-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L8at/NJJbpKm8yQVmvR+fGWnepv69L3UuoPB2DCQSv1AH/k7uzTVQF92ZKm2MaD/ 904KuYL3v81Y9ikhgeqBrg== 0000891020-96-001014.txt : 19960826 0000891020-96-001014.hdr.sgml : 19960826 ACCESSION NUMBER: 0000891020-96-001014 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960823 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: US BANCORP /OR/ CENTRAL INDEX KEY: 0000101542 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 930571730 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-03505 FILM NUMBER: 96619484 BUSINESS ADDRESS: STREET 1: 111 SW FIFTH AVE T-2 STREET 2: SUITE 3500 CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032756111 MAIL ADDRESS: STREET 1: 111 S W FIFTH AVENUE STREET 2: SUITE 3500 CITY: PORTLAND STATE: OR ZIP: 97204 10-Q/A 1 AMENDMENT NO.1 FOR THE QUARTER ENDED JUNE 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A Amendment No. 1 to [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 COMMISSION FILE NO. 0-3505 U. S. BANCORP (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OREGON 93-0571730 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 111 S.W. FIFTH AVENUE 97204 PORTLAND, OREGON (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (503) 275-6111 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of Common Stock, par value $5, outstanding at July 31, 1996: 154,426,081 shares. 2 U. S. BANCORP TABLE OF CONTENTS PART I - FINANCIAL INFORMATION
PAGE Item 1. Financial Statements Consolidated Balance Sheet.................................... 3 Consolidated Statement of Income.............................. 5 Consolidated Statement of Cash Flows.......................... 7 Consolidated Statement of Changes in Shareholders' Equity..... 9 Notes to Consolidated Financial Statements.................... 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.............................. 26 Signatures.............................................................................. 27 Exhibit Index........................................................................... 28
The undersigned registrant hereby amends Part I, Item 2, and Part II, Item 6 of its Quarterly Report on Form 10-Q for the period ended June 30, 1996, as set forth below. Item 1 of this report is unchanged from the original filing. 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS U.S. BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
June 30, December 31, June 30, (In Thousands) 1996 1995 1995 -------------- ------------- -------------- (Unaudited) (Unaudited) ASSETS Cash and due from banks $ 2,104,850 $ 2,416,209 $ 2,005,718 Interest-bearing deposits with banks 1,246 1,294 1,212 Federal funds sold and security resale agreements 619,578 506,408 303,355 Other short-term investments 10,177 8,817 5,438 Trading account securities 124,822 279,656 146,830 Loans held for sale 315,713 160,473 106,725 Securities available for sale, at fair value (amortized cost: $3,090,495,$3,259,095 and $2,223,123 respectively) 3,064,160 3,276,723 2,242,130 Securities held to maturity, at amortized cost (fair value: $859,864, $885,695 and $1,853,384, respectively) 853,650 865,126 1,866,206 Loans and lease financing, net of unearned income Commercial 11,900,468 11,413,953 11,215,123 Foreign 20,747 56,293 74,180 Real estate construction 1,162,568 833,013 867,261 Real estate mortgage 3,881,017 3,808,773 3,712,506 Consumer 5,642,104 5,485,383 5,423,407 Lease financing 1,334,106 1,187,373 1,042,587 ------------ ------------ ------------ Total loans and lease financing 23,941,010 22,784,788 22,335,064 Allowance for credit losses (455,135) (434,508) (396,312) ------------ ------------ ------------ Net loans and lease financing 23,485,875 22,350,280 21,938,752 Premises, furniture and equipment 612,644 633,836 647,418 Other real estate and equipment owned 47,465 32,679 29,664 Customers' liability on acceptances 403,304 306,648 293,765 Goodwill and core deposit intangible assets 395,955 190,746 199,350 Other assets 749,998 765,388 719,392 ------------ ------------ ------------ $ 32,789,437 $ 31,794,283 $ 30,505,955 ============ ============ ============
See Notes to Consolidated Financial Statements. 3 4 U.S. BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONTINUED)
June 30, December 31, June 30, (In Thousands) 1996 1995 1995 ------------ ------------ ----------- (Unaudited) (Unaudited) LIABILITIES Deposits Noninterest-bearing deposits $ 5,724,534 $ 6,009,728 $ 5,254,707 NOW accounts and interest checking 2,714,810 2,709,155 2,600,439 Savings 1,535,285 1,583,656 1,843,388 Money market deposit accounts 5,802,190 5,544,479 4,959,587 Consumer time 5,791,309 5,685,290 5,687,533 Time - $100,000 or more 2,329,467 1,732,321 1,492,316 ------------ ------------ ------------ Total deposits 23,897,595 23,264,629 21,837,970 Federal funds purchased and security repurchase agreements 2,359,000 2,731,116 2,624,465 Commercial paper 195,758 176,125 232,840 Other short-term borrowings 933,481 692,105 1,176,528 Long-term debt 1,504,284 1,377,021 1,210,206 Acceptances outstanding 403,304 306,648 293,765 Other liabilities 611,514 629,586 544,851 ------------ ------------ ------------ Total liabilities 29,904,936 29,177,230 27,920,625 SHAREHOLDERS' EQUITY Preferred stock 150,000 150,000 150,000 Common stock 778,103 752,962 745,420 Capital surplus 470,021 347,836 381,293 Retained earnings 1,504,034 1,356,907 1,298,007 Net unrealized gain (loss) on securities available for sale, net of tax (17,657) 9,348 10,610 ------------ ------------ ------------ Total shareholders' equity 2,884,501 2,617,053 2,585,330 ------------ ------------ ------------ $ 32,789,437 $ 31,794,283 $ 30,505,955 ============ ============ ============
See Notes to Consolidated Financial Statements. 4 5 U.S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Second Quarter Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- (In Thousands, Except Per Share Data) INTEREST INCOME Loans and lease financing, including fees $541,389 $524,527 $1,069,328 $1,032,700 Securities available for sale 45,239 34,603 93,619 69,302 Securities held to maturity 10,988 27,999 21,987 56,856 Loans held for sale 3,472 3,465 6,720 7,103 Trading account securities 2,037 2,750 5,140 4,875 Interest-bearing deposits and other short-term investments 6,127 2,558 12,447 6,910 ---------- ---------- ---------- ---------- Total interest income 609,252 595,902 1,209,241 1,177,746 ---------- ---------- ---------- ---------- INTEREST EXPENSE Deposits 187,342 176,479 377,154 339,701 Short-term borrowings 38,965 52,617 77,268 106,261 Long-term debt 22,677 20,653 46,312 40,353 ---------- ---------- ---------- ---------- Total interest expense 248,984 249,749 500,734 486,315 ---------- ---- ------ ---------- ---------- NET INTEREST INCOME 360,268 346,153 708,507 691,431 Provision for credit losses 26,510 25,162 56,642 48,735 ---------- ---------- ---------- ---------- Net interest income after provision for credit losses 333,758 320,991 651,865 642,696 NONINTEREST REVENUES Service charges on deposit accounts 48,099 47,989 95,062 96,080 Bank card revenue, net 14,703 18,718 33,087 36,268 Trust and investment management 18,918 17,853 36,105 33,760 Exchange fees 10,541 11,020 20,248 21,362 Insurance revenue 6,685 5,773 11,820 10,847 Mortgage banking income, net 4,952 5,449 13,299 8,047 Other operating revenue 27,508 23,260 52,656 44,465 Gain on sale of operations and loans 25,778 4,634 25,634 5,107 Equity investment income (loss) 7,641 (1,801) 18,095 475 Gain on sale of securities available for sale 1,010 1,622 4,395 1,542 Gain on sale of premises -- 5,063 -- 5,063 ---------- ---------- ---------- ---------- Total noninterest revenues $165,835 $139,580 $ 310,401 $ 263,016 ---------- ---------- ---------- ----------
See Notes to Consolidated Financial Statements. 5 6 U.S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (CONTINUED)
