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 MARCH 31, 1996
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 April 30, 1996
Common Stock, $1.25 Par Value 137,827,945 shares
FINANCIAL SUMMARY
THREE MONTHS ENDED
MARCH 31 MARCH 31
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1996 1995
Income before nonrecurring items $ 160.1 $ 133.8
Nonrecurring items 16.7 --
Net income $ 176.8 $ 133.8
PER COMMON SHARE
Primary income before nonrecurring items $ 1.16 $ .97
Nonrecurring items .12 --
Primary net income $ 1.28 $ .97
Fully diluted income before nonrecurring items $ 1.14 $ .96
Nonrecurring items .12 --
Fully diluted net income $ 1.26 $ .96
Earnings on a cash basis (fully diluted)* $ 1.59 $ 1.06
Dividends paid .4125 .3625
Common shareholders' equity 22.92 19.58
RETURN ON AVERAGE ASSETS
Income before nonrecurring items 1.84% 1.66 %
Nonrecurring items .19 --
Return on average assets 2.03% 1.66%
RETURN ON AVERAGE COMMON EQUITY
Income before nonrecurring items 21.0% 21.1 %
Nonrecurring items 2.2 --
Return on average common equity 23.2% 21.1 %
Net interest margin (taxable-equivalent basis) 4.86% 5.05%
Efficiency ratio before nonrecurring items 50.7 55.7
Efficiency ratio 56.7 55.7
MARCH 31 DECEMBER 31
1996 1995
PERIOD END
Loans $26,878 $26,400
Allowance for credit losses 530 474
Assets 36,572 33,874
Total shareholders' equity 3,329 2,725
Tangible common equity to total
assets 7.1% 6.5%
Tier 1 capital ratio 7.1 6.5
Total risk-based capital ratio 11.9 11.0
Leverage ratio 6.7 6.1
* Calculated by adding amortization of goodwill and other intangible assets to
net income.
Refer to "Earnings Summary" on page 2 for a description of nonrecurring items.
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
PART II -- OTHER INFORMATION
Submission of Matters to a Vote of Security Holders (Item 4) 25
Exhibits and Reports on Form 8-K (Item 6) 25
Signature 26
Exhibit 3 -- Bylaws of First Bank System, Inc. *
Exhibit 10A -- First Bank System, Inc. 1996 Stock Incentive Plan *
Exhibit 10B -- First Bank System, Inc. Restated Employee Stock Purchase Plan, as amended *
Exhibit 11 -- Computation of Primary and Fully Diluted Net Income Per Common Share 27
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges 28
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. (the "Company") reported first quarter 1996 net income
of $176.8 million, an increase of $43 million, or 32 percent, from the first
quarter of 1995. On a per share basis, net income was $1.28 in the first quarter
of 1996, compared with $.97 in the first quarter of 1995, an increase of 32
percent. Return on average assets and return on average common equity were 2.03
percent and 23.2 percent, respectively, in the first quarter of 1996, compared
with returns of 1.66 percent and 21.1 percent in the first quarter of 1995.
Several nonrecurring items affected operating results in the first quarter of
1996. The impact of these items on net income was $16.7 million ($48.6 million
on a pretax basis) or $.12 per share. Nonrecurring pretax gains included $125
million received from First Interstate Bancorp ("First Interstate") as partial
payment of a termination fee, net of $10 million in transaction costs; $45.8
million in gain on the sale of the Company's mortgage banking operations; and
$14.6 million in net securities gains. Nonrecurring pretax charges included
$31.3 million in merger and integration charges associated with the acquisitions
of FirsTier Financial, Inc. ("FirsTier") and the corporate trust business of
BankAmerica Corporation ("BankAmerica"); $38.6 million in branch distribution
resizing expenses; a $29.5 million valuation adjustment of cardholder and core
deposit intangibles; $10.1 million for a one-time employee bonus; and $17.3
million to acquire software and write off other miscellaneous assets.
Excluding these nonrecurring items, operating earnings for the first quarter of
1996 were $160.1 million, an increase of $26.3 million, or 20 percent, from the
first quarter of 1995. On a per share basis, operating earnings were $1.16 in
the first quarter of 1996, compared with $.97 in the first quarter of 1995, an
increase of 20 percent. Return on average assets and return on average common
equity, excluding nonrecurring items, were 1.84 percent and 21.0 percent,
respectively, in the first quarter of 1996, compared with returns of 1.66
percent and 21.1 percent in the first quarter of 1995. Excluding nonrecurring
items, the efficiency ratio improved to 50.7 percent in the first quarter of
1996 from 55.7 percent in the first quarter of 1995.
TABLE 1. Summary of Consolidated Income
THREE MONTHS ENDED
(TAXABLE-EQUIVALENT BASIS; MARCH 31 MARCH 31
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1996 1995
Interest income $659.3 $629.1
Interest expense 280.0 262.3
Net interest income 379.3 366.8
Provision for credit losses 31.0 26.0
Net interest income after provision for credit
losses 348.3 340.8
Nonrecurring gains 175.4 --
Other noninterest income 208.1 179.6
Nonrecurring charges 126.8 --
Other noninterest expense 297.6 304.3
Income before income taxes 307.4 216.1
Taxable-equivalent adjustment 4.7 3.5
Income taxes 125.9 78.8
Net income $176.8 $133.8
Return on average assets 2.03% 1.66%
Return on average common equity 23.2 21.1
Net interest margin 4.86 5.05
Efficiency ratio 56.7 55.7
Efficiency ratio before nonrecurring items 50.7 55.7
Per Common Share:
Net income $1.28 $.97
Dividends paid .4125 .3625
Stronger first quarter operating results reflected growth in net interest and
noninterest income, lower operating expenses, and effective capital management.
Net interest income on a taxable-equivalent basis was $379.3 million, an
increase of $12.5 million, or 3 percent, from the first quarter of 1995. The
increase reflects the impact of recent acquisitions and core loan growth.
Excluding nonrecurring items, noninterest income for the quarter was $208.1
million, an increase of $28.5 million, or 16 percent, from the same quarter of
1995. The increase was primarily due to recent acquisitions and growth in credit
card and trust fees. First quarter noninterest expense, excluding nonrecurring
items, totaled $297.6 million, a decrease of $6.7 million, or 2 percent, from
the first quarter of 1995. Compared with noninterest expense for the first
quarter of 1995, adjusted to include the operations of acquired businesses on a
pro forma basis, noninterest expense declined in the current quarter $45.7
million, or 13 percent.
Credit quality remained strong in the first quarter of 1996. Nonperforming
assets totaled $157.1 million at March 31, 1996, up $3.4 million, or 2 percent,
from December 31, 1995, as a result of the acquisition of FirsTier, and down
$58.6 million, or 27 percent, from March 31, 1995. The ratio of the allowance
for credit losses to nonperforming loans at quarter-end was 461 percent,
compared with 401 percent at the end of 1995 and 318 percent at March 31, 1995.
ACQUISITION AND DIVESTITURE ACTIVITY
On February 16, 1996, the Company completed its acquisition of Omaha-based
FirsTier for $717 million. FirsTier had $3.7 billion in assets, $2.9 billion in
deposits, and 63 offices in Nebraska and Iowa. Under terms of the purchase
agreement, the Company issued .8829 shares of its common stock for each common
share of FirsTier, or a total of 16.5 million shares. As a purchase transaction,
the results of operations of FirsTier are included in the Company's results from
the date of acquisition.
On February 26, 1996, the Company announced that it had entered into agreements
with three parties for the sale of the Company's servicing and mortgage loan
production business. Effective February 29, 1996, Bank of America, fsb, a
subsidiary of BankAmerica, purchased approximately $14 billion in mortgage
servicing rights. Columbia National, Inc., of Maryland, and Knutson Mortgage
Co., of Minnesota, agreed to purchase the Company's loan production business.
The Company will now deliver mortgage loan products through bank branches and
telemarketing. These transactions resulted in a net gain of $45.8 million.
On August 22, 1995, the Company announced that it had signed a definitive
agreement to acquire the corporate trust business of BankAmerica. After the
acquisition, the Company became the nation's leading provider of domestic
corporate trust services as measured by revenues. Approximately 80 percent of
the transaction was completed in December 1995, with the remainder completed in
the first quarter of 1996.
On January 24, 1996, First Interstate announced that it had terminated the
merger agreement with the Company and entered into a definitive agreement with
Wells Fargo & Company. Under the terms of a settlement agreement, the Company
received $125 million on January 24, 1996. The agreement called for an
additional $75 million to be paid upon consummation of the merger of First
Interstate and Wells Fargo & Company, which the Company received on April 1,
1996, and which will be included in the Company's second quarter results.
LINE OF BUSINESS FINANCIAL REVIEW
Financial performance is measured by major lines of business, which include:
Retail Banking, Payment Systems, Business Banking and Private Financial
Services, Commercial Banking, and Trust and Investment Group. 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
first quarter 1996 certain organization and methodology changes were made and
1995 results are presented on a consistent basis.
