-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RMBqKVgTT6tgrFeJDsXMg/m0bqR/c65K/DV4DUXm2+/bfRm/MKiuN1S1Ml/rmTzh Q/6lFFBOsl3dzszc70uThQ== 0000950124-01-500348.txt : 20010418 0000950124-01-500348.hdr.sgml : 20010418 ACCESSION NUMBER: 0000950124-01-500348 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US BANCORP \DE\ CENTRAL INDEX KEY: 0000036104 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 410255900 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-06880 FILM NUMBER: 1604063 BUSINESS ADDRESS: STREET 1: FIRST BANK PL STREET 2: 601 SECOND AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4302 BUSINESS PHONE: 6129731111 MAIL ADDRESS: STREET 1: 601 2ND AVENUE SOUTH-FIRST BANK PLACE STREET 2: 601 2ND AVENUE SOUTH-FIRST BANK PLACE CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4302 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANK SYSTEM INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANK STOCK CORP DATE OF NAME CHANGE: 19720317 8-K 1 c61491e8-k.txt CURRENT REPORT DATED 12/31/00 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 31, 2000 1-6880 ------------------------ (Commission File Number) U.S. BANCORP ------------------------------------------------------ (Exact name of Registrant as specified in its charter) DELAWARE 41-0255900 ------------------------ ---------------------- (State of incorporation) (I.R.S. Employer Identification Number) U.S. Bank Place 601 Second Avenue South, Minneapolis, Minnesota 55402-4302 ---------------------------------------------------------- (Address of Registrant's principal executive office) (612) 973-1111 ------------------------------- (Registrant's telephone number) ================================================================================ 2 ITEM 5. OTHER EVENTS The following consolidated financial statements of U.S. Bancorp, a Delaware corporation, are included in this report: Balance Sheet as of December 31, 2000 and 1999; Statement of Income for the Years Ended December 31, 2000, 1999 and 1998; Statement of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998; Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 Report of Independent Accountants Supplemental Financial Data and Tables ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial statements of businesses acquired. Not applicable. (b) Pro forma financial information. Not applicable. (c) Exhibits. None. -2- 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. BANCORP By: /s/ Terrance R. Dolan ------------------------------------- Name: Terrance R. Dolan Title: Senior Vice President and Controller Date: April 17, 2001 -3- 4 2000 2000 FINANCIAL STATEMENTS RESTATED 2000 FINANCIAL STATEMENTS REFLECTING THE MERGER OF U.S. BANCORP AND FIRSTAR CORPORATION [US BANCORP LOGO(R)] 5 [MAP] CONTENTS 1 Selected Financial Data 2 Consolidated Financial Statements 6 Notes to Consolidated Financial Statements 37 Report of Independent Accountants 39 Five Year Consolidated Financial Statements 41 Quarterly Consolidated Financial Data 42 Three Year Average Balance Sheet and Related Yields and Rates 44 Supplemental Financial Data and Tables 60 Exhibit 12 Inside Managing Committee and Back Cover Corporate Directors Back Cover Shareholder Inquiries CORPORATE PROFILE THE MERGER OF FIRSTAR CORPORATION AND U.S. BANCORP has been completed, and the new company is now called U.S. Bancorp. U.S. Bancorp common stock is traded on the New York Stock Exchange under the ticker symbol USB. U.S. Bancorp has the capacity, capability, resources and expertise to deliver the products and services our customers want, when they want them and on their terms. U.S. Bancorp is a multi-state financial holding company with headquarters in Minneapolis, Minnesota. Since its merger with Firstar Corporation, the new U.S. Bancorp is now the eighth largest financial holding company in the United States with total assets in excess of $160 billion. Through U.S. Bank, Firstar Bank and other subsidiaries, we serve more than 10 million customers, principally in 24 states. We provide individuals, businesses, institutions and government entities a comprehensive selection of top quality financial products and services. U.S. Bancorp, its full-service banks and its subsidiaries offer specialized expertise and leadership in Consumer Banking, Commercial Banking, Trust and Investment Services, Mortgage Banking, Payment Systems and Insurance Services. Through U.S. Bancorp Piper Jaffray we offer full securities brokerage services, asset management, equity capital, fixed income capital and individual investment services. We deliver these products and services through 2,239 U.S. Bank and Firstar banking offices, loan and brokerage offices, hundreds of skilled relationship managers, 5,143 ATMs, Internet Banking and Telephone Banking. U.S. Bancorp ranks among the top performing U.S. financial holding companies in terms of earnings per share growth, efficiency, return on assets, return on equity and other key financial indicators. 6 SELECTED FINANCIAL DATA
(Dollars in Millions, Except Per Share Data) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ CONDENSED INCOME STATEMENT Net interest income (taxable-equivalent basis).............. $6,135.0 $5,932.7 $5,676.2 $5,532.0 $5,298.4 Merger and restructuring related gains...................... -- -- -- -- 235.8 Securities gains, net....................................... 8.1 13.2 29.1 7.3 18.7 Other noninterest income.................................... 4,875.1 4,231.7 3,620.9 2,711.3 2,513.5 Merger and restructuring related charges.................... 348.7 532.8 593.8 633.0 192.4 Other noninterest expense................................... 5,368.3 5,128.5 4,829.6 4,306.7 4,321.6 Provision for credit losses................................. 828.0 646.0 491.3 639.9 429.9 -------------------------------------------------------- Income before taxes........................................ 4,473.2 3,870.3 3,411.5 2,671.0 3,122.5 Taxable-equivalent adjustment............................... 85.4 96.3 111.2 121.1 121.0 Income taxes................................................ 1,512.2 1,392.2 1,167.4 950.6 1,082.9 -------------------------------------------------------- Net income................................................. $2,875.6 $2,381.8 $2,132.9 $1,599.3 $1,918.6 -------------------------------------------------------- FINANCIAL RATIOS Return on average assets.................................... 1.81% 1.59% 1.49% 1.24% 1.57% Return on average equity.................................... 20.0 18.0 17.2 14.7 18.0 Net interest margin (taxable-equivalent basis).............. 4.36 4.44 4.44 4.72 4.81 Efficiency ratio............................................ 51.9 55.7 58.3 59.9 56.1 Banking efficiency ratio*................................... 46.8 52.0 56.1 59.5 55.7 PER COMMON SHARE Earnings per share.......................................... $ 1.51 $ 1.25 $ 1.12 $ 0.86 $ 1.02 Diluted earnings per share.................................. 1.50 1.23 1.10 .85 1.00 Dividends declared.......................................... .65 .4625 .33 .27 .21 SELECTED FINANCIAL RATIOS EXCLUDING MERGER AND RESTRUCTURING RELATED ITEMS Return on average assets.................................... 2.03% 1.94% 1.91% 1.72% 1.73% Return on average equity.................................... 22.4 22.0 22.0 20.5 19.8 Efficiency ratio............................................ 48.8 50.5 51.9 52.2 55.3 Banking efficiency ratio*................................... 43.5 46.3 49.4 51.7 54.9 AVERAGE BALANCE SHEET DATA Loans....................................................... $118,317 $109,638 $102,451 $ 95,149 $ 87,732 Loans held for sale......................................... 1,303 1,450 1,264 549 691 Investment securities....................................... 17,311 19,271 21,114 19,123 18,944 Earning assets.............................................. 140,606 133,757 127,738 117,173 110,172 Assets...................................................... 158,481 150,167 142,887 129,493 121,967 Noninterest bearing deposits................................ 23,820 23,556 23,011 20,984 19,881 Deposits.................................................... 103,426 99,920 98,940 93,322 89,786 Short-term borrowings....................................... 12,586 11,707 11,102 11,791 12,212 Long-term debt.............................................. 22,410 20,248 15,732 9,481 6,429 Total shareholders' equity.................................. 14,365 13,221 12,383 10,882 10,659 Average shares outstanding.................................. 1,906.0 1,907.8 1,898.8 1,841.0 1,861.6 Average diluted shares outstanding.......................... 1,918.5 1,930.0 1,930.5 1,872.2 1,898.2 YEAR-END BALANCE SHEET DATA Loans....................................................... $122,365 $113,229 $106,958 $ 99,029 $ 91,242 Investment securities....................................... 17,642 17,449 20,965 20,442 18,671 Assets...................................................... 164,921 154,318 150,714 137,488 126,610 Deposits.................................................... 109,535 103,417 104,346 98,323 93,811 Long-term debt.............................................. 21,876 21,027 18,679 13,181 6,796 Total shareholders' equity.................................. 15,168 13,947 12,574 11,402 10,717 - ------------------------------------------------------------------------------------------------------------------------
*Without investment banking and brokerage activity. U.S. Bancorp 1 7 CONSOLIDATED BALANCE SHEET
At December 31 (Dollars in Millions) 2000 1999 - --------------------------------------------------------------------------------------- ASSETS Cash and due from banks..................................... $ 8,475 $ 7,324 Money market investments.................................... 657 1,934 Trading account securities.................................. 753 617 Investment securities Held-to-maturity (fair value $257 and $200, respectively)........................................... 252 194 Available-for-sale....................................... 17,390 17,255 Loans held for sale......................................... 764 670 Loans Commercial............................................... 52,817 45,856 Commercial real estate................................... 26,443 25,142 Residential mortgages.................................... 7,753 11,395 Retail................................................... 35,352 30,836 ----------------------- Total loans........................................... 122,365 113,229 Less allowance for credit losses................... 1,787 1,710 ----------------------- Net loans.......................................... 120,578 111,519 Premises and equipment...................................... 1,836 1,865 Customers' liability on acceptances......................... 183 167 Goodwill and other intangible assets........................ 5,309 4,825 Other assets................................................ 8,724 7,948 ----------------------- Total assets.......................................... $164,921 $154,318 ----------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing...................................... $ 26,633 $ 26,350 Interest-bearing......................................... 68,177 66,731 Time deposits greater than $100,000...................... 14,725 10,336 ----------------------- Total deposits........................................ 109,535 103,417 Short-term borrowings....................................... 11,833 10,558 Long-term debt.............................................. 21,876 21,027 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company.............. 1,400 1,400 Acceptances outstanding..................................... 183 167 Other liabilities........................................... 4,926 3,802 ----------------------- Total liabilities..................................... 149,753 140,371 Shareholders' equity Common stock, par value $0.01 a share -- authorized 2,000,000,000 shares; issued: 2000 -- 1,943,541,593 shares; 1999 -- 1,938,856,001 shares................... 19 19 Capital surplus.......................................... 4,276 4,259 Retained earnings........................................ 11,658 10,050 Less cost of common stock in treasury: 2000 -- 41,458,159 shares; 1999 -- 10,346,823 shares....................... (880) (224) Other comprehensive income............................... 95 (157) ----------------------- Total shareholders' equity............................ 15,168 13,947 ----------------------- Total liabilities and shareholders' equity............ $164,921 $154,318 - ---------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 2 U.S. Bancorp 8 CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 (Dollars and Shares in Millions, Except Per Share Data) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans................................................................ $10,562.5 $ 9,122.7 $ 8,818.3 Loans held for sale.................................................. 102.1 103.9 91.9 Investment securities Taxable........................................................... 1,008.3 1,047.1 1,179.5 Non-taxable....................................................... 140.6 150.1 158.2 Money market investments............................................. 53.9 44.9 63.0 Trading securities................................................... 53.7 45.0 25.6 Other interest income................................................ 151.4 113.0 88.2 ----------------------------------- Total interest income.......................................... 12,072.5 10,626.7 10,424.7 INTEREST EXPENSE Deposits............................................................. 3,618.8 2,970.0 3,234.7 Short-term borrowings................................................ 781.7 582.4 594.7 Long-term debt....................................................... 1,510.4 1,126.9 926.5 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company............................................................. 112.0 111.0 103.8 ----------------------------------- Total interest expense......................................... 6,022.9 4,790.3 4,859.7 ----------------------------------- Net interest income.................................................. 6,049.6 5,836.4 5,565.0 Provision for credit losses.......................................... 828.0 646.0 491.3 ----------------------------------- Net interest income after provision for credit losses................ 5,221.6 5,190.4 5,073.7 NONINTEREST INCOME Credit card and payment processing revenue........................... 992.1 837.8 748.0 Trust and investment management fees................................. 926.2 887.1 788.3 Deposit service charges.............................................. 551.1 497.2 470.3 Cash management fees................................................. 292.4 280.6 242.0 Mortgage banking revenue............................................. 189.9 190.4 244.6 Trading account profits and commissions.............................. 258.4 222.4 130.3 Investment products fees and commissions............................. 466.6 450.8 306.9 Investment banking revenue........................................... 360.3 246.6 100.4 Commercial product revenue........................................... 304.4 215.7 121.9 Securities gains, net................................................ 8.1 13.2 29.1 Other................................................................ 533.7 403.1 468.2 ----------------------------------- Total noninterest income....................................... 4,883.2 4,244.9 3,650.0 NONINTEREST EXPENSE Salaries............................................................. 2,427.1 2,355.3 2,196.7 Employee benefits.................................................... 399.8 410.1 424.9 Net occupancy........................................................ 396.9 371.8 356.9 Furniture and equipment.............................................. 308.2 307.9 314.1 Postage.............................................................. 174.5 170.7 155.4 Goodwill............................................................. 242.8 177.7 177.2 Other intangible assets.............................................. 149.5 152.1 124.6 Merger and restructuring related charges............................. 348.7 532.8 593.8 Other................................................................ 1,269.5 1,182.9 1,079.8 ----------------------------------- Total noninterest expense...................................... 5,717.0 5,661.3 5,423.4 ----------------------------------- Income before income taxes........................................... 4,387.8 3,774.0 3,300.3 Applicable income taxes.............................................. 1,512.2 1,392.2 1,167.4 ----------------------------------- Net income........................................................... $ 2,875.6 $ 2,381.8 $ 2,132.9 ----------------------------------- Earnings per share................................................... $ 1.51 $ 1.25 $ 1.12 Diluted earnings per share........................................... $ 1.50 $ 1.23 $ 1.10 ----------------------------------- Average common shares................................................ 1,906.0 1,907.8 1,898.8 Average diluted common shares........................................ 1,918.5 1,930.0 1,930.5 - ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. U.S. Bancorp 3 9 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Other Total Preferred Common Capital Retained Treasury Comprehensive Shareholders' (Dollars in Millions) Stock Stock Surplus Earnings Stock Income Equity - ------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1997....... $ 5.3 $18.8 $3,970.8 $ 7,465.0 $ (175.0) $ 117.4 $11,402.3 Net income...................... 2,132.9 2,132.9 Unrealized gain on securities available for sale............. 179.9 179.9 Reclassification adjustment for gains realized in net income... (34.0) (34.0) Income taxes.................... (52.6) (52.6) --------- Total comprehensive income................... 2,226.2 Cash dividends declared on common stock................... (977.6) (977.6) Cash dividends declared on preferred stock................ (.1) (.1) Conversion of preferred stock into common stock.............. (5.3) 4.7 .5 .1 Issuance of common stock and treasury shares................ .5 423.4 137.7 422.9 2.2 986.7 Purchase of treasury stock...... (1,104.0) (1,104.0) Purchase and retirement of common stock and treasury stock.......................... (107.0) 106.7 (.3) Shares reserved to meet deferred compensation obligations....... 9.1 (7.9) 1.2 Amortization of restricted stock.......................... 37.7 37.7 ESOP debt reduction, net........ 1.8 1.8 ------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1998....... $ -- $19.3 $4,338.7 $ 8,758.4 $ (755.4) $ 212.9 $12,573.9 - ------------------------------------------------------------------------------------------------------------------------------- Net income...................... 2,381.8 2,381.8 Unrealized loss on securities available for sale............. (743.9) (743.9) Reclassification adjustment for losses realized in net income......................... 163.9 163.9 Income taxes.................... 210.5 210.5 --------- Total comprehensive income................... 2,012.3 Cash dividends declared on common stock................... (1,090.8) (1,090.8) Issuance of common stock and treasury shares................ .2 213.8 1,377.0 1,591.0 Purchase of treasury stock...... (1,187.9) (1,187.9) Retirement of treasury stock.... (.1) (343.8) 344.0 .1 Shares reserved to meet deferred compensation obligations....... 2.1 (2.0) .1 Amortization of restricted stock.......................... 47.8 47.8 ------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1999....... $ -- $19.4 $4,258.6 $10,049.4 $ (224.3) $(156.6) $13,946.5 - ------------------------------------------------------------------------------------------------------------------------------- Net income...................... 2,875.6 2,875.6 Unrealized gain on securities available for sale............. 436.0 436.0 Foreign currency translation adjustment..................... (.5) (.5) Reclassification adjustment for gains realized in net income... (41.6) (41.6) Income taxes.................... (141.8) (141.8) --------- Total comprehensive income................... 3,127.7 Cash dividends declared on common stock................... (1,267.0) (1,267.0) Issuance of common stock and treasury shares................ (35.0) 534.9 499.9 Purchase of treasury stock...... (1,182.2) (1,182.2) Shares reserved to meet deferred compensation obligations....... 8.5 (8.5) -- Amortization of restricted stock.......................... 43.5 43.5 ------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 2000....... $ -- $19.4 $4,275.6 $11,658.0 $ (880.1) $ 95.5 $15,168.4 - -------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 4 U.S. Bancorp 10 CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 (Dollars in Millions) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income.................................................. $ 2,875.6 $ 2,381.8 $ 2,132.9 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses.............................. 828.0 646.0 491.3 Depreciation and amortization of capitalized assets...... 262.6 270.6 291.4 Amortization of goodwill and other intangibles........... 392.3 329.8 301.8 Provision for deferred income taxes...................... 357.1 252.9 86.4 Net (increase) decrease in trading securities............ (135.6) 65.6 (184.9) (Gain)/loss on sale of securities and other assets, net..................................................... (47.3) 149.9 4.3 Mortgage loans originated for sale in the secondary market.................................................. (5,563.3) (6,117.1) (8,303.1) Proceeds from sale of mortgage loans..................... 5,475.0 7,229.3 7,009.8 Other assets and liabilities, net........................ (1.8) (242.2) (354.2) ------------------------------------ Net cash provided by operating activities.......... 4,442.6 4,966.6 1,475.7 INVESTING ACTIVITIES Securities Sales.................................................... 10,194.0 6,819.7 2,806.9 Maturities............................................... 2,127.7 5,290.7 7,592.8 Purchases................................................ (12,161.3) (9,135.8) (8,967.8) Loans Sales.................................................... 6,655.8 4,136.0 919.3 Purchases................................................ (658.1) (254.6) (1,575.7) Net increase in loans outstandings.......................... (13,541.3) (9,002.3) (4,492.2) Proceeds from sales of premises and equipment............... 212.9 64.2 66.7 Purchase of premises and equipment.......................... (382.8) (289.0) (370.7) Acquisitions, net of cash acquired.......................... 840.9 (220.5) (55.0) Divestitures of branches.................................... (78.2) (469.0) 16.3 Cash and cash equivalents of acquired subsidiaries.......... 63.5 462.4 -- Other, net.................................................. (289.1) (961.3) (149.2) ------------------------------------ Net cash used in investing activities.............. (7,016.0) (3,559.5) (4,208.6) FINANCING ACTIVITIES Net change in Deposits................................................. 3,403.7 (3,034.9) 1,200.0 Short-term borrowings.................................... 702.1 544.9 (1,674.7) Principal payments on long-term debt........................ (5,277.5) (5,706.1) (4,127.0) Proceeds from long-term debt................................ 5,862.7 8,067.5 9,213.6 Proceeds from issuance of common stock...................... 210.0 275.5 333.2 Issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company... -- -- 350.0 Repurchase of common stock.................................. (1,182.2) (1,187.9) (1,104.0) Cash dividends paid......................................... (1,271.3) (1,029.7) (921.5) Other, net.................................................. -- -- 1.2 ------------------------------------ Net cash provided by (used in) financing activities....................................... 2,447.5 (2,070.7) 3,270.8 ------------------------------------ Change in cash and cash equivalents................ (125.9) (663.6) 537.9 Cash and cash equivalents at beginning of year.............. 9,257.5 9,921.1 9,383.2 ------------------------------------ Cash and cash equivalents at end of year........... $ 9,131.6 $ 9,257.5 $ 9,921.1 - ----------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. U.S. Bancorp 5 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SIGNIFICANT ACCOUNTING POLICIES U.S. Bancorp (the "Company"), formerly known as Firstar Corporation, is the organization created by the acquisition by Firstar Corporation ("Firstar") of the former U.S. Bancorp ("USBM"). The new Company retained the U.S. Bancorp name. The Company is a multi-state financial services holding company headquartered in Minneapolis, Minnesota. The Company provides a full range of financial services including lending and depository services through banking offices principally in 24 states. The Company also engages in credit card, merchant, and ATM processing, mortgage banking, insurance, trust and investment management, brokerage, leasing and investment banking activities principally in domestic markets. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its subsidiaries. The consolidation eliminates all significant intercompany accounts and transactions. Certain items in prior periods have been reclassified to conform to the current presentation. USES OF ESTIMATES The preparation of financial statements in conformity with 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. BUSINESS SEGMENTS Within the Company, financial performance is measured by major lines of business based on the products and services provided to customers through its distribution channels. The Company has seven reportable operating segments: Consumer Banking delivers products and services to the broad consumer market and small businesses through banking offices, telemarketing, on-line services, direct mail and automated teller machines ('ATM'). It encompasses community banking, metropolitan banking, small business banking, consumer lending, mortgage banking, ATM banking, workplace banking, student banking, 24-hour phone banking, and investment sales. Payment Systems includes consumer and business credit cards, corporate and purchasing card services, consumer lines of credit, ATM processing and merchant processing. Wholesale Banking offers lending, depository, treasury management and other financial services to middle market, large corporate and public sector clients. Private Client, Trust and Asset Management provides mutual fund processing services and trust, private banking and financial advisory services through four primary businesses including: the Private Client Group, Corporate Trust, Institutional Trust and Custody and its Mutual Fund Services, LLC. The business segment also offers investment management services to several client segments including mutual funds, institutional customers, and private asset management. Capital Markets engages in equity and fixed income trading activities, offers investment banking and underwriting services for corporate and public sector customers and provides financial advisory services and securities, mutual funds, annuities and insurance products to consumers and regionally based businesses through a network of brokerage offices. Treasury manages the Company's investment and residential mortgage portfolios, funding, capital management and asset securitization activities and the interest rate risk position. It also includes the net effect of transfer pricing related to loan and deposit balances. Corporate Support primarily represents business activities managed on a corporate basis including income and expenses of enterprise-wide operations and administrative support functions. SEGMENT RESULTS Accounting policies for the lines of business are the same as those used in preparation of the consolidated financial statements with respect to activities specifically attributable to each business line. However, the preparation of business line results requires management to establish methodologies to allocate funding costs and benefits, expenses and other financial elements to each line of business. For detail of theses methodologies see "Basis of Presentation" on page 6. Table 1 "Line of Business 6 U.S. Bancorp 12 Financial Performance" on page 46 provides details of segment results. This information is incorporated by reference into these Notes to the Consolidated Financial Statements. SECURITIES TRADING ACCOUNT SECURITIES Debt and equity securities held for resale are classified as trading account securities and reported at fair value. Realized and unrealized gains or losses are recognized currently in noninterest income. AVAILABLE-FOR-SALE SECURITIES These securities are not trading account securities but may be sold before maturity in response to changes in the Company's interest rate risk profile or demand for collateralized deposits by public entities. They are carried at fair value with unrealized net gains or losses reported within comprehensive income in shareholders' equity. When sold, the amortized cost of the specific securities is used to compute the gain or loss. HELD-TO-MATURITY SECURITIES Debt securities for which the Company has the positive intent and ability to hold to maturity are reported at historical cost adjusted for amortization of premiums and accretion of discounts. LOANS Loans are reported net of unearned income. Interest income is accrued on the unpaid principal balances as earned. Loan and commitment fees are deferred and recognized over the life of the loan and/or commitment period as yield adjustments. ALLOWANCE FOR CREDIT LOSSES Management determines the adequacy of the allowance based on evaluations of the loan portfolio and related off-balance sheet commitments, recent loss experience, and other pertinent factors, including economic conditions. This evaluation is inherently subjective as it requires estimates, including amounts of future cash collections expected on nonaccrual loans that may be susceptible to significant change. The allowance for credit losses relating to impaired loans is based on the loan's observable market price, the collateral for certain collateral-dependent loans, or the discounted cash flows using the loan's effective interest rate. The Company determines the amount of the allowance required for certain sectors based on relative risk characteristics of the loan portfolio and other financial instruments with credit exposure. The allowance recorded for commercial loans is based on quarterly reviews of individual loans outstanding and binding commitments to lend and an analysis of the migration of commercial loans and actual loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis of product mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogenous category or group of loans. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs. NONACCRUAL LOANS Generally commercial loans (including impaired loans) are placed on nonaccrual status when the collection of interest or principal has become 90 days past due or is otherwise considered doubtful. When a loan is placed on nonaccrual status, unpaid interest is reversed. Future interest payments are generally applied against principal. Revolving consumer lines and credit cards are charged-off by 180 days and closed-end consumer loans other than residential mortgages are charged-off at 120 days past due and are, therefore, not placed on non-accrual status. LEASES The Company engages in both direct and leveraged lease financing. The net investment in direct financing leases is the sum of all minimum lease payments and estimated residual values less unearned income. Unearned income is added to interest income over the terms of the leases to produce a level yield. The investment in leveraged leases is the sum of all lease payments (less nonrecourse debt payments) plus estimated residual values, less unearned income. Income from leveraged leases is recognized over the term of the leases based on the unrecovered equity investment. LOANS HELD FOR SALE These loans are carried at the lower of cost or market value as determined on an aggregate basis by type of loan. OTHER REAL ESTATE Other real estate ("ORE"), which is included in other assets, is property acquired through foreclosure or other proceedings. ORE is initially recorded at fair value and carried at the lower of cost or fair value, less estimated selling costs. The property is evaluated regularly and any decreases in the carrying amount are included in noninterest expense. U.S. Bancorp 7 13 DERIVATIVE FINANCIAL INSTRUMENTS INTEREST RATE SWAPS AND CONTRACTS The Company uses interest rate swaps and contracts (forwards, options, caps and floors) to manage its interest rate risk and as a financial intermediary. The Company does not enter into these contracts for speculative purposes. The Company utilizes simulation modeling and analysis of repricing mismatches to identify exposure to changes in interest rates and assess the effectiveness of interest rate swaps and contracts in reducing that risk. Interest rate swaps and contracts are designated as hedges of assets or liabilities and the Company evaluates the hedge effectiveness of the derivative instruments relative to the underlying hedged item on a regular basis. Income or expense on swaps and contracts designated as hedges of assets or liabilities is recorded as an adjustment to interest income or expense. If the swap or contract is terminated, the gain or loss is deferred and amortized over the shorter of the remaining life of the swap or the underlying asset or liability. If the hedged instrument is disposed of, the swap or contract agreement is marked to market with any resulting gain or loss included with the gain or loss from the disposition. The initial bid/offer spread on intermediated swaps is deferred and recognized in trading account profits and commissions over the life of the agreement. Intermediated swaps and all other interest rate contracts are marked to market and resulting gains or losses are recorded in trading account profits and commissions. The Company's derivative trading activities are not material to the consolidated financial statements; the cash flows from these activities are included in operating activities. OTHER SIGNIFICANT POLICIES PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation and amortized primarily on a straight-line method. Capital leases, less accumulated amortization, are included in premises and equipment. The lease obligations are included in long-term debt. Capitalized leases are amortized on a straight-line basis over the lease term and the amortization is included in depreciation expense. CAPITALIZED SOFTWARE Certain costs incurred in connection with developing or obtaining software for internal use are capitalized and amortized on a straight- line basis over the estimated life of the software. MORTGAGE SERVICING RIGHTS Mortgage servicing rights associated with loans originated and sold, where servicing is retained, are capitalized and included in goodwill and other intangible assets in the consolidated balance sheet. The value of these capitalized servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenue and recorded in noninterest expenses as amortization of intangible assets. The carrying value of these rights is periodically reviewed for impairment based on fair value. For purposes of measuring impairment, the servicing rights are stratified based on the underlying loan type and note rate and compared to a valuation prepared based on a discounted cash flow methodology, current prepayment speeds and discount rate. Impairment is recognized through a valuation allowance for each impaired stratum and charged against amortization of intangible assets. INTANGIBLE ASSETS Goodwill, the price paid over the net fair value of acquired businesses, is included in other assets and is amortized over periods ranging up to 25 years. Other intangible assets, including core deposit intangibles, are amortized over their estimated useful lives, which range from seven to fifteen years, using straight-line and accelerated methods. The recoverability of goodwill and other intangible assets is evaluated if events or circumstances indicate a possible inability to realize the carrying amount. Such evaluation is based on various analyses, including undiscounted cash flow projections. INCOME TAXES Deferred taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and the financial reporting amounts at each year-end. STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash and money market investments defined as interest bearing amounts due from banks, federal funds sold and securities purchased under agreements to resell. STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly recognizes no compensation expense for the stock option grants. PER SHARE CALCULATIONS Earnings per share is calculated by dividing net income (less preferred stock dividends) by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by adjusting income and outstanding shares, assuming conversion of all potentially dilutive securities, using the treasury stock method. All per share amounts have been restated for stock splits. 8 U.S. Bancorp 14 NOTE 2 ACCOUNTING CHANGES ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment to FASB Statement No. 133," establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The changes in the fair value of the derivative are recognized currently in earnings unless specific hedge accounting criteria are met. If the derivative qualifies as a hedge, the accounting treatment varies based on the type of risk being hedged. The Company adopted SFAS 133 as of January 1, 2001. Transition adjustments related to adoption resulted in an after-tax loss of approximately $4.1 million to net income and an after tax increase of $5.2 million to other comprehensive income. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," established accounting and reporting standards for sales and servicing of financial assets, securitization transactions and the extinguishment of liabilities. The statement replaced SFAS 125 and provided clarification of issues related to qualified special purpose entities and additional disclosures about securitizations and residual interests retained. SFAS 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. Disclosures required for financial statements were effective for fiscal years ending after December 15, 2000. NOTE 3 BUSINESS COMBINATIONS On February 27, 2001, Firstar and USBM merged in a pooling-of-interests transaction and accordingly all financial information has been restated to include the historical information of both companies. Each share of Firstar stock was converted into and exchanged for one share of the Company's common stock while each share of USBM stock was converted into and exchanged for 1.265 shares of the Company's common stock. The new Company retained the U.S. Bancorp name. On September 20, 1999, Firstar and Mercantile Bancorporation, Inc., merged in a pooling-of-interests transaction and accordingly all financial information has been restated to include the historical information of both companies. Each share of Mercantile Bancorporation stock was converted into and exchanged for 2.091 shares of Firstar common stock. On November 20, 1998, Firstar Corporation and Star Banc Corporation merged in a pooling-of-interests transaction and accordingly all financial information has been restated to include the historical information of both companies. Each share of Star Banc Corporation stock was converted into and exchanged for one share of new Firstar common stock while each share of old Firstar Corporation stock was converted into and exchanged for .76 of a share of new Firstar common stock. U.S. Bancorp 9 15 Separate results of operations as originally reported on a condensed basis of Firstar, Star Banc Corporation, Mercantile Bancorporation, Inc. and USBM, for the periods prior to the mergers were as follows:
Nine-Month Year Ended December 31 Six-Month Period Period Ended ----------------------------- Ended June 30, September 30, (Dollars in Millions) 2000 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME Firstar................................................. $ 2,699 $ 2,643 $ 1,413 $ 739 $ 561 USBM.................................................... 3,471 3,261 3,061 1,595 2,286 Mercantile Bancorporation, Inc.......................... -- -- 1,123 580 821 Star Banc Corporation................................... -- -- -- -- 483 ------------------------------------------------------------------ Total................................................ $ 6,170 $ 5,904 $ 5,597 $ 2,914 $ 4,151 ------------------------------------------------------------------ NET INCOME Firstar................................................. $ 1,284 $ 875 $ 430 $ 340 $ 231 USBM.................................................... 1,592 1,507 1,328 741 978 Mercantile Bancorporation, Inc.......................... -- -- 375 239 285 Star Banc Corporation................................... -- -- -- -- 186 ------------------------------------------------------------------ Total................................................ $ 2,876 $ 2,382 $ 2,133 $ 1,320 $ 1,680 ------------------------------------------------------------------ TOTAL ASSETS AT PERIOD END Firstar................................................. $77,585 $72,788 $38,476 $ 38,137 $ 20,666 USBM.................................................... 87,336 81,530 76,438 77,390 73,884 Mercantile Bancorporation, Inc.......................... -- -- 35,800 35,520 34,597 Star Banc Corporation................................... -- -- -- -- 17,291 ------------------------------------------------------------------ Total................................................ $164,921 $154,318 $150,714 $151,047 $146,438 - ---------------------------------------------------------------------------------------------------------------------------------
During the past three years, the Company has completed several strategic acquisitions to enhance its presence in certain growth markets and businesses. The following table summarizes acquisitions by the Company and its acquirees completed during the past three years, treating Star Banc Corporation as the original acquiring company:
Goodwill & Other (Dollars in Millions) Date Assets Deposits Intangibles Cash Paid - ----------------------------------------------------------------------------------------------------------------- Scripps Financial Corporation........ October 2000 $ 650 $ 618 $ 113 $ -- Lyon Financial Services, Inc......... September 2000 1,289 -- 124 307 Oliver-Allen Corporation............. April 2000 280 -- 34 -- Peninsula Bank....................... January 2000 491 452 71 -- Western Bancorp...................... November 1999 2,508 2,105 773 -- Mercantile Bancorporation............ September 1999 35,520 24,334 -- -- Voyager Fleet Systems, Inc........... September 1999 43 -- 25 27 Bank of Commerce..................... July 1999 638 529 269 -- Mellon Network Services' Electronic Funds Transfer Processing Unit.... June 1999 -- -- 78 170 Libra Investments, Inc............... January 1999 33 -- 4 -- Northwest Bancshares, Inc............ December 1998 377 344 90 140 Firstar Corporation.................. November 1998 20,688 14,560 -- -- First Financial Bancorporation....... September 1998 558 478 -- -- Financial Services Corporation of the Midwest............................. August 1998 514 414 -- -- Trans Financial, Inc................. August 1998 2,409 1,620 -- -- Cargill Leasing Corporation.......... July 1998 613 -- 64 220 CBT Corporation...................... July 1998 1,006 696 -- -- Firstbank of Illinois Co............. July 1998 2,285 1,970 -- -- Piper Jaffray Companies, Inc......... May 1998 1,272 -- 555 719 HomeCorp, Inc........................ March 1998 335 309 -- -- Horizon Bancorp, Inc................. February 1998 537 454 -- -- Great Financial Corporation.......... February 1998 2,809 2,001 363 135 Branches of: First Union.......................... December 2000 424 1,779 359 342 Bank One............................. June/August 1998 193 1,198 137 137 - ----------------------------------------------------------------------------------------------------------------- Accounting (Dollars in Millions) Shares Issued Method - ------------------------------------- ----------------------------- Scripps Financial Corporation........ 9,406,023 Purchase Lyon Financial Services, Inc......... -- Purchase Oliver-Allen Corporation............. 3,343,026 Purchase Peninsula Bank....................... 5,112,584 Purchase Western Bancorp...................... 35,127,108 Purchase Mercantile Bancorporation............ 331,772,028 Pooling Voyager Fleet Systems, Inc........... -- Purchase Bank of Commerce..................... 11,749,269 Purchase Mellon Network Services' Electronic Funds Transfer Processing Unit.... -- Purchase Libra Investments, Inc............... 1,299,504 Purchase Northwest Bancshares, Inc............ -- Purchase Firstar Corporation.................. 331,737,543 Pooling First Financial Bancorporation....... 6,563,279 Pooling Financial Services Corporation of the Midwest............................. 4,331,398 Pooling Trans Financial, Inc................. 32,100,000 Pooling Cargill Leasing Corporation.......... -- Purchase CBT Corporation...................... 10,712,640 Pooling Firstbank of Illinois Co............. 27,920,372 Pooling Piper Jaffray Companies, Inc......... -- Purchase HomeCorp, Inc........................ 1,787,303 Pooling Horizon Bancorp, Inc................. 5,331,987 Pooling Great Financial Corporation.......... 28,500,000 Purchase Branches of: First Union.......................... -- Purchase Bank One............................. -- Purchase - --------------------------------------------------------------------
10 U.S. Bancorp 16 NOTE 4 MERGER AND RESTRUCTURING CHARGES The Company recorded merger and restructuring charges of $348.7 million, $532.8 million and $593.8 million in 2000, 1999 and 1998, respectively. These charges were primarily related to the Company's various acquisitions (see Note 3) and included primarily severance and systems conversion costs. Merger and restructuring charges in 1998 includes $45.1 million of restructuring costs associated with Mercantile Bancorporation's centralization, branch closing and consolidation of operations effort prior to its acquisition by the Company. The components of the charges are shown below:
(Dollars in Millions) Mercantile Firstar USBC* Other Total - ------------------------------------------------------------------------------------------------------------------- 2000 Severance................................................... $ 43.0 $ 16.3 $ -- $ .1 $ 59.4 Systems conversions......................................... 115.2 19.0 -- 59.3 193.5 Asset writedowns and lease terminations..................... 42.7 4.6 -- -- 47.3 Charitable contributions.................................... -- -- -- 2.5 2.5 Other merger-related charges................................ 26.1 12.7 -- 7.2 46.0 --------------------------------------------------- Total 2000.................................................. $227.0 $ 52.6 $ -- $ 69.1 $348.7 1999 Severance................................................... $131.0 $ 10.6 $ 8.0 $ -- $149.6 Systems conversions......................................... 19.5 78.9 4.4 29.7 132.5 Asset writedowns and lease terminations..................... .2 4.4 1.6 -- 6.2 Charitable contributions.................................... 35.0 -- -- -- 35.0 Loss on sale of securities.................................. 177.8 -- -- -- 177.8 Other merger-related charges................................ 46.0 2.0 18.6 (34.9) 31.7 --------------------------------------------------- Total 1999.................................................. $409.5 $ 95.9 $ 32.6 $ (5.2) $532.8 1998 Severance................................................... $ -- $ 80.0 $ -- $ 63.1 $143.1 Systems conversions......................................... -- 26.9 229.4 38.5 294.8 Asset writedowns and lease terminations..................... -- 44.4 -- 20.0 64.4 Benefit curtailment gains................................... -- -- (25.6) -- (25.6) Charitable contributions.................................... -- 20.0 -- 3.0 23.0 Other merger-related charges................................ -- 39.7 54.4 94.1 --------------------------------------------------- Total 1998.................................................. $ -- $211.0 $203.8 $179.0 $593.8 - -------------------------------------------------------------------------------------------------------------------
* Represents the former U.S. Bancorp of Portland acquired in 1997 by USBM. The Company determines merger-related charges and related accruals based on its integration strategy and formulated plans. These plans are established as of the acquisition date and regularly evaluated during the integration process. Severance charges include the cost of severance, other benefits and outplacement costs associated with the termination of employees primarily in branch offices and centralized corporate support and data processing functions. The severance amounts are determined based on the Company's existing severance pay programs and are paid out over a benefit period of up to two years from the time of termination. The total number of employees included in severance amounts were approximately 3,635 for USBC, 2,000 for Firstar, 2,400 for Mercantile and 520 for other acquisitions. The adequacy of the accrued severance liability is reviewed periodically taking into consideration actual payments and remaining projected payment liabilities. Adjustments are made to increase or decrease these accruals as needed. Reversals of expenses can reflect a lower utilization of benefits by affected staff, changes in initial assumptions as a result of subsequent mergers and alterations of business plans. Systems conversion costs 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 other expenses related to system conversions and the integration of acquired branches and operations. Asset writedowns and lease terminations represent lease termination costs and impairment of assets for redundant office space, branches that will be vacated and equipment disposed of as part of the integration plan. In connection with certain mergers, the Company has made charitable contributions at the time of merger to reaffirm the Company's commitment to a market or as part of specific conditions necessary to achieve regulatory approval. These contributions are generally funded up-front and represent costs that would not have been incurred U.S. Bancorp 11 17 had the merger not occurred. Charitable contributions are charged to merger and restructuring expenses or considered in determining the acquisition cost at the applicable closing date. Other merger-related expenses are recorded as incurred and include investment banking fees, legal fees and stock registration fees. The following table presents a summary of activity with respect to the merger and restructuring related accruals:
(Dollars in Millions) Mercantile Firstar USBC Other Total - ---------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997................................ $ -- $ -- $ 189.0 $ 87.1 $ 276.1 Provision charged to operating expense................... -- 211.0 203.8 179.0 593.8 Additions related to purchase acquisitions............... -- -- -- 55.3 55.3 Cash outlays............................................. -- (78.7) (273.6) (161.0) (513.3) Noncash writedowns and other............................. -- (7.1) (37.9) (14.4) (59.4) ------------------------------------------------------ Balance at December 31, 1998................................ -- 125.2 81.3 146.0 352.5 Provision charged to operating expense................... 409.4 95.8 32.6 (5.0) 532.8 Additions related to purchase acquisitions............... -- -- -- 70.2 70.2 Cash outlays............................................. (182.8) (176.5) (36.0) (112.5) (507.8) Noncash writedowns and other............................. (27.7) (44.5) (28.2) (32.6) (133.0) Loss on sale of securities............................... (177.7) -- -- -- (177.7) Transfer of tax liability*............................... -- -- (33.8) -- (33.8) ------------------------------------------------------ Balance at December 31, 1999................................ 21.2 -- 15.9 66.1 103.2 Provision charged to operating expense................... 227.0 52.6 -- 69.1 348.7 Additions related to purchase acquisitions............... -- -- -- 46.0 46.0 Cash outlays............................................. (197.9) (52.6) (11.2) (105.9) (367.6) Noncash writedowns and other............................. (50.3) -- (4.7) (25.5) (80.5) ------------------------------------------------------ Balance at December 31, 2000................................ $ -- $ -- $ -- $ 49.8 $ 49.8 - ----------------------------------------------------------------------------------------------------------------------
*The liability relates to certain severance related items. The components of the merger related accrual were as follows:
December 31 --------------- (Dollars in Millions) 2000 1999 - ------------------------------------------------------------------------------- Severance................................................... $13.8 $ 55.8 Other employee-related costs................................ 6.8 16.6 Lease termination and facility costs........................ 8.4 9.5 Contracts and system writeoffs.............................. 7.4 6.4 Other....................................................... 13.4 14.9 --------------- Total.................................................... $49.8 $103.2 - -------------------------------------------------------------------------------
The merger related accrual by significant acquisition was as follows:
December 31 --------------- (Dollars in Millions) 2000 1999 - ------------------------------------------------------------------------------- Piper Jaffray Companies, Inc................................ $15.0 $ 17.5 Western Bancorp............................................. 5.1 20.8 Scripps Financial Corporation............................... 4.6 -- Bank of Commerce............................................ 4.1 7.5 Peninsula Bank.............................................. 3.0 -- Lyon Financial Services, Inc................................ 2.7 -- Northwest Bancshares, Inc................................... 2.3 3.5 USBC........................................................ -- 15.9 Mercantile Bancorporation................................... -- 21.2 Other acquisitions.......................................... 13.0 16.8 --------------- Total.................................................... $49.8 $103.2 - -------------------------------------------------------------------------------
In connection with the merger of Firstar and USBM, management estimates the Company will incur pre-tax merger related charges of approximately $970 million. These are currently estimated to include $188 million in employee related costs, $327 million for conversions of systems and consolidation of operations, $104 million in 12 U.S. Bancorp 18 occupancy and equipment charges (elimination of duplicate facilities and write-off of equipment), $178 million of charges related to credit and other balance sheet restructuring activities and $173 million in other merger related costs (including investment banking fees, legal fees and other transaction costs of $59 million and $76 million of charitable contribution to foundations). In addition to the estimated expenses of the Firstar and USBM merger, the Company expects to incur an additional $101 million, pretax, of merger and restructuring related expenses primarily in 2001 as a result of prior years' acquisitions. NOTE 5 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 $389 million at December 31, 2000. NOTE 6 INVESTMENT SECURITIES The detail of the amortized cost, gross unrealized holding gains and losses, and fair value of held-to-maturity and available-for-sale securities at December 31 was as follows:
2000 1999 ------------------------------------------------------------------------------------- Gross Gross Gross Unrealized Unrealized Unrealized Amortized Holding Holding Fair Amortized Holding (Dollars in Millions) Cost Gains Losses Value Cost Gains - --------------------------------------------------------------------------------------------------------------------------------- Held-to-maturity: U.S. Treasuries and agencies......... $ -- $ -- $ -- $ -- $ -- $-- Mortgage-backed securities........... 36 -- -- 36 45 -- Obligations of state and political subdivisions........................ 216 5 -- 221 149 6 ------------------------------------------------------------------------------------- Total held-to-maturity securities.... $ 252 $ 5 $ -- $ 257 $ 194 $ 6 - --------------------------------------------------------------------------------------------------------------------------------- Available-for-sale: U.S. Treasuries and agencies......... $ 1,600 $ 27 $ (3) $ 1,624 $ 2,370 $14 Mortgage-backed securities........... 11,800 128 (35) 11,893 9,625 29 Obligations of state and political subdivisions........................ 2,370 41 (2) 2,409 2,731 25 Other................................ 1,472 21 (29) 1,464 2,777 4 ------------------------------------------------------------------------------------- Total available-for-sale securities.......................... $17,242 $217 $(69) $17,390 $17,503 $72 - --------------------------------------------------------------------------------------------------------------------------------- 1999 ----------------------- Gross Unrealized Holding Fair (Dollars in Millions) Losses Value - ---------------------------------------- Held-to-maturity: U.S. Treasuries and agencies......... $ -- $ -- Mortgage-backed securities........... -- 45 Obligations of state and political subdivisions........................ -- 155 ----------------------- Total held-to-maturity securities.... $ -- $ 200 - ---------------------------------------- Available-for-sale: U.S. Treasuries and agencies......... $ (21) $ 2,363 Mortgage-backed securities........... (193) 9,461 Obligations of state and political subdivisions........................ (18) 2,738 Other................................ (88) 2,693 ----------------------- Total available-for-sale securities.......................... $(320) $17,255 - ----------------------------------------
Securities carried at $13.3 billion at December 31, 2000, and $10.7 billion at December 31, 1999, were pledged to secure public, private and trust deposits and for other purposes required by law. Securities sold under agreements to repurchase were collateralized by securities and securities purchased under agreements to resell with an amortized cost of $1.0 billion and $1.2 billion at December 31, 2000, and 1999, respectively. The following table provides information as to the amount of gross gains and (losses) realized through the sales of available-for-sale investment securities. Included in the gross losses below for 1999 is $177.7 million related to the Mercantile balance sheet restructuring. These losses were included in merger and restructuring related expense.