Second Quarter Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- (In Thousands, Except Per Share Data) NONINTEREST EXPENSES Employee compensation and benefits $159,126 $146,171 $310,097 $299,016 Net occupancy expense 19,038 21,286 39,727 42,518 Equipment rentals, depreciation and maintenance 30,125 33,298 60,781 64,732 Stationery, supplies and postage 15,729 15,436 30,549 31,165 Regulatory agency fees 2,846 13,538 5,362 27,287 Advertising and marketing 8,081 9,522 16,148 18,317 Telecommunications 8,331 8,591 16,120 16,713 Other operating expense 48,082 52,072 91,420 105,741 Merger and integration costs 9,798 3,750 18,178 3,750 Business consolidation costs -- 4,000 -- 4,000 -------- -------- -------- -------- Total noninterest expenses 301,156 307,664 588,382 613,239 -------- -------- -------- -------- Income before income taxes 198,437 152,907 373,884 292,473 Provision for income taxes 71,375 54,186 133,908 98,936 -------- -------- -------- -------- Net income $127,062 $ 98,721 $239,976 $193,537 ======== ======== ======== ======== Net income applicable to common shareholders $124,015 $ 95,674 $233,882 $187,443 Per common share: Net income $ .82 $ .63 $ 1.55 $ 1.23 Cash dividends declared .28 .25 .56 .50 Average number of common shares outstanding 151,898 151,121 151,356 151,672
See Notes to Consolidated Financial Statements. 6 7 U.S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, --------------------------- 1996 1995 ---------- ---------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 239,976 $ 193,537 Adjustments to reconcile net income to net cash provided by operating activities Depreciation, amortization and accretion 79,389 65,206 Provision for credit losses 56,642 48,935 Equity investment income (16,532) (114) Gain on sales of securities available for sale (4,395) (1,507) Gain on sales of securities held to maturity -- (35) Gain on sales of trading securities (7,433) (6,987) Net gain on sales of loans and property (4,082) (20,501) Net gain on sales of mortgage loan servicing rights (2,900) (1,680) Change in loans held for sale (155,927) 55,625 Change in trading account securities 163,496 (346) Change in deferred loan fees, net of amortization 7,912 2,727 Change in accrued interest receivable 21,478 (1,156) Change in accrued interest payable (21,678) 22,733 Change in other assets and liabilities, net 5,340 1,406 --------- --------- Net cash provided by operating activities 361,286 357,843 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of interest-earning deposits of nonbank subsidiaries 3,190 6,305 Purchase of interest-earning deposits by nonbank subsidiaries (5,774) (5,375) Net decrease in investments in interest- earning deposits by banking subsidiaries 1,272 2,993 Proceeds from maturities of securities held to maturity 57,952 157,027 Proceeds from sales of securities held to maturity -- 3,424 Purchase of securities held to maturity -- (42,613) Proceeds from maturities of securities available for sale 575,428 329,117 Purchase of securities available for sale (405,766) (715,209) Proceeds from sale of securities available for sale 297,670 716,917 Proceeds from sales of equity investments 25,181 968 Purchase of equity investments (2,793) (9,470) Principal collected on loans by nonbank subsidiaries 721,547 431,741 Loans made to customers by nonbank subsidiaries (870,268) (518,264) Net increase in loans by banking subsidiaries (488,567) (650,660) Proceeds from sales of loans -- 11,538 Proceeds from sales of premises and equipment 31,053 30,464 Purchase of premises and equipment (48,635) (43,306) Proceeds from sale of foreclosed assets 19,842 22,246 Proceeds from sale of mortgage loan servicing rights 686 1,680 Purchase of mortgage loan servicing rights -- (4,663) Acquisitions/dispositions, net of cash and cash equivalents (131,911) 11,389 --------- --------- Net cash used in investing activities (219,893) (263,751) --------- ---------
See Notes to Consolidated Financial Statements. 7 8 U.S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (CONTINUED)
Six Months Ended June 30, ----------------------------- 1996 1995 ---------- ---------- (In Thousands) CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits (97,314) (20,226) Net change in short-term borrowings (111,107) (231,820) Proceeds from issuance of long-term debt 379,650 263,844 Repayment of long-term debt (252,637) (300,282) Proceeds from issuance of stock 15,136 5,545 Common stock repurchased (197,897) (93,248) Dividends paid (75,413) (71,372) ----------- ----------- Net cash used in financing activities (339,582) (447,559) ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (198,189) (353,467) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,922,617 2,662,540 ----------- ----------- CASH AND CASH EQUIVALENTS AT PERIOD END $2,724,428 $ 2,309,073 =========== =========== Supplemental disclosures: Cash paid during the period for: Interest $ 524,105 $ 463,749 Income taxes 121,770 92,745 Noncash investing activities: Transfer from loans to loans held for sale -- 253,475 Transfer from loans held for sale to loans 12,392 8,186 Fair value adjustment to securities available for sale 43,769 82,408 Income tax effect related to fair value adjustment 16,764 33,077 Transfer from loans to other real estate owned 52,269 27,357 Transfer from premises to other real estate owned 11,866 1,546
See Notes to Consolidated Financial Statements. 8 9 U.S. BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
Six Months Ended June 30, ------------------------------ 1996 1995 ---------- ---------- (In Thousands) Shareholders' equity at beginning of period $2,617,053 $2,493,054 Net income 239,976 193,537 Common stock issued in acquisition 324,535 -- Stock options exercised, dividends reinvested and other transactions 20,689 6,034 Common stock repurchased (197,897) (93,248) Common stock issued to redeem subordinated debt -- 7,526 Preferred dividends declared (6,094) (6,094) Common dividends declared (86,756) (64,810) Change in net unrealized gain (loss) on securities, net of tax (27,005) 49,331 ----------- ----------- Shareholders' equity at end of period $2,884,501 $2,585,330 =========== ===========
See Notes to Consolidated Financial Statements. 9 10 U. S. BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Principles of Consolidation The consolidated financial statements of U. S. Bancorp include the accounts of U. S. Bancorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. These statements are unaudited and should be read in conjunction with the 1995 Form 10-K of U. S. Bancorp and Subsidiaries. A summary of U. S. Bancorp's significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in U. S. Bancorp's 1995 Form 10-K. In the opinion of management, all adjustments (comprised of normal recurring accruals) necessary for a fair presentation of the interim financial statements have been included. Certain reclassifications of 1995 amounts were made in order to conform to the 1996 presentation, none of which affect previously reported net income. The major banking subsidiaries of U. S. Bancorp include United States National Bank of Oregon (U. S. Bank of Oregon), U. S. Bank of Washington, N.A., U. S. Bank of Idaho (fka West One Bank, Idaho), U. S. Bank of California, U. S. Bank of Nevada and U. S. Bank of Utah. 2. Acquisitions and Dispositions On June 6, 1996, the acquisition of California Bancshares, Inc. (CBI), accounted for as a purchase, was completed. CBI, a $1.6 billion, nine bank holding company for a 37-branch commercial banking operation, serves the San Francisco east Bay Area and the central valley of northern California. U. S. Bancorp issued approximately 9.6 million common shares in the transaction, valued at $325 million, and intends to buy back an equal number of shares, subject to market conditions and other factors. At June 6, 1996, CBI had total assets of $1.6 billion, deposits of $1.4 billion and stockholders' equity of $137 million. The excess of the purchase price over the fair value of the net assets acquired was $188 million and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years. In addition, core deposit intangibles of $32 million were recorded, to be amortized over eight years on an accelerated basis. In December 1995, U. S. Bancorp completed its merger with West One Bancorp. In May 1996, as part of the regulatory approval process for the merger, U. S. Bancorp divested 31 branches, mainly in Oregon, with deposits of approximately $700 million and loans of approximately $400 million. A pre-tax gain of $29 million was recognized. 