FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File No. 1-4114
FIRST INTERSTATE BANCORP
(Exact name of registrant as specified in its charter)
DELAWARE 95-1418530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
633 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90071
(Address of principal executive offices) (Zip Code)
(213) 614-3001
(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 12 months (or
for such shorter period that the registrant has been required to
file such (reports), 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 issuer's
classes of common stock, as of the latest practicable date:
CLASS OUTSTANDING AT APRIL 30, 1995
Common stock, $2 par value 75,969,690 shares
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST INTERSTATE BANCORP
CONSOLIDATED BALANCE SHEET
(in millions)
March 31 December 31 March 31
1995 1994 1994
-------- ----------- --------
ASSETS
Cash and due from banks $ 6,230 $ 6,070 $ 4,773
Time deposits, due from banks 27 26 834
Federal funds sold and securities
purchased under agreements to resell 265 179 1,471
Trading account securities 52 64 100
Investment securities:
Held-to-maturity securities 12,204 13,695 16,475
Available-for-sale securities 127 156 624
-------- --------- --------
Total Investment Securities 12,331 13,851 17,099
Loans (net) 35,096 33,222 27,132
Less: Allowance for credit losses 921 934 1,011
-------- --------- --------
Net Loans 34,175 32,288 26,121
Bank premises and equipment 1,199 1,147 1,040
Customers' liability for acceptances 31 35 53
Other assets 2,646 2,153 2,040
-------- ---------- --------
Total Assets $ 56,956 $ 55,813 $ 53,531
======== ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 16,644 $ 16,599 $ 16,053
Interest bearing 31,720 31,828 30,810
-------- --------- --------
Total Deposits 48,364 48,427 46,863
Short term borrowings 2,361 1,574 321
Acceptances outstanding 31 35 53
Accounts payable and accrued liabilities 1,037 953 1,011
Long term debt 1,470 1,388 1,532
-------- --------- --------
Total Liabilities 53,263 52,377 49,780
Shareholders' equity:
Preferred Stock 350 350 350
Common Stock, par value $2 a share:
Authorized (in thousands) 250,000 shares;
Issued: 84,286 shares 169 168 169
Capital surplus 1,683 1,692 1,683
Retained earnings 2,113 1,967 1,622
Unrealized gain on available-for-sale
securities, net of tax 1 1 --
-------- --------- --------
4,316 4,178 3,824
Less Common Stock in treasury at cost:
(in thousands)
March 31, 1995 - 8,452 shares
December 31, 1994 - 10,082 shares
March 31, 1994 - 1,706 shares 623 742 73
-------- --------- --------
Total Shareholders' Equity 3,693 3,436 3,751
-------- --------- --------
Total Liabilities and Shareholders' Equity $ 56,956 $ 55,813 $ 53,531
======== ========= ========
See notes to consolidated financial statements
<PAGE>
FIRST INTERSTATE BANCORP
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
Three Months Ended
----------------------------------
March 31 December 31 March 31
1995 1994 1994
-------- ----------- --------
INTEREST INCOME
Loans, including fees $ 730.5 $ 662.4 $ 498.7
Trading account 1.6 1.6 1.3
Investment Securities:
Held-to-maturity securities 177.4 192.7 207.9
Available-for-sale securities 5.1 0.9 5.1
Other interest income 6.9 4.7 16.2
-------- ---------- --------
Total Interest Income 921.5 862.3 729.2
INTEREST EXPENSE
Deposits 225.2 205.7 163.9
Short term borrowings 35.2 14.8 3.4
Long term debt 29.4 25.2 28.5
-------- ---------- --------
Total Interest Expense 289.8 245.7 195.8
-------- ---------- --------
NET INTEREST INCOME 631.7 616.6 533.4
Provision for credit losses -- -- --
NET INTEREST INCOME AFTER PROVISION -------- ---------- --------
FOR CREDIT LOSSES 631.7 616.6 533.4
NONINTEREST INCOME
Service charges on deposit accounts 147.1 143.4 139.0
Trust fees 39.4 49.1 47.0
Other charges, commissions, and fees 34.0 32.5 32.7
Merchant credit card fees 12.3 10.6 9.0
Investment securities gains 0.5 14.1 0.8
Other income 35.1 12.6 28.0
-------- ---------- --------
Total Noninterest Income 268.4 262.3 256.5
NONINTEREST EXPENSES
Salaries & benefits 273.4 270.3 269.5
Net occupancy expenses 100.1 92.6 88.0
Communications 33.9 30.2 27.6
Outside contract fees 34.0 30.0 16.9
FDIC assessments 27.9 27.8 24.3
Amortization of intangibles 14.9 11.8 6.7
Office supplies 14.0 10.5 11.0
Other real estate -- (6.1) --
Provision for restructuring 4.8 2.3 --
Other expenses 48.7 68.8 48.9
-------- ---------- --------
Total Noninterest Expenses 551.7 538.2 492.9
-------- ---------- --------
INCOME BEFORE INCOME TAXES 348.4 340.7 297.0
Applicable income taxes - including
taxes relating to investment securities
transactions of $0.2, $5.6 and $0.4 136.4 129.4 112.9
-------- ---------- --------
NET INCOME $ 212.0 $ 211.3 $ 184.1
======== ========== ========
Net income applicable to common stock $ 203.7 $ 203.0 $ 175.8
Average number of common shares 76,464 76,656 79,485
outstanding (in thousands)
Net income per common share $ 2.66 $ 2.65 $ 2.21
Dividends paid per common share 0.75 0.75 0.50
See notes to consolidated financial statements
<PAGE>
FIRST INTERSTATE BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three months ended
----------------------
March 31 March 31
1995 1994
--------- ---------
Cash Flows from Operating Activities:
Net Income $ 212 $ 184
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 46 27
