-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, guL9+Dv+Sf7fNT+YGl7AmOAuxG5IiP1EHwVXq30az+ND9qr6FKSqo5coyUjp7HS4 veFhsE6Z4a3qjwsHAdnwkQ== 0000891020-95-000411.txt : 19950906 0000891020-95-000411.hdr.sgml : 19950906 ACCESSION NUMBER: 0000891020-95-000411 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950830 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950905 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08090 FILM NUMBER: 95570223 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 8-K 1 U. S. BANCORP FORM 8-K 1 =============================================================================== 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): August 30, 1995 ____________________ U. S. BANCORP (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Oregon (STATE OR OTHER JURISDICTION OF INCORPORATION) 0-3505 (COMMISSION FILE NO.) 93-0571730 (IRS EMPLOYER IDENTIFICATION NO.) 111 S.W. Fifth Avenue Portland, Oregon 97204 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (503) 275-6111 =============================================================================== 2 ITEM 5. OTHER EVENTS. As described under Item 5 of the registrant's quarterly report on Form 10-Q for the quarter ended March 31, 1995, the registrant entered into an Agreement and Plan of Merger with West One Bancorp on May 5, 1995, providing for the merger of West One Bancorp into the registrant (the "Merger"). The Merger, which is conditioned upon, among other things, the approval of the shareholders of each party and certain regulatory approvals, is expected to be completed by year-end 1995. The registrant is filing herewith the financial statements and the pro forma financial information listed in Item 7 hereof for the purpose of incorporating such financial statements and financial information in certain of the registrant's registration statements under the Securities Act of 1933. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements. The following financial statements of West One Bancorp and Subsidiaries are filed as a part of this report: Consolidated Balance Sheets at December 31, 1994, and 1993. Consolidated Statements of Income for the years ended December 31, 1994, 1993, and 1992. Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, 1993, and 1992. Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993, and 1992. Notes to Consolidated Financial Statements. Report of Independent Accountants. Consolidated Balance Sheets at June 30, 1995, and 1994 and December 31, 1994. Consolidated Statements of Income for the quarter and for the six months ended June 30, 1995, and 1994. Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and 1994. Notes to Quarterly Consolidated Financial Statements. - 2 - 3 (b) Pro Forma Financial Information. The following unaudited pro forma financial information of U.S. Bancorp and Subsidiaries is filed as part of this report: Pro Forma Condensed Balance Sheet dated June 30, 1995. Pro Forma Condensed Statement of Income for the six months ended June 30, 1995. Pro Forma Condensed Statement of Income for the year ended December 31, 1994. Pro Forma Condensed Statement of Income for the year ended December 31, 1993. Pro Forma Condensed Statement of Income for the year ended December 31, 1992. Notes to Pro Forma Condensed Financial Statements. (c) Exhibits. See the accompanying exhibit index. - 3 - 4 West One Bancorp and Subsidiaries CONSOLIDATED BALANCE SHEETS
Dollars in thousands at December 31, 1994 1993 Assets Cash and due from banks $632,577 $450,384 Federal funds sold, securities purchased under agreements to resell and other 112,516 14,654 Securities: Available for sale 1,139,765 1,060,650 Held to maturity - market value of $568,488 and $595,146 581,155 565,165 Total securities 1,720,920 1,625,815 Loans - net of unearned income of $38,086 and $40,244: Real estate 2,526,475 2,150,835 Commercial and agricultural 2,205,459 1,996,865 Consumer 1,172,616 1,038,678 Leases 160,873 168,119 Total loans 6,065,423 5,354,497 Allowance for credit losses (81,757) (74,923) Net loans 5,983,666 5,279,574 Premises and equipment 128,506 122,828 Interest receivable 66,605 50,141 Other assets 147,909 127,957 Total assets $8,792,699 $7,671,353 Dollars in thousands at December 31, 1994 1993 Liabilities Deposits: Noninterest bearing $1,397,843 $1,260,869 Interest bearing demand 749,755 729,247 Regular and money market savings 2,086,718 1,971,211 Time certificates under $100,000 1,755,013 1,505,177 Time certificates $100,000 and over 821,553 470,543 Total deposits 6,810,882 5,937,047 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 804,161 568,295 Other 122,153 330,609 Long-term debt 253,073 116,460 Other liabilities 86,661 95,376 Total liabilities 8,076,930 7,047,787 Commitments and contingencies (Note 9) Shareholders' equity Common stock - $1.00 par value; 75,000,000 shares authorized; 36,745,368 and 34,718,731 shares outstanding 36,745 34,719 Capital surplus 327,879 304,413 Retained earnings 364,041 275,351 Unrealized gain (loss) on securities, net of tax (12,896) 9,083 Total shareholders' equity 715,769 623,566 Total liabilities and shareholders' equity $8,792,699 $7,671,353
The accompanying notes are an integral part of the financial statements. 5 West One Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
Dollars in thousands except per share data, for the year ended December 31, 1994 1993 1992 Interest income Loans $471,971 $402,550 $338,290 Short-term investments 3,000 1,371 8,278 Interest and dividends on securities: United States Treasury and Government agencies 33,331 31,172 35,711 State and municipal bonds 30,147 25,056 15,392 Mortgage-backed securities 15,233 21,842 21,971 Other 9,304 15,334 14,146 Total interest income 562,986 497,325 433,788 Interest expense Deposits 179,639 160,076 160,138 Federal funds purchased and securities sold under agreements to repurchase 22,185 18,592 20,995 Other short-term borrowings 10,390 6,543 3,911 Long-term debt 9,147 8,224 10,046 Total interest expense 221,361 193,435 195,090 Net interest income 341,625 303,890 238,698 Provision for credit losses 13,278 13,383 14,308 Net interest income after provision for credit losses 328,347 290,507 224,390 Noninterest income Trust fees and commissions 14,201 13,627 11,819 Service charges on deposit accounts 39,536 36,588 30,882 Other service charges, fees and commissions 48,785 41,079 30,569 Other 11,991 10,720 8,501 Securities gains (losses) (1,067) 495 1,690 Total noninterest income 113,446 102,509 83,461 Noninterest expense Salaries and employee benefits 142,512 128,886 104,024 Other 152,180 143,552 112,500 Total noninterest expense 294,692 272,438 216,524 Income before taxes 147,101 120,578 91,327 Provision for income taxes 43,930 37,391 27,955 Net income $103,171 $83,187 $63,372 Primary earnings per share $2.88 $2.50 $2.09 Fully diluted earnings per share 2.74 2.38 1.98
The accompanying notes are an integral part of the financial statements. 6 West One Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Dollars in thousands except per share data
Unrealized Securities Common Capital Retained Gain Stock Surplus Earnings (Loss) Total Balance at December 31, 1991 $28,062 $173,823 $165,163 $ - $367,048 Net income - - 63,372 - 63,372 Cash dividends declared - $.675 per share - - (20,983) - (20,983) Issuance of common stock - 3,375,062 shares 3,375 66,234 (1,687) - 67,922 Acquisition - 913,694 shares 914 8,758 1,982 - 11,654 Tax benefit of stock options exercised - 812 - - 812 Balance at December 31, 1992 32,351 249,627 207,847 - 489,825 Net income - - 83,187 - 83,187 Cash dividends declared - $.49 per share - - (16,421) - (16,421) Issuance of common stock - 2,161,317 shares 2,162 52,300 (86) - 54,376 Acquisition - 206,254 shares 206 2,011 824 - 3,041 Tax benefit of stock options exercised - 475 - - 475 Unrealized gain on securities, net of tax - - - 9,083 9,083 Balance at December 31, 1993 34,719 304,413 275,351 9,083 623,566 Net income - - 103,171 - 103,171 Cash dividends declared - $.76 per share - - (27,094) - (27,094) Issuance of common stock - 381,039 shares 381 7,488 - - 7,869 Acquisitions - 1,639,687 shares 1,639 14,543 12,613 (1,048) 27,747 Conversion of subordinated debentures - 5,911 shares 6 103 - - 109 Tax benefit of stock options exercised - 1,332 - - 1,332 Unrealized loss on securities, net of tax - - - (20,931) (20,931) Balance at December 31, 1994 $36,745 $327,879 $364,041 $(12,896) $715,769
The accompanying notes are an integral part of the financial statements 7 West One Bancorp and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands for the year ended December 31, 1994 1993 1992 Cash flows from operating activities Net income $103,171 $83,187 $63,372 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 13,278 13,383 14,308 Depreciation of premises and equipment 16,446 15,619 11,451 Amortization and accretion of premiums and discounts 11,409 14,013 9,479 Amortization of intangible and other assets 11,743 12,741 8,547 Originations of real estate loans held for sale (274,119) (486,205) (304,612) Proceeds from real estate and other loans sold 291,068 421,141 309,249 Net gain on sale of real estate loans (3,258) (1,931) (4,756) Net (gain) loss on sale of securities 1,067 (495) (1,690) Purchase of trading account securities (101,905) (37,550) (95,266) Sale of trading account securities 102,578 38,087 104,315 Changes in assets and liabilities, net of effect of acquisitions: Interest receivable (14,166) (156) 3,779 Other assets (7,428) (10,775) (7,027) Other liabilities 577 7,557 4,290 Net cash provided by operating activities 150,461 68,616 115,439 Cash flows from investing activities Change in short-term investments, maturities less than 90 days (91,324) 177,186 4,776 Purchase of securities available for sale (609,658) (141,903) - Maturity of securities available for sale 309,419 112,007 - Sale of securities available for sale 264,278 82,043 - Purchase of securities held to maturity (64,138) (453,933) (1,102,479) Maturity of securities held to maturity 46,184 448,916 531,152 Sale of investment securities - 704 157,988 Change in net loans and leases (618,648) (746,376) (139,251) Purchase of premises and equipment (15,431) (16,946) (14,162) Sale of premises and equipment 346 1,034 677 Additions to intangible assets (9,556) (6,979) (9,455) Sale of other real estate owned 8,861 9,712 10,960 Cash provided by acquisitions 176,918 2,019 370,159 Net cash used by investing activities (602,749) (532,516) (189,635) Dollars in thousands for the year ended December 31, 1994 1993 1992 Cash flows from financing activities Change in deposits 495,063 268,448 249,910 Change in short-term borrowings, maturities less than 90 days 33,103 59,305 12,721 Proceeds from short-term borrowings 41,107 128,283 164,795 Payments on short-term borrowings (48,611) (100,605) (197,406) Additions to long-term debt 145,000 27,500 5,474 Payments on long-term debt (14,385) (28,943) (4,501) Proceeds from issuance of common stock 8,463 54,526 67,922 Cash dividends paid (25,259) (19,392) (15,130)
