<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
COMMISSION FILE NO. 0-3505
U. S. BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Oregon 93-0571730
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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 October 31, 1995:
97,498,548 shares.
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<PAGE> 2
U. S. BANCORP
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . 12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 31
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 31
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31, September 30,
In Thousands 1995 1994 1994
- ------------ ---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,483,046 $ 1,488,743 $ 1,434,518
Interest-bearing deposits with banks 1,113 1,461 1,631
Federal funds sold and security resell agreements 172,769 429,366 384,195
Other short-term investments 8,606 9,287 10,145
Trading account securities 172,943 137,194 173,081
Loans held for sale 95,910 148,179 99,326
Securities available for sale, at fair value (amortized cost:
$1,213,117, $1,411,764 and $1,369,982, respectively) 1,236,836 1,369,437 1,346,262
Securities held to maturity, at amortized cost (fair value:
$1,175,196, $1,342,638 and $1,499,411, respectively) 1,173,697 1,404,835 1,534,272
Loans and lease financing, net of unearned income
Commercial 7,936,478 7,384,593 7,330,303
Foreign 57,143 49,834 79,136
Real estate construction 743,050 667,177 669,211
Real estate mortgage 3,038,151 2,946,541 2,860,591
Consumer 3,436,839 3,737,973 3,639,458
Lease financing 903,237 819,599 766,757
----------- ----------- -----------
Total loans and lease financing 16,114,898 15,605,717 15,345,456
Allowance for credit losses (318,261) (305,802) (298,683)
----------- ----------- -----------
Net loans and lease financing 15,796,637 15,299,915 15,046,773
Premises, furniture and equipment 514,445 544,701 542,982
Other real estate and equipment owned 34,305 22,676 26,002
Customers' liability on acceptances 291,173 225,229 226,657
Other assets 619,356 735,386 683,385
----------- ----------- -----------
$21,600,836 $21,816,409 $21,509,229
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 4
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
In Thousands 1995 1994 1994
- ------------ ---- ---- ----
<S> <C> <C> <C>
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 4,071,392 $ 4,021,659 $ 3,936,646
NOW accounts and interest checking 1,912,780 2,071,293 2,156,201
Savings 1,262,701 1,612,356 1,760,202
Money market deposit accounts 3,912,379 3,176,920 3,121,751
Other time deposits 3,522,571 3,514,942 3,748,388
Time - $100,000 or more 858,128 651,196 481,513
----------- ----------- -----------
Total deposits 15,539,951 15,048,366 15,204,701
Federal funds purchased and security
repurchase agreements 1,862,465 2,783,503 2,110,484
Commercial paper 169,205 171,454 179,559
Other short-term borrowings 483,282 393,587 395,260
Long-term debt 821,760 994,870 1,179,173
Accrued income taxes 90,337 47,245 59,404
Acceptances outstanding 291,173 225,229 226,657
Other liabilities 391,284 374,870 379,729
----------- ----------- -----------
Total liabilities 19,649,457 20,039,124 19,734,967
SHAREHOLDERS' EQUITY
Preferred stock 150,000 150,000 150,000
Common stock 491,694 490,690 495,658
Capital surplus 353,008 350,612 369,607
Retained earnings 943,411 811,808 774,157
Net unrealized gain (loss) on securities
available for sale, net of tax 13,266 (25,825) (15,160)
----------- ----------- -----------
Total shareholders' equity 1,951,379 1,777,285 1,774,262
----------- ----------- -----------
$21,600,836 $21,816,409 $21,509,229
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
In Thousands, ------------------- -----------------------
Except Per Share Data 1995 1994 1995 1994
- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $379,906 $325,657 $1,113,403 $ 912,410
Securities held to maturity 18,790 22,838 60,515 72,462
Securities available for sale 15,821 20,281 50,097 61,666
Loans held for sale 2,025 3,810 8,113 22,828
Trading account securities 2,367 2,200 7,089 6,617
Other interest income 1,797 3,128 6,161 8,375
-------- -------- ---------- ----------
Total interest income 420,706 377,914 1,245,378 1,084,358
-------- -------- ---------- ----------
INTEREST EXPENSE
Deposits 115,243 86,719 332,265 250,197
Short-term borrowings 36,611 26,657 120,885 68,245
Long-term debt 14,889 17,011 45,667 53,473
-------- -------- ---------- ----------
Total interest expense 166,743 130,387 498,817 371,915
-------- -------- ---------- ----------
NET INTEREST INCOME 253,963 247,527 746,561 712,443
Provision for credit losses 21,156 34,629 63,421 79,930
-------- -------- ---------- ----------
Net interest income after
provision for credit losses 232,807 212,898 683,140 632,513
NONINTEREST REVENUES
Service charges on deposit accounts 36,656 38,235 112,279 113,757
Bank card revenue, net 16,310 15,668 45,924 44,756
Trust and investment management 12,323 12,032 38,586 37,765
Exchange fees 7,478 7,466 22,707 20,970
Insurance revenue 3,820 4,408 11,406 15,022
Other operating revenue 22,332 15,884 70,516 57,640
Mortgage banking income, net 1,610 3,352 5,095 17,473
Equity investment income (loss) 2,795 (2,995) 3,270 (4,425)
Gain (loss) on sale of securities
available for sale 617 (8,507) 2,307 (8,143)
Gain on sale of operations - 50,846 473 50,846
Credit reporting revenue - 3,902 - 13,212
-------- -------- ---------- -----------
Total noninterest revenues $103,941 $140,291 $ 312,563 $ 358,873
-------- -------- ---------- -----------
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(CONTINUED)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
In Thousands, ---------------------- ------------------------
Except Per Share Data 1995 1994 1995 1994
- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
NONINTEREST EXPENSE
Employee compensation and benefits $103,667 $116,457 $312,151 $367,811
Net occupancy expense 15,907 17,101 47,800 49,622
Equipment rentals, depreciation
and maintenance 22,772 25,037 71,100 75,364
Stationery, supplies and postage 11,047 10,441 33,495 32,064
Regulatory agency fees 3,252 9,748 22,598 29,880
Telecommunications 6,653 7,414 19,406 21,359
Amortization of intangibles 4,090 6,205 13,767 17,166
Other operating expense 37,813 73,355 126,178 177,539
Merger-related costs and business
consolidation expenses 2,989 - 9,444 -
Restructuring charge - - - 100,000
-------- -------- -------- --------
Total noninterest expense 208,190 265,758 655,939 870,805
-------- -------- -------- --------
Income before income taxes 128,558 87,431 339,764 120,581
Provision for income taxes 47,371 24,693 122,056 34,968
-------- -------- -------- --------
Net income $ 81,187 $ 62,738 $217,708 $ 85,613
======== ======== ======== ========
Net income applicable to
common shareholders $ 78,140 $ 59,691 $208,567 $ 76,472
Per common share:
Net income $.79 $.60 $2.12 $.77
Cash dividends declared .28 .25 .78 .69
Average number of common
shares outstanding 98,280 99,624 98,213 99,763
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 7
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
In Thousands 1995 1994
- ------------ ---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 217,708 $ 85,613
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and accretion 66,705 82,334
Provision for credit losses 63,421 79,930
Noncash portion of restructuring charge - 85,916
Net gain on sales of operations (473) (50,846)
Equity investment (income) loss (3,270) 3,822
(Gain) loss on sales of securities available for sale (2,307) 8,143
Gain on sales of trading securities (12,577) (2,755)
Net gain on sales of loans and property (22,953) (20,175)
Net gain on sales of mortgage loan servicing rights - (563)
Change in loans held for sale 54,022 579,317
Change in trading account securities (21,828) 21,397
Change in deferred loan fees, net of amortization 4,434 5,449
Change in accrued interest receivable (6,024) (84)
Change in accrued interest payable 19,931 1,078
Change in other assets and liabilities, net 138,420 (51,637)
-------- -----------
Net cash provided by operating activities 495,209 826,939
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of interest-earning
deposits of nonbank subsidiaries 9,918 7,980
Purchase of interest-earning deposits by nonbank subsidiaries (10,026) (8,827)
Net decrease in investments in interest-
earning deposits by banking subsidiaries 1,778 1,478
Proceeds from maturities of securities held to maturity 229,742 602,014
Purchase of securities held to maturity - (360,985)
Proceeds from maturities of securities available for sale 173,983 182,464
Purchase of securities available for sale (648,480) (247,797)
Proceeds from sale of securities available for sale 664,227 280,132
Proceeds from sales of equity investments 3,851 110
Purchase of equity investments (25,659) (16,819)
Principal collected on loans by nonbank subsidiaries 753,894 632,639
Loans made to customers by nonbank subsidiaries (895,887) (647,578)
Net increase in loans by banking subsidiaries (463,528) (1,155,977)
Proceeds from sales of loans 14,660 31,669
Proceeds from sales of premises and equipment 28,767 12,520
Purchase of premises and equipment (45,038) (85,411)
Proceeds from sale of foreclosed assets 31,431 30,216
Proceeds from sale of mortgage loan servicing rights - 24,592
Purchase of mortgage loan servicing rights - (1,044)
Acquisitions/dispositions, net of cash and cash equivalents 11,389 152,661
-------- -----------
Net cash used in investing activities (164,978) (559,963)
-------- -----------
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 8
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
In Thousands 1995 1994
- ------------ ---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 491,780 $ (304,690)
Net change in short-term borrowings (980,982) 279,882
Proceeds from issuance of long-term debt 216,982 386,715
Repayment of long-term debt (240,200) (259,311)
Proceeds from issuance of stock 5,049 9,745
Common stock repurchased (2,351) (31,507)
Dividends paid (82,803) (74,979)
---------- ----------
Net cash provided by (used in) financing activities (592,525) 5,855
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (262,294) 272,831
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,918,109 1,545,882
---------- ----------
CASH AND CASH EQUIVALENTS AT PERIOD END $1,655,815 $1,818,713
========== ==========
Supplemental disclosures:
Cash paid during the period for:
Interest $ 518,748 $ 409,985
Income taxes 97,662 66,186
Non-cash investing activities:
Transfer from loans to loans held for sale 240,169 95,633
Transfer of investments from available for sale to held to maturity - 41,895
Fair value adjustment to securities available for sale 66,010 53,755
Income tax effect related to fair value adjustment 23,786 20,470
Transfer from loans to other real estate owned 46,029 19,658
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 9
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
In Thousands 1995 1994
- ------------ ---- ----
<S> <C> <C>
Shareholders' equity at beginning of period $1,777,285 $1,818,195
Net income 217,708 85,613
Stock options exercised, dividends reinvested and
other transactions 5,399 13,209
Common stock repurchased (2,351) (31,507)
Preferred dividends declared (9,140) (9,140)
Common dividends declared (76,613) (68,823)
Adjustment of available for sale securities to market
value, net of deferred taxes 39,091 (33,285)
---------- ----------
Shareholders' equity at end of period $1,951,379 $1,774,262
========== ==========
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
1. Principles of Consolidation
The consolidated financial statements of U. S. Bancorp include the
accounts of U. S. Bancorp and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. The foregoing financial
statements are unaudited; however, in the opinion of management, all adjustments
(comprised of normal recurring accruals) necessary for a fair presentation of
the interim financial statements have been included. A summary of U. S.