Provision for credit losses - -
Provision for deferred income taxes 36 45
Provision for restructuring 5 -
Decrease in trading account securities 12 67
Decrease in interest receivable 4 102
Increase in interest payable 11 2
Other, net (28) 66
--------- ---------
Net Cash Provided by Operating Activities 298 493
Cash Flows from Investing Activities:
Held-to-maturity securities
Proceeds from maturities 1,556 1,802
Proceeds from sales - -
Purchases (71) (1,217)
Available-for-sale securities
Proceeds from maturities 36 3,461
Proceeds from sales 644 4
Purchases (4) (3,785)
Net loan principal originations (1,032) (1,045)
Proceeds from sales of loans 443 807
Loans purchased (125) (211)
Acquisition of subsidiaries (74) 210
Proceeds from sales of subsidiaries and operations - -
Proceeds from sales of premises and equipment 34 1
Purchases of premises and equipment (73) (66)
Proceeds from sales of other real estate 15 6
--------- ---------
Net Cash Provided (Used) by Investing Activities 1,349 (33)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits (2,072) 269
Deposits purchased 187 -
Net increase (decrease) in short term borrowings 449 (407)
Proceeds from long term debt issued 100 -
Repayments of long term debt (18) (40)
Cash dividends paid (65) (47)
Proceeds from Common Stock issued 19 19
Reacquisition of Common Stock - (15)
--------- ---------
Net Cash Provided (Used) by Financing Activities (1,400) (221)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 247 239
Cash and cash equivalents at beginning of year 6,275 6,839
--------- ---------
Cash and Cash Equivalents at end of period $ 6,522 $ 7,078
========= =========
Additional Disclosures
Loans transferred to OREO $ 9 $ 9
Loans originated to facilitate sale of OREO - 1
Interest paid 278 194
Income taxes paid (refunded) (6) 2
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
FIRST INTERSTATE BANCORP
STATEMENT OF SHAREHOLDERS' EQUITY
(dollars in millions)
Unrealized
Net Gains on
Common Stock Available-
Preferred -------------------- Capital Retained for-sale Treasury
Stock Shares(000s) Amount Surplus Earnings Securities Stock Total
--------- ------------ ------ -------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 350 74,204 $ 168 $ 1,692 $ 1,967 $ 1 $ (742) $ 3,436
Net income for the period 212 212
Cash dividends
Common Stock - $0.75 per share (57) (57)
Preferred Stock (9) (9)
Common Stock issued:
Stock Option and Restricted Stock Plans 184 (4) 12 8
Dividend Reinvestment Plan 119 9 9
Management Incentive Plan 19 1 1
Levy Bancorp acquisition 1,308 (5) 97 92
Other adjustments 1 1
------ ------ ------- -------- --------- --------- ------- --------
Balance at March 31, 1995 $ 350 75,834 $ 169 $ 1,683 $ 2,113 $ 1 $ (623) $ 3,693
====== ====== ======= ======== ========= ========= ======= ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
FIRST INTERSTATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying consolidated
financial statements contain all adjustments (all of which
are of a normal recurring nature) necessary to present
fairly the consolidated financial position at March 31,
1995, December 31, 1994, and March 31, 1994, the results of
operations for the three months ended March 31, 1995,
December 31, 1994 and March 31, 1994 and the cash flows for
the three months ended March 31, 1995 and 1994. Certain
prior year balances have been reclassified to conform to
current year classifications.
2. The following table provides the major components of
investment securities (in millions):
Gross
Unrealized
Amortized --------------- Estimated
Cost Gains Losses Fair Value
--------- ------- ------ ----------
March 31, 1995
Held-to-maturity:
U.S. Treasury and agencies $10,701 $ 17 $ 192 $10,526
State and political subdivisions 31 2 -- 33
Other debt securities 1,472 2 74 1,400
------- ------- ------- -------
Total held-to-maturity $12,204 $ 21 $ 266 $11,959
======= ======= ======= =======
Available-for-sale:
U.S. Treasury and agencies $ 8 $ -- $ -- $ 8
Corporate and Federal Reserve Stock 118 1 -- 119
------- ------- ------- -------
Total available-for-sale $ 126 $ 1 $ -- $ 127
======= ======= ======= =======
December 31, 1994
Held-to-maturity:
U.S. Treasury and agencies $12,105 $ 16 $ 352 $11,769
State and political subdivisions 29 1 -- 30
Other debt securities 1,561 -- 80 1,481
------- ------- ------- -------
Total held-to-maturity $13,695 $ 17 $ 432 $13,280
======= ======= ======= =======
Available-for-sale:
U.S. Treasury and agencies $ 42 $ -- $ -- $ 42
Corporate and Federal Reserve Stock 113 1 -- 114
------- ------- ------- -------
Total available-for-sale $ 155 $ 1 $ -- $ 156
======= ======= ======= =======
March 31, 1994
Held-to-maturity:
U.S. Treasury and agencies $14,859 $ 73 $ 131 $14,801
State and political subdivisions 43 1 -- 44
Other debt securities 1,573 3 19 1,557
------- ------- ------- -------
Total held-to-maturity $16,475 $ 77 $ 150 $16,402
======= ======= ======= =======
Available-for-sale:
U.S. Treasury and agencies $ 180 $ -- $ -- $ 180
Corporate and Federal Reserve Stock 444 -- -- 444
------- ------- ------- -------
Total available-for-sale $ 624 $ -- $ -- $ 624
======= ======= ======= =======
During 1994 and the three months ended March 31, 1995 there
were no transfers or sales of held-to-maturity securities,
or transfers of available-for-sale securities to trading.
