0000891020-95-000364.txt : 19950816 0000891020-95-000364.hdr.sgml : 19950816 ACCESSION NUMBER: 0000891020-95-000364 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: US BANCORP /OR/ CENTRAL INDEX KEY: 0000101542 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 930571730 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08090 FILM NUMBER: 95563920 BUSINESS ADDRESS: STREET 1: 111 SW FIFTH AVE T-2 STREET 2: SUITE 3500 CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032756111 MAIL ADDRESS: STREET 1: 111 S W FIFTH AVENUE STREET 2: SUITE 3500 CITY: PORTLAND STATE: OR ZIP: 97204 10-Q 1 U. S. BANCORP FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------------------------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1995 Commission File No. 0-3505 U. S. BANCORP (Exact name of registrant as specified in its charter) Oregon 93-0571730 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 97204 111 S.W. Fifth Avenue (Zip Code) Portland, Oregon (Address of principal executive offices)
(503) 275-6111 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of Common Stock, par value $5, outstanding at July 31, 1995: 98,264,367 shares. 2 U. S. BANCORP TABLE OF CONTENTS Part I - Financial Information Item 1. Financial Statements
Page ---- Consolidated Balance Sheet 3 Consolidated Statement of Income 5 Consolidated Statement of Cash Flows 7 Consolidated Statement of Changes in Shareholders' Equity 9 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . 11 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 29 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3 Part 1 - Financial Information Item 1. Financial Statements U. S. BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
June 30, December 31, June 30, In Thousands 1995 1994 1994 ------------ ---- ---- ---- ASSETS Cash and due from banks $ 1,476,674 $ 1,488,743 $ 1,225,810 Interest-bearing deposits with banks 1,112 1,461 1,592 Federal funds sold and security resell agreements 123,433 429,366 430,142 Other short-term investments 5,438 9,287 3,519 Trading account securities 140,368 137,194 160,324 Loans held for sale 66,452 148,179 401,308 Securities available for sale, at fair value (amortized cost: $1,064,232, $1,411,764 and $1,577,875, respectively) 1,078,798 1,369,437 1,553,261 Securities held to maturity, at amortized cost (fair value: $1,240,405, $1,342,638 and $1,546,353, respectively) 1,265,551 1,404,835 1,568,955 Loans and lease financing, net of unearned income Commercial 7,908,525 7,384,593 7,144,247 Foreign 74,057 49,834 92,376 Real estate construction 733,749 667,177 673,774 Real estate mortgage 2,957,426 2,946,541 2,683,121 Consumer 3,407,325 3,737,973 3,307,412 Lease financing 875,518 819,599 746,208 ----------- ----------- ----------- Total loans and lease financing 15,956,600 15,605,717 14,647,138 Allowance for credit losses (313,274) (305,802) (279,388) ----------- ----------- ----------- Net loans and lease financing 15,643,326 15,299,915 14,367,750 Premises, furniture and equipment 522,100 544,701 558,568 Other real estate and equipment owned 28,191 22,676 28,730 Customers' liability on acceptances 286,502 225,229 214,516 Other assets 711,913 735,386 652,436 ----------- ----------- ----------- $21,349,858 $21,816,409 $21,166,911 =========== =========== ===========
See Notes to Financial Statements. 3 4 U. S. BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued)
June 30, December 31, June 30, In Thousands 1995 1994 1994 ------------ ---- ---- ---- LIABILITIES Deposits: Noninterest-bearing deposits $ 3,901,749 $ 4,021,659 $ 3,741,438 NOW accounts and interest checking 1,914,758 2,071,293 1,951,410 Savings 1,365,342 1,612,356 1,925,672 Money market deposit accounts 3,418,288 3,176,920 2,995,082 Other time deposits 3,784,309 3,514,942 3,803,311 Time - $100,000 or more 591,666 651,196 554,525 ----------- ----------- ----------- Total deposits 14,976,112 15,048,366 14,971,438 Federal funds purchased and security repurchase agreements 1,898,211 2,783,503 2,289,915 Commercial paper 170,311 171,454 261,818 Other short-term borrowings 774,060 393,587 226,862 Long-term debt 890,338 994,870 1,046,638 Accrued income taxes 70,632 47,245 54,558 Acceptances outstanding 286,502 225,229 214,516 Other liabilities 390,523 374,870 337,296 ----------- ----------- ----------- Total liabilities 19,456,689 20,039,124 19,403,041 SHAREHOLDERS' EQUITY Preferred stock 150,000 150,000 150,000 Common stock 491,118 490,690 499,897 Capital surplus 351,445 350,612 389,889 Retained earnings 892,677 811,808 739,789 Net unrealized gain (loss) on securities available for sale, net of tax 7,929 (25,825) (15,705) ----------- ----------- ----------- Total shareholders' equity 1,893,169 1,777,285 1,763,870 ----------- ----------- ----------- $21,349,858 $21,816,409 $21,166,911 =========== =========== ===========
See Notes to Financial Statements. 4 5 U. S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
Second Quarter Ended Six Months Ended June 30, June 30, In Thousands, -------------------- ---------------- Except Per Share Data 1995 1994 1995 1994 --------------------- ---- ---- ---- ---- INTEREST INCOME Loans, including fees $370,325 $303,887 $733,497 $586,753 Securities held to maturity 20,373 24,224 41,725 49,624 Securities available for sale 16,138 20,364 34,276 41,385 Loans held for sale 2,910 8,205 6,088 19,018 Trading account securities 2,645 2,269 4,722 4,417 Other interest income 1,697 2,959 4,364 5,247 -------- -------- -------- -------- Total interest income 414,088 361,908 824,672 706,444 -------- -------- -------- -------- INTEREST EXPENSE Deposits 112,789 82,504 217,022 163,478 Short-term borrowings 40,552 23,706 84,274 41,588 Long-term debt 15,461 18,624 30,778 36,462 -------- -------- -------- -------- Total interest expense 168,802 124,834 332,074 241,528 -------- -------- -------- -------- NET INTEREST INCOME 245,286 237,074 492,598 464,916 Provision for credit losses 21,851 25,547 42,265 45,301 -------- -------- -------- -------- Net interest income after provision for credit losses 223,435 211,527 450,333 419,615 -------- -------- -------- -------- NONINTEREST REVENUES Service charges on deposit accounts 37,611 39,190 75,623 75,522 Bank card revenue, net 15,177 15,000 29,614 29,088 Trust and investment management 13,835 13,850 26,263 25,733 Exchange fees 8,697 7,887 16,743 14,819 Insurance revenue 4,113 5,442 7,586 10,614 Other operating revenue 29,055 20,513 47,143 40,769 Mortgage banking income, net 2,068 5,644 3,485 13,793 Equity investment income (loss) (1,801) (7) 475 (1,430) Gain on sale of securities available for sale 1,655 40 1,690 364 Credit reporting revenue - 4,353 - 9,310 -------- -------- -------- -------- Total noninterest revenues $110,410 $111,912 $208,622 $218,582 -------- -------- -------- --------
See Notes to Financial Statements. 5 6 U. S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Continued)
Second Quarter Ended Six Months Ended June 30, June 30, In Thousands, -------------------- ---------------- Except Per Share Data 1995 1994 1995 1994 --------------------- ---- ---- ---- ---- NONINTEREST EXPENSES Employee compensation and benefits $101,025 $121,264 $208,484 $251,354 Net occupancy expense 15,955 17,273 31,893 33,605 Equipment rentals, depreciation and maintenance 24,920 27,561 48,328 52,347 Stationery, supplies and postage 10,979 10,064 22,448 21,623 Regulatory agency fees 9,581 10,105 19,346 20,132 Telecommunications 6,583 6,769 12,753 13,945 Amortization of intangibles 5,077 6,089 9,677 10,961 Other operating expense 49,085 50,500 94,820 101,080 Restructuring charge - - - 100,000 -------- -------- -------- -------- Total noninterest expenses 223,205 249,625 447,749 605,047 -------- -------- -------- -------- Income before income taxes 110,640 73,814 211,206 33,150 Provision for income taxes 40,667 22,474 74,685 10,275 -------- -------- -------- -------- Net income $ 69,973 $ 51,340 $136,521 $ 22,875 ======== ======== ======== ======== Net income applicable to common shareholders $ 66,926 $ 48,293 $130,427 $ 16,781 Per common share: Net income $.68 $.49 $1.33 $.17 Cash dividends declared .25 .22 .50 .44 Average number of common shares outstanding 98,206 99,936 98,179 99,834