Bancorp's significant accounting policies is set forth in Note 1 to the
Consolidated Financial Statements in U. S. Bancorp's 1994 Form 10-K.
The major banking subsidiaries of U. S. Bancorp include United States
National Bank of Oregon, U. S. Bank of Washington, N.A., U. S. Bank of
California, U. S. Bank of Nevada and U. S. Bank of Idaho, N.A.
2. Commitments and Contingent Liabilities
In the normal course of business there are various commitments and
contingent liabilities to extend credit and guarantees, which are not reflected
in the financial statements. Management does not anticipate any material loss as
a result of these transactions. Such commitments and contingent liabilities
include commitments to extend credit of $11.5 billion , $14.0 billion and $12.9
billion and standby letters of credit of $886 million, $676 million and $689
million at September 30, 1995, December 31, 1994 and September 30, 1994,
respectively.
3. Recently Issued Accounting Pronouncements
Effective January 1, 1995, U. S. Bancorp adopted Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan, as amended by SFAS No. 118. These statements address the disclosure
requirements and allocations of the allowance for credit losses for certain
impaired loans. A loan within the scope of these statements is considered
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement, including scheduled interest payments. These
statements do not apply to leases or large groups of smaller-balance homogeneous
loans which are collectively evaluated.
When a loan has been identified as being impaired, the amount of the
impairment is measured by using discounted cash flows, except when it is
determined that the sole source of repayment for the loan is the operation or
liquidation of the underlying collateral. In such case, the current fair value
of the collateral, reduced by costs to sell, is used. When the measurement of
the impaired loan is less than the recorded investment in the loan (including
accrued interest, net deferred loan fees or costs, and unamortized premium or
discount), an impairment is recognized by creating or adjusting an allocation of
the allowance for credit losses. SFAS No. 114 does not change the timing of
charge-offs of loans to reflect the amount ultimately expected to be collected.
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When a loan is identified as impaired, interest accrued but not
received is reversed against interest income. Subsequent cash received by U. S.
Bancorp related to impaired loans is generally applied to reduce the principal
balance; only insignificant amounts of cash receipts have been recognized as
interest income in 1995.
At September 30, 1995, U. S. Bancorp's recorded investment in loans for
which an impairment has been recognized totaled $111.7 million. Included in this
amount is $19.5 million of impaired loans for which the related SFAS No. 114
allowance is $5.7 million. The balance of the allowance for credit losses in
excess of these specific reserves is available to absorb losses from all loans,
although allocations have been made for certain loans and loan categories as
part of management's quarterly analysis of the allowance. The average recorded
investment in impaired loans was $130.6 million during the third quarter of
1995, and $137.4 million for the first nine months of 1995.
The Financial Accounting Standards Board issued SFAS No. 122
"Accounting for Mortgage Servicing Rights", an amendment of SFAS No. 65, in May
1995. This Statement requires that U.S. Bancorp recognize as separate assets
rights to service mortgage loans for others, however those servicing rights are
acquired. Previously, only purchased servicing rights were capitalizable as an
asset, whereas internally originated rights were expensed. This Statement also
requires that capitalized excess servicing receivables be assessed for
impairment based on fair value, rather than an estimate of undiscounted future
cash flows. This Statement must be applied prospectively, beginning in 1996, but
may be adopted earlier for periods for which financial statements have not been
issued. Adoption of this Standard is not expected to have a significant impact
on the financial statements of U.S. Bancorp.
4. Acquisitions
On May 8, 1995, U.S. Bancorp announced the signing of a definitive
agreement to merge, under the U.S. Bancorp name, with West One Bancorp (West
One), a bank holding company headquartered in Boise, Idaho with $9.2 billion in
assets at September 30, 1995. Under terms of the agreement, each share of West
One common stock will be exchanged for 1.47 shares of U.S. Bancorp common stock.
On October 3, 1995, shareholders of U.S. Bancorp and West One approved the
merger of the two organizations, which will create a $30 billion superregional
financial services company doing business in six western states. In conjunction
with the merger, the combined companies will be divesting certain branches with
deposits of approximately $720 million and loans of approximately $460 million
in 1996. The merger is expected to close by year-end, pending regulatory
approval.
Merger-related expenses reflecting transaction costs of the merger and
the costs of combining operations are anticipated to be charged to earnings,
principally in the quarter in which the merger closes, with some carryover into
subsequent quarters. As planning for the merger continues and uncertainties
regarding the merger process are resolved, estimates of merger-related expenses
are continuing to be developed. Although the precise magnitude of the increase
is not presently determinable, management believes that the aggregate after-tax
charge to earnings for merger-related expenses will exceed the estimate of $60
million reflected in
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U.S. Bancorp's Current Report on Form 8-K dated August 30, 1995. In addition,
management intends to perform a detailed analysis of the credit risks inherent
in the integration and management of the loan portfolio of the combined
institution, which may result in an increase in the allowance for credit losses
at closing. Although the precise magnitude of the increase is not presently
determinable, management believes that the increase in the allowance for credit
losses will exceed the estimate of $15 million reflected in U.S. Bancorp's
Current Report on Form 8-K dated August 30, 1995.
U.S. Bancorp and West One currently expect, based on information known at this
time, to achieve annual pre-tax cost savings of approximately $84 million by
1997. The cost savings are expected to be realized primarily through staff
reductions, consolidation of certain systems and back office support functions,
and the elimination, consolidation or sale of certain branches and
administrative functions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The focus of the following discussion is on U. S. Bancorp's financial
condition, changes in financial condition and results of operations. It is a
supplement to the consolidated financial statements and footnotes that are
presented elsewhere, and should be read in conjunction therewith.
12
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<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Third Quarter Ended Nine Months Ended
September 30, September 30,
Dollars in Millions ------------------- Percent ------------------- Percent
Except Per Share 1995 1994 Change 1995 1994 Change
- ------------------- ---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 254.0 $ 247.5 3% $ 746.6 $ 712.4 5%
Provision for credit losses 21.2 34.6 (39) 63.4 79.9 (21)
Net income 81.2 62.7 29 217.7 85.6 154
PER COMMON SHARE
Net income $ .79 $ .60 32% $ 2.12 $ .77 175%
Dividends declared .28 .25 12 .78 .69 13
Book value (period-end) 18.32 16.40 12
AVERAGE BALANCES
Average assets $ 21,166 $21,053 1% $21,183 $21,069 1%
Interest-earning assets 18,686 18,563 1 18,720 18,571 1
Loans 15,976 14,961 7 15,809 14,505 9
Deposits 15,122 15,199 (1) 14,973 15,189 (1)
Average common
shareholders' equity 1,759 1,624 8 1,699 1,627 4
PERIOD-END BALANCES
Assets $21,601 $21,509 -%
Interest-earning assets 18,977 18,894 -
Loans 16,115 15,345 5
Deposits 15,540 15,205 2
Long-term debt 822 1,179 (30)
Common shareholders' equity 1,801 1,624 11
Preferred stock 150 150 -
Full-time equivalent
employees 9,748 10,898 (11)
SELECTED RATIOS
Return on average common
equity 17.63% 14.58% 16.41% 6.29%
Return on average assets 1.52 1.18 1.37 .54
Overhead ratio 56.98 67.06 60.63 79.42
Net interest margin 5.57 5.49 5.49 5.30
Leverage ratio 8.53 7.70
Risk-based capital ratios
Tier 1 capital 8.71 8.10
Total capital 11.50 10.94
</TABLE>
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RESULTS OF OPERATIONS
OVERVIEW
To facilitate the discussion of its results of operations, in the table
on the next page U.S. Bancorp provides an additional analysis of performance to
supplement the accompanying consolidated income statement and balance sheet.
This additional analysis of performance should not be viewed as a substitute for
the GAAP-based financial statements previously presented. There are two primary
differences between the consolidated income statement and the operating income
analysis that follows. First, the operating income analysis presents the line
items in a slightly different order. Second, certain transactions that are
nonrecurring items or that are not related to core businesses are not included
in noninterest revenues and noninterest expenses in determining operating income
and are presented separately after operating income. Management has presented
the analysis as they believe it is meaningful to understand the results and
trends in core operating income separately from nonrecurring and noncore
activities.