3. In January 1995, the Corporation adopted Statement of
Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," amended in October 1994
by SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," hereinafter
collectively referred to as SFAS 114. Under SFAS 114, a loan
is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to
collect principal or interest due according to the
contractual terms of the loan. SFAS 114 applies to all loans
except large groups of smaller-balance homogenous loans
which are collectively evaluated, loans measured at fair
value or at the lower of cost or fair value, leases and debt
securities. The statement does not address the overall
adequacy of the allowance for credit losses. When a loan is
identified as "impaired", accrual of interest ceases and
any amounts that are recorded as receivables are reversed
out of interest income.
Impaired loans of the Corporation include only commercial
(including financial and agricultural), real estate
construction and commercial real estate mortgage loans
classified as nonperforming loans. The Corporation measures
its impaired loans by using the fair value of the collateral
if the loan is collateral-dependent and the present value of
the expected future cash flows discounted at the loan's
effective interest rate if the loan is not collateral-
dependent. Impairment allowances, if any, are considered by
the Corporation in determining the overall adequacy of the
allowance for credit losses. The adoption of SFAS 114
resulted in no material change in unallocated reserves of
the allowance for credit losses.
The following table presents a breakdown of nonperforming
assets, which include impaired loans as defined by SFAS 114
as well as other assets which do not meet that definition,
and the SFAS 114 impairment allowance related to impaired
loans (in millions):
March 31, 1995
-------------------------
SFAS 114
Recorded Impairment
Investment Allowance
---------- ----------
Nonperforming loans:
Impaired loans:
Loans with impairment allowance
Commercial, financial and agricultural $ 38 $ 5
Real estate construction -- --
Commercial real estate mortgage 12 2
------ ------
Total loans with impairment allowance 50 $ 7
======
Loans without impairment allowance
Commercial, financial and agricultural $ 56
Real estate construction 15
Commercial real estate mortgage 44
------
Total loans without impairment allowance 115
Total impaired loans 165
Other nonperforming loans
Residential real estate mortgage 22
Instalment 1
------
Total nonperforming loans 188
Other real estate 74
------
Total nonperforming loans $ 262
======
For the three months ending March 31, 1995, the average
balance of impaired loans was $177 million and the total
interest income was $1.6 million, all of which was
recognized on a cash basis.
Transactions in the allowance for credit losses for the
quarter ending were as follows (in millions):
March 31, December 31, March 31,
1995 1994 1994
--------- ------------ ---------
Balance at beginning of period $ 934 $ 952 $ 1,001
Provision for credit losses -- -- --
Other changes - acquisitions 24 20 36
-------- ----------- --------
958 972 1,037
Deduct:
Loans charged-off 78 66 60
Less recoveries ofloans
previously charged-off 41 28 34
-------- ----------- --------
Net loans charged-off 37 38 26
-------- ----------- --------
Balance at end of period $ 921 $ 934 $ 1,011
======== =========== ========
4. Other assets identified as being held for sale are valued at
the lower of cost or market and totaled at March 31, 1995,
December 31, 1994 and March 31, 1994, $67 million, $26
million and $126 million, respectively. These balances
represent loans held for sale and are included in Other
assets on the Consolidated Balance Sheet.
5. At March 31, 1995, December 31, 1994 and March 31, 1994,
15,000,000 shares of Preferred Stock (no par value) were
authorized.
At March 31, 1995, December 31, 1994 and March 31, 1994,
there were outstanding 8,000,000 Depositary Shares, each
representing a one-eighth interest in a share of 9.875%
Preferred Stock, Series F. The Series F Preferred Stock is
redeemable at any time on or after November 15, 1996, at
the option of the Corporation, in whole or in part, at
$200.00 per share (equivalent to $25.00 per Depositary
Share) plus accrued and unpaid dividends to the redemption
date.
At March 31, 1995, December 31, 1994 and March 31, 1994,
there were outstanding 6,000,000 Depositary Shares, each
representing a one-eighth interest in a share of 9.0%
Preferred Stock, Series G. The Series G Preferred Stock is
redeemable any time on or after May 29, 1997, at the option
of the Corporation, in whole or in part, at $200.00 per
share (equivalent to $25.00 per Depositary Share) plus
accrued and unpaid dividends to the redemption date.
Dividends on both the Series F and Series G Preferred Stock
are cumulative and are paid quarterly on the last day of
March, June, September and December of each year.
At March 31, 1995, the cost of Common Stock in the treasury
averaged $73.70 per share. At December 31, 1994 and March
31, 1994, the cost of Common Stock in the treasury averaged
$73.64 and $42.83, respectively. On April 28, 1995, the
Board of Directors approved the repurchase of up to 7.6
million shares of Common Stock. The first 2.5 million shares
purchased under the program will be used for reissuance
through the Corporation's various employee benefit and stock
option plans, and Stock Purchase and Dividend Reinvestment
Plan. Such repurchases will be made periodically over the
next two years in the open market or through privately
negotiated transactions, subject to appropriate regulatory
and acquisition accounting requirements.