8 Net cash provided by financing activities 634,481 389,122 283,785 Net increase (decrease) in cash and due from banks 182,193 (74,778) 209,589 Cash and due from banks - January 1 450,384 525,162 315,573 Cash and due from banks - December 31 $632,577 $450,384 $525,162 Supplemental information Interest paid $213,749 $195,094 $198,752 Income taxes paid 50,159 36,000 19,629 Noncash transactions Reclassification of securities available for sale - 939,254 160,989 Securities purchased not settled - 3,761 - Loans held for sale transferred to the loan portfolio 32,799 41,457 14,518 Loan charge-offs 18,999 16,156 19,445 Transfer of loans to other real estate owned 10,318 4,295 9,177 Additions to core deposit intangibles - - 8,188 Capital lease for computer equipment - - 10,857 Termination of capital lease for computer equipment - - 6,460 Tax benefit of stock options exercised 1,332 475 812 Dividends declared not paid 8,084 6,249 9,220 Acquisitions: Securities and short-term investments 94,693 11,792 31,807 Net loans 122,266 21,469 913,432 Premises and equipment 7,045 612 24,631 Intangible assets 11,389 - 13,757 Deposits 378,772 32,260 1,342,021 Other liabilities, net 5,792 591 111 Equity 27,747 3,041 11,654
The accompanying notes are an integral part of the financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of West One Bancorp and its subsidiaries (West One) conform with generally accepted accounting principles and general practice in the banking industry. Principles of Consolidation The consolidated financial statements include the accounts of West One with elimination of material intercompany transactions and balances. The Parent Company only financial statements (Note 16) reflect investment in subsidiaries using the equity basis of accounting. Certain reclassifications have been made to prior year financial statements to conform to the 1994 presentation. Assets owned by others and held in a fiduciary or agency capacity by subsidiaries are not included in the consolidated balance sheets. Securities On December 31, 1993, West One adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Securities available for sale and trading account securities are stated at market value. Gains and losses on sale of securities, recognized on a specific identification basis, and valuation adjustments of trading account securities are included in noninterest income. Net unrealized gains and losses on securities 9 available for sale are included, net of tax, as a component of shareholders' equity. Loans Loans and leases are stated at the principal amount outstanding, net of unearned income. Interest on loans is recognized as income based on the outstanding principal and the stated interest rates as adjusted for net deferred loan fees, premiums and discounts. Loan origination fees and costs are deferred and recognized as income on the interest method over the life of the loans. Lease income, primarily from financing leases, is recognized on the interest method. Recognition of interest income is discontinued and all accrued, unpaid interest is reversed when a loan is placed on nonaccrual status. A loan or lease is placed on nonaccrual status when timely collection of interest becomes doubtful. Interest payments received on nonaccrual loans and leases are applied to principal if collection of principal is doubtful or reflected as interest income on a cash basis. Loans and leases are removed from nonaccrual status when they are current and collectibility of principal and interest is no longer doubtful. Loans held for sale are stated at the lower of cost or market. Allowance for Credit Losses The allowance for credit losses is maintained at a level considered adequate by management to provide for losses inherent in the portfolio of loans, leases and commitments to extend credit. Loans sold with servicing released have technical underwriting exception and repurchase risks. Any loans repurchased are considered in the determination of the adequacy of the allowance for credit losses. The estimate of additions to the allowance for credit losses, and resulting charge to expense, requires judgment in evaluating the borrower's management, financial position, cash flow, collateral values and guarantees, as well as projection of the outcome of future events. The continuing adequacy of the allowance for credit losses is determined based upon the results of a credit classification system, internal and external credit examinations, historic experience, economic conditions, industry concentrations, elements of risk and other loss factors affecting the quality of the loan portfolio. Premises and Equipment Premises, equipment, major improvements and replacements are stated at cost. Depreciation is recognized on the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining term of the lease. Gains or losses from disposal of premises and equipment are reflected in noninterest expense. Maintenance and repairs are expensed and improvements are capitalized. Costs of purchased and internally-developed software are amortized over periods up to five years. Other Real Estate Owned Other real estate owned consists principally of properties acquired through foreclosure and is stated at the lower of cost or market value. Other Assets Other assets include goodwill and core deposit intangibles and are stated at cost, net of amortization provided on straight-line and level interest methods over useful lives ranging up to 25 years. Purchased mortgage servicing rights are stated at cost, net of amortization based on the income method and prepayment assumptions. Earnings per Share Primary and fully diluted earnings per share are computed using the weighted average number of common and common equivalent shares outstanding. Common equivalent shares result from the assumed exercise of outstanding stock options, if dilutive. Fully diluted earnings per share assumes conversion of the convertible debentures, if dilutive. 10 New Pronouncements The Financial Accounting Standards Board has issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," SFAS No. 116, "Accounting for Contributions Received and Contributions Made" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," effective for years beginning after December 15, 1994. None of these statements is expected to have a material effect on West One. NOTE 2. ACQUISITIONS West One acquired the financial institutions listed below in transactions accounted for as poolings of interests. The acquisitions were not material to West One's financial position, results of operations and cash flows and prior year financial statements have not been restated. Dollars in thousands
Year-to- Year-to-date date net Total Number of revenues at income at assets at West One Acquisition acquisition acquisition acquisition shares Entity acquired date date date date exchanged National Security Bank November 1994 $9,595 $1,701 $131,662 1,101,832 Valley Commercial Bank September 1994 2,803 255 63,576 404,523 Idaho State Bank January 1994 - - 47,949 133,332 Ben Franklin National Bank May 1993 2,171 (6) 36,531 206,254 Yakima Valley Bank October 1992 8,527 895 119,493 913,694
West One acquired ten Far West Federal Savings Bank branches in Oregon from Resolution Trust Corporation in April 1994. The transaction included the receipt of $159,814 in cash, $2,257 of premises and equipment, $11,249 of intangible assets, and the assumption of $173,320 of deposits and other liabilities. The transaction was accounted for as a purchase of certain assets and assumption of certain liabilities. In September 1992, West One purchased 38 branches and seven specialty offices in the Puget Sound region of Washington from Security Pacific Corporation. The transaction included the receipt of $315 million of cash, the purchase of approximately $837 million of loans, $21 million of premises and equipment, $21 million of intangible and other assets and the assumption of approximately $1.2 billion of deposits. In July 1992, West One purchased three branches of Bank of America, Oregon. The transaction included the receipt of $45 million of cash, the purchase of approximately $1 million of loans, $1 million of premises and equipment, $1 million of intangible and other assets and the assumption of $48 million of deposits and other liabilities. Both of these transactions were accounted for as purchases of certain assets and assumptions of certain liabilities. NOTE 3. SECURITIES Dollars in thousands
Gross Gross Estimated Amortized unrealized unrealized market cost gains losses value 1994 AVAILABLE FOR SALE United States Treasury securities $371,139 $5 $(8,774) $362,370 United States Government agencies 389,355 4,498 (2,186) 391,667
11 Mortgage-backed securities 240,916 107 (13,550) 227,473 Other 159,429 88 (1,262) 158,255 Total available for sale 1,160,839 4,698 (25,772) 1,139,765 HELD TO MATURITY State and municipal bonds 581,155 4,958 (17,625) 568,488 Total securities $1,741,994 $9,656 $(43,397) $1,708,253 1993 AVAILABLE FOR SALE United States Treasury securities $289,428 $2,706 $(56) $292,078 United States Government agencies 255,686 5,898 (97) 261,487 Mortgage-backed securities 295,421 3,592 (318) 298,695 Other 205,228 3,187 (25) 208,390 Total available for sale 1,045,763 15,383 (496) 1,060,650 HELD TO MATURITY State and municipal bonds 565,165 32,723 (2,742) 595,146 Total securities $1,610,928 $48,106 $(3,238) $1,655,796
Gross gains of $521 and gross losses of $1,588 were realized on 1994 sales. Gross gains of $678 and gross losses of $183 were realized on 1993 sales. Securities having book values of $1,409,755 and $1,342,023 at December 31, 1994 and 1993, respectively, were pledged as collateral for public and trust deposits, United States Treasury borrowings and securities sold under agreements to repurchase. Contractual maturities of securities at December 31, 1994 follow. Average yields are based on expected returns on cost and average lives for mortgage-backed securities.