For detailed information on the items presented as noncore or
nonrecurring, refer to the respective discussions of "Noninterest Revenues" and
"Noninterest Expenses".
For the third quarter of 1995, net income was $81.2 million, compared
with net income of $62.7 million in the third quarter of 1994. Operating income,
as defined and presented in the following table, increased 31 percent over the
same period a year ago, mainly as a result of the restructuring initiatives
started in March of 1994. The following key highlights compare the third quarter
of 1995 with the same period of 1994 unless otherwise noted:
- - Net income totaled a record $81 million, or $.79 per share, an increase of
29 percent from $63 million, or $.60 per share.
- - Operating income (income on a tax-equivalent basis before the provision for
credit losses, other real estate owned transactions,items determined to be
noncore or nonrecurring, and income taxes) of $153.8 million was up 31
percent from $ 117.4 million.
- - Net interest margin of 5.57 percent compared favorably to a 5.49 percent
margin in the prior year's quarter as well as to the 5.45 percent margin in
the second quarter of 1995.
- - Noninterest expenses (before other real estate owned transactions and items
determined to be noncore or nonrecurring) of $208 million dropped 13
percent from $240 million.
- - Return on average assets improved to 1.52 percent from 1.18 percent, while
the return on average common equity rose to 17.6 percent from 14.6 percent.
- - Overhead ratio improved to 56.98 percent from 67.06 percent. Excluding
other real estate owned transactions and noncore or nonrecurring items, the
overhead ratio would have been 57.47 percent in the third quarter of 1995.
For the first nine months of 1995, net income was $217.7 million,
compared with net income of $85.6 million for the first nine months of 1994. The
results for the 1994 period
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<PAGE> 15
included the impact of a $100 million pretax restructuring charge and the $50.8
million gain on sale of U. S. Bancorp's mortgage origination offices and
mortgage loan servicing portfolio.
The table below presents U. S. Bancorp's major income and expense
components for the third quarter and nine month periods. A discussion of the
major changes in each key component follows.
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
Dollars in Thousands ------------------- Percent ----------------- Percent
Except Per Share 1995 1994 Change 1995 1994 Change
- -------------------- ---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Net interest income (1) $261,417 $255,986 2% $769,365 $ 737,594 4%
Noninterest revenues 100,257 101,122 (1) 298,544 319,006 (6)
Noninterest expenses 207,856 239,736 (13) 644,833 739,340 (13)
-------- -------- -------- ---------
Operating income (1) 153,818 117,372 31 423,076 317,260 33
Provision for credit
losses (21,156) (34,629) (39) (63,421) (79,930) (21)
OREO transactions 2,630 28 N/M 2,723 (2) N/M
-------- -------- -------- ---------
135,292 82,771 63 362,378 237,328 53
Equity investment
income (loss) 2,795 (2,995) 3,270 (4,425)
Gain on sale of
operations and loans - 52,188 5,107 61,794
Gain (loss) on sale of securities
available for sale 617 (8,507) 2,307 (8,143)
Nonrecurring noninterest
revenue items 272 (1,517) 3,335 (9,359)
Restructuring charge - - - (100,000)
Merger-related costs and business
consolidation expenses (2,989) - (9,444) -
Nonrecurring noninterest
expense items 25 (26,050) (4,385) (31,463)
-------- -------- -------- ---------
Income before income
taxes (1) 136,012 95,890 362,568 145,732
Less tax-equivalent
adjustment included
above 7,454 8,459 22,804 25,151
Provision for income taxes 47,371 24,693 122,056 34,968
-------- -------- -------- ---------
Net income $ 81,187 $ 62,738 29% $217,708 $ 85,613 154%
======== ======== == ======== ========= ===
</TABLE>
- -----------------
(1) Tax-equivalent basis
N/M Not Meaningful
15
<PAGE> 16
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.
<TABLE>
<CAPTION>
Net
Analysis of Net Interest Income Interest Interest Interest
(In Millions) Income Expense Income
- ------------------------------- -------- -------- --------
<S> <C> <C> <C>
Third quarter 1994 as reported $ 386.3 $ 130.3 $ 256.0
Increase (decrease) due to:
Changes in balances 2.5 (1.7) 4.2
Changes in rates 39.3 38.1 1.2
-------- ------- -------
Third quarter 1995 as reported $ 428.1 $ 166.7 $ 261.4
======== ======= =======
Nine months ended September 30, 1994 as reported $1,109.5 $ 371.9 $ 737.6
Increase (decrease) due to:
Changes in balances 8.5 (1.6) 10.1
Changes in rates 150.2 128.5 21.7
-------- ------- -------
Nine months ended September 30, 1995 as reported $1,268.2 $ 498.8 $ 769.4
======== ======= =======
</TABLE>
Third Quarter Ended September 30, 1995 Compared With Third Quarter Ended
September 30, 1994
Net interest income on a tax-equivalent basis was $261.4 million, up 2
percent or $5.4 million, over the third quarter of 1994. The net interest margin
in the third quarter of 1995 was 5.57 percent compared with 5.49 percent in the
same quarter a year ago, and increased from 5.45 percent in the preceding
quarter.
The spread between the yield on earning assets and rates paid on
interest-bearing liabilities decreased in the third quarter of 1995 compared
with third quarter 1994 mainly due to the cost of purchased funds and other
short-term borrowings increasing at a faster rate than loan yields. The increase
in the margin is due to the favorable impact of a higher level of
noninterest-bearing funds, primarily noninterest-bearing deposits and
shareholders' equity, which offset the decrease in the interest rate spread.
Loans averaged $16.0 billion in third quarter 1995, an increase of $1.0
billion or 7 percent, compared with the third quarter a year ago. Strong growth
was achieved in commercial and real estate mortgage lending.
16
<PAGE> 17
Average total securities portfolios were $2.3 billion during the third
quarter of 1995, a 22 percent decrease from $3.0 billion in third quarter 1994.
The decrease is due to the maturity of securities held for investment, as well
as sale of certain available for sale securities for asset/liability management
purposes.
Average core deposits, defined as deposits other than time deposits of
$100,000 or more, were $14.2 billion and $14.6 billion in the third quarter of
1995 and 1994, respectively, and funded 76 percent and 78 percent of average
earning assets in those periods, respectively.
Nine Months Ended September 30, 1995 Compared With Nine Months Ended
September 30, 1994
Net interest income on a tax-equivalent basis was $769.4 million, up
4 percent or $31.8 million, over the first nine months of 1994. The net interest
margin in the first nine months of 1995 was 5.49 percent compared with 5.30
percent in the same period a year ago.
The spread between the yield on earning assets and rates paid on
interest-bearing liabilities decreased in the first nine months of 1995 compared
with the same period in 1994 mainly due to the cost of purchased funds and other
short-term borrowings increasing at a faster rate than loan yields. The increase
in the margin is due to the favorable impact of a higher level of
noninterest-bearing funds, primarily noninterest-bearing deposits and
shareholders' equity, which offset the decrease in the interest rate spread.
Loans averaged $15.8 billion in the first nine months of 1995, an
increase of $1.3 billion or 9 percent, compared with the first nine months of
1994. Average total securities portfolios were $2.5 billion during the first
nine months of 1995, a 22 percent decrease from $3.2 billion in the first nine
months of 1994.
Average core deposits, defined as deposits other than time deposits of
$100,000 or more, were $14.1 billion and $14.5 billion in the first nine months
of 1995 and 1994, respectively, and funded 76 percent and 78 percent of average
earning assets in those periods, respectively.
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
Net Interest Margin Analysis ------------------- -----------------
(Tax-equivalent Basis) 1995 1994 1995 1994
- ---------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Average rate earned on interest
earning assets 9.11% 8.28% 9.05% 7.98%
Average rate paid on interest-bearing
liabilities 4.50 3.48 4.47 3 31
---- ---- ---- ----
Rate spread 4.61 4.80 4.58 4.67
---- ---- ---- ----
Net interest margin 5.57% 5.49% 5.49% 5.30%
==== ==== ==== ====
</TABLE>
17
<PAGE> 18
NONINTEREST REVENUES
Noninterest revenues increased $4.5 million or 5 percent in the third
quarter of 1995 compared with the third quarter of 1994, excluding revenues
associated with activities affected by divestiture and other revenues
identified below. The principal components of noninterest revenue are shown in
the table below.
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
------------------- Percent ----------------- Percent
Dollars in Thousands 1995 1994 Change 1995 1994 Change
- -------------------- ---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Service charges on
deposit accounts $ 36,656 $ 38,235 (4)% $112,279 $113,757 (1)%
Bank card revenue 16,310 15,668 4 45,924 44,756 3
Trust and investment
management 12,323 12,032 2 38,586 37,765 2
Exchange fees 7,478 7,466 -- 22,707 20,970 8
Insurance revenue 3,820 4,408 (13) 11,406 15,022 (24)
ATM revenue 4,921 4,880 1 14,036 14,245 (1)
Brokerage and other
commissions 2,405 1,953 23 6,379 7,261 (12)
Trading account 5,748 3,640 58 14,350 11,568 24
Other revenue 8,986 5,852 54 27,782 23,819 17
-------- -------- -------- --------
98,647 94,134 5 293,449 289,163 1
-------- -------- -------- --------
Activities affected by
divestitures:
Mortgage banking
income, net 1,610 3,086 5,095 16,631
Credit reporting
revenue -- 3,902 -- 13,212
-------- -------- -------- --------
1,610 6,988 5,095 29,843
-------- -------- -------- --------
Gain on sale of
operations and loans -- 52,188 5,107 61,794
Equity investment
income (loss) 2,795 (2,995) 3,270 (4,425)
Gain (loss) on sale of securities
available for sale 617 (8,507) 2,307 (8,143)
Nonrecurring noninterest
revenues 272 (1,517) 3,335 (9,359)
-------- -------- -------- --------
Total noninterest revenues $103,941 $140,291 (26)% $312,563 $358,873 (13)%
======== ======== === ======== ======== ===
</TABLE>
Insurance revenue commissions in 1995 have declined compared with the
1994 periods as sales volumes of annuities have decreased. The fluctuation in
securities brokerage related commissions for 1995 as compared to the same
periods in 1994 is due to changes in the sales volume of securities. The
increase in other revenue is mainly related to gains on sales of student loans
and servicing income on the portfolio of credit card receivables sold at the end
of the second quarter of 1995.