RETAIL BANKING -- Retail Banking, which delivers products and services to the
broad consumer market and small-business through branch offices, telemarketing,
direct mail, and automated teller machines ("ATM"), contributed net income of
$52.8 million, a 16 percent increase over the first quarter of 1995. First
quarter return on assets increased to 1.58 percent from 1.30 percent in the same
quarter a year ago. First quarter return on average common equity increased to
21.4 percent compared to 21.3 percent in the first quarter of the prior year.
Net interest income increased over the first quarter of 1995 due to nonmortgage
consumer loan growth resulting from recent acquisitions and growth in core
consumer loans. First quarter noninterest income was higher than in the same
period of last year primarily as a result of recent acquisitions. Noninterest
expense improved reflecting the benefits of continued streamlining of branch
operations, as well as the integration of recent business combinations. The
efficiency ratio improved to 59.1 percent in the first quarter of 1996 compared
with 64.9 percent in the first quarter of 1995.
PAYMENT SYSTEMS -- Payment Systems includes consumer and business credit card,
corporate and purchasing card services, card-accessed secured and unsecured
lines of credit, ATM processing, and merchant processing. Net earnings were
$25.6 million in the first quarter of 1996, a 38 percent increase from the first
quarter of 1995. Return on assets was 2.44 percent, up from 2.05 percent in the
first quarter of 1995, and return on equity was 27.3 percent up from 22.2
percent for the same quarter in the previous year.
TABLE 2. Line of Business Financial Performance
THREE MONTHS ENDED MARCH 31,
BUSINESS BANKING
AND PRIVATE TRUST AND
RETAIL FINANCIAL COMMERCIAL INVESTMENT
BANKING PAYMENT SYSTEMS SERVICES BANKING GROUP
(DOLLARS IN MILLIONS) 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis) $183.3 $177.1 $40.3 $40.9 $90.6 $81.7 $54.0 $58.1 $7.4 $6.7
Provision for credit losses 6.0 .7 19.2 20.3 3.2 2.6 2.6 2.4 -- --
Noninterest income 39.8 34.3 68.7 59.3 28.1 23.7 17.5 18.0 49.4 33.3
Noninterest expense 131.8 137.3 48.3 49.9 48.4 49.3 22.9 23.8 37.1 27.2
Income taxes and
taxable-equivalent
adjustment 32.5 27.9 15.9 11.4 25.5 20.4 17.5 19.0 7.5 4.9
Income before nonrecurring
items $52.8 $45.5 $25.6 $18.6 $41.6 $33.1 $28.5 $30.9 $12.2 $7.9
AVERAGE BALANCE SHEET DATA:
Commercial loans $444 $311 $912 $643 $6,358 $5,273 $5,328 $4,792 $-- $--
Consumer loans 10,011 10,632 2,501 2,294 555 468 -- -- -- --
Assets 13,459 14,174 4,222 3,679 9,247 7,676 6,560 6,057 1,158 726
Deposits 16,942 17,484 44 32 3,336 3,237 1,504 1,775 892 805
Common equity 992 866 377 340 876 657 459 424 272 177
Return on average assets 1.58% 1.30% 2.44% 2.05% 1.81% 1.75% 1.75% 2.07% * *
Return on average common equity
("ROCE") 21.4 21.3 27.3 22.2 19.1 20.4 25.0 29.6 18.0% 18.1%
ROCE on a cash basis ** 23.0 22.6 29.2 24.1 19.7 20.9 25.1 29.7 22.0 21.2
Efficiency ratio 59.1 64.9 44.3 49.8 40.8 46.8 32.0 31.3 65.3 68.0
* Not meaningful
** Calculated by adding amortization of goodwill and other intangible assets to
net income.
Note: Preferred dividends and nonrecurring items are not allocated to the
business lines. FBS's mortgage banking operations, which were sold in
first quarter 1996, are not reflected in the table.
Fee-based noninterest income for Payment Systems increased 16 percent in the
first quarter of 1996 compared with the same period in 1995. The increase was
due to growth in the sales volume of the Corporate Card, the Purchasing Card,
the First Bank WorldPerks(R) VISA(R) card, and the expansion of the ATM network.
Net interest income decreased slightly due to a change in the loan mix. Average
commercial loans, which are primarily noninterest-earning Corporate and
Purchasing Card balances, comprised 27 percent of the portfolio during the first
quarter of 1996 compared with 22 percent in first quarter of 1995. The decrease
in the provision for credit losses reflects lower net charge-offs on credit card
loans. Noninterest expense decreased due to ongoing expense control and the
recognition of initial investment expenses in the first quarter of 1995
associated with the expansion of the ATM network.
BUSINESS BANKING AND PRIVATE FINANCIAL SERVICES -- Business Banking and
Private Financial Services includes middle-market banking services, private
banking, and personal trust. Net income for the first quarter of 1996 increased
26 percent to $41.6 million compared with the first quarter of 1995. First
quarter return on assets was 1.81 percent compared with 1.75 percent in 1995,
and return on equity was 19.1 percent compared with 20.4 percent in 1995.
The increase in net interest income is due to recent acquisitions and growth in
core middle-market business lending reflected in an increase in average
commercial loans of 21 percent. Noninterest income in the first quarter of 1996
was higher than in the first quarter of 1995 as a result of recent acquisitions
and a change in the fee structure for some services provided. Noninterest
expense was lower in the first quarter of 1996 compared to the same period of
1995 despite the impact of additional expenses relating to recent acquisitions.
The reduction in noninterest expense reflects the benefits of increased
operational efficiencies, as well as the integration of recent business
acquisitions. Although the acquisitions have improved net earnings, the return
on equity reflects increased investment in these businesses. The efficiency
ratio improved to 40.8 percent from 46.8 percent in the same period of 1995.
COMMERCIAL BANKING -- Commercial Banking provides lending, treasury management,
and other financial services to middle-market, large corporate and mortgage
banking companies. Return on assets was 1.75 percent in the first quarter of
1996 compared with 2.07 percent in the first quarter of 1995. Return on equity
remained strong at 25.0 percent in the first quarter of 1996 compared with 29.6
percent in the same quarter a year ago.
Although average loans increased $536 million, or 11 percent, from the first
quarter of 1995, net interest income decreased due to lower interest recoveries
and a narrowing of the net interest margin on loans. Noninterest income and
noninterest expense remained relatively flat in the first quarter of 1996
compared with the same period of 1995. The decline in deposits relates to less
activity in the mortgage banking sector. The efficiency ratio remained low at
32.0 percent in the first quarter of 1996 compared with 31.3 percent in the
first quarter of 1995.
TRUST AND INVESTMENT GROUP -- The Trust and Investment Group includes
institutional and corporate trust services, investment management services, and
a full-service brokerage company. Earnings increased 54 percent to $12.2 million
in the first quarter of 1996 compared with the similar period in the prior year.
The return on average equity was 18.0 percent in the first quarter of 1996
compared with 18.1 percent in the first quarter of 1995.
The current quarter's net earnings increased over the first quarter of 1995
primarily due to the Company's acquisition strategy to grow its fee-based
businesses. Although the acquisitions have improved net earnings, the return on
equity reflects increased investment in these businesses. The efficiency ratio
improved to 65.3 percent in the first quarter compared with 68.0 in the first
quarter of 1995, reflecting the effective integration of acquisitions, process
re-engineering efforts, and revenue growth.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME -- Net interest income on a taxable-equivalent basis was
$379.3 million in the first quarter of 1996, an increase of $12.5 million, or 3
percent, from the first quarter of 1995. The improvement was primarily
attributable to an increase in average loans of $1.7 billion, or 7 percent, from
the first quarter of 1995, reflecting the addition of acquisitions and core loan
growth. During the first quarter of 1996, $1.3 billion ($.8 billion in average
balances) of residential mortgage loans were securitized and reclassified to
available-for-sale securities to enhance liquidity and financial management
flexibility. Excluding residential mortgage loan balances, average loans for the
first quarter were higher by $2.9 billion, or 15 percent, than in the first
quarter of 1995. This increase reflected growth in core commercial and consumer
loans, including loans to small- and middle-market businesses, credit cards and
home equity loans, as well as approximately $1 billion in average balances
attributable to the FirsTier acquisition. Without FirsTier and residential
mortgage loans, average loans for the first quarter of 1996 increased 9 percent
from the first quarter of 1995, including growth of 12 percent in commercial
loans and 13 percent in home equity loans. Average securities for the first
quarter were down $105 million from 1995, despite the transfer of securitized
mortgage loan balances in 1996, as lower yielding assets continued to decline as
a result of sales and maturities over the past year.