Within One to Five After one five to ten ten Serial year years years years maturities Total Available for sale United States: Treasury securities $118,757 $243,613 $ - $ - $ - $362,370 Government agencies 22,762 49,012 50,579 269,314 - 391,667 Mortgage-backed securities - - - - 227,473 227,473 Other 34,716 49,891 18,067 55,581 - 158,255 Total market value 176,235 342,516 68,646 324,895 227,473 1,139,765 Total amortized cost 177,184 352,263 68,706 321,771 240,915 1,160,839 Average yield 5.68% 5.58% 7.53% 6.58% 6.75% 6.23% Held to maturity State and municipal bonds at cost $33,215 $228,176 291,653 $28,111 - $581,155 Total market value 33,241 225,494 282,561 27,192 - 568,488 Average yield 5.22% 5.53% 5.50% 6.25% - 5.53%
NOTE 4. ALLOWANCE FOR CREDIT LOSSES
Dollars in thousands 1994 1993 1992 Balance at January 1 $74,923 $68,243 $53,048 Loan charge-offs
12 Real estate 379 1,141 1,292 Commercial and agricultural 5,286 4,804 8,111 Consumer 13,164 9,802 9,597 Leases 170 409 445 Total charge-offs 18,999 16,156 19,445 Loan recoveries Real estate 366 468 421 Commercial and agricultural 3,559 4,496 4,298 Consumer 4,740 3,970 4,641 Leases 107 169 264 Total recoveries 8,772 9,103 9,624 Net charge-offs 10,227 7,053 9,821 Provision for credit losses 13,278 13,383 14,308 Additions from acquisitions 3,783 350 10,708 Balance at December 31 $81,757 $74,923 $68,243
NOTE 5. PREMISES AND EQUIPMENT
Dollars in thousands 1994 1993 Land $34,687 $33,030 Buildings 93,911 85,040 Furniture and equipment 95,138 87,053 Leasehold improvements 13,719 12,103 237,455 217,226 Accumulated depreciation and amortization (108,949) (94,398) Net premises and equipment $128,506 $122,828
Leases of bank premises and equipment generally provide for the payment of taxes, maintenance, insurance and certain other related expenses and contain extension provisions, escalation clauses and purchase options. Lease expense included in net occupancy and equipment expense was $10,283 in 1994, $10,434 in 1993 and $7,506 in 1992. Occupancy expense was reduced by rental income of $2,088 in 1994, $2,169 in 1993 and $2,283 in 1992. At December 31, 1994, future minimum lease payments under long-term noncancelable operating leases were $10,377 in 1995, $8,568 in 1996, $7,122 in 1997, $5,458 in 1998, $3,537 in 1999 and $33,565 thereafter. Management expects to renew or replace expiring leases in the normal course of business NOTE 6. MORTGAGE BANKING
Dollars in thousands 1994 1993 1992 REAL ESTATE LOANS ORIGINATED AND SERVICED Sold with servicing released $221,458 $299,690 $304,493 Held for sale 28,523 76,625 50,988 Serviced for others 2,083,452 1,506,612 1,354,599 PURCHASED MORTGAGE SERVICING RIGHTS Balance at January 1 $13,797 $10,884 $6,736 Additions 9,556 6,969 5,545 Amortization (2,894) (4,056) (1,397)
13 Balance at December 31 $20,459 $13,797 $10,884
NOTE 7. SHORT-TERM BORROWINGS
1994 1993 1992 Dollars in thousands Amount Interest Amount Interest Amount Interest rate rate rate Federal funds purchased and securities sold under agreements to repurchase Balance at December 31 $804,161 5.55% $568,295 2.68% $668,631 2.75% Average 576,968 3.85 665,106 2.80 624,864 3.36 Maximum month-end balance 804,161 735,046 688,689 Other short-term borrowings Balance at December 31 122,153 4.66 330,609 2.68 141,392 2.56 Average 254,240 4.09 215,389 3.04 111,179 3.52 Maximum month-end balance 500,547 434,910 244,765
The average balance is computed on a daily average method. The average rate is computed by dividing total interest expense by the average outstanding balance. Other short-term borrowings consist of United States Treasury borrowings and bank notes. Unused lines of credit aggregating $45,000 at December 31, 1994 were maintained with banks in support of commercial paper. The lines bear interest at short-term money market rates, if drawn upon. The lines required commitment fees of $83, $84, and $76 in 1994, 1993 and 1992, respectively. NOTE 8. LONG-TERM DEBT
Dollars in thousands 1994 1993 Parent company Convertible subordinated debentures at 7.75% due 2006, interest payable semi-annually $49,890 $50,000 Convertible subordinated capital notes at 1/4% above the three-month LIBOR due 1997, interest payable quarterly 20,987 20,983 Capital lease obligations at 10%, payable in monthly installments through 1997 3,754 6,821 Subsidiaries Federal Home Loan Bank Notes with interest payable monthly at floating and fixed rates ranging from 3.98% to 7.95% and with principal due 1995 through 2004 178,233 38,029 Other 209 627 Total $253,073 $116,460
Scheduled reductions of debt are $40,150 in 1995, $86,379 in 1996, $72,869 in 1997, $815 in 1998, $817 in 1999 and $52,043 thereafter including reductions of Parent Company debt of $3,387 in 1995, $273 in 1996, $21,081 in 1997 and $49,890 in 2006. The convertible subordinated debentures are convertible into 14 shares of common stock of West One at a conversion price of $18.605 per share, and are callable by West One at a redemption price ranging from 104.650 in 1995 to 100.775 in 2000. The convertible subordinated capital notes may be called and exchanged for common stock, preferred stock or other capital securities at the option of West One. The interest rate on these notes was 6.25% at December 31, 1994 and 5.25% at December 31, 1993. The debt agreements limit indebtedness and sale of subsidiaries' stock. NOTE 9. COMMITMENTS AND CONTINGENCIES West One is a party to certain financial instruments to meet the financing needs of customers and to reduce exposure to interest rate risk. The following is a summary of the contract or notional amount of these financial instruments, all of which were held or issued for purposes other than trading, as of December 31.
Dollars in thousands 1994 1993 Financial instruments with credit risk up to contract amounts (a) Commitments to extend credit $2,858,143 $2,260,507 Standby letters of credit 177,349 188,029 Commercial letters of credit 30,353 25,527 Financial instruments with credit risk less than contract or notional amounts Mortgage-backed security contracts (b): Forward sales 6,500 32,500 Purchased options 2,000 9,000 Notional value of interest rate swaps (b): 534,556 - Foreign exchange contracts (c): Commitments to purchase 3,492 5,422 Commitments to sell 7,608 1,500
(a) Commitments to extend credit have fixed maturity dates and represent West One's obligations to fund commercial and real estate loans, including home equity lines, lines of credit, revolving lines of credit and other types of commitments. Letters of credit are performance assurances of customer obligations or guarantees of financing for trade transactions. West One's exposure to credit loss for commitments to extend credit and letters of credit, in the event of nonperformance by others, is represented by the contractual amount of the instruments. Since many commitments to extend credit are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. West One follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Collateral varies, but may include accounts receivable, inventory, premises and equipment and commercial properties. West One's lending activities are concentrated in Idaho, Washington, Oregon and Utah. (b) The forward sales and purchased options are contracts to buy or sell mortgage-backed securities to hedge interest rate risk on fixed rate mortgage loan or rate commitments. Net positions are valued at the lower of cost or market. Gains or losses are recognized upon settlement of the forward sale contracts based on the difference between the net sales proceeds and the net carrying value of the loans sold. The option premium paid, which represents loss exposure, is amortized over the life of the option. Interest rate swaps are principally used to hedge interest rate risks associated with certain loans and deposits and are accounted for on the accrual method of accounting. The principal swap, which matures in 1999, requires 15 payment of prime less 2.535% and receipt of the three month London Interbank Offering Rate (LIBOR) with caps, which increase 25 basis points per quarter, on the notional amount of $500,000. The credit and market risks associated with forward sale and purchased option contracts and interest rate swaps arise from the possible inability of counterparties to meet the terms of the contracts and from fluctuations in securities' values and interest rates. West One limits credit risk by restricting counterparties to a list of approved institutions. Generally, West One does not require collateral for these types of instruments. (c) The credit and market risks associated with foreign exchange contracts, which may arise from the counterparty's inability to make payment at the settlement date and fluctuations in value of a foreign currency in relation to the U.S. dollar, were nominal at December 31, 1994 and 1993. West One is a defendant in various pending lawsuits, arising in the ordinary course of business, none of which are expected to have a material effect on West One's financial position or results of operations. NOTE 10. SHAREHOLDERS' EQUITY Authorized capital stock of West One consists of 75,000,000 shares of $1.00 par value common stock and 5,000,000 shares of $1.00 par value preferred stock, of which 150,000 preferred shares are reserved for issuance under the Shareholder Rights Plan. At December 31, 1994 and 1993 securities available for sale were stated at market and the resulting net after-tax unrealized loss of $12,896 and gain of $9,083, respectively are presented as a component of shareholders' equity. On October 19, 1989 the Board of Directors adopted a Shareholder Rights Plan. Under the terms of the Plan, the Board declared a dividend distribution of one Right for each share of common stock outstanding on October 31, 1989, or at specified times thereafter. When initially issued each Right entitled the registered holder to purchase from West One a unit consisting of one-hundredth of a share of Series A Junior Participating Preferred Stock at a purchase price of $150 per unit, subject to adjustment. The Rights will become exercisable upon the occurrence of specified events which could result in a change in control of West One or upon the determination by the Board that an Adverse Person (as defined) beneficially owns 10 percent or more of the outstanding common stock. Once the Rights become exercisable, if the Board determines that a person is an Adverse Person or a person becomes the owner of 25 percent or more of the then-outstanding shares of common stock (with certain exceptions), each holder of a Right (other than an Acquiring Person (as defined) or an Adverse Person) will thereafter become entitled to receive, upon payment of the exercise price, common stock (or in certain circumstances other consideration) having a value equal to two times the exercise price or, at the discretion of the Board, to receive common stock (or other consideration) having one-half that value without payment of the exercise price. The Rights are nonvoting, may be redeemed by West One at a price of $.01 per Right at any time until ten business days after an individual or group acquires 20 percent of West One's common stock and expire on October 31, 1999. The issuance of the Rights is intended to encourage any potential acquirer of West One to negotiate the manner and terms of the transaction with the Board and to protect shareholders from unsolicited tender offers which do not treat all shareholders in a fair and equal manner, and from other coercive takeover tactics. Under shareholder approved incentive programs, the Board of Directors may grant to key employees options to purchase common stock and other stock-based awards. All options are to be granted at market value of the stock at date of grant and 16 may be exercisable over periods up to ten years. The following summary sets forth the activity under the option plan:
