.
DIRECT CHANNELS OFFER CHOICE, CONVENIENCE
Retail customers increasingly prefer and demand greater convenience, high
reliability, and an increasingly broad range of options. One of the keys to our
growth and productivity is to offer them convenient choices for conducting
business with us. These choices include telephone banking, ATMs, online banking,
direct payroll deposits, and automated bill-paying services.
Advanced telephone technology makes our centralized telephone service
centers the most cost-effective distribution channel for U.S. Bank. Our service
centers in Minneapolis-St. Paul, Fargo, Denver and Portland fielded more than 91
million calls in 1997. About 77 percent of these calls were handled by
interactive voice response units, with the remainder handled by customer service
representatives.
The telephone, in combination with advertising and direct mail, also
provides a convenient way for consumer and business customers to buy products
and services. In 1997 our telemarketing units handled approximately 1.7 million
inbound and outbound calls. Approximately 29 percent of these calls were
converted to new product sales. Our investment call center handled nearly
245,000 calls in 1997. For cobranded credit cards, such as our Northwest
Airlines WorldPerks-Registered Trademark- Visa-Registered Trademark- Card, we
are bringing our telemarketing efforts for new accounts in-house to provide a
higher level of service more cost-effectively.
"OUR SERVICE CENTERS FIELDED MORE THAN 91 MILLION CALLS, 77 PERCENT HANDLED BY
INTERACTIVE VOICE RESPONSE UNITS."
We continued to expand our ATM network, providing greater convenience to
customers. Our total ATM network grew more than 7 percent in 1997 to more than
4,800 terminals. These include more than 2,700 ATMs that are located throughout
our 17-state banking region and which are available to our banking customers
without an ATM transaction fee.
We continued to add online banking capabilities for our consumer and small
business customers. At year-end, more than 70,000 U.S. Bank customers were
enrolled in online banking. We introduced a home-banking option using Meca
Software's Managing your Money-Registered Trademark- and Quickbooks for Small
Business-Registered Trademark- in select markets. We already offered three
online banking options in some of our markets: BankNOW-TM- from America
Online-Registered Trademark-, Microsoft Money-Registered Trademark-, and
Quicken-Registered Trademark-. These options will be available to customers in
all our markets by mid-1998.
CONTINUED
U.S. Bancorp 9
CONTINUED--RETAIL BANKING
Customers now have access to transaction capabilities via the U.S. Bank web
site, including most functions available through telephone banking. Customers
can apply for the Northwest Airlines WorldPerks Visa card and education loans
via the Web. Additional capabilities, including more functions for deposit,
credit and investment products, will be added during 1998.
BRANCH NETWORK FOLLOWS CUSTOMERS
While one of U.S. Bank's key strategies is to migrate customer transactions
toward alternative channels, our branch network remains key to maintaining and
building our strong market presence throughout our region.
The U.S. Bank branch network includes approximately 1,000 branches in 17
states. We continually analyze the composition of this network to determine the
optimal number, location and size of branches, as well as the most appropriate
range of products and services, to serve customers in each market. This has
resulted in new branch openings, as well as consolidations, relocations, and
remodelings to adjust branch size.
"...OUR BRANCH NETWORK REMAINS KEY TO MAINTAINING AND BUILDING OUR STRONG
MARKET PRESENCE THROUGHOUT OUR REGION."
Our challenge is to be close to where our customers live and work, and
increase sales revenue per square foot and per employee. In the future, U.S.
Bank likely will have more branches, but they will be smaller and located more
strategically. For example, in 1997 we opened 29 in-store locations for a total
of 115. As branch locations change, we will provide standard, consistent branch
environments that facilitate sales and project the U.S. Bank brand.
Within two months of closing the U.S. Bancorp acquisition, we extended our
unique branch paradigm throughout our expanded 17-state region. Branch employees
focus on sales or service, leveraging their strengths and maximizing our ability
to meet customer needs. The sales focus is combined with a new compensation plan
to encourage strong sales results, enabling us to maximize revenue.
SMALL BUSINESS FOCUS ESTABLISHED
U.S. Bank reaffirmed its commitment to serving small businesses by establishing
a Small Business Division in 1997. Our small business experts are
well-positioned to meet the needs of the 1.2 million small businesses located
near our branches. From our research, we know that proximity to a branch is a
key consideration for small businesses that highly value low
10 U.S. Bancorp
travel and wait times for conducting transactions at branches. With more than
350,000 small business customers, we have an opportunity to gain market
share--as well as deepen existing relationships.
In 1998 we will introduce our U.S. Bank Simply Business-Registered
Trademark- set of products across our entire 17-state region. We believe these
products, primarily easy-to-use loans and checking accounts, will have broad
appeal. We also will improve telephone customer service for small business
customers by forming a dedicated customer service unit.
RESULTS
BANKING WITH EASE
JOANN BAILIN IS A STAY-AT-HOME MOTHER WITH TWO ACTIVE CHILDREN UNDER AGE 4. SHE
STRUGGLES TO FIND TIME TO MAINTAIN HER CONSULTING WORK, NOT TO MENTION RUNNING
HOUSEHOLD AFFAIRS. THAT'S WHY SHE ENJOYS BANKING AT U.S. BANK.
MS. BAILIN SHOPS AT HER NEIGHBORHOOD BYERLY'S GROCERY STORE IN ST. LOUIS PARK,
MINNESOTA EACH WEEK, MAKING STOPS AT THE IN-STORE U.S. BANK BRANCH VERY
CONVENIENT. THE HASSLE-FREE LOCATION ELIMINATES ANOTHER STOP SHE'D HAVE TO MAKE
WITH HER CHILDREN IN TOW.
EVEN WHEN MS. BAILIN VISITS THE IN-STORE BANK, SHE RARELY USES A TELLER. SHE CAN
CONDUCT MOST OF HER TRANSACTIONS AT THE BRANCH'S ATMS OR TELEPHONES. IN FACT,
SHE OFTEN CONDUCTS HER BANKING BUSINESS AT HOME BY TELEPHONE LATE AT NIGHT,
AFTER THE CHILDREN ARE ASLEEP.
MS. BAILIN ALSO ENJOYS THE CONVENIENCE OF HER U.S. BANK DEBIT CARD TO PURCHASE
GROCERIES AND OTHER GOODS AND SERVICES. PERHAPS THE BEST BENEFIT IS THAT SHE CAN
FILL HER CAR WITH GASOLINE AND PAY AT THE PUMP WITHOUT HAVING TO LEAVE THE
CHILDREN TO GO TO THE REGISTER.
TO MAKE MANAGING THE HOUSEHOLD FINANCES EVEN MORE EFFICIENT, MS. BAILIN AND HER
HUSBAND HAVE DIRECT DEPOSIT AND AUTOMATIC BILL PAY SERVICES. THEY'VE SIGNED UP
FOR ONLINE BANKING TO MAKE MANAGING THEIR FINANCES WITH U.S. BANK EVEN EASIER.
PURSUING A CUSTOMER-FOCUSED STRATEGY
A key to providing meaningful solutions to customers is understanding their
needs. Our Relationship Management System (RMS) enables Retail Banking to do
just that for our consumer customers. RMS is an analytical software engine that
uses customer behavioral data and predictive modeling to make better
relationship-based decisions. RMS became fully operational in March 1997 and
will be extended to our new territories as systems are converted during 1998.
First-year results indicate that RMS is increasing customer profitability
and value, improving sales effectiveness, lowering costs, and enhancing customer
satisfaction. In the handling of overdraft and nonsufficient funds (NSF) checks,
for example, RMS increases overdraft line amounts for our most profitable
customers. The bank paid 34 percent more overdraft checks using RMS, while
cutting fee waivers by 32 percent. As a result, the bank benefits from increased
fees--up 13 percent since implementation of the strategy. Meanwhile, fewer
customers must pay fees to retailers for returned checks.
RMS also has produced other significant benefits. The effectiveness of
marketing to current customers has improved, as evidenced by a 51 percent
increase in sales results with RMS-inspired marketing. Credit approval rates
were up 16 percent. Overall, RMS is helping anticipate and meet customer needs
while increasing the average value of customers to the bank for the benefit of
shareholders.
1997
HIGHLIGHTS
- - - OPENED 21 BRANCHES IN ALBERTSON'S SUPERMARKETS, AND EIGHT IN OTHER STORES,
FOR A TOTAL OF 115 IN-STORE BRANCHES.
- - - INCREASED U.S. BANK DEPOSIT TRANSACTIONS AT ATMS 14 PERCENT.
- - - INCREASED TRANSACTIONS BY U.S. BANK CUSTOMERS USING U.S. BANK-OWNED ATMS BY
11 PERCENT LAST YEAR.
- - - GREW POINT-OF-SALE TRANSACTION VOLUME 50 PERCENT.
- - - DEPLOYED MORE THAN 400 ATMS IN 11 STATES AS PART OF FIVE-YEAR AGREEMENT
WITH CHEVRON PRODUCTS COMPANY TO PROVIDE ATM PROGRAM COORDINATION AND
SWITCH PROCESSING SERVICES.
- - - RECEIVED "BEST OF THE WEB" DESIGNATION BY "SNAP!", AN ONLINE RATING SERVICE
FOR INVESTMENT SERVICES WEB SITES.
- - - GREW BALANCES FOR NONMORTGAGE CONSUMER LOANS AND LINES AT 5 PERCENT, LED BY
HOME-EQUITY LOANS AND LINES AT 12 PERCENT.
- - - AS A RESULT OF NEW EVERYDAY PRICING STRATEGY IN SELECTED MARKETS, MONTHLY
AUTOMATIC RENEWAL RATES FOR SAVINGS CERTIFICATES IN THOSE MARKETS INCREASED
BY 24 PERCENT, AND AVERAGE TERM LENGTH OF NEW AND RENEWED SAVINGS
CERTIFICATES INCREASED BY 21 PERCENT.
U.S. Bancorp 11
PAYMENT SYSTEMS
PERSPECTIVES
Pie chart illustrating that Payment Systems accounts for 13 percent of U.S.
Bancorp operating earnings.
PERCENT OF U.S. BANCORP
OPERATING EARNINGS
BUSINESS DESCRIPTION
Payment Systems provides electronic transaction services for both corporate and
retail customers, creating value through information, access and cost-effective
services.
CORPORATE PAYMENT SYSTEMS offers programs that help business and government
reduce expenses by processing purchases efficiently and cost-effectively.
Employees of Fortune 1000 companies use the U.S. Bank Visa-Registered Trademark-
Corporate Card, a non-revolving charge card that enables companies to monitor
and control travel and entertainment expenses. Employees of large businesses use
the U.S. Bank Visa Purchasing Card to place orders directly with
vendors--eliminating requisitions, purchase orders, and check requests. Our
specialized purchasing card for government agencies is called
I.M.P.A.C.-Registered Trademark- Other programs include cards for payment of
costs associated with employee relocation, fleet services, and small business
travel and entertainment.
(CONTINUED NEXT PAGE)
TECHNOLOGY ENHANCES CORPORATE PAYMENT SYSTEMS
Business clients continue to re-engineer their expense reporting processes,
demanding increased automation to improve efficiency and accuracy. In 1997 we
created an Interactive Commerce Group to address electronic commerce
opportunities and continue our tradition of product innovation as new payment
models emerge.
As an example of our continuing efforts to provide innovative product
and service features, in 1997 we introduced FirstView 3.0, a Windows 95-SM-
and NT-SM-version of our popular desktop reporting system. Our U.S. Bank
Visa-Registered Trademark- Corporate and Purchasing Card clients use
FirstView 3.0 in a client/server environment or as a standalone system. The
enhanced software enables our clients' card program administrators to mine
Corporate and Purchasing Card transaction data to make quick and
well-informed decisions regarding expense and vendor management, generate
valuable tax and spending analysis reports, expedite general ledger postings,
and electronically distribute cardholder statements and other data. Among the
new features is improved capability to distribute data and cardholder
statements via electronic mail on a variety of systems. At year-end, we had
executed more than 900 license agreements for use of the updated FirstView.
Corporate and Purchasing Cards were among the First products we leveraged
across our newly acquired client base in six western states. Under a special
agreement, we began marketing Corporate and Purchasing Cards in that region even
before the U.S. Bancorp acquisition closed. Sales volume for our Corporate and
Purchasing Cards increased more than 40 percent in 1997.
RESULTS
LOCKHEED MARTIN EXPANDS CORPORATE CARD PARTNERSHIP
LOCKHEED MARTIN CORPORATION IS ONE OF THE WORLD'S LEADING DIVERSIFIED TECHNOLOGY
COMPANIES PROVIDING SPACE AND MISSILE SYSTEMS, ELECTRONICS, MILITARY AIRCRAFT
INFORMATION SYSTEMS, SYSTEMS INTEGRATION AND A BROAD RANGE OF SERVICES TO U.S.
AND INTERNATIONAL GOVERNMENTS AND COMMERCIAL CUSTOMERS. THE BETHESDA,
MARYLAND-BASED COMPANY USES THE VISA-Registered Trademark- CORPORATE CARD TO
EFFICIENTLY PROCESS TRAVEL AND ENTERTAINMENT (T&E) EXPENSES FOR ITS EMPLOYEES
WORLDWIDE. AFTER A SERIES OF MAJOR MERGERS, THE COMPANY INHERITED MULTIPLE
CORPORATE CARD RELATIONSHIPS. CONSOLIDATING THESE RELATIONSHIPS WOULD SAVE THE
COMPANY APPROXIMATELY $10 MILLION IN ADMINISTRATIVE COSTS OVER THE LIFE OF THE
CONTRACT.
IN 1997, AFTER A COMPETITIVE BIDDING PROCESS, LOCKHEED MARTIN SELECTED U.S. BANK
AS ITS EXCLUSIVE PROVIDER OF CORPORATE CARDS--ONE OF THE WORLD'S LARGEST
CORPORATE T&E CARD CONTRACTS. U.S. BANK HAD BEEN PROVIDING A CORPORATE CARD
PROGRAM THAT SERVED THE NEEDS OF MORE THAN 25,000 EMPLOYEES. NOW U.S. BANK WILL
HELP LOCKHEED MARTIN EXPAND THIS PROGRAM THROUGHOUT ITS ENTIRE ORGANIZATION. THE
PROGRAM IS EXPECTED TO INCREASE BY TENS OF THOUSANDS OF ADDITIONAL VISA
CORPORATE CARDS WITH ANTICIPATED SPENDING OF SEVERAL BILLION DOLLARS OVER THE
LENGTH OF THE CONTRACT.
WHY DID LOCKHEED MARTIN CHOOSE U.S. BANK? BECAUSE OF OUR EXPERIENCE, TECHNOLOGY,
AND PROVEN CAPABILITIES TO CARRY OUT AN INITIATIVE OF THIS MAGNITUDE
FOR A COMPANY AS DIVERSE AS LOCKHEED MARTIN.
12 U.S. Bancorp
COBRANDING: A CUSTOMER FOCUSED STRATEGY
Many credit card issuers depend on mail and other direct marketing strategies to
pursue the mass market. At U.S. Bank, we focus on developing strategic
cobranding partnerships to build a client base around existing loyalty programs.
We seek partners that appeal to the same type of customer base as our banking
business.
The 1997 launch of the King Soopers Visa Card for Colorado residents
illustrates our successful cobranding strategy. King Soopers is the number-one
supermarket chain in Colorado with a 37 percent market share, and our
partnership has tremendous potential to gain new credit card customers and also
bring new customers to our Colorado banking offices. For every dollar customers
spend at King Soopers and elsewhere, they earn points toward a wide variety of
grocery, travel, and other rewards.
"AT U.S. BANK, WE FOCUS ON DEVELOPING STRATEGIC COBRANDING PARTNERSHIPS TO BUILD
A CLIENT BASE AROUND EXISTING LOYALTY PROGRAMS."
In addition to in-store promotions, direct-mail solicitations were sent to
select Colorado bank customers who were preapproved for the card using our
Relationship Management System. An impressive 10 percent of customers who
received a mailing and a follow-up call from a personal banker applied for the
new card. Approximately 35,000 King Soopers Visa cards were issued in eight
months. The King Soopers Visa further strengthens U.S. Bank's relationship with
this supermarket leader.
Other new and existing cobranded programs also had a successful 1997. We
extended our partnership with Northwest Airlines to offer WorldPerks-Registered
Trademark- Visa consumer and small business credit cards. Our new corporate
travel program in partnership with the airline features a Visa corporate charge
card program and air travel management system that will help business travelers
and travel managers better track expenses. We also introduced the Conoco Visa
Card, a rewards-based, no-annual fee credit card that offers consumers rebates
on purchases at more than 5,200 Conoco gas and convenience stores nationwide.
CUSTOMER RETENTION A PRIORITY
Consumers increasingly are inundated with credit card offers featuring
attractive rates, fees, and other services. To combat this threat to existing
cardholders, in 1997 U.S. Bank launched a Customer Retention Unit, an investment
made with the understanding that retaining existing accounts costs less than
acquiring new ones.
CONTINUED
BUSINESS DESCRIPTION
(CONTINUED)
CONSUMER PAYMENT SYSTEMS focuses on being the dominant card issuer in our
17-state banking region and building valuable cobranding relationships. This
strategy leverages the distribution power of our branch system and cobranded
partners, and is less dependent on direct mail compared to many competitors.
U.S. Bank also offers card-accessible secured lines of credit and a prepaid
international travel card.
MERCHANT PAYMENT SERVICES provides an in-house, single-source solution for
electronic transaction processing. Our merchant clients can electronically
authorize and capture transactions from bankcards, other credit cards, and debit
cards, as well as authorize checks at the point of sale.
U.S. Bancorp 13
1997
HIGHLIGHTS
- - - INCREASED NONINTEREST INCOME 19.9 PERCENT.
CORPORATE PAYMENT SYSTEMS
CONTINUED TO BE THE LARGEST ISSUER OF PURCHASING CARDS AND VISA-REGISTERED
TRADEMARK- CORPORATE CARDS IN TERMS OF NUMBER OF CARDS ISSUED AND SALES
VOLUME, AND THE LEADING ISSUER OF PURCHASING CARDS TO THE FEDERAL
GOVERNMENT.
- - - INCREASED CORPORATE AND PURCHASING CARD RELATIONSHIPS TO 156 OF THE FORTUNE
500 AND 252 OF THE FORTUNE 1000.
- - - APPROVED AS PROVIDER OF PURCHASING CARD, TRAVEL AND ENTERTAINMENT, AND
FLEET CARD SERVICES BY THE U.S. GENERAL SERVICES ADMINISTRATION.
CONSUMER PAYMENT SYSTEMS
- - - CONTINUED TO BE AMONG THE NATION'S LARGEST ISSUERS OF VISA CREDIT CARDS.
- - - RANKED FIRST WITHIN THE VISA NETWORK IN SALES VOLUME FOR SMALL BUSINESS
CARDS.
- - - INCREASED SALES VOLUME ON OUR CO-BRANDED CREDIT CARDS BY MORE THAN 20
PERCENT.
MERCHANT PAYMENT SERVICES
- - - REMAINED AMONG THE TOP 10 PROCESSORS OF VISA AND MASTERCARD-REGISTERED
TRADEMARK- TRANSACTIONS, SERVING MORE THAN 75,000 MERCHANT LOCATIONS WITH
MORE THAN $20 BILLION IN CHARGE VOLUME.
- - - INCREASED DIRECT SALES REPRESENTATIVES BY APPROXIMATELY 25 PERCENT.
CONTINUED--PAYMENT SYSTEMS
At our U.S. Bancorp Service Center in Fargo, North Dakota, dedicated
retention representatives began fielding inbound calls from cardholders wanting
to terminate their accounts. They also began making outbound calls to
cardholders who write to close their accounts. Using Relationship Management
System data, the representatives are authorized to provide customized incentives
in order to retain the cardholders. The unit retained more than 50 percent of
the accounts targeted during 1997.
MERCHANT SERVICES: INVESTING IN TECHNOLOGY
In merchant processing, the competitive advantage goes to providers with
efficient technology to handle large volume and personal service to meet client
needs. At U.S. Bank, we are enhancing in-house capacity by investing in new
systems and expanding our sales and service personnel.
Expanded capacity will help us leverage our banking and credit card
relationships. Improved technology will feature automated tools, on-line access
to detailed account information, and integration with other banking products,
thereby leveraging cross-selling opportunities.
"BUSINESSES TELL US THEY PREFER THE ENHANCED INFORMATION, TIMELINESS OF
DEPOSITS, AND IMPROVED QUALITY AFFORDED BY A SINGLE, INTEGRATED OFFERING FROM
THEIR BANK."
While laying a foundation for expanded volume, we are focusing on small and
middle-market businesses in our expanded 17-state banking region. By
concentrating on our growing base of banking and credit card clients, we can
build stronger relationships with them. We believe our growth potential is
greater by building long-term, deep banking and service relationships, rather
than by acquiring other merchant processing portfolios.
Our strategy of delivering an integrated product and service offering drove
our decision to end a joint merchant processing venture entered into by the
former U.S. Bank. Businesses tell us they prefer the enhanced information,
timeliness of deposits, and improved quality afforded by a single, integrated
offering from their bank.
14 U.S. Bancorp
CORPORATE TRUST & INSTITUTIONAL FINANCIAL SERVICES
PERSPECTIVES
Pie chart illustrating that Corporate Trust & Institutional Financial Services
accounts for 8 percent of U.S. Bancorp operating earnings.
PERCENT OF U.S. BANCORP
OPERATING EARNINGS
BUSINESS DESCRIPTION
CORPORATE TRUST SERVICES is one of the largest service providers in its
industry. We provide trustee services for municipal, corporate, asset-backed and
international bonds, as well as paying agent, escrow agent, and document
custodial services.
INSTITUTIONAL FINANCIAL SERVICES focuses on investment and employee benefit
clients and products. The business is organized into two groups: First American
Asset Management (FAAM) and Investment Services. FAAM provides centralized
investment management, delivery, 401(k) administration, securities lending and
business support services for all U.S. Bancorp individual and institutional
investment products. These products include First American Funds (a mutual fund
family advised by FAAM), proprietary 401(k) products, and trustee and
administrative services for employee benefit programs. Investment Services
includes foreign exchange and U.S. Bancorp Investments, a full-service broker/
dealer and registered investment advisor providing a wide array of investment
products to individual investors, and underwriting,
distribution and portfolio services to institutional clients.
CORPORATE TRUST: ACQUISITION AND DEVELOPMENT
Corporate trust customers value expert service, leading-edge technology, and
quality delivery. As one of the nation's largest providers in this industry,
U.S. Bank Corporate Trust Services is well-positioned to meet these customer
needs. We have the size and strength to invest in critical infrastructure, and
we leverage our capabilities over an increasingly large customer base.
Our growth has resulted from acquisitions and development of existing
business. In January 1997 we gained the leading market position in Michigan by
closing on our acquisition of the bond indenture and paying agent business of
Detroit-based Comerica, Inc. We maintained Comerica's offices in Detroit and
Lansing, reflecting our strategy of serving customers through local offices.
Our network of 15 offices spanning the United States from Los Angeles to
New York is supported by centralized systems and operations and gives us a
competitive edge in retaining and expanding our client base. Our offices
throughout the west, including Los Angeles, Portland, San Francisco and Seattle,
have new opportunities to leverage our expanded banking presence in that region.
U.S. Bank Corporate Trust Services is committed to making technological and
other investments that will enable integration of future acquisitions and growth
of existing business. In 1997 we completed enhancements to our bondholder
accounting and integrated customer response systems, which improve customer
service, and contribute to our efficiency and productivity. Key initiatives
under way
CONTINUED
RESULTS
LEVERAGING OUR BANK REFERRALS
IN JUNE 1996 CHEVY CHASE BANK OF BETHESDA, MARYLAND, SET OUT TO INCREASE
LIQUIDITY AND RESTRUCTURE ITS BALANCE SHEET. TO ACHIEVE THIS GOAL, CHEVY CHASE
BANK CHOSE TO ISSUE ASSET-BACKED SECURITIES, SECURITIZED BY AUTO RECEIVABLES. IT
SELECTED U.S. BANK TO ADMINISTER THE TRUST FUNCTIONS FOR THIS COMPLEX FINANCING
TECHNIQUE. BY YEAR-END 1997, U.S. BANK HAD BEEN APPOINTED TRUSTEE, PAYING AGENT,
REGISTRAR AND CUSTODIAN FOR NINE CHEVY CHASE ASSET-BACKED TRANSACTIONS.
MEANWHILE, IN EARLY 1997 B. F. SAUL REAL ESTATE INVESTMENT TRUST, AN AFFILIATE
OF CHEVY CHASE BANK, FACED AN IMPORTANT DECISION. ITS LONGSTANDING TRUSTEE WAS
EXITING THE CORPORATE TRUST BUSINESS, AND A NEW TRUSTEE WAS NEEDED TO HANDLE B.
F. SAUL'S UNIQUE, CONTINUOUSLY OFFERED NOTE PROGRAM. BASED ON THE SUCCESS OF THE
CHEVY CHASE AND U.S. BANK RELATIONSHIP, B.F. SAUL APPOINTED THE NEW YORK OFFICE
OF U.S. BANK CORPORATE TRUST SERVICES TO STEP IN AS THE SUCCESSOR TRUSTEE. OF
SPECIAL INTEREST TO B.F. SAUL: OUR STATE-OF-THE-ART, ON-LINE NOTE ISSUANCE
SYSTEM. WORKING WITH U.S. BANK CORPORATE TRUST SERVICES, B. F. SAUL HAS BEEN
ABLE TO STREAMLINE PROCESSING AND AUTOMATE PROCEDURES.
THE COMBINATION OF ADVANCED TECHNOLOGY AND FOCUS ON CUSTOMER NEEDS TURNED A
CHALLENGE INTO AN OPPORTUNITY AND RESULTED IN A PARTNERSHIP BETWEEN AN IMPORTANT
CLIENT OF U.S. BANK AND U.S. BANK CORPORATE TRUST SERVICES.
U.S. Bancorp 15
CONTINUED--CORPORATE TRUST & INSTITUTIONAL FINANCIAL SERVICES
include expansion of our capacity for document custody services and a redesigned
fee billing system.
1997
HIGHLIGHTS
CORPORATE TRUST SERVICES
- - - GREW PRINCIPAL OUTSTANDING MORE THAN 10 PERCENT TO NEARLY $595 BILLION.
- - - INCREASED BOND ISSUES TO 36,000.
- - - SERVED MORE THAN 975,000 BONDHOLDERS.
- - - RANKED AS THE LARGEST MUNICIPAL CORPORATE TRUST PROVIDER IN 1997 WITH $14.8
BILLION PRINCIPAL AMOUNT IN 587 NEW BOND ISSUES.
- - - RANKED AS THE THIRD-LARGEST TRUSTEE IN THE PUBLIC ASSET-BACKED ARENA.
- - - COMPLETED ACQUISITION OF BOND INDENTURE AND PAYING AGENT BUSINESS OF
COMERICA, INC.
(Continued Next Page)
ASSET MANAGEMENT: STRONG PERFORMANCE
Institutional Financial Services offers investors a broad range of products and
services with historically strong performance. By meeting the needs of a wide
range of investors, we are achieving our objective of gathering assets and, in
turn, growing noninterest income. In 1997 assets under management increased 25
percent to more than $62 billion.
First American Funds, the mutual fund family advised by First American
Asset Management, grew to $21 billion in assets under management in 1997, a 64
percent increase. This growth includes Qualivest Funds, a $2.5 billion portfolio
acquired in the U.S. Bancorp acquisition and merged into First American Funds in
November 1997. The First American family includes 32 offerings available to both
individual and institutional investors. We're a multi-style manager with
numerous options, including unique sector funds specializing in industries such
as health care, real estate investment trusts, and technology.
First American Strategy Funds, "funds of funds" that invest primarily in
shares of other First American funds, reached more than $365 million in assets
under management. Introduced in October 1996, these no-load funds provide a
one-stop option for investors seeking portfolios with asset allocation for
income, growth and income, growth, or aggressive growth.
TRUSTED RELATIONSHIP YIELDS MORE
401(k) BUSINESS
C.H. ROBINSON, A MINNEAPOLIS-BASED TRANSPORTATION LOGISTICS COMPANY WITH MORE
THAN 100 OFFICES IN 10 COUNTRIES, PROVIDED ITS EMPLOYEES A STAND-ALONE
PROFIT-SHARING PLAN AND LATER ADDED A 401(k) RETIREMENT PLAN. HOWEVER, DIFFERENT
PEOPLE AND COMPANIES MANAGED THE TWO PLANS, AND THE COMPANY DECIDED TO EVALUATE
OUTSOURCING OPTIONS FOR ITS ENTIRE RETIREMENT PROGRAM.
THE ADVANTAGES OF A SINGLE-SOURCE PROGRAM WERE CLEAR. IT WOULD OFFER BETTER
COORDINATION AND DEMAND LESS INTERNAL MANAGEMENT TIME. ENHANCED PLAN FEATURES
WOULD INCREASE ENROLLMENT OPTIONS, EMPLOYEE EDUCATION, AND DISTRIBUTION CHOICES,
AS WELL AS ENABLE EMPLOYEES TO CHANGE THEIR INVESTMENTS, OBTAIN PLAN LOANS, AND
EASILY ACCESS THEIR ACCOUNT INFORMATION.
C.H. ROBINSON REVIEWED PROPOSALS FROM SEVERAL COMPANIES INCLUDING U.S. BANCORP,
WHOSE AFFILIATES WERE AMONG THE PROVIDERS OF TRUST AND INVESTMENT MANAGEMENT
SERVICES FOR THE COMPANY'S EXISTING RETIREMENT PROGRAMS. THE CRITERIA:
INVESTMENT PERFORMANCE, DIVERSITY IN INVESTMENT OFFERINGS, FREQUENCY OF PLAN
VALUATIONS, USE OF TECHNOLOGY, EASE OF ACCESS TO TIMELY PARTICIPANT INFORMATION,
AND SERVICE. WE EARNED THE BUSINESS ON THE STRENGTH OF OUR FIRST SELECT 401(k)
PRODUCT.
C.H. ROBINSON'S DEEP, DECADE-LONG RELATIONSHIP WITH U.S. BANCORP WAS A KEY
FACTOR IN ITS DECISION. BASED ON THIS EXPERIENCE, C.H. ROBINSON FELT CONFIDENT
THAT U.S. BANCORP WOULD PROVIDE INNOVATIVE SOLUTIONS AND THE NECESSARY
COMMITMENT TO MEET ITS RETIREMENT PROGRAM NEEDS.
16 U.S. Bancorp
Once again strong, long-term performance is contributing to our growth in
assets under management. In February 1997 Barron's ranked First American Funds
the 11th-best mutual fund family, and in December Mutual Funds magazine rated
First American Funds as a five-star fund family.
"BY MEETING THE NEEDS OF A WIDE RANGE OF INVESTORS, WE ARE ACHIEVING OUR
OBJECTIVE OF GATHERING ASSETS AND, IN TURN, GROWING NONINTEREST INCOME."
The success of our 401(k) products also is due largely to the track record
of the underlying investments, First American Funds. First Select, our 401(k)
program introduced in 1996, is proving to be a successful vehicle for converting
assets from larger traditional plans. First Select offers call center
capabilities for participants, employee education, and the opportunity to invest
in First American and other mutual funds including AIM, Fidelity and Janus.
Referrals from U.S. Bank retail, private, and business bankers have fueled
sales growth for investment products. We have just begun to tap the potential of
our expanded 17-state territory through outbound calls, direct mail and other
efforts. In addition, in 1997 we expanded our sales channels by making First
American Funds available through Charles Schwab's Institutional OneSource
program, Fidelity Investments' Institutional FundsNetwork, and Jack White &
Co.'s Institutional NoFee Network.
U.S. Bancorp's pending acquisition of Piper Jaffray Companies Inc.,
a Minneapolis securities firm, will add more than $12 billion to our assets
under management. The Piper Jaffray acquisition also will contribute 89
brokerage offices and 1,235 investment executives who will distribute our
products and services. It also will accelerate our efforts to meet a wider range
of our customers' investment banking needs, including underwriting commercial
paper, asset-backed securities, and a broader range of municipal bonds.
1997 HIGHLIGHTS
(CONTINUED)
INSTITUTIONAL FINANCIAL
SERVICES
FIRST AMERICAN ASSET MANAGEMENT
- - - INCREASED ASSETS UNDER MANAGEMENT 25 PERCENT TO MORE THAN $62 BILLION,
INCLUDING $21 BILLION IN FIRST AMERICAN FUNDS.