3. Accounting Pronouncements Effective January 1, 1996, U. S. Bancorp adopted three recently issued Statements of Financial Accounting Standards (SFAS). SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" addresses accounting for the impairment of long-lived assets, such as premises, furniture and equipment, certain identifiable intangibles and goodwill related to those assets. SFAS No. 122, "Accounting for Mortgage Servicing Rights," an amendment of SFAS No. 65 requires that companies recognize as separate assets the rights to service mortgage loans for others, however those servicing rights are acquired. SFAS No. 123, "Accounting for Stock-Based Compensation," prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock and stock appreciation rights. U. S. Bancorp will disclose the relevant pro forma effect on net income and earnings per share in its 1996 annual report on Form 10-K, in conformance with SFAS No. 123. These statements did not have a material effect on U. S. Bancorp's financial condition, results of operations, cash flows or related disclosures as of June 30, 1996 and for the six months ended June 30, 1996. SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was issued in June 1996. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and is not expected to have a significant impact on U.S. Bancorp's financial condition, results of operations, cash flows or related disclosures. 4. Commitments and Contingent Liabilities In the normal course of business there are various commitments and contingent liabilities to extend credit and guarantees, which are not reflected in the financial statements. Management does not anticipate any material loss as a result of these transactions. Such commitments and contingent liabilities include commitments to extend credit of $17.4 billion, $15.9 billion and $13.8 billion and standby letters of credit of $1.1 billion, $1.1 billion and $1.1 billion at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The focus of the following discussion is on U. S. Bancorp's financial condition, changes in financial condition and results of operations. It is a supplement to the consolidated financial statements and footnotes presented elsewhere, and should be read in conjunction therewith. SELECTED FINANCIAL DATA
Second Quarter Ended Six Months Ended June 30, June 30, ---------------------- Percent ------------------------- Percent 1996 1995 Change 1996 1995 Change ---------- ---------- --------- ---------- ---------- -------- (In Millions, Except Per Share Data) Net interest income $ 360.3 $ 346.2 4% $ 708.5 $ 691.4 2% Provision for credit losses 26.5 25.2 5 56.6 48.7 16 Net income 127.1 98.7 29 240.0 193.5 24 PER COMMON SHARE Net income $ .82 $ .63 30% $ 1.55 $ 1.23 26% Cash dividends declared .28 .25 12 .56 .50 12 Book value 17.57 16.34 8 17.57 16.34 8 Average common shares outstanding, (000's) 151,898 151,121 1 151,356 151,672 -- Period-end shares outstanding, (000's) 155,621 149,084 4 155,621 149,084 4 FINANCIAL RATIOS Return on average common equity 19.38% 15.84% 18.54% 15.75% Return on average assets 1.62 1.33 1.54 1.31 Overhead ratio 56.08 61.70 56.53 62.58 Net interest margin (1) 5.31 5.40 5.26 5.41 Leverage capital ratio 8.07 8.02 8.07 8.02 Risk-based capital ratios: Tier 1 capital 8.06 8.79 8.06 8.79 Total capital 11.88 11.35 11.88 11.35 OTHER DATA - ADJUSTED FINANCIAL RATIOS Return on average common equity (2) 17.70% 15.95% 17.43% 15.81% Return on average assets (2) 1.49 1.33 1.45 1.31 Overhead ratio (3) 57.94 60.80 57.33 62.11
(1) Tax-equivalent basis. (2) Net income adjusted to exclude the after-tax effect of noncore and nonrecurring items. (3) Adjusted to exclude OREO transactions and noncore and nonrecurring items. 11 12 SELECTED FINANCIAL DATA, (CONTINUED)
Second Quarter Ended Six Months Ended June 30, June 30, ------------------------ Percent ------------------------ Percent 1996 1995 Change 1996 1995 Change ---------- ---------- --------- ---------- ---------- --------- (In Millions, Except Per Share Data) AVERAGE BALANCES Loans $23,460 $21,961 7% $23,205 $21,849 6% Interest-earning assets 28,037 26,654 5 27,915 26,673 5 Assets 31,498 29,858 5 31,311 29,871 5 Deposits 23,403 21,699 8 23,276 21,638 8 Common shareholders' equity 2,574 2,423 6 2,537 2,399 6 PERIOD-END BALANCES Loans $23,941 $22,335 7% Interest-earning assets 28,930 27,007 7 Assets 32,789 30,506 7 Deposits 23,898 21,838 9 Long-term debt 1,504 1,210 24 Common shareholders' equity 2,735 2,435 12 Preferred stock 150 150 -- Full-time equivalent employees 14,462 14,455 --
RESULTS OF OPERATIONS OVERVIEW To facilitate the discussion of its results of operations, in the table on the next page, U. S. Bancorp presents an additional analysis of performance to supplement the accompanying consolidated statement of income and balance sheet. This additional analysis of performance should not be viewed as a substitute for the generally accepted accounting principle-based financial statements previously presented. There are three primary differences between the consolidated statement of income and the operating income analysis that follows. First, the operating income analysis presents the line items in a slightly different order. Second, certain transactions that are nonrecurring or that are not related to what management believes are core businesses, are not included in noninterest revenues and noninterest expenses in determining operating income. Finally, operating income is also before the provision for credit losses, other real estate owned transactions (OREO) and income taxes. The provision for credit losses is excluded from operating income as its amount is based on the analysis of the required level of the allowance for credit losses and can be subject to fluctuation due to the prevailing level of charge-offs. Management has presented the additional analysis in the belief that it is meaningful to understand the results and trends in operating income separately from nonrecurring transactions, noncore activities, certain provisions and OREO transactions. Due to the format of this presentation, not all line items agree directly to the consolidated financial statements. 12 13 For the second quarter of 1996, net income was $127.1 million, compared with net income of $98.7 million in the second quarter of 1995. Operating income, as defined and presented in the following table, increased 10 percent over the same period a year ago, due to increases in net interest income and noninterest revenues and a reduction in noninterest expenses. The following key highlights compare the second quarter of 1996 with the same period of 1995 unless otherwise noted: - Net income totaled $127.1 million, or $.82 per share, an increase of 29 percent from $98.7 million, or $.63 per share. A gain on sale of divested branches and other noncore/nonrecurring transactions contributed $.07 per share after tax. - Operating income (income on a tax-equivalent basis before the provision for credit losses, OREO transactions, items determined to be noncore or nonrecurring, and income taxes) of $211.4 million was up 10 percent from $191.9 million. - Net interest margin was 5.31 percent compared with 5.40 percent. The change was attributable to yields on interest-earning assets declining to a greater extent than rates on interest-bearing liabilities. Net interest income (tax-equivalent basis) increased 3 percent to $371.2 million. - Noninterest revenue (before items determined to be noncore or nonrecurring) was $131.4 million, an increase of 1 percent from $130.4 million. - Noninterest expenses (before OREO transactions and items determined to be noncore or nonrecurring) of $291.2 million decreased 2 percent from $297.6 million. - The provision for credit losses was $26.5 million, compared with $25.2 million. Net charge-offs were .49 percent compared with .34 percent in the second quarter of 1995, as the result of higher losses in the commercial and consumer portfolios. - Return on average assets (ROA) was 1.62 percent compared with 1.33 percent, while the return on average common equity (ROE) was 19.38 percent compared with 15.84 percent. - Excluding the after-tax effect of noncore/nonrecurring items, ROA was 1.49 percent compared with 1.33 percent, and ROE was 17.70 percent compared with 15.95 percent. - The overhead ratio, excluding OREO and noncore/nonrecurring transactions, improved to 57.9 percent from 60.8 percent. 13 14 Earnings per share were $1.55 in 1996 compared with $1.23 for the first six months in 1995. Noncore/nonrecurring transactions contributed $.10 per share after tax in 1996. Noncore/nonrecurring revenues and expenses in 1995 effectively offset, with no earnings impact. For the first six months of 1996, net income was $240.0 million compared with $193.5 million for the first six months of 1995. ROA, adjusted to exclude noncore/nonrecurring transactions was 1.45 percent for the first six months of 1996 compared to 1.31 percent for the first six months of 1995, and the return on average common equity improved to 17.43 percent in the first half of 1996 from 15.81 percent in the comparable period of 1995. The table below presents U. S. Bancorp's operating income analysis for the second quarter and six month periods. A discussion of the major changes in each key component follows.
