<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
COMMISSION FILE NO. 0-3505
U. S. BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 93-0571730
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
111 S.W. FIFTH AVENUE 97204
PORTLAND, OREGON (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(503) 275-6111
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, par value $5, outstanding at April 30,
1997: 147,530,993 shares.
================================================================================
1
<PAGE> 2
U. S. BANCORP
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheet.................................... 3
Consolidated Statement of Income.............................. 4
Consolidated Statement of Changes in Shareholders' Equity..... 5
Consolidated Statement of Cash Flows.......................... 6
Notes to Consolidated Financial Statements.................... 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 10
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 6 Exhibits and Reports on Form 8-K................................ 20
Signatures..................................................................... 21
Exhibit Index.................................................................. 22
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U. S. BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
----------- ----------- -----------
(In Millions) (Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,945.1 $ 2,401.1 $ 2,012.3
Federal funds sold and security resale agreements 516.7 70.9 700.9
Other short-term investments 15.3 14.2 15.1
Trading account securities 87.4 85.1 148.8
Loans held for sale 253.8 180.5 153.6
Securities available for sale, at fair value (amortized cost:
$3,093.0, $3,041.7 and $2,993.8, respectively) 3,060.1 3,047.9 2,979.7
Securities held to maturity, at amortized cost (fair value:
$785.1, $810.9 and $848.4, respectively) 775.7 796.7 834.8
Loans and lease financing, net of deferred fees
Commercial 12,320.0 12,241.2 11,806.0
Lease financing 1,449.7 1,416.0 1,263.4
Real estate construction 1,352.6 1,411.2 882.4
Real estate mortgage 4,533.1 4,287.8 3,825.1
Consumer 5,665.1 5,690.5 5,490.4
--------- --------- ---------
Total loans and lease financing 25,320.5 25,046.7 23,267.3
Less allowance for credit losses (481.1) (475.9) (442.1)
--------- --------- ---------
Net loans and lease financing 24,839.4 24,570.8 22,825.2
Premises, furniture and equipment, net 617.4 614.1 629.5
Other real estate and equipment owned 21.2 33.4 46.6
Customers' liability on acceptances 433.0 327.7 329.1
Goodwill and core deposit intangibles 378.9 377.6 184.6
Other assets 810.2 740.4 697.0
--------- --------- ---------
$33,754.2 $33,260.4 $31,557.2
========= ========= =========
LIABILITIES
Deposits
Interest-bearing $18,674.0 $18,503.8 $17,829.2
Noninterest-bearing 6,404.8 6,473.2 5,397.5
--------- --------- ---------
Total deposits 25,078.8 24,977.0 23,226.7
Federal funds purchased and security
repurchase agreements 1,708.6 1,672.4 2,643.5
Commercial paper and other short-term borrowings 824.4 822.5 706.7
Long-term debt 1,950.2 1,811.5 1,354.4
Company-obligated mandatory redeemable capital
securities of subsidiary trust 300.0 300.0 --
Acceptances outstanding 433.0 327.7 329.1
Other liabilities 677.1 638.5 657.8
--------- --------- ---------
Total liabilities 30,972.1 30,549.6 28,918.2
SHAREHOLDERS' EQUITY
Preferred stock 150.0 150.0 150.0
Common stock 740.9 736.0 750.9
Capital surplus 199.5 178.1 323.8
Retained earnings 1,715.0 1,644.5 1,424.5
Unrealized gain (loss) on securities
available for sale, net of tax (23.3) 2.2 (10.2)
--------- --------- ---------
Total shareholders' equity 2,782.1 2,710.8 2,639.0
--------- --------- ---------
$33,754.2 $33,260.4 $31,557.2
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
-------------------------
(In Millions, Except Share Data) 1997 1996
-------- --------
<S> <C> <C>
INTEREST INCOME
Loans and lease financing, including fees $ 572.7 $ 528.0
Securities available for sale 48.5 48.4
Securities held to maturity 10.2 11.0
Loans held for sale 3.8 3.2
Trading account securities 1.1 3.1
Other interest income 1.1 6.3
-------- --------
Total interest income 637.4 600.0
-------- --------
INTEREST EXPENSE
Deposits 193.2 189.8
Short-term borrowings 29.5 38.3
Long-term debt 31.6 23.7
Company-obligated mandatory redeemable
capital securities of subsidiary trust 6.2 --
-------- --------
Total interest expense 260.5 251.8
-------- --------
NET INTEREST INCOME 376.9 348.2
Provision for credit losses 45.9 30.1
-------- --------
Net interest income after provision for credit losses 331.0 318.1
NONINTEREST REVENUES
Service charges on deposit accounts 50.2 47.0
Trust and investment management 18.6 17.2
Bank card revenue, net 13.1 18.4
Exchange fees 9.6 9.7
Other operating revenue 47.4 38.3
Equity investment income 5.0 10.5
Gain on sale of securities available for sale 1.7 3.4
-------- --------
Total noninterest revenues 145.6 144.5
-------- --------
NONINTEREST EXPENSES
Employee compensation and benefits 159.9 151.0
Equipment rentals, depreciation and maintenance 28.6 30.7
Net occupancy expense 21.1 20.7
Stationery, supplies and postage 16.0 14.8
Amortization of goodwill and core deposit intangibles 7.5 3.4
Other operating expense 54.0 58.2
Merger and integration costs -- 8.4
-------- --------
Total noninterest expenses 287.1 287.2
-------- --------
Income before income taxes 189.5 175.4
Provision for income taxes 68.0 62.5
-------- --------
NET INCOME $ 121.5 $ 112.9
======== ========
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 118.5 $ 109.9
NET INCOME PER COMMON SHARE $ .80 $ .73
