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First Bank System [LOGO] 1995 Annual Report / Form 10-K
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First Bank System
FBS Banking Region
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[US MAP]
About the Company
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First Bank System, Inc. (FBS) is a regional bank holding company serving 11
Midwestern and Rocky Mountain states through more than 362 banking locations and
18 nonbank offices. Headquartered in Minneapolis, FBS has $38 billion in assets
and a market capitalization in excess of $8 billion, placing us among the top 20
U.S. banks. This reflects our acquisition of FirsTier Financial, Inc., which was
completed on February 16, 1996. . FBS has four core businesses and a culture
that is focused on creating value for shareholders. Our banking franchise has
leading market shares in most of our region's major markets. We are a leader in
electronic payment systems, as the nation's largest issuer of VISA(R) corporate
and purchasing cards, and as the sixth largest processor of VISA and
MasterCard(R) transactions. Our Commercial Bank's focus on building strong
client relationships has translated into attractive returns for shareholders.
Following the completion of our acquisition of BankAmerica Corporation's
corporate trust business, we will become the nation's largest provider of
domestic corporate trust services, in terms of revenue. Our investment
management services are growing rapidly. These attributes have made us one of
the nation's top performing banks. . The purpose of this report is to provide
information on FBS's financial condition at December 31, 1995. Therefore, it
does not reflect the acquisition of FirsTier Financial. . FBS is listed on the
New York Stock Exchange under the ticker symbol FBS and also may be found under
FtBkSy.
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Contents
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Letter to Shareholders....................... 2
Business Line Reviews........................ 6
Management's Discussion & Analysis........... 14
Consolidated Financial Statements............ 41
Five-Year Consolidated Financial Statements.. 71
Quarterly Consolidated Financial Data........ 73
Form 10-K.................................... 78
Executive Officers & Directors............... 82
FBS Locations................................ 83
Corporate Data............................... 84
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Financial Summary
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Percent Change
(Dollars in Millions, Except Per Share Data) 1995 1994 1994-1995
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FOR THE YEAR
Income from continuing operations before merger-related items.............. $ 568.1 $ 470.4 20.8%
Merger-related items....................................................... - (156.9) *
Discontinued operations.................................................... - (8.5) *
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Net income................................................................. $ 568.1 $ 305.0 86.3
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PER COMMON SHARE
Primary income from continuing operations before merger-related items...... $ 4.19 $ 3.36 24.7
Merger-related items....................................................... - (1.15) *
Discontinued operations.................................................... - (.06) *
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Primary net income......................................................... $ 4.19 $ 2.15 94.9
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Fully diluted income from continuing operations before merger-related items $ 4.11 $ 3.32 23.8
Merger-related items....................................................... - (1.12) *
Discontinued operations.................................................... - (.06) *
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Fully diluted net income................................................... $ 4.11 $ 2.14 92.1
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Earnings on a cash basis (fully diluted)**................................. $ 4.53 $ 2.50 82.9
Dividends paid............................................................. 1.45 1.16 25.0
Common shareholders' equity................................................ 20.59 18.63 10.5
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RETURN ON AVERAGE ASSETS
Income from continuing operations before merger-related items.............. 1.73% 1.40% *
Merger-related items....................................................... - (.47) *
Discontinued operations.................................................... - (.02) *
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Return on average assets 1.73% .91% *
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RETURN ON AVERAGE COMMON EQUITY
Income from continuing operations before merger-related items.............. 21.3% 17.6% *
Merger-related items....................................................... - (6.0) *
Discontinued operations.................................................... - (.4) *
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Return on average common equity............................................ 21.3% 11.2% *
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Net interest margin........................................................ 4.91% 4.74% *
Efficiency ratio before merger-related items and nonrecurring items........ 53.3 58.1 *
Efficiency ratio........................................................... 53.9 64.0 *
AT YEAR END
Loans...................................................................... $26,400 $24,556 7.5%
Allowance for credit losses................................................ 474 475 (.2)
Assets..................................................................... 33,874 34,128 (.7)
Total shareholders' equity................................................. 2,725 2,612 4.3
Tangible common equity to total assets..................................... 6.5% 6.2% *
Tier 1 capital ratio....................................................... 6.5 7.3 *
Total risk-based capital ratio............................................. 11.0 11.4 *
Leverage ratio............................................................. 6.1 6.2 *
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*Not meaningful.
**Calculated by adding amortization of goodwill and other intangible assets
to net income.
[GRAPHS APPEAR HERE--SEE GRAPHICS APPENDIX]
First Bank System, Inc. and Subsidiaries 1
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To Our Shareholders
New technology, massive mergers, and ever increasing competition continue to
turn the banking industry on its head. At First Bank System, we find this
environment exhilarating. As banks fight to remain competitive--and even
survive--few will distinguish themselves as superior choices for customers and
investors. I believe that FBS has the structure, technology, people, and growth
opportunities to continue to win their loyalty and confidence. . In terms of
profitability and efficiency, FBS is one of the nation's top performers. The
foundation for our performance is a retail and commercial bank franchise that
has dominant market shares throughout our region. We have developed leadership
positions in the high-growth corporate and purchasing card businesses, as
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Over the past six years, the total return of First Bank
System's stock has grown at a compounded annual
rate of 25 percent.
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well as in corporate trust services. These businesses are driven by a culture
that embodies innovation, speed and productivity. . FBS achieved record earnings
in 1995 and our strategy for creating shareholder value has generated a 24.6
percent compounded annual total return since 1989. This momentum comes from a
disciplined shareholder focus and a formula for superior earnings growth that
combines modest net interest income and strong fee growth, a low cost structure,
and active capital management. It is an approach that can produce consistent,
sustainable results.
YEAR IN REVIEW Focus and discipline produced record earnings in 1995. We
continued to allocate resources to businesses with strong risk-adjusted returns
and sustainable growth potential, including corporate trust and payment systems.
That decision continues to pay off in terms of fee income growth. Technology
investments and excellent execution on acquisition integration significantly
lowered our cost base and boosted productivity. And FBS continued to maximize
shareholder value through capital management. Last year's performance says much
about FBS's ability to thrive even in changing industry conditions. . Each core
business contributed to last year's success. Retail and Community Banking showed
remarkable improvement in profitability. Consumer and business loan growth
remained strong. The integration of Metropolitan Financial Corporation, FBS's
largest acquisition ever, and growing consumer preference for lower cost,
alternative service and transaction channels helped cut nearly $100 million in
expenses. As a result, the retail bank's efficiency ratio improved more than 800
basis points to 56.8 percent. The Commercial Bank made new loans that more than
offset the expected run-off in loans to mortgage bankers, while further
improving credit quality. In Payment Systems, Corporate and Purchasing Cards
continued to grow rapidly. Investors can own this fast-growing, fee-based
business at the price-earnings multiple of a bank stock. The Trust and
Investment Group further strengthened its leadership position in corporate trust
services through an acquisition
2 First Bank System, Inc. and Subsidiaries
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from BankAmerica Corporation that will double our corporate trust revenue next
year. . In 1996, we expect our margins and credit quality to be stable. We
entered the year with increased confidence in our ability to generate
consistent, predictable earnings.
COST CONTROL & PRODUCTIVITY A few years ago, when FBS had achieved an
efficiency ratio in the high 50s, compared with an industry average of about 63
percent, some investors asked if we could continue to improve this important
measure of performance. The numbers answer that question. In 1995's fourth
quarter, FBS's efficiency ratio stood at 51 percent and we're confident that
productivity will continue to improve. Part of this optimism comes from our
strong culture of constantly striving to do more with less. But an additional
reason is how FBS is using technology. . Technology is quickly
[GRAPH APPEAR HERE--SEE GRAPHICS APPENDIX]
[PHOTO OF] John F. Grundhofer
Chairman, President and Chief Executive Officer [APPEARS HERE]
cutting service and transaction costs to a fraction of what they were just a few
years ago. In our retail bank, technology is changing the way people bank with
us. Last year nearly half of our transactions were handled by telephone or
automated teller machine. These transactions cost significantly less than what a
teller transaction costs. Similarly, telemarketing and direct mail originated 69
percent of all new retail asset accounts last year. FBS was the first U.S. bank
to implement a new type of computing technology, parallel processing, which has
substantially reduced our transaction processing costs. What makes these savings
particularly attractive is that they are recurring. . Lowering costs is only
part of the technology story. The other half is revenue growth. We believe that
over time new data management technology will help to significantly grow sales
in our Retail and Community Banking business, which accounted for more than half
of FBS's net income last year. . Through our Relationship Management System
(RMS), we will better understand the current and potential value of each
customer
First Bank System, Inc. and Subsidiaries 3
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relationship. RMS will provide tellers, bankers and customer service
representatives with powerful tools for turning that knowledge into sales and
service action. As a result, we expect to deepen relationships, thereby creating
more customers for life. The first stages of RMS were implemented in late 1995,
with the full rollout expected in 1996. . At FBS, RMS and other new technologies
can be especially effective in increasing profitability because of our
centralized structure. This ensures maximum leverage of technology investments.
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Guiding all of our efforts is the resolve to do what's
right for the shareholder. We take this premise to heart.
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CAPITAL MANAGEMENT Allocating capital is management's most important task. Our
goal is to maximize shareholder value by increasing both the level and
predictability of cash flow. Good capital allocation requires solid analytical
abilities, common sense, and a willingness to make tough decisions. Our approach
is based on discounted cash flow. It requires challenging business assumptions,
weighing risks, and resisting the tendency to invest incrementally in every
business. We constantly reevaluate allocation decisions based on changes in the
marketplace. . As I mentioned earlier, we invested additional capital in our
fee-based businesses last year. In September, FBS announced plans to sell its
residential mortgage subsidiary in the face of the market's irrational pricing
and the large technology investment required to remain competitive. Exiting the
volatile mortgage business freed capital for reinvestment in our fee-based
businesses and further lowered the risk profile of FBS. However, we will
continue to serve the mortgage needs of our customers through a smaller, more
focused, and lower cost mortgage origination process that includes telephone and
video kiosks. . In addition to funding internal growth, FBS uses capital to
leverage its strengths through mergers and acquisitions. Including Metropolitan
Financial Corporation, we announced or completed six acquisitions in 1995. Three
were in Nebraska, making FBS the second largest bank in the state. FBS also will
become the nation's largest provider of domestic corporate trust services
through its acquisition of BankAmerica's corporate trust business. . While mass
provides important economies of scale, size itself is not our goal. We run the
company for shareholder value. Acquisitions are one way to add value, assuming
they are priced and valued correctly. FBS has the structure, technology and
people--as evidenced by 23 recent acquisitions--to achieve the large cost
savings required to make acquisitions benefit our shareholders. . We will
maintain our disciplined approach toward acquisitions, pursuing only
opportunities that fit both our business strategy and pricing requirements. This
approach was reflected in our unsuccessful bid to merge with First Interstate
Bancorp. The proposed combination was an excellent strategic fit, but increasing
the exchange ratio beyond the original terms of the merger agreement was not in
the best interest of FBS shareholders. This
4 First Bank System, Inc. and Subsidiaries
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commitment to shareholders will guide the use of the $200 million break-up
fee, $125 million of which has been received. . The success of our businesses
has generated more capital than FBS needs for reinvestment and acquisitions. We
use excess capital to repurchase our stock because warehousing unneeded capital
destroys shareholder value. FBS repurchased 12 million common shares last year
and has Board authorization to repurchase up to 13 million additional shares by
the end of 1997. The Board also has increased FBS's quarterly dividend 14
percent to $.4125 per share, our fifth consecutive annual increase.
FOCUS ON VALUE Guiding all of our efforts is the resolve to do what's right for
the shareholder. We take this premise to heart. It not only is the foundation
for our corporate mission and values, but it is the basis for significant
financial incentives at all levels of the company. Our top 200 managers have
targets for investing one to six times their salary in FBS stock. In addition,
all of our employees are eligible for variable pay and many have a substantial
portion of their compensation linked to company, business line, and individual
performance. As a result, daily action is aligned with shareholder value. . This
month FBS announced a streamlining of senior management designed to flatten our
organizational structure, improve efficiency, and more effectively deliver
service to customers. . Philip G. Heasley, Vice Chairman in charge of retail
bank products and Payment Systems, is now also responsible for consumer and
small business sales and services in our bank branches. . Richard A. Zona, Vice
Chairman--Finance, assumed responsibility for private financial services and
business banking within the Retail
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Closing
Recent Acquisitions Date Location Assets (Millions)
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BankAmerica Corporate Trust 1Q 96 National N/A
FirsTier Financial, Inc. 1Q 96 Nebraska 3,700
Midwestern Services, Inc. 4Q 95 Nebraska 229
Southwest Holdings, Inc. 4Q 95 Nebraska 195
Metropolitan Financial Corporation 1Q 95 Midwest 7,900
First Western Corporation 1Q 95 South Dakota 317
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and Community Banking group. . Susan E. Lester, Executive Vice President--
Finance, has been named Chief Financial Officer. She will continue to report to
Rick Zona. . I want to wish Phil, Rick and Sue well in their expanded roles. .
Our shareholder focus and the excellence of our people are why First Bank System
has come so far in the past six years. We continue to see enormous opportunity
ahead. The banking industry is rapidly changing and the winners will be low-cost
providers of high quality products and service. Our structure, approach to
technology, and management philosophy are built around this belief. That is why
I am confident that FBS will continue to deliver value to both our customers and
investors.
/s/ John F. Grundhofer
John F. Grundhofer
Chairman, President and Chief Executive Officer
February 21, 1996
First Bank System, Inc. and Subsidiaries 5
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Retail & Community Banking
BUSINESS OVERVIEW
Business Description
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CONSUMER BANKING. FBS serves more than 1.7 million households in 11 states
through 324 branch locations, 1,403 in-market automated teller machines (ATMs),
24-hour FastLineSM telephone service, and First FinanciaLineSM telemarketing.
Core customers--those with checking accounts--have an average of 4.0 accounts
with FBS, compared with 3.8 accounts in 1994 and 3.2 accounts in 1993.
BUSINESS BANKING. FBS serves 160,000 small and middle-market businesses through
our branch network and 37 business banking hubs. The hubs provide traditional
commercial banking services to larger companies while the retail branches focus
on offering standard products and fast turnaround on loans for businesses with
annual sales under $5 million. Our Mainstreet Loan Center provides centralized
and automated small business loan processing support for the retail network.
1995 Highlights
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GROWTH AND EXPANSION:
. Increased average consumer loans, excluding residential mortgages, 14 percent
to $6.3 billion. Grew average home equity loans 18 percent to $2.6 billion.
. Increased average business banking loans 11 percent to $5.8 billion.
. Expanded retail brokerage sales force and grew retail investment sales 13
percent to $485 million.
TIME AND PLACE CONVENIENCE:
. Expanded FastLine 24-hour telephone banking capabilities so that 80 percent of
all customer service needs can now be serviced centrally.
. Broadened direct sales efforts through First FinanciaLine telemarketing
services by offering deposit, investment and insurance products.
. Established agreements in five states to open additional in-store branches for
a total of 30 locations in 1996.
. Announced entry into personal computer banking services with co-ownership of
MECA Software, L.L.C., producer of Managing Your Money(R), personal financial
management software.
. Introduced FastLineSM Bill Pay, a new bill paying service by telephone.
PRODUCTIVITY AND EFFICIENCY:
. Increased revenue per full-time equivalent employee 6 percent and raised
productivity ratio, which measures revenues against personnel expense, 7
percent.
. Increased to 39 percent from 32 percent the percentage of retail bank
transactions conducted via ATM.
. Increased FastLine telephone banking service call volume 33 percent to 32
million calls, 74 percent of which were serviced entirely by audio response
units. Cut cost per call 7 percent from 1994.
. Converted 18 percent of 449,000 customer calls to our centralized phone bank
into new product sales. Six percent of 396,000 outbound telemarketing calls
resulted in sales.
. Implemented the credit underwriting and overdraft processing modules of
Relationship Management System (see page 7).
6 First Bank System, Inc. and Subsidiaries
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LOOKING AHEAD
TECHNOLOGY: Leveraging FBS's 'One Bank' Structure. FBS's Retail and Community
Bank is designed around the concept of "one bank" to benefit from four major
trends: consumer demand for greater convenience, intensifying competition,
rapidly evolving technology, and industry consolidation. FBS operates as a
single unit across our multistate region with standardized products and
centralized operations. This year we will further leverage our technological
advantage with Relationship Management System (RMS), which will give our sales
and service staff a more complete picture of a customer's relationship and
current and potential profitability. But unlike other bank database marketing
efforts, RMS will actually analyze customer account and behavior data and
recommend action for improved and consistent service, cross-selling
effectiveness, and increased productivity. This active approach will help guide
product development and maximize customer profitability.
CONSUMER BANKING: A BALANCED DISTRIBUTION STRATEGY. Our consumer banking
strategy has the twin goals of delivering the fast, convenient service that
customers increasingly demand and lowering costs. We believe these goals are
best achieved by developing multiple distribution channels and redefining the
role of the branch, focusing on sales and promoting service and transaction
alternatives.
. Most types of teller transactions can be done by telephone or automated teller
machine (ATM), creating significant cost savings opportunities. In 1996 we plan
to encourage greater ATM usage by expanding our drive-up ATM strategy and
increasing both ATM functionality and ease of use. We also will begin
automatically transferring customer calls from our branches to our centralized
FastLine telephone center.