6. During the first three months of 1995, the Corporation was a
party to three business combinations with operating entities
(University Savings Bank, Levy Bancorp and North Texas
Bancshares) resulting in the acquisition of $2.3 billion in
assets and $1.8 billion in deposits. University Savings
Bank and North Texas Bancshares were cash transactions, and
the Corporation issued 1,308,388 shares of its common stock
(from its Treasury shares) for the acquisition of Levy Bancorp.
All three acquisitions were accounted for as purchases.
In addition, the Corporation, through its subsidiary in
California, completed a cash transaction resulting in the
acquisition of $187 million of deposits from the Federal
Deposit Insurance Corporation. The Corporation paid a
premium of $16 million for these deposits.
7. For purposes of reporting cash flows, cash and cash
equivalents includes cash on hand, amounts due from banks,
time deposits with banks, federal funds sold and securities
purchased under agreements to resell having maturities of
three months or less. Federal funds are purchased and sold
for one-day periods. The effect of changes in foreign
exchange rates on cash balances is not material.
<PAGE>
Item 2:
Management's Discussion and Analysis of Financial Condition and
Results of Operations
COMPARISON OF FIRST QUARTER RESULTS:
The Corporation recorded net income for the first quarter of 1995
of $212.0 million ($2.66 per share). This includes the effect of
$4.8 million of previously announced restructuring charges ($3.0
million after taxes, or $0.04 per share) and represents an
increase of 15.2% from the 1994 first quarter. Net income of
$184.1 million in the 1994 first quarter included a benefit from
the recognition of nonrecurring items of $14.7 million ($0.18 per
share). Before the effect of nonrecurring items in both periods,
income after taxes in the 1995 first quarter amounted to $215.0
million ($2.70 per share), an increase of 26.9% from $169.4
million ($2.03 per share) in the 1994 first quarter.
Taxable-equivalent net interest income was $637.5 million in the
first quarter of 1995, an increase of 18.4% from a year earlier.
This increase resulted from expansion of the net interest margin,
up 36 basis points to 5.31%, as well as from earning asset
growth, up $4.5 billion (10.2%) to an average of $48.4 billion.
The higher level of average earning assets in the first quarter
of 1995 reflects loan growth of $8.8 billion, offset by a decline
in investment securities of $3.0 billion. The Corporation is,
and has been historically, asset sensitive. During periods such
as 1994 in which short term interest rates rise, as driven by
monetary policy, the net interest margin has generally increased.
The net interest margin in the 1995 first quarter was two basis
points above the 1994 fourth quarter margin of 5.29%. Growth of
the net interest margin in 1995 is expected to stabilize,
assuming deposit rates will gradually increase reflecting higher
market interest rates, which is consistent with this stage of the
economic cycle.
Average loans and leases including acquisitions increased $8.8
billion (34.4%) from the 1994 first quarter and $2.8 billion
(8.7%) from the fourth quarter to $34.6 billion in the 1995 first
quarter. Real estate mortgage loans averaged $11.1 billion in
the 1995 first quarter, an increase of $4.8 billion (76.6%) from
the comparable 1994 quarterly level. This increase reflects, in
part, acquisitions completed since March 1994. Instalment loans
averaged $12.4 billion in the first quarter of 1995, up $1.4
billion (13.1%) from a year earlier and up $226 million (1.9%)
from the fourth quarter of 1994. Growth of instalment loans
reflects the improved economy and the success of marketing
programs, as well as the impact of completed acquisitions.
Average commercial loans outstanding were up $2.0 billion (26.6%)
from a year earlier and up $592 million (6.6%) from the 1994
fourth quarter to an average of $9.6 billion. Average
construction loans increased $299 million (40.6%) from the 1994
first quarter and $129 million (14.2%) from the fourth quarter to
$1.0 billion in the 1995 period.
At March 31, 1995, including the effect of acquisitions, loans
and leases totaled $35.1 billion, up $8.0 billion (29.4%) from a
year earlier and up $1.9 billion (5.6%) from yearend 1994.
Instalment loans totaled $12.4 billion at March 31, 1995, an
increase of $1.2 billion (10.2%) from a year earlier and an
increase of $129 million (1.1%) from yearend 1994. At the same
time, commercial loans were $9.6 billion, an increase of $1.4
billion (17.1%) from a year earlier and up $341 million (3.7%)
from yearend 1994. Residential real estate mortgages totaled
$6.7 billion, $3.6 billion (116.1%) above a year ago and $0.9
billion (15.5%) above the yearend level. Commercial real estate
mortgages amounted to $4.7 billion at March 31, 1995, $1.2
billion (34.3%) above a year ago and $278 million (6.3%) above
December 31, 1994. Construction loans were $1.1 billion at March
31, 1995, versus $806 million a year earlier and $933 million at
the end of 1994.
As a result of maturities and paydowns, investment securities
held to maturity declined $4.3 billion (25.9%) from a year
earlier and declined $1.5 billion (10.9%) from yearend 1994 to
$12.2 billion at March 31, 1995. These proceeds supported the
growth in loans. The investment securities portfolio is expected
to continue to decline moderately as loan growth is expected to
exceed deposit growth. U.S. Treasury and agency-backed
securities declined 28.0% from a year earlier to $10.7 billion at
March 31, 1995. Of the current amount, $4.3 billion were U.S.
Treasury securities and $6.4 billion were government agency
securities. Of the $6.4 billion of government agency securities
at March 31, 1995, the majority was backed by mortgages. All
other investment securities amounted to $1.5 billion at the end
of March 1995, down $100 million (6.2%) from a year earlier and
down slightly from yearend 1994.