AVERAGE COMMON SHARES OUTSTANDING (000's) 147,935 150,815
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
U.S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
-----------------------
(In Millions) 1997 1996
-------- --------
<S> <C> <C>
SHAREHOLDERS' EQUITY AT BEGINNING OF PERIOD $2,710.8 $2,617.0
Net income 121.5 112.9
Common stock
Repurchased (5.6) (36.9)
Issued in acquisition 14.8 --
Stock options exercised, dividends
reinvested and other transactions 17.1 10.7
Dividends declared
Common (48.0) (42.3)
Preferred (3.0) (3.0)
Change in fair value of securities, net of tax (25.5) (19.4)
-------- --------
SHAREHOLDERS' EQUITY AT END OF PERIOD $2,782.1 $2,639.0
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
U. S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
-------------------------
(In Millions) 1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 121.5 $ 112.9
Adjustments to reconcile net income to cash used in operating activities
Depreciation, amortization and accretion 40.7 36.0
Provision for credit losses 45.9 30.1
Noncash portion of merger and integration costs -- 5.9
Net gain on sale of equity investments (1.8) (10.1)
Net gain on sale of securities available for sale (1.7) (3.4)
Net gain on sale of trading securities (8.6) (2.7)
Net gain on sale of loans and property (3.7) (1.6)
Net gain on sale of mortgage loan servicing rights (.2) (2.8)
Change in
Loans held for sale (70.2) (1.0)
Trading account securities 6.9 134.1
Deferred loan fees, net of amortization (4.4) 4.9
Accrued interest receivable (21.6) 16.5
Accrued interest payable 10.5 3.5
Other assets and liabilities, net 19.9 74.5
-------- --------
Net cash provided by operating activities 133.2 396.8
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing deposits of
nonbank subsidiaries 3.1 .9
Purchase of interest-bearing deposits by nonbank subsidiaries (5.5) (3.5)
Net (increase) decrease in investments in interest-earning deposits by
banking subsidiaries 1.2 (2.4)
Proceeds from maturities of securities held to maturity 20.8 29.9
Proceeds from sale of securities available for sale 180.4 287.6
Proceeds from maturities of securities available for sale 252.7 285.6
Purchase of securities available for sale (487.4) (311.4)
Proceeds from sale of equity investments 1.7 14.0
Purchase of equity investments (24.1) (2.3)
Principal collected on loans made by nonbank subsidiaries 302.3 311.8
Loans made to customers by nonbank subsidiaries (375.2) (392.8)
Net change in loans by banking subsidiaries (186.4) (438.4)
Proceeds from sale of premises and equipment 2.2 2.1
Purchase of premises and equipment (17.7) (23.0)
Proceeds from sale of mortgage servicing rights -- 0.7
Proceeds from sale of foreclosed assets 14.0 9.3
Acquisitions, net of cash and cash equivalents 4.5 --
-------- --------
Net cash used in investing activities $ (313.4) $ (231.9)
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
U. S. BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
-------------------------
(In Millions) 1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 37.5 $ (37.9)
Net change in short-term borrowings 37.1 (249.2)
Proceeds from issuance of long-term debt 315.0 5.0
Repayment of long-term debt (176.4) (27.7)
Proceeds from issuance of common stock 12.3 10.7
Common stock repurchased (5.6) (36.9)
Dividends paid (49.9) (38.3)
-------- --------
Net cash provided (used) by financing activities 170.0 (374.3)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (10.2) (209.4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,472.0 2,922.6
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $2,461.8 $2,713.2
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for
Interest $ 243.8 $ 248.2
Income taxes 22.7 17.6
Non-cash investing activities
Loans to other real estate owned $ 10.0 $ 21.5
Fair value adjustment to securities available for sale 39.1 31.7
Income tax effect related to fair value adjustment 13.6 11.6
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE> 8
U. S. BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The consolidated financial statements of U. S. Bancorp include the
accounts of U. S. Bancorp and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. These statements are unaudited
and should be read in conjunction with the 1996 Annual Report on Form 10-K of
U. S. Bancorp. A summary of U. S. Bancorp's significant accounting policies is
set forth in Note 1 to the Consolidated Financial Statements in U. S. Bancorp's
1996 Annual Report on Form 10-K. In the opinion of management, all adjustments
(comprised of normal recurring accruals) necessary for a fair presentation of
the interim financial statements have been included.
Certain reclassifications of 1996 amounts were made to conform to the 1997
presentation, none of which affect previously reported net income.
The significant banking subsidiaries of U. S. Bancorp include 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.
2. Acquisitions and Dispositions
On March 20, 1997, First Bank System, Inc. (FBS) and U. S. Bancorp
announced the signing of a definitive agreement for FBS to acquire U. S.
Bancorp. Under the terms of the agreement, which is subject to approval by
regulators and the shareholders of each of FBS and U. S. Bancorp, U. S. Bancorp
shareholders will receive .755 shares of FBS common stock for each share of
U. S. Bancorp common stock in a tax-free exchange. The combined company, which
will be called U. S. Bancorp, will have approximately $70 billion in assets. The
transaction, to be accounted for as a pooling-of-interests, is expected to close
in the third quarter of 1997.