Second Quarter Ended Six Months Ended June 30, June 30, --------------------------- Percent --------------------------- Percent (In Thousands) 1996 1995 Change 1996 1995 Change ---------- ---------- --------- ---------- ---------- --------- Net interest income (1) $ 371,172 $ 359,105 3% $ 730,342 $ 716,950 2% Noninterest revenues-core (2) 131,406 130,382 1 262,277 251,149 4 Noninterest expenses-core (2) 291,170 297,609 (2) 569,100 601,254 (5) --------- --------- --------- --------- Operating income (1) 211,408 191,878 10 423,519 366,845 15 Provision for credit losses (26,510) (25,162) 5 (56,642) (48,735) 16 OREO transactions (128) (651) (80) (1,044) 175 N/M -------- -------- --------- --------- 184,770 166,065 11 365,833 318,285 15 Noncore/nonrecurring items: Gain on sale of operations and loans 25,778 4,634 25,634 5,107 Equity investment income (loss) 7,641 (1,801) 18,095 475 Gain on sale of securities available for sale 1,010 1,622 4,395 1,542 Other nonrecurring noninterest revenue items -- 4,743 -- 4,743 Merger and integration costs (9,798) (3,750) (18,178) (3,750) Business consolidation costs -- (4,000) -- (4,000) Other nonrecurring noninterest expense items (60) (1,654) (60) (4,410) --------- --------- --------- --------- Income before income taxes (1) 209,341 165,859 395,719 317,992 Less tax-equivalent adjustment included above 10,904 12,952 21,835 25,519 Provision for income taxes 71,375 54,186 133,908 98,936 --------- --------- --------- --------- Net income $ 127,062 $ 98,721 29% $ 239,976 $ 193,537 24% ========= ========= ===== ========= ========= ===
(1) Tax-equivalent basis. (2) Excludes noncore and nonrecurring items. N/M Not meaningful. For detailed information on the items presented as noncore or nonrecurring, refer to the respective discussions of "Noninterest Revenues" and "Noninterest Expenses" that follow. 14 15 NET INTEREST INCOME - TAX-EQUIVALENT BASIS Net interest income, the principal source of U. S. Bancorp's operating income, includes interest income and fees generated by interest-earning assets, primarily loans and securities portfolios, less interest expense on interest-bearing liabilities, primarily deposits, purchased funds and short- and long-term debt. Net interest income is affected by the volume and relative mix of both earning assets and interest-bearing and noninterest-bearing liabilities, and related interest yields and rates paid on these assets and liabilities. ANALYSIS OF NET INTEREST INCOME (TAX-EQUIVALENT BASIS)
Net Interest Interest Interest (In Millions) Income Expense Income --------- --------- -------- Second quarter 1995 as reported $ 608.8 $249.7 $359.1 Increase (decrease) due to: Changes in balances 30.3 11.1 19.2 Changes in rates (18.9) (11.8) (7.1) -------- ------ ------ Second quarter 1996 as reported $ 620.2 $249.0 $371.2 ======== ====== ====== Six months ended 1995 as reported $1,203.3 $486.3 $717.0 Increase (decrease) due to: Changes in balances 53.8 18.4 35.4 Changes in rates (30.9) (6.5) (24.4) Change due to one more day in 1996 4.8 2.5 2.3 -------- ------ ------ Six months ended 1996 as reported $1,231.0 $500.7 $730.3 ======== ====== ======
Second Quarter Ended June 30, 1996 Compared With Second Quarter Ended June 30, 1995 Net interest income on a tax-equivalent basis for the second quarter of 1996 was $371.2 million, an increase of $12.1 million, over the second quarter of 1995. The net interest margin in the second quarter of 1996 was 5.31 percent compared with 5.40 percent in the same quarter a year ago, and 5.19 percent in the first quarter of 1996. The spread between the yield on interest-earning assets and rates paid on interest-bearing liabilities decreased in the second quarter of 1996 compared with second quarter 1995 because the decrease in the yields on interest-earning assets exceeded the decrease in rates paid on interest-bearing liabilities. The increase in net interest income was mainly due to the favorable effect of volume changes. Total loans averaged $23.5 billion in the second quarter 1996, an increase of $1.5 billion, or 7 percent, compared with the second quarter a year ago, with growth in all reported categories of loans. Average total securities portfolios were $3.8 billion during the second quarter of 1996, a 10 percent decrease from $4.2 billion in the second quarter 1995. The decrease was primarily due to the proceeds on maturities of securities used to fund loan growth. Average noninterest-bearing deposits increased $447 million, or 9 percent, in the second quarter of 1996 compared with the second quarter of 1995. Average interest-bearing deposits in the second quarter of 1996 increased $1.3 billion, or 8 percent, over the same period in 1995 primarily due to increases in money market accounts, other time deposits and time deposits of $100,000 or more. Average short-term borrowings, comprised of federal funds purchased and security repurchase agreements, commercial paper and other short-term borrowings, decreased $513 million and average long-term debt increased $206 million in the second quarter of 1996 compared to the same period last year. In June 1996, U. S. Bancorp issued $200 million in subordinated debentures. 15 16 Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995 Net interest income on a tax-equivalent basis was $730.3 million, a $13.3 million increase over the first six months of 1995. The net interest margin in the first six months of 1996 was 5.26 percent compared with 5.41 percent in the first six months of 1995. The spread between the yield on interest-earning assets and rates paid on interest-bearing liabilities decreased in the first six months of 1996 compared with the same period last year mainly because the decrease in yields on interest-earning assets exceeded the decrease in rates paid on interest-bearing deposits. The increase in net interest income was mainly due to the effects of favorable volume changes. Total loans averaged $23.2 billion in the first six months of 1996, an increase of $1.4 billion, or 6 percent, compared with the same period a year ago. Average loan increases were primarily due to growth in commercial, real estate mortgage and real estate construction loans, and lease financing. Average total securities portfolios were $3.9 billion during the first six months of 1996, a 9 percent decrease from $4.3 billion in the first six months of 1995. The decrease is primarily due to the use of the proceeds on maturities of securities to fund loan growth. Average noninterest-bearing deposits increased $374 million, or 8 percent, in the first six months of 1996 compared with the first six months of 1995. Average interest-bearing deposits in the first half of 1996 increased $1.3 billion, or 8 percent, over the same period in 1995, primarily due to increases in money market accounts, other time deposits and time deposits of $100,000 or more. Average short-term borrowings decreased $682 million while average long-term debt increased $228 million in the first six months of 1996 compared to the same period last year.