There were no noncore or nonrecurring gains on sale of operations and
loans recognized in the third quarter of 1995. In the third quarter of 1994,
U.S. Bancorp sold a significant portion of the assets of its mortgage banking
subsidiary, resulting in a pretax gain of $50.8 million. Equity investment
activity relates to the mark-to-market accounting for publicly-held venture
capital
18
<PAGE> 19
investments. In the third quarter of 1994, a loss on sale of available for sale
securities was incurred as the result of repositioning a portion of the
portfolio to increase its yield in future periods.
The nonrecurring noninterest revenue items in the third quarter of
1994 consisted primarily of losses incurred by U.S. Bancorp's import/export
financing subsidiary.
NONINTEREST EXPENSES
Noninterest expenses, before noncore or nonrecurring items, decreased
13 percent in the third quarter of 1995 compared with the third quarter of 1994.
The principal components of noninterest expense are shown in the following
table.
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
September 30, September 30,
------------------- Percent ----------------- Percent
Dollars in Thousands 1995 1994 Change 1995 1994 Change
- -------------------- ---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Employee compensation
and benefits $103,667 $116,457 (11)% $312,151 $367,811 (15)%
Net occupancy expense 15,907 17,101 (7) 47,800 49,622 (4)
Equipment rentals,
depreciation and
maintenance 22,772 25,037 (9) 71,100 75,364 (6)
Regulatory agency fees 3,252 9,748 (67) 22,598 29,880 (24)
Telecommunications 6,653 7,414 (10) 19,406 21,359 (9)
Amortization of intangibles 4,090 4,205 (3) 13,767 13,828 -
Contract personnel 2,661 2,894 (8) 7,207 10,457 (31)
Legal and accounting 1,909 2,275 (16) 7,294 7,021 4
Marketing and advertising 4,298 7,168 (40) 18,510 20,172 (8)
Other taxes and licenses 2,844 2,545 12 8,663 6,611 31
Stationery, supplies and
postage 11,047 10,441 6 33,495 32,064 4
Travel 1,876 2,658 (29) 5,413 8,816 (39)
All other 26,879 31,793 (15) 77,429 96,335 (20)
-------- -------- -------- --------
207,855 239,736 (13) 644,833 739,340 (13)
Loss on sale of
premises - 21 2,432 21
OREO transactions (2,629) (28) (2,723) 2
Asset write-downs - 14,066 1,953 18,395
Merger-related costs and business
consolidation expenses 2,989 - 9,444 -
Restructuring charge - - - 100,000
Other nonrecurring expenses (25) 11,963 - 13,047
-------- -------- -------- --------
Total noninterest expenses $208,190 $265,758 (22)% $655,939 $870,805 (25%)
======== ======== === ======== ======== ===
</TABLE>
Employee compensation and benefits decreased 15 percent, or $55.7
million for the nine months ended September 30, 1995 compared with the same
period in the prior year. The number of full-time equivalent employees has
decreased from 10,898 at September 30, 1994, to 10,610 at December 31, 1994 and
9,748 at September 30, 1995, and was the primary reason for the decrease
19
<PAGE> 20
in employee compensation and benefits. Business divestitures accounted for
approximately $37.1 million of the decrease and various staff reduction programs
made up the balance.
Noninterest expenses decreased in most categories of expense in
addition to compensation and benefits in the first nine months of 1995 as a
result of cost reduction efforts and the divestiture of the majority of the
mortgage loan origination offices of U.S. Bancorp's mortgage banking subsidiary
in August of 1994, and the sale of the credit reporting subsidiary at year-end
1994. Regulatory agency fees in the third quarter of 1995 decreased 67 percent
from the level in the third quarter of 1994 due to the reduction in FDIC deposit
insurance premiums. The FDIC reduced premiums to an average of 4.4 cents per
$100 of insured deposits from 23.2 cents. In September 1995, U.S. Bancorp
received refunds of previously paid insurance premiums in excess of the premiums
due according to the new rates from June 1, 1995.
Congress is currently considering bills that would merge the Bank
Insurance Fund and the Savings Association Insurance Fund (SAIF). The bills also
propose a special assessment on SAIF-insured deposits. U.S. Bancorp has
SAIF-insured deposits and a liability would be incurred if Congress enacts the
special assessment. Due to the uncertainty of the final form of the special
assessment legislation, no estimated liability for the special assessment was
recorded at September 30, 1995. At this time, U.S. Bancorp does not anticipate
a material impact to its results of operations or financial condition as a
result of the proposed legislation.
The overhead ratio (defined as noninterest expenses as a percentage of
tax-equivalent net interest income and noninterest revenues) decreased to 56.98
percent in the third quarter of 1995 from 67.06 percent in the third quarter of
1994 and 61.40 in the second quarter of 1995. Excluding other real estate owned
transactions and noncore or nonrecurring items, the overhead ratio was 57.47
percent in the third quarter of 1995, 67.13 percent in the third quarter of 1994
and 60.21 percent in the second quarter of 1995.
Asset write-downs in 1995 consisted of accelerated amortization of
affinity credit card intangibles. Included in asset write-downs in the third
quarter of 1994 was the write-off of certain capitalized expenses as U.S.
Bancorp changed its policy with respect to the capitalization of internal costs
related to the development and installation of computer software. These
unamortized costs related to several projects were written off as a charge to
expenses totaling $12.1 million in the third quarter of 1994. Also, write-downs
of intangibles resulting from revaluation of certain acquired business
intangibles totaled $2.0 million.
Merger-related costs in 1995 were incurred in conjunction with the
pending merger of U.S. Bancorp with West One. In addition, business
consolidation expenses in 1995 were related to additional costs associated
with consolidation of computer operations and reconfiguration of branch
support functions not related to the merger with West One. Other nonrecurring
expenses in the third quarter of 1994 included anticipated expenses related to
system conversions - $6.2 million; interest accrued on pending settlements with
tax authorities - $3 million; and other items totaling $2.8 million.
In the first quarter of 1994, a $100 million restructuring charge was
recorded related to a comprehensive program designed to allow U.S. Bancorp to
become a more efficient, competitive
20
<PAGE> 21
and customer-focused financial institution. The program included staff
reductions accomplished through an early retirement opportunity for certain
employees, other severance programs and attrition; divestiture of noncore
activities; and the consolidation and integration of certain operations and
facilities that no longer fit U. S. Bancorp's corporate objectives or the needs
of its regional customers. The program called for consolidation of branch
operations centers for all states from seven to two, closure of certain branches
and other activities. As a result, in the third quarter of 1995 U. S. Bancorp
achieved its goal of reducing the overhead ratio to under 59 percent, ahead of
its 1997 target date.
The $100 million charge represented the incremental costs expected to
result from the restructuring plan. Included in the restructuring charge were
$52.4 million of costs associated with enhanced retirement and other benefit
programs, $22.6 million of severance benefits, $9.5 million of expenses related
to the cost to exit certain business activities, $7.3 million related to
consolidation and integration of facilities, and $8.2 million of other cost
reduction expenses related to the program.
U.S. Bancorp offered to eligible employees an early retirement
incentive program, providing a reduction in the eligible age for retirement and
an additional number of years of service toward the computation of retirement
benefits. Certain employees were eligible for voluntary severance benefits,
which exceeded standard severance benefits provided to personnel displaced in
the restructuring program. In addition, certain employees received payments for
their retention through agreed upon dates and outplacement services.
The most significant portion of future expense reductions will consist
of savings of employee compensation and benefits due to a reduction in
employees. By the third quarter of 1994, U. S. Bancorp had achieved its targeted
ten percent reduction in full- time equivalent (FTE) employees, excluding the
reduction in employees associated with the mortgage loan origination offices
sold. By year-end 1994, FTE employees decreased to 10,610, or 18 percent, from
12,863 at December 31, 1993. Of the 2,253 decrease in FTE employees, 555 were
the result of operations sold and the balance was directly related to the
restructuring program. Additional reductions in FTE employees of 280 resulted
from the sale of U. S. Bancorp's credit reporting subsidiary in January 1995.
FTE employees totaled 9,748 at September 30, 1995.
Noninterest expenses for the first nine months of 1995 totaled $655.9
million, compared with noninterest expenses of $770.8 million (excluding the
$100 million restructuring charge) in the first nine months of 1994,
representing an annualized reduction in noninterest expenses in excess of $150
million.
The restructuring activity is summarized in the table below. The
balance of the restructuring charge liability will be funded out of operating
cash flows. The restructure program has not had a material impact on U. S.
Bancorp's liquidity.