Option price Available Options range per share for grant outstanding December 31, 1991 $ 6.553 - 17.000 1,887,134 916,994 Granted 16.688 - 25.250 (289,226) 289,226 Exercised 6.553 - 14.188 - (91,806) December 31, 1992 6.629 - 25.250 1,597,908 1,114,414 Granted 23.875 - 28.625 (263,701) 263,701 Exercised 6.629 - 14.188 - (125,520) Canceled 11.438 - 24.500 5,000 (5,000) Expired 11.438 - 12.313 (1,000) - December 31, 1993 6.629 - 28.625 1,338,207 1,247,595 Granted 24.750 - 32.000 (322,744) 322,744 Exercised 6.629 - 25.938 - (177,645) Canceled 11.438 - 26.375 32,750 (32,750) Expired 11.438 - 13.938 (4,750) - December 31, 1994 8.083 - 32.000 1,043,463 1,359,944
Options exercisable under the plans were 662,319, 599,880 and 516,668 at December 31, 1994, 1993 and 1992, respectively. NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS
1994 1993 Dollars in thousands Book Estimated Book Estimated value fair value value fair value Financial assets Cash and short-term investments $745,093 $745,093 $465,038 $465,038 Securities: Available for sale 1,139,765 1,139,765 1,060,650 1,060,650 Held to maturity 581,155 568,488 565,165 595,146 Loans, net of leases and allowance 5,822,793 5,798,565 5,111,455 5,149,693 for credit losses Financial liabilities Demand and savings deposits $4,234,316 $4,234,316 $3,961,327 $3,961,327 Time certificates of deposit 2,576,566 2,351,241 1,975,720 1,994,389 Short-term borrowings 926,314 926,314 898,904 898,904 Long-term debt 253,073 272,909 116,460 146,675
Financial assets and financial liabilities other than securities and certain long-term debt of West One are not traded in active markets. Estimated fair values require subjective judgments and are approximate. The above estimates of fair value are not necessarily representative of amounts that could be realized in actual market transactions, nor of the underlying value of West One. The value of long-term relationships with depositors (core deposit intangibles) is not reflected and such value is significant. Changes in the following methodologies and assumptions could significantly affect the estimates. Financial Assets The estimated fair value of cash and short-term investments approximates the 17 book value. For securities, the fair value is based on quoted market prices at December 31. The fair value of loans is estimated by discounting future cash flows using current rates at which similar categories of loans would be made, net of the present value of estimated net charge-offs. Financial Liabilities The estimated fair value of demand and savings deposits approximates book value. The fair value of time certificates of deposit is estimated by discounting future cash flows using current rates offered on similar certificates. For short-term borrowings, the fair value approximates book value. The estimated fair value of long-term debt is based on quoted market prices or estimates of discounted cash flows using current rates at which similar financing could be obtained. Off-balance Sheet Financial Instruments Commitments to extend credit, letters of credit and interest rate swaps represent the principal categories of off-balance sheet financial instruments. See Note 9 to the financial statements. The fair value of West One's commitments to extend credit, letters of credit, forward sale, purchased option and foreign exchange contracts are not material. The interest rate swaps hedge interest rate risks associated with certain prime-related assets and supporting deposits as a part of West One's interest rate risk management strategy. The present value of the interest rate swaps using discounted cash flows and assuming interest rates at December 31, 1994 remain constant is a liability of $4.3 million. Based on implied forward interest rates at December 31, 1994, an exit cost (fair value) of $34.9 million would be incurred to terminate the contracts. These contracts are part of a continuing asset and liability risk management strategy, and West One currently has no intent to exit the contracts. NOTE 12. EMPLOYEE BENEFITS West One has a noncontributory defined benefit retirement plan covering substantially all employees. Benefits to retired employees are based on years of service and compensation. West One funds at least the minimum annual contributions required by the Employee Retirement Income Security Act of 1974. Since plan assets exceeded accumulated benefit obligation, no additional funding was made in 1994, 1993 or 1992. Pension (income) expense included the following components for the year ended December 31:
Dollars in thousands 1994 1993 1992 Service cost $3,576 $2,319 $1,819 Interest cost 4,544 3,788 3,342 Actual return on plan assets 2,455 (4,618) (4,617) Deferred loss (9,841) (1,912) (1,408) Amortization (654) (725) (725) Pension (income) expense $80 $(1,148) $(1,589)
The funded status of the plan and pension asset at December 31 consisted of:
1994 1993 1992 Actuarial present value of accumulated benefit obligation Vested $(43,396) $(44,497) $(27,202) Nonvested (2,663) (2,891) (1,592) Accumulated benefit obligation $(46,059) $(47,388) $(28,794)
18 Plan assets at fair value U.S. Government securities $16,321 $16,563 $19,416 Equity securities 38,449 40,199 32,935 Other 10,133 11,963 12,927 Total 64,903 68,725 65,278 Projected benefit obligation (55,566) (54,489) (38,030) Plan assets in excess of projected benefit obligations 9,337 14,236 27,248 Unrecognized net (gain) loss 11,102 6,892 (6,238) Unrecognized net transition asset (3,842) (4,610) (5,379) Unrecognized prior service cost 101 260 - Pension asset $16,698 $16,778 $15,631
West One also has three unfunded supplemental retirement plans. The Supplemental Executive Retirement Plan provides supplemental benefits to eligible employees when the employee's earnings exceed the dollar amount used for the definition of a highly compensated employee in the Internal Revenue Code (IRC) Section 414 (q) (1) (B) during each of the three preceding years. The Non-Qualified IRC 415 Benefit Limit Make-Up plan provides for additional payments to be made to employees whose defined pension benefit exceeds the limit for maximum benefits from the defined benefit pension plan. The Executive Deferred Compensation Pension Make-Up plan covers pension benefits resulting from salary deferrals which have not been included in the computation of benefits under the regular defined benefit pension plan. Pension expense for the supplemental retirement plans included the following for the year ended December 31:
1994 1993 1992 Supplemental Executive Retirement Plan (SERP) $323 $316 $303 Non-Qualified IRC 415 Benefit Limit Make-Up 14 16 51 Executive Deferred Compensation Pension Make-Up 77 38 26 Total supplemental pension expense $414 $370 $380
Pension expense for the SERP included the following components for the year ended December 31:
1994 1993 1992 Service cost $151 $113 $115 Interest cost 130 154 139 Amortization 42 49 49 Pension expense $323 $316 $303
The status of the SERP and pension liability at December 31 consisted of:
1994 1993 1992 Actuarial present value of accumulated benefit obligations: Vested $(1,051) $(1,747) $(642) Nonvested - (6) - Accumulated benefit obligation $(1,051) $(1,753) $(642) Projected benefit obligation $(1,609) $(2,185) $(1,596)
19 Unrecognized net (gain) loss (603) 320 (29) Unrecognized net transition obligation 536 584 633 Unrecognized prior service cost 141 - - Additional liability - (472) - Pension liability $(1,535) $(1,753) $(992)
Assumptions used for projected benefit obligations, computed using the projected unit credit method, were:
1994 1993 1992 Discount rate 8.75% 7.50% 9.50% Rate of increase in compensation levels 4.00 3.00 6.00 Long-term rate of return on assets 10.00 10.50 10.50
A change in method for determining the market-related value of plan assets decreased pension expense $313 in 1994. The change in salary increase assumption increased pension income by $319 in 1993. Changes in the assumed participant withdrawal rates increased pension income $789 in 1992. West One has an Employee Thrift Investment Plan, under IRC Section 401, covering substantially all employees. Under the plan, West One made contributions of 50% of participating employees' salary deferrals up to 6% of salary in 1994 and 1993, and 5% of salary in 1992 aggregating $2,744 for 1994, $2,384 for 1993 and $1,566 for 1992. West One provides certain health care insurance benefits for retired employees and their dependents (postretirement benefits). Substantially all of West One's retirees are eligible for those benefits if they retired directly from service with at least ten years of credited service. Retiree contributions are required depending on age and number of years of service at the time of retirement. Postretirement benefit expense included the following components for the year ended December 31:
1994 1993 Service cost $243 $165 Interest cost 968 959 Amortization 590 554 Postretirement benefit expense $1,801 $1,678
The reconciliation of the status of the plan at December 31 follows:
1994 1993 Accumulated postretirement benefit obligation: Retirees and dependents $(8,234) $(10,477) Eligible active employees 218 243 Other active plan participants (3,239) (3,122) Accumulated postretirement benefit obligation (11,255) (13,356) Unrecognized net transition obligation 9,965 10,519 Unrecognized net (gain) loss (596) 1,884 Accrued postretirement benefit liability $(1,886) $(953) Postretirement benefit claims for the year $868 $725
20 In 1994 West One assumed a 13% annual rate of increase in the per capita cost of covered retiree and dependent health care benefits. The medical trend rate was assumed to decrease gradually to 6% in 2006 and remain at that level for future years. A one percentage point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation at December 31, 1994 by $1,107 and the aggregate of the service cost and interest cost components of net periodic postretirement benefit expense for 1994 by $153. The discount rate used in determining the actuarial present value of the projected postretirement benefit obligation was 8.75%. The salary limits which determine the amount of the deductible paid by the employee were assumed to increase in proportion to West One salary levels. NOTE 13. NONINTEREST EXPENSE
Dollars in thousands for the year ended December 31, 1994 1993 1992 Salaries $114,916 $104,737 $85,741 Employee benefits 27,596 24,149 18,283 Outside services 31,977 28,242 21,590 Equipment 21,942 21,725 17,174 Net occupancy 20,604 19,571 15,255 Insurance and miscellaneous taxes 19,224 16,899 13,506 Marketing 10,331 9,792 7,975 Postage and courier 9,756 8,568 6,344 Supplies 7,453 7,364 5,989 Telephone 7,515 6,551 4,739 Other 23,378 24,840 19,928 Total $294,692 $272,438 $216,524