Second Quarter Ended Six Months Ended NET INTEREST MARGIN ANALYSIS June 30, June 30, -------------------- -------------------- (Tax-equivalent Basis) 1996 1995 1996 1995 -------- -------- -------- -------- Average rate earned on interest-earning assets 8.88% 9.16% 8.86% 9.08% Average rate paid on interest-bearing liabilities 4.46 4.65 4.49 4.53 ---- ---- ---- ---- Rate spread 4.42% 4.51% 4.37% 4.55% ==== ==== ==== ==== Net interest margin 5.31% 5.40% 5.26% 5.41% ==== ==== ==== ====
16 17 NONINTEREST REVENUES Noninterest revenues (excluding revenues associated with noncore/ nonrecurring activities identified below) increased $1.0 million, or 1 percent, in the second quarter of 1996 compared with the second quarter of 1995. The principal components of noninterest revenues are shown in the table below.
Second Quarter Ended Six Months Ended June 30, June 30, ------------------------- Percent ------------------------- Percent (In Thousands) 1996 1995 Change 1996 1995 Change ---------- ---------- --------- ---------- ---------- --------- NONINTEREST REVENUES: Service charges on deposit accounts $ 48,099 $ 47,989 --% $ 95,062 $ 96,080 (1)% Bank card revenue, net 14,703 18,718 (21) 33,087 36,268 (9) Trust and investment management 18,918 17,853 6 36,105 33,760 7 Exchange fees 10,541 11,020 (4) 20,248 21,362 (5) Insurance revenue 6,685 5,773 16 11,820 10,847 9 ATM revenue 5,156 5,431 (5) 10,500 10,432 1 Brokerage and other commissions 4,524 3,047 48 8,761 5,776 52 Trading account 4,769 3,784 26 7,433 8,548 (13) Mortgage banking income, net 4,952 3,769 31 13,299 6,367 109 Other revenue 13,059 12,998 -- 25,962 21,709 20 --------- --------- --------- -------- 131,406 130,382 1 262,277 251,149 4 --------- --------- --------- -------- NONCORE/NONRECURRING ITEMS: Gain on sale of operations and loans 25,778 4,634 25,634 5,107 Equity investment income (loss) 7,641 (1,801) 18,095 475 Gain on sale of securities available for sale 1,010 1,622 4,395 1,542 Other noncore/nonrecurring noninterest revenue items -- 4,743 -- 4,743 --------- --------- --------- -------- Total noninterest revenues $165,835 $139,580 19% $310,401 $263,016 18% ========= ========= ========= ========= ========= ===
Service charges for the second quarter and first six months of 1996 were relatively unchanged compared with the same periods in 1995. The decline in bankcard revenues in 1996 resulted from the September 1995 sale of an interest in the merchant processing service business and the allocation of the merchant contract base to a co-owned business alliance. Certain expenses also declined as the result of this transaction, as discussed in the analysis of noninterest expense below. Trust and investment management fees, insurance revenues and brokerage and other commissions have increased in the second quarter and first six months of 1996 compared to the same periods in 1995 due mainly to increased emphasis on fee-based sources of revenue and the resultant increases in sales volumes of related products and services. Funds under management in Qualivest Funds, U. S. Bancorp's proprietary mutual funds, grew 25 percent in the first six months of 1996 from year-end 1995. 17 18 Mortgage banking income increased in the second quarter and first six months of 1996 as compared to the same periods in 1995, and was due primarily to a higher level of mortgage loan originations and related mortgage banking activities. In addition, the implementation of Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," resulted in the recognition of approximately $2.4 million in income related to originated mortgage servicing rights in 1996. Included in other revenue in the table above for the first six months of 1996 is $3.2 million of servicing income attributable to the portfolio of affinity credit card receivables sold in the second quarter of 1995 under an interim servicing agreement. In 1996, the gain on sale of operations and loans consisted primarily of a $28.8 million gain on sale of branches divested in May 1996 in conjunction with the West One Bancorp (West One) acquisition. Also included in this line item was $3.0 million of net losses on credit card portfolio sales. The 1995 periods included primarily a gain on sale of affinity credit card portfolios of $4.2 million and a $500 thousand branch sale gain. Equity investment income is mainly derived from U. S. Bancorp's investment as a limited partner in several limited partnerships and, to a lesser degree, in venture capital investments. U.S. Bancorp has no control over investment sales activities by the general partners. U. S. Bancorp recognized gains of $13.0 million in the first six months of 1996, and $4.9 million in the second quarter of 1996, related to sales of limited partnership investments by the general partners. Gains of $4.5 million in the first six months of 1996 and $2.2 million in the second quarter of 1996 were recognized on disposition of venture capital investments. Other noncore/nonrecurring revenue items in 1995 included a $5.1 million gain on sale of a previously occupied bank headquarters building, a $1.7 million gain on sale of mortgage loan servicing rights, and $2.0 million of losses related to U. S. Bancorp's import/export financing subsidiary that was liquidated in 1995. The available-for-sale securities gains in the first six months of 1996 reflected primarily the sale of U.S. Treasury and mortgage-backed securities, with subsequent reinvestment of most of the proceeds in additional available-for-sale securities. 18 19 NONINTEREST EXPENSES Noninterest expenses, before noncore/nonrecurring items, decreased 2 percent in the second quarter of 1996 compared with the second quarter of 1995. Excluding the impact of the CBI acquisition, noninterest expenses declined 3 percent in the second quarter of 1996 compared with the second quarter of 1995, and 6 percent in the first six months of 1996 compared with the prior period. The principal components of noninterest expense are shown in the following table.
