<PAGE> 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.
<PAGE> 2
U. S. BANCORP
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <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 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
</TABLE>
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
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(In Thousands) 1996 1995 1995
-------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(CONTINUED)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(In Thousands) 1996 1995 1995
------------ ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
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
---------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
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
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
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)
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE> 8
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
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
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE> 9
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
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
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
9
<PAGE> 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
<PAGE> 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
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
---------------------- Percent ------------------------- Percent
1996 1995 Change 1996 1995 Change
---------- ---------- --------- ---------- ---------- --------
(In Millions, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 12
SELECTED FINANCIAL DATA, (CONTINUED)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
------------------------ Percent ------------------------ Percent
1996 1995 Change 1996 1995 Change
---------- ---------- --------- ---------- ---------- ---------
(In Millions, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
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 --
</TABLE>
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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
--------------------------- Percent --------------------------- Percent
(In Thousands) 1996 1995 Change 1996 1995 Change
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
========= ========= ===== ========= ========= ===
</TABLE>
(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
<PAGE> 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)
<TABLE>
<CAPTION>
Net
Interest Interest Interest
(In Millions) Income Expense Income
--------- --------- --------
<S> <C> <C> <C>
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
======== ====== ======
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
NET INTEREST MARGIN ANALYSIS June 30, June 30,
-------------------- --------------------
(Tax-equivalent Basis) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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%
==== ==== ==== ====
</TABLE>
16
<PAGE> 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.
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
------------------------- Percent ------------------------- Percent
(In Thousands) 1996 1995 Change 1996 1995 Change
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
========= ========= ========= ========= ========= ===
</TABLE>
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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
June 30, June 30,
------------------------ Percent ------------------------- Percent
(In Thousands) 1996 1995 Change 1996 1995 Change
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
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)%
========= ========= == ========= ========= ==
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Severance, Facilities
Retention and and
Other Employee Account Professional
(In Millions) Related Costs Conversions Fees Other Total
-------------- ----------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
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
===== ===== ===== ===== =====
</TABLE>
20
<PAGE> 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
<PAGE> 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.
<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>
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
<PAGE> 23
The table below presents the change in the allowance for credit losses
for the periods indicated.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Six Months Six Months
Ended Year Ended Ended
June 30, December 31, June 30,
(In Thousands) 1996 1995 1995
------------ ------------- -------------
<S> <C> <C> <C>
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%
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(In Thousands) 1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
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%
</TABLE>
24
<PAGE> 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:
<TABLE>
<CAPTION>
Risk-Based
Capital Ratios
----------------------
Total Total Leverage
(In Millions) Assets Tier 1 Capital Ratio
-------- ------ --------- --------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 1
EXHIBIT 12.2
U.S. BANCORP AND SUBSIDIARIES
CAPITAL RATIOS
<TABLE>
<CAPTION>
June 30,
---------------------------------
(In Thousands) 1996 1995
------------ ------------
<S> <C> <C>
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%
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2104850
<INT-BEARING-DEPOSITS> 1246
<FED-FUNDS-SOLD> 619578
<TRADING-ASSETS> 124822
<INVESTMENTS-HELD-FOR-SALE> 3064160
<INVESTMENTS-CARRYING> 853650
<INVESTMENTS-MARKET> 859864
<LOANS> 23941010
<ALLOWANCE> 455135
<TOTAL-ASSETS> 32789437
<DEPOSITS> 23897595
<SHORT-TERM> 3488239
<LIABILITIES-OTHER> 1014818
<LONG-TERM> 1504284
0
150000
<COMMON> 778103
<OTHER-SE> 1956398
<TOTAL-LIABILITIES-AND-EQUITY> 32789437
<INTEREST-LOAN> 1069328
<INTEREST-INVEST> 115606
<INTEREST-OTHER> 24307
<INTEREST-TOTAL> 1209241
<INTEREST-DEPOSIT> 377154
<INTEREST-EXPENSE> 500734
<INTEREST-INCOME-NET> 708507
<LOAN-LOSSES> 56642
<SECURITIES-GAINS> 4395
<EXPENSE-OTHER> 588382
<INCOME-PRETAX> 373884
<INCOME-PRE-EXTRAORDINARY> 239976
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239976
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
<YIELD-ACTUAL> 5.26
<LOANS-NON> 104706
<LOANS-PAST> 36089
<LOANS-TROUBLED> 5305
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 434508
<CHARGE-OFFS> 68077
<RECOVERIES> 17207
<ALLOWANCE-CLOSE> 455135
<ALLOWANCE-DOMESTIC> 455135
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