Total deposits averaged $48.0 billion in the 1995 first quarter,
up $3.4 billion (7.7%) from the 1994 first quarter and up $211
million from the fourth quarter. Average deposits in consumer
savings, time and net transaction accounts increased $2.7 billion
(7.1%) from the 1994 first quarter to an average of $41.1 billion
in the 1995 first quarter. Such deposits increased $244 million
from $40.9 billion in the 1994 fourth quarter, including the
results of acquisitions. The Corporation's CDs over $100,000
increased $442 million (46.2%) from the 1994 first quarter and
increased slightly from the 1994 fourth quarter to an average of
$1.4 billion. At the same time, short term borrowings, primarily
federal funds purchased, averaged $2.4 billion, up $2.1 billion
from the 1994 first quarter and up $1.5 billion from the fourth
quarter; these increases include the impact of acquisitions. The
higher levels of short term borrowings, together with maturing
securities and deposit growth, supported loan growth in the 1995
first quarter.
Based on an assessment of the Corporation's current risk profile,
no provision for credit losses for the Corporation has been
recorded since the fourth quarter of 1993. Loans charged off,
net of recoveries, were $37.2 million in the first quarter of
1995, compared to $25.6 million reported for the comparable 1994
quarter. The Corporation continued to experience a strong level
of recoveries on prior period chargeoffs.
Noninterest income totaled $268.4 million in the first quarter of
1995, an increase of $11.9 million (4.6%) from the 1994 first
quarter level. Service charges on deposit accounts rose $8.1
million (5.8%) from the 1994 level, while trust fees declined
$7.6 million (16.2%). The decline in trust fees reflects the
previously announced disposition of Denver Investment Advisors, a
subsidiary of First Interstate Bank of Denver.
Total noninterest expenses amounted to $551.7 million in the 1995
first quarter, including $4.8 million of restructuring charges,
as previously noted. Noninterest expenses before the effect of
these charges and including the effect of completed acquisitions
were $546.9 million, an increase of $54.0 million (11.0%) from
the comparable 1994 quarter. The increase in noninterest
expenses from the 1994 first quarter was attributable primarily
to acquisitions. In addition, noninterest expenses in the first
quarter of 1994 benefited from the reversal of $13.2 million of
litigation reserves included in outside contract fees.
The Corporation's efficiency ratio, which reflects noninterest
expenses before restructuring and ORE charges as a percent of
taxable-equivalent net interest income plus noninterest income,
was 60.4% in the 1995 first quarter, 61.3% in the 1994 fourth
quarter, and 62.0% in the 1994 first quarter.
In the first quarter of 1995, the Corporation recorded income tax
expense of $136.4 million, resulting in an effective income tax
rate of 39.2%. This compares to an effective rate of 38.0% in
the comparable 1994 quarter.
LIQUIDITY MANAGEMENT:
Liquidity refers to the Corporation's ability to adjust its
future cash flows to meet the needs of depositors and borrowers
and to fund operations on a timely and cost effective basis.
The Corporation continues to utilize the core deposits gathered
through its extensive interstate retail banking network as a key
source of low-cost funding. Core deposits, defined as demand
deposits, interest bearing consumer deposits under $100,000 and
noninterest bearing time deposits, together with corporate
purchased funds and equity are the primary sources for funding
earning assets. During the first quarter of 1995, core deposits
represented 85% of average earning assets, down from 88% in both
the first and fourth quarters of 1994.
At the same time, average corporate purchased funds increased
primarily due to the following. Short term borrowings rose $2.1
billion from the first quarter of 1994 and $1.5 billion from the
1994 fourth quarter level. In addition, long term debt decreased
$142 million from the 1994 first quarter, and increased $64
million from the 1994 fourth quarter, reflecting the issuance in
the 1995 first quarter of $100 million of subordinated debt.
Cash and cash equivalents was virtually unchanged from December
31, 1994.
Net cash provided by investing activities during the first three
months of 1995 totaled $1,349 million. Maturities of investment
securities in the held-to-maturity portfolio, net of purchases,
provided cash of $1,485 million. Maturities and sales of
investment securities in the available-for-sale portfolio, net of
purchases, provided $676 million. Loan originations, net of
repayments, used cash of $1,032 million. Proceeds from the sale
of loans provided $443 million while the purchase of loans used
$125 million.
Net cash used by financing activities totaled $1,400 million
during the first three months of 1995. Deposits, excluding the
purchase of $187 million from the Federal Deposit Insurance
Corporation as part of the Corporation's ongoing acquisition
program, exhibited a net decrease of $2,072 million. The
Corporation also reported a net increase of $449 in short term
borrowings. These borrowings were primarily federal funds
purchased and securities sold under agreements to repurchase.
The Corporation continues to have no commercial paper
outstanding. Proceeds from the issuance of long term debt
provided $100 million while maturities required cash of $18
million. Issuance of common stock provided cash of $19 million
while dividends paid totaled $65 million.
Cash provided by operations during the first three months of 1995
totaled $298 million. Net income totaled $212 million and
noncash adjustments to reconcile net income totaled $87 million.
Net changes in other assets and other liabilities decreased cash
from operations by $1 million.
The Corporation's other sources of liquidity include maturing
securities in addition to those which are available for sale or
repurchase activity. In addition, subsidiary banks may directly
access funds placed by them through existing agency agreements
for the placement of federal funds and may also access the
Federal Reserve for short term liquidity needs.
SOURCE OF FUNDS:
The Parent Corporation is a legal entity, separate and distinct
from its subsidiary banks. The principal source of the Parent
Corporation's revenue is dividends from the subsidiary banks.