NOTE 14. INCOME TAXES The provision for income taxes consisted of the following for the year ended December 31:
Dollars in thousands 1994 1993 1992 Federal Current $42,257 $29,480 $20,136 Deferred (5,225) 1,006 2,925 State Current 6,773 6,329 4,621 Deferred 125 576 273 Total federal and state $43,930 $37,391 $27,955
Deferred taxes were as follows for the year ended December 31:
1994 1993 1992 Provision for credit losses $ 300 $(2,218) $(926) Depreciation and amortization (3,358) (778) (674) Cash basis accounting (493) (1,288) (289) Leasing (2,947) 2,546 2,745 Alternative minimum tax - - 1,154 Other 889 1,861 102 Use of subsidiary preacquisition tax carryforwards
21 to reduce purchased intangibles 509 1,459 1,086 Total deferred taxes $(5,100) $1,582 $3,198
The provision for income taxes varied from amounts computed at the federal statutory rate as follows for the year ended December 31:
1994 1993 1992 Provision at statutory rate $51,485 35.0% $42,202 35.0% $31,051 34.0% Nontaxable interest income (12,041) (8.2) (10,473) (8.7) (7,045) (7.7) State income taxes, net of federal benefit 4,484 3.1 4,367 3.6 3,230 3.5 Other 2 - 1,295 1.1 719 .8 Provision for income taxes $43,930 29.9% $37,391 31.0% $27,955 30.6%
The components of net deferred taxes are as follows for the year ended December 31:
1994 1993 Deferred tax assets Allowance for credit losses $30,226 $29,491 Cash basis accounting 6,677 6,283 Unrealized securities losses 8,178 - Other 3,098 3,744 Total deferred tax assets 48,179 39,518 Deferred tax liabilities Depreciation and amortization (4,516) (7,712) Leasing (24,881) (27,828) Pension and retirement benefits (5,743) (6,492) Purchase accounting (2,685) (2,170) Unrealized securities gains - (5,990) Other (2,521) (2,040) Total deferred tax liabilities (40,346) (52,232) Net deferred tax asset (liability) $7,833 $(12,714)
A subsidiary has preacquisition net operating loss carryforwards remaining of $1,954 which expire through 2008. The corporation recorded tax benefits of $1,332, $475 and $812 for executive stock option exercises in 1994, 1993 and 1992, respectively. The tax benefits have been allocated to shareholders' equity. In 1994 the deferred benefit for income taxes of $13,319 for unrealized securities losses has been allocated to shareholders' equity. Deferred tax liabilities of $2,133 have not been recognized for a thrift subsidiary's base year tax bad debt reserve of $5,359. If the subsidiary fails to qualify as a savings and loan association or is converted to a commercial bank, the bad debt reserve would become taxable. Management does not expect this difference to reverse in the foreseeable future. NOTE 15. REGULATORY REQUIREMENTS AND RESTRICTIONS Regulatory authorities require banks to maintain cash reserves against deposits. These reserves vary according to the type and maturity of the 22 deposit. Cash reserve balances at December 31, 1994 and 1993 were $152,312 and $144,998, respectively. Federal and state laws place limitations on the extension of credit by banking subsidiaries to the Parent Company and nonbank affiliates. Under these restrictions, banking subsidiaries may not extend credit beyond an aggregate of $100,475 to the Parent Company and nonbank affiliates as of December 31, 1994. Any extensions of such credit are subject to strict collateral requirements. Federal and state laws also restrict the amount of dividends that may be declared by banking subsidiaries without the approval of regulatory authorities. Banking subsidiaries may declare dividends to the Parent Company in 1995 up to $170,440 plus 1995 net income to the date of dividend declaration. Credit extensions to directors, executive officers and their associates, which are within regulatory limitations, are as follows:
Dollars in thousands 1994 1993 Balance at January 1 $74,849 $73,910 Increases 91,621 53,644 Decreases 77,746 52,705 Balance at December 31 $88,724 $74,849
NOTE 16. PARENT COMPANY ONLY FINANCIAL STATEMENTS CONDENSED BALANCE SHEETS
Dollars in thousands At December 31, 1994 1993 Assets Cash and due from banks $122 $430 Loans and advances to subsidiaries: Banks 55,025 47,475 Nonbanks 22,519 15,375 Investment in subsidiaries: Banks 669,497 607,766 Nonbanks 5,344 5,351 Other loans and investments 22,261 19,563 Premises and equipment 15,972 19,455 Other assets 40,695 40,900 Total assets $831,435 $756,315 Liabilities Commercial paper $ - $20,162 Long-term debt 74,631 77,804 Other liabilities 41,035 34,783 Total liabilities 115,666 132,749 Shareholders' equity 715,769 623,566 Total liabilities and shareholders' equity $831,435 $756,315
CONDENSED STATEMENTS OF INCOME
Dollars in thousands For the year ended December 31, 1994 1993 1992
23 Income Dividends from subsidiaries: Banks $65,513 $40,521 $41,650 Nonbanks 1,934 1,412 1,830 Interest: Loans and advances to subsidiaries 4,080 3,212 2,516 Loans and short-term investments - nonaffiliates 1,298 497 763 Other, principally subsidiaries 87,711 79,564 54,975 Total income 160,536 125,206 101,734 Expense Interest 6,351 8,345 9,845 Salaries and employee benefits 42,320 40,366 30,203 Other 55,492 51,799 45,045 Total expense 104,163 100,510 85,093 Income before taxes and equity in earnings of subsidiaries 56,373 24,696 16,641 Income tax benefit 5,654 7,016 10,327 Equity in undistributed earnings of subsidiaries 41,144 51,475 36,404 Net income $103,171 $83,187 $63,372
STATEMENTS OF CASH FLOWS
Dollars in thousands For the year ended December 31, 1994 1993 1992 Cash flows from operating activities Net income $103,171 $83,187 $63,372 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (41,144) (51,475) (36,404) Depreciation and amortization 11,045 10,296 7,623 Changes in assets and liabilities 1,639 (7,094) (107) Net cash provided by operating activities 74,711 34,914 34,484 Cash flows from investing activities Change in other short-term investments, maturities less than 90 days 157 (15,878) 9,567 Purchase of securities held to maturity (20,000) (3,416) (54,643) Maturity of securities held to maturity - 6,139 51,053 Sale of securities 2,155 - 17,894 Change in loans to subsidiaries (2,144) (23,950) (9,279) Change in loans to nonaffiliates 2,364 320 4,582 Other (2,156) (3,432) (3,429) Capitalization of subsidiaries (14,864) (6,685) (114,211) Net cash used by investing activities (34,488) (46,902) (98,466) Cash flows from financing activities Change in short-term borrowings, maturities less than 90 days (15,878) (1,416) 14,259 Proceeds from short-term borrowings 4,162 13,200 - Payments on short-term borrowings (8,952) (7,000) - Payments on long-term debt (3,067) (27,566) (4,189) Proceeds from issuance of common stock 8,463 54,526 67,922 Cash dividends paid (25,259) (19,392) (15,130) Net cash provided (used) by financing activities (40,531) 12,352 62,862 Net increase (decrease) in cash and due from banks (308) 364 (1,120) Cash and due from banks - January 1 430 66 1,186 Cash and due from banks - December 31 $122 $430 $66
24 Supplemental information Interest paid $4,395 $8,737 $9,936 Income taxes paid 50,381 36,260 19,325 Noncash transactions Additions to investment in subsidiaries 27,609 3,041 11,512 Capital lease for computer equipment - - 10,857 Termination of capital lease for computer equipment - - 6,460 Tax benefit of stock options exercised 1,332 475 812 Dividends declared not paid 8,084 6,249 9,220
25 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of West One Bancorp We have audited the consolidated balance sheets of West One Bancorp and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of West One Bancorp and subsidiaries as of December 31, 1994 and 1993 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, during 1993 the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." /s/Coopers & Lybrand L.L.P. Boise, Idaho January 19,1995 26 CONSOLIDATED BALANCE SHEETS (Unaudited) WEST ONE BANCORP AND SUBSIDIARIES
June 30, December 31, Dollars in thousands 1995 1994 1994 ----------- ----------- ----------- Assets Cash and due from banks $529,144 $414,289 $632,577 Federal funds sold, securities purchased under agreements to resell and other 186,384 137,321 112,516 ----------- ----------- ----------- Securities: Available for sale 1,163,333 1,029,817 1,139,765 Held to maturity 600,655 603,736 581,155 ----------- ----------- ----------- Total securities 1,763,988 1,633,553 1,720,920 ----------- ----------- ----------- Loans: Real estate - mortgage 2,336,830 2,012,316 2,207,247 Real estate - construction 332,183 256,190 319,228 Commercial and agricultural 2,346,348 2,160,629 2,205,459 Consumer 1,236,307 1,092,395 1,172,616 Leases 167,069 149,941 160,873 ----------- ----------- ----------- Total loans 6,418,737 5,671,471 6,065,423 Allowance for credit losses (83,038) (78,202) (81,757) ----------- ----------- ----------- Net loans 6,335,699 5,593,269 5,983,666 ----------- ----------- ----------- Premises and equipment 125,317 125,026 128,506 Interest receivable 67,310 50,870 66,605 Other assets 148,271 137,342 147,909 ----------- ----------- ----------- Total assets $9,156,113 $8,091,670 $8,792,699 =========== =========== =========== Liabilities Deposits: Noninterest bearing $1,353,015 $1,177,294 $1,397,843 Interest bearing demand 685,682 710,342 749,755 Regular and money market savings 2,019,345 2,130,398 2,086,718 Time certificates under $100,000 1,903,758 1,584,783 1,755,013 Time certificates $100,000 and over 900,116 711,897 821,553 ----------- ----------- ----------- Total deposits 6,861,916 6,314,714 6,810,882 Federal funds purchased and securities sold under agreements to repurchase 516,254 528,554 804,161 Other short-term borrowings 674,996 373,393 122,153 Long-term debt 321,970 129,142 253,073 Other liabilities 88,816 90,322 86,661 ----------- ----------- ----------- Total liabilities 8,463,952 7,436,125 8,076,930 ----------- ----------- ----------- Shareholders' equity Common stock - $1.00 par value; 75,000,000 shares authorized; 36,888,265, 35,070,083 and 36,745,368 shares issued 36,888 35,070 36,745 Capital surplus 324,633 316,187 327,879 Retained earnings 405,330 306,959 364,041 Unrealized gain (loss) on securities, net of tax 2,681 (2,671) (12,896) Treasury stock - 2,269,494 shares at cost (77,371) - - ----------- ----------- ----------- Total shareholders' equity 692,161 655,545 715,769 ----------- ----------- ----------- Total liabilities and shareholders' equity $9,156,113 $8,091,670 $8,792,699 =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 27 CONSOLIDATED STATEMENTS OF INCOME (Unaudited) WEST ONE BANCORP AND SUBSIDIARIES