(Dollars in Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------ Gross realized gains........................................ $ 23.1 $ 31.1 $36.4 Gross realized losses....................................... (15.0) (195.6) (7.3) -------------------------------- Net realized gains (losses).............................. $ 8.1 $(164.5) $29.1 -------------------------------- Income tax (benefit) on realized gains (losses)............. $ 2.8 $ (57.9) $10.5 - ------------------------------------------------------------------------------------------------
For amortized cost, fair value and yield by maturity date of held-to-maturity and available-for-sale securities outstanding as of December 31, 2000, see Table 9 from which such information is incorporated by reference into these Notes to Consolidated Financial Statements. U.S. Bancorp 13 19 NOTE 7 LOANS AND ALLOWANCE FOR CREDIT LOSSES The composition of the loan portfolio at December 31, 2000 was as follows:
(Dollars in Millions) 2000 1999 - --------------------------------------------------------------------------------------- COMMERCIAL Commercial............................................... $ 47,041 $ 42,021 Lease financing.......................................... 5,776 3,835 ----------------------- Total commercial...................................... 52,817 45,856 COMMERCIAL REAL ESTATE Commercial mortgages..................................... 19,466 18,636 Construction and development............................. 6,977 6,506 ----------------------- Total commercial real estate.......................... 26,443 25,142 RESIDENTIAL MORTGAGES....................................... 7,753 11,395 RETAIL Credit card.............................................. 6,012 5,004 Retail leasing........................................... 4,153 2,123 Other retail............................................. 25,187 23,709 ----------------------- Total retail.......................................... 35,352 30,836 ----------------------- Total loans........................................ $122,365 $113,229 - ---------------------------------------------------------------------------------------
Loans are presented net of unearned interest which amounted to $1.1 billion and $553.2 million at December 31, 2000 and 1999, respectively. The Company had loans of $7.8 billion at December 31, 2000, and $3.5 billion at December 31, 1999 pledged at the Federal Home Loan Bank ("FHLB"). Loans of $3.6 billion at December 31, 2000, and $3.7 billion at December 31, 1999, were pledged by USBM at the Federal Reserve Bank. The following table lists information related to nonperforming loans as of December 31.
(Dollars in Millions) 2000 1999 - ----------------------------------------------------------------------------------- Loans on nonaccrual status.................................. $765.0 $518.0 Renegotiated loans.......................................... -- 2.0 ------------------- Total nonperforming loans................................... $765.0 $520.0 - ----------------------------------------------------------------------------------- Interest income that would have been recognized at original contractual terms.......................................... 72.2 47.2 Amount recognized as interest income........................ 21.4 17.7 ------------------- Forgone revenue............................................. $ 50.8 $ 29.5 - -----------------------------------------------------------------------------------
Activity in the allowance for credit losses was as follows:
(Dollars in Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ Balance at beginning of year................................ $1,710.3 $1,705.7 $1,665.8 Add: Provision charged to operating expense................... 828.0 646.0 491.3 Deduct: Loans charged off........................................ 1,017.6 902.8 773.7 Less recoveries of loans charged off..................... 192.2 230.2 228.5 -------------------------------------- Net loans charged off.................................... 825.4 672.6 545.2 Acquisitions and other changes.............................. 74.0 31.2 93.8 -------------------------------------- Balance at end of year...................................... $1,786.9 $1,710.3 $1,705.7 - ------------------------------------------------------------------------------------------------------
14 U.S. Bancorp 20 A portion of the allowance for credit losses is allocated to loans deemed impaired. All impaired loans are included in nonperforming assets. A summary of these loans and the related allowance for loan losses is as follows:
2000 1999 1998 ----------------------------------------------------------------------------- Recorded Valuation Recorded Valuation Recorded Valuation (Dollars in Millions) Investment Allowance Investment Allowance Investment Allowance - --------------------------------------------------------------------------------------------------------------------------------- Impaired Loans: Valuation allowance required................. $198 $57 $ 22 $8 $ 45 $10 No valuation allowance required.............. 486 -- 397 -- 318 -- ----------------------------------------------------------------------------- Total impaired loans............................ $684 $57 $419 $8 $363 $10 ----------------------------------------------------------------------------- Average balance of impaired loans during year... $526 $408 $362 Interest income recognized on impaired loans during year.................................... 7.8 3.3 4.6 - ---------------------------------------------------------------------------------------------------------------------------------
Commitments to lend additional funds to customers whose loans were classified as nonaccrual or renegotiated at December 31, 2000, totaled $22.3 million. During 2000, there were no loans that were restructured at market interest rates and returned to a fully performing status. NOTE 8 TRANSFERS AND SERVICING OF FINANCIAL ASSETS RECEIVABLE SALES When the Company sells receivables or selected financial assets, it may retain interest-only strips, servicing rights and/or other retained interests in the receivables. The gain or loss on sale of the receivables depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair values at the date of transfer. Market prices are used to determine retained interest fair values when readily available. However, quotes are generally not available for retained interests, so the Company estimates fair value based on the present value of future expected cash flows using management's best estimates of certain key assumptions including credit losses, prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. Retained interests recorded to date have been valued using a discounted cash flow methodology. At least quarterly, the Company revalues the retained interests by obtaining market prices if available or by calculating the present value of remaining cash flows. When using a present value methodology, key assumptions from the most recent valuation, including asset specific characteristics, are reviewed for appropriateness and updated as necessary. The Company has established a securitization trust which holds short-term commercial loans that were originated by the Company. These loans totaled $2.0 billion at December 31, 2000 and included net sales of originated loans to the trust of approximately $3.7 billion during 2000. The Company received $18 million in servicing fee revenue from the trust during 2000. Under a credit enhancement agreement with the trust, the Company may repurchase assets or provide alternative funding to the trust if the credit quality of the assets held falls below certain levels. No funding or repurchase of assets occurred during 2000. The Company also established a securitization trust which held credit card receivables originated by the Company. This trust was terminated in December 2000 and $509 million of credit card receivables were transferred from the trust to the Company in exchange for the seller's certificates held by the Company. During the period in 2000 that the trust was in existence, $665 million of credit card collections were reinvested in the trust. The Company received $18 million in servicing fee revenue from the trust in 2000 and recorded a $2.2 million gain upon the termination of the trust. For the year ended December 31, 2000, the Company sold $255.7 million of the U.S. government guaranteed portions of loans originated under Small Business Administration (SBA) programs, recognizing a pre-tax gain on sale of $10.6 million. The SBA covers losses occurring on these guaranteed portions. Although the Company has no credit recourse relating to these sales, it does continue to own a portion of the non-guaranteed elements of the loans. The Company continues to service the loans and is required under the SBA programs to retain specified yield amounts. A portion of the yield is recognized as servicing fee income as it occurs, and the remainder is capitalized as an excess servicing asset and is included in the gain on sale calculation. U.S. Bancorp 15 21 SERVICING ASSET POSITION
SBA (Dollars in Millions) Loans - ----------------------------------------------------------------- Servicing assets at December 31, 1999................... $ 4.3 Servicing assets recognized during the period........... 4.0 Amortization............................................ (1.4) ----- Servicing assets at December 31, 2000................... $ 6.9 - -----------------------------------------------------------------
No valuation allowances were required during 2000. Servicing assets are reported in aggregate but measured on a transaction specific basis. Market values were determined using discounted cash flows, utilizing the assumptions noted in the table below. Key economic assumptions used in valuing servicing assets at the date of sale resulting from sales completed during 2000 were as follows:
2000 (Dollars in Millions) SBA Loans(1) - ------------------------------------------------------------------ Fair value of assets recognized................. $7.9 Prepayment speed(2)............................. 21 CPR Weighted average life (years)................... 3.9 Expected credit losses.......................... Not Applicable Discount rate................................... 12% Variable returns to transferees................. Not Applicable - ------------------------------------------------------------------
1. All loans were adjustable based on the Wall Street Journal Prime rate. 2. The Company used a prepayment vector based on loan seasoning for valuation. The given speed was the effective prepayment speed that yields the same weighted average life calculated using the prepayment vector. RESIDUAL ECONOMIC ASSUMPTIONS AND ADVERSE CHANGES The Company has retained interests on the following asset sales: $1.8 billion sale of indirect automobile loans on September 24, 1999, $420 million sale of corporate and purchasing card receivables on February 27, 1997, and sales of SBA loans since 1988. At December 31, 2000, key economic assumptions and the sensitivity of the current fair value of residual cash flows to immediate 10 percent and 20 percent adverse changes in those assumptions were as follows:
Indirect Corporate Automobile SBA Card At December 31, 2000 (Dollars in Millions) Loans Loans(1) Receivables(2) - -------------------------------------------------------------------------------------------------------- Carrying amount/fair value of retained interests............ $46.2 $4.2 $8.4 Weighted-average life (in years)............................ 1.0 3.9 .1 PREPAYMENT SPEED ASSUMPTION (ANNUAL RATE)(3,4).............. 1.5 ABS 21 CPR -- Impact on fair value of 10% adverse change............... $(.3) $(.3) -- Impact on fair value of 20% adverse change............... $(.7) $(.6) -- EXPECTED CREDIT LOSSES (CUMULATIVE)......................... 1.6% -- -- Impact on fair value of 10% adverse change............... $(1.2) -- -- Impact on fair value of 20% adverse change............... $(2.4) -- -- RESIDUAL CASH FLOWS DISCOUNT RATE (ANNUAL).................. 12.0% 12.0% -- Impact on fair value of 10% adverse change............... $(.6) $(.2) -- Impact on fair value of 20% adverse change............... $(1.2) $(.3) -- INTEREST RATES ON VARIABLE AND ADJUSTABLE CONTRACTS......... NA NA -- Impact on fair value of 10% adverse change............... NA NA -- Impact on fair value of 20% adverse change............... NA NA -- - --------------------------------------------------------------------------------------------------------
1. Credit losses are covered by the appropriate SBA loan program and are not included in retained interests. Principal reductions caused by defaults are included in the prepayment assumption. 2. Retained interest is effectively a single period receivable that is paid and renewed each month during the revolving period. Therefore, no assumptions are used in its estimate. Losses are recognized in the period they occur. 3. The Company uses prepayment vectors based on loan seasoning for valuation. The given speed is the effective prepayment speed that yields the same weighted average life calculated using the prepayment vector. 4. ABS is the absolute prepayment rate and is the auto industry's standard measure of prepayment speed. CPR is the constant prepayment rate. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 percent variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumptions to the change in fair value may not be linear. Also, in this table the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; however, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities. 16 U.S. Bancorp 22 OTHER INFORMATION The table below summarizes certain cash flows received from and paid to special purpose entities for the loan sales described above:
Year Ended December 31 (Dollars in Millions) 2000 - --------------------------------------------------------------------------- Proceeds from new sales..................................... $ 3,966.3 Proceeds from corporate and credit card securitization(1)... 8,042.7 Reinvestment in corporate and credit card securitization receivables(2)............................................. (7,972.9) Servicing fees received..................................... 52.9 Other cash flows received on retained interests(2).......... 34.2 Purchases of delinquent or foreclosed assets................ -- - ---------------------------------------------------------------------------
1. The corporate and credit card, securitizations are revolving transaction where proceeds are reinvested until its legal termination. The indirect automobile and SBA loan sales are amortizing transaction where the cash flow is used to pay amounts due to investors. 2. This amount represents total cash flows received from retained interests by the Company other than servicing fees. Other cash flows include, for example, all cash flows from interest-only strips and cash above the minimum required level in cash collateral accounts. Quantitative information relating to loan sales and managed assets is given below:
December 31, 2000 ------------------------------------------------------------ Period Ended Year Ended ------------------------------------------------------------ Total Principal Delinquent* Average Net Credit Asset Type (Dollars in Millions) Balance Balance Balance Loss - ---------------------------------------------------------------------------------------------------------------------------- Commercial loans............................................ $ 17,382 $ 50 $16,796 $46.3 Indirect automobile loans................................... 1,242 21 1,638 37.6 Guaranteed SBA loans........................................ 828 11 689 -- Corporate card receivables.................................. 815 27 958 8.6 Credit card receivables..................................... 2,219 70 2000 96.2 ------------------------------------------------------------ Total loans managed......................................... $ 22,486 $ 179 $22,081 $188.7 Less: Loans sold or securitized................................ 3,853 4,588 -------- ------- Loans held in portfolio.................................. $ 18,633 $17,493 - ----------------------------------------------------------------------------------------------------------------------------
*Principal amount 60 days or more past due. NOTE 9 PREMISES AND EQUIPMENT Premises and equipment at December 31 consisted of the following:
(Dollars in Millions) 2000 1999 - -------------------------------------------------------------------------------- Land........................................................ $ 276 $ 282 Buildings and improvements.................................. 1,786 1,960 Furniture, fixtures and equipment........................... 1,888 1,752 Capitalized building and equipment leases................... 171 108 Construction in progress.................................... 48 46 ---------------- 4,169 4,148 Less accumulated depreciation and amortization.............. 2,333 2,283 ---------------- Total.................................................... $1,836 $1,865 - --------------------------------------------------------------------------------
U.S. Bancorp 17 23 NOTE 10 MORTGAGE SERVICING RIGHTS Changes in capitalized mortgage servicing rights are summarized as follows:
(Dollars in Millions) 2000 1999 - ------------------------------------------------------------------------------ Balance at beginning of year................................ $ 213 $ 232 Rights purchased............................................ 16 1 Rights capitalized.......................................... 137 170 Amortization................................................ (35) (47) Rights sold................................................. (101) (144) Impairment.................................................. (1) -- -------------- Balance at end of year................................... $ 229 $ 212 - ------------------------------------------------------------------------------
The fair value of capitalized mortgage servicing rights was $244.8 million on December 31, 2000 and $269.1 million on December 31, 1999. At December 31, 2000, the reduction in the current fair value of mortgage servicing rights to immediate 25 and 50 basis point adverse interest rate changes would be approximately $11.2 million and $25.2 million, respectively. The Company has purchased principal-only securities that act as a partial economic hedge to this possible adverse interest rate change. The Company serviced $17.0 billion and $19.5 billion of mortgage loans for other investors as of December 31, 2000 and 1999, respectively. NOTE 11 INTANGIBLE ASSETS The following is a summary of intangible assets at December 31, which are included in the consolidated balance sheet:
(Dollars in Millions) 2000 1999 - -------------------------------------------------------------------------------- Goodwill.................................................... $4,312 $3,790 Core deposit benefits....................................... 374 407 Mortgage servicing rights................................... 229 212 Other identified intangibles................................ 394 416 ---------------- Total intangible assets.................................. $5,309 $4,825 - --------------------------------------------------------------------------------
18 U.S. Bancorp 24 NOTE 12 SHORT-TERM BORROWINGS The following table is a summary of short-term borrowings for the last three years:
2000 1999 1998 ----------------------------------------------------------- (Dollars in Millions) Amount Rate Amount Rate Amount Rate - ------------------------------------------------------------------------------------------------------------------------- At year end Federal funds purchased.................................. $ 2,849 5.8% $ 5,489 4.7% $ 4,749 4.7% Securities sold under agreements to repurchase........... 3,347 4.6 3,174 3.8 3,176 4.1 Commercial paper......................................... 223 6.4 170 4.7 182 5.5 Treasury, tax and loan notes............................. 776 5.2 619 5.0 549 4.2 Other short-term borrowings.............................. 4,638 6.1 1,106 5.6 1,355 5.1 ----------------------------------------------------------- Total.............................................. $ 11,833 5.6% $ 10,558 4.6% $ 10,011 4.5% - ------------------------------------------------------------------------------------------------------------------------- Average for the year Federal funds purchased.................................. $ 5,690 6.2% $ 5,898 5.0% $ 4,688 5.3% Securities sold under agreements to repurchase........... 3,028 4.8 3,128 4.0 3,275 4.5 Commercial paper......................................... 215 6.3 370 5.1 258 5.6 Treasury, tax and loan notes............................. 912 6.1 577 4.5 761 5.2 Other short-term borrowings.............................. 2,741 7.7 1,734 6.9 2,120 6.8 ----------------------------------------------------------- Total.............................................. $ 12,586 6.2% $ 11,707 5.0% $ 11,102 5.4% - ------------------------------------------------------------------------------------------------------------------------- Maximum month-end balance Federal funds purchased.................................. $ 7,807 $ 7,080 $ 5,129 Securities sold under agreements to repurchase........... 3,415 3,278 3,487 Commercial paper......................................... 300 397 324 Treasury, tax and loan notes............................. 3,578 1,435 1,567 Other short-term borrowings.............................. 4,920 4,945 2,570 - -------------------------------------------------------------------------------------------------------------------------
U.S. Bancorp 19 25 NOTE 13 LONG-TERM DEBT Long-term debt (debt with original maturities of more than one year) at December 31 consisted of the following:
(Dollars in Millions) 2000 1999 - --------------------------------------------------------------------------------- U.S. BANCORP (Parent Company) Fixed-rate subordinated notes 7.625% due 2002.......................................... $ 150 $ 150 8.125% due 2002.......................................... 150 150 7.00% due 2003........................................... 150 150 6.625% due 2003.......................................... 100 100 8.00% due 2004........................................... 125 125 7.625% due 2005.......................................... 150 150 6.75% due 2005........................................... 300 300 6.875% due 2007.......................................... 250 250 7.30% due 2007........................................... 200 200 7.50% due 2026........................................... 200 200 7.25% due 2003........................................... 32 32 Fixed-rate senior notes 6.35% due 2001........................................... 200 200 6.80% due 2001........................................... 150 150 6.50% due 2002........................................... 199 199 5.875% due 2003.......................................... 100 100 7.05% due 2004........................................... 150 150 Medium-term notes........................................... 3,835 2,654 Capitalized lease obligations, mortgage indebtedness and other...................................................... 122 71 ------------------- Subtotal................................................. 6,563 5,331 SUBSIDIARIES Fixed-rate subordinated notes 6.00% due 2003........................................... 100 100 7.55% due 2004........................................... 100 100 8.35% due 2004........................................... 100 100 7.30% due 2005........................................... 100 100 6.875% due 2006.......................................... 125 125 6.50% due 2008........................................... 300 300 6.30% due 2008........................................... 300 300 5.70% due 2008........................................... 400 400 6.375% due 2004.......................................... 75 75 6.375% due 2004.......................................... 149 149 6.625% due 2006.......................................... 99 99 7.125% due 2009.......................................... 495 495 7.80% due 2010........................................... 299 -- Fixed-rate senior notes 6.25% due 2002........................................... 249 249 7.13% due 2000........................................... -- 25 Federal Home Loan Bank advances............................. 2,753 3,946 Bank notes.................................................. 9,051 8,459 Euro medium-term notes due 2004............................. 400 400 Floating-rate notes due 2000................................ -- 250 Capitalized lease obligations, mortgage indebtedness and other...................................................... 218 24 ------------------- Total.............................................. $ 21,876 $ 21,027 - ---------------------------------------------------------------------------------
Medium-term notes ("MTNs") outstanding at December 31, 2000, mature from January 2001 through December 2004. The MTNs bear fixed or floating interest rates ranging from 5.80 percent to 7.50 percent. The weighted average interest rate of MTNs at December 31, 2000, was 6.82 percent. Federal Home Loan Bank advances outstanding at December 31, 2000, mature from 2001 through 2026. The advances bear fixed or floating interest rates ranging from 4.99 percent to 8.25 percent. The Company has an arrangement with the FHLB whereby 20 U.S. Bancorp 26 based on collateral available (residential and commercial mortgages), the Company could have borrowed an additional $13.0 billion at December 31, 2000. The weighted average interest rate of FHLB advances at December 31, 2000, was 6.45 percent. Bank notes outstanding at December 31, 2000, mature from January 2001 through 2005. The notes bear fixed or floating interest rates ranging from 5.25 percent to 7.02 percent. The weighted average interest rate of Bank notes at December 31, 2000, was 6.73 percent. Euro medium-term notes outstanding at December 31, 2000, bear floating rate interest at three-month LIBOR plus .15 percent. The interest rate at December 31, 2000, was 6.95 percent. The Company has a line of credit of $200 million, of which the total amount was available at December 31, 2000. Maturities of long-term debt outstanding at December 31, 2000, were:
Parent (Dollars in Millions) Consolidated Company - ------------------------------------------------------------------------------------ 2001........................................................ $ 7,732 $ 1,422 2002........................................................ 4,551 1,468 2003........................................................ 2,804 1,541 2004........................................................ 2,069 932 2005........................................................ 1,426 457 Thereafter.................................................. 3,294 743 ---------------------- Total....................................................... $21,876 $ 6,563 - ------------------------------------------------------------------------------------
NOTE 14 COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES OF THE PARENT COMPANY The Company issued $1.4 billion of company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company (the "Trust Preferred Securities") through six separate issuances by six wholly-owned subsidiary grantor trusts (the "Trusts"). The Trust Preferred Securities accrue and pay distributions periodically at specified rates as provided in the indentures. The Trusts used the net proceeds from the offerings to purchase a like amount of Junior Subordinated Deferrable Interest Debentures (the "Debentures") of the Company. The Debentures are the sole assets of the Trusts and are eliminated, along with the related income statement effects, in the consolidated financial statements. The Company's obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the Trusts. The guarantee covers the distributions and payments on liquidation or redemption of the Trust Preferred Securities, but only to the extent of funds held by the Trusts. The Trust 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 Trust Preferred Securities are redeemable in whole or in part in 2003, 2006 and 2007 in the amounts of $350 million, $750 million and $300 million, respectively. The Trust Preferred Securities qualify as Tier I capital of the Company for regulatory capital purposes. The Company used the proceeds from the sales of the Debentures for general corporate purposes. The following table is a summary of the Trust Preferred Securities as of December 31, 2000:
Issuance Debenture Rate Rate at Maturity Redemption Issuance Trust (Dollars in Millions) Date Amount Type 12/31/00 Date Date - --------------------------------------------------------------------------------------------------------------------------------- USB Capital II....................................... 03/1998 $350 Fixed 7.20% 04/2028 04/01/2003 USB Capital I........................................ 12/1996 300 Fixed 8.27% 12/2026 12/15/2006 FBS Capital I........................................ 11/1996 300 Fixed 8.09% 11/2026 11/15/2006 Star Capital I....................................... 06/1997 150 Variable 7.35% 06/2027 06/15/2007 Firstar Capital Trust I.............................. 12/1996 150 Fixed 8.32% 12/2026 12/15/2006 Mercantile Capital Trust I........................... 02/1997 150 Variable 7.61% 02/2027 02/01/2007 - ---------------------------------------------------------------------------------------------------------------------------------
Note: The variable rate Trust Preferred Securities re-price quarterly. U.S. Bancorp 21 27 NOTE 15 SHAREHOLDERS' EQUITY At December 31, 2000 and 1999, the Company had authority to issue 2.0 billion shares of common stock and 10 million shares of preferred stock. The Company had 1,902.1 million and 1,928.5 million shares of common stock outstanding at December 31, 2000 and 1999, respectively. At December 31, 2000 the Company had 207.2 million shares of common stock reserved for future issuances. These shares are primarily reserved for stock option plans, dividend reinvestment plans and deferred compensation plans. In connection with the merger of Firstar and USBM, the number of authorized common shares for U.S. Bancorp was increased from 2 billion to 4 billion effective February 27, 2001. Under the U.S. Bancorp Preferred Share Purchase Rights Plan each share of common stock carries a right to purchase one one-thousandth of a share of preferred stock. The rights become exercisable in certain limited circumstances involving a potential business combination transaction or an acquisition of shares of the Company and are exercisable at a price of $100 per right, subject to adjustment. Following certain other events, each right entitles its holder to purchase for $100 an amount of common stock of the Company, or, in certain circumstances, securities of the acquiror, having a then-current market value of twice the exercise price of the right. The rights are redeemable and may be amended at the Company's option before they are exercisable. Until a right is exercised, the holder or a right has no rights as a shareholder of the Company. The rights expire on February 27, 2011. The Company issued 18.2 million and 47.8 million shares of common stock with an aggregate value of $.3 billion and $1.3 billion in connection with purchase acquisitions during 2000 and 1999, respectively. On February 16, 2000, USBM's Board of Directors authorized the repurchase of up to $2.5 billion of its common stock over a two-year period ending March 31, 2002. This USBM repurchase program replaced a program which was scheduled to expire on March 31, 2000. On April 11, 2000, Firstar's Board of Directors approved a common stock repurchase program of 100 million shares. The stock repurchase programs of Firstar and USBM were rescinded on October 4, 2000 and January 17, 2001, respectively, in connection with the planned merger of the formerly separate companies. The following table summarizes the Company's common stock repurchases for each of the last three years:
(Dollars and Shares in Millions) Number of Shares Value - ------------------------------------------------------------------ 2000.............................. 58.6 $1,182.2 1999.............................. 44.5 1,187.9 1998.............................. 37.0 1,104.0 - ------------------------------------------------------------------
USBM offered employees and directors an Employee Stock Purchase Plan ("ESPP") that permitted all eligible employees with at least one year of service and directors to purchase common stock (see Note 17). In connection with the planned merger with Firstar, the ESPP was terminated effective October 13, 2000. USBM's Dividend Reinvestment Plan providing for automatic reinvestment of dividends and optional cash purchases was suspended on November 9, 2000, following the announcement of the definitive agreement to merge with Firstar. A reconciliation of the transactions affecting Other Comprehensive Income included in shareholders' equity for the years ended December 31, is as follows:
(Dollars in Millions) Pre-tax Tax-effect Net-of-tax - ------------------------------------------------------------------ 2000 Unrealized gain on securities available for sale............ $ 436.0 $(157.8) $ 278.2 Reclassification adjustment for gains realized in net income........................ (41.6) 15.8 (25.8) Foreign currency translation adjustment.................... (.5) .2 (.3) --------------------------------- Total....................... $ 393.9 $(141.8) $ 252.1 --------------------------------- 1999 Unrealized loss on securities available for sale............ $(743.9) $ 268.2 $(475.7) Reclassification adjustment for losses realized in net income........................ 163.9 (57.7) 106.2 --------------------------------- Total....................... $(580.0) $ 210.5 $(369.5) --------------------------------- 1998 Unrealized gain on securities available for sale............ $ 179.9 $ (64.8) $ 115.1 Reclassification adjustment for gains realized in net income........................ (34.0) 12.2 (21.8) --------------------------------- Total....................... $ 145.9 $ (52.6) $ 93.3 - ------------------------------------------------------------------
22 U.S. Bancorp 28 NOTE 16 EARNINGS PER SHARE The components of earnings per share were:
(Dollars in Millions, Except Per Share Data) 2000 1999 1998 - ------------------------------------------------------------------------------------------------ Net income.................................................. $2,875.6 $2,381.8 $2,132.9 Adjustments to net income: Dividends on preferred stock............................... -- -- (.1) -------------------------------- Net income applicable to common shareholders................ $2,875.6 $2,381.8 $2,132.8 -------------------------------- Weighted average shares outstanding: (in millions) Common shares.............................................. 1,906.0 1,907.8 1,898.8 Net effect of the assumed purchase of stock based on the treasury stock method: Preferred shares........................................... -- -- .6 Options and stock plans.................................... 12.5 22.2 31.1 -------------------------------- Dilutive common shares outstanding.......................... 1,918.5 1,930.0 1,930.5 Earning per share: Basic...................................................... $1.51 $1.25 $1.12 Diluted.................................................... $1.50 $1.23 $1.10 - ------------------------------------------------------------------------------------------------
NOTE 17 EMPLOYEE BENEFITS RETIREMENT PLANS Pension benefits are provided to substantially all employees based on years of service and employees' compensation while employed with the Company. Employees are fully vested after five years of service. The Company's funding policy is to contribute amounts to its plans sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company determines to be appropriate. The actuarial cost method used to compute the pension liabilities and expense is the projected unit credit method. Prior to their acquisition dates, employees of certain acquired companies were covered by separate, noncontributory pension plans that provided benefits based on years of service and compensation. Plan assets primarily consist of listed stocks, corporate bonds, U.S. Treasury and Agency securities, and mutual funds. The Company also maintains several unfunded, nonqualified, supplemental executive retirement programs that provide additional defined pension benefits for certain employees. The assumptions used in computing the present value of the accumulated benefit obligation, the projected benefit obligation and net pension expense are substantially consistent with those assumptions used for the funded qualified plans. OTHER POSTRETIREMENT PLANS In addition to providing pension benefits, the Company provides health care and death benefits to certain retired employees. Employees may become eligible for health care benefits by meeting defined age and service requirements. The Company may also subsidize the cost of coverage for employees meeting certain requirements. The plan contains other cost-sharing features such as deductibles and coinsurance. The estimated cost of these retiree benefit payments is accrued during the employees' active service. U.S. Bancorp 23 29 Information presented in the tables below reflects a measurement date of September 30. The following table sets forth the components of net periodic benefit cost for the retirement plans.