. Fewer branch service calls and transactions mean personal bankers can spend
more time selling. To maximize their productivity, we will implement a new
system this year that provides bankers with standard sales letters, calling
scripts, and detailed records of previous customer contacts. We will free top
salespeople from branch duties so they can focus entirely on sales. . Another
strong source of sales is direct marketing. Like other banks, FBS is developing
PC-based banking services for home and business use. However, we see more
immediate sales opportunities using the telephone and direct mail. The
telephone's high degree of customer accessibility and acceptance and the low
cost of direct mail make them effective sales tools. Last year, marketing
through direct channels originated 69 percent of all new asset accounts. This
year we will expand the product and service capabilities of First FinanciaLine
to include sales of Portfolio IRASM and to provide immediate decisions on home
equity loans.
BUSINESS BANKING: BUILDING ON SUCCESS. A strong regional economy with below
average unemployment and an unusually diverse industry base is fertile ground
for sustainable growth for one of FBS's traditional strengths: business banking.
We are maximizing this opportunity through aggressive marketing strategies and
new technology. . For businesses with annual sales in excess of $5 million,
business banking is relationship-driven and few banks in our region can compete
with FBS's full range of credit, treasury management, trust, and payment systems
services. We're confident we can grow faster than the market, while maintaining
excellent credit quality. We have strong customer calling and marketing efforts,
programs to develop the technical and sales skills of our bankers, cross-sell
incentives, and new laptop computer technology. . FBS serves smaller businesses
($5 million in annual sales or less) with quick turnaround on standard products
and pricing. In 1996 we will expand the telemarketing program initiated last
year and introduce a direct mail campaign.
[GRAPHS APPEAR HERE--SEE GRAPHICS APPENDIX]
First Bank System, Inc. and Subsidiaries 7
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Payment Systems
BUSINESS OVERVIEW
Business Description
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CORPORATE PAYMENT. One of FBS's fastest growing businesses is card products that
help companies and government entities efficiently manage expenses. The cards
are divided into two groups: . Corporate Card, a non-revolving VISA(R) card
issued to employees of corporations with annual travel and entertainment
expenses of $1 million or more. National rank: second. Estimated market: $130
billion in annual sales volume. . Purchasing Card, a VISA charge card that
reduces the processing cost of small-dollar purchases and lowers the risk of
inappropriate purchases through client-specified controls. Niche markets include
government entities, to which the card is marketed under the brand I.M.P.A.C.(R)
National rank: first. Estimated market: $350 billion annual sales volume.
CONSUMER PAYMENT. FBS is one of the largest VISA credit card issuers in the U.S.
We have more than two million cards outstanding, $2.6 billion in outstanding
balances, and annual sales exceeding $9 billion. This portfolio includes
cobranded cards and business cards, a revolving card for companies with travel
and entertainment expenses under $1 million. We also offer card-accessible
secured lines of credit and VISA TravelMoney, an international prepaid travel
card. FBS has the nation's third largest network of automated teller machines
(ATMs), consisting of 2,600 ATMs, including approximately 1,400 ATMs in our
region.
MERCHANT PROCESSING. FBS is the nation's sixth largest processor of VISA and
MasterCard(R) transactions, serving more than 60,000 merchant locations
nationwide. Estimated market: $400 billion annual sales volume.
1995 Highlights
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. Increased revenue to $417 million, a 14 percent increase over 1994. Fee income
increased 34 percent.
. Increased to 175 the number of Corporate and Purchasing Card relationships
with companies on Fortune magazine's list of 1,000 largest U.S. corporations. In
total, we serve more than 1,000 organizations.
. Increased the volume of sales charged on Corporate and Purchasing Cards 60
percent.
. Developed specialty purchasing cards that enable new and transferring
employees to charge relocation expenses (Relocation CardSM) and fleet drivers to
buy fuel and other vehicle products and services (Fleet Purchasing CardSM).
. Introduced a new value-added service: the IBM Travel Expense Accounting system
that enables corporate cardholders to file travel and entertainment reports
electronically.
. Expanded global network to support multinational Corporate Card clients
through alliances with Royal Bank of Canada and Hong Kong Shanghai Banking
Corp.'s London-based subsidiary, Midland Bank plc.
. Increased average Payment Systems loans 23 percent to $3.1 billion.
. Grew outstanding consumer and small business WorldPerks(R) VISA receivables 32
percent.
. Increased ATM transaction volume more than 40 percent.
. Increased merchant processing volume 11 percent to $14.9 billion.
. Began construction of a new customer service and loan processing center in
Fargo, N.D.
8 First Bank System, Inc. and Subsidiaries
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LOOKING AHEAD
CORPORATE CARD: Tools for Growth. Although corporate cards have been around for
years, they still do not capture about one-third of the estimated $145 billion
companies spend annually on travel and entertainment. FBS, the nation's second
largest corporate card issuer, has the tools for expanding its market share.
. First, we are building global alliances with other banks to support our
multinational clients with seamless service. We have agreements with Royal Bank
of Canada and London-based Midland Bank plc. Our goal is to increase banking
relationships worldwide that will provide billing and management reports in
currencies other than U.S. dollars. Second, we remain committed to developing
innovative information solutions that help clients capture and analyze more
spending data, as well as more efficiently reconcile expenses. And third, we
will continue to leverage the advantages of our relationship with VISA, which
provides customers with unmatched acceptance at more than 12 million locations
worldwide.
PURCHASING CARD: An Untapped $350 Billion Market. The purchasing card market
continues to be one of the best growth opportunities in financial services. This
highly profitable market is huge: U.S. companies spend approximately $350
billion annually on small-dollar purchases. And although we capture
significantly more purchasing card sales than any of our competitors, we have
barely dented this growing market. Our share is less than 1 percent. . Our
strategy for continued rapid growth is to build new relationships with Fortune
1000 companies and expand existing commercial and government relationships. We
intend to continue to be first with new products, including tools for both
streamlining the purchasing process and improving management information systems
reporting. We also intend to maintain "best of class" service and expand our
consulting services for companies seeking to use the card as a vehicle for
reengineering their purchasing function.
COBRANDING: LEVERAGING PARTNERSHIPS. FBS continues to achieve strong growth
through cobranded marketing partnerships that combine VISA credit cards and
special incentives. Over the past two years, we have attracted nearly 500,000
FBS WorldPerks VISA cardholders, who earn frequent flier mileage on Northwest
Airlines. We also have significantly grown our FBS Amway(R) VISA card business.
In January 1996, FBS and Target Stores announced a two-market test of the first
cobranded card offered by a major discount retailer. With 673 Target locations
in 33 states and more than 1 million shoppers daily, we see enormous growth
potential. . The high growth potential of cobranded cards lies in the strength
of the marketing partner. For example, Northwest Airlines provides FBS with
access to its well-established marketing channels and to its frequent flier
customers who are already motivated to accept FBS's credit card offer. As a
result, targeted marketing efforts have a significantly higher success rate than
conventional direct mail solicitations. Another benefit of our focus on
cobranding with companies based in our banking region is strong cross-selling
opportunities. . FBS will continue to seek other cobranding opportunities with
similar growth and profitability potential.
[GRAPHS APPEAR HERE--SEE GRAPHICS APPENDIX]
First Bank System, Inc. and Subsidiaries 9
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Commercial Banking
BUSINESS OVERVIEW
Business Description
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COMMERCIAL LENDING. The Commercial Bank extends credit and markets a full range
of competitive business services. Our primary focus is on middle-market and
national companies headquartered in our region, but we also serve certain
national market niches. These include asset-based lending, full-service leasing,
and selective agricultural lending. Average loan portfolio in 1995: $5 billion.
MORTGAGE BANKING SERVICES. FBS is one of the nation's largest providers of
credit and other financial services to mortgage bankers.
REAL ESTATE LENDING. FBS provides credit and other financial products and
services to selected real estate developers for the development, renovation or
refinancing of their real estate projects.
TREASURY MANAGEMENT SERVICES. As one of the region's largest providers of
treasury management services, FBS helps companies to efficiently manage their
treasury operations through a full complement of domestic and international cash
management, information reporting, and trade finance services.
CORPORATE FINANCE/LOAN SYNDICATIONS. FBS meets the broad financial needs of our
clients by syndicating credit facilities, placing capital with investors, and
providing advisory services for mergers and acquisitions.
1995 Highlights
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. Increased average loans, excluding loans to mortgage bankers, $600 million, or
16 percent.
. Originated and syndicated more than $3 billion in loans.
. Continued to improve credit quality, reducing nonperforming assets 57 percent
to $24 million.
. Introduced check images on CD-ROM, providing companies a fast, easy and
convenient means to store and retrieve check images.
. Introduced comprehensive interstate banking services that permit companies to
consolidate deposits made in multiple states into a single, existing account.
. Enhanced Electronic Data Interchange (EDI) capabilities to include financial
EDI origination services, lockbox remittance reporting in EDI format, mapping
services for both financial and nonfinancial EDI transactions, and expanded
reporting options for receipt of financial EDI remittances.
. Introduced Express Receivables, an innovative foreign receivables financing
service.
10 First Bank System, Inc. and Subsidiaries
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LOOKING AHEAD
COMMERCIAL BANKING: A Strong and Stable Core Business. At FBS, Commercial
Banking is a highly efficient and highly profitable business that generates the
second largest contribution to net income among the four core businesses. The
Commercial Bank strives to maximize profitability by four principal means:
broadening and deepening client relationships; generating increased fee income
from nonlending activities, such as treasury management services; building
market share where the Commercial Bank has distinct competitive advantages,
resulting in economies of scale; and maintaining a relentless focus on improved
productivity. . These tactics for maximizing the Commercial Bank's net income
contribution must be successfully carried out in an environment that is
constantly changing. In 1995, for instance, intense competition for loan volume
and the increasingly ready availability of nonbank funding resulted in less than
favorable credit pricing conditions. Despite the more difficult environment, the
Commercial Bank achieved solid growth in its core loan portfolio while improving
its return on assets. . Reflecting the culture now firmly ingrained in the
Commercial Bank, credit quality improved for the sixth consecutive year. In the
face of narrowing net interest margins, we remain committed to risk-adjusted,
relationship-based pricing that does not allow below-market loan pricing nor the
subsidizing of one product with another.
BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE. The Commercial Bank is committed
to building and enhancing sustainable competitive advantages across its lines of
business. Our goal is to be the financial services provider of choice in our
markets. We believe that we will achieve that status by consistently building
and maintaining superior banking relationships-"superior" as defined by the
client. We have learned from our clients that a superior relationship has three
cornerstones: superb execution of the fundamentals, astute bankers who are well
versed in the client's business and industry, and a clear focus on client needs.
Accordingly, we continue to strive to improve our performance and strengthen our
capabilities against these key criteria. . The Commercial Bank focuses on five
values that guide our efforts to provide superior client service: integrity,
initiative, accountability, teamwork, and innovation. Our high performance,
values-driven culture clearly motivates and rewards employees to do the right
thing for clients. This emphasis on client needs is reflected, for instance, in
the effort we made to provide an extraordinarily easy way to consolidate multi-
state deposits into a single, existing account. This service was available to
treasury management clients on the same day interstate banking legislation took
effect. Our client focus is also demonstrated in the way in which we involve
clients in new product design. During 1995, for example, we had our clients test
the usability of Gallery,/TM/ our next-generation software for global treasury
management services. . Overall, we continue to evolve into an organization that
is distinguished by its commitment and ability to customize solutions for
clients.
[GRAPHS APPEAR HERE--SEE GRAPHICS APPENDIX]
First Bank System, Inc. and Subsidiaries 11
<PAGE>
Trust & Investment Group
BUSINESS OVERVIEW
Business Description
- --------------------------------------------------------------------------------
CORPORATE TRUST. Following the completion of the acquisition of BankAmerica's
corporate trust business in 1996, FBS will be the nation's largest domestic
corporate trust service provider, in terms of revenue. We will have
approximately $500 billion in administered assets and nine full-service offices
nationwide. FBS provides domestic trusteeship, paying agency, and custody
service to debt issuers.
INVESTMENT MANAGEMENT. First Asset Management is the investment management arm
of FBS. The group provides centralized asset management for all individual and
institutional investment products, including individual portfolios and common,
collective and mutual funds. Its proprietary First American mutual fund family
has 23 funds.
INVESTMENT SERVICES. FBS's full-service brokerage company distributes municipal
and government bonds, equities, mutual funds, and annuities to individuals,
correspondent banks, corporations, and public agencies.
PRIVATE FINANCIAL SERVICES. FBS provides a wide range of investment advisory,
credit and depository, administrative, and fiduciary services for individuals,
families and charitable institutions.
INSTITUTIONAL TRUST. FBS provides investment management, trustee, and custodial
services, primarily for 401(k) and other employee benefit plans.
1995 Highlights
- --------------------------------------------------------------------------------
. Announced the acquisition of BankAmerica's corporate trust business, which
will double the size of FBS Corporate Trust, as measured by administered assets
and revenues.
. Won $60.4 billion in corporate trusteeships, including $19.7 billion in
corporate finance issues, $16.7 billion in international issues, $14.7 billion
in structured finance issues, and $9.3 billion in long-term municipal issues.
. Increased assets under management 19 percent to $29.2 billion.
. Grew proprietary First American mutual fund assets 55 percent to $7.3 billion.
. Centralized asset management to increase efficiency.
. Increased investment sales force 20 percent to 199 representatives.
. Established 35,000 new retail brokerage account relationships, a 39 percent
increase from 1994.
. More than doubled to $408 million the 401(k) plan assets under management in
the First American Retirement Plan and attracted nearly 100 new plan sponsors.
12 First Bank System, Inc. and Subsidiaries
<PAGE>
LOOKING AHEAD
REENGINEERING INCREASES EFFICIENCY AND PRODUCTIVITY. During 1995, FBS took a
comprehensive look at how we deliver trust and investment products to customers.
Using an approach similar to the one that made our other core businesses among
the most efficient and productive in the banking industry, we centralized
operations, standardized products, and committed to significant technology
investments. Our goal is to grow revenues through a stronger sales culture and
improved customer service, while reducing costs.
CORPORATE TRUST: Number One in the USA. In 1990, FBS made a strategic decision
to pursue a leadership position in the corporate trust business. That decision
was based on the expectation that through a disciplined plan of business
development, investment, and acquisition, Corporate Trust could achieve the
operational efficiencies, service quality levels, and economies of scale
necessary to become an industry leader and substantial contributor to
shareholder value.
. In 1991, Corporate Trust focused on making critical improvements to its
internal structure to streamline operations and prepare the business to
efficiently handle much larger volumes. In 1992, and in each year thereafter,
FBS has completed a significant acquisition to bolster the strength and market
share of the Corporate Trust business. In 1996, Corporate Trust will vault to
industry leadership in a number of categories with the acquisition of the
corporate trust and agency business of BankAmerica. . Corporate Trust has now
established clear economy-of-scale advantages in trusteeship, paying agent, and
document collateral custody services. An ongoing emphasis on standardization,
centralization and automation will further strengthen the cost advantages the
business enjoys, while enhancing its ability to deliver the levels of quality,
accuracy and timeliness demanded by both bondholders and bond issuers.
PRIVATE FINANCIAL SERVICES: An Integrated Solution. Private Financial Services
(PFS) was created to provide seamless delivery of a full range of financial
services to the top 3 percent of households in our region. By combining our
strengths in banking, personal trust, and investments, we offer affluent clients
objective advice, an integrated decision process, coordinated execution,
competitive products, and individualized services. . For example, unlike most
trust competitors that provide a one-size-fits-all product and price, PFS offers
clients a choice of service levels. Service options range from a traditional
trust administrator and individually managed money to administrative teams and
asset allocation portfolios for less complex trusts. By unbundling our services,
clients pay for only the level of service they choose. . PFS is a strong
competitor with double-digit revenue growth potential. We see significant cross-
sell opportunities, particularly for investment services. Through First Asset
Management, we provide both highly competitive individual investment management
expertise and a full range of investment options through our 23 First American
mutual funds. . Superior investment products, trust and banking expertise, and
flexible, integrated delivery of service uniquely position PFS as the trusted
source for all of our clients' financial needs.
INSTITUTIONAL TRUST: Strong Cross-selling Potential. The market for 401(k) plans
continues to grow as technology makes this popular alternative to pension plans
an affordable benefit for smaller companies. Our First American Retirement Plan
doubled its assets under management last year to $408 million, primarily from
referrals from our business bankers. We now serve approximately 300 plans and
the cross-sell potential is tremendous:FBS has 160,000 business banking clients.
In 1996 we will continue to market aggressively and add competitive product
features, such as new retirement planning software for plan participants.
[GRAPHS APPEAR HERE--SEE GRAPHICS APPENDIX]
First Bank System, Inc. and Subsidiaries 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
SUMMARY OF 1995 RESULTS -- First Bank System, Inc. (the "Company") earned a
record $568 million for the year 1995, up 86 percent from 1994 net income of
$305 million. On a per share basis, earnings were $4.19, up 95 percent from
$2.15 in 1994. Compared with 1994 results before merger-related items and
discontinued operations, 1995 earnings were up 21 percent and earnings per share
increased 25 percent.