Second Quarter Ended Six Months Ended June 30, June 30, ------------------------ Percent ------------------------- Percent (In Thousands) 1996 1995 Change 1996 1995 Change -------- -------- --------- -------- -------- --------- NONINTEREST EXPENSES: Employee compensation and benefits $159,126 $146,171 9% $310,097 $299,016 4% Net occupancy expense 19,038 21,286 (11) 39,727 42,518 (7) Equipment rentals, depreciation and maintenance 30,125 33,298 (10) 60,781 64,732 (6) Stationery, supplies and postage 15,729 15,436 2 30,549 31,165 (2) Regulatory agency fees 2,846 13,538 (79) 5,362 27,287 (80) Advertising and marketing 8,081 9,522 (15) 16,148 18,317 (12) Telecommunications 8,331 8,591 (3) 16,120 16,713 (4) Other operating expenses: Amortization of goodwill and core deposit intangibles 4,587 3,898 18 8,014 7,810 3 Contract personnel 3,920 2,650 48 8,531 4,998 71 Other taxes and licenses 4,017 3,919 3 8,103 7,789 4 Legal and accounting 2,405 3,217 (25) 4,927 6,559 (25) Travel 3,641 3,273 11 6,052 6,046 -- All other 29,324 32,810 (11) 54,689 68,304 (20) --------- --------- --------- -------- 291,170 297,609 (2) 569,100 601,254 (5) NONCORE/NONRECURRING EXPENSE ITEMS: OREO transactions 128 651 1,044 (175) Merger and integration costs 9,798 3,750 18,178 3,750 Business consolidation costs -- 4,000 -- 4,000 Other noncore/nonrecurring noninterest expense items 60 1,654 60 4,410 --------- --------- --------- --------- Total noninterest expenses $301,156 $307,664 (2)% $588,382 $613,239 (4)% ========= ========= == ========= ========= ==
Several categories of expenses have been significantly affected by the cost savings achieved as the result of the West One merger and other factors. Net occupancy and equipment related expenses have been reduced reflecting back office and branch consolidations. The decrease in legal and accounting and the expense category all other was also reflective of the merger-related integration efforts and business consolidations. Regulatory agency fees were down 80 percent in the first six months of 1996 and 79 percent in the second quarter of 1996 compared to the same periods in 1995 due to the reduction in FDIC deposit insurance premiums. The rate assessed for well-capitalized banks decreased from $.23 to $.04 of FDIC insured deposits at June 1, 1995, and the rate was zero for the second quarter of 1996 for deposits insured by the Bank Insurance Fund. 19 20 Amortization of goodwill and core deposit intangibles increased $204 thousand in the first six months of 1996 and $689 thousand in the second quarter of 1996 compared with the same periods in 1995, as a result of the goodwill and core deposit intangible assets related to the CBI acquisition. In subsequent periods, the quarterly amortization of CBI intangibles will approximate $3.8 million. The acquisition of CBI, accounted for as a purchase in June 1996, added $1.6 million to employee compensation and benefits in the second quarter of 1996. The following discussion of employee compensation and benefits excludes the impact of CBI. Employee compensation, composed of salaries and incentive payments, increased $8.7 million in the second quarter of 1996 over 1995 and increased $7.8 million in the first six months of 1996 compared with the comparable prior period. Salaries expense decreased $3.6 million in the first six months of 1996 compared with 1995 due to reductions in the number of employees as the consolidation of West One operations and branches continued. Incentive compensation increased $7.6 million in the first six months of 1996 compared with 1995, mainly due to higher levels of payments to branch personnel related to retail deposit origination and retention programs. Employee benefits increased $1.4 million in the first six months of 1996 compared with the same period of 1995. Increases in pension and 401(k) plan expenses were partially offset by a $4.8 million decrease in medical plan expenses for the first six months of 1996 compared to 1995. Contract personnel expenses increased in the first six months and second quarter of 1996 compared with the same periods in 1995. U. S. Bancorp uses contract personnel to provide flexibility in addressing consolidation and merger and integration-related activities. The expense category all other decreased $3.5 million in the second quarter of 1996 compared with the second quarter of 1995, and decreased $13.6 million in the first six months of 1996 compared with the prior year. On a year-to-date basis, expenses related to the merchant processing service business sold in 1995 decreased $1.9 million. Bankcard related expenses declined $3.6 million as a result of the 1995 affinity card portfolio sale. In addition, consulting expenses decreased $2.9 million as certain merger integration activity has declined. The overhead ratio (defined as noninterest expenses as a percentage of tax-equivalent net interest income and noninterest revenues) was 56.1 percent in the second quarter of 1996 compared with 61.7 percent in the second quarter of 1995. Excluding other real estate owned transactions and noncore/ nonrecurring items, the adjusted overhead ratio was 57.9 percent in the second quarter of 1996, compared with 60.8 percent in the second quarter of 1995. In connection with the West One merger in the fourth quarter of 1995, U. S. Bancorp recorded a pre-tax merger and integration cost provision of $98.9 million. An additional $18.2 million of merger-related expenses were incurred during the first six months of 1996. The merger and integration activity is summarized in the table below.