Pension Plans Other Postretirement Benefits ----------------------------------------------------------------------- (Dollars in Millions) 2000 1999 1998 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Components of net periodic benefit cost Service cost....................................... $ 65.4 $ 70.1 $ 68.4 $ 2.0 $ 3.8 $ 3.1 Interest cost...................................... 117.3 107.1 109.3 16.3 16.5 16.4 Expected return on plan assets..................... (201.6) (177.5) (145.5) (.6) (.5) (.4) Net amortization and deferral...................... (13.2) 1.3 (6.6) .2 2.0 3.0 Recognized actuarial loss.......................... .7 1.9 1.9 (1.4) .2 -- ----------------------------------------------------------------------- Net periodic benefit cost............................. (31.4) 2.9 27.5 16.5 22.0 22.1 Curtailment and settlement (gains) losses.......... (17.0) (6.2) (22.6) 10.3 -- 13.9 ----------------------------------------------------------------------- Net periodic benefit cost after curtailment and settlement (gains)................................... $ (48.4) $ (3.3) $ 4.9 $26.8 $22.0 $36.0 - ---------------------------------------------------------------------------------------------------------------------------------
The following tables summarize benefit obligation and plan asset activity for the retirement plans.
Other Pension Plans Postretirement Plans --------------------------------------------------- (Dollars in Millions) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of measurement period.... $1,580.3 $1,653.0 $ 225.0 $ 251.3 Service cost............................................. 65.4 70.1 2.0 3.8 Interest cost............................................ 117.4 107.1 16.3 16.5 Plan participants' contributions......................... -- -- 6.8 3.1 Plan amendments.......................................... -- 23.4 -- (10.9) Actuarial (gain) loss.................................... .1 (144.3) 19.8 (18.7) Acquisitions and special termination benefits............ -- 1.9 -- 2.9 Benefit payments......................................... (111.8) (92.0) (25.8) (23.0) Curtailments............................................. (4.4) (4.0) -- -- Settlements.............................................. (51.6) (34.9) -- -- --------------------------------------------------- Benefit obligation at end of measurement period.......... $1,595.4 $1,580.3 $ 244.1 $ 225.0 - ------------------------------------------------------------------------------------------------------------------- CHANGE IN FAIR VALUE OF PLAN ASSETS Fair value at beginning of measurement period............ $1,985.3 $1,808.0 $ 13.4 $ 11.2 Actual return on plan assets............................. 443.7 220.3 .9 .6 Employer contributions................................... 18.9 76.0 18.8 15.3 Plan participants' contributions......................... -- -- 6.8 3.1 Acquisition/divestitures................................. 1.1 7.9 -- -- Settlements.............................................. (51.6) (34.9) -- -- Benefit payments......................................... (111.7) (92.0) (18.1) (16.8) --------------------------------------------------- Fair value at end of measurement period.................. $2,285.7 $1,985.3 $ 21.8 $ 13.4 - ------------------------------------------------------------------------------------------------------------------- FUNDED STATUS Funded status at end of measurement period............... $ 690.3 $ 405.0 $(222.3) $(211.6) Unrecognized transition (asset) obligation............... (1.8) (6.3) 9.0 20.3 Unrecognized prior service cost.......................... (87.6) (97.9) (7.8) (8.4) Unrecognized net (gain).................................. (338.6) (103.0) (7.6) (28.7) Fourth quarter contribution.............................. 1.2 .7 14.2 11.4 --------------------------------------------------- Net amount recognized.................................... $ 263.5 $ 198.5 $(214.5) $(217.0) - ------------------------------------------------------------------------------------------------------------------- COMPONENTS OF BALANCE SHEET Prepaid benefit cost..................................... $ 433.1 $ 351.6 $ -- $ -- Accrued benefit liability................................ (169.6) (153.1) (214.5) (217.0) --------------------------------------------------- Net amount recognized.................................... $ 263.5 $ 198.5 $(214.5) $(217.0) - -------------------------------------------------------------------------------------------------------------------
24 U.S. Bancorp 30 The following table sets forth the weighted average plan assumptions and other data:
USBM Firstar ----------------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Pension Plan Actuarial Computations Discount rate in determining benefit obligations... 7.8% 7.5% 6.5% 7.75% 6.58% 6.59% Expected long-term return on plan assets........... 9.5 9.5 9.5 12.15 11.38 9.62 Rate of increase in future compensation............ 5.6 5.6 5.6 4.00 4.06 4.34 Other Postretirement Plan Actuarial Computations Discount rate in determining benefit obligations... 7.8% 7.5% 6.5% 7.75% 6.75% 6.49% Expected long-term return on plan assets........... 5.0 5.0 5.0 * * * Health care cost trend rate Prior to age 65................................. 7.7 7.0 7.0 7.50 7.66 8.06 After age 65.................................... 7.7 5.5 6.4 7.50 7.66 8.06 Effect of One Percent Increase in Health Care Cost Trend Rate Service and interest costs.............. $ 1.0 $ 1.3 $ 1.2 $ .4 $ .4 $ .3 Accumulated postretirement benefit obligation...... 13.1 12.4 13.1 5.2 4.0 4.7 Effect of One Percent Decrease in Health Care Cost Trend Rate Service and interest costs.............. $ (.9) $ (1.0) $ (1.0) $ (.4) $ (.4) $ (.3) Accumulated postretirement benefit obligation...... (11.6) (10.9) (11.8) (4.6) (3.6) (4.1) - ---------------------------------------------------------------------------------------------------------------------------------
* The Firstar Plan had no assets as of December 31, 2000, 1999 and 1998. The following table provides information for pension plans with benefit obligations in excess of plan assets:
(Dollars in Millions) 2000 1999 - ----------------------------------------------------------------- Benefit obligation........................... $216.5 $189.8 Accumulated benefit obligation............... 193.9 155.0 Fair value of plan assets.................... -- -- - -----------------------------------------------------------------
EMPLOYEE INVESTMENT PLAN The Company has defined contribution retirement savings plans which allow 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 the Company's common stock. Employee contributions are invested, at the employees' direction, among a variety of investment alternatives. Total expense was $53.6 million, $57.3 million and $37.1 million in 2000, 1999 and 1998, respectively. EMPLOYEE STOCK PURCHASE PLAN The ESPP of USBM permitted all eligible employees with at least one year of service and directors to purchase common stock. Plan participants could purchase stock for 85 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 was determined by a committee of the Board of Directors. In 2000 and 1999, the purchase price was 85 percent of the fair market value. The plan resulted in no compensation expense to the Company. Due to the merger with Firstar, the ESPP was terminated effective October 13, 2000. NOTE 18 STOCK OPTIONS AND COMPENSATION PLANS STOCK OPTION AND COMPENSATION PLANS As part of its employee and director compensation programs, the Company may grant certain stock awards under the provisions of existing stock option and compensation plans. The Company has stock options outstanding under various plans at December 31, including plans assumed in acquisitions. The plans provide for grants of options to purchase shares of common stock generally at the stock's fair market value at the date of grant. In addition, the plans provide for grants of shares of common stock which are subject to restriction on transfer and to a right of repurchase by the Company. With respect to stock option and stock compensation 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 U.S. Bancorp 25 31 on the date of grant, no compensation expense is recognized. On the date exercised, if new shares are issued, the option proceeds equal to the par value of the shares are credited to common stock and additional proceeds are credited to capital surplus. If treasury shares are issued, the option proceeds equal to the average treasury share price are credited to treasury stock and additional proceeds are credited to capital surplus. Options granted are generally exercisable up to ten years from the date of grant and vest over three to five years. Restricted shares vest over three to seven years. The vesting of certain options and restricted shares accelerate based on growth in diluted operating earnings per share and on the performance of the Company in comparison to 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 $43.4 million, $69.5 million and $41.9 million in 2000, 1999 and 1998, respectively. Stock incentive plans of acquired companies are generally 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. At December 31, 2000, there were 40.6 million shares (subject to adjustment for forfeitures) available for grant under various plans. The following is a summary of stock options outstanding and exercised under various stock options plans of the Company.
2000 1999 1998 --------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Stock Options/ Average Stock Options/ Average Stock Options/ Average Awards Exercise Price Awards Exercise Price Awards Exercise Price - --------------------------------------------------------------------------------------------------------------------------------- EXECUTIVE STOCK OPTION PLANS: Number outstanding at beginning of year.......... 153,163,030 $22.74 107,405,102 $17.97 104,497,354 $13.95 Granted.................. 22,633,170 19.64 75,922,950 27.08 36,778,209 25.56 Assumed/converted........ 447,341 6.85 1,210,738 16.58 1,748,563 12.39 Exercised................ (10,017,357) 11.02 (22,332,730) 13.03 (31,722,689) 13.92 Cancelled................ (12,829,958) 19.91 (9,043,030) 25.63 (3,896,335) 17.99 --------------------------------------------------------------------------------------------------- Number outstanding at end of year....................... 153,396,226 $22.80 153,163,030 $22.74 107,405,102 $17.97 Exercisable at end of year....................... 68,870,745 $19.78 70,527,758 $18.00 64,448,703 $14.12 - --------------------------------------------------------------------------------------------------------------------------------- RESTRICTED SHARE PLANS: Number outstanding at beginning of year.......... 4,212,954 6,072,217 4,491,132 Granted.................. 4,110,440 1,379,808 3,668,750 Cancelled................ (1,946,257) (3,239,071) (2,087,665) --------------------------------------------------------------------------------------------------- Number outstanding at end of year....................... 6,377,137 4,212,954 6,072,217 - ---------------------------------------------------------------------------------------------------------------------------------
Additional information regarding options outstanding as of December 31, 2000 is as follows:
Options Outstanding Exercisable Options ------------------------------------------------------ ----------------------------- Weighted-Average Range of Remaining Contractual Weighted-Average Weighted-Average Exercise Prices Shares Life (Years) Exercise Price Shares Exercise Price - --------------------------------------------------------------------------------------------------------------------------------- $ 1.44 - $10.00......................... 11,373,733 3.6 $ 6.09 11,291,564 $ 6.08 $10.01 - $15.00......................... 9,099,454 5.4 11.61 8,256,582 11.34 $15.01 - $20.00......................... 21,459,832 7.4 17.66 12,801,936 18.04 $20.01 - $25.00......................... 40,893,167 8.6 22.50 13,133,256 23.22 $25.01 - $30.00......................... 62,864,266 8.0 28.14 16,660,189 26.49 $30.01 - $35.00......................... 6,704,533 7.4 32.52 5,770,602 32.64 $35.01 - $37.20......................... 1,001,241 7.5 35.82 956,616 35.81 --------------------------------------------------------------------------------------- 153,396,226 7.6 $22.80 68,870,745 $19.78 - ---------------------------------------------------------------------------------------------------------------------------------
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 accounted for its employee stock option plans under the fair value method of SFAS 123. The fair value of options was estimated at the grant date using a Black-Scholes option pricing model. Option valuation models require the use of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective 26 U.S. Bancorp 32 input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The pro forma disclosures include options granted in 2000, 1999 and 1998 and are not likely to be representative of the pro forma disclosures for future years. The estimated fair value of the options is amortized to expense over the options' vesting period.
Year Ended December 31 (Dollars in Millions, ------------------------------ Except Per-Share Data) 2000 1999 1998 - --------------------------------------------------------------- Pro forma net income........... $2,752.1 $2,240.5 $1,922.1 Pro forma earnings per share: Earnings per share.......... $ 1.44 $ 1.17 $ 1.01 Diluted earnings per share...................... 1.43 1.16 1.00 - --------------------------------------------------------------- Weighted average assumptions in option valuation: USBM Risk-free interest rates....... 6.1% 5.4% 5.4% Dividend yields................ 3.0 3.5 2.3 Stock volatility factor........ 0.37 0.27 0.25 Expected life of options (in years)........................ 4.7 6.1 2.3 FIRSTAR Risk-free interest rates....... 5.4% 5.6% 4.8% Dividend yields................ 2.5 2.0 1.6 Stock volatility factor........ 0.37 0.41 0.38 Expected life of options (in years)........................ 2.5-5.5 2.5-5.5 2.5-5.5 - ---------------------------------------------------------------
Directors and selected senior officers of the Company may participate in deferred compensation plans which may postpone the receipt of compensation. Amounts deferred under the plan may be valued on the basis of an interest index or be used to purchase shares of the Company's common stock. Although the plan is unfunded for tax purposes, a portion of the shares of treasury stock held at December 31, 2000, 1999 and 1998 were acquired to meet obligations arising from these plans and are considered common stock equivalents for the purpose of computing earnings per share. The Company has entered into agreements with certain officers that provide for the payment of a lump sum benefit to the officer, plus the continuation of certain medical and insurance benefits and immediate exercisability of stock options, in the event that the officer's employment is terminated involuntarily by the Company or voluntarily by the officer for good reason, following a change in control of the Company during the officer's protected period. The benefits payable under the agreements can be up to three times the officer's base salary and incentive bonus. NOTE 19 INCOME TAXES The components of income tax expense (benefit) were:
(Dollars in Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ FEDERAL Current..................................................... $ 996.1 $1,036.0 $ 913.4 Deferred.................................................... 324.5 219.5 94.6 -------------------------------------- Federal income tax....................................... 1,320.6 1,255.5 1,008.0 STATE Current..................................................... 159.0 103.3 167.6 Deferred.................................................... 32.6 33.4 (8.2) -------------------------------------- State income tax......................................... 191.6 136.7 159.4 -------------------------------------- Total income tax provision............................... $1,512.2 $1,392.2 $1,167.4 - ------------------------------------------------------------------------------------------------------
U.S. Bancorp 27 33 The reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate was as follows:
(Dollars in Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ Tax at statutory rate (35%)................................. $1,535.8 $1,320.9 $1,155.1 State income tax, at statutory rates, net of federal tax benefit.................................................... 124.5 88.9 103.6 Tax effect of: Tax-exempt interest, net................................. (56.0) (60.3) (66.0) Amortization of nondeductible goodwill................... 91.6 73.1 61.4 Tax credits.............................................. (62.7) (41.7) (36.3) Nondeductible merger charges............................. 4.9 56.4 8.2 Sale of preferred minority interest...................... (50.0) -- -- Other items.............................................. (75.9) (45.1) (58.6) -------------------------------------- Applicable income taxes..................................... $1,512.2 $1,392.2 $1,167.4 - ------------------------------------------------------------------------------------------------------
At December 31, 2000, for income tax purposes, the Company had federal net operating loss carry forwards of $2.8 million available, which expire in years 2001 through 2009. Deferred income tax assets and liabilities reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for the same items for income tax reporting purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31 were as follows:
(Dollars in Millions) 2000 1999 1998 - -------------------------------------------------------------------------------------------------- DEFERRED TAX ASSETS Allowance for credit losses................................. $ 637.0 $ 633.4 $ 626.1 Pension and postretirement benefits......................... 53.5 67.7 73.5 Deferred fees............................................... 35.0 56.2 75.3 Real estate and other asset basis differences............... 31.9 30.2 31.9 State and federal net operating loss carry forwards......... 25.0 23.8 22.1 Federal AMT credits and capital losses...................... 22.0 22.9 7.6 Charitable contributions.................................... .9 6.5 4.2 Accrued severance, pension and retirement benefits.......... 30.6 70.9 56.0 Other deferred tax assets, net.............................. 196.0 186.4 293.8 ---------------------------------- Gross deferred tax assets................................ 1,031.9 1,098.0 1,190.5 DEFERRED TAX LIABILITIES Leasing activities.......................................... (1,218.1) (941.0) (673.6) Accelerated depreciation.................................... (92.7) (68.4) (44.1) Other investment basis differences.......................... (41.1) (16.8) (13.4) Securities available-for-sale............................... (52.2) 89.3 (121.3) Other deferred tax liabilities, net......................... (124.0) (107.9) (104.2) ---------------------------------- Gross deferred tax liabilities........................... (1,528.1) (1,044.8) (956.6) Valuation allowance......................................... (16.6) (12.7) (10.9) ---------------------------------- NET DEFERRED TAX ASSETS (LIABILITIES)....................... $ (512.8) $ 40.5 $ 223.0 - --------------------------------------------------------------------------------------------------
Realization of the deferred tax assets over time is dependent upon the existence of taxable income in carryback periods or the Company generating sufficient taxable earnings in future periods. In determining that realization of the deferred tax asset was more likely than not, the Company gave consideration to a number of factors, including its taxable income during carryback periods, its recent earnings history, its expectations for earnings in the future and, where applicable, the expiration dates associated with tax carrybacks and carryforwards. A valuation allowance has been established to offset deferred tax assets related to state net operating loss carryforwards totaling approximately $437 million, which expire at various times within the next 15 years. 28 U.S. Bancorp 34 Certain events covered by Internal Revenue Code section 593 (e), which was not repealed, will trigger a recapture of base year reserve of acquired thrift institutions. The base year reserve of acquired thrift institutions would be recaptured if an entity ceases to qualify as a bank for federal income tax purposes. The base year reserve of thrift institutions also remain subject to income tax penalty provisions that, in general, require recapture upon certain stock redemptions of, and excess distributions to, stockholders. At December 31, 2000, retained earnings included approximately $101.8 million of base year reserves for which no deferred federal income tax liability has been recognized. NOTE 20 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CREDIT CONCENTRATIONS In the normal course of business, the Company uses various off-balance sheet financial instruments to manage its interest rate and market risk and to meet the needs of its customers. These instruments carry varying degrees of credit, interest rate or liquidity risk. The contract or notional amounts of these financial instruments at December 31 were as follows:
(Dollars In Millions) 2000 1999 - ---------------------------------------------------------------------------------------- Commitments to extend credit Commercial............................................... $46,434 $46,734 Corporate and purchasing cards........................... 21,236 18,503 Consumer credit cards.................................... 20,254 19,971 Other consumer........................................... 8,580 8,895 Letters of credit Standby.................................................. 6,380 5,832 Commercial............................................... 527 587 Interest rate swap contracts Hedges................................................... 8,758 8,643 Basis swaps.............................................. 1,000 -- Intermediated............................................ 4,007 2,008 Options contracts Hedge interest rate floors purchased..................... 500 805 Intermediated interest rate and foreign exchange caps and floors purchased........................................ 709 589 Intermediated interest rate and foreign exchange caps and floors written.......................................... 709 589 Credit derivatives purchased................................ 80 20 Futures and forward contracts............................... 25 34 Recourse on assets sold..................................... 2,138 1,927 Foreign currency commitments Commitments to purchase.................................. 1,717 1,639 Commitments to sell...................................... 1,724 1,597 Commitments from securities lending......................... 1,037 717 Commitments to sell residential mortgages................... 963 589 - ----------------------------------------------------------------------------------------
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 U.S. Bancorp 29 35 credit, up to the letter's contractual amount. Management assesses the borrower's credit to determine the necessary collateral, which may include marketable securities, real estate, accounts receivable and inventory. Since the conditions requiring the Company to fund letters of credit may not occur, the Company expects its liquidity requirements to be less than the total outstanding commitments. INTEREST RATE SWAPS AND OPTIONS Interest rate swaps are contracts to exchange fixed- and variable-rate interest payment obligations based on a notional principal amount. The Company enters into swaps to hedge its balance sheet against fluctuations in interest rates and as an intermediary for customers. At December 31, 2000, and 1999, interest rate swaps with notional values totaling $8.8 billion and $8.6 billion, respectively, hedged loans, borrowings, deposits and long-term debt. The Company received fixed-rate interest and paid floating-rate interest on substantially all swaps in its hedging portfolio as of December 31, 2000. Activity with respect to interest rate swap hedges was as follows:
(Dollars In Millions) 2000 1999 1998 - ------------------------------------------------------------------- Notional amount outstanding at beginning of year................. $8,643 $ 8,107 $ 6,528 Additions.......................... 1,720 5,032 3,180 Maturities......................... (260) (2,240) (1,358) Amortization....................... (666) (143) -- Terminations....................... (679) (2,113) (243) ---------------------------- Notional amount outstanding at end of year........................... $8,758 $ 8,643 $ 8,107 - ------------------------------------------------------------------- At December 31: Weighted average interest rate paid.............................. 6.78% 6.51% 5.72% Weighted average interest rate received.......................... 6.54% 6.38% 6.24% - -------------------------------------------------------------------