During the first three months of 1995, the subsidiary banks paid
a total of $153 million in dividends to the Parent Corporation.
Various statutory provisions limit the amount of dividends the
subsidiary banks and certain non-bank subsidiaries can pay
without regulatory approval, and various regulations also
restrict the payment of dividends. In addition, federal statutes
limit the ability of the subsidiary banks to make loans to the
Parent Corporation. At March 31, 1995, the Parent Corporation had
no external short term borrowings outstanding. Immediate
liquidity available to the Corporation includes a $500 million
senior revolving credit facility, as well as cash and other short
term financial instruments at the Parent Corporation totaling
$237 million at March 31, 1995. This compares to $219 million at
yearend 1994. At current rates, interest on long term debt and
preferred stock dividend requirements from April 1, 1995 through
yearend 1995 total $120 million. In addition, from April 1, 1995
through yearend 1995, $113 million of the Parent Corporation's
long term debt will mature. Under the appropriate circumstances,
the Parent Corporation could consider repurchasing any of its
outstanding securities.
The Parent Corporation has access to regional, national and
international capital and money markets. On December 9, 1994,
the Corporation announced the establishment of its $1 billion
Global Medium Term Note Program. The program allows for senior
and subordinated debt and capital securities issuance in a number
of countries and over a broad spectrum of maturities.
RISK ELEMENTS:
Nonperforming Assets - At March 31, 1995, nonperforming assets
totaled $262 million, down $71 million (21.3%) from the year ago
level of $333 million, and up $4 million from $258 million
reported at yearend 1994. The current level of nonperforming
assets represents 0.46% of total assets, versus 0.62% a year
earlier and 0.46% at yearend 1994. Nonperforming loans totaled
$188 million at March 31, 1995, down 22.2% from $243 million
reported a year earlier, and up $2 million from $186 million at
yearend 1994. ORE totaled $74 million at March 31, 1995, down
from $90 million a year ago and up $2 million from yearend 1994.
In addition to credit assets classified as nonperforming, the
Corporation reported accruing loans that were past due 90 days or
more of $52 million at March 31, 1995, versus $114 million a year
earlier and $51 million at yearend 1994. The current level of
past due loans represents 0.09% of total assets.
Allowance for Credit Losses - At March 31, 1995, the allowance
for credit losses totaled $921 million, or 2.62% of total loans.
This compares to an allowance of $1,011 million, or 3.73% of
loans, a year ago and $934 million, or 2.81% of loans, at
December 31, 1994.
Historical and projected allowances for credit losses reflect
management's assessment of the credit risk inherent in the
Corporation's loan portfolio, as well as the possible impact of
known and potential problems in certain off-balance sheet
financial instruments and uncertain events. Consistent with
regulatory guidelines, the allowance is maintained at the level
that is adequate to absorb estimated credit losses associated
with the total loan and lease portfolio, including all binding
commitments to lend.
For the past eleven quarters, the Corporation has provided less
than net chargeoffs with the credit provision over the past five
quarters being zero. Despite zero credit provisions, improving
economic conditions and lower levels of problem assets have
caused reserves to remain in the upper range of key measures of
adequacy. Management continues to evaluate the Corporation's
reserve adequacy strategy on a quarterly basis, with the
expectation that further reductions in reserve levels will be
considered as long as the Corporation's risk profile supports
that conclusion.
During the first quarter of 1995, the Corporation adopted
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan." The adoption resulted in
no material change in unallocated reserves of the allowance for
credit losses. Refer to Footnote 3 to the financial statements
for further information .
Derivatives - The Corporation continues to engage in a minimum of
derivative activities, none of a trading or speculative nature.
At March 31, 1995, the notional value of derivatives outstanding
was $6.6 billion, including $5.4 billion in which the Corporation
is an intermediary and $1.2 billion in which the Corporation
entered into transactions to hedge interest rate sensitivity. Of
the $5.4 billion in which the Corporation is an intermediary,
$4.2 billion of notional value has been sold to Standard
Chartered, which has assumed the market risk of these
instruments, and the Corporation retains only the credit risk.
CAPITAL AND OTHER FINANCIAL STATISTICS:
At March 31, 1995, total shareholders' equity represented 6.48%
of total assets, versus 7.01% a year earlier and 6.16% at yearend
1994. On the same dates, common equity equaled 5.87%, 6.35% and
5.53% of total assets, respectively. The recent decline in the
Corporation's various capital ratios largely resulted from common
stock repurchase programs and completed acquisitions.
The tangible common equity ratio was 4.56% at March 31, 1995,
compared to 5.92% a year earlier and 4.57% at yearend 1994. The
regulatory leverage ratio was 5.24% at March 31, 1995, versus
6.91% a year ago and 5.35% at yearend 1994.
The Corporation's Tier 1 and Total Capital ratios at March 31,
1995 were 6.91% and 10.05%, respectively. The Tier 1 and Total
Capital ratios at yearend 1994 were 7.20% and 10.22%,
respectively. The decline in risk adjusted capital ratios was
also affected by loan growth and declines in the lower risk-
weighted investment securities portfolio. During the first
quarter of 1995, the Corporation issued $100 million in 8.15%
subordinated notes due March 15, 2002. Such notes qualify as Tier
2 capital securities and contributed to the Corporation's Total
Capital ratio.
On January 17, 1995, the Corporation's Board of Directors
declared a quarterly cash dividend of $0.75 on the Corporation's
$2 par value Common Stock, payable on February 24, 1995, to
shareholders of record on February 6, 1995. On February 1, 1995,
the Preferred Stock Committee of the Board of Directors declared
dividends on the Corporation's outstanding preferred stock.