Return on average common equity increased to 21.3 percent in 1995 from 11.2
percent in 1994. Similarly, 1995 return on average assets increased to 1.73
percent from .91 percent in 1994. The return on average common equity and
average assets, before merger-related items and discontinued operations, were
17.6 percent and 1.40 percent, respectively, in 1994. On the same basis, the
efficiency ratio improved to 53.3 percent in 1995 from 58.1 percent in 1994.
The strong 1995 results reflect an increase in net interest income,
noninterest income growth, ongoing expense control, and effective capital
management. Net interest income on a taxable-equivalent basis was $1.45 billion,
an increase of $20 million, or 1 percent, from 1994. Net interest income was up
over 1994 as increased average loan yields and loan balances offset lower total
earning assets and higher rates paid on deposits and borrowings. Noninterest
income in 1995 was $783 million, an increase of $113 million, or 17 percent,
from 1994, excluding merger-related items, due primarily to a $54 million, or 30
percent, increase in credit card fees, a $16 million, or 10 percent, increase in
trust fees and a $31 million nonrecurring gain on the sale of 63 branches. See
Line of Business Review and Statement of Income analysis for additional
information.
Nonperforming assets declined to $153.7 million at December 31, 1995, a
decrease of $78.6 million, or 34 percent, from December 31, 1994. The ratio of
the allowance for credit losses to nonperforming loans increased to 401 percent
from 283 percent at December 31, 1994.
The Company completed the acquisition of Metropolitan Financial Corporation
("MFC"), a $7.9 billion regional financial holding company headquartered in
Minneapolis, Minnesota, on January 24, 1995. The transaction was accounted for
as a pooling of interests. Accordingly, the accompanying consolidated financial
information reflects the results of operations of the two companies on a
combined basis for all periods presented.
14 First Bank System, Inc. and Subsidiaries
<PAGE>
TABLE 1. Selected Financial Data
<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Share Data) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis)........................... $1,454.0 $1,434.5 $1,355.9 $1,175.7 $1,049.2
Provision for credit losses.............................................. 115.0 123.6 133.1 191.7 210.2
------------------------------------------------------
Net interest income after provision for credit losses................... 1,339.0 1,310.9 1,222.8 984.0 839.0
Securities gains (losses)................................................ - (115.0) .3 46.3 42.3
Other noninterest income................................................. 783.1 673.9 618.6 567.4 514.7
Merger-related charges*.................................................. - 125.3 72.2 110.4 -
Other noninterest expense................................................ 1,205.9 1,224.1 1,192.5 1,135.9 1,067.9
------------------------------------------------------
Income from continuing operations before income taxes
and cumulative effect of changes in accounting principles.............. 916.2 520.4 577.0 351.4 328.1
Taxable-equivalent adjustment............................................ 13.8 15.1 17.7 22.7 34.4
Income taxes............................................................. 334.3 191.8 198.6 115.7 30.3
------------------------------------------------------
Income from continuing operations before cumulative
effect of changes in accounting principles............................. 568.1 313.5 360.7 213.0 263.4
Income (loss) from discontinued operations............................... - (8.5) 2.5 2.7 1.1
------------------------------------------------------
Income before cumulative effect of changes
in accounting principles............................................... 568.1 305.0 363.2 215.7 264.5
Cumulative effect of changes in accounting principles.................... - - - 233.2 -
------------------------------------------------------
Net income.............................................................. $ 568.1 $ 305.0 $ 363.2 $ 448.9 $ 264.5
------------------------------------------------------
Return on average assets................................................. 1.73% .91% 1.13% 1.56% .96%
Return on average common equity.......................................... 21.3 11.2 13.9 20.0 14.8
Net interest margin...................................................... 4.91 4.74 4.69 4.54 4.15
Efficiency ratio......................................................... 53.9 64.0 64.1 71.5 68.3
Efficiency ratio, excluding merger-related charges and nonrecurring
items................................................................... 53.3 58.1 60.4 65.2 68.3
PER SHARE DATA:
Primary income from continuing operations before
cumulative effect of accounting changes................................ $ 4.19 $ 2.21 $ 2.46 $ 1.46 $ 2.00
Income (loss) from discontinued operations.............................. - (.06) .02 .02 .01
Cumulative effect of accounting changes................................. - - - 1.87 -
------------------------------------------------------
Primary net income....................................................... $ 4.19 $ 2.15 $ 2.48 $ 3.35 $ 2.01
------------------------------------------------------
Fully diluted income from continuing operations
before cumulative effect of accounting changes......................... $ 4.11 $ 2.20 $ 2.45 $ 1.45 $ 1.92
Income (loss) from discontinued operations.............................. - (.06) .02 .02 .01
Cumulative effect of accounting changes................................. - - - 1.79 -
------------------------------------------------------
Fully diluted net income................................................. $ 4.11 $ 2.14 $ 2.47 $ 3.26 $ 1.93
------------------------------------------------------
Common dividends paid**.................................................. $ 1.45 $ 1.16 $ 1.00 $ .88 $ .82
AVERAGE BALANCE SHEET DATA:
Total loans.............................................................. $ 25,383 $ 23,863 $ 21,808 $ 19,108 $ 18,517
Total earning assets..................................................... 29,603 30,265 28,907 25,899 25,281
Total assets............................................................. 32,886 33,545 32,191 28,837 27,675
Total deposits........................................................... 22,708 24,661 25,637 22,953 21,934
Long-term debt........................................................... 2,963 2,609 1,633 1,453 1,663
Common equity............................................................ 2,634 2,603 2,409 2,090 1,596
Total shareholders' equity............................................... 2,739 2,746 2,769 2,495 1,936
YEAR-END BALANCE SHEET DATA:
Total loans.............................................................. $ 26,400 $ 24,556 $ 23,497 $ 20,692 $ 18,766
Total assets............................................................. 33,874 34,128 33,370 32,758 28,508
Total deposits........................................................... 22,514 24,256 26,386 26,395 22,969
Long-term debt........................................................... 3,201 2,981 2,070 1,151 1,360
Common equity............................................................ 2,622 2,494 2,466 2,354 1,694
Total shareholders' equity............................................... 2,725 2,612 2,744 2,745 2,131
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes $26.4 relating to ORE in 1992, and $56.5 relating to severance in
1994.
**Dividends per share have not been restated for the MFC, WCIC, or CNB mergers.
MFC paid common dividends of $25.1 million in 1994 ($.80 per share), $12.1
million in 1993 ($.39 per share), $7.7 million in 1992 ($.27 per share), $4.2
million in 1991 ($.19 per share). CNB paid common dividends of $3.2 million in
1992 ($.28 per share) and $1.8 million in 1991. WCIC did not pay dividends in
the years shown.
First Bank System, Inc. and Subsidiaries 15
<PAGE>
ACQUISITION AND DIVESTITURE ACTIVITY -- On February 16, 1996, the Company
completed its acquisition of Omaha-based FirsTier Financial, Inc. ("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, and accounted for the transaction
as a purchase. On November 1, 1995, the Company completed the acquisition of two
commercial bank holding companies located in Omaha, Nebraska, which together had
total assets of $424 million, total deposits of $380 million, and 12 branches.
On January 24, 1995, the Company issued approximately 21.7 million shares to
complete its merger with MFC. At December 31, 1994, MFC had $7.9 billion in
assets, $5.5 billion in deposits, and 211 offices, principally in North Dakota,
Minnesota, Nebraska, Iowa, Kansas, South Dakota, Wisconsin, and Wyoming.
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 will be the nation's leading provider of
domestic corporate trust services as measured by revenues. Approximately 80
percent of the business was transferred in December 1995 with the remainder of
the transfer to be substantially completed in the first quarter of 1996.
On March 16, 1995, the Company completed the acquisition of First Western
Corporation, parent company of Western Bank, with $317 million in assets, $267
million in deposits, and nine branches in and around Sioux Falls, South Dakota.
On December 8, 1995, the Company sold Edina Realty, Inc., its real estate
brokerage subsidiary, to a local investor group. This subsidiary was accounted
for as a discontinued operation. In addition, during 1995 the Company completed
the sale of 63 branch offices, resulting in the divestiture of approximately
$848 million of deposits and a nonrecurring gain of $31 million.
The Company announced on September 7, 1995, that it will seek a buyer for most
of its mortgage banking company and instead plans to deliver mortgage loan
products through bank branches and telemarketing.
On November 6, 1995, the Company and First Interstate Bancorp ("First
Interstate") announced 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 entered into a definitive agreement with
Wells Fargo & Company ("Wells Fargo"). Under the terms of a settlement agreement
dated January 23, 1996, among the Company, First Interstate and Wells Fargo, the
Company received $125 million January 24, 1996, and will receive an additional
$75 million upon consummation of the First Interstate/Wells Fargo transaction,
which is expected to occur in the second quarter of 1996. The settlement
agreement resolved all litigation among the parties related to the acquisition
of First Interstate.
Refer to Note C on page 47 for additional information regarding acquisitions
and divestitures.
Line of Business Financial Review
Financial performance is measured by major lines of business, which include:
Retail and Community Banking, Payment Systems, Commercial Banking, and Trust and
Investment Group.
The Company's business unit profitability reporting system derives business
line results by specifically attributing most assets, deposits and income
statement items to a business line. The Company's internal Funds Transfer
Pricing system allocates a standard cost for funds used or credit for funds
provided to all business line assets and liabilities using a matched funding
concept. Expenses that directly support business line operations are charged to
the business lines based on a standard unit cost and actual volume measurements.
Expenses that indirectly support the business line operations are allocated
based on the ratio of the business line's noninterest expense to total
consolidated noninterest expense. The Company calculates business line income
taxes based upon the consolidated effective tax rate.
16 First Bank System, Inc. and Subsidiaries
<PAGE>
TABLE 2. Line of Business Financial Performance
<TABLE>
<CAPTION>
Trust and
Retail and Community Payment Commercial Investment Consolidated
Banking Systems Banking Group Company
------------------------------------------------------------------------------------------------
(Dollars in Millions) 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income
(taxable-equivalent basis)...... $1,051.5 $1,021.1 $156.0 $172.1 $217.7 $216.1 $ 28.8 $ 25.2 $1,454.0 $1,434.5
Provision for credit losses*..... 30.4 28.2 74.7 69.4 9.9 9.5 - - 115.0 107.1
Noninterest income*.............. 220.7 236.9 260.6 194.9 59.7 58.0 211.1 180.3 783.1 670.1
Noninterest expense*............. 722.4 817.0 204.8 169.5 88.5 89.9 159.2 147.7 1,205.9 1,224.1
Income taxes and taxable-
equivalent adjustment........... 197.4 160.8 52.1 50.4 68.0 69.0 30.6 22.8 348.1 303.0
------------------------------------------------------------------------------------------------
Income from continuing operations
before merger-related items..... $ 322.0 $ 252.0 $ 85.0 $ 77.7 $111.0 $105.7 $ 50.1 $ 35.0 568.1 470.4
-------------------------------------------------------------------------
Merger-related items and discon-
tinued operations (after tax).. - 165.4
-------------------
Net income.................. $ 568.1 $ 305.0
-------------------
AVERAGE BALANCE SHEET DATA:
Commercial loans................. $ 5,834 $ 5,276 $ 807 $ 505 $4,978 $4,830 $ - $ - $ 11,619 $ 10,611
Consumer loans................... 11,423 11,198 2,341 2,054 - - - - 13,764 13,252
Assets........................... 22,167 23,722 3,844 3,147 6,095 5,953 780 723 32,886 33,545
Deposits......................... 20,213 21,521 40 26 1,619 2,294 836 820 22,708 24,661
Common equity.................... 1,609 1,694 351 319 427 423 247 167 2,634 2,603
------------------------------------------------------------------------------------------------
Return on average assets*........ 1.45% 1.06% 2.21% 2.47% 1.82% 1.78% ** ** 1.73% 1.40%
Return on average common equity*. 20.0 14.9 24.2 24.4 26.0 25.0 20.3% 21.0% 21.3 17.6
Efficiency ratio*................ 56.8 64.9 49.2 46.2 31.9 32.8 66.4 71.9 53.3 58.1
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Before merger-related items and nonrecurring items.
**Not meaningful.
Note: Preferred dividends and nonrecurring items are not allocated to the
business lines.
The business unit profitability system allocates capital based upon credit,
operational and business risks. Asset components subject to credit risk are
assigned risk factors based upon historic loss experience after taking into
consideration changes in business practice that may introduce more or less risk
into the portfolio. Capital is assigned to certain lines of business, such as
the Trust and Investment Group, which have no significant balance sheet
components, after taking into consideration operational risk, capital levels of
independent organizations operating similar businesses, and regulatory minimum
requirements. Management accounting system enhancements or product line changes
may affect designations, assignments, and allocations from time to time. During
1995 certain changes in organization and methodology were made, and 1994 results
are presented on a consistent basis.
RETAIL AND COMMUNITY BANKING -- Retail and Community Banking, which includes
consumer, small-business and middle-market banking services, and residential
mortgage lending, achieved a 28 percent increase in income from operations by
maintaining revenue and reducing expenses by nearly 12 percent. Return on assets
increased to 1.45 percent from 1.06 percent in 1994. Return on equity increased
to 20.0 percent from 14.9 percent for the previous year.
The increase in net interest income is attributable to growth in small- and
middle-market business lending and strong nonmortgage consumer loan growth.
Lower residential mortgage loans and a shift in balances from lower rate
deposits to higher cost borrowings partially offset these gains. Excluding
residential mortgage loans, average consumer loans increased 14 percent in 1995.
Noninterest income in 1995 was lower than in 1994 primarily as a result of
mortgage banking activities. Noninterest expense in 1995 was lower than 1994
despite the impact of full period expenses of the purchase acquisitions
completed in 1994. The reduction in noninterest expense
First Bank System, Inc. and Subsidiaries 17
<PAGE>
reflects the benefits of continued streamlining of branch operations, as well
as the integration of recent business combinations. The efficiency ratio
improved to 56.8 percent in 1995 from 64.9 percent in 1994.
PAYMENT SYSTEMS -- Payment Systems includes consumer credit card, corporate and
purchasing card services, card-accessed secured and unsecured lines of credit,
automated teller machine ("ATM") processing, and merchant processing. Net
earnings were $85.0 million in 1995, a 9 percent increase over 1994. Return on
assets was 2.21 percent in 1995, compared with 2.47 percent in 1994, and return
on equity was 24.2 percent compared with 24.4 percent in 1994.
Fee-based noninterest income for Payment Systems increased 34 percent in 1995
over 1994. The increase was due to growth in the sales volume of the Corporate
Card, the Purchasing Card, the FBS WorldPerks(R) credit card, and the expanded
ATM network. Net interest income decreased due to the change in the loan mix.
Average commercial loans, which are primarily noninterest earning Corporate and
Purchasing Card balances, comprised 26 percent of the portfolio during 1995
compared with 20 percent in 1994. The increase in the provision for credit
losses reflects growth in the non-mortgage loan portfolios. Noninterest expense
increased due to higher variable transaction costs resulting from increased
sales volume and initial investment expenses associated with the expanded ATM
network.
COMMERCIAL BANKING -- Commercial Banking provides lending, treasury management,
and other financial services to middle-market, large corporate, and mortgage
banking companies. Earnings in 1995 improved to $111.0 million, or 5 percent
higher than in 1994. Return on assets rose to 1.82 percent in 1995 from 1.78
percent in 1994. Similarly, return on equity increased to 26.0 percent in 1995
from 25.0 percent in the previous year.
Continued strong performance in net interest income, as well as ongoing credit
quality and expense control, contributed to the strong operating results.
Commercial Banking's average loans, excluding loans to mortgage banking
companies, increased $600 million, or 16 percent, from 1994. The decline in
deposits relates to less activity in the mortgage banking sector. The efficiency
ratio remained low at 31.9 percent in 1995, compared with 32.8 percent in 1994.
TRUST AND INVESTMENT GROUP -- The Trust and Investment Group includes personal,
institutional and corporate trust services, investment management services, and
a full-service brokerage company. Earnings increased 43 percent to $50.1 million
in 1995. The return on average equity was 20.3 percent in 1995 compared with
21.0 percent in 1994.
Net earnings in 1995 increased over 1994 primarily due to the Company's
acquisition strategy to grow its fee-based businesses. Stronger noninterest
income is due to growth in Corporate Trust, investment sales and management
fees, resulting primarily from recent acquisitions. Assets under management
totaled $29.2 billion at year-end 1995, up from $24.6 billion at the previous
year-end. Although the acquisitions have improved net earnings, the return on
equity reflects increased investment in these businesses. The efficiency ratio
improved to 66.4 percent in 1995, reflecting the effective integration of
acquisitions, process re-engineering efforts, and revenue growth.
Statement of Income Analysis
NET INTEREST INCOME -- Net interest income on a taxable-equivalent basis was
$1.45 billion in 1995, compared with $1.43 billion in 1994 and $1.36 billion in
1993. The improvement reflects an increase in the average yield on earning asset
balances. The yield on earning assets for 1995 averaged 8.64 percent, or 103
basis points higher than the average yield of 7.61 percent in 1994, reflecting
increases in market interest rates during 1994 and the first quarter of 1995.