For the hedging portfolio's notional balances and yields by maturity date as of year-end 2000, see Table 19. At December 31, 2000, and 1999, LIBOR-based interest rate floors totaling $500 million with an average remaining maturity of .7 years and $805 million with an average remaining maturity of 1.1 years, respectively, hedged floating rate commercial loans and deposits. The strike rate on these LIBOR-based floors was 4.63 percent at December 31, 2000 and 4.68 percent at December 31, 1999. The premium on floors is amortized over the life of the contract. The impact of the floors on net interest income was not significant for the years ended December 31, 2000, 1999 and 1998. For swaps and options used as hedges, the Company recognizes interest income or expense as it is accrued over the term of the hedge. The gain or loss on a terminated hedge is amortized over the remaining life of the original swap or remaining life of the hedged item, whichever is shorter. The impact of the amortization of deferred gains and losses on hedges on net interest income was not significant for the years ended December 31, 2000, 1999 and 1998. Net unamortized deferred losses were $18.7 million at December 31, 2000. In addition to utilizing swaps and options as part of its asset/liability management strategy, the Company acts as an intermediary for swap and option agreements on behalf of its customers. To reduce its market risk exposure, the Company generally enters into offsetting positions. The total notional amount of customer swap agreements, including the offsetting positions, was $4.0 billion and $2.0 billion at December 31, 2000 and 1999, respectively. The total notional amount of customer option agreements, including the offsetting positions, was $1.4 billion and $1.2 billion at December 31, 2000, and 1999, respectively. Market value changes on intermediated swaps, options and futures contracts are recognized in income in the period of change. Realized gains or losses on intermediated transactions were not significant for the years ended December 31, 2000, 1999 and 1998. The credit risk related to interest rate swap and option agreements is that counterparties may be unable to meet the contractual terms. The Company estimates this risk by calculating the present value of the cost to replace all outstanding contracts in a gain position at current market rates, reported on a net basis by each counterparty. At December 31, 2000 and 1999, the gain position of these contracts, in the aggregate, was approximately $167 million and $53 million, respectively. The Company manages the credit risk of its interest rate swap and option contracts through bilateral collateral agreements, credit approvals, limits and monitoring procedures. Commercial lending officers perform credit analyses and establish counterparty limits. Senior Credit Administration periodically reviews positions to monitor compliance with the limits. In addition, the Company reduces the assumed counterparty credit risk through master netting agreements that permit the Company to settle multiple interest rate contracts with a given counterparty on a net basis. FUTURES AND FORWARD CONTRACTS Futures and forward contracts are agreements for the delayed delivery of securities or cash settlement money market instruments. The Company enters into futures contracts to hedge the 30 U.S. Bancorp 36 market risk on its fixed income inventory positions. The Company enters into forward contracts to hedge the interest rate risk of its mortgage loans held for sale. At December 31, 2000 and 1999, futures contracts outstanding were $25 million and $15 million, respectively. There were no forward contracts outstanding at December 31, 2000. Forward contracts outstanding at December 31, 1999 were $19 million. At December 31, 2000, net unamortized deferred gains on the forward agreements were not significant. The Company manages its credit risk on forward contracts, which arises from nonperformance by counterparties, through credit approval and limit procedures. RECOURSE ON ASSETS SOLD The Company is obligated under recourse provisions related to the sale of certain loans. The contract amount of these loans was $3.5 billion at December 31, 2000, and $3.8 billion at December 31, 1999. The maximum contractual amount of recourse on these loans was $2.1 billion at December 31, 2000, and $1.9 billion at December 31, 1999. FOREIGN CURRENCY COMMITMENTS The Company uses foreign currency commitments to help customers reduce the risks associated with changes in foreign currency exchange rates. Through these contracts, the Company exchanges currencies at specified rates on specified dates with various counterparties. The Company minimizes the market and liquidity risks by taking offsetting positions. In addition, the Company controls the market risks by limiting the net exposure through policies, procedures, and monitoring. The Company manages its credit risk, or potential risk of loss from default by a counterparty, through credit limit approval and monitoring procedures. The aggregate replacement cost of contracts in a gain position at December 31, 2000, was not significant. COMMITMENTS FROM SECURITIES LENDING The Company participates in securities lending activities by acting as a customer's agent involving the loan or sale of securities. The Company indemnifies customers for the difference between the market value of the securities lent and the market value of the collateral received. These transactions are collateralized by cash. CREDIT CONCENTRATIONS The Company primarily lends to borrowers in the 24 states where it has banking offices. Collateral for commercial loans may include marketable securities, accounts receivable, inventory and equipment. For detail of the Company's commercial portfolio by industry group and geography as of December 31, 2000, and 1999, see Table 9 on page 50, which is incorporated by reference into these Notes to Consolidated Financial Statements. For detail of the Company's commercial real estate portfolio by property type and geography as of December 31, 2000, and 1999, see Table 10 on page 51, which is incorporated by reference into these Notes to Consolidated Financial Statements. Such loans are collateralized by the related property. For detail of the company's retail loan portfolio see Table 7 on page 49 under the category "Retail" for the last five years ended December 31, which is incorporated by reference into these Notes to Consolidated Financial Statements. RESIDENTIAL MORTGAGE SALE COMMITMENTS The Company enters into commitments to sell groups of residential mortgage loans that it originates or purchases as part of its mortgage banking activities. The Company commits to sell the loans at specified prices in a future period typically within 90 days. The risk associated with these commitments consists primarily of loans not closing in sufficient volumes and at appropriate yields to meet the sale commitments. The Company had contracts totaling $963 million and $589 million on December 31, 2000 and 1999, respectively. Gains or losses on these contracts are included in the determination of the market value of mortgages held for sale. NOTE 21 FAIR VALUES OF FINANCIAL INSTRUMENTS Due to the nature of its business and its customers' needs, the Company offers a large number of financial instruments, most of which are not actively traded. When market quotes are unavailable, valuation techniques including discounted cash flow calculations and pricing models or services are used. The Company also uses various aggregation methods and assumptions, such as the discount rate and cash flow timing and amounts. As a result, the fair value estimates can neither be substantiated by independent market comparisons, nor realized by the immediate sale or settlement of the financial instrument. Also, the estimates reflect a point in time and could change significantly based on changes in economic factors, such as interest rates. Furthermore, the disclosure of certain financial and nonfinancial assets and liabilities are not required. Finally, the fair value disclosure is not intended to estimate a market value of the Company as a whole. A summary of the Company's valuation techniques and assumptions follows. U.S. Bancorp 31 37 CASH AND CASH EQUIVALENTS The carrying value of cash, amounts due from banks, federal funds sold and securities purchased under resale agreements was assumed to approximate fair value. SECURITIES Generally, trading account securities and available-for-sale securities were valued using available market quotes. In some instances, for securities that are not widely traded, market quotes for comparable securities were used. LOANS The loan portfolio consists of both floating and fixed-rate loans, the fair value of which was estimated using discounted cash flow analyses and other valuation techniques. To calculate discounted cash flows, the loans were aggregated into pools of similar types and expected repayment terms. The expected cash flows of loans considered historical prepayment experiences and estimated credit losses for nonperforming loans and were discounted using current rates offered to borrowers of similar credit characteristics. DEPOSIT LIABILITIES The fair value of demand deposits, savings accounts and certain money market deposits is equal to the amount payable on demand at year-end. The fair value of fixed-rate certificates of deposit was estimated by discounting the contractural cash flow using the discount rates implied by the high-grade corporate bond yield curve. SHORT-TERM BORROWINGS Federal funds purchased, securities sold under agreements to repurchase and other short-term funds borrowed are at floating rates or have short-term maturities. Their carrying value is assumed to approximate their fair value. LONG-TERM DEBT AND COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY THE JUNIOR SUBORDINATED DEBENTURES OF THE PARENT COMPANY Medium-term notes, Euro medium-term notes, bank notes, Federal Home Loan Bank Advances, capital lease obligations and mortgage note obligations 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 and company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely the junior subordinated debentures of the parent company were valued using available market quotes. INTEREST RATE SWAPS, BASIS SWAPS AND OPTIONS The interest rate options and swap cash flows were estimated using a third party pricing model and discounted based on appropriate LIBOR, Eurodollar futures, swap and Treasury Note yield curves. LOAN COMMITMENTS, LETTERS OF CREDIT AND GUARANTEES The Company's commitments have floating rates and do not expose the Company to interest rate risk. No premium or discount was ascribed to the loan commitments because virtually all funding would be at current market rates. 32 U.S. Bancorp 38 The estimated fair values of the Company's financial instruments are shown in the table below.
2000 1999 -------------------------------------------- Carrying Fair Carrying Fair (Dollars in Millions) Amount Value Amount Value - ------------------------------------------------------------------------------------------------------------ FINANCIAL ASSETS Cash and cash equivalents................................ $ 9,132 $ 9,132 $ 9,258 $ 9,258 Trading account securities............................... 753 753 617 617 Investment securities.................................... 17,642 17,647 17,449 17,455 Loans held for sale...................................... 764 764 670 670 Loans.................................................... 120,578 121,139 111,519 112,150 -------------------------------------------- Total financial assets............................. 148,869 $149,435 139,513 $140,150 -------- -------- Nonfinancial assets............................. 16,052 14,805 ------- -------- Total assets................................. $164,921 $154,318 ------- -------- FINANCIAL LIABILITIES Deposits................................................. $109,535 $109,593 $103,417 $103,847 Short-term borrowings.................................... 11,833 11,833 10,558 10,558 Long-term debt........................................... 21,876 22,006 21,027 20,948 Company-obligated mandatorily redeemable preferred securities.............................................. 1,400 1,351 1,400 1,284 -------------------------------------------- Total financial liabilities........................ 144,644 $144,783 136,402 $136,637 -------- -------- Nonfinancial liabilities........................ 5,109 3,969 Shareholders' equity............................ 15,168 13,947 ------- -------- Total liabilities and shareholders' equity......... $164,921 $154,318 ------- -------- OFF-BALANCE SHEET FINANCIAL INSTRUMENTS Hedge swaps Gain............................................... 140 $ 4 Loss............................................... (33) (247) Trading swaps Interest rate contracts Gain............................................... 27 27 42 42 Loss............................................... (21) (21) (38) (38) Foreign exchange contracts Gain............................................... 13 13 7 7 Loss............................................... (9) (9) (5) (5) - ------------------------------------------------------------------------------------------------------------
NOTE 22 COMMITMENTS AND CONTINGENT LIABILITIES Rental expense for operating leases amounted to $219.3 million in 2000, $193.8 million in 1999, and $197.8 million in 1998. Future minimum payments, net of sublease rentals, under capitalized leases and noncancelable operating leases with initial or remaining terms of one year or more, consisted of the following at December 31, 2000:
Capitalized Operating (Dollars in Millions) Leases Leases - --------------------------------------------------------------------------------------------- 2001........................................................ $ 11.4 $ 196.5 2002........................................................ 10.3 180.3 2003........................................................ 8.7 155.7 2004........................................................ 7.9 122.3 2005........................................................ 6.6 101.7 Thereafter.................................................. 56.5 564.7 ------------------------ Total minimum lease payments................................ $101.4 $1,321.2 -------- Less amount representing interest........................... 42.3 ------ Present value of net minimum lease payments................. $ 59.1 - ---------------------------------------------------------------------------------------------
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. U.S. Bancorp 33 39 NOTE 23 U.S. BANCORP (PARENT COMPANY) CONDENSED BALANCE SHEET
December 31 (Dollars in Millions) 2000 1999 - ------------------------------------------------------------------------------------- ASSETS Deposits with subsidiary banks, principally interest-bearing........................................... $ 1,714 $ 1,046 Available-for-sale securities............................... 325 340 Investments in: Bank affiliates.......................................... 15,019 14,625 Nonbank affiliates....................................... 1,059 796 Advances to: Bank affiliates.......................................... 1,071 1,016 Nonbank affiliates....................................... 2,858 1,927 Other assets................................................ 2,179 2,180 --------------------- Total assets.......................................... $24,225 $21,930 --------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Short-term funds borrowed................................... $ 224 $ 170 Advances from subsidiaries.................................. 97 111 Long-term debt.............................................. 6,563 5,331 Junior subordinated debentures issued to subsidiary trusts..................................................... 1,443 1,434 Other liabilities........................................... 730 937 Shareholders' equity........................................ 15,168 13,947 --------------------- Total liabilities and shareholders' equity............ $24,225 $21,930 - -------------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME
Year Ended December 31 (Dollars in Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ INCOME Dividends from subsidiaries (including $3,010.5, $1,661.0 and $2,093.2 from bank subsidiaries)....................... $3,027.8 $1,704.3 $2,206.6 Interest from subsidiaries.................................. 234.8 177.2 159.3 Service and management fees from subsidiaries............... 246.0 229.1 322.9 Other income................................................ 217.0 202.0 162.9 -------------------------------------- Total income....................................... 3,725.6 2,312.6 2,851.7 EXPENSES Interest on short-term funds borrowed....................... 19.3 26.8 26.6 Interest on long-term debt.................................. 441.7 296.4 249.9 Interest on junior subordinated debentures issued to subsidiary trusts.......................................... 111.3 110.3 103.5 Merger-related charges...................................... 21.3 103.8 158.3 Other expenses.............................................. 225.2 307.7 429.7 -------------------------------------- Total expenses........................................ 818.8 845.0 968.0 -------------------------------------- Income before income taxes and equity in undistributed income of subsidiaries..................................... 2,906.8 1,467.6 1,883.7 Income tax credit........................................... (34.0) (36.9) (152.0) -------------------------------------- Income of parent company.................................... 2,940.8 1,504.5 2,035.7 Equity (deficiency) in undistributed income of subsidiaries............................................... (65.2) 877.3 97.2 -------------------------------------- Net income............................................ $2,875.6 $2,381.8 $2,132.9 - ------------------------------------------------------------------------------------------------------
34 U.S. Bancorp 40 CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31 (Dollars in Millions) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income.................................................. $ 2,875.6 $ 2,381.8 $ 2,132.9 Adjustments to reconcile net income to net cash provided by operating activities: (Equity) deficiency in undistributed income of subsidiaries............................................ 65.2 (877.3) (97.2) Losses (gains) on available-for-sale securities.......... 4.1 (7.0) (12.8) Depreciation and amortization of premises and equipment............................................... 51.7 76.2 76.2 Other -- net............................................. (391.1) (3.2) (198.4) ----------------------------------------- Net cash provided by operating activities............. 2,605.5 1,570.5 1,900.7 INVESTING ACTIVITIES Available-for-sale securities Sales and maturities..................................... 92.2 128.9 94.6 Purchases................................................ (59.4) (334.3) (70.5) Investments in subsidiaries................................. (4.6) (26.0) (1,325.6) Equity distributions from subsidiaries...................... -- 145.0 325.0 Net decrease (increase) in short-term advances to affiliates................................................. (829.0) 58.1 (597.1) Other -- net................................................ (113.7) (421.3) 13.7 ----------------------------------------- Net cash used in investing activities................. (914.5) (449.6) (1,559.9) FINANCING ACTIVITIES Net (decrease) increase in short-term advances from subsidiaries............................................... (15.6) 62.6 21.4 Net (decrease) increase in short-term funds borrowed........ 53.3 (11.5) 78.1 Net change in long-term debt................................ 1,183.7 824.8 1,091.4 Issuance of junior subordinated debentures to subsidiary trusts..................................................... -- -- 360.8 Proceeds from dividend reinvestment, stock option and stock purchase plans............................................. 210.0 277.6 340.8 Repurchase of common stock.................................. (1,182.2) (1,187.9) (1,104.0) Shares reserved to meet deferred compensation obligations... -- -- 1.2 Cash dividends.............................................. (1,271.3) (1,029.7) (910.9) ----------------------------------------- Net cash used in financing activities................. (1,022.1) (1,064.1) (121.2) ----------------------------------------- Change in cash and cash equivalents................... 668.9 56.8 219.6 Cash and cash equivalents at beginning of year.............. 1,045.5 988.7 769.1 ----------------------------------------- Cash and cash equivalents at end of year.............. $ 1,714.4 $ 1,045.5 $ 988.7 - ---------------------------------------------------------------------------------------------------------
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. The amount of dividends available to the parent company from the bank subsidiaries at December 31, 2000 was $504 million. U.S. Bancorp 35 41 NOTE 24 SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS Listed below are supplemental disclosures to the Consolidated Statement of Cash Flows:
Year Ended December 31 (Dollars in Millions) 2000 1999 1998 - --------------------------------------------------------------------------------------------------- Income taxes paid........................................... $ 1,046.5 $ 901.1 $ 816.1 Interest paid............................................... 5,686.3 4,697.6 4,888.9 Net noncash transfers to foreclosed property................ 94.3 102.9 86.2 Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $141.5 in 2000, $210.6 in 1999 and $52.0 in 1998.......................................... 252.4 (369.5) 93.3 ----------------------------------- Acquisitions and divestitures Assets acquired.......................................... $ 3,314.6 $ 4,229.3 $ 7,840.8 Liabilities (assumed).................................... (3,755.9) (2,610.0) (7,097.5) ----------------------------------- Net................................................... $ (441.3) $ 1,619.3 $ 743.3 - ---------------------------------------------------------------------------------------------------
REGULATORY CAPITAL The measures used to assess capital include the capital ratios established by bank regulatory agencies, including the specific ratios for the "well capitalized" designation. For a description of the regulatory capital requirements and the actual ratios as of December 31, 2000 and 1999 for the Company and its significant bank subsidiaries, see Table 21. MONEY MARKET INVESTMENTS are included with cash and due from banks as part of cash and cash equivalents. Money market investments are comprised of the following components at December 31:
(Dollars in Millions) 2000 1999 - ------------------------------------------------------------------------------ Interest-bearing deposits................................... $ 82 $ 56 Federal funds sold.......................................... 203 1,100 Securities purchased under agreements to resell............. 372 778 -------------- Total money market investments........................... $657 $1,934 --------------
36 U.S. Bancorp 42 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of U.S. Bancorp: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of U.S. Bancorp and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of Firstar Corporation and the former U.S. Bancorp on February 27, 2001 in a transaction accounted for as a pooling of interests, as described in Notes 1 and 3 to the consolidated financial statements. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /S/ PRICEWATERHOUSECOOPERS, LLP Minneapolis, Minnesota April 13, 2001 U.S. Bancorp 37 43 (This page has been left blank intentionally.) 38 U.S. Bancorp 44 CONSOLIDATED BALANCE SHEET -- FIVE-YEAR SUMMARY
% Change December 31 (Dollars in Millions) 2000 1999 1998 1997 1996 1999-2000 - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks.............................. $ 8,475 $ 7,324 $ 8,882 $ 7,972 $ 8,295 15.7% Money market investments............................. 657 1,934 1,039 1,411 1,555 (66.0) Trading account securities........................... 753 617 666 268 276 22.0 Held-to-maturity securities.......................... 252 194 233 2,942 3,872 29.9 Available-for-sale securities........................ 17,390 17,255 20,732 17,500 14,799 .8 Loans held for sale.................................. 764 670 1,794 743 185 14.0 Loans Commercial........................................ 52,817 45,856 41,068 36,329 33,141 15.2 Commercial real estate............................ 26,443 25,142 21,808 19,798 18,904 5.2 Residential mortgages............................. 7,753 11,395 13,980 15,892 13,919 (32.0) Retail............................................ 35,352 30,836 30,102 27,010 25,278 14.6 -------------------------------------------------------- Total loans.......................................... 122,365 113,229 106,958 99,029 91,242 8.1 Less allowance for credit losses.................. 1,787 1,710 1,706 1,666 1,600 4.5 -------------------------------------------------------- Net loans...................................... 120,578 111,519 105,252 97,363 89,642 8.1 Other assets......................................... 16,052 14,805 12,116 9,289 7,986 8.4 -------------------------------------------------------- Total assets................................ $164,921 $154,318 $150,714 $137,488 $126,610 6.9% -------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing............................... $ 26,633 $ 26,350 $ 27,479 $ 24,062 $ 23,417 1.1% Interest-bearing.................................. 82,902 77,067 76,867 74,261 70,394 7.6 -------------------------------------------------------- Total deposits.............................. 109,535 103,417 104,346 98,323 93,811 5.9 Short-term borrowings................................ 11,833 10,558 10,011 10,385 11,641 12.1 Long-term debt....................................... 21,876 21,027 18,679 13,181 6,796 4.0 Company-obligated mandatorily redeemable preferred securities........................................ 1,400 1,400 1,400 1,050 750 -- Other liabilities.................................... 5,109 3,969 3,704 3,147 2,895 28.7 -------------------------------------------------------- Total liabilities........................... 149,753 140,371 138,140 126,086 115,893 6.7 Shareholders' equity................................. 15,168 13,947 12,574 11,402 10,717 8.8 -------------------------------------------------------- Total liabilities and shareholders' equity..................................... $164,921 $154,318 $150,714 $137,488 $126,610 6.9% - ---------------------------------------------------------------------------------------------------------------------------------
U.S. Bancorp 39 45 CONSOLIDATED STATEMENT OF INCOME -- FIVE-YEAR SUMMARY