For the quarter ended For the six months ended June 30, June 30, Dollars in thousands except per share 1995 1994 1995 1994 --------- --------- --------- --------- Interest income Loans $145,451 $113,499 $283,059 $219,042 Short-term investments 964 981 2,698 1,422 Interest and dividends on securities: United States Treasury and Government agencies 12,136 7,677 22,647 14,292 State and municipal bonds 7,626 7,557 15,131 14,714 Mortgage-backed securities 3,934 3,871 7,800 7,380 Other 2,395 2,372 4,579 5,093 --------- --------- --------- --------- Total interest income 172,506 135,957 335,914 261,943 --------- --------- --------- --------- Interest expense Deposits 63,696 41,452 122,694 79,314 Federal funds purchased and securities sold under agreements to repurchase 8,347 5,189 16,078 8,873 Other short-term borrowings 3,718 2,898 5,909 5,075 Long-term debt 5,258 1,814 9,728 3,575 --------- --------- --------- --------- Total interest expense 81,019 51,353 154,409 96,837 --------- --------- --------- --------- Net interest income 91,487 84,604 181,505 165,106 Provision for credit losses 3,311 3,787 6,470 7,776 --------- --------- --------- --------- Net interest income after provision for credit losses 88,176 80,817 175,035 157,330 --------- --------- --------- --------- Noninterest income Trust fees and commissions 4,018 3,803 7,497 7,346 Service charges on deposit accounts 10,370 9,913 20,439 18,897 Other service charges, fees and commissions 15,064 11,917 28,827 22,541 Other 4,031 4,816 5,872 8,103 Loss on securities (33) (327) (148) (485) --------- --------- --------- --------- Total noninterest income 33,450 30,122 62,487 56,402 --------- --------- --------- --------- Noninterest expense Employee compensation and benefits 37,675 35,001 76,744 69,039 Outside services 10,285 8,112 18,669 15,576 Equipment 5,578 5,621 11,102 11,104 Net occupancy 5,390 5,027 10,745 9,745 Insurance and miscellaneous taxes 5,094 4,701 10,177 9,463 Marketing 2,754 2,468 5,143 4,942 Postage and courier 2,762 2,398 5,462 4,745 Supplies 1,958 1,859 3,823 3,658 Telephone 2,009 1,812 3,960 3,596 Other 5,854 5,848 10,430 11,452 --------- --------- --------- --------- Total noninterest expense 79,359 72,847 156,255 143,320 --------- --------- --------- --------- Income before taxes 42,267 38,092 81,267 70,412 Provision for income taxes 13,519 12,169 24,251 21,574 --------- --------- --------- --------- Net income $28,748 $25,923 $57,016 $48,838 ========= ========= ========= ========= Primary earnings per share $.79 $.73 $1.55 $1.38 Fully diluted earnings per share .75 .69 1.47 1.31 Dividends declared per share .22 .18 .44 .36 ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements. 28 CONSOLIDATED STATEMENTS OF CASH FLOWS WEST ONE BANCORP AND SUBSIDIARIES (Unaudited)
For the six months ended June 30, (Dollars in thousands) 1995 1994 --------- --------- Cash flows from operating activities: Net income $57,016 $48,838 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 6,470 7,776 Depreciation of premises and equipment 8,811 8,038 Amortization and accretion of premiums and discounts 5,521 5,830 Amortization of intangible and other assets 5,472 5,650 Originations of real estate loans held for sale (118,727) (170,331) Proceeds from real estate and other loans sold 98,137 199,256 Net gain on sale of real estate loans (2,765) (2,228) Net loss on sale of securities 148 485 Purchase of trading account securities (67,020) (33,253) Sale of trading account securities 61,967 28,755 Change in assets and liabilities: Interest receivable (705) (181) Other assets (6,345) (2,548) Other liabilities (280) (3,610) --------- --------- Net cash provided by operating activities 47,700 92,477 --------- --------- Cash flows from investing activities: Change in short-term investments, maturities less than 90 days (68,068) (117,739) Purchase of securities available for sale (280,393) (316,625) Maturity of securities available for sale 156,896 200,897 Sale of securities available for sale 115,758 150,482 Purchase of securities held to maturity (42,613) (59,362) Maturity of securities held to maturity 18,718 19,414 Sale of securities held to maturity 3,424 -- Change in net loans and leases (336,761) (336,177) Purchase of premises and equipment (5,802) (9,193) Sale of premises and equipment 130 141 Additions to intangible assets (4,663) (6,653) Sale of other real estate owned 4,598 4,482 Cash provided by acquisitions -- 172,322 --------- --------- Net cash used by investing activities (438,776) (298,011) --------- ---------
29 Cash flows from financing activities: Change in deposits 51,034 160,110 Change in short-term borrowings, maturities less than 90 days 228,087 6,006 Proceeds from short-term borrowings 64,154 34,075 Payments on short-term borrowings (27,512) (37,310) Additions to long-term debt 105,236 20,000 Payments on long-term debt (28,722) (7,320) Proceeds from issuance of common stock 2,351 4,722 Repurchase of common stock (90,897) -- Cash dividends paid (16,188) (12,544) --------- --------- Net cash provided by financing activities 287,543 167,739 --------- --------- Net decrease in cash and due from banks (103,533) (37,795) Cash and due from banks - January 1 632,577 450,384 --------- --------- Cash and due from banks - June 30 $529,044 $412,589 ========= ========= Supplemental information: Interest paid 153,439 96,534 Income taxes paid 25,247 25,172 Noncash activities: Loans held for sale transferred to the loan portfolio 8,168 16,036 Loan charge-offs 10,010 8,986 Transfer of loans to other real estate owned 1,808 5,543 Tax benefit of stock options exercised 510 776 Dividends declared not paid 7,616 6,316 Securities purchased not settled -- 10,568 Securities sold not settled 5,000 -- Acquisitions: securities and short-term investments -- 18,532 Net loans -- 17,331 Premises and equipment -- 1,191 Intangible assets -- 11,249 Deposits -- 217,557 Other liabilities, net -- 982 Equity -- 2,086 ========= =========
The accompanying notes are an integral part of the financials 30 NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS West One Bancorp and Subsidiaries These statements are unaudited financial statements and should be read in conjunction with the 1994 Annual Report of West One Bancorp and Subsidiaries (West One). All adjustments (consisting only of normal recurring accruals and the acquisitions as discussed below) which are, in the opinion of management, necessary to present fairly the consolidated financial position, results of operations and cash flows have been made in the accompanying financial statements. RECLASSIFICATION Certain reclassifications of 1994 amounts were made in order to conform to the 1995 presentation, none of which affect previously reported net income. SALE OF HELD-TO-MATURITY SECURITIES In the first six months of 1995, securities for three issuers which were classified as held-to-maturity were sold due to downgrades in credit quality which caused the securities to fall below West One's investment policy guidelines. The combined amortized cost was $3.4 million and a net gain of $36 thousand was recognized on the sales. ACQUISITIONS West One acquired the financial institutions listed below in transactions accounted for as poolings of interests. The acquisitions were not material to West One's financial position, results of operations and cash flows and prior year financial statements have not been restated. November 10, 1994, National Security Bank with assets of $132 million in exchange for 1,101,832 shares of West One Bancorp common stock. September 2, 1994, Valley Commercial Bank, a two-branch $64 million bank headquartered in Clarkston, Washington, in exchange for 404,523 shares of West One Bancorp common stock. January 21, 1994, Idaho State Bank with assets of $50 million in exchange for 133,332 shares of West One Bancorp common stock. On April 15, 1994, West One Bancorp acquired ten Far West Federal Savings Bank branches in Oregon from the Resolution Trust Corporation. The transaction included the receipt of $160 million in cash, $2 million of premises and equipment, $11 million of intangible assets and the assumption of $173 million of deposits and other liabilities. The transaction was accounted for as a purchase. 31 OTHER EVENTS On May 5, 1995, U. S. Bancorp entered into an Agreement and Plan of Merger (the Merger Agreement) with West One Bancorp, an Idaho corporation (West One), pursuant to which West One will be merged with and into U. S. Bancorp (the Merger). As a result of the Merger, each outstanding share of West One's common stock, par value $1.00 per share (West One Common Stock), will be converted into 1.47 shares of U. S. Bancorp Common Stock, par value $5.00 per share (U. S. Bancorp Common Stock). The Merger is conditioned upon, among other things, approval by shareholders of U. S. Bancorp and by shareholders of West One, and upon certain regulatory approvals. The Merger is expected to be completed by year-end 1995. As a condition to entering into the Merger Agreement, on May 6, 1995, U. S. Bancorp and West One entered into (i) a Stock Option Agreement between West One, as issuer, and U. S. Bancorp, as grantee (the West One Stock Option Agreement), pursuant to which West One granted to U. S. Bancorp the right upon the terms and subject to the conditions set forth therein, to purchase up to 19.9% of the outstanding shares of West One Common Stock at a price of $34.00 per share, and (ii) a Stock Option Agreement between U. S. Bancorp, as issuer, and West One as grantee (the U. S. Bancorp Stock Option Agreement), pursuant to which U. S. Bancorp granted to West One the right to purchase up to 19.9% of the outstanding shares of U. S. Bancorp Common Stock at a price of $28.00 per share. In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights." The statement is effective for fiscal years beginning after December 15, 1995. This statement is not expected to have a material effect on West One's financial condition, results of operations, cash flows or related disclosures. During the first quarter of 1995, West One implemented SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," SFAS No. 116, "Accounting for Contributions Received and Contributions Made" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." None of these statements had a material effect on West One's financial condition, results of operations, cash flows or related disclosures. 32 U. S. BANCORP AND SUBSIDIARIES PRO FORMA CONDENSED BALANCE SHEET JUNE 30, 1995 (IN THOUSANDS) (UNAUDITED)
PRO FORMA PRO FORMA U. S. BANCORP WEST ONE ADJUSTMENTS COMBINED ------------- ----------- ----------- ------------ ASSETS Cash and due from banks................. $ 1,476,674 $ 529,144 $ $ 2,005,818 Federal funds sold, security resell agreements and other short-term investments........................... 129,983 179,922 309,905 Trading account securities.............. 140,368 6,462 146,830 Loans held for sale..................... 66,452 46,065 112,517 Securities available for sale, at fair value (cost: $1,064,232; $1,158,891; $2,223,123)........................... 1,078,798 1,163,333 2,242,131 Securities held to maturity, at amortized cost (fair value: $1,240,405; $612,979; $1,853,384)..... 1,265,551 600,655 1,866,206 Loans and lease financing, net of unearned income....................... 15,956,600 6,372,672 22,329,272 Allowance for credit losses............. (313,274) (83,038) (396,312) ----------- ---------- --------- ----------- Net loans and lease financing........... 15,643,326 6,289,634 21,932,960 Other assets............................ 1,548,706 340,898 1,889,604 ----------- ---------- --------- ----------- $21,349,858 $9,156,113 $ -- $30,505,971 =========== ========== ========= =========== LIABILITIES Deposits: Noninterest-bearing deposits............ $ 3,901,749 $1,353,015 $ $ 5,254,764 Interest-bearing deposits............... 11,074,363 5,508,901 16,583,264 ----------- ---------- --------- ----------- Total deposits..................... 14,976,112 6,861,916 -- 21,838,028 Federal funds purchased and security repurchase agreements................. 1,898,211 516,254 2,414,465 Commercial paper and other short-term borrowings............................ 944,371 674,996 1,619,367 Long-term debt.......................... 890,338 321,970 1,212,308 Other liabilities....................... 747,657 88,816 60,000 (D) 896,473 ----------- ---------- --------- ----------- Total liabilities.................. 19,456,689 8,463,952 60,000 27,980,641 ----------- ---------- --------- ----------- SHAREHOLDERS' EQUITY Preferred stock......................... 150,000 -- 150,000 Common stock............................ 491,118 36,888 217,560 (B) 745,566 Capital surplus......................... 351,445 324,633 (294,931)(B) 381,147 Retained earnings....................... 892,677 405,330 (60,000)(D) 1,238,007 Net unrealized gain on securities available for sale, net of tax........ 7,929 2,681 10,610 Treasury stock, at cost................. -- (77,371) 77,371 (B) -- ----------- ---------- --------- ----------- Total shareholders' equity......... 1,893,169 692,161 (60,000) 2,525,330 ----------- ---------- --------- ----------- $21,349,858 $9,156,113 $ -- $30,505,971 =========== ========== ========= ===========
