<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-3505
U. S. BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
OREGON 93-0571730
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
111 S.W. FIFTH AVENUE, PORTLAND, OREGON 97204
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 275-6111
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
8 1/8% CUMULATIVE PREFERRED STOCK, SERIES A
(TITLE OF CLASS)
COMMON STOCK, PAR VALUE FIVE DOLLARS PER SHARE
(TITLE OF CLASS)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
$5,509,308,056 at February 7, 1997
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
CLASS OUTSTANDING AT FEBRUARY 7, 1997
Common Stock, Par Value Five Dollars Per Share 147,934,549 Shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K into which the document is incorporated: Portions of
the U. S. Bancorp Definitive Proxy Statement dated March 13, 1997, are
incorporated by reference into Part III of Form 10-K.
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INDEX
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Page
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PART I
Item 1. Business 1
General 1
Commercial Banking 1
Retail Banking 1
Corporate Banking 2
Investment Services and Trust 2
Nonbank Subsidiaries 2
Competition 3
Employees 3
Monetary Policies 3
Supervision and Regulation 3
U. S. Bancorp 3
Bank Subsidiaries 4
Nonbank Subsidiaries 5
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Executive Officers of the Registrant 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
Item 8. Financial Statements and Supplementary Data 32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 68
PART III
Item 10. Directors and Executive Officers of the Registrant 68
(See Part I for Executive Officers of the Registrant)
Item 11. Executive Compensation 68
Item 12. Security Ownership of Certain Beneficial Owners and Management 68
Item 13. Certain Relationships and Related Transactions 68
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 68
SIGNATURES 69
EXHIBIT INDEX 71
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<PAGE> 3
PART I
Item 1. Business
GENERAL
U. S. Bancorp ("Bancorp") is a regional bank holding company incorporated
in the state of Oregon in 1968 and headquartered in Portland, Oregon. Bancorp's
principal activities are located in the Northwest, but it has operations
throughout the Far West and, to a lesser extent, the rest of the United States.
At December 31, 1996, Bancorp had consolidated assets of $33.3 billion and
shareholders' equity of $2.7 billion. Bancorp is among the 30 largest bank
holding companies in the United States in terms of total assets. The principal
banking subsidiaries of Bancorp at December 31, 1996, were United States
National Bank of Oregon ("U.S. Bank of Oregon"), U.S. Bank of Washington,
National Association ("U.S. Bank of Washington"), U.S. Bank of Idaho, U.S. Bank
of California, U.S. Bank of Nevada, and U.S. Bank of Utah (collectively the
"banking subsidiaries"). It is anticipated that the banking subsidiaries will be
merged into U.S. Bank of Oregon by September 1997 as permitted by the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. See also
"Supervision and Regulation."
The banking subsidiaries of Bancorp are engaged in general retail and
corporate banking, and provide investment and trust services. U.S. Bank of
Oregon and U.S. Bank of Idaho are each the largest commercial banks, in terms of
deposits, in their states, while the other banking subsidiaries have significant
presences in their states and chosen markets. Other subsidiaries of Bancorp
provide financial services related to banking, including lease financing,
discount brokerage, investment advisory services, and insurance agency and
credit life insurance services. In addition, the investment advisor subsidiary
of U.S. Bank of Oregon, Qualivest Capital Management, Inc. advises a group of
mutual funds, the Qualivest Funds.
Bancorp actively reviews proposals for various acquisition opportunities
with which it is regularly presented. In 1996, Bancorp completed the integration
of operations and subsidiaries acquired through its 1995 merger with West One
Bancorp. Additionally, in June 1996 Bancorp acquired California Bancshares, Inc.
("CBI"), a bank holding company operating in the east San Francisco Bay Area and
the Central Valley of Northern California. Effective January 1, 1997, Bancorp
acquired Sun Capital Bancorp, a single bank holding company, with operations in
Utah and Nevada. Operations of the bank subsidiaries of CBI and Sun Capital
Bancorp are expected to be merged with U.S. Bank of California and U.S. Bank of
Utah, respectively, during 1997. Bancorp intends to continue to consolidate
operations and subsidiaries in connection with ongoing acquisitions and to
maximize cost management, and operating efficiencies, while meeting its
corporate objectives and the needs of regional customers.
In December 1996, Bancorp entered into a definitive agreement to acquire
Business and Professional Bank, located in Sacramento, California, with assets
of $214 million. Bancorp has given Business and Professional Bank written notice
under the agreement that the bank has 45 days to cure the adverse effects of
having inadvertently distributed certain borrower information with its proxy
materials for the merger vote.
COMMERCIAL BANKING
Bancorp's banking subsidiaries provide full-service retail and corporate
banking and a wide range of investment and trust services to individuals,
businesses and governmental entities throughout their respective states of
operation and, to a lesser extent, in other areas of the United States and
abroad. At December 31, 1996, Bancorp's banking subsidiaries had more than 600
banking offices and 1,300 automated teller machines located in Oregon,
Washington, Idaho, Northern California, Nevada and Utah.
RETAIL BANKING
Bancorp's banking subsidiaries provide products and services to individual
customers and business banking customers throughout Bancorp's primary six state
region. Services include traditional bank and in-store branch checking, savings,
and
1
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other time deposit and loan services, UBANK(R) automated teller machines at more
than 1,300 locations, 24-hour telephone banking, U.S. LOAN LINE(R), a full
service loan center by telephone, and UBANK ON-Line for personal computer
banking. Loan services offered by Bancorp's banking subsidiaries include real
property loans (including for home improvements), extensions of credit for
purchases of automobiles and other consumer goods and services, and individual
lines of credit both unsecured and secured. Major purchase lines of credit
secured by real estate are also available from any of the banking subsidiaries.
CORPORATE BANKING
Bancorp's banking subsidiaries provide financial services to commercial
customers in business and industry. The services provided include loans;
mortgage and interim construction financing on residential, industrial and
commercial properties; inventory financing; equipment leasing; acceptance
financing; commodity loans and other specialized types of credit; merchant and
investment banking, and cash management services, including balance and deposit
reporting. Small business loans are available through business banking centers.
Additionally, the banking subsidiaries maintain financial relationships with
numerous companies based outside the Northwest, providing lines of credit and
other financial services.
Bancorp's banking subsidiaries also provide a broad range of international
banking products and services including letters of credit, collections,
remittance services, foreign exchange, overseas banking, and import/export trade
financing through offices throughout Bancorp's region. Bancorp's International
Banking Division also maintains correspondent account relationships with foreign
banks throughout the world to facilitate loans, letters of credit, acceptances,
collections and exchange services abroad.
Bancorp maintains comprehensive lending policies and guidelines associated
with the many and varied loan products offered by its retail and corporate
operations. The policies and guidelines require sequential levels of credit
review for distribution, risk, and loan documentation. The information included
herein regarding loan products is a brief summary. Information included under
the headings "Loan Portfolio" and "Provision and Allowance for Credit Losses" on
pages 18 and 24 respectively of this report is incorporated herein by reference.
INVESTMENT SERVICES AND TRUST
A full range of investment services and trust services are provided to
Bancorp customers. The bank subsidiaries act as trustee or agent for living
trusts, testamentary trusts, investment management relationships, pension plans,
profit sharing plans and IRA relationships. Trust assets under management by the
banking subsidiaries at December 31, 1996, totaled over $9 billion. Investment
advisory services may also be obtained directly through Qualivest Capital
Management, Inc., a registered investment advisor. Sales of investment
securities and certain insurance products are distributed through direct
marketing and by individual licensed representatives of U.S. Bancorp Securities
or Bancorp's insurance subsidiaries. See also "Nonbank Subsidiaries."
NONBANK SUBSIDIARIES
Bancorp's major wholly-owned nonbank subsidiaries, including subsidiaries
of banks, totaled 18 companies as of December 31, 1996. These subsidiaries
operate in the fields of insurance services, equipment leasing, investment
advisory services and brokerage, among others. Among Bancorp's nonbank
subsidiaries are the following:
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COMPANY OFFICE LOCATIONS
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California, Idaho, Nevada, Oregon, Utah,
Qualivest Capital Management, Inc. Washington
U.S. Bancorp Securities California, Idaho, Nevada, Oregon, Washington
U.S. Bancorp Insurance Agency, Inc. Oregon
U.S. Bancorp Insurance Oregon, Idaho
West One Life Insurance Company Oregon
U.S. Bancorp Leasing and Financial 54 offices in 25 states
- ---------------------------------------------------------------------------------------
</TABLE>
2
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COMPETITION
Bancorp competes for deposits, loans, trust accounts, and the provision of
other financial services with independent locally controlled banks, branches of
foreign banks, and banks which are subsidiaries of bank holding companies based
outside the Northwest, local and national personal loan companies, local and
national insurance companies, local and national finance companies and other
institutions such as brokerage houses and financial units of out-of-state bank
holding companies. All of these entities are actively engaged in marketing
various types of loans and other financial services. Quality of service to
customers, price of products, range of products and services and ease of
accessibility to facilities are among the principal methods of meeting
competition in the banking and financial services industries. Bancorp emphasizes
responsive service, delivery of high quality service, and value throughout the
organization.
EMPLOYEES
As of December 31, 1996, Bancorp and its subsidiaries had 14,055 full-time
equivalent employees. A number of benefit programs are provided to all eligible
employees, including officers, of Bancorp and its subsidiaries, including:
retirement and 401(k) plans, medical, dental and long-term disability plans,
life insurance, accidental death and dismemberment insurance, a travel accident
plan, paid vacations and a sick leave program.
MONETARY POLICIES
The growth of Bancorp and its subsidiaries is affected by both the
prevailing economic environment and the fiscal and monetary policies of branches
and agencies of the U.S. Government. The Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") directly influences corporate
performance through management of such factors as the reserves required of
financial institutions, the growth and contraction of the nation's money supply,
and interest rates paid by banks in their borrowings from and through the
Federal Reserve System. The Federal Reserve Board carries additional regulatory
authority over member banks and holding company activities. These powers allow
federal authorities substantial control of financial activity in general and
also of the operations of financial institutions. Monetary policies of the
Federal Reserve Board have had and will continue to have a significant effect on
the operating results of financial institutions.
SUPERVISION AND REGULATION
U. S. BANCORP
Bancorp, as a bank holding company, is subject to regulation under the Bank
Holding Company Act of 1956, as amended (the "Act"), and is registered with the
Federal Reserve Board. Bancorp is required by the Act to file reports of its
operations with the Federal Reserve Board and is subject to inspection by the
Federal Reserve Board. The Federal Reserve Board has authority to issue cease
and desist orders against holding companies and their nonbank subsidiaries where
the action of either of them constitutes a serious threat to the safety,
soundness or stability of a subsidiary bank and to pursue criminal penalties for
willful violations and civil penalties for violations under the Act.
The Act and the Federal Reserve Board's regulations pursuant thereto
require every bank holding company to obtain the prior approval of the Federal
Reserve Board before merging with any bank holding company or acquiring
substantially all the assets of any bank, or direct or indirect ownership or
control of more than five percent of the voting shares of any bank or bank
holding company. The Act provides that the Federal Reserve Board shall not
approve any acquisition or merger which would result in a monopoly, or which
would be in furtherance of any attempt to monopolize the business of banking in
any part of the United States, or any other proposed acquisition or merger, the
effect of which may be in furtherance of any attempt to monopolize the business
of banking in any part of the United States, or any other proposed acquisition
or merger, the effect of which may be substantially to lessen competition or to
tend to create a monopoly in any section of the country or which in any other
manner would be in restraint of trade, unless the anti-competitive effects of
the proposed transaction are clearly
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outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the community to be served. In reviewing
applications, the Federal Reserve Board analyzes the financial and managerial
resources and future prospects of the companies and banks involved and the
convenience and needs of the community to be served.
The Act also prohibits a bank holding company, with certain exceptions,
from engaging in or acquiring direct or indirect control of more than five
percent of the voting shares of any company engaged in nonbanking activities.
The Federal Reserve Board is authorized to approve, among other things, the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making such determination, the Federal Reserve Board is required to weigh the
expected benefits to the public, such as greater convenience, increased
competition or gains in efficiency, against the risks of possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices.
Bancorp and its banking subsidiaries are subject to the Community
Reinvestment Act ("CRA"), which is aimed particularly at encouraging financial
institutions to give special attention to the needs of low and moderate income
areas in meeting the credit needs of the communities in which they operate. If
the regulatory evaluation of a banking subsidiary's CRA activities is less than
satisfactory, regulatory approval of the bank's or a related entity's proposed
acquisitions, branch openings, expansion of activities related to banking, or
other applications requiring Federal Reserve Board approval may be delayed until
the bank's CRA performance is deemed satisfactory by the appropriate bank
regulatory agency. Bancorp's banking subsidiaries that are subject to the CRA
each have regulatory evaluations of satisfactory or better. Most of Bancorp's
banking subsidiaries received CRA regulatory evaluations of outstanding in 1996,
including its three largest, U.S. Bank of Oregon, U.S. Bank of Washington, and
U.S. Bank of Idaho.
Bancorp, its banking subsidiaries, and its nonbank subsidiaries are
affiliates of each other within the meaning of the Federal Reserve Act. The
Federal Reserve Act, the Federal Deposit Insurance Act, and the Home Owners'
Loan Act impose certain restrictions on loans by Bancorp's banking subsidiaries
to Bancorp or certain nonbank affiliates, on purchases of certain assets by
Bancorp's banking subsidiaries from Bancorp or certain nonbank affiliates, on
investments by Bancorp's banking subsidiaries in their stock or securities and
on Bancorp's banking subsidiaries taking such stock and securities as collateral
for loans. Bancorp and its subsidiaries, as affiliates of Bancorp's banking
subsidiaries, are also subject to certain restrictions with respect to engaging
in the issue, flotation, underwriting, public sale and distribution of
securities. Under Section 106 of the 1970 amendments to the Act and the
regulations of the Federal Reserve Board, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or service.
BANK SUBSIDIARIES
In 1994, Congress enacted the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, which allows adequately capitalized and managed bank
holding companies to acquire and operate banks across state lines beginning in
1997. Commencing in June 1997, banks will be permitted to cross state lines to
merge with other banks, subject to individual states' adoption of various
nondiscriminatory opt-in and opt-out provisions. Each of the states in which
Bancorp operates has opted into interstate banking. Bancorp has announced its
intention to become a fully integrated interstate financial institution with
mergers and consolidation of operations and services among most of its banking
subsidiaries expected to be completed by September 1997.
There are various requirements and restrictions affecting Bancorp's bank
subsidiaries, including the requirement to maintain reserves against deposits,
restrictions on the nature and amount of loans, and restrictions relating to
investments, branching and other activities of the banks. Bancorp's national
banking subsidiaries are subject to regulation by the Office of the Comptroller
of the Currency (the "Comptroller"), the Federal Reserve Board and the Federal
Deposit Insurance Corporation (the "FDIC"), and are examined by the Comptroller,
which is the primary supervisory authority for national banks. Other bank
subsidiaries of Bancorp may be subject to regulation by the appropriate state
regulatory agency, the Federal Reserve Board, or the FDIC.
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Each of Bancorp's national banking subsidiaries can initiate dividend
payments in a given year, without the prior approval of the Comptroller, in
amounts equal to net profits (as defined by regulation) for that year combined
with its retained net profits for the preceding two calendar years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock. In addition, a national bank may not pay a dividend in an amount greater
than its net profits then on hand after deducting statutory bad debt in excess
of the bank's allowance for loan losses. The payment of dividends by Bancorp's
national bank subsidiaries may also be affected by other factors, such as
requirements for the maintenance of adequate capital. In addition, federal bank
regulatory agencies have issued policy statements which provide that national
banks, banks that are members of the Federal Reserve System, and bank holding
companies should generally pay dividends only out of current operating earnings.
Bancorp's state chartered banking subsidiaries are subject to state law
restrictions on dividend payments. Dividend payments which are considered
extraordinary or a reduction of capital under state law are generally subject to
prior approval by state regulators and the FDIC.
The federal banking laws contain a "cross-guarantee" provision which could
result in Bancorp or one of the insured depository institutions which it owns
being assessed for losses incurred by the FDIC in connection with assistance
provided to, or the failure of, any other depository institution owned by
Bancorp.
The FDIC Improvement Act of 1991 authorized the imposition of stricter
capital requirements on banks. If a bank is undercapitalized, the bank will be
required to develop and submit a plan for the restoration of its capital. If the
bank's efforts to restore capital are inadequate, the parent holding company, if
any, may be required to contribute additional capital to the bank, up to the
lesser of the full amount needed to bring the bank's capital level into
compliance or five percent of the bank's total assets at the time it became
undercapitalized. Each federal banking agency is also required to promulgate
regulations and specify standards in numerous areas of bank operations,
addressing such issues as internal control and audit systems, loan
documentation, credit underwriting, interest rate risk, asset growth, executive
officer and director compensation, asset quality, and other operational and
managerial standards. These regulatory requirements have increased and may
continue to increase the cost of, and the regulatory burden associated with, the
banking business.
Bancorp's bank subsidiaries pay assessments on their domestic deposits to
the FDIC's Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF"). Under the FDIC's risk-based insurance premium assessment system, each
bank whose deposits are insured by the BIF or SAIF is assessed premiums with
rates dependent upon certain capital and supervisory measures. All of Bancorp's
bank subsidiaries qualify for the lowest assessed premium rate. Additionally, in
1996, Bancorp paid a one-time special assessment of $10.3 million for
recapitalization of the SAIF-insured deposits in various Bancorp institutions.
The FDIC has authority to impose special assessments from time to time.
Bancorp's bank subsidiaries also are required to pay annual FICO premium
assessments to FICO, the FDIC's Financing Corporation, for the recapitalization
of the Federal Savings and Loan Insurance Corporation.
Activities of Bancorp and its banking subsidiaries in other countries are
also subject to restrictions imposed by the laws and banking authorities of such
countries and the Federal Reserve Board. The foregoing references to applicable
statutes and regulations are brief summaries thereof which do not purport to be
complete and which are qualified in their entirety by reference to such statutes
and regulations. The information included under the heading "Capital and
Dividends" on page 27 of this report is incorporated herein by reference.
NONBANK SUBSIDIARIES
Nonbank subsidiaries of Bancorp in the states of Oregon, Washington,
California, Idaho, Nevada, and Utah and other jurisdictions are subject to the
supervision and inspection of various federal and/or state regulatory agencies.
Item 2. Properties
The headquarters of Bancorp and U.S. Bank of Oregon are located in downtown
Portland, Oregon, in the U.S. Bancorp Tower. The Tower contains approximately
751,600 rentable square feet of space and was, as of December 31, 1996, 94
percent committed for occupancy including the approximately 299,787 square feet
utilized by Bancorp and its subsidiaries. Bancorp
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owns five additional buildings located in the Portland metropolitan area,
including the Bancorp operations center. The operations facility, with
approximately 360,000 square feet of space, houses Bancorp's information
services and data processing functions. The banking subsidiaries own or lease
other land and buildings adequate to house their full service branch offices and
other banking facilities, including headquarter office buildings in Seattle,
Boise, Sacramento, Reno, and Salt Lake City.
Item 3. Legal Proceedings
There were no legal proceedings requiring disclosure pursuant to this item
pending at December 31, 1996, or at the date of this report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of Bancorp's common
stock during the fourth quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
All officers of the registrant are elected or appointed by the board of
directors to hold their offices at the pleasure of the board. At February 7,
1997, the executive officers of Bancorp were as follows:
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SERVED AS
AGE AT EXECUTIVE OFFICER JOINED
NAME 12/31/96 POSITION SINCE BANCORP
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Dwight V. Board 52 Executive Vice President and Secretary December 1995 1995
Gerry B. Cameron 58 Director, Chairman of the Board, Chief Executive Officer, March 1979 1956
and President
Phyllis J. Campbell 45 President and Chief Executive Officer, U.S. Bank of November 1989 1987
Washington; Executive Vice President, U.S. Bancorp
Thomas P. Ducharme 45 Executive Vice President and Treasurer June 1994 1994
Gary T. Duim 52 Executive Vice President January 1993 1987
Steven P. Erwin 53 Executive Vice President and Chief Financial Officer July 1994 1994
John D. Eskildsen 59 President and Chief Executive Officer, U.S. Bank of Oregon; July 1989 1959
Executive Vice President, U.S. Bancorp
Arland D. Hatfield 61 Executive Vice President July 1989 1987
Robert J. Lane 51 Executive Vice President December 1995 1995
Judith L. Rice 49 Executive Vice President May 1990 1973
V. Lamoine Saunders 55 Executive Vice President July 1994 1994
Robert D. Sznewajs 50 Vice Chairman April 1994 1994
There are no family relationships among any of the above listed persons.
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The following paragraphs describe the principal occupations, titles and
employment of each of the above persons during the past five years. Many of the
above listed persons hold additional titles in other Bancorp subsidiaries.
(a) Mr. Board has been Executive Vice President in charge of Corporate,
Government and Legal Affairs since December 1995. Mr. Board has been
Secretary since February 1997. For more than five years prior to 1995, Mr.
Board served as Senior Vice President, Secretary and General Counsel of West
One Bancorp.
(b) Mr. Cameron has been Chief Executive Officer and a director since January
1994 and Chairman of the Board since April 1994. He was also President from
April 1994 until December 1995 and was reelected President in February 1997.
Mr. Cameron was Vice Chairman from January 1993 until April 1994. He was
Executive Vice President of U.S. Bank of Oregon from March 1979 until July
1993. Mr. Cameron was elected a director of U.S. Bank of Oregon in January
1993 and was elected Chairman of the Board in July 1993. He was President
and Chief Executive Officer of U.S. Bank of Washington from October 1991
until January 1993.
(c) Ms. Campbell has been President and Chief Executive Officer of U.S. Bank of
Washington and Executive Vice President of Bancorp since January 1993. From
1989 through 1992, Ms. Campbell was Executive Vice President and Manager of
the Distribution Group of U.S. Bank of Washington.
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(d) Mr. Ducharme has been Executive Vice President and Treasurer since June
1994. Previously, Mr. Ducharme provided personal investment and financial
advice and services as an asset management and financial consultant. From
1988 through 1993, Mr. Ducharme was Executive Vice President and Treasurer
of Valley National Bank in Phoenix, Arizona.
(e) Mr. Duim has been Executive Vice President in charge of the Retail Banking
Group since October 1996. Previously he headed the Corporate Banking Group,
a position he assumed in January 1993. From 1988 through 1992, Mr. Duim was
Executive Vice President of U.S. Bank of Washington managing its Commercial
Services Group.
(f) Mr. Erwin has been Executive Vice President and Chief Financial Officer
since July 1994. Mr. Erwin served as Treasurer of BayBanks, Inc. in Boston,
Massachusetts from 1987 until 1994.
(g) Mr. Eskildsen has been Executive Vice President of Bancorp since April 1992
and became President and Chief Executive Officer of U.S. Bank of Oregon in
January 1993. For more than five years prior to 1993, he was Executive Vice
President of U.S. Bank of Oregon and managed its Commercial Services Group.
(h) Mr. Hatfield has been Executive Vice President and Chief Credit Officer of
Bancorp since October 1991 and has headed the Credit Administration and
Policy Group since October 1992.
(i) Mr. Lane has been Executive Vice President since December 1995, and
currently heads the Corporate Banking Group. From 1987 until September
1996, Mr. Lane served as President and Chief Executive Officer, and
director until December 1996, of U.S. Bank of Idaho (formerly known as West
One Bank, Idaho).
(j) Ms. Rice has been Executive Vice President and Manager of the Human
Resources Group since May 1990.
(k) Mr. Saunders has been Executive Vice President heading the systems and
operations areas since August 1994. Mr. Saunders served as Chief Operations
Officer of Valley National Bank of Arizona in Phoenix, Arizona from 1983
until 1992. From 1992 through 1993, Mr. Saunders served as President of
BancStar, Inc. From 1993 until 1994, Mr. Saunders served as National
Operations Manager for BancOne Corporation.
(l) Mr. Sznewajs has been Vice Chairman since May 1995. From April 1994 until
May 1995, Mr. Sznewajs was Executive Vice President of Bancorp in charge of
the Support and Financial Services and Products Group. Since April 1994, he
has also served as Executive Vice President of U.S. Bank of Oregon and U.S.
Bank of Washington. From 1989 until 1993, Mr. Sznewajs was Executive Vice
President and Manager of Retail Banking for Valley National Bank of Arizona
in Phoenix, Arizona. In early 1993, Mr. Sznewajs became Chairman of Bank of
America, N.A., the credit card bank of BankAmerica Corporation.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Bancorp's common stock is traded in The Nasdaq Stock Market under the
symbol USBC. At December 31, 1996, 36 independent brokerage firms were
registered as market makers in Bancorp's common stock. Also at that date, there
were 21,089 shareholders of record of Bancorp's common stock. Approximately 88
percent of those shareholders live in California, Idaho, Oregon or Washington
while approximately 26 percent of the total shares issued and outstanding are
owned by California, Idaho, Oregon and Washington residents. The following table
presents the interday high and low sales prices of Bancorp's common stock for
each quarterly period for the last two years as reported by The Nasdaq Stock
Market:
<TABLE>
<CAPTION>
1996 1995
------------------------------- --------------------------------
4 3 2 1 4 3 2 1
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $ 47 40 3/4 37 3/8 34 5/8 $ 36 29 1/2 27 3/4 26 3/4
Low 38 3/4 33 31 5/8 29 1/4 28 1/4 23 7/8 23 1/2 22
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents quarterly per share cash dividends declared
information for the two-year period 1996-1995:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
4 3 2 1 4 3 2 1
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common dividends declared $.31 .31 .28 .28 $.28 .28 .25 .25
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Bancorp's common dividend payout ratio for each of its last three fiscal
years was as follows: 1996 - 38.3%; 1995 - 50.7%; 1994 - 58.8%.
Reference should be made to Item 1 of this report on page 5 and Note 3 to
the Consolidated Financial Statements on page 45 for a description of
restrictions on the ability of Bancorp's banking subsidiaries to pay dividends
to Bancorp.
8
<PAGE> 11
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with
Bancorp's Consolidated Financial Statements and the accompanying notes presented
elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
% INCREASE
(DECREASE)
(IN MILLIONS, EXCEPT SHARE DATA) 1996 1995 1996 TO 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Interest income $ 2,483.3 $ 2,392.5 4% $ 2,074.4 $ 1,962.2 $ 1,944.7
Interest expense 1,016.7 993.1 2 738.7 698.1 825.2
--------- --------- --------- --------- ---------
Net interest income 1,466.6 1,399.4 5 1,335.7 1,264.1 1,119.5
Net interest income
(taxable-equivalent)(2) 1,510.1 1,449.5 4 1,389.5 1,317.5 1,169.3
Provision for credit losses 135.2 124.1 9 120.1 106.3 148.8
Noninterest revenues 585.2 524.7 12 552.7 620.3 519.3
Noninterest expenses 1,156.6 1,191.9 (3) 1,305.1 1,273.4 1,098.1
Merger and integration costs 18.2 98.9 (82) - - -
Restructuring charge - - - 100.0 - -
Total noninterest expenses 1,174.8 1,290.8 (9) 1,405.1 1,273.4 1,098.1
Income before cumulative effect of
accounting changes 478.9 329.0 46 254.7 341.1 271.5
Cumulative effect of accounting changes - - - - - 59.9
Net income $ 478.9 $ 329.0 46 $ 254.7 $ 341.1 $ 211.6
- ---------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Income before accounting changes $ 3.08 $ 2.09 47% $ 1.60 $ 2.23 $ 1.87
Net income 3.08 2.09 47 1.60 2.23 1.45
Book value 17.40 16.38 6 15.40 15.23 13.45
Cash dividends declared(3) 1.18 1.06 11 .94 .85 .76
Average common shares outstanding
(000's) 151,313 151,554 - 151,392 147,518 142,609
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average common equity 17.99% 12.90% 10.62% 15.71% 14.06%
Return on average assets 1.50 1.09 .87 1.22 1.07
Overhead ratio 56.07 65.38 72.34 65.71 65.03
Net interest margin 5.32 5.38 5.35 5.31 5.17
Average total shareholders' equity to
average assets 8.60 8.63 8.35 8.01 7.50
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Leverage capital ratio 8.17% 7.89% 7.82% 7.64% 7.10%
Risk-based capital ratios
Tier 1 capital ratio 8.11 8.44 8.72 8.95 8.63
Total capital ratio 11.83 11.79 11.38 11.75 11.51
- ---------------------------------------------------------------------------------------------------------------------------
CREDIT QUALITY RATIOS
Nonperforming assets as a % of loans
and foreclosed assets .73% .73% 1.06% 1.44% 1.77%
Allowance as a % of loans 1.90 1.91 1.79 1.77 1.81
Allowance as a % of nonperforming loans 320 336 192 144 117
- ---------------------------------------------------------------------------------------------------------------------------
PERIOD-END BALANCES
Assets $33,260.4 $31,794.3 5% $30,609.1 $29,086.8 $27,874.8
Interest-earning assets 29,242.0 27,883.3 5 27,004.4 25,945.9 24,643.2
Loans 25,046.7 22,784.8 10 21,643.4 19,445.3 18,039.8
Deposits 24,977.0 23,264.7 7 21,859.3 21,447.7 21,061.6
Long-term debt 1,811.5 1,377.0 32 1,244.2 1,161.2 1,437.2
Capital qualifying securities 300.0 - - - - -
Common shareholders' equity 2,560.8 2,467.0 4 2,343.0 2,291.7 1,971.1
Preferred stock 150.0 150.0 - 150.0 150.0 150.0
Full-time equivalent employees 14,055 14,081 - 15,388 17,340 16,273
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1992 net income includes a $59.9 million after-tax charge from the adoption
of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No.
112, "Employers' Accounting for Postemployment Benefits". 1992 income before
accounting changes per common share on a primary and fully diluted basis was
$1.84 and $1.79, respectively; net income per share on a primary and fully
diluted basis was $1.42 and $1.40, respectively. Dilution was not material
in the other periods presented. 1992 returns on average common equity and
assets were computed before accounting changes. After accounting changes,
return on average assets was .84% and return on average common equity was
11.25%.
(2) Includes taxable-equivalent adjustment related to income on certain loans
and securities that is exempt from federal and applicable state income
taxes. The federal statutory tax rate was 34% for 1992 and 35% for
subsequent years presented.
(3) Dividends per share are based on historical Bancorp common cash dividends
declared.
9
<PAGE> 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is management's assessment of U. S. Bancorp and Subsidiaries
(Bancorp) financial condition including the principal factors that affect
results of operations. This discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes to the Consolidated Financial
Statements presented on pages 41 through 66.
PERFORMANCE OVERVIEW
Bancorp achieved record earnings of $478.9 million for 1996, up 46 percent
from $329.0 million in 1995, and up 88 percent from $254.7 million in 1994.
Earnings per common share were $3.08 in 1996, compared with $2.09 per share in
1995, and $1.60 per share in 1994. The 1995 and 1994 periods included
significant charges for merger costs and restructuring, respectively. Bancorp's
1996 results reflect loan growth, an increase in noninterest revenue and
disciplined cost control. Average loans in 1996 totaled $23.9 billion, an
increase of $1.7 billion, or eight percent, from the prior year. This followed
an increase of $1.8 billion, or nine percent, in 1995 compared with 1994. In
1996, Bancorp completed the integration of subsidiaries and operations of West
One Bancorp (West One), and accomplished cost saving objectives ahead of
schedule. Improvement in operating efficiency, as measured by the overhead ratio
(noninterest expenses as a percentage of tax-equivalent net interest income and
noninterest revenues) was achieved in 1996 when the overhead ratio improved to
56 percent in 1996, down from 65 percent in 1995.
Bancorp continued to expand its market presence through strategic
acquisitions. In June 1996, Bancorp purchased California Bancshares, Inc. (CBI),
a bank holding company with $1.6 billion in assets, operating in the East San
Francisco Bay Area and the Central Valley of Northern California. Effective
January 1, 1997, Bancorp completed the purchase acquisition of Sun Capital
Bancorp, based in St. George, Utah, with $70 million in assets.
The quarterly dividend on common shares was increased in the third quarter
of 1996 to $.31 per share. Following Bancorp's announcement in October 1996 of
its plans to repurchase up to 7.5 million shares of its outstanding common
stock, Bancorp purchased 4 million shares in the fourth quarter of 1996. During
1996, Bancorp's bank subsidiaries continued to maintain capital ratios above the
regulatory "well capitalized" level based on notification from the banks'
primary regulators, the Federal Reserve Bank of San Francisco and the Office of
the Comptroller of the Currency.
Bancorp presents, in the table on the next page, a supplemental operating
income analysis to accompany the consolidated statement of income. This
additional table should not be viewed as a substitute for the generally accepted
accounting principle-based financial statements presented elsewhere in this
report. Management believes that the analysis is meaningful to understand the
results and trends in operating income separately from nonrecurring
transactions, noncore activities, certain provisions and other real estate owned
transactions. There are four primary differences between the consolidated
statement of income and the operating income analysis. First, the operating
income analysis presents net interest income on a tax-equivalent basis. Second,
the line items are presented in a slightly different order. Third, certain
transactions that are nonrecurring or that are not related to what management
believes is core business are not included in noninterest revenues and
noninterest expenses in determining operating income. Finally, operating income
is income before the provision for credit losses, other real estate owned
transactions (OREO), noncore/nonrecurring items and income taxes. The provision
for credit losses is deducted 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. Due to the
format of this presentation, not all line items agree directly to the
Consolidated Financial Statements. For detailed information on the items
presented as noncore or nonrecurring, refer to the respective discussions of
"Noninterest Revenues" and "Noninterest Expenses."
10
<PAGE> 13
SUMMARY OF OPERATIONS ANALYSIS (TAX-EQUIVALENT BASIS)
<TABLE>
<CAPTION>
PERCENT PERCENT
(IN MILLIONS) 1996 1995 CHANGE 1994 CHANGE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $1,510.1 $1,449.5 4% $1,389.5 4%
Noninterest revenues 521.8 504.7 3 514.7 (2)
Noninterest expenses 1,147.1 1,187.6 (3) 1,277.1 (7)
--------------------------------------------------------
Operating income 884.8 766.6 15 627.1 22
Provision for credit losses 135.2 124.1 9 120.1 3
OREO transaction income (loss) .8 2.9 N/M (.8) N/M
--------------------------------------------------------
750.4 645.4 16 506.2 27
Noncore/nonrecurring items
Equity investment income (loss) 27.8 3.2 (5.4)
Gain on sale of operations and loans 25.6 8.9 62.9
Other noninterest revenue items 10.0 7.9 (19.5)
Merger and integration costs (18.2) (98.9) -
Restructuring charge - - (100.0)
SAIF assessment (10.3) - -
Other noninterest expense items - (7.2) (27.2)
--------------------------------------------------------
34.9 (86.1) (89.2)
--------------------------------------------------------
Income before income taxes 785.3 559.3 417.0
Less tax-equivalent adjustment included above 43.5 50.1 53.8
Provision for income taxes 262.9 180.2 108.5
--------------------------------------------------------
Net income $ 478.9 $ 329.0 46% $ 254.7 29%
========================================================
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(N/M Not Meaningful.)
Operating income for 1996 increased 15 percent over 1995, after increasing
22 percent in 1995 compared with 1994. Highlights for the periods included:
- Return on average common equity was 17.99 percent in 1996
and the return on average assets was 1.50 percent,
compared with 12.90 percent and 1.09 percent, respectively
in 1995.
- Net interest income increased $60.6 million, or four
percent, in 1996 compared with 1995 and $60.0 million, or
four percent in 1995 compared with 1994. The growth in net
interest income in 1996 resulted primarily from an
increase in average earning assets.
- Noninterest revenues, before noncore/nonrecurring items,
increased $17.1 million, or three percent, in 1996
compared with 1995. The increase reflected the growth in
service charges on deposit accounts, trust and investment
management and mortgage banking income.
- Noninterest expenses, before noncore/nonrecurring items,
decreased $40.5 million, or three percent, in 1996
compared with 1995, and decreased $89.5 million, or seven
percent, in 1995 compared with 1994. The decreases
reflected the impact of the restructuring initiatives
begun in 1994, the cost savings as a result of the merger
with West One, and the reduction of Federal Deposit
Insurance Corporation (FDIC) deposit insurance premiums.
- The higher provisions for credit losses in 1996 and 1995
reflected the impact of the integration of loan portfolios
of acquired companies and, in 1996, also reflected an
increase in charge-offs as a percentage of loans. The
ratio of nonperforming assets to total loans and
foreclosed assets declined from 1.06 percent at year-end
1994 to .73 percent for year-ends 1995 and 1996.
11
<PAGE> 14
FORWARD-LOOKING INFORMATION
Statements appearing in this report which are not historical in nature,
including the discussions of the effects of recent mergers and the adequacy of
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
Bancorp include those related to the economic environment, particularly in the
region in which Bancorp operates, competitive products and pricing, fiscal and
monetary policies of the federal 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.
NET INTEREST INCOME (TAX-EQUIVALENT BASIS)
Net interest income, the principal source of Bancorp's operating income,
includes interest income and fees generated by interest-earning assets,
primarily loans and investment securities, less interest expense on
interest-bearing liabilities, primarily deposits, purchased funds 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 sources of funds, as
well as fluctuations in interest rates.
The following table sets forth, on a tax-equivalent basis, a summary of the
changes in net interest income resulting from changes in volumes and rates.
Since changes in interest income and expense are calculated independently for
each line in the table, the totals in the volume and rate columns are not the
sum of the individual lines. Changes not due solely to volume or rate changes
are allocated to rate.
RATE-VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1996 VERSUS 1995 1995 VERSUS 1994
----------------------- ------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
CHANGE IN CHANGE IN
----------------------- ------------------------
AVERAGE AVERAGE NET AVERAGE AVERAGE NET
(IN MILLIONS) VOLUME RATE CHANGE VOLUME RATE CHANGE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Other short-term investments $ 7.2 $ (1.7) $ 5.5 $ (4.0) $ 3.4 $ (.6)
Trading account securities (2.2) (.5) (2.7) - .9 .9
Loans held for sale 2.5 (2.5) - (16.3) 1.9 (14.4)
Securities available for sale 42.8 7.3 50.1 (10.4) 15.2 4.8
Securities held to maturity (71.8) 4.2 (67.6) (23.2) 3.7 (19.5)
Loans and lease financing 155.6 (56.7) 98.9 151.1 192.1 343.2
-------------------------------------------------------
Total interest income 131.5 (47.3) 84.2 77.2 237.2 314.4
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits
Savings (8.2) (1.6) (9.8) (9.9) 4.3 (5.6)
NOW accounts and interest checking .9 5.7 6.6 (3.4) 6.1 2.7
Money market deposit accounts 29.1 (15.5) 13.6 15.9 59.5 75.4
Time -- $100,000 or more 43.9 (8.0) 35.9 22.8 27.6 50.4
Other time 10.9 .9 11.8 4.5 58.9 63.4
-------------------------------------------------------
Total 56.7 1.4 58.1 14.6 171.7 186.3
Federal funds purchased and security repurchase agreements (22.8) (14.7) (37.5) (8.1) 38.1 30.0
Commercial paper and other short-term borrowings (13.1) (1.7) (14.8) 10.8 23.3 34.1
Long-term debt 22.0 (4.2) 17.8 .8 3.2 4.0
-------------------------------------------------------
Total interest expense 48.1 (24.5) 23.6 22.8 231.6 254.4
- --------------------------------------------------------------------------------------------------------------------------
Changes in net interest income $ 83.4 $ (22.8) $ 60.6 $ 54.4 $ 5.6 $ 60.0
=======================================================
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
Net interest margin on interest-bearing assets is the average yield on
interest-earning assets less the average rate paid for all sources of funding,
including the benefit of interest-free funds. The net interest margin in 1996
was 5.32 percent compared with 5.38 percent and 5.35 percent in 1995 and 1994,
respectively. The decrease in the net interest margin in 1996 compared with 1995
was primarily due to the decrease in the spread between loans and deposits, as
loan yields fell while deposit rates increased one basis point from a year ago.
The increase in the margin in 1995 compared with 1994 was predominantly due to a
higher proportion of interest-earning assets supported by noninterest-bearing
sources of funds in 1995.
Average earning assets in 1996 totaled $28.4 billion, an increase of $1.5
billion, or six percent, from the prior year. The impact of the CBI acquisition
was largely offset by the decrease in loans associated with divestitures of
branches related to the West One acquisition. Average earning assets increased
$989 million, or four percent, in 1995 from 1994.