- - - INCREASED SALES OF FIRST AMERICAN FUNDS TO 52 PERCENT FROM 32 PERCENT OF
ALL MUTUAL FUND SALES BY OUR RETAIL BROKERS.
INVESTMENT SERVICES
- - - INCREASED BROKERAGE INVESTMENT SALES REVENUE BY 50 PERCENT.
- - - SUCCESSFULLY COMPLETED THE FIRST PHASE OF A CONVERSION TO A NEW BACK-OFFICE
SYSTEM FOR SECURITIES PROCESSING, ALLOWING GREATER EFFICIENCIES, ENHANCED
POINT-OF-SALE INFORMATION, AND BETTER OVERALL CUSTOMER SERVICE.
- - - RECEIVED SECTION 20 REGULATORY APPROVAL TO UNDERWRITE COMMERCIAL PAPER,
ASSET-BACKED SECURITIES, AND A BROADER RANGE OF MUNICIPAL BONDS.
U.S. Bancorp 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
U.S. Bancorp, formerly known as First Bank System, Inc. (the "Company"), is the
organization created by the acquisition by First Bank System, Inc. ("FBS") of U.
S. Bancorp ("USBC") of Portland, Oregon. The merger was completed on August 1,
1997 as a pooling-of-interests, and prior period financial statements have been
restated to reflect the merger.
SUMMARY OF 1997 RESULTS The Company had record operating earnings (net income
excluding nonrecurring items) of $1.26 billion in 1997, up 10 percent from 1996
operating earnings of $1.14 billion. On a diluted share basis, operating
earnings were $5.03 in 1997, compared with $4.42 in 1996. Return on average
assets and return on average common equity, excluding nonrecurring items, were
1.83 percent and 22.0 percent, compared with returns of 1.69 percent and 19.8
percent in 1996. Excluding nonrecurring items, the efficiency ratio (the ratio
of expenses to revenues) improved to 48.9 percent in 1997 from
52.2 percent in 1996.
The strong 1997 results reflect growth in fee income and lower noninterest
expense. Noninterest income (before nonrecurring items) increased $171 million
(12 percent), compared with 1996. The increase was the result of growth in all
categories of fee income. Excluding the reduction in fees related to the 1997
corporate card securitization, noninterest income (before nonrecurring items)
increased by $187 million (13 percent), compared with 1996. Noninterest expense
(before nonrecurring items) decreased $31 million from 1996 reflecting benefits
of the merger.
Net income was $838.5 million in 1997, or $3.34 per diluted share,
compared with $1.22 billion, or $4.72 per diluted share, in 1996. Return on
average assets and return on average common equity were 1.22 percent and 14.6
percent, compared with returns of 1.81 percent and 21.1 percent in 1996. Net
income in 1997 reflects nonrecurring items, primarily merger-related, of $416.7
million ($593.6 million on a pre-tax basis). These 1997 nonrecurring items
include a $95.0 million merger-related provision for credit losses. Additional
merger-related charges of approximately $125.0 million are expected to be
incurred over the next three quarters. Net nonrecurring gains increased 1996 net
income by $76.6 million ($145.1 million on a pre-tax basis). See pages 23
through 25 for further discussion on nonrecurring items.
ACQUISITION AND DIVESTITURE ACTIVITY On December 15, 1997, the Company announced
the acquisition of Piper Jaffray Companies Inc. ("Piper Jaffray"), a
full-service investment banking and securities brokerage firm, in a cash
transaction for $730 million or $37.25 per Piper Jaffray common share. The
acquisition will allow the Company to offer investment banking and institutional
and retail brokerage services through a new subsidiary which will be known as
U.S. Bancorp Piper Jaffray Inc. The acquisition, which will be accounted for as
a purchase, is subject to approval by Piper Jaffray shareholders and regulators
and is expected to close in the second quarter of 1998.
During 1997, the Company completed three purchase acquisitions of banks in
its operating region: $360 million Zappco, Inc., a bank holding company
headquartered in St. Cloud, Minnesota, in December; $214 million Business and
Professional Bank of Sacramento, California in April; and, $70 million Sun
Capital Bancorp of St. George, Utah in January. The Company also acquired the
bond indenture and paying agency business of Comerica Incorporated and
securitized and sold $420 million of corporate charge card receivables during
1997.
During 1996, the Company completed two purchase acquisitions of banks in
its operating region: $1.6 billion California Bancshares, Inc., a holding
company for a multi-bank commercial banking operation serving the East San
Francisco Bay Area and the Central Valley of Northern California, in June; and,
$3.7 billion FirsTier Financial, Inc. of Omaha, Nebraska in February. As part of
the regulatory approval process for the 1995 West One Bancorp acquisition, the
Company divested 31 branches during 1996, and recognized a pre-tax gain of $28.8
million. Also during 1996, the Company recognized a $45.8 million net gain on
the sale of FBS' residential mortgage servicing and loan production business.
Refer to Note C for additional information regarding acquisitions and
divestitures.
18 U.S. Bancorp
TABLE 1 SELECTED FINANCIAL DATA
(Dollars in Millions, Except Per Share Data) 1997 1996 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis) . . . . . . . $3,106.0 $ 3,034.7 $2,886.6 $2,809.6 $2,658.2
Provision for credit losses. . . . . . . . . . . . . . . . . 460.3 271.2 239.1 243.7 239.3
--------------------------------------------------------------------
Net interest income after provision for credit losses. . . 2,645.7 2,763.5 2,647.5 2,565.9 2,418.9
Securities gains (losses). . . . . . . . . . . . . . . . . . 3.6 20.8 3.0 (124.2) .8
Other nonrecurring gains . . . . . . . . . . . . . . . . . . 9.4 330.6 44.8 52.6 65.1
Other noninterest income . . . . . . . . . . . . . . . . . . 1,602.2 1,431.7 1,265.5 1,186.5 1,177.9
Restructuring and merger-related charges . . . . . . . . . . 511.6 88.1 98.9 225.3 72.2
Other nonrecurring charges . . . . . . . . . . . . . . . . . -- 118.2 38.2 27.2 --
Other noninterest expense. . . . . . . . . . . . . . . . . . 2,300.7 2,331.8 2,338.8 2,479.6 2,442.7
--------------------------------------------------------------------
Income from continuing operations before income taxes. . . 1,448.6 2,008.5 1,484.9 948.7 1,147.8
Taxable-equivalent adjustment. . . . . . . . . . . . . . . . 57.9 64.1 63.9 69.0 71.1
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 552.2 725.7 523.9 311.5 374.9
--------------------------------------------------------------------
Income from continuing operations. . . . . . . . . . . . . 838.5 1,218.7 897.1 568.2 701.8
Income (loss) from discontinued operations . . . . . . . . . -- -- -- (8.5) 2.5
--------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 838.5 $ 1,218.7 $ 897.1 $ 559.7 $ 704.3
--------------------------------------------------------------------
--------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets.................................... 1.22% 1.81% 1.42% .89% 1.17%
Return on average common equity. . . . . . . . . . . . . . . 14.6 21.1 17.2 10.9 14.7
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . 59.6 52.9 59.0 67.5 64.5
Net interest margin. . . . . . . . . . . . . . . . . . . . . 5.04 5.04 5.10 4.99 4.95
SELECTED FINANCIAL RATIOS BEFORE
RESTRUCTURING AND MERGER-RELATED CHARGES
AND OTHER NONRECURRING ITEMS
Return on average assets . . . . . . . . . . . . . . . . . . 1.83 1.69 1.51 1.23 1.18
Return on average common equity. . . . . . . . . . . . . . . 22.0 19.8 18.3 15.3 14.9
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . 48.9 52.2 56.3 62.1 63.7
PER COMMON SHARE:
Income from continuing operations. . . . . . . . . . . . . . $ 3.39 $ 4.81 $ 3.56 $ 2.19 $ 2.71
Income (loss) from discontinued operations . . . . . . . . -- -- -- (.03) .01
--------------------------------------------------------------------
--------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.39 $ 4.81 $ 3.56 $ 2.16 $ 2.72
--------------------------------------------------------------------
Diluted income from continuing operations. . . . . . . . . . $ 3.34 $ 4.72 $ 3.48 $ 2.14 $ 2.64
Income (loss) from discontinued operations . . . . . . . . -- -- -- (.03) .01
--------------------------------------------------------------------
Diluted net income . . . . . . . . . . . . . . . . . . . . . $ 3.34 $ 4.72 $ 3.48 $ 2.11 $ 2.65
--------------------------------------------------------------------
--------------------------------------------------------------------
Dividends paid*. . . . . . . . . . . . . . . . . . . . . . . $ 1.86 $ 1.65 $ 1.45 $ 1.16 $ 1.00
AVERAGE BALANCE SHEET DATA:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,513 $ 50,855 $ 47,703 $ 44,584 $ 41,092
Earning assets . . . . . . . . . . . . . . . . . . . . . . . 61,675 60,201 56,556 56,233 53,726
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,771 67,402 63,084 62,708 60,187
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 47,336 47,252 44,726 46,146 46,616
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 7,527 4,908 4,162 3,796 2,916
Common equity. . . . . . . . . . . . . . . . . . . . . . . . 5,667 5,679 5,090 4,887 4,502
Total shareholders' equity . . . . . . . . . . . . . . . . . 5,798 5,919 5,345 5,180 5,012
YEAR-END BALANCE SHEET DATA:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,708 $ 52,355 $ 49,345 $ 46,375 $ 43,870
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,295 69,749 65,668 64,737 62,457
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 49,027 49,356 45,779 46,115 47,834
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 10,247 5,369 4,583 4,225 3,231
Common equity. . . . . . . . . . . . . . . . . . . . . . . . 5,890 5,613 5,089 4,837 4,758
Total shareholders' equity . . . . . . . . . . . . . . . . . 5,890 5,763 5,342 5,105 5,186
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
*DIVIDENDS PER SHARE HAVE NOT BEEN RESTATED FOR THE U.S. BANCORP ("USBC") OR
METROPOLITAN FINANCIAL CORPORATION ("MFC") MERGERS. USBC PAID COMMON DIVIDENDS
OF $139.1 MILLION THROUGH JULY OF 1997 ($.62 PER SHARE), $168.7 MILLION IN 1996
($1.18 PER SHARE), $133.1 MILLION IN 1995 ($1.06 PER SHARE), $116.0 MILLION IN
1994 ($.94 PER SHARE) AND $100.8 MILLION IN 1993 ($.85 PER SHARE). MFC PAID
COMMON DIVIDENDS OF $25.1 MILLION IN 1994 ($.80 PER SHARE) AND $12.1 MILLION IN
1993 ($.39 PER SHARE).
U.S. Bancorp 19
TABLE 2 LINE OF BUSINESS FINANCIAL PERFORMANCE
Commercial & Business Banking
and Private Financial Services Retail Banking
-------------------------------------------------------------
Percent Percent
(Dollars in Millions) 1997 1996 Change 1997 1996 Change
- - -----------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis)................ $1,341.4 $1,246.3 7.6% $1,483.4 $1,526.7 (2.8)%
Provision for credit losses. . . . . . . . . 44.0 29.3 50.2 167.6 106.8 56.9
Noninterest income . . . . . . . . . . . . . 362.6 335.0 8.2 470.0 431.1 9.0
Noninterest expense. . . . . . . . . . . . . 614.8 597.7 2.9 1,218.6 1,313.2 (7.2)
Income taxes and
taxable-equivalent adjustment . . . . . . 402.8 369.4 218.5 208.2
------------------ -----------------
Income before nonrecurring items . . . . . . $ 642.4 $ 584.9 9.8 $ 348.7 $ 329.6 5.8
------------------ -----------------
------------------ -----------------
Net nonrecurring items (after-tax) . . . . .
Net income . . . . . . . . . . . . . . . . .
AVERAGE BALANCE SHEET DATA:
Commercial loans . . . . . . . . . . . . . . $29,752 $27,130 9.7 $ 2,001 $ 1,937 3.3
Consumer loans,
excluding residential mortgage. . . . . . 555 540 2.8 10,898 10,290 5.9
Residential mortgage loans . . . . . . . . . 316 331 (4.5) 4,728 5,403 (12.5)
Assets . . . . . . . . . . . . . . . . . . . 38,035 36,068 5.5 22,508 23,448 (4.0)
Deposits . . . . . . . . . . . . . . . . . . 9,657 8,348 15.7 36,106 37,537 (3.8)
Common equity. . . . . . . . . . . . . . . . 3,064 2,981 2.8 1,720 1,891 (9.0)
------------------ -----------------
Return on average assets..................... 1.69% 1.62% 1.55% 1.41%
Return on average common equity ("ROCE")..... 21.0 19.6 20.3 17.4
Net tangible ROCE**. . . . . . . . . . . . . 26.4 24.4 35.5 27.9
Efficiency ratio . . . . . . . . . . . . . . 36.1 37.8 62.4 67.1
Efficiency ratio on a cash basis** . . . . . 34.7 36.5 59.7 64.8
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
* NOT MEANINGFUL.
**CALCULATED BY EXCLUDING GOODWILL AND OTHER INTANGIBLES AND THE RELATED
AMORTIZATION.
NOTE:PREFERRED DIVIDENDS AND NONRECURRING ITEMS ARE NOT ALLOCATED TO THE
BUSINESS LINES. ALL RATIOS ARE CALCULATED WITHOUT THE EFFECT OF NONRECURRING
ITEMS.
LINE OF BUSINESS FINANCIAL REVIEW
Financial performance is measured by major lines of business, which include:
Commercial & Business Banking and Private Financial Services, Retail Banking,
Payment Systems, and Corporate Trust and Institutional Financial Services.
Business line results are derived from the Company's business unit profitability
reporting system. Designations, assignments, and allocations may change from
time to time as management accounting systems are enhanced or product lines
change. During 1997 certain organization and methodology changes were made and
1996 results are presented on a comparable basis.
COMMERCIAL & BUSINESS BANKING AND PRIVATE FINANCIAL SERVICES Commercial &
Business Banking and Private Financial Services includes lending, treasury
management, and other financial services to middle-market, large corporate and
mortgage banking companies and private banking and personal trust clients.
Operating earnings increased 10 percent to $642.4 million in 1997, compared with
$584.9 million in 1996. Return on average assets was 1.69 percent in 1997
compared with 1.62 percent in 1996, and net tangible return on average common
equity was 26.4 percent in 1997 compared with 24.4 percent in 1996.
Net interest income increased 8 percent, reflecting growth in average loan
balances. Noninterest income
20 U.S. Bancorp
Corporate Trust and
Institutional Financial Consolidated
Payment Systems Services Company
--------------------------------------------------------------------------------------
Percent Percent Percent
(Dollars in Millions) 1997 1996 Change 1997 1996 Change 1997 1996 Change
- - -----------------------------------------------------------------------------------------------------------------------------------
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis)................ $216.9 $218.8 (.9)% $ 64.3 $ 42.9 49.9% $3,106.0 $3,034.7 2.3%
Provision for credit losses. . . . . . . . . 153.7 135.1 13.8 -- -- -- 365.3 271.2 34.7
Noninterest income . . . . . . . . . . . . . 482.2 402.2 19.9 287.4 263.4 9.1 1,602.2 1,431.7 11.9
Noninterest expense. . . . . . . . . . . . . 273.8 242.8 12.8 193.5 178.1 8.6 2,300.7 2,331.8 (1.3)
Income taxes and
taxable-equivalent adjustment . . . . . . 104.7 94.1 61.0 49.6 787.0 721.3
---------------- ---------------- ------------------
Income before nonrecurring items . . . . . . $166.9 $149.0 12.0 $ 97.2 $ 78.6 23.7 1,255.2 1,142.1 9.9
---------------- ----------------
---------------- ----------------
Net nonrecurring items (after-tax) . . . . . (416.7) 76.6 *
------------------
Net income . . . . . . . . . . . . . . . . . $ 838.5 $1,218.7 (31.2)
------------------
------------------
AVERAGE BALANCE SHEET DATA:
Commercial loans . . . . . . . . . . . . . . $1,005 $1,180 (14.8) $ -- $ -- -- $ 32,758 $ 30,247 8.3
Consumer loans,
excluding residential mortgage . . . . . . 4,258 4,044 5.3 -- -- -- 15,711 14,874 5.6
Residential mortgage loans . . . . . . . . . -- -- -- -- -- -- 5,044 5,734 (12.0)
Assets . . . . . . . . . . . . . . . . . . . 6,611 6,451 2.5 1,617 1,435 12.7 68,771 67,402 2.0
Deposits . . . . . . . . . . . . . . . . . . 46 43 7.0 1,527 1,324 15.3 47,336 47,252 .2
Common equity. . . . . . . . . . . . . . . . 500 478 4.6 383 329 16.4 5,667 5,679 (.2)
---------------- ---------------- ------------------
Return on average assets..................... 2.52% 2.31% * * 1.83% 1.69%
Return on average common equity ("ROCE")..... 33.4 31.2 25.4% 23.9% 22.0 19.8
Net tangible ROCE**. . . . . . . . . . . . . 54.1 51.0 42.6 42.0 31.8 27.9
Efficiency ratio . . . . . . . . . . . . . . 39.2 39.1 55.0 58.1 48.9 52.2
Efficiency ratio on a cash basis** . . . . . 36.7 36.3 49.2 52.1 46.5 50.0
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
increased $27.6 million (8 percent) in 1997 compared with 1996. Noninterest
expense increased slightly over 1996. The efficiency ratio on a cash basis
improved to 34.7 percent in 1997, compared with 36.5 percent in 1996.
RETAIL BANKING Retail Banking delivers products and services to the broad
consumer market and small-business through branch offices, telemarketing, direct
mail, and automated teller machines ("ATM's"). Operating earnings were $348.7
million in 1997 compared with $329.6 million in 1996. Return on average assets
increased to 1.55 percent from 1.41 percent in 1996. Net tangible return on
average common equity increased to 35.5 percent in 1997 from 27.9 percent in the
previous year.
Net interest income declined 3 percent from the prior year, due primarily
to the planned runoff of the residential mortgage loan portfolio offset by the
growth in home equity loans. Noninterest income increased 9 percent due
primarily to increased service charges on deposits and investment products and
fees. Noninterest expense decreased, reflecting the benefits of continued
streamlining of branch operations, as well as the integration of recent business
combinations. The efficiency ratio on a cash basis improved to 59.7 percent in
1997 from 64.8 percent a year ago.
PAYMENT SYSTEMS Payment Systems includes consumer and business credit cards,
corporate and purchasing card services,
U.S. Bancorp 21
card-accessed secured and unsecured lines of credit, ATM processing, and
merchant processing. Operating earnings increased 12 percent in 1997 to $166.9
million, compared with $149.0 million in 1996. Return on average assets was 2.52
percent compared with 2.31 percent in 1996, and net tangible return on average
common equity was 54.1 percent compared with 51.0 percent in 1996.
Fee-based noninterest income increased 20 percent in 1997 compared with
1996. Excluding the reduction in fees related to the first quarter 1997
Corporate Card securitization, fee-based noninterest income increased 24
percent. The increase was due to growth in the sales volume of the Corporate
Card, the Purchasing Card, and the Northwest Airlines WorldPerks-Registered
Trademark- credit card. Net interest income decreased due to a higher
proportion of customers who choose to pay off their credit card balance in
full each month and lower retail late fees. Noninterest expense increased due
to increased technology spending and costs related to increased sales volume.
CORPORATE TRUST AND INSTITUTIONAL FINANCIAL SERVICES Corporate Trust and
Institutional Financial Services includes institutional and corporate trust
services, investment management services, and a full-service brokerage company.
Operating earnings increased 24 percent to $97.2 million, compared with $78.6
million in the prior year. The net tangible return on average common equity was
42.6 percent in 1997, compared with 42.0 percent in 1996.
Net interest income increased 50 percent over 1996, reflecting the
acquisitions of the corporate trust businesses of BankAmerica and Comerica
Incorporated. Noninterest income increased 9 percent from 1996 due primarily to
increases in mutual fund advisory fees and corporate trust fees. The efficiency
ratio on a cash basis improved to 49.2 percent from 52.1 percent in 1996,
reflecting the effective integration of acquisitions, process re-engineering
efforts, and revenue growth.
STATEMENT OF INCOME ANALYSIS
NET INTEREST INCOME Net interest income on a taxable-equivalent basis was $3.11
billion in 1997 compared with $3.03 billion in 1996 and $2.89 billion in 1995.
The 1997 increase was primarily attributable to growth in earning assets, driven
by core commercial and consumer loan production, partially offset by reductions
in investment securities and residential mortgages. The Company expects its
balances of securities and residential mortgage loans to continue to decline, as
these assets generally have insufficient returns. Average loans were up $2.7
billion (5 percent) from 1996. See Table 7 for detail of the Company's loan
portfolio distribution. Excluding residential mortgage loan balances and the
effect of the $420 million first quarter corporate card securitization, 1997
average loans were
TABLE 3 ANALYSIS OF NET INTEREST INCOME
(Dollars in Millions) 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------
Net interest income (taxable-equivalent basis) . . . . . . . . . . . . $3,106.0 $3,034.7 $2,886.6
--------------------------------------
--------------------------------------
Average balances of earning assets supported by:
Interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . $ 48,097 $ 47,413 $ 45,211
Noninterest-bearing liabilities . . . . . . . . . . . . . . . . . . 13,578 12,788 11,345
--------------------------------------
Total earning assets . . . . . . . . . . . . . . . . . . . . . . $ 61,675 $ 60,201 $ 56,556
--------------------------------------
--------------------------------------
Average yields and weighted average rates (taxable-equivalent basis):
Earning assets yield. . . . . . . . . . . . . . . . . . . . . . . . 8.68% 8.60% 8.81%
Rate paid on interest-bearing liabilities . . . . . . . . . . . . . 4.67 4.52 4.64
--------------------------------------
Gross interest margin. . . . . . . . . . . . . . . . . . . . . . . . . 4.01% 4.08% 4.17%
--------------------------------------
--------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . . . . . . 5.04% 5.04% 5.10%
--------------------------------------
--------------------------------------
Net interest margin without taxable-equivalent increments. . . . . . . 4.94% 4.93% 4.99%
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
22 U.S. Bancorp
TABLE 4 CHANGES IN RATE AND VOLUME
1997 Compared with 1996 1996 Compared with 1995
---------------------------------------------------------------------------------
(Dollars in Millions) Volume Yield/Rate Total Volume Yield/Rate Total
- - ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in:
Interest income:
Loans. . . . . . . . . . . . . . . $238.8 $ 5.8 $244.6 $285.3 $(127.1) $158.2
Taxable securities . . . . . . . . (56.5) (18.0) (74.5) (12.4) 11.2 (1.2)
Nontaxable securities. . . . . . . (1.9) 20.3 18.4 16.1 2.7 18.8
Federal funds sold and
resale agreements . . . . . . . (16.1) 1.2 (14.9) 18.4 (2.7) 15.7
Other. . . . . . . . . . . . . . . (.8) .2 (.6) 4.7 (2.4) 2.3
---------------------------------------------------------------------------------
Total . . . . . . . . . . . . . 163.5 9.5 173.0 312.1 (118.3) 193.8
Interest expense:
Savings deposits and time
deposits less than $100,000 . . (31.8) 12.5 (19.3) 26.5 (20.8) 5.7
Time deposits over $100,000. . . . 10.9 3.8 14.7 31.4 (12.5) 18.9
Short-term borrowings. . . . . . . (105.7) 10.4 (95.3) 12.5 (24.6) (12.1)
Long-term debt . . . . . . . . . . 159.8 (4.6) 155.2 46.9 (16.5) 30.4
Mandatorily redeemable
preferred securities. . . . . . 46.4 -- 46.4 2.8 -- 2.8
---------------------------------------------------------------------------------
Total . . . . . . . . . . . . . 79.6 22.1 101.7 120.1 (74.4) 45.7
---------------------------------------------------------------------------------
Increase (decrease) in net
interest income . . . . . . . . $ 83.9 $(12.6) $ 71.3 $192.0 $ (43.9) $148.1
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
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.
higher by approximately $3.7 billion (8 percent) than 1996, reflecting growth in
the commercial, home equity and second mortgages, and credit card portfolios.
Other consumer loans were lower on average than 1996, primarily due to
reductions in installment loans in the northwest region. Average securities were
$850 million lower in 1997 compared with 1996, reflecting both maturities and
sales of securities, partially offset by purchases of mortgage-backed and other
securities added as a result of bank acquisitions.
The increase in net interest income from 1995 to 1996 was attributable to a
$3.2 billion increase in average loans, reflecting growth in core commercial and
consumer loans, as well as acquisitions.
The net interest margin, on a taxable-equivalent basis, was 5.04 percent in
1997 and 1996, and 5.10 percent in 1995.
PROVISION FOR CREDIT LOSSES The provision for credit losses, before the $95.0
million merger-related provision, was $365.3 million in 1997, up $94.1 million
from $271.2 million in 1996 and up $126.2 million from $239.1 million in 1995.
Net charge-offs, before merger-related net charge-offs of $62.3 million, totaled
$387.4 million in 1997, up from $261.5 million in 1996 and $195.1 million in
1995. The higher provision results from increased loan volumes discussed above
and higher commercial net charge-offs. The $95.0 million merger-related
provision and $62.3 million of charge-offs were taken as a result of an
alignment of the classification and charge-off practices of former USBC with
those of the Company. Refer to "Corporate Risk Profile" for further information
on credit quality.
NONINTEREST INCOME Noninterest income was $1.62 billion in 1997, compared with
$1.78 billion in 1996, and $1.31 billion in 1995. A number of nonrecurring gains
affected noninterest income each year as summarized in Table 5. Nonrecurring
gains in 1997 included a $9.4 million gain on the sale of USBC's $45 million
affinity credit card portfolio and $3.6 million in net securities gains.
Nonrecurring gains for 1996 included: $190.0 million, net of expenses, received
for the termination of the First Interstate Bancorp merger agreement (see Note
C); a $65.0 million state tax
U.S. Bancorp 23
TABLE 5 NONINTEREST INCOME
(Dollars in Millions). . . . . . . . . . . . . . 1997 1996 1995
- - -------------------------------------------------------------------------------
S>
Credit card fee revenue. . . . . . . . . . . . . $ 418.8 $ 351.5 $ 303.9
Service charges on deposit accounts. . . . . . . 396.2 377.2 345.0
Trust and investment management fees . . . . . . 348.0 302.3 241.1
Investment products fees and commissions . . . . 65.7 59.7 49.8
Trading account profits and commissions. . . . . 30.9 29.0 28.5
Other. . . . . . . . . . . . . . . . . . . . . . 342.6 312.0 297.2
----------------------------
Subtotal. . . . . . . . . . . . . . . . . . . 1,602.2 1,431.7 1,265.5
Gain on sale of mortgage banking operations,
branches and other assets . . . . . . . . . . 9.4 71.4 39.9
Securities gains . . . . . . . . . . . . . . . . 3.6 20.8 3.0
Termination fee, net . . . . . . . . . . . . . . -- 190.0 --
State income tax refund. . . . . . . . . . . . . -- 65.0 --
Other. . . . . . . . . . . . . . . . . . . . . . -- 4.2 4.9
----------------------------
Nonrecurring gains . . . . . . . . . . . . . 13.0 351.4 47.8
----------------------------
Total noninterest income . . . . . . . . . $1,615.2 $1,783.1 $1,313.3
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
refund, including interest; a $45.8 million gain on the sale of the Company's
mortgage banking operations; a $25.6 million gain on branch and credit card
portfolio sales; a $4.2 million gain on the sale of premises; and, $20.8 million
in net securities gains. Nonrecurring gains recorded in 1995 included a $31.0
million gain on the sale of 63 branches; a $5.5 million gain on the sale of
affinity card portfolios, a $3.0 million gain on sales of adjustable-rate
mortgage loans and student loans; a $5.2 million gain on the sale of facilities;
a $1.7 million gain on the sale of mortgage loan servicing rights; $2.0 million
of losses related to the Company's import/export financing subsidiary that was
closed in 1995; and, $3.0 million in net securities gains.
Excluding nonrecurring items, noninterest income in 1997 was $1.60 billion,
a $170.5 million (12 percent) increase from $1.43 billion in 1996 and a $336.7
million (27 percent) increase from $1.27 billion in 1995. The increases resulted
from continued growth in all categories of fee revenue. Credit card fee revenue
increased as a result of higher sales volumes for Corporate and Purchasing Cards
and the Northwest Airlines WorldPerks credit card. Excluding the effect of the
$420 million corporate card securitization in the first quarter of 1997, credit
card fee income would have increased by $83.8 million (24 percent) over 1996.
Trust and investment management fees increased each year due to growth in
corporate, institutional and personal trust businesses and the Company's
corporate trust acquisition strategy. Service charges on deposit accounts
increased primarily as a result of increased demand deposits and acquisitions.
Investment product fees and commissions increased each year due to higher sales
volumes of mutual funds and annuities.
NONINTEREST EXPENSE Noninterest expense was $2.81 billion in 1997, compared with
$2.54 billion in 1996, an increase of $274.2 million, and $2.48 billion in 1995.
Total noninterest expense increased each year as a result of nonrecurring items
summarized in Table 6. Nonrecurring items in 1997 consisted of merger-related
charges of $511.6 million incurred in connection with the USBC transaction,
including: $232.3 million of severance costs; $77.2 million of
occupancy/equipment writedowns; $43.4 million of capitalized software and other
asset write-offs; $35.0 million of investment banking and other transaction
costs; $72.7 million of conversion expenses incurred; and, $51.0 million of
other merger-related expenses. Nonrecurring charges in 1996 included: merger and
integration charges of $49.5 million for the acquisitions of FirsTier Financial,
Inc., the BankAmerica corporate trust business and West One Bancorp; $38.6
million in branch distribution resizing expenses; a $29.5 million valuation
adjustment to reduce the carrying value of credit card and core deposit
intangibles to estimated fair value; $10.1 million for a one-time $750
per-employee bonus; $17.3 million to acquire credit card and revolving credit
software and to write-off other miscellaneous assets; and, a $61.3 million
one-time special assessment by the FDIC on SAIF deposits.
24 U.S. Bancorp
TABLE 6 NONINTEREST EXPENSE
(Dollars in Millions, Except Per Employee Data). 1997 1996 1995
- - --------------------------------------------------------------------------------
Salaries** . . . . . . . . . . . . . . . . . . . $ 969.3 $ 955.3 $ 927.5
Employee benefits**. . . . . . . . . . . . . . . 217.4 219.4 209.9
----------------------------
Total personnel expense . . . . . . . . . . . 1,186.7 1,174.7 1,137.4
Net occupancy. . . . . . . . . . . . . . . . . . 182.0 179.4 183.4
Furniture and equipment. . . . . . . . . . . . . 165.4 175.2 184.5
Goodwill and other intangible assets** . . . . . 113.3 100.6 76.0
Professional services**. . . . . . . . . . . . . 70.3 58.0 59.2
Other personnel costs. . . . . . . . . . . . . . 66.6 83.4 62.4
Telephone. . . . . . . . . . . . . . . . . . . . 59.7 60.2 58.4
Advertising and marketing. . . . . . . . . . . . 56.6 61.2 59.2
Postage . . . . . . . . . . . . . . . . . . . . 44.7 42.8 45.5
Third party data processing. . . . . . . . . . . 39.2 35.6 38.4
Printing, stationery and supplies. . . . . . . . 37.4 44.3 43.5
FDIC insurance . . . . . . . . . . . . . . . . . 9.0 11.9 64.5
Other**. . . . . . . . . . . . . . . . . . . . . 269.8 304.5 326.4
----------------------------
Subtotal. . . . . . . . . . . . . . . . . . . 2,300.7 2,331.8 2,338.8
Merger-related . . . . . . . . . . . . . . . . . 511.6 49.5 98.9
SAIF special assessment. . . . . . . . . . . . . -- 61.3 --
Branch distribution resizing . . . . . . . . . . -- 38.6 --
Goodwill and other intangible assets
valuation adjustment. . . . . . . . . . . . . -- 29.5 --
Special employee bonus . . . . . . . . . . . . . -- 10.1 --
Other . . . . . . . . . . . . . . . . . . . . . -- 17.3 38.2
----------------------------
Nonrecurring charges. . . . . . . . . . . . . 511.6 206.3 137.1
----------------------------
Total noninterest expense. . . . . . . . . $2,812.3 $2,538.1 $2,475.9
----------------------------
----------------------------
Efficiency ratio*. . . . . . . . . . . . . . . . 59.6% 52.9% 59.0%
Efficiency ratio before merger-related
items and nonrecurring items. . . . . . . . . 48.9 52.2 56.3
Average number of full-time equivalent
employees . . . . . . . . . . . . . . . . . . 25,858 27,157 27,795
Personnel expense per employee** . . . . . . . . $ 45,893 $ 43,256 $ 40,921
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
*COMPUTED AS NONINTEREST EXPENSE DIVIDED BY THE SUM OF NET INTEREST INCOME ON A
TAXABLE-EQUIVALENT BASIS AND NONINTEREST INCOME NET OF SECURITIES GAINS AND
LOSSES.