See Notes to Financial Statements. 6 7 U. S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, --------------------- In Thousands 1995 1994 ------------ ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 136,521 $ 22,875 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation, amortization and accretion 45,404 48,808 Provision for credit losses 42,465 45,301 Noncash portion of restructuring charge - 78,708 Equity investment (income) loss (114) 1,034 Gain on sales of securities available for sale (1,690) (364) (Gain) loss on sales of trading securities (7,089) 1,643 Net gain on sales of loans and property (17,736) (19,521) Net loss on sales of mortgage loan servicing rights - 328 Change in loans held for sale 84,138 457,000 Change in trading account securities 4,707 47,283 Change in deferred loan fees, net of amortization 2,763 2,690 Change in accrued interest receivable (451) 1,346 Change in accrued interest payable 21,764 (872) Change in other assets and liabilities, net 10,758 (64,427) --------- --------- Net cash provided by operating activities 321,440 621,832 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of interest-earning deposits of nonbank subsidiaries 6,305 6,830 Purchase of interest-earning deposits by nonbank subsidiaries (5,375) (6,042) Net increase in investments in interest- earning deposits by banking subsidiaries 2,993 6,535 Proceeds from maturities of securities held to maturity 138,309 440,419 Purchase of securities held to maturity - (233,400) Proceeds from maturities of securities available for sale 172,221 84,585 Purchase of securities available for sale (434,816) (190,826) Proceeds from sale of securities available for sale 601,159 132,754 Proceeds from sales of equity investments 968 109 Purchase of equity investments (9,470) (6,110) Principal collected on loans by nonbank subsidiaries 428,521 429,957 Loans made to customers by nonbank subsidiaries (518,264) (405,841) Net increase in loans by banking subsidiaries (318,644) (555,216) Proceeds from sales of loans 11,538 15,785 Proceeds from sales of premises and equipment 30,334 5,316 Purchase of premises and equipment (37,504) (62,875) Proceeds from sales of foreclosed assets 17,648 19,781 Proceeds from sales of mortgage loan servicing rights - 24,391 Purchase of mortgage loan servicing rights - (1,044) Acquisitions/dispositions, net of cash and cash equivalents 11,389 - --------- --------- Net cash provided by (used in) investing activities $ 97,312 $(294,892) --------- ---------
See Notes to Financial Statements. 7 8 U. S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Six Months Ended June 30, --------------------- In Thousands 1995 1994 ------------ ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits $ (71,261) $ (539,395) Net change in short-term borrowings (496,549) 373,174 Proceeds from issuance of long-term debt 158,608 129,463 Repayment of long-term debt (273,211) (134,552) Proceeds from issuance of stock 3,194 8,358 Common stock repurchased (2,351) (3,968) Dividends paid (55,184) (49,950) ---------- ---------- Net cash used in financing activities (736,754) (216,870) ---------- ---------- NET CHANGE IN CASH AND CASH EQUIVALENTS (318,002) 110,070 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,918,109 1,545,882 ---------- ---------- CASH AND CASH EQUIVALENTS AT PERIOD END $1,600,107 $1,655,952 ========== ========== Supplemental disclosures: Cash paid during the period for: Interest $310,310 $242,401 Income taxes 67,498 46,969 Non-cash investing activities: Transfer from loans to loans held for sale 236,128 - Transfer from loans to other real estate owned 25,549 12,343 Transfer of investments from available for sale to held to maturity - 41,895 Fair value adjustment to securities available for sale (57,048) 54,649 Income tax effect related to fair value adjustment (19,933) 21,283
See Notes to Financial Statements. 8 9 U. S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended June 30, --------------------- In Thousands 1995 1994 ------------ ---- ---- Shareholders' equity at beginning of period $1,777,285 $1,818,195 Net income 136,521 22,875 Stock options exercised, dividends reinvested and other transactions 3,144 10,649 Common stock repurchased (2,351) (3,968) Preferred dividends declared (6,094) (6,094) Common dividends declared (49,090) (43,957) Adjustment of available for sale securities to market value, net of deferred taxes 33,754 (33,830) ---------- ---------- Shareholders' equity at end of period $1,893,169 $1,763,870 ========== ==========
NOTES TO FINANCIAL STATEMENTS 1. Principles of Consolidation The consolidated financial statements of U. S. Bancorp include the accounts of U. S. Bancorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The foregoing financial statements are unaudited; however, in the opinion of management, all adjustments (comprised of normal recurring accruals) necessary for a fair presentation of the interim financial statements have been included. A summary of U. S. Bancorp's significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in U. S. Bancorp's 1994 Form 10-K. The major banking subsidiaries of U. S. Bancorp include United States National Bank of Oregon, U. S. Bank of Washington, N.A., U. S. Bank of California, U. S. Bank of Nevada and U. S. Bank of Idaho, N.A. 2. Commitments and Contingent Liabilities In the normal course of business there are various commitments and contingent liabilities to extend credit and guarantees, which are not reflected in the financial statements. Management does not anticipate any material loss as a result of these transactions. Such commitments and contingent liabilities include commitments to extend credit of $10.5 billion and $14.0 billion and standby letters of credit of $892 million and $676 million at June 30, 1995 and December 31, 1994, respectively. 