Partially offsetting the impact of higher average loan balances in the first
quarter of 1996, compared with the first quarter of 1995, were the effects of a
lower average yield on loans and a change in the mix of interest-bearing
liabilities in the current quarter. The average yield on loans was 8.81 percent,
or 25 basis points lower than in the same period for 1995, as a result of
declining market interest rates over the past three quarters. The average cost
of interest-bearing liabilities in the first quarter of 1996, however, was
essentially unchanged from that of the first quarter of last year. The effect of
a decrease in the average cost of borrowings, reflecting lower market interest
rates, was offset by the impact of a shift in the composition of
interest-bearing liabilities over the past year from lower rate deposits to
higher rate borrowings. Average interest-bearing deposits decreased $1.2
billion, or 6 percent, during this period, while average borrowings increased
$2.3 billion, or 42 percent, including funds borrowed for the repurchase of
common stock. The decline in average deposit balances reflects the divestiture
in 1995 of $848 million in deposits, as well as the national trend over the past
year of consumers moving funds into alternative investment vehicles. The net
interest margin in the first quarter of 1996 was 4.86 percent, down from 5.05
percent in the first quarter of 1995, but up from 4.83 percent in the fourth
quarter of 1995.
TABLE 3. Analysis of Net Interest Income
THREE MONTHS ENDED
MARCH 31 MARCH 31
(DOLLARS IN MILLIONS) 1996 1995
Net interest income (taxable-equivalent basis) $379.3 $366.8
Average balances of earning assets supported by:
Interest-bearing liabilities $24,661 $23,534
Noninterest-bearing liabilities 6,710 5,932
Total earning assets $31,371 $29,466
Average yields and weighted average rates (taxable-equivalent
basis):
Earning assets yield 8.45% 8.66%
Rate paid on interest-bearing liabilities 4.57 4.52
Gross interest margin 3.88% 4.14%
Net interest margin 4.86% 5.05%
Net interest margin without taxable-equivalent increments 4.80% 5.00%
TABLE 4. Noninterest Income
THREE MONTHS ENDED
MARCH 31 MARCH 31
(DOLLARS IN MILLIONS) 1996 1995
Credit card fees $62.8 $51.6
Trust fees 56.2 41.7
Service charges on deposit accounts 33.9 32.1
Investment products fees and commissions 8.5 5.5
Trading account profits and commissions 2.7 3.2
Securities gains 14.6 --
Termination fee, net 115.0 --
Gain on sale of mortgage banking
operations 45.8 --
Other 44.0 45.5
Total noninterest income $383.5 $179.6
PROVISION FOR CREDIT LOSSES -- The provision for credit losses was $31.0 million
in the first quarter of 1996, up $5.0 million, or 19 percent, from the first
quarter of 1995. Net charge-offs totaled $33.5 million, up $1.4 million, from
the same quarter a year ago, reflecting higher loan volume. Commercial loan net
recoveries for the quarter were $3.5 million, compared with $.7 million in the
first quarter of 1995. Consumer loan net charge-offs increased $4.2 million, or
13 percent, from the first quarter of 1995, to $37.0 million reflecting higher
loan balances.
The allowance for credit losses was $530.1 million at March 31, 1996, up from
$473.5 million at December 31, 1995, and $470.4 million at March 31, 1995,
because of the addition of FirsTier reserves. Reserve coverage remains strong as
the allowance for credit losses to nonperforming loans ratio increased to 461
percent at quarter-end, compared with 401 percent at the end of 1995 and 318
percent at the end of the first quarter of 1995.
NONINTEREST INCOME -- Noninterest income in the first quarter of 1996 was $383.5
million compared with $179.6 million in the first quarter of 1995, an increase
of $203.9 million. Nonrecurring gains included in noninterest income in the
first quarter of 1996 totaled $175.4 million, including the $125 million
termination fee received from First Interstate, net of $10 million in
transaction costs, the $45.8 million in gain on the sale of the Company's
mortgage banking operations, and $14.6 million in net securities gains.
Excluding nonrecurring items, noninterest income was $208.1 million, an increase
of $28.5 million, or 16 percent, from the first quarter of 1995. The improvement
resulted primarily from the addition of FirsTier and other acquisitions and
growth in credit card and trust fees. Credit card fees increased $11.2 million,
or 22 percent, from the first quarter of 1995, reflecting higher sales volumes
for Purchasing Card, Corporate Card, and the First Bank WorldPerks VISA card and
merchant processing. Trust fees increased $14.5 million, or 35 percent, from the
first quarter of 1995, primarily related to the acquisition of the corporate
trust business of BankAmerica. Investment product fees in the first quarter were
higher by $3.0 million, or 55 percent, than in the same period of last year,
reflecting an increase in sales of mutual funds and annuities.
NONINTEREST EXPENSE -- First quarter noninterest expense was $424.4 million, an
increase of $120.1 million, from $304.3 in the first quarter of 1995.
Nonrecurring charges recorded in the first quarter of 1996 totaled $126.8
million. Merger, integration and resizing charges of $69.9 million consisted of
$31.3 million associated with the acquisitions of FirsTier and the BankAmerica
corporate trust business, including costs incurred for systems conversion, lease
terminations and consolidation of facilities, and $38.6 million in branch
distribution resizing expenses. Resizing charges are associated with the
Company's streamlining of the branch distribution network and trust operations.
The Company is expanding alternative distribution channels, including
telemarketing, automated teller machines and in-store branches. The resizing
charges include a valuation adjustment of $25.6 million associated with the
planned sale of bank-owned properties as the Company consolidates branch
locations reducing the space requirements of branch facilities. The Company is
presently marketing these bank-owned facilities and expects to dispose of them
over the next 12 months. Also included in resizing charges is severance of $10
million. The Company also recorded a $29.5 million valuation adjustment, which
is included in goodwill and other intangible assets expense, to reduce the
carrying value of credit card and core deposit intangibles to their estimated
fair value. The credit card intangible was written down following the Company's
evaluation of alternatives to enhance the profitability of a segment of its
credit card portfolio. The core deposit intangible adjustment is due to an
assessment of the mix of deposits and the impact of market interest rates on the
profitability of those deposits at certain acquired entities. Salaries and
benefits expense for the quarter included $10.1 million for a one-time, $750
per-employee bonus to thank employees for staying focused on customers and
shareholder value during the bid for First Interstate. Other noninterest expense
included $17.3 million to acquire credit card and revolving credit software and
to write off other miscellaneous assets.
TABLE 5. Noninterest Expense
THREE MONTHS ENDED
MARCH 31 MARCH 31
(DOLLARS IN MILLIONS, EXCEPT PER EMPLOYEE DATA) 1996 1995
Salaries $123.4 $112.1
Employee benefits 28.9 28.5
Total personnel expense 152.3 140.6
Goodwill and other intangible assets 47.4 14.1
Net occupancy 25.8 25.7
Furniture and equipment 23.8 23.5
Other personnel costs 9.7 7.6
Professional services 8.3 6.6
Advertising 6.8 6.3
Postage 6.2 5.9
Printing, stationery and supplies 6.0 4.8
Telephone 5.8 5.8
Third party data processing 5.4 4.3
FDIC insurance 3.5 13.6
Merger, integration, and resizing 69.9 --
Other 53.5 45.5
Total noninterest expense $424.4 $304.3
Efficiency ratio* 56.7% 55.7%
Efficiency ratio before nonrecurring items 50.7 55.7
Quarterly average number of employees (full-time
equivalents) 13,246 13,874
Annualized personnel expense per employee $45,991 $40,536
*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.
Excluding nonrecurring charges, noninterest expense totaled $297.6 million, a
decrease of $6.7 million, or 2 percent, from the first quarter of 1995. The
reduction in operating expenses was achieved as a result of lower FDIC premium
expense in 1996, effective acquisition integration, and ongoing expense control.
Compared with noninterest expense for the first quarter of 1995, adjusted to
include the operations of acquired businesses on a pro forma basis, noninterest
expense declined in the current quarter by $45.7 million, or 13 percent.
Excluding nonrecurring items, the Company's efficiency ratio improved to 50.7
percent for the quarter from 55.7 percent for the same quarter a year ago.
Total salaries and benefits expense for the first quarter of 1996, excluding
nonrecurring charges, remained relatively flat at $142.2 million, compared with
$140.6 million for the first quarter of 1995. Average full-time equivalent
employees decreased 5 percent to 13,246 in the first quarter of 1996, from
13,874 in the first quarter of 1995. FDIC insurance expense was lower by $10.1
million, or 74 percent, in the first quarter than in the same period of last
year because the FDIC has suspended the assessment of premiums on deposits
covered by the Bank Insurance Fund, which is now fully funded. The Company
continues to pay insurance premiums on approximately $6.1 billion of deposits
covered by the Savings Association Insurance Fund ("SAIF").
Compared with the same period in 1995, amortization of goodwill and intangibles
for the first quarter, excluding nonrecurring charges, increased $3.8 million,
or 27 percent, as a result of recent acquisitions. The $2.1 million, or 28
percent, increase in other personnel expense and the $1.7 million, or 26
percent, increase in professional services fees related primarily to several
technology projects currently in process. Third party data processing was $1.1
million, or 26 percent, higher in the first quarter of 1996 than in the first
quarter of last year as a result of increased transaction volume in the payment
systems business.