21
<PAGE> 22
<TABLE>
<CAPTION>
Facilities
Severance, Consolidation
Outplacement and Business
Retirement and Other Divestiture
Plans Benefits Costs Other Total
---------- ------------ ------------- ------- --------
(In Millions)
<S> <C> <C> <C> <C> <C>
Restructuring Provision, March 1994 $ 48.8 $ 26.2 $ 16.8 $ 8.2 $ 100.0
Utilization for the Period
Cash 15.3 4.2 3.3 22.8
Noncash 48.8(1) 9.5 - 58.3
-------- -------- --------- ------- --------
Total 48.8 15.3 13.7 3.3 81.1
-------- -------- --------- ------- --------
Balance, December 31, 1994 - 10.9 3.1 4.9 18.9
Utilization for the Period
Cash - 7.7 - 2.2 9.9
Noncash - - 2.7 - 2.7
-------- -------- --------- ------- --------
Total - 7.7 2.7 2.2 12.6
-------- -------- --------- ------- --------
Balance, September 30, 1995 $ - $ 3.2 $ 0.4 $ 2.7 $ 6.3
========= ======== ========= ======= ========
</TABLE>
- -------------------
(1) Noncash amount of $48.8 million represents the amount transferred to U. S.
Bancorp's benefit plan liabilities during 1994. Payment of the cost of the
retirement programs will occur over a 10 to 15 year period as contributions
by U. S. Bancorp are made to the benefit plans. Actual cash payments made
to benefit plans are not included in the table above.
22
<PAGE> 23
INCOME TAXES
The effective tax rates for the nine months ended September 30, 1995
and 1994 were 35.9 and 29.0 percent, respectively. The increase in the effective
tax rate in 1995 was mainly due to the higher level of earnings leading to a
corresponding decrease in the proportion of tax-exempt income compared with
1994.
FINANCIAL CONDITION
SECURITIES PORTFOLIOS
Securities available for sale totaled $1.24 billion at September 30,
1995 compared with $1.37 billion at December 31, 1994 and $1.35 billion at
September 30, 1994. Maturities of U. S. Government agency securities,
collateralized mortgage obligations and U. S. Treasuries in the third quarter
of 1995 were the primary reason for the decline.
Securities held to maturity totaled $1.17 billion at September 30,
1995, compared with $1.40 billion at December 31, 1994 and $1.53 billion at
September 30, 1994. Maturities of collateralized mortgage obligations and other
asset-backed securities accounted for the majority of the decrease. Securities
in both portfolios are expected to continue to decline moderately in the future
as the cash received from their maturities is used to fund loan growth.
The Financial Accounting Standards Board (FASB) is expected to issue in
the fourth quarter of 1995 additional implementation guidance regarding the
FASB's previously issued Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities." It is
anticipated that the additional guidance will allow U. S. Bancorp to reassess
the appropriateness of the classifications of all securities held at the time of
receipt of the guidance and reclassify securities in accordance with provisions
of SFAS No. 115. At this time, U.S. Bancorp has not completed an analysis of
the impact of the SFAS No. 115 implementation guidance. Reclassifications, if
any, from the held-to-maturity category that result from this one-time
reassessment will not call into question U. S. Bancorp's intent to hold other
debt securities to maturity in the future. Any related reclassifications must
occur no later than December 31, 1995.
LOAN PORTFOLIO
Loans in most categories increased at September 30, 1995 from the
totals outstanding at December 31, 1994; total loans were up 3 percent from the
year-end balance. Average loans were up 5 percent in third quarter 1995 from the
prior year quarter. Strong growth was achieved in commercial lending and lease
financing. Consumer loan totals were affected by the sale of more than $200
million of credit card loans in the second quarter of 1995.
23
<PAGE> 24
It is U. S. Bancorp's objective to maintain a loan portfolio that is
diverse in terms of type of loan, industry concentration, geographic
distribution and borrower concentration in order to reduce the overall credit
risk by minimizing the adverse impact of any single event or set of occurrences.
The Commercial Loan Distribution table below shows the commercial loan portfolio
stratified by significant Standard Industrial Code classifications. It should be
noted that within the indicated classifications, there are other
subclassifications for which U. S. Bancorp's reporting system monitors industry
concentrations.
<TABLE>
<CAPTION>
September 30, December 31,
Commercial Loan Distribution 1995 1994
- -------------------------------------- ------------- ------------
<S> <C> <C>
Manufacturing 16.8% 17.3%
Retail 11.8 11.0
Service 11.3 11.4
Wholesale 9.5 10.7
Forest products 6.7 8.2
Agricultural 8.9 8.3
Brokers, dealers and insurance 6.0 5.8
Transportation 5.8 4.4
Financial, nonbank 4.3 4.7
Contractors 4.7 4.2
Other 14.2 14.0
----- -----
100.0% 100.0%
===== =====
</TABLE>
Real estate loans increased $167.5 million to $ 3.8 billion at
September 30, 1995 from December 31, 1994, due mainly to the increase in
one-to-four family residential real estate mortgage loans and real estate
construction. The growth is distributed throughout U. S. Bancorp's five-state
region.
24
<PAGE> 25
The majority of U. S. Bancorp's real estate mortgage loans outstanding
are collateralized by properties located in the Pacific Northwest and Northern
California. U. S. Bancorp closely monitors the composition of its real estate
portfolio through prudent underwriting criteria and by monitoring loan
concentrations by geographic region and property type. An analysis of the real
estate portfolio is presented in the following tables (in millions):
<TABLE>
<CAPTION>
Real Estate Loans Outstanding
September 30, 1995 Residential Commercial Total
- ----------------------------- ----------- ---------- ---------
<S> <C> <C> <C>
Real estate construction $ 224.6 $ 518.5 $ 743.1
Real estate mortgages 1,127.9 1,910.2 3,038.1
--------- --------- ---------
$ 1,352.5 $ 2,428.7 $ 3,781.2
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Real Estate Loans Outstanding
Concentrations by State
and Type of Collateral
September 30, 1995 Washington Oregon California Other Total
- ----------------------------- ---------- --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C>
Residential $ 464.3 $ 253.6 $ 514.5 $ 120.1 $ 1,352.5
Commercial
Apartment/Condominium 205.1 83.4 78.5 49.0 416.0
Office 237.5 180.7 43.1 31.4 492.7
Retail 64.8 34.9 3.3 13.9 116.9
Hotel/Motel 161.6 169.1 79.1 60.9 470.7
Land 30.8 18.5 12.8 13.0 75.1
Other 319.0 287.5 161.9 88.9 857.3
--------- --------- ------- ------- ---------
Total Commercial 1,018.8 774.1 378.7 257.1 2,428.7
--------- --------- ------- ------- ---------
Total real estate loans $ 1,483.1 $ 1.027.7 $ 893.2 $ 377.2 $ 3,781.2
========= ========= ======= ======= =========
</TABLE>
LIQUIDITY
Liquidity is the ability to raise adequate and reasonably priced funds,
primarily through deposits, as well as purchased funds and the issuance of debt
and equity capital, and is managed through the selection of the asset mix and
the maturity mix of liabilities. Maturing assets also provide a source of
liquidity.
Core deposits, defined as deposits other than time deposits of $100,000
or more, are U. S. Bancorp's primary source of funding. Core deposits provide a
sizable source of relatively stable and low-cost funds. Average core deposits in
third quarter 1995 increased $124 million from second quarter 1995. Average core
deposits and shareholders' equity, which totaled $16.0 billion and $16.3 billion
in the first nine months of 1995 and 1994, respectively, funded 75 percent and
77 percent of average total assets in these periods, respectively.
25
<PAGE> 26
Other sources of liquidity include purchased funds, comprised of time
deposits over $100,000 and short-term borrowings. Average purchased funds
totaled $3.6 billion in the first nine months of 1995, compared with $3.3
billion in the first nine months of 1994. Average senior and subordinated debt
was $848 million in the first nine months of 1995, and was $900 million in the
first nine months of 1994. In October 1995, U. S. Bancorp issued $300 million of
ten-year subordinated notes with an interest rate of 6 3/4 percent. The
proceeds were used for extensions of credit to banking subsidiaries.
U. S. Bancorp's liquidity is enhanced by its accessibility to a
diversity of national market sources of funds. In addition, U. S. Bancorp (the
parent company) obtained a $500 million four-year revolving credit facility
through a syndication involving 18 participating financial institutions in July
1995. This facility is viewed as a general liquidity line for the parent
company. The following table summarizes U. S. Bancorp's ratings by major
statistical rating agencies at September 30, 1995; such ratings are subject to
revision or withdrawal at anytime.
<TABLE>
<CAPTION>
Standard Duff Thomson
& Poor's Moody's & Phelps BankWatch
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
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-
</TABLE>
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses for the third quarter of 1995 was $21.2
million and $63.4 million for the first nine months of 1995. This compares with
$34.6 million in the third quarter of 1994 and $79.9 million in the first nine
months a year ago. The lower provisions reflected improving asset quality trends
and a lower level of commercial net charge-offs. Annualized net charge-offs in
the first nine months of 1995 were .40 percent compared with .46 percent for the
first nine months of 1994.
U. S. Bancorp's allowance for credit losses totaled $318.3 million at
September 30, 1995 and was 236 percent of nonperforming loans. The allowance as
a percentage of nonperforming loans was 168 percent and 175 percent at December
31, 1994 and September 30, 1994, respectively.
Management performs a quarterly analysis to establish the appropriate
level of the allowance, taking into consideration such factors as loan loss
experience, an evaluation of potential losses in the portfolio, credit
concentrations and trends in portfolio volume, maturity, delinquencies and
nonaccruals, risks associated with standby letters of credit which guarantee the
debt of others, and prevailing and anticipated economic conditions. This
analysis provides an allowance consisting of two components, allocated and
unallocated. The allocated component reflects inherent losses resulting from the
analysis of individual loans and is developed through specific credit
allocations for individual loans and historical loss experience for each loan
category and risk classification within each category. The unallocated component
reflects management's judgment and determination of the amounts necessary for
loan concentrations, economic uncertainties and other subjective factors.