9 10 3. Recently Issued Accounting Pronouncements Effective January 1, 1995, U. S. Bancorp adopted Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118. These statements address the disclosure requirements and allocations of the allowance for credit losses for certain impaired loans. A loan within the scope of these statements is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. These statements do not apply to leases or large groups of smaller-balance homogeneous loans which are collectively evaluated. When a loan has been identified as being impaired, the amount of the impairment is measured by using discounted cash flows, except when it is determined that the sole source of repayment for the loan is the operation or liquidation of the underlying collateral. In such case, the current fair value of the collateral, reduced by costs to sell, is used. When the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest, net deferred loan fees or costs, and unamortized premium or discount), an impairment is recognized by creating or adjusting an existing allocation of the allowance for credit losses. SFAS No. 114 does not change the timing of charge-offs of loans to reflect the amount ultimately expected to be collected. When a loan is identified as impaired, interest accrued but not received is reversed against interest income. Subsequent cash recorded by U. S. Bancorp related to impaired loans is generally applied to reduce the principal balance, with only insignificant amounts of cash receipts recognized as interest income in 1995. At June 30, 1995, U. S. Bancorp's recorded investment in loans for which an impairment has been recognized totaled $141.4 million. Included in this amount is $32.6 million of impaired loans for which the related SFAS No. 114 allowance is $11.8 million. The balance of the allowance for credit losses in excess of these specific reserves is available to absorb losses from all loans, although allocations have been made for certain loans and loan categories as part of management's quarterly analysis of the allowance. The average recorded investment in impaired loans was $142.5 million during the second quarter of 1995, and $140.7 million for the first six months of 1995. The Financial Accounting Standards Board has issued SFAS No. 122 "Accounting for Mortgage Servicing Rights", an amendment of SFAS No. 65, in May 1995. This Statement requires that U.S. Bancorp recognize as separate assets rights to service mortgage loans for others, however those servicing rights are acquired. Previously, only purchased servicing rights were capitalizable as an asset whereas internally originated rights were expensed. This Statement also requires that capitalized excess servicing receivables be assessed for impairment based on fair value, rather than an estimate of undiscounted future cash flows. This Statement must be applied prospectively, beginning in 1996, but may be adopted earlier for periods for which financial statements have not been issued. Adoption of this Standard is not expected to have a significant impact on the financial statements of U.S. Bancorp. 4. Acquisitions On May 8, 1995, U. S. Bancorp announced the signing of a definitive agreement to merge, under the U. S. Bancorp name, with West One Bancorp, a bank holding company headquartered in Boise, Idaho with $9.2 billion in assets at June 30, 1995. Under the terms of the agreement, each share of West One Bancorp common stock will be exchanged for 1.47 shares of U. S. Bancorp common stock. The merger is expected to be completed by year-end 1995, subject to approval by both U.S. Bancorp and West One Bancorp shareholders and regulatory approval. 10 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction The focus of the following discussion is on U. S. Bancorp's financial condition, changes in financial condition and results of operations. It is a supplement to the consolidated financial statements and footnotes that are presented elsewhere, and should be read in conjunction therewith. Selected Financial Data
Second Quarter Ended Six Months Ended June 30, June 30, Dollars in Millions -------------------- Percent ---------------- Percent Except Per Share 1995 1994 Change 1995 1994 Change -------------------- ---- ---- ------- ---- ---- ------- Net interest income $245.3 $237.1 3% $492.6 $464.9 6% Provision for credit losses 21.9 25.5 (14) 42.3 45.3 (7) Net income 70.0 51.3 36 136.5 22.9 N/M PER COMMON SHARE Net income $.68 $.49 39 $ 1.33 $ .17 N/M Dividends declared .25 .22 14 .50 .44 14 Book value (period-end) 17.75 16.14 10 PERIOD-END BALANCES Assets $21,350 $21,167 1% Interest-earning assets 18,638 18,766 (1) Loans 15,957 14,647 9 Deposits 14,976 14,971 - Long-term debt 890 1,047 (15) Common shareholders' equity 1,743 1,614 8 Preferred stock 150 150 - Full-time equivalent employees 9,704 12,165 (20) AVERAGE BALANCES Average assets $21,067 $21,083 - $21,192 $21,078 1 Interest-earning assets 18,595 18,584 - 18,736 18,574 1 Loans 15,729 14,436 9 15,724 14,273 10 Deposits 14,916 15,107 (1) 14,898 15,185 (2) Average common shareholders' equity 1,696 1,583 7 1,669 1,628 3
11 12 Selected Financial Data (Continued)
Second Quarter Ended Six Months Ended June 30, June 30, Dollars in Millions -------------------- ---------------- Except Per Share 1995 1994 1995 1994 -------------------- ---- ---- ---- ---- SELECTED RATIOS Return on average common equity 15.83% 12.24% 15.76% 2.08% Return on average assets 1.33 .98 1.30 .22 Overhead ratio 61.40 69.84 62.49 86.41 Net interest margin 5.45 5.30 5.45 5.21 Leverage ratio 8.29 7.62 Risk-based capital ratios Tier 1 capital 8.65 8.38 Total capital 11.49 11.29
N/M Not Meaningful 12 13 RESULTS OF OPERATIONS Overview To facilitate the discussion of its results of operations, in the table on the next page U. S. Bancorp provides an additional analysis of performance to supplement the accompanying consolidated income statement and balance sheet. This additional analysis of performance should not be viewed as a substitute for the GAAP-based financial statements previously presented. There are two primary differences between the consolidated income statement and the operating income analysis that follows. First, the operating income analysis presents the line items in a slightly different order. Second, certain transactions that are nonrecurring items or that are not related to core businesses are not included in noninterest revenues and noninterest expenses in determining operating income and are presented separately after operating income. For detailed information on the items presented as noncore or nonrecurring, refer to the respective discussions of "Noninterest Revenues" and "Noninterest Expenses". For the second quarter of 1995, net income was $70.0 million, compared with net income of $51.3 million in the second quarter of 1994. Operating income, as defined and presented in the table below, increased 24 percent over the same period a year ago, as a result of the restructuring initiatives started in March of 1994. The following key highlights compare the second quarter of 1995 with the same period of 1994 unless otherwise noted: o Net income totaled a record $70 million, or $.68 per share, an increase of 36 percent from $51 million, or $.49 per share. o Operating income (income on a tax-equivalent basis before the provision for credit losses, other real estate owned transactions, items determined to be noncore or nonrecurring, and income taxes) of $141.6 million was up 24 percent from $113.8 million. o Net interest margin of 5.45 percent compared favorably to a 5.30 percent margin in the prior year's quarter and was stable with the margin in first quarter 1995. o Noninterest expenses (before other real estate owned transactions and items determined to be noncore or nonrecurring) of $214 million dropped 12 percent from $244 million. o Return on average assets improved to 1.33 percent from .98 percent, while the return on average common equity rose to 15.8 percent from 12.2 percent. o Overhead ratio improved to 61.4 percent from 69.8 percent. Excluding other real estate owned transactions and noncore or nonrecurring items, the overhead ratio would have been 60.2 percent in second quarter 1995. For the first six months of 1995, net income was $136.5 million, compared with net income of $22.9 million for the first six months of 1994. The results for the 1994 period included the impact of a $100 million pretax restructuring charge. 13 14 The table below presents U. S. Bancorp's major income and expense components for the second quarter and six month periods. A discussion of the major changes in each key component follows.