**BEFORE EFFECT OF NONRECURRING ITEMS IN 1996.
Nonrecurring charges in 1995 included: merger and integration charges of $98.9
million for the acquisition of West One Bancorp; the write-off of $23.0 million
of unamortized software costs related to a change in the Company's policy to
expense software costs; a $3.2 million write-down of premises vacated by the
Company's affinity card banking subsidiary; $4.0 million of business
consolidation expenses; and, an $8.0 million write-off of other miscellaneous
assets. Refer to Note M for further information on merger, integration and
resizing charges.
Excluding nonrecurring items, 1997 noninterest expense was $2.30 billion,
compared with $2.33 billion in 1996 and $2.34 billion in 1995. Total salaries
and benefits (excluding nonrecurring charges) were $1.19 billion in 1997
compared with $1.17 billion in 1996 and $1.14 billion in 1995. Average full-time
equivalent employees decreased 5 percent to 25,858 in 1997 from 27,157 in 1996.
Amortization of goodwill and other intangible assets, excluding the valuation
adjustment discussed above, was $113.3 million in 1997, $100.6 million in 1996,
and $76.0 million in 1995. The increases were primarily attributable to the
additional goodwill and intangible assets resulting from acquisitions and
portfolio purchases. The reduction in other personnel in 1997 reflects lower
contract labor expense associated with 1996 technology projects now complete.
Offsetting the favorable variance in contract labor was an increase in
professional services related to several 1997 technology initiatives which
involve third party con-
U.S. Bancorp 25
TABLE 7 LOAN PORTFOLIO DISTRIBUTION
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------------------
At December 31 Percent Percent Percent Percent Percent
Dollars in Millions) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
- - -----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL:
Commercial. . . . . . . . $23,399 42.8% $21,393 40.9% $19,821 40.1% $17,736 38.2% $17,176 39.1%
Real estate:
Commercial mortgage . 8,025 14.7 8,022 15.3 6,864 13.9 6,189 13.4 5,550 12.7
Construction . . . . . 2,359 4.3 2,125 4.0 1,516 3.2 1,314 2.8 1,191 2.7
--------------------------------------------------------------------------------------------------
Total commercial . 33,783 61.8 31,540 60.2 28,201 57.2 25,239 54.4 23,917 54.5
CONSUMER:
Residential mortgage . . 4,480 8.2 5,225 10.0 6,722 13.6 7,177 15.5 6,775 15.4
Residential mortgage
held for sale . . . . . 193 .3 148 .3 343 .7 257 .6 1,929 4.4
Home equity and second
mortgage. . . . . . . . 5,373 9.8 4,798 9.2 4,011 8.1 3,500 7.5 2,790 6.4
Credit card . . . . . . . 4,200 7.7 3,632 6.9 3,391 6.9 3,465 7.5 2,795 6.4
Automobile . . . . . . . 3,227 5.9 3,388 6.5 3,243 6.6 3,256 7.0 2,541 5.8
Revolving credit. . . . . 1,567 2.9 1,581 3.0 1,517 3.1 1,406 3.0 1,280 2.9
Installment . . . . . . . 1,199 2.2 1,463 2.8 1,449 2.9 1,625 3.5 1,435 3.3
Student*. . . . . . . . . 686 1.2 580 1.1 468 .9 450 1.0 408 .9
--------------------------------------------------------------------------------------------------
Total consumer. . . 20,925 38.2 20,815 39.8 21,144 42.8 21,136 45.6 19,953 45.5
Total loans . . . . $54,708 100.0% $52,355 100.0% $49,345 100.0% $46,375 100.0% $43,870 100.0%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
*ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT PERIOD
BEGINS.
sulting arrangements. Excluding nonrecurring items, the Company's efficiency
ratio improved to 48.9 percent for 1997, compared with 52.2 percent and 56.3
percent in 1996 and 1995, respectively. The keys to this high productivity are a
tight cost control culture throughout the organization and the successful
integration of acquisitions.
The Company's efforts to address issues related to the turn of the century
("Year 2000") began with technology changes initiated in the early 1990's. Many
of the Company's principal data processing applications were replaced with
licensed software packages. In addition, a Year 2000 project was initiated to
ensure that appropriate modifications are made to systems and applications to
resolve Year 2000 issues. Programming changes and testing of systems and
software packages are expected to be substantially completed by December 31,
1998. In addition, the Company's credit risk assessment includes the
consideration of incremental risk which may be posed by customers' inability, if
any, to address Year 2000 issues. The cost of the project is not significant to
the Company.
INCOME TAX EXPENSE The provision for income taxes was $552.2 million in 1997
compared with $725.7 million in 1996 and $523.9 million in 1995. The decrease in
1997 from 1996 was primarily the result of a lower level of taxable income due
to the nonrecurring items discussed above.
At December 31, 1997, the Company's net deferred tax asset was $108.2
million, compared with $174.0 million at December 31, 1996. In determining that
realization of the deferred tax asset was more likely than not, the Company gave
consideration to a number of factors, including its recent earnings history, its
expectations for earnings in the future and, where applicable, the expiration
dates associated with tax carryforwards. For further information on income
taxes, refer to Note N.
BALANCE SHEET ANALYSIS
LOANS The Company's loan portfolio increased $2.3 billion to $54.7 billion at
December 31, 1997, from $52.4 billion at December 31, 1996. Excluding
residential mortgages and the $420 million corporate card securitization,
average loans for 1997 were higher by $3.7 billion than 1996, reflecting growth
in the commercial, home equity and second mortgages and credit card portfolios.
The Company's loan portfolio carries 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.
26 U.S. Bancorp
TABLE 8 COMMERCIAL REAL ESTATE EXPOSURE BY PROPERTY TYPE AND GEOGRAPHY
Percentage of Total
at December 31
-------------------
PROPERTY TYPE 1997 1996
- - ----------------------------------------------------------------------------
Retail . . . . . . . . . . . . . . . . . . . . . . . . 15.1% 15.9%
Mixed-use office . . . . . . . . . . . . . . . . . . . 13.1 12.6
Office building. . . . . . . . . . . . . . . . . . . . 12.8 12.5
Multi-family . . . . . . . . . . . . . . . . . . . . . 10.2 10.6
Hotel/motel. . . . . . . . . . . . . . . . . . . . . . 8.9 9.8
Single-family residential. . . . . . . . . . . . . . . 7.8 6.2
Land . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 8.1
Other, primarily owner-occupied. . . . . . . . . . . . 25.8 24.3
-------------------
100.0% 100.0%
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
GEOGRAPHY
- - ----------------------------------------------------------------------------
Washington . . . . . . . . . . . . . . . . . . . . . . 24.3% 24.8%
Oregon . . . . . . . . . . . . . . . . . . . . . . . . 16.0 16.9
California . . . . . . . . . . . . . . . . . . . . . . 13.0 12.0
Minnesota. . . . . . . . . . . . . . . . . . . . . . . 8.9 10.4
Other States within USB Region . . . . . . . . . . . . 32.3 30.3
-------------------
Total USB Region. . . . . . . . . . . . . . . . . . 94.5 94.4
Southeast. . . . . . . . . . . . . . . . . . . . . . . 2.1 2.6
Mid-Atlantic . . . . . . . . . . . . . . . . . . . . . 1.0 .8
Other Southwest. . . . . . . . . . . . . . . . . . . . 1.0 .9
Other Midwest. . . . . . . . . . . . . . . . . . . . . .7 .5
Other West . . . . . . . . . . . . . . . . . . . . . . .7 .8
-------------------
100.0% 100.0%
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
COMMERCIAL Commercial loans totaled $23.4 billion at year-end 1997, up $2.0
billion (9 percent) from year-end 1996. Year-end 1996 commercial loans were
$21.4 billion, up $1.6 billion (8 percent) from year-end 1995. The increase was
primarily attributable to growth in core commercial loans.
At December 31, 1997, the significant industry groups based on commercial
loans outstanding were consumer cyclical products and services, consumer staple
products and services, and capital goods. This diverse mix of industries is
similar to 1996 and 1995. The Company's Asian exposure at February 18, 1998
consisted primarily of bankers acceptances and trade letters of credit totaling
approximately $170 million, including approximately $140 million of Korean
exposure and $6 million of Indonesian exposure.
The geographical distribution of the commercial portfolio is concentrated
in the Company's banking region, with approximately 50 percent of amounts
outstanding to borrowers in Washington, Minnesota, and Oregon.
COMMERCIAL REAL ESTATE The Company's portfolio of commercial real estate
mortgages and construction loans grew to $10.4 billion at December 31, 1997,
compared with $10.1 billion at December 31, 1996, primarily due to an increase
in construction loans of $234 million related to successful marketing
promotions.
Commercial mortgages outstanding were $8.0 billion at December 31, 1997,
and December 31, 1996. Real estate construction loans at December 31, 1997,
totaled $2.4 billion compared with $2.1 billion from year-end 1996. Table 8
shows the detail 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 $65.8 million of construction loans were
transferred to the commercial mortgage portfolio in 1997.
At year-end 1997, real estate secured $170 million of tax-exempt industrial
development loans and $1.02 billion of standby letters of credit. At year-end
1996, these exposures totaled $152 million and $748 million, respectively. The
Company's commercial real estate mortgages and construction loans had combined
unfunded commitments of $2.38 billion at December 31, 1997, and $2.10 billion at
December 31, 1996.
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 $1.08 billion at December 31, 1997, and $722 million at December 31,
1996.
CONSUMER Total consumer loan outstandings increased $110 million to $20.9
billion at December 31, 1997, from $20.8 billion at December 31, 1996.
Excluding a
U.S. Bancorp 27
$700 million (13 percent) decrease in residential mortgage loans, consumer loans
increased $810 million (5 percent), reflecting growth in credit card, student,
and home equity and second mortgage loans. The decrease in residential mortgages
reflects the Company's continuing emphasis on other consumer loan products.
Credit card loans increased $568 million (16 percent) reflecting increased
volumes in the Northwest Airlines WorldPerks credit card and portfolio purchases
during 1997. Home equity and second mortgages increased $575 million (12
percent) primarily due to successful marketing promotions.
Of total consumer balances outstanding, approximately 50 percent are to
customers located in Minnesota, Washington, Colorado and Oregon. See "Corporate
Risk Profile" for a discussion of the general economic conditions within the
Company's banking region.
SECURITIES At December 31, 1997, available-for-sale securities totaled $6.9
billion compared with total available-for-sale and held-to-maturity securities
of $7.3 billion at December 31, 1996, reflecting both maturities and sales of
securities, partially offset by purchases of mortgage-backed and other
securities added as a result of bank acquisitions. Mortgage-backed and state and
political securities, as a percentage of the total securities portfolio, have
increased, reflecting the fourth quarter 1997 purchases and acquisitions. The
relative mix of the remainder of the securities portfolio has not changed
significantly from prior years. The objectives of the Company's investment
portfolio are to meet business line collateral needs, offset interest rate risk
positions, provide liquidity and interest income, and generally act as a balance
sheet management tool.
TABLE 9 AVAILABLE-FOR-SALE SECURITIES PORTFOLIO AVERAGE MATURITY
At December 31, 1997 Average Contractual Maturity
- - ------------------------------------------------------------------------------
U.S. Treasury. . . . . . . . . . . . . . . . . . . . . . . .2 years, 10 months
Other U.S. agencies. . . . . . . . . . . . . . . . . . . . ..3 years, 6 months
State and political. . . . . . . . . . . . . . . . . . . . ..6 years, 5 months
Other* . . . . . . . . . . . . . . . . . . . . . . . . . . ..5 years, 4 months
Total . . . . . . . . . . . . . . . . . . . . . . . . . ..5 years, 2 months
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
*EXCLUDES EQUITY SECURITIES THAT HAVE NO STATED MATURITY.
THE AVERAGE EFFECTIVE LIFE OF THE HOLDINGS IS EXPECTED TO BE LESS THAN THE
AVERAGE CONTRACTUAL MATURITIES SHOWN IN THE TABLE BECAUSE BORROWERS MAY HAVE
THE RIGHT TO CALL OR PREPAY OBLIGATIONS WITH OR WITHOUT CALL OR PREPAYMENT
PENALTIES. THE TABLE ABOVE DOES NOT INCLUDE MORTGAGE-BACKED SECURITIES.
28 U.S. Bancorp
TABLE 10 AVAILABLE-FOR-SALE SECURITIES PORTFOLIO AMORTIZED COST, FAIR VALUE
AND YIELD BY MATURITY DATE
Maturing: Within 1 Year 1-5 Years 5-10 Years
- - -----------------------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 1997 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
- - --------------------------------------------------------------------------------------------------------------
U.S. Treasury.......... $183.6 $184.0 5.94% $ 222.4 $ 223.6 5.95% $ 222.0 $ 220.4 5.56%
Mortgage-backed*....... -- -- -- -- -- -- -- -- --
Other U.S. agencies.... 5.9 5.9 6.29 28.6 28.8 6.58 10.3 10.6 7.27
State and political**.. 95.4 96.5 8.18 502.4 514.2 7.76 426.9 439.1 7.70
Other.................. 4.3 4.3 6.56 5.2 5.3 7.24 3.4 3.4 6.38
- - --------------------------------------------------------------------------------------------------------------
$289.2 $290.7 6.70% $ 758.6 $ 771.9 7.18% $ 662.6 $ 673.5 6.97%
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
Mortgage-Backed and
Maturing: Over 10 Years Asset-Backed Securities Total
- - --------------------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 1997 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
- - --------------------------------------------------------------------------------------------------------------
U.S. Treasury.......... $ -- $ -- --% $ -- $ -- --% $ 628.0 $ 628.0 5.81%
Mortgage-backed*....... -- -- -- 4,325.8 4,366.3 6.93 4,325.8 4,366.3 6.93
Other U.S. agencies.... .1 .1 10.25 315.0 324.3 7.61 359.9 369.7 7.49
State and political**.. 275.2 281.5 8.00 -- -- -- 1,299.9 1,331.3 7.82
Other.................. 138.9 152.7 7.49*** 23.9 24.0 6.54 175.7 189.7 6.68***
- - --------------------------------------------------------------------------------------------------------------
$414.2 $434.3 8.00%*** $4,664.7 $4,714.6 6.97% $6,789.3 $6,885.0 7.03%***
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
*VARIABLE RATE MORTGAGE-BACKED SECURITIES REPRESENTED 16% 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.
DEPOSITS Noninterest-bearing deposits were $14.5 billion at December 31, 1997,
compared with $14.3 billion at December 31, 1996. Interest-bearing deposits
totaled $34.5 billion at December 31, 1997, compared with $35.0 billion at
December 31, 1996. The decrease in interest-bearing deposit balances reflects
customers moving funds into alternative investment vehicles and a reduction in
time certificates greater than $100,000 of $118 million.
BORROWINGS Short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings,
were $3.3 billion at December 31, 1997, down from $6.6 billion at year-end 1996.
The decrease was primarily due to the net maturity of $1.7 billion of short-term
bank notes and a $1.1 billion reduction in federal funds purchased and
securities sold under agreements to repurchase.
Long-term debt was $10.2 billion at December 31, 1997, up from $5.4 billion
at December 31, 1996. The Company issued $5.7 billion of debt, with an average
original maturity of 2.2 years, under its medium term and bank note programs
during 1997, as short-term borrowings were replaced with variable rate long-term
debt as part of the Company's liquidity management strategy. These issuances
were partially offset by $932 million of medium-term and bank note maturities
and net maturities of $151 million of Federal Home Loan Bank Advances.
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, 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 the result of changes in interest rates. Rate movements can
affect the repricing of assets and liabilities differently, as well as their
market value. Liquidity risk is the possible inability to fund obligations to
depositors, investors and borrowers.
U.S. Bancorp 29
CREDIT MANAGEMENT In 1997 the Company maintained its high level of credit
quality. The ratio of nonperforming assets to loans plus other real estate was
..62 percent at year-end, compared with .61 percent and .65 percent at year-end
1996 and 1995, respectively.
The Company's strategy for credit risk management includes stringent,
centralized credit policies, and standard underwriting criteria for specialized
lending categories, such as mortgage banking, real estate construction, and
consumer credit. The strategy also emphasizes diversification on both a
geographic and customer level, regular credit examinations, and quarterly
management reviews of large loans and loans experiencing deterioration of credit
quality. The Company strives to identify potential problem loans early, take any
necessary charge-off promptly, and maintain strong reserve levels. Commercial
banking operations rely on a strong credit culture that combines prudent credit
policies and individual lender accountability. In addition, the commercial
lenders generally focus on middle-market companies within their regions. In the
Company's retail banking operations, a standard credit scoring system is used to
assess consumer credit risks and to price consumer products accordingly.
In evaluating its credit risk, the Company considers the loan portfolio
composition, the level of allowance coverage, and macroeconomic factors. Most
economic indicators in the Company's operating regions compare favorably with
national trends. Approximately 45 percent of the Company's loan portfolio
consists of credit to businesses and consumers in Minnesota, Oregon and
Washington. According to federal and state government agencies, unemployment
rates in Minnesota, Oregon and Washington were 2.8 percent, 5.3 percent and 4.4
percent, respectively, for the month of December 1997, compared with the
national unemployment rate of 4.7 percent. Through September 30, 1997, the
national foreclosure rate was 1.09 percent, compared with .57 percent in
Minnesota, .29 percent in Oregon, and .54 percent in Washington.
The Company engages in non-lending 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 AND ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES: The allowance for credit
losses provides coverage for 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 is based on continuing assessment of
problem loans and related off-balance sheet items, recent loss experience, and
other factors, including current and anticipated economic conditions. Management
has determined that the allowance for credit losses is adequate.
At December 31, 1997, the allowance was $1.01 billion, or 1.84 percent
of loans. This compares with an allowance of $992.5 million, or 1.90 percent
of loans, at year-end 1996, and $908.0 million, or 1.84 percent of loans, at
December 31, 1995. The ratio of the allowance for credit losses to nonperforming
loans was 340 percent at December 31, 1997, compared with 369 percent at
year-end 1996 and 367 percent at year-end 1995.
Although the recent trend of steady economic growth may contribute to the
continued improvement in the credit portfolio, economic stagnation or reversals
could increase the required level of the allowance for credit losses.
Management allocates part of the allowance to certain sectors based on
relative risk characteristics of the loan portfolio. Table 12 shows the
allocation of the allowance for credit losses by loan category. Commercial
allocations are based on a quarterly review of individual loans outstanding and
binding commitments to lend, including standby letters of credit. Consumer
allocations are based on an analysis of historical and expected delinquency and
charge-off statistics.
30 U.S. Bancorp
TABLE 11 SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
(Dollars in Millions) 1997 1996 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------
Balance at beginning of year. . . . . . . . . . . $ 992.5 $908.0 $862.3 $811.3 $811.2
CHARGE-OFFS:
Commercial:
Commercial . . . . . . . . . . . . . . . . 184.4 86.4 51.3 86.7 100.7
Real estate:
Commercial mortgage. . . . . . . . . . . 14.3 17.0 22.1 49.8 73.6
Construction . . . . . . . . . . . . . . 4.3 2.3 .4 12.2 6.2
------------------------------------------------
Total commercial . . . . . . . . . . . . 203.0 105.7 73.8 148.7 180.5
Consumer:
Residential mortgage. . . . . . . . . . . . 6.7 6.8 6.9 5.9 5.1
Credit card . . . . . . . . . . . . . . . . 172.4 150.4 123.7 115.0 109.2
Other . . . . . . . . . . . . . . . . . . . 194.3 134.3 121.6 82.2 75.4
------------------------------------------------
Total consumer . . . . . . . . . . . . . 373.4 291.5 252.2 203.1 189.7
------------------------------------------------
Total . . . . . . . . . . . . . . . . 576.4 397.2 326.0 351.8 370.2
RECOVERIES:
Commercial:
Commercial . . . . . . . . . . . . . . . . 38.8 56.0 56.6 61.6 56.6
Real estate:
Commercial mortgage. . . . . . . . . . . 30.5 25.7 18.7 22.6 17.4
Construction . . . . . . . . . . . . . . .8 1.0 2.5 2.9 3.4
------------------------------------------------
Total commercial . . . . . . . . . . . . 70.1 82.7 77.8 87.1 77.4
Consumer:
Residential mortgage. . . . . . . . . . . . 1.3 2.4 1.8 1.9 2.7
Credit card . . . . . . . . . . . . . . . . 20.2 16.6 17.1 15.7 14.6
Other . . . . . . . . . . . . . . . . . . . 35.1 34.0 34.2 26.5 24.0
------------------------------------------------
Total consumer . . . . . . . . . . . . . 56.6 53.0 53.1 44.1 41.3
------------------------------------------------
Total . . . . . . . . . . . . . . . . 126.7 135.7 130.9 131.2 118.7
NET CHARGE-OFFS:
Commercial:
Commercial . . . . . . . . . . . . . . . . 145.6 30.4 (5.3) 25.1 44.1
Real estate:
Commercial mortgage. . . . . . . . . . . (16.2) (8.7) 3.4 27.2 56.2
Construction . . . . . . . . . . . . . . 3.5 1.3 (2.1) 9.3 2.8
------------------------------------------------
Total commercial . . . . . . . . . . . . 132.9 23.0 (4.0) 61.6 103.1
Consumer:
Residential mortgage. . . . . . . . . . . . 5.4 4.4 5.1 4.0 2.4
Credit card . . . . . . . . . . . . . . . . 152.2 133.8 106.6 99.3 94.6
Other . . . . . . . . . . . . . . . . . . . 159.2 100.3 87.4 55.7 51.4
------------------------------------------------
Total consumer . . . . . . . . . . . . . 316.8 238.5 199.1 159.0 148.4
------------------------------------------------
Total . . . . . . . . . . . . . . . . 449.7 261.5 195.1 220.6 251.5
Provision charged to operating expense. . . . . . 460.3 271.2 239.1 243.7 239.3
Additions related to acquisitions and other . . . 5.6 74.8 1.7 27.9 12.3
------------------------------------------------
Balance at end of year. . . . . . . . . . . . . . $1,008.7 $992.5 $908.0 $862.3 $811.3
------------------------------------------------
------------------------------------------------
Allowance as a percentage of:
Period-end loans . . . . . . . . . . . . . . . 1.84% 1.90% 1.84% 1.86% 1.85%
Nonperforming loans. . . . . . . . . . . . . . 340 369 367 233 175
Nonperforming assets . . . . . . . . . . . . . 297 310 283 186 130
Net charge-offs as a percentage of average
loans outstanding:
Commercial . . . . . . . . . . . . . . . . . . .41% .08% (.01)% .25% .46%
Consumer . . . . . . . . . . . . . . . . . . . 1.53 1.16 .96 .80 .80
Total . . . . . . . . . . . . . . . . . . . . 84 .51 .41 .49 .61
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
U.S. Bancorp 31
TABLE 12 ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
Allocation Amount at December 31 Allocation as a Percent of Loans Outstanding
--------------------------------------------------------------------------------------------------
(Dollars in Millions) 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL:
Commercial . . . . . . . . . $ 226.2 $218.5 $179.3 $169.8 $212.2 .97% 1.02% .90% .96% 1.24%
Real estate:
Commercial mortgage. . . . 29.7 41.2 38.4 59.2 91.0 .37 .51 .56 .96 1.64
Construction . . . . . . . 15.9 12.6 7.2 8.9 9.9 .67 .59 .47 .68 .83
--------------------------------------------------------------------------------------------------
Total commercial . . . . . 271.8 272.3 224.9 237.9 313.1 .80 .86 .80 .94 1.31
CONSUMER:
Residential mortgage . . . . 7.5 8.3 8.8 11.6 14.9 .16 .15 .12 .16 .17
Credit card. . . . . . . . . 62.9 62.3 43.8 45.1 37.0 1.50 1.72 1.29 1.30 1.32
Other. . . . . . . . . . . . 73.1 59.5 56.7 51.0 39.7 .61 .50 .53 .50 .47
--------------------------------------------------------------------------------------------------
Total consumer . . . . . . 143.5 130.1 109.3 107.7 91.6 .69 .63 .52 .51 .46
--------------------------------------------------------------------------------------------------
Total allocated. . . . . . . 415.3 402.4 334.2 345.6 404.7 .76 .77 .68 .75 .92
Unallocated portion. . . . . 593.4 590.1 573.8 516.7 406.6 1.08 1.13 1.16 1.11 .93
--------------------------------------------------------------------------------------------------
Total allowance . . . . $1,008.7 $992.5 $908.0 $862.3 $811.3 1.84% 1.90% 1.84% 1.86% 1.85%
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
The unallocated portion of the allowance increased to $593.4 million at
year-end 1997 from $590.1 million and $573.8 million at December 31, 1996,
and 1995. Although the allocation of the allowance is an important credit
management tool, the entire allowance for credit losses is available for the
entire loan portfolio.
ANALYSIS OF NET LOAN CHARGE-OFFS: Net loan charge-offs increased $188.2
million to $449.7 million, compared with $261.5 million in 1996. Included in
1997 net charge-offs was $62.3 million of merger-related charge-offs, taken
to align the classification and charge-off practices of the former USBC with
those of the Company. Commercial loan net charge-offs for 1997, excluding
merger-related charge-offs of $55.3 million, were $77.6 million, compared
with $23.0 million in 1996. Approximately one-half of the increase was
attributable to one large credit. Consumer loan net charge-offs in 1997,
excluding merger-related charge-offs of $7.0 million, were $309.8 million
compared with $238.5 million in 1996. A portion of the increase was due to
higher charge-offs in the northwest region's portfolio of installment loans
originated in 1995 and 1996. Credit standards on this portfolio's new
originations were tightened in 1997. The higher level of charge-offs also
reflected an increase in bankruptcies and growth in the credit card loan
portfolio. The ratio of consumer net charge-offs to average loans in 1997 was
1.53 percent, up from 1.16 percent in 1996. The ratio of total net
charge-offs to average loans was .84 percent in 1997, compared with .51
percent in 1996.
TABLE 13 NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
1997 1996
- - ----------------------------------------------------------------------
COMMERCIAL:
Commercial. . . . . . . . . . . . . . . . . . . .65% .15%
Real estate:
Commercial mortgage. . . . . . . . . . . . . (.20) (.11)
Construction . . . . . . . . . . . . . . . . .16 .08
--------------
Total commercial . . . . . . . . . . . . . . .41 .08
CONSUMER:
Residential mortgage. . . . . . . . . . . . . . .11 .08
Credit card . . . . . . . . . . . . . . . . . . 4.11 3.88
Other . . . . . . . . . . . . . . . . . . . . . 1.33 .88
--------------
Total consumer . . . . . . . . . . . . . . . 1.53 1.16
--------------
Total . . . . . . . . . . . . . . . . . . .84% .51%
- - ----------------------------------------------------------------------
- - ----------------------------------------------------------------------
32 U.S. Bancorp
TABLE 14 DELINQUENT LOAN RATIOS*
At December 31
--------------------------------------------
90 days or more past due 1997 1996 1995 1994 1993
- - -------------------------------------------------------------------------------
COMMERCIAL:
Commercial . . . . . . . . . . .78% .70% .49% .54% .89%
Real estate:
Commercial mortgage. . . . . .57 .55 1.17 2.52 2.98
Construction . . . . . . . . .67 .91 .92 3.52 5.18
--------------------------------------------
Total commercial . . . . . . .72 .68 .68 1.18 1.59
CONSUMER:
Residential mortgage . . . . . 1.43 1.35 .99 .97 .97
Credit card. . . . . . . . . . .69 .88 .88 .74 .98
Other. . . . . . . . . . . . . .42 .35 .24 .15 .24
--------------------------------------------
Total consumer . . . . . . . .70 .70 .59 .53 .66
--------------------------------------------
Total. . . . . . . . . . . .71% .69% .64% .88% 1.17%
--------------------------------------------
--------------------------------------------
*RATIOS INCLUDE NONPERFORMING LOANS AND ARE EXPRESSED AS A PERCENT OF ENDING
LOAN BALANCES.
ANALYSIS OF NONPERFORMING ASSETS: Nonperforming assets include nonaccrual loans,
restructured loans, other real estate and other nonperforming assets owned by
the Company. At December 31, 1997, nonperforming assets totaled $339.5 million,
compared with $320.0 million at year-end 1996 and $320.3 million at year-end
1995. The ratio of nonperforming assets to loans plus other real estate was .62
percent at December 31, 1997, compared with .61 percent at year-end 1996 and .65
percent at year-end 1995.
In 1997, nonperforming residential mortgages decreased $5.5 million (10
percent), and other real estate decreased $13.1 million (30 percent). Interest
payments are currently received on approximately 75 percent of the Company's
nonperforming loans. The payments are typically applied against the principal
balance and not recorded as income.
Accruing loans 90 days or more past due totaled $93.8 million, compared
with $90.6 million at December 31, 1996, and $68.8 million at December 31,
1995. 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
TABLE 15 NONPERFORMING ASSETS*
At December 31
----------------------------------------
(Dollars in Millions) 1997 1996 1995 1994 1993
- - -------------------------------------------------------------------------------
COMMERCIAL:
Commercial . . . . . . . . . . . $179.1 $143.7 $ 91.6 $ 92.4 $148.5
Real estate:
Commercial mortgage. . . . . . 45.4 44.4 76.5 154.0 163.7
Construction . . . . . . . . . 14.9 18.8 13.3 46.0 61.3
----------------------------------------
Total commercial . . . . . . . 239.4 206.9 181.4 292.4 373.5
CONSUMER:
Residential mortgage . . . . . . 52.1 57.6 54.2 60.9 75.3
Credit card. . . . . . . . . . . -- -- 5.7 7.5 7.6
Other. . . . . . . . . . . . . . 5.6 4.8 6.3 9.0 8.4
----------------------------------------
Total consumer . . . . . . . . 57.7 62.4 66.2 77.4 91.3
----------------------------------------
Total nonperforming loans. . 297.1 269.3 247.6 369.8 464.8
OTHER REAL ESTATE. . . . . . . . . 30.1 43.2 66.5 87.5 151.5
OTHER NONPERFORMING ASSETS . . . . 12.3 7.5 6.2 5.6 5.6
----------------------------------------
Total nonperforming assets . $339.5 $320.0 $320.3 $462.9 $621.9
----------------------------------------
----------------------------------------
Accruing loans 90 days or
more past due**. . . . . . . . . $ 93.8 $ 90.6 $ 68.8 $ 40.2 $ 47.0
Nonperforming loans to
total loans. . . . . . . . . . . .54% .51% .50% .80% 1.06%
Nonperforming assets to
total loans plus other
real estate. . . . . . . . . . . .62 .61 .65 1.00 1.41
Net interest lost on
nonperforming loans. . . . . . . $ 17.1 $ 24.8 $ 23.2 $ 24.8 $ 29.2
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
*THROUGHOUT THIS DOCUMENT, NONPERFORMING ASSETS AND RELATED RATIOS DO NOT
INCLUDE LOANS MORE THAN 90 DAYS PAST DUE AND STILL ACCRUING.
**THESE LOANS ARE NOT INCLUDED IN NONPERFORMING ASSETS AND CONTINUE TO ACCRUE
INTEREST BECAUSE THEY ARE SECURED BY COLLATERAL AND/OR ARE IN THE PROCESS OF
COLLECTION AND ARE REASONABLY EXPECTED TO RESULT IN REPAYMENT OR RESTORATION
TO CURRENT STATUS.
U.S. Bancorp 33
expected to result in repayment or restoration to current status. Consumer loans
30 days or more past due were 2.76 percent of the total consumer portfolio at
December 31, 1997, compared with 2.55 percent of the total consumer portfolio at
December 31, 1996. Consumer loans 90 days or more past due totaled .70 percent
of the consumer loan portfolio at December 31, 1997, unchanged from year-end
1996.
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 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 12 months) risk due to changes in
interest rates. The model, which is updated monthly, incorporates substantially
all the Company's assets and liabilities and off-balance sheet instruments,
together with forecasted changes in the balance sheet and assumptions that
reflect the current interest rate environment. Balance sheet changes are based
on expected prepayments of loans and securities and forecasted loan and deposit
growth. ALCO uses the model to simulate the effect of immediate and sustained
parallel shifts in the yield curve of 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 pricing. The
results from the simulation are reviewed by ALCO monthly and are used to guide
ALCO's hedging strategies. ALCO guidelines, approved by the Company's Board of
Directors, limit the estimated change in net interest income, over the
succeeding 12 months to 2 percent of forecasted net interest income given a 1
percent change in interest rates. At December 31, 1997, the estimated effect of
an immediate 100 basis point parallel change in rates was an increase in
forecasted net interest income for twelve months of .4 percent (up 100 basis
points) and a decrease of .6 percent (down 100 basis points).