The increase in average earning assets during 1996 reflected primarily the
growth in average loans, which increased $1.7 billion, or eight percent, over
1995. Average commercial loans increased $781 million, real estate construction
loans increased $272 million, and real estate mortgages were up $252 million in
1996 from the prior year. Average securities decreased $308 million in 1996 as
maturities were used to fund loan growth. The volume-related changes in interest
income for the securities portfolios reflected the impact of the
reclassification of approximately $800 million of securities held to maturity to
the available for sale portfolio at year-end 1995.
Average interest-bearing liabilities totaled $22.7 billion in 1996, an
increase of $1.0 billion, or five percent, from the prior year. Average
interest-bearing deposits increased $1.3 billion, or eight percent, in 1996.
Changes in the deposit mix reflected the movement of balances from savings into
money market and time deposits. Average long-term debt increased $316 million in
1996 from 1995, reflecting the issuance of senior and subordinated debt during
1996. These increases were offset by a decrease in average federal funds
purchased, commercial paper and other short-term borrowings of $621 million.
NONINTEREST REVENUES
Noninterest revenues for 1996, excluding noncore/nonrecurring revenues
identified in the table below, increased $17.1 million, or three percent, over
1995. Noninterest revenues, excluding noncore/nonrecurring revenues, in 1995
decreased two percent over 1994. The principal components of noninterest
revenues are shown in the table below.
<TABLE>
<CAPTION>
CHANGE CHANGE
------------- -------------
(IN MILLIONS) 1996 1995 AMOUNT PERCENT 1994 AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NONINTEREST REVENUES
Service charges on deposit accounts $197.4 $189.5 $ 7.9 4% $191.6 $ (2.1) (1)%
Trust and investment management 71.6 65.8 5.8 9 65.3 .5 1
Bank card revenue, net 59.7 73.4 (13.7) (19) 73.3 .1 -
Exchange fees 40.4 42.6 (2.2) (5) 36.7 5.9 16
Insurance revenue 23.5 21.4 2.1 10 25.4 (4.0) (16)
Mortgage banking income, net 22.9 15.2 7.7 51 22.8 (7.6) (33)
ATM revenue 21.8 21.6 .2 1 21.1 .5 2
Brokerage and other commissions 16.2 13.2 3.0 23 12.9 .3 2
Trading account 16.0 17.4 (1.4) (8) 15.4 2.0 13
Other 52.3 44.6 7.7 17 50.2 (5.6) (11)
-------------------------------------------------------------------
521.8 504.7 17.1 3 514.7 (10.0) (2)
NONCORE/NONRECURRING REVENUE ITEMS
Equity investment income (loss) 27.8 3.2 (5.4)
Gain on sale of operations and loans 25.6 8.9 62.9
Gain (loss) on sale of securities 5.8 3.0 (9.2)
Other nonrecurring noninterest revenue items 4.2 4.9 (10.3)
--------------------------------------------------------------------
$585.2 $524.7 $ 60.5 12% $552.7 $(28.0) (5)%
====================================================================
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues from service charges on deposit accounts, the largest component of
noninterest revenue, increased four percent to $197.4 million in 1996 compared
with 1995. Overdraft and non-sufficient funds charges, improved service fee
13
<PAGE> 16
collection and a change in check processing largely accounted for the increase.
Service charges on deposit accounts decreased one percent to $189.5 million in
1995 from $191.6 million in 1994. The decrease in 1995 was related to a decline
in consumer product service charges, partially offset by increases in overdraft
and non-sufficient funds charges.
Trust and investment management revenues were $71.6 million in 1996,
compared with $65.8 million in 1995 and $65.3 million in 1994. The nine percent
increase in 1996 was due mainly to an increase in revenues associated with
employee benefit plan administration. In 1996, Bancorp introduced a bundled
401(k) product for mid-sized companies, combining investment management through
Bancorp's capital management subsidiary, trust services and record keeping.
Brokerage and other commissions increased 23 percent in 1996, compared with
1995, due to the growth in Qualivest Capital Management's primary businesses:
trust investment management, mutual fund and institutional money management.
Managed mutual fund assets increased by 44 percent in 1996 over 1995. A strong
equity market in 1996 also contributed to increases in retail brokerage
commissions.
The decline in bank card revenues in 1996 resulted primarily 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. As a result, Bancorp receives a share of net profits of the business
alliance, where previously Bancorp recorded both bank card revenues and related
noninterest expenses. Certain expenses also declined as a result of this
transaction, as discussed in the analysis of noninterest expenses following. The
sale of $350 million of noncore affinity credit card balances in late 1995 also
decreased annual membership fee and other income related to these portfolios
included in bank card revenue.
Mortgage banking income increased 51 percent in 1996 compared with 1995
largely due to a higher volume of mortgage loan originations. In addition, the
implementation of Statement of Financial Accounting Standards (SFAS) No. 122,
"Accounting for Mortgage Servicing Rights," in 1996 resulted in the recognition
of approximately $3.8 million of income related to originated mortgage servicing
rights. The 1995 decrease in mortgage banking income relates to Bancorp's 1994
sale of most of the residential mortgage loan servicing portfolio and 50 loan
origination offices of its subsidiary U.S. Bancorp Mortgage Company.
Noncore/nonrecurring revenue items
Equity investment revenue results mainly from Bancorp's investment as a
limited partner in several limited partnerships and, to a lesser degree, in
venture capital investments. Bancorp has no control over investment sales
activities by the general partners, and realized gains of $19.1 million in 1996
related to sales of limited partnership investments by the general partners.
Gains of $8.5 million in 1996 were realized on disposition of venture capital
investments.
Gain on sale of operations and loans in 1996 consisted primarily of a $28.8
million gain on sale of branches divested in May 1996 in conjunction with the
West One merger and $3.0 million of net losses on credit card portfolio sales.
Gain on sale of operations and loans in 1995 included a $5.5 million gain on
sale of affinity card portfolios, and a $3.0 million gain on sales of
adjustable-rate mortgage loans and student loans. The 1994 gain on sale of
operations and loans included $50.8 million from the previously mentioned sale
of mortgage subsidiary assets. Gains on sales of bank card and student loans in
1994 totaled $11.2 million.
Sale of securities from the available for sale portfolio relates to
Bancorp's management of liquidity and interest rate risk. The gain on the sale
of securities in 1996 resulted primarily from the sale of adjustable rate,
mortgage-backed securities. Losses incurred in 1994 related to repositioning the
available for sale securities portfolio to increase the overall yield in
subsequent periods.
Other nonrecurring noninterest revenue in 1996 related to a gain on sale of
idle facilities. The 1995 period included a $5.2 million gain on sale of
facilities, a $1.7 million gain on sale of mortgage loan servicing rights, and
$2.0 million of losses related to Bancorp's import/export financing subsidiary
that was closed in 1995. The 1994 period included $3.9 million of losses
incurred by the import/export financing subsidiary and $8.3 million of trading
losses related to the sale of certain collateralized mortgage obligations.
14
<PAGE> 17
NONINTEREST EXPENSES
Several categories of noninterest expense in 1996 were favorably affected
by the cost savings achieved as a result of the West One merger and restructure
initiatives begun in 1994. Certain categories of expense in 1996 also reflect
the impact of the mid-1996 acquisition of CBI. Excluding the impact of CBI,
noninterest expenses before noncore/nonrecurring items decreased $75.4 million
in 1996 as compared with 1995. Significant improvement in the overhead ratio
(defined as noninterest expenses as a percentage of tax-equivalent net interest
income and noninterest revenues) was achieved in 1996 as the ratio improved to
56 percent in 1996, down from 65 percent in 1995.
<TABLE>
<CAPTION>
CHANGE CHANGE
----------------- -----------------
(IN MILLIONS) 1996 1995 AMOUNT PERCENT 1994 AMOUNT PERCENT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NONINTEREST EXPENSES
Employee compensation $ 498.9 $ 486.5 $ 12.4 3% $ 522.0 $ (35.5) (7)%
Benefits 116.3 115.6 .7 1 122.0 (6.4) (5)
Equipment rentals, depreciation and maintenance 118.8 127.4 (8.6) (7) 130.0 (2.6) (2)
Net occupancy expense 81.7 85.4 (3.7) (4) 86.4 (1.0) (1)
Stationery, supplies and postage 63.2 63.9 (.7) (1) 59.2 4.7 8
Regulatory agency fees 9.3 35.5 (26.2) (74) 54.1 (18.6) (34)
Telecommunications 32.9 33.3 (.4) (1) 35.2 (1.9) (5)
Marketing and advertising 31.2 33.3 (2.1) (6) 35.3 (2.0) (6)
Amortization of goodwill and core
deposit intangibles 22.8 16.6 6.2 37 16.0 .6 4
Contract personnel 18.0 13.7 4.3 31 14.5 (.8) (6)
Other taxes and licenses 16.0 15.7 .3 2 12.9 2.8 22
Travel 13.5 12.4 1.1 9 15.9 (3.5) (22)
Other 124.5 148.3 (23.8) (16) 173.6 (25.3) (15)
--------------------------------------------------------------------------
1,147.1 1,187.6 (40.5) (3) 1,277.1 (89.5) (7)
NONCORE/NONRECURRING EXPENSE ITEMS
Merger and integration costs 18.2 98.9 -
SAIF assessment 10.3 - -
OREO transaction (income) loss (.8) (2.9) .8
Asset write-downs - 3.2 18.4
Restructuring charge - - 100.0
Other nonrecurring noninterest
expense items - 4.0 8.8
--------------------------------------------------------------------------
$1,174.8 $1,290.8 $(116.0) (9)% $1,405.1 $(114.3) (8)%
==========================================================================
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Employee compensation for 1996 increased $12.4 million over 1995 and
benefits increased $.7 million over the prior year. The acquisition of CBI,
accounted for as a purchase, increased compensation $12.8 million and benefits
$2.6 million.
Most other categories of expense declined in 1996, reflecting the
successful integration of West One, accounted for on a pooling-of-interests
basis, with Bancorp. Excluding noncore/nonrecurring items in both periods, the
impact of the CBI acquisition and technology expenditures discussed below,
fourth quarter 1996 expenses would have been $270 million, compared to $297
million in the fourth quarter of 1995, a reduction of $108 million on an
annualized basis.
In 1996, Bancorp implemented a five-year strategy to upgrade several facets
of its technological infrastructure. These include a new retail teller system,
corporate banking revenue initiatives, interstate banking development and "Year
2000" projects. During the second half of 1996, Bancorp expended approximately
$6 million towards these technology initiatives. Technology costs were included
in salaries, contract personnel and to a lesser extent, in several other
categories.
The decline in regulatory agency fees was due to the reduction in FDIC
assessment rates on Bank Insurance Fund insured deposits. In May 1995, the FDIC
reduced the assessment rates for well capitalized and highest-rated institutions
from 23 cents to 4 cents per $100 of eligible deposits, and the rate was reduced
to zero in 1996. Included in noncore/nonrecurring expense is a special one-time
assessment of $10.3 million to recapitalize the FDIC's Savings Association
Insurance Fund.
15
<PAGE> 18
Amortization of goodwill and core deposit intangibles was $22.8 million in
1996 compared with $16.6 million in 1995. The increase in 1996 compared with
1995 reflects the increase in goodwill and core deposit intangible asset
balances as a result of the CBI acquisition in June 1996.
Other noninterest expense decreased $23.8 million, or 16 percent, in 1996
compared with 1995. The decrease reflects the reduction in expenses as a result
of the West One merger and a decrease in certain expenses related to the sale of
Bancorp's merchant processing service business.
NONCORE/NONRECURRING EXPENSE ITEMS
In connection with the merger with West One, pre-tax merger and integration
costs of $18.2 million and $98.9 million were recognized in 1996 and 1995,
respectively. These costs were incurred primarily for employee severance,
professional fees, and costs to eliminate redundant computer systems,
administrative functions, premises and equipment.
Asset write-downs in 1995 were primarily the write-down of premises vacated
by Bancorp's affinity card banking subsidiary. Included in asset write-downs in
1994 was the write-off of $12.1 million of capitalized expenses related to the
development and installation of computer software. Also incurred in 1994 were
write-downs of intangibles totaling $3.3 million, and deferred costs of $3.0
million related to agent-originated consumer loans held for sale. Other
nonrecurring noninterest expense items in 1995 related to additional business
consolidation expenses for the consolidation of computer operations and
reconfiguration of branch support functions not related to the merger with West
One. In 1994, expenses related to system conversions of $6.2 million, interest
accrued on pending settlements with tax authorities of $1.2 million and other
items totaling $1.4 million were recorded.
In the first quarter of 1994, a $100 million restructuring charge was
recorded related to a comprehensive program designed to allow Bancorp to become
a more efficient, competitive and customer-focused financial institution. The
program, which was completed in 1995, included staff reductions accomplished
through an early retirement opportunity for certain employees, other severance
programs and attrition; divestiture of certain business activities; and the
consolidation and integration of certain operations and facilities that no
longer fit Bancorp's corporate objectives or the needs of its regional
customers.
INCOME TAXES
Bancorp's effective income tax rate was 35.4 percent in 1996 and 1995, and
29.9 percent in 1994. The effective tax rate increased in 1996 and 1995 as the
level of pre-tax income and nondeductible expenses increased, with a
corresponding decrease in the proportion of tax-exempt interest income. In 1994,
Bancorp recorded a higher amount of tax credits associated with low income
housing investments, as compared with 1995.
FINANCIAL CONDITION
SECURITIES PORTFOLIOS
Securities available for sale totaled $3.0 billion at December 31, 1996,
compared with $3.3 billion at December 31, 1995. The average yield on the
available for sale securities portfolio at year-end 1996 was 6.59 percent.
Securities held to maturity decreased to $797 million at December 31, 1996 from
approximately $865 million at December 31, 1995, mainly the result of maturing
securities used to fund loan growth. The average yield on the held to maturity
portfolio was 5.22 percent at December 31, 1996. The securities portfolios are
managed to maximize yield over an entire interest rate cycle while minimizing
market exposure to changes in interest rates.
At December 31, 1996, the available for sale securities portfolio had
unrealized gains of $24.9 million and unrealized losses of $18.7 million. At
December 31, 1995, unrealized gains were $28.0 million and unrealized losses
were $10.4 million. During 1996, Bancorp repositioned a portion of its available
for sale portfolio. Proceeds from sales and maturities of
16
<PAGE> 19
collateralized mortgage obligations (CMO's) and U.S. Treasury securities
were reinvested in instruments with shorter-term maturities, reducing the
interest rate sensitivity of the portfolio as a whole.
At December 31, 1996, the carrying value of the securities portfolios
included $1.6 billion of mortgage-backed securities (MBS's) and CMO's, compared
with $1.5 billion at December 31, 1995. Substantially all of these securities
were issued by Federal agencies or backed by Federal agency pass-through
securities.
The overall yield earned on MBS's and CMO's depends on the amount of
interest earned over the life of the security, adjusted for the amortization of
any premium or discount. Actual maturities and yields of these securities depend
on when the underlying mortgage principal and interest are repaid. Prepayment
experience is affected by changes in market interest rates, as well as loan
types and maturities, geographical location of the related properties,
seasonality, age and mobility of borrowers and whether loans are assumable.
Bancorp invests primarily in government agency-sponsored CMO's, which
effectively eliminates credit risk. The majority of CMO purchases were made at a
point in the yield curve to reduce interest rate risk. Government agency
sponsored MBS's of intermediate duration held at December 31, 1996 have minimal
credit risk and have reduced interest rate risk. Very seasoned, longer-maturity
MBS's are sometimes acquired for their stable cash flows.
Bancorp reclassified approximately $800 million of securities held to
maturity to the available for sale portfolio in December 1995. As a result of
this reclassification, the held to maturity securities portfolio consists mainly
of state and municipal bonds. The reclassification was done in accordance with
guidance provided by the Financial Accounting Standards Board regarding the
classification of securities among portfolios for financial reporting purposes.
MATURITY DISTRIBUTION AND YIELDS OF SECURITIES
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------------------------- --------------------------------------
ESTIMATED FAIR VALUE AMORTIZED COST
Weighted Weighted
Average ------------------------------ Average --------------------------
(IN MILLIONS) Yield(1) 1996 1995 1994 Yield 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS DUE
One year or less 5.46% $ 311.7 $ 382.6 $ 270.5 -% $ - $ - $ -
One to five years 6.02 152.1 368.3 722.6 - - - 10.0
Five to ten years 6.01 18.9 10.2 - - - - -
Over ten years - - - - - - - -
-------------------------------------------------------------------------------
Total 5.66 482.7 761.1 993.1 - - - 10.0
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES DUE
One year or less 5.62 53.1 59.4 37.7 - - - -
One to five years 6.91 216.9 23.8 58.9 - - - -
Five to ten years 7.24 213.2 133.1 50.7 - - - -
Over ten years 7.38 70.3 387.5 269.4 - - - 116.2
-------------------------------------------------------------------------------
Total 6.97 553.5 603.8 416.7 - - - 116.2
- -----------------------------------------------------------------------------------------------------------------------------
STATE AND MUNICIPAL BONDS DUE
One year or less 4.29 5.0 10.5 - 5.97 78.9 60.5 68.2
One to five years 5.29 8.8 22.1 - 5.16 407.1 348.4 300.2
Five to ten years 4.82 41.8 6.6 - 5.09 299.4 385.3 500.0
Over ten years 5.22 52.8 52.6 - 6.72 .9 18.8 62.5
-------------------------------------------------------------------------------
Total 5.03 108.4 91.8 - 5.22 786.3 813.0 930.9
- -----------------------------------------------------------------------------------------------------------------------------
OTHER SECURITIES DUE(2)
One year or less - - 2.0 88.7 - - - -
One to five years 8.12 8.5 43.2 55.9 - - - .2
Five to ten years 6.84 .3 19.2 18.1 - - - 118.8
Over ten years 5.94 218.0 205.6 182.9 - - - -
-------------------------------------------------------------------------------
Total 6.02 226.8 270.0 345.6 - - - 119.0
- -----------------------------------------------------------------------------------------------------------------------------
SERIAL MATURITIES(3) 6.90 1,676.5 1,550.0 753.8 4.67 10.4 52.1 809.9
-------------------------------------------------------------------------------
6.59% $3,047.9 $3,276.7 $2,509.2 5.22% $796.7 $865.1 1,986.0
===============================================================================
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For available for sale securities carried at estimated fair value, the
weighted average yield is computed using amortized cost.
(2) Equity securities with no stated maturity date are presented as due after
ten years.
(3) Included in serial maturities are mortgage-backed securities, collateralized
mortgage obligations and asset-backed securities.
17
<PAGE> 20
LOAN PORTFOLIO
In 1996, the average loan portfolio increased eight percent over the prior
year. Loan growth was particularly strong in commercial, real estate and lease
financing. Commercial loans, representing 49 percent of the period-end
portfolio, increased to $12.2 billion at December 31, 1996 from $11.5 billion at
December 31, 1995. Average real estate mortgage and construction loans increased
11 percent in 1996 compared with 1995. Average leases increased 25 percent in
1996 compared with 1995, and 14 percent in 1995 compared with 1994. Average
consumer loans increased two percent in 1996 compared with 1995. Consumer loans
at year-end 1995 were $5.5 billion, a decrease from $5.6 billion at year-end
1994, due primarily to sales during 1995 of affinity credit card portfolios
totaling approximately $350 million.
LOAN PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans (net of unearned income)
Commercial $12,241.2 $11,470.3 $10,605.3 $10,036.1 $ 9,143.2
Lease financing 1,416.0 1,187.4 980.4 933.9 859.4
Real estate construction 1,411.2 833.0 791.4 776.6 923.4
Real estate mortgage 4,287.8 3,808.7 3,656.3 2,906.2 2,907.4
Consumer 5,690.5 5,485.4 5,610.0 4,792.5 4,206.4
-------------------------------------------------------------
$25,046.7 $22,784.8 $21,643.4 $19,445.3 $18,039.8
=============================================================
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
It is Bancorp's objective to maintain a loan portfolio that is diverse in
loan type, 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 (SIC) classifications. It should be noted
that within these classifications, there are subclassifications that are
monitored.
COMMERCIAL LOAN DISTRIBUTION BY SIC CLASSIFICATION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing 14.5% 15.1%
Service 13.8 14.1
Retail 12.0 11.7
Agricultural 10.3 8.9
Wholesale 8.8 8.8
Brokers, Dealers, and Insurance 7.1 5.5
Financial 5.0 3.7
Forest Products 4.9 4.9
Transportation 4.9 4.7
Contractors 4.4 4.3
Other 14.3 18.3
---------------
100.0% 100.0%
===============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Bancorp has collateral management policies in place to ensure that
collateral lending of all types is approached on a basis consistent with
standards of safety and soundness. Valuation analysis is utilized to take into
consideration the potentially adverse economic conditions under which
liquidation could occur. Collateral accepted against the commercial loan
portfolio includes accounts receivable, equipment, commercial real estate and
inventory. Loan to value ratios on commercial real estate are set in conformance
with the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA).
Commercial loans were primarily local middle-market credits and loans to
small businesses, comprising a diversified group of customers. United States
National Bank of Oregon (U. S. Bank of Oregon), U. S. Bank of Washington,
National
18
<PAGE> 21
Association (U. S. Bank of Washington) and U. S. Bank of Idaho are leaders
in small business lending in their respective states. Bancorp also has financial
relationships with companies outside its six-state operating region.
Consumer lending includes installment loans, credit card loans and credit
lines. Risk associated with consumer lending is managed by utilizing uniform
credit standards, credit limits, collateralization and monitoring of
delinquencies. The majority of consumer loans outstanding are to customers
residing in Oregon, Washington and Idaho, where general economic trends and
conditions have been favorable.
Real estate mortgage loans increased $479 million to $4.3 billion at
year-end 1996 compared with 1995, primarily due to an increase in one-to-four
family residential real estate mortgage loans. The majority of Bancorp's real
estate mortgage loans outstanding are collateralized by properties located in
the six-state region in which it operates. 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 tables below.
REAL ESTATE LOANS OUTSTANDING
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------
(IN MILLIONS) RESIDENTIAL COMMERCIAL TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Construction $ 497.2 $ 914.0 $1,411.2
Mortgage 1,614.8 2,673.0 4,287.8
--------------------------------
$2,112.0 $3,587.0 $5,699.0
================================
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
REAL ESTATE LOANS OUTSTANDING
CONCENTRATIONS BY STATE AND TYPE OF COLLATERAL
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------
(IN MILLIONS) WASHINGTON CALIFORNIA OREGON OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential $ 629.8 $ 804.2 $ 371.4 $ 306.6 $2,112.0
Commercial
Apartment/Condominium 298.3 84.2 120.9 122.5 625.9
Office 287.2 66.0 208.9 88.4 650.5
Retail 93.8 10.2 46.8 77.5 228.3
Hotel/Motel 124.5 80.3 146.7 244.9 596.4
Land 43.0 50.9 16.6 48.9 159.4
Other 489.2 164.4 423.7 249.2 1,326.5
--------------------------------------------------------
Total Commercial 1,336.0 456.0 963.6 831.4 3,587.0
--------------------------------------------------------
Total $1,965.8 $1,260.2 $1,335.0 $1,138.0 $5,699.0
========================================================
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
ASSET/LIABILITY MANAGEMENT
The primary objective of Bancorp's asset/liability management is to
maximize net interest income while maintaining acceptable levels of
interest-rate sensitivity. The asset/liability management committee (ALCO) sets
specific rate sensitivity limits for Bancorp. The committee monitors and adjusts
Bancorp's exposure to changes in interest rates to achieve predetermined risk
targets that it believes are consistent with current and expected market
conditions. It is management's objective to minimize the negative impact on net
interest income caused by changes in rates.
An asset/liability management simulation model is used to quantify the
exposure and impact of changing interest rates on earnings. In general, the
simulation model is a dynamic tool which uses forecasting and option adjusted
cash flow analysis in order to model portfolios and the entire balance sheet.
Specifically, the simulation model: (i) captures all on- and off-balance sheet
financial instruments; (ii) anticipates balance sheet mix changes and trends;
(iii) utilizes both a standardized set-rate scenario, as well as multiple,
randomly generated rate scenarios to forecast net interest income; (iv) includes
derivative instruments used to hedge "natural balance sheet" dynamics; and (v)
simulates pro forma balance sheets, cash flows, net
19
<PAGE> 22
interest margin sensitivity and net interest income. Interest rate sensitivity
is also based on simulated impacts on net interest income for the succeeding
twelve months under standardized rising, flat and falling rate scenarios.
The simulation model combines the significant factors that affect
interest rate sensitivity into a comprehensive earnings simulation. Earning
assets and interest-bearing liabilities with longer lives (duration) may be
subject to more volatility than those with shorter duration. The model accounts
for these differences in its simulations. At December 31, 1996, the simulation
modeled the impact of assumptions that the treasury yield curve would: (i)
increase linearly during the year by 200 basis points, or (ii) decrease linearly
by 100 basis points, and compared both of these rate scenarios to a flat rate
scenario. ALCO policy guidelines provide that the difference between a flat rate
scenario compared with higher rate and lower rate scenarios should not result in
more than a ten percent decline in return on equity. Simulations as of December
31, 1996, indicated Bancorp was positioned within these guidelines and was
slightly asset sensitive. It should be noted that the simulation model neither
takes into account future management actions that could be undertaken to alter
the simulated results, if there were a change in actual market interest rates
during the year, nor does it contemplate a change in anticipated interest rate
level/volatility.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are interest rate sensitive and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is interest rate sensitive within a specific time period if it will
reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the anticipated amount of interest-earning assets and
interest-bearing liabilities, based upon certain assumptions, to mature or
reprice within a specific time period. The overriding philosophy for the
year-end gap report is based on the contractual interest repricing date (or in
the case of fixed rate instruments, the contractual maturity date). The only
exceptions are for financial instruments that have no contractual terms as
follows: (i) other assets, other liabilities and demand deposit accounts are
assumed to be noninterest sensitive, and (ii) savings, interest checking and
money market accounts are assumed to be immediately interest sensitive. A gap is
considered positive when the amount of interest rate sensitive assets maturing
or repricing within a specific time frame exceeds the amount of interest rate
sensitive liabilities maturing or repricing within that same time frame.
The simulation model process provides a dynamic assessment of interest
rate sensitivity, whereas a static interest rate gap table is compiled as of a
point in time. The model simulations differ from a traditional gap analysis
because a traditional gap analysis does not reflect the multiple effects of
interest rate movements on the entire range of assets, liabilities and
off-balance sheet financial instruments, and ignores the future impact of new
business strategies.
The simulation model is dynamic because it includes significant
variables (balance sheet mix, volumes, and pricing methodologies) that are
identified as being affected by interest rates. For example, the factors the
simulation model captures, which traditional gap tables do not, include: (i)
rate of change (magnitude) differentials, such as federal funds rates versus
savings account rates; (ii) maturity effects, such as refinanced loans; (iii)
rate barrier effects, such as caps or floors on loans; (iv) changing balance
sheet, both volume and mix changes; (v) floating rate loans that may be related
to prime, LIBOR, Treasury notes or other rate indices, which do not necessarily
move correspondingly with market rate changes; (vi) leads and lags that occur as
market rates change; and (vii) the effects of prepayment volatility on various
fixed-rate assets such as residential mortgages, mortgage-backed securities and
consumer loans. These and certain other effects were evaluated to develop the
multiple scenarios from which sensitivity of earnings to changes in interest
rates was determined.
20
<PAGE> 23
The above mentioned effects included in the simulation are difficult to
properly present in a gap analysis. Notwithstanding these limitations, a
traditional banking industry gap table is presented on page 22. To improve
interest rate sensitivity disclosure, the table has been modified to include the
effect of off-balance sheet instruments. For presentation purposes, (i) all
earning assets that are marked-to-market or have variable rate features are
included in the 1-30 day category, (ii) earning assets and interest-bearing
liabilities with contractual repricing characteristics are presented according
to contractual maturity. Residential real estate loans and mortgage-backed
securities are presented based on expected maturities, (iii) savings, NOW
accounts, interest checking and money market accounts, which can theoretically
be repriced at any time, are included in the 1-30 day category, (iv)
noninterest-bearing deposits are presented as noninterest/nonmarket sensitive,
and (v) off-balance sheet financial instruments reflect the most likely expected
impact for the succeeding twelve month period.
Off-balance sheet financial instruments used in interest rate risk
management include forward and futures contracts and interest rate swap
agreements. Interest rate swaps are primarily used to change the floating or
fixed rate characteristics of existing assets and liabilities or to manage the
repricing relationship between certain floating rate assets and floating rate
liabilities. Managing the interest rate sensitivity position of the organization
is the primary purpose. All counterparties to these off-balance sheet financial
instruments are subject to the same credit analysis and approval applied to
borrowing customers of Bancorp.
21
<PAGE> 24
INTEREST RATE GAP ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------------------------
TOTAL 1 YEAR NONINTEREST/
31 DAYS WITHIN TO 3 YEARS TO OVER NONMARKET
(IN MILLIONS) 1-30 DAYS TO 1 YEAR 1 YEAR 3 YEARS 5 YEARS 5 YEARS SENSITIVE TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Investment activities
Money market investments $ 85.1 $ - $ 85.1 $ - $ - $ - $ - $ 85.1
Loans held for sale 180.5 - 180.5 - - - - 180.5
Trading securities and
securities available for
sale 3,133.0 - 3,133.0 - - - - 3,133.0
Securities held to maturity 17.7 82.7 100.4 204.0 210.6 281.7 - 796.7
-----------------------------------------------------------------------------------------------
Total investment
activities 3,416.3 82.7 3,499.0 204.0 210.6 281.7 - 4,195.3
Loans and lease financing,
net of deferred fees 13,233.4 5,294.0 18,527.4 3,211.7 1,396.5 1,341.6 569.5 25,046.7
-----------------------------------------------------------------------------------------------
Total earning assets 16,649.7 5,376.7 22,026.4 3,415.7 1,607.1 1,623.3 569.5 29,242.0
Other assets - - - - - - 4,018.4 4,018.4
-----------------------------------------------------------------------------------------------
Total assets 16,649.7 5,376.7 22,026.4 3,415.7 1,607.1 1,623.3 4,587.9 33,260.4
===============================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders'
Equity
Interest-bearing liabilities
Savings, NOW and interest
checking accounts 4,210.2 - 4,210.2 - - - - 4,210.2
Money market deposit accounts 5,990.7 - 5,990.7 - - - - 5,990.7
Time deposits 1,221.0 5,259.8 6,480.8 1,282.3 503.7 36.1 - 8,302.9
Short-term borrowings 1,800.6 691.1 2,491.7 - 3.2 - - 2,494.9
Long-term debt 60.7 647.6 708.3 210.2 72.2 820.8 - 1,811.5
-----------------------------------------------------------------------------------------------
Total interest bearing
liabilities 13,283.2 6,598.5 19,881.7 1,492.5 579.1 856.9 - 22,810.2
Noninterest-bearing deposits - - - - - - 6,473.2 6,473.2
Other liabilities - - - - - - 966.2 966.2
Capital qualifying securities - - - - - - 300.0 300.0
Shareholders' equity - - - - - - 2,710.8 2,710.8
-----------------------------------------------------------------------------------------------
Total liabilities and
equity 13,283.2 6,598.5 19,881.7 1,492.5 579.1 856.9 10,450.2 33,260.4
===============================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
Interest sensitive gap 3,366.5 (1,221.8) 2,144.7 1,923.2 1,028.0 766.4 569.5 6,431.8
Derivatives affecting interest
rate sensitivity
Pay -- floating interest rate
swaps (117.0) (770.1) (887.1) - - - - (887.1)
Pay -- fixed interest rate
swaps - - - (100.0) - (8.2) - (108.2)
Receive -- floating interest
rate swaps - 608.2 608.2 - - - - 608.2
Receive -- fixed interest
rate swaps - 161.4 161.4 222.5 3.2 - - 387.1
-----------------------------------------------------------------------------------------------
Interest sensitive gap adjusted
for derivative instruments $ 3,249.5 $(1,222.3) $ 2,027.2 $2,045.7 $ 1,031.2 $ 758.2 $ 569.5 $ 6,431.8
===============================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
Gap adjusted for derivative
instruments as a percent of
total earning assets 11.11% (4.18)% 6.93% 7.00% 3.53% 2.59% 1.95% 22.00%
===============================================================================================
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
LIQUIDITY
Another objective of asset/liability management is to manage liquidity.
Effective liquidity management ensures that the cash flow requirements of
depositors and borrowers, as well as the operating cash needs of Bancorp, are
met. Bancorp manages its liquidity at both the parent and subsidiary level. The
major sources of funds for the parent are debt and equity issues, dividend and
interest income from its subsidiaries, the commercial paper market and a
revolving credit agreement. The primary sources of funds for bank subsidiaries
are retail deposits and a bank note program for U.S. Bank of Oregon and
U.S. Bank of Washington.
Core deposits, defined as deposits other than time deposits of $100,000 or
more, are Bancorp's primary source of funding. Core deposits provide a sizable
source of relatively stable and low-cost funds. Average core deposits and
shareholders' equity, which totaled $24.0 billion in 1996 and $22.8 billion in
1995, funded 75 percent and 76 percent of average total assets in those years,
respectively. In 1996, average noninterest-bearing deposits increased $441
million, or nine percent compared with 1995.
Other sources of liquidity included purchased funds, comprised of time
deposits of $100,000 or more, federal funds purchased and security repurchase
agreements, commercial paper and other short-term borrowings. Average purchased
funds totaled $5.4 billion in 1996 and $5.3 billion in 1995. Average time
deposits of $100,000 or more increased to $2.5 billion in 1996 from $1.8 billion
in 1995 as these deposits provided an attractive wholesale funding alternative
to other sources of funds. A portion of the remaining funding of average total
assets came from long-term debt, which averaged $1.5 billion and $1.2 billion in
1996 and 1995, respectively.
Bancorp's liquidity is enhanced by its accessibility to diverse sources of
national market funds. At December 31, 1996, Bancorp had available various
uncommitted capacities, including an effective $1.0 billion shelf registration
with the Securities and Exchange Commission, providing for the issuance of
senior or subordinated debt. In addition, Bancorp had $478 million remaining
capacity under an $800 million debt shelf registration, of which $178 million
has been designated as medium term notes. At December 31, 1996, Bancorp had $500
million available in a committed line of credit arrangement through a
syndication of unaffiliated banks, which serves as commercial paper back-up
lines and provides general liquidity for the parent company. Bancorp also has
available $150 million of remaining capacity under a $300 million uncommitted
preferred stock shelf registration.
The subsidiary banks individually maintain liquidity in the form of money
market investments, anticipated prepayments and maturities of securities and the
maturity structure of their loan portfolios. Another source of liquidity is
securities classified as available for sale, which totaled $3.0 billion at
December 31, 1996. Also, several bank subsidiaries are members of the Federal
Home Loan Bank System which provides a stable source of attractive, alternative
funding and liquidity.
The analysis of liquidity should also include a review of the changes that
appear in the consolidated statement of cash flows for 1996. The statement of
cash flows includes operating, investing and financing categories. Operating
activities include net income for 1996 of $479 million, which is adjusted for
non-cash items including the non-cash portion of the merger and integration
costs. Investing activities consisted primarily of both proceeds from and
purchases of securities, and the impact of loans made and principal collected on
loans. Financing activities present the net change in Bancorp's deposit
accounts, short-term borrowings, $434 million in net proceeds from the issuance
of long-term debt, $300 million in net proceeds from the issuance of capital
qualifying securities, $551 million of common stock purchases and $180.9 million
in dividends paid.
23
<PAGE> 26
The following table summarizes Bancorp's ratings by major credit rating
agencies at December 31, 1996; such ratings are subject to revision or
withdrawal at anytime. With respect to commercial paper, an A-1 or P-1 rating
indicates a very strong capacity for timely payment. The Standard & Poor's
long-term investment grade ratings range from AAA to BBB, with an A rating
indicating a strong capacity. With respect to Moody's long-term ratings, the
range is from A to Baa (or baa), with an A rating applied to upper-medium-grade
obligations with adequate repayment capacity. Ratings modified by 1 are at the
higher end of the category.
<TABLE>
<CAPTION>
STANDARD
& POOR'S MOODY'S
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bancorp (Parent)
Commercial paper A-1 P-1
Senior debt A A2
Subordinated debt A- A3
USBO and USBW
Short-term bank notes A-1 P-1
Long-term bank notes A+ A1
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
Bancorp's allowance for credit losses totaled $476 million at December 31,
1996, representing 1.90 percent of loans outstanding, compared with 1.91 percent
at year-end 1995. The provision for credit losses for 1996 was $135.2 million,
compared with a $124.1 million provision in 1995 and $120.1 million in 1994. The
higher provisions in 1996 and 1995 primarily reflected the impact of the
integration of loan portfolios of acquired companies and, in 1996, a higher
level of net charge-offs. The provision for credit losses in 1996 included $5
million related to the integration of CBI's loan portfolio, and 1995 included a
$27 million provision for the West One loan portfolio integration. The allowance
for credit losses as a percentage of nonperforming loans was 320 percent at
December 31, 1996 and 336 percent at December 31, 1995.
Net charge-offs for 1996 were $108.7 million, or .46 percent of average
loans, compared with net charge-offs of $74.1 million, or .33 percent, of
average loans in 1995. The increase was primarily due to higher charge-offs of
commercial and bank card loans, as well as a lower level of loan recoveries. The
increase in bank card net charge-offs related primarily to charge-offs in
noncore, private label portfolios. Other consumer loan net charge-offs were .74
percent in 1996, compared with .68 percent in 1995.
Management performs a quarterly analysis to establish the appropriate level
of the allowance, taking into consideration such factors as loan loss
experience, an evaluation of potential losses in the portfolio, credit
concentrations and trends in portfolio volume, maturity, delinquencies and
nonaccruals, risks associated with standby letters of credit which guarantee the
debt of others and other off-balance sheet commitments, and prevailing and
anticipated economic conditions. This analysis provides an allowance consisting
of two components, allocated and unallocated. The allocated component reflects
potential 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 total of these allocations is then supplemented by the
unallocated component of the allowance. The unallocated component reflects
management's judgment and determination of the amounts necessary for loan
concentrations, economic uncertainties and other subjective factors.
Bancorp continues to closely monitor credit risk in its loan portfolio.
Bancorp believes that its credit approval and review processes are effective and
operating in accordance with sound banking practice and that the allowance for
credit losses at December 31, 1996 was adequate to absorb potential credit
losses inherent in loans, leases, loan commitments and standby letters of credit
outstanding at that date.
A loan 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. An impairment is
recognized by
24
<PAGE> 27
creating a valuation allowance with a corresponding charge to the provision for
credit losses or by adjusting an existing valuation allowance with a
corresponding charge or credit to the allowance for credit losses.
Generally, it is Bancorp's policy to carry a loan at its net realizable
value if impairment is determined, resulting in a direct loan charge-off, rather
than a valuation allowance. At December 31, 1996, Bancorp's recorded investment
in loans for which an impairment has been recognized totaled $115 million.
Included in this amount was $36 million of impaired loans for which a valuation
allowance of $14 million was being carried. The carrying value of impaired loans
was based on the fair value of collateral. The balance of the allowance for
credit losses 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.