During the first quarter of 1995, the Corporation recorded common
stock dividends of $57.1 million and preferred stock dividends of
$8.3 million.
Total intangibles amounted to $785 million at March 31, 1995,
versus $247 million a year earlier and $561 million at yearend
1994. The higher current level reflects the completion of
acquisitions after March 31, 1994. As a result, goodwill
increased to $737 million at March 31, 1995, from $217 million a
year earlier.
The number of common shares used in the calculation of 1995 first
quarter results per share was 76,463,802. During the quarter,
1.3 million shares were issued from the Corporation's treasury
shares in conjunction with the acquisition of Levy Bancorp in
February 1995, of which 1.1 million represent shares repurchased
for such purpose.
RESTRUCTURING
As previously announced, the Corporation has adopted a
Restructuring Plan (Plan) to improve efficiency and to better
position the company for the introduction of full interstate
banking. The restructuring activity related to the Plan is
summarized in the following table (in millions):
Early Severance and Facility and
Retirement Outplacement Equipment
Program Services Valuations Other Total
----------- ------------- ------------ ------ ------
1994
Restructuring provision
Initial charge $ 82.0 $ 40.0 $ 15.0 $ 2.0 $139.0
Ongoing -- -- -- 2.3 2.3
------ ------ ------ ----- ------
Total 82.0 40.0 15.0 4.3 141.3
Utilization for the period
Cash 0.4 4.7 6.8 2.3 14.2
Noncash 81.6 -- -- -- 81.6
------ ------ ------ ----- ------
Total 82.0 4.7 6.8 2.3 95.8
------ ------ ------ ----- ------
Balance at
December 31, 1994 -- 35.3 8.2 2.0 45.5
1995
Restructuring provision -- -- -- 4.8 4.8
Utilization for the period
Cash -- 3.1 1.3 6.8 11.2
Noncash -- -- -- -- --
------ ------ ------ ----- ------
Total -- 3.1 1.3 6.8 11.2
------ ------ ------ ----- ------
Balance at
March 31, 1995 $ -- $ 32.2 $ 6.9 $ -- $ 39.1
====== ====== ====== ===== ======
The 1994 noncash amount of $81.6 million represents the amount
transferred to the Corporation's pension liability during 1994.
Payment of the cost of the Early Retirement Program into the
Corporation's qualified retirement plan will depend on the timing
of the Corporation's contributions to the pension plan.
The balance of the restructuring charge will be funded out of
operating cash flows with payments for severance and outplacement
services occurring through the end of 1995. In addition, it is
expected that restructuring charges of another $18.9 million for
relocation of staff and facilities, as well as retention payments
for certain personnel displaced in the restructuring program,
will be incurred and expensed as the program is implemented.
Such costs are expected to be incurred relatively evenly through
the end of 1995. The total expected cost of the Plan, therefore,
will be approximately $165 million, as previously estimated.
SUMMARY OF ACQUISITION ACTIVITY:
In the first quarter of 1995 , the Corporation closed four
acquisitions: University Savings Bank in Seattle-Tacoma,
Washington; Levy Bancorp in Ventura, California; North Texas
Bancshares, Inc. in Fort Worth, Texas; and First Trust Bank in
Ontario, California.
On March 16, 1995, First Interstate Bank of Texas, N.A. announced
the signing of a definitive agreement to purchase Tomball
National Bancshares and its principal subsidiary, Texas National
Bank, for $7.7 million in cash. At yearend 1994, Tomball
reported assets of $98 million, loans of $36 million and deposits
of $88 million. The transaction is expected to be completed in
mid-1995.
First Interstate currently operates 1,167 banking offices in 13
western states. As previously disclosed, the Corporation
continues to explore opportunities to expand its banking
operations by means of strategically selected acquisitions within
the existing First Interstate Territory.
RECENT DEVELOPMENTS:
Effective January 1, 1995, President William E. B. Siart
succeeded Edward M. Carson as Chief Executive Officer of the
Corporation. In addition, William S. Randall was elected Chief
Operating Officer of the Corporation, also effective January 1,
1995.
Bancorp President and CEO William E. B. Siart was elected to
succeed Edward M. Carson as Chairman of the Corporation,
effective May 1, 1995. Also, Chief Operating Officer William S.
Randall was named President of the Corporation, succeeding Mr.
Siart, and California Region CEO Bruce G. Willison was named Vice
Chairman of the Corporation.
On April 18, 1995, the Corporation's Board of Directors declared
a quarterly cash dividend of $0.75 per share on the Corporation's
$2 par value Common Stock, payable on May 31, 1995 to
shareholders of record on May 8, 1995.
On April 28, 1995, the Board of Directors approved the repurchase
of up to 7.6 million shares of Common Stock. See Footnote 5 to
the financial statements for further information on the
repurchase program.,
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Corporation's Annual Meeting of Stockholders was
held on April 28, 1995.
(b) At the Annual Meeting of Stockholders, the
following matters were voted upon: the election of 15
directors of the Corporation, the ratification of the
selection of Ernst & Young LLP, as independent public
accountants to examine the accounts of the Corporation
for the year 1995, the approval of the First Interstate
Bancorp Corporate Executive Incentive Plan, and the
approval of the First Interstate Bancorp 1995
Performance Stock Plan. A shareholder proposal
recommending that the Board of Directors implement a
policy of cumulative voting for all elections of
directors, that was included in the First Interstate
Bancorp Proxy Statement as "Item 5. Stockholder
Proposal," was not presented by its proponent at the
annual meeting, and therefor, no formal vote was taken.