PROVISION FOR INCOME TAXES -- The provision for income taxes was $125.9 million
in the first quarter of 1996, compared with $78.8 million in the first quarter
of 1995. The increase was primarily the result of a higher level of taxable
income, including $31.9 million of taxes related to the nonrecurring items
discussed above.
CONTINGENCIES
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. It is not clear when such legislation will be passed, if at all. Based
on current proposals, the Company may be subject to a special assessment of up
to $57 million.
The Company expects to receive a tax refund of approximately $55 million to $65
million from the State of Minnesota relating to the exemption of interest income
received on investments in U.S. government securities for the years 1979 to
1983. The refund is subject to final audit reports by the State, as well as
appropriate funding authority to pay the claims, both of which are anticipated
in 1996.
BALANCE SHEET ANALYSIS
LOANS -- The Company's loan portfolio increased $478 million, or 2 percent, to
$26.9 billion at March 31, 1996, from $26.4 billion at December 31, 1995. Growth
in most commercial and consumer loan categories was partially offset by a
decrease in residential mortgage-related balances. This decrease reflects the
securitization of $1.3 billion of residential mortgage loans resulting in a
reclassification to available-for-sale securities, during the first quarter of
1996. The securitization will enhance liquidity and financial management
flexibility.
SECURITIES -- At March 31, 1996, securities totaled $4.4 billion compared with
$3.3 billion at December 31, 1995, reflecting the securitization discussed
above.
DEPOSITS -- Noninterest-bearing deposits were $6.6 billion at March 31, 1996, up
slightly from $6.4 billion at December 31, 1995. Interest-bearing deposits were
$17.8 billion at March 31, 1996, up $1.6 billion from December 31, 1995. The
increase in deposit balances reflects the acquisition of FirsTier during the
first quarter of 1996.
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 March 31, 1996, down slightly from $4.4 billion at the end
of 1995. The decrease was primarily due to a $100 million reduction in notes
outstanding under the $5 billion bank/thrift note programs. The remaining
outstanding notes have a weighted average interest rate of 5.39 percent and
range in original maturities from 6 to 9 months.
Long-term debt was $3.5 billion at March 31, 1996, up from $3.2 billion at
December 31, 1995. In March 1996, the Company placed $125 million in 6.875
percent subordinated debt in the form of 10-year noncallable notes. The Company
also issued $300 million in medium-term bank notes during the first quarter of
1996. The effect of these issuances was partially offset by the early retirement
and maturities of approximately $145 million of Federal Home Loan Bank Advances.
CORPORATE RISK MANAGEMENT
CREDIT MANAGEMENT -- The Company's strategy for credit risk management includes
stringent, centralized credit policies, and standard underwriting criteria for
specialized lending categories, such as mortgage banking, real estate
construction, and consumer credit. The strategy also emphasizes diversification
on both a geographic and customer level, regular credit examinations, and
quarterly management reviews of large loans and loans experiencing deterioration
of credit quality. The Company strives to identify potential problem loans
early, take any necessary charge-offs promptly, and maintain strong reserve
levels. In the Company's retail banking operations, a standard credit scoring
system is used to assess consumer credit risks and to price consumer products
accordingly. Commercial banking operations rely on a strong credit culture that
combines prudent credit policies and individual lender accountability. In
addition, the commercial lenders generally focus on middle-market companies
within their regions.
In evaluating its credit risk, the Company considers its loan portfolio
composition, its level of allowance coverage, and macroeconomic concerns. Most
economic indicators in the Company's primary operating region, which includes
Minnesota, Colorado, Montana, North Dakota, South Dakota, Wisconsin, Iowa,
Kansas, Nebraska, Wyoming, and Illinois, compare favorably with national trends.
Approximately 80 percent of the loan portfolio consists of extensions of credit
to customers in this operating region.
TABLE 6.
Summary of Allowance for Credit Losses
THREE MONTHS ENDED
MARCH 31 MARCH 31
(DOLLARS IN MILLIONS) 1996 1995
Balance at beginning of period $473.5 $474.7
CHARGE-OFFS:
Commercial:
Commercial 5.7 4.6
Financial institutions -- --
Real estate:
Commercial mortgage 5.5 7.3
Construction -- --
Total commercial 11.2 11.9
Consumer:
Residential mortgage 1.0 1.3
Credit card 21.2 23.0
Other 23.1 15.5
Total consumer 45.3 39.8
Total 56.5 51.7
RECOVERIES:
Commercial:
Commercial 8.3 10.2
Financial institutions -- .1
Real estate:
Commercial mortgage 6.4 2.3
Construction -- --
Total commercial 14.7 12.6
Consumer:
Residential mortgage .2 .3
Credit card 2.5 2.7
Other 5.6 4.0
Total consumer 8.3 7.0
Total 23.0 19.6
NET CHARGE-OFFS:
Commercial:
Commercial (2.6) (5.6)
Financial institutions -- (.1)
Real estate:
Commercial mortgage (.9) 5.0
Construction -- --
Total commercial (3.5) (.7)
Consumer:
Residential mortgage .8 1.0
Credit card 18.7 20.3
Other 17.5 11.5
Total consumer 37.0 32.8
Total 33.5 32.1
Provision charged to operating expense 31.0 26.0
Additions related to acquisitions 59.1 1.8
Balance at end of period $530.1 $470.4
Allowance as a percentage of period-end loans 1.97% 1.87%
Allowance as a percentage of nonperforming loans 461 318
Allowance as a percentage of nonperforming assets 337 218
ANALYSIS OF NET CHARGE-OFFS AND ALLOWANCE FOR CREDIT LOSSES -- Net loan
charge-offs totaled $33.5 million in the first quarter of 1996, up from $32.1
million in the first quarter of 1995. Commercial loan net recoveries for the
quarter were $3.5 million, compared with $.7 million in the first quarter of
1995, reflecting continued improvement in the credit quality of this portfolio.
Consumer loan net charge-offs increased $4.2 million, or 13 percent, from the
first quarter of 1995, reflecting higher loan balances.
TABLE 7. Nonperforming Assets*
MARCH 31 DECEMBER 31
(DOLLARS IN MILLIONS) 1996 1995
COMMERCIAL:
Commercial $20.7 $25.1
Real estate:
Commercial mortgage 46.5 42.3
Construction 1.3 1.5
Total commercial 68.5 68.9
CONSUMER:
Residential mortgage 33.4 37.3
Credit card 5.9 5.7
Other 7.1 6.3
Total consumer 46.4 49.3
Total nonperforming loans 114.9 118.2
OTHER REAL ESTATE 36.5 33.2
OTHER NONPERFORMING ASSETS 5.7 2.3
Total nonperforming assets $157.1 $153.7
Accruing loans 90 days or more past due $42.8 $38.8
Nonperforming loans to total loans .43% .45%
Nonperforming assets to total loans plus other real estate .58 .58
* Throughout this document, nonperforming assets and related ratios do not
include loans more than 90 days past due and still accruing interest.
ANALYSIS OF NONPERFORMING ASSETS -- Nonperforming assets include all nonaccrual
loans, restructured loans, other real estate and other nonperforming assets
owned by the Company. At March 31, 1996, nonperforming assets totaled $157.1
million, up $3.4 million, or 2 percent, from the balance at December 31, 1995.
The increase is due to the addition of approximately $14 million of
nonperforming assets from the FirsTier acquisition. The ratio of nonperforming
assets to loans and other real estate was .58 percent at March 31, 1996, or
unchanged from the level at December 31, 1995.
INTEREST RATE RISK MANAGEMENT -- The Company's policy is to maintain a low
interest rate risk position. The Company limits the exposure of net interest
income to risks associated with interest rate movements through asset/liability
management strategies. The Company's Asset and Liability Management Committee
("ALCO") uses three methods for measuring and managing interest rate risk: Net
Interest Income Simulation Modeling, Static Gap Analysis and Market
Value/Duration Analysis.
Net Interest Income Simulation: The Company has developed a net interest income
simulation model to measure near-term (under one year) risk due to changes in
interest rates. The model is particularly useful because it incorporates
substantially all the Company's assets and liabilities and off-balance sheet
instruments, together with forecasted changes in the balance sheet mix and
assumptions that reflect the current interest rate environment. The balance
sheet changes are based on forecasted prepayments of loans, loan and deposit
growth, and historical pricing spreads. The model is updated monthly with the
current balance sheet structure and the current forecast of expected balance
sheet changes. ALCO uses the model to simulate the effect of immediate and
sustained parallel shifts in the current yield curve of 1 percent, 2 percent and
3 percent. ALCO also calculates the sensitivity of the simulation results to
changes in the key assumptions, such as the Prime/LIBOR spread. The results from
the simulation are reviewed by ALCO monthly and are used to guide ALCO's hedging
strategies. ALCO has established guidelines, approved by the Company's Board of
Directors, that limit the estimated change in net interest income, assuming
modest changes in Prime/LIBOR spreads and deposit pricing lags, over the
succeeding 12 months to approximately 3 percent of forecasted net interest
income, given a 1 percent change in interest rates.