26
<PAGE> 27
U. S. Bancorp continues to closely monitor 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 September 30, 1995 was adequate to absorb
potential credit losses inherent in loans, leases and standby letters of credit
outstanding at that date.
The table below presents the change in the allowance for credit losses
for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Year Ended Ended
Allowance for Credit Losses September 30, December 31, September 30,
In Thousands 1995 1994 1994
- --------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Loans (net of unearned income) $ 16,114,898 $ 15,605,717 $ 15,345,456
Daily average loans
(net of unearned income) $ 15,808,585 $ 14,728,160 $ 14,504,781
Balance of allowance for credit
losses at beginning of period $ 305,802 $ 270,229 $ 270,229
Dispositions (3,190) (1,241) (1,226)
Charge-offs
Commercial 14,630 33,186 28,065
Lease financing 320 1,027 659
Real estate construction 314 12,080 2,772
Real estate mortgage 6,320 4,237 3,511
Consumer 28,343 27,126 19,368
Bank card 22,702 28,356 21,030
------------ ------------ ------------
72,629 106,012 75,405
------------ ------------ ------------
Recoveries
Commercial 9,952 14,512 8,431
Lease financing 359 1,056 1,010
Real estate construction 1,903 1,234 1,213
Real estate mortgage 1,639 4,638 3,644
Consumer 7,544 9,508 7,136
Bank card 3,460 5,010 3,721
------------ ------------ ------------
24,857 35,958 25,155
------------ ------------ ------------
Net charge-offs 47,772 70,054 50,250
Provision for credit losses 63,421 106,868 79,930
------------ ------------ ------------
Balance of allowance for credit
losses at end of period $ 318,261 $ 305,802 $ 298,683
============ ============ ============
Net charge-offs to average loans
and leases .40% .48% .46%
Allowance for credit losses to
period-end loans 1.97% 1.96% 1.95%
Allowance as a % of
nonperforming loans 236% 168% 175%
</TABLE>
27
<PAGE> 28
ASSET QUALITY
During the first nine months of 1995, U. S. Bancorp continued to
experience improving asset quality trends. Nonperforming assets as a percentage
of loans and foreclosed assets decreased to 1.05 percent at September 30, 1995
from 1.31 percent at December 31, 1994, and 1.28 percent at September 30, 1994.
At September 30, 1995, nonperforming assets decreased $35.6 million
from December 31, 1994 and $27.6 million from a year ago, to $169.2 million.
Nonaccrual loans and restructured loans have fallen to .84 percent of total
loans at September 30, 1995. Nonaccrual loans were reduced by principal
payments, charge-offs and other transactions totaling $131 million, offsetting
new loans placed on nonaccrual during the first nine months of 1995 totaling $84
million, for a net decrease of $47 million. 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 influxes of nonaccrual
loans as it increases its lending activity as well as resolutions of loans
currently in the nonaccrual portfolio.
In addition to the loans classified as nonperforming, U. S. Bancorp has
other loans which it has internally classified, largely due to weakening
financial strength of the borrowers or concern about specific industries. These
loans, although currently performing in accordance with contractual terms, are
monitored closely by management and have been considered in establishing the
level of the allowance for credit losses. U. S. Bancorp's lending procedures and
loan portfolio, including internally classified loans, are examined by
regulatory agencies as part of their supervisory activities.
The following table summarizes U. S. Bancorp's nonperforming assets and
past due loans. Past due loans are defined as loans contractually past due as to
interest or principal 90 days or more.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
In Thousands 1995 1994 1994
- ------------ ------------- ------------ -------------
<S> <C> <C> <C>
Nonaccrual loans $ 124,111 $ 170,802 $ 155,156
Restructured loans 10,781 11,307 15,629
Other real estate and equipment owned 34,305 22,676 26,002
--------- --------- ----------
Total nonperforming assets $ 169,197 $ 204.785 $ 196,787
========= ========= ==========
Accruing loans past due 90 days or more $ 20,849 $ 15,612 $ 12,860
========= ========= ==========
Total nonaccrual and restructured loans as a percentage of total loans .84% 1.17% 1.11%
Total nonperforming assets as a percentage of outstanding loans
and foreclosed assets 1.05% 1.31% 1.28%
</TABLE>
28
<PAGE> 29
The following table presents nonaccrual loans on both a contractually
past due and contractually current basis at September 30, 1995. Both book and
contractual balances are indicated, the difference reflecting charge-offs and
interest payments applied to principal. As of that date, $39 million, or 31
percent, of the loans on nonaccrual status were less than 90 days past due or
contractually current as to principal and interest payments. Of the nonaccrual
loans that are contractually current, loans to eight borrowers amounted to 86
percent of the total, and there was some uncertainty that these loans will
remain contractually current.
<TABLE>
<CAPTION>
Book Payments Contractual
Principal Cumulative Applied to Principal
In Thousands, September 30, 1995 Balance Charge-offs (5) Principal (5) Balance
- -------------------------------- --------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Contractually past due (1):
Payments not made (2):
90 days or more past due $ 30,722 $ 6,683 $ - $ 37,405
Less than 90 days past due 282 84 - 366
-------- ------- ------- --------
31,004 6,767 - 37,771
-------- ------- ------- --------
Payments made (3):
90 days or more past due 54,344 27,222 13,684 95,250
Less than 90 days past due 2,582 - 316 2,898
-------- ------- ------- --------
56,926 27,222 14,000 98,148
-------- ------- ------- --------
Total past due 87,930 33,989 14,000 135,919
Contractually current (4) 36,181 3,816 5,975 45,972
-------- ------- ------- --------
Total nonaccrual loans $124,111 $37,805 $19,975 $181,891
======== ======= ======= ========
</TABLE>
- ----------------
(1) Contractually past due is defined as loans past due as to principal or
interest 30 days or more.
(2) Borrower has made no payments since being placed on nonaccrual.
(3) Borrower has made some payments since being placed on nonaccrual.
(4) Contractually current is defined as a loan for which principal and
interest are being paid in accordance with its contractual terms. All of
the contractually current loans were placed on nonaccrual due to
uncertainty of receiving future required payments.
(5) Cumulative amounts recorded since loan was placed on nonaccrual.
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.
29
<PAGE> 30
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 September 30, 1995, all of U. S.
Bancorp's banking subsidiaries met the risk-based capital ratio and leverage
ratio requirements for "well-capitalized" banks. The banking subsidiaries'
ratios are expected to be maintained at 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 September 30, 1995 are presented in the table
below (assets in millions):
<TABLE>
<CAPTION>
Risk-based
Capital Ratios
--------------------
Total Total Leverage
Assets Tier I Capital Ratio
------ ------ ------- --------
<S> <C> <C> <C> <C>
U.S. Bancorp (Consolidated) $21,601 8.71% 11.50% 8.53%
Bank Subsidiaries
U.S. Bank of Oregon 11,177 8.73 10.75 9.60
U.S. Bank of Washington 6,805 8.12 10.42 8.68
U.S. Bank of California 2,004 11.57 13.94 8.01
U.S. Bank of Nevada 1,061 9.62 12.41 6.99
</TABLE>
At September 30, 1995, common shareholders' equity was $1.8 billion.
For the first nine months of 1995, average common equity to average total assets
increased to 8.02 percent from 7.72 percent for the first nine months of 1994.
In the third quarter of 1995, U.S. Bancorp increased the quarterly common
dividend 12 percent, to $.28 per share from $.25 per share. The annual common
dividend rate increased to $1.06 per share at September 30, 1995. Dividends of
$.94 per common share were declared for the year 1994. The respective third
quarter rates for 1995 and 1994 were $.28 and $.25, respectively.
30
<PAGE> 31
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
U.S. Bancorp held a special meeting of shareholders on October 3, 1995,
to approve an Agreement and Plan of Merger dated May 5, 1995, between
U.S. Bancorp and West One Bancorp, an Idaho corporation, pursuant to
which West One Bancorp will be merged with and into U.S. Bancorp (the
"Merger"). The Merger was approved by the following vote:
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS AND BROKER NON-VOTES
--- ------- --------------------------------
<S> <C> <C>
81,922,525 1,275,936 677,947
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed herewith are listed in the Exhibit Index on
page 33 of this report.
(b) During the quarter ended September 30, 1995, one report on Form
8-K dated August 30, 1995, was filed reporting under Items 5 and
7 financial statements and pro forma financial information
relating to the proposed Merger 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.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U. S. BANCORP
(Registrant)
Date: November 14, 1995 By: /s/ STEVEN P. ERWIN
----------------------------------------
Steven P. Erwin
Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
32
<PAGE> 33
EXHIBIT INDEX
Exhibit
-------
10.1 1995 Non-Employee Director Stock Option Plan.
12.1 U. S. Bancorp and Subsidiaries - Computation of Ratios of
Consolidated Earnings to Fixed Charges.
12.2 U. S. Bancorp and Subsidiaries - Capital Ratios.
27 Financial Data Schedule.
33
<PAGE> 1
EXHIBIT 10.1
U.S. BANCORP
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment. Effective June 15, 1995, U. S. Bancorp ("Bancorp")
adopts the U. S. Bancorp 1995 Non-Employee Director Stock Option Plan (the
"Plan").
1.2 Purpose. The purpose of the Plan is to advance the interests of
Bancorp by encouraging members of Bancorp's board of directors (the "Board") who
are not employees of Bancorp or any of its subsidiaries ("Non-Employee
Directors") to acquire a proprietary interest in Bancorp through the issuance of
stock options. It is anticipated that the Plan will assist Bancorp in retaining
Non-Employee Directors. Options granted under the Plan shall be nonqualified
options which are not intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code. Options granted under the Plan will
supplement other compensation for Non-Employee Directors.