Second Quarter Ended Six Months Ended June 30, June 30, -------------------- Percent ---------------- Percent Dollars in Thousands 1995 1994 Change 1995 1994 Change -------------------- ---- ---- ------- ---- ---- ------- Net interest income (1) $253,121 $245,528 3 % $507,948 $ 481,608 5 % Noninterest revenues 102,859 112,068 (8) 198,287 218,272 (9) Noninterest expenses 214,352 243,817 (12) 436,977 499,603 (13) -------- -------- -------- --------- Operating income (1) 141,628 113,779 24 269,258 200,277 35 Provision for credit losses (21,851) (25,547) (14) (42,265) (45,301) (7) OREO transactions (744) (395) 88 93 (31) N/M -------- -------- -------- --------- 119,033 87,837 36 227,086 154,945 47 Equity investment income (loss) (1,801) (7) 475 (1,430) Gain on sale of operations and loans 4,634 8,526 5,107 9,606 Gain on sale of securities available for sale 1,655 40 1,690 364 Nonrecurring noninterest revenue items 3,063 (8,715) 3,063 (8,230) Restructuring charge - - - (100,000) Nonrecurring noninterest expense items (8,109) (5,413) (10,865) (5,413) -------- -------- -------- --------- Income before income taxes (1) 118,475 82,268 44 226,556 49,842 N/M Less tax-equivalent adjustment included above 7,835 8,454 15,350 16,692 Provision for income taxes 40,667 22,474 74,685 10,275 -------- -------- -------- --------- Net income $ 69,973 $ 51,340 36 % $136,521 $ 22,875 N/M % ======== ======== === ======== ========= ===
(1) Tax-equivalent basis N/M Not Meaningful Net Interest Income - Tax-equivalent Basis Net interest income, the principal source of U. S. Bancorp's operating income, includes interest income and fees generated by interest-earning assets, primarily loans and securities portfolios, less interest expense on interest-bearing liabilities, primarily deposits, purchased funds and short- and long-term debt. Net interest income is affected by the volume and relative mix of both earning assets and interest-bearing and noninterest-bearing liabilities, and related interest yields and rates paid on these assets and liabilities. 14 15
Net Analysis of Net Interest Income Interest Interest Interest (In Millions) Income Expense Income ------------------------------- -------- -------- -------- Second quarter 1994 as reported $370.3 $124.8 $245.5 Increase (decrease) due to: Changes in balances .2 (1.8) 2.0 Changes in rates 51.4 45.8 5.6 ------ ------ ------ Second quarter 1995 as reported $421.9 $168.8 $253.1 ====== ====== ====== Six Months Ended June 30, 1994 as reported $723.1 $241.5 $481.6 Increase due to: Changes in balances 6.0 .1 5.9 Changes in rates 110.9 90.5 20.4 ------ ------ ------ Six Months Ended June 30 1995 as reported $840.0 $332.1 $507.9 ====== ====== ======
Second Quarter Ended June 30, 1995 Compared With Second Quarter Ended June 30, 1994 Net interest income on a tax-equivalent basis was $253.1 million, up 3 percent or $7.6 million, over the second quarter of 1994. The net interest margin in the second quarter of 1995 was 5.45 percent compared with 5.30 percent in the same quarter a year ago, and unchanged from 5.45 percent in the preceding first quarter. The spread between the yield on earning assets and rates paid on interest-bearing liabilities decreased in the second quarter of 1995 compared with second quarter 1994 as the cost of purchased funds and other short-term borrowings increased at a faster rate than loan yields. The increase in the margin is due to the favorable impact of a higher level of noninterest-bearing funds, primarily noninterest-bearing deposits and shareholders' equity, which offset the decrease in the interest rate spread. Loans averaged $15.7 billion in second quarter 1995, an increase of $1.3 billion or 9 percent, compared with second quarter a year ago. Strong growth was achieved in commercial, consumer and real estate mortgage lending. Average total securities portfolios were $2.4 billion during the second quarter of 1995, a 23 percent decrease from $3.2 billion in second quarter 1994. The decrease is due to the maturity of securities held for investment, as well as sale of certain available for sale securities for asset/liability management purposes. Average core deposits, defined as deposits other than time deposits of $100,000 or more, were $14.1 billion and $14.5 billion in the second quarter of 1995 and 1994, respectively, and funded 76 percent and 78 percent of average earning assets in those periods, respectively. 15 16 Six Months Ended June 30, 1995 Compared With Six Months Ended June 30, 1994 Net interest income on a tax-equivalent basis was $507.9 million, up 5 percent or $26.3 million, over the first six months of 1994. The net interest margin in the first six months of 1995 was 5.45 percent compared with 5.21 percent in the same period a year ago. The spread between the yield on earning assets and rates paid on interest-bearing liabilities decreased in the first six months of 1995 compared with the same period in 1994 as the cost of purchased funds and other short-term borrowings increased at a faster rate than loan yields. The increase in the margin is due to the favorable impact of a higher level of noninterest-bearing funds, primarily noninterest-bearing deposits and shareholders' equity, which offset the decrease in the interest rate spread. Loans averaged $15.7 billion in the first six months of 1995, an increase of $1.5 billion or 10 percent, compared with the first six months of 1994. Average total securities portfolios were $2.6 billion during the first six months of 1995, a 22 percent decrease from $3.3 billion in the first six months of 1994. Average core deposits, defined as deposits other than time deposits of $100,000 or more, were $14.1 billion and $14.5 billion in the first six months of 1995 and 1994, respectively, and funded 75 percent and 78 percent of average earning assets in those periods, respectively.
Second Quarter Ended Six Months Ended June 30, June 30, Net Interest Margin Analysis -------------------- ------------------ (Tax-equivalent Basis) 1995 1994 1995 1994 ---------------------------- ---- ---- ---- ---- Average rate earned on interest earning assets 9.09% 7.99% 9.02% 7.83% Average rate paid on interest-bearing liabilities 4.56 3.33 4.45 3.23 ---- ---- ---- ---- Rate spread 4.53 4.66 4.57 4.60 ---- ---- ---- ---- Net interest margin 5.45% 5.30% 5.45% 5.21% ==== ==== ==== ====
16 17 Noninterest Revenues Noninterest revenues were stable in the second quarter of 1995 compared with the second quarter of 1994, excluding revenues associated with activities affected by divestitures and other revenues identified below. The principal components of noninterest revenue are shown in the table below.