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Period-end loans (net of unearned income) $25,046.7 $22,784.8 $21,643.4 $19,445.3 $18,039.8
=================================================================
- ----------------------------------------------------------------------------------------------------------------------
Daily average loans (net of unearned income) $23,862.3 $22,162.8 $20,336.1 $18,493.3 $17,438.2
=================================================================
- ----------------------------------------------------------------------------------------------------------------------
Balance of allowance for credit losses at beginning
of year $ 434.5 $ 387.6 $ 345.2 $ 327.4 $ 283.1
Acquisitions (dispositions) 14.9 (3.1) 2.6 .7 18.2
Loans charged-off
Commercial 40.8 25.9 38.7 39.6 79.4
Lease financing 1.5 .7 1.2 6.2 10.5
Real estate construction .9 .5 12.1 4.9 4.2
Real estate mortgage 3.1 6.9 4.3 10.1 10.2
Consumer 47.6 44.8 32.2 32.6 32.1
Bank card 50.3 38.1 36.5 37.6 27.2
-----------------------------------------------------------------
Total 144.2 116.9 125.0 131.0 163.6
- ----------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off
Commercial 13.3 17.7 18.3 16.4 20.3
Lease financing .3 .6 1.2 .8 1.2
Real estate construction .4 1.9 1.2 2.0 .9
Real estate mortgage 3.1 2.9 4.7 6.1 3.7
Consumer 12.3 13.5 12.7 11.6 12.3
Bank card 6.1 6.2 6.6 4.9 2.5
-----------------------------------------------------------------
Total 35.5 42.8 44.7 41.8 40.9
- ----------------------------------------------------------------------------------------------------------------------
Net charge-offs 108.7 74.1 80.3 89.2 122.7
Provision for credit losses 135.2 124.1 120.1 106.3 148.8
-----------------------------------------------------------------
Balance of allowance for credit losses at end of
year $ 475.9 $ 434.5 $ 387.6 $ 345.2 $ 327.4
=================================================================
- ----------------------------------------------------------------------------------------------------------------------
Allowance as a percent of period-end loans 1.90% 1.91% 1.79% 1.77% 1.81%
Ratio of net charge-offs by average loan category
Commercial .23% .07% .20% .25% .68%
Lease financing .08 .01 - .63 .99
Real estate construction .04 (.17) 1.35 .35 .36
Real estate mortgage - .10 (.01) .14 .22
Consumer .74 .68 .47 .59 .64
Bank card 5.51 3.69 3.03 3.61 3.07
Total loans .46% .33% .39% .48% .70%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
The allowance is available to absorb losses from all loans, although
allocations have been made for certain loans and loan categories. The allocation
of the allowance as shown below should not be interpreted as an indication that
charge-offs in future periods will occur in these amounts or proportions, or
that the allocation indicates future charge-off trends. In addition to the most
recent analysis of individual loans and pools of loans, management's methodology
also places emphasis on historical loss data, delinquency and nonaccrual trends
by loan classification category and expected loan maturity. This analysis,
management believes, identifies potential losses within the loan portfolio and
therefore results in allocation of a portion of the allowance to specific loan
categories. The loan category percent represents the percentage of loans in each
category to total loans.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- ---------------- ---------------- ---------------- ----------------
Loan LOAN LOAN LOAN LOAN
Category CATEGORY CATEGORY CATEGORY CATEGORY
(IN MILLIONS) Balance Percent BALANCE PERCENT BALANCE PERCENT BALANCE PERCENT BALANCE PERCENT
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
lease financing $ 147.7 54% $ 157.9 57% $ 135.5 55% $ 142.3 56% $ 166.3 55%
Real estate 35.1 23 24.3 19 34.5 19 41.2 19 41.7 21
Consumer 99.1 23 67.2 24 63.2 26 61.0 25 60.0 24
Unallocated 194.0 - 185.1 - 154.4 - 100.7 - 59.4 -
----------------------------------------------------------------------------------------------------------------
$ 475.9 100% $ 434.5 100% $ 387.6 100% $ 345.2 100% $ 327.4 100%
================================================================================================================
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ASSET QUALITY
Nonperforming assets consist of loans on which interest is no longer
accrued, certain restructured loans for which the interest rate or other terms
have been renegotiated, and real estate and equipment acquired in satisfaction
of loans. During 1996, Bancorp continued to show strong asset quality.
Nonperforming assets represented .73 percent of loans and foreclosed assets at
December 31, 1996, unchanged from year-end 1995. The ratio of nonaccrual and
restructured loans to total loans was .59 percent at December 31, 1996 compared
with .57 percent at December 31, 1995.
Nonperforming real estate loans and other real estate owned totaled $72
million, or 40 percent, of nonperforming assets at December 31, 1996. Loans or
properties of less than $5 million each made up 64 percent, or $116 million, of
nonperforming assets at that date. Of the balance, three commercial credits over
$10 million each accounted for $42 million.
In addition to the loans classified as nonperforming, 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 specifically provided for in the
evaluation of the allowance for credit losses. Bancorp's lending policies and
loan portfolio, including internally classified loans, are examined by
regulatory agencies as part of their supervisory activities. An event occurred
subsequent to December 31, 1996 that caused Bancorp to place a $50 million
commercial credit on nonaccrual status in the first quarter of 1997. The loan
was fully collateralized.
26
<PAGE> 29
NONPERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
(IN MILLIONS) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $145.6 $118.4 $190.4 $238.5 $273.3
Restructured loans 3.3 11.0 11.5 1.8 6.0
Foreclosed assets
Other real estate owned 21.4 28.8 22.0 35.6 35.7
Equipment repossessed 3.7 3.9 5.2 4.6 5.5
--------------------------------------------------
$174.0 $162.1 $229.1 $280.5 $320.5
==================================================
Bank properties pending disposition (included in other assets) $ 8.3 $ 4.5 $ 1.5 $ - $ -
==================================================
- --------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a % of loans .59% .57% .93% 1.24% 1.55%
Nonperforming assets as a % of loans and foreclosed assets .73% .73% 1.06% 1.44% 1.77%
Allowance for credit losses as a % of nonperforming loans 320% 336% 192% 144% 117%
Accruing loans past due 90 days or more $ 41.0 $ 30.0 $ 16.8 $ 17.1 $ 21.6
Interest computed on contractual terms 21.4 18.0 20.8 23.0 27.8
Interest recognized 3.4 4.0 7.0 9.4 9.5
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in accruing loans past due 90 days or more at December 31, 1996
were $28 million of bank card and consumer loans, which are reported as past due
until 180 days and 120 days, respectively, at which time the loans are charged
off. For an explanation of Bancorp's nonaccrual policy see Note 1. Summary of
Significant Accounting Policies, Loans and Lease Financing page 41.
ANALYSIS OF CHANGE IN NONACCRUAL LOANS
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans
Beginning balance $118.4 $190.4
Additions 182.0 138.4
Payments/returned to accrual (92.7) (136.4)
Charge-offs (29.1) (22.7)
Transfer to other real estate and equipment owned (33.0) (51.3)
-------------------
Ending balance $145.6 $118.4
===================
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITAL AND DIVIDENDS
The federal bank regulatory agencies have jointly issued rules which
implement a system of prompt corrective action for banks required by FDICIA. The
rules define the relevant capital levels for 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 capital 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. Bancorp's Tier 1 capital is comprised of common
equity, perpetual preferred stock and subsidiary trust issued capital
securities, 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 capital
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.
27
<PAGE> 30
Banks are subject to capital requirements similar to the requirements for
bank holding companies. At December 31, 1996, the most recent regulatory
notification categorized all of Bancorp's bank subsidiaries as "well
capitalized." The bank subsidiaries' ratios are expected to be maintained at the
"well capitalized" levels by the retention of earnings and, if necessary, the
issuance of additional capital qualifying securities.
The risk-based capital and leverage ratios for Bancorp and its three
largest bank subsidiaries are presented in the table below:
CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
RISK-BASED
CAPITAL RATIOS
-------------- LEVERAGE
TOTAL TIER TOTAL CAPITAL
(IN MILLIONS) ASSETS 1 CAPITAL RATIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Bancorp (Consolidated) $33,260.4 8.11% 11.83% 8.17%
Bank Subsidiaries
U. S. Bank of Oregon 14,289.6 7.24 10.95 7.75
U. S. Bank of Washington 9,703.8 6.93 10.54 7.44
U. S. Bank of Idaho 3,823.7 7.03 10.44 5.96
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, common shareholders' equity was $2.6 billion. Average
common equity to average total assets was 8.13 percent for 1996 and 1995. The
quarterly common dividend was increased 11 percent in the third quarter of 1996,
to $.31 per share from $.28 per share. Dividends of $1.18 per share were
declared in 1996, compared with $1.06 per share in 1995, based on historical
Bancorp cash dividends paid.
In the fourth quarter of 1996, Bancorp purchased four million shares of its
common stock under a program approved by the Board of Directors. In addition,
Bancorp systematically purchases common shares for employee benefit and dividend
reinvestment plans under programs authorized in 1994. In December 1996, Bancorp
issued $300 million of mandatory redeemable capital securities through a
subsidiary grantor trust. The securities qualify for treatment as Tier 1 capital
for regulatory capital purposes.
In 1995, West One called for redemption and retired approximately $50
million of 7.75% convertible subordinated debentures. In connection with this
redemption, West One purchased in the open market 2.7 million West One common
shares (equivalent to 3.9 million Bancorp common shares) for issuance to debt
holders.
28
<PAGE> 31
The following tables on pages 29 to 31 present additional information on
maturity and interest sensitivity of selected loan categories, time
deposits -- $100,000 or more, certain short-term borrowings, average balances
and tax-equivalent net interest margin.
LOAN MATURITY AND INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
ONE YEAR ONE TO OVER
(IN MILLIONS) OR LESS FIVE YEARS FIVE YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans in domestic offices
Commercial $8,355.3 $ 2,997.8 $888.1 $12,241.2
Real estate construction 1,010.1 339.1 62.0 1,411.2
----------------------------------------------------
Total $9,365.4 $ 3,336.9 $950.1 $13,652.4
====================================================
- --------------------------------------------------------------------------------------------------------------------------
Loans with predetermined rate $ 970.8 $ 1,177.6 $414.5 $ 2,562.9
Loans with floating rate 8,394.6 2,159.3 535.6 11,089.5
----------------------------------------------------
Total $9,365.4 $ 3,336.9 $950.1 $13,652.4
====================================================
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
TIME DEPOSITS -- $100,000 OR MORE
Maturities of domestic time deposits of $100,000 or more outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
3 months or less $1,354.3
3 to 6 months 428.8
6 to 12 months 376.8
Over 12 months 375.9
--------
Total $2,535.8
========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
AVERAGE
AVERAGE DAILY AVERAGE INTEREST RATE
INTEREST RATE AMOUNTS ON AMOUNTS MAXIMUM
ON AMOUNTS OUTSTANDING OUTSTANDING MONTH-END
YEAR-END OUTSTANDING DURING THE DURING THE AMOUNTS
(IN MILLIONS) BALANCE AT YEAR-END YEAR YEAR OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FEDERAL FUNDS PURCHASED AND SECURITY REPURCHASE
AGREEMENTS
1996 $ 1,672.4 4.91% $ 2,102.2 4.97% $ 2,643.5
1995 2,731.1 5.44 2,503.2 5.67 3,070.6
1994 3,587.7 5.55 2,698.8 4.15 3,587.7
- ---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER AND OTHER SHORT-TERM BORROWINGS
1996 $ 822.5 5.47% $ 806.6 5.30% $ 1,089.6
1995 868.2 5.43 1,026.4 5.60 1,489.8
1994 687.2 5.51 654.0 3.59 919.6
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 32
AVERAGE BALANCES AND TAX-EQUIVALENT NET INTEREST MARGIN
<TABLE>
<CAPTION>
1996 1995
----------------------------- ----------------------------
Average AVERAGE
Rate RATE
Average Income/ Earned/ AVERAGE INCOME/ EARNED/
(IN MILLIONS) Balance Expense Paid BALANCE EXPENSE PAID
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments $ 381.6 $ 20.7 5.41% $ 259.2 $ 15.2 5.87%
Trading account securities 139.4 8.1 5.81 174.1 10.8 6.20
Loans held for sale 187.0 13.2 7.10 156.9 13.2 8.38
Securities available for sale(1)(2)
U.S. Treasury obligations 566.0 31.8 5.62 881.6 48.4 5.49
U.S. Government agency securities 1,819.1 119.0 6.54 1,065.8 71.4 6.70
Other securities 649.4 44.2 6.80 395.5 25.1 6.35
-----------------------------------------------------------------
Total securities available for sale 3,034.5 195.0 6.42 2,342.9 144.9 6.19
Securities held to maturity(2)
U.S. Treasury obligations - - - 9.8 .6 5.76
U.S. Government agency securities - - - 825.9 54.7 6.63
State and municipal bonds 809.4 62.9 7.77 912.7 72.3 7.92
Other securities 24.0 1.1 4.52 84.3 4.0 4.82
-----------------------------------------------------------------
Total securities held to maturity 833.4 64.0 7.68 1,832.7 131.6 7.18
Loans and lease financing(2)(3)
Commercial 11,866.3 1,029.4 8.67 11,085.1 1,029.7 9.29
Lease financing 1,294.3 94.9 7.33 1,034.2 78.0 7.55
Real estate construction 1,129.4 105.3 9.33 857.8 81.3 9.48
Real estate mortgage 3,965.8 331.8 8.37 3,714.2 289.7 7.80
Consumer 5,606.5 560.8 10.00 5,471.5 545.2 9.96
-----------------------------------------------------------------
Total loans 23,862.3 2,122.2 8.89 22,162.8 2,023.9 9.13
Loan fees - 103.6 - - 103.0 -
-----------------------------------------------------------------
Total loans including fees 23,862.3 2,225.8 9.33 22,162.8 2,126.9 9.60
-----------------------------------------------------------------
Total interest earning assets/interest income 28,438.2 $2,526.8 8.89% 26,928.6 $2,442.6 9.07%
- --------------------------------------------------------------------------------------------------------------------------
Allowance for credit losses (450.7) (396.3)
Cash and due from banks 1,913.5 1,852.4
Other assets 2,023.9 1,813.7
-----------------------------------------------------------------
Total $31,924.9 $30,198.4
=================================================================
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Savings $ 1,522.1 $ 35.9 2.36% $ 1,854.1 $ 45.7 2.47%
NOW accounts and interest checking 2,704.4 50.3 1.86 2,647.8 43.7 1.65
Money market deposit accounts 5,790.7 225.9 3.90 5,093.9 212.2 4.17
Time -- $100,000 or more 2,533.1 144.9 5.72 1,806.2 109.0 6.03
Other time 5,755.3 311.2 5.41 5,554.2 299.4 5.39
-----------------------------------------------------------------
Total interest-bearing deposits 18,305.6 768.2 4.20 16,956.2 710.0 4.19
Federal funds purchased and security repurchase
agreements 2,102.2 104.5 4.97 2,503.2 142.0 5.67
Commercial paper and other short-term borrowings(4) 806.6 42.9 5.30 1,026.4 57.7 5.60
Long-term debt 1,514.6 101.1 6.68 1,198.9 83.4 6.95
-----------------------------------------------------------------
Total interest-bearing liabilities/interest
expense 22,729.0 $1,016.7 4.47% 21,684.7 $ 993.1 4.58%
- --------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 5,503.6 5,062.3
Other liabilities 941.5 845.7
-----------------------------------------------------------------
Total liabilities 29,174.1 27,592.7
Mandatory redeemable capital securities of trust holding
U. S. Bancorp junior subordinated debentures 6.6 -
Shareholders' equity 2,744.2 2,605.7
-----------------------------------------------------------------
Total $31,924.9 $30,198.4
=================================================================
- --------------------------------------------------------------------------------------------------------------------------
Interest income as a percent of average earning assets 8.89% 9.07%
Interest expense as a percent of average earning assets (3.57) (3.69)
-----------------------------------------------------------------
Net interest income and margin $1,510.1 5.32% $1,449.5 5.38%
=================================================================
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Yields are based on amortized cost balances.
(2) Includes taxable equivalent adjustments related to income on certain loans
and securities that is exempt from federal and applicable state income
taxes. The federal statutory tax rate was 34% for 1992 and 35% for years
thereafter.
30
<PAGE> 33
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------- ---------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE
RATE RATE RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID BALANCE EXPENSE PAID
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 349.2 $ 15.8 4.53% $ 379.0 $ 11.3 2.99% $ 652.0 $ 24.7 3.80%
173.6 9.9 5.71 195.8 10.0 5.09 193.7 10.8 5.57
385.3 27.6 7.16 790.3 55.2 6.99 663.2 52.5 7.92
1,117.9 59.8 5.29 68.9 3.3 4.85 - - -
1,047.7 59.4 5.58 186.8 10.9 5.82 - - -
364.3 20.9 5.73 48.1 3.3 6.86 - - -
- ----------------------------------------------------------------------------------------------------------------
2,529.9 140.1 5.47 303.8 17.5 5.76 - - -
90.5 5.2 5.71 1,223.5 67.3 5.50 820.9 50.9 6.20
948.1 60.6 6.40 2,155.2 134.1 6.22 1,827.8 133.1 7.28
962.5 77.1 8.01 794.5 69.6 8.76 604.6 56.8 9.40
164.7 8.2 5.01 483.4 34.3 7.10 404.0 32.3 8.00
- ----------------------------------------------------------------------------------------------------------------
2,165.8 151.1 6.98 4,656.6 305.3 6.56 3,657.3 273.1 7.47
10,148.8 811.8 8.00 9,427.6 680.4 7.22 8,678.0 673.2 7.76
905.7 68.0 7.51 871.8 73.6 8.44 945.6 89.7 9.49
800.6 64.5 8.06 809.1 61.3 7.57 914.6 72.0 7.87
3,329.1 247.9 7.45 2,935.3 249.3 8.49 3,005.4 280.5 9.33
5,151.9 489.3 9.50 4,449.5 445.9 10.02 3,894.6 427.3 10.97
- ----------------------------------------------------------------------------------------------------------------
20,336.1 1,681.5 8.27 18,493.3 1,510.5 8.17 17,438.2 1,542.7 8.85
- 102.2 - - 105.9 - - 90.7 -
- ----------------------------------------------------------------------------------------------------------------
20,336.1 1,783.7 8.77 18,493.3 1,616.4 8.74 17,438.2 1,633.4 9.37
- ----------------------------------------------------------------------------------------------------------------
25,939.9 $2,128.2 8.20% 24,818.8 $2,015.7 8.12% 22,604.4 $1,994.5 8.82%
- ----------------------------------------------------------------------------------------------------------------
(361.2) (333.7) (306.0)
1,824.0 1,698.3 1,410.2
1,760.4 1,812.3 1,626.6
- ----------------------------------------------------------------------------------------------------------------
$29,163.1 $27,995.7 $25,335.2
=======================================================================================
- ----------------------------------------------------------------------------------------------------------------
$ 2,294.7 $ 51.3 2.23% $ 2,166.2 $ 53.7 2.48% $ 1,634.0 $ 54.4 3.33%
2,885.7 41.0 1.42 2,816.2 48.2 1.71 2,374.2 58.8 2.48
4,565.4 136.9 3.00 4,285.2 114.1 2.66 3,612.0 121.4 3.36
1,300.5 58.6 4.50 1,101.8 45.6 4.14 1,374.0 67.6 4.92
5,450.3 236.0 4.33 6,002.8 264.2 4.40 5,813.5 306.2 5.27
- ----------------------------------------------------------------------------------------------------------------
16,496.6 523.8 3.18 16,372.2 525.8 3.21 14,807.7 608.4 4.11
2,698.8 112.0 4.15 2,156.8 63.7 2.95 2,426.1 89.0 3.67
654.0 23.6 3.59 645.6 20.5 3.15 594.8 25.9 4.32
1,186.6 79.3 6.69 1,283.3 88.2 6.88 1,347.6 102.4 7.60
- ----------------------------------------------------------------------------------------------------------------
21,036.0 $ 738.7 3.51% 20,457.9 $ 698.2 3.41% 19,176.2 $ 825.7 4.31%
- ----------------------------------------------------------------------------------------------------------------
4,989.1 4,606.6 3,616.3
703.8 687.8 643.2
- ----------------------------------------------------------------------------------------------------------------
26,728.9 25,752.3 23,435.7
- - -
2,434.2 2,243.4 1,899.5
- ----------------------------------------------------------------------------------------------------------------
$29,163.1 $27,995.7 $25,335.2
=======================================================================================
- ----------------------------------------------------------------------------------------------------------------
8.20% 8.12% 8.82%
(2.85) (2.81) (3.65)
- ----------------------------------------------------------------------------------------------------------------
$1,389.5 5.35% $1,317.5 5.31% $1,168.8 5.17%
===============================================================================================================
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Loans on nonaccrual status have been included in the computation of average
balances.
(4) Includes interest expense capitalized on property under construction.
31
<PAGE> 34
Item 8. Financial Statements and Supplementary Data
(a) The following audited consolidated financial statements and related
documents are set forth in this Annual Report on Form 10-K on the pages
indicated:
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Letter of Management 33
Independent Auditors' Reports 34-35
U. S. Bancorp and Subsidiaries:
Consolidated Balance Sheet 36
Consolidated Statement of Income 37
Consolidated Statement of Changes in Shareholders' Equity 38
Consolidated Statement of Cash Flows 39
Notes to Consolidated Financial Statements 41
</TABLE>
(b) The following supplementary data is set forth in this Annual Report on Form
10-K on the page indicated:
<TABLE>
<S> <C>
Quarterly Financial Data 67
</TABLE>
32
<PAGE> 35
LETTER OF MANAGEMENT
The management of U. S. Bancorp has prepared and is responsible for the
integrity and fairness of the financial statements and other financial
information included in this annual report. The financial statements are
prepared in accordance with generally accepted accounting principles and, when
appropriate, include amounts based on management's estimates and judgment.
To meet its responsibility both for the integrity and fairness of these
financial statements and information, management maintains accounting systems
and related internal accounting controls. These controls are designed to provide
reasonable assurance that transactions are properly authorized, assets are
safeguarded and financial records are reliably maintained. The concept of
reasonable assurance is based on the recognition that the cost of a system of
internal controls must be related to the benefits derived.
Management monitors the effectiveness and compliance of its internal
control systems through a continuous program of internal audits. Management has
reviewed the recommendations of the internal auditors and Deloitte & Touche LLP,
independent auditors, and has responded in an appropriate, cost-effective
manner.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with U. S. Bancorp's management, internal auditors
and the independent auditors to review matters relative to the quality of
financial reporting and internal accounting controls and the results of the
audit. The independent auditors and internal auditors meet with the Audit
Committee, at least once a year, without management present.
<TABLE>
<S> <C> <C>
GERRY B. CAMERON ROBERT D. SZNEWAJS STEVEN P. ERWIN
Chairman, Vice Chairman Executive Vice President
Chief Executive Officer, and Chief Financial Officer
and President
</TABLE>
33
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
TO THE DIRECTORS AND SHAREHOLDERS OF U.S. BANCORP:
We have audited the accompanying consolidated balance sheet of U.S. Bancorp
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of U.S. Bancorp's management. Our
responsibility is to express an opinion on the financial statements based on our
audits. The consolidated financial statements give retroactive effect to the
merger of U.S. Bancorp and subsidiaries and West One Bancorp and subsidiaries,
which has been accounted for as a pooling-of-interests as described in Note 2 to
the consolidated financial statements. We did not audit the consolidated
statements of income, changes in shareholders' equity, and cash flows of West
One Bancorp and subsidiaries for the year ended December 31, 1994, which
statements reflect net interest income and noninterest revenues of $471,214,000
for the year ended December 31, 1994. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for West One Bancorp and subsidiaries for 1994,
is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of U.S. Bancorp and subsidiaries at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Portland, Oregon
January 31, 1997
34
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS OF WEST ONE BANCORP:
We have audited the consolidated statements of income, shareholders'
equity, and cash flows of West One Bancorp and subsidiaries for the year ended
December 31, 1994 (not presented separately herein). These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the consolidated
results of operations and cash flows of West One Bancorp and subsidiaries for
the year ended December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Boise, Idaho
January 19, 1995
35
<PAGE> 38
U. S. BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(IN MILLIONS, EXCEPT SHARE DATA) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,401.1 $ 2,416.2
Federal funds sold and security resale agreements 70.9 506.4
Other short-term investments 14.2 10.1
Trading account securities 85.1 279.7
Loans held for sale 180.5 160.5
Securities available for sale, at fair value (amortized cost: 1996 -- $3,041.7;
1995 -- $3,259.1) 3,047.9 3,276.7
Securities held to maturity, at amortized cost (fair value: 1996 -- $810.9;
1995 -- $885.7) 796.7 865.1
Loans and lease financing, net of deferred fees 25,046.7 22,784.8
Allowance for credit losses (475.9) (434.5)
----------------------
Net loans and lease financing 24,570.8 22,350.3
Premises, furniture and equipment, net 614.1 633.8
Other real estate and equipment owned 25.1 32.7
Customers' liability on acceptances 327.7 306.7
Goodwill and core deposit intangibles 377.6 190.7
Other assets 748.7 765.4
----------------------
$33,260.4 $31,794.3
======================
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Interest-bearing deposits $18,503.8 $17,255.0
Noninterest-bearing deposits 6,473.2 6,009.7
----------------------
Total deposits 24,977.0 23,264.7
Federal funds purchased and security repurchase agreements 1,672.4 2,731.1
Commercial paper and other short-term borrowings 822.5 868.2
Long-term debt 1,811.5 1,377.0
Acceptances outstanding 327.7 306.7
Other liabilities 638.5 629.6
----------------------
Total liabilities 30,249.6 29,177.3
- -------------------------------------------------------------------------------------------------------------------
CAPITAL QUALIFYING SECURITIES
U. S. Bancorp-obligated mandatory redeemable capital securities of subsidiary trust
holding only junior subordinated deferrable interest debentures of U. S. Bancorp 300.0 -
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares:
Series A, no par value, 6,000,000 shares outstanding 150.0 150.0
Common stock, $5 par value, authorized 250,000,000 shares, outstanding:
1996 -- 147,199,668; 1995 -- 150,592,468 736.0 752.9
Capital surplus 178.1 347.8
Retained earnings 1,644.5 1,356.9
Net unrealized gain on securities available for sale, net of tax 2.2 9.4
----------------------
Total shareholders' equity 2,710.8 2,617.0
- -------------------------------------------------------------------------------------------------------------------
$33,260.4 $31,794.3
======================
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE> 39
U. S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
(IN MILLIONS, EXCEPT SHARE DATA) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and lease financing, including fees $2,207.9 $2,103.7 $1,758.8
Securities available for sale 190.1 141.9 137.7
Securities held to maturity 43.5 108.0 125.5
Loans held for sale 13.3 13.2 27.6
Trading account securities 7.8 10.5 9.0
Other interest income 20.7 15.2 15.8
--------------------------------
Total interest income 2,483.3 2,392.5 2,074.4
INTEREST EXPENSE
Deposits 768.2 710.0 523.8
Short-term borrowings 147.4 199.7 135.6
Long-term debt 101.1 83.4 79.3
--------------------------------
Total interest expense 1,016.7 993.1 738.7
--------------------------------
NET INTEREST INCOME 1,466.6 1,399.4 1,335.7
Provision for credit losses 135.2 124.1 120.1
--------------------------------
Net interest income after provision for credit losses 1,331.4 1,275.3 1,215.6
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST REVENUES
Service charges on deposit accounts 197.4 189.5 191.6
Trust and investment management 71.6 65.8 65.3
Bank card revenue, net 59.7 73.4 73.3
Exchange fees 40.4 42.6 36.7
Other operating revenue 156.9 138.3 137.5
Equity investment income (loss) 27.8 3.2 (5.4)
Gain on sale of operations and loans 25.6 8.9 62.9
Gain (loss) on sale of securities 5.8 3.0 (9.2)
--------------------------------
Total noninterest revenues 585.2 524.7 552.7
- -------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
Employee compensation and benefits 615.2 602.1 646.2
Equipment rentals, depreciation and maintenance 118.8 127.4 139.9
Net occupancy expense 81.7 85.4 87.5
Stationery, supplies and postage 63.2 63.9 59.2
Regulatory agency fees 9.3 35.5 54.1
Amortization of goodwill and core deposit intangibles 22.8 16.6 16.0
Other operating expenses 235.3 261.0 302.2
Merger and integration costs 18.2 98.9 -
SAIF assessment 10.3 - -
Restructuring charge - - 100.0
--------------------------------
Total noninterest expenses 1,174.8 1,290.8 1,405.1
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 741.8 509.2 363.2
Provision for income taxes 262.9 180.2 108.5
--------------------------------
NET INCOME $ 478.9 $ 329.0 $ 254.7
================================
- -------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 466.7 $ 316.8 $ 242.5
NET INCOME PER COMMON SHARE $ 3.08 $ 2.09 $ 1.60
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (000's) 151,313 151,554 151,392
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
37
<PAGE> 40
U. S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN
(LOSS)
ON
SHARES COMMON CAPITAL RETAINED SECURITIES, PREFERRED
(DOLLARS IN MILLIONS) OUTSTANDING STOCK SURPLUS EARNINGS NET OF TAX STOCK TOTAL
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 150,483,832 $752.4 $ 469.7 $1,042.4 $ 27.2 $ 150.0 $2,441.7
Net income - - - 254.7 - - 254.7
Exercise of stock options 904,235 4.5 8.4 - - - 12.9
Repurchase of common stock (2,228,300) (11.1) (46.0) - - - (57.1)
Common stock issued in acquisition 2,410,340 12.1 4.1 12.6 (1.0) - 27.8
Common stock issued to redeem subordinated
debt 8,689 - .1 - - - .1
Common dividends declared (per
share -- $.94) - - - (120.5) - - (120.5)
Preferred dividends declared - - - (12.2) - - (12.2)
Dividends reinvested and other 545,757 2.7 9.0 (1.2) - - 10.5
Change in fair value of securities, net of
tax - - - - (64.9) - (64.9)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 152,124,553 760.6 445.3 1,175.8 (38.7) 150.0 2,493.0
Net income - - - 329.0 - - 329.0
Exercise of stock options 723,184 3.6 9.5 - - - 13.1
Repurchase of common stock (6,548,525) (32.7) (143.1) - - - (175.8)
Common stock issued to redeem subordinated
debt 3,921,225 19.6 30.1 - - - 49.7
Common dividends declared (per
share -- $1.06) - - - (135.7) - - (135.7)
Preferred dividends declared - - - (12.2) - - (12.2)
Dividends reinvested and other 372,031 1.8 6.0 - - - 7.8
Change in fair value of securities, net of
tax - - - - 48.1 - 48.1
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 150,592,468 752.9 347.8 1,356.9 9.4 150.0 2,617.0
Net income - - - 478.9 - - 478.9
Exercise of stock options 1,396,132 7.0 26.6 - - - 33.6
Repurchase of common stock (14,603,800) (73.0) (477.6) - - - (550.6)
Common stock issued in acquisition 9,656,911 48.3 276.3 - - - 324.6
Common dividends declared (per
share -- $1.18) - - - (179.2) - - (179.2)
Preferred dividends declared - - - (12.2) - - (12.2)
Dividends reinvested and other 157,957 .8 5.0 .1 - - 5.9
Change in fair value of securities, net of
tax - - - - (7.2) - (7.2)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 147,199,668 $736.0 $ 178.1 $1,644.5 $ 2.2 $ 150.0 $2,710.8
====================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
38
<PAGE> 41
U. S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
(IN MILLIONS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 478.9 $ 329.0 $ 254.7
Adjustments to reconcile net income to cash used in operating activities
Deferred income tax (benefit) expense 41.0 (49.8) (47.7)
Depreciation, amortization and accretion 153.8 129.0 146.0
Provision for credit losses 135.2 124.1 120.1
Noncash portion of merger and integration costs 14.3 87.6 -
Noncash portion of restructuring charge - - 68.8
Net gain on sales of operations (28.8) - (51.7)
Net (gain) loss on sale of equity investments (23.7) (2.4) 5.9
Net (gain) loss on sale of securities (5.8) (3.0) 9.2
Net gain on sale of trading securities (16.0) (16.2) (4.3)
Net gain on sales of loans and property (17.2) (40.4) (25.8)
Net gain on sales of mortgage loan servicing rights (4.0) - (1.0)
Change in
Loans held for sale (15.2) 229.8 552.7
Trading account securities 213.0 (124.3) 77.5
Deferred loan fees, net of amortization .3 5.4 7.1
Accrued interest receivable 19.6 (15.6) (22.9)
Accrued interest payable (21.8) 27.1 7.5
Other assets and liabilities, net (27.6) 86.4 (66.6)
------------------------------------
Net cash provided by operating activities 896.0 766.7 1,029.5
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing deposits of nonbank subsidiaries 22.3 12.4 21.7
Purchase of interest-bearing deposits by nonbank subsidiaries (29.2) (13.0) (12.1)
Net decrease in investments in interest-earning deposits by banking
subsidiaries 2.8 1.5 5.8
Proceeds from maturities of securities held to maturity 114.2 367.2 777.0
Proceeds from sales of securities held to maturity - 3.9 -
Purchase of securities held to maturity - (53.2) (426.1)
Proceeds from sale of securities available for sale 468.1 993.9 610.1
Proceeds from maturities of securities available for sale 1,061.3 610.8 435.0
Purchase of securities available for sale (1,018.3) (1,555.2) (913.3)
Proceeds from sales of equity investments 40.2 10.0 4.2
Purchase of equity investments (18.3) (39.8) (18.3)
Principal collected on loans made by nonbank subsidiaries 1,713.0 1,191.5 849.8
Loans made to customers by nonbank subsidiaries (1,919.7) (1,398.9) (846.4)
Net change in loans by banking subsidiaries (1,674.0) (1,681.6) (2,103.1)
Proceeds from sales of loans 70.5 409.6 122.5
Purchase of loans - - (76.5)
Proceeds from sales of premises and equipment 24.4 36.2 15.1
Purchase of premises and equipment (87.8) (81.9) (120.5)
Proceeds from sales of mortgage servicing rights .7 3.2 24.9
Purchase of mortgage servicing rights - (6.6) (10.6)
Proceeds from sales of foreclosed assets 79.2 63.4 47.2
Acquisitions/dispositions, net of cash and cash equivalents (103.1) 15.7 336.5
------------------------------------
Net cash used in investing activities (1,253.7) (1,110.9) (1,277.1)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued on next page)
See Notes to Consolidated Financial Statements.
39
<PAGE> 42
U. S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS -- (Continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
(IN MILLIONS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 982.1 1,401.2 32.8
Net change in short-term borrowings (1,104.4) (824.7) 968.7
Proceeds from issuance of long-term debt 1,039.2 772.0 631.9
Repayment of long-term debt (605.2) (439.5) (555.1)
Proceeds from issuance of capital qualifying securities issued by subsidiary
trust 300.0 - -
Proceeds from issuance of common stock 26.9 16.4 20.5
Common stock repurchased (550.6) (175.8) (57.1)
Dividends paid (180.9) (145.3) (128.2)
-----------------------------------
Net cash provided by financing activities (92.9) 604.3 913.5
-----------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (450.6) 260.1 665.9
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,922.6 2,662.5 1,996.6
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,472.0 $ 2,922.6 $ 2,662.5
===================================
- -----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for
Interest $ 1,038.4 $ 966.3 $ 732.6
Income taxes 192.5 190.5 151.2
Noncash investing activities
Transfers
Loans to other real estate owned $ 73.8 $ 78.2 $ 38.7
Loans to loans held for sale - 300.7 -
Loans held for sale to loans 12.4 30.2 32.8
Consumer loans from loans held for sale - - 96.4
Securities held to maturity to available for sale - 800.1 -
Securities available for sale to held to maturity - - 56.3
Fair value adjustment to securities available for sale 11.4 81.0 108.3
Income tax effect related to fair value adjustment 4.2 32.9 42.4
Redemption of convertible subordinated debentures - 49.9 -
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
40
<PAGE> 43
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
U. S. Bancorp and Subsidiaries (Bancorp) is a regional, multi-bank holding
company that provides bank and bank-related services through its subsidiaries
primarily serving domestic markets. The following is a description of the more
significant policies.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and prevailing practices within the
banking industry. In preparing such financial statements, management is required
to make estimates and judgments that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bancorp and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated. Certain prior year amounts have been reclassified to conform to
the current year presentation.
When an acquisition that is material to the consolidated financial
statements occurs through a pooling-of-interests, prior period financial
statements are restated to include the accounts of companies acquired. Results
of operations of companies acquired and accounted for as purchases are included
from their dates of acquisition.
CASH AND CASH EQUIVALENTS
Bancorp considers cash due from banks, federal funds sold and security
resale agreements to be cash and cash equivalents for purposes of the
Consolidated Statement of Cash Flows.
SECURITIES
Securities at acquisition are classified into three categories: trading,
available for sale, and held to maturity.
Trading account securities include securities and money market instruments
bought and held principally for the purpose of sale in the near term. These
securities are carried at fair value. Realized gains and losses on sale of
trading account securities are computed using the average cost method. The
realized gains and losses, together with any fair value adjustments, are
included in noninterest revenue.
Securities available for sale are securities that may be sold prior to
maturity and are available for future liquidity requirements. These securities
are carried at fair value. Realized gains and losses on sale of securities
available for sale are computed on the specific identification method.
Unrealized gains and losses on securities available for sale are excluded from
earnings and are reported net of tax as a separate component of shareholders'
equity until realized.
Securities held to maturity are classified as such where Bancorp has the
ability and positive intent to hold them to maturity. These securities are
carried at cost, adjusted for amortization of premiums and accretion of
discounts. Unrealized losses due to fluctuations in fair value of securities
held to maturity are recognized when it is determined that an other than
temporary decline in value has occurred.
LOANS AND LEASE FINANCING
Loans and direct financing leases, net of deferred fees, are generally
reported at the principal amount outstanding (including lease residuals), net of
unearned income. Loan origination, commitment fees and certain direct loan
origination costs are capitalized and recognized as a yield adjustment over the
lives of the loans. Loans held for sale are reported at the lower of cost or
fair value. Loan fees from loans held for sale are deferred and recognized as a
component of the gain or loss on
41
<PAGE> 44
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
sale of the loans. Commitment fees based on a percentage of a customers'
unused lines of credit and fees related to standby letters of credit are
recognized in noninterest revenue over the commitment period.
Interest income is recorded as earned. The accrual of interest income on
business loans ceases when potential collection difficulties are foreseen and
collateral is inadequate to cover principal and interest. A loan is placed on
nonaccrual status when the collectibility of all amounts (principal and
interest) due according to the contractual terms of the loan agreement is
uncertain. Uncollected accrued interest is reversed against interest income. If
ultimate collection of principal is in doubt, all cash receipts on nonaccrual
loans are applied to reduce the principal balance.
Bank card loans are charged off upon becoming 180 days past due. Other
consumer loans are typically charged off upon becoming 120 days past due, and
interest earned but not collected thereon is reversed at the time of charge-off.
Consequently, such loans are not placed on nonaccrual status.
Unearned income on direct financing leases is amortized to produce a level
yield on the remaining net receivable balance. Income from leveraged leases is
recognized over the term of the leases based on the unrecovered equity
investment.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is established to absorb known and inherent
losses in the credit portfolio. Amounts are added to the allowance for credit
losses and charged against earnings to bring the allowance to a level which, in
management's judgment, is considered adequate to absorb losses inherent in the
portfolio. Management evaluates regularly the appropriate level of the
allowance, taking into consideration factors such as general economic
conditions, historical loss experience, credit concentrations and trends in
portfolio volume, maturity, delinquencies, and nonaccruals. Actual credit
losses, net of recoveries, are deducted from the allowance. While management
uses the best information available on which to base estimates, future
adjustments to the allowance may be necessary if economic conditions,
particularly in Bancorp's markets, differ substantially from the assumptions
used by management.
A loan is considered impaired when it is probable that a creditor will be
unable to collect all amounts (principal and interest) due according to the
contractual terms of the loan agreement. Consumer and residential real estate
loans that are collectively evaluated for potential losses and leases are not
evaluated for impairment.
When a loan has been identified as being impaired, the amount of the
impairment is measured by using discounted cash flows, except when, as a
practical expedient, 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.
PREMISES, FURNITURE AND EQUIPMENT
Premises, furniture and equipment are stated at cost less accumulated
depreciation and amortization. Construction costs and the cost of funds to
finance major projects are capitalized. Maintenance and repairs are charged to
expense as incurred and the cost of improvements is capitalized. Provisions for
depreciation and amortization are computed using the straight-line method.
Estimated useful lives range up to fifty years for buildings, up to the lease
term for leasehold improvements, and three to ten years for furniture and
equipment.
OTHER REAL ESTATE AND EQUIPMENT OWNED
Properties acquired by foreclosure or deed in lieu of foreclosure are
carried at the lower of their recorded amounts or fair value less estimated
costs of disposal. Any write-downs at, or prior to, the date of acquisition are
charged to the allowance for credit losses. Subsequent write-downs, gains or
losses recognized on the sale of these properties and net operating results are
included in noninterest expenses.
42
<PAGE> 45
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with the purchase method of accounting, the assets and
liabilities of purchased banking and financial organizations are stated at
estimated fair values at the date of acquisition. The excess of cost over fair
value of net assets acquired is accounted for as goodwill and is being amortized
on the straight-line method ranging from 15 to 25 years.
Core deposit intangibles represent the intangible value of depositor
relationships resulting from deposit liabilities assumed in acquisitions. Core
deposit intangibles are amortized on an accelerated basis over their estimated
periods of benefit, ranging from 8 years to 10 years, or on a straight-line
basis over 15 years.
Costs associated with internally generated and purchased mortgage loan
servicing rights are deferred and amortized on a method which relates the
amortization of these costs to the estimated net servicing income. In the event
of unanticipated prepayments, the future amortization rate is adjusted
prospectively, such that the discounted future cash flows approximate the
expected future net servicing income.