MARKET VALUE SIMULATION MODELING: The net interest income simulation model is
somewhat limited by its dependence upon accurate forecasts of future business
activity and the resulting effect on balance sheet assets and liabilities. As
a result, its usefulness is greatly diminished for periods beyond one or two
years. To better measure all interest rate risk, both short-term and
long-term, the Company uses a market value simulation model. This model
estimates the effect of one, two and three percent rate shocks on the present
value of all future cash flows of the Company's current assets, liabilities
and off-balance sheet instruments. The amount of market value risk is subject
to limits, approved by the Company's Board of Directors, of one percent of
assets for an immediate 100 basis point rate shock. Historically, the
Company's market value risk position has been substantially lower than its
limits. The Company believes the market risk in its trading portfolio is
immaterial.
TABLE 16 INTEREST RATE SWAP HEDGING PORTFOLIO NOTIONAL BALANCES AND YIELDS BY
MATURITY DATE
At December 31, 1997 (Dollars in Millions)
- - --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Receive Fixed Swaps* Notional Interest Rate Interest Rate
Maturity Date Amount Received Paid
- - --------------------------------------------------------------------------------
1998. . . . . . . . . . . . . . . . . . $1,213 5.96% 5.95%
1999. . . . . . . . . . . . . . . . . . 1,467 6.24 5.96
2000. . . . . . . . . . . . . . . . . . 388 6.57 5.95
2001. . . . . . . . . . . . . . . . . . 357 6.52 5.98
2002. . . . . . . . . . . . . . . . . . 335 6.35 5.96
After 2002. . . . . . . . . . . . . . . 1,555 6.78 5.94
------
Total . . . . . . . . . . . . . . . . . $5,315 6.39% 5.95%
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
*AT DECEMBER 31, 1997, THE COMPANY HAD NO SWAPS IN ITS HEDGING PORTFOLIO THAT
REQUIRED IT TO PAY FIXED-RATE INTEREST.
34 U.S. Bancorp
TABLE 17 INTEREST RATE SENSITIVITY GAP ANALYSIS
Repricing Maturities
-------------------------------------------------------------------------
Less Than 3-6 6-12 1-5 More Than Non-Rate
At December 31, 1997 (Dollars in Millions) 3 Months Months Months Years 5 Years Sensitive Total
- - ---------------------------------------------------------------------------------------------------------------------------
Assets:
Loans . . . . . . . . . . . . . . . . . . . . . $32,142 $2,628 $3,527 $11,730 $ 4,681 $ -- $54,708
Available-for-sale securities . . . . . . . . . 947 461 843 2,504 2,029 101 6,885
Other earning assets. . . . . . . . . . . . . . 1,138 8 17 153 66 -- 1,382
Nonearning assets . . . . . . . . . . . . . . . 1,082 28 294 1,038 3,120 2,758 8,320
-------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . $35,309 $3,125 $4,681 $15,425 $ 9,896 $ 2,859 $71,295
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Equity:
Deposits. . . . . . . . . . . . . . . . . . . . $19,698 $2,657 $3,267 $13,866 $ 9,539 $ -- $49,027
Other purchased funds . . . . . . . . . . . . . 3,219 54 -- 7 12 -- 3,292
Long-term debt. . . . . . . . . . . . . . . . . 7,493 101 289 581 1,783 -- 10,247
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely the junior subordinated
debentures of the parent company. . . . . . . -- -- -- -- 600 -- 600
Other liabilities . . . . . . . . . . . . . . . 69 -- 162 81 -- 1,927 2,239
Equity. . . . . . . . . . . . . . . . . . . . . -- -- -- -- -- 5,890 5,890
-------------------------------------------------------------------------
Total liabilities and equity . . . . . . . . $30,479 $2,812 $3,718 $14,535 $11,934 $ 7,817 $71,295
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Effect of off-balance sheet hedging instruments:
Receiving fixed . . . . . . . . . . . . . . . . $ 156 $ 135 $ 922 $ 2,602 $ 1,500 $ -- $ 5,315
Paying floating . . . . . . . . . . . . . . . . (5,315) -- -- -- -- -- (5,315)
-------------------------------------------------------------------------
Total effect of off-balance sheet
hedging instruments . . . . . . . . . . . $(5,159) $ 135 $ 922 $ 2,602 $ 1,500 $ -- $ --
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Repricing gap. . . . . . . . . . . . . . . . . . . $ (329) $ 448 $1,885 $ 3,492 $ (538) $ (4,958) $ --
Cumulative repricing gap . . . . . . . . . . . . . (329) 119 2,004 5,496 4,958 -- --
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
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 40 PERCENT OF REGULAR SAVINGS, 30 PERCENT
OF INTEREST-BEARING CHECKING, 50 PERCENT OF MONEY MARKET CHECKING, AND 60
PERCENT OF MONEY MARKET SAVINGS BALANCES ARE REFLECTED IN THE LESS THAN 3 MONTHS
CATEGORY, WITH THE REMAINDER PLACED IN THE 1-5 YEARS CATEGORY. APPROXIMATELY 71
PERCENT OF DEMAND DEPOSITS AND RELATED NONEARNING ASSET ACCOUNTS IS ALLOCATED IN
THE MORE THAN 5 YEARS CATEGORY, 14 PERCENT IS ALLOCATED IN THE 1-5 YEARS
CATEGORY WITH THE REMAINING ALLOCATED IN THE LESS THAN 3 MONTHS CATEGORY.
REPRICING MISMATCH ANALYSIS: A traditional gap analysis provides a point-in-time
measurement of the relationship between the amounts of interest rate sensitive
assets and liabilities repricing in a given time period. While the analysis
provides a useful snapshot of interest rate risk, it does not capture all
aspects of interest rate risk. As a result, ALCO uses the repricing mismatch
analysis primarily for managing intermediate term interest rate risk and has
established limits, approved by the Company's Board of Directors, for gap
positions in the one- to three-year time periods of five percent of assets.
USE OF DERIVATIVES TO MANAGE INTEREST RATE RISK: While each of the interest rate
risk measurements has limitations, taken together they represent a comprehensive
view of the magnitude of the Company's interest rate risk over various time
intervals. The Company manages its interest rate risk by entering into
off-balance sheet transactions (primarily interest rate swaps), investing in
fixed rate assets or issuing variable rate liabilities. To a lesser degree, the
Company also uses interest rate caps and floors to hedge this risk. The Company
does not enter into derivative contracts for speculative purposes.
In 1997, the Company added $2.9 billion of interest rate swaps to reduce
its interest rate risk. Interest rate swap agreements involve the exchange of
fixed and floating rate payments without the exchange of the underlying
notional amount on which the interest payments are calculated. As of December
31, 1997, the Company received payments on $5.3 billion notional amount of
interest rate swap agreements based on fixed interest rates, and made
payments based on variable interest rates. These swaps had a weighted average
fixed rate received of 6.39 percent and a weighted average variable rate paid
of 5.95 percent. The remaining maturity of these agreements ranges from 2
months to 10 years with an average remaining maturity of 3.4 years. Swaps
increased net interest income for the years ended December 31, 1997, 1996,
and 1995 by $25.1 million, $32.2 million, and $16.8 million, respectively.
The Company also purchases interest rate caps and floors to minimize the
impact of fluctuating interest rates on earnings. Purchased caps can mitigate
the effects of
U.S. Bancorp 35
rising interest rates. Counterparties to these agreements pay the Company when
certain short-term rates rise above a specified point or strike level. The
payment is based on the difference in current rates and strike rates and the
contract's notional amount. There were no caps outstanding at December 31, 1997.
To hedge against falling interest rates, the Company uses interest rate floors.
Floor counterparties pay the Company when specified rates fall below the strike
level. Like caps, the payment is based on the difference in current rates and
strike rates and the notional amount. The total notional amount of floor
agreements purchased as of December 31, 1997, was $750 million. LIBOR-based
floors totaled $550 million and Constant Maturity Treasury floors totaled $200
million. The impact of caps and floors on net interest income was not material
for the years ended December 31, 1997, 1996 and 1995. See Notes A and O for the
Company's accounting policy related to these types of transactions.
LIQUIDITY MANAGEMENT The objective of liquidity 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 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. While the Company has funded incremental balance sheet
growth with negotiated funds, its short-term purchased funds index remained
relatively low at 9.7 percent at December 31, 1997, compared with a peer
group median of 20.4 percent at September 30, 1997. The index is calculated
as negotiated funding under one year (which includes Federal Home Loan Bank
("FHLB") borrowings, foreign branch time deposits, federal funds purchased,
bank notes, medium-term notes and repurchase agreements), net of federal
funds sold and resale agreements, divided by loans and securities.
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, 1997, Moody's Investors
Services, Standard & Poors, and Thomson BankWatch 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, 1997, and 1996, long-term debt outstanding was $2.4
billion.
The parent company issued $399 million of medium-term notes during 1997.
Total parent company debt maturing in 1998 is $190 million. These debt
obligations are expected to be met through medium-term note or subordinated
debt issuances, as well as from the approximately $489 million of parent
company cash and cash equivalents at December 31, 1997. It is the Company's
practice to maintain liquid assets at the parent company sufficient to fund
its operating cash needs and near-term debt maturities.
During 1996, the Company issued $600 million of Company-obligated
mandatorily redeemable preferred securities (the "preferred securities")
through two wholly-owned subsidiary grantor trusts. The preferred securities
qualify as Tier 1 capital for bank holding companies and pay distributions
periodically at an average annual rate of 8.18 percent.
36 U.S. Bancorp
TABLE 18 CAPITAL RATIOS
At December 31 (Dollars in Millions) 1997 1996 1995
- - ------------------------------------------------------------------------------
Tangible common equity*. . . . . . . . . . . . . $4,897 $4,625 $4,498
As a percent of assets. . . . . . . . . . . . 7.0% 6.7% 6.9%
Tier 1 capital . . . . . . . . . . . . . . . . . $5,028 $4,983 $4,408
As a percent of risk-adjusted assets. . . . . 7.4% 7.6% 7.4%
Total risk-based capital . . . . . . . . . . . . $7,859 $7,777 $6,745
As a percent of risk-adjusted assets. . . . . 11.6% 11.9% 11.4%
Leverage ratio . . . . . . . . . . . . . . . . . 7.3 7.5 7.0
- - ------------------------------------------------------------------------------
*DEFINED AS COMMON EQUITY LESS GOODWILL.
In 1997, the Company's bank subsidiaries established a $12 billion bank
note program. Notes issued under this program may mature within 30 days to 15
years and bear fixed or floating interest rates. Proceeds from note sales
are used for general corporate purposes. At December 31, 1997, there was $6.1
billion outstanding under this program and a previous bank note program. The
Company's lead bank also had $1.4 billion in long-term advances from the FHLB at
December 31, 1997.
CAPITAL MANAGEMENT The Company is committed to managing capital for maximum
shareholder benefit and maintaining strong protection for depositors and
creditors. At December 31, 1997, tangible common equity (common equity less
goodwill) was $4.9 billion, or 7.0 percent of assets, compared with 6.7 percent
at year-end 1996 and 6.9 percent at year-end 1995. The Tier 1 capital ratio was
7.4 percent at December 31, 1997, compared with 7.6 percent at December 31,
1996. This ratio was 7.4 percent at December 31, 1995. The total risk-based
capital ratio was 11.6 percent at December 31, 1997, compared with 11.9 percent
at December 31, 1996, and 11.4 percent at December 31, 1995. The leverage ratio
was 7.3 percent at December 31, 1997, compared with 7.5 percent and 7.0 percent
at December 31, 1996, and December 31, 1995, respectively.
On August 1, 1997, the Company issued 109.9 million shares to acquire USBC.
The Company exchanged .755 shares of its common stock for each share of USBC
common stock. USBC's outstanding stock options were also converted into stock
options for the Company's common stock. In addition, each outstanding share of
USBC cumulative preferred stock was converted into one share of preferred stock
of the combined company, having substantially identical terms.
Approximately 31.0 million common shares have been repurchased under 1996
Board authorizations, including 4.9 million during 1997. All authorizations were
either completed or rescinded prior to the USBC acquisition. Under previous
authorizations, the Company repurchased 16.9 million shares in 1995.
On November 14, 1997, the Company redeemed all outstanding shares of its
preferred stock at a redemption price of $25 per share, together with accrued
and unpaid dividends. On November 29, 1996, the Company called all remaining
shares of its Series 1991A Convertible Preferred Stock.
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.
While the Company intends to maintain sufficient capital in each of its bank
subsidiaries to be "well capitalized" as defined by the regulatory agencies,
management ascribes the most significance to the tangible common equity ratio.
TABLE 19 SUBSIDIARY CAPITAL RATIOS
At December 31, 1997
------------------------------------------
Total
Tier 1 Risk-based Total
(Dollars in Millions) Capital Capital Leverage Assets
- - --------------------------------------------------------------------------------
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 . . 7.7 11.5 7.6 $67,597
First Bank of South Dakota
(National Association). . . . . . 10.8 15.0 10.9 1,332
First Bank Montana,
National Association. . . . . . . 8.2 11.8 9.3 1,213
- - --------------------------------------------------------------------------------
NOTE: THESE BALANCES AND RATIOS WERE PREPARED IN ACCORDANCE WITH REGULATORY
ACCOUNTING PRINCIPLES AS DISCLOSED IN THE SUBSIDIARIES' REGULATORY REPORTS.
U.S. Bancorp 37
DIVIDENDS During 1997, total dividends on common stock were $445.7 million
compared with $406.9 million in 1996 and $327.4 million in 1995. 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 $1.86 in 1997,
$1.65 in 1996 and $1.45 in 1995. On February 18, 1998, the Board of Directors
increased the quarterly common dividend rate to $.525 from $.465 and
announced its intention to declare a three-for-one split of the Company's
common stock and to increase the number of common and preferred shares which
the Company has authority to issue from 500 million shares and 10 million
shares, respectively, to 1.5 billion shares and 50 million shares,
respectively. The increase in the number of authorized shares is subject to
shareholder approval. The stock split would be in the form of a dividend
payable May 18, 1998 to shareholders of record on May 4, 1998. The impact of
the stock split has not been reflected in the financial statements or any
share or per share data.
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 S.
ACCOUNTING CHANGES
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES Effective January 1, 1997, the Company adopted Statement of
Financial Accounting Standards No. ("SFAS") 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The Statement
uses a "financial components" approach which focuses on control to determine
whether assets have been sold. If the entity has surrendered control over the
transferred assets, the transaction is considered a sale. Control is considered
surrendered only if the seller has no legal right to the assets, even in
bankruptcy; the buyer has the right to pledge or exchange the assets; and the
seller does not maintain effective control over the assets through an agreement
to repurchase or redeem them. If control is retained, the transaction is then
considered a financing. The adoption of SFAS 125 did not have a material effect
on the Company. SFAS 125 has been amended (SFAS 127), deferring until January 1,
1998, its adoption in the accounting for securities lending, repurchase
agreements and other secured financing transactions. The adoption of SFAS 125
relating to these transaction types is not expected to have a material effect on
the Company.
EARNINGS PER SHARE SFAS 128, "Earnings per Share," replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. Under the
new requirements, the dilutive effect of stock options is excluded from the
calculation of basic earnings per share. Diluted earnings per share is
calculated similarly to fully diluted earnings per share. SFAS 128 became
effective for the Company's 1997 year-end financial statements. All prior period
earnings per share data presented have been restated to conform to the
provisions of this statement.
38 U.S. Bancorp
COMPREHENSIVE INCOME SFAS 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive income and its
components in a full set of financial statements. The Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed as prominently as other financial statements. The Statement also
requires the classification of items of other comprehensive income by their
nature in a financial statement and the display of other comprehensive income
separately from retained earnings and capital surplus in the equity section of
the balance sheet. SFAS 130 is effective January 1, 1998, with all prior periods
presented restated to conform to the provisions of this Statement.
SEGMENT DISCLOSURE SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," requires the disclosure of financial and descriptive
information about reportable operating segments. Operating segments are
components of an enterprise about which financial information is available and
is evaluated regularly in deciding how to allocate resources and assess
performance. The Statement requires the disclosure of profit or loss, certain
specific revenue and expense items, and assets of all operating segments, with
reconciliations of amounts presented in the financial statements. The Statement
also requires the disclosure of how the operating segments were determined, the
products and services provided by the segments, differences between measurements
used in reporting segment information and those used in the financial
statements, and changes in the measurement of segment amounts from period to
period. SFAS 131 is effective with the 1998 year-end financial statements, with
comparative information for prior periods required.
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 1997, the Company reported operating earnings of $335.5
million ($1.34 per diluted share) compared with $291.8 million ($1.15 per
diluted share) in the fourth quarter of 1996. The strong results for the fourth
quarter of 1997 reflected growth in both net interest income and noninterest
income and a decrease in noninterest expense from the fourth quarter of 1996.
Including nonrecurring items related to the USBC acquisition, the Company had
net income for the fourth quarter of 1997 of $288.9 million ($1.16 per diluted
share), compared with net income of $292.1 million ($1.15 per diluted share) in
the fourth quarter of 1996.
U.S. Bancorp 39
TABLE 20 FOURTH QUARTER SUMMARY
Three Months Ended
December 31
---------------------
(Dollars in Millions, Except Per Share Data) 1997 1996
- - -----------------------------------------------------------------------------
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis) . . . . $784.7 $778.1
Provision for credit losses . . . . . . . . . . . . . 90.0 75.5
---------------------
Net interest income after provision
for credit losses . . . . . . . . . . . . . . . 694.7 702.6
Securities gains . . . . . . . . . . . . . . . . . . . -- .5
Other noninterest income . . . . . . . . . . . . . . . 420.5 360.3
Merger, integration, and resizing. . . . . . . . . . . 71.4 --
Other noninterest expense. . . . . . . . . . . . . . . 572.8 586.9
---------------------
Income before income taxes . . . . . . . . . . . 471.0 476.5
Taxable-equivalent adjustment. . . . . . . . . . . . . 13.7 15.9
Income taxes . . . . . . . . . . . . . . . . . . . . . 168.4 168.5
---------------------
Net income . . . . . . . . . . . . . . . . . . . $288.9 $292.1
---------------------
---------------------
FINANCIAL RATIOS
Return on average assets . . . . . . . . . . . . . . . 1.64% 1.71%
Return on average common equity. . . . . . . . . . . . 20.0 20.1
Net interest margin (taxable-equivalent basis) . . . . 4.99 5.09
Efficiency ratio . . . . . . . . . . . . . . . . . . . 53.5 51.6
SELECTED FINANCIAL RATIOS BEFORE NONRECURRING ITEMS:
Return on average assets . . . . . . . . . . . . . . . 1.91 1.70
Return on average common equity. . . . . . . . . . . . 23.3 20.1
Efficiency ratio . . . . . . . . . . . . . . . . . . . 47.5 51.6
PER SHARE DATA:
Net income . . . . . . . . . . . . . . . . . . . . . . $ 1.17 $ 1.17
Net income (diluted) . . . . . . . . . . . . . . . . . 1.16 1.15
Common dividends paid. . . . . . . . . . . . . . . . . .4650 .4125
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
Fourth quarter net interest income on a taxable- equivalent basis
increased $6.6 million to $784.7 million, compared with the fourth quarter of
1996. The increase was primarily the result of an increase in earning assets of
$1.5 billion over the fourth quarter of 1996, driven by core commercial and
consumer loan production, partially offset by reductions in investment
securities and residential mortgages. The net interest margin on a
taxable-equivalent basis was 4.99 percent compared with 5.09 percent a year ago,
reflecting growth in Payment Systems' noninterest-bearing assets, including
corporate and purchasing card loan balances.
The provision for credit losses increased to $90.0 million in the fourth
quarter of 1997, compared with $75.5 million in the fourth quarter of 1996.
Noninterest income, before nonrecurring items, increased $60.2 million
from the same quarter a year ago, to $420.5 million. The improvement resulted
from growth in all categories of fee revenue. Credit card fee revenue increased
as a result of higher sales volumes for purchasing and corporate cards and the
Northwest Airlines WorldPerks credit card, partially offset by the effect of the
first quarter corporate card securitization. Fourth quarter 1997 credit card
fees were also enhanced by the renewal of the Northwest Airlines WorldPerks
credit card program, which extended the program for five years. Trust and
investment management fees were up due to growth in the corporate, institutional
and personal trust businesses.
Fourth quarter noninterest expense, before nonrecurring items, totaled
$572.8 million, a decrease of $14.1 million from the fourth quarter of 1996.
Expense reductions in a number of categories reflected the benefits of the
merger, partially offset by incremental expense related to revenue increases.
Other personnel expense decreased, reflecting lower contract labor expense
associated with 1996 technology projects that are now complete. Offsetting the
favorable variance in contract labor was an increase in professional services,
related to several 1997 technology initiatives which involve third party
consulting arrangements. Goodwill and other intangible expense increased as a
result of several small bank and portfolio purchases during 1997. The efficiency
ratio, before nonrecurring items, for the fourth quarter of 1997 improved to
47.5 percent from 51.6 percent for the same quarter last year.
40 U.S. Bancorp
CONSOLIDATED BALANCE SHEET
At December 31 (In Millions, Except Shares) 1997 1996
- - -----------------------------------------------------------------------------
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . $ 4,739 $ 4,813
Federal funds sold . . . . . . . . . . . . . . . . . 62 95
Securities purchased under agreements to resell. . . 630 803
Trading account securities . . . . . . . . . . . . . 195 231
Available-for-sale securities . . . . . . . . . . . 6,885 6,473
Held-to-maturity securities (fair value: 1996 - $811) -- 797
Loans. . . . . . . . . . . . . . . . . . . . . . . . 54,708 52,355
Less allowance for credit losses. . . . . . . . 1,009 993
----------------------
Net loans . . . . . . . . . . . . . . . . . . . 53,699 51,362
Bank premises and equipment. . . . . . . . . . . . . 860 1,018
Interest receivable. . . . . . . . . . . . . . . . . 405 377
Customers' liability on acceptances. . . . . . . . . 535 497
Other assets . . . . . . . . . . . . . . . . . . . . 3,285 3,283
----------------------
Total assets. . . . . . . . . . . . . . . . $71,295 $69,749
----------------------
----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . $14,544 $14,344
Interest-bearing. . . . . . . . . . . . . . . . 34,483 35,012
----------------------
Total deposits . . . . . . . . . . . . . . . 49,027 49,356
Federal funds purchased. . . . . . . . . . . . . . . 800 1,672
Securities sold under agreements to repurchase . . . 1,518 1,729
Other short-term funds borrowed. . . . . . . . . . . 974 3,191
Long-term debt . . . . . . . . . . . . . . . . . . . 10,247 5,369
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
the junior subordinated debentures of the parent
company . . . . . . . . . . . . . . . . . . . . 600 600
Acceptances outstanding. . . . . . . . . . . . . . . 535 497
Other liabilities. . . . . . . . . . . . . . . . . . 1,704 1,572
----------------------
Total liabilities. . . . . . . . . . . . . . 65,405 63,986
Shareholders' equity:
Preferred stock . . . . . . . . . . . . . . . . -- 150
Common stock, par value $1.25 a share-authorized
500,000,000 shares; issued: 1997 -
246,644,338 shares; 1996 - 252,883,487
shares . . . . . . . . . . . . . . . . . . . 308 316
Capital surplus . . . . . . . . . . . . . . . . 1,878 1,929
Retained earnings . . . . . . . . . . . . . . . 3,645 3,809
Unrealized gain on securities, net of tax . . . 59 5
Less cost of common stock in treasury: 1996 -
6,877,497 shares. . . . . . . . . . . . . . . -- (446)
----------------------
Total shareholders' equity . . . . . . . . . 5,890 5,763
----------------------
Total liabilities and shareholders' equity . $71,295 $69,749
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. Bancorp 41
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 (In Millions, Except Per Share Data) 1997 1996 1995
- - ---------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,784.5 $4,537.7 $4,373.4
Securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . . . 371.5 420.5 420.3
Exempt from federal income taxes. . . . . . . . . . . . 68.1 71.0 59.8
Other interest income. . . . . . . . . . . . . . . . . . . . 69.5 85.2 67.3
--------------------------------------
Total interest income. . . . . . . . . . . . . . . 5,293.6 5,114.4 4,920.8
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,436.8 1,441.3 1,416.7
Federal funds purchased and repurchase agreements. . . . . . 183.0 197.9 218.2
Other short-term funds borrowed. . . . . . . . . . . . . . . 117.6 198.0 189.8
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 459.0 303.8 273.4
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the
junior subordinated debentures of the parent company. . 49.1 2.8 --
--------------------------------------
Total interest expense . . . . . . . . . . . . . . 2,245.5 2,143.8 2,098.1
--------------------------------------
Net interest income. . . . . . . . . . . . . . . . . . . . . 3,048.1 2,970.6 2,822.7
Provision for credit losses. . . . . . . . . . . . . . . . . 460.3 271.2 239.1
--------------------------------------
Net interest income after provision for credit losses. . . . 2,587.8 2,699.4 2,583.6
NONINTEREST INCOME
Credit card fee revenue. . . . . . . . . . . . . . . . . . . 418.8 351.5 303.9
Service charges on deposit accounts. . . . . . . . . . . . . 396.2 377.2 345.0
Trust and investment management fees . . . . . . . . . . . . 348.0 302.3 241.1
Gain on sale of mortgage banking operations, branches and
other assets. . . . . . . . . . . . . . . . . . . . . . 9.4 71.4 39.9
Securities gains . . . . . . . . . . . . . . . . . . . . . . 3.6 20.8 3.0
Termination fee. . . . . . . . . . . . . . . . . . . . . . . -- 190.0 --
State income tax refund. . . . . . . . . . . . . . . . . . . -- 65.0 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 439.2 404.9 380.4
--------------------------------------
Total noninterest income . . . . . . . . . . . . . 1,615.2 1,783.1 1,313.3
NONINTEREST EXPENSE
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . 969.3 964.5 927.5
Employee benefits. . . . . . . . . . . . . . . . . . . . . . 217.4 220.3 209.9
Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . 182.0 179.4 183.4
Furniture and equipment. . . . . . . . . . . . . . . . . . . 165.4 175.2 184.5
Goodwill and other intangible assets . . . . . . . . . . . . 113.3 130.1 76.0
Professional services. . . . . . . . . . . . . . . . . . . . 70.3 58.0 59.2
Other personnel costs. . . . . . . . . . . . . . . . . . . . 66.6 83.4 62.4
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . 9.0 11.9 64.5
Merger, integration, and resizing. . . . . . . . . . . . . . 511.6 88.1 98.9
SAIF special assessment. . . . . . . . . . . . . . . . . . . -- 61.3 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 507.4 565.9 609.6
--------------------------------------
Total noninterest expense. . . . . . . . . . . . . 2,812.3 2,538.1 2,475.9
--------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . 1,390.7 1,944.4 1,421.0
Applicable income taxes. . . . . . . . . . . . . . . . . . . 552.2 725.7 523.9
--------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 838.5 $1,218.7 $ 897.1
--------------------------------------
--------------------------------------
Net income applicable to common equity . . . . . . . . . . . $ 827.9 $1,200.3 $ 877.4
--------------------------------------
--------------------------------------
Net income per common share. . . . . . . . . . . . . . . . . $ 3.39 $ 4.81 $ 3.56
Diluted net income per common share. . . . . . . . . . . . . $ 3.34 $ 4.72 $ 3.48
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
42 U.S. Bancorp
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common
Shares Preferred Common Capital
(In Millions, Except Shares) Outstanding* Stock Stock Surplus
- - ---------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994. . . . . . . . . . 248,686,447 $ 268.1 $311.9 $1,928.1
Net income . . . . . . . . . . . . . . . . .
Dividends declared:
Preferred. . . . . . . . . . . . . . . . .
Common . . . . . . . . . . . . . . . . . .
Purchase and retirement of treasury stock. . (16,888,542) (6.2) (169.6)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . 2,788,619 .3 4.3
Dividend reinvestment. . . . . . . . . . . 505,138 .3 8.0
Stock option and stock purchase plans. . . 2,845,176 1.6 51.1
Stock warrants exercised . . . . . . . . . 42,039
Redemption/conversion of preferred stock . . 92,479 (14.9)
Common stock issued to redeem
subordinated debt. . . . . . . . . . . . . 2,960,525 3.7 46.0
Change in unrealized gains/(losses). . . . .
---------------------------------------------------------
BALANCE DECEMBER 31, 1995. . . . . . . . . . 241,031,881 253.2 311.6 1,867.9
Net income . . . . . . . . . . . . . . . . .
Dividends declared:
Preferred. . . . . . . . . . . . . . . . .
Common . . . . . . . . . . . . . . . . . .
Purchase and retirement of treasury stock. . (26,146,456) (17.0) (688.2)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . 23,751,183 19.8 677.2
Dividend reinvestment. . . . . . . . . . . 312,878 .2 6.1
Stock option and stock purchase plans. . . 3,494,810 1.5 66.1
Redemption/conversion of preferred stock . . 3,561,694 (103.2)
Change in unrealized gains/(losses) . . . .
---------------------------------------------------------
BALANCE DECEMBER 31, 1996. . . . . . . . . . 246,005,990 150.0 316.1 1,929.1
Net income . . . . . . . . . . . . . . . . .
Dividends declared:
Preferred. . . . . . . . . . . . . . . . .
Common . . . . . . . . . . . . . . . . . .
Purchase and retirement of treasury stock. . (4,890,355) (13.7) (293.9)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . 949,295 1.2 86.2
Dividend reinvestment. . . . . . . . . . . 200,546 .3 10.1
Stock option and stock purchase plans. . . 4,378,862 4.4 146.2
Redemption of preferred stock. . . . . . . . (150.0)
Change in unrealized gains/(losses). . . . .
---------------------------------------------------------
BALANCE DECEMBER 31, 1997. . . . . . . . . . 246,644,338 $ -- $308.3 $1,877.7
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Unrealized
Gains/(Losses)
Retained on Securities, Treasury
(In Millions, Except Shares) Earnings Net of Tax Stock** Total
- - ---------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994. . . . . . . . . . $2,768.6 $(145.1) $ (26.7) $ 5,104.9
Net income . . . . . . . . . . . . . . . . . 897.1 897.1
Dividends declared:
Preferred. . . . . . . . . . . . . . . . . (19.7) (19.7)
Common . . . . . . . . . . . . . . . . . . (327.4) (327.4)
Purchase and retirement of treasury stock. . (545.2) (721.0)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . (3.7) 104.7 105.6
Dividend reinvestment. . . . . . . . . . . 9.3 17.6
Stock option and stock purchase plans. . . (36.3) 54.6 71.0
Stock warrants exercised . . . . . . . . . (1.3) 1.6 .3
Redemption/conversion of preferred stock . . (2.2) 3.9 (13.2)
Common stock issued to redeem
subordinated debt. . . . . . . . . . . . . 49.7
Change in unrealized gains/(losses). . . . . 177.0 177.0
---------------------------------------------------------
BALANCE DECEMBER 31, 1995. . . . . . . . . . 3,275.1 31.9 (397.8) 5,341.9
Net income . . . . . . . . . . . . . . . . . 1,218.7 1,218.7
Dividends declared:
Preferred. . . . . . . . . . . . . . . . . (18.4) (18.4)
Common . . . . . . . . . . . . . . . . . . (406.9) (406.9)
Purchase and retirement of treasury stock. . (784.9) (1,490.1)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . (44.4) 384.2 1,036.8
Dividend reinvestment. . . . . . . . . . . 11.5 17.8
Stock option and stock purchase plans. . . (96.5) 119.7 90.8
Redemption/conversion of preferred stock . . (118.2) 221.4 --
Change in unrealized gains/(losses) . . . . (27.2) (27.2)
---------------------------------------------------------
BALANCE DECEMBER 31, 1996. . . . . . . . . . 3,809.4 4.7 (445.9) 5,763.4
Net income . . . . . . . . . . . . . . . . . 838.5 838.5
Dividends declared:
Preferred. . . . . . . . . . . . . . . . . (10.6) (10.6)
Common . . . . . . . . . . . . . . . . . . (445.7) (445.7)
Purchase and retirement of treasury stock. . (514.6) 391.2 (431.0)
Issuance of common stock:
Acquisitions . . . . . . . . . . . . . . . 87.4
Dividend reinvestment. . . . . . . . . . . 8.3 18.7
Stock option and stock purchase plans. . . (32.2) 46.4 164.8
Redemption of preferred stock. . . . . . . . (150.0)
Change in unrealized gains/(losses). . . . . 54.6 54.6
---------------------------------------------------------
BALANCE DECEMBER 31, 1997. . . . . . . . . . $3,644.8 $ 59.3 $ -- $ 5,890.1
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
*DEFINED AS TOTAL COMMON SHARES LESS COMMON STOCK HELD IN TREASURY.