The yield also benefited from a shift in the mix of earning assets from
securities and residential mortgage-related balances to higher yielding
commercial and consumer loan balances. Average loans totaled $25.4 billion in
1995, an increase of $1.5 billion, or 6 percent, from 1994. Solid loan growth
occurred in both nonmortgage consumer and commercial loans, offset primarily by
decreases in the balance of residential mortgage loans and loans to mortgage
bankers. Excluding these residential mortgage-related loan balances, average
loans for the year increased $2.5 billion, or 14 percent, from 1994, as demand
for small-business and middle-market loans, credit cards, home equity, and other
consumer loans remained strong. The decrease of $662 million, or 2 percent, in
total average earning assets over 1994 reflects the lower securities and
mortgage-related loan balances.
18 First Bank System, Inc. and Subsidiaries
<PAGE>
The average rate paid on interest-bearing liabilities in 1995 was 4.70
percent, or 102 basis points higher than 1994, as a result of increases in
deposit rates and, to a lesser extent, a shift in mix from deposits to
borrowings. Average interest-bearing deposits in 1995 decreased $1.2 billion, or
7 percent, from 1994, reflecting the divestiture of $848 million of deposits in
1995 and the continued movement of consumer balances into mutual funds,
annuities and other investment products. Average noninterest-bearing deposits in
1995 declined $726 million, or 12 percent, from 1994, due primarily to a decline
in deposits from customers in the cyclical mortgage banking industry.
The improvement in net interest income from 1993 to 1994 reflects increases in
average loan yields and average loan balances and decreases in average rates
paid on deposits, partially offset by increases in the average balances of
short-term borrowings and long-term debt. The average yield on loans increased
slightly as increasing average rates on the variable rate portions of the
portfolio were offset by a decline in the average rate on residential mortgage
loans. Average loans totaled $23.9 billion in 1994, an increase of $2.1 billion,
or 9 percent, from 1993, reflecting significant growth in both consumer and
commercial loans, partially offset by decreases in the balance of loans to
mortgage bankers and residential mortgage loans held for sale. Excluding these
mortgage-related balances, average loans for 1994 increased $3.1 billion, or 16
percent from 1993, reflecting increases in credit cards, home equity loans, and
consumer lines of credit, as well as small-business and middle-market commercial
loans, including loans acquired in business combinations. The average balance of
interest-bearing liabilities in 1994 increased $1.7 billion, or 8 percent, over
1993, as short-term borrowings replaced noninterest-bearing deposits related to
loans to mortgage bankers.
The net interest margin, on a taxable-equivalent basis, was 4.91 percent in
1995, compared with 4.74 percent in 1994 and 4.69 percent in 1993. The
improvement in the net interest margin in 1995 over 1994 and 1994 over 1993
resulted from a continuing shift in the mix of earning assets from securities
and lower-margin mortgage-related loans to higher yield consumer and commercial
loans.
TABLE 3. Analysis of Net Interest Income
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income (taxable-equivalent basis)........................ $1,454.0 $1,434.5 $1,355.9
------------------------------
Average balances of earning assets supported by:
Interest-bearing liabilities........................................ $ 23,527 $ 23,618 $ 21,889
Noninterest-bearing liabilities..................................... 6,076 6,647 7,018
------------------------------
Total earning assets............................................. $ 29,603 $ 30,265 $ 28,907
------------------------------
Average yields and weighted average rates (taxable-equivalent basis):
Earning assets yield................................................ 8.64% 7.61% 7.45%
Rate paid on interest-bearing liabilities........................... 4.70 3.68 3.64
------------------------------
Gross interest margin................................................. 3.94% 3.93% 3.81%
------------------------------
Net interest margin................................................... 4.91% 4.74% 4.69%
------------------------------
Net interest margin without taxable-equivalent increments............. 4.87% 4.69% 4.63%
- -------------------------------------------------------------------------------------------------------
</TABLE>
First Bank System, Inc. and Subsidiaries 19
<PAGE>
TABLE 4. Changes in Rate and Volume
<TABLE>
<CAPTION>
1995 Compared with 1994 1994 Compared with 1993
-------------------------------------------------------------
(In Millions) Volume Yield/Rate Total Volume Yield/Rate Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans............................................ $ 127.6 $230.0 $ 357.6 $165.6 $ 16.2 $181.8
Taxable securities............................... (131.7) 29.9 (101.8) (15.9) (5.0) (20.9)
Nontaxable securities............................ (.5) (.6) (1.1) (1.9) (1.1) (3.0)
Federal funds sold and resale agreements......... (6.0) 5.7 (.3) (12.5) 6.7 (5.8)
Other............................................ - 1.4 1.4 (3.2) 2.1 (1.1)
-------------------------------------------------------------
Total....................................... (10.6) 266.4 255.8 132.1 18.9 151.0
Interest expense:
Savings deposits and time deposits less than
$100,000....................................... (29.0) 146.2 117.2 (11.1) (28.0) (39.1)
Time deposits over $100,000...................... (19.9) 12.1 (7.8) (13.9) 2.0 (11.9)
Short-term borrowings............................ 41.8 43.0 84.8 61.4 10.2 71.6
Long-term debt................................... 21.4 20.7 42.1 55.4 (3.6) 51.8
-------------------------------------------------------------
Total....................................... 14.3 222.0 236.3 91.8 (19.4) 72.4
-------------------------------------------------------------
Increase (decrease) in net interest income....... $ (24.9) $ 44.4 $ 19.5 $ 40.3 $ 38.3 $ 78.6
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
This table shows the components of the change in net interest income by volume
and rate on a taxable-equivalent basis. The effect of changes in rates on volume
changes is allocated based on the percentage relationship of changes in volume
and changes in rate. This table does not take into account the level of
noninterest-bearing funding, nor does it fully reflect changes in the mix of
assets and liabilities.
PROVISION FOR CREDIT LOSSES -- The provision for credit losses declined to $115
million in 1995, compared with $123.6 million in 1994, and $133.1 million in
1993. Nonperforming assets continued to decline to $153.7 million at December
31, 1995, from $232.3 million at December 31, 1994, and $341.4 million at
December 31, 1993. Net charge-offs declined to $121 million in 1995 from $140.3
million in 1994, and $162.3 million in 1993. The 1994 provision for credit
losses included a $16.5 million merger-related provision to provide for the
Company's plans and policies with respect to MFC's commercial and consumer loan
portfolios.
NONINTEREST INCOME -- Noninterest income increased $224 million, or 40 percent,
to $783.1 million in 1995, compared with $558.9 million in 1994. Noninterest
income was $618.9 million in 1993. Noninterest income in 1995 included a $31
million nonrecurring gain on the sale of 63 branches. Included in 1994
noninterest income was a $111.2 million nonrecurring loss related to securities
sold in January 1995 as a result of MFC's actions to reduce interest rate risk
consistent with prior regulatory requests and to align more closely the interest
rate risk profile of MFC with that of the Company. Excluding these nonrecurring
items, noninterest income in 1995 increased $82.0 million, or 12 percent, from
1994. Noninterest income in 1994, excluding the nonrecurring securities loss,
increased $51.2 million, or 8 percent, from 1993. The increases in noninterest
income, excluding nonrecurring items, were primarily due to higher credit card
and trust fees in 1995 and 1994.
Credit card fees were $232.7 million in 1995, up $53.7 million, or 30 percent,
from $179.0 million in 1994. Credit card fees in 1994 increased $41.9 million,
or 31 percent, from 1993. Most of the increase in credit card fees was
attributable to higher sales volumes processed through the Company's Payment
Systems products. Sales volumes of Payment System products increased 27 percent
in 1995 compared with 1994, and 53 percent in 1994 compared with 1993.
20 First Bank System, Inc. and Subsidiaries
<PAGE>
TABLE 5. Noninterest Income
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
Credit card fees........................... $232.7 $ 179.0 $137.1
Trust fees................................. 175.3 159.2 146.1
Services charges on deposit accounts....... 123.7 127.3 126.0
Investment products fees and commissions... 27.6 29.6 24.3
Trading account profits and commissions.... 11.1 9.3 10.1
Securities gains (losses).................. - (115.0) .3
Gain on sale of branches................... 31.0 - -
Other...................................... 181.7 169.5 175.0
------------------------
Total noninterest income................. $783.1 $ 558.9 $618.9
- --------------------------------------------------------------------
</TABLE>
Trust fees in 1995 were $175.3 million, up $16.1 million, or 10 percent, from
$159.2 million in 1994 primarily on growth attributable to the Company's
corporate trust acquisition strategy. Trust fees in 1994 increased $13.1
million, or 9 percent, from 1993, reflecting growth in corporate and
institutional trust fees, including income from acquisitions completed in 1994.
Trust assets under management were $29.2 billion at December 31, 1995, compared
with $24.6 billion in 1994 and $21.7 billion in 1993. Following the completion
of the acquisition of BankAmerica's corporate trust business in 1996, the
Company will have approximately $500 billion in administered assets and nine
full-service offices nationwide.
Service charges on deposit accounts totaled $123.7 million in 1995, compared
with $127.3 million in 1994 and $126.0 million in 1993. Revenues from sales of
investment products declined modestly in 1995 due to lower annuity sales, but
remained nearly 14 percent higher than 1993 revenues. Trading account profits
were $11.1 million in 1995, compared with $9.3 million in 1994 and $10.1 million
in 1993. Included in the 1994 securities loss of $115.0 million was a $111.2
million loss related to the sale of securities by MFC.
Other noninterest income, which includes loan servicing fees, letters of
credit and other fees, gains on sales of assets, and other miscellaneous income,
increased to $181.7 million in 1995 from $169.5 million in 1994. Other
noninterest income was $175.0 million in 1993. The other noninterest income
growth in 1995 resulted primarily from increased ATM network transaction fee
volume. Included in 1993 other noninterest income was $16.3 million of net gains
on the sale of mortgage loans compared with $.4 million of net losses recorded
in 1994.
First Bank System, Inc. and Subsidiaries 21
<PAGE>
TABLE 6. Noninterest Expense
<TABLE>
<CAPTION>
(Dollars in Millions, Except Per Employee Data) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries.............................................................. $ 441.0 $ 450.7 $ 439.8
Employee benefits..................................................... 96.4 105.7 99.1
------------------------------
Total personnel expense............................................. 537.4 556.4 538.9
Net occupancy......................................................... 98.6 103.8 109.7
Furniture and equipment............................................... 94.2 88.3 80.7
Amortization of goodwill and other intangible assets.................. 57.1 50.4 41.3
Other personnel costs................................................. 40.9 35.7 31.0
Professional services................................................. 36.9 38.5 41.5
FDIC insurance........................................................ 35.8 58.4 57.5
Advertising........................................................... 32.0 35.5 25.6
Telephone............................................................. 25.1 25.9 23.1
Postage............................................................... 22.5 23.0 23.1
Printing, stationery and supplies..................................... 22.4 23.0 25.1
Third party data processing........................................... 17.8 20.3 27.1
Merger and integration................................................ - 66.2 72.2
Merger-related severance.............................................. - 56.5 -
Other................................................................. 185.2 167.5 167.9
------------------------------
Total noninterest expense........................................... $1,205.9 $1,349.4 $1,264.7
------------------------------
Efficiency ratio*..................................................... 53.9% 64.0% 64.1%
Efficiency ratio, before merger-related items and nonrecurring items.. 53.3 58.1 60.4
Average number of full-time equivalent employees...................... 13,231 14,725 14,867
Personnel expense per employee $ 40,617 $ 37,786 $ 36,248
- ------------------------------------------------------------------------------------------------------
</TABLE>
*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.
NONINTEREST EXPENSE -- Noninterest expense was $1.21 billion in 1995, a decrease
of $144 million, or 11 percent, from 1994. Noninterest expense was $1.35 billion
in 1994 and $1.26 billion in 1993. In 1995 the Company expensed unamortized
software costs of approximately $23 million, primarily related to a change in
the Company's software amortization policy. Also in 1995, the Company recorded a
charge of approximately $8 million to write-off other miscellaneous assets.
Included in noninterest expense in 1994 were merger and integration charges of
$66.2 million and merger-related severance charges of $56.5 million related to
the MFC transaction. In 1993 the Company recorded $72.2 million in merger and
integration charges.
Adjusted for nonrecurring charges in 1995 and merger and integration charges
in 1994, noninterest expense in 1995 decreased $49.2 million, or 4 percent,
compared with 1994. This decrease reflects ongoing expense control and
efficiencies realized through the integration of acquisitions, including MFC
which was integrated within one month of closing the transaction. Excluding the
effects of merger and integration charges in 1994 and 1993, noninterest expense
in 1994 increased $31.6 million, or 3 percent, over 1993. The modest increase in
1994 expenses reflected the addition of the operations of two banks acquired in
March 1994, and the corporate trust business acquired in September 1994.
Compared with noninterest expense for 1993, adjusted to include the expenses of
these acquisitions on a pro forma basis and excluding merger-related items,
noninterest expense for 1994 declined by $41.0 million, or 3 percent.
The efficiency ratio improved to 53.3 percent in 1995 from 58.1 percent in
1994 and 60.4 percent in 1993, excluding merger-related items and nonrecurring
items. The Company's efficiency ratio ranks second among its peer group. The
keys to this high productivity are a tight cost control culture throughout the
organization and the successful integration of acquisitions. Each acquisition
completed has been integrated at a progressively faster pace, enabling
substantial cost reductions.
22 First Bank System, Inc. and Subsidiaries
<PAGE>
Salaries and employee benefits expenses in 1995 decreased $19 million, or 3
percent, from 1994. Average full-time equivalent employees decreased 10 percent
to 13,231 in 1995. Salaries and employee benefits expenses in 1994 were $556.4
million, up from 1993's total of $538.9 million.
Net occupancy expense totaled $98.6 million, $103.8 million and $109.7 million
in 1995, 1994 and 1993, respectively. The decrease in 1995 expense of $5.2
million, or 5 percent, from 1994, and the decrease in 1994 expense of $5.9
million, or 5 percent, from 1993, reflect continuing improved productivity in
the Company's distribution network by subleasing excess office space and
disposing of branches through the integration of acquisitions. Furniture and
equipment expense for 1995 increased $5.9 million, or 7 percent, from 1994. This
increase was primarily related to automated teller machines deployed in Circle K
convenience stores late in 1994 and lobby automation and other equipment
associated with acquisitions. Furniture and equipment expense increased $7.6
million, or 9 percent, from 1993 to 1994 reflecting costs associated with
acquisitions and investments in communication and data processing technology.
Amortization of goodwill and other intangible assets was $57.1 million in
1995, $50.4 million in 1994, and $41.3 million in 1993. The increases are
primarily attributable to the additional goodwill and intangible assets
resulting from the corporate trust business and bank acquisitions in 1995 and
1994.
Other personnel costs were $40.9 million in 1995, $35.7 million in 1994, and
$31.0 million in 1993. The use of outside contract labor related to ongoing
technology projects and acquisition integrations caused the increases in both
1995 and 1994.
FDIC insurance premiums decreased to $35.8 million in 1995, compared with
$58.4 million and $57.5 million in 1994 and 1993, respectively. FDIC insurance
premiums decreased primarily due to the FDIC's new assessment rate schedule for
deposits subject to assessment by the Bank Insurance Fund ("BIF"), retroactive
to June 1, 1995, which reduced the Company's insurance rate from $.23 to $.04
per $100 of BIF insured deposits. Effective January 1, 1996, the Company's
insurance rate per $100 of BIF assessed deposits was further reduced to zero.
Approximately $5.9 billion of the Company's deposits are subject to assessment
by the Savings Association Insurance Fund ("SAIF") and continue to be assessed
at the rate of $.23 per $100 of deposits.
Advertising expense was $32.0 million in 1995, compared with $35.5 million in
1994 and $25.6 million in 1993. The decline in 1995 was primarily due to the
integration of MFC and the elimination of duplicate costs.
The Company recorded additional provision for credit losses of $16.5 million
and merger-related charges of $66.2 million relating to the MFC merger in 1994.
Merger-related charges included: $19.6 million in asset write-downs primarily
related to premises and equipment; $6.2 million for contract terminations; $26.4
million of costs for systems conversions, including outside consulting fees for
the assistance in the conversion of MFC data processing systems, preparation and
mailing of numerous customer communications, printing and distribution of
training materials, branch signage, and similar expenses related to the
conversion and integration of MFC branches and operations to the Company's
model; and $14.0 million of other costs. There were no significant adjustments
made to these items in 1995. Cash expenditures related to these charges totaled
approximately $58.2 million during 1995. The remaining cash expenditures are
expected to occur early in 1996. Severance of $56.5 million also was recorded by
MFC under a pre-existing change in control plan. The Company recorded merger-
related charges of $72.2 million relating to the CNB acquisition in 1993 and has
made all of the related cash expenditures. The charges related to the closing of
redundant facilities and consolidation of operations and included $29.7 million
in conversion and required customer communications costs, $22.8 million in
severance, $14.3 million in premises and equipment write-downs, and $5.4 million
in other merger-related costs.
INCOME TAX EXPENSE -- The provision for income taxes was $334.3 million in 1995,
compared with $191.8 million in 1994 and $198.6 million in 1993. The increase in
1995 was primarily due to the higher level of taxable income. The decrease in
taxable income in 1994 from 1993 was due to the recognition of securities losses
and merger-related charges in 1994.