Static Gap Analysis: A traditional gap analysis provides a point-in-time
measurement of the relationship between the repricing amounts of the interest
rate sensitive assets and liabilities. While the gap analysis provides a useful
snapshot of interest rate risk, it does not capture all aspects of interest rate
risk. As a result, ALCO uses the gap analysis primarily for managing interest
rate risk beyond one year and has established guidelines, approved by the
Company's Board of Directors, for the gap position in the one- to three-year
time periods. The Company's natural asset sensitive gap position has been
modified through the use of off-balance sheet hedging instruments to maintain a
low risk position with the cumulative one year position reflecting a negative
gap of $406 million.
Market Value/Duration Analysis: One of the limiting factors of the net interest
income simulation model is its dependence upon accurate forecasts of future
business activity and the resulting effect on balance sheet assets and
liabilities. As a result, its usefulness is greatly diminished for periods
beyond two years. The Company measures this longer-term component of interest
rate risk (referred to as market value or duration risk) by modeling the effect
of interest rate changes on the estimated discounted future cash flows of the
Company's assets, liabilities and off-balance sheet instruments.
TABLE 8. Interest Rate Swap Hedging Portfolio Notional Balances and Yields by
Maturity Date
At March 31, 1996 (Dollars in Millions)
Weighted Weighted
Average Average
Receive Fixed Swaps* Notional Interest Rate Interest Rate
Maturity Date Amount Received Paid
1996 (remaining nine months) $333 7.97 % 5.39 %
1997 275 6.42 5.33
1998 606 5.99 5.40
1999 575 6.88 5.35
2000 150 6.57 5.30
After 2000** 1,025 6.90 5.41
Total $2,964 6.77 % 5.38 %
*At March 31, 1996, the Company did not have any swaps in its portfolio that
required it to pay fixed-rate interest.
**At March 31, 1996, all swaps with a maturity after 2000 hedge fixed rate
subordinated notes.
While each of the interest rate risk measurements has limitations, taken
together they represent a comprehensive view of the magnitude of the Company's
interest rate risk over various time intervals. The Company uses a variety of
balance sheet and off-balance sheet financial instruments ("derivatives") to
manage its interest rate risk. The Company manages the forecasted net interest
income at risk by entering into off-balance sheet transactions (primarily
interest rate swaps), investing in fixed rate assets or increasing variable rate
liabilities. To a lesser degree, the Company also uses interest rate caps and
floors to hedge this risk. These derivatives help maintain acceptable levels of
rate risk. The Company does not enter into derivative contracts for speculative
purposes.
As of March 31, 1996, the Company received payments on $3.0 billion notional
amount of interest rate swap agreements, based on fixed interest rates, and made
payments based on variable interest rates. These swaps had an average fixed rate
of 6.77 percent and an average variable rate, which is tied to various LIBOR
rates, of 5.38 percent. The maturity of these agreements ranges from one month
to 11 years with an average remaining maturity of 4.38 years. Swaps increased
net interest income for the quarters ended March 31, 1996 and 1995 by $7.9
million and $4.5 million, respectively.
The Company also purchases 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 March 31, 1996, was $200 million. The impact of caps
on net interest income was not material for the quarters ended March 31, 1996
and 1995. To hedge against falling interest rates, the Company uses interest
rate floors. The total notional amount of floor agreements purchased as of March
31, 1996 was $1.25 billion. LIBOR- based floors totaled $950 million and
Constant Maturity Treasury floors totaled $300 million. The impact of floors on
net interest income was not material for the quarters ended March 31, 1996 and
1995.
TABLE 9. Capital Ratios
MARCH 31 DECEMBER 31
(DOLLARS IN MILLIONS) 1996 1995
Tangible common equity* $2,532 $2,184
As a percent of assets 7.1% 6.5%
Tier 1 capital** $2,286 $1,989
As a percent of risk-adjusted assets 7.1% 6.5%
Total risk-based capital** $3,832 $3,367
As a percent of risk-adjusted assets 11.9% 11.0%
Leverage ratio** 6.7 6.1
*Defined as common equity less goodwill.
**In accordance with regulatory guidelines, unrealized securities gains and
losses are excluded from these calculations.
CAPITAL MANAGEMENT -- The Company is committed to managing capital for maximum
shareholder benefit and maintaining strong protection for depositors and
creditors. At March 31, 1996, total tangible common equity was $2.5 billion, or
7.1 percent of assets, compared with 6.5 percent at December 31, 1995. The total
risk-based capital ratio increased to 11.9 percent at March 31, 1996, from 11.0
percent at December 31, 1995. The increase in the capital ratios reflects
earnings retention as well as the issuance of common stock to complete the
FirsTier acquisition, partially offset by the related common stock repurchases.
On February 21, 1996, the Board of Directors authorized the repurchase of up to
25 million common shares through December 1997. This new authorization replaces
previous authorizations, which provided for the repurchase of up to 24.3 million
shares through the end of 1996. Approximately 3.7 million shares were
repurchased under this program in the first quarter of 1996, of which 3.4
million related to the FirsTier acquisition.
ACCOUNTING CHANGES
SFAS 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF" -- The Company adopted Statement of Financial
Accounting Standards No. ("SFAS") 121 on January 1, 1996, 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. The Company recorded a $25.6
million adjustment to the carrying value of certain bank premises following a
decision to sell several buildings in connection with the streamlining of the
branch distribution network. See Note H for further discussion.
SFAS 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" -- SFAS 123 provides an
alternative to APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
in accounting for stock-based compensation issued to employees. The Statement
allows for a fair value based accounting method for stock options and similar
equity instruments. Companies that continue to account for such arrangements
under APB Opinion No. 25 must disclose the pro forma effect of its fair value
based accounting for those arrangements on net income and earnings per share.
These disclosure requirements become effective in 1996's year-end financial
statements. The Company continues to account for such arrangements in accordance
with APB Opinion No. 25.
CONSOLIDATED BALANCE SHEET
MARCH 31 DECEMBER 31
(IN MILLIONS, EXCEPT SHARES) 1996 1995
(UNAUDITED)
ASSETS
Cash and due from banks $2,053 $1,837
Federal funds sold 24 35
Securities purchased under agreements to resell 556 230
Trading account securities 142 86
Available-for-sale securities 4,430 3,256
Loans 26,878 26,400
Less allowance for credit losses 530 474
Net loans 26,348 25,926
Bank premises and equipment 419 413
Interest receivable 220 197
Customers' liability on acceptances 180 223
Other assets 2,200 1,671
Total assets $36,572 $33,874
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $6,553 $6,357
Interest-bearing 17,793 16,157
Total deposits 24,346 22,514
Federal funds purchased 1,609 2,000
Securities sold under agreements to repurchase 584 269
Other short-term funds borrowed 2,029 2,116
Long-term debt 3,504 3,201
Acceptances outstanding 180 223
Other liabilities 991 826
Total liabilities 33,243 31,149
Shareholders' equity:
Preferred stock 96 103
Common stock, par value $1.25 a share-authorized 200,000,000 shares; issued:
3/31/96 - 144,360,504 shares; 12/31/95 - 135,632,324 shares 180 170
Capital surplus 1,275 909
Retained earnings 1,969 1,918
Unrealized gain (loss) on securities, net of tax (1) 23
Less cost of common stock in treasury: 3/31/96 - 3,277,809 shares; 12/31/95 -
8,297,756 shares (190) (398)
Total shareholders' equity 3,329 2,725
Total liabilities and shareholders' equity $36,572 $33,874
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED
(IN MILLIONS, EXCEPT PER SHARE DATA) MARCH 31 MARCH 31
(UNAUDITED) 1996 1995
INTEREST INCOME
Loans $574.7 $547.2
Securities:
Taxable 63.8 66.5
Exempt from federal income taxes 4.9 2.8
Other interest income 11.2 9.1
Total interest income 654.6 625.6
INTEREST EXPENSE
Deposits 167.0 178.4
Federal funds purchased and repurchase
agreements 31.4 30.9
Other short-term funds borrowed 32.1 6.5
Long-term debt 49.5 46.5
Total interest expense 280.0 262.3
Net interest income 374.6 363.3
Provision for credit losses 31.0 26.0
Net interest income after provision for credit
losses 343.6 337.3
NONINTEREST INCOME
Credit card fees 62.8 51.6
Trust fees 56.2 41.7
Service charges on deposit accounts 33.9 32.1
Investment products fees and commissions 8.5 5.5
Securities gains 14.6 --
Termination fee 115.0 --
Gain on sale of mortgage banking operations 45.8 --
Other 46.7 48.7
Total noninterest income 383.5 179.6
NONINTEREST EXPENSE
Salaries 123.4 112.1
Employee benefits 28.9 28.5
Goodwill and other intangible assets 47.4 14.1
Net occupancy 25.8 25.7
Furniture and equipment 23.8 23.5
Other personnel costs 9.7 7.6
Professional services 8.3 6.6
Advertising 6.8 6.3
Third party data processing 5.4 4.3
FDIC insurance 3.5 13.6
Merger, integration, and resizing 69.9 --
Other 71.5 62.0
Total noninterest expense 424.4 304.3
Income before income taxes 302.7 212.6
Applicable income taxes 125.9 78.8
Net income $176.8 $133.8
Net income applicable to common equity $175.1 $131.9
EARNINGS PER COMMON SHARE
Average common and common equivalent shares 137,020,911 135,545,733
Net income $1.28 $.97
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, 1994 133,832,409 $118.1 $168.3 $865.8 $1,592.8 $(106.4) $(26.7) $2,611.9
Net Income 133.8 133.8
Dividends declared:
Preferred (1.9) (1.9)
Common (48.6) (48.6)
Purchase of treasury
stock (1,040,475) (39.7) (39.7)
Issuance of common stock:
Acquisitions 1,619,998 .3 4.3 52.4 57.0
Dividend reinvestment 57,142 .1 2.1 2.2
Stock option and stock
purchase plans 926,355 .7 (2.0) (3.7) 10.9 5.9
Stock warrants exercised 25,926 (.7) .9 .2
Redemption/conversion of
preferred stock (12.2) (1.0) (13.2)
Change in unrealized
gains/(losses) 49.8 49.8
BALANCE MARCH 31, 1995 135,421,355 $105.9 $169.3 $868.2 $1,670.7 $(56.6) $(.1) $2,757.4
BALANCE DECEMBER 31, 1995 127,334,568 $103.2 $169.5 $909.3 $1,918.2 $22.5 $(397.8) $2,724.9
Net Income 176.8 176.8
Dividends declared:
Preferred (1.7) (1.7)
Common (59.5) (59.5)
Purchase of treasury
stock (3,713,727) (217.0) (217.0)
Issuance of common stock:
Acquisitions 16,460,215 10.7 361.7 (44.4) 384.2 712.2
Dividend reinvestment 53,514 3.1 3.1
Stock option and stock
purchase plans 694,819 .2 4.4 (13.1) 23.2 14.7
Conversion of preferred
stock 253,306 (7.3) (7.4) 14.7 --
Change in unrealized
gains/(losses) (24.0) (24.0)
BALANCE MARCH 31, 1996 141,082,695 $95.9 $180.4 $1,275.4 $1,968.9 $(1.5) $(189.6) $3,329.5
*Defined as total common shares less common stock held in treasury.