% Change Year Ended December 31 (Dollars in Millions) 2000 1999 1998 1997 1996 1999-2000 - --------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans............................................. $10,562.5 $ 9,122.7 $ 8,818.3 $8,419.0 $7,794.9 15.7% Loans held for sale............................... 102.1 103.9 91.9 40.0 43.1 (1.7) Investment securities Taxable........................................ 1,008.3 1,047.1 1,179.5 1,060.7 1,038.6 (3.7) Non-taxable.................................... 140.6 150.1 158.2 158.0 159.3 (6.3) Money market investments.......................... 53.9 44.9 63.0 63.6 72.9 20.0 Trading securities................................ 53.7 45.0 25.6 16.8 16.9 19.3 Other interest income............................. 151.4 113.0 88.2 42.6 41.1 34.0 ----------------------------------------------------------- Total interest income.................... 12,072.5 10,626.7 10,424.7 9,800.7 9,166.8 13.5 INTEREST EXPENSE Deposits.......................................... 3,618.8 2,970.0 3,234.7 3,084.2 2,921.5 21.8 Short-term borrowings............................. 781.7 582.4 594.7 643.3 657.3 34.2 Long-term debt.................................... 1,510.4 1,126.9 926.5 586.0 407.3 34.0 Company-obligated mandatorily redeemable preferred securities....................................... 112.0 111.0 103.8 76.3 3.3 0.9 ----------------------------------------------------------- Total interest expense................... 6,022.9 4,790.3 4,859.7 4,389.8 3,989.4 25.7 ----------------------------------------------------------- Net interest income............................... 6,049.6 5,836.4 5,565.0 5,410.9 5,177.4 3.5 Provision for credit losses....................... 828.0 646.0 491.3 639.9 429.9 28.2 ----------------------------------------------------------- Net interest income after provision for credit losses........................................... 5,221.6 5,190.4 5,073.7 4,771.0 4,747.5 0.4 NONINTEREST INCOME Credit card and payment processing revenue........ 992.1 837.8 748.0 611.8 548.6 18.4 Trust and investment management fees.............. 926.2 887.1 788.3 686.1 592.9 4.4 Deposit service charges........................... 551.1 497.2 470.3 450.6 627.0 10.8 Cash management fees.............................. 292.4 280.6 242.0 214.2 * 4.2 Mortgage banking revenue.......................... 189.9 190.4 244.6 137.9 95.7 (0.3) Trading account profits and commissions........... 258.4 222.4 130.3 44.8 31.5 16.2 Investment products fees and commissions.......... 466.6 450.8 306.9 110.4 86.1 3.5 Investment banking revenue........................ 360.3 246.6 100.4 -- -- 46.1 Commercial product revenue........................ 304.4 215.7 121.9 97.9 * 51.2 Securities gains, net............................. 8.1 13.2 29.1 7.3 18.7 (38.6) Other............................................. 533.7 403.1 468.2 357.6 767.5 32.4 ----------------------------------------------------------- Total noninterest income................. 4,883.2 4,244.9 3,650.0 2,718.6 2,768.0 15.4 NONINTEREST EXPENSE Salaries.......................................... 2,427.1 2,355.3 2,196.7 1,892.0 1,773.9 3.0 Employee benefits................................. 399.8 410.1 424.9 424.0 405.2 (2.5) Net occupancy..................................... 396.9 371.8 356.9 335.0 326.3 6.8 Furniture and equipment........................... 308.2 307.9 314.1 312.3 322.8 0.1 Postage........................................... 174.5 170.7 155.4 106.6 144.0 2.2 Goodwill.......................................... 242.8 177.7 177.2 115.3 190.8 36.6 Other intangible assets........................... 149.5 152.1 124.6 92.1 * (1.7) Merger and restructuring related charges.......... 348.7 532.8 593.8 633.0 192.4 (34.6) Other............................................. 1,269.5 1,182.9 1,079.8 1,029.4 1,158.6 7.7 ----------------------------------------------------------- Total noninterest expense................ 5,717.0 5,661.3 5,423.4 4,939.7 4,514.0 1.1 ----------------------------------------------------------- Income before income taxes........................ 4,387.8 3,774.0 3,300.3 2,549.9 3,001.5 16.3 Applicable income taxes........................... 1,512.2 1,392.2 1,167.4 950.6 1,082.9 8.6 ----------------------------------------------------------- Net income........................................ $ 2,875.6 $ 2,381.8 $ 2,132.9 $1,599.3 $1,918.6 20.7 ----------------------------------------------------------- Net income applicable to common equity............ $ 2,875.6 $ 2,381.8 $ 2,132.8 $1,588.2 $1,899.3 20.7 - ---------------------------------------------------------------------------------------------------------------------------------
*Information not available, amounts included in other line items above. 40 U.S. Bancorp 46 QUARTERLY CONSOLIDATED FINANCIAL DATA
2000 1999 ---------------------------------------------------------------------------------------------- (Dollars in Millions, Except Fourth Third Second First Fourth Third Second First Per Share Data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans.......................... $2,787.9 $2,710.7 $2,591.8 $2,472.1 $2,379.4 $2,322.3 $2,235.8 $2,185.2 Loans held for sale............ 22.2 32.7 35.2 12.0 24.6 25.6 22.6 31.1 Investment securities Taxable..................... 251.3 250.4 255.6 251.0 246.8 263.8 262.8 273.7 Non-taxable................. 33.4 34.8 33.5 38.9 35.9 38.3 37.5 38.4 Money market investments....... 10.8 14.5 15.0 13.6 10.3 10.9 12.6 11.1 Trading securities............. 14.0 12.8 12.6 14.3 10.9 10.9 12.0 11.2 Other interest income.......... 39.4 37.7 37.0 37.3 32.5 28.7 27.1 24.7 ---------------------------------------------------------------------------------------------- Total interest income.... 3,159.0 3,093.6 2,980.7 2,839.2 2,740.4 2,700.5 2,610.4 2,575.4 INTEREST EXPENSE Deposits....................... 975.7 954.0 875.9 813.2 775.0 734.2 722.0 738.8 Short-term borrowings.......... 220.7 191.2 198.7 171.1 144.2 167.8 140.4 130.0 Long-term debt................. 398.3 403.9 371.3 336.9 315.6 291.8 261.8 257.7 Company-obligated mandatorily redeemable preferred securities.................... 22.8 31.5 29.3 28.4 27.1 28.0 28.0 27.9 ---------------------------------------------------------------------------------------------- Total interest expense... 1,617.5 1,580.6 1,475.2 1,349.6 1,261.9 1,221.8 1,152.2 1,154.4 Net interest income............ 1,541.5 1,513.0 1,505.5 1,489.6 1,478.5 1,478.7 1,458.2 1,421.0 Provision for credit losses.... 229.5 214.0 201.3 183.2 173.7 178.9 150.3 143.1 ---------------------------------------------------------------------------------------------- Net interest income after provision for credit losses... 1,312.0 1,299.0 1,304.2 1,306.4 1,304.8 1,299.8 1,307.9 1,277.9 NONINTEREST INCOME Credit card and payment processing revenue............ 264.7 261.2 247.3 218.9 234.6 227.9 201.8 173.6 Trust and investment management fees.......................... 233.8 231.1 230.4 230.9 229.9 219.5 219.0 218.7 Deposit service charges........ 145.4 144.3 138.0 123.4 131.2 126.6 124.7 114.7 Cash management fees........... 71.8 74.7 74.1 71.8 73.2 72.3 67.6 67.5 Mortgage banking revenue....... 54.4 44.7 48.1 42.7 35.3 45.4 54.7 55.0 Trading account profits and commissions................... 62.4 50.9 59.8 85.3 66.7 49.7 51.8 54.2 Investment products fees and commissions................... 108.9 107.8 109.1 140.8 115.3 105.7 118.0 111.8 Investment banking revenue..... 92.8 100.6 72.9 94.0 89.0 60.8 60.5 36.3 Commercial product revenue..... 85.2 86.0 71.6 61.6 57.6 53.4 48.9 55.8 Securities gains (losses), net........................... 7.0 1.1 .3 (.3) 2.1 (4.9) 3.1 12.9 Other.......................... 138.5 131.2 151.7 112.3 102.3 126.0 82.7 92.0 ---------------------------------------------------------------------------------------------- Total noninterest income.................. 1,264.9 1,233.6 1,203.3 1,181.4 1,137.2 1,082.4 1,032.8 992.5 NONINTEREST EXPENSE Salaries....................... 593.7 602.4 601.4 629.6 610.4 574.7 590.9 579.3 Employee benefits.............. 98.2 89.4 100.3 111.9 91.6 98.1 100.7 119.7 Net occupancy.................. 104.2 99.8 95.7 97.2 95.7 92.8 90.1 93.2 Furniture and equipment........ 76.2 79.6 75.7 76.7 79.6 77.4 77.1 73.8 Postage........................ 44.2 43.1 42.6 44.6 41.4 42.4 41.9 45.0 Goodwill....................... 64.2 60.4 59.8 58.4 51.7 44.0 40.4 41.6 Other intangible assets........ 37.8 37.3 37.0 37.4 35.5 37.6 38.6 40.4 Merger-related charges......... 84.1 117.7 81.9 65.0 90.5 379.3 45.1 17.9 Other.......................... 329.3 321.7 316.7 301.8 336.2 300.4 290.7 255.6 ---------------------------------------------------------------------------------------------- Total noninterest expense................. 1,431.9 1,451.4 1,411.1 1,422.6 1,432.6 1,646.7 1,315.5 1,266.5 ---------------------------------------------------------------------------------------------- Income before income taxes..... 1,145.0 1,081.2 1,096.4 1,065.2 1,009.4 735.5 1,025.2 1,003.9 Applicable income taxes........ 376.3 370.9 386.6 378.4 372.4 310.7 359.6 349.5 ---------------------------------------------------------------------------------------------- Net income..................... $ 768.7 $ 710.3 $ 709.8 $ 686.8 $ 637.0 $ 424.8 $ 665.6 $ 654.4 ---------------------------------------------------------------------------------------------- Earnings per share............. $ .41 $ .37 $ .37 $ .36 $ .33 $ .22 $ .35 $ .34 Diluted earnings per share..... $ .40 $ .37 $ .37 $ .36 $ .33 $ .22 $ .34 $ .34 - ---------------------------------------------------------------------------------------------------------------------------------
U.S. Bancorp 41 47 CONSOLIDATED DAILY AVERAGE BALANCE
Year Ended December 31 2000 - ------------------------------------------------------------------------------------------------------------------------ Yields (Dollars in Millions) Balance Interest and Rates - ------------------------------------------------------------------------------------------------------------------------ ASSETS Money market investments.................................... $ 931 $ 53.9 5.79% Trading account securities.................................. 779 57.6 7.39 Taxable securities.......................................... 14,567 1,008.3 6.92 Nontaxable securities....................................... 2,744 203.1 7.40 Loans held for sale......................................... 1,303 102.1 7.84 Loans Commercial............................................... 50,062 4,257.2 8.50 Commercial real estate................................... 26,040 2,305.5 8.85 Residential mortgage..................................... 9,578 723.4 7.55 Retail................................................... 32,637 3,295.4 10.10 ------------------------- Total loans.............................................. 118,317 10,581.5 8.94 ------- Other earning assets........................................ 1,965 151.4 7.70 Allowance for credit losses.............................. 1,781 ------------------------- Total earning assets*.............................. 140,606 12,157.9 8.65 Other assets................................................ 19,656 ------- Total assets....................................... $158,481 ------- LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits................................ $ 23,820 Interest-bearing deposits Interest checking........................................ 13,035 270.4 2.07 Money market accounts.................................... 22,774 1,000.0 4.39 Savings accounts......................................... 5,027 74.0 1.47 Time certificates of deposit less than $100,000.......... 25,861 1,458.3 5.64 Time deposits greater than $100,000...................... 12,909 816.1 6.32 ------------------------- Total interest-bearing deposits.................... 79,606 3,618.8 4.55 Short-term borrowings....................................... 12,586 781.7 6.21 Long-term debt.............................................. 22,410 1,510.4 6.74 Company-obligated mandatorily redeemable preferred securities................................................. 1,400 112.0 8.00 ------------------------- Total interest-bearing liabilities................. 116,002 6,022.9 5.19 Other liabilities........................................... 4,294 Shareholders' equity........................................ 14,365 ------- Total liabilities and shareholders' equity............. $158,481 ------- Net interest income......................................... $ 6,135.0 -------- Gross interest margin....................................... 3.46% --------- Gross interest margin without taxable-equivalent increments................................................. 3.40% --------- PERCENT OF EARNING ASSETS Interest income............................................. 8.65% Interest expense............................................ 4.29 --------- Net interest margin......................................... 4.36 --------- Net interest margin without taxable-equivalent increments... 4.30% - ------------------------------------------------------------------------------------------------------------------------
Interest and rates are presented on a fully taxable-equivalent basis under a tax rate of 35 percent. Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances. *Before deducting the allowance for credit losses and excluding the unrealized (loss) gain on available-for-sale securities. 42 U.S. Bancorp 48 SHEET AND RELATED YIELDS AND RATES
1999 1998 1999-2000 - ----------------------------------------------------------------------------------------------------------------------------------- Yields Yields % Change Balance Interest and Rates Balance Interest and Rates Average Balance - ----------------------------------------------------------------------------------------------------------------------------------- $ 1,082 $ 44.9 4.15% $ 1,170 $ 63.0 5.38% (13.96)% 630 47.8 7.59 428 27.6 6.45 23.65 16,301 1,047.1 6.42 17,977 1,179.5 6.56 (10.64) 2,970 220.6 7.43 3,137 238.2 7.59 (7.61) 1,450 103.9 7.17 1,264 91.9 7.27 (10.14) 43,328 3,288.3 7.59 38,983 3,110.4 7.98 15.54 23,076 1,940.3 8.41 20,458 1,784.1 8.72 12.84 12,680 953.7 7.52 15,160 1,170.5 7.72 (24.46) 30,554 2,963.4 9.70 27,850 2,782.5 9.99 6.82 ------------------------- ------------------------- 109,638 9,145.7 8.34 102,451 8,847.5 8.64 7.92 ------- ------- 1,686 113.0 6.70 1,311 88.2 6.73 16.55 1,709 1,688 4.21 ------------------------- ------------------------- 133,757 10,723.0 8.02 127,738 10,535.9 8.25 5.12 18,119 16,837 ------- ------- $150,167 $142,887 ------- ------- $ 23,556 $ 23,011 1.12 12,898 231.0 1.79 12,263 230.9 1.88 1.06 22,534 842.2 3.74 20,337 825.1 4.06 1.07 5,961 111.9 1.88 6,504 146.7 2.26 (15.67) 26,296 1,322.6 5.03 29,583 1,622.7 5.49 (1.65) 8,675 462.3 5.33 7,242 409.3 5.65 48.81 ------------------------- ------------------------- 76,364 2,970.0 3.89 75,929 3,234.7 4.26 4.25 11,707 582.4 4.97 11,102 594.7 5.36 7.51 20,248 1,126.9 5.57 15,732 926.5 5.89 10.68 1,400 111.0 7.93 1,314 103.8 7.90 0.00 ------------------------- ------------------------- 109,719 4,790.3 4.37 104,077 4,859.7 4.67 5.73 3,671 3,416 16.97 13,221 12,383 8.65 ------- ------- $150,167 $142,887 5.54 ------- ------- --------------- $ 5,932.7 $ 5,676.2 -------- -------- 3.65% 3.58% -------- -------- 3.58% 3.49% -------- -------- 8.02% 8.25% 3.58 3.80 -------- -------- 4.44 4.44 -------- -------- 4.37% 4.36% - ------------------------------------------------------------------------------------------------------
U.S. Bancorp 43 49 SUPPLEMENTAL FINANCIAL DATA
EARNINGS PER SHARE SUMMARY 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ Earnings per share.......................................... $1.51 $1.25 $1.12 $.86 $1.02 Diluted earnings per share.................................. $1.50 $1.23 $1.10 $.85 $1.00 - ------------------------------------------------------------------------------------------------------------------------ RATIOS - ------------------------------------------------------------------------------------------------------------------------ Return on average assets.................................... 1.81% 1.59% 1.49% 1.24% 1.57% Return on average common equity............................. 20.0 18.0 17.2 14.7 18.0 Average total equity to average assets...................... 9.1 8.8 8.7 8.4 8.7 Dividends per share to net income per share................. 43.0 37.0 29.5 31.4 20.6 - ------------------------------------------------------------------------------------------------------------------------ OTHER STATISTICS (Shares in Millions) - ------------------------------------------------------------------------------------------------------------------------ Common shares outstanding -- year end *..................... 1,902.0 1,982.5 1,903.5 1,864.0 1,847.9 Average common shares outstanding and common stock equivalents Earnings per share.................................... 1,906.0 1,907.8 1,898.8 1,841.0 1,861.6 Diluted earnings per share............................ 1,918.5 1,930.0 1,930.5 1,872.2 1,898.2 Common dividends declared (millions)........................ $1,267.0 $1,090.8 $977.6 $801.9 $635.2 - ------------------------------------------------------------------------------------------------------------------------
*Defined as total common shares less common stock held in treasury. STOCK PRICE RANGE AND DIVIDENDS
2000 1999 ------------------------------------------------------------------------------------------- Sales Price Sales Price -------------------------- Dividends -------------------------- Dividends High Low Declared High Low Declared - --------------------------------------------------------------------------------------------------------------------------------- First quarter..................... $24.63 $17.00 $ .1625 $31.85 $27.42 $ .1000 Second quarter.................... 27.75 21.06 .1625 34.56 26.25 .1000 Third quarter..................... 25.00 19.75 .1625 29.44 22.31 .1000 Fourth quarter.................... 24.25 15.63 .1625 29.38 20.25 .1625 Closing price -- December 31...... 23.25 21.13 - ---------------------------------------------------------------------------------------------------------------------------------
The common stock of U.S. Bancorp is traded on the New York Stock Exchange, under the ticker symbol, "USB." 44 U.S. Bancorp 50 (This page has been left blank intentionally.) U.S. Bancorp 45 51 TABLE 1 LINE OF BUSINESS FINANCIAL PERFORMANCE Operating segments are components of the Company about which financial information is available and is evaluated regularly in deciding how to allocate resources and assess performance. Prior to the merger, the Company operated its business units separately in 2000 and 1999 as Firstar and USBM and the basis of financial presentation differed significantly. Accordingly, the presentation of comparative business line results is not practicable at this time. At the date of the merger of Firstar and USBM, the Company has reorganized into the following operating segments: Consumer Banking; Payment Systems; Wholesale Banking; Private Client, Trust and Asset Management; Capital Markets; Treasury; and Corporate Support. For descriptions of these operating segments see "BUSINESS SEGMENTS" in Note 1 on page 6. The following table provides restated financial results during 2000 for the Company's primary operating segments:
Year Ended December 31, 2000 --------------------------------------------------------------- Private Client, Trust Consumer Payment Wholesale and Asset Capital (Dollars in Millions) Banking Systems Banking Management Markets - ---------------------------------------------------------------------------------------------------------- Net interest income.................... $3,123.3 $ 515.2 $1,780.1 $ 227.6 $ 28.9 Noninterest income..................... 1,128.8 867.4 495.7 906.2 1,098.2 --------------------------------------------------------------- Total revenue....................... 4,252.1 1,382.6 2,275.8 1,133.8 1,127.1 Noninterest expense.................... 1,677.6 357.6 382.2 478.3 909.1 Other intangible amortization.......... 62.3 23.7 1.3 19.9 -- Goodwill amortization.................. 4.4 11.4 8.0 1.2 1.0 --------------------------------------------------------------- Total noninterest expense........... 1,744.3 392.7 391.5 499.4 910.1 Operating income................. 2,507.8 989.9 1,884.3 634.4 217.0 --------------------------------------------------------------- Provision for credit losses............ 368.7 400.8 141.4 7.0 -- Income before taxes.................... 2,139.1 589.1 1,742.9 627.4 217.0 Income taxes and taxable-equivalent adjustment............................ 760.9 209.5 619.9 223.2 77.2 --------------------------------------------------------------- Operating earnings, before merger-related charges................ $1,378.2 $ 379.6 $1,123.0 $ 404.2 $ 139.8 --------------------------------------------------------------- Net merger-related charges (after-tax)* Net income AVERAGE BALANCE SHEET DATA Loans.................................. $ 41,016 $ 8,871 $ 55,763 $ 3,802 $ 263 Assets................................. 46,706 9,400 60,254 5,255 3,392 Noninterest-bearing deposits........... 11,483 184 9,436 2,267 155 Interest-bearing deposits.............. 62,156 1 4,847 4,754 -- --------------------------------------------------------------- Total Deposits...................... $ 73,639 $ 185 $ 14,283 $ 7,021 $ 155 - ---------------------------------------------------------------------------------------------------------- Year Ended December 31, 2000 -------------------------------------- Corporate Consolidated (Dollars in Millions) Treasury Support Company - --------------------------------------- Net interest income.................... $1,322.7 $ (862.8) $6,135.0 Noninterest income..................... 218.1 168.8 4,883.2 -------------------------------------- Total revenue....................... 1,540.8 (694.0) 11,018.2 Noninterest expense.................... 18.7 1,152.5 4,976.0 Other intangible amortization.......... -- 42.3 149.5 Goodwill amortization.................. -- 216.8 242.8 -------------------------------------- Total noninterest expense........... 18.7 1,411.6 5,368.3 Operating income................. 1,522.1 (2,105.6) 5,649.9 -------------------------------------- Provision for credit losses............ 1.0 (90.9) 828.0 Income before taxes.................... 1,521.1 (2,014.7) 4,821.9 Income taxes and taxable-equivalent adjustment............................ 541.1 (716.8) 1,715.0 -------------------------------------- Operating earnings, before merger-related charges................ $ 980.0 $(1,297.9) $3,106.9 -------------------------------------- Net merger-related charges (after-tax)* (231.3) -------- Net income $2,875.6 ---------- AVERAGE BALANCE SHEET DATA Loans.................................. $ 11,923 $ (3,321) $118,317 Assets................................. 24,417 9,057 158,481 Noninterest-bearing deposits........... 255 40 23,820 Interest-bearing deposits.............. 10,793 (2,945) 79,606 -------------------------------------- Total Deposits...................... $ 11,048 $ (2,905) $103,426 - ---------------------------------------------------------------------------------------------
*Merger-related charges are not allocated to the business lines. TABLE 2 RECONCILIATION OF OPERATING EARNINGS* TO NET INCOME IN ACCORDANCE WITH GAAP
(Dollars in Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ Operating earnings, before merger and restructuring items... $3,106.9 $2,799.0 $2,519.3 Merger and restructuring related items Other merger -- related charges.......................... (348.7) (355.1) (593.8) Securities losses........................................ -- (177.7) -- Provision for credit losses.............................. -- (7.5) (37.9) Gain on sale of branches................................. -- -- 48.1 Applicable tax benefit................................... 117.4 123.1 197.2 -------------------------------------- Net income in accordance with GAAP.......................... $2,875.6 $2,381.8 $2,132.9 - ------------------------------------------------------------------------------------------------------
*The Company analyzes its performance on a net income basis in accordance with accounting principles generally accepted in the United States, as well as on an operating basis before merger and restructuring related charges referred to as "operating earnings." Operating earnings are presented as supplemental information to enhance the readers' understanding of, and highlight trends in, the Company's core financial results excluding the impact of discrete business acquisitions and restructuring activities. Operating earnings should not be viewed as a substitute for net income and earning per share as determined in accordance with accounting principles generally accepted in the United States. 46 U.S. Bancorp 52 TABLE 3 ANALYSIS OF NET INTEREST INCOME
(Dollars in Millions) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Components of net interest income Income on earning assets................................. $12,157.9 $10,723.0 $10,535.9 Expenses on interest bearing liabilities................. 6,022.9 4,790.3 4,859.7 ----------------------------------------- Net interest income -- (taxable-equivalent basis)........... $ 6,135.0 $ 5,932.7 $ 5,676.2 ----------------------------------------- Net interest income, as reported............................ $ 6,049.6 $ 5,836.4 $ 5,565.0 ----------------------------------------- Average yields and rates paid -- (taxable-equivalent basis) Earning assets yield..................................... 8.65% 8.02% 8.25% Rate paid on interest-bearing liabilities................ 5.19 4.37 4.67 ----------------------------------------- Gross interest margin....................................... 3.46% 3.65% 3.58% ----------------------------------------- Net interest margin......................................... 4.36% 4.44% 4.44% ----------------------------------------- Net interest margin -- (without taxable-equivalent increments)................................................ 4.30% 4.37% 4.36% - --------------------------------------------------------------------------------------------------------- Average balances: Investment securities.................................... $ 17,311 $ 19,271 $ 21,114 Loans.................................................... 118,317 109,638 102,451 Earning assets........................................... 140,606 133,757 127,738 Interest bearing liabilities............................. 116,002 109,719 104,077 Net free funds*.......................................... 24,604 24,038 23,661 - ---------------------------------------------------------------------------------------------------------
*Represents noninterest-bearing deposits, other non-earning assets and liabilities and equity. TABLE 4 NET INTEREST INCOME -- CHANGES DUE TO RATE AND VOLUME
2000 Compared with 1999 1999 Compared with 1998 ---------------------------------------------------------------------------------------------- (Dollars in Millions) Volume Yield/Rate Total Volume Yield/Rate Total - --------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in Interest income Commercial loans...... $ 511.1 $ 457.8 $ 968.9 $ 346.7 $(168.8) $ 177.9 Commercial real estate............... 249.2 116.0 365.2 228.3 (72.1) 156.2 Residential mortgages............ (233.3) 3.0 (230.3) (191.5) (25.3) (216.8) Retail loans.......... 202.0 130.0 332.0 270.2 (89.3) 180.9 ---------------------------------------------------------------------------------------------- Total loans........ 729.0 706.8 1,435.8 653.7 (355.5) 298.2 Loans held for sale... (10.5) 8.7 (1.8) 13.5 (1.5) 12.0 Investment securities........... (128.2) 71.9 (56.3) (122.7) (27.3) (150.0) Money market investments.......... (6.3) 15.3 9.0 (4.7) (13.4) (18.1) Trading securities.... 11.3 (1.5) 9.8 13.0 7.2 20.2 Other earning assets............... 18.7 19.7 38.4 25.2 (0.4) 24.8 ---------------------------------------------------------------------------------------------- Total.............. 614.0 820.9 1,434.9 578.0 (390.9) 187.1 Interest expense Interest checking..... 2.5 36.9 39.4 12.0 (11.9) 0.1 Money market accounts............. 9.0 148.8 157.8 89.1 (72.0) 17.1 Other savings accounts............. (17.5) (20.4) (37.9) (12.2) (22.6) (34.8) Savings certificates......... (21.9) 157.6 135.7 (180.3) (119.8) (300.1) Certificates over $100,000............. 225.6 128.2 353.8 81.0 (28.0) 53.0 ---------------------------------------------------------------------------------------------- Total interest-bearing deposits.......... 197.7 451.1 648.8 (10.4) (254.3) (264.7) Short-term borrowings........... 43.7 155.6 199.3 32.4 (44.7) (12.3) Long-term debt........ 120.3 263.2 383.5 266.0 (65.6) 200.4 Mandatorily redeemable preferred securities of subsidiary trusts............. -- 1.0 1.0 6.8 0.4 7.2 ---------------------------------------------------------------------------------------------- Total.............. 361.7 870.9 1,232.6 294.8 (364.2) (69.4) ---------------------------------------------------------------------------------------------- Increase (decrease) in net interest income............. $ 252.3 $ (50.0) $ 202.3 $ 283.2 $ (26.7) $ 256.5 - ---------------------------------------------------------------------------------------------------------------------------------