First Bank System, Inc. and Subsidiaries 23
<PAGE>
At December 31, 1995, the Company's net deferred tax asset was $216.3 million,
compared with a net deferred tax asset of $363.0 million. In determining that
realization of the deferred tax asset was more likely than not, the Company gave
consideration to a number of factors, including its recent earnings history, its
expectations for earnings in the future and, where applicable, the expiration
dates associated with tax carryforwards. For further information on income
taxes, refer to Note L on page 58.
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.
DISCONTINUED OPERATIONS -- Because of regulatory restrictions on nonbanking
activities, the Company sold Edina Realty, Inc. ("Edina"), its real estate
brokerage subsidiary, on December 8, 1995. Edina's operations were reported in
the Consolidated Statement of Income as discontinued operations, with income and
expenses excluded from captions applicable to continuing operations. Edina's
assets, liabilities, and cash flows were not material to the Company's financial
statements. Edina's 1994 results included a $12.5 million accrual for the
settlement of two class action lawsuits against Edina, which was paid in 1995.
Balance Sheet Analysis
LOANS -- The Company's loan portfolio increased $1.8 billion, or 8 percent, to
$26.4 billion at year-end 1995 from $24.6 billion at year-end 1994. Table 7
shows the breakdown of the Company's loan portfolio by type of loan. Growth in
most commercial and consumer loan categories was partially offset by a decrease
in residential mortgage-related loan balances. The Company's loan portfolio
carries credit risk, which may ultimately result in loan charge-offs. The
Company manages this risk through stringent, centralized credit policies and
review procedures, as well as diversification along geographic and customer
lines. See Corporate Risk Profile for a more detailed discussion of the
management of credit risk.
COMMERCIAL -- Commercial loans totaled $8.3 billion at year-end 1995, up $1.0
billion, or 14 percent, from year-end 1994. Year-end 1994 commercial loans were
$7.3 billion, up $1.1 billion, or 18 percent, from year-end 1993. The increase
in commercial loans is primarily attributable to growth in small- and middle-
market business lending.
At December 31, 1995, the significant industry groups based on commercial
loans outstanding were consumer product manufacturers (32 percent), service
industries, including both business and consumer services (28 percent), and
wholesale (15 percent). The remaining industry groups are each less than 10
percent of the Commercial portfolio. This diverse mix of industries is similar
to 1994 and 1993.
The geographic distribution of the commercial portfolio is concentrated in the
Company's operating region, with approximately 80 percent of amounts outstanding
to borrowers located in Minnesota, Colorado, Wisconsin, Illinois, Montana, North
Dakota, South Dakota, Iowa, Kansas, Nebraska, and Wyoming.
24 First Bank System, Inc. and Subsidiaries
<PAGE>
TABLE 7. Loan Portfolio Distribution
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------
At December 31 Percent Percent Percent Percent Percent
(Dollars in Millions) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL:
Commercial.................... $ 8,271 31.3% $ 7,285 29.7% $ 6,170 26.3% $ 5,781 27.9% $ 5,729 30.5%
Financial institutions........ 1,060 4.0 787 3.2 2,004 8.5 1,132 5.5 1,001 5.3
Real estate:
Commercial mortgage.......... 2,784 10.6 2,454 10.0 2,233 9.5 2,207 10.6 2,176 11.6
Construction................. 403 1.5 330 1.3 241 1.0 239 1.2 312 1.7
--------------------------------------------------------------------------------------------------
Total commercial........... 12,518 47.4 10,856 44.2 10,648 45.3 9,359 45.2 9,218 49.1
CONSUMER:
Residential mortgage.......... 4,655 17.6 5,098 20.8 5,125 21.8 4,641 22.5 3,608 19.2
Residential mortgage held for
sale......................... 257 1.0 197 .8 1,149 4.9 856 4.1 775 4.1
Home equity and second
mortgage..................... 2,805 10.6 2,453 10.0 1,932 8.2 1,482 7.2 1,012 5.4
Credit card................... 2,586 9.8 2,409 9.8 1,757 7.5 1,782 8.6 1,709 9.1
Automobile.................... 1,821 6.9 1,770 7.2 1,159 4.9 1,050 5.1 1,034 5.5
Revolving credit.............. 757 2.9 725 2.9 695 3.0 605 2.9 576 3.1
Installment................... 607 2.3 712 2.9 772 3.3 671 3.2 594 3.2
Student*...................... 394 1.5 336 1.4 260 1.1 246 1.2 240 1.3
--------------------------------------------------------------------------------------------------
Total consumer............. 13,882 52.6 13,700 55.8 12,849 54.7 11,333 54.8 9,548 50.9
--------------------------------------------------------------------------------------------------
Total loans................ $26,400 100.0% $24,556 100.0% $23,497 100.0% $20,692 100.0% $18,766 100.0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*All or part of the student loan portfolio may be sold when the repayment period
begins.
FINANCIAL INSTITUTIONS -- The portfolio of loans to financial institutions
increased to $1.1 billion at December 31, 1995, compared with $787 million at
December 31, 1994. The outstandings fluctuate due to the cyclical nature of the
mortgage banking firms' loan volume. The increase in 1995 reflects the easing of
market interest rates during the year.
The financial institutions group provides financing to financial institutions
headquartered throughout the United States. Many of these institutions originate
residential mortgages on a national basis. The Company secures these loans
primarily with first liens on single family residences.
COMMERCIAL REAL ESTATE -- The Company's portfolio of commercial real estate
mortgages and construction loans grew approximately $400 million to $3.2 billion
at December 31, 1995, compared with $2.8 billion at December 31, 1994.
Commercial real estate activity continues to increase as market prices stabilize
and vacant space declines, allowing more projects to meet the Company's
stringent credit standards.
First Bank System, Inc. and Subsidiaries 25
<PAGE>
TABLE 8. Commercial Real Estate Exposure by Property Type and Geography
<TABLE>
<CAPTION>
Percentage of Total
at December 31
-------------------
PROPERTY TYPE 1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------
Retail................................................... 19.0% 17.2%
Mixed-use office......................................... 16.5 16.7
Multi-family............................................. 14.7 16.6
Office building.......................................... 13.9 17.1
Hotel/motel.............................................. 7.4 6.2
Single-family residential................................ 4.2 4.2
Land..................................................... 2.3 1.9
Other, primarily owner-occupied.......................... 22.0 20.1
-------------------
100.0% 100.0%
- --------------------------------------------------------------------------------
GEOGRAPHY
- --------------------------------------------------------------------------------
Minnesota................................................ 29.0% 33.1%
Colorado................................................. 18.2 19.2
Montana, North Dakota, South Dakota and Wyoming.......... 14.3 13.1
Wisconsin and Illinois................................... 12.9 13.4
Iowa, Kansas and Nebraska................................ 6.9 3.9
-------------------
Total FBS region........................................ 81.3 82.7
West..................................................... 7.8 9.1
Southeast................................................ 6.0 3.0
Southwest................................................ 2.2 2.8
Other Midwest............................................ 1.9 1.8
Mid-Atlantic............................................. .8 .6
-------------------
100.0% 100.0%
- --------------------------------------------------------------------------------
</TABLE>
Commercial mortgages outstanding were $2.8 billion at December 31, 1995,
compared with $2.5 billion at December 31, 1994. Real estate construction loans
outstanding at December 31, 1995, totaled $403 million compared with $330
million at year-end 1994. Table 8 shows the breakdown of these real estate
exposures by property type and geographic location. The Company maintains the
real estate construction designation until the project is producing sufficient
cash flow to service traditional mortgage financing, at which time the loan is
transferred to the commercial mortgage portfolio. Approximately $40 million of
construction loans was transferred to the commercial mortgage portfolio in 1995.
The Company's commercial real estate mortgages and construction loans had
combined unfunded commitments of $409 million at December 31, 1995, and $367
million at December 31, 1994. At year-end 1995, real estate interests secured
$128 million of tax-exempt industrial development loans and commitments and $319
million of standby letters of credit. At year-end 1994, these exposures totaled
$184 million and $298 million, respectively.
26 First Bank System, Inc. and Subsidiaries
<PAGE>
The Company finances the operations of real estate developers and other
entities with operations related to real estate. These loans are not secured
directly by real estate and are subject to terms and conditions similar to
commercial loans. These loans are included in the commercial category and
totaled $356 million at December 31, 1995, and $342 million at December 31,
1994.
CONSUMER -- Total consumer loan outstandings increased $182 million to $13.9
billion at December 31, 1995, from $13.7 billion at year-end 1994. Excluding a
$383 million decrease in residential mortgage loans, consumer loans increased
$565 million, or 7 percent.
Home equity and second mortgages increased $352 million, primarily due to
successful marketing promotions. Credit card loans, primarily the Northwest
Airlines WorldPerks credit card, grew $177 million. Revolving credit loans
increased slightly to $757 million from $725 million at December 31, 1995, and
1994, respectively. During 1995, automobile loans increased $51 million, or 3
percent, to $1.8 billion and installment loans decreased $105 million, or 15
percent, to $607 million. At December 31, 1995, student loans totaled $394
million, up $58 million from the prior year.
Residential mortgage outstandings decreased $383 million, or 7 percent, to
$4.9 billion. Residential mortgage originations were approximately $1.6 billion
in 1995, a 41 percent decrease from 1994. The decline in outstandings and
originations was due to the Company's continuing emphasis on other consumer loan
products.
Of total consumer balances outstanding, approximately 80 percent were to
customers located in the Company's operating region. See page 29 for a
discussion of the general economic conditions within the Company's operating
region.
ALLOWANCE FOR CREDIT LOSSES -- At December 31, 1995, the allowance for credit
losses was $473.5 million, compared with an allowance of $474.7 million at
December 31, 1994, and $466.1 million at December 31, 1993. The ratio of the
allowance for credit losses to nonperforming loans increased to 401 percent at
December 31, 1995, from 283 percent at December 31, 1994, and 208 percent at
December 31, 1993. For further information on the allowance for credit losses,
refer to Corporate Risk Profile beginning on page 29.
SECURITIES -- At December 31, 1995, the Company's available-for-sale securities
portfolio was $3.3 billion compared with $5.2 billion at December 31, 1994,
reflecting the January 1995 sale of $1.6 billion of securities in connection
with the Company's interest rate risk management process. The relative mix of
the securities portfolio has not changed significantly from prior years.
Trading account securities, federal funds sold, and resale agreements were
$351 million at December 31, 1995, compared with $548 million at December 31,
1994, reflecting decreases in federal funds sold and resale agreements of $100
million and $106 million, respectively.
TABLE 9. Available-for-sale Securities Portfolio Average Maturity
<TABLE>
<CAPTION>
At December 31, 1995 Average Maturity
<S> <C>
- --------------------------------------------------------------------------------
U.S. Treasury............................................ 2 years, 7 months
Other U.S. Agencies...................................... 2 years, 4 months
State and Political...................................... 9 years, 10 months
Other*................................................... 4 years, 4 months
Total.................................................. 3 years, 7 months
- --------------------------------------------------------------------------------
</TABLE>
*Excludes equity securities that have no stated maturity.
The average effective life of the holdings is expected to be less than the
average contractual maturities shown in the table because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties. The table above does not include mortgage-backed securities.
First Bank System, Inc. and Subsidiaries 27
<PAGE>
TABLE 10. Available-for-sale Securities Portfolio Amortized Cost, Fair Value and
Yield by Maturity Date
<TABLE>
<CAPTION>
Maturing: Within 1 Year 1-5 Years 5-10 Years
- -------------------------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 1995 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury................ $313.1 $315.9 7.42% $401.3 $406.3 6.06% $206.6 $202.6 5.22%
Mortgage-backed
securities*............ - - - - - - - - -
Other U.S. Agencies.......... 57.3 57.2 5.58 89.3 89.7 5.79 9.8 10.2 6.30
State and Political**........ 40.5 40.8 11.84 25.0 25.6 8.00 31.7 33.3 8.84
Other........................ 35.2 35.2 9.11 47.5 48.1 6.91 34.8 34.8 6.60
- -------------------------------------------------------------------------------------------------------------------
$446.1 $449.1 7.72% $563.1 $569.7 6.17% $282.9 $280.9 5.84%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Mortgage-Backed
Maturing: Over 10 Years Securities Total
- ------------------------------------------------------------------------------------------------------------------------------
Amor- Amor- Amor-
At December 31, 1995 tized Fair tized Fair tized Fair
(Dollars in Millions) Cost Value Yield Cost Value Yield Cost Value Yield
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury................ $ - $ - -% $ - $ - -% $ 921.0 $ 924.8 6.33%
Mortgage-backed
securities*............ - - - 1,703.0 1,692.8 6.85 1,703.0 1,692.8 6.85
Other U.S. Agencies.......... .2 .2 10.24 - - - 156.6 157.3 5.75
State and Political**........ 77.1 79.6 11.28 - - - 174.3 179.3 10.51
Other........................ 147.6 183.9 6.86%*** - - - 265.1 302.0 7.43%***
- ------------------------------------------------------------------------------------------------------------------------------
$224.9 $263.7 10.74%*** $1,703.0 $1,692.8 6.85% $3,220.0 $3,256.2 6.87%***
- ------------------------------------------------------------------------------------------------------------------------------
*Variable rate mortgage-backed securities represented 49% of the balance of mortgage-backed securities.
**Yields on state and political obligations that are not subject to federal income tax have been adjusted to taxable-equivalent
using a 35% tax rate.
***Average yield calculations exclude equity securities that have no stated yield.
</TABLE>
DEPOSITS -- Noninterest-bearing deposits averaged $5.6 billion in 1995, down
$726 million from the 1994 average of $6.3 billion. The decrease in non-interest
bearing deposits was due primarily to a decline in deposits from customers in
the mortgage banking industry. Interest-bearing deposits, which include
certificates of deposit, savings certificates, and money market and interest
checking products, averaged $17.1 billion in 1995, compared with $18.4 billion
in 1994. The decrease reflects the divestiture of $848 million of deposits
during 1995, as well as the national trend of consumer balances moving into
mutual funds, annuities and other investment products.
BORROWINGS -- Short-term borrowings, which include federal funds purchased,
securities sold under agreements to repurchase and other short-term borrowings,
increased to $4.4 billion at December 31, 1995, from $3.2 billion at December
31, 1994. The increase was primarily attributable to the net issuance of $1.3
billion of short-term notes under the $5 billion bank/thrift note programs,
which were used to fund loan growth, replace deposit sales and fund a $300
million reduction in federal funds purchased and securities sold under
agreements to repurchase. The currently outstanding short-term bank notes have a
weighted average interest rate of 5.89 percent and range in original maturities
from seven to nine months. In addition to the short-term bank notes, the
Company's subsidiaries also issued $300 million in long-term bank notes under
the same $5 billion bank/thrift note program. The original maturities of these
notes ranged from 23 to 25 months.
Long-term debt increased slightly to $3.2 billion at December 31, 1995, from
$3.0 billion at December 31, 1994. The Company placed $250 million in 6.875
percent subordinated 12-year, noncallable notes in September 1995, and $150
million in 7.625 percent subordinated 10-year, noncallable notes in April 1995.
The effect of these issuances was partially offset by the call of $86 million
8.25 percent subordinated notes due October 1, 1999; the call of $150 million
floating rate subordinated capital notes due November 29, 1996; and maturities
on other outstanding debt, including approximately $300 million in Federal Home
Loan Bank ("FHLB") advances. During 1994, the Company and its subsidiaries
placed two $100 million subordinated debt issuances.
Medium-term notes outstanding at December 31, 1995, totaled $580 million
compared with $514 million at December 31, 1994. During 1995, the Company issued
$254 million of medium-term notes with original maturities of 12 to 42 months.
Maturities of medium-term notes during 1995 totaled $188 million.
28 First Bank System, Inc. and Subsidiaries
<PAGE>
Corporate Risk Profile
OVERALL RISK PROFILE -- Managing risk is an essential part of successfully
operating a financial services company. The most prominent risk exposures are
credit quality, interest rate sensitivity, and liquidity. Credit quality risk is
the risk of not collecting interest and/or the principal balance of a loan or
investment when it is due. Interest rate risk is the potential reduction of net
interest income as the result of changes in interest rates. Rate movements can
affect the repricing of assets and liabilities differently, as well as their
market value. Liquidity risk is the possible inability to fund obligations to
depositors, investors and borrowers.
CREDIT MANAGEMENT -- In 1995 the Company's nonperforming assets declined for the
sixth consecutive year. The ratio of nonperforming assets to loans plus other
real estate declined to .58 percent at year-end from .94 percent and 1.45
percent at year-end 1994 and 1993, respectively.
These improvements reflect a favorable economy, a reduced risk profile of the
loan portfolio, and a disciplined credit culture. Lower portfolio risk is the
result of the Company's focus on middle-market lending in its region and a shift
toward more consumer lending. Consistent with this strategy, acquisitions made
during the past four years have enhanced middle-market and consumer loan
portfolios.
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 all 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.
The commercial bank relies 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 operating regions compare favorably with
national trends. Fifty percent of the Company's loan portfolio consists of
credit to businesses and consumers in Minnesota and Colorado. According to
federal and state government agencies, unemployment rates in Minnesota and
Colorado were 3.4 percent and 3.9 percent, respectively, for the month of
December 1995, compared with the national unemployment rate of 5.6 percent.