**ENDING TREASURY SHARES WERE 6,877,497 AT DECEMBER 31, 1996 AND 8,297,756 AT
DECEMBER 31, 1995.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
U.S. Bancorp 43
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 (In Millions) 1997 1996 1995
- - --------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 838.5 $ 1,218.7 $ 897.1
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses . . . . . . . . . . . . . . . . . 460.3 271.2 239.1
Gains on available-for-sale securities. . . . . . . . . . . . (3.6) (20.8) (3.0)
Depreciation and amortization of bank premises and equipment 133.8 150.2 158.9
Provision for deferred income taxes . . . . . . . . . . . . . 37.6 51.0 23.5
Amortization of goodwill and other intangible assets. . . . . 113.3 130.1 76.0
Noncash portion of merger, integration, and resizing charges. 294.5 40.4 87.6
Gains on sales of mortgage banking operations, branches and
other assets . . . . . . . . . . . . . . . . . . . . . . (9.4) (71.4) (39.9)
Changes in operating assets and liabilities, excluding the
effects of purchase acquisitions:
Decrease (increase) in trading account securities. . . . 36.0 135.0 (129.7)
(Increase) decrease in loans held for sale . . . . . . . (151.0) 87.9 129.2
Decrease (increase) in accrued receivables . . . . . . . 348.3 (157.9) (28.3)
Increase in prepaid expenses . . . . . . . . . . . . . . (388.2) (38.5) (4.0)
Increase in accrued liabilities. . . . . . . . . . . . . 59.6 126.7 106.7
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . (278.3) (77.3) (62.5)
-------------------------------------
Net cash provided by operating activities . . . . . . 1,491.4 1,845.3 1,450.7
-------------------------------------
INVESTING ACTIVITIES
Net cash provided (used) by:
Interest-bearing deposits with banks. . . . . . . . . . . . . 14.9 (4.1) 30.2
Loans outstanding . . . . . . . . . . . . . . . . . . . . . . (2,283.4) (2,019.1) (3,376.9)
Securities purchased under agreements to resell . . . . . . . 173.4 (247.5) 226.6
Available-for-sale securities:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,046.7 1,694.8 3,052.8
Maturities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,569.0 2,120.9 1,138.3
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . (2,082.9) (1,419.1) (1,842.8)
Investment securities:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 3.9
Maturities. . . . . . . . . . . . . . . . . . . . . . . . . . 37.4 114.2 367.2
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (53.2)
Proceeds from sales of other real estate . . . . . . . . . . . . 62.9 127.9 120.2
Proceeds from sales of bank premises and equipment . . . . . . . 97.0 44.5 90.3
Purchases of bank premises and equipment . . . . . . . . . . . . (142.4) (165.4) (137.5)
Sales of loans . . . . . . . . . . . . . . . . . . . . . . . . . 58.4 147.9 507.1
Purchases of loans . . . . . . . . . . . . . . . . . . . . . . . (361.2) (19.5) (4.6)
Securitization of corporate charge card balances . . . . . . . . 418.1 -- --
Cash and cash equivalents of acquired subsidiaries . . . . . . . 43.2 245.8 55.4
Acquisitions, net of cash received . . . . . . . . . . . . . . . (23.6) (38.3) (113.2)
Sales of subsidiary operations . . . . . . . . . . . . . . . . . -- (70.3) 23.1
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . (40.0) (40.3) (26.6)
-------------------------------------
Net cash (used) provided by investing activities. . . (1,412.5) 472.4 60.3
-------------------------------------
FINANCING ACTIVITIES
Net cash (used) provided by:
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . (882.8) 78.4 (118.7)
Federal funds purchased and securities sold under agreements
to repurchase . . . . . . . . . . . . . . . . . . . . . . . . (1,091.1) (697.6) (1,791.9)
Short-term borrowings . . . . . . . . . . . . . . . . . . . . (2,217.3) (868.3) 2,115.9
Sales of deposits. . . . . . . . . . . . . . . . . . . . . . . . -- -- (858.0)
Long-term debt transactions:
Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,577.5 2,004.0 1,726.6
Principal payments. . . . . . . . . . . . . . . . . . . . . . (1,718.5) (1,238.1) (1,184.6)
Issuance of Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the junior
subordinated debentures of the parent company . . . . . . . . -- 600.0 --
Redemption of preferred stock. . . . . . . . . . . . . . . . . . (150.0) -- (13.2)
Proceeds from dividend reinvestment, stock option, and stock
purchase plans. . . . . . . . . . . . . . . . . . . . . . . . 183.5 108.6 88.9
Repurchase of common stock . . . . . . . . . . . . . . . . . . . (431.0) (1,490.1) (721.0)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . (456.3) (414.8) (344.5)
-------------------------------------
Net cash used by financing activities . . . . . . . . (186.0) (1,917.9) (1,100.5)
-------------------------------------
Change in cash and cash equivalents . . . . . . . . . (107.1) 399.8 410.5
Cash and cash equivalents at beginning of year . . . . . . . . . 4,908.1 4,508.3 4,097.8
-------------------------------------
Cash and cash equivalents at end of year. . . . . . . $ 4,801.0 $4,908.1 $4,508.3
- - --------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
44 U.S. Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SIGNIFICANT ACCOUNTING POLICIES
U.S. Bancorp, formerly known as First Bank System, Inc., (the "Company") or
("USB") is the organization created by the acquisition by First Bank System,
Inc. of U.S. Bancorp. The Company is a regional multibank holding company that
provides banking and other financial services principally to domestic markets.
See Note C for information regarding the merger. The Company has four primary
businesses that operate principally in the 17 states of Minnesota, Oregon,
Washington, Colorado, California, Idaho, Nebraska, North Dakota, Nevada, South
Dakota, Montana, Iowa, Illinois, Utah, Wisconsin, Kansas, and Wyoming. Retail
Banking delivers products and services to the broad consumer market and
small-businesses through branch offices, telemarketing, direct mail, and
automated teller machines ("ATMs"). 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.
Commercial & Business Banking and PFS provides lending, treasury management, and
other financial services to middle-market, large corporate, and mortgage banking
companies. It also provides private banking and personal trust services.
Corporate Trust and Institutional Financial Services include institutional and
corporate trust services, investment management services, and a full-service
brokerage company.
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.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
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 interest
rates, prepayment risk, and funding sources or terms, or to meet liquidity
needs. They are carried at fair value with unrealized net gains or losses
reported in shareholders' equity. When sold, the amortized cost of the specific
securities is used to compute the gain or loss.
HELD-TO-MATURITY SECURITIES Included in held-to-maturity securities are those
securities which management has the positive intent and ability to hold to
maturity. These securities are stated at cost, as adjusted for accretion of
discounts or amortization of premiums, computed by the interest method. The
adjusted cost of the specific security sold is used to compute the gains or
losses on the sale.
LOANS
Loans are reported net of unearned income. Interest income is accrued on the
unpaid principal balances. Loan and commitment fees are deferred and recognized
over 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 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. However, consumer loans other
than residential mortgages are generally charged-off at 120 days past due and
are, therefore, not placed on non-accrual status.
LEASES Certain subsidiaries engage 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.
U.S. Bancorp 45
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 AND MORTGAGES 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. 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 remaining life of 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.
OTHER SIGNIFICANT POLICIES
BANK PREMISES AND EQUIPMENT Bank 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 bank
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.
INTANGIBLE ASSETS Goodwill, the price paid over the book value of acquired
businesses, is included in other assets and is amortized over periods 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.
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 Basic 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 TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES Effective January 1, 1997, the Company adopted Statement of
Financial Accounting Standards No. ("SFAS") 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The Statement
uses a "financial components" approach which focuses on control to determine
whether assets have been sold. If the entity has surrendered control over the
transferred assets, the transaction is considered a sale. Control is considered
surrendered only if the seller has no legal right to the assets, even in
bankruptcy; the buyer has the right to pledge or exchange the assets; and the
seller does not maintain effective control over the assets through an agreement
to repurchase or redeem them. If control is retained, the transaction is then
considered a financing. The adoption of SFAS 125 did not have a material effect
on the Company. SFAS 125 has been amended (SFAS 127), deferring for one year its
adoption in the accounting for securities lending, repurchase agreements and
other secured financing transactions. The adoption of SFAS 125 relating to these
transaction types is not expected to have a material effect on the Company.
46 U.S. Bancorp
EARNINGS PER SHARE SFAS 128, "Earnings per Share," replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. Under the
new requirements, the dilutive effect of stock options is excluded from the
calculation of basic earnings per share. Diluted earnings per share is
calculated similarly to the fully diluted earnings per share. SFAS 128 became
effective for the Company's 1997 year-end financial statements. All prior period
earnings per share data presented have been restated to conform to the
provisions of this statement.
COMPREHENSIVE INCOME SFAS 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive income and its
components in a full set of financial statements. The Statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed as prominently as other financial statements. The Statement also
requires the classification of items of other comprehensive income by their
nature in a financial statement and the display of other comprehensive income
separately from retained earnings and capital surplus in the equity section of
the balance sheet. SFAS 130 is effective January 1, 1998, with all prior periods
presented restated to conform to the provisions of this Statement.
SEGMENT DISCLOSURE SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," requires the disclosure of financial and descriptive
information about reportable operating segments. Operating segments are
components of an enterprise about which financial information is available and
is evaluated regularly in deciding how to allocate resources and assess
performance. The Statement requires the disclosure of profit or loss, certain
specific revenue and expense items, and assets of all operating segments, with
reconciliations of amounts presented in the financial statements. The Statement
also requires the disclosure of how the operating segments were determined, the
products and services provided by the segments, differences between measurements
used in reporting segment information and those used in the financial
statements, and changes in the measurement of segment amounts from period to
period. SFAS 131 is effective with the 1998 year-end financial statements, with
comparative information for prior periods required.
NOTE C BUSINESS COMBINATIONS AND DIVESTITURES
U.S. BANCORP On August 1, 1997, First Bank System, Inc. ("FBS") issued 109.9
million common shares to acquire U.S. Bancorp ("USBC"). As of the acquisition
date, the combined institution, now known as U.S. Bancorp, had approximately $70
billion in assets, $49 billion in deposits and served nearly four million
households and 475,000 businesses in 17 contiguous states from Illinois to
Washington. The Company exchanged .755 shares of its common stock for each share
of USBC common stock. USBC's outstanding stock options also were converted into
stock options for the Company's common stock. In addition, each outstanding
share of USBC cumulative preferred stock was converted into one share of
preferred stock of the combined company having substantially identical terms.
The transaction was accounted for as a pooling-of-interests. Accordingly, the
Company's financial statements have been restated for all periods prior to the
acquisition to include the accounts and operations of USBC.
Operating results of FBS and USBC individually, as previously reported,
and the combined company, reflecting certain reclassifications to conform to the
current presentation, for the six months ended June 30, 1997, and the years
ended December 31, 1996 and 1995 were:
Six Months Ended Year Ended December 31
June 30 ----------------------
(In Millions, Except Per-Share Amounts) 1997 1996 1995
- - -----------------------------------------------------------------------------
FBS (Unaudited)
Net interest income . . . . . $ 765.0 $1,533.0 $1,440.2
Net income. . . . . . . . . . 350.1 739.8 568.1
USBC
Net interest income . . . . . 770.1 1,466.6 1,399.4
Net income. . . . . . . . . . 247.1 478.9 329.0
Combined
Net interest income . . . . . 1,511.8 2,970.6 2,822.7
Net income. . . . . . . . . . 597.2 1,218.7 897.1
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
U.S. Bancorp 47
PIPER JAFFRAY COMPANIES INC. On December 15, 1997, the Company announced the
acquisition of Piper Jaffray Companies Inc. ("Piper Jaffray"), a full-service
investment banking and securities brokerage firm, in a cash transaction for $730
million or $37.25 per Piper Jaffray common share. The acquisition will allow the
Company to offer investment banking and institutional and retail brokerage
services through a new subsidiary which will be known as U.S. Bancorp Piper
Jaffray Inc. The acquisition, which will be accounted for as a purchase, is
subject to approval by Piper Jaffray shareholders and regulators and is expected
to close in the second quarter of 1998.
OTHER ACQUISITIONS Effective December 12, 1997, the Company completed its
acquisition of the $360 million Zappco, Inc., a bank holding company
headquartered in St. Cloud, Minnesota. Effective April 30, 1997, USBC
completed its acquisition of the $214 million Business and Professional Bank of
Sacramento, California. On January 31, 1997, the Company completed its
acquisition of the bond indenture services and paying agency business of
Comerica Incorporated. This business serves approximately 860 municipal and
corporate clients with about 2,400 bond issues. Effective January 1, 1997, USBC
completed its acquisition of the $70 million Sun Capital Bancorp of St. George,
Utah. These transactions were accounted for as purchase acquisitions.
On June 6, 1996, USBC acquired California Bancshares, Inc. ("CBI"), a
holding company for a multi-bank commercial banking operation serving the East
San Francisco Bay Area and the Central Valley of Northern California. CBI had
$1.6 billion in assets and $1.4 billion in deposits. The total value of the
transaction, accounted for as a purchase, was approximately $325 million. On
February 16, 1996, the Company completed its acquisition of Omaha-based FirsTier
Financial, Inc. ("FirsTier"). FirsTier had $3.7 billion in assets, $2.9 billion
in deposits, and 63 offices in Nebraska and Iowa. The total value of the
transaction, accounted for as a purchase, was approximately $717 million.
SALE OF MORTGAGE BANKING OPERATIONS, BRANCHES AND OTHER ASSETS During 1996, FBS
sold its servicing and loan production business to three parties. Bank of
America, fsb, a subsidiary of BankAmerica Corporation, purchased approximately
$14 billion in mortgage servicing rights. Columbia National, Inc. of Maryland,
and Knutson Mortgage Co., of Minnesota, agreed to purchase the Company's loan
production business. The Company now delivers mortgage loan products through
bank branches and telemarketing. These transactions resulted in a net gain of
$45.8 million. In addition, the Company recognized $3.0 million of net losses on
credit card portfolio sales during 1996.
As part of the regulatory approval process for the West One Bancorp
acquisition by USBC in December 1995, USBC divested 31 branches during 1996,
primarily in Oregon, with deposits of approximately $700 million and loans of
approximately $400 million. USBC recognized a pre-tax gain of $28.8 million
related to this transaction.
FIRST INTERSTATE BANCORP On November 6, 1995, the Company and First Interstate
Bancorp ("First Interstate") announced that they had entered into a definitive
agreement whereby the Company would exchange 2.6 shares of its common stock for
each share of First Interstate common stock. On January 24, 1996, First
Interstate announced that it had terminated the merger agreement with the
Company and had entered into a definitive agreement with Wells Fargo & Company
("Wells Fargo"). Under terms of a settlement agreement, the Company received
$125 million on January 24, 1996. The Company received an additional $75 million
on April 1, 1996, upon consummation of the merger of First Interstate and Wells
Fargo. In addition, all litigation among the parties related to the acquisition
of First Interstate has been settled. The Company incurred transaction costs of
approximately $10 million in connection with the proposed merger.
NOTE D 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
$42 million at December 31, 1997.
48 U.S. Bancorp
NOTE E 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:
1997 1996
------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Amortized Holding Holding Fair Amortized Holding Holding Fair
(In Millions) Cost Gains Losses Value Cost Gains Losses Value
- - -------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury. . . . . . . . . $ 628 $ 2 $ (2) $ 628 $1,035 $ 2 $ (9) $1,028
Mortgage-backed. . . . . . . . 4,326 56 (16) 4,366 4,097 41 (34) 4,104
Other U.S. agencies. . . . . . 360 10 -- 370 589 9 (3) 595
State and political. . . . . . 1,300 32 (1) 1,331 574 4 (5) 573
Other. . . . . . . . . . . . . 175 23 (8) 190 167 7 (1) 173
------------------------------------------------------------------------------------------------
Total. . . . . . . . . . $6,789 $123 $(27) $6,885 $6,462 $63 $(52) $6,473
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
The detail of the amortized cost, gross unrealized holding gains and
losses, and fair value of held-to-maturity securities at December 31, 1996, was
as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
(In Millions) Cost Gains Losses Value
- - -----------------------------------------------------------------------------
State and political. . . . . . $787 $17 $(3) $801
Other. . . . . . . . . . . . . 10 -- -- 10
----------------------------------------------
Total. . . . . . . . . . . $797 $17 $(3) $811
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
Securities with an amortized cost of $752.0 million and net unrealized
holding gains of $18.2 million were transferred from held-to-maturity to
available-for-sale on August 1, 1997, in connection with the acquisition of
USBC.
Securities carried at $4.4 billion at December 31, 1997, and $4.5 billion
at December 31, 1996, were pledged to secure public, private and trust deposits
and for other purposes required by law. Securities sold under agreements to
repurchase were collateralized by securities and securities purchased under
agreements to resell with an amortized cost of $1.5 billion and $1.7 billion at
December 31, 1997, and 1996, respectively. Securities carried at $197.5 million
at December 31, 1996, were pledged to secure Federal Home Loan Bank advances.
Gross realized gains and losses on securities were as follows:
(In Millions) 1997 1996 1995
- - -----------------------------------------------------------------------------
Gross realized gains . . . . . . . . . . $ 5.0 $ 39.7 $ 8.0
Gross realized losses. . . . . . . . . . (1.4) (18.9) (5.0)
------------------------------
Net realized gains . . . . . . . . . $ 3.6 $ 20.8 $ 3.0
------------------------------
Income taxes on realized gains . . . . . $ 1.4 $ 8.0 $ 1.2
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
For amortized cost, fair value and yield by maturity date of
available-for-sale securities outstanding as of December 31, 1997, see Table 10
on page 29 from which such information is incorporated by reference into these
Notes to Consolidated Financial Statements.
U.S. Bancorp 49
NOTE F LOANS AND ALLOWANCE FOR CREDIT LOSSES
The composition of the loan portfolio at December 31 was as follows:
(In Millions) 1997 1996
- - -----------------------------------------------------------------------------
COMMERCIAL:
Commercial. . . . . . . . . . . . . . . . . . $23,399 $21,393
Real estate:
Commercial mortgage . . . . . . . . . . . . 8,025 8,022
Construction. . . . . . . . . . . . . . . . 2,359 2,125
----------------------
Total commercial . . . . . . . . . . . . 33,783 31,540
----------------------
CONSUMER:
Residential mortgage. . . . . . . . . . . . . 4,480 5,225
Residential mortgage held for sale. . . . . . 193 148
Home equity and second mortgage . . . . . . . 5,373 4,798
Credit card . . . . . . . . . . . . . . . . . 4,200 3,632
Automobile. . . . . . . . . . . . . . . . . . 3,227 3,388
Revolving credit. . . . . . . . . . . . . . . 1,567 1,581
Installment . . . . . . . . . . . . . . . . . 1,199 1,463
Student*. . . . . . . . . . . . . . . . . . . 686 580
----------------------
Total consumer . . . . . . . . . . . . . 20,925 20,815
----------------------
Total loans. . . . . . . . . . . . . . . $54,708 $52,355
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
*ALL OR PART OF THE STUDENT LOAN PORTFOLIO MAY BE SOLD WHEN THE REPAYMENT
PERIOD BEGINS.
Loans carried at $2.7 billion at December 31, 1997, and $3.5 billion at
December 31, 1996, were pledged at the Federal Home Loan Bank and the Federal
Reserve. Nonaccrual and renegotiated loans totaled $297 million, $269 million,
and $248 million at December 31, 1997, 1996, and 1995, respectively. At December
31, 1997, and 1996, the Company had $239 million and $201 million, respectively,
in loans considered impaired under SFAS 114 classified 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, 1997, 1996, and 1995, the
average recorded investment in impaired loans was approximately $249 million,
$176 million, and $220 million, respectively. The effect of nonaccrual and
renegotiated loans on interest income was as follows:
Year ended December 31
------------------------------
(In Millions) 1997 1996 1995
- - -----------------------------------------------------------------------------
Interest income that would have been accrued
at original contractual rates . . . . $26.6 $32.3 $29.5
Amount recognized as interest income . . 9.5 7.5 6.3
------------------------------
Foregone revenue . . . . . . . . . . . . $17.1 $24.8 $23.2
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
Commitments to lend additional funds to customers whose loans were
classified as nonaccrual or renegotiated at December 31, 1997, totaled $17.3
million. During 1997, there were no loans that were restructured at market
interest rates and returned to a fully performing status.
Activity in the allowance for credit losses was as follows:
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------
Balance at beginning of year . . . . . . . . $ 992.5 $908.0 $862.3
Add:
Provision charged to operating expense. . 460.3 271.2 239.1
Deduct:
Loans charged off . . . . . . . . . . . . 576.4 397.2 326.0
Less recoveries of loans charged off. . . 126.7 135.7 130.9
---------------------------------
Net loans charged off . . . . . . . . . . 449.7 261.5 195.1
Additions from acquisitions and other. . . . 5.6 74.8 1.7
---------------------------------
Balance at end of year . . . . . . . . . . . $1,008.7 $992.5 $908.0
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
50 U.S. Bancorp
NOTE G BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31 consisted of the following:
(In Millions) 1997 1996
- - -----------------------------------------------------------------------------
Land . . . . . . . . . . . . . . . . . . . . . . . $ 141 $ 158
Buildings and improvements . . . . . . . . . . . . 881 977
Furniture, fixtures and equipment. . . . . . . . . 614 957
Capitalized building and equipment leases. . . . . 103 97
--------------------
1,739 2,189
Less accumulated depreciation and amortization . . 879 1,171
--------------------
Total . . . . . . . . . . . . . . . . . . . . . $ 860 $1,018
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
NOTE H LONG-TERM DEBT
Long-term debt (debt with original maturities of more than one year) at December
31 consisted of the following:
(In Millions) 1997 1996
- - -----------------------------------------------------------------------------
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
Floating-rate notes - due November 15, 1999. . . . 200 200
Floating-rate subordinated notes - due
November 30, 2010 . . . . . . . . . . . . . . . 107 107
Medium-term notes. . . . . . . . . . . . . . . . . 652 671
Capitalized lease obligations, mortgage
indebtedness and other. . . . . . . . . . . . . 26 27
---------------------
2,410 2,430
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
6.875% due April 1, 2006. . . . . . . . . . . . 125 125
Step-up subordinated notes - due August 15, 2005 . 100 100
Floating-rate notes - due February 27, 2000. . . . 250 --
Federal Home Loan Bank advances. . . . . . . . . . 1,392 1,543
Bank notes . . . . . . . . . . . . . . . . . . . . 5,602 814
Capitalized lease obligations, mortgage
indebtedness and other. . . . . . . . . . . . . 68 57
---------------------
Total . . . . . . . . . . . . . . . . . . . . . $10,247 $5,369
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
Floating-rate notes due November 15, 1999, are the only assets of the U.S.
Bancorp Putable Asset Trust 1996-1 (the "Trust"). The Trust entered into a call
option, pursuant to which the call holder has the right to purchase the notes
from the Trust at par on November 15, 1999. If the call is exercised, the notes
would become fixed rate obligations due in 2006. If the call holder does not
exercise the call option, the Company is required to redeem the notes
immediately thereafter. The interest rate adjusts quarterly at .15 percent over
the London Interbank Offered Rate ("LIBOR") for three month United States dollar
deposits. At December 31, 1997, the interest rate was 6.15 percent.
Floating-rate subordinated notes due November 30, 2010, may be redeemed at
par at the Company's option. The annual interest rate for each quarterly period
is one-eighth of 1 percent above LIBOR for three-month Euro-dollar deposits,
subject to a minimum of 5.25 percent. At December 31, 1997, the interest rate
was 6.19 percent.
Step-up subordinated notes due August 15, 2005, are issued by the
Company's subsidiary bank, U.S. Bank National Association (the "Bank"). The
interest rate on these notes is 6.25 percent through August 14, 2000, and 7.30
percent thereafter. The notes have a one-time call feature at the option of the
Bank on August 15, 2000.
U.S. Bancorp 51
Floating-rate notes due February 27, 2000, are issued by the Bank and are
the only assets of the U.S. Oregon Pass-Through Asset Trust 1997-1 (the
"Trust"). The Trust entered into a call option, pursuant to which the call
holder has the right to purchase the notes from the Trust at par on February 27,
2000. If the call is exercised, the notes would become fixed rate obligations
due in 2007. If the call holder does not exercise the call option, the Bank is
required to redeem the notes immediately thereafter. The interest rate adjusts
quarterly at .10 percent over LIBOR for three month United States dollar
deposits. At December 31, 1997, the interest rate was 5.98 percent.
Medium-term notes outstanding at December 31, 1997, mature from April 1998
through August 2001. The notes bear floating interest rates ranging from 5.53
percent to 6.93 percent. The weighted average interest rate at December 31,
1997, was 6.15 percent. Federal Home Loan Bank advances outstanding at December
31, 1997, mature from January 1998 through October 2026. The advances bear fixed
or floating interest rates ranging from 5.05 percent to 9.11 percent. The
weighted average interest rate at December 31, 1997, was 5.94 percent. Bank
notes outstanding at December 31, 1997, mature from February 1998 through
December 2002. The notes bear fixed or floating interest rates ranging from 5.66
percent to 6.38 percent. The weighted average interest rate at December 31,
1997, was 5.95 percent.
Maturities of long-term debt outstanding at December 31, 1997 were:
Parent
(In Millions) Consolidated Company
- - -----------------------------------------------------------------------------
1998 . . . . . . . . . . . . . . . . . . . . . . . $ 2,997 $ 190
1999 . . . . . . . . . . . . . . . . . . . . . . . 1,946 373
2000 . . . . . . . . . . . . . . . . . . . . . . . 1,401 164
2001 . . . . . . . . . . . . . . . . . . . . . . . 791 131
2002 . . . . . . . . . . . . . . . . . . . . . . . 859 151
Thereafter . . . . . . . . . . . . . . . . . . . . 2,253 1,401
--------------------------
Total. . . . . . . . . . . . . . . . . . . . . $10,247 $2,410
- - -----------------------------------------------------------------------------
- - -----------------------------------------------------------------------------
NOTE I COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES OF
THE PARENT COMPANY
During 1996, the Company issued $600 million of preferred securities (the
"Preferred Securities") through two wholly-owned subsidiary grantor trusts, FBS
Capital I and U.S. Bancorp Capital I (the "Trusts"). The Preferred Securities
accrue and pay distributions periodically at specified annual 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.
FBS Capital I completed the sale of $300 million Preferred Securities in
November 1996. The sole assets of FBS Capital I are $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.
U.S. Bancorp Capital I completed the sale of $300 million Preferred
Securities in December 1996. The sole assets of U.S. Bancorp Capital I are $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.
52 U.S. Bancorp
NOTE J SHAREHOLDERS' EQUITY
COMMON STOCK At December 31, 1997, the Company had 23.5 million shares of common
stock reserved for future issuances under the Dividend Reinvestment Plan,
Employee Stock Purchase Plan, and the 1997 Stock Incentive Plan (see Note L).
In connection with the acquisition of USBC, the number of authorized
common shares for the Company was increased from 200 million shares to 500
million shares. The Company completed several acquisitions since 1995 with
common shares issued in exchange for the stock of the acquired banks (see Note
C).
Approximately 31.0 million common shares have been repurchased under 1996
Board authorizations, including 4.9 million during 1997. All authorizations were
either completed or rescinded prior to the USBC acquisition. Under previous
authorizations, the Company repurchased 16.9 million shares in 1995.
The Company's Dividend Reinvestment Plan provides for automatic
reinvestment of dividends and optional cash purchases of up to $60,000 worth of
additional shares per calendar year at market price.
PREFERRED STOCK The Company has issued seven classes of cumulative preferred
stock, with 10 million shares authorized. Since 1992, the Company has redeemed
or called the four classes of $1.00 par value cumulative preferred stock,
redeemed both classes of $.01 par value cumulative preferred stock, and redeemed
the $1.00 par value, 8 1/8 percent cumulative preferred stock. At December 31,
1997, the Company had no preferred stock outstanding.
On November 14, 1997, the Company redeemed all outstanding shares of its
8 1/8 percent Cumulative Preferred Stock, Series A at a redemption price of $25
per share, together with accrued and unpaid dividends.
On November 29, 1996, the Company called the remaining 1,543,025 shares of
its Series 1991A Cumulative Convertible Preferred Stock. As a result, at
December 31, 1996, the redemption date, all remaining shares had been redeemed
or converted into common stock. Prior to conversion, dividends on the Series
1991A shares, which had a $1.00 par value, were 7.125 percent per year.
In January 1995, the Company redeemed for $27.00 per share in cash, plus
accumulated and unpaid dividends, 488,750 shares of Series B, $2.875 Cumulative
Perpetual Preferred Stock. Dividends on the Series B shares, which had a $.01
par value, were $2.875 per share prior to redemption.
The preferred dividend requirement used in the calculation of earnings per
common share was $10.6 million, $18.4 million, and $19.7 million, for the years
1997, 1996, and 1995, respectively.
NOTE K EARNINGS PER SHARE
The components of earnings per share were:
(Dollars In Millions, Except Per Share Data) 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Net income . . . . . . . . . . . . . . . . . . . . . . $838.5 $1,218.7 $897.1
Preferred dividends. . . . . . . . . . . . . . . . . . (10.6) (18.4) (19.7)
------------------------------------------
Net income to common stockholders. . . . . . . . . . . $827.9 $1,200.3 $877.4
------------------------------------------
------------------------------------------
Average shares outstanding . . . . . . . . . . . . . . 244,516,964 249,726,158 246,217,723
------------------------------------------
------------------------------------------
Earnings per share . . . . . . . . . . . . . . . . . . $ 3.39 $ 4.81 $ 3.56
------------------------------------------
------------------------------------------
DILUTED EARNINGS PER SHARE:
Net income . . . . . . . . . . . . . . . . . . . . . . $838.5 $1,218.7 $897.1
Preferred dividends, excluding 1991A Preferred Stock . (10.6) (12.2) (12.2)
Interest expense on convertible securities, net. . . . -- -- 1.3
------------------------------------------
Net income to common stockholders. . . . . . . . . . . $827.9 $1,206.5 $886.2
------------------------------------------
------------------------------------------
Average shares outstanding . . . . . . . . . . . . . . 244,516,964 249,726,158 246,217,723
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 . . . . . . . . . . . . . . . . . . . . . . . 3,120,948 2,599,500 3,403,576
Conversion of Series 1991A Preferred Stock . . . . . . -- 3,065,010 3,563,191
Other convertible securities . . . . . . . . . . . . . -- -- 1,702,559
------------------------------------------
Dilutive common shares outstanding . . . . . . . . . . 247,637,912 255,390,668 254,887,049
------------------------------------------
------------------------------------------
Diluted earnings per share . . . . . . . . . . . . . . $ 3.34 $ 4.72 $ 3.48
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
U.S. Bancorp 53
NOTE L EMPLOYEE BENEFITS
RETIREMENT PLANS Pension benefits (Pension Plans) 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 contribution is the projected unit credit method. Prior to their
acquisition dates, employees of acquired companies were covered by separate,
noncontributory pension plans that provided benefits based on years of service
and compensation. As of December 31, 1997, the Company has merged the acquired
companies' plans into its own plan with the exception of the FirsTier, USBC and
West One plans, which are expected to be merged in 1999. The Company also
maintains several unfunded, nonqualified, supplemental executive retirement
programs (Supplemental Plans) that provide additional defined pension benefits
for certain officers. 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 Pension
Plans. The following table sets forth the funded status and income statement
effects for the retirement plans.