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. U.S. Bancorp 47 53 TABLE 5 NONINTEREST INCOME
(Dollars in Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ Credit card and payment processing revenue.................. $ 992.1 $ 837.8 $ 748.0 Trust and investment management fees........................ 926.2 887.1 788.3 Deposit service charges..................................... 551.1 497.2 470.3 Cash management fees........................................ 292.4 280.6 242.0 Mortgage banking revenue.................................... 189.9 190.4 244.6 Trading account profits and commissions..................... 258.4 222.4 130.3 Investment products fees and commissions.................... 466.6 450.8 306.9 Investment banking revenue.................................. 360.3 246.6 100.4 Insurance product revenue................................... 145.3 105.3 82.5 Commercial product revenue.................................. 304.4 215.7 121.9 Retail product revenue...................................... 69.1 78.0 25.9 Securities gains, net....................................... 8.1 13.2 29.1 Other....................................................... 319.3 219.8 359.8 -------------------------------------- Total noninterest income................................. $4,883.2 $4,244.9 $3,650.0 - ------------------------------------------------------------------------------------------------------
TABLE 6 NONINTEREST EXPENSE
(Dollars in Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------ Salaries.................................................... $2,427.1 $2,355.3 $2,196.7 Employee benefits........................................... 399.8 410.1 424.9 Net occupancy............................................... 396.9 371.8 356.9 Furniture and equipment..................................... 308.2 307.9 314.1 Professional services....................................... 109.0 95.7 105.3 Advertising and marketing................................... 122.1 124.1 126.9 Other personnel costs....................................... 107.0 88.4 73.7 Software.................................................... 111.9 72.2 51.5 Data Processing............................................. 149.7 133.7 120.0 Communication............................................... 138.8 123.4 114.2 Postage..................................................... 174.5 170.7 155.4 Printing.................................................... 86.5 90.7 89.6 Goodwill.................................................... 242.8 177.7 177.2 Other intangible assets..................................... 149.5 152.1 124.6 Other....................................................... 444.5 454.7 398.6 -------------------------------- Total operating noninterest expense...................... 5,368.3 5,128.5 4,829.6 Merger and restructuring-related charges.................... 348.7 532.8 593.8 -------------------------------- Total noninterest expense................................ $5,717.0 $5,661.3 $5,423.4 -------------------------------- Efficiency ratio*........................................... 51.9% 55.7% 58.3% Efficiency ratio, before merger and restructuring-related charges.................................................... 48.8 50.5 51.9 Banking efficiency ratio, before merger and restructuring-related charges**............................ 43.5 46.3 49.4 - ------------------------------------------------------------------------------------------------
*Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net. **Without investment banking and brokerage activity. 48 U.S. Bancorp 54 TABLE 7 LOAN PORTFOLIO DISTRIBUTION
2000 1999 1998 1997 --------------------------------------------------------------------------------------- Percent Percent Percent Percent At December 31 (Dollars in Millions) Amount of Total Amount of Total Amount of Total Amount of Total - -------------------------------------------------------------------------------------------------------------------------------- COMMERCIAL Commercial........................ $ 47,041 38.5% $ 42,021 37.1% $ 37,777 35.3% $33,662 34.0% Lease financing................... 5,776 4.7 3,835 3.4 3,291 3.1 2,667 2.7 --------------------------------------------------------------------------------------- Total commercial............ 52,817 43.2 45,856 40.5 41,068 38.4 36,329 36.7 COMMERCIAL REAL ESTATE Commercial mortgages.............. 19,466 15.9 18,636 16.5 16,602 15.5 15,739 15.9 Construction and development...... 6,977 5.7 6,506 5.7 5,206 4.9 4,059 4.1 --------------------------------------------------------------------------------------- Total commercial real estate..................... 26,443 21.6 25,142 22.2 21,808 20.4 19,798 20.0 RESIDENTIAL MORTGAGES................ 7,753 6.3 11,395 10.1 13,980 13.1 15,892 16.0 RETAIL Credit card....................... 6,012 4.9 5,004 4.4 4,856 4.5 4,993 5.1 Retail leasing.................... 4,153 3.4 2,123 1.9 1,621 1.5 1,087 1.1 Other retail...................... 25,187 20.6 23,709 20.9 23,625 22.1 20,930 21.1 --------------------------------------------------------------------------------------- Total retail................... 35,352 28.9 30,836 27.2 30,102 28.1 27,010 27.3 --------------------------------------------------------------------------------------- Total loans................. $122,365 100.0% $113,229 100.0% $106,958 100.0% $99,029 100.0% - -------------------------------------------------------------------------------------------------------------------------------- 1996 ------------------ Percent At December 31 (Dollars in Millions) Amount of Total - ------------------------------------- ------------------ COMMERCIAL Commercial........................ $30,790 33.7% Lease financing................... 2,351 2.6 ------------------ Total commercial............ 33,141 36.3 COMMERCIAL REAL ESTATE Commercial mortgages.............. 15,363 16.8 Construction and development...... 3,541 3.9 ------------------ Total commercial real estate..................... 18,904 20.7 RESIDENTIAL MORTGAGES................ 13,919 15.3 RETAIL Credit card....................... 5,089 5.6 Retail leasing.................... 787 0.8 Other retail...................... 19,402 21.3 ------------------ Total retail................... 25,278 27.7 ------------------ Total loans................. $91,242 100.0% - ----------------------------------------------------------------------------------------------------------
TABLE 8 SELECTED LOAN MATURITY DISTRIBUTION
Over One One Year Through Over Five At December 31, 2000 (Dollars in Millions) or Less Five Years Years Total - ------------------------------------------------------------------------------------------------------------ Commercial.................................................. $23,498 $24,673 $ 4,646 $ 52,817 Commercial real estate...................................... 7,645 13,261 5,537 26,443 Residential mortgages....................................... 526 892 6,335 7,753 Retail...................................................... 16,974 11,399 6,979 35,352 ---------------------------------------------- Total loans........................................... $48,643 $50,225 $23,497 $122,365 Total of loans due after one year with: Predetermined interest rates............................. $ 36,953 Floating interest rates.................................. $ 36,769 - ------------------------------------------------------------------------------------------------------------
U.S. Bancorp 49 55 TABLE 9 COMMERCIAL LOAN EXPOSURE BY INDUSTRY GROUP AND GEOGRAPHY December 31, 2000 December 31, 1999 -------------------- -------------------- INDUSTRY GROUP (Dollars in Millions) Loans % Loans % - -------------------------------------------------------------------------------------------------------------------- Consumer products and services.............................. $ 9,791 18.4% $ 8,197 17.9% Capital goods............................................... 6,984 13.2 5,668 12.4 Financials.................................................. 5,438 10.3 4,577 10.0 Consumer staples............................................ 5,427 10.3 4,424 9.6 Agriculture................................................. 4,177 7.9 3,813 8.3 Transportation.............................................. 2,775 5.3 2,389 5.2 Private investors........................................... 2,405 4.6 2,517 5.5 Paper and forestry products, mining and basic materials..... 2,249 4.3 1,884 4.1 Health care................................................. 1,631 3.1 1,544 3.4 Technology.................................................. 1,223 2.3 1,175 2.6 Mortgage banking............................................ 961 1.8 1,051 2.3 Energy...................................................... 742 1.4 661 1.4 Other....................................................... 9,014 17.1 7,956 17.3 ------------------------------------------------- Total.................................................... $52,817 100.0% $45,856 100.0% - -------------------------------------------------------------------------------------------------------------------- GEOGRAPHY - -------------------------------------------------------------------------------------------------------------------- California.................................................. $ 3,174 6.0% $ 2,366 5.2% Colorado.................................................... 2,661 5.0 2,272 5.0 Illinois.................................................... 3,336 6.3 3,128 6.8 Minnesota................................................... 8,724 16.5 7,969 17.4 Missouri.................................................... 2,163 4.1 1,697 3.7 Ohio........................................................ 2,269 4.3 1,698 3.7 Oregon...................................................... 2,769 5.2 2,647 5.8 Washington.................................................. 4,860 9.2 4,846 10.6 Wisconsin................................................... 3,153 6.0 2,671 5.8 Other banking regions: Midwest.................................................. 4,547 8.6 4,230 9.2 Mideast.................................................. 2,230 4.2 2,074 4.5 Mountain................................................. 1,316 2.5 1,331 2.9 Southwestern............................................. 1,460 2.8 1,299 2.8 ------------------------------------------------- Total banking regions................................. 42,662 80.8 38,228 83.4 Other regions............................................... 10,155 19.2 7,628 16.6 ------------------------------------------------- Total.................................................... $52,817 100.0% $45,856 100.0% - --------------------------------------------------------------------------------------------------------------------
50 U.S. Bancorp 56 TABLE 10 COMMERCIAL REAL ESTATE EXPOSURE BY PROPERTY TYPE AND GEOGRAPHY
December 31, 2000 December 31, 1999 --------------------- --------------------- PROPERTY TYPE (Dollars in Millions) Loans % Loans % - -------------------------------------------------------------------------------------------------------------------- Business owner occupied..................................... $ 7,329 27.7% $ 5,663 22.5% Multi-family................................................ 3,908 14.8 3,538 14.1 Commercial property: Industrial............................................... 1,923 7.3 2,343 9.3 Office................................................... 2,761 10.4 2,979 11.8 Retail................................................... 2,537 9.6 2,769 11.0 Other.................................................... 2,755 10.4 2,846 11.3 Homebuilders................................................ 1,521 5.8 1,399 5.6 Hotel/motel................................................. 1,916 7.2 1,404 5.6 Other....................................................... 1,793 6.8 2,201 8.8 ------------------------------------------------- Total.................................................... $26,443 100.0% $25,142 100.0% - -------------------------------------------------------------------------------------------------------------------- GEOGRAPHY - -------------------------------------------------------------------------------------------------------------------- California.................................................. $ 3,255 12.3% $ 1,859 7.4% Colorado.................................................... 855 3.2 800 3.2 Illinois.................................................... 836 3.2 682 2.7 Minnesota................................................... 1,088 4.1 1,120 4.5 Missouri.................................................... 2,842 10.7 2,801 11.1 Ohio........................................................ 2,425 9.2 2,427 9.7 Oregon...................................................... 1,638 6.2 1,613 6.4 Washington.................................................. 2,937 11.1 2,808 11.2 Wisconsin................................................... 2,113 8.0 2,102 8.4 Other banking regions: Midwest.................................................. 2,982 11.3 2,551 10.1 Mideast.................................................. 1,798 6.8 1,513 6.0 Mountain................................................. 573 2.2 544 2.2 Southwestern............................................. 1,264 4.8 1,201 4.8 ------------------------------------------------- Total banking regions................................. 24,606 25.1 22,021 23.1 Other regions............................................... 1,837 6.9 3,121 12.3 ------------------------------------------------- Total.................................................... $26,443 100.0% $25,142 100.0% - --------------------------------------------------------------------------------------------------------------------
U.S. Bancorp 51 57 TABLE 11 INVESTMENT SECURITIES
Available-for-Sale Held-to-Maturity ------------------------------------------------------------------------------ Average Weighted Amortized Fair Maturity in Average Amortized Fair December 31, 2000 (Dollars in Millions) Cost Value Years Yield Cost Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Treasuries and agencies..................... $ 498 $ 500 0.32 6.46% $ -- $ -- Within one year............................... 1,030 1,050 2.74 6.36 -- -- One through five years........................ 63 65 6.81 7.11 -- -- Five through ten years........................ 9 9 14.96 7.48 -- -- Over.......................................... -- -- -- -- -- -- ------------------------------------------------------------------------------ Total............................................ $ 1,600 $ 1,624 2.22 6.43 $ -- $ -- ------------------------------------------------------------------------------ Mortgage-backed securities Within one year............................... $ 379 $ 379 0.54 6.83 $ -- $ -- One through five years........................ 1,679 1,687 2.96 6.87 36 36 Five through ten years........................ 2,235 2,255 6.74 6.67 -- -- Over.......................................... 7,507 7,572 15.28 7.63 -- -- ------------------------------------------------------------------------------ Total............................................ $11,800 $11,893 11.44 7.31 $ 36 $ 36 ------------------------------------------------------------------------------ Obligations of state and political subdivisions Within one year............................... $ 347 $ 348 0.50 7.34 $ 40 $ 39 One through five years........................ 1,265 1,284 3.10 7.50 58 51 Five through ten years........................ 600 614 7.39 7.49 64 68 Over.......................................... 158 163 15.13 7.93 54 63 ------------------------------------------------------------------------------ Total............................................ $ 2,370 $ 2,409 4.61 7.50 $216 $221 ------------------------------------------------------------------------------ Other Within one year............................... $ 15 $ 15 0.46 6.50 $ -- $ -- One through five years........................ 655 658 2.78 6.72 -- -- Five through ten years........................ 8 8 7.30 4.68 -- -- Over.......................................... 269 256 26.18 7.58 -- -- ------------------------------------------------------------------------------ Total............................................ $ 947 $ 937 9.44 6.94 $ -- $ -- ------------------------------------------------------------------------------ Other equity securities.......................... $ 274 $ 276 -- -- $ -- $ -- Money market funds............................... 251 251 -- -- -- -- ------------------------------------------------------------------------------ Total investment securities...................... $17,242 $17,390 9.47 7.23% $252 $257 - ----------------------------------------------------------------------------------------------------------------------------------- Held-to-Maturity ------------------------ Average Weighted Maturity in Average December 31, 2000 (Dollars in Millions) Years Yield - -------------------------------------------------------------------------------------------------------------------- U.S. Treasuries and agencies..................... -- --% Within one year............................... -- -- One through five years........................ -- -- Five through ten years........................ -- -- Over.......................................... -- -- ------------------------ Total............................................ -- -- ------------------------ Mortgage-backed securities Within one year............................... -- -- One through five years........................ 4.63 7.92 Five through ten years........................ -- -- Over.......................................... -- -- ------------------------ Total............................................ 4.63 7.92 ------------------------ Obligations of state and political subdivisions Within one year............................... 0.41 5.78 One through five years........................ 3.21 5.61 Five through ten years........................ 7.8 5.55 Over.......................................... 15.38 5.68 ------------------------ Total............................................ 7.09 5.64 ------------------------ Other Within one year............................... -- -- One through five years........................ -- -- Five through ten years........................ -- -- Over.......................................... -- -- ------------------------ Total............................................ -- -- ------------------------ Other equity securities.......................... -- -- Money market funds............................... -- -- ------------------------ Total investment securities...................... -- --% - ------------------------------------------------------------------------------------------------------------------------------
Note: Information related to mortgage-backed securities included above is presented based upon weighted average maturities anticipating future prepayments. Average yields are presented on a fully-taxable equivalent basis. Yields on available-for-sale securities are computed based on historical cost balances. TABLE 12 NET CHARGE-OFFS AS A PERCENTAGE OF AVERAGE LOANS OUTSTANDING
2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- COMMERCIAL Commercial............................................... .56% .41% *% *% *% Lease financing.......................................... .46 .24 * * * ---------------------------------------- Total commercial...................................... .55 .40 .31 .50 .21 COMMERCIAL REAL ESTATE Commercial mortgages..................................... .03 .02 * * * Construction and development............................. .11 .03 * * * ---------------------------------------- Total commercial real estate.......................... .05 .02 (.04) (.05) (.03) RESIDENTIAL MORTGAGES....................................... .13 .12 .08 .06 .05 RETAIL Credit card.............................................. 3.68 3.50 3.53 4.05 3.93 Retail leasing........................................... .41 .28 * * * Other retail............................................. 1.27 1.23 * * * ---------------------------------------- Total retail.......................................... 1.60 1.57 1.51 1.65 1.42 ---------------------------------------- Total loans........................................ .70% .61% .53% .63% .45% - --------------------------------------------------------------------------------------------------------
*Information not available 52 U.S. Bancorp 58 TABLE 13 NONPERFORMING ASSETS*
December 31 ---------------------------------------------- (Dollars in Millions) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- COMMERCIAL Commercial............................................... $470.4 $219.0 $230.4 $263.9 $ *** Lease financing.......................................... 70.5 31.5 17.7 9.8 *** ---------------------------------------------- Total commercial...................................... 540.9 250.5 248.1 273.7 238.7 COMMERCIAL REAL ESTATE Commercial mortgages..................................... 105.5 138.2 86.9 94.9 *** Construction and development............................. 38.2 31.6 28.4 19.5 *** ---------------------------------------------- Total commercial real estate.......................... 143.7 169.8 115.3 114.4 123.5 RESIDENTIAL MORTGAGES....................................... 56.9 72.8 98.7 95.0 90.5 RETAIL Credit card.............................................. 8.8 5.0 2.6 *** *** Retail leasing........................................... -- .4 .5 .5 .3 Other retail............................................. 15.0 21.1 30.4 17.1 17.1 ---------------------------------------------- Total retail.......................................... 23.8 26.5 33.5 17.6 17.4 ---------------------------------------------- Total nonperforming loans....................... 765.3 519.6 495.6 500.7 470.1 OTHER REAL ESTATE........................................... 61.1 40.0 35.1 57.0 69.9 OTHER ASSETS................................................ 40.6 28.9 16.9 17.4 12.3 ---------------------------------------------- Total nonperforming assets...................... $867.0 $588.5 $547.6 $575.1 $552.3 ---------------------------------------------- Accruing loans 90 days or more past due**................... $385.2 $248.6 $252.9 $213.7 $234.6 Nonperforming loans to total loans.......................... .63% .46% .46% .51% .52% Nonperforming assets to total loans plus other real estate..................................................... .71 .52 .51 .58 .60 Net interest lost on nonperforming loans.................... $ 50.8 $ 29.5 $ 21.3 $ 32.1 $ 37.0 - --------------------------------------------------------------------------------------------------------------
*Throughout this document, nonperforming assets and related ratios do not include accruing loans 90 days or more past due. **These loans are not included in nonperforming assets and continue to accrue interest because they are secured by collateral and/or are in the process of collection and are reasonably expected to result in repayment or restoration to current status. ***Information not available U.S. Bancorp 53 59 TABLE 14 SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
(Dollars in Millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------ Balance at beginning of year................................ $1,710.3 $1,705.7 $1,665.8 $1,600.1 $1,487.3 CHARGE-OFFS Commercial Commercial............................................ 319.8 250.1 * * * Lease financing....................................... 27.9 12.4 * * * -------------------------------------------------------- Total commercial................................... 347.7 262.5 202.3 232.8 143.4 Commercial real estate Commercial mortgages.................................. 15.8 19.1 * * * Construction and development.......................... 10.3 2.6 * * * -------------------------------------------------------- Total commercial real estate....................... 26.1 21.7 23.6 27.3 30.4 Residential mortgages.................................... 13.7 16.2 14.4 11.1 12.8 Retail Credit card........................................... 235.8 220.2 223.9 258.3 237.1 Retail leasing........................................ 14.8 6.2 * * * Other retail.......................................... 379.5 376.0 * * * -------------------------------------------------------- Total retail....................................... 630.1 602.4 533.4 522.4 426.4 -------------------------------------------------------- Total charge-offs............................... 1,017.6 902.8 773.7 793.6 613.0 RECOVERIES Commercial Commercial............................................ 64.0 84.8 * * * Lease financing....................................... 7.2 4.0 * * * -------------------------------------------------------- Total commercial................................... 71.2 88.8 81.9 59.3 75.4 Commercial real estate Commercial mortgages.................................. 10.8 15.1 * * * Construction and development.......................... 2.6 1.0 * * * -------------------------------------------------------- Total commercial real estate....................... 13.4 16.1 31.0 37.7 35.8 Residential mortgages.................................... 1.3 1.4 3.0 2.5 5.3 Retail Credit card........................................... 27.5 34.6 36.9 38.3 29.5 Retail leasing........................................ 2.0 1.1 * * * Other retail.......................................... 76.8 88.2 * * * -------------------------------------------------------- Total retail....................................... 106.3 123.9 112.6 93.1 80.8 -------------------------------------------------------- Total recoveries................................ 192.2 230.2 228.5 192.6 197.3 NET CHARGE-OFFS Commercial Commercial............................................ 255.8 165.3 * * * Lease financing....................................... 20.7 8.4 * * * -------------------------------------------------------- Total commercial................................... 276.5 173.7 120.4 173.5 68.0 Commercial real estate Commercial mortgages.................................. 5.0 4.0 * * * Construction and development.......................... 7.7 1.6 * * * -------------------------------------------------------- Total commercial real estate....................... 12.7 5.6 (7.4) (10.4) (5.4) Residential mortgages.................................... 12.4 14.8 11.4 8.6 7.5 Retail Credit card........................................... 208.3 185.6 187.0 220.0 207.6 Retail leasing........................................ 12.8 5.1 * * * Other retail.......................................... 302.7 287.8 * * * -------------------------------------------------------- Total retail....................................... 523.8 478.5 420.8 429.3 345.6 -------------------------------------------------------- Total net charge-offs........................... 825.4 672.6 545.2 601.0 415.7 Provision for credit losses.............................. 828.0 646.0 491.3 639.9 429.9 Acquisitions and other changes........................... 74.0 31.2 93.8 26.8 98.6 -------------------------------------------------------- Balance at end of year................................... $1,786.9 $1,710.3 $1,705.7 $1,665.8 $1,600.1 -------------------------------------------------------- Allowance as a percentage of: Period-end loans...................................... 1.46% 1.51% 1.59% 1.68% 1.75% Nonperforming loans................................... 233 329 344 333 340 Nonperforming assets.................................. 206 291 312 290 290 Net charge-offs....................................... 216 254 313 277 385 - ------------------------------------------------------------------------------------------------------------------------