Second Quarter Ended Six Months Ended June 30, June 30, -------------------- Percent ---------------- Percent Dollars in Thousands 1995 1994 Change 1995 1994 Change -------------------- ---- ---- ------- ---- ---- ------- Service charges on deposit accounts $ 37,611 $ 39,190 (4)% $ 75,623 $ 75,522 - % Bank card revenue 15,177 15,000 1 29,614 29,088 2 Trust and investment management 13,835 13,850 - 26,263 25,733 2 Exchange fees 8,697 7,887 10 16,743 14,819 13 Insurance revenue 4,113 5,442 (24) 7,586 10,614 (29) ATM revenue 4,741 4,780 (1) 9,115 9,365 (3) Brokerage and other commissions 2,138 2,108 1 3,974 5,308 (25) Trading account 2,978 4,911 (39) 7,088 6,613 7 Other revenue 11,501 8,780 31 18,796 18,107 4 -------- -------- -------- -------- 100,791 101,948 (1) 194,802 195,169 - -------- -------- -------- -------- Activities affected by divestitures: Mortgage banking income, net 2,068 5,767 3,485 13,793 Credit reporting revenue - 4,353 - 9,310 -------- -------- -------- -------- 2,068 10,120 3,485 23,103 -------- -------- -------- -------- Gain on sale of operations and loans 4,634 8,526 5,107 9,606 Equity investment income (loss) (1,801) (7) 475 (1,430) Gain on sale of securities available for sale 1,655 40 1,690 364 Nonrecurring noninterest revenue items 3,063 (8,715) 3,063 (8,230) -------- -------- -------- -------- Total noninterest revenues $110,410 111,912 (1)% $208,622 $218,582 (5)% ======== ======== === ======== ======== ===
17 18 Exchange fees increased in 1995 over the same periods in 1994 reflecting higher fees for several exchange services provided. Insurance revenue and securities brokerage related commissions in 1995 have declined compared with the 1994 periods as sales volumes of annuities and securities decreased. The increase in other revenue is mainly related to gains on sales of student loans and servicing income on the portfolio of credit card receivables sold at the end of the first quarter of 1995. The gain on the sale of operations and loans is primarily gains realized on sale of affinity credit card portfolios in the 1995 and 1994 periods. Equity investment activity relates to the mark-to-market accounting for publicly-held venture capital investments. The securities gain primarily resulted from the sale of mortgage-backed securities. The nonrecurring revenue items in 1995 included a $5.1 million gain on the sale of bank premises and a $2.0 million loss related to import/export financing receivables. Nonrecurring revenue items in second quarter of 1994 consisted of $8.3 million of trading account losses related to the sale of certain collateralized mortgage obligations and $500 thousand of import/export financing losses. Noninterest Expenses Noninterest expenses, before noncore or nonrecurring items, decreased 12 percent in the second quarter of 1995 compared with the second quarter of 1994. The principal components of noninterest expense are shown in the following table. 18 19
Second Quarter Ended Six Months Ended June 30, June 30, -------------------- Percent ---------------- Percent Dollars in Thousands 1995 1994 Change 1995 1994 Change -------------------- ---- ---- ------- ---- ---- ------- Employee compensation and benefits $101,025 $121,264 (17)% $208,484 $251,354 (17)% Net occupancy expense 15,955 16,189 (1) 31,893 32,521 (2) Equipment rentals, depreciation and maintenance 24,920 25,541 (2) 48,328 50,327 (4) Regulatory agency fees 9,581 10,105 (5) 19,346 20,132 (4) Telecommunications 6,583 6,769 (3) 12,753 13,945 (9) Amortization of intangibles 5,077 6,089 (17) 9,677 10,961 (12) Contract personnel 2,407 3,436 (30) 4,546 7,563 (40) Legal and accounting 3,610 2,002 80 6,257 4,746 32 Marketing and advertising 7,214 8,082 (11) 14,229 13,004 9 Other taxes and licenses 3,228 1,366 136 6,097 4,066 50 Stationery, supplies and postage 10,979 10,064 9 22,448 21,623 4 Travel 2,081 2,780 (25) 3,599 6,158 (42) All other 21,692 30,130 (28) 49,320 63,265 (22) -------- -------- -------- -------- 214,352 243,817 (12) 436,977 499,665 (13) Restructuring charge - - - 100,000 N/M Gain (loss) on sale of premises (299) - 2,457 - OREO transactions 744 395 (93) (31) Asset write-downs 1,953 1,338 1,953 1,338 Merger-related costs 2,455 - 6,455 - Other nonrecurring expenses 4,000 4,075 - 4,075 -------- -------- -------- -------- Total noninterest expenses $223,205 $249,625 (11)% $447,749 $605,047 (26)% ======== ======== === ======== ======== === NM Not Meaningful
Employee compensation and benefits decreased 17 percent, or $42.9 million, in the second quarter of 1995 compared with the same period in the prior year. The number of full-time equivalent employees has decreased from 12,165 at June 30, 1994, to 10,610 at December 31, 1994 and 9,704 at June 30, 1995, and is the primary reason for the decrease in employee compensation and benefits. Business divestitures accounted for approximately $29 million of the decrease and various staff reduction programs made up the balance of the decrease. Noninterest expenses decreased in most categories of expense in addition to compensation and benefits in the first six months of 1995 as a result of cost reduction efforts and the divestiture of the majority of the mortgage loan origination offices of U. S. Bancorp's mortgage banking subsidiary in August of 1994, and the sale of the credit reporting subsidiary at year-end 1994. Legal and accounting expenses increased mainly due to higher legal expenses associated with the reduction of nonperforming assets. 19 20 The overhead ratio (defined as noninterest expenses as a percentage of tax-equivalent net interest income and noninterest revenues) decreased to 61.4 percent in the second quarter of 1995 from 69.8 percent in the second quarter of 1994 and 63.6 in the first quarter of 1995. Excluding other real estate owned transactions and noncore or nonrecurring items, the overhead ratio was 60.2 percent in the second quarter of 1995, 68.2 percent in the second quarter of 1994 and 63.6 percent in the first quarter of 1995. OREO transactions include write-downs and gains and losses on disposition of properties. Asset write-downs in 1995 and 1994 consisted of accelerated amortization of affinity credit card intangibles. Merger-related costs in 1995 were incurred in conjunction with the pending merger of U.S. Bancorp with West One. Other nonrecurring expenses in 1995 related to additional costs associated with consolidation of computer operations and reconfiguration of branch support functions. Other nonrecurring expenses in 1994 included a $3.0 million charge-off of deferred costs related to agent-originated consumer loans originated for sale and subsequently transferred to the loan portfolio. Also included, was a $1.0 million rent adjustment on the recently occupied U. S. Bank of Washington headquarters building. In the first quarter of 1994, a $100 million restructuring charge was recorded related to a comprehensive program designed to allow U. S. Bancorp to become a more efficient, competitive and customer-focused financial institution. The program included staff reductions accomplished through an early retirement opportunity for certain employees, other severance programs and attrition; divestiture of noncore activities; and the consolidation and integration of certain operations and facilities that no longer fit U. S. Bancorp's corporate objectives or the needs of its regional customers. The program calls for consolidation of branch operations centers for all states from seven to two, elimination of corporate airplanes and closure of certain branches. As a result, U. S. Bancorp expects to achieve a 59 percent overhead ratio within three years of the initiation of the program. The $100 million charge represented the incremental costs expected to result from the restructuring plan. Included in the restructuring charge were $52.4 million of costs associated with enhanced retirement and other benefit programs, $22.6 million of severance benefits, $9.5 million of expenses related to the cost to exit certain business activities, $7.3 million related to consolidation and integration of facilities, and $8.2 million of other cost reduction expenses related to the program. U.S. Bancorp offered to eligible employees an early retirement incentive program, providing a reduction in the eligible age for retirement and an additional number of years of service toward the computation of retirement benefits. Certain employees were eligible for voluntary severance benefits, which exceeded standard severance benefits provided to personnel displaced in the restructuring program. In addition, certain employees received payments for their retention through agreed upon dates and outplacement services. The most significant portion of future expense reductions will consist of savings of employee compensation and benefits due to a reduction in employees. By the third quarter of 1994, U. S. Bancorp had achieved its targeted ten percent reduction in full-time equivalent (FTE) employees, excluding the reduction in employees associated with the mortgage loan origination offices sold. By year-end 1994, FTE employees decreased to 10,160, or 18 percent, from 12,863 at December 31, 1993. Of the 2,253 decrease in FTE employees, 555 were the result of activities sold and the balance was directly related to the restructuring program. In the first quarter of 1995, additional reductions in FTE employees of 280 resulted from the sale of U. S. Bancorp's credit reporting subsidiary in January 1995. Noninterest expenses for the first six months of 1995 totaled $447.7 million, compared with noninterest expenses of $505.0 million (excluding the $100 million restructuring charge) in the first six months of 1994, representing an annualized reduction in noninterest expenses of $115 million. FTE employees totaled 9,704 at June 30, 1995. The restructuring activity is summarized in the table below. The balance of the restructuring charge liability will be funded out of operating cash flows. The restructure program has not had a material impact on U. S. Bancorp's liquidity.