Effective January 1, 1996, Bancorp adopted Statement of Financial
Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights,"
which requires that companies recognize mortgage servicing rights as separate
assets, regardless of how those servicing rights are acquired. The amortization
and valuation adjustments related to mortgage banking assets are included in
mortgage banking income and shown net of certain other expenses in the
Consolidated Statement of Income. Previously, only purchased servicing rights
were capitalized as an asset, whereas the cost to internally originate mortgage
servicing rights was expensed. This Statement also requires that capitalized
mortgage servicing rights be assessed for impairment based on fair value, rather
than an estimate of undiscounted future cash flows. The adoption of SFAS No. 122
resulted in the recognition of $3.8 million in income related to originated
mortgage servicing rights.
Effective January 1, 1996, Bancorp adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," issued in March 1995. This Statement requires that long-lived assets and
certain identifiable intangibles related to those assets be reviewed for
impairment whenever events or changes in circumstances indicate that assets'
carrying value may not be recoverable. An impairment loss is recognized when the
sum of the future cash flows is less than the carrying value of the asset. This
Statement also requires that long-lived assets and identifiable intangibles,
except for assets of a discontinued operation held for disposal, be accounted
for at the lower of cost or fair value less selling costs. The adoption of SFAS
No. 121 has not had a material impact on the financial position or results of
operations of Bancorp.
INTEREST RATE AND CURRENCY CONTRACTS
Bancorp uses various interest rate and foreign currency contracts as
accommodations for customers. All interest rate contracts entered into as
customer accommodations are hedged with interest rate swaps or other interest
rate contracts. The customer accommodations and the instruments used to hedge
the accommodations are carried at fair value with all changes in fair value
recorded in noninterest revenues. Foreign currency contracts are valued at
current prevailing rates of exchange, and gains or losses resulting from such
valuations are also included in noninterest revenues.
As part of asset and liability management, Bancorp uses interest rate swaps
to hedge interest rate risk. Gains and losses on interest rate contracts that
qualify as hedges are deferred and recognized as interest income or interest
expense over the lives of the related assets or liabilities. Income or expense
on interest rate contracts used to manage interest rate exposure is recognized
as an adjustment of the yield over the life of the underlying assets or
liabilities. Gains and losses on derivative contracts such as futures and
forward delivery commitments that qualify as hedges of anticipated transactions
are deferred and are amortized into income over the term of the completed
transactions.
In conjunction with Bancorp's mortgage loan operations, mortgage-backed
securities and mortgage loans are sold for delivery in future months, and
over-the-counter options on mortgage-backed securities are purchased as hedges
of closed
43
<PAGE> 46
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
mortgage loans and hedges of interest rate and price fluctuations until
mortgage loans are sold. Net positions are valued at the lower of cost or
market. Gains or losses are recognized upon settlement of the forward sale
contracts based on the difference between the net sales proceeds and the net
carrying value of the loans sold. The cost of options and commitment fees,
incurred on contracts to ensure future delivery of mortgage loans into
mortgage-backed securities, are amortized straight-line over the option or
commitment period and recorded as a component of the gain or loss on mortgage
loan sales. The option premium paid, which represents loss exposure, is
amortized over the life of the option.
REVENUE RECOGNITION
Income is recorded on a cash basis for most service charges, commissions
and fees. Income related to equity investments results from dividends received
and realized gains and losses upon disposition of investments.
INCOME TAXES
Income taxes are accounted for using the asset and liability method. Under
this method, a deferred tax asset or liability is determined based on the
enacted tax rates which will be in effect when the differences between the
financial statement carrying amounts and tax bases of existing assets and
liabilities are expected to be reported in Bancorp's income tax returns. The
deferred tax provision for the year is equal to the change in the net deferred
tax liability from the beginning to the end of the year. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
COMPUTATIONS OF EARNINGS PER SHARE
Earnings per common share are based on net income after preferred dividend
requirements and the weighted average number of common shares outstanding. The
impact of common stock equivalents, such as stock options, and other potentially
dilutive securities is not material; therefore, they are not included in the
computation.
STOCK COMPENSATION
Bancorp accounts for stock compensation using the intrinsic value method as
prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. SFAS No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value.
Under the intrinsic value based method, compensation cost for stock options
is measured as the excess, if any, of the quoted market price of the stock at
grant date over the amount an employee must pay to acquire the stock. Most
Bancorp stock options have no intrinsic value at the grant date, and under APB
No. 25 there is no compensation cost to be recognized. Compensation cost is
recognized for other types of stock-based compensation plans under APB No. 25,
including plans with variable or performance-based criteria. The fair value
approach measures compensation costs based on factors such as the term of the
option, the market price at grant date and the option exercise price, with
expense recognized over the vesting period.
Regardless of the method used to account for stock-based compensation, SFAS
No. 123 requires that an employer's financial statements include certain
supplemental disclosures about stock compensation arrangements.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," 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 Bancorp's
financial condition, results of operations, cash flows or related disclosures.
44
<PAGE> 47
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
Effective January 1, 1997, Bancorp completed the acquisition of Sun Capital
Bancorp (Sun Capital), a banking operation based in St. George, Utah, with
assets of approximately $70 million. Bancorp issued approximately 400,000 common
shares in the transaction, accounted for as a purchase.
On June 6, 1996, Bancorp acquired California Bancshares, Inc. (CBI), the
holding company for a multi-bank commercial banking operation serving the East
San Francisco Bay Area and the Central Valley of Northern California. In a
transaction accounted for as a purchase, Bancorp issued 9.7 million shares of
common stock. An equal number of common shares were repurchased by Bancorp in
the open market around the time of the acquisition. On the merger date, CBI had
$1.6 billion in assets and $1.4 billion in deposits. The total value of the
transaction was approximately $325 million. Pro forma results of operations have
not been presented because the effects of this acquisition were not significant
to Bancorp's 1996 results of operations.
In December 1996, Bancorp entered into a definitive agreement to acquire
Business and Professional Bank, located in Sacramento, California, with assets
of $214 million. Pursuant to the terms of the definitive agreement the
transaction is subject to approval by regulators and shareholders of Business
and Professional Bank as well as the covenants, representations and warranties
of both parties.
In December 1995, Bancorp merged with West One Bancorp (West One), a
regional financial services company headquartered in Boise, Idaho. In a
transaction accounted for as a pooling-of-interests, Bancorp issued 54.7 million
shares of common stock. On the merger date West One had $9.2 billion in assets,
$7.0 billion in deposits, and 227 branches in Oregon, Washington, Idaho and
Utah.
In connection with the West One merger, pre-tax merger and integration
costs of $18.2 million and $98.9 million were recognized during 1996 and 1995,
respectively. The merger and integration activity is summarized in the following
table:
<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>
Merger and integration cost provision $29.4 $39.6 $ 13.9 $16.0 $98.9
Cash utilization for the period - .2 10.6 .5 11.3
-------------------------------------------------------
Balance at December 31, 1995 29.4 39.4 3.3 15.5 87.6
Additional provision 13.2 1.4 .7 2.9 18.2
Utilization for the period
Cash 35.6 23.3 3.6 8.1 70.6
Noncash - 6.2 - 8.1 14.3
-------------------------------------------------------
Total 35.6 29.5 3.6 16.2 84.9
-------------------------------------------------------
Balance at December 31, 1996 $ 7.0 $11.3 $ .4 $ 2.2 $20.9
=======================================================
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In May, 1996, as part of the regulatory approval process for the West One
merger, Bancorp divested 31 branches, mainly in Oregon, with deposits of
approximately $700 million and loans of approximately $400 million. A pre-tax
gain of $28.8 million was recognized in the second quarter of 1996.
3. CASH, LOAN AND DIVIDEND RESTRICTIONS
The subsidiary banks are required to maintain reserves against customer
deposits by keeping balances with the Federal Reserve Bank in a
noninterest-bearing account. The average amount of those reserve balances for
the year ended December 31, 1996 was approximately $227 million.
Certain restrictions exist regarding the extent to which bank subsidiaries
may transfer funds to the parent company in the form of dividends, loans or
advances. Federal law prevents the parent company and its nonbank subsidiaries
from
45
<PAGE> 48
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
borrowing from bank subsidiaries unless the loans are secured by various types
of collateral. Secured loans that may be made by bank subsidiaries to the parent
company or any individual affiliate are generally limited to 10 percent of the
bank's equity and 20 percent of the bank's equity for loans to all affiliates
and the parent company in the aggregate.
Payment of dividends to the parent company by its subsidiary banks is
subject to review by banking regulators and is subject to various statutory
limitations and in certain circumstances requires approval by banking regulatory
agencies. These permissible dividends are further limited by the minimum capital
constraints imposed on banks by banking regulatory agencies.
The subsidiary banks can distribute as dividends to the parent company in
1997 (in addition to their 1997 net income) approximately $56 million. At
December 31, 1996, the total amount that could be loaned to the parent company
by its banking subsidiaries was approximately $354 million. As a result of the
above regulatory restrictions, net assets of the subsidiary banks not available
for dividends or loans amounted to approximately $2.2 billion. Restricted net
assets of nonbank subsidiaries was not significant.
4. SECURITIES
The amortized cost and approximate fair value of securities available for
sale were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 482.4 $ 1.0 $ .7 $ 482.7
U.S. government agency securities 547.2 8.7 2.4 553.5
Mortgage-backed securities 902.3 8.9 7.9 903.3
Collateralized mortgage obligations 740.5 2.4 5.6 737.3
State and municipal bonds 107.9 1.3 .8 108.4
Equity and other securities 261.4 2.6 1.3 262.7
----------------------------------------------
$ 3,041.7 $ 24.9 $ 18.7 $3,047.9
==============================================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury obligations $ 759.9 $ 2.0 $ .8 $ 761.1
U.S. government agency securities 599.4 6.0 1.6 603.8
Mortgage-backed securities 816.4 10.3 2.1 824.6
Collateralized mortgage obligations 701.1 2.9 3.4 700.6
State and municipal bonds 89.7 2.3 .2 91.8
Equity and other securities 292.6 4.5 2.3 294.8
----------------------------------------------
$ 3,259.1 $ 28.0 $ 10.4 $3,276.7
==============================================
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of securities available for sale by
remaining contractual maturity are shown on the next page. Expected maturities
of mortgage-backed securities and collateralized mortgage obligations will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. Equity
securities were included in the table on the next page as due after ten years.
46
<PAGE> 49
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
AMORTIZED FAIR
(IN MILLIONS) COST VALUE
----------------------------------------------------------------------------------------------
<S> <C> <C>
One year or less $ 369.5 $ 369.8
One to five years 383.0 386.3
Five to ten years 272.2 274.2
Over 10 years 338.4 341.1
Serial maturities 1,678.6 1,676.5
------------------------
$ 3,041.7 $3,047.9
========================
----------------------------------------------------------------------------------------------
</TABLE>
In 1996, gains of $6.4 million and losses of $.6 million were realized on
sales of securities available for sale. Gains of $6.3 million and losses of $3.3
million were realized in 1995 and gains of $1.3 million and losses of $10.5
million were realized in 1994. The net unrealized gain or loss on securities
available for sale, net of income taxes, is included as a component of
shareholders' equity.
The amortized cost and approximate fair value of securities held to
maturity were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST GAINS LOSSES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State and municipal bonds $ 786.3 $ 17.1 $2.9 $800.5
Other securities 10.4 - - 10.4
-------------------------------------------------
$ 796.7 $ 17.1 $2.9 $810.9
=================================================
--------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST GAINS LOSSES VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
State and municipal bonds $ 813.0 $ 23.2 $2.3 $833.9
Other securities 52.1 - .3 51.8
-------------------------------------------------
$ 865.1 $ 23.2 $2.6 $885.7
=================================================
--------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of securities held to maturity by
remaining contractual maturity are shown below.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------
AMORTIZED FAIR
(IN MILLIONS) COST VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C>
One year or less $ 78.9 $ 79.9
One to five years 407.1 415.7
Five to ten years 299.4 304.0
Over 10 years .9 .9
Serial maturities 10.4 10.4
-------------------
$ 796.7 $810.9
===================
--------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996 and 1995, the banks pledged securities aggregating
$2.8 billion and $2.9 billion, respectively, to secure certain public and trust
deposits and for other purposes as required or permitted by law. Interest earned
on tax-exempt securities was $47.1 million, $48.6 million and $51.4 million for
the years 1996, 1995 and 1994, respectively.
In December 1995, Bancorp, in accordance with guidance provided by the
FASB, reclassified approximately $800 million of held to maturity securities to
available for sale classification. The related unrealized gains were $6.8
million and unrealized losses were $3.1 million which were included in
shareholders' equity.
47
<PAGE> 50
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans and lease financing are comprised of the following categories:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(IN MILLIONS) 1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C>
Loans
Commercial $12,241.2 $11,470.3
Real estate construction 1,411.2 833.0
Real estate mortgage 4,287.8 3,808.7
Consumer 5,690.5 5,485.4
---------------------
Total loans 23,630.7 21,597.4
---------------------
Lease financing
Lease receivables 1,350.9 1,125.6
Estimated residual value 347.0 306.3
Unearned income (281.9) (244.5)
---------------------
Lease financing, net of unearned income 1,416.0 1,187.4
---------------------
Total loans and leases $25,046.7 $22,784.8
=====================
-------------------------------------------------------------------------------------------
</TABLE>
The minimum future lease payments related to direct finance receivables for
each of the years 1997 through 2001 are $361.1 million, $326.8 million, $259.4
million, $193.3 million and $102.6 million, respectively.
The following table summarizes the changes in the allowance for credit
losses.
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $434.5 $387.6 $345.2
Acquisitions (dispositions) 14.9 (3.1) 2.6
Provision for credit losses 135.2 124.1 120.1
Net charge-offs (108.7) (74.1) (80.3)
------------------------
Balance, end of year $475.9 $434.5 $387.6
========================
-------------------------------------------------------------------------------------------
</TABLE>
Bancorp's recorded investment in loans for which an impairment has been
recognized totaled $115.0 million and $104.0 million at December 31, 1996 and
1995, respectively. Impaired loans at December 31, 1996 and 1995 consisted
primarily of commercial and commercial real estate mortgage loans, and the
carrying value was based on the fair value of collateral. Included in these
amounts are $35.5 million of impaired loans for which the allocated allowance
for credit losses was $14.1 million at December 31, 1996 and $7.2 million of
impaired loans for which the allocated allowance for credit losses was $3.1
million at December 31, 1995. 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 $97.5 million and $142.8 million for the years
1996 and 1995, respectively.
6. RELATED PARTIES
The banks have granted loans to the officers and directors of Bancorp and
to their associates. These related party loans are made in the ordinary course
of business and, management believes, do not involve more than a normal risk of
collectibility. The aggregate dollar amount of these loans was $120.1 million
and $148.4 million at December 31, 1996 and 1995, respectively. During 1996,
$105.9 million of new loans were made and repayments totaled $134.2 million.
In connection with the merger agreement relating to the acquisition of
Peoples Ban Corporation (Peoples) in 1987, Bancorp entered into a shareholder
agreement with certain holders (a current Board member and affiliates) of the
common stock of Peoples pursuant to which such holders agreed to vote in favor
of the merger of Peoples with a Bancorp subsidiary.
48
<PAGE> 51
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to this agreement, Bancorp has agreed to afford such holders, which are
the holders of approximately 8.4 million shares of common stock, certain
registration rights with respect to such shares of common stock. Bancorp is
obligated until December 22, 1997, under certain circumstances and subject to
specified terms and conditions, at the request of such holders of common stock,
to use its best efforts to register for sale the common stock under the federal
and state securities laws, which request must relate to a minimum of 1,080,000
shares of common stock.
7. PREMISES, EQUIPMENT AND LEASES
A summary of premises, furniture and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
(IN MILLIONS) 1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 86.0 $ 90.9
Buildings 433.0 435.8
Leasehold improvements 136.4 129.7
Furniture and equipment 555.8 506.0
Property under capital leases (principally equipment) 8.5 18.1
-------------------
Total 1,219.7 1,180.5
Less accumulated depreciation and amortization (605.6) (546.7)
-------------------
Premises, furniture and equipment -- net $ 614.1 $ 633.8
===================
-------------------------------------------------------------------------------------------
</TABLE>
Capital lease amortization expense is included in net occupancy and
equipment expense. Accumulated amortization of capital leases was $4.9 million
and $14.0 million at December 31, 1996 and 1995, respectively.
Future minimum lease payments as of December 31, 1996 are shown below:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(IN MILLIONS) LEASES LEASES
---------------------------------------------------------------------------------------------
<S> <C> <C>
1997 $1.0 $ 44.9
1998 1.0 35.6
1999 .9 27.8
2000 .9 22.3
2001 .8 19.9
Thereafter 2.0 149.7
-------------
Total minimum payments 6.6 $300.2
======
Amount representing interest 2.4
----
Present value of net minimum lease payments $4.2
====
---------------------------------------------------------------------------------------------
</TABLE>
A majority of the leases apply to the banks premises and provide for
renewal options for periods of up to 20 years. Total rental expense under
operating leases was $48.0 million, $51.3 million and $56.2 million for 1996,
1995 and 1994, respectively.
49
<PAGE> 52
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
The provision for income taxes for the last three years consisted of the
following:
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $189.9 $206.7 $137.0
State 32.0 23.3 19.2
------------------------
221.9 230.0 156.2
-------------------------------------------------------------------------------------------
Deferred
Federal 34.6 (44.7) (43.8)
State 6.4 (5.1) (3.9)
------------------------
41.0 (49.8) (47.7)
-------------------------------------------------------------------------------------------
Total
Federal 224.5 162.0 93.2
State 38.4 18.2 15.3
------------------------
$262.9 $180.2 $108.5
========================
-------------------------------------------------------------------------------------------
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Adjusted for
State income tax 3.4 2.3 2.7
Tax-exempt interest (3.3) (5.8) (8.4)
Nondeductible expenses 1.4 2.8 1.5
Credits (1.6) (1.1) (1.9)
Other-net .5 2.2 1.0
---------------------
Effective income tax rate 35.4% 35.4% 29.9%
=====================
------------------------------------------------------------------------------------------
</TABLE>
Accrued income tax liabilities, net, consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
(IN MILLIONS) 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C>
Current $ 60.1 $45.6
Deferred 42.2 14.4
--------------
$102.3 $60.0
==============
------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 53
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
(IN MILLIONS) 1996 1995
--------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Allowance for credit losses $170.3 $153.8
Postretirement/employment benefits 41.6 37.9
Accrued expenses 28.1 41.2
Deferred income 14.2 9.6
Deferred liabilities 9.8 5.2
Deferred gain on sale of assets 6.2 9.6
Unrealized gains 3.0 14.8
Interest not recorded 2.1 9.7
Retirement plans - 3.6
Other .6 3.1
---------------
275.9 288.5
--------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES
Leveraged leases 177.9 167.2
Lease financing 88.8 83.0
Accumulated depreciation and amortization 27.5 26.2
Purchase accounting adjustments 9.4 2.7
Equity investments 8.2 15.1
Securities 2.5 .8
Retirement plans 2.8 -
Unrealized appreciation on securities available for sale .8 6.2
Other .2 1.7
---------------
318.1 302.9
---------------
Net deferred tax liability $ 42.2 $ 14.4
===============
--------------------------------------------------------------------------------------------
</TABLE>
In 1996, Bancorp recorded taxes of approximately $2.3 million related to
realized gains on sale of securities available for sale. Taxes related to
realized gains on the sale of securities were $1.2 million in 1995, and tax
benefits related to realized losses on sale of securities in 1994 were $3.5
million.
51
<PAGE> 54
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C>
BANCORP (PARENT COMPANY)
Medium-term notes due 1997-2001 $ 264.8 $ 245.8
Floating rate notes due 1999 200.0 -
8.125% notes due 2002 149.4 149.3
7.00% notes due 2003 149.8 149.8
6.75% notes due 2005 296.9 296.5
7.50% notes due 2026 198.5 -
-------------------
1,259.4 841.4
---------------------------------------------------------------------------------------------
BANKS
FHLB notes due 1997-2025 538.2 535.3
Bank notes due 1997 13.8 -
Mortgages and other notes payable .1 .3
-------------------
552.1 535.6
-------------------
$1,811.5 $1,377.0
===================
---------------------------------------------------------------------------------------------
</TABLE>
Principal payments required to service Bancorp's total long-term debt
during the next five years are as follows: 1997 -- $382.9 million;
1998 -- $229.4 million; 1999 -- $205.3 million; 2000 -- $53.6 million and
2001 -- $118.2 million.
BANCORP (PARENT COMPANY)
All long-term debt of the parent company is unsecured. The medium-term
notes have fixed or variable rates ranging from 5.53% to 7.44% at December 31,
1996.
The 8.125% notes due in 2002, the 7.00% notes due in 2003, the 6.75% notes
due in 2005, and the 7.50% notes due 2026 are subordinated to all senior
indebtedness of Bancorp. The notes are not redeemable by Bancorp, in whole or in
part, prior to maturity and do not provide for a sinking fund. The 7.50% notes
due 2026 are redeemable at par, at the option of the note holders, on June 1,
2006.
The interest rate on the floating rate notes due 1999 adjusts quarterly at
.15% over the London Interbank Offered Rate for three month United States dollar
deposits (LIBOR-3). The interest rate on these notes was 5.71% at December 31,
1996. The floating rate notes are the only asset of the U. S. Bancorp Putable
Asset Trust 1996-1 (Trust). The Trust entered into a call option, pursuant to
which the call holder has the right to purchase the notes from the Trust at par
on November 15, 1999. If the call is exercised, the notes would become fixed
rate obligations due in 2006. If the call holder does not exercise the call
option, Bancorp is required to redeem the notes immediately thereafter.
At December 31, 1996, committed line of credit arrangements totaling $500
million were available to Bancorp through a syndication of unaffiliated banks.
Such lines generally provide for interest at the lending bank's prime rate or
other money market rates. These banking arrangements principally served as
commercial paper back-up lines and provided general liquidity for the parent
company. There were no borrowings outstanding or compensating balance
requirements under these credit arrangements at December 31, 1996. During 1996,
Bancorp paid commitment fees of .10 percent of the available lines.
BANKS
Various Bancorp subsidiary banks borrow from the Federal Home Loan Banks
(FHLB) of Seattle and San Francisco. These banking subsidiaries pledge certain
real estate loans and investment securities under blanket pledge agreements as
collateral for secured notes. Interest rates ranged from 4.98% to 9.11% at
December 31, 1996.
52
<PAGE> 55
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. National Bank of Oregon (U. S. Bank of Oregon) and U. S. Bank of
Washington, National Association (U.S. Bank of Washington) issue notes under a
continuous bank note offering, which provides for maturities at issuance of 30
days to 15 years. The average interest rate on bank notes outstanding at
December 31, 1996 was 5.61%. Mortgages and other notes payable are primarily
mortgages on bank premises. Interest rates range from 8.5% to 12%.
10. EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS
Bancorp provides noncontributory trusteed defined benefit pension plans
(Pension Plans) which cover substantially all employees. West One's Pension
Plan, substantially similar to Bancorp's, will be merged into the Bancorp plan
at the end of 1997. Benefits are based on years of service and highest average
level of compensation for any five consecutive years out of the last ten years
of service. Bancorp's funding policy is to contribute annually an amount between
the minimum required under ERISA and the maximum amount that is deductible for
income tax purposes. Such contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future.
Bancorp also maintains separate unfunded supplemental pension plans
(Supplemental Plans) that provide certain officers with defined pension benefits
in excess of limits imposed by federal tax law on benefit payments from
qualified plans and for certain compensation not covered in the Pension Plans.
The related retirement benefits are paid from Bancorp's assets. The assumptions
used in computing the present value of the accumulated benefit obligation, the
projected benefit obligation and net pension expense are substantially
consistent with those assumptions used for the Pension Plans.
Pension plan assets are invested approximately 70 percent in common stock
and equity mutual funds and 30 percent in a fixed income mutual fund. The
following table sets forth the aggregate Pension Plans' status and amounts
recognized in Bancorp's consolidated financial statements at December 31, 1996
and 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1996 1995
----------------------- -----------------------
PENSION SUPPLEMENTAL PENSION SUPPLEMENTAL
(IN MILLIONS) PLANS PLANS PLANS PLANS
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation $ 344.5 $ 21.6 $ 342.3 $ 20.5
-----------------------------------------------
Accumulated benefit obligation $ 363.1 $ 22.6 $ 365.3 $ 20.7
-----------------------------------------------
Projected benefit obligation $ 444.6 $ 28.8 $ 444.1 $ 27.1
Plan assets at fair value 523.3 - 466.1 -
- ------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (in excess of) or less than plan assets 78.7 (28.8) 22.0 (27.1)
Unrecognized net (gain) loss from past experience different from that
assumed and effects of changes in assumptions (39.7) 6.9 6.6 7.3
Unrecognized prior service cost 11.2 3.0 13.9 3.4
Additional minimum liability - (4.8) - (5.7)
Unrecognized net transition (asset) obligation at January 1, 1986 (5.8) 1.1 (10.1) 1.4
-----------------------------------------------
Prepaid pension cost (pension liability) $ 44.4 $(22.6) $ 32.4 $(20.7)
===============================================
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pension cost for the Pension Plans and Supplemental Plans included the
following components:
<TABLE>
<CAPTION>
PENSION PLANS SUPPLEMENTAL PLANS
------------------------ --------------------
(IN MILLIONS) 1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during the period $17.7 $ 15.5 $ 18.7 $ .6 $ .4 $ .4
Interest cost on projected benefit obligation 32.9 31.6 27.3 2.1 1.9 1.4
Net amortization and deferrals 21.5 60.8 (35.4) 1.2 .9 0.8
(Return) loss on plan assets (60.8) (99.9) .2 - - -
---------------------------------------------------
Net periodic pension cost $11.3 $ 8.0 $ 10.8 $3.9 $3.2 $2.6
===================================================
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 56
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In determining the projected benefit obligation at each year-end, the
following assumptions were used. The assumptions for both Pension Plans were the
same for 1996 and 1995.
<TABLE>
<CAPTION>
U. S. BANCORP WEST ONE
---------------------------------- -------
1996 1995 1994 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average discount rate 7.75% 7.25% 8.50% 8.75%
Expected long-term rate of return 9.00 9.00 9.00 10.00
Rate of increase in future salary levels 4.25-8.75 3.75-8.25 5.0-9.50 4.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYEE INVESTMENT PLAN
Bancorp sponsors an Employee Investment Plan which allows qualified
employees, at their option, to make contributions of up to certain percentages
of pre-tax base salary through salary deductions under Section 401(k) of the
Internal Revenue Code. A portion of these contributions is matched by Bancorp.
All of Bancorp's matching contributions are invested in Bancorp common stock.
Employee contributions are invested, at the employees' direction, among a
variety of investment alternatives. Total expenses associated with the Employee
Investment Plan were $17.5 million, $13.4 million and $9.6 million in 1996, 1995
and 1994, respectively.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Bancorp has a benefit plan which provides postretirement health benefits to
all employees who have attained the age of 55 and have at least 10 years of
service. Retiree health care benefits are offered under self-insured plans. The
plans are contributory, with retirees' contributions adjusted annually to
reflect certain cost-sharing provisions and benefit limitations. Certain
retirees are covered under a plan that is noncontributory for retirees and
contributory for dependents. Bancorp adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and elected to
immediately recognize the accumulated postretirement benefit obligation measured
as of January 1, 1992. Bancorp reserves the right to terminate the plan or make
plan changes at any time.
Bancorp also provides postemployment benefits other than retirement
benefits to former or inactive employees, their beneficiaries and covered
dependents. Those benefits include, but are not limited to, salary continuation,
supplemental unemployment benefits, severance benefits, disability-related
benefits (including workers' compensation), job training and counseling, and
continuation of benefits such as health care benefits and life insurance
coverage.
The following table sets forth the aggregate status of the postretirement
plans, reconciled with amounts recognized in Bancorp's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
(IN MILLIONS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $87.1 $ 93.4
Fully eligible active plan participants 1.1 .9
Other active participants 8.9 8.4
----------------
97.1 102.7
Unrecognized prior service cost 5.4 5.9
Unrecognized net loss from past experience different from that assumed and the effects of
changes in assumptions (3.7) (9.7)
----------------
Accrued postretirement benefit liability $98.8 $ 98.9
================
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 57
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
(IN MILLIONS) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ .9 $ .8 $ 1.6
Interest cost on accumulated postretirement benefit obligation 7.1 7.7 8.4
Net amortization of deferrals (.4) (.5) .9
-----------------------
Net periodic postretirement benefit cost $7.6 $8.0 $10.9
=======================
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7.75 percent and 7.25 percent at December
31, 1996 and 1995, respectively. The assumed discount rate at December 31, 1994
was 8.5 percent for the Bancorp plan and 8.75 percent for the West One Plan. The
1996 health care trend rate was projected to be 8.0 percent for pre-65
participants and 7.0 percent for post-65 participants. These rates were assumed
to decrease gradually until they reach 5.0 percent in the year 2003 and remain
at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of January 1, 1996 by $6.5 million and the
aggregate of the service and interest components of net periodic postretirement
cost for 1996 by $.6 million.
11. STOCK INCENTIVE PLANS
Bancorp maintains various stock incentive plans which provide for its
ability to grant stock options, stock appreciation rights, restricted share
awards, performance shares and other stock-based awards to directors, officers
and key employees. Under the terms of the employee and officer option
agreements, the option price is the fair market value of the underlying stock at
the time the option is granted and the option period cannot exceed ten years
from the grant date. Options become exercisable pursuant to various alternative
vesting structures. Stock options granted in 1996 and 1995 were generally under
a vesting structure over a three-year period.
Nonemployee directors may elect to acquire "deferred compensation options"
in lieu of fees otherwise due for board services and may exercise those options
after six months. Deferred compensation options granted to non-employee
directors are issued at 40 percent of market price on grant date. The range of
option prices is a function of the market price of Bancorp stock on the date the
options were granted, the impact of stock dividends and stock splits, and the
effect of business combinations.
Stock option activity is summarized in the following table:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1995 4,840,355 $ 16.79
Grants 1,018,465 24.13
Options exercised (816,239) 12.16
Forfeited or cancelled (111,695) 25.15
-----------------------
Outstanding at December 31, 1995 4,930,886 18.84
-----------------------
Acquisition 542,417 15.08
Grants 1,229,247 34.60
Options exercised (1,403,537) 15.22
Forfeited or cancelled (55,064) 27.49
-----------------------
Outstanding at December 31, 1996 5,243,949 $ 23.02
=======================
- -----------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 58
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1996, shares of common stock reserved for issuance under
all stock incentive plans totaled 10,891,429. Exercisable options totaled
3,552,030 and 3,747,787 at December 31, 1996 and 1995, respectively. Additional
information regarding options outstanding as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING
EXERCISABLE
-------------------------------- -----------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.50 - $8.25 168,582 1.5 $ 6.93 168,582 $ 6.93
$8.29 - $12.37 738,144 3.5 10.67 738,144 10.67
$13.13 - $19.22 1,084,516 4.2 16.19 1,076,256 16.20
$20.79 - $30.65 2,048,037 7.1 25.42 1,210,748 25.61
$31.75 - $41.59 1,204,670 9.2 34.93 358,300 33.18
------------------------------------------------------
5,243,949 6.3 $23.02 3,552,030 $19.53
======================================================
-----------------------------------------------------------------------------------------------------
</TABLE>
SFAS No. 123 requires the disclosure of pro forma net income and earnings
per share had Bancorp adopted the fair value method as of the beginning of
fiscal 1995. Under this statement, the fair value of stock-based awards to
employees is calculated through the use of option pricing models. These models
also require subjective assumptions, including future stock price volatility and
expected time to exercise. Bancorp's calculations are based on a single option
approach and forfeitures were estimated. The weighted average grant-date fair
value of stock options granted equal to the market price of the underlying stock
on the date of grant was $7.17 and $4.50 in 1996 and 1995, respectively. The
weighted average grant-date fair value of stock options granted at less than the
market price on the date of grant was $18.61 and $10.80 for 1996 and 1995,
respectively. If the accounting provisions of the new pronouncement had been
adopted as of the beginning of 1995, the effect on 1995 and 1996 net income and
earnings per share would have been immaterial.
The following weighted average assumptions were used in the computation of
fair value of stock options:
<TABLE>
<CAPTION>
EXPECTED RISK- FREE
EXPECTED DIVIDEND INTEREST EXPECTED
VOLATILITY YIELD RATE LIFE (YEARS)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Grants of stock options
1996 21.2% 3.6% 6.4% 5.0
1995 18.0 3.5 6.3 5.1
-------------------------------------------------------------------------------------------
</TABLE>
Restricted Stock Units ("RSUs"), totaling 81,470 shares were issued in 1996
pursuant to Bancorp's 1993 Stock Incentive Plan, as well as dividend equivalent
RSUs, if elected by the grantee. RSUs vest in 20 percent increments over five
years and dividend equivalent RSUs vest either (1) in increments of 20 percent
over five years or (2) in a lump sum after five years (at the election of the
grantee). Unvested RSUs are forfeited on termination of employment other than
retirement, disability or death, while dividend equivalent RSUs are not
forfeited under any termination circumstances. The officers cannot use the RSUs
or transfer them until they are converted into common shares. The weighted
average grant-date fair value of RSUs in 1996 was $27.17.
Performance shares are earned only if specified performance goals are
attained during a designated performance cycle. Earned performance shares are
paid at the end of the performance cycle in shares of common stock or a
combination of cash and shares. Grants of performance shares totaled 100,112 as
of December 31, 1996 and none have been paid. The weighted average grant-date
fair value of performance shares issued in 1995 was $23.12; no performance
shares were issued in 1996.
Compensation expense recognized under APB No. 25 was not material for the
years ended December 31, 1996 or 1995.
56
<PAGE> 59
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. CAPITAL QUALIFYING SECURITIES
In December 1996, Bancorp issued $300 million of mandatory redeemable
capital securities through a subsidiary grantor trust. The Trust holds debt
instruments of the parent company purchased with the proceeds of the securities
issuance. The capital qualifying securities bear an interest rate of 8.27
percent and mature in December, 2026. Bancorp has the right to redeem the
securities, with prior approval of the Federal Reserve Board, on or after
December 15, 2006 at 104.135 percent of par, declining to par on or after
December 15, 2016. Certain changes in tax law or Federal Reserve Board
regulations regarding the treatment of the capital securities as Tier 1 capital
could result in early redemption, at par, or a shortening in the maturity of the
securities.
13. SHAREHOLDERS' EQUITY
The 8 1/8% Cumulative Preferred Stock, Series A, is not redeemable prior to
July 23, 1997. On or after such date, the Series A Preferred Stock will be
redeemable, in whole or part, at the option of Bancorp at a liquidating
preference of $25 per share plus accrued and unpaid dividends. Under current
regulations, Bancorp may not exercise its option to redeem the Series A
Preferred Stock without the prior approval of the Federal Reserve Board. The
preferred dividend requirement used in the calculation of earnings per common
share was $12.2 million for the years 1996, 1995 and 1994.
In October 1996, Bancorp announced its plan to repurchase up to 7.5 million
shares of outstanding common stock. This stock repurchase program is in addition
to the program announced in 1994 to repurchase up to 6.5 million common shares.
Repurchased shares will be used for employee benefit plans, dividend
reinvestment and other corporate purposes. During 1996, Bancorp purchased 14.6
million shares of which 9.7 million shares were subsequently reissued in the
acquisition of CBI. Of the total shares purchased in 1996, four million shares
were acquired in November 1996 from a third party, who will receive a final
settlement will be recorded as a component of shareholders' equity.
In 1995, West One, before the merger with Bancorp, called for redemption
and retired its 7.75% convertible subordinated debentures. In connection with
the redemption, West One purchased in the open market 2.7 million West One
common shares (equivalent to approximately 3.9 million Bancorp common shares)
for issuance to debt holders.
14. CONTINGENCIES, COMMITMENTS, CONCENTRATIONS OF CREDIT AND OFF-BALANCE SHEET
RISK
CONTINGENCIES
Bancorp and certain subsidiaries are defendants in various legal
proceedings. Management, after reviewing these actions and proceedings with
counsel, believes that the outcome of such proceedings will not have a
materially adverse effect upon the consolidated financial position or results of
operations of Bancorp or its subsidiaries.
COMMITMENTS
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Bancorp evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by Bancorp upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
deposits held in financial institutions, marketable securities, accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial properties.
57
<PAGE> 60
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Standby letters of credit and financial guarantees written are conditional
commitments issued by Bancorp to guarantee the performance of a customer to a
third party. These guarantees are primarily issued to support public and private
borrowing arrangements, including state and municipal obligations, industrial
development revenue bonds, corporate debt, and similar transactions. The credit
risk involved in issuing letters of credit and writing financial guarantees is
essentially the same as that involved in extending loan facilities to customers.
Generally, standby letters of credit and financial guarantees written are not
secured, but, when required, collateral may include cash and securities.
Approximately 70 percent of standby letters of credit at December 31, 1996
expire in less than five years and 36 percent in less than one year.
The following table summarizes Bancorp's credit related financial
instruments, which include both commitments to extend credit and letters of
credit, each of which is considered in Bancorp's liquidity risk management
practices. For these financial instruments, contract amounts represent credit
risk.
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
-----------------------
DECEMBER 31,
-----------------------
(IN MILLIONS) 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $21,032.7 $15,904.8
Standby letters of credit and financial guarantees (net of
participations of $79.4 million and $68.5 million, respectively) 1,187.2 1,074.3
---------------------------------------------------------------------------------------------
</TABLE>
CONCENTRATIONS OF CREDIT
Most of Bancorp's lending activity is with customers located within the
Northwest. An economic downturn in the Northwest would likely have a negative
impact on Bancorp's results of operations depending on the severity of the
downturn. Bancorp maintains a diversified portfolio and does not have
significant on- or off-balance sheet concentrations of credit risk in any one
industry.
OFF-BALANCE SHEET RISK
In the normal course of business, Bancorp uses financial instruments with
off-balance sheet risk to meet the financing needs of its customers and to
adjust specific interest rate exposure that is identified by asset/liability
management monitoring processes. These financial instruments include commitments
to extend credit, standby letters of credit and financial guarantees, options
related to customer accommodations, interest rate swaps, and futures and foreign
exchange contracts. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated financial statements. The contract or notional amounts of interest
rate swaps, futures, foreign exchange contracts and options related to customer
accommodations do not represent the credit or interest rate risk associated with
these contracts, but rather give an indication of the volume of the
transactions. Unless noted otherwise, Bancorp does not require collateral or
other security to support financial instruments with off-balance sheet credit
risk.
Credit risk is defined as the possibility of sustaining a loss due to the
failure of a counterparty to perform in accordance with the terms of the
contract. Bancorp's exposure to credit loss, in the event of nonperformance by
the other party to the financial instrument, for the commitments to extend
credit and standby letters of credit and financial guarantees written is
represented by the contractual amount of those instruments. Bancorp uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR CUSTOMER ACCOMMODATION OR
TRADING PURPOSES
The amounts disclosed below represent the end-of-period contract or
notional amounts and fair value of derivatives held or issued for customer
accommodation or trading purposes, the average aggregate fair values during the
year of those instruments and the associated credit exposures. Those amounts
reflect the netting of offsetting transactions only to the extent that they
could be offset under master netting agreements with various counterparties.
Fair values are based upon the
58
<PAGE> 61
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
estimated amounts that Bancorp would (receive) pay to terminate the contracts as
of reporting dates. Dealer quotes and/or present value techniques, where dealer
quotes are not available, have been used for computing fair values. Bancorp's
credit exposure resulting from interest rate and foreign exchange contracts held
for trading purposes is limited to the current fair value of contracts with
unrealized gains.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
CONTRACT OR AVERAGE CREDIT
NOTIONAL AMOUNTS FAIR VALUE FAIR VALUE EXPOSURE
----------------- ---------------- ---------------- -----------
(IN MILLIONS) 1996 1995 1996 1995 1996 1995 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Contracts
Purchased options $ 12.0 $ 52.0 $ (.2) $ (.2) $ (.2) $ (.6) $ .2 $ .2
Written options 46.5 110.4 .2 .2 .2 .6 - -
Swaps 416.3 237.2 3.7 4.3
Assets 2.2 1.5 2.3 2.1
Liabilities (3.7) (4.3) (3.7) (3.7)
Futures 98.4 693.0 .5 -
Assets .6 1.3 .5 .4
Liabilities (.5) - (.7) -
Foreign Exchange
Contracts 170.0 144.0 1.4 1.3
Commitments to sell 85.7 68.3 87.4 51.7
Commitments to purchase 81.9 75.2 81.9 49.8
----------------------------------------------------------------------------------------------------
</TABLE>
Bancorp acts as a principal in writing interest rate caps and floors for
customers (written options). These interest rate caps and floors enable
customers to transfer, modify, or reduce their interest rate risk and obligate
one of the parties to make cash payments if an interest rate index exceeds a
specified upper "capped" level or if the index falls below a specified lower
"floor" level. Written options do not expose Bancorp to credit risk since the
counterparty has already performed according to the terms of the contract by
paying a premium up front.