See Accompanying Notes to Pro Forma Condensed Financial Statements. 60 33 U. S. BANCORP AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
PRO FORMA PRO FORMA U. S. BANCORP WEST ONE(A) ADJUSTMENTS COMBINED -------------- ------------ ----------- ------------ INTEREST INCOME Loans, lease financing and loans held for sale, including fees.......................................... $739,585 $296,179 $ $1,035,764 Securities................................................ 76,001 50,157 126,158 Trading account securities................................ 4,722 152 4,874 Interest-bearing deposits and short-term investments...... 4,364 2,546 6,910 -------- -------- ------ ---------- Total interest income................................... 824,672 349,034 -- 1,173,706 -------- -------- ------ ---------- INTEREST EXPENSE Deposits.................................................. 217,022 122,694 339,716 Short-term borrowings..................................... 84,274 21,987 106,261 Long-term debt............................................ 30,778 9,728 40,506 -------- -------- ------ ---------- Total interest expense.................................. 332,074 154,409 -- 486,483 -------- -------- ------ ---------- NET INTEREST INCOME....................................... 492,598 194,625 -- 687,223 Provision for credit losses............................... 42,265 6,470 48,735 -------- -------- ------ ---------- Net interest income after provision for credit losses..... 450,333 188,155 -- 638,488 NONINTEREST REVENUES Service charges on deposit accounts....................... 75,623 20,439 96,062 Bank card revenue, net.................................... 29,614 6,075 35,689 Trust and investment management........................... 26,263 7,497 33,760 Exchange fees............................................. 16,743 5,893 22,636 Mortgage banking income, net.............................. 3,485 6,415 9,900 Other operating revenue................................... 54,729 10,846 65,575 Equity investment income.................................. 475 -- 475 Securities gains (losses)................................. 1,690 (148) 1,542 -------- -------- ------ ---------- Total noninterest revenues.............................. 208,622 57,017 -- 265,639 NONINTEREST EXPENSES Employee compensation and benefits........................ 208,484 91,355 299,839 Net occupancy expense..................................... 31,893 10,745 42,638 Equipment rentals, depreciation and maintenance........... 48,328 11,102 59,430 Regulatory agency fees.................................... 19,346 8,233 27,579 Other operating expense................................... 139,698 42,470 182,168 -------- -------- ------ ---------- Total noninterest expenses.............................. 447,749 163,905 -- 611,654 -------- -------- ------ ---------- Income before income taxes................................ 211,206 81,267 -- 292,473 Provision for income taxes................................ 74,685 24,251 98,936 -------- -------- ------ ---------- Net income................................................ $136,521 $ 57,016 $ -- $ 193,537 ======== ======== ====== ========== Average shares outstanding: U.S. Bancorp............................................ 98,179 West One Primary............................................. 36,830 Fully Diluted....................................... 39,516 Pro Forma............................................... 152,319 Earnings per common share: U.S. Bancorp............................................ $1.33 West One Primary............................................. $1.55 Fully diluted....................................... 1.47 Pro Forma............................................... $1.23(C)
See Accompanying Notes to Pro Forma Condensed Financial Statements. 61 34 U. S. BANCORP AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
PRO FORMA PRO FORMA U. S. BANCORP WEST ONE(A) ADJUSTMENTS COMBINED -------------- ------------ ----------- ------------ INTEREST INCOME Loans, lease financing and loans held for sale, including fees.......................................... $1,283,092 $498,241 $ $1,781,333 Securities................................................ 175,150 88,015 263,165 Trading account securities................................ 8,931 93 9,024 Interest-bearing deposits and short-term investments...... 12,912 2,907 15,819 ---------- -------- ------ ---------- Total interest income................................... 1,480,085 589,256 -- 2,069,341 ---------- -------- ------ ---------- INTEREST EXPENSE Deposits.................................................. 344,194 179,639 523,833 Short-term borrowings..................................... 102,997 32,575 135,572 Long-term debt............................................ 70,736 9,147 79,883 ---------- -------- ------ ---------- Total interest expense.................................. 517,927 221,361 -- 739,288 ---------- -------- ------ ---------- NET INTEREST INCOME....................................... 962,158 367,895 -- 1,330,053 Provision for credit losses............................... 106,868 13,278 120,146 ---------- -------- ------ ---------- Net interest income after provision for credit losses..... 855,290 354,617 -- 1,209,907 NONINTEREST REVENUES Service charges on deposit accounts....................... 151,990 39,536 191,526 Bank card revenue, net.................................... 61,172 11,486 72,658 Trust and investment management........................... 51,082 14,201 65,283 Exchange fees............................................. 31,545 7,502 39,047 Mortgage banking income, net.............................. 17,308 9,651 26,959 Credit reporting revenue.................................. 13,204 -- 13,204 Other operating revenue................................... 80,511 22,630 103,141 Equity investment income (loss)........................... (5,429) -- (5,429) Securities gains (losses)................................. (8,145) (1,067) (9,212) Gain on sale of operations and loans...................... 62,883 -- 62,883 ---------- -------- ------ ---------- Total noninterest revenues.............................. 456,121 103,939 -- 560,060 NONINTEREST EXPENSES Employee compensation and benefits........................ 475,323 171,833 647,156 Net occupancy expense..................................... 67,121 20,604 87,725 Equipment rentals, depreciation and maintenance........... 107,554 21,942 129,496 Regulatory agency fees.................................... 39,635 14,887 54,522 Restructure charge........................................ 100,000 -- 100,000 Other operating expense................................... 305,682 82,189 387,871 ---------- -------- ------ ---------- Total noninterest expenses.............................. 1,095,315 311,455 -- 1,406,770 ---------- -------- ------ ---------- Income before income taxes................................ 216,096 147,101 -- 363,197 Provision for income taxes................................ 64,601 43,930 108,531 ---------- -------- ------ ---------- Net income................................................ $ 151,495 $103,171 $ -- $ 254,666 ========== ======== ====== ========== Average shares outstanding: U. S. Bancorp........................................... 99,448 West One Primary............................................... 35,812 Fully diluted......................................... 38,497 Pro Forma............................................... 152,091 Earnings per common share: U. S. Bancorp........................................... $1.40 West One Primary............................................. $2.88 Fully diluted....................................... 2.74 Pro Forma............................................... $1.59(C)
See Accompanying Notes to Pro Forma Condensed Financial Statements. 62 35 U. S. BANCORP AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
PRO FORMA PRO FORMA U. S. BANCORP WEST ONE(A) ADJUSTMENTS COMBINED -------------- ------------ ----------- ------------ INTEREST INCOME Loans, lease financing and loans held for sale, including fees....................................... $1,212,461 $429,660 $ $1,642,121 Securities............................................. 202,560 93,404 295,964 Trading account securities............................. 8,607 107 8,714 Interest-bearing deposits and short-term investments... 10,068 1,264 11,332 ---------- -------- ------ ---------- Total interest income................................ 1,433,696 524,435 -- 1,958,131 ---------- -------- ------ ---------- INTEREST EXPENSE Deposits............................................... 365,791 160,076 525,867 Short-term borrowings.................................. 58,934 25,135 84,069 Long-term debt......................................... 80,860 8,224 89,084 ---------- -------- ------ ---------- Total interest expense............................... 505,585 193,435 -- 699,020 ---------- -------- ------ ---------- NET INTEREST INCOME.................................... 928,111 331,000 -- 1,259,111 Provision for credit losses............................ 92,851 13,383 106,234 ---------- -------- ------ ---------- Net interest income after provision for credit losses............................................... 835,260 317,617 -- 1,152,877 NONINTEREST REVENUES Service charges on deposit accounts.................... 134,668 36,588 171,256 Bank card revenue, net................................. 59,122 9,719 68,841 Trust and investment management........................ 48,678 13,627 62,305 Exchange fees.......................................... 28,051 6,383 34,434 Mortgage banking income, net........................... 28,786 8,718 37,504 Credit reporting revenue............................... 33,984 -- 33,984 Other operating revenue................................ 99,389 17,652 117,041 Equity investment income............................... 33,973 -- 33,973 Securities gains (losses).............................. 11 495 506 Gain on sale of mortgage loan servicing rights......... 55,846 -- 55,846 Gain on sale of operations and loans................... 9,311 -- 9,311 ---------- -------- ------ ---------- Total noninterest revenues........................... 531,819 93,182 -- 625,001 NONINTEREST EXPENSES Employee compensation and benefits..................... 495,224 158,684 653,908 Net occupancy expense.................................. 65,931 19,571 85,502 Equipment rentals, depreciation and maintenance........ 90,237 21,725 111,962 Regulatory agency fees................................. 41,335 13,600 54,935 Other operating expense................................ 290,103 76,641 366,744 ---------- -------- ------ ---------- Total noninterest expenses........................... 982,830 290,221 -- 1,273,051 ---------- -------- ------ ---------- Income before income taxes............................. 384,249 120,578 -- 504,827 Provision for income taxes............................. 126,300 37,391 163,691 ---------- -------- ------ ---------- Net income............................................. $ 257,949 $ 83,187 $ -- $ 341,136 ========== ======== ====== ========== Average shares outstanding: U. S. Bancorp........................................ 99,327 West One Primary............................................ 33,292 Fully diluted...................................... 35,996 Pro Forma............................................ 148,266 Earnings per common share: U. S. Bancorp........................................ $2.47 West One Primary............................................ $2.50 Fully diluted...................................... 2.38 Pro Forma............................................ $2.22(C)