**Ending treasury shares were 3,277,809 at March 31, 1996; 8,297,756 at
December 31, 1995; 2,976 at March 31, 1995; and 767,000 at December 31, 1994.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31 MARCH 31
(UNAUDITED, IN MILLIONS) 1996 1995
OPERATING ACTIVITIES
Net cash provided by operating activities $189.6 $197.9
INVESTING ACTIVITIES
Net cash provided (used) by:
Interest-bearing deposits with banks -- 28.9
Loans outstanding 483.4 (446.6)
Securities purchased under agreements to resell (285.3) 109.6
Available-for-sale securities:
Sales 921.4 1,739.7
Maturities 432.7 172.0
Purchases (371.1) (138.5)
Proceeds from sales of other real estate 6.1 10.5
Net purchases of bank premises and equipment (16.7) (14.5)
Cash and cash equivalents of acquired subsidiaries 116.5 16.3
Acquisitions, net of cash received (31.2) --
Other -- net 10.9 1.0
Net cash provided by investing activities 1,266.7 1,478.4
FINANCING ACTIVITIES
Net cash used by:
Deposits (936.2) (1,042.5)
Federal funds purchased and securities sold under
agreements to repurchase (260.9) (288.7)
Short-term borrowings (86.8) (393.9)
Long-term debt transactions:
Proceeds 499.0 --
Principal payments (205.7) (73.8)
Redemption of preferred stock -- (13.2)
Proceeds from issuance of common stock 17.8 8.3
Purchase of treasury stock (217.0) (39.7)
Cash dividends (61.2) (50.5)
Net cash used by financing activities (1,251.0) (1,894.0)
Change in cash and cash equivalents 205.3 (217.7)
Cash and cash equivalents at beginning of period 1,871.6 1,841.9
Cash and cash equivalents at end of period $2,076.9 $1,624.2
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 the Company believes such
presentation is adequate to make the information presented not misleading. For
further information, refer to the consolidated financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995. Certain amounts in prior periods have been reclassified
to conform to the current presentation.
NOTE B. Accounting Changes
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF -- Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. ("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 is not recoverable. The Company recorded a $25.6
million adjustment to the carrying value of certain bank premises following a
decision to sell several buildings in connection with the streamlining of the
branch distribution network. See Note H for further discussion.
The Company also performed an evaluation of those intangible assets not covered
by SFAS 121. In this regard, the Company recorded a charge of $29.5 million of
credit card holder and core deposit intangibles to reduce the carrying value of
these assets to their fair value. The Company performed an analysis of the fair
value of these assets following its reassessment of business alternatives for a
segment of its credit card portfolio and a change in the mix of deposits at
certain acquired entities, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- SFAS 123, "Accounting for Stock-Based
Compensation," establishes a new fair value based accounting method for
stock-based compensation plans. Companies may continue to apply the accounting
provisions of APB 25, "Accounting for Stock Issued to Employees," in determining
net income; however, they must make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS 123 had been applied. These disclosure requirements are effective beginning
in 1996's year-end financial statements. The Company continues to account for
such arrangements in accordance with APB Opinion No. 25.
NOTE C. Business Combinations and Divestitures
FIRSTIER FINANCIAL, INC. -- On February 16, 1996, the Company issued 16.5
million shares to complete its acquisition of Omaha-based FirsTier Financial,
Inc. ("FirsTier"). FirsTier had $3.7 billion in assets, $2.9 billion in
deposits, and 63 offices in Nebraska and Iowa. Under terms of the purchase
agreement, the Company exchanged .8829 shares of its common stock for each
common share of FirsTier. In addition, FirsTier's outstanding stock options were
converted into stock options for the Company's common stock.
The acquisition of FirsTier was accounted for under the purchase method of
accounting, and accordingly, the purchase price of $717 million was allocated to
assets acquired and liabilities assumed based on their fair market values at the
date of acquisition. The excess of the purchase price over the fair market
values of net assets acquired was recorded as goodwill. Core deposit intangibles
of $63 million will be amortized over the estimated lives of the deposits of
approximately 10 years, and goodwill of $289 million will be amortized over
approximately 25 years. The results of operations of FirsTier have been included
in the Company's Consolidated Statement of Income since the date of acquisition
but did not have a significant effect on earnings.
The following pro forma operating results of the Company assume that the
FirsTier acquisition had occurred at the beginning of each period presented. In
addition to combining the historical results of operations of the two companies,
the pro forma results include adjustments for the estimated effect of purchase
accounting on the Company's results.
THREE MONTHS ENDED
MARCH 31,
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 1996 1995
Net interest income $389.3 $391.2
Net income 174.6 139.3
Net income per share 1.22 .95
The pro forma information may not be indicative of the results that actually
would have occurred if the combination had been in effect on the dates indicated
or which may be obtained in the future.
BANKAMERICA CORPORATE TRUST BUSINESS -- On August 22, 1995, the Company
announced that it had signed a definitive agreement to acquire the corporate
trust business of BankAmerica Corporation. After the acquisition, the Company
became the nation's leading provider of domestic corporate trust services as
measured by revenues. Approximately 80 percent of the transaction was completed
in December 1995 with the remainder completed in the first quarter of 1996.
SALE OF MORTGAGE BANKING OPERATIONS -- On February 26, 1996, the Company
announced that it had entered into agreements with three parties for the sale of
the Company's servicing and mortgage loan production business. Effective
February 29, 1996, Bank of America, fsb, a subsidiary of BankAmerica
Corporation, purchased approximately $14 billion in mortgage servicing rights
resulting in a net gain of $45.8 million. Columbia, National, Inc., of Maryland,
and Knutson Mortgage Co., of Minnesota, agreed to purchase the Company's loan
production business. The Company will now deliver mortgage loan products through
its bank branches and telemarketing.
FIRST INTERSTATE BANCORP -- On November 6, 1995, the Company and First
Interstate Bancorp ("First Interstate") announced that they had entered into a
definitive agreement whereby the Company would exchange 2.6 shares of its common
stock for each share of First Interstate common stock. On January 24, 1996,
First Interstate announced that it had terminated the merger agreement with the
Company and had entered into a definitive agreement with Wells Fargo & Company
("Wells Fargo"). Under the terms of a settlement agreement, the Company received
$125 million on January 24, 1996. The Company received an additional $75 million
on April 1, 1996, upon consummation of the merger of First Interstate and Wells
Fargo, which will be included in second quarter results. In addition, all
litigation among the parties related to the acquisition of First Interstate has
been settled.
