[LOGO] FIRST BANK SYSTEM FORM 10-Q
September 30, 1995
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM (NOT APPLICABLE)
COMMISSION FILE NUMBER 1-6880
FIRST BANK SYSTEM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
41-0255900
(I.R.S. Employer
Identification No.)
FIRST BANK PLACE,
601 SECOND AVENUE SOUTH,
MINNEAPOLIS, MINNESOTA 55402-4302
(Address of principal executive offices and Zip Code)
612-973-1111
(Registrant's telephone number, including area code)
(NOT APPLICABLE)
(Former name, former address and former fiscal year,
if changed since last report).
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 twelve months and (2) has been subject to such filing requirements
for the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of October 31, 1995
Common Stock, $1.25 Par Value 129,795,579 shares
FINANCIAL SUMMARY
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1995 1994 1995 1994
Income from continuing operations $145.7 $119.5 $417.4 $346.9
Discontinued operations -- (7.0) -- (6.6)
Net income $145.7 $112.5 $417.4 $340.3
PER COMMON SHARE
Income from continuing operations $1.08 $.85 $3.05 $2.47
Discontinued operations -- (.05) -- (.04)
Net income $1.08 $.80 $3.05 $2.43
Net income on a cash basis* $1.18 $.90 $3.36 $2.69
Dividends paid .3625 .29 1.0875 .87
Common shareholders' equity 20.33 19.77
RETURN ON AVERAGE ASSETS
From continuing operations 1.76% 1.40% 1.70 % 1.39%
Discontinued operations -- (.08) -- (.03)
Return on average assets 1.76% 1.32% 1.70% 1.36%
RETURN ON AVERAGE COMMON EQUITY
From continuing operations 21.2% 17.6 % 20.9% 17.3%
Discontinued operations -- (1.1) -- (.3)
Return on average common equity 21.2% 16.5% 20.9% 17.0%
Net interest margin (taxable-equivalent basis) 4.85% 4.74% 4.94 % 4.72%
Efficiency ratio 53.9 57.9 54.8 58.4
SEPTEMBER 30 DECEMBER 31
1995 1994
PERIOD END
Loans $25,877 $24,556
Allowance for credit losses 469 475
Assets 32,958 34,128
Total shareholders' equity 2,736 2,612
Common equity to total assets 8.0% 7.3%
Tier 1 capital ratio 7.4 7.3
* Calculated by adding amortization of goodwill and other intangible assets
to net income.
TABLE OF CONTENTS AND FORM 10-Q CROSS-REFERENCE INDEX
PART I -- FINANCIAL INFORMATION
Management's Discussion and Analysis of Financial Condition and Results
of Operations (Item 2) 2
Financial Statements (Item 1) 13
Selected Statistical Information:
Consolidated Daily Average Balance Sheet and Related Yields and Rates 23
PART II -- OTHER INFORMATION
Exhibits and Reports on Form 8-K (Item 6) 25
Signature 25
Exhibit 11 -- Computation of Primary and Fully Diluted Net Income Per
Common Share 26
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges 27
Exhibit 27 -- Article 9 Financial Data Schedule *
* Copies of this exhibit will be furnished upon request and payment of the
Company's reasonable expenses in furnishing the exhibit.
MANAGEMENT'S DISCUSSION AND ANALYSIS
EARNINGS SUMMARY
First Bank System, Inc.'s (the "Company" or "FBS") third quarter 1995 net income
was $145.7 million, an increase of $33.2 million, or 30 percent, from the third
quarter of 1994. On a per share basis, earnings increased 35 percent to $1.08,
compared with $.80 for the year-earlier quarter. The Company's earnings for the
first nine months of 1995 were $417.4 million, or $3.05 per share, compared with
$340.3 million, or $2.43 per share, in the first nine months of 1994.
Return on average assets and return on average common equity in the third
quarter of 1995 were 1.76 percent and 21.2 percent, respectively, compared with
1.32 percent and 16.5 percent in the third quarter of 1994. The net interest
margin on a taxable-equivalent basis strengthened 11 basis points from the third
quarter of 1994, to 4.85 percent. The efficiency ratio, the ratio of expenses to
revenues, continued to improve, to 53.9 percent from 57.9 percent for the third
quarter of 1994.
TABLE 1.
Summary of Consolidated Income
THREE MONTHS ENDED
(TAXABLE-EQUIVALENT BASIS; SEPTEMBER 30 SEPTEMBER 30
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1995 1994
Interest income $640.9 $596.3
Interest expense 280.4 229.3
Net interest income 360.5 367.0
Provision for credit losses 31.0 27.0
Net interest income after provision for credit losses 329.5 340.0
Noninterest income 216.5 170.3
Noninterest expense 311.1 312.6
Income from continuing operations before income taxes 234.9 197.7
Taxable-equivalent adjustment 3.4 3.9
Income taxes 85.8 74.3
Income from continuing operations 145.7 119.5
Loss from discontinued operations -- (7.0)
Net income $145.7 $112.5
Return on average assets 1.76% 1.32%
Return on average common equity 21.2 16.5
Net interest margin 4.85 4.74
Efficiency ratio 53.9 57.9
Per share:
Income from continuing operations $1.08 $.85
Loss from discontinued operations -- (.05)
Net income $1.08 $.80
Common dividends paid $.3625 $.29
Stronger third quarter results reflected noninterest income growth, ongoing
expense control, and effective capital management. Third quarter noninterest
income was $216.5 million, an increase of $46.2 million, or 27 percent, from the
same quarter of 1994. The increase was primarily due to a $13.5 million, or 27
percent, increase in credit card fees, a $3.9 million, or 10 percent, increase
in trust fees and a $31 million nonrecurring gain on the sale of 63 branches.
Third quarter noninterest expense totaled $311.1 million, a decrease of $1.5
million, or 1 percent, from the third quarter of 1994. In the third quarter, FBS
expensed unamortized software costs of approximately $23 million, primarily
related to a change in the Company's policy to expense software costs, and also
recorded a charge of approximately $8 million to write off miscellaneous other
assets. In addition, FBS received an FDIC premium rebate of approximately $10
million. Net interest income on a taxable-equivalent basis was $360.5 million, a
decrease of $6.5 million, or 2 percent, compared with the third quarter of 1994.
The decrease was primarily attributable to a $1.2 billion, or 4 percent,
decrease in total earning assets, an increase in funding costs and the
repurchase of common stock. The provision for credit losses for the quarter was
up $4.0 million, or 15 percent, to $31.0 million from third quarter 1994. A
decrease of 4.3 million average common shares outstanding also contributed to
the improvement in earnings per share in the current quarter, compared with the
third quarter of 1994, reflecting progress made under the Company's 1995 share
repurchase programs.
Nonperforming assets declined $65.4 million, or 28 percent, from December 31,
1994, to $166.9 million at September 30, 1995. The ratio of the allowance for
credit losses to nonperforming loans at quarter-end was 400 percent compared
with 283 percent at the end of 1994.
ACQUISITIONS AND DIVESTITURES
On November 6, 1995, FBS and First Interstate Bancorp ("FI") announced that they
had entered into a definitive agreement whereby FBS will exchange 2.6 shares of
its common stock for each share of FI common stock (and cash in lieu of
fractional shares). The combined institution, which will use the First
Interstate Bancorp name, will have approximately $90 billion in assets and $7
billion in shareholders' equity. The transaction, which will qualify as a
tax-free reorganization and be accounted for as a pooling of interests, is
subject to shareholder and regulatory approvals and is expected to close in the
second quarter of 1996.
On August 7, 1995, FBS announced that it had signed a purchase agreement to
acquire FirsTier Financial, Inc. ("FirsTier"), a regional financial services
holding company based in Omaha, Nebraska. As of September 30, 1995, FirsTier had
approximately $3.6 billion in assets, $2.8 billion in deposits and operated 63
offices in Nebraska and Iowa. Subject to FirsTier shareholder and regulatory
approvals, the Company will exchange .8829 shares of FBS common stock for each
common share of FirsTier, resulting in a per share price of $38 at the date of
the announcement of the transaction. The aggregate purchase price for the
transaction as of the announcement date was approximately $714 million. The
transaction, which will be accounted for as a purchase, is expected to close in
the first quarter of 1996.
On August 22, 1995, FBS announced that it had signed a definitive agreement to
acquire the corporate trust business of BankAmerica Corporation. Upon completion
of this acquisition, the Company will be the leading provider of domestic
corporate trust services as measured by revenues, which will approximate $145
million.
The Company completed the acquisition of two commercial bank holding
companies -- Midwestern Services, Inc. and Southwest Holdings, Inc. -- both
of Omaha, Nebraska on November 1, 1995. Together, the two companies have
total assets of $424 million, total deposits of $380 million and 12 branches
in Omaha.
On September 7, 1995, the Company announced that it will seek a buyer for its
mortgage banking company and instead plans to deliver mortgage loan products
through bank branches and telemarketing. FBS also announced on September 20,
1995, an agreement to sell Edina Reality, Inc., its real estate brokerage
subsidiary, to a local investor group. This subsidiary is reported as
discontinued operations.
During the third quarter of 1995, the Company completed the sale of 63 branch
offices resulting in the divestiture of $848 million of deposits and the
recognition of a nonrecurring $31 million gain.
LINE OF BUSINESS FINANCIAL REVIEW
Business line results are derived from the Company's business unit profitability
reporting system. Designations, assignments, and allocations may change from
time to time as management accounting systems are enhanced or product lines
change. During 1995 certain changes in organization and methodology were made
and 1994 results are presented on a consistent basis.
RETAIL AND COMMUNITY BANKING -- Retail and Community Banking, which includes
consumer, small-business and middle-market banking services and residential
mortgage lending, maintained strong revenue while reducing costs. Net income
increased 22 percent in the third quarter of 1995 and 29 percent in the first
nine months of 1995 compared with the same periods in 1994. Third quarter return
on assets increased to 1.47 percent from 1.11 percent, and return on equity
increased to 19.4 percent from 15.4 percent over the same period. Year-to-date
profitability ratios showed similar improvement.