In December 1996, U. S. Bancorp announced the signing of a definitive
agreement for U. S. Bancorp to acquire Business and Professional Bank, located
in Sacramento, California, a bank with approximately $214 million in total
assets. U. S. Bancorp paid $18.00 per share for each outstanding share of
Business and Professional Bank stock in a transaction accounted for as a
purchase. The transaction was completed as of the close of business on April 30,
1997.
3. Recent Accounting Pronouncements
Effective January 1, 1997, U. S. Bancorp adopted Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Adoption of certain
portions of this statement related to repurchase agreements and similar
transactions has been deferred to transactions occurring after December 31, 1997
by the issuance of statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and did not have a significant impact on U. S. Bancorp's
financial condition, results of operations, cash flows or related disclosures.
8
<PAGE> 9
SFAS No. 128, "Earnings per Share," issued in February 1997, establishes
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. It replaces
the presentation of primary EPS with a presentation of basic EPS and requires
the dual presentation of basic and diluted EPS on the face of the income
statement. This statement is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, earlier
application is not permitted. This statement requires restatement of all prior
period EPS data presented. The impact of the adoption of this statement is not
material to U. S. Bancorp.
4. Commitments and Contingent Liabilities
In the normal course of business there are various commitments and
contingent liabilities to extend credit and guarantees, which are not reflected
in the financial statements. Management does not anticipate any material loss as
a result of these transactions. Such commitments and contingent liabilities
include commitments to extend credit of $18.7 billion, $21.0 billion and $17.0
billion and standby letters of credit of $1.2 billion, $1.2 billion and $1.2
billion at March 31, 1997, December 31, 1996 and March 31, 1996, respectively.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following selected financial data is a supplement to the consolidated
financial statements and footnotes presented elsewhere, and should be read in
conjunction therewith.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
----------------------------- Percent
1997 1996 Change
----------- ---------- --------
<S> <C> <C> <C>
EARNINGS (In Millions)
Net interest income (tax-equivalent basis) $ 386.8 $ 359.2 8%
Provision for credit losses 45.9 30.1 52
Noninterest revenues 145.6 144.5 1
Noninterest expenses 287.1 287.2 --
Net income $ 121.5 $ 112.9 8
PER COMMON SHARE
Net income $ .80 $ .73 10%
Cash dividends declared .31 .28 11
Book value 17.76 16.57 7
Average common shares outstanding (000's) 147,935 150,815 (2)
Period-end common shares outstanding (000's) 148,176 150,171 (1)
FINANCIAL RATIOS
Return on average common equity 18.44% 17.67%
Return on average assets 1.49 1.46
Overhead ratio 53.92 57.02
Net interest margin (tax-equivalent basis) 5.31 5.19
CAPITAL RATIOS
Tier 1 8.30% 8.25%
Total 11.98 11.52
Leverage 8.36 7.97
CREDIT QUALITY RATIOS
Net charge-offs to average loans (annualized) .66% .39%
Nonperforming assets as a percent of loans
and foreclosed assets .90 .64
Allowance for credit losses as a percent of loans 1.90 1.90
Allowance for credit losses as a percent of
nonperforming loans 232 432
AVERAGE BALANCES (In Millions)
Assets $33,003.2 $31,124.0 6%
Earning assets 29,417.6 27,792.4 6
Loans 25,206.3 22,949.2 10
Deposits 24,578.0 23,149.8 6
Common shareholders' equity 2,603.9 2,501.3 4
Preferred stock 150.0 150.0 --
PERIOD-END BALANCES (In Millions)
Assets $33,754.2 $31,557.2 7%
Earning assets 30,029.5 28,100.2 7
Loans 25,320.5 23,267.3 9
Deposits 25,078.8 23,226.7 8
Common shareholders' equity 2,632.1 2,489.0 6
Preferred stock 150.0 150.0 --
Full-time equivalent employees 14,244 14,089 1
</TABLE>
10
<PAGE> 11
PERFORMANCE OVERVIEW
For the first quarter of 1997, net income was $121.5 million, or $.80 per
share, an increase of 8 percent from $112.9 million, or $.73 per share in the
first quarter of 1996. The following key highlights compare the first quarter of
1997 with the same period of 1996 unless otherwise noted:
- Return on average common equity improved to 18.44 percent compared with
17.67 percent, and the return on average assets increased to 1.49 percent
compared with 1.46 percent.
- The overhead ratio improved to 54 percent from 57 percent.
- Net interest income on a tax-equivalent basis was $386.8 million, an 8
percent increase from $359.2 million. The increase was attributable to
an increase in the net interest margin and loan growth.
- Noninterest expenses of $287.1 million was flat with the first quarter of
1996, even though the first quarter of 1997 included noninterest expenses
related to the acquisitions of California Bancshares, Inc. in the second
quarter of 1996 and Sun Capital Bancorp in first quarter of 1997 (the
acquisitions).
- The provision for credit losses was up in the first quarter of 1997,
compared with the same period last year, as a result of increased loan
volumes and higher net charge-offs in commercial, consumer and bank card
loans. The ratio of the allowance for credit losses to nonperforming loans
was 232 percent at March 31, 1997, continuing to indicate strong reserve
coverage.