Purchased options represent offsetting positions intended to hedge certain
written options for customers. Credit risk exists for purchased options and is
measured as the replacement cost in the event of nonperformance by
counterparties for those contracts in a gain position, plus an amount for
residual credit risk. Normal credit reviews on each counterparty are performed,
and exposure to the interest rate risk inherent in these items is managed by
entering into offsetting positions or other hedging techniques.
Cash requirements include the premium paid to purchase such options
(premiums are received for options written) and if the option is exercised, the
strike price in such contract, times the notional amount, would be paid to or
received from the writer of the option, as appropriate. Interest rate caps and
floors have maturities ranging from 1997 to 2000. Net gains realized related to
interest rate caps and floors were not significant in 1996, 1995 and 1994.
Interest rate swaps, with notional amounts totaling $257.3 million, were
entered into as customer accommodations at December 31, 1996. Of this total,
$159.0 million was matched by interest rate swaps with major financial
institutions and $98.3 million was hedged by interest rate futures. Net realized
gains related to customer swaps were approximately $5 million in 1996, $1
million in 1995 and were not significant in 1994. The current credit exposure on
interest rate swaps is the replacement cost in the event of nonperformance by
counterparties for those contracts in a gain position. Cash requirements include
settling any net amounts due to or from the counterparties. The carrying amount
of interest rate swap transactions as customer accommodations, which represent
accrued interest, was not significant at December 31, 1996 and 1995.
Financial futures contracts are contracts for delayed delivery of
securities or money market instruments in which the seller agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Initial margin requirements are met in cash or other
instruments, and changes in the contract values are settled daily. Futures
contracts have minimal credit risk because futures exchanges are the
counterparties. The carrying amount of financial futures provided as customer
accommodations, which represents deferred gains or losses, was not significant
at December 31, 1996 and 1995.
59
<PAGE> 62
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Futures contracts are sold to hedge market price risks of interest rate
caps and swaps written for customers. Open contracts at December 31, 1996, had
maturities ranging from 1997 to 2005. Market value changes on futures contracts
that are designated as trading hedges are recognized in income in the period of
change. Realized losses on futures used for hedging trading swaps and options
were approximately $1.5 million in 1996, $1 million in 1995 and were not
significant in 1994.
Foreign exchange contracts, consisting of forward and spot commitments to
purchase and sell foreign currencies, are agreements for delayed delivery of a
foreign currency in which the buyer agrees to purchase and the seller agrees to
deliver, at a specified future date, a specified amount at a specified exchange
rate. Bancorp is party to foreign exchange spot and forward contracts to meet
the needs of its customers. Customer transactions are generally covered by
offsetting positions to reduce risk arising from fluctuations in exchange rates.
Foreign exchange contracts generally relate to major foreign currencies and are
highly liquid. The foreign exchange contracts have original terms to maturity of
twelve months or less. Credit exposure for foreign exchange contracts is equal
to the unrealized gains in such contracts. Realized gains on foreign exchange
contracts totaled $3.5 million, $5.1 million, and $4.2 million for 1996, 1995
and 1994, respectively.
The table below summarizes by notional amounts the annual maturities for
each major category of swaps entered into for customer accommodation or trading
as of December 31, 1996, based on the then current rates in effect (variable
rates primarily LIBOR-based).
<TABLE>
<CAPTION>
MATURITY OF INSTRUMENTS HELD FOR CUSTOMER ACCOMMODATION OR TRADING
------------------------------------------------------------------------------
2002
AND
(IN MILLIONS) 1997 1998 1999 2000 2001 AFTER TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pay fixed rate $ 1.3 $43.2 $ 3.0 $ - $42.9 $68.6 $159.0
Weighted average pay rate 7.00% 5.76% 9.14% 6.16% 6.28%
Weighted average receive rate 5.56% 5.53% 8.25% 5.55% 5.14%
Receive fixed rate $ 4.0 $71.3 $27.8 $ 5.0 $68.0 $81.2 $257.3
Weighted average pay rate 5.63% 5.55% 5.56% 5.50% 5.54% 5.20%
Weighted average receive rate 6.13% 6.02% 7.78% 6.53% 6.14% 6.48%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
Bancorp also holds or issues derivative instruments for asset/liability
management purposes. Its principal objectives are to maximize net interest
income while maintaining acceptable levels of interest rate and liquidity risk
and to facilitate its funding needs.
The amounts disclosed below represent the end of period contract or
notional amounts of derivatives held or issued for purposes other than trading
and the associated credit exposures for each class of instrument.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
CONTRACT OR
NOTIONAL CREDIT
AMOUNTS FAIR VALUE EXPOSURE
------------------- -------------- -------------
(IN MILLIONS) 1996 1995 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hedges of interest rate risk on assets and liabilities
Interest rate swaps $995.3 $1,467.5 $2.5 $8.1
Assets $ 3.1 $ 6.6
Liabilities (2.5) (8.1)
Hedges of mortgage banking loan sales transactions
Forward sales 91.0 51.9 .5 -
Assets - .6
Liabilities (.5) -
Purchased options 21.0 3.0 - -
Assets .2 -
Liabilities - -
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amounts. Interest rate swaps are principally used to hedge
interest rate risk
60
<PAGE> 63
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related to London Interbank Offered Rate (LIBOR)-based floating rate loans and
variable rate liabilities such as certificates of deposit and term funds
purchased. Inherent in the value of the interest rate swaps are gross unrealized
gains totaling $2.5 million and $8.1 million and gross unrealized losses
totaling $3.1 million and $6.6 million at December 31, 1996 and 1995,
respectively. The carrying amount of interest rate swap transactions used for
asset/liability management purposes, which represent accrued interest, was not
significant at December 31, 1996 and 1995.
In conjunction with Bancorp's mortgage loan operations, mortgage-backed
securities and mortgage loans are sold for delivery in future months, and
over-the-counter options on mortgage-backed securities are purchased to hedge
closed mortgage loans and to hedge interest rate guarantee commitments for
unclosed mortgage loans. These forward commitments and options are short-term in
duration. Gross unrealized gains and losses were not significant for 1996 and
1995.
If an interest rate instrument used to manage interest rate risk is
terminated early and the hedged asset or liability remains, any resulting gain
or loss is deferred and amortized as an adjustment to the yield of the
underlying interest rate exposure position over the remaining period originally
covered by the terminated instrument. Deferred losses-net of gains-on the
termination of interest rate instruments used to manage interest rate risk
totaled $2.7 million and $2.2 million at December 31, 1996 and 1995,
respectively. The deferred losses at December 31, 1996 are scheduled to be
amortized into income as follows: 1997-$1.2 million; 1998-$1.3 million; and
1999-$.2 million.
The table below summarizes by notional amounts the annual maturities for
each major category of swaps held for purposes other than trading as of December
31, 1996, based on the then current rates in effect (variable rates primarily
LIBOR-based).
<TABLE>
<CAPTION>
MATURITY OF INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
---------------------------------------------------------------------
2002
AND
(IN MILLIONS) 1997 1998 1999 2000 2001 AFTER TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pay fixed rate $ - $100.0 $ - $ - $ - $ 8.2 $108.2
Weighted average pay rate 5.90% 8.34%
Weighted average receive rate 5.50% 5.66%
Receive fixed rate $161.4 $222.5 $ - $ 3.2 $ - $ - $387.1
Weighted average pay rate 5.48% 5.51% 5.63%
Weighted average receive rate 6.02% 6.48% 7.33%
Pay and receive variable rates $ - $ - $500.0 $ - $ - $ - $500.0
Weighted average pay rate 5.50%
Weighted average receive rate 5.72%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
Bancorp could realize in a current market exchange. Certain methods and
assumptions were used to estimate the fair value of each financial instrument
for which it is practicable to estimate that value. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. Off-balance sheet financial instruments, including
fair market value, are discussed in Footnote 14, Contingencies, Commitments,
Concentrations of Credit and Off-Balance Sheet Risk.
The estimated fair values of Bancorp's financial instruments at December
31, 1996 and 1995 are presented on the next page.
61
<PAGE> 64
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1995
CARRYING FAIR CARRYING FAIR
(IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and short-term investments(1) $ 2,486.2 $ 2,486.2 $ 2,932.7 $ 2,932.7
Trading account securities(1) 85.1 85.1 279.7 279.7
Securities and equity investments(2) 3,975.0 4,080.0 4,290.2 4,367.9
Loans and loans held for sale, net(3) 23,335.3 24,010.6 21,323.4 22,061.3
FINANCIAL LIABILITIES
Deposits
Without stated maturities(1) (16,674.1) (16,674.1) (15,847.1) (15,847.1)
With stated maturities(4) (8,302.9) (8,326.9) (7,417.6) (7,494.1)
Federal funds purchased and security repurchase agreements(1) (1,672.4) (1,672.4) (2,731.1) (2,731.1)
Commercial paper and other short-term borrowings(1) (822.5) (822.5) (868.2) (868.2)
Long-term debt(5) (1,811.5) (1,856.4) (1,377.0) (1,422.4)
Capital qualifying securities(6) (300.0) (307.1) - -
Preferred stock(6) (150.0) (152.3) (150.0) (153.0)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The carrying amount is a reasonable estimate of fair value, or equal to fair
value.
(2) The fair value equals quoted market price or dealer quotes. If quoted market
price is not available, fair value is estimated using quoted market prices
for similar securities. Fair value of $32 million and $45 million at
December 31, 1996 and 1995, respectively, of various investments in limited
partnership equity investments was not available through market sources, and
was not practical to estimate. In such cases, fair value indicated is equal
to carrying value.
(3) Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type and further segregated by
variable and fixed rate, performing and nonperforming categories. The
carrying value of variable rate loans and loans held for sale approximates
fair value. The fair value of fixed rate loans is calculated by discounting
contractual cash flows adjusted for prepayment estimates. The discount rate
is estimated using rates currently offered for similar loans. Fair value of
$45 million and $29 million at December 31, 1996 and 1995, respectively, of
certain nonperforming loans was not available through market sources, and
was not practical to estimate. In such cases, fair value indicated is equal
to carrying value.
(4) The fair value is calculated based on the discounted value of the
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar maturities.
(5) The fair value is calculated based on the discounted value of the
contractual cash flows. The discount rate used is the result of implied
treasury forward rates plus a risk premium.
(6) The fair value is its quoted market price.
16. RESTRUCTURING CHARGE
In the first quarter of 1994, a $100 million restructuring charge was
recorded related to a comprehensive program designed to allow Bancorp to become
a more efficient, competitive and customer-focused financial institution. The
program included staff reductions accomplished through an early retirement
opportunity for certain employees, other severance programs and attrition;
divestiture of certain business activities; and the consolidation and
integration of certain operations and facilities that no longer fit 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. The $100 million charge
represented the incremental costs that resulted from the restructuring plan,
which was essentially completed in 1995.
62
<PAGE> 65
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. U. S. BANCORP (PARENT COMPANY) SUMMARY FINANCIAL INFORMATION
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(IN MILLIONS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 5.5 $ 4.0
Securities available for sale, at fair value (amortized cost: 1996 -- $118.1;
1995 -- $105.9) 119.0 105.9
Loans
Bank subsidiaries 1,229.0 481.0
Nonbank subsidiaries 19.5 52.0
Other 24.5 14.8
---------------------
Total loans 1,273.0 547.8
Allowance for credit losses (2.0) (.3)
---------------------
Net loans 1,271.0 547.5
Investment in subsidiaries
Banking 2,910.8 2,804.6
Nonbank 34.1 47.7
Other equity investments 134.1 111.0
Other assets 276.2 308.0
---------------------
$4,750.7 $3,928.7
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Commercial paper and other short-term borrowings $ 161.2 $ 216.1
Other liabilities 310.0 254.2
Long-term debt 1,259.4 841.4
Junior subordinated debentures issued to trust subsidiary 309.3 -
---------------------
Total liabilities 2,039.9 1,311.7
---------------------
Shareholders' equity 2,710.8 2,617.0
---------------------
$4,750.7 $3,928.7
=====================
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE> 66
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. U.S. BANCORP (PARENT COMPANY) SUMMARY FINANCIAL INFORMATION (continued)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN MILLIONS) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Dividends from subsidiaries
Bank -- cash $727.4 $275.4 $245.5
Bank -- noncash 15.9 38.6 .2
Nonbank -- cash 15.3 2.8 3.1
Nonbank -- noncash 2.5 - .3
Interest from subsidiaries
Bank 44.4 23.7 23.2
Nonbank 1.3 7.7 9.2
Other interest 6.6 9.8 7.4
Equity investment income (loss) 26.9 (6.7) (5.4)
Other noninterest revenues 8.9 2.0 1.0
----------------------------
Total revenues 849.2 353.3 284.5
----------------------------
EXPENSES
Employee compensation and benefits 79.7 98.5 91.0
Interest expense 86.7 69.3 71.9
Operating expenses 67.9 124.8 127.6
Merger and integration costs 12.9 45.6 -
Restructuring charge - - 36.6
Less intercompany charges for services (112.9) (144.5) (151.1)
----------------------------
Net expenses 134.3 193.7 176.0
----------------------------
Income before income taxes and equity in undistributed income of subsidiaries 714.9 159.6 108.5
Income tax benefit (3.1) (38.3) (46.8)
----------------------------
Income before equity in undistributed income of subsidiaries 718.0 197.9 155.3
Equity in undistributed income of subsidiaries(1)
Bank (221.9) 119.4 112.3
Nonbank (17.2) 11.7 (12.9)
----------------------------
NET INCOME $478.9 $329.0 $254.7
============================
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The equity in undistributed income of subsidiaries includes dividends paid
in excess of current year earnings for certain subsidiaries.
64
<PAGE> 67
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. U.S. BANCORP (PARENT COMPANY) SUMMARY FINANCIAL INFORMATION (continued)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(IN MILLIONS) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 478.9 $ 329.0 $ 254.7
Adjustments to reconcile net income to cash used in operating activities
Undistributed earnings of subsidiaries 239.1 (131.1) (99.5)
Noncash dividends included in undistributed earnings of subsidiaries (18.4) (38.5) (.5)
Depreciation, amortization and accretion 46.3 34.0 39.8
Noncash portion of merger/restructuring charges 10.7 35.6 21.9
Net (gain) loss on sale of equity investments (23.7) 8.3 5.9
Gain on sale of securities available for sale (6.2) (.9) (.2)
Loss on sale of trading securities - - 1.4
Net gains on sale of premises and equipment .1 2.6 (.2)
Change in other assets and liabilities, net 33.0 (18.7) 17.9
-------------------------------
Net cash provided by operating activities 759.8 220.3 241.2
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in other short-term investments, maturities less than 90 days - 13.9 (.8)
Proceeds from sale of securities available for sale 12.3 - -
Proceeds from maturities of securities available for sale 60.0 135.9 73.1
Purchase of securities available for sale (71.2) (156.0) (95.3)
Proceeds from sales of equity investments 37.7 8.4 1.0
Purchase of equity investments (8.9) (24.4) (8.3)
Principal collected on loans 37.1 535.1 379.6
Loans made to subsidiaries and others (769.3) (653.0) (170.5)
Equity contributed to subsidiaries (12.1) (20.7) (24.8)
Proceeds from sales of premises and equipment 3.9 5.6 3.4
Purchase of premises and equipment (19.3) (15.0) (50.4)
Acquisitions, net of cash and cash equivalents 4.2 - .1
-------------------------------
Net cash provided by (used in) investing activities (725.6) (170.2) 107.1
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings (54.9) 2.9 5.5
Proceeds from issuance of long-term debt 468.5 396.4 -
Repayment of long-term debt (51.0) (206.8) (167.2)
Proceeds from issuance of junior subordinated debentures to trust subsidiary 309.3 - -
Dividends paid (180.9) (145.3) (128.2)
Proceeds from issuance of common stock 26.9 16.4 20.5
Repurchase of common stock (550.6) (175.8) (57.1)
-------------------------------
Net cash used in financing activities (32.7) (112.2) (326.5)
-------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1.5 (62.1) 21.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4.0 66.1 44.3
-------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5.5 $ 4.0 $ 66.1
===============================
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 84.0 $ 66.1 $ 74.2
Income taxes 188.2 190.1 151.4
Noncash investing activities:
Noncash equity contributed to subsidiaries $ 14.9 $ 4.4 $ 28.1
Fair value adjustment to securities available for sale .9 - 8.0
Income tax effect related to fair value adjustment .4 - 3.3
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE> 68
U.S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. REGULATORY MATTERS
Banks are subject to risk-based capital guidelines requiring minimum
capital levels based on the perceived credit risk of assets and off-balance
sheet instruments. 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". Failure to meet minimum capital requirements can initiate
actions by regulators that could have an effect on Bancorp's financial
statements.
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. Bancorp's Tier 1 capital
is comprised primarily of common equity, perpetual preferred stock and
subsidiary trust issued capital securities, 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 capital
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.
As of December 31, 1996, the most recent regulatory notification
categorized Bancorp's three largest bank subsidiaries as "well capitalized"
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification management believes have changed
the banks' category. Capital adequacy for U.S. Bank of Oregon and U.S. Bank of
Washington is monitored by the Office of the Comptroller of the Currency.
Capital adequacy for Bancorp and U.S. Bank of Idaho is monitored by the Federal
Reserve Bank of San Francisco.
To be categorized as well capitalized, Bancorp must maintain minimum
ratios. The required minimum ratios are: Total capital -- 8%; Tier 1
capital -- 4%; and leverage capital -- 4%. The minimum ratios required for "well
capitalized" designation are: Total capital -- 10%; Tier 1 capital -- 6%; and
leverage capital -- 5%. The risk-based capital and leverage capital ratios for
Bancorp and its three largest bank subsidiaries are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995
------------------- -------------------
(IN MILLIONS) AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $3,834.2 11.83% $3,377.9 11.79%
U. S. Bank of Oregon 1,622.9 10.95 1,312.0 10.49
U. S. Bank of Washington 1,049.6 10.54 960.2 10.58
U. S. Bank of Idaho 338.4 10.44 380.1 11.25
TIER 1 CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $2,628.3 8.11% $2,418.8 8.44%
U. S. Bank of Oregon 1,072.5 7.24 1,080.5 8.64
U. S. Bank of Washington 689.9 6.93 758.0 8.35
U. S. Bank of Idaho 227.8 7.03 337.7 9.99
TIER 1 CAPITAL (TO AVERAGE ASSETS)
Consolidated $2,628.3 8.17% $2,418.8 7.89%
U. S. Bank of Oregon 1,072.5 7.75 1,080.5 9.61
U. S. Bank of Washington 689.9 7.44 758.0 8.41
U. S. Bank of Idaho 227.8 5.96 337.7 7.25
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 69
U.S. BANCORP AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
--------------------------------- ---------------------------------
(IN MILLIONS, EXCEPT SHARE DATA) 4 3 2 1 4 3 2 1
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $640.6 $633.5 $609.2 $600.0 $606.0 $608.8 $595.9 $581.8
Interest expense 257.5 258.5 248.9 251.8 254.8 252.0 249.7 236.6
---------------------------------------------------------------------
Net interest income 383.1 375.0 360.3 348.2 351.2 356.8 346.2 345.2
Provision for credit losses 40.5 38.1 26.5 30.1 51.4 24.0 25.1 23.6
---------------------------------------------------------------------
Net interest income after provision for credit
losses 342.6 336.9 333.8 318.1 299.8 332.8 321.1 321.6
Gain on sale of operations and loans - - 25.7 (.1) .8 3.0 4.6 .5
Other noninterest revenues 135.7 139.2 140.1 144.6 124.4 133.5 135.0 122.9
---------------------------------------------------------------------
Total noninterest revenues 135.7 139.2 165.8 144.5 125.2 136.5 139.6 123.4
---------------------------------------------------------------------
Noninterest expenses 290.8 285.3 291.4 278.8 296.0 286.4 304.1 305.4
Merger and integration costs - - 9.8 8.4 90.4 4.8 3.7 -
SAIF assessment - 10.3 - - - - - -
---------------------------------------------------------------------
Total noninterest expenses 290.8 295.6 301.2 287.2 386.4 291.2 307.8 305.4
---------------------------------------------------------------------
Income before income taxes 187.5 180.5 198.4 175.4 38.6 178.1 152.9 139.6
Provision for income taxes 66.8 62.3 71.3 62.5 17.2 64.0 54.2 44.8
---------------------------------------------------------------------
Net income $120.7 $118.2 $127.1 $112.9 $ 21.4 $114.1 $ 98.7 $ 94.8
=====================================================================
- -----------------------------------------------------------------------------------------------------------------------
Per common share
Earnings per share $ .79 $ .75 $ .82 $ .73 $ .13 $ .73 $ .63 $ .60
- -----------------------------------------------------------------------------------------------------------------------
Dividends declared $ .31 $ .31 $ .28 $ .28 $ .28 $ .28 $ .25 $ .25
- -----------------------------------------------------------------------------------------------------------------------
U. S. Bancorp common stock
High $47 $40 3/4 $37 3/8 $34 5/8 $36 $29 1/2 $27 3/4 $26 3/4
Low 38 3/4 33 31 5/8 29 1/4 28 1/4 23 7/8 23 1/2 22
Close 45 39 1/2 36 1/8 34 33 5/8 28 1/4 24 26
Average daily reported trading volume for the
quarter (000's) 504.6 518.7 633.9 741.9 597.1 403.0 507.4 232.3
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE> 70
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Incorporation of Certain Documents by Reference
The information required by Item 10, Directors and Executive Officers of
the Registrant, is incorporated herein by reference to Bancorp's definitive
Proxy Statement dated March 13, 1997 ("Proxy Statement"), pages 1-5, under the
headings "Voting Securities and Principal Shareholders" and "Proposal 1:
Election of Directors" or appears under the heading "Executive Officers of the
Registrant" on pages 6-7 of this report. The information required by Item 11,
Executive Compensation, is incorporated herein by reference to the Proxy
Statement, pages 7-14 and 18 under the headings "Executive Compensation" and
"Compensation Committee Interlocks and Insider Participation." The information
required by Item 12, Security Ownership of Certain Beneficial Owners and
Management, is incorporated herein by reference to the Proxy Statement, pages
1-3 under the heading "Voting Securities and Principal Shareholders." The
information required by Item 13, Certain Relationships and Related Transactions,
is incorporated herein by reference to the Proxy Statement, pages 18-19, under
the heading "Transactions with Bancorp."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. and 2.
The financial statements and supplementary data listed in the index set
forth in Item 8 of this report are filed as part of this report.
(a) 3.
Exhibits are listed in the Exhibit Index beginning on page 71 of this
report. Each management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report is listed under Item 10, "Executive
Compensation Plans and Arrangements and Other Management Contracts," in the
Exhibit Index.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by Bancorp during the quarter ended
December 31, 1996.
68
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: MARCH 13, 1997 BY: /s/ GERRY B. CAMERON
--------------------------------------
Gerry B. Cameron
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 13th day of March, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------- ----------------------------------------------------------------
<S> <C>
/s/ GERRY B. CAMERON Principal Executive Officer and Director:
- ----------------------------------- Chairman of the Board, Chief Executive Officer, and President
Gerry B. Cameron
/s/ STEVEN P. ERWIN Principal Financial and Accounting Officer:
- ----------------------------------- Executive Vice President and Chief Financial Officer
Steven P. Erwin
Other Directors:
HARRY L. BETTIS * Director
- -----------------------------------
Harry L. Bettis
Director
- -----------------------------------
Carolyn Silva Chambers
FRANKLIN G. DRAKE * Director
- -----------------------------------
Franklin G. Drake
ROBERT L. DRYDEN * Director
- -----------------------------------
Robert L. Dryden
JOHN B. FERY * Director
- -----------------------------------
John B. Fery
JOSHUA GREEN III * Director
- -----------------------------------
Joshua Green III
Director
- -----------------------------------
Daniel R. Nelson
ALLEN T. NOBLE * Director
- -----------------------------------
Allen T. Noble
PAUL A. REDMOND * Director
- -----------------------------------
Paul A. Redmond
N. STEWART ROGERS * Director
- -----------------------------------
N. Stewart Rogers
BENJAMIN R. WHITELEY * Director
- -----------------------------------
Benjamin R. Whiteley
*By /s/ D.V. BOARD
- -----------------------------------
D.V. Board
Attorney-in-Fact
</TABLE>
69
<PAGE> 72
[This page intentionally left blank.]
70
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- -------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Articles of Incorporation, U. S. Bancorp, as amended, incorporated by reference to
Exhibit 4.2 to the registrant's Registration Statement on Form S-4 (No. 33-62067).
3.2 Bylaws, U. S. Bancorp, as amended and restated December 17, 1996.
4 The registrant has incurred long-term indebtedness as to which the amount involved is less
than 10 percent of the total assets of the registrant and its subsidiaries on a consolidated
basis. The registrant agrees to furnish copies of the instruments relating to such
indebtedness to the Commission upon request.
10 Executive Compensation Plans and Arrangements and Other Management Contracts
10.1 U. S. Bancorp 1985 Stock Option and SAR Plan, as amended, incorporated by reference to Exhibit
10.2 to the registrant's annual report on Form 10-K for 1993.
10.2 1997 Amended and Restated Non-Employee Director Stock Incentive and Deferral Plan.
10.3 Second Amendment and Restatement of U. S. Bancorp Executive Annual Incentive Plan effective
December 20, 1995, incorporated by reference to Exhibit 10.3 to the registrant's annual report
on Form 10-K for 1995.
10.4 Second Amendment and Restatement of U. S. Bancorp Management Annual Incentive Plan effective
January 2, 1996, incorporated by reference to Exhibit 10.4 to the registrant's annual report
on Form 10-K for 1995.
10.5 U. S. Bancorp Amended and Restated Supplemental Benefits Plan, effective February 15, 1996.
10.6 Registration Rights Agreement between U. S. Bancorp and certain shareholders of Peoples Ban
Corporation, incorporated by reference to Exhibit 2(B) to the registrant's report on Form 8-K
dated June 16, 1987. (File No. 0-3505)
10.7 Peoples Ban Corporation Deferred Compensation Agreement with Joshua Green III, incorporated by
reference to Exhibit (10)(N) to the registrant's annual report on Form 10-K for 1987 (File No.
0-3505)
10.8 Description of Retirement Benefits of Joshua Green III, incorporated by reference to Exhibit
10.6 to the registrant's quarterly report on Form 10-Q for the quarter ended June 30, 1993.
10.9 Copy of resolutions of the Board of Directors of U. S. Bancorp adopted February 17, 1994,
relating to the Executive Committee of U. S. Bancorp incorporated by reference to Exhibit
10.12 to the registrant's annual report on Form 10-K for 1993.
10.10 Form of Director Indemnification Agreement entered into between U. S. Bancorp and Directors
Bettis, Cameron, Chambers, Drake, Dryden, Fery, Green, Nelson, Noble, Redmond, Rogers, and
Whiteley, incorporated by reference to Exhibit 19 to the registrant's quarterly report on Form
10-Q for the quarter ended June 30, 1988. (File No. 0-3505)
10.11 Description of retirement benefits of Daniel R. Nelson. (File No. 0-3505)
10.12 U. S. Bancorp 1991 Executive Deferred Compensation Plan, First Restatement, as amended
effective November 15, 1995 incorporated to Exhibit 10.12 to the registrant's annual report on
Form 10-K for 1995.
10.13 Form of Employment Agreement with certain executive officers of the registrant, including
Messrs. Cameron, Duim, and Hatfield.
10.14 U. S. Bancorp Deferred Compensation Trust Agreement effective January 1, 1990, incorporated by
reference to Exhibit (10)(U) to the registrant's annual report on Form 10-K for 1991.
10.15 Third Amendment and Restatement of U. S. Bancorp 1993 Stock Incentive Plan effective February
15, 1996, incorporated by reference to Exhibit 10.15 to the registrant's annual report on Form
10-K for 1995.
</TABLE>
71
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBITS
- -------------------------------------------------------------------------------------------------------
<C> <S>
10.16 Description of health insurance premium reimbursement plan for U. S. Bancorp directors,
incorporated by reference to Exhibit 10.18 to the registrant's annual report on Form 10-K for
1994.
10.17 U. S. Bancorp Performance Cash Award Plan effective January 1, 1996, incorporated by reference
to Exhibit 10.20 to the registrant's annual report on Form 10-K for 1995.
10.18 Employment Agreement with Robert D. Sznewajs dated January 4, 1996, incorporated by reference
to Exhibit 10.21 to the Registrants annual report on Form 10-K for 1995.
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.
12.3 U. S. Bancorp and Subsidiaries Computation of Ratios on a Before Accounting Change Basis.
21 Subsidiaries of the registrant.
23.1 Consent of Deloitte & Touche LLP with respect to financial statements of the registrant.
23.2 Consent of Coopers & Lybrand L.L.P. with respect to financial statements of West One Bancorp.
24 Power of attorney of certain officers and directors.
27 Financial Data Schedule.
</TABLE>
72
<PAGE> 1
Exhibit 3.2
BYLAWS
of
U. S. BANCORP
ARTICLE I
Meetings of Shareholders
Section 1.1. Meetings. The regular Annual Meeting of the Shareholders of this
Corporation for the election of directors and for the transaction of such other
business as properly may come before the meeting shall be held in Portland,
Oregon, or other place duly authorized by the Board of Directors, on the third
Tuesday of April at such time as the Board of Directors may determine.
If for any cause an election of directors is not made on the same day as the
Annual Meeting, the Board of Directors shall order the election to be held on
some subsequent day as soon thereafter as practicable according to the
provisions of law, and notice thereof shall be given in the manner herein
provided for the Annual Meeting.
Business to be conducted at an Annual Meeting (other than procedural matters)
shall be limited to (i) business specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
business otherwise properly brought before the meeting by or at the direction of
the Board of Directors or the Chairman of the Board, or (iii) business properly
brought before the meeting by a shareholder of record of any class of capital
stock entitled to vote upon such business, provided that such shareholder shall
first have given written notice, in the time and manner specified for
shareholder notice of nominations for directors set forth in Section 1.2 of
these Bylaws, briefly describing such business and stating his intention to
present such business at the Annual Meeting.
Special meetings of the shareholders may be called by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer, any Vice Chairman or the
President. A special meeting shall be called upon receipt of a written demand
therefor stating the purpose for which the meeting is to be called by any
shareholder or shareholders owning in the aggregate not less than ten percent of
the stock entitled to vote at such meeting. It shall be the duty of the
Secretary to send out notices of such meetings to be held in Portland, Oregon,
or other convenient place authorized by the Board of Directors and at such time
as may be fixed by the Board of Directors. If the Board of Directors shall fail
to fix a time or place, the meeting shall be held at such time as shall be fixed
by the Chairman of the Board, the Chief Executive Officer, any Vice Chairman,
the President, or the Secretary. Business conducted at a special meeting
1
<PAGE> 2
Exhibit 3.2
(other than procedural matters) shall be limited to the matters stated in the
notice thereof (or any supplement thereto).
Notice of such annual and special meetings shall be mailed postage prepaid not
less than ten nor more than sixty days prior to the date thereof, addressed to
each shareholder of record at his or her address appearing on the books of the
Corporation.
The certificate of the Secretary of this Corporation shall be sufficient proof
of the giving of said notice.
The Board of Directors may adopt rules governing the order of business and
conduct of any shareholders' meeting. Subject to the effect of any such rules,
the Chairman of the Board (or other officer presiding at a shareholders'
meeting) shall have general authority to determine the order of business and, in
the Chairman's discretion, to regulate the conduct of such meeting.
Section 1.2. Nominations for Director. Nominations for election to the Board of
Directors may be made by the Board of Directors or by any shareholder of record
of any outstanding class of capital stock entitled to vote for the election of
directors. Nominations, other than those made by or on behalf of the existing
Board of Directors, shall be made in writing and shall be delivered or mailed to
the Chairman of the Board of the Corporation not less than twenty-five days nor
more than sixty days prior to any meeting of shareholders called for the
election of directors, provided, however, that if less than thirty days' notice
of the meeting is given to shareholders, such nominations shall be mailed or
delivered to the Chairman of the Board not later than the close of business on
the fifth day following the day on which the notice of the meeting was mailed.
Section 1.3. Disputed Ballots. In the event a dispute arises regarding the
validity or tabulation of a ballot, vote, or proxy, the chairman of the meeting
may appoint a committee of three directors or other persons who are not
employees of the Corporation to resolve the dispute. The decision of the
committee shall be final and binding upon all parties to the dispute.
Section 1.4. Proxies. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or by his or her duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
11 months from the date of its execution unless otherwise expressly provided in
the proxy.
Section 1.5. Quorum. Manner of Acting. Shares entitled to vote as a separate
voting group may take action on a matter only if a quorum of those shares exists
with respect to the matter. A majority of the votes entitled to be cast on the
matter by a voting group, represented in person or by proxy, shall constitute a
quorum of that voting group for
2
<PAGE> 3
Exhibit 3.2
action on that matter. If a quorum exists, action on a matter, other than the
election of directors, shall be approved by a voting group if the votes cast
within the voting group favoring the action exceed the votes cast opposing the
action unless the Oregon Business Corporation Act or the articles of
incorporation require a greater number of affirmative votes. Directors shall be
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. Once a share is represented
for any purpose at a meeting, it shall be deemed present for quorum purposes for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be set for that adjourned meeting.
ARTICLE II
Directors
Section 2.1. Board of Directors. The Board of Directors (herein sometimes
referred to as the "Board") shall have power to manage and direct the business
and affairs of the Corporation.
Section 2.2. Number. The Board shall consist of not less than five nor more than
twenty-five persons, the exact number within such minimum and maximum limits to
be fixed and determined from time to time by resolution of a majority of the
full Board; provided, however, that a majority of the full Board of Directors
may not increase the number of directors to a number which exceeds by more than
four the number of directors last elected by shareholders, but in no event shall
the number of directors exceed twenty-five.
Section 2.3. Organization Meeting. The Secretary, upon receiving the results of
the election, shall cause the same to be recorded upon the minute book of the
Corporation and shall notify the directors-elect of their election. Promptly
after the adjournment of the meeting of the shareholders at which they were
elected, the newly elected Board shall meet at a convenient place for the
purpose of organizing and to transact such business as properly may come before
the Board and no notice of such organization meeting shall be required. If at
that time there is not a quorum in attendance, the members present may adjourn
from time to time until a quorum is secured.
Section 2.4. Regular Meetings. The Board of Directors may establish a schedule
of regular meetings for the transaction of business, the day and hour of which
may be specified by resolution adopted in advance of such regular meetings. In
the event of a failure of the Board of Directors to designate such day and hour,
the Chairman of the Board may designate the day and hour upon which such meeting
shall be held, which shall be specified in the notice of such meeting.
Section 2.5. Special Meetings. The Board of Directors may also hold special
meetings upon call of any officer who is a member of the Board of Directors, or
any three or more
3
<PAGE> 4
Exhibit 3.2
directors. Notice of special meetings of the Board of Directors shall be given
by the Secretary or Assistant Secretary of the Corporation, or in case of their
absence, refusal or inability to act, by any other officer who is a member of
the Board of Directors, or by any three or more directors by giving 24 hours'
notice to the last known address of each director. Calls for such special
meetings must state in general terms the object of the meeting.
Section 2.6. Retirement. Officer directors may be requested to resign from the
Board upon the date of their retirement as an officer of the Corporation. Each
other member of the Board of Directors will not be eligible for re-election as a
director at the Annual Meeting of the Shareholders following the date on which
such director shall reach the age of 70 years.
Section 2.7. Quorum. A majority of the number of directors from time to time
fixed as constituting the Board of Directors pursuant to Section 2.2 shall
constitute a quorum at any meeting, except when otherwise provided by law; but a
lesser number may adjourn any meeting, from time to time, and the meeting may be
held, as adjourned, without further notice.
Section 2.8. Vacancies. When any vacancy occurs among the directors, the
remaining members of the Board, in accordance with the laws of Oregon and with
the provisions of Section 2.2 of these Bylaws, may appoint a director to fill
such vacancy at any meeting of the Board.
Section 2.9. Notice. Notice of meetings of the Board of Directors or any
committee appointed by the Board of Directors may be written or oral, and may be
communicated in person, by telephone, telegraph, teletype, or other form of wire
or wireless communication, or by mail or private courier.
ARTICLE III
Committees
Section 3.1. Executive Committee. The Board of Directors may appoint an
Executive Committee consisting of not more than four non-officer directors, the
Chairman of the Board and the President. Members of the Executive Committee
shall be appointed annually by the Board of Directors immediately after its
election and organization and shall serve until the next such annual meeting or
until their successors have been appointed. Members of the Executive Committee
may be reappointed by the Board of Directors to succeed themselves.
During intervals between meetings of the Board of Directors, the Executive
Committee shall have and may exercise such authority of the Board of Directors
as from time to time may be specifically delegated to the Committee by the
Board; provided, however,
4
<PAGE> 5
Exhibit 3.2
that neither the Executive Committee nor any other committee created and
appointed pursuant to these Bylaws shall have the authority to (a) declare
dividends or distributions with respect to the Corporation's capital stock, (b)
approve or propose to shareholders actions or proposals required by law to be
approved by shareholders, (c) fill vacancies on the Board of Directors or any
committee thereof, (d) amend the articles of incorporation except as may be
necessary to document a determination of the relative rights, preferences and
limitations of a class or series of shares pursuant to authority granted by the
Board of Directors, (e) adopt, amend, or repeal bylaws, (f) approve a plan of
merger not requiring shareholder approval, (g) authorize or approve the
reacquisition of shares of the Corporation's capital stock except within limits
prescribed by the Board of Directors, or (h) authorize or approve the issuance
or sale of or contract for sale of shares or determine the designation and
relative rights, preferences and limitations of a class or a series of shares,
except that the Board of Directors may authorize a committee of the Board to do
so (i) pursuant to a stock option or other stock compensation plan or (ii) by
approving the maximum number of shares to be issued and delegating the authority
to determine all or any part of the terms of the issuance or sale or contract of
sale and the designation and relative rights, preferences, and limitations of
the class or series of shares.
In addition to any other duties which the Board of Directors may assign, the
Executive Committee shall consider potential candidates for new directors and
make recommendations of candidates to the Board of Directors.
Section 3.2. Audit Committee. There shall be an Audit Committee composed of not
less than three members of the Board of Directors, no one of whom shall be an
active officer of the Corporation or any of its subsidiaries and each of whom
shall be independent of management of the Corporation. The Committee shall
include at least two members with banking or related financial management
expertise, and shall not include any large customers of the Corporation (as
determined pursuant to the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"). The Committee shall be appointed by the Board of Directors
annually at its organization meeting or more often.
It shall be the duty of the Committee to recommend to the Board of Directors the
accounting firm to be selected as independent auditor of the Corporation and its
subsidiaries; to act on behalf of the Board in discussing with the appropriate
corporate officers any termination of the independent auditor and any
significant disagreements between the independent auditor and management,
meeting and reviewing with the independent auditor and the appropriate corporate
officers, matters relating to disclosure, corporate practices, regulatory and
financial reporting, accounting procedures and policies, and adequacy of
financial and accounting controls; to review the planned scope of the audits by
the independent auditor; and to review, as appropriate, before or after the
fact, compliance of the Corporation and its subsidiaries with laws and
regulations concerning loans to insiders, related party transactions and other
transactions involving potential conflicts of interest, and applicable federal
and
5
<PAGE> 6
Exhibit 3.2
state laws and regulations concerning dividend restrictions. The Committee shall
review (a) with the independent auditor, the results of the annual audit,
including the auditor's comment letter; (b) with the appropriate corporate
officers, the annual report to the Securities and Exchange Commission, the
annual report to shareholders, and the Proxy Statement; and (c) with management
and the independent auditor, the basis for the reports issued by the Corporation
under 12 CFR Part 363 and any successor or substitute regulations implementing
the provisions of Section 112 of FDICIA, and shall promptly report thereon to
the Board of Directors.
The Audit Committee, in collaboration with the internal Auditor, shall set the
scope, nature and frequency of examinations of the Corporation and its
subsidiaries (with the exception of each subsidiary bank which has established
and appointed a separate audit committee composed entirely of outside directors
of such subsidiary bank in compliance with the requirements of FDICIA (an
"independent audit committee")), and other responsibilities of the internal
Auditor. The Committee shall monitor the internal audit group including a review
of the planned audit activities, audit scope, and the degree of coordination
with the independent auditors of the annual audit plan for the Corporation and
its subsidiaries. The Committee shall periodically receive reports from the
internal Auditor on results of audits on nonbank subsidiaries and on each
subsidiary bank which has not established and appointed an independent audit
committee, and on the status of audit coverage of the Corporation. The Committee
shall promptly submit its report thereon and its recommendations to the Board of
Directors of this Corporation and of each applicable subsidiary.