Net interest income remained strong due to aggressive small- and middle-market
business lending and strong consumer loan growth. Lower residential mortgage
loans and a shift in balances from lower rate deposits to higher cost borrowings
offset these gains. Noninterest income was lower than in the same period of last
year primarily as a result of mortgage banking activities. Noninterest expense
for the first nine months of 1995 decreased despite the impact of full period
expenses of the purchase acquisitions of Boulevard Bancorp, Inc. and Rocky
Mountain Financial Corporation which were acquired on March 25, 1994. The
improvement in noninterest expense reflects the benefits of continued
streamlining of branch operations, as well as the integration of recent business
combinations. The efficiency ratio improved to 54.3 percent in the third quarter
and 57.7 percent in the first nine months of 1995 from 64.4 percent and 65.3
percent in the same periods in 1994.
PAYMENT SYSTEMS -- Payment Systems includes consumer credit card, corporate and
purchasing card services, card-accessed secured and unsecured lines of credit,
automated teller machine ("ATM") processing, and merchant processing. Net
earnings were $23.7 million in the third quarter of 1995, a 22 percent increase
from the third quarter of 1994. Return on assets was 2.43 percent compared with
2.35 percent in the third quarter of 1994. Return on equity was 26.6 percent
compared with 23.3 percent for the same quarter in the previous year.
Fee-based noninterest income for Payment Systems increased 38 percent in the
third quarter and 36 percent in the first nine months of 1995 compared with the
same periods in 1994. The increase was due to growth in the sales volume of the
Corporate Card, the Purchasing Card, the FBS WorldPerks Visa Card, and the
expanded ATM network. Net interest income decreased due to the change in the
loan mix. Average commercial loans, which are primarily noninterest earning
Corporate Card balances, comprised 27 percent and 25 percent of the portfolio
during the third quarter and first nine months of 1995, respectively, compared
with 19.0 percent in both the third quarter and first nine months of 1994.
Noninterest expense increased due to higher variable transaction costs resulting
from increased sales volume. Payment Systems continues to be cost effective as
measured by its efficiency ratios of 48.0 percent in the third quarter of 1995
and 49.6 percent in the first nine months of 1995.
COMMERCIAL BANKING -- Commercial Banking provides lending, treasury management,
and other financial services to middle market, large corporate and mortgage
banking companies. Third quarter earnings increased 4 percent to $26.7 million
from the third quarter of 1994. Year-to-date earnings improved 7 percent to
$83.8 million compared with the same period of 1994. Third quarter return on
assets was 1.78 percent compared with 1.76 percent in 1994, and return on equity
was 25.5 percent compared with 24.7 percent in 1994. Year-to-date return on
assets was 1.86 compared with 1.74 percent in 1994, and return on equity was
26.5 percent compared with 24.5 percent in 1994.
Continuing strong performance in net interest income as well as ongoing credit
quality and expense control contributed to the strong operating results.
Commercial Banking's average loans, excluding loans to mortgage banking
companies, increased $379 million, or 10 percent, from the third quarter of
1994. The decline in deposits relates to less activity in the mortgage banking
sector. The efficiency ratio remained low at 32.2 percent in the third quarter
of 1995 and 32.6 percent in the first nine months of 1995.
TABLE 2. Line of Business Financial Performance
THREE MONTHS ENDED SEPTEMBER 30,
TRUST AND
RETAIL AND COMMUNITY COMMERCIAL INVESTMENT CONSOLIDATED
BANKING PAYMENT SYSTEMS BANKING GROUP COMPANY
(DOLLARS IN MILLIONS) 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis) $262.9 $264.2 $37.4 $43.6 $53.8 $53.0 $6.4 $6.2 $360.5 $367.0
Provision for credit losses 11.0 5.5 17.6 19.2 2.4 2.3 -- -- 31.0 27.0
Noninterest income 51.6 62.5 69.9 50.7 13.2 14.3 50.8 42.8 216.5 170.3
Noninterest expense 170.9 210.4 51.5 42.5 21.6 22.2 36.1 37.5 311.1 312.6
Income taxes and
taxable-equivalent
adjustment 50.4 43.3 14.5 13.1 16.3 17.2 8.0 4.6 89.2 78.2
Income from continuing
operations $82.2 $67.5 $23.7 $19.5 $26.7 $25.6 $13.1 $6.9 145.7 119.5
Loss from discontinued
operations -- (7.0)
Net income $145.7 $112.5
AVERAGE BALANCE SHEET DATA:
Commercial loans $5,907 $5,381 $848 $514 $4,896 $4,717 $-- $-- $11,651 $10,612
Consumer loans 11,538 11,140 2,347 2,185 -- -- -- -- 13,885 13,325
Assets 22,213 24,114 3,872 3,296 5,948 5,761 735 737 32,768 33,908
Deposits 19,673 21,412 41 27 1,587 2,123 806 775 22,107 24,337
Common equity 1,684 1,735 353 332 416 411 240 172 2,693 2,650
Return on average assets* 1.47% 1.11% 2.43% 2.35% 1.78% 1.76% ** ** 1.76% 1.40%
Return on average common
equity* 19.4 15.4 26.6 23.3 25.5 24.7 21.7% 15.9% 21.2 17.6
Efficiency ratio 54.3 64.4 48.0 45.1 32.2 33.0 63.1 76.5 53.9 57.9
NINE MONTHS ENDED SEPTEMBER 30,
CONDENSED INCOME STATEMENT: 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
Net interest income
(taxable-equivalent basis) $785.5 $756.5 $118.0 $129.5 $165.8 $160.5 $21.0 $17.8 $1,090.3 $1,064.3
Provision for credit losses 19.9 23.7 56.8 48.8 7.3 7.1 -- -- 84.0 79.6
Noninterest income 167.1 180.4 191.1 140.1 45.6 43.7 151.0 133.3 585.8 497.5
Noninterest expense 550.0 612.0 153.3 124.6 68.9 67.9 115.4 109.2 918.6 913.7
Income taxes and
taxable-equivalent
adjustment 145.6 116.8 37.6 37.7 51.4 50.7 21.5 16.4 256.1 221.6
Income from continuing
operations $237.1 $184.4 $61.4 $58.5 $83.8 $78.5 $35.1 $25.5 417.4 346.9
Loss from discontinued
operations -- (6.6)
Net income $417.4 $340.3
AVERAGE BALANCE SHEET DATA:
Commercial loans $5,758 $5,213 $759 $466 $4,909 $4,858 $-- $-- $11,426 $10,537
Consumer loans 11,430 11,235 2,311 1,983 -- -- -- -- 13,741 13,218
Assets 22,221 23,630 3,775 3,041 6,035 6,016 763 693 32,794 33,380
Deposits 20,438 21,573 37 24 1,650 2,437 823 822 22,948 24,856
Common equity 1,622 1,697 347 313 422 429 241 150 2,632 2,589
Return on average assets* 1.43% 1.04% 2.17% 2.57% 1.86% 1.74% ** ** 1.70% 1.39%
Return on average common
equity* 19.5 14.5 23.7 25.0 26.5 24.5 19.5% 22.7% 20.9 17.3
Efficiency ratio 57.7 65.3 49.6 46.2 32.6 33.3 67.1 72.3 54.8 58.4
* From continuing operations
** Not meaningful
Note: Preferred dividends and nonrecurring items are not allocated to the
business lines.
TRUST AND INVESTMENT GROUP -- The Trust and Investment Group includes personal,
institutional and corporate trust services, investment management services, and
a full-service brokerage company. Reported earnings increased 90 percent in the
third quarter and 38 percent in the first nine months of 1995 compared with the
same periods in the prior year. The return on average common equity was 21.7
percent in the third quarter and 19.5 percent in the first nine months of 1995,
compared with 15.9 percent and 22.7 percent in the same periods in 1994.
Net earnings increased in 1995 over 1994 primarily due to recent acquisitions,
including J.P. Morgan's domestic corporate trust business. Stronger noninterest
income is due to growth in Corporate Trust, investment sales and management
fees, as well as acquisitions. The efficiency ratio improved to 63.1 percent in
the third quarter and 67.1 percent in the first nine months of 1995 from 76.5
percent in the third quarter and 72.3 percent in the first nine months of 1994,
reflecting the effective integration of acquisitions and revenue growth.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME -- Net interest income on a taxable-equivalent basis was
$360.5 million in the third quarter of 1995, a decrease of $6.5 million, or 2
percent, from the third quarter of 1994. The decline is attributable to a
decrease of $1.2 billion, or 4 percent, in total earning assets, an increase in
funding costs and the repurchase of common stock. The decrease in average
earning assets for the quarter reflects the shrinkage of securities and
mortgage-related loan balances. Partially offsetting the impact of lower total
earning assets were the effects of increased average loan balances and average
loan yields. The yield on loans in the third quarter averaged 8.95 percent, or
77 basis points higher than the yield of 8.18 percent in the third quarter of
last year. The increase in yields resulted from market interest rate increases
during the last half of 1994 and the first quarter of 1995. Average loans
totaled $25.5 billion in the third quarter of 1995, an increase of $1.6 billion,
or 7 percent, from $23.9 billion in the third quarter of 1994. Solid growth
occurred in both nonmortgage consumer and commercial loans, partially offset by
a decrease in the balance of residential mortgage loans. Excluding residential
mortgage loan balances, average loans for the quarter increased by $1.9 billion,
or 10 percent, over the same quarter in 1994, as demand for small business and
middle market loans, credit cards, home equity, and other consumer loans
remained strong.
TABLE 3.