FACILITIES SEVERANCE, CONSOLIDATION OUTPLACEMENT AND BUSINESS RETIREMENT AND OTHER DIVESTITURE PLANS BENEFITS COSTS OTHER TOTAL ---------- ------------ ------------- ------- ------- (IN MILLIONS) Restructuring Provision ....................... $48.8 $26.2 $16.8 $8.2 $100.0 Utilization for the Period Cash ........................................ - 15.3 4.2 3.3 22.8 Noncash ..................................... 48.8(1) - 9.5 - 58.3 ----- ----- ----- ---- ------ Total ................................... 48.8 15.3 13.7 3.3 81.1 ----- ----- ----- ---- ------ Balance, December 31, 1994 .................... - 10.9 3.1 4.9 18.9 Utilization for the Period Cash ........................................ - 6.7 .1 4.1 10.9 Noncash ..................................... - - - - - ----- ----- ----- ---- ------ Total ................................... - 6.7 .1 4.1 10.9 ----- ----- ----- ---- ------ Balance, June 30, 1995 ........................ $ - $ 4.2 $ 3.0 $ .8 $ 8.0 ===== ===== ====== ==== ======
--------------- (1) Noncash amount of $48.8 million represents the amount transferred to U. S. Bancorp's benefit plan liabilities during 1994. Payment of the cost of the retirement programs will occur over a 10 to 15 year period as contributions by U. S. Bancorp are made to the benefit plans. Actual cash payments made to benefit plans are not included in the table above. Income Taxes The effective tax rates for the six months ended June 30, 1995 and 1994 were 35.4 and 31.0 percent, respectively. The increase in the effective tax rate in 1995 was mainly due to the higher level of earnings leading to a corresponding decrease in the proportion of tax-exempt income compared with 1994. 20 21 FINANCIAL CONDITION Securities Portfolios Securities available for sale totaled $1.08 billion at June 30, 1995 compared with $1.37 billion at December 31, 1994 and $1.55 billion at June 30, 1994. In the second quarter of 1995, U. S. Bancorp sold $230 million of securities, mainly mortgage-backed securities, from the available for sale portfolio for asset/liability management purposes. Maturities of U. S. Government agency securities, collateralized mortgage obligations and U. S. treasuries accounted for the balance of the decline. Securities held to maturity totaled $1.27 billion at June 30, 1995, compared with $1.40 billion at December 31, 1994 and $1.57 billion at June 30, 1994. Maturities of collateralized mortgage obligations and other asset-backed securities accounted for the majority of the decrease. Securities in both portfolios are expected to continue to decline moderately in the future as the cash received from their maturities is used to fund loan growth. Loan Portfolio Loans in most categories increased at June 30, 1995 from the totals outstanding at December 31, 1994. Average loans were up 9 percent in second quarter 1995 from the prior year quarter, despite the sale of more than $200 million of credit card loans in the 1995 period. Excluding the sale of credit card loans, average loans increased 6 percent on an annualized basis from first quarter 1995. It is U. S. Bancorp's objective to maintain a loan portfolio that is diverse in terms of type of loan, industry concentration, geographic distribution and borrower concentration in order to reduce the overall credit risk by minimizing the adverse impact of any single event or set of occurrences. The Commercial Loan Distribution table below shows the commercial loan portfolio stratified by significant Standard Industrial Code classifications. It should be noted that within the indicated classification, there are other subclassifications for which U. S. Bancorp's reporting system monitors industry concentrations.
June 30, December 31, Commercial Loan Distribution 1995 1994 ---------------------------- -------- ------------ Manufacturing 16.9% 17.3% Retail 11.9 11.0 Service 11.4 11.4 Wholesale 10.6 10.7 Forest products 6.6 8.2 Agricultural 8.8 8.3 Brokers, dealers and insurance 6.1 5.8 Transportation 5.0 4.4 Financial, nonbank 4.5 4.7 Contractors 4.7 4.2 Other 13.5 14.0 ----- ----- 100.0% 100.0% ===== =====
21 22 Real estate loans increased $11 million to $3.69 billion at June 30, 1995 from December 31, 1994, primarily due to an increase in one-to-four family residential real estate mortgage loans. This increase reflected the continued growth of this portfolio due to expansion of the Home Partner loan program in 1994. This program provides flexible guidelines and down payment options for first-time and low-to-moderate income borrowers. The majority of U. S. Bancorp's real estate mortgage loans outstanding are collateralized by properties located in the Pacific Northwest and Northern California. U. S. Bancorp closely monitors the composition of its real estate portfolio through prudent underwriting criteria and by monitoring loan concentrations by geographic region and property type. An analysis of the real estate portfolio is presented in the following tables (in millions):
Real Estate Loans Outstanding June 30, 1995 Residential Commercial Total ----------------------------- ----------- ---------- ----- Real estate construction $ 229.6 $ 504.1 $ 733.7 Real estate mortgage 1,121.4 1,836.0 2,957.4 -------- -------- -------- $1,351.0 $2,340.1 $3,691.1 ======== ======== ========
Real Estate Loans Outstanding Concentrations by State and Type of Collateral June 30, 1995 Washington Oregon California Other Total ----------------------------- ---------- ------ ---------- ----- ----- Residential $ 466.9 $257.9 $506.6 $119.6 $1,351.0 Commercial Apartment/Condominium 212.2 84.3 76.1 46.4 419.0 Office 220.5 142.3 45.6 32.0 440.4 Retail 60.0 36.7 3.2 11.1 111.0 Hotel/Motel 177.9 158.9 83.5 50.4 470.7 Land 29.6 14.9 25.3 14.2 84.0 Other 319.3 261.7 150.1 83.9 815.0 -------- ------ ------ ------ -------- Total Commercial 1,019.5 698.8 383.8 238.0 2,340.1 -------- ------ ------ ------ -------- Total $1,486.4 $956.7 $890.4 $357.6 $3,691.1 ======== ====== ====== ====== ========
Liquidity Liquidity is the ability to raise adequate and reasonably priced funds, primarily through deposits, as well as purchased funds and the issuance of debt and equity capital, and is managed through the selection of the asset mix and the maturity mix of liabilities. Maturing assets also provide a source of liquidity. Core deposits, defined as deposits other than time deposits of $100,000 or more, are U. S. Bancorp's primary source of funding. Core deposits provide a sizable source of relatively stable and low-cost funds. Average core deposits and shareholders' equity, which totaled $15.9 billion and $16.3 billion in the first six months of 1995 and 1994, respectively, funded 75 percent and 77 percent of average total assets in these periods, respectively. 22 23 Other sources of liquidity include purchased funds, comprised of time deposits over $100,000 and short-term borrowings. Average purchased funds totaled $3.7 billion in the first six months of 1995, compared with $3.1 billion in the first six months of 1994. Average senior and subordinated debt was $854 million in the first six months of 1995, and was $1.1 billion in the first six months of 1994. U. S. Bancorp's liquidity is enhanced by its accessibility to a diversity of national market sources of funds. In addition, U. S. Bancorp (the parent company) obtained a $500 million four-year revolving credit facility through a syndication involving 18 participating financial institutions in July 1995. This facility is viewed as a general liquidity line for the parent company. The following table summarizes U. S. Bancorp's ratings by major statistical rating agencies at June 30, 1995; such ratings are subject to revision or withdrawal at anytime.