December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------------------
Pension Supplemental Pension Supplemental Pension Supplemental
Plans Plans Plans Plans Plans Plans
-----------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation . . . . . . . . . . . . $ (718.8) $(60.2) $(651.1) $(36.3) $(630.2) $(30.9)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Accumulated benefit obligation. . . . . . . . . . $ (753.7) $(61.7) $(681.7) $(37.9) $(662.8) $(31.8)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Projected benefit obligation for service rendered
to date . . . . . . . . . . . . . . . . . . . . . $ (851.4) $(75.8) $(775.9) $(52.6) $(756.4) $(43.9)
Plan assets at fair value, primarily listed stocks,
U.S. bonds and mutual funds . . . . . . . . . . . 1,069.4 -- 935.3 -- 780.4 --
-----------------------------------------------------------------------
Excess (deficiency) of plan assets over projected
benefit obligation. . . . . . . . . . . . . . . . 218.0 (75.8) 159.4 (52.6) 24.0 (43.9)
Unrecognized net (gain) loss from past experience
different from that assumed and effects of
changes in assumptions. . . . . . . . . . . . . . (116.7) 21.1 (73.0) 9.4 27.1 12.5
Unrecognized net (asset) obligation at end of year
(amortized over 15 years) . . . . . . . . . . . . (10.0) (6.4) (13.7) .4 (19.3) .4
-----------------------------------------------------------------------
Prepaid (accrued) pension cost included in other assets
and other liabilities . . . . . . . . . . . . . . $ 91.3 $(61.1) $ 72.7 $(42.8) $ 31.8 $(31.0)
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
Net pension cost for all funded and unfunded plans is as follows:
Year Ended December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the period. . . . . . . . . . $ 38.3 $ 40.8 $ 33.6
Interest cost on projected benefit obligation . . . . . . . . . . 64.5 60.7 58.1
Actual return on plan assets. . . . . . . . . . . . . . . . . . . (172.2) (134.1) (157.2)
Net amortization and deferral . . . . . . . . . . . . . . . . . . 90.5 61.6 87.8
-------------------------------------
Net periodic pension benefit cost. . . . . . . . . . . . . . . . . . . $ 21.1 $ 29.0 $ 22.3
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
The aggregate disclosures reflect the following weighted average
assumptions as each company's plans were valued separately for the years prior
to acquisition and each plan independently determined its assumptions:
The Company USBC
----------------------------------
1997 1996 1995 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------
Weighted average discount rate in determining expense. . . . . . . . . . . . . . . 7.5% 7.0% 8.0% 7.8% 7.3%
Weighted average discount rate in determining benefit obligations at year end. . . 7.0 7.5 7.0 7.8 7.3
Expected long-term rate of return. . . . . . . . . . . . . . . . . . . . . . . . . 9.5 9.5 9.5 9.0 9.0
Rate of increase in future compensation. . . . . . . . . . . . . . . . . . . . . . 5.6 5.6 5.6 5.5 4.8
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
54 U.S. Bancorp
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 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 retiree benefit payments, other than
pensions, are accrued during the employees' active service. Beginning in 1996,
the Company funded the tax deductible portion of its outstanding liability.
Prior to 1996, the Company funded the postretirement benefit costs as incurred.
USBC also had a post-retirement health care plan with substantially similar
benefits and funded the postretirement benefit costs as incurred. The funded
status and income statement effects of the USBC plan have been aggregated with
the Company's plan as of December 31, in the following table:
Year Ended December 31 (In Millions) 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(140.4) $(136.0) $(141.3)
Fully eligible active plan participants . . . . . . . . . . . . . . . . . . . . . . . . (4.1) (3.7) (3.3)
Other active plan participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23.0) (20.6) (20.6)
--------------------------------
Total accumulated postretirement benefit obligation. . . . . . . . . . . . . . . . . (167.5) (160.3) (165.2)
Plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 7.1 --
--------------------------------
Total unfunded accumulated postretirement benefit obligation. . . . . . . . . . . . . . (158.0) (153.2) (165.2)
Unrecognized net loss (gain) from past experience different from that
assumed and from changes in assumptions . . . . . . . . . . . . . . . . . . . . . . . . .7 (5.8) 4.2
Unrecognized implementation asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.1) (1.4) (1.7)
--------------------------------
Accrued postretirement benefit cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . $(158.4) $(160.4) $(162.7)
--------------------------------
--------------------------------
Net periodic postretirement benefit cost includes the following components:
Service cost-benefits attributed to service during the period . . . . . . . . . . . . . $ 2.0 $ 2.2 $ 1.9
Interest cost on accumulated postretirement benefit obligation. . . . . . . . . . . . . 11.2 11.6 12.0
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.2) (.2) (.6)
--------------------------------
Total postretirement benefit cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.0 $ 13.6 $ 13.3
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
In 1997, the assumed annual rates of increase in the cost of health care
benefits for participants under 65 and 65 and older, were 8.1 percent and 6.5
percent. For 1998 the annual rate of increase assumptions are 7.6 percent and
6.3 percent, respectively. Both rates were assumed to decrease gradually to 5.2
percent by 2003 and remain at that level thereafter. Trends in health care costs
have a significant effect on the amounts reported. For example, increasing the
health care cost trend rate assumptions by 1 percent each year increases the
accumulated postretirement benefit obligation as of December 31, 1997, by $13.9
million. In addition, the aggregate of the service and interest cost components
of net periodic postretirement benefit cost for the year then ended would
increase by $1.2 million. The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was 7.0 percent and 7.5
percent at December 31, 1997 and 1996. The long-term expected rate of return on
plan assets was 5.0 percent as of December 31, 1997.
EMPLOYEE INVESTMENT PLAN The Company provides a Capital Accumulation Plan (CAP)
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 $22.5
million, $25.6 million, and $20.8 million in 1997, 1996, and 1995.
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, the option proceeds equal to the
par value of the shares are credited to common stock and additional proceeds are
credited to capital surplus.
U.S. Bancorp 55
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 1997, the purchase price was 85
percent of fair market value. The plan results in no compensation expense to
the Company.
In July 1997, the shareholders approved the 1997 Stock Incentive Plan
(1997 Plan) whereby all former stock incentive plans of FBS and USBC were
incorporated into the 1997 Plan. All outstanding options, restricted stock
and other awards subject to the terms of the former FBS and USBC stock
incentive 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 1997 Plan, subject, in the case of the former
USBC plans, to adjustment reflecting the conversion of USBC common stock into
common stock of the Company. An additional 6 million shares were approved for
issuance by the shareholders under the 1997 Plan to meet the needs of the
Company over approximately the next two years. The 1997 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 1997 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, 1997, there were 5.4 million shares
(subject to adjustment for forfeitures) available for grant under the Plans.
Options granted are generally exercisable up to 10 years from the date
of grant and vest over three to five years. Restricted shares generally vest
over three to seven years. The vesting of certain options and restricted
shares accelerate based 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 $8.4 million, $4.9 million and $3.4
million in 1997, 1996, and 1995.
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.
Weighted Restricted
Options Average Price Shares
Outstanding Per Share Outstanding
- - -----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,046,617 $25.35 427,944
Granted:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,852,748 41.52 --
Restricted stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 149,806
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,161,443) 25.80 --
Canceled/vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,129,138) 17.69 (22,882)
----------------------------------------
DECEMBER 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,608,784 $30.70 554,868
Granted:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,481,251 65.37 --
Restricted stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 176,408
USBC acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,525 19.97 --
FirsTier options converted . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,164 29.42 --
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,416,229) 33.20 --
Canceled/vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (179,070) 47.37 (246,917)
----------------------------------------
DECEMBER 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,174,425 $52.47 484,359
Granted:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,839,948 90.40 --
Restricted stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 560,392
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,952,369) 46.92 --
Canceled/vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (439,684) 67.08 (173,357)
----------------------------------------
DECEMBER 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,622,320 $70.86 871,394
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
56 U.S. Bancorp
Additional information regarding options outstanding as of December 31,
1997 is as follows:
Options Outstanding Exercisable Options
---------------------------------------- -------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
- - -------------------------------------------------------------------------------------------------------------------
$7.28 - $29.99 . . . . . . . . . . . . . 1,024,780 4.8 $24.04 1,024,780 $24.04
$30.00 - $59.99. . . . . . . . . . . . . 1,887,080 7.4 41.69 1,691,377 41.05
$60.00 - $89.99. . . . . . . . . . . . . 7,361,618 9.1 72.65 2,497,969 71.32
$90.00 - $115.00 . . . . . . . . . . . . 3,348,842 9.8 97.71 953 94.99
----------------------------------------------------------------------
13,622,320 8.7 $70.86 5,215,079 $52.22
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
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 Company had accounted for its employee stock
option and stock purchase plans (options) under the fair value method of that
Statement. The fair value of the options was estimated at the grant date using
a Black-Scholes option pricing model. Option valuation models require the input
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 following weighted average assumptions were used in the valuation
model: risk-free interest rates of 6.0 percent, 6.2 percent and 6.1 percent
in 1997, 1996 and 1995; dividend yields of 2.5 percent in 1997 and 3.2
percent in both 1996 and 1995; stock price volatility factors of .22, .20 and
..18 in 1997, 1996 and 1995; and, expected life of options of 3.9 years, 4.3
years and 3.2 years in 1997, 1996 and 1995, respectively.
The pro forma disclosures include options granted in 1997, 1996 and 1995
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.
Year Ended December 31
------------------------------------
(In Millions, Except Per Share Data) 1997 1996 1995
- - -------------------------------------------------------------------------------------
Pro forma net income . . . . . . . . . . $783.8 $1,183.5 $870.1
Pro forma net income (diluted) . . . . . 783.8 1,189.7 878.9
Pro forma earnings per share:
Earnings per share. . . . . . . . . . $3.21 $4.74 $3.53
Diluted earnings per share. . . . . . 3.17 4.66 3.45
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
NOTE M MERGER, INTEGRATION AND RESIZING CHARGES
The Company recorded merger, integration and resizing charges of $511.6 million,
$88.1 million and $98.9 million in 1997, 1996 and 1995, respectively. Merger and
integration charges in 1997 were associated with the acquisition of USBC and
included: $232.3 million in severance costs; $77.2 million of occupancy and
equipment writedowns; $43.4 million of capitalized software and other asset
writeoffs; $35.0 million of investment banking and other transaction costs;
$72.7 million of conversion costs incurred; and, $51.0 million of other
merger-related expenses. Merger and integration charges of $49.5 million
recorded in 1996 were associated with the acquisitions of FirsTier, the
BankAmerica corporate trust business, and West One Bancorp. Resizing charges in
1996 of $38.6 million were associated with the Company's streamlining of the
branch distribution network and trust operations as the Company expands its
alternative distribution channels, including telemarketing, automated teller
machines and in-store branches. Merger and integration charges recorded in 1995
were associated with the acquisition of West One Bancorp. The components of the
charges are shown below:
Year Ended December 31
------------------------------------
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------
Severance. . . . . . . . . . . . . . . . $232.3 $27.4 $29.4
Premises writedowns. . . . . . . . . . . 77.2 27.4 22.3
Systems conversions. . . . . . . . . . . 72.7 11.0 19.7
Other merger-related charges . . . . . . 129.4 22.3 27.5
- - -------------------------------------------------------------------------------------
Total merger, integration and
resizing charges. . . . . . . . . . . $511.6 $88.1 $98.9
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
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.
U.S. Bancorp 57
Premise writedowns represent write-offs for redundant office space,
equipment and branches. Systems conversions and other merger-related expenses
are recorded as incurred and are associated with the preparation and mailing of
numerous customer communications for the acquisitions and conversion of customer
accounts, printing and distribution of training materials and policy and
procedure manuals, outside consulting fees, and similar expenses relating to the
conversions and integration of acquired branches and operations. The following
table presents a summary of activity with respect to the Company's merger,
integration and resizing accrual:
Year Ended
December 31
(In Millions) 1997
- - ---------------------------------------------------------------------------
Balance at December 31, 1996 . . . . . . . . . . . . . . . . $ 33.6
Provision charged to operating expense . . . . . . . . . . . 511.6
Cash outlays . . . . . . . . . . . . . . . . . . . . . . . . (217.1)
Noncash writedowns . . . . . . . . . . . . . . . . . . . . . (123.5)
- - ---------------------------------------------------------------------------
Balance at December 31, 1997 . . . . . . . . . . . . . . . . $ 204.6
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
The Company expects to incur an additional $125.0 million of merger-related
expenses through the third quarter of 1998 related to the USBC acquisition.
NOTE N INCOME TAXES
The components of income tax expense were:
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
FEDERAL:
Current tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $435.0 $586.5 $436.6
Deferred tax provision . . . . . . . . . . . . . . . . . . . . . . . . 34.9 47.9 23.6
------------------------------------
Federal income tax. . . . . . . . . . . . . . . . . . . . . . . . . 469.9 634.4 460.2
------------------------------------
STATE:
Current tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.6 88.2 63.8
Deferred tax provision (credit). . . . . . . . . . . . . . . . . . . . 2.7 3.1 (.1)
------------------------------------
State income tax. . . . . . . . . . . . . . . . . . . . . . . . . . 82.3 91.3 63.7
------------------------------------
Total income tax provision. . . . . . . . . . . . . . . . . . . . . $552.2 $725.7 $523.9
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------------------------------------
Tax at statutory rate (35%). . . . . . . . . . . . . . . . . . . . . . $486.7 $680.5 $497.3
State income tax, at statutory rates, net of federal tax benefit . . . 53.5 59.4 41.5
Tax effect of:
Tax-exempt interest:
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13.0) (4.5) (5.1)
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . (24.0) (33.5) (33.3)
Amortization of nondeductible goodwill. . . . . . . . . . . . . . . 25.7 39.9 26.7
Nondeductible merger and integration charges. . . . . . . . . . . . 39.1 -- --
Tax credits and other items . . . . . . . . . . . . . . . . . . . . (15.8) (16.1) (3.2)
------------------------------------
Applicable income taxes. . . . . . . . . . . . . . . . . . . . . . . . $552.2 $725.7 $523.9
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
At December 31, 1997, for income tax purposes, the Company had federal net
operating loss carryforwards of $4.9 million available, which expire in years
1999 through 2007. In addition, the Company had aggregate state net operating
loss carryforwards of $178.1 million available, which expire in years 1998
through 2007.
During 1996, the Company received a tax refund of $65 million, including
interest, from the State of Minnesota relating to the exemption of interest
income received on investments in U.S. government securities for the period 1979
to 1983.
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.
58 U.S. Bancorp
Significant components of the Company's deferred tax assets and liabilities as
of December 31 were as follows:
(In Millions) 1997 1996
- - ----------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Loan loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . $ 385.1 $ 356.3
Postretirement liability . . . . . . . . . . . . . . . . . . . . . . . 65.0 69.3
Deferred loan fees . . . . . . . . . . . . . . . . . . . . . . . . . . 39.9 36.1
Real estate and other asset basis differences. . . . . . . . . . . . . 35.7 87.5
Federal operating loss carryforward. . . . . . . . . . . . . . . . . . 1.9 10.3
Alternative minimum tax credit carryforward. . . . . . . . . . . . . . -- 11.4
Other miscellaneous accruals and reserves. . . . . . . . . . . . . . . 166.7 109.9
----------------------
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . 694.3 680.8
DEFERRED TAX LIABILITIES:
Leasing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (399.8) (344.1)
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . (42.6) (39.3)
Adjustment of available-for-sale securities to market value. . . . . . (36.4) (3.5)
Other investment basis differences . . . . . . . . . . . . . . . . . . (8.3) (27.3)
Accrued severance, pension and retirement benefits . . . . . . . . . . (2.8) (12.5)
Other deferred liabilities . . . . . . . . . . . . . . . . . . . . . . (96.2) (77.9)
----------------------
Gross deferred tax liabilities. . . . . . . . . . . . . . . . . . . (586.1) (504.6)
Deferred tax assets valuation reserve. . . . . . . . . . . . . . . . . -- (2.2)
----------------------
NET DEFERRED TAX ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $ 108.2 $ 174.0
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
Realization of the deferred tax asset over time is dependent upon the
Company generating sufficient taxable earnings in future periods. In determining
that realization of the deferred tax asset was more likely than not, the Company
gave consideration to a number of factors, including its recent earnings
history, its expectations for earnings in the future and, where applicable, the
expiration dates associated with tax carryforwards. The Company's valuation
allowance decreased $2.2 million in 1997 due to utilization of net operating
losses.
NOTE O 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 meet the needs of its customers and to manage its
interest rate risk. These instruments carry varying degrees of credit, interest
rate or liquidity risk. The contract or notional amounts of these financial
instruments at December 31 were as follows:
(In Millions) 1997 1996
- - ----------------------------------------------------------------------------------------------------
Commitments to extend credit:
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,170 $24,482
Corporate and purchasing cards. . . . . . . . . . . . . . . . . . . 23,502 13,820
Consumer credit cards . . . . . . . . . . . . . . . . . . . . . . . 14,236 14,140
Other consumer. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,661 4,665
Letters of credit:
Standby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,773 2,634
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 355
Interest rate swap contracts:
Hedges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,315 3,651
Intermediated . . . . . . . . . . . . . . . . . . . . . . . . . . . 855 590
Options contracts:
Hedge interest rate floors purchased. . . . . . . . . . . . . . . . 750 1,250
Hedge interest rate caps purchased. . . . . . . . . . . . . . . . . -- 100
Intermediated interest rate and foreign exchange caps and
floors purchased. . . . . . . . . . . . . . . . . . . . . . . . . 258 134
Intermediated interest rate and foreign exchange caps and
floors written. . . . . . . . . . . . . . . . . . . . . . . . . . 258 169
Futures contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 98
Liquidity support guarantees . . . . . . . . . . . . . . . . . . . . . -- 81
Forward contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 175 197
Commitments to sell loans. . . . . . . . . . . . . . . . . . . . . . . -- 3
Mortgages sold with recourse . . . . . . . . . . . . . . . . . . . . . 74 114
Foreign currency commitments:
Commitments to purchase . . . . . . . . . . . . . . . . . . . . . . 716 952
Commitments to sell . . . . . . . . . . . . . . . . . . . . . . . . 735 953
- - ----------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------
U.S. Bancorp 59
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 OPTIONS AND SWAPS Interest rate swaps are contracts to exchange
fixed and floating 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, 1997, and 1996, interest rate swaps totaling $5.3 billion and $3.7
billion, respectively, hedged loans, deposits and long-term debt.
The Company receives fixed rate interest and pays floating rate interest
on all hedges as of December 31, 1997. Activity with respect to interest rate
swap hedges was as follows:
(In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------------
Notional amount outstanding at
beginning of year . . . . . . . . . . $3,651 $ 4,306 $3,894
Additions. . . . . . . . . . . . . . . . 2,926 890 1,209
Maturities . . . . . . . . . . . . . . . (436) (1,208) (797)
Amortization . . . . . . . . . . . . . . -- (1) --
Terminations . . . . . . . . . . . . . . (826) (336) --
------------------------------------
Notional amount outstanding
at end of year. . . . . . . . . . . . $5,315 $ 3,651 $4,306
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
At December 31:
Weighted average interest
rates paid. . . . . . . . . . . . . . 5.95% 5.58% 5.73%
Weighted average interest
rates received. . . . . . . . . . . . 6.39 6.35 6.51
- - -------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------
For the hedging portfolio's notional balances and yields by maturity date
as of year-end 1997, see Table 16 on page 34. 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 35 and 36. Such information is
incorporated by reference into these Notes
to Consolidated Financial Statements.
Interest rate caps are also used to minimize the impact of fluctuating
interest rates on earnings. There were no interest rate cap hedges outstanding
at December 31, 1997. The total notional amount of cap agreements purchased at
December 31, 1996, was $100 million with a 3-month LIBOR strike rate of 6.00
percent. The premium on caps is amortized over the life of the contract. The
impact of the caps on net interest income was not material for the years ended
December 31, 1997, 1996 and 1995.
At December 31, 1997, and 1996, purchased LIBOR based interest rate floors
totaling $550 million with an average remaining maturity of 5 months and $950
million with an average remaining maturity of 12 months, respectively, hedged
floating rate commercial loans. The strike rate on these LIBOR based floors
ranged from 3.25 percent to 4.00 percent at December 31, 1997, and December 31,
1996. At December 31, 1997, and 1996, purchased Constant Maturity Treasury (CMT)
interest rate floors totaling $200 million with an average remaining maturity of
12 months and $300 million with an average remaining maturity 18 months,
respectively, hedged the prepayment risk of fixed rate residential mortgage
loans. The strike rate on these CMT floors was 5.60 percent at December 31,
1997, and ranged from 5.60 percent to 5.70 percent at December 31, 1996. The
premium on floors is amortized over the life of the contract. The impact of the
floors on net
60 U.S. Bancorp
interest income was not material for the years ended December 31, 1997, 1996 and
1995.
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 material for the years ended December 31, 1997, 1996 and 1995. Net
unamortized deferred gains were immaterial at December 31, 1997.
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 swap agreements, including the offsetting positions, was $855 million
and $590 million at December 31, 1997, and 1996, respectively. The total dollar
amount of futures used to offset customer swap agreements was $98.4 million at
December 31, 1996. The total notional amount of customer option agreements,
including the offsetting positions, was $516 million and $303 million at
December 31, 1997, and 1996, respectively. Market value changes on intermediated
swaps, options and futures contracts are recognized in income in the period of
change. Realized losses on intermediated transactions were not material for the
years ended December 31, 1997, 1996, and 1995.
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 counterparty. At December 31, 1997, and 1996, the gain position of
these contracts, in the aggregate, was approximately $91 million and $51
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 interest rate contracts with the same
counterparty on a net basis.
LIQUIDITY SUPPORT GUARANTEES Through liquidity support guarantees, the Company
agrees to provide market support for its customers' commercial paper or
tax-exempt bonds. These contracts are secured by notes receivable, bonds or
private insurance, guaranteeing payment of principal and interest on any
unreimbursed funds advanced. Since the conditions that require the Company to
fund the guarantees may not occur, total guarantee amounts do not necessarily
represent the Company's future funding obligation.
FORWARD CONTRACTS AND COMMITMENTS TO SELL MORTGAGE LOANS Forward contracts are
agreements for the delayed delivery of securities or cash settlement money
market instruments. The Company enters into these contracts to hedge the
interest rate risk of its mortgage loans held for sale. At December 31, 1997,
and 1996, forward contracts outstanding were $175 million and $197 million,
respectively. At December 31, 1997, net unamortized deferred gains on the
forward agreements were not material. The Company manages its credit risk on
forward contracts, which arises from nonperformance by counterparties, through
credit approval and limit procedures. At December 31, 1996, the Company was
committed under agreements to sell mortgage loans pursuant to master delivery
commitments. The remaining balance on those commitments at December 31, 1996 was
$3 million.
MORTGAGES SOLD WITH RECOURSE The Company is obligated under recourse provisions
related to the sale of certain residential mortgages. The contract amount of
these mortgages, excluding the Government National Mortgage Association ("GNMA")
agreements, was $74 million at December 31, 1997, and $114 million at December
31, 1996. Mortgages sold with recourse under sale/servicing agreements with GNMA
totaled $13 million at December 31, 1997, and $6 million at December 31, 1996.
The Company has secondary recourse obligations under these agreements, but the
liability is not material.
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
U.S. Bancorp 61
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, 1997,
was not significant.
CREDIT CONCENTRATIONS The Company primarily lends to borrowers in the 17 states
where it has banking offices. Approximately 90 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 real estate portfolio by property type and
geography as of December 31, 1997, and 1996, see Table 8 on page 27. This
information is incorporated by reference into these Notes to Consolidated
Financial Statements. Such loans are collateralized by the related property.
Approximately 90 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 26 under the category "Consumer" as of December 31, 1997,
and 1996, which is incorporated by reference into these Notes to Consolidated
Financial Statements.
NOTE P FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments, both on and off balance sheet, are generally defined as
cash, equity instruments or investments, and contractual obligations to pay or
receive cash or another financial instrument. The estimated fair value of
financial instruments is based on quoted market prices. When market quotes are
unavailable, valuation techniques including discounted cash flow calculations
and pricing models or services are used.
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. Accordingly, the Company uses several valuation techniques and
aggregation methods for valuing various products. The Company also uses various
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 required disclosures exclude the estimated values of
certain financial instruments and all nonfinancial instrument cash flows.
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 under resale agreements was assumed to approximate fair value.
SECURITIES: Generally, trading securities, held-to-maturity securities and
available-for-sale securities were valued using available market quotes. In some
instances, for securities that are not widely traded, market quotes for
comparable securities were used.
LOANS: The loan portfolio consists of both variable 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 one to two years.
COMMERCIAL: The fixed rate loans in the commercial portfolio (excluding
nonaccrual loans) had a weighted average interest rate of 8.2 percent in 1997
and 8.4 percent in 1996. The duration was 1.4 years in 1997 and 1.6 years in
1996. The floating rate loans had a weighted average interest rate of 8.4
percent in 1997 and 8.2 percent in 1996. The high-grade corporate bond yield
curve was used to arrive at the discount rates applied to these loans.
62 U.S. Bancorp
COMMERCIAL REAL ESTATE AND CONSTRUCTION: The fixed rate portion of this
portfolio (excluding nonaccrual loans) had a weighted average interest rate of
8.9 percent, with a duration of 3.1 years, in 1997 and 1996. The floating rate
loans (excluding nonaccrual loans) had a weighted average interest rate of 8.8
percent in 1997 and 8.6 percent in 1996. 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 estimated value also reflects
the related fair value of mortgage servicing rights, which was calculated using
a discounted cash flow analysis. The fixed rate portion of this portfolio had a
weighted average interest rate of 7.7 percent in 1997 and 1996. The duration was
2.1 years in 1997 and 2.4 years in 1996.
CONSUMER INSTALLMENT: The fair value of the consumer installment portfolio was
based on an approach the Company uses in evaluating potential acquisitions.
Prepayment assumptions ranging from 25 to 30 percent were applied to scheduled
cash flows, based on the Company's experience. On the fixed rate portion, the
weighted average rate was 9.3 percent in 1997 and 1996. The duration was 2.0
years in 1997 and 1.7 years in 1996. The floating rate portion of the consumer
installment portfolio had a weighted average interest rate of 7.9 percent in
1997 and 8.2 percent in 1996.
REVOLVING HOME EQUITY LINES, SECOND MORTGAGES AND CONSUMER LINES: The fair value
of revolving home equity lines, second mortgages, and consumer lines was based
on the approach the Company uses in evaluating potential acquisitions of similar
portfolios. In 1997, estimated net income adjusted for account attrition was
discounted using an estimated cost of capital of 9.9 percent for secured lines
and loans and 13.1 percent for unsecured. In 1996, the estimated cost of capital
was 11.3 percent for secured and 14.0 percent for unsecured. The home equity
lines had a weighted average interest rate of 9.8 percent in 1997 and 9.7
percent in 1996. Fixed rate second mortgages had a weighted average interest
rate of 9.7 percent in 1997 and 9.4 percent in 1996. The duration was 2.7 years
in 1997 and 1996. Retail credit cards had a weighted average interest rate of
11.8 percent in 1997 and 12.2 percent in 1996, with a duration of 2.0 years in
1997 and 1.8 years in 1996. Other revolving lines had a weighted average
interest rate of 12.0 percent in 1997 and 11.4 percent in 1996.
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 the difference between the
ongoing cost of the core deposits and alternative funds at current market rates.
This is the same method that the Company uses in calculating the value of the
core deposit intangible of an acquired financial institution.
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. Fair values for fixed rate certificates of deposit were estimated
using a discounted cash flow analysis based on the discount rates implied by the
high-grade corporate bond yield curve.
SHORT-TERM BORROWINGS: Federal funds purchased, borrowings under repurchase
agreements, and other short-term borrowings are at variable rates or have
short-term maturities. Their carrying value is assumed to approximate their fair
value.
LONG-TERM DEBT: Medium-term notes, bank notes, Federal Home Loan Bank Advances,
capital lease obligations, and mortgage note obligations totaled $7,725 million
in 1997 and $3,094 million in 1996. Their estimated fair value was determined
using a discounted cash flow analysis based on current market rates of similar
maturity debt securities to discount cash flows. Other long-term debt
instruments were valued using available market quotes.
INTEREST RATE SWAPS, OPTIONS, FLOORS, AND CAPS: The interest rate options and
swap cash flows were estimated using a third party pricing model and discounted
based on appropriate LIBOR, Eurodollar future, and Treasury Note yield curves.
LOAN COMMITMENTS, LETTERS OF CREDIT AND GUARANTEES: The Company's commitments
have variable 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 63
The estimated fair values of the Company's financial instruments are shown in
the table below.
1997 1996
-------------------------------------------------
Carrying Fair Carrying Fair
(In Millions) Amount Value Amount Value
- - -------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and due from banks. . . . $ 4,739 $ 4,739 $ 4,813 $ 4,813
Federal funds sold and resale
agreements . . . . . . . . . 692 692 898 898
Trading account securities . . 195 195 231 231
Held-to-maturity securities. . -- -- 797 811
Available-for-sale securities. 6,885 6,885 6,473 6,473
Loans:
Commercial:
Commercial. . . . . . . . 23,399 24,286 21,393 21,761
Commercial real estate
and construction. . . . 10,384 11,349 10,147 10,955
Consumer:
Residential mortgage. . . 4,480 4,647 5,225 5,237
Residential mortgage held
for sale. . . . . . . . 193 194 148 148
Home equity and second
mortgage. . . . . . . . 5,373 5,531 4,798 5,041
Credit card and revolving
lines . . . . . . . . . 5,767 6,031 5,213 5,455
Other consumer
installment . . . . . . 5,112 5,351 5,431 5,513
Allowance for credit
losses. . . . . . . . . . (1,009) -- (993) --
---------------------------------------------
Net loans . . . . . . . . 53,699 57,389 51,362 54,110
---------------------------------------------
Total financial assets. . 66,210 69,900 64,574 67,336
NONFINANCIAL ASSETS:
Core deposit intangible. . . . 160 1,400 165 1,406
Mortgage servicing portfolio . 19 22 23 28
---------------------------------------------
Total . . . . . . . . . . 66,389 $71,322 64,762 $68,770
------- -------
------- -------
Other assets . . . . . . . . . . 4,906 4,987
------- -------
Total Assets. . . . . . . $71,295 $69,749
------- -------
------- -------
FINANCIAL LIABILITIES:
Deposits:
Noninterest-bearing . . . . $14,544 $14,544 $14,344 $14,344
Interest-bearing checking
and other savings . . . . 31,199 31,199 31,610 31,610
Savings certificates and
certificates GREATER
THAN $100,000 . . . . . . 3,284 3,313 3,402 3,355
---------------------------------------------
Total deposits. . . . . . 49,027 49,056 49,356 49,309
Federal funds purchased. . . . 800 800 1,672 1,672
Securities sold under
agreements to repurchase . . 1,518 1,518 1,729 1,729
Other short-term funds
borrowed . . . . . . . . . . 974 974 3,191 3,191
Long-term debt . . . . . . . . 10,247 10,416 5,369 5,454
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trusts holding solely the
junior subordinated
debentures of the
parent company . . . . . . . 600 636 600 600
---------------------------------------------
Total financial
liabilities . . . . . . 63,166 $63,400 61,917 $61,955
------- -------
------- -------
NONFINANCIAL LIABILITIES . . . . 2,239 2,069
SHAREHOLDERS' EQUITY . . . . . . 5,890 5,763
------- -------
Total Liabilities and
Shareholders' Equity. . $71,295 $69,749
------- -------
------- -------
Off-Balance Sheet Financial
Instruments:
Unrecognized gain on interest
rate swaps and options . . . N/A $ 67 N/A $ 25
Unrecognized loss on interest
rate swaps and options . . . N/A -- N/A 3
Loan commitments . . . . . . . N/A -- N/A --
Letters of credit. . . . . . . N/A -- N/A --
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
64 U.S. Bancorp
NOTE Q COMMITMENTS AND CONTINGENT LIABILITIES
Rental expense for operating leases amounted to $114.6 million in 1997, $116.1
million in 1996, and $112.5 million in 1995. 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, 1997:
Capitalized Operating
(In Millions) Leases Leases
- - -------------------------------------------------------------------------------
1998 . . . . . . . . . . . . . . . . . . . . . . . $ 8.7 $ 93.6
1999 . . . . . . . . . . . . . . . . . . . . . . . 8.7 85.4
2000 . . . . . . . . . . . . . . . . . . . . . . . 8.7 77.7
2001 . . . . . . . . . . . . . . . . . . . . . . . 8.6 80.1
2002 . . . . . . . . . . . . . . . . . . . . . . . 6.9 71.6
Thereafter . . . . . . . . . . . . . . . . . . . . 61.7 387.2
-------------------
Total minimum lease payments . . . . . . . . . . . 103.3 $795.6
------
------
Less amount representing interest. . . . . . . . . 48.9
------
Present value of net minimum lease payments. . . . $ 54.4
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
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 R SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET Time certificates of deposit in denominations of
$100,000 or more totaled $3,284 million and $3,402 million at December 31, 1997,
and 1996, respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS Listed below are supplemental disclosures
to the Consolidated Statement of Cash Flows.