Analysis of Net Interest Income
THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(DOLLARS IN MILLIONS) 1995 1994
Net interest income (taxable-equivalent basis) $360.5 $367.0
Average balances of earning assets supported by:
Interest-bearing liabilities $23,336 $24,210
Noninterest-bearing liabilities 6,144 6,477
Total earning assets $29,480 $30,687
Average yields and weighted average rates
(taxable-equivalent basis):
Earning assets yield 8.63% 7.71%
Rate paid on interest-bearing liabilities 4.77 3.76
Gross interest margin 3.86% 3.95%
Net interest margin 4.85% 4.74%
Net interest margin without taxable-equivalent increments 4.81% 4.69%
The average rate paid on interest-bearing liabilities in the third quarter of
1995 was 4.77 percent, or 101 basis points higher than for the same period in
1994. This is a result of increases in deposit rates, as well as a shift in mix
of average balances from lower cost core deposits to more expensive short-term
borrowings. In the third quarter, average interest-bearing deposits decreased
$1.7 billion, or 9 percent, and average noninterest-bearing deposits decreased
$.5 billion, or 9 percent, from the third quarter of 1994. The decrease in
average deposit balances reflects the divestiture in the current quarter of $848
million of deposits, as well as the national trend of consumers moving funds
into alternative investment vehicles over the past year.
The net interest margin on a taxable-equivalent basis was 4.85 percent in the
third quarter of 1995, an increase of 11 basis points from 4.74 percent a year
earlier. The margin increase results from both a shift in the mix of earning
assets, from lower margin securities and residential mortgage loan balances to
higher yield consumer and commercial loans, and the repricing of assets to
generally higher market interest rates over the past 12 months.
Compared with the second quarter of this year, net interest income on a
taxable-equivalent basis for the third quarter of 1995 decreased $2.5 million,
or 1 percent. The decline was primarily attributable to lower average yields on
earning assets, reflecting the decrease in market rates of interest in the third
quarter. The average cost of interest-bearing liabilities in the third quarter
was essentially unchanged from that of the second quarter, as a result of a
shift in balances from lower rate deposits to higher cost borrowings.
PROVISION FOR CREDIT LOSSES -- The provision for credit losses was $31.0 million
in the third quarter of 1995, up $4.0 million from the third quarter of 1994.
Net charge-offs totaled $30.0 million, down $.7 million from the same quarter a
year ago. Commercial loan net recoveries for the quarter were $2.5 million,
compared with net charge-offs of $.8 million in the third quarter of 1994.
Consumer loan net charge-offs remained relatively unchanged from the second
quarter of 1995, but increased $2.6 million, or 9 percent, from the third
quarter of 1994, reflecting the growth in the balance of nonmortgage consumer
loans over the past year.
The allowance for credit losses was $468.5 million at September 30, 1995, down
slightly from $474.7 million at December 31, 1994, and $477.7 million at
September 30, 1994. Reserve coverage remains strong as the allowance for credit
losses to nonperforming loans ratio increased to 400 percent at quarter-end
compared with 283 percent at the end of 1994 and 282 percent at the end of the
third quarter a year ago.
NONINTEREST INCOME -- Noninterest income in the third quarter of 1995 was $216.5
million, an increase of $46.2 million, or 27 percent, from the third quarter
last year, including a $31 million gain on the sale of 63 branches. Excluding
this gain, noninterest income was $15.2 million, or 9 percent, higher than in
the third quarter of 1994, reflecting growth in credit card and trust fees.
Credit card fees increased $13.5 million, or 27 percent, from the prior year
quarter, reflecting higher sales volumes for Purchasing Card, Corporate Card,
and FBS WorldPerks Visa Card. Trust fees increased $3.9 million, or 10 percent,
reflecting growth in personal trust and corporate trust fees.
TABLE 4.
Noninterest Income
THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(DOLLARS IN MILLIONS) 1995 1994
Credit card fees $62.7 $49.2
Trust fees 42.8 38.9
Service charges on deposit accounts 30.9 32.1
Insurance commissions 7.5 8.2
Trading account profits and commissions 2.4 2.1
Securities losses -- (2.8)
Gain on sale of branches 31.0 --
Other 39.2 42.6
Total noninterest income $216.5 $170.3
NONINTEREST EXPENSE -- Noninterest expense of $311.1 million for the third
quarter declined $1.5 million, or 1 percent, from the third quarter of 1994. In
the third quarter, FBS expensed unamortized software costs of approximately $23
million, primarily related to a change in the Company's policy to expense
software costs. The Company also recorded a charge of approximately $8 million
to write-off other miscellaneous assets. In addition, FBS received an FDIC
premium rebate of approximately $10 million, representing the difference between
the previous rate of 23 basis points and the new rate of four basis points on
Bank Insurance Fund deposits for the period from June 1, 1995 to September 30,
1995. Excluding these items, noninterest expense for the current quarter
decreased by $22.5 million, or 7 percent, from the third quarter of 1994.
Noninterest expense for the first nine months of 1995 was $918.6 million
compared with $913.7 million for the same period in 1994; excluding the FDIC
premium rebate and nonrecurring charges in the third quarter, 1995 year-to-date
noninterest expense was lower than 1994 by $16.1 million, or 2 percent. The
decrease in noninterest expense for the quarter and year-to-date periods in
1995, excluding these items, reflects ongoing expense control and efficiencies
realized through the integration of acquisitions. FBS's efficiency ratio
improved to 53.9 percent for the quarter from 57.9 percent for the same quarter
a year ago.
TABLE 5.
Noninterest Expense
THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(DOLLARS IN MILLIONS, EXCEPT PER EMPLOYEE DATA) 1995 1994
Salaries $108.0 $114.5
Employee benefits 22.1 27.1
Total personnel expense 130.1 141.6
Net occupancy 24.3 26.9
Furniture and equipment 23.5 21.5
Amortization of goodwill and other intangible assets 13.9 13.2
FDIC insurance 2.8 13.7
Advertising 8.4 7.7
Other personnel costs 11.0 8.5
Professional services 8.5 9.6
Data processing 4.2 4.8
Printing, stationery and supplies 5.4 5.6
Postage 5.4 5.8
Telephone 6.1 6.4
Other 67.5 47.3
Total noninterest expense $311.1 $312.6
Efficiency ratio* 53.9% 57.9%
Quarterly average number of employees (full-time
equivalents) 12,894 14,867
Annualized personnel expense per employee $40,360 $38,098
* Computed as noninterest expense divided by the sum of net interest income
on a taxable-equivalent basis and noninterest income net of securities
gains and losses.
Total salaries and benefits expense for the third quarter of 1995 decreased
$11.5 million, or 8 percent, from the third quarter of 1994. Average full-time
equivalent employees decreased 13 percent, to 12,894 in the third quarter of
1995, from 14,867 in the third quarter of 1994. The increase in furniture and
equipment expense in 1995 was primarily related to automated teller machines
deployed in Circle K convenience stores late in 1994 and lobby automation and
other equipment associated with acquisitions. The $2.5 million, or 29 percent,
increase in other personnel expense for the quarter, as compared with the same
period in 1994, resulted from contract programming costs associated with several
technology projects currently in process. FDIC insurance expense for the quarter
decreased $10.9 million as discussed above. A portion of FBS's deposits are
subject to assessment by the Savings Association Insurance Fund ("SAIF") and
continue to be assessed at the rate of 23 cents per $100 of deposits. Various
legislative proposals have been made, but not enacted, that would affect the
SAIF premium assessments, including a one-time special assessment for SAIF
deposits.
PROVISION FOR INCOME TAXES -- The provision for income taxes was $85.8 million
in the third quarter of 1995, compared with $74.3 million in the third quarter
of 1994. The increase was the result of higher taxable income.
BALANCE SHEET ANALYSIS
LOANS -- On an aggregate basis, the Company's loan portfolio increased $1.3
billion, or 5 percent, to $25.9 billion at September 30, 1995, from $24.6
billion at December 31, 1994.
Commercial Lending. FBS's portfolio of commercial loans totaled $12.0 billion at
September 30, 1995, up $1.1 billion from December 31, 1994. The increase
reflects growth in small and middle-market business lending and in Payment
Systems balances associated with Corporate and Purchasing Cards. The Company's
portfolios of loans to financial institutions, commercial real estate mortgages
and construction loans were relatively unchanged from December 31, 1994.
Consumer Lending. Total consumer loan outstandings were $13.9 billion at
September 30, 1995, up from $13.7 billion at December 31, 1994. A $508 million
increase primarily in home equity and second mortgages, residential mortgages
held for sale and automobile loans was offset by a $326 million decrease in
residential mortgage loans. Successful promotions continue to result in
increased home equity and second mortgages. Residential mortgages held for sale
increased due to seasonality and automobile loans increased due to growth in
indirect auto loans. Residential mortgage loans continue to decline as FBS
continues to shift its focus to other consumer loan products.
SECURITIES -- At September 30, 1995, securities were $3.3 billion compared with
$5.2 billion at December 31, 1994, reflecting the sale of $1.56 billion of
securities related to the management of the Company's interest rate risk.
DEPOSITS -- Noninterest-bearing deposits were $5.8 billion at September 30,
1995, down slightly from $5.9 billion at December 31, 1994. Interest-bearing
deposits were $16.1 billion at September 30, 1995, down $2.2 billion from
December 31, 1994. The decreases reflect the divestiture in the third quarter of
$848 million of deposits, as well as the national trend of consumer balances
moving into mutual fund, annuities and other investment products.
BORROWINGS -- Short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings,
were $4.2 billion at September 30, 1995, up from $3.2 billion at the end of
1994. The increase was funded by a net issuance of $1.7 billion of notes under a
$4 billion bank note program and a $1 billion thrift note program. The notes
have a weighted average interest rate of 5.78 percent and range in original
maturities from 30 days to nine months. Partially offsetting the bank note
issuance was the $1.0 billion reduction in federal funds purchased and
securities sold under agreements to repurchase.