Severance, Facilities Retention and and Other Employee Account Professional (In Millions) Related Costs Conversions Fees Other Total -------------- ----------- ------------ ------- ------- Provision for merger and integration costs, 1995 $29.4 $39.6 $13.9 $16.0 $98.9 Utilization for the period Cash -- .2 10.6 .5 11.3 Noncash -- -- -- -- -- ----- ----- ----- ----- ----- Total -- .2 10.6 .5 11.3 ----- ----- ----- ----- ----- Balance, December 31, 1995 29.4 39.4 3.3 15.5 87.6 Provision for merger and integration costs, 1996 13.2 1.4 .7 2.9 18.2 Utilization for the period Cash 19.5 8.8 3.4 4.4 36.1 Noncash -- 7.4 -- 8.1 15.5 ----- ----- ----- ----- ----- Total 19.5 16.2 3.4 12.5 51.6 ----- ----- ----- ----- ----- Balance, June 30, 1996 $23.1 $24.6 $ .6 $ 5.9 $54.2 ===== ===== ===== ===== =====
20 21 INCOME TAXES The effective tax rates for the six months ended June 30, 1996 and 1995 were 35.8 percent and 33.8 percent, respectively. The increase in the effective tax rate in 1996 was mainly due to the higher level of earnings leading to a corresponding decrease in the proportion of tax-exempt income compared with 1995. FINANCIAL CONDITION SECURITIES PORTFOLIOS Securities available for sale totaled $3.1 billion at June 30, 1996 compared with $3.3 billion at December 31, 1995 and $2.2 billion at June 30, 1995. Securities held to maturity totaled $854 million at June 30, 1996, compared with $865 million at December 31, 1995 and $1.9 billion at June 30, 1995. Securities in both portfolios may decline moderately in the future as the cash received from maturities may be used to fund loan growth. The year-over-year changes in the securities portfolio balances mainly reflect the impact of the reclassification of $800 million of held-to-maturity securities to available-for-sale securities in the fourth quarter of 1995. LOAN PORTFOLIO Loans outstanding were $23.9 billion, $22.8 billion and $22.3 billion at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. Loan balances at June 30, 1996 included $1.0 billion of loans related to the CBI purchase. Average loans increased at an annualized rate of 9 percent from $22.9 billion in the first quarter of 1996 to $23.5 billion in the second quarter of 1996. Excluding the impact of the CBI purchase and loans sold in conjunction with divested branches, annualized loan growth from the first quarter of 1996 to the second quarter of 1996 was 7 percent. Loan growth was particularly strong in commercial and real estate construction loans and lease financing receivables. LIQUIDITY Liquidity is the ability to raise adequate and reasonably priced funds, including deposits, purchased funds, varying maturities of notes, long-term debt and equity capital, and is determined based on the mix and maturities of a assets and liabilities. Core deposits, defined as deposits other than time deposits of $100,000 or more, are U. S. Bancorp's primary source of funding and provide a sizable source of relatively stable, low-cost funds. Average core deposits increased to $21.0 billion in the second quarter of 1996, an increase of $270 million from the first quarter of 1996. Other sources of liquidity include purchased funds, comprised of time deposits over $100,000, federal funds purchased and security repurchase agreements, commercial paper and short-term borrowings. Average purchased funds in the first and second quarters of 1996 were $5.4 billion. A portion of the remaining funding of average total assets came from long-term debt, which averaged $1.4 billion in the first and second quarters of 1996. U. S. Bancorp's liquidity is enhanced by its accessibility to a diversity of national market sources of funds. At June 30, 1996, U. S. Bancorp had available a total of $1.2 billion in uncommitted borrowing capacities for medium-term notes, preferred stock and a general liquidity line of credit. U.S. Bancorp also issued $200 million in subordinated debentures June 13, 1996, with a maturity date of June 1, 2026. Registered holders may elect to redeem all or a portion of the debentures on June 1, 2006. 21 22 The following table summarizes U. S. Bancorp's ratings by major statistical rating agencies at June 30, 1996; such ratings are subject to revision or withdrawal at anytime.
Standard Duff Thomson & Poor's Moody's & Phelps BankWatch -------- ------- -------- --------- Commercial paper .......................... A-1 P-1 DUFF1+ TBW-1 Senior debt ............................... A A2 AA- A+ Subordinated debt ......................... A- A3 A+ A Preferred stock ........................... BBB+ a2 A A-
Subject to market conditions and other factors, it is anticipated that U. S. Bancorp will repurchase 9.6 million shares of its common stock, approximately equal to the shares issued to stockholders of CBI, and will obtain the funds for the purchase of such shares from a variety of sources, including issuance of debt, asset maturities and sales, and other sources of liquidity. As of June 30, 1996, approximately 60 percent of the shares had been repurchased, with the purchase program expected to be completed in the third quarter of 1996. PROVISION AND ALLOWANCE FOR CREDIT LOSSES The provision for credit losses was $26.5 million for the second quarter of 1996 and $56.6 million for the first six months of 1996. This compares with $25.2 million for the second quarter of 1995 and $48.7 million for the first six months of 1995. The higher provision reflected the growth in the loan portfolio, the increase in the ratio of the allowance for credit losses to 1.90 percent of loans from 1.77 percent at June 30, 1995, and a higher level of net charge-offs in 1996. The provision for credit losses in the second quarter of 1996 also includes approximately $5.2 million related to the merger with CBI, the integration of the combined loan portfolios and the impact of the reduction in loans related to branch divestitures. Management performs a quarterly analysis to establish the appropriate level of the allowance, taking into consideration such factors as loan loss experience, an evaluation of potential losses in the portfolio, credit concentrations and trends in portfolio volume, maturity, delinquencies and nonaccruals, risks associated with standby letters of credit which guarantee the debt of others and other off-balance sheet commitments, and prevailing and anticipated economic conditions. U. S. Bancorp closely monitors credit risk in its loan portfolio and believes that its credit approval and review processes are effective and operating in accordance with sound banking policy, and that the allowance for credit losses at June 30, 1996 was adequate to absorb potential credit losses inherent in loans, leases, loan commitments and standby letters of credit outstanding at that date. U. S. Bancorp continues to evaluate its loan portfolio for impairment as defined by SFAS No. 114, "Accounting for Creditors for Impairment of a Loan," as amended. The total recorded investment in impaired loans was $81.2 million at June 30, 1996, compared with $104.0 million at December 31, 1995. Any associated valuation allowance was not material. 22 23 The table below presents the change in the allowance for credit losses for the periods indicated. ALLOWANCE FOR CREDIT LOSSES
Six Months Six Months Ended Year Ended Ended June 30, December 31, June 30, (In Thousands) 1996 1995 1995 ------------ ------------- ------------- Loans (net of unearned income) $23,941,010 $22,784,788 $22,335,064 Daily average loans (net of unearned income) $23,204,669 $22,162,751 $21,848,388 Balance of allowance for credit losses at beginning of period $ 434,508 $ 387,559 $ 387,559 Acquisitions (dispositions) 14,855 (3,137) (3,219) Charge-offs Commercial 22,175 25,912 11,148 Lease financing 259 716 80 Real estate construction 301 538 257 Real estate mortgage 945 6,829 6,157 Consumer 22,679 44,804 21,487 Bank card 21,718 38,094 19,967 ------------ ------------ ------------ 68,077 116,893 59,096 ------------ ------------ ------------ Recoveries Commercial 6,369 17,710 8,829 Lease financing 242 593 176 Real estate construction 157 1,955 1,662 Real estate mortgage 807 2,969 1,536 Consumer 6,680 13,469 6,749 Bank card 2,952 6,190 3,381 ------------ ------------ ------------ 17,207 42,886 22,333 ------------ ------------ ------------ Net charge-offs 50,870 74,007 36,763 Provision for credit losses 56,642 124,093 48,735 ------------ ------------ ------------ Balance of allowance for credit losses at end of period $ 455,135 $ 434,508 $ 396,312 ============ ============ ============ Net charge-offs to average loans and leases .44% .33% .34% Allowance for credit losses to period-end loans and leases 1.90% 1.91% 1.77% Allowance as a % of nonperforming loans 414% 336% 218%
ASSET QUALITY As illustrated in the table below, nonperforming assets as a percentage of loans and foreclosed assets was .73 percent at June 30, 1996 and December 31, 1995, compared to .95 percent at June 30, 1995. Nonperforming assets totaled $176 million at June 30, 1996, compared to $167 million at December 31, 1995 and $213 million a year ago. While the overall credit quality of the loan portfolio has improved, the total nonaccrual balance may fluctuate from quarter to quarter. U. S. Bancorp anticipates normal fluctuations in the balance of nonaccrual loans as it increases its lending activity and resolves loans currently in the nonaccrual portfolio. Nonaccrual loans were reduced by principal payments, charge-offs and other transactions totaling $92 million, offsetting new loans placed on nonaccrual during the first six months of 1996 totaling $67 million and nonaccrual loans added in the CBI acquisition of $11 million, for a net decrease of $14 million. The increase in OREO at June 30, 1996 compared with year-end 1995 was due primarily to repossession of commercial real estate properties located in California previously reported as nonaccrual loans. Total bank properties pending disposition at June 30, 1996 increased due to the consolidation of branches in Oregon and Washington related to the West One acquisition. The majority of the properties have sales transactions pending. 23 24 In addition to the loans classified as nonperforming, U. S. Bancorp has other loans which it has internally classified, largely due to weakening financial strength of the borrowers or concern about specific industries. These loans, although currently performing in accordance with contractual terms, are monitored closely by management and have been considered in establishing the level of the allowance for credit losses. U. S. Bancorp's lending procedures and loan portfolio, including internally classified loans, are examined by regulatory agencies as part of their supervisory activities. The following table summarizes U. S. Bancorp's nonperforming assets and past due loans. Past due loans are defined as loans contractually past due as to interest or principal 90 days or more.