The Committee shall perform such additional duties as may be requested or
directed by the Board of Directors from time to time. The Committee shall
additionally submit to the Board of Directors any recommendations relating to
the scope of its responsibilities it may have from time to time.
The Committee may at its discretion from time to time, without prior permission
of the Board of Directors or any corporate officers, consult or retain legal
counsel, whether internal counsel, this Corporation's regular outside counsel,
or such independent outside counsel as the Committee may select.
The Committee shall meet on call of the chairperson and shall keep minutes of
all of its meetings showing all matters considered by it and the action taken
thereon, and shall submit a report of such meetings at the next regular meeting
of the Board of Directors.
Section 3.3. Other Committees. The Board of Directors may appoint from time to
time, either from its own members or from persons outside its membership, other
committees for such purposes and with such powers as the Board may determine.
ARTICLE IV
6
<PAGE> 7
Exhibit 3.2
Titles, Duties, Qualifications and Terms of Officers
Section 4.1. Officers. The officers of this Corporation shall hold positions
determined under this Corporation's policy to encompass legal authority to bind
the Corporation in its transactions with customers or other third parties by
executing contracts or other legal instruments on the Corporation's behalf and
whose decisionmaking authority relates to fundamental corporate operations in
such a way as to affect potentially the public's trust in the Corporation, and
shall include a Chief Executive Officer, a President, one or more Vice
Presidents (one or more of whom may be designated an Executive Vice President or
Senior Vice President), a Secretary, and an Auditor, and may include one or more
Vice Chairmen, one or more group, region, area or other functional business unit
Presidents (each a "Business Unit President'), and such other officers and
assistant officers as from time to time may be deemed necessary and with such
titles as shall be deemed appropriate. The same person may fill more than one
office or position.
The Board of Directors shall designate a member of the Board of Directors to be
the Chairman of the Board and may appoint the Chairman of the Board an officer
of this Corporation. Other officers may also be members of the Board of
Directors.
The Chairman of the Board shall be designated by and if appointed an officer,
elected by, and the Chief Executive Officer shall be elected by, the Board of
Directors at its annual organization meeting and each shall hold office for the
year for which the Board of Directors was elected and until a successor is
designated or elected, unless the Chairman of the Board or Chief Executive
Officer resigns, becomes disqualified, or is removed, which removal may be at
the pleasure of the Board. Any vacancy occurring in the position of the Chairman
of the Board or in the office of the Chief Executive Officer shall be filled by
the remaining members of the Board.
Vice Chairmen and the President, Business Unit Presidents and Executive Vice
Presidents (if any), the Auditor and the Secretary shall be elected or appointed
by the Board of Directors to hold their offices respectively at the pleasure of
the Board of Directors. Vice Presidents (other than Executive Vice Presidents),
Assistant Vice Presidents and such other officers and assistant officers as may
be deemed necessary may be appointed by the Board of Directors or chosen in such
other manner as provided in these Bylaws or as the Board of Directors shall by
resolution provide, to hold their offices respectively at the pleasure of the
Board of Directors.
The President (or other officer-director as the Board of Directors may designate
by resolution) shall have authority to appoint or remove or fill vacancies among
all officers excepting the Chairman of the Board (if an officer), the Chief
Executive Officer, Vice Chairman, the President, Business Unit Presidents,
Executive Vice Presidents, Auditor, and Secretary; such appointments or removals
shall be subject to ratification or recision
7
<PAGE> 8
Exhibit 3.2
at the next meeting of the Board of Directors. The provisions of this paragraph
are supplementary to any other provisions of these Bylaws.
Section 4.2. Chairman of the Board. The Chairman of the Board shall preside over
meetings of shareholders, the Board of Directors, and the Executive Committee,
and shall perform such duties as may be requested or directed by the Board of
Directors.
Section 4.3. Chief Executive Officer. The Chief Executive Officer shall be a
member of the Board of Directors. The Chief Executive Officer shall be the
principal executive officer of the Corporation and, subject to the control of
the Board of Directors, shall supervise the carrying out of the policies adopted
or approved by the Board of Directors. The Chief Executive Officer shall
exercise general supervision over the business and affairs and personnel of the
Corporation.
Section 4.4. Vice Chairman. Each Vice Chairman shall perform such duties as may
be requested or directed by the Board of Directors or by the Chief Executive
Officer from time to time.
Section 4.5. President. The President shall perform such duties as may be
requested or directed by the Board of Directors or by the Chief Executive
Officer from time to time.
Section 4.6. Business Unit Presidents. Each Business Unit President shall
perform such duties as may be requested or directed by the Board of Directors or
the Chief Executive Officer from time to time.
Section 4.7. Vice Presidents. Each Vice President shall have such powers and
duties as may be assigned by the Board of Directors, by the Chief Executive
Officer, or by the President. The Board of Directors shall designate a Vice
President to be the Chief Financial Officer of the Corporation, who shall be the
principal financial and accounting officer of the Corporation with
responsibility for keeping regular books of account, disbursement of corporate
funds, and preparation of financial reports. The Board of Directors shall also
designate a Vice President to be the Treasurer, who shall have general
responsibility for funding the operation of the Corporation and its subsidiaries
and shall, as and to the extent authorized by the Board of Directors, borrow
funds and issue securities on behalf of the Corporation.
Section 4.8. Secretary. The Secretary shall be the recording officer of the
Board of Directors and keep in written form the minutes of the meetings of the
Board of Directors and of the Shareholders. The Secretary shall attend to the
giving of all notices required by these Bylaws to be given, shall be the
custodian of the corporate seal of the Corporation, and shall make such reports
and perform such other duties as are incident to the office of Secretary, or as
are assigned by the Board of Directors.
8
<PAGE> 9
Exhibit 3.2
Section 4.9. Auditor. The internal Auditor shall make periodic examinations of
the affairs of the Corporation and its subsidiaries, with the exception that the
examination of each subsidiary bank which is required to establish and appoint
an independent audit committee in compliance with the requirements of FDICIA
shall be the responsibility of the auditor appointed by the Board of Directors
of each such subsidiary bank. The Auditor shall collaborate with the Audit
Committee in determining the scope, nature and frequency of such examinations.
The Auditor shall also perform such other duties as may be assigned by the Board
of Directors or the Chief Executive Officer of the Corporation. The results of
such examinations and recommendations of the Auditor, if any, shall be submitted
in writing by the Auditor to the Chief Executive Officer and to the Audit
Committee.
ARTICLE V
Stock and Stock Certificates
Section 5.1. Transfers. Shares of stock shall be transferable on the books of
the Corporation, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his or her shares, succeed to all rights and liabilities
of the prior holder of such shares.
Section 5.2. Stock Certificates. Certificates of stock shall bear the signature
of the Chief Executive Officer, the Chairman of the Board, or of the President,
or of a Vice President and the Secretary or an Assistant Secretary of the
Corporation, and shall be signed manually or by facsimile process, and shall be
countersigned by an authorized officer of First Chicago Trust Company of New
York as transfer agent, and the seal, manual or facsimile, of the Corporation
shall be set forth thereon. No transfer shall be made of any certificate issued
except on the surrender of the certificate or certificates previously issued
therefor, or on proof of their loss and the furnishing of indemnity satisfactory
to an appropriate officer of the Corporation as designated in writing by the
Chief Executive Officer or the President of the Corporation.
The Board of Directors shall have power and authority to make all such rules and
regulations as it may deem expedient concerning the issue, transfer,
registration, and replacement of lost certificates for shares of the capital
stock of the Corporation.
Section 5.3. Dividends. All declarations of dividends shall fix the date for the
payment thereof, and period of closing of stock books, and a record date, prior
to the payment of dividends, for the purpose of determining the shareholders
entitled to the same.
The transfer books may be closed for the purpose of the annual election of
directors, before meetings of shareholders, before the payment of dividends, for
the purpose of obtaining written consents of shareholders, or for any other
purpose, for such period not exceeding twenty days as the Board of Directors may
by resolution direct. In lieu of
9
<PAGE> 10
Exhibit 3.2
closing the transfer books the Board may in its discretion fix a day and hour
not less than ten days nor more than seventy days prior to the holding of any
meeting of shareholders or the day appointed for the payment of any dividend or
for any other notice, as the time as of which shareholders entitled to notice of
and to vote at such meeting, or to receive such dividend or for such other
purpose shall be determined, and only shareholders of record at such time shall
be entitled to notice of or to vote at such meeting or to receive such dividend
or to be treated as shareholders for such other purposes.
ARTICLE VI
Corporate Seal
The official seal of this Corporation shall be circular in form with the words
"corporate seal" and "Oregon" and the name of the Corporation appearing thereon.
ARTICLE VII
Miscellaneous Provisions
Section 7.1. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
Section 7.2. Records. The organization papers of this Corporation, the results
of elections of directors-elect, the proceedings of all regular and special
meetings of the directors and of the shareholders, the Bylaws and any amendments
hereto, shall be recorded in a minute book; and the minutes of each meeting
shall be signed by the chairman and the secretary of the meeting.
ARTICLE VIII
Bylaws
Section 8.1. Inspection. A copy of the Bylaws, with all amendments thereto,
shall at all times be kept in a convenient place at the principal office of the
Corporation and shall be open for inspection to all shareholders, during
business hours.
Section 8.2. Amendments. These Bylaws may be changed or amended by the vote of a
majority of the whole number of directors.
AMENDMENTS
<TABLE>
<S> <C> <C> <C>
12/19/96 Article III Section 3.1 Executive Committee Limits authority of committee.
Article III Section 3.2 Executive Management Deletes Executive Management Committee.
Committee
</TABLE>
10
<PAGE> 11
Exhibit 3.2
<TABLE>
<S> <C> <C>
Article III Section 3.3 Audit Committee Renumbered as Section 3.2.
Article III Section 3.4 Other Committees Renumbered Section 3.3.
Article IV Section 4.1 Officers Clarifies legal and decisionmaking
authority, creates Business Unit President
officer title.
Article IV Section 4.3 Chief Executive Officer Deletes reference to Executive Management
Committee.
Article IV Section 4.6 Business Unit Presidents Outlines powers and authorities.
Article IV Section 4.7 Secretary Renumbered as Section 4.8.
Article IV Section 4.8 Auditor Clarifies responsibilities regarding
subsidiary bank audits, renumbered as
Section 4.9.
</TABLE>
11
<PAGE> 1
EXHIBIT 10.2
U. S. BANCORP
1997 AMENDED AND RESTATED NON-EMPLOYEE
DIRECTOR STOCK INCENTIVE AND DEFERRAL PLAN
ARTICLE 1
PURPOSE
The purpose of this 1997 Amended and Restated Non-Employee Director
Stock Incentive and Deferral Plan (the "Plan") is to advance the interests of U.
S. Bancorp ("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, and
provide them the opportunity to defer their compensation. It is anticipated that
the Plan will assist Bancorp in attracting and retaining Non-Employee Directors.
ARTICLE 2
DEFINITIONS
When used in the Plan, the following terms shall have the meaning
specified below.
"Acquiring Person" shall mean any person, or any one or more related
persons, that constitute a "group" for purposes of Section 13(d) and Section
14(b) of the Exchange Act and Rule 13d-5 and Rule 14b-2 thereunder; provided,
that the 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.
"Annual Meeting Date" shall mean the date of each Annual Meeting of
Directors.
"Annual Meeting of Directors" shall mean the meeting of the Board
immediately following each annual meeting of Bancorp's shareholders.
<PAGE> 2
"Annual Option" shall mean a stock option granted under the Plan on an
Annual Meeting Date pursuant to Section 4.2.
"Change in Control" shall mean:
(1) The acquisition by any Acquiring Person of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) of
20 percent or more of the combined voting power of the then outstanding
Voting Securities; provided, however, that for purposes of this
paragraph (1) the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from Bancorp, (ii) any
acquisition by Bancorp, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by Bancorp or any
corporation controlled by Bancorp, or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i),
(ii), and (iii) of paragraph (3) of this definition of Change in
Control; or
(2) During any period of 12 consecutive calendar months,
individuals who at the beginning of such period constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual who
becomes a Director during the period whose election, or nomination for
election, by Bancorp's shareholders was approved by a vote of at least
a majority of the directors then constituting the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(3) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of Bancorp (a "Business Combination") in each case, unless, following
such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners of the Voting
Securities outstanding immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50 percent of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns Bancorp or all or substantially all of Bancorp's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
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immediately prior to such Business Combination, of the Voting
Securities, (ii) no Person (excluding any employee benefit plan, or
related trust, of Bancorp or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly 20
percent or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed prior
to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from
such Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(4) Approval by the shareholders of Bancorp of any plan or
proposal for the liquidation or dissolution of Bancorp.
"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 on which a Non-Employee
Director becomes a member of the Board.
"Committee" shall mean the Compensation Committee of the Board or any
other committee appointed by the Board to administer the Plan.
"Deferral Accounts" shall mean the accounts established to hold
Directors Fees deferred pursuant to Section 5.6.
"Directors Fees" shall mean all fees payable to a Non-Employee Director
for service as a member of the Board or of a Subsidiary Board, including
Retainers and fees for attendance at meetings of the Board or of a Subsidiary
Board or a committee of the Board or a Subsidiary Board, and shall also include
any fees or awards paid to a Non-Employee Director for extraordinary service as
a member of the Board. Directors Fees shall not include Initial Options or
Annual Options.
"Disability" shall mean permanent and total disability as defined in
Section 22(e)(3) of the Code.
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"Dividend Date" shall mean any date on which cash or stock dividends on
Shares are payable.
"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" shall mean the value of one of the Shares on a
particular day, determined without regard to any restrictions , and shall equal
:
(1) The low sale price for Shares 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 low sale price is reported in The Wall Street Journal or quoted
by Nasdaq for that day, the low sale price for Shares as so reported or quoted
for the immediately preceding day on which it was reported or quoted shall be
used.
"Grant Date" shall mean the date on which an option is granted.
"Initial Option" shall mean a stock option granted pursuant to Section
4.1.
"Option" shall mean an Annual Option, an Initial Option, or a Deferred
Compensation Option.
"Participant" shall mean a Non-Employee Director who has received a
grant of an award or Option pursuant to the Plan. A person who ceases to be a
Non-Employee Director shall remain a Participant so long as such person has the
right to exercise any Option granted under the Plan or the right to receive any
payment under the Plan.
"Payment Date" shall mean January 5, April 5, July 5, and October 5 of
each year: provided, that if any such day is a Saturday, Sunday or holiday, the
Payment Date shall mean the next succeeding business day.
"Plan Year" shall mean a calendar year.
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"Quarterly Fees" shall mean, for each calendar quarter, the total
amount of Director Fees, including any installment of annual fees, payable to a
Non-Employee Director for that quarter.
"Restricted Shares" shall mean Shares subject to such terms and
conditions as the Committee deems appropriate, including without limitation
restrictions on the sale, assignment, transfer or other disposition of the
Restricted Shares.
"Retainer" shall mean annual retainer fees payable to a Non-Employee
Director for service as a member of the Board or a Subsidiary Board.
"Retirement" shall mean a Participant's retirement from the Board by
reason of attaining the maximum age for directors specified in the bylaws of
Bancorp, and shall also include a Participant's departure from the Board as a
result of the dissolution of Bancorp.
"Shares" shall mean the $5.00 par value common stock of Bancorp.
"Stock Unit" shall mean a Stock Unit granted under the Plan in
connection with a Deferral Election by a Non-Employee Director pursuant to
Section 5.4.
"Subsidiary" shall mean a subsidiary corporation of Bancorp as defined
in Section 425(f) of the Code.
"Subsidiary Board" shall mean the board of directors of a subsidiary of
Bancorp.
"Voting Securities" shall mean Bancorp's issued and outstanding
securities ordinarily having the right to vote at elections for Bancorp's Board.
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
Each Non-Employee Director of Bancorp shall be eligible to participate
in this Plan.
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ARTICLE 4
INITIAL OPTIONS AND ANNUAL OPTIONS
4.1 GRANT OF INITIAL OPTIONS
Each person who became a Non-Employee Director on or after October 18,
1990 (and who had not been an employee of Bancorp or a Subsidiary at any time
after October 18, 1989) has been granted an Initial Option to purchase 4,000
Shares. The Grant Date for each such Initial Option was October 18, 1990 or the
date specified in such Option. Each person who first becomes a Non-Employee
Director after the 1997 Annual Meeting Date (and who has not been an employee of
Bancorp or a Subsidiary at any time within the one year preceding such person's
Commencement Date) shall be granted an Initial Option to purchase 4,000 Shares
effective the Commencement Date. The Grant Date for each such Initial Option is
the Commencement Date.
4.2 GRANT OF ANNUAL OPTIONS
Each person who was a Non-Employee Director at the 1993 Annual Meeting
of Directors has been granted an Annual Option to purchase 2,000 Shares.
Commencing with the 1994 Annual Meeting of Directors, each Non-Employee Director
at the time of such meeting shall be granted, effective as of such Annual
Meeting Date, an Annual Option to purchase 2,000 Shares. The Grant Date for each
Annual Option is the respective Annual Meeting Date, except that for 1993 the
Grant Date was June 17, 1993.
4.3 PRICE AND TIME OF EXERCISE OF INITIAL OPTIONS AND ANNUAL OPTIONS
The exercise price per Share of each Initial Option and Annual Option
shall be equal to the Fair Market Value of one Share as of the respective Grant
Date. Effective April 1, 1997, each Initial Option and Annual Option (other than
Initial Options or Annual Options that have terminated or the time of whose
exercisability has been accelerated in accordance with the Plan) may be
exercised at any time or times commencing on the first anniversary of the Grant
Date thereof.
ARTICLE 5
ELECTIONS IN RESPECT OF DIRECTORS FEES
5.1 ELECTIONS IN LIEU OF CASH PAYMENT OF DIRECTORS FEES
Commencing on July 1, 1997, each Participant shall have the right to
elect, with respect to all or a portion of Directors Fees otherwise payable in
cash, from
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among the optional methods of payment provided in this Article 5. Elections
shall be subject to the terms and conditions of Article 9 and the other
provisions of this Plan.
All elections made under the Plan prior to July 1, 1997, shall remain
in full force and effect until amended or terminated as provided in Section 9.1.
5.2 ELECTION TO RECEIVE SHARES
Each Participant may elect to receive all or a portion of Directors
Fees otherwise payable in cash in a whole number of Shares equal in number to
the quotient obtained by dividing the foregone cash payment by the Fair Market
Value of one Share on the Payment Date. Such Shares shall be delivered to each
such Participant as soon as practicable after the Payment Date. The value of any
fractional Shares shall be paid to the Participant in cash.
5.3 ELECTION TO RECEIVE RESTRICTED SHARES
Each Participant may elect to receive all or a portion of Directors
Fees otherwise payable in cash in a whole number of Restricted Shares equal in
number to the quotient obtained by dividing the foregone cash payment by the
Fair Market Value of one Share on the Payment Date. Each Participant receiving
Restricted Shares shall be issued a stock certificate in respect of such Shares,
registered in the name of the Participant, and shall execute a stock power in
blank with respect to the Restricted Shares evidenced by the certificate. The
certificate evidencing such Restricted Shares and the stock power shall be held
in custody by Bancorp until the restrictions on such Restricted Shares shall
have lapsed.
Restricted Shares may provide that a Participant shall vest in such
Shares, on the occurrence of the earliest of the following events, subject to
such other conditions as the Committee may be prescribe: (i) the 65th birthday
of the Participant if at such time the Participant is no longer a Non-Employee
Director, (ii) the date on which the Participant terminates service on the Board
after attaining age 65, (iii) the 70th birthday of the Participant, (iv) a
Change in Control, or the dissolution of Bancorp, or (v) the Participant's death
or Disability.
During the period prior to the lapse of the restrictions and conditions
applicable to the Restricted Shares (the "Restriction Period"), a Participant
may not sell, assign, transfer, pledge, encumber or otherwise dispose of
Restricted Shares. The Committee, in its sole discretion, may provide for the
lapse of restrictions in installments during the Restriction Period. Upon
expiration of the applicable Restriction Period (or lapse of restrictions during
the Restriction Period if the restrictions lapse in installments),
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the legend on the Restricted Shares (or such of them as to which the
restrictions have lapsed, if the restrictions lapse in installments) will be
removed and the Participant's stock power will be returned and the Shares (or
such of the Shares as to which all restrictions have lapsed) will no longer be
Restricted Shares. The Shares shall be delivered to the Participant as soon as
practicable thereafter.
A Participant shall have, with respect to Restricted Shares held under
this Plan, all of the rights of a shareholder of Bancorp, including the right to
vote the shares and the right to receive cash dividends.
At the election of the Participant, the cash value of any fractional
Restricted Shares and all cash dividends on Restricted Shares shall be
accumulated on the books and records of Bancorp. From time to time but not less
often than annually, as of a Dividend Date or Payment Date, the Committee shall
determine whether the accumulated cash credited to a Participant's account, as
of such Dividend Date or Payment Date, exceeds the Fair Market Value of one or
more Shares. If so, the Committee shall issue additional whole shares of
Restricted Stock to the Participant, equal in number to the accumulated cash
divided by the Fair Market Value of one Share, which shall remain in the custody
of Bancorp until the restrictions thereon shall have lapsed. The accumulated
cash shall be reduced in proportion. The additional shares of Restricted Stock
issued hereunder shall vest in the same manner as other Restricted Shares, and
shall be subject to such other conditions as the Committee may prescribe.
Stock dividends issued with respect to Restricted Shares shall be
treated as additional Restricted Shares and shall be subject to the same
conditions and restrictions as the Restricted Shares with respect to which they
were issued.
5.4 ELECTION TO RECEIVE STOCK UNITS
Each Participant may elect to receive all or a portion of Directors
Fees otherwise payable in cash in Stock Units, which shall be credited as of the
Payment Date to a bookkeeping account (a "Stock Unit Account") maintained by
Bancorp. The number of Stock Units credited to such account shall be equal to
the amount of the foregone cash payment divided by the Fair Market Value of one
Share on the Payment Date.
The Deferral Election shall specify the date (the "Deferred Payment
Date") on which the Non-Employee Director elects to receive payment for the
Stock Units; provided, that the Deferred Payment Date with respect to any
Deferral Election must be at least three years after the beginning of the
calendar year during which the Stock
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Unit was credited to the Participant's Stock Unit Account. The Deferral Election
shall also specify whether payment shall be in Shares or in cash.
At the election of the Participant, the cash value of any fractional
Stock Units and all cash dividends payable on such number of Shares as is equal
to the number of Stock Units in the Participant's account shall be credited to
such Participant's Stock Unit Account. From time to time but not less often than
annually, as of a Dividend Date or Payment Date, the Committee shall determine
whether the accumulated cash credited to a Participant's Stock Unit Account, as
of such Dividend Date or Payment Date, exceeds the Fair Market Value of one or
more Shares. If so, the Committee shall credit the Participant's Stock Unit
Account with additional whole Stock Units equal to the accumulated cash divided
by the Fair Market Value of one Share. The amount credited to cash shall be
reduced in proportion. If stock dividends are issued with respect to Shares, the
Committee shall proportionately increase the number of Stock Units in the Stock
Unit Account.
5.5 ELECTION TO RECEIVE DEFERRED COMPENSATION OPTIONS
Each Participant may elect to receive all or a portion of Directors
Fees otherwise payable in cash in an option (a "Deferred Compensation Option")
to purchase a number of Shares equal to the portion of the foregone cash payment
divided by an amount equal to the difference between the Fair Market Value of
one Share on such Payment Date and the exercise price determined under this
Section 5.5 (rounded up to the next number of whole Shares).
The exercise price per Share of each Deferred Compensation Option shall
be equal to the greater of (a) 40 percent of the Fair Market Value of a Share as
of the respective Grant Date (which will be the Payment Date of the Directors
Fees in lieu of which the Deferred Compensation Option was granted) or (b) $5
per Share. The Committee may establish a different exercise price at its
discretion.
Unless a Deferred Compensation Option is terminated or the time of its
exercisability is accelerated in accordance with the Plan, no Deferred
Compensation Option shall be exercisable during the six months beginning on its
Grant Date and shall thereafter be fully exercisable as provided in Article 7.
5.6 ELECTION TO DEFER RECEIPT OF CASH PAYMENT
A Participant may elect to defer receipt of all or any portion of
Directors Fees otherwise payable in cash. Amounts deferred by a Participant
under this Section 5.6 ("Deferred Amounts") shall be credited to a Deferral
Account established and
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maintained for such Participant on the books of Bancorp.
Deferral Accounts heretofore established under the terms of Deferred
Compensation Plan for Non-Employee Directors of Bancorp have been credited with
interest at the rate in effect under the terms of such plan. Any remaining
balance of Deferral Accounts being paid out to Participants in installments
shall continue to be credited with interest hereunder, until paid in full.
Commencing January 1, 1990, and until changed by the Committee, the
rate of interest per annum shall equal the average annual interest rate on
five-year Treasury Notes for the month of November in the immediately prior
calendar year, as published in the Federal Reserve Statistical Release G.13 (or
a corresponding or successor publication as determined by the Committee) plus 75
basis points.
Effective January 1, 1996, Deferral Accounts (other than Deferral
Accounts that on such date were being paid to Participants in installments)
shall be credited with an amount (the "Growth Factor") from the date credited
until the date of final payment of the balance of the Deferral Account. The
Growth Factor for any period will equal the growth in value which the Deferred
Amounts would have realized during such period, if invested in the Hypothetical
Investment or Hypothetical Investments specified for that period by the
Participant.
For purposes of measuring the Growth Factor, a Participant may select
one or a combination of Hypothetical Investments authorized from time to time
by, or at the direction of, the Committee. Such selection, and any changes in
selection, shall be made by the Participant on a form approved by the Committee,
and shall be subject to approval by the Committee in its discretion. Changes in
a Participant's selection of Hypothetical Investments shall become effective as
of the first day of the calendar quarter following receipt by the Committee of
the notice of change. A Participant's selection of Hypothetical Investments
shall be effective for all amounts credited to the Participant's Deferral
Account, including previously Deferred Amounts and the Growth Factor accrued
thereon.
Hypothetical Investments are solely bookkeeping entries, and Bancorp
shall have no obligation to make actual investments corresponding to
Hypothetical Investments.
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ARTICLE 6
MANDATORY PAYMENT OF RETAINER IN SHARES, SHARE
UNITS OR DEFERRED COMPENSATION OPTIONS
Commencing on July 1, 1997, the Board may require that all Non-Employee
Directors be paid all or a portion of their Director Fees in Shares, Restricted
Shares, Share Units or Deferred Compensation Options. Any Shares, Restricted
Shares, Stock Units or Deferred Compensation Options acquired pursuant to any
such requirement shall be subject to all of the terms and conditions of this
Plan applicable thereto.
ARTICLE 7
GENERAL TERMS AND CONDITIONS OF OPTIONS
7.1 TYPE OF OPTION; TERM
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 Article 4 of the Plan will
supplement other compensation for Non-Employee Directors. The term of each
Initial Option, each Annual Option and each Deferred Compensation Option shall
be unlimited unless terminated earlier in accordance with the Plan.
7.2 CONTINUATION AS DIRECTOR
If a Participant ceases to be a member of the Board for any reason, the
right to exercise each Initial Option, Annual Option and Deferred Compensation
Option shall expire at the end of the following periods:
<TABLE>
<CAPTION>
AFTER TERMINATION
ON ACCOUNT OF: PERIOD
----------------------------- --------
<S> <C>
Death 1 year
Retirement 5 years
Disability 1 year
Any other reason 3 months
</TABLE>
7.3 ACCELERATION OF EXERCISABILITY
Notwithstanding the schedule provided in Section 4.3 for Initial and
Annual Options and in Section 5.5 for Deferred Compensation Options, each
Initial Option, Annual Option and Deferred Compensation Option shall become
fully exercisable upon the occurrence of either:
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(a) The Participant's death or withdrawal from the Board by
reason of Disability or Retirement; or
(b) A Change in Control or the dissolution of Bancorp.
7.4 ASSIGNABILITY
Each Option shall be nontransferable other than by will or by the laws
of descent and distribution and shall be exercisable, during the life of a
Participant, only by the Participant or, in the event the Participant becomes
legally incompetent, by the Participant's guardian or legal representative, or
by a permitted transferee as set forth below. Notwithstanding the foregoing,
each Option may be transferred, without payment of consideration, to (i) a
spouse or other immediate family member or (ii) any trust, partnership or other
entity in which the Participant or the Participant's spouse or other immediate
family member has a substantial beneficial interest; provided, however, that any
Option so transferred shall be subject to all the same terms and conditions
contained in the instrument evidencing the Option.
7.5 OPTION AGREEMENT
Each Option shall be evidenced by an Option Agreement in a form
approved by the Committee.
7.6 METHOD OF EXERCISE; PAYMENT
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.
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) Tendering (either actually or, if and so long as the Shares
are registered under Section 12(b) or 12(g) of the Exchange Act, by attestation)
Shares already owned by the Participant for at least six months (or any shorter
period necessary to avoid a charge to the Company's earnings for financial
reporting purposes) having a Fair Market Value on the day prior to the exercise
date equal to the aggregate Option exercise price.
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7.7 PREVIOUSLY ACQUIRED SHARES
Delivery of previously acquired Shares in full or partial payment for
the 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.
7.8 OTHER DOCUMENTS
The Participant shall furnish the Committee before closing such
other documents or representations as the Committee may require to assure
compliance with applicable laws and regulations.
ARTICLE 8
SHARES SUBJECT TO THE PLAN
The stock authorized to be issued 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 this 1997 Amendment and
Restatement shall not exceed five hundred and twenty-five thousand (525,000)
Shares, or such greater number of Shares as is determined pursuant to an
adjustment under this 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 again become available for issuance under the Plan.
In the event of a recapitalization, stock split, reverse 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
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exercise price, as the Board in its sole discretion may deem appropriate to give
effect to such change in capitalization.
ARTICLE 9
GENERAL TERMS AND CONDITIONS OF ELECTIONS
9.1 ELECTIONS; AMENDMENTS; TERMINATIONS
An election under Article 5 shall be made by filing an election with
the Committee on a form provided by the Committee. An election filed before
December 31 is effective with respect to Directors Fees earned during the next
succeeding calendar year and subsequent calendar years, until the election is
amended or terminated. A person becoming a Non-Employee Director during a year
may file an election to participate within 30 days after becoming a Non-Employee
Director, and such election shall be effective with respect to Directors Fees
earned during the remainder of the calendar year and in subsequent calendar
years until the election is amended or terminated.
Elections (and amendments to existing elections) received by the
Committee on or prior to June 1, 1997, shall be effective as to Directors Fees
payable with respect to services as a Non-Employee Director after July 1, 1997.
An election may be amended by filing a notice of amendment with the
Committee on a form provided by the Committee. An amendment is effective with
respect to Directors Fees earned during the next succeeding calendar year and
subsequent calendar years, until the amendment is further amended or the
election to participate is terminated.
An election may be terminated by filing a notice of termination with
the Committee on a form provided by the Committee. A notice of termination is
effective with respect to Directors Fees earned during the next succeeding
calendar year and subsequent calendar years. Directors Fees with respect to
which an election, or an amended election, has been in effect prior to the
effective date of the termination will continue to be held subject to the
provisions of this Plan and the terms of such election or amended election.
A Non-Employee Director, having terminated an election under this Plan,
may elect to resume participation by making an election pursuant to the first
paragraph of this Section 9.1.
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9.2 UNFUNDED PLAN
All amounts and accounts held by Bancorp under the Plan are unfunded
obligations of Bancorp. The rights of a Participant with respect to any such
amounts and accounts are no greater than the rights of any unsecured general
creditor of Bancorp. Notwithstanding the foregoing, Bancorp may deposit funds
from time to time in the U.S. Bancorp Deferred Compensation Trust for the
purpose of paying benefits hereunder from the assets thereof.
9.3 NONASSIGNABILITY
Except as provided in Section 7.4, a Participant's rights under this
Plan, including without limitation the right to receive any distribution from
Bancorp hereunder, may not be anticipated, assigned, pledged or in any other
manner assigned, and shall not be subject to levy, attachment, garnishment or
other process by or on behalf of any creditor of the Participant.
9.4 PAYMENT
(a) A Participant, at the time of electing to participate in deferrals
under Article 5.6, may elect the method of payment of the Deferral Account.
Elections shall be filed with the Committee on a form approved by the Committee.
If a Participant fails to file an election with the Committee, the Deferral
Account will be paid as provided in clause (b)(i) of this Article 9.4.
(b) A Participant may elect one of the following methods of payment:
(i) A lump sum payment in cash to be made within 30 days
following the end of the calendar year during which the Participant ceases to be
a Non-Employee Director (the "Final Year"), or
(ii) Payment in up to ten annual installments, with the first
installment to be made within 30 days following the end of the Final Year. The
first installment shall equal the product of the balance of the Participant's
Deferral Account as of the end of the Final Year multiplied by a fraction in
which the numerator equals one and the denominator equals the number of
installment payments elected by the Participant. The second and any subsequent
installments shall equal the product of the balance of the Participant's
Deferral Account as of the end of the prior year multiplied by a fraction in
which the numerator equals one and the denominator equals the remaining number
of installment payments. The final installment shall equal the remaining balance
of the Deferral Account. The Deferral Account will continue to be
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<PAGE> 16
credited with Growth Factor earnings during the payout period, and the
Participant may make or modify selections of Hypothetical Investments during
such period.
(c) An election of the method of payment filed on or before December
31 is effective for Directors Fees deferred under Section 5.6 during the
succeeding calendar year and subsequent calendar years until the election is
amended. A person becoming a Non-Employee Director during a year may file an
election of method of payment within 30 days after becoming a Non-Employee
Director, and such election shall be effective for Directors Fees deferred under
Section 5.6 during the remainder of the calendar year and in subsequent calendar
years until the election is amended.
(d) An election of the method of payment may be amended by filing a
notice of amendment with the Committee on a form approved by the Committee. A
notice of amendment filed on or before December 31 is effective with respect to
Directors Fees deferred during the succeeding calendar year and subsequent
calendar years until the election is further amended.
9.5 ACCELERATION OF PAYMENT
If a Participant ceases to be a Non-Employee Director, and becomes a
proprietor, officer, director, partner, or employee of, or is otherwise
associated with, any business that is in competition with Bancorp or any of its
affiliates, the Participant's entire Deferral Account and the Fair Market Value
of any Stock Units held under the Plan shall be immediately paid to the
Participant in cash.
9.6 DEATH BENEFIT
Upon the death of a Participant, the unpaid balance of the
Participant's Deferral Account and (based upon the Participant's Deferral
Election under Section 5.4) either the cash value of, or the number of Shares
that is equal to, the Fair Market Value as of the date of death of any Stock
Units in the Participant's account shall be paid or delivered to the beneficiary
or beneficiaries selected by the Participant in writing, on a form approved by
the Committee. If no beneficiary has been selected, amounts due hereundershall
be paid to the Participant's surviving spouse, if any, or if there is no
surviving spouse, to the Participant's estate.
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ARTICLE 10
ADMINISTRATION
10.1 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 to interpret the provisions of the Plan and of
any award or 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 made, or any decision or action taken with respect to the Plan
or any award or Options under the Plan. The Committee may delegate any of its
responsibilities to one or more agents, including employees of Bancorp, and may
retain advisors to advise it. No Non-Employee Director shall participate in the
decision of any question relating to an award granted under the Plan exclusively
to that Non-Employee Director.
10.2 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 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.
10.3 RECORDS
The Committee shall have overall responsibility for keeping records and
providing necessary communications to Participants. The records of the Committee
with respect to the Plan shall be conclusive and binding on all Participants and
all persons or entities claiming through or under them.
10.4 EXPENSES
The cost of making awards and settling Initial Options and Annual
Options pursuant to this Plan, and the expenses of administering the Plan, shall
be borne by Bancorp.
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ARTICLE 11
MISCELLANEOUS
11.1 CONDITION PRECEDENT
The adoption of the Plan, and the grant of Options under the Plan, was
conditioned upon the approval of the Plan by an affirmative vote of the holders
of a majority of the voting stock of Bancorp present or represented and entitled
to vote thereon at the 1991 annual meeting of Bancorp shareholders. The Second
Amendment and Restatement, and the grant of Annual Options under the Plan, was
conditioned upon similar approval by Bancorp shareholders at the 1994 Annual
Meeting. The 1997 Amendment and Restatement, and the grant of Options under the
Plan, are conditioned upon similar approval by Bancorp shareholders at the 1997
Annual Meeting.
11.2 TERMINATION AND AMENDMENT OF THE PLAN
The Board may terminate or amend the Plan at any time, provided, that
(except to the extent that the Participants shall have given their written
consent thereto) no such termination or amendment shall affect any outstanding
Options previously granted under the Plan or the accrued rights of any
Participant under the Plan with respect to elections previously made by such
Participant under Article 5. The Board may not, without approval of the
shareholders of Bancorp:
(a) Materially increase the number of Shares which may be issued
under the Plan (other than by means of an adjustment described in Article 8); or
(b) Materially modify the requirements as to eligibility for
participation in the Plan.
Notwithstanding the foregoing, if required to qualify the Plan as a
formula plan for purposes of Rule 16b-3 under Section 16 of the Exchange Act,
the Plan shall not be amended more than once every six months to change the
amount, price, timing or exercisability of the awards other than amendments to
comport with changes in the Code or the rules and regulations promulgated
thereunder.
11.3 BOARD MEMBERSHIP
Nothing in the Plan or in any award granted pursuant to the Plan shall
confer upon any Participant any right to continue as a director of Bancorp or
interfere in any way with the right of the shareholders of Bancorp to remove a
director from the Board at any time.
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11.4 TAX REIMBURSEMENT
Bancorp shall have the right, in connection with the exercise of an
Option or any payment under the Plan, to require the Participant to pay to
Bancorp an amount sufficient to provide for any withholding tax liability,
including any liability for self-employment and social security taxes, imposed
with respect to such exercise or payment.
11.5 SECURITIES LAWS
Bancorp shall not be required to distribute any Shares pursuant to an
award 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.
11.6 APPLICABLE LAW
To the extent that federal laws (such as the Code and the federal
securities laws) do not control, the Plan shall be governed and construed in all
respects in accordance with Oregon law.
Bancorp adopted the U.S. Bancorp 1990 Non-Employee Director Stock
Option Plan (the "1990 Plan") effective October 18, 1990. The 1990 Plan was
amended and restated effective February 21, 1991; a First Amendment to the 1990
Plan, as restated, was adopted effective September 1, 1991; and a Second
Amendment was adopted effective April 12, 1993. The 1990 Plan was further
amended and restated in the form of the Second Amendment and Restatement
effective June 17, 1993. The 1990 Plan is further amended and restated in the
form of this 1997 Amendment and Restatement effective July 1, 1997 and is
redesignated the "U.S. Bancorp Non-Employee Director Stock Incentive and
Deferral Plan."
This 1997 Amendment and Restatement was executed and approved on behalf
of Bancorp as of February 20, 1997, subject to Section 11.1 hereof.