Long-term debt was $3.1 billion at September 30, 1995, essentially unchanged
from $3.0 billion at December 31, 1994. In September 1995, FBS issued $250
million of 6.875 percent subordinated 12-year, noncallable notes. In April 1995,
the Company issued $150 million of 7.625 percent subordinated 10-year,
noncallable notes. The effect of these issuances was partially offset by the
call on the $86 million 8.25 percent subordinated note and maturities on other
outstanding debt. FBS also issued $300 million of medium-term bank notes during
the first nine months of 1995.
CORPORATE RISK MANAGEMENT
CREDIT MANAGEMENT -- The Company's credit management process includes central
credit policy and administration functions and standard underwriting criteria
for specialized lending categories, such as mortgage banking, real estate
construction, and consumer credit. FBS's credit management process is supported
by regular examinations conducted by the credit administration function.
Quarterly, management reviews large loans and all loans experiencing
deterioration of credit quality. A standard credit scoring system is used to
assess consumer credit risks and to price consumer products relative to their
assigned risk rating.
In evaluating credit risk, FBS considers the composition of its loan portfolio;
its level of allowance coverage; macroeconomic concerns, such as the level of
debt outstanding in the public and private sectors, the effects of domestic and
international economic conditions, and regional economic conditions; and other
issues. Approximately 78 percent of the loan portfolio consists of extensions of
credit to customers in the Company's primary operating region, which includes
Minnesota, Colorado, Montana, North Dakota, South Dakota, Wisconsin, Iowa,
Kansas, Nebraska, Wyoming, and Illinois.
ANALYSIS OF NET CHARGE-OFFS AND ALLOWANCE FOR CREDIT LOSSES -- Net loan
charge-offs totaled $30.0 million in the third quarter of 1995, down from $30.7
million in the third quarter of 1994. Commercial loan net recoveries for the
quarter were $2.5 million, compared with net charge-offs of $.8 million in the
third quarter of 1994, reflecting continued improvement in the credit quality of
this portfolio. Consumer loan net charge-offs increased $2.6 million, or 9
percent, from the third quarter of 1994, reflecting growth in the balance of
nonmortgage consumer loans and sales volume activity in credit card products
over the past year.
TABLE 6. Summary of Allowance for Credit Losses
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
(DOLLARS IN MILLIONS) 1995 1994 1995 1994
Balance at beginning of period $467.5 $480.2 $474.7 $466.1
CHARGE-OFFS:
Commercial:
Commercial 7.5 9.7 19.4 46.4
Financial institutions -- -- -- 1.1
Real estate:
Commercial mortgage 3.9 3.2 14.8 16.6
Construction .1 -- .1 .1
Total commercial 11.5 12.9 34.3 64.2
Consumer:
Residential mortgage .9 1.8 2.9 3.9
Credit card 20.4 21.5 65.3 55.6
Other 19.9 12.2 55.7 36.0
Total consumer 41.2 35.5 123.9 95.5
Total 52.7 48.4 158.2 159.7
RECOVERIES:
Commercial:
Commercial 9.1 9.9 28.2 34.6
Financial institutions .3 -- .5 .2
Real estate:
Commercial mortgage 4.6 1.6 11.2 13.0
Construction -- .6 .1 .9
Total commercial 14.0 12.1 40.0 48.7
Consumer:
Residential mortgage -- .1 .4 .5
Credit card 2.8 2.3 8.5 6.8
Other 5.9 3.2 17.3 10.5
Total consumer 8.7 5.6 26.2 17.8
Total 22.7 17.7 66.2 66.5
NET CHARGE-OFFS:
Commercial:
Commercial (1.6) (.2) (8.8) 11.8
Financial institutions (.3) -- (.5) .9
Real estate:
Commercial mortgage (.7) 1.6 3.6 3.6
Construction .1 (.6) -- (.8)
Total commercial (2.5) .8 (5.7) 15.5
Consumer:
Residential mortgage .9 1.7 2.5 3.4
Credit card 17.6 19.2 56.8 48.8
Other 14.0 9.0 38.4 25.5
Total consumer 32.5 29.9 97.7 77.7
Total 30.0 30.7 92.0 93.2
Provision charged to operating expense 31.0 27.0 84.0 79.6
Additions related to acquisitions -- 1.2 1.8 25.2
Balance at end of period $468.5 $477.7 $468.5 $477.7
Allowance as a percentage of period-end loans 1.81% 1.96%
Allowance as a percentage of nonperforming loans 400 282
Allowance as a percentage of nonperforming assets 281 195
ANALYSIS OF NONPERFORMING ASSETS -- Nonperforming assets include all nonaccrual,
impaired, and restructured loans, other real estate and other nonperforming
assets owned by FBS. At September 30, 1995, nonperforming assets totaled $166.9
million, down $65.4 million, or 28 percent, from December 31, 1994. The ratio of
nonperforming assets to loans and other real estate improved to .64 percent at
September 30, 1995, from .94 percent at December 31, 1994. Significant decreases
occurred in virtually all categories of nonperforming assets.
TABLE 7.
Nonperforming Assets
SEPTEMBER 30 DECEMBER 31
(DOLLARS IN MILLIONS) 1995 1994
COMMERCIAL:
Commercial $ 22.6 $ 36.5
Real estate:
Commercial mortgage 45.1 71.0
Construction 2.2 1.6
Total commercial 69.9 109.1
CONSUMER:
Residential mortgage 30.7 43.5
Credit card 8.5 9.9
Other 8.0 5.4
Total consumer 47.2 58.8
Total nonperforming loans 117.1 167.9
OTHER REAL ESTATE 46.6 64.0
OTHER NONPERFORMING ASSETS 3.2 0.4
Total nonperforming assets $166.9 $232.3
Accruing loans 90 days or more past due $ 40.7 $ 23.4
Nonperforming loans to total loans .45% .68%
Nonperforming assets to total loans plus other real
estate .64 .94
INTEREST RATE RISK MANAGEMENT -- FBS's principal objective for interest rate
risk management is to control exposure of net interest income to risks
associated with interest rate movements. The Company uses derivative financial
instruments ("derivatives") to hedge on-balance sheet items and, to a lesser
extent, in connection with intermediated transactions for customers. FBS limits
market risk on intermediated transactions by entering into generally matching or
offsetting positions. The Company does not enter into derivative contracts for
speculative purposes.
Interest rate risk is measured and reported to the Company's Asset and Liability
Management Committee ("ALCO") through the use of traditional gap analysis which
measures the difference between assets and liabilities that reprice in a given
time period, simulation modeling which produces projections of net interest
income under various interest rate scenarios and balance sheet strategies, and
valuation modeling which measures the economic value of various components of
the balance sheet under various interest rate scenarios. The significant
assumptions used in these analyses include the amount and timing of changes in
prime and deposit rates compared with changes in money market rates, prepayment
risks and volume forecasts.
Including the effect of interest rate swaps, futures, options and other hedging
instruments, FBS had a cumulative positive repricing gap position at one year of
$260 million at September 30, 1995, indicating that more assets than liabilities
reprice within that period. While this analysis is useful as a point-in-time
measurement of interest rate risk, there are certain risks that the repricing
gap position does not capture, such as basis risk, prepayment risk, and other
option risks. Due to these limitations, management places a greater reliance on
simulation and valuation modeling to measure and manage interest rate risk.
The Company's policy is to maintain a low interest rate risk position by
limiting the amount of forecasted net interest income at risk over a 12-month
period assuming an immediate and sustained 100-basis point change in interest
rates. FBS invests in fixed rate assets or receives the fixed rate payment on
interest rate swaps as a hedge to maintain acceptable interest rate risk levels.
The derivatives the Company uses to achieve its hedging objectives are primarily
interest rate swaps, caps, and floors. As of September 30, 1995, FBS received
fixed-rate payments on $3.0 billion notional amount of interest rate swap
agreements and made payments based on variable interest rates. These swaps had
an average fixed rate of 6.82 percent and an average variable rate, which is
tied to various LIBOR rates, of 5.79 percent. The maturity of these agreements
ranged from one month to 12.0 years with an average remaining maturity of 4.3
years. Swaps increased net interest income by $5.6 million and $15.2 million for
the quarters ended September 30, 1995, and 1994, respectively.
TABLE 8. Interest Rate Swap Hedging Portfolio Notional Balances and Yields by
Maturity Date
At September 30, 1995 (Dollars in Millions)
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RECEIVE FIXED SWAPS* NOTIONAL INTEREST RATE INTEREST RATE
MATURITY DATE AMOUNT RECEIVED PAID
1995 (remaining three months) $135 6.72% 5.89%
1996 433 7.96 5.88
1997 275 6.42 5.84
1998 606 5.99 5.83
1999 575 6.88 5.55
After 1999** 950 6.93 5.85
Total $2,974 6.82% 5.79%
* At September 30, 1995, the Company does not have any swaps in its portfolio
which requires it to pay fixed-rate interest.
** At September 30, 1995, all swaps with a maturity after 1999 hedge fixed
rate subordinated notes.
FBS similarly uses interest rate caps and floors to minimize the impact of
fluctuating interest rates on earnings. The total notional amount of cap
agreements purchased as of September 30, 1995, was $200 million with a strike
level at 6.00 percent. The premium on caps is amortized over the life of the
cap. The total notional amount of floor agreements purchased as of September 30,
1995, was $1.25 billion with an average strike level at 4.17 percent and an
average remaining maturity of 2.0 years. The impact of caps and floors on
interest income was not material for the quarters ended September 30, 1995, or
1994.
Forward contracts, totaling $359 million at September 30, 1995, hedge the
interest rate risk of the fixed rate mortgage loans originated and held for sale
by the Company's mortgage subsidiary. FBS enters into foreign currency
commitments primarily as an intermediary for customers. The Company manages its
credit risk on derivative contracts through counterparty and credit limit
approvals and monitoring credit concentration risks. Refer to Note I on page 21
for further information on interest rate swaps and options.