- Annualized net charge-offs to average loans and leases were .66 percent in
the first quarter of 1997 compared with .39 percent in the same period
last year.
The table below presents a summary income statement for U. S. Bancorp for
the first quarter of 1997 and 1996. A discussion of the major changes in each
key component follows.
SUMMARY INCOME STATEMENT (TAX-EQUIVALENT BASIS)
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
------------------- Percent
(In Millions) 1997 1996 Change
-------- -------- ------
<S> <C> <C> <C>
Net interest income (tax-equivalent basis) $386.8 $359.2 8%
Provision for credit losses 45.9 30.1 52
Noninterest revenues 145.6 144.5 1
Noninterest expenses 287.1 287.2 --
------ ------
199.4 186.4 7
Less tax-equivalent adjustment included above 9.9 11.0 (10)
Provision for income taxes 68.0 62.5 9
------ ------
Net income $121.5 $112.9 8%
====== ====== ===
</TABLE>
11
<PAGE> 12
NET INTEREST INCOME (TAX-EQUIVALENT BASIS)
Net interest income, the principal source of U. S. Bancorp's income before
income taxes, 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.
ANALYSIS OF NET INTEREST INCOME (TAX-EQUIVALENT BASIS)
<TABLE>
<CAPTION>
Net
Interest Interest Interest
(In Millions) Income Expense Income
--------- -------- --------
<S> <C> <C> <C>
First quarter 1996 as reported $610.9 $251.7 $359.2
Increase in balances 34.0 11.1 22.9
Increase in rates 7.3 .2 7.1
Reduction due to one more day in 1996 (4.9) (2.5) (2.4)
------ ------ ------
First quarter 1997 as reported $647.3 $260.5 $386.8
====== ====== ======
</TABLE>
Net interest income on a tax-equivalent basis for the first quarter of
1997 was $386.8 million, an increase of $27.6 million over the first quarter of
1996. The increase in net interest income was due primarily to the growth in
average and an increase in the net interest margin. The net interest margin in
the first quarter of 1997 was 5.31 percent compared with 5.19 percent in the
same quarter a year ago, and 5.42 percent in the fourth quarter of 1996.
Average loans were $25.2 billion in the first quarter of 1997, an increase
of $2.3 billion, or 10 percent, compared with the first quarter a year ago. The
acquisitions accounted for approximately $1.1 billion of the increase. Average
loan balances increased as follows: commercial loans $818 million; real estate
construction loans $535 million; real estate mortgages $502 million; leases $199
million; and consumer loans $203 million. Average securities declined $131
million in the first quarter of 1997 compared with the first quarter in 1996 as
maturities were used to fund loan growth.
Average interest-bearing liabilities increased $996 million in the first
quarter of 1997 compared with the first quarter in 1996. The acquisitions
increased interest-bearing liabilities approximately $1.2 billion, primarily
interest-bearing deposits. Average noninterest-bearing deposits increased $650
million, or 13 percent, in the first quarter of 1997 compared with the first
quarter of 1996. Included in the increase in average noninterest-bearing
deposits was approximately $278 million related to the acquisitions.
Average short-term borrowings, comprised of federal funds purchased and
security repurchase agreements, commercial paper and other short-term
borrowings, decreased $588 million. Average long-term debt increased $506
million in the first quarter of 1997 compared with the same period last year
reflecting the issuance of senior and subordinated debt. Average company-
obligated mandatory redeemable capital securities of subsidiary trust,
issued during the fourth quarter of 1996, were $300 million in the first
quarter of 1997.
12
<PAGE> 13
NET INTEREST MARGIN ANALYSIS
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Average rate earned on interest-earning assets 8.89% 8.83%
Average rate paid on interest-bearing liabilities 4.51 4.52
---- ----
Rate spread 4.38% 4.31%
==== ====
Net interest margin 5.31% 5.19%
==== ====
</TABLE>
NONINTEREST REVENUES
Noninterest revenues increased $8.3 million in the first quarter of 1997
compared with the first quarter of 1996, excluding securities gains and equity
investment income. The principal components of noninterest revenues are shown in
the table below.
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
--------------------- Percent
(In Millions) 1997 1996 Change
--------- --------- -------
<S> <C> <C> <C>
NONINTEREST REVENUES
Service charges on deposit accounts $ 50.2 $ 47.0 7%
Trust and investment management 18.6 17.2 8
Bank card revenue, net 13.1 18.4 (29)
Exchange fees 9.6 9.7 (1)
Insurance revenue 6.1 5.1 20
Mortgage banking income, net 4.4 8.3 (47)
ATM revenue 9.2 5.3 74
Brokerage and other commissions 4.9 4.2 17
Trading account 8.6 2.7 219
Other revenue 14.2 12.7 12
------ ------
138.9 130.6 6
Equity investment income 5.0 10.5 (52)
Gain on sale of securities available for sale 1.7 3.4 (50)
------ ------
Total noninterest revenues $145.6 $144.5 1
====== ====== ===
</TABLE>
Service charges on deposit accounts, the largest component of noninterest
revenue, increased 7 percent in the first quarter of 1997 compared with the
first quarter of 1996. The increase in service charges was due primarily to
improved service fee collection and a change in check processing.