Standard Duff Thomson & Poor's Moody's & Phelps BankWatch -------- ------- -------- --------- Commercial paper A-1 P-1 DUFF1+ TBW-1 Senior debt A A2 AA- A+ Subordinated debt A- A3 A+ A Preferred stock BBB+ a2 A A-
Provision and Allowance for Credit Losses The provision for credit losses for the second quarter of 1995 was $21.9 million and $42.3 million for the first six months of 1995. This compares with $25.5 million in the second quarter of 1994 and $45.3 million in the first six months a year ago. The lower provisions reflected improving asset quality trends and a lower level of commercial net charge-offs. Annualized net charge-offs in the first six months of 1995 were .40 percent compared with .48 percent for the first six months of 1994. U. S. Bancorp's allowance for credit losses totaled $313.3 million at June 30, 1995 and was 191 percent of nonperforming loans. The allowance as a percentage of nonperforming loans was 168 percent and 151 percent at December 31, 1994 and June 30, 1994, respectively. Management performs a quarterly analysis to establish the appropriate level of the allowance, taking into consideration such factors as loan loss experience, an evaluation of potential losses in the portfolio, credit concentrations and trends in portfolio volume, maturity, delinquencies and nonaccruals, risks associated with standby letters of credit which guarantee the debt of others and other off-balance sheet commitments, and prevailing and anticipated economic conditions. This analysis provides an allowance consisting of two components, allocated and unallocated. The allocated component reflects inherent losses resulting from the analysis of individual loans and is developed through specific credit allocations for individual loans and historical loss experience for each loan category and risk classification within each category. The unallocated component reflects management's judgment and determination of the amounts necessary for loan concentrations, economic uncertainties and other subjective factors. U. S. Bancorp continues to closely monitor credit risk in its loan portfolio. U. S. Bancorp believes that its credit approval and review processes are effective and operating in accordance with sound banking policy and that the allowance for credit losses at June 30, 1995 was adequate to absorb potential credit losses inherent in loans, leases, loan commitments and standby letters of credit outstanding at that date. 23 24 The table below presents the change in the allowance for credit losses for the periods indicated.
Six Six Months Months Ended Year Ended Ended Allowance for Credit Losses June 30, December 31, June 30, In Thousands 1995 1994 1994 --------------------------- -------- ------------ -------- Loans (net of unearned income) $15,956,600 $15,605,717 $14,647,138 Daily average loans (net of unearned income) $15,723,695 $14,728,160 $14,273,094 Balance of allowance for credit losses at beginning of period $305,802 $270,229 $270,229 Dispositions (3,219) (1,241) (2,255) Charge-offs Commercial 8,870 33,186 22,192 Lease financing 35 1,027 129 Real estate construction 257 12,080 442 Real estate mortgage 6,120 4,237 2,369 Consumer 18,622 27,126 12,511 Bank card 15,183 28,356 14,699 -------- -------- -------- 49,087 106,012 52,342 -------- -------- -------- Recoveries Commercial 6,830 14,512 6,459 Lease financing 153 1,056 853 Real estate construction 1,655 1,234 1,147 Real estate mortgage 1,442 4,638 2,728 Consumer 5,121 9,508 4,819 Bank card 2,312 5,010 2,449 -------- -------- -------- 17,513 35,958 18,455 -------- -------- -------- Net charge-offs 31,574 70,054 33,887 Provision for credit losses 42,265 106,868 45,301 -------- -------- -------- Balance of allowance credit losses at end of period $313,274 $305,802 $279,388 ======== ======== ======== Net charge-offs to average loans and leases .40% .48% .48% Allowance for credit for losses to period-end loans 1.96% 1.96% 1.91% Allowance as a % of nonperforming loans 191% 168% 151%
24 25 Asset Quality During the first six months of 1995, U. S. Bancorp continued to experience positive asset quality trends. Nonperforming assets as a percentage of loans and foreclosed assets decreased to 1.20 percent at June 30, 1995 from 1.31 percent at December 31, 1994, and 1.46 percent at June 30, 1994. At June 30, 1995, nonperforming assets decreased $12.4 million from December 31, 1994 and $21.7 million from a year ago, to $192.4 million. Nonaccrual loans and restructured loans have fallen to 1.03 percent of total loans at June 30, 1995. Nonaccrual loans were reduced by principal payments, charge-offs and other transactions totaling $83.1 million, offsetting new loans placed on nonaccrual during the first six months of 1995 totaling $65.3 million, for a net decrease of $17.8 million. While the overall credit quality of the loan portfolio has improved, the total nonaccrual balance could fluctuate from quarter to quarter. U. S. Bancorp anticipates normal influxes of nonaccrual loans as it increases its lending activity as well as resolutions of loans currently in the nonaccrual portfolio. In addition to the loans classified as nonperforming, U. S. Bancorp has other loans which it has internally classified, largely due to weakening financial strength of the borrowers or concern about specific industries. These loans, although currently performing in accordance with contractual terms, are monitored closely by management and have been considered in establishing the level of the allowance for credit losses. U. S. Bancorp's lending procedures and loan portfolio, including internally classified loans, are examined by regulatory agencies as part of their supervisory activities. The following table summarizes U. S. Bancorp's nonperforming assets and past due loans. Past due loans are defined as loans contractually past due as to interest or principal 90 days or more.
June 30, December 31, June 30, In Thousands 1995 1994 1994 ------------ -------- ------------ -------- Nonaccrual loans $153,026 $170,802 $173,988 Restructured loans 11,168 11,307 11,373 Other real estate and equipment owned 28,191 22,676 28,730 -------- -------- -------- Total nonperforming assets $192,385 $204,785 $214,091 ======== ======== ======== Accruing loans past due 90 days or more $15,073 $15,612 $12,422 ======= ======= ======= Total nonaccrual and restructured loans as percentage of total loans 1.03% 1.17% 1.27% Total nonperforming assets as a percentage of outstanding loans and foreclosed assets 1.20% 1.31% 1.46%
25 26 The following table presents nonaccrual loans on both a contractually past due and contractually current basis at June 30, 1995. Both book and contractual balances are indicated, the difference reflecting charge-offs and interest payments applied to principal. As of that date, $47.8 million, or 31 percent, of the loans on nonaccrual status were less than 90 days past due or contractually current as to principal and interest payments. Of the nonaccrual loans that are contractually current, loans to seven borrowers amounted to 86 percent of the total, and there was some uncertainty that these loans will remain contractually current.