CAPITAL MANAGEMENT -- The ratio of common equity to assets increased to 8.0
percent at September 30, 1995, from 7.3 percent at December 31, 1994. Common
equity per share was $20.33 at September 30, 1995, compared with $18.63 at
December 31, 1994. Total equity to assets was 8.3 percent at September 30, 1995,
up from 7.7 percent at December 31, 1994. The increases are primarily due to
earnings retention and improvement in the market value of available-for-sale
securities partially offset by the common stock repurchases.
Tier 1 and total risk-based capital ratios were 7.4 percent and 12.3 percent
on September 30, 1995, compared with 7.3 percent and 11.4 percent at December
31, 1994, respectively. The leverage ratio, the measure of Tier 1 capital to
total quarterly average assets, also increased to 6.7 percent from 6.2 percent
at the end of 1994.
TABLE 9. Capital Ratios
SEPTEMBER 30 DECEMBER 31
(DOLLARS IN MILLIONS) 1995 1994
Common equity $2,631 $2,494
As a percent of assets 8.0% 7.3%
Tangible common equity* $2,219 $2,082
As a percent of assets 6.8% 6.2%
Total shareholders' equity $2,736 $2,612
As a percent of assets 8.3% 7.7%
Tier 1 capital $2,171 $2,052
As a percent of risk-adjusted assets 7.4% 7.3%
Total risk-based capital $3,620 $3,227
As a percent of risk-adjusted assets 12.3% 11.4%
Leverage ratio 6.7 6.2
*Defined as common equity less goodwill
On July 19, 1995, the Board of Directors authorized a common stock repurchase
program for 8.3 million shares which is approximately one-half of the number of
shares to be issued in the purchase acquisition of FirsTier Financial, Inc.
During the first quarter of 1995, the Board of Directors authorized two common
stock repurchase programs totaling 16 million shares. A two million share
authorization, which provided shares for stock purchase and option plans and for
the purchase acquisition of First Western Corporation, was completed during the
second quarter. A 14 million share authorization is intended to allow FBS to buy
back shares in connection with future excess capital retention expected through
December 31, 1996, and is predicated upon such excess capital, as well as for
stock purchase and option plans. As of September 30, 1995, approximately 8.0
million shares have been repurchased under the three programs.
As discussed in Note C, FBS and First Interstate Bancorp have announced a merger
agreement to be accounted for as a pooling. Consistent with the accounting
requirements under a pooling, FBS will not purchase treasury shares under its
existing authorizations within 90 days of the consummation of the merger (i.e.,
in the second and third quarters of 1996). After that time, consistent with its
prior practice, FBS expects to resume its capital management program to the
extent necessary to manage future excess capital retention. At September 30,
1995, approximately 16.3 million shares were available for repurchase under
previous authorizations. As previously announced, the Company expects to
repurchase approximately 8 million shares in connection with its acquisition of
FirsTier.
ACCOUNTING CHANGES
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. ("SFAS") 114, "ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN" -- The Company adopted SFAS 114 January 1,
1995, which requires creditors to establish a valuation allowance when it is
probable that all the principal and interest due under the contractual terms of
a loan will not be collected. The adoption of SFAS 114 did not have a material
effect on the Company.
SFAS 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED
OF" -- The Company has not yet adopted SFAS 121 which requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
is not recoverable. SFAS 121 is effective for fiscal years beginning after
December 15, 1995, and is not expected to have a material effect on the Company.
SFAS 122, "ACCOUNTING FOR MORTGAGE SERVICING RIGHTS" -- SFAS 122, issued in May
1995, amends SFAS 65, "Accounting for Certain Mortgage Banking Activities," to
require that entities engaged in mortgage banking activities recognize rights to
service mortgage loans for others as separate assets, whether those rights were
acquired through loan origination activities or through purchase transactions.
In addition, a valuation reserve is established for impairment of the mortgage
servicing rights. The Statement applies to fiscal years beginning after December
15, 1995; the adoption of SFAS 122 is not expected to have a material effect on
the Company.
For further information on accounting changes, refer to Note B on page 17.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30 DECEMBER 31
(IN MILLIONS, EXCEPT SHARES) 1995 1994
(UNAUDITED)
ASSETS
Cash and due from banks $ 1,586 $ 1,707
Federal funds sold 27 135
Securities purchased under agreements to resell 233 336
Trading account securities 164 77
Available-for-sale securities 3,302 5,185
Loans 25,877 24,556
Less allowance for credit losses 469 475
Net loans 25,408 24,081
Bank premises and equipment 410 479
Interest receivable 189 198
Customers' liability on acceptances 165 178
Other assets 1,474 1,752
Total assets $ 32,958 $ 34,128
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 5,779 $ 5,933
Interest-bearing 16,116 18,323
Total deposits 21,895 24,256
Federal funds purchased 1,330 1,630
Securities sold under agreements to repurchase 272 938
Other short-term funds borrowed 2,554 658
Long-term debt 3,127 2,981
Acceptances outstanding 165 178
Other liabilities 879 875
Total liabilities 30,222 31,516
Shareholders' equity:
Preferred stock 105 118
Common stock, par value $1.25 a share-authorized
200,000,000 shares; issued:
9/30/95 - 135,632,324 shares;
12/31/94 - 134,599,409 shares 169 168
Capital surplus 900 866
Retained earnings 1,837 1,593
Unrealized loss on securities, net of tax (3) (106)
Less cost of common stock in treasury:
9/30/95 - 6,202,961 shares; 12/31/94 - 767,000 shares (272) (27)
Total shareholders' equity 2,736 2,612
Total liabilities and shareholders' equity $ 32,958 $ 34,128
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
(IN MILLIONS, EXCEPT PER-SHARE DATA) SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
(UNAUDITED) 1995 1994 1995 1994
INTEREST INCOME
Loans $573.8 $491.3 $1,693.0 $1,393.3
Securities:
Taxable 52.6 89.7 175.2 242.0
Exempt from federal income taxes 2.8 3.0 8.4 9.1
Other interest income 8.3 8.4 26.4 23.8
Total interest income 637.5 592.4 1,903.0 1,668.2
INTEREST EXPENSE
Deposits 173.0 151.5 538.2 433.1
Federal funds purchased and repurchase agreements 24.8 34.5 87.6 66.5
Other short-term funds borrowed 34.6 3.8 56.8 11.5
Long-term debt 48.0 39.5 140.5 104.3
Total interest expense 280.4 229.3 823.1 615.4
Net interest income 357.1 363.1 1,079.9 1,052.8
Provision for credit losses 31.0 27.0 84.0 79.6
Net interest income after provision for
credit losses 326.1 336.1 995.9 973.2
NONINTEREST INCOME
Credit card fees 62.7 49.2 171.0 128.7
Trust fees 42.8 38.9 127.5 117.5
Service charges on deposit accounts 30.9 32.1 93.3 96.6
Insurance commissions 7.5 8.2 20.8 21.4
Securities losses -- (2.8) -- (2.8)
Gain on sale of branches 31.0 -- 31.0 --
Other 41.6 44.7 142.2 136.1
Total noninterest income 216.5 170.3 585.8 497.5
NONINTEREST EXPENSE
Salaries 108.0 114.5 329.9 334.2
Employee benefits 22.1 27.1 76.0 81.3
Net occupancy 24.3 26.9 74.3 78.8
Furniture and equipment 23.5 21.5 71.8 65.7
Amortization of goodwill and other
intangible assets 13.9 13.2 42.2 36.6
FDIC insurance 2.8 13.7 30.2 44.0
Advertising 8.4 7.7 23.9 27.0
Other personnel costs 11.0 8.5 28.4 27.1
Professional services 8.5 9.6 25.6 26.6
Data processing 4.2 4.8 12.9 14.7
Other 84.4 65.1 203.4 177.7
Total noninterest expense 311.1 312.6 918.6 913.7
Income from continuing operations before
income taxes 231.5 193.8 663.1 557.0
Applicable income taxes 85.8 74.3 245.7 210.1
Income from continuing operations 145.7 119.5 417.4 346.9
Loss from discontinued operations -- (7.0) -- (6.6)
Net income $145.7 $112.5 $ 417.4 $ 340.3
Net income applicable to common equity $143.9 $110.3 $ 411.8 $ 330.0
EARNINGS PER COMMON SHARE
Average common and common equivalent shares 133,648,942 137,944,608 135,007,519 136,029,810
Income from continuing operations $ 1.08 $ .85 $ 3.05 $ 2.47
Loss from discontinued operations -- (.05) -- (.04)
Net income $ 1.08 $ .80 $ 3.05 $ 2.43
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
UNREALIZED
COMMON GAINS/(LOSSES)
(IN MILLIONS, EXCEPT SHARES) SHARES PREFERRED COMMON CAPITAL RETAINED ON SECURITIES, TREASURY
(UNAUDITED) OUTSTANDING* STOCK STOCK SURPLUS EARNINGS NET OF TAXES STOCK** TOTAL
BALANCE DECEMBER 31, 1993 130,408,480 $278.1 $169.8 $852.2 $1,575.4 $ 38.0 $(169.4) $2,744.1
Net Income 340.3 340.3
Dividends declared:
Preferred (10.3) (10.3)
Common (117.0) (117.0)
Purchase of treasury stock (4,231,700) (.9) (17.2) (124.2) (142.3)
Repurchase of stock warrants (2.3) (2.3)
Acquisition of Boulevard Bancorp,
Inc. for common stock, warrants,
and stock options 6,227,649 1.9 54.9 149.4 206.2
Other business combinations 1,385,806 (13.9) 48.1 34.2
Issuance of common stock:
Dividend reinvestment 138,194 .2 4.7 4.9
Stock option and stock
purchase plans 1,227,594 .5 7.1 (13.4) 26.3 20.5
Stock warrants exercised 545,186 .2 1.0 (8.0) 13.1 6.3
Redemption of preferred stock (160.0) (7.0) (167.0)
Change in unrealized
gains/(losses) (117.2) (117.2)
BALANCE SEPTEMBER 30, 1994 135,701,209 $118.1 $171.5 $895.9 $1,746.1 $ (79.2) $(52.0) $2,800.4
BALANCE DECEMBER 31, 1994 133,832,409 $118.1 $168.3 $865.8 $1,592.8 $(106.4) $(26.7) $2,611.9
Net Income 417.4 417.4
Dividends declared:
Preferred (5.6) (5.6)
Common (145.2) (145.2)
Purchase of treasury stock (7,991,505) (341.8) (341.8)
Business combinations 1,619,998 .3 4.3 52.4 57.0
Issuance of common stock:
Dividend reinvestment 169,590 .3 6.8 7.1
Stock option and stock
purchase plans 1,725,303 .9 29.2 (20.1) 35.1 45.1
Stock warrants exercised 34,404 (1.0) 1.2 .2
Redemption/conversion of
preferred stock 39,164 (13.3) (1.3) 1.5 (13.1)
Change in unrealized
gains/(losses) 103.2 103.2
BALANCE SEPTEMBER 30, 1995 129,429,363 $104.8 $169.5 $899.6 $1,837.0 $ (3.2) $(271.5) $2,736.2
* Defined as total common shares less common stock held in treasury.