Trust and investment management fees increased in the first quarter of
1997 compared to the same period in 1996 due mainly to increases in revenue from
private trust fees. Bank card revenue declined $5.3 million in the first quarter
of 1997 compared with the same period in 1996 primarily due to income
recognized in the first quarter of 1996 which resulted from the September 1995
sale of an interest in the merchant processing service business and the
allocation of the merchant contract to a co-owned business alliance. ATM fees
increased in the first quarter of 1997 compared with 1996 reflecting fee
increases.
13
<PAGE> 14
Mortgage banking income, net, was $3.9 million lower in the first quarter
of 1997 compared with 1996 primarily due to the recognition of a gain on the
sale of servicing rights in the first quarter of 1996. Trading account revenue
increased $5.9 million due primarily to increases in the mark-to-market
adjustments on certain customer accommodations and other trading securities.
Equity investment income results mainly from U. S. Bancorp's investment
as a limited partner in several limited partnerships and, to a lesser degree,
from U.S. Bancorp's venture capital investments. U. S. Bancorp has no control
over investment sales activities by the general partners.
NONINTEREST EXPENSES
Noninterest expenses declined $3.0 million in the first quarter of 1997
excluding various noninterest expenses related to the acquisitions of
approximately $11.3 million and merger and integration costs in the first
quarter of 1996 of $8.4 million. The principal components of noninterest expense
are shown in the following table.
<TABLE>
<CAPTION>
First Quarter Ended
March 31,
--------------------- Percent
(In Millions) 1997 1996 Change
--------- --------- -------
<S> <C> <C> <C>
NONINTEREST EXPENSES
Employee compensation
and benefits $ 159.9 $ 151.0 6%
Equipment rentals, depreciation
and maintenance 28.6 30.7 (7)
Net occupancy expense 21.1 20.7 2
Stationery, supplies and postage 16.0 14.8 8
Telecommunications 7.6 7.8 (3)
Advertising and marketing 5.4 8.1 (33)
Amortization of goodwill and core
deposit intangibles 7.5 3.4 121
Contract personnel 4.5 4.6 (2)
Other taxes and licenses 4.2 4.1 2
Other 32.3 33.6 (4)
------- -------
287.1 278.8 3
Merger and integration costs -- 8.4 (100)
------- -------
Total noninterest expenses $ 287.1 $ 287.2 --
======= ======= ===
</TABLE>
Employee compensation and benefits increased $8.9 million in the first
quarter of 1997 compared with the first quarter of 1996. The increase was due to
the acquisitions in the second quarter of 1996 and first quarter of 1997, and
increases in salaries, incentive compensation, and payroll taxes. Equipment
rentals, depreciation and maintenance decreased $2.1 million mostly due to the
back office consolidations during 1996 resulting from the West One Bancorp
merger.
Advertising and marketing expense decreased $2.7 million to $5.4 million
in the first quarter of 1997 compared with the first quarter of 1996.
Amortization of goodwill and core deposit intangibles increased $4.1 million in
the first quarter of 1997 compared with the first quarter of 1996, as a result
of the goodwill and core deposit intangible assets related to the acquisitions.
14
<PAGE> 15
The overhead ratio (defined as noninterest expenses as a percentage of
tax-equivalent net interest income and noninterest revenues) improved to 54
percent in the first quarter of 1997 compared with 57 percent in the first
quarter of 1996.
Merger and integration costs related to the West One merger, accounted for
as a poolings-of interests, totaled $8.4 million in the first quarter of 1996.
Substantially all merger and integration payments were completed by the end of
the first quarter of 1997.
INCOME TAXES
The effective tax rates for the first quarters ended March 31, 1997 and
1996 were 35.9 percent and 35.6 percent, respectively. The increase in the
effective tax rate in 1997 was mainly due to the higher level of earnings
leading to a corresponding decrease in the proportion of tax-exempt income
compared with 1996.
FINANCIAL CONDITION
SECURITIES PORTFOLIOS
Securities available for sale totaled $3.1 billion at March 31, 1997
compared with $3.0 billion at December 31, 1996 and $3.0 billion at March 31,
1996. The average tax-affected yield on the available for sale securities
portfolio at March 31, 1997 was 6.50 percent. Securities held to maturity
totaled $776 million at March 31, 1997, compared with $797 million at December
31, 1996 and $835 million at March 31, 1996. The average tax-affected yield on
the held to maturity securities portfolio at March 31, 1997 was 7.71 percent.
The securities portfolios are managed to maximize yield over an entire
interest rate cycle while minimizing market exposure to changes in interest
rates. The unrealized loss on securities available for sale, net of taxes, was
$23 million at March 31, 1997.
LOAN PORTFOLIO
Loans outstanding were $25.3 billion, $25.0 billion and $23.3 billion at
March 31, 1997, December 31, 1996 and March 31, 1996, respectively. Average
loans increased at an annualized rate of 8 percent to $25.2 billion in the first
quarter of 1997 from $24.7 billion in the fourth quarter of 1996. Excluding the
impact of the Sun Capital Bancorp acquisition during the first quarter of 1997,
average loans grew at an annualized rate of 7 percent in the first quarter of
1997 compared with the fourth quarter of 1996.
LIQUIDITY
Effective liquidity management ensures that the cash flow requirements of
depositors and borrowers, as well as the operating cash needs of U. S. Bancorp,
are met. U. S. 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. U. S. Bank of Oregon and U. S. Bank of
Washington also issue debt under a bank note program and other debt funding
sources.