Cumulative Cash Interest Book Payments Contractual Principal Cumulative Applied to Principal In Thousands, June 30, 1995 Balance Charge-Offs (5) Principal (5) Balance --------------------------- --------- --------------- ------------- ----------- Contractually past due (1): Payments not made (2): 90 days or more past due $ 31,854 $10,029 $ - $ 41,883 Less than 90 days past due 354 - - 354 -------- ------- ------- -------- 32,208 10,029 - 42,237 -------- ------- ------- -------- Payments made (3): 90 days or more past due 73,363 31,496 12,462 117,321 Less than 90 days past due 19,263 - 606 19,869 -------- ------- ------- -------- 92,626 31,496 13,068 137,190 -------- ------- ------- -------- Total past due 124,834 41,525 13,068 179,427 -------- ------- ------- -------- Contractually current (4) 28,192 4,047 4,655 36,894 -------- ------- ------- -------- Total nonaccrual loans $153,026 $45,572 $17,723 $216,321 ======== ======= ======= ========
(1) Contractually past due is defined as loans past due as to principal or interest 30 days or more. (2) Borrower has made no payments since being placed on nonaccrual. (3) Borrower has made some payments since being placed on nonaccrual. (4) Contractually current is defined as a loan for which principal and interest are being paid in accordance with its contractual terms. All of the contractually current loans were placed on nonaccrual due to uncertainty of receiving future required payments. (5) Cumulative amounts recorded since loan was placed on nonaccrual. 26 27 Capital and Dividends The federal bank regulatory agencies have jointly issued rules which implement a system of prompt corrective action for financial institutions required by FDICIA. The rules define the relevant capital levels for the five categories, ranging from "well capitalized" to "critically undercapitalized". An insured depository institution is generally deemed to be "well-capitalized" if it has a total risk-based capital ratio of at least 10 percent, a Tier 1 risk-based capital ratio of at least six percent, and a leverage ratio of at least five percent. Risk-based capital guidelines issued by the Federal Reserve Board establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures for bank holding companies. The guidelines require a minimum total risk-based capital ratio of eight percent, with half of the total in the form of Tier 1 capital. U. S. Bancorp's Tier 1 capital is comprised primarily of common equity and perpetual preferred stock, less goodwill and certain other intangibles, and excludes the equity impact of adjusting available for sale securities to market value. Total capital also includes subordinated debt and a portion of the allowance for credit losses, as defined. The risk-based capital rules have been supplemented by a leverage ratio, defined as Tier 1 capital to adjusted quarterly average total assets. Banking organizations other than those which are most highly rated are expected to maintain ratios at least 100 to 200 basis points above the minimum three percent level, depending on their financial condition. Each subsidiary bank is subjected to capital requirements similar to the requirements for bank holding companies. At June 30, 1995, all of U. S. Bancorp's banking subsidiaries met the risk-based capital ratio and leverage ratio requirements for "well capitalized" banks. The banking subsidiaries' ratios are expected to be maintained at the required levels by the retention of earnings and, if necessary, the issuance of additional capital-qualifying securities. The risk-based capital and leverage ratios for U. S. Bancorp and its significant bank subsidiaries at June 30, 1995 are presented in the table below (assets in millions):
Risk-based Capital Ratios ------------------ Total Total Leverage Assets Tier 1 Capital Ratio ------ ------ ------- -------- U. S. Bancorp (Consolidated) $21,350 8.65% 11.49% 8.29% Bank Subsidiaries U. S. Bank of Oregon 10,775 8.85 10.90 9.29 U. S. Bank of Washington 6,706 8.46 10.79 8.84 U. S. Bank of California 2,024 11.37 13.75 7.67 U. S. Bank of Nevada 888 10.29 13.25 6.97 U. S. Bank of Idaho 123 12.87 14.13 10.95
27 28 At June 30, 1995, common shareholders' equity was $1.7 billion. For the first six months of 1995, average common equity to average total assets increased to 7.88 percent from 7.72 percent for the first six months of 1994. In April 1994, U. S. Bancorp initiated a program to repurchase up to six million shares of U. S. Bancorp common stock over the next five years which will be used for reissuance through U. S. Bancorp's stock incentive plan. The annual common dividend rate was $1.00 per share at June 30, 1995. Dividends of $.94 per common share were declared for the year 1994. The respective second quarter rates for 1995 and 1994 were $.25 and $.22. 28 29 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) The exhibits filed herewith are listed in the Exhibit Index on page 31 of this report. (b) During the quarter ended June 30, 1995, no reports on Form 8-K were filed. 30 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 (Registrant) Date: August 14, 1995 By:/s/ STEVEN P. ERWIN ---------------------------------------- Steven P. Erwin Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 31 EXHIBIT INDEX
Exhibit ------- 12.1 U. S. Bancorp and Subsidiaries - Computation of Ratios of Consolidated Earnings to Fixed Charges. 12.2 U. S. Bancorp and Subsidiaries - Capital Ratios. 27. Financial Data Schedule.
EX-12.1 2 U. S. BANCORP EXHIBIT 12.1 1 EXHIBIT 12.1 U.S. BANCORP AND SUBSIDIARIES COMPUTATION OF RATIOS OF CONSOLIDATED EARNINGS TO FIXED CHARGES (In Thousands)
For Six Months Ended June 30 -------------- 1995 ---- Considering Interest on Deposits as an Operating Expense -------------------------------------------------------- Net income $136,521 Income taxes 74,685 -------- Earnings before income taxes and accounting changes 211,206 -------- Add fixed charges Interest on borrowed funds including capitalized interest 115,052 Interest income from federal funds sold (A) (1,344) Interest component of leases (B) 8,216 -------- Total fixed charges 121,924 -------- Earnings before income taxes, accounting changes and fixed charges $333,130 ======== Ratio of earnings to total fixed charges 2.74x ==== Considering Interest on Deposits as Fixed Charges (A) ----------------------------------------------------- Fixed charges as shown above $121,924 Interest on deposits 217,022 -------- Total fixed charges 338,946 -------- Fixed charges 338,946 Add earnings before income taxes and accounting changes 211,206 -------- Earnings before income taxes, accounting changes and fixed charges $550,152 ======== Ratio of earnings to total fixed charges 1.62x ====
------------------------ (A) Approximates interest expense related to federal funds purchased transactions for purposes other than the funding of banking subsidiaries' operations. (B) Interest component of leases includes imputed interest on capitalized leases and approximately one-third of rental expense, which approximates the interest component of operating leases. EX-12.2 3 U. S. BANCORP EXHIBIT 12.2 1 EXHIBIT 12.2 U.S. BANCORP AND SUBSIDIARIES CAPITAL RATIOS (In Thousands)
June 30, ------------------------------ 1995 1994 ----------- ----------- Total assets as reported $21,349,858 $21,166,911 Shareholders' equity as reported 1,893,169 1,763,870 Tier 1 capital 1,729,124 1,596,028 Total capital 2,294,831 2,150,634 Weighted risk assets 19,978,821 19,047,962 Adjusted quarterly average assets 20,868,266 21,128,341 Ratios Tier 1 capital to weighted risk assets 8.65% 8.38% Total capital to weighted risk assets 11.49% 11.29% Tier 1 capital to adjusted average assets (leverage ratio) 8.29% 7.62%
EX-27 4 U. S. BANCORP EXHIBIT 27
9 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 1,476,674 1,112 123,433 140,368 1,078,798 1,265,551 1,240,405 15,956,600 313,274 21,349,858 14,976,112 2,842,582 461,155 890,338 491,118 0 150,000 1,252,051 21,349,858 733,497 76,001 15,174 824,672 217,022 332,074 492,598 42,265 1,690 447,749 211,206 0 0 0 136,521 1.33 1.33 5.45 153,026 15,073 11,168 0 305,802 49,087 17,513 313,274 207,455 0 105,819