June 30, December 31, June 30, (In Thousands) 1996 1995 1995 ---------- ---------- ---------- Nonaccrual loans $104,706 $118,436 $170,576 Restructured loans 5,305 10,996 11,397 Other real estate and equipment owned 47,465 32,679 29,664 -------- -------- -------- 157,476 162,111 211,637 Bank properties pending disposition (included in other assets) 18,462 4,533 1,634 -------- -------- -------- Total nonperforming assets $175,938 $166,644 $213,271 ======== ======== ======== Accruing loans past due 90 days or more $ 36,089 $ 29,968 $ 16,389 ======== ======== ======== Total nonaccrual and restructured loans as a percentage of total loans .46% .57% .81% Total nonperforming assets as a percentage of loans and foreclosed assets .73% .73% .95%
24 25 CAPITAL AND DIVIDENDS The federal bank regulatory agencies have jointly issued rules which implement a system of prompt corrective action for financial institutions required by FDICIA. The rules define the relevant capital levels for the five categories, ranging from "well-capitalized" to "critically undercapitalized". An insured depository institution is generally deemed to be "well-capitalized" if it has a total risk-based capital ratio of at least 10 percent, a Tier 1 risk-based capital ratio of at least six percent, and a leverage ratio of at least five percent. Risk-based capital guidelines issued by the Federal Reserve Board establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures for bank holding companies. The guidelines require a minimum total risk-based capital ratio of eight percent, with half of the total in the form of Tier 1 capital. U. S. Bancorp's Tier 1 capital is comprised primarily of common equity and perpetual preferred stock, less goodwill and certain other intangibles, and excludes the equity impact of adjusting available for sale securities to market value. Total capital also includes subordinated debt and a portion of the allowance for credit losses, as defined. The risk-based capital rules have been supplemented by a leverage ratio, defined as Tier 1 capital to adjusted quarterly average total assets. Banking organizations other than those which are most highly rated are expected to maintain ratios at least 100 to 200 basis points above the minimum three percent level, depending on their financial condition. Each subsidiary bank is subjected to capital requirements similar to the requirements for bank holding companies. At June 30, 1996, all of U. S. Bancorp's banking subsidiaries met the risk-based capital ratio and leverage ratio requirements for "well-capitalized" banks. The banking subsidiaries' ratios are expected to be maintained at such levels by the retention of earnings and, if necessary, the issuance of additional capital-qualifying securities. The risk-based capital and leverage ratios for U. S. Bancorp and its significant bank subsidiaries at June 30, 1996 are presented in the table below:
Risk-Based Capital Ratios ---------------------- Total Total Leverage (In Millions) Assets Tier 1 Capital Ratio -------- ------ --------- -------- U.S. Bancorp (Consolidated) $32,789 8.06% 11.88% 8.07% Bank Subsidiaries U.S. Bank of Oregon 13,434 7.33 11.16 8.16 U.S. Bank of Washington 9,278 7.51 11.45 7.26 West One Bank, Idaho 4,079 11.14 12.40 8.17 U.S. Bank of California 1,917 10.48 12.77 8.08 U.S. Bank of Nevada 1,052 9.38 11.95 6.89 U.S. Savings Bank of Washington 771 18.85 20.11 9.06 U.S. Bank of Utah 767 10.45 11.70 8.37
At June 30, 1996, common shareholders' equity was $2.7 billion. For the second quarter of 1996, average common equity to average total assets increased to 8.17 percent from 8.11 percent in the second quarter of 1995. The quarterly dividend rates were $.28 and $.25 for the second quarters of 1996 and 1995, respectively. FORWARD-LOOKING INFORMATION Statements appearing in this report which are not historical in nature, including the discussions of the effects of recent mergers and current marketing efforts and the adequacy of U. S. Bancorp's capital resources, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual future results to differ materially. Such risks and uncertainties with respect to U. S. Bancorp include those related to the economic environment, particularly in the region in which U. S. Bancorp operates, competitive products and pricing, fiscal and monetary policies of the U.S. government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management and asset/liability management, the financial and securities markets, and the availability of and costs associated with sources of liquidity. 25 26 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) The exhibits filed herewith are listed in the Exhibit Index on page 28 of this report. (b) A report on Form 8-K was filed on June 6, 1996, to report the consummation of the merger of California Bancshares, Inc. with and into U. S. Bancorp on June 6, 1996. 26 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. U. S. BANCORP (Registrant) Date: August 22, 1996 By:/s/ STEVEN P. ERWIN -------------------------------- Steven P. Erwin Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 27 EX-12.2 2 U. S. BANCORP AND SUBSIDIARIES - CAPITAL RATIOS 1 EXHIBIT 12.2 U.S. BANCORP AND SUBSIDIARIES CAPITAL RATIOS
June 30, --------------------------------- (In Thousands) 1996 1995 ------------ ------------ Total assets as reported $32,789,437 $30,505,971 Shareholders' equity as reported 2,884,501 2,585,330 Tier 1 capital 2,508,805 2,376,746 Total capital 3,698,703 3,067,759 Weighted risk assets 31,126,640 27,028,298 Adjusted quarterly average assets 31,104,331 29,616,852 Ratios Tier 1 capital to weighted risk assets 8.06% 8.79% Total capital to weighted risk assets 11.88% 11.35% Tier 1 capital to adjusted average assets (leverage ratio) 8.07% 8.02%
30 EX-27 3 FINANCIAL DATA SCHEDULE
9 1000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 2104850 1246 619578 124822 3064160 853650 859864 23941010 455135 32789437 23897595 3488239 1014818 1504284 0 150000 778103 1956398 32789437 1069328 115606 24307 1209241 377154 500734 708507 56642 4395 588382 373884 239976 0 0 239976 1.55 1.55 5.26 104706 36089 5305 0 434508 68077 17207 455135 455135 0 0
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