Year Ended December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------
Income taxes paid. . . . . . . . . . . .$ 464.3 $ 508.6 $ 444.3
Interest paid. . . . . . . . . . . . . . 2,226.5 2,137.0 2,039.1
Net noncash transfers to foreclosed
property . . . . . . . . . . . . . . . 46.8 97.0 97.7
Change in unrealized gain (loss) on
available-for-sale securities,
net of taxes of $32.9 in 1997,
$16.5 in 1996 and $112.1 in 1995 . . . 54.6 (27.2) 177.0
--------------------------------
--------------------------------
Cash acquisitions of businesses:
Fair value of noncash assets
acquired . . . . . . . . . . . . . .$ 194.6 $ 38.3 $ 120.6
Liabilities assumed. . . . . . . . . . (171.0) -- (7.4)
--------------------------------
Net . . . . . . . . . . . . . . . .$ 23.6 $ 38.3 $ 113.2
--------------------------------
--------------------------------
Stock acquisitions of businesses:
Fair value of noncash assets
acquired . . . . . . . . . . . . . .$ 451.9 $ 5,284.9 $ 746.9
Net cash acquired. . . . . . . . . . . 43.2 245.8 55.4
Liabilities assumed. . . . . . . . . . (407.7) (4,493.9) (696.7)
--------------------------------
Net value of common stock issued. .$ 87.4 $ 1,036.8 $ 105.6
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
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, 1997, for the
Company and its significant bank subsidiaries, see Tables 18 and 19 from which
such information is incorporated by reference into these Notes to Consolidated
Financial Statements.
U.S. Bancorp 65
NOTE S U.S. BANCORP (PARENT COMPANY)
CONDENSED BALANCE SHEET
December 31 (In Millions) 1997 1996
- - -------------------------------------------------------------------------------
ASSETS
Deposits with subsidiary banks, principally
interest-bearing . . . . . . . . . . . . . . . . $ 489 $ 348
Available-for-sale securities. . . . . . . . . . . 180 179
Investments in:
Bank affiliates. . . . . . . . . . . . . . . . . 6,396 6,232
Nonbank affiliates . . . . . . . . . . . . . . . 178 136
Advances to:
Bank affiliates. . . . . . . . . . . . . . . . . 1,293 1,757
Nonbank affiliates . . . . . . . . . . . . . . . 147 122
Other assets . . . . . . . . . . . . . . . . . . . 791 758
-------------------
Total assets. . . . . . . . . . . . . . . . . $9,474 $9,532
-------------------
-------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term funds borrowed. . . . . . . . . . . . . $ -- $ 161
Advances from subsidiaries . . . . . . . . . . . . 19 25
Long-term debt . . . . . . . . . . . . . . . . . . 2,410 2,430
Junior subordinated debentures issued to
subsidiary trusts. . . . . . . . . . . . . . . . 618 618
Other liabilities. . . . . . . . . . . . . . . . . 537 535
Shareholders' equity . . . . . . . . . . . . . . . 5,890 5,763
-------------------
Total liabilities and shareholders' equity. . $9,474 $9,532
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
Year Ended December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------
INCOME
Dividends from subsidiaries (including
$441.2, $1,269.4 and $927.7 from bank
subsidiaries). . . . . . . . . . . . . $488.9 $1,334.0 $ 950.0
Interest from subsidiaries . . . . . . . 139.8 97.6 71.7
Service and management fees from
subsidiaries . . . . . . . . . . . . . 201.7 204.9 232.7
Other income . . . . . . . . . . . . . . 75.7 299.0 30.5
------------------------------
Total income. . . . . . . . . . . . 906.1 1,935.5 1,284.9
EXPENSES
Interest on short-term funds borrowed. . 13.8 17.4 20.0
Interest on long-term debt . . . . . . . 180.0 154.7 132.8
Interest on junior subordinated
debentures issued to subsidiary
trusts . . . . . . . . . . . . . . . . 50.7 2.8 --
Operating expenses paid to
subsidiaries . . . . . . . . . . . . . 3.4 19.2 70.0
Merger, integration, and resizing. . . . 251.5 13.0 45.6
Other expenses . . . . . . . . . . . . . 245.1 246.0 265.0
------------------------------
Total expenses. . . . . . . . . . . 744.5 453.1 533.4
------------------------------
Income before income taxes and equity
in undistributed income of
subsidiaries . . . . . . . . . . . . . 161.6 1,482.4 751.5
Income tax (credit) expense. . . . . . . (65.7) 68.3 (58.5)
------------------------------
Income of parent company . . . . . . . . 227.3 1,414.1 810.0
Equity (deficiency) in undistributed
income of subsidiaries:
Bank affiliates. . . . . . . . . . . . 584.7 (161.4) 75.0
Nonbank affiliates . . . . . . . . . . 26.5 (34.0) 12.1
------------------------------
611.2 (195.4) 87.1
------------------------------
Net income. . . . . . . . . . . . . $838.5 $1,218.7 $ 897.1
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
66 U.S. Bancorp
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31 (In Millions) 1997 1996 1995
- - -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . $ 838.5 $ 1,218.7 $ 897.1
Adjustments to reconcile net income to
net cash provided by operating
activities:
(Equity) deficiency in undistributed
income of subsidiaries . . . . . . . (611.2) 195.4 (87.1)
Gains on available-for-sale
securities . . . . . . . . . . . . . (1.7) (37.5) (.5)
Depreciation and amortization of
bank premises and equipment. . . . . 17.1 19.2 19.1
(Credit) provision for deferred
income taxes . . . . . . . . . . . . (5.3) (5.2) 28.5
Amortization of goodwill and other
intangible assets. . . . . . . . . . 13.5 20.1 16.3
Decrease (increase) in accrued
receivables, net . . . . . . . . . . 4.9 165.9 (81.3)
(Decrease) increase in accrued
liabilities, net . . . . . . . . . . (13.9) 163.6 (89.0)
Other - net. . . . . . . . . . . . . . (73.9) (115.0) 40.8
--------------------------------
Net cash provided by operating
activities. . . . . . . . . . . . 168.0 1,625.2 743.9
INVESTING ACTIVITIES
Securities transactions:
Sales and maturities . . . . . . . . . 142.4 230.8 224.4
Purchases. . . . . . . . . . . . . . . (140.2) (73.9) (282.9)
Investments in subsidiaries. . . . . . . (221.2) (27.9) (142.6)
Equity distributions from subsidiaries . 769.5 304.6 111.5
Net decrease (increase) in short-term
advances to affiliates . . . . . . . . 521.6 (91.9) (65.6)
Long-term advances made to affiliates. . (80.0) (868.5) (259.7)
Principal collected on long-term
advances made to affiliates. . . . . . -- 33.5 25.2
Other - net. . . . . . . . . . . . . . . 30.8 (22.3) 10.1
--------------------------------
Net cash provided (used) by
investing activities. . . . . . . 1,022.9 (515.6) (379.6)
FINANCING ACTIVITIES
Net decrease in short-term advances
from subsidiaries. . . . . . . . . . . (9.9) (17.1) (27.7)
Net (decrease) increase in short-term
funds borrowed . . . . . . . . . . . . (161.3) (67.0) 17.7
Proceeds from long-term debt . . . . . . 307.0 552.5 1,050.5
Principal payments on long-term debt . . (331.6) (299.9) (631.5)
Proceeds from issuances of junior
subordinated debentures to subsidiary
trusts . . . . . . . . . . . . . . . . -- 618.6 --
Redemption of preferred stock. . . . . . (150.0) -- (13.2)
Proceeds from dividend reinvestment,
stock option, and stock purchase
plans. . . . . . . . . . . . . . . . . 183.5 108.6 88.9
Repurchase of common stock . . . . . . . (431.0) (1,490.1) (721.0)
Cash dividends . . . . . . . . . . . . . (456.3) (414.8) (344.5)
--------------------------------
Net cash used by financing
activities. . . . . . . . . . . .(1,049.6) (1,009.2) (580.8)
--------------------------------
Change in cash and cash
equivalents . . . . . . . . . . . 141.3 100.4 (216.5)
Cash and cash equivalents at
beginning of year. . . . . . . . . . . 348.2 247.8 464.3
--------------------------------
Cash and cash equivalents at
end of year . . . . . . . . . . .$ 489.5 $ 348.2 $ 247.8
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
The 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.
NOTE T SUBSEQUENT EVENT
On February 18, 1998, the Company's Board of Directors announced its
intention to declare a three-for-one split of the Company's common stock and
to increase the number of common and preferred shares which the Company has
authority to issue from 500 million shares and 10 million shares,
respectively, to 1.5 billion shares and 50 million shares, respectively. The
increase in the number of authorized shares is subject to shareholder
approval. The stock split would be in the form of a dividend payable May 18,
1998 to shareholders of record on May 4,1998. The impact of the stock split has
not been reflected in the financial statements or any share or per share data.
U.S. Bancorp 67
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 generally accepted accounting principles appropriate
in the circumstances and include amounts that are based on management's best
estimates and judgment. All financial information throughout the annual report
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 generally accepted auditing
standards, 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.
/s/ JOHN F. GRUNDHOFER
JOHN F. GRUNDHOFER
President and Chief Executive Officer
/s/ SUSAN E. LESTER
SUSAN E. LESTER
Executive Vice President and
Chief Financial Officer
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, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
January 15, 1998
68 U.S. Bancorp
CONSOLIDATED BALANCE SHEET -- FIVE-YEAR SUMMARY
% Change
December 31 (Dollars In Millions) 1997 1996 1995 1994 1993 1996-1997
- - ------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks. . . . . . . . . $ 4,739 $ 4,813 $ 4,253 $ 3,828 $ 3,468 (1.5)%
Federal funds sold and resale
agreements . . . . . . . . . . . . . . 692 898 771 1,012 1,634 (22.9)
Trading account securities . . . . . . . 195 231 366 215 264 (15.6)
Held-to-maturity securities. . . . . . . -- 797 865 1,986 2,288 *
Available-for-sale securities:
U.S. Treasury. . . . . . . . . . . . . 628 1,028 1,686 2,106 2,776 (38.9)
Mortgage-backed. . . . . . . . . . . . 4,366 4,104 3,218 4,051 3,717 6.4
State and political. . . . . . . . . . 1,331 573 271 181 196 *
U.S. agencies and other. . . . . . . . 560 768 1,248 1,267 1,057 (27.1)
-----------------------------------------------------------
Total securities. . . . . . . . . . 6,885 6,473 6,423 7,605 7,746 6.4
Loans. . . . . . . . . . . . . . . . . . 54,708 52,355 49,345 46,375 43,870 4.5
Less allowance for credit losses . . . 1,009 993 908 863 811 1.6
-----------------------------------------------------------
Net loans . . . . . . . . . . . . . 53,699 51,362 48,437 45,512 43,059 4.6
Other assets . . . . . . . . . . . . . . 5,085 5,175 4,553 4,579 3,998 (1.7)
-----------------------------------------------------------
Total assets. . . . . . . . . . . . $71,295 $69,749 $65,668 $64,737 $62,457 2.2%
-----------------------------------------------------------
-----------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing. . . . . . . . . . $14,544 $14,344 $12,367 $11,353 $12,913 1.4%
Interest-bearing . . . . . . . . . . . 34,483 35,012 33,412 34,762 34,921 (1.5)
-----------------------------------------------------------
Total deposits. . . . . . . . . . . 49,027 49,356 45,779 46,115 47,834 (.7)
Short-term borrowings. . . . . . . . . . 3,292 6,592 7,984 7,501 4,638 (50.1)
Long-term debt . . . . . . . . . . . . . 10,247 5,369 4,583 4,225 3,231 90.9
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . 600 600 -- -- -- --
Other liabilities. . . . . . . . . . . . 2,239 2,069 1,980 1,791 1,568 8.2
-----------------------------------------------------------
Total liabilities . . . . . . . . . 65,405 63,986 60,326 59,632 57,271 2.2
Shareholders' equity . . . . . . . . . . 5,890 5,763 5,342 5,105 5,186 2.2
-----------------------------------------------------------
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . $71,295 $69,749 $65,668 $64,737 $62,457 2.2%
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
*NOT MEANINGFUL
U.S. Bancorp 69
CONSOLIDATED STATEMENT OF INCOME -- FIVE-YEAR SUMMARY
Year Ended December 31 (Dollars % Change
in Millions) 1997 1996 1995 1994 1993 1996-1997
- - ------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans. . . . . . . . . . . . . . . . . . $4,784.5 $4,537.7 $4,373.4 $3,686.6 $3,361.7 5.4%
Securities:
Taxable. . . . . . . . . . . . . . . . 371.5 420.5 420.3 535.1 596.3 (11.7)
Exempt from federal income taxes . . . 68.1 71.0 59.8 62.8 59.7 (4.1)
Other interest income. . . . . . . . . . 69.5 85.2 67.3 63.5 63.9 (18.4)
-----------------------------------------------------------
Total interest income. . . . . . . . . 5,293.6 5,114.4 4,920.8 4,348.0 4,081.6 3.5
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . 1,436.8 1,441.3 1,416.7 1,121.1 1,174.1 (.3)
Federal funds purchased and repurchase
agreements . . . . . . . . . . . . . . 183.0 197.9 218.2 190.8 83.1 (7.5)
Other short-term funds borrowed. . . . . 117.6 198.0 189.8 68.3 53.0 (40.6)
Long-term debt . . . . . . . . . . . . . 459.0 303.8 273.4 227.2 184.3 51.1
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . 49.1 2.8 -- -- -- *
-----------------------------------------------------------
Total interest expense. . . . . . . 2,245.5 2,143.8 2,098.1 1,607.4 1,494.5 4.7
-----------------------------------------------------------
Net interest income. . . . . . . . . . . 3,048.1 2,970.6 2,822.7 2,740.6 2,587.1 2.6
Provision for credit losses . . . . . . 460.3 271.2 239.1 243.7 239.3 69.7
-----------------------------------------------------------
Net interest income after provision
for credit losses. . . . . . . . . . . 2,587.8 2,699.4 2,583.6 2,496.9 2,347.8 (4.1)
NONINTEREST INCOME
Credit card fee revenue. . . . . . . . . 418.8 351.5 303.9 248.9 204.7 19.1
Service charges on deposit accounts. . . 396.2 377.2 345.0 346.7 320.7 5.0
Trust and investment management fees . . 348.0 302.3 241.1 224.5 208.4 15.1
Gain on sale of mortgage banking operations,
branches and other assets. . . . . . . 9.4 71.4 39.9 62.9 65.1 (86.8)
Securities gains (losses). . . . . . . . 3.6 20.8 3.0 (124.2) .8 (82.7)
Termination fee. . . . . . . . . . . . . -- 190.0 -- -- -- *
State income tax refund. . . . . . . . . -- 65.0 -- -- -- *
Other. . . . . . . . . . . . . . . . . . 439.2 404.9 380.4 356.1 444.1 8.5
-----------------------------------------------------------
Total noninterest income . . . . . . . 1,615.2 1,783.1 1,313.3 1,114.9 1,243.8 (9.4)
NONINTEREST EXPENSE
Salaries . . . . . . . . . . . . . . . . 969.3 964.5 927.5 974.9 971.9 .5
Employee benefits. . . . . . . . . . . . 217.4 220.3 209.9 224.4 216.2 (1.3)
Net occupancy. . . . . . . . . . . . . . 182.0 179.4 183.4 190.7 194.3 1.4
Furniture and equipment. . . . . . . . . 165.4 175.2 184.5 184.4 171.2 (5.6)
Goodwill and other intangible assets . . 113.3 130.1 76.0 72.5 68.4 (12.9)
Professional services. . . . . . . . . . 70.3 58.0 59.2 65.9 70.1 21.2
Other personnel costs. . . . . . . . . . 66.6 83.4 62.4 60.8 57.2 (20.1)
FDIC insurance . . . . . . . . . . . . . 9.0 11.9 64.5 105.7 105.5 (24.4)
Merger, integration, and resizing. . . . 511.6 88.1 98.9 222.7 72.2 *
SAIF special assessment. . . . . . . . . -- 61.3 -- -- -- *
Other. . . . . . . . . . . . . . . . . . 507.4 565.9 609.6 630.1 587.9 (10.3)
-----------------------------------------------------------
Total noninterest expense. . . . . . . 2,812.3 2,538.1 2,475.9 2,732.1 2,514.9 10.8
-----------------------------------------------------------
Income from continuing operations before
income taxes . . . . . . . . . . . . . 1,390.7 1,944.4 1,421.0 879.7 1,076.7 (28.5)
Applicable income taxes. . . . . . . . . 552.2 725.7 523.9 311.5 374.9 (23.9)
-----------------------------------------------------------
Income from continuing operations. . . . 838.5 1,218.7 897.1 568.2 701.8 (31.2)
Income (loss) from discontinued
operations . . . . . . . . . . . . . . -- -- -- (8.5) 2.5 *
-----------------------------------------------------------
Net income . . . . . . . . . . . . . . . $ 838.5 $1,218.7 $ 897.1 $ 559.7 $ 704.3 (31.2)%
-----------------------------------------------------------
-----------------------------------------------------------
Net income applicable to common equity . $ 827.9 $1,200.3 $ 877.4 $ 534.9 $ 662.9 (31.0)%
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
*NOT MEANINGFUL
70 U.S. Bancorp
QUARTERLY CONSOLIDATED FINANCIAL DATA
1997 1996
-----------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
(Dollars in Millions, Except Per Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Share Data)
- - ---------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans . . . . . . . . . . . . . $1,222.6 $1,211.1 $1,197.6 $1,153.2 $1,167.4 $1,149.3 $1,120.7 $1,100.3
Securities:
Taxable. . . . . . . . . . . . 90.5 89.0 95.4 96.6 101.1 104.5 105.8 109.1
Exempt from federal income
taxes. . . . . . . . . . . . 16.6 16.8 17.4 17.3 17.5 18.0 19.0 16.5
Other interest income. . . . . . 18.8 15.2 18.4 17.1 17.2 22.6 22.3 23.1
-----------------------------------------------------------------------------------------------
Total interest income. . . . . 1,348.5 1,332.1 1,328.8 1,284.2 1,303.2 1,294.4 1,267.8 1,249.0
INTEREST EXPENSE
Deposits . . . . . . . . . . . . 359.1 362.3 363.6 351.8 362.6 363.6 358.3 356.8
Federal funds purchased and
repurchase agreements. . . . . 42.4 41.9 50.8 47.9 47.7 51.2 47.0 52.0
Other short-term funds borrowed. 19.4 28.2 33.1 36.9 48.8 48.2 49.6 51.4
Long-term debt . . . . . . . . . 144.4 122.1 104.2 88.3 79.1 77.5 74.0 73.2
Company-obligated mandatority
redeemable preferred securities
of subsidiary trusts holding
solely the junior subordinated
debentures of the parent
company. . . . . . . . . . . . 12.2 12.3 12.3 12.3 2.8 -- -- --
-----------------------------------------------------------------------------------------------
Total interest expense. . . 577.5 566.8 564.0 537.2 541.0 540.5 528.9 533.4
-----------------------------------------------------------------------------------------------
Net interest income. . . . . . . 771.0 765.3 764.8 747.0 762.2 753.9 738.9 715.6
Provision for credit losses . . 90.0 185.0 101.1 84.2 75.5 73.1 61.5 61.1
-----------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses. . 681.0 580.3 663.7 662.8 686.7 680.8 677.4 654.5
NONINTEREST INCOME
Credit card fee revenue. . . . . 123.1 106.2 98.8 90.7 91.3 90.1 88.7 81.4
Service charges on deposit
accounts . . . . . . . . . . . 101.2 102.2 97.4 95.4 97.4 96.4 92.9 90.5
Trust and investment management
fees . . . . . . . . . . . . . 88.8 87.4 87.2 84.6 77.3 74.2 77.4 73.4
Gain on sale of mortgage banking
operations, branches and
other assets . . . . . . . . . -- 9.4 -- -- -- -- 25.7 45.7
Securities gains . . . . . . . . -- -- 1.9 1.7 .5 .9 1.4 18.0
Termination fee. . . . . . . . . -- -- -- -- -- -- 75.0 115.0
State income tax refund. . . . . -- -- -- -- -- -- 65.0 --
Other . . . . . . . . . . . . . 107.4 104.5 122.2 105.1 94.3 99.5 103.8 107.3
-----------------------------------------------------------------------------------------------
Total noninterest income . . . 420.5 409.7 407.5 377.5 360.8 361.1 529.9 531.3
NONINTEREST EXPENSE
Salaries . . . . . . . . . . . . 239.6 242.2 246.9 240.6 240.0 238.1 243.7 242.7
Employee benefits. . . . . . . . 49.9 49.2 57.2 61.1 52.2 52.2 56.0 59.9
Net occupancy. . . . . . . . . . 45.7 45.3 45.2 45.8 45.5 44.6 43.0 46.3
Furniture and equipment. . . . . 38.0 40.4 44.2 42.8 43.8 42.1 44.5 44.8
Goodwill and other intangible
assets . . . . . . . . . . . . 31.0 29.1 25.8 27.4 27.4 27.1 24.6 51.0
Professional services. . . . . . 22.8 18.9 15.1 13.5 17.4 13.5 14.9 12.2
Other personnel costs. . . . . . 19.5 14.3 16.4 16.4 22.3 23.8 21.1 16.2
FDIC insurance . . . . . . . . . 2.1 2.4 2.4 2.1 .5 2.5 4.5 4.4
Merger, integration, and
resizing . . . . . . . . . . . 71.4 440.2 -- -- -- -- 9.8 78.3
SAIF special assessment. . . . . -- -- -- -- -- 61.3 -- --
Other . . . . . . . . . . . . . 124.2 121.1 136.3 125.8 137.8 137.1 141.2 149.8
-----------------------------------------------------------------------------------------------
Total noninterest expense. . . 644.2 1,003.1 589.5 575.5 586.9 642.3 603.3 705.6
-----------------------------------------------------------------------------------------------
Income before income taxes . . . 457.3 (13.1) 481.7 464.8 460.6 399.6 604.0 480.2
Applicable income taxes. . . . . 168.4 34.5 177.8 171.5 168.5 143.9 222.8 190.5
-----------------------------------------------------------------------------------------------
Net income (loss). . . . . . . . $ 288.9 $ (47.6) $ 303.9 $ 293.3 $ 292.1 $ 255.7 $ 381.2 $ 289.7
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net income (loss) applicable to
common equity. . . . . . . . . $ 287.5 $ (50.7) $ 300.8 $ 290.3 $ 287.7 $ 251.1 $ 376.5 $ 285.0
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Net income (loss) per common
share. . . . . . . . . . . . . $ 1.17 $ (.21) $ 1.23 $ 1.18 $ 1.17 $ 1.00 $ 1.49 $ 1.15
Diluted net income (loss) per
common share . . . . . . . . . $ 1.16 $ (.21) $ 1.22 $ 1.17 $ 1.15 $ .98 $ 1.46 $ 1.13
SELECTED AVERAGE BALANCES
Loans . . . . . . . . . . . . . $ 54,386 $ 53,690 $53,515 $52,438 $52,108 $51,240 $50,605 $49,450
Earning assets . . . . . . . . . 62,365 61,541 61,859 60,886 60,854 60,639 60,148 59,147
Total assets . . . . . . . . . . 69,861 68,423 68,877 67,890 68,132 67,871 67,420 66,168
Deposits . . . . . . . . . . . . 47,468 47,035 47,688 47,160 47,784 47,573 47,444 46,197
Long-term debt . . . . . . . . . 9,534 8,008 6,768 5,751 5,119 5,020 4,847 4,629
Common equity. . . . . . . . . . 5,698 5,736 5,616 5,615 5,692 5,789 5,706 5,533
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
U.S. Bancorp 71
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
Year ended December 31 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------------
Interest Yields Interest Yields
(Dollars In Millions) Balance Interest and Rates Balance Interest and Rates
- - -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Available-for-sale securities:
U.S. Treasury. . . . . . . . . . . . . $ 734 $ 42.7 5.82% $1,255 $ 74.3 5.92%
Mortgage-backed. . . . . . . . . . . . 4,239 290.5 6.85 4,158 279.7 6.73
State and political subdivisions . . . 889 69.8 7.85 555 47.0 8.47
U.S. agencies and other. . . . . . . . 595 36.1 6.07 978 65.7 6.72
---------------------- --------------------
Total available-for-sale
securities. . . . . . . . . . . . 6,457 439.1 6.80 6,946 466.7 6.72
Unrealized gain (loss) on
available-for-sale securities. . . . . 3 (21)
---------- -------
Net available-for-sale securities . 6,460 6,925
Held-to-maturity securities. . . . . . . 449 35.5 7.91 834 64.0 7.67
Trading account securities . . . . . . . 168 9.7 5.77 233 13.2 5.67
Federal funds sold and resale
agreements . . . . . . . . . . . . . . 577 31.6 5.48 872 46.5 5.33
Loans:
Commercial:
Commercial. . . . . . . . . . . . . 22,466 1,829.8 8.14 20,910 1,708.0 8.17
Real estate:
Commercial mortgage . . . . . . . 8,037 728.5 9.06 7,630 687.5 9.01
Construction. . . . . . . . . . . 2,255 216.9 9.62 1,707 165.4 9.69
---------------------- --------------------
Total commercial. . . . . . . . . 32,758 2,775.2 8.47 30,247 2,560.9 8.47
Consumer:
Residential mortgage. . . . . . . . 4,879 389.7 7.99 5,495 444.2 8.08
Residential mortgage held for
sale. . . . . . . . . . . . . . . 165 12.4 7.52 239 16.8 7.03
Home equity and second mortgage . . 5,115 493.8 9.65 4,385 416.1 9.49
Credit card . . . . . . . . . . . . 3,702 462.9 12.50 3,452 444.0 12.86
Other . . . . . . . . . . . . . . . 6,894 673.2 9.77 7,037 680.6 9.67
---------------------- --------------------
Total consumer. . . . . . . . . . 20,755 2,032.0 9.79 20,608 2001.7 9.71
---------------------- --------------------
Total loans . . . . . . . . . . . 53,513 4,807.2 8.98 50,855 4,562.6 8.97
Allowance for credit losses. . . . . . 998 973
---------- -------
Net loans . . . . . . . . . . . . . 52,515 49,882
Other earning assets . . . . . . . . . . 511 28.4 5.56 461 25.5 5.53
---------------------- --------------------
Total earning assets* . . . . . . 61,675 5,351.5 8.68 60,201 5,178.5 8.60
Cash and due from banks. . . . . . . . . 3,682 3,729
Other assets . . . . . . . . . . . . . . 4,409 4,466
---------- -------
Total assets. . . . . . . . . . . $68,771 $67,402
---------- -------
---------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits . . . . . . $12,680 $11,970
Interest-bearing deposits:
Interest checking . . . . . . . . . 5,561 92.2 1.66 5,678 90.1 1.59
Money market accounts . . . . . . . 10,440 401.9 3.85 10,068 379.4 3.77
Other savings accounts. . . . . . . 2,799 61.2 2.19 3,157 70.7 2.24
Savings certificates. . . . . . . . 12,278 668.9 5.45 12,985 703.2 5.42
Certificates over $100,000. . . . . 3,578 212.6 5.94 3,394 197.9 5.83
---------------------- --------------------
Total interest-bearing deposits . 34,656 1,436.8 4.15 35,282 1,441.3 4.09
Short-term borrowings. . . . . . . . . . 5,314 300.6 5.66 7,187 395.9 5.51
Long-term debt . . . . . . . . . . . . . 7,527 459.0 6.10 4,908 303.8 6.19
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . 600 49.1 8.18 36 2.8 8.18
---------------------- --------------------
Total interest-bearing
liabilities . . . . . . . . . . 48,097 2,245.5 4.67 47,413 2,143.8 4.52
Other liabilities. . . . . . . . . . . . 2,196 2,100
Preferred equity . . . . . . . . . . . . 131 240
Common equity. . . . . . . . . . . . . . 5,665 5,693
Unrealized gain (loss) on
available-for-sale securities,
net of tax . . . . . . . . . . . . . . 2 (14)
---------- -------
Total liabilities and
shareholders' equity. . . . . . $68,771 $67,402
---------- -------
---------- -------
Net interest income. . . . . . . . . . . $3,106.0 $3,034.7
---------- ----------
---------- ----------
Gross interest margin. . . . . . . . . . 4.01% 4.08%
-------- --------
-------- --------
Gross interest margin without
taxable-equivalent increments. . . . . 3.91% 3.98%
-------- --------
-------- --------
PERCENT OF EARNING ASSETS
Interest income. . . . . . . . . . . . . 8.68% 8.60%
Interest expense . . . . . . . . . . . . 3.64 3.56
-------- --------
Net interest margin . . . . . . . . 5.04 5.04
-------- --------
Net interest margin without
taxable-equivalent increments. . . . . 4.94% 4.93%
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
INTEREST AND RATES ARE PRESENTED ON A FULLY TAXABLE-EQUIVALENT BASIS UNDER A TAX RATE OF 35 PERCENT.
INTEREST INCOME AND RATES ON LOANS INCLUDE LOAN FEES. NONACCRUAL LOANS ARE INCLUDED IN AVERAGE LOAN BALANCES.
*BEFORE DEDUCTING THE ALLOWANCE FOR CREDIT LOSSES AND EXCLUDING THE UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES.
**NOT MEANINGFUL
***DETAIL NOT AVAILABLE
72 U.S. Bancorp
YIELDS AND RATES
Year ended December 31 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------
Interest Yields Interest Yields
(Dollars In Millions) Balance Interest and Rates Balance Interest and Rates
- - -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Available-for-sale securities:
U.S. Treasury. . . . . . . . . . . . . $ 1,864 $ 109.0 5.85% $ 2,704 $ 142.6 5.27%
Mortgage-backed. . . . . . . . . . . . 2,711 171.0 6.31 4,085 253.8 6.21
State and political subdivisions . . . 177 18.9 10.68 188 20.0 10.64
U.S. agencies and other. . . . . . . . 1,125 82.5 7.33 1,179 65.0 5.51
---------------------- --------------------
Total available-for-sale
securities. . . . . . . . . . . . 5,877 381.4 6.49 8,156 481.4 5.90
Unrealized gain (loss) on
available-for-sale securities. . . . . (69) (97)
---------- -------
Net available-for-sale securities . 5,808 8,059
Held-to-maturity securities. . . . . . . 1,833 131.7 7.18 2,162 151.1 6.99
Trading account securities . . . . . . . 266 15.8 5.94 247 13.3 5.38
Federal funds sold and resale
agreements . . . . . . . . . . . . . . 531 30.8 5.80 715 30.7 4.29
Loans:
Commercial:
Commercial. . . . . . . . . . . . . *** *** *** ***
Real estate:
Commercial mortgage . . . . . . . *** *** *** ***
Construction. . . . . . . . . . . *** *** *** ***
---------------------- --------------------
Total commercial. . . . . . . . . 27,048 2,415.2 8.93 24,630 1,934.6 7.85
Consumer:
Residential mortgage. . . . . . . . *** *** *** ***
Residential mortgage held for
sale. . . . . . . . . . . . . . . *** *** *** ***
Home equity and second mortgage . . *** *** *** ***
Credit card . . . . . . . . . . . . *** *** *** ***
Other . . . . . . . . . . . . . . . *** *** *** ***
---------------------- --------------------
Total consumer. . . . . . . . . . 20,655 1,989.2 9.63 19,954 1,785.9 8.95
---------------------- --------------------
Total loans . . . . . . . . . . . 47,703 4,404.4 9.23 44,584 3,720.5 8.34
Allowance for credit losses. . . . . . 869 847
---------- -------
Net loans . . . . . . . . . . . . . 46,834 43,737
Other earning assets . . . . . . . . . . 346 20.6 5.95 369 20.0 5.42
---------------------- --------------------
Total earning assets* . . . . . . 56,556 4,984.7 8.81 56,233 4,417.0 7.85
Cash and due from banks. . . . . . . . . 3,516 3,573
Other assets . . . . . . . . . . . . . . 3,950 3,846
---------- -------
Total assets. . . . . . . . . . . $63,084 $62,708
---------- -------
---------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits . . . . . . $10,646 $11,299
Interest-bearing deposits:
Interest checking . . . . . . . . . 5,473 88.2 1.61 5,826 85.4 1.47
Money market accounts . . . . . . . 8,952 357.5 3.99 8,600 247.1 2.87
Other savings accounts. . . . . . . 3,566 87.8 2.46 4,540 100.8 2.22
Savings certificates. . . . . . . . 13,223 704.2 5.33 13,200 551.4 4.18
Certificates over $100,000. . . . . 2,866 179.0 6.25 2,681 136.4 5.09
---------------------- --------------------
Total interest-bearing deposits . 34,080 1,416.7 4.16 34,847 1,121.1 3.22
Short-term borrowings. . . . . . . . . . 6,969 408.0 5.85 6,011 259.1 4.31
Long-term debt . . . . . . . . . . . . . 4,162 273.4 6.57 3,796 227.2 5.99
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . -- -- -- -- -- --
---------------------- --------------------
Total interest-bearing
liabilities . . . . . . . . . . 45,211 2,098.1 4.64 44,654 1,607.4 3.60
Other liabilities. . . . . . . . . . . . 1,882 1,575
Preferred equity . . . . . . . . . . . . 255 293
Common equity. . . . . . . . . . . . . . 5,134 4,948
Unrealized gain (loss) on
available-for-sale securities,
net of tax . . . . . . . . . . . . . . (44) (61)
---------- -------
Total liabilities and
shareholders' equity. . . . . . $63,084 $62,708
---------- -------
---------- -------
Net interest income. . . . . . . . . . . $2,886.6 $2,809.6
---------- ----------
---------- ----------
Gross interest margin. . . . . . . . . . 4.17% 4.25%
-------- --------
-------- --------
Gross interest margin without
taxable-equivalent increments. . . . . 4.06% 4.13%
-------- --------
-------- --------
PERCENT OF EARNING ASSETS
Interest income. . . . . . . . . . . . . 8.81% 7.85%
Interest expense . . . . . . . . . . . . 3.71 2.86
-------- --------
Net interest margin . . . . . . . . 5.10 4.99
-------- --------
Net interest margin without
taxable-equivalent increments. . . . . 4.99% 4.87%
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
INTEREST AND RATES ARE PRESENTED ON A FULLY TAXABLE-EQUIVALENT BASIS UNDER A TAX RATE OF 35 PERCENT.