The results of the voting on matters presented at the
Corporation's Annual Meeting of Stockholders were as
follows:
Votes Votes
Description For Withheld
---------- --------
Election of Directors
John E. Bryson 61,593,302 282,068
Edward M. Carson 61,602,426 272,944
Jewel Plummer Cobb 61,584,539 290,831
Ralph P. Davidson 61,592,359 283,011
Myron Du Bain 61,586,761 288,609
Don C. Frisbee 61,555,139 320,231
George M. Keller 61,585,007 290,363
Thomas L. Lee 61,605,511 269,859
William F. Miller 61,591,902 283,468
William S. Randall 61,601,350 274,020
Steven B. Sample 61,566,905 308,465
Forrest N. Shumway 61,603,408 271,962
William E.B. Siart 61,602,278 273,092
Richard J. Stegemeier 61,604,669 270,701
Daniel M. Tellep 61,591,530 283,840
There were no abstentions or broker non-votes on the
elections of directors.
Votes Votes Broker
Description For Against Abstentions Non-Votes
------------------------ ---------- --------- ----------- ---------
Ratification of the
selection of
Ernst & Young LLP 61,564,510 127,789 217,764 30,628
Approval of
Corporate Executive
Incentive Plan 57,751,958 2,644,687 1,513,097 30,949
Approval of 1995
Performance Stock Plan 41,288,970 14,905,324 1,536,265 4,210,132
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Earnings Per Share
(12) Computation of Ratio of Earnings to Fixed
Charges for the three-month period
ending March 31, 1995.
(27) Financial Data Schedule for the three-month
period ending March 31, 1995
(b) Reports on Form 8-K
A report on Form 8-K dated February 17, 1995 announced
the date, time and place of its 1995 Annual Meeting of
Stockholders.
A report on Form 8-K dated March 24, 1995 announced
that Registrant has entered into a Dealer Agreement
dated December 9, 1994 among Registrant and various
dealers named therein. Copies of related documents were
included in such filing.
A report on Form 8-K dated May 1, 1995 announced
the Corporation's repurchase program for up to
7,600,000 shares of Common Stock. Copies of related
documents were included in such filing.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST INTERSTATE BANCORP
REGISTRANT
DATE: MAY 12, 1995 By /s/ William S. Randall
------------------------
William S. Randall
President
(Principal Financial Officer)
DATE: MAY 12, 1995 By /s/ David S. Belles
------------------------
David S. Belles
Executive Vice President and Controller
(Principal Accounting Officer)
FIRST INTERSTATE BANCORP
COMPUTATION OF EARNINGS PER SHARE
(dollars in millions except for per share amounts)
Three Months Ended
-------------------------------
March 31 December 31 March 31
1995 1994 1994
-------- ----------- --------
Net income applicable to common stock
Net income $ 212.0 $ 211.3 $ 184.1
Less dividends on preferred stock 8.3 8.3 8.3
-------- -------- --------
Net income, as adjusted, for calculation of
primary and fully diluted earnings per share $ 203.7 $ 203.0 $ 175.8
======== ======== ========
Weighted average number of shares (in thousands)
Weighted average number of shares outstanding 75,041 75,201 78,024
Dilutive effect of outstanding stock options
(as determined by application of the
treasury stock method) 1,403 1,436 1,444
Stock units under Management Incentive Plan 20 19 17
-------- -------- --------
Weighted average number of shares, as
adjusted, for calculation of primary
earnings per share 76,464 76,656 79,485
Additional dilutive effect of
outstanding stock options 70 -- 204
-------- -------- --------
Weighted average number of shares, as
adjusted, for calculation of fully
diluted earnings per share 76,534 76,656 79,689
======== ======== ========
Primary and fully diluted earnings per share (1)
Net income $ 2.66 $ 2.65 $ 2.21
======== ======== ========
(1) Fully diluted earnings per share are considered equal to primary
earnings per share because the addition of potentially dilutive
securities which are not common stock equivalents resulted in
dilution of less than three percent.
FIRST INTERSTATE BANCORP
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions)
Three Months Ended
March 31, 1995
------------------
A. First Interstate Bancorp and Subsidiaries (Consolidated):
Earnings:
1.Income before income taxes $ 348
2.Plus interest expense (a) 303
---------
3.Earnings including interest on deposits 651
4.Less interest on deposits 225
---------
5.Earnings excluding interest on deposits $ 426
=========
Fixed Charges:
6.Including interest on deposits (Line 2) $ 303
7.Less interest on deposits (Line 4) 225
---------
8.Excluding interest on deposits $ 78
=========
Ratio of Earnings to Fixed Charges:
Including interest on deposits
(Line 3 divided by Line 6) 2.15
=========
Excluding interest on deposits
(Line 5 divided by Line 8) 5.48
=========
B. First Interstate Bancorp (Parent Corporation):
Earnings:
9. Income before income taxes and equity in
undistributed income of subsidiaries $ 113
10. Plus interest expense (a) 28
---------
11. Earnings including interest expense $ 141
=========
Fixed Charges:
12. Interest expense (Line 10) $ 28
=========
Ratio of Earnings to Fixed Charges:
(Line 11 divided by Line 12) 5.10
=========
(a) Includes amounts representing the estimated
interest component of net rental payments.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST INTERSTATE BANCORP FINANCIAL STATEMENTS AND NOTES THERETO AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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