** Ending treasury shares were 6,202,961 at September 30, 1995; 767,000 at
December 31, 1994; 1,496,525 at September 30, 1994; and 5,391,883 at
December 31, 1993.
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(UNAUDITED, IN MILLIONS) 1995 1994
OPERATING ACTIVITIES
Net cash provided by operating activities $ 515.6 $ 1,321.3
INVESTING ACTIVITIES
Net cash provided (used) by:
Interest-bearing deposits with banks 29.1 60.4
Loans outstanding (996.1) (1,400.3)
Securities purchased under agreements to resell 103.6 24.5
Available-for-sale securities:
Sales 1,978.1 991.1
Maturities 411.3 956.0
Purchases (296.6) (879.2)
Investment securities:
Maturities -- 240.3
Purchases -- (283.4)
Proceeds from sales/repayments of other real estate 34.6 88.9
Net purchases of bank premises and equipment (4.1) (45.0)
Cash and cash equivalents of acquired subsidiaries 16.3 74.5
Business acquisitions, net of cash received -- (107.2)
Other - net 2.5 (3.1)
Net cash provided (used) by investing activities 1,278.7 (282.5)
FINANCING ACTIVITIES
Net cash (used) provided by:
Deposits (2,624.4) (4,019.6)
Federal funds purchased and securities sold under
agreements to repurchase (965.9) 1,995.2
Short-term borrowings 1,885.2 (33.1)
Long-term debt transactions:
Proceeds 700.6 1,388.8
Principal payments (564.6) (730.6)
Redemption of preferred stock (13.1) (167.0)
Proceeds from issuance of common stock 52.4 31.7
Purchase of treasury stock and stock warrants (341.8) (144.6)
Cash dividends (150.8) (127.3)
Net cash used by financing activities (2,022.4) (1,806.5)
Change in cash and cash equivalents (228.1) (767.7)
Cash and cash equivalents at beginning of period 1,841.9 2,798.6
Cash and cash equivalents at end of period $ 1,613.8 $ 2,030.9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A. Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations, and cash flow activity required under generally
accepted accounting principles. In the opinion of management of the Company, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of results have been made and FBS believes such presentation is
adequate to make the information presented not misleading. For further
information, refer to FBS's Current Report on Form 8-K filed March 3, 1995,
which includes a copy of the Company's restated consolidated financial
statements and footnotes for the year ended December 31, 1994, which give effect
to the merger of Metropolitan Financial Corporation, as discussed in Note C
below. Certain amounts in prior periods have been reclassified to conform to the
current presentation.
NOTE B. Accounting Changes
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -- Effective January 1, 1995,
FBS adopted Statement of Financial Accounting Standards No. ("SFAS") 114,
"Accounting by Creditors for Impairment of a Loan." This Statement requires
creditors to establish a valuation allowance when it is probable that all the
principal and interest due under the contractual terms of a loan will not be
collected. The impairment is measured based on the present value of expected
future cash flows based on the effective interest rate of the loan, or the
observable market price or the fair value of a collateral dependent loan. This
differs from the Company's prior policy in that it requires the establishment of
a valuation allowance for uncollectible interest in addition to the principal
amounts of impaired loans. The Statement also requires the reclassification of
in-substance foreclosures from other real estate to nonperforming loans for all
periods if the Company has not taken possession of the collateral. The adoption
of SFAS 114 did not have a material effect on the Company.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF -- FBS has not yet adopted SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The impairment is
measured based on the present value of expected future cash flows from the use
of the asset and its eventual disposition. If the expected future cash flows are
less than the carrying amount of the asset, an impairment loss is recognized
based on current fair values. The Statement is effective for fiscal years
beginning after December 15, 1995, and is not expected to have a material effect
on the Company.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS -- SFAS 122, "Accounting for Mortgage
Servicing Rights," issued in May 1995, amends SFAS 65, "Accounting for Certain
Mortgage Banking Activities," to require that entities engaged in mortgage
banking activities recognize rights to service mortgage loans for others as
separate assets, whether those rights were acquired through loan origination
activities or through purchase transactions. In addition, a valuation reserve is
established for impairment of the mortgage servicing rights based on the
predominant risk characteristics of the underlying loans and subsequently
adjusted to reflect changes in the fair value of the servicing rights. The
Statement applies to fiscal years beginning after December 15, 1995; the
adoption of SFAS 122 is not expected to have a material effect on the Company.
NOTE C. Business Combinations and Divestitures
FIRST INTERSTATE BANCORP -- On November 6, 1995, FBS and First Interstate
Bancorp ("FI") announced that they had entered into a definitive agreement
whereby FBS will exchange 2.6 shares of its common stock for each share of FI
common stock (and cash in lieu of fractional shares). The combined institution,
which will use the First Interstate Bancorp name, will have approximately $90
billion in assets and $7 billion in shareholders' equity. The transaction, which
will qualify as a tax-free reorganization and be accounted for as a pooling of
interests, is subject to shareholder and regulatory approvals and is expected to
close in the second quarter of 1996.
FIRSTIER FINANCIAL, INC. -- On August 7, 1995, FBS announced an agreement to
acquire FirsTier Financial, Inc. ("FirsTier"), a regional financial services
holding company based in Omaha, Nebraska. As of September 30, 1995, FirsTier had
$3.6 billion in assets, $2.8 billion in deposits and operated 63 offices in
Nebraska and Iowa. Subject to FirsTier shareholder and regulatory approvals, the
Company will exchange .8829 shares of FBS common stock for each common share of
FirsTier, resulting in a per share price of $38 at the date of the announcement
of the transaction. The aggregate purchase price for the transaction as of the
announcement date was approximately $714 million. The transaction, which will be
accounted for as a purchase, is expected to close in the first quarter of 1996.
METROPOLITAN FINANCIAL CORPORATION -- On January 24, 1995, the Company issued
21.7 million shares to complete the merger with Metropolitan Financial
Corporation ("MFC"), a regional financial services holding company headquartered
in Minneapolis, Minnesota. As of December 31, 1994, MFC had approximately $7.9
billion in assets, $5.5 billion in deposits and 211 offices principally in North
Dakota, Minnesota, Nebraska, Iowa, Kansas, South Dakota, Wisconsin, and Wyoming.
FBS used the pooling of interests method to account for the transaction.
Accordingly, the Company's financial statements have been restated for all
periods prior to the merger to include the accounts and operations of MFC.
BOULEVARD BANCORP, INC. -- On March 25, 1994, FBS completed the acquisition of
Boulevard Bancorp, Inc. ("Boulevard"), a $1.6 billion commercial bank holding
company headquartered in Chicago, Illinois, which was accounted for as a
purchase. Under the terms of the purchase agreement, 6.2 million shares of the
Company's common stock were issued and Boulevard's outstanding stock options and
warrants were converted into stock options and warrants for the Company's common
stock. The Company bought back existing shares of its common stock approximately
equal to the number of shares issued at the time of closing of the Boulevard
acquisition. The results of operations of Boulevard are included in the
Company's Consolidated Statement of Income since the date of acquisition.
OTHER ACQUISITIONS -- On August 22, 1995, FBS announced that it had signed a
definitive agreement to acquire the corporate trust business of BankAmerica
Corporation. After the acquisition, the Company will be the nation's leading
provider of domestic corporate trust services as measured by revenues, which
will approximate $145 million. The acquisition requires regulatory approvals and
is expected to close on various dates in the fourth quarter of 1995 and the
first quarter of 1996.
On November 1, 1995, the Company completed the acquisition of two commercial
banking holding companies -- Midwestern Services, Inc. and Southwest
Holdings, Inc. -- both of Omaha, Nebraska. Together, the two companies have
total assets of $424 million, total deposits of $380 million, and 12 branches
in Omaha.
The Company completed the acquisition of First Western Corporation, parent
company of Western Bank, on March 16, 1995, with $317 million in assets and nine
branches in and around Sioux Falls, South Dakota. On March 25, 1994, the Company
completed the acquisition of Rocky Mountain Financial Corporation, a $537
million savings bank holding company located in Cheyenne, Wyoming. Both of these
acquisitions were accounted for as purchases.
PLANNED DISVESTITURES -- On September 7, 1995, FBS announced that it will seek a
buyer for its mortgage banking company and that it will instead deliver mortgage
loan products through its bank branches and telemarketing.
The Company announced on September 20, 1995 an agreement to sell Edina Reality,
Inc., its real estate brokerage subsidiary, to a local investor group. This
subsidiary is accounted for as discontinued operations.