*Information not available 54 U.S. Bancorp 60 TABLE 15 DELINQUENT LOAN RATIOS*
December 31 ------------------------------------ 90 days or more past due 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------- COMMERCIAL Commercial............................................... 1.11% .57% .69% **% **% Lease financing.......................................... 1.24 .82 .57 ** ** ------------------------------------ Total commercial...................................... 1.13 .59 .68 .84 .83 COMMERCIAL REAL ESTATE Commercial mortgages..................................... .61 .82 .59 ** ** Construction and development............................. .57 .53 .60 ** ** ------------------------------------ Total commercial real estate.......................... .60 .74 .59 .67 .82 RESIDENTIAL MORTGAGES....................................... 1.49 1.11 1.26 .90 .95 RETAIL Credit card.............................................. 1.85 1.33 1.07 ** ** Retail leasing........................................... .20 .14 .13 ** ** Other retail............................................. .64 .47 .47 ** ** ------------------------------------ Total retail.......................................... .79 .59 .55 .42 .47 ------------------------------------ Total.............................................. .94% .68% .70% .72% .77% - ----------------------------------------------------------------------------------------------------
* Ratios include nonperforming loans and are expressed as a percent of ending loan balances. ** Information not available TABLE 16 ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
Allocation Amount At December 31 -------------------------------------------------------- (Dollars in Millions) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------- COMMERCIAL Commercial.................... $ 626.5 $ 408.3 $ 343.7 $ 370.5 $ 341.5 Lease financing............... 26.7 20.2 21.5 16.4 13.7 -------------------------------------------------------- Total commercial........... 653.2 428.5 365.2 386.9 355.2 COMMERCIAL REAL ESTATE Commercial mortgages.......... 59.2 110.4 105.2 105.6 149.3 Construction and development.................. 23.6 22.5 25.9 27.7 24.1 -------------------------------------------------------- Total commercial real estate.................... 82.8 132.9 131.1 133.3 173.4 RESIDENTIAL MORTGAGES............ 9.6 18.6 27.2 36.9 30.9 RETAIL Credit card................... 265.6 320.8 304.3 217.4 234.5 Retail leasing................ 27.2 18.6 6.5 4.9 2.4 Other retail.................. 358.9 389.2 365.6 257.9 201.0 -------------------------------------------------------- Total retail............... 651.7 728.6 676.4 480.2 437.9 -------------------------------------------------------- Total allocated allowance................. 1,397.3 1,308.6 1,199.9 1,037.3 997.4 Unallocated portion........ 389.6 401.7 505.8 628.5 602.7 -------------------------------------------------------- Total allowance.................. $1,786.9 $1,710.3 $1,705.7 $1,665.8 $1,600.1 - --------------------------------------------------------------------------------------------- Allocation as a Percent of Loans Outstanding -------------------------------------------- (Dollars in Millions) 2000 1999 1998 1997 1996 - --------------------------------- COMMERCIAL Commercial.................... 1.33% .97% .91% 1.10% 1.11% Lease financing............... .46 .53 .65 .62 .58 -------------------------------------------- Total commercial........... 1.24 .93 .89 1.06 1.07 COMMERCIAL REAL ESTATE Commercial mortgages.......... .30 .59 .63 .67 .97 Construction and development.................. .34 .35 .50 .68 .68 -------------------------------------------- Total commercial real estate.................... .31 .53 .60 .67 .92 RESIDENTIAL MORTGAGES............ .12 .16 .19 .23 .22 RETAIL Credit card................... 4.42 6.41 6.27 4.35 4.61 Retail leasing................ .65 .87 .40 .45 .31 Other retail.................. 1.43 1.64 1.55 1.23 1.04 -------------------------------------------- Total retail............... 1.84 2.36 2.25 1.78 1.73 -------------------------------------------- Total allocated allowance................. 1.14 1.16 1.12 1.05 1.09 Unallocated portion........ .32 .35 .47 .63 .66 -------------------------------------------- Total allowance.................. 1.46% 1.51% 1.59% 1.68% 1.75% - ---------------------------------
U.S. Bancorp 55 61 TABLE 17 DEPOSITS BY TYPE
December 31 (Dollars in Millions) 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Noninterest-bearing deposits................................ $ 26,633 $ 26,350 $ 27,479 $24,062 $23,417 Interest-bearing deposits Savings accounts......................................... 4,516 5,445 6,352 6,414 6,807 Interest checking........................................ 13,982 13,141 13,385 12,212 11,529 Money market accounts.................................... 23,899 22,751 22,086 18,672 17,416 Time certificates of deposit less than $100,000............. 25,780 25,394 27,935 29,548 27,587 Time deposits greater than $100,000 Domestic................................................. 11,221 9,348 6,261 6,622 6,572 Foreign.................................................. 3,504 988 848 793 483 - ---------------------------------------------------------------------------------------------------------------------- Total deposits........................................ $109,535 $103,417 $104,346 $98,323 $93,811 - ---------------------------------------------------------------------------------------------------------------------- Percent of deposits by type - ---------------------------------------------------------------------------------------------------------------------- Noninterest-bearing deposits................................ 24.3% 25.4% 26.3% 24.4% 25.0% Interest-bearing deposits Savings accounts......................................... 4.1 5.3 6.1 6.5 7.2 Interest checking........................................ 12.8 12.6 12.8 12.4 12.3 Money market accounts.................................... 21.8 22.0 21.2 19.0 18.6 Time certificates of deposit less than $100,000............. 23.5 24.6 26.8 30.2 29.4 Time deposits greater than $100,000 Domestic................................................. 10.3 9.1 6.0 6.7 7.0 Foreign.................................................. 3.2 1.0 .8 .8 .5 - ---------------------------------------------------------------------------------------------------------------------- Total deposits........................................ 100.0% 100.0% 100.0% 100.0% 100.0% - ----------------------------------------------------------------------------------------------------------------------
The maturity of time deposits greater than $100,000 is as follows:
December 31, 2000 (Dollars in Millions) - ----------------------------------------------------------------------- Three months or less........................................ $ 9,466 Over three months through six months........................ 1,727 Over six months through twelve months....................... 1,850 Over twelve months.......................................... 1,682 - ----------------------------------------------------------------------- Total.................................................... $14,725 - -----------------------------------------------------------------------
56 U.S. Bancorp 62 TABLE 18 INTEREST RATE SENSITIVITY GAP ANALYSIS
Repricing Maturities ------------------------------------------------------------------- Less than 3-6 6-12 1-5 More than December 31, 2000 (Dollars in Millions) 3 months months months years 5 years Total - --------------------------------------------------------------------------------------------------------------------------------- EARNING ASSETS Loans.................................................. $64,299 $ 7,246 $ 9,900 $32,911 $ 8,009 $122,365 Loans held for sale.................................... 764 -- -- -- -- 764 Investment securities.................................. 2,357 1,028 1,644 8,401 4,212 17,642 Other.................................................. 2,420 7 13 21 890 3,351 ------------------------------------------------------------------- Total earning assets............................. $69,840 $ 8,281 $11,557 $41,333 $13,111 $144,122 ------------------------------------------------------------------- INTEREST-BEARING LIABILITIES Deposits............................................... $43,813 $ 7,714 $ 9,443 $21,865 $ 67 $ 82,902 Short-term borrowings.................................. 9,394 25 2,406 1 7 11,833 Long-term debt......................................... 13,825 389 839 4,825 1,998 21,876 Company-obligated mandatorily redeemable preferred securities.......................................... 300 -- -- -- 1,100 1,400 ------------------------------------------------------------------- Total interest-bearing liabilities............... $67,332 $ 8,128 $12,688 $26,691 $ 3,172 $118,011 ------------------------------------------------------------------- Effect of off-balance sheet hedging instruments Receiving fixed........................................ $ 811 $ 423 $ 568 $ 4,416 $ 2,040 $ 8,258 Receiving floating..................................... 1,500 -- -- -- -- 1,500 Paying fixed........................................... -- -- (500) -- -- (500) Paying floating........................................ (9,093) (150) -- (15) -- (9,258) ------------------------------------------------------------------- Total effect of off-balance sheet hedging instruments..................................... $(6,782) $ 273 $ 68 $ 4,401 $ 2,040 $ -- ------------------------------------------------------------------- Repricing gap............................................. $(4,274) $ 426 $(1,063) $19,043 $11,979 $ 26,111 Cumulative repricing gap.................................. (4,274) (3,848) (4,911) 14,132 26,111 - ---------------------------------------------------------------------------------------------------------------------------------
The estimates of the Company's assets, liabilities, and hedging instruments are based upon the Company's assessment of the repricing characteristics of contractual and non-contractual instruments. Non-contractual deposit liabilities are subject to immediate withdrawal. For purposes of the above analysis these accounts are reported based upon a historical analysis of the Company's accounts. TABLE 19 INTEREST RATE SWAP HEDGING PORTFOLIO NOTIONAL BALANCES AND YIELDS BY MATURITY DATE
December 31, 2000 (Dollars in Millions) - ---------------------------------------------------------------------------------------------------------------- Weighted Weighted Average Average Notional Interest Rate Interest Rate Maturity Date Amount Received Paid - ---------------------------------------------------------------------------------------------------------------- 2001........................................................ $1,465 6.76% 6.84% 2002........................................................ 544 6.22 6.74 2003........................................................ 1,674 6.02 6.69 2004........................................................ 1,475 6.60 6.72 2005........................................................ 1,000 6.88 6.87 Thereafter.................................................. 2,600 6.66 6.82 ------ ---- ---- Total....................................................... $8,758 6.54% 6.78% - ----------------------------------------------------------------------------------------------------------------
At December 31, 2000 the Company had $1.0 billion in basis swaps maturing in 2002. U.S. Bancorp 57 63 TABLE 20 DEBT RATINGS
Standard & At December 31, 2000 Moody's Poors Fitch - ----------------------------------------------------------------------------------------------- U.S. Bancorp Short-term borrowings...................................... F1 Senior debt and medium-term notes.......................... A1 A A+ Subordinated debt.......................................... A2 A- A Preferred stock............................................ a1 BBB+ A Commercial paper........................................... P-1 A-1 F1 U.S. Bank, NA Short-term time deposits................................... P-1 A-1 F1+ Long-term time deposits.................................... Aa3 A+ AA- Bank notes................................................. Aa3/P-1 A+/A-1 A+/F1+ Subordinated debt.......................................... A1 A A Firstar Bank, NA Short-term time deposits................................... P-1 A-1 F1+ Long-term time deposits.................................... Aa3 A+ AA- Bank notes................................................. Aa3/P-1 A+/A-1 A+/F1+ Subordinated debt.......................................... A1 A A - -----------------------------------------------------------------------------------------------
TABLE 21 REGULATORY CAPITAL RATIOS
At December 31 (Dollars in Millions) 2000 1999 - ---------------------------------------------------------------------------------- U.S. BANCORP Tangible common equity*..................................... $10,856 $10,137 As a percent of tangible assets.......................... 6.76% 6.74% Tier 1 Capital.............................................. $11,602 $10,936 As a percent of risk-weighted assets..................... 7.21% 7.35% As a percent of adjusted quarterly average assets (Leverage ratio)........................................ 7.39% 7.50% Total Risk-based capital.................................... $17,038 $16,342 As a percent of risk-weighted assets..................... 10.59% 10.99% SIGNIFICANT BANK SUBSIDIARIES** U.S. BANK N.A.: Tier 1 Capital........................................... 7.29% 6.89% Total Risk-based Capital................................. 11.21 11.08 Leverage................................................. 7.89 7.67 FIRSTAR BANK, N.A. Tier 1 Capital........................................... 6.58% 7.43% Total Risk-based Capital................................. 10.39 10.22 Leverage................................................. 6.43 7.30
Well- Minimum Capitalized BANK REGULATORY CAPITAL REQUIREMENTS ------- ----------- Tier 1 Capital........................................... 4.00% 6.00% Total Risk-based Capital................................. 8.00 10.00 Leverage................................................. 3.00 5.00 - --------------------------------------------------------------------------------------
* Defined as shareholders' equity less goodwill ** These balances and ratios were prepared in accordance with regulatory accounting principles as disclosed in the subsidiaries' regulatory reports. 58 U.S. Bancorp 64 TABLE 22 FOURTH QUARTER SUMMARY
Three Months Ended December 31 ------------------------- (Dollars in Millions, Except Per Share Data) 2000 1999 - ------------------------------------------------------------------------------------------- CONDENSED INCOME STATEMENT Net interest income (taxable-equivalent basis).............. $1,562.5 $1,501.4 Securities gains, net....................................... 7.0 2.1 Other noninterest income.................................... 1,257.9 1,135.1 Merger-related charges...................................... 84.1 90.5 Other noninterest expense................................... 1,347.8 1,342.1 Provision for credit losses................................. 229.5 173.7 ------------------------- Income before income taxes............................... 1,166.0 1,032.3 Taxable-equivalent adjustment............................... 21.0 22.9 Income taxes................................................ 376.3 372.4 ------------------------- Net income............................................... $ 768.7 $ 637.0 ------------------------- FINANCIAL RATIOS Return on average assets.................................... 1.89% 1.66% Return on average common equity............................. 20.7 18.3 Net interest margin (taxable-equivalent basis).............. 4.33 4.49 Efficiency ratio............................................ 50.8 54.6 Banking efficiency ratio*................................... 44.9 50.3 PER COMMON SHARE Earnings per share.......................................... $ .41 $ .33 Diluted earnings per share.................................. .40 .33 Dividends declared.......................................... .1625 .1625 SELECTED FINANCIAL RATIOS EXCLUDING MERGER-RELATED CHARGES Return on average assets.................................... 2.02% 1.88% Return on average equity.................................... 22.2 20.7 Efficiency ratio............................................ 47.9 51.2 Banking efficiency ratio*................................... 42.0 46.5 - -------------------------------------------------------------------------------------------
*Without investment banking and brokerage activity U.S. Bancorp 59 65 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31 (Dollars in Millions) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- EARNINGS 1. Net income.............................................. $ 2,875.6 $2,381.8 $2,132.9 $1,599.3 $1,918.6 2. Applicable income taxes................................. 1,512.2 1,392.2 1,167.4 950.6 1,082.9 --------------------------------------------------------- 3. Income before taxes (1 + 2)............................. $ 4,387.8 $3,774.0 $3,300.3 $2,549.9 $3,001.5 --------------------------------------------------------- 4. Fixed charges: a. Interest expense excluding interest on deposits...... $ 2,404.1 $1,820.3 $1,625.0 $1,305.6 $1,067.9 b. Portion of rents representative of interest and amortization of debt expense......................... 86.7 78.9 73.3 68.0 68.5 --------------------------------------------------------- c. Fixed charges excluding interest on deposits (4a + 4b).................................................. 2,490.8 1,899.2 1,698.3 1,373.6 1,136.4 d. Interest on deposits................................. 3,618.8 2,970.0 3,234.7 3,084.2 2,921.5 --------------------------------------------------------- e. Fixed charges including interest on deposits (4c + 4d).................................................. $ 6,109.6 $4,869.2 $4,933.0 $4,457.8 $4,057.9 --------------------------------------------------------- 5. Amortization of interest capitalized.................... $ -- $ -- $ -- $ -- $ -- 6. Earnings excluding interest on deposits (3 + 4c + 5).... 6,878.6 5,673.2 4,998.6 3,923.5 4,137.9 7. Earnings including interest on deposits (3 + 4e + 5).... 10,497.4 8,643.2 8,233.3 7,007.7 7,059.4 8. Fixed charges excluding interest on deposits (4c)....... 2,490.8 1,899.2 1,698.3 1,373.6 1,136.4 9. Fixed charges including interest on deposits (4e)....... 6,109.6 4,869.2 4,933.0 4,457.8 4,057.9 RATIO OF EARNINGS TO FIXED CHARGES 10. Excluding interest on deposits (line 6/line 8).......... 2.76 2.99 2.94 2.86 3.64 11. Including interest on deposits (line 7/line 9).......... 1.72 1.78 1.67 1.57 1.74 - -------------------------------------------------------------------------------------------------------------------------
60 U.S. Bancorp 66 MANAGING COMMITTEE Jerry A. Grundhofer President and Chief Executive Officer John F. Grundhofer Chairman Andrew Cecere Vice Chairman Trust Services and Private Banking William L. Chenevich Vice Chairman Technology and Operations Services Richard K. Davis Vice Chairman Consumer Banking and Payment Systems Andrew S. Duff Vice Chairman U.S. Bancorp Piper Jaffray Joseph E. Hasten Vice Chairman Corporate Banking David M. Moffett Vice Chairman and Chief Financial Officer Daniel M. Quinn Vice Chairman Commercial Banking Daniel Yohannes Vice Chairman Community and Public Affairs John R. Heistad Executive Vice President Corporate Risk Management J. Robert Hoffman Executive Vice President and Chief Credit Officer Lee R. Mitau Executive Vice President and General Counsel Stephen E. Smith Executive Vice President Human Resources CORPORATE DIRECTORS Jerry A. Grundhofer 1 President and Chief Executive Officer U.S. Bancorp John F. Grundhofer 1 Chairman U.S. Bancorp Linda L. Ahlers 3, 4 President Marshall Field's Arthur D. Collins, Jr. 1, 2, 5 President and Chief Operating Officer Medtronic, Inc. Peter H. Coors 2, 4, 5 Chairman Coors Brewing Company John C. Dannemiller 4, 5 Former Chairman, CEO and President Applied Industrial Technologies Victoria Buyniski Gluckman 3, 4 President and Chief Executive Officer United Medical Resources, Inc. Joshua Green III 3, 4 Chairman and Chief Executive Officer Joshua Green Corporation J. P. Hayden, Jr. 1, 2, 5 Chairman The Midland Company Roger L. Howe 1, 2, 3 Formerly Chairman U.S. Precision Lens, Inc. Thomas H. Jacobsen 4 Formerly Chairman Firstar Corporation Delbert W. Johnson 1, 3, 4 Vice President Safeguard Scientifics, Inc. Joel W. Johnson 4, 5 Chairman, President and Chief Executive Officer Hormel Foods Corporation Jerry W. Levin 2, 5 Chairman and Chief Executive Officer Sunbeam Corporation Sheldon B. Lubar 1, 5 Chairman Lubar & Company Frank Lyon, Jr. 2, 4 Wingmead Daniel F. McKeithan, Jr. 1, 3, 5 President and Chief Executive Officer Tamarack Petroleum Company, Inc. David B. O'Maley 1, 2 Chairman, President and Chief Executive Officer Ohio National Financial Services O'dell M. Owens, M.D., M.P.H. 3, 4 Medical Director United Healthcare Thomas E. Petry 1, 2, 3 Formerly Chairman and Chief Executive Officer Eagle-Picher Industries, Inc. Richard G. Reiten 1, 2, 3 President and Chief Executive Officer Northwest Natural Gas Company S. Walter Richey 1, 2 Formerly Chairman and Chief Executive Officer Meritex, Inc. Warren R. Staley 1, 3 Chairman and Chief Executive Officer Cargill, Inc. Patrick T. Stokes 1, 5 President Anheuser-Busch John J. Stollenwerk 2, 3, 4 President Allen-Edmonds Shoe Corporation 1 Executive Committee 2 Compensation Committee 3 Audit Committee 4 Community Outreach and Fair Lending Committee 5 Governance Committee 67 CORPORATE INFORMATION Executive Offices U.S. Bancorp U.S. Bank Place 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Common Stock Transfer Agent and Registrar Firstar Bank, N.A., a subsidiary of U.S. Bancorp, 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. Inquiries related to shareholder records, stock transfers, changes of ownership, changes of address and dividend payment should be sent to the transfer agent at the following address: Firstar Bank, N.A. 1555 North River Center Drive, Suite 301 Milwaukee, WI 53212 Phone: 1-800-637-7549 Fax: 414-276-4226 Email: firstarinvestorservice@firstar.com Independent Public Accountants The independent public accountants of U.S. Bancorp are PricewaterhouseCoopers LLP. 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. Dividend Reinvestment Plan U.S. Bancorp shareholders can take advantage of a plan that provides automatic reinvestment of dividends and/or optional cash purchase of additional shares of U.S. Bancorp common stock. For more information, please contact: Firstar Bank, N.A. Dividend Reinvestment Department 1555 North River Center Drive, Suite 301 Milwaukee, WI 53212 or call 1-800-637-7549 Investment Community Contacts Howell D. McCullough Senior Vice President, Investor Relations 612-973-2261 howell.mccullough@usbank.com Judith T. Murphy Vice President, Investor Relations 612-973-2264 judith.murphy@usbank.com Financial Information U.S. Bancorp news and financial results are available through the company's web site and mail. Web site. For information about U.S. Bancorp, including news and financial results and online annual reports, access our home page on the Internet at www.usbank.com 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: U.S. Bancorp Investor Relations 601 Second Avenue South Minneapolis, Minnesota 55402-4302 612-973-2263 corporaterelations@usbank.com Media Requests Wendy Raway Vice President, Public Relations 612-973-2429 wendy.raway@usbank.com Diversity U.S. Bancorp and its subsidiaries are committed to developing and maintaining a workplace that reflects the diversity of the communities we serve. We support a work environment where individual differences are valued and respected and where each individual who shares the fundamental values of the company has an opportunity to contribute and grow based on individual merit. Equal Employment Opportunity/Affirmative Action U.S. Bancorp and its subsidiaries are committed to providing Equal Employment Opportunity to all employees and applicants for employment. In keeping with this, employment decisions are made based upon job-related knowledge, skills and abilities rather than race, color, religion, national origin, gender, age, marital status, disability, veteran status, sexual orientation, gender identity or any other characteristic protected by law. The corporation complies with municipal, state, and federal Fair Employment Laws, including regulations applying to federal contractors. Community Annual Report To request copies of the U.S. Bancorp Community Annual Report, published separately from our U.S. Bancorp Annual Report and Form 10-K, please call U.S. Bancorp Community Development at 612-973-4996. To request copies of the Firstar Community Partnership Report, please call Firstar Community Development at (513) 632-4030. U.S. Bancorp, including each of its subsidiaries, is an Equal Opportunity Employer and a Drug-Free Workplace. This report has been produced on recycled paper. [RECYCLED LOGO] [US BANCORP LOGO] For product and service information, locations and other information about our U.S. Bank and Firstar banks and lines of business: www.usbank.com www.firstar.com -----END PRIVACY-ENHANCED MESSAGE-----