INTEREST INCOME AND RATES ON LOANS INCLUDE LOAN FEES. NONACCRUAL LOANS ARE INCLUDED IN AVERAGE LOAN BALANCES.
*BEFORE DEDUCTING THE ALLOWANCE FOR CREDIT LOSSES AND EXCLUDING THE UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES.
**NOT MEANINGFUL
***DETAIL NOT AVAILABLE
U.S. Bancorp 73
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
Year ended December 31 1993 1996-1997
- - -----------------------------------------------------------------------------------------------------------------------------
Interest Yields % Change
(Dollars In Millions) Balance Interest and Rates Average Balance
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Available-for-sale securities:
U.S. Treasury. . . . . . . . . . . . . $ 1,866 $ 104.8 5.62% (41.5)%
Mortgage-backed. . . . . . . . . . . . 3,323 207.8 6.25 1.9
State and political subdivisions . . . 202 22.4 11.09 60.2
U.S. agencies and other. . . . . . . . 865 52.2 6.03 (39.2)
----------------------
Total available-for-sale
securities. . . . . . . . . . . . 6,256 387.2 6.19 (7.0)
Unrealized gain (loss) on
available-for-sale securities. . . . . -- **
----------
Net available-for-sale securities . 6,256 (6.7)
Held-to-maturity securities. . . . . . . 4,603 299.8 6.51 (46.2)
Trading account securities . . . . . . . 313 14.7 4.70 (27.9)
Federal funds sold and resale
agreements . . . . . . . . . . . . . . 1,081 32.7 3.02 (33.8)
Loans:
Commercial:
Commercial. . . . . . . . . . . . . *** *** 7.4
Real estate:
Commercial mortgage . . . . . . . *** *** 5.3
Construction. . . . . . . . . . . *** *** 32.1
----------------------
Total commercial. . . . . . . . . 22,652 1,690.9 7.46 8.3
Consumer:
Residential mortgage. . . . . . . . *** *** (11.2)
Residential mortgage held for
sale. . . . . . . . . . . . . . . *** *** (31.0)
Home equity and second mortgage . . *** *** 16.6
Credit card . . . . . . . . . . . . *** *** 7.2
Other . . . . . . . . . . . . . . . *** *** (2.0)
----------------------
Total consumer. . . . . . . . . . 18,440 1,707.4 9.26 .7
Total loans . . . . . . . . . . . 41,092 3,398.3 8.27 5.2
Allowance for credit losses. . . . . . 823 2.6
----------
Net loans . . . . . . . . . . . . . 40,269 5.3
Other earning assets . . . . . . . . . . 381 20.0 5.25 10.8
----------------------
Total earning assets* . . . . . . 53,726 4,152.7 7.73 2.4
Cash and due from banks. . . . . . . . . 3,484 (1.3)
Other assets . . . . . . . . . . . . . . 3,800 (1.3)
----------
Total assets. . . . . . . . . . . $60,187 2.0%
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits . . . . . . $11,295 5.9%
Interest-bearing deposits:
Interest checking . . . . . . . . . 5,605 93.4 1.67 (2.1)
Money market accounts . . . . . . . 8,362 220.9 2.64 3.7
Other savings accounts. . . . . . . 4,323 102.9 2.38 (11.3)
Savings certificates. . . . . . . . 14,300 621.6 4.35 (5.4)
Certificates over $100,000. . . . . 2,731 135.3 4.95 5.4
----------------------
Total interest-bearing deposits . 35,321 1,174.1 3.32 (1.8)
Short-term borrowings. . . . . . . . . . 4,110 136.1 3.31 (26.1)
Long-term debt . . . . . . . . . . . . . 2,916 184.3 6.32 53.4
Company-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the junior
subordinated debentures of the
parent company . . . . . . . . . . . . -- -- -- **
----------------------
Total interest-bearing
liabilities . . . . . . . . . . 42.347 1,494.5 3.53 1.4
Other liabilities. . . . . . . . . . . . 1,533 4.6
Preferred equity . . . . . . . . . . . . 510 (45.4)
Common equity. . . . . . . . . . . . . . 4,502 (.5)
Unrealized gain (loss) on
available-for-sale securities,
net of tax . . . . . . . . . . . . . . -- **
----------
Total liabilities and
shareholders' equity. . . . . . $60,187 2.0%
----------
---------- ------
Net interest income. . . . . . . . . . . $2,658.2
----------
----------
Gross interest margin. . . . . . . . . . 4.20%
--------
--------
Gross interest margin without
taxable-equivalent increments. . . . . 4.07%
--------
--------
PERCENT OF EARNING ASSETS
Interest income. . . . . . . . . . . . . 7.73%
Interest expense . . . . . . . . . . . . 2.78
--------
Net interest margin . . . . . . . . 4.95
--------
Net interest margin without
taxable-equivalent increments. . . . . 4.82%
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
INTEREST AND RATES ARE PRESENTED ON A FULLY TAXABLE-EQUIVALENT BASIS UNDER A TAX RATE OF 35 PERCENT.
INTEREST INCOME AND RATES ON LOANS INCLUDE LOAN FEES. NONACCRUAL LOANS ARE INCLUDED IN AVERAGE LOAN BALANCES.
*BEFORE DEDUCTING THE ALLOWANCE FOR CREDIT LOSSES AND EXCLUDING THE UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES.
**NOT MEANINGFUL
***DETAIL NOT AVAILABLE
U.S. Bancorp 73
SUPPLEMENTAL FINANCIAL DATA
EARNINGS PER SHARE SUMMARY
1997 1996 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------
Earnings per share from
continuing operations. . . . $3.39 $4.81 $3.56 $2.19 $2.71
Income (loss) from
discontinued operations. . . -- -- -- (.03) .01
Earnings per share . . . . . . $3.39 $4.81 $3.56 $2.16 $2.72
Diluted earnings per share
from continuing operations . $3.34 $4.72 $3.48 $2.14 $2.64
Income (loss) from
discontinued operations. . . -- -- -- (.03) .01
Diluted earnings per share . . $3.34 $4.72 $3.48 $2.11 $2.65
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
RATIOS
1997 1996 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------
Return on average assets . . . 1.22% 1.81% 1.42% .89% 1.17%
Return on average common
equity . . . . . . . . . . . 14.6 21.1 17.2 10.9 14.7
Average total equity to
average assets . . . . . . . 8.4 8.8 8.5 8.3 8.3
Dividends per share to net
income per share . . . . . . 54.9 34.3 40.7 53.7 36.8
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
OTHER STATISTICS
1997 1996 1995 1994 1993
- - ------------------------------------------------------------------------------------------------------
Common shares outstanding -
year end*. . . . . . . . . . 246,644,338 246,005,990 241,031,881 248,686,447 244,023,773
Average common shares
outstanding and common
stock equivalents:
Earnings per share . . . . . 244,516,964 249,726,158 246,217,723 248,052,659 244,133,540
Diluted earnings per
share. . . . . . . . . . . 247,637,912 255,390,668 254,887,049 258,269,631 254,007,511
Number of shareholders -
year-end** . . . . . . . . . 41,657 43,353 41,701 47,911 48,585
Average number of employees
(full-time equivalents). . . 25,858 27,157 27,795 31,185 31,674
Common dividends paid
(millions) . . . . . . . . . $445.7 $406.9 $327.4 $276.5 $222.7
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
* 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
1997 1996
-----------------------------------------------------------------------------------
Sales Price Dividends Sales Price Dividends
----------------------- -----------------------
High Low Paid High Low Paid
- - ----------------------------------------------------------------------------------------------------------------------
First quarter. . . . . . . . . $ 84.50 $ 67.50 $.4650 $59.88 $46.00 $.4125
Second quarter . . . . . . . . 87.50 71.00 .4650 63.75 56.25 .4125
Third quarter. . . . . . . . . 97.50 85.56 .4650 68.00 55.38 .4125
Fourth quarter . . . . . . . . 116.63 92.25 .4650 74.00 63.75 .4125
Closing price - December 31. . 111.94 68.25
- - ----------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------
THE COMMON STOCK OF U.S. BANCORP IS TRADED ON THE NEW YORK STOCK EXCHANGE, UNDER
THE TICKER SYMBOL, "USB."
74 U.S. Bancorp
COMMERCIAL LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
December 31, 1997
------------------------------------------
In 1 Year After 1 Year
(In Millions) or Less Through 5 Years After 5 Years
- - ---------------------------------------------------------------------------
Commercial, lease financing and
agricultural . . . . . . . . . $18,402 $4,097 $ 900
Real estate:
Commercial mortgage. . . . . . 4,172 2,219 1,634
Construction . . . . . . . . . 2,254 91 14
Total . . . . . . . . . . . $24,828 $6,407 $ 2,548
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
Due in Due After
One Year One Year Total
------------------------------------------
Loans at fixed interest rates. . $ 2,706 $6,764 $ 9,470
Loans at variable interest
rates. . . . . . . . . . . . . 22,122 2,191 24,313
Total . . . . . . . . . . . $24,828 $8,955 $33,783
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
TIME CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS IN DENOMINATIONS OF
$100,000 OR MORE AT DECEMBER 31
Maturing
---------------------------------------------------
Under Three Six to Over
Three to Six Twelve Twelve
(In Millions) Months Months Months Months Total
- - ---------------------------------------------------------------------------
1997 . . . . . . . . $1,077 $762 $508 $937 $3,284
1996 . . . . . . . . 1,749 573 483 597 3,402
1995 . . . . . . . . 1,226 377 432 597 2,632
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
SHORT-TERM FUNDS BORROWED
Average Maximum Average Weighted
Daily Outstanding Interest Rate Average
Outstanding Amount Month-End Paid During Interest Rate
(In Millions) at Year-End Outstanding Balance the Year at Year-End
- - -----------------------------------------------------------------------------------------------
1997
Federal funds purchased
and securities sold
under agreements to
repurchase. . . . . . . $2,318 $3,242 $4,188 5.64% 5.23%
Other. . . . . . . . . . 974 2,072 3,082 5.68 5.33
-------------------------
Total. . . . . . . . . . $3,292 $5,314 6,879 5.66 5.26
-------------------------
-------------------------
1996
Federal funds purchased
and securities sold
under agreements to
repurchase . . . . . . $3,401 $3,719 $4,114 5.32% 5.34%
Other. . . . . . . . . . 3,191 3,468 4,330 5.71 5.53
-------------------------
Total. . . . . . . . . . $6,592 $7,187 7,797 5.51 5.43
-------------------------
-------------------------
1995
Federal funds purchased
and securities sold
under agreements to
repurchase . . . . . . $3,914 $3,795 $4,649 5.75% 5.25%
Other. . . . . . . . . . 4,070 3,174 4,658 5.98 5.61
-------------------------
Total. . . . . . . . . . $7,984 $6,969 8,037 5.85 5.43
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
U.S. Bancorp 75
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, 1997.
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 $1.25.
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Shares of Common Stock.
As of January 31, 1998, U.S. Bancorp had 246,936,015 shares of common
stock outstanding. The aggregate market value of common stock held by
non-affiliates as of January 31, 1998, was approximately $25,838,000,000.
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.
This Annual Report and Form 10-K incorporates into a single document the
requirements of the accounting profession and the Securities and Exchange
Commission. Only those sections of the Annual Report referenced in the
following cross-reference index and the information under the caption
"Forward-Looking Statements" are incorporated in the Form 10-K.
Cross-Reference Page
- - ------------------------------------------------------
PART I
ITEM 1 Business
General. . . . . . . . . . . . . . . . . . 77
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates
and Interest Differential. . . 22-23, 72-73
Investment Portfolio . . . . . .28-29, 49, 69
Loan Portfolio . .26-28, 30-34, 45-46, 50, 75
Summary of Loan Loss Experience.23, 30-34, 50
Deposits . . . . . . . . . . . .29, 72-73, 75
Return on Equity and Assets. . . . . . . . 74
Short-Term Borrowings. . . . . . . . . . . 75
ITEM 2 Properties . . . . . . . . . . . . . . . . 77
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. . . . . . . . . . . .37-38, 67, 76
ITEM 6 Selected Financial Data. . . . . . . . . . 19
ITEM 7 Management's Discussion and
Analysis of Financial Condition and
Results of Operations. . . . . . . . .18-40
ITEM 7A Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . .34-36
ITEM 8 Financial Statements and
Supplementary Data . . . . . . . . . 71, 78
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. . . . . . . . . . .80-81*
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. . . . . . . .78-79
*U.S. BANCORP'S DEFINITIVE PROXY STATEMENT FOR THE 1998 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."
76 U.S. Bancorp
GENERAL U.S. Bancorp, formerly known as First Bank System, Inc. (the "Company"),
is the organization created by the acquisition by First Bank System, Inc. of
U.S. Bancorp of Portland, Oregon. The Company is a regional, multi-state bank
holding company headquartered in Minneapolis, Minnesota. The Company was
incorporated in Delaware in 1929 and owns 100 percent of the capital stock of
each of eight banks, and eleven trust companies, having 1,009 banking offices in
Minnesota, Oregon, Washington, Colorado, California, Idaho, Nebraska, North
Dakota, Nevada, South Dakota, Montana, Iowa, Illinois, Utah, Wisconsin, Kansas,
and Wyoming. 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 $48.1
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, employment during 1997 averaged a total of
25,858 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 5 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 5
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. Effective June 1, 1997, the
Interstate Act authorized interstate branching by acquisition and
consolidation in those states that had not opted out by that date.
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 as such, are subject to
examination thereby. 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 under long-term leases. The Company also leases a
freestanding operations center in St. Paul and owns operations centers in
Fargo, Portland, and Boise. At December 31, 1997, the Company's subsidiaries
owned and operated a total of 603 facilities and leased an additional 638
facilities, all of which are well maintained. Additional information with
respect to premises and equipment is presented in Notes G and Q to the
Consolidated Financial Statements.
U.S. Bancorp 77
EXHIBITS
Financial Statements Filed Page
- - -------------------------------------------------------------------------------
U.S. Bancorp and Subsidiaries
Consolidated Financial Statements 41
Notes to Consolidated Financial Statements 45
Report of Independent Auditors 68
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, 1997, the Company filed the
following Current Reports on Form 8-K:
Form 8-K filed October 17, 1997, relating to the announcement of the
Company's third quarter 1997 earnings.
Form 8-K filed December 15, 1997, relating to the announcement of the
Company's agreement to acquire Piper Jaffray Companies Inc., the analyst
presentation made in connection with the announcement, and the merger
agreement between the Company and Piper Jaffray Companies Inc.
The following Exhibit Index lists the Exhibits to the Annual Report on Form
10-K.
(1)3.1 Restated Certificate of Incorporation, as amended. Filed as
Exhibit 3.1 to Form 8-K dated August 1, 1997.
3.2 Bylaws, as amended.
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 Warrant Agreement, dated as of November 20, 1990, between
Metropolitan Financial Corporation and American Stock Transfer
and Trust Company, as Warrant Agent; Supplemental Warrant
Agreement, dated as of January 24, 1995, between U.S. Bancorp
and American Stock Transfer and Trust Company, as Warrant
Agent; and Form of Warrant. Filed as Exhibit 4E to report on
Form 10-K for the year ended December 31, 1996.
(1)10.1 Stock Purchase Agreements dated as of May 30, 1990, among
Corporate Partners, L.P.; Corporate Offshore Partners, L.P.;
The State Board of Administration of Florida and U.S. Bancorp
and related documents. Filed as Exhibits 4.8-4.15 to
Registration Statement on Form S-3, File No. 33-42650.
(2)10.2 U.S. Bancorp 1997 Stock Incentive Plan, as amended.
(1)(2)10.3 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.
(2)10.4 U.S. Bancorp Restated Employee Stock Purchase Plan, as
amended.
(1)(2)10.5 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)10.6 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)10.7 U.S. Bancorp Executive Deferral Plan, as amended. Filed as
Exhibit 10C to report on Form 10-Q for the quarter ended March
31, 1997.
(1)(2)10.8 U.S. Bancorp Nonqualified Supplemental Executive Retirement
Plan, as amended. Filed as Exhibit 10B to report on Form 10-Q
for the quarter ended March 31, 1997.
(2)10.9 U.S. Bancorp Special Executive Deferral Plan.
(2)10.10 Amended and Restated Supplemental Benefits Plan of the former
U.S. Bancorp.
(2)10.11 1991 Executive Deferred Compensation Plan, as amended, of the
former U.S. Bancorp.
(2)10.12 Deferred Compensation Trust Agreement of the former U.S.
Bancorp.
(2)10.13 1991 Performance and Equity Incentive Plan of the former U.S.
Bancorp.
(2)10.14 Description of Retirement Benefits of Joshua Green III.
(2)10.15 Form of Director Indemnification Agreement entered into with
former Directors of the former U.S. Bancorp.
(2)10.16 Description of health insurance premium reimbursement plan for
former Directors of West One Bancorp.
(1)(2)10.17 U.S. Bancorp Independent Director Retirement and Death Benefit
Plan, as amended. Filed as Exhibit 10D to report on Form 10-Q
for the quarter ended March 31, 1997.
(2)10.18 U.S. Bancorp Deferred Compensation Plan for Directors, as
amended.
(1)(2)10.19 Form of Change-in-Control Agreement between U.S. Bancorp and
certain officers of the Company. Filed as Exhibit 10J to
report on Form 10-K for the year ended December 31, 1996.
(1)(2)10.20 Employment Agreement with Gerry B. Cameron. Filed as Exhibit
10.1 to Registration Statement on Form_S-4, File No.
333-29409.
(1)(2)10.21 Employment Agreement with John F. Grundhofer. Filed as Exhibit
10(a) to report on Form 10-Q for the quarter ended September
30, 1997.
(1)(2)10.22 Employment Agreement with Gary T. Duim. Filed as Exhibit 10.2
to Registration Statement on Form S-4, File No. 333-29409.
(1)(2)10.23 Employment Agreement with Philip G. Heasley. Filed as Exhibit
10(b) to report on Form 10-Q for the quarter ended September
30, 1997.
(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.
78 U.S. Bancorp
(1)(2)10.24 Employment Agreement with Robert D. Sznewajs. Filed as Exhibit
10.3 to Registration Statement on Form S-4, File No.
333-29409.
(1)(2)10.25 Employment Agreement with Richard A. Zona. Filed as Exhibit
10(c) to report on Form 10-Q for the quarter ended September
30, 1997.
(1)(2)10.26 Consulting Agreement with Norman M. Jones. Filed as Exhibit
10T to report on Form 10-K for the year ended December 31,
1994.
(1)10.27 Agreement and Plan of Merger, dated as of March 19, 1997, by
and between First Bank System, Inc. and U.S. Bancorp. Filed as
Exhibit 2 to report on Form 8-K dated March 19, 1997.
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
13 Annual Report to Shareholders for the year ended
December 31, 1997.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
(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.
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 18, 1998, on its behalf by the undersigned thereunto
duly authorized.
U.S. Bancorp
By: John F. Grundhofer
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 18, 1998, by the following
persons on behalf of the registrant and in the capacities indicated.
JOHN F. GRUNDHOFER
President, Chief Executive Officer, and Director
(principal executive officer)
SUSAN E. LESTER
Executive Vice President and Chief Financial Officer
(principal financial officer)
DAVID J. PARRIN
Senior Vice President and Controller
(principal accounting officer)
LINDA L. AHLERS
Director
HARRY L. BETTIS
Director
GERRY B. CAMERON
Chairman and Director
CAROLYN SILVA CHAMBERS
Director
ARTHUR D. COLLINS, JR.
Director
PETER H. COORS
Director
FRANKLIN G. DRAKE
Director
ROBERT L. DRYDEN
Director
JOHN B. FERY
Director
JOSHUA GREEN III
Director
ROGER L. HALE
Director
DELBERT W. JOHNSON
Director
NORMAN M. JONES
Director
RICHARD L. KNOWLTON
Director
JERRY W. LEVIN
Director
KENNETH A. MACKE
Director
ALLEN T. NOBLE
Director
EDWARD J. PHILLIPS
Director
PAUL A. REDMOND
Director
S. WALTER RICHEY
Director
RICHARD L. ROBINSON
Director
N. STEWART ROGERS
Director
RICHARD L. SCHALL
Director
WALTER SCOTT, JR.
Director
BENJAMIN R. WHITELEY
Director
U.S. Bancorp 79
EXECUTIVE OFFICERS
GERRY B. CAMERON
Mr. Cameron, 59, has been Chairman of the Board of U.S. Bancorp since August 1,
1997. He had been Chairman, President and Chief Executive Officer of the former
U.S. Bancorp, where he previously served as Vice Chairman.
JOHN F. GRUNDHOFER
Mr. Grundhofer, 59, has been President and Chief Executive Officer of
U.S. Bancorp since August 1, 1997. From 1990 to 1997 he served as Chairman,
President and Chief Executive officer of First Bank System, Inc. (now U.S.
Bancorp).
GARY T. DUIM
Mr. Duim, 54, has been Vice Chairman of U.S. Bancorp since August 1, 1997, with
responsibilities for Commercial & Business Banking and Private Financial
Services, as well as U.S. Bancorp Leasing & Financial. He had been Executive
Vice President, Retail Banking Group, for the former U.S. Bancorp since 1996.
From 1993 to 1996 Mr. Duim headed the Corporate Banking Group of the former U.S.
Bancorp.
PHILIP G. HEASLEY
Mr. Heasley, 48, has served as Vice Chairman since 1993. He is responsible for
retail bank products, payment systems, and operations and technology.
ROBERT D. SZNEWAJS
Mr. Sznewajs, 51, has served as Vice Chairman of U.S. Bancorp since August 1,
1997 and oversees retail bank branches. He had been Vice Chairman of the former
U.S. Bancorp since 1995. From 1994 to 1995, he was Executive Vice President of
the former U.S. Bancorp in charge of the Support and Financial Services and
Products Group, as well as Executive Vice President of U.S. Bank of Oregon and
U.S. Bank of Washington. From 1989 until 1993, Mr. Sznewajs was Executive Vice
President and Manager of Retail Banking for Valley National Bank of Arizona in
Phoenix. In early 1993, he became chairman of Bank of America, N.A., the credit
card bank of BankAmerica Corporation.
RICHARD A. ZONA
Mr. Zona, 53, Vice Chairman, assumed responsibilities in 1997 for Commercial
Banking and Institutional Financial Services, in addition to his ongoing
responsibilities for Finance, Business Banking and Private Financial Services,
and Corporate Trust Services. He was named Vice Chairman-Finance in February
1996, and previously served as Vice Chairman and
Chief Financial Officer.
J. ROBERT HOFFMANN
Mr. Hoffmann, 52, has been Executive Vice President and Chief Credit Officer
since 1990.
SUSAN E. LESTER
Ms. Lester, 41, was named Executive Vice President and Chief Financial Officer
in February 1996. She had served as Executive Vice President, Finance, since
December 1995. From May 1994 to November 1995, Ms. Lester was Executive Vice
President and Chief Financial Officer of Shawmut National Corporation. Before
that, she served as Executive Vice President and Controller at First Bank
System, Inc.
LEE R. MITAU
Mr. Mitau, 49, was named Executive Vice President, General Counsel and Secretary
in 1995. Previously, he was a Partner at Dorsey & Whitney LLP.
JOHN M. MURPHY, JR.
Mr. Murphy, 56, has been Chairman and Chief Investment Officer,
U.S. Bank Trust National Association, formerly First Trust National Association,
since 1990.
DANIEL C. ROHR
Mr. Rohr, 51, was named Executive Vice President of Commercial & Business
Banking in 1997. He had been Executive Vice President of Commercial Banking
since 1990.
ROBERT H. SAYRE
Mr. Sayre, 58, has served as Executive Vice President of Human Resources
since 1990.
JOHN R. DANIELSON
Mr. Danielson, 53, has served as Senior Vice President of Investor and Corporate
Relations since 1996. He previously served as Senior Vice President of Investor
Relations.
DAVID P. GRANDSTRAND
Mr. Grandstrand, 42, has served as Senior Vice President and Treasurer since
1996. He previously served as Senior Vice President of Asset/Liability
Management and Funding.
DAVID J. PARRIN
Mr. Parrin, 42, has been Senior Vice President and Controller since 1994.
Previously, he was a Partner at Ernst & Young LLP.
80 U.S. Bancorp
DIRECTORS
GERRY B. CAMERON
CHAIRMAN OF THE BOARD
U.S. Bancorp
JOHN F. GRUNDHOFER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
U.S. Bancorp
LINDA L. AHLERS
PRESIDENT
Department Store Division of Dayton Hudson Corporation
Minneapolis, Minnesota
HARRY L. BETTIS
RANCHER
Payette, Idaho
CAROLYN SILVA CHAMBERS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Chambers Communications Corp.
Eugene, Oregon
ARTHUR D. COLLINS, JR.
PRESIDENT AND CHIEF OPERATING OFFICER
Medtronic, Inc.
Minneapolis, Minnesota
PETER H. COORS
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Coors Brewing Company
Golden, Colorado
FRANKLIN G. DRAKE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Drake Management Company
Portland, Oregon
ROBERT L. DRYDEN
EXECUTIVE VICE PRESIDENT, AIRPLANE PRODUCTION
The Boeing Company
Commercial Airplane Group
Seattle, Washington
JOHN B. FERY
RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Boise Cascade Corporation
Boise, Idaho
JOSHUA GREEN III
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Joshua Green Corporation
Seattle, Washington
ROGER L. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TENNANT Company
Minneapolis, Minnesota
DELBERT W. JOHNSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pioneer Metal Finishing
Minneapolis, Minnesota
NORMAN M. JONES
CHAIRMAN
Metro Bancorp, Inc.
Minneapolis, Minnesota
RICHARD L. KNOWLTON
CHAIRMAN
The Hormel Foundation
Austin, Minnesota
JERRY W. LEVIN
CHAIRMAN
Revlon, Inc.
New York, New York
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Coleman Company, Inc.
Wichita, Kansas
KENNETH A. MACKE
GENERAL PARTNER
Macke Partners
Golden Valley, Minnesota
ALLEN T. NOBLE
PRESIDENT
Farm Development Corporation
Boise, Idaho
EDWARD J. PHILLIPS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Phillips Beverage Company
Minneapolis, Minnesota
PAUL A. REDMOND
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Washington Water Power Company
Spokane, Washington
S. WALTER RICHEY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Meritex, Inc.
Minneapolis, Minnesota
RICHARD L. ROBINSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Robinson Dairy, Inc.
Denver, Colorado
N. STEWART ROGERS
Chairman of the Board
Penford Corporation
Mercer Island, Washington
RICHARD L. SCHALL
RETIRED VICE CHAIRMAN OF THE BOARD
Dayton Hudson Corporation
Minneapolis, Minnesota
WALTER SCOTT, JR.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Peter Kiewit Sons', Inc.
Omaha, Nebraska
BENJAMIN R. WHITELEY
CHAIRMAN OF THE BOARD
Standard Insurance Company
Portland, Oregon
U.S. Bancorp 81
CORPORATE DATA
EXECUTIVE OFFICES
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
ANNUAL MEETING
The annual meeting of shareholders will be held at 2:00 p.m. on Wednesday, April
22, 1998, at the Minneapolis Convention Center, 1301 Second Avenue South,
Minneapolis, Minnesota 55403.
COMMON STOCK TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York acts as transfer agent and registrar,
dividend paying agent, and dividend reinvestment plan agent for U.S. Bancorp and
maintains all shareholder records for the corporation. For information about
U.S. Bancorp stock, or if you have questions regarding your stock certificates
(including transfers), address or name changes, lost dividend checks, lost stock
certificates, or Form 1099s, please call First Chicago's Shareholder Services
Center at (800) 446-2617. Representatives are available weekdays 8:30 a.m. to
7:00 p.m. EST, and the interactive voice response system is available
24 hours a day, seven days a week. The TDD telephone number for the hearing
impaired is (201) 222-4955.
First Chicago Trust Company of New York, P.O. Box 2500, Jersey City, New Jersey
07303-2500.
Telephone: (201) 324-0498
Fax: (201) 222-4892
Internet address: http://www.fctc.com
E-mail address: fctc@em.fcnbd.com
COMMON STOCK LISTING AND TRADING
U.S. Bancorp Common Stock is listed and traded on the New York Stock Exchange
under the ticker symbol USB.
DIVIDENDS
U.S. Bancorp currently pays quarterly dividends on its Common Stock on or about
the 15th of March, June, September and December, subject to prior Board
approval. Shareholders may choose to have dividends electronically deposited
directly into their bank accounts. For enrollment information, please call First
Chicago at (800) 446-2617.
DIVIDEND REINVESTMENT PLAN
U.S. Bancorp shareholders can take advantage of a plan that provides
automatic reinvestment of dividends and/or optional cash purchases of
additional shares of U.S. Bancorp Common Stock up to $60,000 per calendar
year. For more information, please contact First Chicago Trust Company of New
York, P.O. Box 2598, Jersey City, New Jersey 07303-2598, (800) 446-2617.
INVESTMENT COMMUNITY CONTACTS
John R. Danielson
Senior Vice President, Investor and Corporate Relations
(612) 973-2261
Judith T. Murphy
Vice President, Investor Relations
(612) 973-2264
FINANCIAL INFORMATION
U.S. Bancorp news and financial results are available by fax, mail and the
company's Web site.
FAX. To access our fax-on-demand service, call (800) 758-5804. When asked,
enter U.S. Bancorp's extension number, "312402." Enter "1" for the most
current news release or "2" for a menu of news releases. Enter your fax and
telephone numbers as directed. The information will be faxed to you promptly.
MAIL. At your request, we will mail to you our quarterly earnings news
releases, quarterly financial data on Form 10-Q, and additional annual
reports. To be added to U.S. Bancorp's mailing list for quarterly earnings
news releases, or to request other information, please contact:
Investor and Corporate Relations
(612) 973-2263
U.S. Bancorp
601 Second Avenue South, MPFP1703
Minneapolis, Minnesota 55402-4302
WEB SITE. For information about U.S. Bancorp, including news and financial
results, product information, and service locations, access our home page on
the World Wide Web. The address is http://www.usbank.com.
COMMUNITY ANNUAL REPORT
For information about U.S. Bancorp's community reinvestment activities, call
U.S. Bancorp Community Relations, (612) 973-2322.
U.S. Bancorp, including each of its subsidiaries, is an Equal Opportunity
Employer and a Drug-Free Workplace.
82 U.S. Bancorp
DESIGN AND TYPOGRAPHY: Larsen Design Office, Inc.
PRINTING: Banta Direct Marketing Group: The Press
[LOGO]
P.O. Box 522
Minneapolis, Minnesota
55480
http://www.usbank.com