Through September 30, 1995, the national foreclosure rate on residential
mortgages was .92 percent, compared with .55 percent in Minnesota and .30
percent in Colorado.
The Company engages in non-lending activities that may give rise to credit
risk, including interest rate swap contracts for balance sheet hedging purposes,
foreign exchange transactions for customers, and the processing of credit card
transactions for merchants. These activities are subject to the same credit
review, analysis and approval processes as those applied to commercial loans.
For additional information on interest rate swaps, see Interest Rate Risk
Management on page 33.
First Bank System, Inc. and Subsidiaries 29
<PAGE>
TABLE 11. Summary of Allowance for Credit Losses
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...................... $474.7 $466.1 $483.8 $453.2 $484.4
CHARGE-OFFS:
Commercial:
Commercial..................................... 25.9 57.1 53.5 87.6 106.0
Financial institutions......................... -- 1.1 6.5 -- 2.0
Real estate:
Commercial mortgage....................... 15.3 34.4 59.8 48.7 79.6
Construction.............................. .1 .2 .4 6.1 6.3
------------------------------------------
Total commercial.......................... 41.3 92.8 120.2 142.4 193.9
Consumer:
Residential mortgage........................... 5.2 4.7 3.0 6.8 6.1
Credit card.................................... 85.6 78.5 71.6 85.5 68.4
Other.......................................... 77.0 50.8 44.4 50.5 49.8
------------------------------------------
Total consumer............................ 167.8 134.0 119.0 142.8 124.3
------------------------------------------
Total..................................... 209.1 226.8 239.2 285.2 318.2
RECOVERIES:
Commercial:
Commercial..................................... 38.7 42.8 33.6 40.2 33.0
Financial institutions......................... .5 .4 7.0 - -
Real estate:
Commercial mortgage....................... 15.6 17.7 11.7 6.3 11.8
Construction.............................. .1 .9 1.3 1.9 1.2
------------------------------------------
Total commercial.......................... 54.9 61.8 53.6 48.4 46.0
Consumer:
Residential mortgage........................... .7 1.1 1.7 2.3 1.6
Credit card.................................... 10.9 9.1 9.7 8.0 6.0
Other.......................................... 21.6 14.5 11.9 12.8 10.1
------------------------------------------
Total consumer............................ 33.2 24.7 23.3 23.1 17.7
------------------------------------------
Total..................................... 88.1 86.5 76.9 71.5 63.7
NET CHARGE-OFFS:
Commercial:
Commercial..................................... (12.8) 14.3 19.9 47.4 73.0
Financial institutions......................... (.5) .7 (.5) - 2.0
Real estate:
Commercial mortgage....................... (.3) 16.7 48.1 42.4 67.8
Construction.............................. - (.7) (.9) 4.2 5.1
------------------------------------------
Total commercial.......................... (13.6) 31.0 66.6 94.0 147.9
Consumer:
Residential mortgage........................... 4.5 3.6 1.3 4.5 4.5
Credit card.................................... 74.7 69.4 61.9 77.5 62.4
Other.......................................... 55.4 36.3 32.5 37.7 39.7
------------------------------------------
Total consumer............................ 134.6 109.3 95.7 119.7 106.6
------------------------------------------
Total..................................... 121.0 140.3 162.3 213.7 254.5
Provision charged to operating expense.............. 115.0 123.6 133.1 191.7 210.2
Additions related to acquisitions................... 4.8 25.3 11.5 52.6 13.1
------------------------------------------
Balance at end of period............................ $473.5 $474.7 $466.1 $483.8 $453.2
------------------------------------------
Allowance as a percentage of period-end loans....... 1.79% 1.93% 1.98% 2.34% 2.42%
Allowance as a percentage of nonperforming loans.... 401 283 208 149 120
Allowance as a percentage of nonperforming assets... 308 204 137 95 69
</TABLE>
30 First Bank System, Inc. and Subsidiaries
<PAGE>
ANALYSIS AND ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES -- The allowance for
credit losses provides coverage for losses inherent in the Company's loan
portfolio and related off-balance sheet commitments. Management evaluates the
allowance each quarter to determine that it is adequate to cover inherent
losses. The evaluation is based on continuing assessment of problem loans and
related off-balance sheet items, recent loss experience, and other factors,
including current and anticipated economic conditions.
Management has determined that the allowance for credit losses is adequate. At
December 31, 1995, the allowance was $473.5 million, or 1.79 percent of loans.
This compares with an allowance of $474.7 million, or 1.93 percent of loans, at
year-end 1994, and $466.1 million, or 1.98 percent of loans, at December 31,
1993. The ratio of the allowance for credit losses to nonperforming loans
increased to 401 percent at December 31, 1995, compared with 283 percent at
year-end 1994 and 208 percent at year-end 1993.
Although the recent trend of slow, steady economic growth may contribute to
the continued improvement in the credit portfolio, economic stagnation or
reversals could increase the required level of the allowance for credit losses.
Management allocates part of the allowance to certain industry sectors based
on relative risk characteristics of the loan portfolio. Table 12 shows the
allocation of the allowance for credit losses by loan category. Commercial
allocations are based on a quarterly review of individual loans outstanding and
binding commitments to lend, including standby letters of credit. Consumer
allocations are based on an analysis of historical and expected delinquency and
charge-off statistics.
The unallocated portion of the allowance increased to $299.5 million at year-
end 1995 from $277.7 million and $261.0 million at December 31, 1994, and 1993,
respectively, reflecting increases in the loan portfolio. Although the
allocation of the allowance is an important credit management tool, the entire
allowance for credit losses is available for the entire loan portfolio.
TABLE 12. Allocation of Allowance for Credit Losses
<TABLE>
<CAPTION>
Allocation Amount at December 31 Allocation as a Percent of Loans Outstanding
----------------------------------------------------------------------------------------
(Dollars in Millions) 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL:
Commercial and financial institutions.. $ 68.8 $ 78.8 $ 80.1 $105.9 $126.4 .74% .98% .98% 1.53% 1.88%
Real estate:
Commercial mortgage................ 20.2 32.7 59.8 69.9 92.2 .73 1.33 2.68 3.17 4.24
Construction....................... 2.1 1.9 1.0 7.3 5.3 .52 .58 .41 3.05 1.70
----------------------------------------------------------------------------------------
Total commercial................... 91.1 113.4 140.9 183.1 223.9 .73 1.04 1.32 1.96 2.43
CONSUMER:
Residential mortgage................... 7.8 10.6 13.8 14.9 15.4 .16 .20 .22 .27 .35
Credit card............................ 34.0 32.5 22.0 38.9 39.7 1.31 1.35 1.25 2.18 2.32
Other.................................. 41.1 40.5 28.4 33.5 19.0 .64 .68 .59 .83 .55
----------------------------------------------------------------------------------------
Total consumer..................... 82.9 83.6 64.2 87.3 74.1 .60 .61 .50 .77 .78
----------------------------------------------------------------------------------------
Total allocated........................ 174.0 197.0 205.1 270.4 298.0 .66 .80 .87 1.31 1.59
Unallocated portion.................... 299.5 277.7 261.0 213.4 155.2 1.13 1.13 1.11 1.03 .83
----------------------------------------------------------------------------------------
Total allowance.................... $473.5 $474.7 $466.1 $483.8 $453.2 1.79% 1.93% 1.98% 2.34% 2.42%
=================================================================================================================================
</TABLE>
First Bank System, Inc. and Subsidiaries 31
<PAGE>
TABLE 13. Net Charge-offs as a Percentage of Average Loans Outstanding
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL:
Commercial.......................... (.16)% .21% .34% .86% 1.17%
Financial institutions.............. (.06) .06 (.03) -- .28
Real Estate:
Commercial mortgage................ (.01) .71 2.17 1.96 3.03
Construction....................... -- (.26) (.42) 1.56 1.51
--------------------------------
Total commercial................... (.12) .29 .68 1.04 1.55
CONSUMER:
Residential mortgage................ .09 .06 .02 .10 .11
Credit card......................... 3.19 3.38 3.57 4.53 4.17
Other............................... .89 .66 .74 1.03 1.17
--------------------------------
Total consumer..................... .98 .82 .79 1.19 1.19
--------------------------------
Total.............................. .48% .59% .74% 1.12% 1.37%
- -----------------------------------------------------------------------
</TABLE>
ANALYSIS OF NET LOAN CHARGE-OFFS -- As shown in Table 11, net loan charge-offs
decreased $19.3 million to $121.0 million, compared with $140.3 million in 1994.
Commercial loan net recoveries for 1995 were $13.6 million, compared with net
charge-offs of $31.0 million in 1994, reflecting the recovery of prior years'
charge-offs and continued improvement in the credit quality of this portfolio.
Consumer loan net charge-offs in 1995 were $25.3 million higher than in 1994,
reflecting growth in the balance of nonmortgage consumer loans and sales volume
activity in credit card products over the past year. Net charge-offs were $162.3
million in 1993. Table 13 shows net charge-offs as a percentage of average loans
outstanding by type.
ANALYSIS OF NONPERFORMING ASSETS -- Nonperforming assets include all nonaccrual
loans, restructured loans, other real estate and other nonperforming assets
owned by the Company. At December 31, 1995, nonperforming assets totaled $153.7
million, a decrease of 34 percent from $232.3 million at year-end 1994 and down
55 percent from $341.4 million at year-end 1993. The ratio of nonperforming
assets to loans plus other real estate improved to .58 percent at December 31,
1995, compared with .94 percent at year-end 1994 and 1.45 percent at year-end
1993.
In 1995, the most significant reductions occurred in the following areas:
commercial, $11.4 million, or 31 percent; commercial mortgage, $28.7 million, or
40 percent; and other real estate, $30.8 million, or 48 percent.
Interest payments are currently received on approximately 30 percent of the
Company's nonperforming loans. The payments are typically applied against the
principal balance and not recorded as income.
Accruing loans 90 days or more past due totaled $38.8 million, compared with
$23.4 million at December 31, 1994, and $29.9 million at December 31, 1993.
These loans are not included in nonperforming assets and continue to accrue
interest because they are secured by collateral and/or are in the process of
collection and are reasonably expected to result in repayment or a restoration
to current status. Consumer loans 30 days or more past due were 2.0 percent of
the total consumer portfolio at December 31, 1995, compared with 1.8 percent at
year-end 1994. Consumer loans 90 days or more past due totaled .6 percent of the
consumer loan portfolio at December 31, 1995, and 1994.
32 First Bank System, Inc. and Subsidiaries
<PAGE>
TABLE 14. Nonperforming Assets*
<TABLE>
<CAPTION>
At December 31
------------------------------------------
(Dollars in Millions) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.......................... $118.1 $167.8 $224.5 $322.0 $361.6
Restructured loans........................ .1 .1 - 3.5 16.7
------------------------------------------
Nonperforming loans...................... 118.2 167.9 224.5 325.5 378.3
Other real estate......................... 33.2 64.0 115.9 181.3 261.2
Other nonperforming assets................ 2.3 .4 1.0 3.7 18.3
------------------------------------------
Nonperforming assets..................... $153.7 $232.3 $341.4 $510.5 $657.8
------------------------------------------
Accruing loans 90 days or more past due... $ 38.8 $ 23.4 $ 29.9 $ 29.4 $ 42.2
Nonperforming loans to total loans........ .45% .68% .96% 1.57% 2.02%
Nonperforming assets to total loans
plus other real estate................... .58 .94 1.45 2.45 3.46
Net interest lost on nonperforming loans.. $ 9.2 $ 11.0 $ 15.6 $ 18.1 $ 26.3
- --------------------------------------------------------------------------------------
</TABLE>
*Throughout this document, nonperforming assets and related ratios do not
include loans more than 90 days past due and still accruing interest.
TABLE 15. Nonperforming Assets by Type
<TABLE>
<CAPTION>
At December 31 1995 Compared with 1994
---------------------------------------------------
(Dollars in Millions) 1995 1994 Amount Percent
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL:
Commercial............................ $ 25.1 $ 36.5 $(11.4) (31.2)%
Financial institutions................ - - - -
Real estate:
Commercial mortgage............... 42.3 71.0 (28.7) (40.4)
Construction...................... 1.5 1.6 (.1) (6.3)
--------------------------------------------------
Total commercial.................. 68.9 109.1 (40.2) (36.8)
CONSUMER:
Residential mortgage.................. 37.3 43.5 (6.2) (14.3)
Credit card........................... 8.7 9.9 (1.2) (12.1)
Other................................. 3.3 5.4 (2.1) (38.9)
--------------------------------------------------
Total consumer.................... 49.3 58.8 (9.5) (16.2)
--------------------------------------------------
Total nonperforming loans......... 118.2 167.9 (49.7) (29.6)
OTHER REAL ESTATE...................... 33.2 64.0 (30.8) (48.1)
OTHER NONPERFORMING ASSETS............. 2.3 .4 1.9 475.0
--------------------------------------------------
Total nonperforming assets........ $153.7 $232.3 $(78.6) (33.8)%
- -------------------------------------------------------------------------------------------
</TABLE>
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
First Bank System, Inc. and Subsidiaries 33
<PAGE>
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.
Table 16 reflects the Company's interest rate repricing gap position at
several maturities at December 31, 1995. 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 only $363 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
TABLE 16. Interest Rate Sensitivity Gap Analysis
<TABLE>
<CAPTION>
Repricing Maturities
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Less Than 3-6 6-12 1-5 More Than Non-Rate
At December 31, 1995 (In Millions) 3 Months Months Months Years 5 Years Sensitive Total
- ----------------------------------------------------------------------------------------------------------------------------
Assets:
Loans...................................... $12,945 $ 1,697 $1,910 $6,787 $3,050 $ 11 $26,400
Available-for-sale securities.............. 979 268 383 1,022 556 48 3,256
Other earning assets....................... 351 - - - - - 351
Nonearning assets.......................... 513 13 27 334 1,243 1,737 3,867
-----------------------------------------------------------------------------
Total assets........................... $14,788 $ 1,978 $2,320 $8,143 $4,849 $ 1,796 $33,874
-----------------------------------------------------------------------------
Liabilities and Equity:
Deposits................................... $ 8,325 $ 1,284 $1,877 $7,190 $3,813 $ 25 $22,514
Other purchased funds...................... 4,364 - - 8 13 - 4,385
Long-term debt............................. 1,107 100 127 876 991 - 3,201
Other liabilities.......................... (41) - - - - 1,090 1,049
Equity..................................... - - - - - 2,725 2,725
-----------------------------------------------------------------------------
Total liabilities and equity........... $13,755 $ 1,384 $2,004 $8,074 $4,817 $ 3,840 $33,874
-----------------------------------------------------------------------------
Effect of off-balance sheet hedging
instruments:
Receiving fixed............................ $ 300 $ 200 $ 433 $1,606 $ 800 $ - $ 3,339
Paying floating........................... (3,139) - (100) (100) - - (3,339)
-----------------------------------------------------------------------------
Total effect of off-balance sheet
hedging instruments................... $(2,839) $ 200 $ 333 $1,506 $ 800 $ - $ -
-----------------------------------------------------------------------------
Repricing gap............................... $(1,806) $ 794 $ 649 $1,575 $ 832 $(2,044) $ -
Cumulative repricing gap.................... (1,806) (1,012) (363) 1,212 2,044 -
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
This table estimates the repricing maturities of the Company's assets,
liabilities, and hedging instruments based upon the Company's assessment of the
repricing characteristics of contractual and non-contractual instruments. Non-
contractual deposit liabilities are allocated among the various maturity
categories as follows: Approximately 40 percent of regular savings, 30 percent
of interest-bearing checking, 50 percent of money market checking, and 60
percent of money market savings balances are reflected in the Less Than 3 Months
category, with the remainder placed in the 1-5 Years category. Approximately 68
percent of demand deposits and related nonearning asset accounts is allocated in
the More Than 5 Years category, 14 percent is allocated in the 1-5 Years
category with the remaining allocated in the Less Than 3 Months category.
34 First Bank System, Inc. and Subsidiaries
<PAGE>
TABLE 17. Interest Rate Swap Hedging Portfolio Notional Balances and Yields by
Maturity Date
<TABLE>
<CAPTION>
At December 31, 1995 (Dollars in Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Receive Fixed Swaps* Notional Interest Rate Interest Rate
Maturity Date Amount Received Paid
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996........................................................................... $ 433 7.96% 5.88%
1997........................................................................... 275 6.42 5.86
1998........................................................................... 606 5.99 5.88
1999........................................................................... 575 6.88 5.86
2000........................................................................... 150 6.57 5.83
After 2000**................................................................... 800 7.00 5.86
------
Total $2,839 6.83% 5.86%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*At December 31, 1995, the Company did not have any swaps in its portfolio that
required it to pay fixed-rate interest.
**At December 31, 1995, all swaps with a maturity after 2000 hedged fixed rate
subordinated notes.
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.
Use of Derivatives to Manage Interest Rate Risk: 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.
Interest rate swap agreements involve the exchange of fixed and floating rate
risk payments without the exchange of the underlying notional amount on which
the interest payments are calculated. As of December 31, 1995, the Company
received payments on $2.8 billion notional amount of interest rate swap
agreements, based on fixed interest rates, and made payments based on variable
interest rates. These swaps have an average fixed rate of 6.83 percent and an
average variable rate, which is tied to various LIBOR rates, of 5.86 percent.