15
<PAGE> 16
Core deposits, defined as deposits other than time deposits of $100,000 or
more, are U. S. Bancorp's primary source of funding and provide a sizable source
of relatively stable, low-cost funds. Average core deposits increased to $21.8
billion in the first quarter of 1997, an increase of $53 million from the fourth
quarter of 1996.
Other sources of liquidity include purchased funds, comprised of time
deposits over $100,000, federal funds purchased and security repurchase
agreements, commercial paper and short-term borrowings. Average purchased funds
were $5.2 billion in the first quarter of 1997 compared with $5.4 billion in the
first quarter of 1996. A portion of the remaining funding of average total
assets came from long-term debt, which averaged $1.9 billion in the first
quarter of 1997 and $1.7 billion in the fourth quarter of 1996.
U. S. Bancorp's liquidity is enhanced by its accessibility to a diversity
of national market sources of funds. At March 31, 1997, U. S. Bancorp had
available a total of $1.6 billion in uncommitted borrowing capacities for
medium-term notes, senior or subordinated debt and preferred stock and a $500
million committed general liquidity line of credit.
The analysis of liquidity should also include a review of the changes that
appear in the consolidated statement of cash flows for the first quarter of
1997. The statement of cash flows includes operating, investing and financing
categories. Operating activities include net income for the first quarter of
1997 of $122 million, which is adjusted for non-cash items. Investing activities
consisted primarily of the use of cash to purchase 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, $139 million in
net proceeds from the issuance of long-term debt, and $5.6 million in common
stock purchases and $50 million in dividends paid.
The following table summarizes U. S. Bancorp's ratings by major credit
rating agencies at March 31, 1997; such ratings are subject to revision or
withdrawal at anytime.
<TABLE>
<CAPTION>
Standard
& Poor's Moody's
-------- -------
<S> <C> <C>
U. S. Bancorp (Parent)
Commercial paper A-1 P-1
Senior debt A A2
Subordinated debt A- A3
U. S. Bank of Oregon and U. S. Bank of Washington
Short-term bank notes A-1 P-1
Long-term bank notes A+ A1
</TABLE>
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses was $45.9 million for the first quarter of
1997 and $30.1 million for the first quarter of 1996. The increased provision
reflected a higher level of net charge-offs in commercial, consumer and bank
card loans and an increase in total loans due to loan growth and the
acquisitions.
Management performs a quarterly analysis to establish the appropriate
level of the allowance, taking into consideration such factors as loan loss
experience, an evaluation of potential losses in the portfolio, credit
concentrations and trends in portfolio volume, maturity, delinquencies and
nonaccruals, risks associated with standby letters of credit which guarantee the
debt of others and other off-balance sheet commitments, and prevailing and
anticipated economic conditions. U. S. Bancorp closely monitors credit
16
<PAGE> 17
risk in its loan portfolio and believes that its credit approval and review
processes are effective and operating in accordance with sound banking policy,
and that the allowance for credit losses at March 31, 1997 was adequate to
absorb potential credit losses inherent in loans, leases, loan commitments and
standby letters of credit outstanding at that date.
U. S. Bancorp continues to evaluate its loan portfolio for impairment. The
total recorded investment in impaired loans was $167 million at March 31, 1997,
compared with $115 million at December 31, 1996. The increase was due to the
addition of commercial loans to nonaccrual status during the first quarter of
1997. Included in these amounts at March 31, 1997 are $110 million of impaired
loans for which the allocated allowance for credit losses was $39 million.
The table below presents the change in the allowance for credit losses for
the periods indicated.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
First Quarter First Quarter
Ended Year Ended Ended
March 31, December 31, March 31,
(In Millions) 1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Loans (net of deferred fees) $25,320.5 $25,046.7 $23,267.3
========= ========= =========
Daily average loans
(net of deferred fees) $25,206.3 $23,862.3 $22,949.2
========= ========= =========
Balance of allowance for credit
losses at beginning of period $ 475.9 $ 434.5 $ 434.5
Acquisitions .6 14.9 --
Loans charged-off
Commercial 19.2 40.8 8.1
Lease financing .3 1.5 .1
Real estate construction .1 .9 --
Real estate mortgage .9 3.1 .7
Consumer 14.9 47.6 10.7
Bank card 14.3 50.3 11.2
-------- -------- --------
Total 49.7 144.2 30.8
-------- -------- --------
Recoveries of loans previously charged off
Commercial 3.9 13.3 2.8
Lease financing .1 .3 .2
Real estate construction .2 .4 .1
Real estate mortgage .3 3.1 .3
Consumer 2.4 12.3 3.4
Bank card 1.5 6.1 1.5
-------- -------- --------
Total 8.4 35.5 8.3
-------- -------- --------
Net charge-offs 41.3 108.7 22.5
Provision for credit losses 45.9 135.2 30.1
-------- -------- --------
Balance of allowance for credit
losses at end of period $ 481.1 $ 475.9 $ 442.1
======== ======== ========
Net charge-offs to average loans (annualized) .66% .46% .39%
Allowance for credit losses as
a percent of loans 1.90 1.90 1.90
Allowance for credit losses as a percent of
nonperforming loans 232 320 432
</TABLE>
17
<PAGE> 18
ASSET QUALITY
As presented in the table below, nonperforming assets as a percentage of
loans and foreclosed assets was .90 percent at March 31, 1997, .73 percent at
December 31, 1996 and .64 percent at March 31, 1996. Nonperforming assets
totaled $229 million at March 31, 1997, compared to $182 million at December 31,
1996 and $149 million a year ago. U. S. Bancorp anticipates normal fluctuations
in the balance of nonaccrual loans as it increases its lending activity and
resolves loans currently in the nonaccrual portfolio.