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Exhibit 10.5
U. S. BANCORP
AMENDED AND RESTATED
SUPPLEMENTAL BENEFITS PLAN
EFFECTIVE FEBRUARY 15, 1996
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I PURPOSE OF PLAN ............................................... 1
ARTICLE II NATURE OF PLAN ............................................... 1
ARTICLE III SPONSORING EMPLOYERS ........................................ 2
ARTICLE IV ELIGIBILITY .................................................. 2
ARTICLE V PARTICIPATION ................................................. 2
ARTICLE VI BENEFITS ..................................................... 3
6.1 Retirement Plan-Related Benefit ............................... 3
6.1.1 Retirement Benefits ................................... 3
(a) Restoration Benefit ................................ 3
(b) Early Retirement Subsidy Benefit ................... 6
(c) Additional Benefit Service Benefit ................. 6
(d) Change in Control Benefits ......................... 7
(1) Benefit ...................................... 7
(2) Change in Control Defined .................... 9
(3) Cause Defined ................................ 13
(4) Good Reason Defined .......................... 14
(5) Limitations and Reductions ................... 18
(e) Additional Eligibility Service Benefit ............. 18
(f) Enhanced Retirement Benefit ........................ 19
(1) Definitions .................................. 19
(2) Benefit ...................................... 20
(3) Benefit Service Credit ....................... 21
(4) Prior Employer Benefits ...................... 22
(5) Early Retirement Reduction ................... 22
(6) Vesting ...................................... 23
(7) Effect of Change in Control .................. 23
(8) Credit for Additional Benefit Service ........ 25
(g) Reduction of Change in Control Related Benefits .... 25
(h) Special Retirement Opportunity Benefit ............. 29
(1) Definitions .................................. 29
(2) Designation in Connection with Other Benefit . 30
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(3) Benefit ...................................... 31
(4) Termination Date ............................. 31
6.1.2 Coordination of Benefits .............................. 31
6.1.3 Time and Manner of Payment ............................ 33
(a) Joint and Survivor Annuity ........................ 34
(b) Supplemental Income Option ........................ 34
6.1.4 Early Retirement Reduction ............................ 35
6.1.5 Benefit Forfeitability ................................ 36
6.1.6 Preretirement Death Benefit ........................... 37
6.1.7 Lump-Sum Payments of Small Benefits ................... 39
6.1.8 Arbitration ........................................... 39
6.2 Investment Plan-Related Benefit ............................... 40
6.2.1 Annual Credit ......................................... 40
(a) Deferred Compensation Credit ....................... 40
(b) Section 415 Limitation Credit ...................... 41
(c) Before-Tax Contribution Limitation Credit .......... 41
(d) Matching Credit .................................... 42
6.2.2 Investment Plan Benefit Account ....................... 43
6.2.3 Time and Manner of Payment ............................ 43
6.2.4 Death Benefit ......................................... 43
ARTICLE VII VESTING ..................................................... 43
ARTICLE VIII SOURCE OF BENEFITS ......................................... 44
ARTICLE IX ADMINISTRATION OF THE PLAN ................................... 45
ARTICLE X MISCELLANEOUS ................................................. 46
10.1 Nonassignability of Benefits .................................. 46
10.2 Governing Law ................................................. 46
10.3 No Right of Continued Employment .............................. 46
10.4 Withholding Taxes ............................................. 46
10.5 Severability .................................................. 47
ARTICLE XI CLAIMS PROCEDURE ............................................. 47
11.1 Initial Claim ................................................. 47
11.2 Decision on Initial Claim ..................................... 47
11.2.1 Time Period for Denial Notice ......................... 47
11.2.2 Contents of Notice .................................... 48
11.2.3 Deemed Denied ......................................... 48
11.3 Review of Denied Claim ........................................ 48
11.4 Decision on Review ............................................ 49
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ARTICLE XII AMENDMENTS AND TERMINATION .................................. 50
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<PAGE> 5
U. S. BANCORP
AMENDED AND RESTATED
SUPPLEMENTAL BENEFITS PLAN
THIS SUPPLEMENTAL BENEFITS PLAN (the "Plan") is amended and restated by
U. S. Bancorp, an Oregon corporation ("Bancorp"), effective February 15, 1996.
I
PURPOSE OF PLAN
The continued growth and success of Bancorp are dependent upon its
ability to attract and retain the services of key executives of the highest
competence and to provide incentives for their effective service and superior
performance. The purpose of this Plan is to advance the interests of Bancorp and
its shareholders through a supplemental compensation program that will attract,
motivate, and retain key executives.
II
NATURE OF PLAN
This Plan is intended to be and shall be administered and maintained by
Bancorp as an income tax nonqualified, unfunded plan primarily for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees within the meaning of Sections 201(2), 301(a)(3) and
401(a)(1) of
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the Employee Retirement Income Security Act of 1974, as amended. Notwithstanding
any other provision of this Plan, no benefit shall be payable under this Plan
that would cause the Plan to not be a select group plan.
III
SPONSORING EMPLOYERS
Any corporation in which Bancorp owns (directly or indirectly) stock
possessing 50 percent or more of the combined voting power may, by resolution of
its board of directors, sponsor and maintain this Plan for its executives. Such
corporations shall be referred to as "Sponsoring Employers."
IV
ELIGIBILITY
Any key executive (including officers who may also be directors) of
Bancorp and the Sponsoring Employers who is a member of a select group of
management or highly compensated employees shall be eligible to participate in
this Plan.
V
PARTICIPATION
A "Participant" is an eligible employee who has been designated to
receive one or more benefits under this Plan for one or more years. The
Compensation Committee of Bancorp's Board
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of Directors (the "Compensation Committee") shall have the exclusive power to
make and revise benefit designations, if any, with respect to Bancorp's Chairman
of the Board, its Chief Executive Officer, and the members of Bancorp's
Executive Committee (the "Executive Committee") and with respect to all benefit
designations under 6.1.1(d) and 6.1.1(f). The Compensation Committee may, in its
discretion, delegate by resolution to the Executive Committee the power to make
and revise benefit designations, if any, for all other eligible employees, other
than benefit designations under 6.1.1(d) and 6.1.1(f). In the absence of such
delegation, the Compensation Committee shall retain the power and authority to
make and revise all benefit designations under the Plan. By sponsoring and
maintaining the Plan for its employees, the Board of Directors of each
Sponsoring Employer expressly delegates to the Compensation Committee and the
Executive Committee, respectively, the authority to make and revise benefit
designations under the Plan for all employees of the Sponsoring Employer.
VI
BENEFITS
.1 Retirement Plan-Related Benefit.
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.1 Retirement Benefits. Except as otherwise provided, a Participant
shall receive a monthly U. S. Bancorp Retirement Plan-Related Benefit for the
Participant's life only equal to the sum of the "Restoration Benefit," "Early
Retirement Subsidy Benefit," "Additional Benefit Service Benefit," "Change in
Control Benefits," "Additional Eligibility Service Benefit," and "Enhanced
Retirement Benefit," as defined below, for which the Participant is designated.
For purposes of this 6.1.1, any reference to a Participant's Retirement Plan
benefit shall include any portion of such Retirement Plan benefit payable to an
alternate payee pursuant to a qualified domestic relations order.
(a) Restoration Benefit. A Participant designated to receive a
"Restoration Benefit" (previously referred to as the "Additional Benefit") under
this Plan shall receive a monthly benefit equal to the sum of:
(1) the amount by which such Participant's early, normal, or delayed
retirement benefit under the Retirement Plan, as set forth in Exhibit A
attached hereto and incorporated by reference herein, is reduced by
application of federal law limiting benefits under income tax qualified
plans as provided in the Retirement Plan; and
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(2) the difference (to the extent such difference is not included in
6.1.1(a)(1) above) between:
(i) the early, normal, or delayed retirement benefit that would
have been payable to the Participant under the Retirement Plan:
A) had deferred compensation (other than deferred
compensation under the U. S. Bancorp Long-Term Management
Incentive Plan or the U. S. Bancorp 1993 Stock Incentive Plan)
counted as Compensation under the Retirement Plan at the time at
which such compensation would have been paid had it not been
deferred; and
B) had any nondeferred awards payable to the Participant
after retirement under the U. S. Bancorp Executive Annual
Incentive Plan or Management Annual Incentive Plan (an "Annual
Plan") counted as Compensation under the Retirement
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Plan at the time such awards were earned or accrued in lieu of the
corresponding award for the first year of the five-year period
for which Average Monthly Compensation is computed; and
(ii) the Participant's actual early, normal, or delayed retirement
benefit under the Retirement Plan.
In calculating the benefit described in 6.1.1(a)(2)(i), the period of time used
to determine a Participant's Average Monthly Compensation may be different than
the period of time used to determine the Participant's Average Monthly
Compensation in calculating the benefit actually payable under the Retirement
Plan. Also, an award under an Annual Plan for a year shall be treated as earned
pro-rata over the 12 months of the year (or such lesser portion of the year that
the award relates to).
Notwithstanding the foregoing, no Participant shall have a lesser
monthly Restoration Benefit than the amount required to ensure that the sum of
the Participant's early, normal, or delayed retirement benefit under the
Retirement Plan plus the
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Participant's Restoration Benefit under this Plan is not less than the sum of
such benefits as of December 31, 1988.
(b) Early Retirement Subsidy Benefit. Upon early retirement at or after
a designated age, a Participant designated to receive an "Early Retirement
Subsidy Benefit" under this Plan, who was eligible for early retirement under
the Retirement Plan on ceasing to be an employee of Bancorp and its affiliates,
shall receive a monthly benefit equal to the amount by which such Participant's
normal retirement benefit under the Retirement Plan is reduced by reason of such
early retirement.
(c) Additional Benefit Service Benefit. Upon retirement at or after a
designated age with less than 25 years of Benefit Service, a Participant
designated to receive an "Additional Benefit Service Benefit" under this Plan,
who was eligible for retirement under the Retirement Plan on ceasing to be an
employee of Bancorp and its affiliates, shall receive a monthly benefit equal to
the difference between:
(1) the early, normal, or delayed retirement benefit that would have
been payable to the Participant under the Retirement Plan based on the
lesser of:
(i) 25 years of Benefit Service; or
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(ii) a designated number of years of Benefit Service; and
(2) the Participant's actual early, normal, or delayed retirement
benefit under the Retirement Plan.
(d) Change in Control Benefits. The purpose of the benefits provided
by this 6.1.1(d) is to encourage the designated Participants to continue in the
employment of Bancorp. The designated Participants are innovative, highly
experienced, and knowledgeable banking executives whose creativity, expertise,
and effort have been instrumental in the development of the business and growth
of Bancorp. For purposes of this 6.1.1(d), references to Bancorp or a Sponsoring
Employer shall include any successor to Bancorp or the Sponsoring Employer.
(1) Benefit. Upon termination from employment with Bancorp or a
Sponsoring Employer within two years from the date of occurrence of any
event constituting a "Change in Control" (it being recognized that more
than one such event may occur in which case the two-year period shall run
from the date of occurrence of each such event), other than termination by
Bancorp or a Sponsoring Employer for "Cause" or by the Participant without
"Good Reason," as those terms are defined below, a designated
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Participant who is vested by meeting the "Applicable Service Requirement,"
as described below, at termination of employment shall receive the benefit
under (i) and/or (ii) below. A Participant may be designated for either or
both of the following benefits:
(i) A monthly benefit (a "Change in Control Early Retirement
Subsidy Benefit") equal to the amount by which such Participant's
normal retirement benefit under the Exhibit A Retirement Plan is
reduced by reason of early retirement due to the termination.
(ii) A monthly benefit (a "Change in Control Additional Benefit
Service Benefit") equal to the difference between:
A) the early, normal, or delayed retirement (which is the
same as the type of actual retirement under 6.1.1(d)(1)(ii)B))
benefit that would have been payable to the Participant under the
Exhibit A Retirement Plan based on the lesser of:
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1) 25 years of Benefit Service; or
2) a designated number of years of Benefit Service;
and
B) the Participant's actual early, normal, or delayed
retirement benefit under the Exhibit A Retirement Plan.
For purposes of the Change in Control Early Retirement Subsidy Benefit
described in 6.1.1(d)(1)(i), the Applicable Service Requirement is at least ten
years of Eligibility Service. For purposes of the Change in Control Additional
Benefit Service Benefit described in 6.1.1(d)(1)(ii), the Applicable Service
Requirement is at least five years of Eligibility Service. Participants continue
to earn Eligibility Service after a Change in Control. The benefits in this
6.1.1(d) cannot be eliminated by amendment or termination of this Plan after a
Change in Control.
(2) Change in Control Defined. A "Change in Control" of Bancorp shall
mean:
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(i) The acquisition by any Acquiring Person of beneficial
ownership (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 (the "Exchange Act")) of 20 percent or more of the
combined voting power of the then outstanding Voting Securities;
provided, however, that for purposes of this paragraph (i) the
following acquisitions shall not constitute a Change in Control: (a)
any acquisition directly from Bancorp, (b) any acquisition by Bancorp,
(c) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Bancorp or any corporation controlled by
Bancorp, or (d) any acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b), and (c) of paragraph
(iii) of this definition of Change in Control; or
(ii) During any period of 12 consecutive calendar months,
individuals who at the beginning of such period constitute the Board
(the "Incumbent Board") cease for any reason to
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constitute at least a majority of the Board; provided, however, that
any individual who becomes a director during the period whose election,
or nomination for election, by Bancorp's shareholders was approved by a
vote of at least a majority of the directors then constituting the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(iii) Consummation of a reorganization, merger, or consolidation
or sale or other disposition of all or substantially all of the assets
of Bancorp (a "Business Combination") in each case, unless, following
such Business Combination, (a) all or substantially all of
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the individuals and entities who were the beneficial owners of the
Voting Securities outstanding immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50
percent of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns Bancorp or all or substantially all of Bancorp's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately
prior to such Business Combination, of the Voting Securities, (b) no
Person (excluding any employee benefit plan, or related trust, of
Bancorp or such corporation resulting from such Business Combination)
beneficially owns,
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directly or indirectly, 20 percent or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination and (c)
at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of
Incumbent Board at the time of the execution of the initial agreement,
or of the action of the Board, providing for such Business Combination;
or
(iv) Approval by the shareholders of Bancorp of any plan or
proposal for the liquidation or dissolution of Bancorp.
For purposes of this "Change in Control" definition, the term
"Acquiring Person" means any person or related person or related persons which
constitute a "group" for purposes of Section 13(d) and Rule 13d-5 under the
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Exchange Act; provided, however, that the term Acquiring Person shall not
include (a) Bancorp or any of its subsidiaries, (b) any employee benefit plan or
related trust of Bancorp or any of its subsidiaries, (c) any entity holding
voting capital stock of Bancorp for or pursuant to the terms of any such
employee benefit plan, or (d) 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.
(2) Cause Defined. For purposes of 6.1.1(d), "Cause" for termination
of employment means:
(i) A material act of fraud or dishonesty by the Participant
within the course of performing his or her duties for Bancorp or a
Sponsoring Employer;
(ii) Gross negligence or intentional misconduct by the
Participant in the performance of material duties for Bancorp or a
Sponsoring Employer;
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(iii) Commission of an act (or failure to take an action)
intentionally against the interest of Bancorp or a Sponsoring Employer
that causes Bancorp or a Sponsoring Employer material injury; or
(iv) An act of serious moral turpitude that causes Bancorp or a
Sponsoring Employer material injury.
Notwithstanding the foregoing, a Participant shall not be deemed to
have been terminated for Cause unless and until there have been delivered to the
Participant a copy of a resolution duly adopted by Bancorp's Board of Directors
(the "Board") at a meeting of the Board called and held for that purpose (after
reasonable notice to the Participant and an opportunity for the Participant,
together with the Participant's counsel, to be heard before the Board) finding
that in the good faith opinion of the Board, the Participant was guilty of
conduct constituting Cause as defined in this Plan and specifying the
particulars thereof in detail.
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Any dispute as to whether a designated Participant was terminated for
Cause shall be submitted to arbitration pursuant to 6.1.8.
(3) Good Reason Defined. Termination by a designated Participant of
employment for "Good Reason" shall mean termination based on any of the
following:
(i) A change in the Participant's duties or position or positions
with Bancorp which represents a demotion from his or her duties or
position or positions as in effect immediately prior to the Change in
Control, or a change in the Participant's duties or responsibilities
which is inconsistent with such duties or position or positions, or any
removal of the Participant from or any failure to reappoint or reelect
the Participant to such position or positions, except in connection
with the termination of the Participant's employment for Cause or
disability or as a result of the Participant's death or the termination
by the Participant other than for Good Reason;
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<PAGE> 22
(ii) A reduction by Bancorp in the Participant's base salary as
in effect immediately prior to the Change in Control;
(iii) The failure by Bancorp to continue in effect any "Benefit
Plan" (as defined below) in which the Participant is participating at
the time of the Change in Control (or Benefit Plans providing the
Participant with at least substantially similar benefits), other than
as a result of the normal expiration of any such Benefit Plan in
accordance with its terms or a modification of such Benefit Plan which
modification is applicable to all employees who participate in such
Benefit Plan, as in effect at the time of the Change in Control, or the
taking of any action, or the failure to act, by Bancorp which would
adversely affect the Participant's continued participation in any of
such Benefit Plans on at least as favorable a basis to the Participant
as is the case on the date of the Change in Control or which would
materially reduce the Participant's benefits in
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<PAGE> 23
the future under any of such Benefit Plans or deprive the Participant
of any material benefit enjoyed by the Participant at the time of the
Change in Control;
(iv) The failure by Bancorp to provide and credit the Participant
with the number of paid vacation days to which the Participant is then
entitled in accordance with Bancorp's normal vacation policy as in
effect immediately prior to the Change in Control;
(v) Bancorp's requiring the Participant to be based anywhere more
than 35 miles from where the Participant's office is located
immediately prior to the Change in Control except for required travel
on Bancorp's business to an extent substantially consistent with the
business travel obligations which the Participant undertook on behalf
of Bancorp prior to the Change in Control;
(vi) The failure by Bancorp to obtain from any successor the
assent to this 6.1.1(d);
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<PAGE> 24
(vii) Any purported termination by Bancorp of a Participant's
employment which is not effected pursuant to a Notice of Termination as
defined below; and for purposes of this 6.1.1(d), no such purported
termination shall be effective; or
(viii) Any refusal by Bancorp to continue to allow the Participant
to attend to matters or engage in activities not directly related to
the business of Bancorp which, prior to the Change in Control, the
Participant was permitted by the Board to attend to or engage in.
For purposes of this "Good Reason" definition, "Notice of Termination"
means any notice of any termination of the Participant's employment shall be
communicated by written Notice of Termination to the other party. A "Notice of
Termination" of a Participant's employment by Bancorp shall mean a notice which
shall indicate the specific termination provision relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for
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termination of the Participant's employment under the provision so indicated.
"Benefit Plan" shall mean any compensation plan (including this Plan) providing
for incentive or deferred compensation, stock options or other stock or
stock-related grants or awards, or any employee benefit plan such as a thrift,
investment, savings, pension, profit sharing, medical, disability, accident,
life insurance, cafeteria, or relocation plan or any other plan, policy, or
program of Bancorp providing similar types of benefits to employees of Bancorp.
Any dispute as to whether a designated Participant has Good Reason for
termination of employment shall be submitted to arbitration pursuant to 6.1.8.
(4) Limitations and Reductions. The Change in Control benefits
otherwise payable under this 6.1.1(d) are subject to the limitations and
reductions described in 6.1.1(g).
(b) Additional Eligibility Service Benefit. A Participant designated
to receive an "Additional Eligibility Service Benefit" shall be treated as
having years of Eligibility Service equal to the designated Participant's actual
years of
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Eligibility Service plus a designated number of additional years of
Eligibility Service. The total of the actual and the additional designated years
of Eligibility Services will be referred to as the "Designated Total." Upon
ceasing to be an employee of Bancorp and its affiliates, a Participant
designated for an Additional Eligibility Service Benefit:
(1) shall receive a monthly benefit equal to the difference between:
(i) the early, normal, or delayed retirement (which is the same
as the type of actual retirement under 6.1.1(e)(1)(ii)) benefit that
would have been payable to the Participant under the Retirement Plan
had the Participant retired with the Designated Total number of years
of Eligibility Service; and
(ii) the Participant's actual early, normal, or delayed
retirement benefits, if any, under the Retirement Plan; and
(2) shall be treated as having the Designated Total number of years of
Eligibility Service for purposes of any other Retirement Plan-Related
Benefit under this Plan for which the Participant is designated.
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<PAGE> 27
(c) Enhanced Retirement Benefit.
(1) Definitions. As used in this 6.1.1(f), the following terms shall
have the definitions set forth below:
"ADJUSTED AVERAGE MONTHLY COMPENSATION means Average Monthly
Compensation (as defined in Exhibit A to this Plan) adjusted in the manner
described in 6.1.1(a).
"CAUSE" has the meaning defined in 6.1.1(d)(3).
"CHANGE IN CONTROL" has the meaning defined in 6.1.1(d)(2).
"CHANGE IN CONTROL DATE" means the date of occurrence of an event
constituting a Change in Control (it being recognized that more than one such
event may occur, in which case the date of occurrence of each such event is a
Change in Control Date).
"EARLY RETIREMENT REDUCTION" has the meaning described in 6.1.1(f)(5).
"GOOD REASON" has the meaning defined in 6.1.1(d)(4).
"PRIOR EMPLOYER BENEFITS" has the meaning described in 6.1.1(f)(4).
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<PAGE> 28
"TARGET BENEFIT" means a monthly benefit equal to 2.75 percent of a
Participant's Adjusted Average Monthly Compensation multiplied by the
Participant's years, and fractions thereof, of Benefit Service up to 20 years.
"TERMINATION DATE" means the date a Participant ceases to be an
employee of Bancorp or a Sponsoring Employer.
(3) Benefit. A Participant designated to receive an "Enhanced
Retirement Benefit" under this Plan shall receive, upon termination of
employment with Bancorp or a Sponsoring Employer after attaining age 55
(providing the Participant is vested in such benefit as provided in
6.1.1(f)(6)), a monthly benefit equal to the Target Benefit, adjusted (in the
event the Participant terminates employment before attaining age 62) by the
amount, if any, of Early Retirement Reduction, and then reduced by the sum of
the following:
(i) A hypothetical Social Security benefit payable as of the
Participant's age on the Termination Date or, if later, age 62,
calculated based on the law in effect on the Termination Date assuming
(A) that the
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Participant's covered compensation equaled or exceeded the Social
Security wage base for all prior years and (B) the Participant will
have no compensation in any year (or portion of a year) following the
Termination Date;
(ii) An amount equal to the single life annuity equivalent of the
Retirement Plan benefit which would have become payable to the
Participant as of the Termination Date had the Participant elected
retirement under the Retirement Plan as of the Termination Date;
(iii) The amount of Prior Employer Benefits payable to the
Participant for such month or attributable to such month as described
in 6.1.1(f)(4); and
(iv) The amounts payable to the Participant as other Retirement
Plan-Related Benefits under this Plan as described in 6.1.2(e).
(2) Benefit Service Credit. For purposes of this 6.1.1(f), the
Compensation Committee may, at the time a Participant is designated for an
Enhanced Retirement
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Benefit, or at any time thereafter, credit the Participant with years of Benefit
Service for service with a prior employer. The number of years, and fractions
thereof, of Benefit Service credited shall be specified by resolution of the
Compensation Committee.
(3) Prior Employer Benefits. Whenever the Compensation Committee gives
a Participant Benefit Service credit for service with a former employer, the
Compensation Committee shall by resolution specify the amount of Prior Service
Benefits, if any, to be offset against the Participant's Enhanced Retirement
Benefit. Prior Service Benefits shall be a monthly offset amount determined by,
or at the direction, of the Compensation Committee to reflect the Participant's
accrued and vested benefits attributable to service with the prior employer from
qualified and nonqualified pension, profit sharing, and similar deferred
compensation arrangements (but excluding any such benefits attributable to the
Participant's own contributions, whether made on a before-tax or after-tax
basis). The Compensation Committee, or its delegates, shall determine for each
Prior Employer Benefit a monthly offset amount based on a
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<PAGE> 31
single life annuity form equivalent to the Prior Employer Benefit (assuming the
same commencement date as the Participant's Enhanced Retirement Benefit).
(4) Early Retirement Reduction. If a Participant who is otherwise
vested in an Enhanced Retirement Benefit (as provided in 6.1.1(f)(6)) terminates
employment with Bancorp or a Sponsoring Employer prior to attaining age 62, the
Participant's Target Benefit shall be reduced by an Early Retirement Reduction
equal to the accrued Target Benefit multiplied by the product of a Reduction
Percentage (as described below) and the difference (in years and a fraction of a
year based on whole calendar months) between the Participant's age at the
Termination Date and 62. The Reduction Percentage shall be 7 percent except
where a Participant's retirement or termination of employment is approved by the
Compensation Committee, in which case the Reduction Percentage shall be 3
percent. However, the Compensation Committee may, in extraordinary
circumstances, designate a different Reduction Percentage between 0 percent and
7 percent.
(5) Vesting. Except as provided in 6.1.1(f)(7), a Participant's right
to an Enhanced Retirement Benefit is
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vested and nonforfeitable when the Participant both attains age 55 and has at
least 10 years of Eligibility Service while still an employee of Bancorp or a
Sponsoring Employer. If a Participant designated for an Enhanced Retirement
Benefit ceases to be an employee of Bancorp or a Sponsoring Employer either (A)
before the Participant has 10 years of Eligibility Service or (B) before the
Participant attains age 55, the Participant shall not receive any Enhanced
Retirement Benefit.
(6) Effect of Change in Control. Upon termination from Bancorp or a
Sponsoring Employer within two years after a Change in Control Date, other than
termination for Cause or without Good Reason, the Enhanced Retirement Benefit
for a designated Participant shall be subject to the following provisions:
(i) Notwithstanding 6.1.1(f)(6), upon a Change in Control, a
Participant designated for an Enhanced Retirement Benefit who has at
least five years of Eligibility Service shall become immediately vested
in the accrued Enhanced Retirement Benefit, whether or not the
Participant had attained age 55 as of the later
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of the Change in Control Date or the Termination Date.
(ii) If a Participant has not attained age 55 as of the
Termination Date, the Participant's Enhanced Retirement Benefit shall
commence on the first day of the calendar month in which the
Participant attains age 55.
(iii) For purposes of computing a Participant's Target Benefit, a
Participant will continue to accrue Benefit Service after a Change in
Control.
(iv) The Early Retirement Reduction Percentage for each
Participant vested in an Enhanced Retirement Benefit (pursuant to
6.1.1(f)(6) or 6.1.1(f)(7)(i)) shall be 3 percent.
(v) A Participant's Enhanced Retirement Benefit, as modified by
this 6.1.1(f)(7) upon a Change in Control, is subject to the
limitations and reductions described in 6.1.1(g).
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<PAGE> 34
(vi) The provisions of this 6.1.1(f)(7) cannot be eliminated by
amendment or termination of this Plan after a Change in Control.
(7) Credit for Additional Benefit Service. For purposes of computing a
designated Participant's Target Benefit, the Committee may, in special
circumstances, credit the Participant with an additional number of years of
Benefit Service as determined by the Committee.
(b) Reduction of Change in Control Related Benefits. In the event that
any portion of the Total Payments (as defined below) received by a Participant
in connection with a Change in Control of Bancorp, after taking into account all
other payments to which the Participant is entitled to receive from Bancorp or
any affiliate of Bancorp, is subject to an excise tax under Section 4999 of the
Internal Revenue Code, unless the Compensation Committee expressly provides by
resolution that the Participant's benefits under the Plan in connection with the
Change in Control will not be reduced, the Change in Control benefits otherwise
payable under 6.1.1(d) or the Enhanced Retirement Benefit otherwise payable
under 6.1.1(f), as modified by 6.1.1(f)(7), will be reduced to the extent
required to avoid
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<PAGE> 35
such excise tax if, and only if, such reduction would result in a larger
after-tax benefit to the Participant, taking into account all applicable local,
state, and federal income and excise taxes. If requested by a Participant,
Bancorp will provide complete compensation and tax data on a timely basis to
Participant and to tax counsel designated by the Participant in order to enable
the Participant to determine the extent to which payments from Bancorp and its
affiliates may result in an excise tax. If a Participant and Bancorp disagree as
to whether a payment of such benefits will result in an excise tax or whether a
reduction in any payment will result in a larger after-tax benefit to the
Participant, the matter will be resolved by an opinion of tax counsel chosen by
the Participant and reasonably acceptable to Bancorp.
"Total Payments" mean all payments or benefits payable to a Participant
in connection with a Change in Control of Bancorp, including Change in Control
related benefits under 6.1.1(d) or 6.1.1(f) and "Other Payments." "Other
Payments" include any payment or benefit payable to a Participant in connection
with a Change in Control of Bancorp pursuant to any plan, arrangement, or
agreement (other than 6.1.1(d) or 6.1.1(f)) with Bancorp, a person whose actions
result in such Change in
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Control, or any person affiliated with Bancorp or such person. For purposes of
this limitation:
(1) No portion of the Total Payments, the receipt or enjoyment of
which a Participant has effectively waived in writing prior to the date of
payment of the Change in Control benefits, shall be taken into account;
(2) No portion of the Total Payments shall be taken into account
which, in the opinion of tax counsel selected by Bancorp and reasonably
acceptable to the Participant ("Bancorp Tax Counsel"), does not constitute
a "parachute payment" within the meaning of Section 280G of the Internal
Revenue Code;
(3) The Change in Control related benefits shall be reduced only to
the extent necessary so that the Total Payments (other than those referred
to in 6.1.1(g)(1) and 6.1.1(g)(2) ) in their entirety constitute, in the
opinion of Bancorp Tax Counsel, reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the Internal
Revenue Code; and
(4) The value of any noncash benefit or any deferred payment or
benefit included in the Total Payments, and whether or not all or a portion
of any
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<PAGE> 37
payment or benefit is a "parachute payment" for purposes of 6.1.1(g)(2),
shall be determined by Bancorp's independent accountants in accordance with
the principles of Section 280(G)(d)(3) and (4) of the Internal Revenue
Code.
To the extent possible, Bancorp and the Participant agree that
reductions in benefits under any benefit plan shall be made (only to the extent
necessary to avoid an excess parachute payment excise tax) in the following
order of priority:
(i) Severance payments under a change in control agreement other than
6.1.1(d) or 6.1.1(f);
(ii) Continuation of benefits under any plan, policy, or program of
Bancorp (whether or not on an insured basis) providing medical, dental,
health, disability income, life insurance or other death benefits, or
similar types of benefits to employees of Bancorp (other than under any
plan or arrangement providing for vacation pay, bonuses or incentive
compensation of any kind, or current or deferred salary or similar
compensation);
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(iii) Any Change in Control related benefit payable under 6.1.1(d) or
6.1.1(f) of this Plan or a successor plan or a plan providing similar
benefits; and
(iv) The acceleration in the exercisability or vesting of any stock
option or other stock related award granted by Bancorp.
Notwithstanding any other provision of 6.1.1(d) or 6.1.1(f), Bancorp
shall have no obligation to make any payments to a Participant pursuant to
6.1.1(d) or 6.1.1(f) if, or to the extent, such payments are prohibited by any
applicable law or regulation, including without limitation the FDIC's
regulations regarding Golden Parachute and Indemnification Payments promulgated
under the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery
Act of 1990.
(e) Special Retirement Opportunity Benefit.
(1) Definitions. As used in this 6.1.1(h), the following terms shall
have the definitions set forth below:
"DEEMED AGE" means an age equal to five years more than a
designated Participant's actual age as of August 31, 1994.
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<PAGE> 39
"DEEMED BENEFIT YEARS" means a number of years of Benefit Service, as
defined in the Retirement Plan, equal to 5.667 years more than a designated
Participant's actual years of Benefit Service as of December 31, 1993.
"DEEMED ELIGIBILITY YEARS" means a number of years of Eligibility
Service, as defined in the Retirement Plan, equal to six years more than a
designated Participant's actual years of Eligibility Service as of December 31,
1993.
"SRO AVERAGE MONTHLY COMPENSATION" means the greater of:
(i) The monthly average of the designated Participant's Compensation
(adjusted as described in 6.1.1(a)) during the highest consecutive five of
the ten Plan Years beginning in 1984; or
(ii) The monthly average of the designated Participant's Compensation
(adjusted as described in 6.1.1(a)) for the 60 months ending August 31,
1994, based on:
A) The Participant's bonuses paid during the eight calendar
months ending August 31, 1994, plus eight times the Participant's
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monthly base salary as in effect on January 1, 1994;
B) The Participant's base salary and bonuses paid during calendar
years 1990 through 1993; and
C) A portion equal to four-twelfths (4/12) of the Participant's
base salary (excluding bonuses) paid in calendar year 1989.
"SRO CONNECTED BENEFIT" means the Benefit (either a Restoration
Benefit, an Enhanced Retirement Benefit, or both) under the Plan in
connection with which a Participant is designated for a Special Retirement
Opportunity Benefit.
(2) Designation in Connection with Other Benefit. A Special Retirement
Opportunity Benefit shall be in connection with either (or both) of the
following benefits for which the designated Participant is also designated: a
Restoration Benefit under 6.1.1(a) or an Enhanced Retirement Benefit under
6.1.1(f).
(3) Benefit. If a Participant is designated for a Special Retirement
Opportunity Benefit under this 6.1.1(h), the Participant's SRO Connected Benefit
(or Benefits) shall be based on treating the Participant:
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<PAGE> 41
(i) As having attained the greater of the Participant's actual age as
of the Annuity Starting Date (as defined in the Retirement Plan) or the
Deemed Age;
(ii) As having the Deemed Eligibility Years and the Deemed Benefit
Years; and
(iii) As having Average Monthly Compensation equal to the SRO Average
Monthly Compensation.
(4) Termination Date. The Committee may, in its discretion, condition
the designation of a Participant for a Special Retirement Opportunity Benefit
upon the Participant's termination of employment not later than a date specified
by the Committee.
.2 Coordination of Benefits. The following rules shall apply where a
Participant is designated for more than one benefit under 6.1.1:
(a) If a Participant receives an Early Retirement Subsidy Benefit
under 6.1.1(b) or a Change in Control Early Retirement Subsidy Benefit under
6.1.1(d)(1), there shall be no early retirement reduction with respect to the
Participant's benefits, if any, described in 6.1.1(a), 6.1.1(c), and
6.1.1(d)(2).
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<PAGE> 42
(b) If a Participant receives an Additional Benefit Service Benefit
under 6.1.1(c) or a Change in Control Additional Benefit Service Benefit under
6.1.1(d)(2), the Participant's benefits, if any, described in 6.1.1(a),
6.1.1(b), and 6.1.1(d)(1) shall be based on the lesser of 25 years of Benefit
Service or the designated number of years of Benefit Service.
(c) If a Participant is designated for an Early Retirement Subsidy
Benefit under 6.1.1(b) and a Change in Control Early Retirement Subsidy Benefit
under 6.1.1(d)(1), the Participant's Change in Control Early Retirement Subsidy
Benefit under 6.1.1(d)(1) shall be reduced by the amount payable as an Early
Retirement Subsidy Benefit under 6.1.1(b).
(d) If a Participant is designated for an Additional Benefit Service
Benefit under 6.1.1(c) and a Change in Control Additional Benefit Service
Benefit under 6.1.1(d)(2), the Participant's Change in Control Additional
Benefit Service Benefit under 6.1.1(d)(2) shall be reduced by the amount payable
as an Additional Benefit Service Benefit under 6.1.1(c).
(e) If a Participant is designated for an Enhanced Retirement Benefit
under 6.1.1(f) and is also designated for any other Retirement Plan-Related
Benefit under 6.1.1, the Participant's Enhanced Retirement Benefit under
6.1.1(f) shall be
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<PAGE> 43
reduced by the aggregate amounts payable as any other Retirement Plan-Related
Benefits under 6.1.1 (after taking into account any other applicable
coordination provisions of this 6.1.2).
.3 Time and Manner of Payment. A vested Participant's Retirement
Plan-Related Benefit (other than an Enhanced Retirement Benefit pursuant to
6.1.1(f)) shall be paid after his or her ceasing to be an employee of Bancorp or
a Sponsoring Employer, beginning with the earlier of the first day of the month
after the Participant is age 55 and not yet age 65 and has at least ten years of
Eligibility Service ("early retirement date") or after the Participant is at
least age 65 and is vested or has had the fifth anniversary of the Participant's
commencement of participation.
A Participant who is vested in an Enhanced Retirement Benefit shall be
paid such Enhanced Retirement Benefit after the Participant ceases to be an
employee of Bancorp or a Sponsoring Employer, beginning with the first day of
the first calendar month after the Participant terminates employment.
A Participant's Retirement Plan-Related Benefit under the Plan is
earned in the single life annuity form with no benefit payable to anyone on the
Participant's post-retirement death. A Participant may make a one-time election
to receive
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<PAGE> 44
that benefit in one of the forms provided below. The Participant's election must
be made before the Participant's commencing participation. If no election is
made by that latest election date, then the Participant's benefit shall be paid
in the single life annuity form. The following optional forms are available:
(a) Joint and Survivor Annuity. An actuarial equivalent reduced
monthly benefit for life to the Participant with 50 percent or 100 percent, as
elected, of that amount payable to the survivor designated at retirement, if
then living, for life after the death of the Participant. The straight life
annuity is converted to a 50 percent survivor annuity by multiplying the
straight life annuity amount by:
.94 + .004 x (spouse's age - Participant's age
at death)]; not greater than 1.000.
The straight life annuity is converted to a 100 percent survivor annuity by
multiplying it by:
[.89 + .006 x (beneficiary's age - retired
Participant's age)]; not greater than 1.000.
If the designated survivor dies before the Participant retires, then the
Participant shall select another survivor within 30 days. Except for death of
the survivor the Participant shall have no power to name a new survivor. If
there is no living
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<PAGE> 45
designated survivor on the Participant's retirement, the benefit shall be paid
in the straight life annuity form. If the designated survivor dies after the
Participant retires but before the Participant dies, then payments will continue
to the Participant in the same reduced amount and another survivor cannot be
selected. No payments will be made to anyone after the death of both the
Participant and the designated survivor.
(a) Supplemental Income Option. An actuarial equivalent benefit
whereby monthly straight life annuity or joint and survivor annuity payments to
the Participant before the Participant is first eligible for Social Security
benefits are greater than the remaining Participant life annuity payments so as
to provide approximately equal payments throughout the Participant's life
annuity payment period, including payments from Social Security. The actuarial
equivalent factors are as follows:
Amount of straight life annuity equivalent to $1 of
temporary annuity to age 62 and 1/12 equals $.006 times
months of payments.
If this benefit form is elected in conjunction with a benefit form that provides
payments after the Participant's death, the post-death payments shall be based
on the payments that would have been made to the Participant after first
eligibility for
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<PAGE> 46
Social Security whether the retired Participant dies before or after such
eligibility.
.2 Early Retirement Reduction. Except as provided in 6.1.2, if a
Participant's Retirement Plan-Related Benefit (other than an Enhanced Retirement
Benefit under 6.1.1(f)) starts before the first of the month after age 65
("normal retirement date") and the Participant was eligible for early retirement
on terminating Bancorp employment, and the Participant is not eligible for an
Early Retirement Subsidy Benefit under 6.1.1(b), the Participant's Retirement
Plan-Related Benefit calculated under 6.1 shall be reduced by 1/3 of 1 percent
of such normal retirement benefit for each month by which the early retirement
date precedes the following reference age:
<TABLE>
<CAPTION>
Years of Eligibility Service Reference Age
<S> <C>
Less than 25 65
25 or more 62
</TABLE>
No reduction shall be made if the Participant is at least age 62 and has at
least 25 years of Eligibility Service. If a Participant was not eligible for
early retirement on terminating Bancorp employment, the 6.1 benefit shall be
reduced by .5833 percent for each full month from age 60 to age 65 and 1/3 of 1
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<PAGE> 47
percent from age 55 to age 60 by which the early retirement date precedes the
normal retirement date.
.3 Benefit Forfeitability. A Participant shall forfeit the entire
amount of the Participant's Retirement Plan-Related Benefit described in
6.1.1(b) and 6.1.1(c) or, if payments of said benefits have already begun, any
remaining payments, if the Participant, either directly or indirectly, on the
Participant's own behalf or as a partner, officer, employee, consultant,
financier, stockholder (except by ownership of less than 1 percent of the
outstanding stock of a publicly held corporation), director, or trustee of any
person, firm, or corporation, or otherwise, engages in any business competing
with the business carried on by Bancorp or any of its affiliates at the time of
the Participant's termination of employment with Bancorp and its affiliates
during the period ending on the later of (i) the date that is ten years after
the Participant's termination of employment with Bancorp and its affiliates, or
(ii) the Participant's normal retirement date under the Retirement Plan.
.4 Preretirement Death Benefit. If a vested Participant dies prior to
retirement under this Plan and has a surviving spouse, such surviving spouse or
designated nonspouse
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<PAGE> 48
beneficiary, shall receive a monthly preretirement death benefit equal to
one-half of the Participant's straight life annuity calculated as provided
below. No preretirement death benefit is payable to a designated nonspouse
beneficiary if the Participant is not married on the date of death.
The preretirement death benefit shall begin to be paid within 30 days
after the Manager of the Human Resources Group or his or her designee (the
"Manager") is notified of the Participant's death, if the Participant was an
employee of Bancorp or a Sponsoring Employer at death, and if not, then within
30 days after the Participant would have first been eligible for early or normal
retirement under this Plan had the Participant survived to that date, whether or
not the corresponding benefit has begun under the Retirement Plan, and shall be
payable for the life of the spouse.