The maturity of these agreements ranges from one month to 12 years with an
average remaining maturity of 4.2 years. Swaps increased net interest income for
the years ended December 31, 1995, 1994 and 1993 by $20.5 million, $62.3 million
and $82.9 million, respectively.
The Company also purchases interest rate caps and floors to minimize the
impact of fluctuating interest rates on earnings. Purchased caps can mitigate
the effects of rising interest rates. Counterparties of these agreements pay the
Company when certain short-term rates rise above a specified point or strike
level. The payment is based on the difference in current rates and strike rates
and the contract's notional amount. The total notional amount of cap agreements
purchased as of December 31, 1995, was $200 million. The impact of caps on net
interest income was not material for the years ended December 31, 1995, 1994 and
1993. To hedge against falling interest rates, the Company uses interest rate
floors. Floor counterparties pay the Company when specified rates fall below the
strike level. Like caps, the payment is based on the difference in current rates
and strike rates and the notional amount. The total notional amount of floor
agreements purchased as of December 31, 1995, 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
years ended December 31, 1995, and 1994. Note M on page 60 has further
information on interest rate swaps, caps, and floors.
The Company uses forward contracts to lock in interest rates on fixed rate
mortgage loans originated and held for future sale by the Company's mortgage
subsidiary. At December 31, 1995, the Company had forward contracts totaling
$294 million.
First Bank System, Inc. and Subsidiaries 35
<PAGE>
LIQUIDITY MANAGEMENT -- The objective of liquidity management is to ensure the
continuous availability of funds to meet the demands of depositors, investors
and borrowers. ALCO is responsible for structuring the balance sheet to meet
these needs. It regularly reviews current and forecasted funding needs as well
as market conditions for issuing debt to wholesale investors. Based on this
information, ALCO supervises wholesale funding activity, as well as the
maintenance of contingent funding sources.
A majority of the Company's funding comes from retail deposits within its
operating region. The Company's purchased funds index remains relatively low at
15.5 percent at December 31, 1995, compared with a peer group average of 22.2
percent. The index is calculated as negotiated funding and repurchase
agreements, net of federal funds sold and resale agreements, divided by loans
and securities.
The Company's other liquidity source is negotiated funds, which include FHLB
borrowings, foreign branch time deposits, national federal funds purchased, bank
and thrift notes and medium-term notes. The Company's ability to raise
negotiated funding at competitive prices is influenced by rating agencies' views
of the Company's credit quality, liquidity, capital, and earnings. As of
December 31, 1995, Moody's Investors Services, Standard & Poors, and Thomson
BankWatch rated the Company's senior debt as "A2," "A," and "A+," respectively.
The strong debt ratings reflect the agencies' recognition of the consistent
financial performance of the Company and strength of the balance sheet.
At the parent company, funding primarily consists of long-term debt and
equity. During 1995, long-term debt, including medium-term notes, increased to
$1.3 billion from $1.1 billion at year-end 1994. The increase was primarily used
to fund advances to affiliates.
The parent company placed subordinated debt issuances of $400 million and
issued $254 million of medium-term notes during 1995. Total parent company debt
maturing in 1996 is $248 million. These debt obligations are expected to be met
through medium-term note or subordinated debt issuances, as well as from the
approximately $244 million of parent company cash and cash equivalents at
December 31, 1995. It is the Company's practice to maintain liquid assets at the
parent company sufficient to fund its operating cash needs, including debt
repayment and stock buybacks over the next twelve months.
In 1995, four of the Company's bank subsidiaries established a $4 billion bank
note program. The Company's thrift subsidiary also established a $1 billion
thrift note program. Notes issued under these programs may mature within 30 days
to 15 years and bear fixed or floating interest rates. Proceeds from note sales
are used for general corporate purposes. At December 31, 1995, there was $2.0
billion outstanding under these programs. The thrift subsidiary also had $1.3
billion in short-term and long-term advances from the FHLB at December 31, 1995.
CAPITAL MANAGEMENT -- The Company is committed to managing capital for maximum
shareholder benefit and maintaining strong protection for depositors and
creditors. At December 31, 1995, total tangible common equity was $2.2 billion,
or 6.5 percent of assets, compared with 6.2 percent at year-end 1994 and 6.7
percent at year-end 1993. The total risk-based capital ratio remained relatively
constant at 11.0 percent at year-end 1995, compared with 11.4 percent at year-
end 1994. This ratio was 13.4 percent at year-end 1993. The decrease in recent
years is a result of the redemption of preferred stock during 1994.
36 First Bank System, Inc. and Subsidiaries
<PAGE>
TABLE 18. Capital Ratios
<TABLE>
<CAPTION>
At December 31 (Dollars in Millions) 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Tangible common equity*..................... $2,184 $2,082 $2,236
As a percent of assets..................... 6.5% 6.2% 6.7%
Tier 1 capital**............................ $1,989 $2,052 $2,385
As a percent of risk-adjusted assets....... 6.5% 7.3% 9.4%
Total risk-based capital**.................. $3,367 $3,227 $3,399
As a percent of risk-adjusted assets....... 11.0% 11.4% 13.4%
Leverage ratio**............................ 6.1 6.2 7.3
- ---------------------------------------------------------------------
</TABLE>
*Defined as common equity less goodwill.
**In accordance with regulatory guidelines, unrealized securities gains and
losses are excluded from these calculations. In addition, equity capital
related to deferred tax assets is limited.
The purpose of the Company's capital management program is to maximize
shareholder value through the deployment of capital in strategic businesses,
payment of dividends, acquisitions, and the repurchase of excess capital (i.e.,
capital in excess of dividends and anticipated asset growth).
On February 21, 1996, the Board of Directors authorized the repurchase of up
to 25 million 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. Under the previous authorizations, the Company
repurchased 11.9 million shares in 1995.
During 1994, the Company repurchased approximately 6.3 million shares of its
common stock, of which 4.4 million shares related to acquisitions.
In 1994, the Company redeemed $159.3 million of its preferred stock,
consisting of $89 million of Preferred Stock Series 1989A and $70.3 million of
Preferred Stock Series 1989B. In 1993, the Company redeemed its $100 million
Series 1983A Adjustable Rate Cumulative Preferred Stock. In connection with the
MFC acquisition, the entire $12 million Series B Cumulative Perpetual Preferred
Stock of MFC was redeemed on January 24, 1995.
The measures used to assess capital include the capital ratios established by
the bank regulatory agencies, including the specific ratios for the "well
capitalized" designation. The Company manages various capital ratios to maintain
appropriate capital levels in accordance with Board-approved capital guidelines.
While the Company intends to maintain sufficient capital in each of its
bank/thrift subsidiaries to be "well capitalized" as defined by the regulatory
agencies, management ascribes the most significance to the tangible common
equity ratio.
First Bank System, Inc. and Subsidiaries 37
<PAGE>
TABLE 19. Bank and Thrift Subsidiary Capital Ratios
<TABLE>
<CAPTION>
At December 31, 1995
----------------------------------------
Total
Tier 1 Risk-based Total
(Dollars in Millions) Capital Capital Leverage Assets
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REGULATORY CAPITAL REQUIREMENTS:
Minimum............................................... 4.0% 8.0% 3.0%
Well-capitalized...................................... 6.0 10.0 5.0
BANK AND THRIFT SUBSIDIARIES:
First Bank National Association (Minnesota)........... 7.1 10.9 7.2 $16,376
Colorado National Bank................................ 8.0 11.0 6.7 7,025
First Bank, fsb....................................... * 12.7 6.8 5,965
First Bank of South Dakota (National Association)..... 7.8 12.4 7.5 1,775
First Bank National Association (Illinois)............ 12.5 13.7 8.4 1,226
First Bank Montana, National Association.............. 7.0 11.4 7.3 1,179
First Bank (N.A.) (Wisconsin)......................... 7.7 12.3 8.3 1,100
First Bank National Association (Nebraska)............ 13.1 13.9 12.2 846
Colorado National Bank Aspen.......................... 31.8 33.1 15.3 51
First National Bank of East Grand Forks............... 19.1 22.0 12.0 43
- ---------------------------------------------------------------------------------------------------
</TABLE>
Note: These balances and ratios were prepared in accordance with regulatory
accounting principles as disclosed in the subsidiaries' regulatory reports.
*At December 31, 1995, First Bank, fsb, a thrift subsidiary of the Company, had
tangible capital of 6.8 percent, core capital of 9.1 percent and
risk-based capital of 12.7 percent as compared with Thrift regulatory minimums
of 1.5 percent, 3.0 percent and 8.0 percent, respectively.
DIVIDENDS -- During 1995, total dividends on common stock were $191.7 million
compared with $156.0 million in 1994 and $121.8 million in 1993. The Company has
raised its quarterly dividend rate in each of the past four years. On a per
share basis, dividends paid to common shareholders totaled $1.45 in 1995, $1.16
in 1994, and $1.00 in 1993. On February 21, 1996, the Board of Directors
increased the quarterly common dividend rate to $.4125 from $.3625.
The Company's primary funding source for common stock dividends is dividends
received from its bank and nonbank subsidiaries. Payment of dividends to the
Company by its depository subsidiaries is subject to ongoing review by banking
regulators and to various statutory limitations. For further information, see
Note Q on page 67.
Accounting Changes
SFAS 114, Accounting by Creditors for Impairment of a Loan -- The Company
adopted Statement of Financial Accounting Standards No. ("SFAS") 114 on January
1, 1995, which requires creditors to establish a valuation allowance when it is
probable that all the principal and interest due under the contractual terms of
a loan will not be collected. The adoption of SFAS 114 did not have a material
effect on the Company.
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of -- SFAS 121 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. While the Company will adopt SFAS 121 in the first quarter of 1996,
the financial statement impact of adoption has not yet been determined.
SFAS 122, Accounting for Mortgage Servicing Rights -- Effective October 1, 1995,
the Company adopted SFAS 122, which amends SFAS 65, "Accounting for Certain
Mortgage Banking Activities." The new statement requires mortgage banking
enterprises to recognize rights to service mortgage loans for others as separate
assets regardless of whether the related loans were originated or purchased. In
addition, a valuation reserve must be maintained for impairment of the mortgage
servicing rights based on the predominant risk characteristics of the servicing
portfolio. The adoption of SFAS 122 did not have a material effect on the
Company.
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
38 First Bank System, Inc. and Subsidiaries
<PAGE>
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 on net income and earnings per
share of its fair value based accounting for those arrangements. These
disclosure requirements are effective for 1996. The Company plans to continue to
account for such arrangements in accordance with APB Opinion No. 25.
For further information on accounting changes, refer to Note B on page 47.
Impact of Inflation
The assets and liabilities of a financial institution are primarily monetary in
nature. Therefore, future changes in prices do not affect the obligations to pay
or receive fixed and determinable amounts of money. During periods of inflation,
monetary assets lose value in terms of purchasing power while monetary
liabilities have corresponding purchasing power gains. Since banks generally
have an excess of monetary assets over monetary liabilities, inflation will, in
theory, cause a loss of purchasing power in the value of shareholders' equity.
However, the concept of purchasing power is not an adequate indicator of the
effect of inflation on banks because it does not take into account changes in
interest rates, which are a more important determinant of bank earnings.
Other sections of the Management's Discussion and Analysis provide the
information necessary for an understanding of the Company's ability to react to
changing interest rates.
Fourth Quarter Summary
In the fourth quarter of 1995, the Company reported net income of $150.7 million
($1.14 per share) compared with a net loss of $35.3 million ($.28 per share) in
the fourth quarter of 1994. Included in the fourth quarter of 1994 was $87.0
million ($.65 share) of after-tax merger-related items for the MFC transaction,
an after-tax loss of $69.0 million ($.52 share) on the sale of MFC's securities,
and a $1.9 million ($.01 per share) loss from Edina Realty, which was a
discontinued operation. Excluding these charges, fourth quarter 1994 net income
would have been $122.6 million ($.90 share). The strong results for the fourth
quarter of 1995 reflected growth in noninterest income, lower operating
expenses, and effective capital management.
Fourth quarter net interest income on a taxable-equivalent basis decreased
$6.5 million, or 2 percent, to $363.7 million, compared with the fourth quarter
of 1994. The decline was primarily attributable to lower total earning assets
(as loan growth was more than offset by sales and maturities of securities) and
an increase in funding costs, including the cost of funding the repurchase of
common stock. The net interest margin on a taxable-equivalent basis increased to
4.83 percent, compared with 4.79 percent a year ago, due to a shift in the mix
of earning assets from lower margin securities and residential mortgage loan
balances to higher yielding consumer and commercial loans. This change
effectively offset the impact of a shift in interest-bearing liabilities from
deposits to higher rate borrowings. Total average earning assets declined $.8
billion to $29.9 billion during the fourth quarter of 1995, compared with $30.7
billion in the same period of 1994.
First Bank System, Inc. and Subsidiaries 39
<PAGE>
TABLE 20. Fourth Quarter Summary
<TABLE>
<CAPTION>
Three Months Ended
December 31
-----------------
(Dollars in Millions, Except Per Share Data) 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CONDENSED INCOME STATEMENT:
Net interest income (taxable-equivalent basis).............................. $363.7 $ 370.2
Provision for credit losses (includes $16.5 merger-related charge in 1994).. 31.0 44.0
----------------
Net interest income after provision for credit losses.................... 332.7 326.2
Securities losses........................................................... - (112.2)
Other noninterest income.................................................... 197.3 173.6
Merger-related charges (includes $2.6 related to ORE and
$56.5 related to severance in 1994)........................................ - 123.9
Other noninterest expense................................................... 287.3 311.8
----------------
Income (loss) from continuing operations before income taxes............... 242.7 (48.1)
Taxable-equivalent adjustment............................................... 3.4 3.6
Income taxes (credit)....................................................... 88.6 (18.3)
----------------
Income (loss) from continuing operations................................... 150.7 (33.4)
Loss from discontinued operations........................................... - (1.9)
----------------
Net income (loss).......................................................... $150.7 $ (35.3)
----------------
Return on average assets.................................................... 1.80% (.41)%
Return on average common equity............................................. 22.4 (5.6)
Net interest margin (taxable-equivalent basis).............................. 4.83 4.79
Efficiency ratio............................................................ 51.2 80.1
Efficiency ratio, excluding merger-related charges.......................... 51.2 57.3
PER SHARE DATA:
Income (loss) from continuing operations.................................... $ 1.14 $ (.27)
Loss from discontinued operations........................................... - (.01)
Net income (loss)........................................................... 1.14 (.28)
Common dividends paid....................................................... .3625 .29
- -----------------------------------------------------------------------------------------------
</TABLE>
The provision for credit losses decreased to $31.0 million in the fourth
quarter of 1995, compared with $44.0 million in the fourth quarter of 1994.
Included in 1994's provision was $16.5 million recorded in connection with the
MFC acquisition.
Noninterest income increased $135.9 million from the same quarter a year ago,
to $197.3 million. The increase reflects $111.2 million in merger-related
securities losses recorded in the fourth quarter of 1994, and higher trust and
credit card fees in 1995. Credit card fees were up as a result of higher sales
volume for Purchasing Card, Corporate Card, the FBS WorldPerks credit card and
merchant processing. Trust fees increased due to the growth in corporate and
personal trust fees.
Fourth quarter noninterest expense in 1995 was $287.3 million, a decrease of
$148.4 million from the fourth quarter of 1994. Included in 1994's noninterest
expense were merger and integration charges of $64.8 million, severance charges
of $56.5 million, and an ORE charge of $2.6 million, all associated with the
merger with MFC. Excluding these merger-related items in 1994, noninterest
expense in 1995 decreased $24.5 million, or 8 percent. The efficiency ratio for
the fourth quarter of 1995 improved to 51.2 percent from 57.3 percent for the
same quarter last year, excluding merger-related items.