In addition to the loans classified as nonperforming, U. S. Bancorp has
other loans which it has internally classified, largely due to weakening
financial strength of the borrowers or concern about specific industries. These
loans, although currently performing in accordance with contractual terms, are
monitored closely by management and have been considered in establishing the
level of the allowance for credit losses. U. S. Bancorp's lending procedures and
loan portfolio, including internally classified loans, are examined by
regulatory agencies as part of their supervisory activities.
The following table summarizes U. S. Bancorp's nonperforming assets and
past due loans. Past due loans are defined as loans contractually past due as to
interest or principal 90 days or more.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(In Millions) 1997 1996 1996
--------- ------------ ---------
<S> <C> <C> <C>
Nonaccrual loans $207.5 $145.6 $101.7
Restructured loans .2 3.3 .7
Other real estate and equipment owned 21.2 33.4 46.6
------ ------ ------
Total nonperforming assets $228.9 $182.3 $149.0
====== ====== ======
Accruing loans past due 90 days or more $ 43.5 $ 41.0 $ 31.9
====== ====== ======
Nonperforming loans as a percent of loans .82% .59% .44%
Nonperforming assets as a percent
of loans and foreclosed assets .90 .73 .64
</TABLE>
CAPITAL AND DIVIDENDS
U. S. Bancorp is subject to risk-based capital guidelines issued by the
Federal Reserve Board. 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.
Regulators deem a financial institution "well-capitalized," the highest rating
available, when leverage, Tier 1 and total capital ratios are at least five
percent, six percent, and ten percent, respectively.
Each subsidiary bank is subject to capital requirements similar to the
requirements for bank holding companies. At March 31, 1997, all of U. S.
Bancorp's banking subsidiaries met the risk-based capital ratio and leverage
ratio requirements for "well-capitalized" banks. The banking subsidiaries'
ratios are expected to be maintained at such levels by the retention of earnings
and, if necessary, the issuance of additional capital-qualifying securities.
18
<PAGE> 19
The risk-based capital and capital leverage ratios for U. S. Bancorp and
its significant bank subsidiaries at March 31, 1997 are presented in the table
below:
<TABLE>
<CAPTION>
Risk-based
Capital Ratios
-----------------
Total Total Leverage
(In Millions) Assets Tier 1 Capital Ratio
----------- ------ ------- -------
<S> <C> <C> <C> <C>
U.S. Bancorp (Consolidated) $ 33,754.2 8.30% 11.98% 8.36%
Significant Bank Subsidiaries
U.S. Bank of Oregon 14,545.8 7.23 10.90 7.81
U.S. Bank of Washington 10,385.5 7.10 10.66 7.22
U.S. Bank of Idaho 3,616.8 7.84 11.39 6.46
</TABLE>
At March 31, 1997, common shareholders' equity was $2.6 billion. For the
first quarter of 1997, average common equity to average total assets was 7.89
percent compared with 8.04 percent in the first quarter of 1996. The quarterly
dividend rates were $.31 and $.28 for the first quarters of 1997 and 1996,
respectively.
In the third quarter of 1996, the Board of Directors authorized the
repurchase of up to 7.5 million shares of U. S. Bancorp's common stock of which
4.0 million was purchased in November 1996 from a third party. A final payment
related to this purchase of approximately $42 million was pending at March 31,
1997, and will be recorded as a component of shareholders' equity in the second
quarter of 1997. Additional common stock repurchases, within the 7.5 million
authorized, are anticipated in 1997.
FORWARD-LOOKING INFORMATION
Statements appearing in this report which are not historical in nature,
including the discussions of the effects of recent mergers, credit quality and
the adequacy of U. S. Bancorp's capital resources, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are subject to risks and uncertainties that may
cause actual future results to differ materially. Such risks and uncertainties
with respect to U. S. Bancorp include those related to the economic environment,
particularly in the region in which U. S. Bancorp operates, competitive products
and pricing, fiscal and monetary policies of the U. S. government, changes in
government regulations affecting financial institutions, including regulatory
fees and capital requirements, changes in prevailing interest rates,
acquisitions and the integration of acquired businesses, credit risk management
and asset/liability management, the financial and securities markets, and the
availability of and costs associated with sources of liquidity.
19
<PAGE> 20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed herewith are listed in the Exhibit Index
on page 22 of this report.
(b) During the quarter ended March 31, 1997, one report on Form
8-K dated March 26, 1997 was filed to report under Item 5
the announcement on March 20, 1997, of the execution of a
definitive Agreement and Plan of Merger between U. S.
Bancorp and First Bank System, Inc. pursuant to which U. S.
Bancorp would be merged with and into First Bank System,
Inc.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U. S. BANCORP
(Registrant)
Date: May 15, 1997 By: /s/ STEVEN P. ERWIN
----------------------------
Steven P. Erwin
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
12.1 U. S. Bancorp and Subsidiaries - Computation of Ratios of
Consolidated Earnings to Fixed Charges.