ARTICLE 2
DEFINITIONS
2.1 Defined Terms. When used in the Plan, the following terms shall
have the meaning specified below.
"Acquiring Person" shall mean any person or related person or
related persons which constitute a "group" for purposes of Section
13(d) and Rule 13d-5 under the Exchange Act; provided, however, that
the
- 1 -
<PAGE> 2
term Acquiring Person shall not include (i) Bancorp or any of its
Subsidiaries, (ii) any employee benefit plan of Bancorp or any of its
Subsidiaries, (iii) any entity holding voting capital stock of Bancorp
for or pursuant to the terms of any such employee benefit plan, or (iv)
any person or group solely because such person or group has voting
power with respect to capital stock of Bancorp arising from a revocable
proxy or consent given in response to a public proxy or consent
solicitation made pursuant to the Exchange Act.
"Adoption Date" shall mean June 15, 1995, the date this Plan
was adopted by the Board.
"Bancorp" shall mean U.S. Bancorp, an Oregon corporation.
"Board" shall mean the Board of Directors of Bancorp.
"Change in Control" shall mean:
(1) A change in control of Bancorp of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A as in effect on the date hereof
pursuant to the Exchange Act; provided that, without
limitation, such a change in control shall be deemed to have
occurred at such time as any Acquiring Person hereafter
becomes the "beneficial owner" (as defined in
- 2 -
<PAGE> 3
Rule 13d-3 under the Exchange Act), directly or indirectly, of
30 percent or more of the combined voting power of Bancorp
Voting Securities; or
(2) During any period of 12 consecutive calendar
months, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at
least a majority thereof unless the election, or the
nomination for election, by Bancorp shareholders of each new
director was approved by a vote of at least a majority of the
directors then still in office who were directors at the
beginning of the period; or
(3) There shall be consummated (i) any consolidation
or merger of Bancorp in which Bancorp is not the continuing or
surviving corporation or pursuant to which Voting Securities
would be converted into cash, securities, or other property,
other than a merger of Bancorp in which the holders of Voting
Securities immediately prior to the merger have the same
proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (ii) any sale,
lease, exchange, or other transfer (in
- 3 -
<PAGE> 4
one transaction or a series of related transactions) of all,
or substantially all, of the assets of Bancorp, provided that
any such consolidation, merger, sale, lease, exchange, or
other transfer consummated at the insistence of an appropriate
banking regulatory agency shall not constitute a Change in
Control; or
(4) Approval by the shareholders of Bancorp of any
plan or proposal for the liquidation or dissolution of
Bancorp.
"Change in Control Date" shall mean the first date following a
Grant Date on which a Change in Control has occurred.
"Code" shall mean the Internal Revenue Code of 1986, as
amended and in effect from time to time. Where the context so requires,
any reference to a particular Code section shall be construed to refer
to the successor provision to such Code section.
"Commencement Date" shall mean the date a Non-Employee
Director first becomes a member of the Board.
"Committee" shall mean the Compensation Committee of the
Board, or any successor committee.
"Disability" shall mean permanent and total disability as
defined in Section 22(e)(3) of the Code.
- 4 -
<PAGE> 5
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended and in effect from time to time. Where the context
so requires, any reference to a particular section of the Exchange Act,
or to any rule promulgated under the Exchange Act, shall be construed
to refer to the successor provisions to such section or rules.
"Fair Market Value" For all purposes of the Plan, the
"Fair Market Value" of Shares on a particular day shall be determined
without regard to any restrictions (other than a restriction which, by
its terms, will never lapse) and shall mean:
(1) The low sale price as reported for that day in
The Wall Street Journal by the National Market System
of the National Association of Securities Dealers Automated
Quotation System (NASDAQ); or
(2) If the low sale price is not reported in The
Wall Street Journal for that day, the low sale price quoted
by NASDAQ for that day.
If no sale price is reported in The Wall Street Journal or
quoted by NASDAQ for that day, the low sale price reported or quoted
for the immediately preceding day on which it was reported or quoted
shall be used.
- 5 -
<PAGE> 6
"Grant Date" shall mean the date on which an Option is granted
under the Plan.
"Manager" shall mean the Manager of Bancorp's Human Resources
Group.
"Non-Employee Director" shall mean a member of the Board who
is not an employee of Bancorp or any Subsidiary.
"Option" shall mean an option granted to a Non-Employee
Director under the Plan.
"Optionee" shall mean a Non-Employee Director who receives a
grant of an Option pursuant to the Plan.
"1993 Plan" shall mean the previously adopted U. S. Bancorp
1993 Non-Employee Director Stock Option Plan.
"Plan" shall mean this U.S. Bancorp 1995 Non-Employee Director
Stock Option Plan.
"Retirement" shall mean an Optionee's retirement from the
Board by reason of attaining the maximum age for directors specified in
the bylaws of Bancorp.
"Shares" shall mean the $5.00 par value common stock of
Bancorp.
"Subsidiary" shall mean a "subsidiary corporation" of Bancorp
as defined in Section 425(f) of the Code.
"Voting Securities" shall mean Bancorp's issued and
outstanding securities ordinarily having the right to vote at elections
for Bancorp's Board.
- 6 -
<PAGE> 7
2.2 Gender and Number. Except when otherwise indicated by the context,
any masculine or feminine terminology when used in the Plan shall also include
the opposite gender; and the definition of any term herein in the singular shall
also include the plural, and vice versa.
ARTICLE 3
ELIGIBILITY
The persons eligible to receive Options under the Plan are the
individuals who become Non-Employee Directors of Bancorp after the Adoption
Date.
ARTICLE 4
ADMINISTRATION
4.1 General. The Plan shall be administered by the Committee, which
shall have full power and authority, subject to the provisions of the Plan, to
supervise administration of the Plan and interpret the provisions of the Plan
and any Options granted hereunder. Any decision by the Committee shall be final
and binding on all parties. No member of the Committee shall be liable for any
determination, decision, or action made in good faith with respect to the Plan
or any Options under the Plan. The Committee may delegate any of such
responsibilities to one or more agents and may retain advisors to advise it. No
Optionee shall participate in the decision of any question relating exclusively
to an Option granted to that Optionee.
4.2 Rules and Interpretation. The Committee shall be vested with full
authority to make such rules and regulations as it deems necessary to administer
the Plan and to interpret and
- 7 -
<PAGE> 8
administer the provisions of the Plan in a uniform manner. Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration, or application of the Plan shall be final,
conclusive, and binding on all parties.
4.3 Records. The Committee shall have overall responsibility for
keeping records and providing necessary communications to Optionees. The records
of the Committee with respect to the Plan shall be conclusive and binding on all
Optionees and all persons or entities claiming through or under them.
4.4 Expenses. The cost of settling Options pursuant to this Plan and
the expenses of administering the Plan shall be borne by Bancorp.
ARTICLE 5
SHARES SUBJECT TO OPTIONS
The stock subject to Options to be granted under this Plan shall be
Shares, which may either be authorized and unissued Shares or reacquired Shares.
The total number of Shares which may be issued pursuant to the exercise of
Options granted under this Plan shall not exceed 25,000 Shares, or such greater
number of Shares as is determined pursuant to an adjustment under Article 8. In
the event any outstanding Options granted under the Plan are canceled or expire
for any reason, the Shares covered by such Options shall become available for
issuance under the Plan.
- 8 -
<PAGE> 9
ARTICLE 6
OPTIONS
6.1 Grant of Options. Each person who first becomes a Non-Employee
Director after the Adoption Date (and who had not been an employee of Bancorp or
a Subsidiary at any time within the one-year period preceding such person's
Commencement Date) shall be granted an Option to purchase 4,000 Shares effective
the Commencement Date. If, and to the extent, Shares remain available for grants
of options under the 1993 Plan, the new Non-Employee Director will first receive
an option for up to 4,000 Shares under the 1993 Plan and, in addition, an Option
under this Plan for the difference, if any, between 4,000 Shares and the number
of Shares covered by the option under the 1993 Plan.
6.2 Terms of Options. Each Option granted under the Plan shall have the
following terms and conditions:
6.2.1 Price. The exercise price per Share of each Option shall
be equal to 100 percent of the Fair Market Value of a Share as of the
respective Grant Date.
6.2.2 Term. The term of each Option shall be unlimited unless
terminated earlier in accordance with the Plan.
6.2.3 Time of Exercise. Unless an Option is terminated or the
time of its exercisability is accelerated in accordance with the Plan,
each Option may be exercised from time to time to purchase Shares
- 9 -
<PAGE> 10
up to the following limits (based on years after the respective Grant
Date):
(a) During the first year - none;
(b) During the second year - up to 50 percent of the total
shares;
(c) During the third year - up to 80 percent of the total
shares; and
(d) After the third year - 100 percent.
6.2.4 Continuation as Director. If an Optionee ceases to be a
member of the Board for any reason, the right to exercise the Option
shall expire at the end of the following periods:
After termination
on account of: Period
----------------- ------
death 1 year
Retirement 5 years
Disability 1 year
any other reason 3 months
6.2.5 Acceleration of Exercisability. Notwithstanding
the schedule provided in subsection 6.2.3, an Option shall become fully
exercisable upon the occurrence of either:
(a) The Optionee's death or withdrawal from the Board by
reason of Disability or Retirement; or
(b) A Change in Control Date.
6.2.6 Nonassignability. Each Option shall be nontransferable
other than by will or by the laws of
- 10 -
<PAGE> 11
descent and distribution and shall be exercisable, during the life of
an Optionee, only by the Optionee or, in the event the Optionee becomes
legally incompetent, by the Optionee's guardian or legal
representative.
6.2.7 Option Agreement. Each Option shall be evidenced
by an Option Agreement substantially in the form attached to this Plan
as Appendix A.