NOTE D. Securities
The detail of the amortized cost and fair value of available-for-sale securities
consisted of the following:
SEPTEMBER 30, 1995 DECEMBER 31, 1994
AMORTIZED FAIR AMORTIZED FAIR
(IN MILLIONS) COST VALUE COST VALUE
U.S. Treasury $919 $911 $1,177 $1,113
Mortgage-backed securities 1,782 1,758 3,400 3,297
Other U.S. agencies 176 175 333 323
State and political 173 178 178 181
Other 257 280 269 271
Total $3,307 $3,302 $5,357 $5,185
NOTE E. Loans
The composition of the loan portfolio was as follows:
SEPTEMBER 30 DECEMBER 31
(IN MILLIONS) 1995 1994
COMMERCIAL:
Commercial $8,311 $7,285
Financial institutions 851 787
Real estate:
Commercial mortgage 2,476 2,454
Construction 356 330
Total commercial loans 11,994 10,856
CONSUMER:
Residential mortgage 4,772 5,098
Residential mortgage held for sale 357 197
Home equity and second mortgage 2,704 2,453
Credit card 2,397 2,409
Automobile 1,867 1,770
Revolving credit 742 725
Installment 644 712
Student 400 336
Total consumer loans 13,883 13,700
Total loans $25,877 $24,556
At September 30, 1995, FBS had $70 million in loans considered impaired under
SFAS 114, included in its nonaccrual loans. Of this amount, $64 million was
measured using the fair value of the loans' collateral, and $6 million was below
the Company's threshold for valuing individual loans. The carrying value of the
impaired loans was less than or equal to the present value of expected future
cash flows and, accordingly, no allowance for credit losses was specifically
allocated to impaired loans. For the quarter ended September 30, 1995, the
average recorded investment in impaired loans was approximately $79 million. No
interest income was recognized on these impaired loans during the quarter.
NOTE F. Long-Term Debt
Long-term debt (debt with original maturities of more than one year) consisted
of the following:
SEPTEMBER 30 DECEMBER 31
(IN MILLIONS) 1995 1994
Floating-rate subordinated capital notes - due November 29, 1996 $149 $150
Fixed-rate subordinated notes:
8.25% due October 1, 1999 -- 86
6.625% due May 15, 2003 100 100
6.00% due October 15, 2003 100 100
7.55% due June 15, 2004 100 100
8.00% due July 2, 2004 125 125
8.35% due November 1, 2004 100 100
7.625% due May 1, 2005 150 --
6.875% due September 15, 2007 250 --
Step-up subordinated notes - due August 15, 2005 100 100
Floating-rate subordinated notes - due November 30, 2010 107 107
Federal Home Loan Bank advances (4.24% to 7.90%) - maturities to May 2008 1,102 1,385
Medium-term notes (5.7825%to 9.89%) - maturities to November 1997 651 514
Other 93 114
Total $3,127 $2,981
NOTE G. Shareholders' Equity
On July 19, 1995, the Board of Directors authorized an 8.3 million common stock
repurchase program which is approximately one-half of the number of shares to be
issued in the purchase acquisition of FirsTier Financial, Inc. During the first
quarter of 1995, the Board of Directors authorized two common stock repurchase
programs totaling 16 million shares. A two million share authorization, which
provided shares for stock purchase and option plans and for the purchase
acquisition of First Western Corporation, was completed during the second
quarter. A 14 million share authorization will allow FBS to buy back shares in
connection with future excess capital retention expected through December 31,
1996, and is predicated upon such excess capital, as well as for stock purchase
and option plans. As of September 30, 1995, approximately 8.0 million shares
have been repurchased under the three programs, and approximately 1.8 million of
these shares have been reissued for the designated purposes.
As discussed in Note C, FBS and First Interstate Bancorp have announced a merger
agreement to be accounted for as a pooling. Consistent with the accounting
requirements under a pooling, FBS will not purchase treasury shares under its
existing authorizations within 90 days of the consummation of the merger (i.e.,
in the second and third quarters of 1996). After that time, consistent with its
prior practice, FBS expects to resume its capital management program to the
extent necessary to manage future excess capital retention. At September 30,
1995, approximately 16.3 million shares were available for repurchase under
previous authorizations. As previously announced, the Company expects to
repurchase approximately 8 million shares in connection with its acquisition of
FirsTier.
NOTE H. Income Taxes
The components of income tax expense were:
THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(IN MILLIONS) 1995 1994
FEDERAL:
Current tax $65.0 $47.1
Deferred tax provision 11.8 15.7
Federal income tax 76.8 62.8
STATE:
Current tax 11.3 10.9
Deferred tax (credit) provision (2.3) .6
State income tax 9.0 11.5
Total income tax provision $85.8 $74.3
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:
THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(IN MILLIONS) 1995 1994
Tax at statutory rate (35%) $81.0 $67.9
State income tax, net of federal tax benefit 5.8 7.8
Tax effect of:
Tax-exempt interest:
Loans (1.3) (1.5)
Securities (.9) (1.1)
Amortization of goodwill 3.0 2.7
Other items (1.8) (1.5)
Applicable income taxes $85.8 $74.3
The Company's net deferred tax asset was $244.8 million at September 30, 1995,
and $363.0 million at December 31, 1994.
NOTE I. Commitments, Contingent Liabilities and Off-Balance Sheet Financial
Instruments
The Company uses various financial instruments that have off-balance sheet risk
in the normal course of business to manage its interest rate risk and to meet
the financing needs of its customers. The contract or notional amounts of these
financial instruments were as follows:
SEPTEMBER 30 DECEMBER 31
(IN MILLIONS) 1995 1994
Commitments to extend credit:
Commercial $6,792 $7,006
Corporate and purchasing cards 8,942 3,210
Consumer credit card 8,690 7,875
Other consumer 3,148 2,628
Letters of credit:
Standby 1,374 1,321
Commercial 185 175
Interest rate swap contracts:
Hedge 2,974 2,674
Intermediated 169 127
Interest rate option contracts:
Hedge interest rate floors purchased 1,250 950
Hedge interest rate caps purchased 200 250
Intermediated interest rate caps and floors purchased 141 127
Intermediated interest rate caps and floors written 141 127
Liquidity support guarantees and forward and option
contracts 545 338
Foreign currency commitments:
Commitments to purchase 1,304 941
Commitments to sell 1,303 941
Mortgages sold with recourse 246 312
Commitment to sell loans 349 935
Activity for the nine months ending September 30, 1995, with respect to interest
rate swaps which the Company uses to hedge commercial loans, medium-term notes,
subordinated debt, deposit notes, long-term certificates of deposit, deposit
accounts, and savings certificates was as follows:
(In Millions)
Notional amount outstanding at December 31, 1994 $2,674
Additions 625
Maturities 325
Notional amount outstanding at September 30, 1995 $2,974
The weighted average interest rates paid on interest rate swaps designated as
hedges were 5.79 percent and 6.09 percent at September 30, 1995, and December
31, 1994, respectively. At these same dates, the weighted average interest rates
received were 6.82 percent and 6.91 percent. FBS receives fixed and pays
floating on all hedges as of September 30, 1995. Net unamortized deferred gains
were $4.1 million at September 30, 1995, which amortize through 2000.
Interest rate floors totaling $950 million with an average remaining maturity of
2.2 years at September 30, 1995, and 3.0 years at December 31, 1994, hedged
floating rate commercial loans. Interest rate floors totaling $300 million with
an average remaining maturity of 1.0 years at September 30, 1995, hedged the
reinvestment risk of fixed rate residential mortgage loans. For interest rate
floors designated as hedges, the strike rate ranged from 3.25 percent to 6.36
percent at September 30, 1995, and 3.25 percent to 4.0 percent for December 31,
1994. At September 30, 1995, the total notional amount of interest rate caps
purchased was $200 million with a strike level at 6.0 percent. The total
notional amount of interest rate caps purchased at December 31, 1994, was $250
million with an average strike level at 6.10 percent.
NOTE J. Supplemental Information to the Consolidated Financial Statements
CONSOLIDATED BALANCE SHEET -- Time certificates of deposit in denominations of
$100,000 or more totaled $1,047 million and $1,318 million at September 30,
1995, and December 31, 1994, respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS -- Listed below are supplemental
disclosures to the Consolidated Statement of Cash Flows.
NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(IN MILLIONS) 1995 1994
Income taxes paid $ 168.4 $ 138.2
Interest paid 785.2 595.5
Net noncash transfers to foreclosed property 15.8 30.3
Change in unrealized gain (loss) on available-for-sale
securities, net of taxes of $63.5 in 1995 and $48.8
in 1994 103.2 (117.2)
Cash acquisitions of businesses:
Fair value of noncash assets acquired $ -- $ 805.9
Liabilities assumed -- (698.7)
Net $ -- $ 107.2
Stock acquisitions of businesses:
Fair value of noncash assets acquired $ 329.3 $ 1,805.8
Net cash acquired 16.3 74.5
Liabilities assumed (288.6) (1,648.0)
Net value of common stock issued $ 57.0 $ 232.3
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
1995 1994 % CHANGE
INTEREST INTEREST AVERAGE
YIELDS YIELDS BALANCE
FOR THE THREE MONTHS ENDED SEPTEMBER 30 AND AND INCREASE
(IN MILLIONS) BALANCE INTEREST RATES BALANCE INTEREST RATES (DECREASE)
ASSETS
Securities:
U.S. Treasury $919 $14.6 6.30% $1,591 $21.0 5.24% (42.2)%
Mortgage-backed securities 1,831 31.1 6.74 3,612 58.7 6.45 (49.3)
State & political subdivisions 173 4.5 10.32 187 4.9 10.40 (7.5)
U.S. agencies and other 433 6.6 6.05 687 9.5 5.49 (37.0)
Total securities 3,356 56.8 6.71 6,077 94.1 6.14 (44.8)
Unrealized loss on available-for-sale
securities (13) (94)
Net securities 3,343 5,983
Trading account securities 87 1.2 5.47 72 .9 4.96 20.8
Federal funds sold and resale agreements 263 3.8 5.73 348 4.0 4.56 (24.4)
Loans:
Commercial:
Commercial 8,091 173.5 8.51 7,004 134.0 7.59 15.5
Financial institutions 814 8.7 4.24 919 5.8 2.50 (11.4)
Real estate:
Commercial mortgage 2,406 55.4 9.14 2,415 52.4 8.61 (.4)
Construction 340 8.1 9.45 274 5.6 8.11 24.1
Total commercial 11,651 245.7 8.37 10,612 197.8 7.39 9.8
Consumer:
Residential mortgage 4,841 92.0 7.54 5,182 94.0 7.20 (6.6)
Residential mortgage held for sale 358 6.8 7.54 298 5.7 7.59 20.1
Home equity and second mortgage 2,679 65.8 9.74 2,335 51.9 8.82 14.7
Credit card 2,347 73.4 12.41 2,185 65.5 11.89 7.4
Other 3,660 92.2 9.99 3,325 78.8 9.40 10.1
Total consumer 13,885 330.2 9.43 13,325 295.9 8.81 4.2
Total loans 25,536 575.9 8.95 23,937 493.7 8.18 6.7
Allowance for credit losses 469 487 (3.7)
Net loans 25,067 23,450 6.9
Other earning assets 238 3.2 5.33 253 3.6 5.65 (5.9)
Total earning assets* 29,480 640.9 8.63 30,687 596.3 7.71 (3.9)
Cash and due from banks 1,659 1,695 (2.1)
Other assets 2,111 2,107 .2
Total assets $32,768 $33,908 (3.4)%
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $5,591 $6,113 (8.5)%
Interest-bearing deposits:
Interest checking 2,728 10.1 1.47 2,907 11.1 1.51 (6.2)
Money market accounts 3,871 36.9 3.78 3,982 27.7 2.76 (2.8)
Other savings accounts 1,633 9.7 2.36 2,295 12.8 2.21 (28.8)
Savings certificates 7,256 98.9 5.41 7,686 80.4 4.15 (5.6)
Certificates over $100,000 1,028 17.4 6.72 1,354 19.5 5.71 (24.1)
Total interest-bearing deposits 16,516 173.0 4.16 18,224 151.5 3.30 (9.4)
Short-term borrowings 3,928 59.4 6.00 3,245 38.3 4.68 21.0
Long-term debt 2,892 48.0 6.58 2,741 39.5 5.72 5.5
Total interest-bearing liabilities 23,336 280.4 4.77 24,210 229.3 3.76 (3.6)
Other liabilities 1,043 817 27.7
Preferred equity 105 118 (11.0)
Common equity 2,701 2,710 (.3)
Unrealized loss on available-for-sale
securities, net of taxes (8) (60) (86.7)
Total liabilities and shareholders' equity $32,768 $33,908 (3.4)%
Net interest income $360.5 $367.0
Gross interest margin 3.86% 3.95%
Gross interest margin without taxable-
equivalent increments 3.81% 3.90%
Net interest margin 4.85% 4.74%
Net interest margin without taxable-
equivalent increments 4.81% 4.69%
Interest and rates are presented on a fully taxable-equivalent basis under a tax
rate of 35 percent.
Interest income and rates on loans include loan fees. Nonaccrual loans are
included in average loan balances.
* Before deducting the allowance for credit losses and excluding the unrealized
loss on available-for-sale securities.
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
1995 1994 % CHANGE
INTEREST INTEREST AVERAGE
YIELDS YIELDS BALANCE
FOR THE NINE MONTHS ENDED SEPTEMBER 30 AND AND INCREASE
(IN MILLIONS) BALANCE INTEREST RATES BALANCE INTEREST RATES (DECREASE)
ASSETS
Securities:
U.S. Treasury $990 $46.0 6.21% $1,681 $65.9 5.24% (41.1)%
Mortgage-backed securities 2,069 105.8 6.84 3,154 149.6 6.34 (34.4)
State & political subdivisions 175 13.9 10.62 192 15.1 10.51 (8.9)
U.S. agencies and other 490 22.2 6.06 608 25.0 5.50 (19.4)
Total securities 3,724 187.9 6.75 5,635 255.6 6.06 (33.9)
Unrealized loss on available-for-sale
securities (66) (38)
Net securities 3,658 5,597
Trading account securities 87 3.5 5.38 66 2.2 4.46 31.8
Federal funds sold and resale agreements 289 12.8 5.92 420 11.9 3.79 (31.2)
Loans:
Commercial:
Commercial 7,920 515.3 8.70 6,707 362.2 7.22 18.1
Financial institutions 727 22.2 4.08 1,251 23.1 2.47 (41.9)
Real estate:
Commercial mortgage 2,426 163.8 9.03 2,325 148.2 8.52 4.3
Construction 353 25.0 9.47 254 14.6 7.69 39.0
Total commercial 11,426 726.3 8.50 10,537 548.1 6.95 8.4
Consumer:
Residential mortgage 4,970 281.9 7.58 5,465 294.0 7.19 (9.1)
Residential mortgage held for sale 248 14.3 7.71 439 22.9 6.97 (43.5)
Home equity and second mortgage 2,571 185.7 9.66 2,158 137.6 8.53 19.1
Credit card 2,311 216.9 12.55 1,983 179.7 12.12 16.5
Other 3,641 274.0 10.06 3,173 217.9 9.18 14.7
Total consumer 13,741 972.8 9.47 13,218 852.1 8.62 4.0
Total loans 25,167 1,699.1 9.03 23,755 1,400.2 7.88 5.9
Allowance for credit losses 473 487 (2.9)
Net loans 24,694 23,268 6.1
Other earning assets 234 10.1 5.77 248 9.8 5.28 (5.6)
Total earning assets* 29,501 1,913.4 8.67 30,124 1,679.7 7.46 (2.1)
Cash and due from banks 1,681 1,722 (2.4)
Other assets 2,151 2,059 4.5
Total assets $32,794 $33,380 (1.8)%
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $5,512 $6,407 (14.0)%
Interest-bearing deposits:
Interest checking 2,849 34.3 1.61 3,081 33.3 1.45 (7.5)
Money market accounts 3,846 108.7 3.78 4,099 79.1 2.58 (6.2)
Other savings accounts 1,753 32.7 2.49 2,137 36.0 2.25 (18.0)
Savings certificates 7,899 308.6 5.22 7,723 226.0 3.91 2.3
Certificates over $100,000 1,089 53.9 6.62 1,409 58.7 5.57 (22.7)
Total interest-bearing deposits 17,436 538.2 4.13 18,449 433.1 3.14 (5.5)
Short-term borrowings 3,185 144.4 6.06 2,411 78.0 4.33 32.1
Long-term debt 2,901 140.5 6.48 2,521 104.3 5.53 15.1
Total interest-bearing liabilities 23,522 823.1 4.68 23,381 615.4 3.52 .6
Other liabilities 1,022 851 20.1
Preferred equity 106 152 (30.3)
Common equity 2,676 2,613 2.4
Unrealized loss on available-for-sale
securities, net of taxes (44) (24) 83.3
Total liabilities and shareholders' equity $32,794 $33,380 (1.8)%
Net interest income $1,090.3 $1,064.3
Gross interest margin 3.99% 3.94%
Gross interest margin without taxable-
equivalent increments 3.94% 3.88%
Net interest margin 4.94% 4.72%
Net interest margin without taxable-
equivalent increments 4.89% 4.67%
Interest and rates are presented on a fully taxable-equivalent basis under a tax
rate of 35 percent.
Interest income and rates on loans include loan fees. Nonaccrual loans are
included in average loan balances.
* Before deducting the allowance for credit losses and excluding the unrealized
loss on available-for-sale securities.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 Computation of Primary and Fully Diluted Net Income Per Common Share
12 Computation of Ratio of Earnings to Fixed Charges
27 Article 9 Financial Data Schedule*
(b) REPORTS ON FORM 8-K
During the three months ended September 30, 1995, FBS filed the following
reports on Form 8-K:
Form 8-K filed July 6, 1995, relating to the completion of
distribution agreements with certain underwriters for the public
offering of up to $750 million of medium-term notes.
Form 8-K filed August 18, 1995, relating to the Company's announcement
that it had signed a purchase agreement to acquire FirsTier Financial,
Inc. ("FirsTier").
Form 8-K/A filed on August 30, 1995, amending the Form 8-K filed on
August 18, 1995, to include FirsTier's historical financial statements
and pro forma financial information reflecting the acquisition of
FirsTier.
Form 8-K filed September 11, 1995, relating to the public offering of
$250 million of 6.875 percent subordinated notes.
* Copies of this exhibit will be furnished upon request and payment of the
Company's reasonable expenses in furnishing the exhibit.
SIGNATURE
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.
FIRST BANK SYSTEM, INC.
By: /s/ DAVID J. PARRIN
David J. Parrin
Senior Vice President & Controller
(Chief Accounting Officer and
Duly Authorized Officer)
DATE: November 9, 1995
[LOGO]
FIRST BANK SYSTEM
P.O. BOX 522
MINNEAPOLIS, MINNESOTA
55480
First Class
U.S. Postage
PAID
Permit No. 2440
Minneapolis, MN
SHAREHOLDER INQUIRIES
STOCK AND DIVIDEND INFORMATION
For matters related specifically to First Bank System stock records or dividend
payments, contact the Office of the Corporate Secretary, (612) 973-0334.
DIVIDEND REINVESTMENT
For information regarding First Bank System's dividend reinvestment plan,
contact First Chicago Trust Company of New York, P.O. Box 13531, Newark, New
Jersey 07188-0001, (800) 446-2617.
FINANCIAL INFORMATION
For further information contact John Danielson, Senior Vice President, (612)
973-2261, or Karin Glasgow, Assistant Vice President, (612) 973-2264.