12.2 U. S. Bancorp and Subsidiaries - Capital Ratios.
27 Financial Data Schedule.
</TABLE>
22
<PAGE> 1
EXHIBIT 12.1
U.S. BANCORP AND SUBSIDIARIES
COMPUTATION OF RATIOS OF CONSOLIDATED
EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
First Quarter
Ended March 31,
(In Millions) 1997
----------------
<S> <C>
Considering Interest on Deposits as an Operating Expense
Net income $ 121.5
Income taxes 68.0
--------
Earnings before income taxes 189.5
--------
Add fixed charges
Interest on borrowed funds 61.2
Interest income from federal funds sold (A) .8
Interest component of leases (B) 3.8
Obligation of capital qualifying securities (C) 6.2
--------
Total fixed charges 72.0
--------
Earnings before income taxes and fixed charges $ 261.5
========
Ratio of earnings to total fixed charges 3.63x
Considering Interest on Deposits as Fixed Charges
Fixed charges as shown above $ 72.0
Interest on deposits 193.2
--------
Total fixed charges 265.2
Add earnings before income taxes 189.5
--------
Earnings before income taxes and fixed charges $ 454.7
========
Ratio of earnings to total fixed charges 1.71x
=======
</TABLE>
- -----------------
(A) Approximates interest expense related to federal funds purchased
transactions for purposes other than the funding of banking subsidiaries'
operations.
(B) Interest component of leases includes imputed interest on capitalized
leases and approximately one-third of rental expense, which approximates
the interest component of operating leases.
(C) Amount distributed to holders of Company - obligated mandatory redeemable
capital securities of subsidiary trust holding only junior subordinated
deferrable interest debentures of U. S. Bancorp.
23
<PAGE> 1
EXHIBIT 12.2
U.S. BANCORP AND SUBSIDIARIES
CAPITAL RATIOS
<TABLE>
<CAPTION>
March 31,
(In Thousands) 1997
-----------
<S> <C>
Total assets, as reported
U. S. Bancorp 33,754,248
U. S. Bank of Oregon 14,545,773
U. S. Bank of Washington 10,385,497
U. S. Bank of Idaho 3,616,849
Shareholders' equity as reported
U. S. Bancorp 2,782,121
U. S. Bank of Oregon 1,109,076
U. S. Bank of Washington 717,733
U. S. Bank of Idaho 237,827
Tier 1 capital
U. S. Bancorp 2,733,161
U. S. Bank of Oregon 1,095,288
U. S. Bank of Washington 723,762
U. S. Bank of Idaho 238,566
Total capital
U. S. Bancorp 3,945,601
U. S. Bank of Oregon 1,649,956
U. S. Bank of Washington 1,086,468
U. S. Bank of Idaho 346,763
Weighted risk assets
U. S. Bancorp 32,926,556
U. S. Bank of Oregon 15,140,203
U. S. Bank of Washington 10,187,245
U. S. Bank of Idaho 3,043,972
Adjusted quarterly average assets
U. S. Bancorp 32,674,063
U. S. Bank of Oregon 14,027,725
U. S. Bank of Washington 10,026,479
U. S. Bank of Idaho 3,691,293
Risk-based capital ratios
Tier 1 capital to weighted risk assets
U. S. Bancorp 8.30%
U. S. Bank of Oregon 7.23
U. S. Bank of Washington 7.10
U. S. Bank of Idaho 7.84
Total capital to weighted risk assets
U. S. Bancorp 11.98
U. S. Bank of Oregon 10.90
U. S. Bank of Washington 10.66
U. S. Bank of Idaho 11.39
Leverage ratio - Tier 1 capital to adjusted average assets
U. S. Bancorp 8.36
U. S. Bank of Oregon 7.81
U. S. Bank of Washington 7.22
U. S. Bank of Idaho 6.46
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,945,100
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 516,700
<TRADING-ASSETS> 87,400
<INVESTMENTS-HELD-FOR-SALE> 3,060,100
<INVESTMENTS-CARRYING> 775,700
<INVESTMENTS-MARKET> 785,100
<LOANS> 25,320,500
<ALLOWANCE> 481,100
<TOTAL-ASSETS> 33,754,200
<DEPOSITS> 25,078,800
<SHORT-TERM> 2,533,000
<LIABILITIES-OTHER> 677,100
<LONG-TERM> 1,950,200
0
150,000
<COMMON> 740,900
<OTHER-SE> 1,891,200
<TOTAL-LIABILITIES-AND-EQUITY> 33,754,200
<INTEREST-LOAN> 572,700
<INTEREST-INVEST> 58,700
<INTEREST-OTHER> 6,000
<INTEREST-TOTAL> 637,400
<INTEREST-DEPOSIT> 193,200
<INTEREST-EXPENSE> 260,500
<INTEREST-INCOME-NET> 376,900
<LOAN-LOSSES> 45,900
<SECURITIES-GAINS> 1,700
<EXPENSE-OTHER> 287,100
<INCOME-PRETAX> 189,500
<INCOME-PRE-EXTRAORDINARY> 121,500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,500
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
<YIELD-ACTUAL> 5.31
<LOANS-NON> 207,500
<LOANS-PAST> 43,500
<LOANS-TROUBLED> 200
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 475,900
<CHARGE-OFFS> 49,700
<RECOVERIES> 8,400
<ALLOWANCE-CLOSE> 481,100
<ALLOWANCE-DOMESTIC> 481,100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