ARTICLE 7
METHOD OF EXERCISE
7.1 Method of Exercise. Each Option may be exercised by delivery of
written notice to Bancorp stating the number of Shares, form of payment, and
proposed date of closing.
7.2 Other Documents. The Optionee shall furnish Bancorp before closing
such other documents or representations as Bancorp may require to assure
compliance with applicable laws and regulations.
7.3 Payment. The purchase price for the Shares purchased upon exercise
of an Option shall be paid in full at or before closing by one or a combination
of the following:
(a) Payment in cash; or
(b) Delivery of previously acquired Shares having a Fair
Market Value equal to the purchase price.
7.4 Previously Acquired Shares. Delivery of previously acquired Shares
in full or partial payment for the
- 11 -
<PAGE> 12
exercise of an Option shall be subject to the following conditions:
(a) The Shares tendered shall be in good delivery form;
(b) The Fair Market Value of the Shares tendered, together with
the amount of cash, if any, tendered shall equal or exceed the exercise
price of the Option;
(c) Any Shares remaining after satisfying the payment for the
Option shall be reissued in the same manner as the Shares tendered; and
(d) No fractional Shares will be issued and cash will not be
paid to the Optionee for any fractional Share value not used to satisfy
the Option purchase price.
ARTICLE 8
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of a recapitalization, stock split, stock dividend,
combination or exchange of Shares, merger, consolidation, reorganization or
liquidation, or any other change in the corporate structure or Shares of
Bancorp, the Board may make such proportionate adjustments in the number and
kind of shares for which Options may be granted under the Plan and, with respect
to outstanding Options granted under the Plan, in the number and kind of shares
covered thereby and in the exercise price, as the Board in its sole discretion
may deem appropriate to give effect to such change in capitalization.
- 12 -
<PAGE> 13
ARTICLE 9
DURATION, AMENDMENT AND TERMINATION
9.1 Duration. The Plan shall become effective on the Adoption Date and
shall continue until all Options granted under the Plan have been exercised or
have lapsed or otherwise been terminated pursuant to the Plan. Expiration or
other termination of the Plan shall not affect outstanding Options.
9.2 Termination and Amendment of the Plan. The Board may terminate the
Plan at any time, provided, however, that any such termination shall not affect
any outstanding Options previously granted under the Plan. The Board may also
make such modifications of the Plan and, with the consent of an Optionee, of the
terms and conditions of any Option granted under the Plan, as it shall deem
advisable. Notwithstanding the foregoing, the Plan shall not be amended more
than once every six months other than amendments to comport with changes in the
Code or the requirements of Rule 16b-3 under the Exchange Act.
ARTICLE 10
MISCELLANEOUS
10.1 Board Membership. Nothing in the Plan or in any Option granted
pursuant to the Plan shall confer upon any Optionee any right to continue as a
director of Bancorp or to interfere in any way with the right of the
shareholders of Bancorp to remove a director at any time.
10.2 Tax Reimbursement. Bancorp shall have the right, in connection
with the exercise of an Option, to require the Optionee recipient to pay to
Bancorp an amount sufficient to
- 13 -
<PAGE> 14
provide for any withholding tax liability imposed with respect to such exercise.
10.3 Securities Laws. Bancorp shall not be required to distribute any
Shares upon exercise of an Option until it shall have taken any action required
to comply with the provisions of the Securities Act of 1933 or any other then
applicable securities laws.
10.4 Applicable Law. To the extent that federal laws (such as the Code
and the federal securities laws) do not otherwise control, the Plan shall be
governed and construed in all respects in accordance with Oregon law.
Executed and approved on behalf of Bancorp as of June 15, 1995.
U.S. BANCORP
By /s/ Judith L. Rice
----------------------------
Judith L. Rice
Executive Vice President
- 14 -
<PAGE> 15
APPENDIX A
OPTION AGREEMENT
UNDER THE
U.S. BANCORP
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
DATED: _____________, 19__
U.S. Bancorp
an Oregon Corporation
Human Resources Group
555 S.W. Oak
Portland, Oregon 97204 ("Bancorp")
- --------------------------
- --------------------------
- -------------------------- ("Optionee")
Bancorp maintains the U.S. Bancorp 1995 Non-Employee Director Stock
Option Plan (the "Plan"). A copy of the Plan is attached hereto as Exhibit A and
is incorporated by reference in this Agreement. Capitalized terms not otherwise
defined in this Agreement, have the meanings given them in the Plan.
The Plan is administered by the Committee for the benefit of certain
Non-Employee Directors of Bancorp.
The parties agree as follows:
1. Grant of Option
Subject to the terms and conditions of this Agreement and the Plan,
Bancorp grants to the Optionee a stock option (the "Option") only to purchase
______ Shares of Bancorp's common stock at $__________ per share.
2. Terms of Option
The Option shall be subject to all the terms and conditions set forth
in the Plan.
3. Conditions Precedent
- A-1 -
<PAGE> 16
Bancorp will use its best efforts to obtain approval of the Plan and
the Option by any state or federal agency or authority that Bancorp determines
has jurisdiction. If Bancorp determines that any required approval cannot be
obtained, the Option shall terminate on notice to the Optionee to that effect.
4. Successorship
Subject to restrictions on transferability set forth in the Plan, this
Agreement shall be binding upon and benefit the parties, their successors and
assigns.
5. Notices
Any notices under this Agreement shall be in writing and shall be
effective when actually delivered personally or through Bancorp interoffice mail
service, or, if mailed, when deposited as registered or certified mail directed
to the address of Bancorp's records or to such other address as a party may
certify by notice to the other party. Notices to Bancorp shall be sent to the
Manager of the Human Resources Group at Bancorp's address.
U.S. BANCORP
By
------------------------------
Judith L. Rice,
Executive Vice President
OPTIONEE
------------------------
- A-2 -
<PAGE> 1
EXHIBIT 12.1
U.S. BANCORP AND SUBSIDIARIES
COMPUTATION OF RATIOS OF CONSOLIDATED
EARNINGS TO FIXED CHARGES
(In Thousands)
<TABLE>
<CAPTION>
For Nine Months
Ended September 30,
1995
----
<S> <C>
Considering Interest on Deposits as an Operating Expense
- --------------------------------------------------------
Net income $ 217,708
Income taxes 122,056
---------
Earnings before income taxes and accounting changes 339,764
---------
Add fixed charges
Interest on borrowed funds 166,552
Interest income from federal funds sold (A) (2,112)
Interest component of leases (B) 10,423
---------
Total fixed charges 174,863
---------
Earnings before income taxes, accounting changes and fixed charges $ 514,627
=========
Ratio of earnings to total fixed charges 2.94 X
=========
Considering Interest on Deposits as Fixed Charges
- -------------------------------------------------
Fixed charges as shown above $ 174,863
Interest on deposits 332,265
---------
Total fixed charges 507,128
Add earnings before income taxes and accounting changes 339,764
---------
Earnings before income taxes, accounting changes and fixed charges $ 846,892
=========
Ratio of earnings to total fixed charges 1.67 X
=========
</TABLE>
- -----------------
(A) Approximates interest expense related to federal funds purchased
transactions for purposes other than the funding of banking
subsidiaries' operations.
(B) Interest component of leases includes imputed interest on capitalized
leases and approximately one-third of rental expense, which
approximates the interest component of operating leases.
<PAGE> 1
EXHIBIT 12.2
U.S. BANCORP AND SUBSIDIARIES
CAPITAL RATIOS
(In Thousands)
<TABLE>
<CAPTION>
September 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Total assets as reported $ 21,600,836 $ 21,509,229
Shareholders' equity as reported 1,951,379 1,774,262
Tier 1 capital 1,785,696 1,610,625
Total capital 2,357,879 2,174,935
Weighted risk assets 20,498,559 19,872,960
Adjusted quarterly average assets 20,938,857 20,922,090
Ratios
Tier 1 capital to weighted risk assets 8.71 8.10%
Total capital to weighted risk assets 11.50 10.94%
Tier 1 capital to adjusted average assets (leverage ratio) 8.53 7.70%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,483,046
<INT-BEARING-DEPOSITS> 1,113
<FED-FUNDS-SOLD> 172,769
<TRADING-ASSETS> 172,943
<INVESTMENTS-HELD-FOR-SALE> 1,236,836
<INVESTMENTS-CARRYING> 1,173,697
<INVESTMENTS-MARKET> 1,175,196
<LOANS> 16,114,898
<ALLOWANCE> 318,261
<TOTAL-ASSETS> 21,600,836
<DEPOSITS> 15,539,951
<SHORT-TERM> 2,514,952
<LIABILITIES-OTHER> 481,621
<LONG-TERM> 821,760
<COMMON> 491,694
0
150,000
<OTHER-SE> 1,309,685
<TOTAL-LIABILITIES-AND-EQUITY> 21,600,836
<INTEREST-LOAN> 1,113,403
<INTEREST-INVEST> 110,612
<INTEREST-OTHER> 21,363
<INTEREST-TOTAL> 1,245,378
<INTEREST-DEPOSIT> 332,265
<INTEREST-EXPENSE> 498,817
<INTEREST-INCOME-NET> 746,561
<LOAN-LOSSES> 63,421
<SECURITIES-GAINS> 2,307
<EXPENSE-OTHER> 655,939
<INCOME-PRETAX> 339,764
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 217,708
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.12
<YIELD-ACTUAL> 5.49
<LOANS-NON> 124,111
<LOANS-PAST> 20,849
<LOANS-TROUBLED> 10,781
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 305,802
<CHARGE-OFFS> 72,629
<RECOVERIES> 24,857
<ALLOWANCE-CLOSE> 318,261
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