See Accompanying Notes to Pro Forma Condensed Financial Statements. 63 36 U. S. BANCORP AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1992 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
PRO FORMA PRO FORMA U. S. BANCORP WEST ONE(A) ADJUSTMENTS COMBINED -------------- ------------ ----------- ------------ INTEREST INCOME Loans, lease financing and loans held for sale, including fees......................................... $1,302,003 $354,699 $ $1,656,702 Securities............................................... 163,382 87,220 250,602 Trading account securities............................... 9,480 136 9,616 Interest-bearing deposits and short-term investments..... 16,609 8,142 24,751 ---------- -------- ------ ---------- Total interest income.................................. 1,491,474 450,197 -- 1,941,671 ---------- -------- ------ ---------- INTEREST EXPENSE Deposits................................................. 448,372 160,138 608,510 Short-term borrowings.................................... 89,524 24,906 114,430 Long-term debt........................................... 93,220 10,046 103,266 ---------- -------- ------ ---------- Total interest expense................................. 631,116 195,090 -- 826,206 ---------- -------- ------ ---------- NET INTEREST INCOME...................................... 860,358 255,107 -- 1,115,465 Provision for credit losses.............................. 134,454 14,308 148,762 ---------- -------- ------ ---------- Net interest income after provision for credit losses.... 725,904 240,799 -- 966,703 NONINTEREST REVENUES Service charges on deposit accounts...................... 120,102 30,882 150,984 Bank card revenue, net................................... 50,163 6,994 57,157 Trust and investment management.......................... 45,738 11,819 57,557 Exchange fees............................................ 24,333 4,543 28,876 Mortgage banking income, net............................. 57,970 9,748 67,718 Credit reporting revenue................................. 33,315 -- 33,315 Other operating revenue.................................. 86,059 13,899 99,958 Equity investment income................................. 12,928 -- 12,928 Securities gains (losses)................................ 438 1,690 2,128 Gain on sale of mortgage loan servicing rights........... 7,467 -- 7,467 Gain on sale of loans.................................... 4,988 -- 4,988 ---------- -------- ------ ---------- Total noninterest revenues............................. 443,501 79,575 -- 523,076 NONINTEREST EXPENSES Employee compensation and benefits....................... 436,633 122,672 559,305 Net occupancy expense.................................... 55,709 15,255 70,964 Equipment rentals, depreciation and maintenance.......... 73,703 17,174 90,877 Regulatory agency fees................................... 36,095 11,389 47,484 Other operating expense.................................. 266,643 62,557 329,200 ---------- -------- ------ ---------- Total noninterest expenses............................. 868,783 229,047 -- 1,097,830 ---------- -------- ------ ---------- Income before income taxes............................... 300,622 91,327 -- 391,949 Provision for income taxes............................... 92,548 27,955 120,503 ---------- -------- ------ ---------- Income before cumulative effect of accounting changes.... $ 208,074 $ 63,372 $ -- $ 271,446 ========== ======== ====== ========== Average shares outstanding: U. S. Bancorp.......................................... 98,650 West One Primary.............................................. 30,343 Fully diluted........................................ 33,126 Pro Forma.............................................. 143,255 Earnings per common share before cumulative effect of accounting changes: U. S. Bancorp.......................................... $2.05 West One Primary.............................................. $2.09 Fully diluted........................................ 1.98 Pro Forma.............................................. $1.86(C)
See Accompanying Notes to Pro Forma Condensed Financial Statements. 64 37 NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (A) Certain reclassifications have been made to the condensed consolidated statement of income of West One as discussed below in order to present the operations of both companies on a consistent basis of accounting for purposes of the pro forma combined statements (amounts in thousands): Loan fees and direct loan origination costs in excess of deferred amount are presented gross as components of interest income, mortgage banking income and employee compensation and benefits expense as follows:
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ---------------------------- JUNE 30, 1995 1994 1993 1992 ---------------- ---- ---- ---- Increase in: Loan fees..................... $13,120 $26,270 $27,110 $16,409 Mortgage banking income, net.. 1,491 3,051 2,688 2,239 Employee compensation and benefits.................... 14,611 29,321 29,798 18,648
Bank card revenue and expense and mortgage banking income and expense have been reclassified from other operating revenue and other operating expense to bank card revenue, net and mortgage banking income, net, respectively, in noninterest revenues as follows:
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ---------------------------- JUNE 30, 1995 1994 1993 1992 ---------------- ---- ---- ---- Increase in: Bank card revenue, net.......... $6,075 $11,486 $9,719 $6,994 Mortgage banking income, net.... 4,924 6,600 6,030 7,509
ATM expenses have been reclassified from other expenses to be shown net with ATM revenue in other operating revenue as follows:
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ----------------------------- JUNE 30, 1995 1994 1993 1992 ---------------- ---- ---- ---- Decrease in other operating revenue........................ $681 $1,359 $1,214 $648
Following the Merger, there may be other reclassifications to conform certain West One reporting or accounting practices to those of U. S. Bancorp. (B) Pooling adjustments to reflect the exchange of 50,889,593 shares of U. S. Bancorp Common Stock for 34,618,771 shares of West One Common Stock outstanding at June 30, 1995. At that date, West One also held approximately 2,269,494 treasury shares in anticipation of issuance pursuant to the conversion of Convertible Debentures. The Convertible Debentures were called for redemption in July 1995, and the majority of holders of Convertible Debentures are expected to exercise their right of conversion to West One Common Stock during the 1995 third quarter. (C) Pro forma earnings per share are computed by dividing pro forma net income less preferred dividends by the historical weighted average number of shares of U. S. Bancorp Common Stock outstanding for each period, adjusted to give effect to the new shares assumed to be issued at the beginning of each period presented. Pro forma earnings per share on a fully diluted basis is not presented as the dilution is not material. (D) Merger related expenses currently estimated at $60 million after-tax will be taken during the fourth quarter of 1995 for primarily employee severance, including payments to retain certain employees through their agreed upon termination dates, costs to eliminate redundant computer systems, administrative functions, premises, furniture and equipment, and professional fees. Management plans to reduce the aggregate number of employees by approximately 1,100 upon completion of the merger integration. The estimated costs are based upon average costs for similar 65 38 programs and actual amounts due upon displacement of certain employees and include severance benefits, outplacement programs, and health benefits during the severance period. Management's review of the two companies' computer systems resulted in the identification of certain hardware and software that will be retired and/or sold. Management also intends to reduce the number of branches and offices maintained in accordance with those plans. Furniture and equipment will be sold or retired. The costs of reducing the number of branches, offices and related furniture and equipment have been contemplated in the Merger-related expenses estimate. Investment adviser fees payable upon consummation of the Merger and accountant and attorney's professional fees directly attributable to the Merger will be accrued. 66 39 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) By /s/ STEVEN P. ERWIN --------------------------- Steven P. Erwin Executive Vice President and Chief Financial Officer Dated: August 30, 1995 40 INDEX TO EXHIBITS 23 Consent of Coopers & Lybrand L.L.P. EX-23 2 EXHIBIT 23: CONSENT OF COOPERS & LYBRAND LLP 1 Consent of Independent Accountants We consent to the incorporation by reference in the Registration Statements of U. S. Bancorp on Form S-3 (File Nos. 33-15492, 33-43407, 33-48249, 33-64318 and 33-86472) and on Form S-8 (File Nos. 2-99615, 33-18706, 33-28785, 33-39765, 33-39860, 33-39861, 33-71904 and 33-83158) of our report dated January 19, 1995, on our audits of the consolidated financial statements of West One Bancorp and subsidiaries as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, which report includes an explanatory paragraph relating to West One Bancorp's change in accounting for investment securities in 1993 and is incorporated by reference in the 1994 Annual Report on Form 10-K from the 1994 Annual Report to Shareholders of West One Bancorp. /s/ COOPERS & LYBRAND L.L.P. Boise, Idaho August 30, 1995 -----END PRIVACY-ENHANCED MESSAGE-----