NOTE D. Securities
The detail of the amortized cost and fair value of available-for-sale securities
consisted of the following:
MARCH 31, 1996 DECEMBER 31, 1995
AMORTIZED FAIR AMORTIZED FAIR
(IN MILLIONS) COST VALUE COST VALUE
U.S. Treasury $709 $702 $921 $925
Mortgage-backed
securities 2,895 2,901 1,703 1,693
Other U.S. agencies 168 167 157 157
State and political 540 537 174 179
Other 121 123 265 302
Total $4,433 $4,430 $3,220 $3,256
NOTE E. Loans
The composition of the loan portfolio was as follows:
MARCH 31 DECEMBER 31
(IN MILLIONS) 1996 1995
COMMERCIAL:
Commercial $9,336 $8,271
Financial institutions 901 1,060
Real estate:
Commercial mortgage 3,048 2,784
Construction 484 403
Total commercial 13,769 12,518
CONSUMER:
Residential mortgage 3,399 4,655
Residential mortgage held for
sale 258 257
Home equity and second mortgage 2,959 2,805
Credit card 2,469 2,586
Automobile 2,125 1,821
Revolving credit 749 757
Installment 682 607
Student* 468 394
Total consumer 13,109 13,882
Total loans $26,878 $26,400
*All or part of the student loan portfolio may be sold when the repayment period
begins.
At March 31, 1996, the Company had $69 million in loans considered impaired
under SFAS 114 included in nonaccrual loans. Of this amount, $57 million was
valued using the fair value of the loans' collateral and $12 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 March 31, 1996, the average
recorded investment in impaired loans was approximately $69 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:
MARCH 31 DECEMBER 31
(IN MILLIONS) 1996 1995
Fixed-rate subordinated notes:
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 150 150
6.875% due April 1, 2006 125 --
6.875% due September 15, 2007 250 250
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 (4.36% to 7.9%) -
maturities to August 2000 954 1,099
Medium-term notes (5.35% to 8.2%) - maturities to
August 1999 613 580
Bank notes (5.34-6.38%) - maturities to March 1999 600 300
Other 80 90
Total $3,504 $3,201
NOTE G. Shareholders' Equity
On February 21, 1996, the Board of Directors authorized the repurchase of up to
25 million common shares through December 1997. Approximately 3.7 million shares
have been repurchased under the new program as of March 31, 1996. This new
authorization replaces previous authorizations, which provided for the
repurchase of up to 24.3 million shares through the end of 1996. Under previous
authorizations, the Company repurchased 11.9 million shares in 1995.
NOTE H. Merger, Integration and Resizing Charges
During the first quarter of 1996, the Company recorded merger, integration and
resizing charges of $69.9 million. Merger and integration charges of $31.3
million were associated with the acquisitions of FirsTier and the BankAmerica
corporate trust business. Resizing charges of $38.6 million were associated with
the Company's streamlining of the branch distribution network and trust
operations as the Company expands its alternative distribution channels,
including telemarketing, automated teller machines and in-store branches. The
components of the charges are shown below:
THREE MONTHS ENDED MARCH 31
(IN MILLIONS) 1996
Systems conversions, required customer communications and professional
services $29.7
Premise writedowns 26.0
Severance 14.2
Total merger, integration and resizing charges $69.9
Systems conversions, required customer communications and professional services
relate to preparation and mailing of numerous customer communications for the
acquisitions and conversion of customer accounts, printing and distribution of
training materials and policy and procedure manuals, outside consulting fees,
and similar expenses related to the conversion and integration of acquired
branches and operations. Premise writedowns include a valuation adjustment of
$25.6 million associated with the planned sale of bank-owned properties as the
Company consolidates and reduces the space requirements of branch facilities.
The Company is presently marketing these bank-owned facilities and expects to
dispose of them over the next 12 months. Severance charges include the cost of
terminations, other benefits, and outplacement costs associated with the
elimination of employees primarily in branch offices and in centralized
corporate support and data processing functions.
The following table presents a summary of activity with respect to the Company's
merger, integration and resizing accrual:
THREE MONTHS ENDED MARCH 31
(IN MILLIONS) 1996
BALANCE AT DECEMBER 31, 1995 $12.6
Provision charged to operating expense 69.9
Cash outlays (12.6)
Noncash writedowns (26.0)
Balance at March 31, 1996 $43.9
The Company expects that substantially all remaining costs will be paid by the
end of 1996. Additional noncash writedowns are not expected to be significant.
NOTE I. Income Taxes
The components of income tax expense were:
THREE MONTHS ENDED
MARCH 31 MARCH 31
(IN MILLIONS) 1996 1995
FEDERAL:
Current tax $115.9 $52.8
Deferred tax provision 1.8 18.3
Federal income tax 117.7 71.1
STATE:
Current tax 8.4 3.7
Deferred tax provision
(credit) (.2) 4.0
State income tax 8.2 7.7
Total income tax provision $125.9 $78.8
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:
THREE MONTHS ENDED
MARCH 31 MARCH 31
(IN MILLIONS) 1996 1995
Tax at statutory rate (35%) $105.9 $74.4
State income tax, net of federal tax
benefit 5.3 5.0
Tax effect of:
Tax-exempt interest:
Loans (1.2) (1.3)
Securities (1.7) (1.0)
Amortization of goodwill 16.5 3.4
Other items 1.1 (1.7)
Applicable income taxes $125.9 $78.8
The Company expects to receive a tax refund of approximately $55 million to $65
million from the State of Minnesota relating to the exemption of interest income
received on investments in U.S. government securities for the years 1979 to
1983. The refund is subject to final audit reports by the State, as well as
appropriate funding authority to pay the claims, both of which are anticipated
in the second quarter of 1996.
The Company's net deferred tax asset was $247.8 million at March 31, 1996, and
$216.3 million at December 31, 1995.
NOTE J. Commitments, Contingent Liabilities and Off-Balance Sheet Financial
Instruments
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- In the normal course of business, the
Company uses various financial instruments with off-balance sheet risk to meet
the financing needs of its customers and to manage its interest rate risk. These
instruments carry varying degrees of credit, interest rate or liquidity risk.
The contract or notional amounts of these financial instruments were as follows:
MARCH 31 DECEMBER 31
(IN MILLIONS) 1996 1995
Commitments to extend credit:
Commercial $8,145 $7,240
Corporate and purchasing cards 5,917 5,220
Consumer credit card 10,129 9,247
Other consumer 3,435 3,264
Letters of credit:
Standby 1,391 1,412
Commercial 187 161
Interest rate swap contracts:
Hedges 2,964 2,839
Intermediated 179 169
Interest rate options contracts:
Hedge interest rate floors purchased 1,250 1,250
Hedge interest rate caps purchased 200 200
Intermediated interest rate caps and floors
purchased 179 126
Intermediated interest rate caps and floors
written 179 126
Liquidity support guarantees 101 142
Forward contracts 321 294
Commitments to sell loans -- 223
Mortgages sold with recourse 233 242
Foreign currency commitments:
Commitments to purchase 1,087 792
Commitments to sell 1,080 785
Activity for the three months ending March 31, 1996, with respect to interest
rate swaps which the Company uses to hedge commercial loans, subordinated debt,
bank notes, long-term certificates of deposit, deposit accounts, and savings
certificates was as follows:
(IN MILLIONS)
Notional amount outstanding at December 31,
1995 $2,838.8
Additions 225.0
Maturities (100.0)
Terminations --
Notional amount outstanding at March 31, 1996 $2,963.8
Weighted average interest rates paid 5.38%
Weighted average interest rates received 6.77%
The Company receives fixed rates and pays floating rates on all hedges as of
March 31, 1996. Net unamortized deferred gains were $.3 million at March 31,
1996, which amortize through the year 2000.
At March 31, 1996 and December 31, 1995, LIBOR based interest rate floors
totaling $950 million with a remaining maturity of 1.73 years to 2.00 years,
respectively, hedged floating rate commercial loans. The strike rate on these
LIBOR based floors ranged from 3.25 percent to 4.00 percent at March 31, 1996
and December 31, 1995. Constant Maturity Treasury (CMT) interest rate floors
totaling $300 million with a remaining maturity of 6 months and 9 months at
March 31, 1996 and December 31, 1995, respectively, hedged the reinvestment risk
of fixed rate residential mortgage loans. The strike rate on these CMT floors
ranged from 6.25 percent to 6.36 percent at March 31, 1996 and December 31,
1995. At March 31, 1996 and December 31, 1995, the total notional amount of
interest rate caps purchased was $200 million with an average strike level at
6.00 percent.
COMMITMENTS AND CONTINGENT LIABILITIES -- Varous legislative proposals have been
made, but not enacted, that would affect the Savings Association Insurance Fund
("SAIF") premium assessments, including a one-time special assessment for SAIF
deposits. It is not clear when such legislation will be passed, if at all. Based
on current proposals, the Company may be subject to a special assessment of up
to $57 million.