For Retirement Plan-Related Benefits other than an Enhanced Retirement
Benefit, if the Participant was not an employee of Bancorp or a Sponsoring
Employer and was not yet age 65 on the date of death, then the Participant's age
65 single life annuity benefit shall be reduced by the reduction factors in
6.1.3 for a Participant who is not eligible for early retirement on terminating
employment. If the Participant was an employee of
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<PAGE> 49
Bancorp or a Sponsoring Employer on the date of death then the Participant's age
65 single life annuity benefit shall be reduced by the reduction factors in
6.1.3 for a Participant who was eligible for early retirement on terminating
Bancorp employment, but there shall be no reduction below age 55 if the
Participant died before age 55.
For Enhanced Retirement Benefits under 6.1.1(f), if the Participant was
an employee of Bancorp or a Sponsoring Employer on the date of death and was
vested in an Enhanced Retirement Benefit, the Participant's Target Benefit shall
be reduced by applying the reduction factors in 6.1.1(f)(5) as if the
Compensation Committee had approved the Participant's retirement or termination
of employment.
If the beneficiary is the spouse, then the above death benefit shall be
paid for the life of the spouse with no further payments made after the spouse's
death. If the beneficiary is a person other than the spouse and the beneficiary
is more than five years younger than the Participant, then the survivor benefit
shall be paid for the life of the nonspouse survivor but not to exceed the life
expectancy of a beneficiary who is exactly five years younger than the
Participant. If the nonspouse beneficiary is five or less years younger than the
Participant,
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<PAGE> 50
then the survivor shall receive the death benefit for life with no payments
after the survivor's death.
.5 Lump-Sum Payments of Small Benefits. Notwithstanding any other
provision of this Plan, the Retirement Plan-Related Benefit or the preretirement
death benefit shall be paid in an actuarial equivalent lump sum within 30 days
after the Manager determines that the present value of such benefit is less than
an amount fixed and revised from time to time, in the Manager's discretion. The
actuarial equivalent shall be determined using the 1971 TPF&C forecast mortality
for males, set back five years for the Participant and one year for the
survivor, if any, at the "applicable interest rate". The "applicable interest
rate" shall mean the interest rate or rates that would have been used as of the
first day of the calendar year that contains the distribution date by the
Pension Benefit Guaranty Corporation ("PBGC") for the purpose of determining the
present value of the Participant's benefits under the Plan, assuming the Plan
was insured by the PBGC even though it is not, and terminated on the date
distribution commences with insufficient assets to provide benefits guaranteed
by the PBGC on that date.
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<PAGE> 51
.6 Arbitration. Any dispute with respect to whether a Participant
designated for a benefit described in 6.1.1(d) or 6.1.1(f) was terminated for
"Cause" or terminated employment with "Good Reason," as those terms are defined
in 6.1.1(d), shall, after compliance with the claims procedure set forth in
Article XI of this Plan, be submitted to arbitration for a binding determination
by a single arbitrator agreed upon by the Participant and the Board, or if the
Participant and the Board are unable to agree upon an arbitrator within 20 days
after either the Participant or the Board demands arbitration, appointed by the
presiding judge of the Circuit Court of the State of Oregon for Multnomah
County. After the appointment of an arbitrator, the arbitration proceedings
shall follow the rules of the American Arbitration Association but shall not be
conducted under its auspices. The arbitrator shall have the power to grant
limited discovery in his or her discretion upon good cause shown by the party
seeking discovery.
.2 Investment Plan-Related Benefit.
.1 Annual Credit. Each Participant shall receive, for each calendar
year for which the Participant has been designated for this benefit, a credit to
the Participant's "Investment Plan Benefit Account" of an amount equal to the
sum of the
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Participant's "Deferred Compensation Credit," "Section 415 Limitation Credit,"
"Before-Tax Contribution Limitation Credit," and "Matching Credit," to the
extent such credits are not duplicative, as described below.
(a) Deferred Compensation Credit. The amount of the Deferred
Compensation Credit is the amount of the employer matching contribution that
would have been allocated to the Participant's Bancorp Contribution Account
under the U. S. Bancorp Employee Investment Plan (the "Investment Plan") had
deferred compensation counted as nondeferred compensation under the Investment
Plan. In computing the amount that would have been so allocated, the whole
number percentage that has been actually elected by the Participant to determine
the elective before-tax contribution under the Investment Plan shall be used.
Furthermore, computation of the Participant's Deferred Compensation Credit shall
not take into account (i) the limitation on annual additions required by Section
415 of the Internal Revenue Code, (ii) the federal income tax limitations on the
amount of compensation that can be taken into account under the Investment Plan,
and (iii) the federal income tax limitations on the amount of elective
before-tax contributions.
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<PAGE> 53
(b) Section 415 Limitation Credit. The amount of the Section 415
Limitation Credit is the amount by which the employer matching contribution that
would have been allocated to the Participant's Bancorp Contribution Account
under the terms of the Investment Plan is reduced by application of the
limitation on annual additions required by Section 415 of the Internal Revenue
Code.
(c) Before-Tax Contribution Limitation Credit. The amount of the
Before-Tax Contribution Limitation Credit is the difference between:
(1) the amount of the employer matching contribution that would have
been allocated to the Participant's Bancorp Contribution Account under the
Investment Plan based on the Participant's actual compensation and the
whole number percentage that has been actually elected by the Participant
to determine the elective before-tax contribution, before application of
federal income tax limitations on the amount of compensation that can be
taken into account under the Investment Plan and the amount of elective
before-tax contributions, and
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(2) the amount of the employer matching contribution actually
allocated to the Participant's Bancorp Contribution Account under the
Investment Plan.
(d) Matching Credit. For any Participants not eligible to participate
in the Investment Plan, the amount of the Matching Credit is the amount of the
employer matching contribution that would have been allocated to the
Participant's Bancorp Contribution Account under the Investment Plan had the
Participant's deferred compensation under any applicable plan or plans counted
as elective before-tax contributions under the Investment Plan. For this
purpose, an applicable plan is a deferred compensation plan approved by the
Board that specifically provides that compensation deferred under the plan is to
be taken into account in determining the Matching Credit under this Plan. Also,
computation of the Participant's Matching Credit shall not take into account (i)
the limitation on annual addition required by Section 415 of the Internal
Revenue Code, (ii) the federal income tax limitations on the amount of
compensation that can be taken into account under the Investment Plan, and (iii)
the federal income tax limitations on the amount of elective before-tax
contributions.
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.2 Investment Plan Benefit Account. An Investment Plan Benefit
Account shall be maintained for each Participant designated for the benefits
described under 6.2.1. The balance in the Investment Plan Benefit Account shall
be adjusted upward or downward as of each Investment Plan valuation date by the
same percentage amount as the Participant's actual Bancorp Contribution Account
under the Investment Plan is adjusted.
.3 Time and Manner of Payment. The Investment Plan Benefit Account
shall be paid to the Participant in a lump sum within 30 days after termination
of employment with Bancorp and its affiliates (or as soon thereafter as
practical), except that if prior to the adoption of this amended and restated
Plan the Participant had terminated such employment and elected to receive
payment of that Account on a date specific, then such Account shall be paid on
that date.
.4 Death Benefit. In the event of a Participant's death, the
Investment Plan Benefit Account shall be paid to the beneficiary named in
accordance with procedures established by the Manager or, in the absence of a
named beneficiary, to the Participant's beneficiary under the terms of the
Investment Plan, in a lump sum within 30 days after the Participant's death.
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<PAGE> 56
ARTICLE II
VESTING
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<PAGE> 57
Except as provided in 6.1.1(d), 6.1.1(f), 6.1.4, and in this Article
VII, a Participant's right to any benefit under the Plan is vested and
nonforfeitable at the same time as and to the same extent as the Participant is
vested in related plan benefits. In connection with the designation of a
Participant for any benefit under the Plan, the Compensation Committee or the
Executive Committee may specify different vesting provisions for a particular
benefit.
ARTICLE III
SOURCE OF BENEFITS
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<PAGE> 58
This Plan and the benefits payable hereunder shall be unfunded and
shall be payable only from the general assets of Bancorp or a Sponsoring
Employer. Bancorp and Sponsoring Employers do not represent that a specific
portion of their assets will be used to provide the benefits hereunder.
Participants, surviving spouses, and beneficiaries shall have no interest in any
specific assets of Bancorp or any Sponsoring Employer. Nothing contained herein
shall be deemed to create a trust of any kind or create any fiduciary
relationship. To the extent that any person acquires a right to receive payments
from Bancorp or any Sponsoring Employer under this Plan, such rights shall be no
greater than the rights of their unsecured general creditors. Notwithstanding
the foregoing, Bancorp and the Sponsoring Employer may deposit moneys under the
U. S. Bancorp Deferred Compensation Trust Agreement (the "Trust") for the
purpose of paying benefits hereunder from those moneys and the income thereon,
unless such Trust assets are required to satisfy the obligations of Bancorp and
the Sponsoring Employers to their general creditors.
ARTICLE IV
ADMINISTRATION OF THE PLAN
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<PAGE> 59
Except for matters specifically reserved to the Compensation Committee,
the Plan shall be administered by the Executive Committee. Except as otherwise
provided and subject to review and supervision by the Compensation Committee,
the Executive Committee shall have the authority and responsibility for all
matters in connection with the operation and administration of the Plan. The
Executive Committee's powers and duties shall include, but shall not be limited
to, the following:
(a) Responsibility for the compilation and maintenance of all records
necessary in connection with the Plan, including records of Participant
designations;
(b) Authorizing the payment of all benefits and expenses of the Plan
as they become payable under the Plan; and
(c) Authority to engage such legal, accounting, and other professional
services as it may deem proper.
Decisions by the Executive Committee shall be final and binding upon all parties
affected by the Plan, including the surviving spouses and beneficiaries of
Participants.
The Executive Committee may rely on information and recommendations
provided by supervisory management. The Executive Committee may delegate to a
subcommittee composed of
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<PAGE> 60
less than all Executive Committee members or to supervisory management who are
not Executive Committee members, the responsibility for decisions that it may
make or actions that it may take under the terms of the Plan, subject to the
reserved right of the Executive Committee and the Compensation Committee to
review such decisions or actions and modify them when necessary or appropriate
under the circumstances. The Executive Committee shall not allow any employee to
engage directly or indirectly in any decisions or actions that affect that
employee's Plan benefit.
ARTICLE V
MISCELLANEOUS
.1 Nonassignability of Benefits. Benefits under this Plan cannot be
sold, transferred, anticipated, assigned, pledged, hypothecated, seized by legal
process, subjected to claims of creditors in any way, or otherwise disposed of.
.2 Governing Law. This Plan and any amendments shall be construed,
administered, and governed in all respects in accordance with applicable federal
law and the laws of the State of Oregon.
.3 No Right of Continued Employment. Nothing in this Plan shall be
construed to give a Participant the right to remain
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<PAGE> 61
an employee of Bancorp or any of its affiliates, and Bancorp and its affiliates
reserve the right to discharge a Participant with or without cause at any time.
.4 Withholding Taxes. Bancorp or the Sponsoring Employer shall
withhold any taxes required by law to be withheld in connection with payment of
benefits under this Plan.
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<PAGE> 62
.5 Severability. The invalidity or unenforceability of any provision
of this Plan shall not affect the validity or enforceability of any other
provision of this Plan, and each provision of this Plan shall be severable and
enforceable to the extent permitted by law.
ARTICLE VI
CLAIMS PROCEDURE
.1 Initial Claim. Any person claiming a benefit under this Plan
("Claimant") shall present the claim in writing to the Manager. Any dispute with
respect to a claim for benefits under 6.1.1(d) as to whether the designated
Participant's termination was for "Cause" or with "Good Reason" shall, after
compliance with the claims procedure of this Article XI, be submitted to binding
arbitration pursuant to 6.1.8.
.2 Decision on Initial Claim.
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<PAGE> 63
.1 Time Period for Denial Notice. A decision shall be made on the
claim as soon as practicable and shall be communicated in writing by the Manager
to the Claimant within a reasonable period after receipt of the claim by the
Manager. In no event shall the decision on an initial claim be given more than
90 days after the date the claim was filed, unless special circumstances require
an extension of time for processing. If there is an extension, the Claimant
shall be notified of such within 90 days of the date the claim was filed. The
extension notice shall indicate the special circumstances and the date by which
a decision is expected. The extension shall not exceed 90 days from the end of
the initial response period.
.2 Contents of Notice. If the claim is wholly or partially denied,
the notice of denial shall indicate:
(a) The specific reasons for the denial;
(b) The specific references to pertinent Plan provisions on which
the denial is based;
(c) A description of additional material or information necessary
for the Claimant to perfect the claim and an explanation of why such
material or information is necessary; and
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<PAGE> 64
(d) An explanation of the Plan's claim review procedure.
.3 Deemed Denied. If written notice of the decision wholly or
partially denying the claim has not been furnished within 90 days after the
claim is filed or there has been an extension and no notice of a decision is
furnished by the end of the extension period, and if the claim has not been
granted within such period, the claim shall be deemed denied as of the end of
the 90-day or 180-day period for purposes of proceeding to the review stage
described in 11.3 and 11.4.
.3 Review of Denied Claim. If a Claimant receives a notice of denial
or his or her claim is deemed denied pursuant to 11.2 above, the Claimant may
request a review of the claim. The request for review is made by personally
delivering or mailing a written request for review, prepared by either the
Claimant or his or her authorized representative, to the Executive Committee.
The Claimant's request for review must be made within a reasonable period of
time taking into consideration the nature of the benefit that is the subject of
the claim and other attendant circumstances. In no event shall the period for
requesting review expire less than 60 days after receipt of the notice of denial
or the date on which the claim is deemed denied if no
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<PAGE> 65
notice is received. If the written request for review is not made on a timely
basis, the Claimant shall be deemed to waive his or her right to review. The
Claimant or his or her duly authorized representative may, at or after the time
of making the request, review all pertinent documents and submit issues and
comments in writing.
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<PAGE> 66
.4 Decision on Review. A review shall be promptly made by the
Executive Committee after receipt of a timely filed request for review. A
decision on review shall be made and furnished in writing to the Claimant. The
decision shall be made not later than 60 days after receipt of the request for
review. If special circumstances require an extension of time for processing
(such as the need to hold a hearing), a decision shall be made and furnished to
the Claimant not later than 120 days after such receipt. If an extension is
required, the Claimant shall be notified of such within 60 days after the
request for review was filed. The written decision shall include the reasons for
such decision with reference to the provisions of the Plan upon which the
decision is based. The decision shall be final and binding upon the Claimant and
Bancorp and its affiliates and all other persons involved. If the decision on
review is not furnished within the applicable time period, the claim shall be
deemed denied on review.
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<PAGE> 67
The scope of any subsequent review of the benefit claim, judicial or
otherwise, shall be limited to a determination as to whether the Executive
Committee acted arbitrarily or capriciously in the exercise of its discretion.
In no event shall any such further review be on a de novo basis as the Executive
Committee has discretionary authority to determine eligibility for benefits and
to construe the terms of this Plan.
ARTICLE VII
AMENDMENTS AND TERMINATION
Except as expressly provided in 6.1.1(d)(1) and 6.1.1(f)(7)(vi), the
Board has the power to terminate this Plan at any time or to amend this Plan at
any time and in any manner that it may deem advisable.
IN WITNESS WHEREOF this amended and restated Plan was executed this
____ day of _____________, 1996.
U. S. BANCORP
By:________________________________
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<PAGE> 68
U. S. BANCORP
SUPPLEMENTAL BENEFITS PLAN
EXHIBIT A
RETIREMENT PLAN BENEFIT
(REFERENT SECTION 6.1.1(A))
A.1 Normal Retirement Benefit. Upon retirement at normal retirement
date, a Participant is entitled to receive a monthly benefit payable for life,
in an amount equal to the sum of the Participant's benefits under (A), (B) and
(C) below but no less than the minimum benefit under (D) below as follows,
except that the accrued normal retirement benefit of a Participant who was
covered under the Peoples Ban Corporation Employee Pension Plan ("Peoples
Pension Plan") before 1988, shall be determined as provided separately in this
section.
(A) 1.3 percent of the Participant's Average Monthly Compensation,
multiplied by the Participant's years and fractions thereof of Benefit
Service up to 25 years.
(B) .4 percent of the Participant's Average Monthly Compensation in
excess of Covered Compensation multiplied by the Participant's years and
fractions thereof of Benefit Service up to 25 years.
- 1 -
<PAGE> 69
(C) .5 percent of the Participant's Average Monthly Compensation
multiplied by the Participant's years and fractions thereof of Benefit
Service in excess of 25 years of Benefit Service.
(D) Minimum Benefit. Notwithstanding the foregoing, no Participant who
is a Highly Compensated Employee as defined in Code Section 414(q)(1)(A) or
(B) shall have a lesser accrued monthly normal retirement benefit than such
Participant had as of December 31, 1988, and no other Participant shall
have a lesser accrued monthly normal retirement benefit than such
Participant had as of January 30, 1990.
In no event shall the normal retirement benefit be less than the highest early
retirement benefit to which the Participant was entitled.
For the purpose of calculating the accrued benefit payable as a life
annuity at normal retirement age, the formula to be used for a Participant who
had an accrued benefit under the Peoples Pension Plan as of December 31, 1987,
or who had a reinstatable benefit under the Peoples Pension Plan as of that date
that was subsequently reinstated, shall be the formula set forth above, except
that the percentage in A.1(A) shall be
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<PAGE> 70
1 percent instead of 1.3 percent with respect to that portion of the
Participant's first 25 years of Benefit Service prior to January 1, 1988.
A.2 Maximum Annual Benefit. No benefit shall be payable with respect
to a Participant which is based on Compensation in excess of the amount that can
be used for computing benefits under an income tax qualified plan, $200,000 as
of January 1, 1989, and $150,000 as of January 1, 1994, as provided in the
Retirement Plan, or which exceeds the limitations of Code Section 415 as set
forth therein.
A.3 Compensation. Compensation for determining Average Monthly
Compensation shall have the meaning given that term in Code Section 415(c)(3)
and Treasury Regulation Section 1.415-2(d) thereunder, except that Compensation
shall include only nondeferred amounts paid in cash and determined prior to any
reduction for elective before-tax contributions under the U. S. Bancorp
Investment Plan or any Code Section 401(k) cash or deferred arrangement, and
prior to any reduction for salary reduction contributions under a Code Section
125 cafeteria plan.
A.4 Average Monthly Compensation. Average Monthly Compensation is the
monthly average of an eligible employee's Compensation during the highest five
of the last ten calendar
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<PAGE> 71
years or the monthly average during the last 60 consecutive months of service,
if greater.
A.5 Covered Compensation. Covered Compensation is current monthly
35-year average maximum earnings which may be considered wages subject to Social
Security taxation which shall be determined for each Participant according to
the year the Participant attains Social Security retirement age as of which
unreduced benefits are payable. Covered Compensation will be changed and this
Exhibit A will be automatically changed whenever the maximum earnings currently
subject to Social Security tax are changed and such change is approved by the
Internal Revenue Service. The current Covered Compensation is set forth in
Appendix I, which is attached hereto and incorporated by reference herein, which
may be replaced without formal Plan amendment upon a change in that Covered
Compensation as described above.
A.6 Benefit Guidelines. As the benefit payable under 6.1 as of any
date relates to the benefit accrued or but for the applicable limitations or
other restrictions would have been accrued under the U. S. Bancorp Retirement
Plan as of that date, the actuarial equivalent value of the benefit payable
under this Plan shall be neither more nor less than the actuarial equivalent
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<PAGE> 72
value of the benefit under this Plan determined in relation to that Retirement
Plan as if it was fully set forth in this Plan.
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<PAGE> 73
Exhibit 10.5
U. S. BANCORP
SUPPLEMENTAL BENEFITS
EXHIBIT A
APPENDIX I
COVERED COMPENSATION
<TABLE>
<CAPTION>
1993 1994
Monthly Monthly
Year of Covered Covered
Birth Compensation Compensation
----- ------------ ------------
<S> <C> <C>
1926 $1,644 $1,644
1927 1,766 1,766
1928 1,893 1,893
1929 2,019 2,026
1930 2,144 2,159
1931 2,270 2,291
1932 2,396 2,424
1933 2,521 2,557
1934 2,647 2,690
1935 2,773 2,823
1936 2,894 2,951
1937 3,016 3,080
1938 3,253 3,331
1939 3,371 3,457
1940 3,490 3,583
1941 3,606 3,706
1942 3,717 3,824
1943 3,823 3,937
1944 3,926 4,048
1945 4,027 4,156
1946 4,125 4,261
1947 4,220 4,363
1948 4,303 4,453
1949 4,378 4,535
1950 4,445 4,609
1951 4,505 4,676
1952 4,557 4,735
1953 4,604 4,790
</TABLE>
<PAGE> 74
<TABLE>
<S> <C> <C>
1954 4,647 4,840
1955 4,717 4,924
1956 4,747 4,961
1957 4,770 4,991
1958 4,785 5,013
1959 4,795 5,030
1960 4,800 5,042
1961 and later 4,800 5,050
</TABLE>
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<PAGE> 1
Exhibit 10.11
DESCRIPTION OF RETIREMENT BENEFITS OF DANIEL R. NELSON
Retirement benefits for Daniel R. Nelson were calculated based on his
years of benefit service at retirement. His benefits equal a fraction (65%
multiplied by his years of benefit service, divided by 25) multiplied by his
average compensation during the five consecutive calendar years out of the last
ten years for which compensation was the highest. His benefits were reduced for
retirement prior to age 65. Mr. Nelson retired from U. S. Bancorp effective
January 1, 1997, at which time he had a total of 12.75 years of credited benefit
service. His annual retirement benefit at this time, assuming single life
annuity, reductions for estimates Social Security benefits and for employer
contributions to the U. S. Bancorp Employee Investment Plan and deferred
compensation account, and reduction for early retirement, is $192,267.
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
AGREEMENT by and between U.S. Bancorp, an Oregon corporation (the
"Company") and (name) (the "Executive"), dated as of the 20th day of
February, 1997.
The Board of Directors of the Company (the "Board"), has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so
<PAGE> 2
as to terminate three years from such Renewal Date, unless at least 60 days
prior to the Renewal Date the Company shall give notice to the Executive that
the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Ex change Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business
2
<PAGE> 3
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive here by agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
3
<PAGE> 4
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed no more than 12 months after the last
salary increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase and
the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling or
under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus
4
<PAGE> 5
(the "Annual Bonus") in cash at least equal to the Executive's highest bonus
under the Company's Executive/Management Annual Incentive Plan, or any
comparable bonus under any predecessor or successor plan, for the last three
full fiscal years prior to the Effective Date (annualized in the event that
the Executive was not employed by the Company for the whole of such fiscal
year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs as in effect
at any time during the 120-day period immediately preceding the Effective Date
or if more favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Company and its
affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more
5
<PAGE> 6
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
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<PAGE> 7
to other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner in
which the Board or Chief Executive Officer believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the
7
<PAGE> 8
instructions of the Chief Executive Officer or a senior officer of the Company
or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall have
been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
8
<PAGE> 9
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other
Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
9
<PAGE> 10
(i) unless the Executive has made an election under the Company's 1991
Executive Deferred Compensation Plan to defer receipt of the amounts set
forth in clauses A, B and C below, in which case those amounts shall be paid
as provided by such election, the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of
(x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus
paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of
less than twelve full months or during which the Executive was employed
for less than twelve full months), for the most recently completed
fiscal year during the Employment Period, if any (such higher amount
being referred to as the "Highest Annual Bonus") and (y) a fraction,
the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is
365 and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation and sick pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2),
and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of
the benefit under the Company's qualified defined benefit retirement
plan (the "Retirement Plan") (utilizing actuarial assumptions no less
favorable to the Executive than those in effect under the Company's
Retirement Plan immediately prior to the Effective Date), and any
excess or supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive would receive
if the Executive's employment continued for three years after the Date
of Termination assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's compensation in each
of the three years is that required by Section 4(b)(i) and
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<PAGE> 11
Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's
actual benefit (paid or payable), if any, under the Retirement Plan and
the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if
the Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility. For purposes
of determining eligibility (but not the time of commencement of benefits)
of the Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have remained
employed until three years after the Date of Termination and to have retired
on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement
of the Company and its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
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<PAGE> 12
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favor able to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for
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<PAGE> 13
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies, including, without limitation, any enhanced or similar retirement
benefits under the Company's Amended and Restated Supplemental Benefits Plan.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and other wise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").
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<PAGE> 14
9. Certain Additional Payments by the Company. (a) Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penal ties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte &
Touche, LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9,
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<PAGE> 15
shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30- day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
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<PAGE> 16
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
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10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
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<PAGE> 18
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
(Name)
(Address1)
(Address2)
(State)
If to the Company:
U.S. Bancorp
111 SW Fifth Avenue, Pl-2
Portland Oregon 97204
Attention: Manager, Human Resources
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive
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shall have no further rights under this Agreement. From and after the Effective
Date this Agreement shall supersede any other agreement between the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
U. S. Bancorp
By ______________________
Its _____________________
_________________________
(Name)
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<PAGE> 1
Exhibit 12.1
U. S. Bancorp and Subsidiaries
Computation of Ratios of Consolidated Earnings to Fixed Charges
(in Thousands)
<TABLE>
<CAPTION>
For the Years ended December 31,
CONSIDERING INTEREST ON DEPOSITS AS AN OPERATING EXPENSE 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income 478,894 328,971 254,666 341,136 211,556
Accounting changes -- -- -- -- 59,890
Income taxes 262,958 180,268 108,531 163,691 120,503
--------- --------- --------- --------- ---------
Earnings before income taxes and accounting changes 741,852 509,239 363,197 504,827 391,949
--------- --------- --------- --------- ---------
Add: fixed charges
Interest on borrowed funds including capitalized
interest 248,485 283,059 215,004 172,414 217,261
Interest income from federal funds sold (A) (5,511) (3,959) (3,090) (5,259) (11,562)
Interest component of leases (B) 16,192 17,623 18,510 17,310 15,257
Obligation of capital qualifying securities (C) 482 -- -- -- --
--------- --------- --------- --------- ---------
Total fixed charges 259,648 296,723 230,424 184,465 220,956
Less: capitalized interest -- -- (93) (96) (470)
--------- --------- --------- --------- ---------
Fixed charges 259,648 296,723 230,331 184,369 220,486
--------- --------- --------- --------- ---------
Earning before income taxes, accounting charges and
fixed charges 1,001,500 805,962 593,528 689,196 612,435
========= ========= ========= ========= =========
Ratios of earnings to total fixed charges 3.86x 2.72x 2.58x 3.74x 2.77x
==== ==== ==== ==== ====
CONSIDERING INTEREST ON DEPOSITS AS FIXED CHARGES (A)
Fixed charges shown above 259,648 296,723 230,424 184,465 220,956
Interest on deposits 768,170 710,044 523,780 525,807 608,439
--------- --------- --------- --------- ---------
Total fixed charges 1,027,818 1,006,767 754,204 710,272 829,395
Less: capitalized interest -- -- (93) (96) (470)
--------- --------- --------- --------- ---------
Fixed charges 1,027,818 1,006,767 754,111 710,176 828,925
Add: earnings before income taxes and accounting
changes 741,852 509,239 363,197 504,827 391,949
--------- --------- --------- --------- ---------
Earning before income taxes, accounting changes
and fixed charges 1,769,670 1,516,006 1,117,308 1,215,003 1,220,874
========= ========= ========= ========= =========
Ratios of earnings to total fixed charges 1.72x 1.51x 1.48x 1.71x 1.47x
==== ==== ==== ==== ====
</TABLE>
A - Approximates interest expense related to federal funds purchased
transactions for purposes other than 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.
C - Amount distributed to holders of U.S. Bancorp - obligated mandatory
redeemable capital securities of subsidiary trust holding only junior
subordinated deferrable interest debentures of U.S. Bancorp.
<PAGE> 1
U.S. BANCORP AND SUBSIDIARIES Exhibit 12.2
CAPITAL RATIOS
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total assets, as reported $33,260,398 $31,794,283 $30,609,108 $29,086,757 $27,874,784
Shareholders equity as reported 2,710,762 2,617,053 2,493,054 2,441,761 2,121,133
Tier 1 capital 2,628,254 2,418,782 2,312,598 2,184,839 1,951,425
Total capital 3,834,230 3,377,927 3,017,058 2,868,209 2,602,106
Weighted risk assets 32,408,161 28,656,662 26,521,830 24,417,553 22,611,197
Adjusted quarterly average assets 32,174,525 30,651,822 29,568,331 28,587,951 27,494,254
Risk-based capital ratios
Tier 1 capital to weighted
risk assets 8.11% 8.44% 8.72% 8.95% 8.63%
Total capital to weighted
risk assets 11.83 11.79 11.38 11.75 11.51
Leverage Ratio - Tier 1 capital to
adjusted average assets 8.17 7.89 7.82 7.64 7.10
</TABLE>
<PAGE> 2
U.S. BANCORP AND SUBSIDIARIES
CAPITAL RATIOS
(In Thousands)
(Continued)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Total assets, as reported
U.S. Bank of Oregon $14,289,623 $12,125,235
U.S. Bank of Washington 9,703,758 9,263,179
U.S. Bank of Idaho 3,823,744 4,786,820
Shareholders equity as reported
U.S. Bank of Oregon 1,094,263 1,090,899
U.S. Bank of Washington 689,582 761,127
U.S. Bank of Idaho 231,381 343,102
Tier 1 capital
U.S. Bank of Oregon 1,072,459 1,080,548
U.S. Bank of Washington 689,948 758,039
U.S. Bank of Idaho 227,783 337,742
Total capital
U.S. Bank of Oregon 1,622,921 1,312,035
U.S. Bank of Washington 1,049,596 960,244
U.S. Bank of Idaho 338,437 380,134
Weighted risk assets
U.S. Bank of Oregon 14,820,203 12,506,018
U.S. Bank of Washington 9,953,908 9,078,265
U.S. Bank of Idaho 3,241,792 3,379,494
Adjusted quarterly average assets
U.S. Bank of Oregon 13,835,773 11,241,854
U.S. Bank of Washington 9,267,325 9,017,317
U.S. Bank of Idaho 3,820,778 4,657,361
Risk-based capital ratios
Tier 1 capital to weighted risk assets
U.S. Bank of Oregon 7.24% 8.64%
U.S. Bank of Washington 6.93 8.35
U.S. Bank of Idaho 7.03 9.99
Total capital to weighted risk assets
U.S. Bank of Oregon 10.95% 10.49%
U.S. Bank of Washington 10.54 10.58
U.S. Bank of Idaho 10.44 11.25
Leverage Ratio - Tier 1 capital to
adjusted average assets
U.S. Bank of Oregon 7.75% 9.61%
U.S. Bank of Washington 7.44 8.41
U.S. Bank of Idaho 5.96 7.25
</TABLE>
<PAGE> 1
Exhibit 12.3
U.S. BANCORP AND SUBSIDIARIES
COMPUTATION OF RATIOS ON A BEFORE ACCOUNTING CHANGE BASIS
Year Ended
December 31,
1992
------------
(In Thousands)
Income before cumulative effect of accounting changes $ 271,446
Less preferred dividend requirement (5,349)
-----------
Income before cumulative effect of accounting changes to
common stock $ 266,097
===========
Average common equity before accounting changes $ 1,893,022
Adjustment for cumulative effect of accounting changes (59,890)
-----------
Average common equity, adjusted for accounting changes $ 1,833,132
===========
Average assets $25,335,202
===========
Returns on a before accounting change basis
Return on average common equity 14.06%
Return on average assets 1.07%
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARY NAME STATE OR OTHER
JURISDICTION OF
INCORPORATION
OR ORGANIZATION
<S> <C>
United States National Bank of Oregon U.S.A.
[A wholly owned national banking association]
Bancorp Merchant Services Alliance, Inc. Oregon
[A wholly owned Oregon corporation]
Qualivest Capital Management, Inc. Oregon
[A wholly owned Oregon corporation]
U. S. Bancorp Leasing & Financial Oregon
[A wholly owned Oregon corporation]
U. S. Bancorp Mortgage Company Oregon
[A wholly owned inactive Oregon corporation]
U. S. Bancorp Securities Oregon
fka U. S. Bancorp Brokerage
[A wholly owned Oregon corporation]
U. S. Bank of Washington, National Association U.S.A.
[A wholly owned national banking association]
U. S. Bank of Idaho Idaho
fka West One Bank, Idaho
[A wholly owned State member bank]
U. S. Bank of California California
[A wholly owned State nonmember bank]
U. S. Bank of Nevada Nevada
fka Bank of America-Nevada
[A wholly owned State nonmember bank]
U.S. Bank of Utah Utah
fka West One Bank, Utah
[A wholly-owned State member bank]
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
First State Bank of Oregon Oregon
fka First National Bank of Oregon
[A wholly owned State nonmember bank]
U. S. Bancorp Insurance Oregon
fka First State Insurance, Inc.
[A wholly owned Oregon corporation]
Compass Group, Inc. Washington
[A wholly owned Washington corporation]
U. S. Bancorp Capital I Delaware
[A Delaware Business Trust]
U. S. Bancorp Insurance Agency, Inc. Oregon
fka Mt. Hood Credit Life Insurance Agency, Inc.
[A wholly owned Oregon corporation]
U. S. Bank Insurance Agency, Inc. Oregon
[A wholly owned Oregon corporation]
U. S. Restco Inc. Oregon
[A wholly owned Oregon corporation]
U. S. Trade Services, Inc. Oregon
[A wholly owned Oregon corporation]
U. S. World Trade Corporation Oregon
[A wholly owned Oregon corporation]
Ward Cook, Inc. Oregon
[A wholly-owned Oregon corporation]
West One Insurance Services, Inc. Idaho
[A wholly-owned Idaho corporation]
West One Life Insurance Company Oregon
fka Mt. Hood Life Insurance, Inc.
[A wholly-owned Oregon corporation]
West One Trust Company Utah
dba U. S. Bank Trust Company
[A wholly-owned Utah corporation]
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Aloha LIH Apartments, Inc. Oregon
[A wholly owned Oregon corporation]
Ariel Glen L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Bandon L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Boardman L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Boulder Creek L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Brandenwood L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Bristol Square L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Clock Tower II LIH Apartments, Inc. Oregon
[A wholly owned Oregon corporation]
Clock Tower LIH Apartments, Inc. Oregon
[A wholly owned Oregon corporation]
Eaton L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Fawnbrook L.P., Inc. Oregon
[A wholly owned Oregon corporation]
FB II L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Graham L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Gresham Apartments L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Heritage Place L.P., Inc. Oregon
[A wholly owned Oregon corporation]
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Island Bancorp Leasing, Inc. California
[A wholly-owned inactive California corporation]
King's Garden L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Laidlaw LIH Apartments, Inc. Oregon
[A wholly owned Oregon corporation]
McKenzie Meadow L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Meadowbrook L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Spokane II LIH Apartments, Inc. Oregon
[A wholly owned Oregon corporation]
St. James L.P., Inc. Oregon
[A wholly owned Oregon corporation]
St. John's Common L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Truckee Pines L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Twenty-Eight Avenue Apartments L.P., Inc. Oregon
[A wholly owned Oregon corporation]
Williams & Morris L.P., Inc. Oregon
[A wholly owned Oregon corporation]
CBI Mortgage California
[A wholly-owned California corporation]
Commercial Bank of Fremont California
[A wholly-owned State member bank]
Community First National Bank California
[A wholly-owned national banking association.]
Concord Commercial Bank California
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Eden Financial Corporation California
[A wholly-owned California corporation]
Lamorinda National Bank California
[A wholly-owned national banking association]
LNB Corp. California
[A wholly-owned California corporation]
Modesto Banking Company California
[A wholly-owned State nonmember bank]
The Bank of Milpitas, National Bank California
[A wholly-owned national banking association]
The Bank of San Ramon Valley California
[A wholly-owned State member bank]
Tracy Mortgage Company (Salt Lake City, UT) Utah
[A wholly owned inactive Utah corporation]
Westside Bank California
[A wholly-owned State member bank]
</TABLE>
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-28785, 33-39861, 33-39860, 33-71904, 33-64429, 33-83158, 33-39765, 33-64435,
333-05329, and 33-18706 of U.S. Bancorp on Form S-8 and Nos. 33-86474,
33-43407, 33-48249, and 333-12733 of U.S. Bancorp on Form S-3 of our report
dated January 31, 1997, appearing in this Annual Report on Form 10-K of U.S.
Bancorp for the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
March 11, 1997
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
U.S. Bancorp on Form S-3 (File Nos. 33-43407, 33-48249, 33-86474, and
333-12733) and on Form S-8 (File Nos. 33-18706, 33-28785, 33-39765, 33-39860,
33-39861, 33-64429, 33-64435, 33-71904, 33-83158, and 333-12733) of our report
dated January 19, 1995, on our audit of the consolidated statements of income,
shareholders' equity, and cash flows of West One Bancorp and subsidiaries for
the year ended December 31, 1994, which report is included in this Annual
Report on Form 10-K of U.S. Bancorp.
/s/ Coopers & Lybrand L.L.P.
Boise, Idaho
March 12, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each person whose signature appears below designates and appoints GERRY B.
CAMERON, STEVEN P. ERWIN, DWIGHT V. BOARD, and SHERYL W. DAWSON; and each of
them, true and lawful attorneys-in-fact and agents to sign the annual report on
Form 10-K of U. S. Bancorp, an Oregon corporation, for the year ended December
31, 1996, and to file said report, with all exhibits thereto, with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Each person whose signature appears below also grants full power and authority
to these attorneys-in-fact and agents to perform every act and execute any
instruments that they deem necessary or desirable in connection with said
report, as fully as he could do in person, hereby ratifying and confirming all
that the attorneys-in-fact and agents or their substitutes may lawfully do or
cause to be done.
IN WITNESS WHEREOF, this power of attorney has been executed by the undersigned
as of the 20th day of February, 1997.
Signature Title
- --------- -----
/s/ GERRY B. CAMERON
- -----------------------------
Gerry B. Cameron Chairman, Chief Executive Officer,
President and Director (Principal
Executive Officer)
- -----------------------------
Steven P. Erwin Executive Vice President and Chief
Financial Officer (Principal Financial
and Principal Accounting Officer)
/s/ HARRY L. BETTIS
- -----------------------------
Harry L. Bettis Director
- -----------------------------
Carolyn Silva Chambers Director
/s/ FRANKLIN G. DRAKE
- -----------------------------
Franklin G. Drake Director
/s/ROBERT L. DRYDEN
- -----------------------------
Robert L. Dryden Director
/s/ JOHN B. FERY
- -----------------------------
John B. Fery Director
/s/ JOSHUA GREEN III
- -----------------------------
Joshua Green III Director
- -----------------------------
Daniel R. Nelson Director
/s/ ALLEN T. NOBLE
- -----------------------------
Allen T. Noble Director
/s/ PAUL A. REDMOND
- -----------------------------
Paul A. Redmond Director
/s/ N. STEWART ROGERS
- -----------------------------
N. Stewart Rogers Director
/s/ BENJAMIN R. WHITELEY
- -----------------------------
Benjamin R. Whiteley Director
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,401,100
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 70,900
<TRADING-ASSETS> 85,100
<INVESTMENTS-HELD-FOR-SALE> 3,047,900
<INVESTMENTS-CARRYING> 796,700
<INVESTMENTS-MARKET> 810,900
<LOANS> 25,046,700
<ALLOWANCE> 475,900
<TOTAL-ASSETS> 33,260,400
<DEPOSITS> 24,977,000
<SHORT-TERM> 2,494,900
<LIABILITIES-OTHER> 638,500
<LONG-TERM> 1,811,500
0
150,000
<COMMON> 736,000
<OTHER-SE> 1,824,800
<TOTAL-LIABILITIES-AND-EQUITY> 33,260,400
<INTEREST-LOAN> 2,207,900
<INTEREST-INVEST> 233,600
<INTEREST-OTHER> 41,800
<INTEREST-TOTAL> 2,483,300
<INTEREST-DEPOSIT> 768,200
<INTEREST-EXPENSE> 1,016,700
<INTEREST-INCOME-NET> 1,466,600
<LOAN-LOSSES> 135,200
<SECURITIES-GAINS> 5,800
<EXPENSE-OTHER> 1,174,800
<INCOME-PRETAX> 741,800
<INCOME-PRE-EXTRAORDINARY> 478,900
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478,900
<EPS-PRIMARY> 3.08
<EPS-DILUTED> 3.08
<YIELD-ACTUAL> 5.32
<LOANS-NON> 145,600
<LOANS-PAST> 41,000
<LOANS-TROUBLED> 3,300
<LOANS-PROBLEM> 50,000
<ALLOWANCE-OPEN> 434,500
<CHARGE-OFFS> 144,200
<RECOVERIES> 35,500
<ALLOWANCE-CLOSE> 475,900
<ALLOWANCE-DOMESTIC> 281,900
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 194,000
</TABLE>