NOTE K. Supplemental Information to the Consolidated Financial Statements
CONSOLIDATED BALANCE SHEET -- Time certificates of deposit in denominations of
$100,000 or more totaled $1,007 million and $900 million at March 31, 1996, and
December 31, 1995, respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS -- Listed below are supplemental
disclosures to the Consolidated Statement of Cash Flows.
THREE MONTHS ENDED
MARCH 31 MARCH 31
(IN MILLIONS) 1996 1995
Income taxes paid $43.5 $36.9
Interest paid 270.2 244.0
Net noncash transfers to foreclosed property 9.7 8.8
Change in unrealized gain (loss) on available-for-sale
securities, net of taxes of $14.7 in 1996 and $30.8 in 1995 (24.0) 49.8
Cash acquisitions of businesses:
Fair value of noncash assets acquired $31.2 $--
Liabilities assumed -- --
Net $31.2 $--
Stock acquisitions of businesses:
Fair value of noncash assets acquired $3,627.9 $329.3
Net cash acquired 116.5 16.3
Liabilities assumed (3,032.2) (288.6)
Net value of common stock issued $712.2 $57.0
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
1996 1995 % CHANGE
INTEREST INTEREST AVERAGE
FOR THE THREE MONTHS ENDED MARCH 31 YIELDS YIELDS BALANCE
(IN MILLIONS) AND AND INCREASE
(UNAUDITED) BALANCE INTEREST RATES BALANCE INTEREST RATES (DECREASE)
ASSETS
Securities:
U.S. Treasury $896 $14.0 6.28% $1,065 $16.2 6.17% (15.9)%
Mortgage-backed securities 2,514 43.3 6.93 2,464 41.6 6.85 2.0
State & political subdivisions 344 7.9 9.24 175 4.6 10.66 96.6
U.S. agencies and other 396 6.1 6.20 551 8.3 6.11 (28.1)
Total securities 4,150 71.3 6.91 4,255 70.7 6.74 (2.5)
Unrealized gain (loss) on
available-for-sale securities 33 (138)
Net securities 4,183 4,117
Trading account securities 108 1.3 4.84 82 1.1 5.44 31.7
Federal funds sold and resale agreements 490 6.4 5.25 311 4.6 6.00 57.6
Loans:
Commercial:
Commercial 8,667 174.0 8.07 7,496 163.7 8.86 15.6
Financial institutions 1,029 11.7 4.57 724 6.9 3.87 42.1
Real estate:
Commercial mortgage 2,904 66.2 9.17 2,444 52.9 8.78 18.8
Construction 443 10.4 9.44 357 8.2 9.32 24.1
Total commercial 13,043 262.3 8.09 11,021 231.7 8.53 18.3
Consumer:
Residential mortgage 3,870 74.1 7.70 5,069 96.1 7.69 (23.7)
Residential mortgage held for sale 220 4.0 7.31 174 3.5 8.16 26.4
Home equity and second mortgage 2,879 68.8 9.61 2,445 56.7 9.40 17.8
Credit card 2,500 73.3 11.79 2,294 71.5 12.64 9.0
Other 3,817 94.3 9.94 3,589 89.7 10.14 6.4
Total consumer 13,286 314.5 9.52 13,571 317.5 9.49 (2.1)
Total loans 26,329 576.8 8.81 24,592 549.2 9.06 7.1
Allowance for credit losses 501 478 4.8
Net loans 25,828 24,114 7.1
Other earning assets 294 3.5 4.79 226 3.5 6.28 30.1
Total earning assets* 31,371 659.3 8.45 29,466 629.1 8.66 6.5
Cash and due from banks 1,725 1,677 2.9
Other assets 2,416 2,175 11.1
Total assets $35,044 $32,702 7.2%
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits $6,148 $5,511 11.6 %
Interest-bearing deposits:
Interest checking 3,000 10.2 1.37 2,967 12.4 1.69 1.1
Money market accounts 4,078 36.3 3.58 3,739 34.3 3.72 9.1
Other savings accounts 1,648 8.9 2.17 1,933 12.2 2.56 (14.7)
Savings certificates 7,272 97.6 5.40 8,347 102.3 4.97 (12.9)
Certificates over $100,000 901 14.0 6.25 1,078 17.2 6.47 (16.4)
Total interest-bearing deposits 16,899 167.0 3.97 18,064 178.4 4.01 (6.4)
Short-term borrowings 4,498 63.5 5.68 2,535 37.4 5.98 77.4
Long-term debt 3,264 49.5 6.10 2,935 46.5 6.43 11.2
Total interest-bearing liabilities 24,661 280.0 4.57 23,534 262.3 4.52 4.8
Other liabilities 1,102 1,020 8.0
Preferred equity 101 106 (4.7)
Common equity 3,012 2,623 14.8
Unrealized gain (loss) on
available-for-sale
securities, net of taxes 20 (92) (121.7)
Total liabilities and shareholders'
equity $35,044 $32,702 7.2%
Net interest income $379.3 $366.8
Gross interest margin 3.88% 4.14%
Gross interest margin without taxable-
equivalent increments 3.82% 4.09%
Net interest margin 4.86% 5.05%
Net interest margin without taxable-
equivalent increments 4.80% 5.00%
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
gain (loss) on available-for-sale securities.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- The 67th Annual
Meeting of Stockholders of First Bank System, Inc. was held on Wednesday, April
17, 1996, at the Minneapolis Convention Center. John F. Grundhofer, Chairman,
President and Chief Executive Officer, presided.
The holders of 125,135,445 shares of common stock, 86.8 percent of the
144,143,244 outstanding shares entitled to vote as of the record date, were
represented at the meeting in person or by proxy. The candidates for election as
Class I Directors listed in the proxy statement were elected to serve three-year
terms expiring at the 1999 annual shareholders' meeting. The tabulation for each
nominee for office is listed in the table below.
The proposal to ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 1996, was approved. The
1996 Stock Incentive Plan was approved. The proposal to amend the Company's
Employee Stock Purchase Plan to increase the shares of the Company's Common
Stock available for issuance thereunder was approved.
SUMMARY OF MATTERS VOTED UPON BY SHAREHOLDERS
NUMBER OF SHARES
IN FAVOR WITHHELD
Election of Class I Directors:
Roger L. Hale 123,423,623 1,711,822
Richard L. Knowlton 123,406,042 1,729,403
Edward J. Phillips 123,368,029 1,767,416
James J. Renier 123,380,587 1,754,858
Richard L. Schall 123,374,197 1,761,248
In Favor Against Abstained Non Vote
Other Matters:
Ratification of appointment of Ernst & Young LLP
as independent auditors 123,677,195 397,197 1,061,053 0
Approval of 1996 Stock Incentive Plan 83,473,286 27,922,197 1,400,500 12,339,462
Amendment to Employee Stock Purchase Plan 101,369,495 10,073,819 1,352,669 12,339,462
For a copy of the meeting minutes, please write to the Office of the Secretary,
First Bank System, P.O. Box 522, Minneapolis, Minnesota 55480.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3 Bylaws of First Bank System, Inc.*
10A First Bank System, Inc. 1996 Stock Incentive Plan*
10B First Bank System, Inc. Restated Employee Stock Purchase Plan, as amended*
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 March 31, 1996, the Company filed the following
Current Reports on Form 8-K:
Form 8-K filed January 9, 1996, relating to fourth quarter 1995 earnings.
Form 8-K filed January 19, 1996, discussing a change to the previously
announced capital management program.
Form 8-K filed on January 29, 1996, discussing the termination of its merger
agreement with First Interstate Bancorp.
* 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 and Controller
(Chief Accounting Officer and Duly
Authorized Officer)
DATE: May 14, 1996
First Bank System
P.O. BOX 522
MINNEAPOLIS, MINNESOTA
55480
First Class
U.S. Postage
PAID
Permit No. 2440
Minneapolis, MN
SHAREHOLDER INQUIRIES
FINANCIAL INFORMATION
FBS news and financial results are available by fax, mail or on-line.
Fax.
To access FBS's fax-on-demand service, call 1-800-758-5804. When asked, enter
FBS's extension number, 312402. Enter "1" for the most current news release or
"2" for a menu of recent releases. Enter your fax and phone numbers as directed.
The information will be faxed to you immediately.
Mail.
If you don't have access to a fax machine or prefer not to use FBS's
fax-on-demand service, we will, on request, automatically mail to you our
quarterly earnings news release. To be added to FBS's mailing list, please
contact Corporate Relations, First Bank System, First Bank Place, Minneapolis,
Minnesota, 55402, (612) 973-2434.
Internet.
For information about FBS, including news releases, product information, and a
list of service locations, access FBS's home page on the world wide web. The
address is www.fbs.com. For further information contact John Danielson, Senior
Vice President, (612) 973-2261, or Karin Glasgow, Assistant Vice President,
(612) 973-2264.
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 2598, Jersey City, New
Jersey 07303-2598, (800) 446-2617.