40 First Bank System, Inc. and Subsidiaries
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31 (In Millions, Except Shares) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks.......................... $ 1,837 $ 1,707
Federal funds sold............................... 35 135
Securities purchased under
agreements to resell............................ 230 336
Trading account securities....................... 86 77
Available-for-sale securities.................... 3,256 5,185
Loans............................................ 26,400 24,556
Less allowance for credit losses................ 474 475
------------------------
Net loans....................................... 25,926 24,081
Bank premises and equipment...................... 413 479
Interest receivable.............................. 197 198
Customers' liability on acceptances.............. 223 178
Other assets..................................... 1,671 1,752
------------------------
Total assets.................................. $33,874 $34,128
------------------------
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing............................. $ 6,357 $ 5,933
Interest-bearing................................ 16,157 18,323
------------------------
Total deposits................................ 22,514 24,256
Federal funds purchased.......................... 2,000 1,630
Securities sold under agreements
to repurchase................................... 269 938
Other short-term funds borrowed.................. 2,116 658
Long-term debt................................... 3,201 2,981
Acceptances outstanding.......................... 223 178
Other liabilities................................ 826 875
------------------------
Total liabilities............................. 31,149 31,516
Shareholders' equity:
Preferred stock................................. 103 118
Common stock, par value $1.25 a
share-authorized 200,000,000 shares;
issued: 1995 -- 135,632,324 shares; 1994 --
134,599,409 shares............................ 170 168
Capital surplus................................. 909 866
Retained earnings............................... 1,918 1,593
Unrealized gain (loss) on
securities, net of tax......................... 23 (106)
Less cost of common stock in
treasury: 1995 -- 8,297,756 shares;
1994 -- 767,000 shares......................... (398) (27)
------------------------
Total shareholders' equity.................... 2,725 2,612
------------------------
Total liabilities and shareholders' equity.... $ 33,874 $34,128
- ----------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
First Bank System, Inc. and Subsidiaries 41
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
(In Millions, Except Per-Share Data) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans................................. $2,273.4 $1,914.7 $1,730.7
Securities:
Taxable.............................. 226.0 327.9 352.1
Exempt from federal income taxes..... 11.2 12.0 14.6
Other interest income................. 34.6 33.5 37.1
---------------------------------------
Total interest income.............. 2,545.2 2,288.1 2,134.5
Interest Expense
Deposits.............................. 706.7 597.3 648.3
Federal funds purchased and repurchase
agreements........................... 118.1 103.1 31.8
Other short-term funds borrowed....... 90.2 20.4 20.1
Long-term debt........................ 190.0 147.9 96.1
---------------------------------------
Total interest expense............. 1,105.0 868.7 796.3
---------------------------------------
Net interest income................... 1,440.2 1,419.4 1,338.2
Provision for credit losses........... 115.0 123.6 133.1
---------------------------------------
Net interest income after
provision for credit losses.......... 1,325.2 1,295.8 1,205.1
Noninterest Income
Credit card fees...................... 232.7 179.0 137.1
Trust fees............................ 175.3 159.2 146.1
Service charges on deposit accounts... 123.7 127.3 126.0
Investment products fees and
commissions.......................... 27.6 29.6 24.3
Securities gains (losses)............. -- (115.0) .3
Gain on sale of branches.............. 31.0 -- --
Other................................. 192.8 178.8 185.1
---------------------------------------
Total noninterest income........... 783.1 558.9 618.9
Noninterest Expense
Salaries.............................. 441.0 450.7 439.8
Employee benefits..................... 96.4 105.7 99.1
Net occupancy......................... 98.6 103.8 109.7
Furniture and equipment............... 94.2 88.3 80.7
Amortization of goodwill and other
intangible assets.................... 57.1 50.4 41.3
Other personnel costs................. 40.9 35.7 31.0
Professional services................. 36.9 38.5 41.5
FDIC insurance........................ 35.8 58.4 57.5
Advertising........................... 32.0 35.5 25.6
Third party data processing........... 17.8 20.3 27.1
Merger and integration................ -- 66.2 72.2
Merger-related severance.............. -- 56.5 --
Other................................. 255.2 239.4 239.2
---------------------------------------
Total noninterest expense.......... 1,205.9 1,349.4 1,264.7
---------------------------------------
Income from continuing operations
before income taxes.................. 902.4 505.3 559.3
Applicable income taxes............... 334.3 191.8 198.6
---------------------------------------
Income from continuing operations..... 568.1 313.5 360.7
Income (loss) from discontinued
operations........................... -- (8.5) 2.5
---------------------------------------
Net income............................ $ 568.1 $ 305.0 $ 363.2
---------------------------------------
Net income applicable to common
equity............................... $ 560.6 $ 292.4 $ 334.0
---------------------------------------
Earnings Per Common Share
Average common and common
equivalent shares.................... 133,936,030 136,274,991 134,588,664
Income from continuing operations..... $ 4.19 $ 2.21 $ 2.46
Income (loss) from discontinued
operations........................... -- (.06) .02
---------------------------------------
Net income............................ $ 4.19 $ 2.15 $ 2.48
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
42 First Bank System, Inc. and Subsidiaries
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Common Gains/(Losses)
Shares Preferred Common Capital Retained on Securities, Treasury
(In Millions, Except Shares) Outstanding* Stock Stock Surplus Earnings Net of Taxes Stock** Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992............ 131,568,900 $ 390.7 $164.5 $771.0 $1,418.7 $ - $ - $2,744.9
Net income........................... 363.2 363.2
Dividends declared:
Preferred........................... (29.2) (29.2)
Common.............................. (121.8) (121.8)
Purchase and retirement of
treasury stock...................... (6,880,457) (.9) (16.1) (187.1) (204.1)
Issuance of common stock:
Acquisitions........................ 636,606 .8 16.2 17.0
Dividend reinvestment............... 227,287 .3 6.4 6.7
Stock option and stock purchase
plans.............................. 2,803,048 2.8 33.2 (3.6) 11.3 43.7
Stock warrants exercised............ 132,405 .2 .7 .9
Stock dividends..................... 1,920,691 2.4 46.9 (49.3) -
Redemption of preferred stock........ (112.6) (2.6) (115.2)
Change in unrealized gains/(losses).. 38.0 38.0
---------------------------------------------------------------------------------------------
Balance December 31, 1993............ 130,408,480 278.1 169.8 852.2 1,575.4 38.0 (169.4) 2,744.1
Net income........................... 305.0 305.0
Dividends declared:
Preferred........................... (12.6) (12.6)
Common.............................. (156.0) (156.0)
Purchase and retirement of
treasury stock...................... (7,131,513) (4.6) (48.0) (70.1) (120.8) (243.5)
Repurchase of stock warrants......... (2.3) (2.3)
Issuance of common stock:
Acquisition of Boulevard Bancorp,
Inc................................ 6,227,649 1.9 54.9 149.4 206.2
Other acquisitions.................. 1,385,806 (13.9) 48.1 34.2
Dividend reinvestment............... 185,890 .2 6.3 6.5
Stock option and stock purchase
plans.............................. 2,068,922 1.0 7.7 (17.6) 42.7 33.8
Stock warrants exercised............ 687,175 .2 1.1 (10.4) 17.0 7.9
Redemption of preferred stock........ (160.0) (7.0) (167.0)
Change in unrealized gains/(losses).. (144.4) (144.4)
---------------------------------------------------------------------------------------------
Balance December 31, 1994............ 133,832,409 118.1 168.3 865.8 1,592.8 (106.4) (26.7) 2,611.9
Net income........................... 568.1 568.1
Dividends declared:
Preferred........................... (7.5) (7.5)
Common.............................. (191.7) (191.7)
Purchase of treasury stock........... (11,944,405) (545.2) (545.2)
Issuance of common stock:
Acquisitions........................ 2,788,619 .3 4.3 (3.7) 104.7 105.6
Dividend reinvestment............... 224,255 .5 9.3 9.8
Stock option and stock purchase
plans.............................. 2,299,172 .9 38.7 (36.3) 54.6 57.9
Stock warrants exercised............ 42,039 (1.3) 1.6 .3
Redemption/conversion of preferred
stock............................... 92,479 (14.9) (2.2) 3.9 (13.2)
Change in unrealized gains/(losses).. 128.9 128.9
---------------------------------------------------------------------------------------------
Balance December 31, 1995............ 127,334,568 $ 103.2 $169.5 $909.3 $1,918.2 $ 22.5 $ (397.8) $2,724.9
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Defined as total common shares less common stock held in treasury.
**Ending treasury shares were 8,297,756 at December 31,1995, 767,000 at December
31, 1994, and 5,391,883 at December 31, 1993.
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income..................................................................................... $ 568.1 $ 305.0 $ 363.2
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses................................................................... 115.0 123.6 133.1
Losses on available-for-sale securities....................................................... -- 111.2 --
Depreciation and amortization of bank premises and equipment.................................. 76.5 74.5 67.7
Provision for deferred income taxes........................................................... 73.3 (1.1) 75.7
Amortization of goodwill and other intangible assets.......................................... 57.1 50.4 41.3
Amortization and write-downs of loan servicing related intangibles............................ 12.5 37.9 69.0
Provision for merger and integration.......................................................... -- 66.2 72.2
Provision for merger-related severance........................................................ -- 56.5 --
Changes in operating assets and liabilities, excluding the effects of purchase acquisitions:
Decrease (increase) in trading account securities............................................ 12.3 (22.6) 39.3
(Increase) decrease in loans held for sale................................................... (100.6) 580.8 (794.6)
Decrease in securities held for sale......................................................... -- -- 1,090.0
(Increase) decrease in accrued receivables................................................... (29.4) 42.0 (5.8)
Decrease in accrued liabilities.............................................................. (41.1) (11.7) (191.0)
Other -- net................................................................................. (33.2) (23.4) (52.0)
---------------------------------
Net cash provided by operating activities................................................... 710.5 1,389.3 908.1
---------------------------------
Investing Activities
Net cash provided (used) by:
Interest-bearing deposits with banks.......................................................... 29.3 63.3 397.6
Loans outstanding............................................................................. (1,487.9) (1,200.5) (2,287.2)
Securities purchased under agreements to resell............................................... 105.9 (30.5) (93.4)
Available-for-sale securities:
Sales......................................................................................... 2,058.9 1,607.1 --
Maturities.................................................................................... 527.5 1,083.7 --
Purchases..................................................................................... (309.6) (1,143.2) --
Investment securities:
Sales......................................................................................... -- -- 46.9
Maturities.................................................................................... -- 271.4 2,137.4
Purchases..................................................................................... -- (283.4) (1,243.7)
Proceeds from sales of other real estate....................................................... 56.8 109.3 134.8
Proceeds from sales of bank premises and equipment............................................. 54.1 8.2 31.5
Purchases of bank premises and equipment....................................................... (55.6) (73.3) (134.7)
Sales of loans................................................................................. 97.5 1.7 .8
Purchases of loans............................................................................. (4.6) (496.3) (205.1)
Cash and cash equivalents of acquired subsidiaries............................................. 55.4 74.5 8.9
Acquisitions, net of cash received............................................................. (117.5) (107.2) (18.6)
Sales of unconsolidated subsidiaries........................................................... 11.7 -- 12.8
Other -- net................................................................................... 6.6 10.2 20.9
---------------------------------
Net cash provided (used) by investing activities............................................ 1,028.5 (105.0) (1,191.1)
---------------------------------
Financing Activities
Net cash (used) provided by:
Deposits...................................................................................... (1,519.9) (4,135.6) (599.1)
Federal funds purchased and securities sold under agreements to repurchase.................... (298.9) 1,340.4 (198.9)
Short-term borrowings......................................................................... 1,447.6 226.2 57.0
Sales of deposits.............................................................................. (858.0) -- --
Purchases of deposits.......................................................................... -- 11.1 --
Long-term debt transactions:
Proceeds...................................................................................... 954.6 1,877.8 1,210.0
Principal payments............................................................................ (745.1) (1,027.7) (478.0)
Redemption of preferred stock.................................................................. (13.2) (167.0) (115.2)
Proceeds from dividend reinvestment, stock option, and stock purchase plans.................... 67.7 40.3 50.4
Purchase of treasury stock and stock warrants.................................................. (545.2) (245.8) (204.1)
Stock warrants exercised....................................................................... .3 7.9 .9
Cash dividends................................................................................. (199.2) (168.6) (151.0)
---------------------------------
Net cash used by financing activities....................................................... (1,709.3) (2,241.0) (428.0)
---------------------------------
Change in cash and cash equivalents......................................................... 29.7 (956.7) (711.0)
Cash and cash equivalents at beginning of year................................................. 1,841.9 2,798.6 3,509.6
---------------------------------
Cash and cash equivalents at end of year.................................................... $ 1,871.6 $ 1,841.9 $ 2,798.6
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
44 First Bank System, Inc. and Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. Significant Accounting Policies
First Bank System, Inc. (the "Company") is a regional multibank holding company
that provides banking and other financial services principally to domestic
markets. The Company has four primary businesses that operate principally in the
11 states of Minnesota, Colorado, Wisconsin, Illinois, Montana, North Dakota,
South Dakota, Iowa, Kansas, Nebraska, and Wyoming. Retail and Community Banking
includes consumer, small-business and middle-market banking services, and
residential mortgage lending. Commercial Banking provides lending, treasury
management, and other financial services to middle-market, large corporate, and
mortgage banking companies. Payment Systems includes consumer credit card,
corporate and purchasing card services, card-accessed secured and unsecured
lines of credit, and ATM and merchant processing. Trust and Investment Group
includes personal, institutional and corporate trust services, investment
management services, and a full-service brokerage company. Based on earnings,
Retail and Community Banking is the largest business, followed by Commercial
Banking, Payment Systems, and the Trust and Investment Group.
BASIS OF PRESENTATION -- The consolidated financial statements include the
accounts of the Company and its subsidiaries. The consolidation eliminates all
significant intercompany accounts and transactions. Certain items in prior
periods have been reclassified to conform to the current presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual experience could differ from those estimates.
Securities
TRADING ACCOUNT SECURITIES -- Debt and equity securities held for resale in
anticipation of short-term market movements are classified as trading account
securities and reported at fair value. Realized and unrealized gains or losses
are recorded in noninterest income.
AVAILABLE-FOR-SALE SECURITIES -- These securities are not trading account
securities but may be sold before maturity in response to changes in interest
rates, prepayment risk, and funding sources or terms, or to meet liquidity
needs. They are carried at fair value with unrealized net gains or losses
reported in shareholders' equity. When sold, the amortized cost of the specific
securities is used to compute the gain or loss.
Loans
Loans are reported net of unearned income. Interest income is accrued on the
unpaid principal balances. Loan and commitment fees are deferred and recognized
over the loan and/or commitment period as yield adjustments.
ALLOWANCE FOR CREDIT LOSSES -- Management determines the adequacy of the
allowance based on evaluations of the loan portfolio and related off-balance
sheet commitments, recent loss experience, and other pertinent factors,
including economic conditions. This evaluation is inherently subjective as it
requires estimates, including amounts of future cash collections expected on
nonaccrual loans that may be susceptible to significant change. The allowance is
increased through provisions charged to operating earnings and reduced by net
charge-offs.
Beginning in 1995, the Company adopted SFAS 114, "Accounting by Creditors for
Impairment of a Loan." Under SFAS 114, the allowance for credit losses related
to loans that are identified for evaluation in accordance with this Standard is
based on the loans' observable market price, the fair value of the collateral
for certain collateral dependent loans, or the discounted cash flows using the
loans' effective interest rate. Prior to 1995, the allowance for credit losses
related to these loans was based on undiscounted cash flows or the fair value of
the collateral for collateral dependent loans.
NONACCRUAL LOANS -- Generally loans (including loans identified as impaired
under SFAS 114) are placed on nonaccrual status when the collection of interest
or principal has become 90 days past due or is otherwise considered doubtful.
When a loan is placed on nonaccrual status, unpaid interest credited to income
in the current year is reversed and unpaid interest accrued in prior years is
charged against the allowance for loan losses. Future interest payments are
generally applied against principal.
First Bank System, Inc. and Subsidiaries 45
<PAGE>
LEASES -- Certain subsidiaries engage in both direct and leveraged lease
financing. The net investment in direct financing leases is the sum of all
minimum lease payments and estimated residual values, less unearned income and
investment tax credits. Unearned income is added to interest income over the
terms of the leases to produce a level yield.
The investment in leveraged leases is the sum of all lease payments (less
nonrecourse debt payments) plus estimated residual values, less unearned income.
Unearned income is added to loan interest income over the positive years of the
net investment.
LOANS AND MORTGAGES HELD FOR SALE -- These loans are carried at the lower of
cost or market value as determined on an aggregate basis by type of loan.
OTHER REAL ESTATE -- Other real estate ("ORE"), which is included in other
assets, is property acquired through foreclosure, in-substance foreclosure or
other proceedings. The Company classifies in-substance foreclosures for which it
has taken possession of the collateral as ORE. ORE is initially recorded at fair
value. Property is evaluated regularly, and the ORE is carried at the lower of
cost or fair value, less estimated selling costs. Any decreases in the carrying
amount are included in noninterest expense.
Derivative Financial Instruments
INTEREST RATE SWAPS -- The Company uses interest rate swaps to manage its
interest rate risk and as a financial intermediary. The Company does not enter
into these contracts for speculative purposes. Income or expense on swaps
designated as hedges of assets, liabilities or commitments is recorded as an
adjustment to interest income or expense. If the swap is terminated, the gain or
loss is deferred and amortized over the remaining life of the underlying asset
or liability. If the hedged instrument is disposed of, the swap agreement is
marked to market with any resulting gain or loss included with the gain or loss
from the disposition. The initial bid/offer spread on intermediated swaps is
deferred and recognized in trading account profits and commissions over the life
of the agreement. Intermediated swaps are marked to market and resulting gains
or losses are recorded in trading account profits and commissions.
INTEREST RATE CONTRACTS -- The Company uses interest rate forwards, options,
caps, and floors for managing its interest rate risk, as a financial
intermediary, and in its trading operations. Interest rate contracts used as
hedges are accounted for in the same manner as interest rate swaps. All other
interest rate contracts are marked to market and gains or losses are recorded in
trading account profits and commissions.
Other Significant Policies
BANK PREMISES AND EQUIPMENT -- Bank premises and equipment are stated at cost
less accumulated depreciation and amortized primarily on a straight-line method
basis.
Capital leases, less accumulated amortization, are included in bank premises
and equipment. The lease obligations are included in long-term debt. Capitalized
leases are amortized on a straight-line basis over the lease term and the
amortization is included in depreciation expense.
MORTGAGE BANKING -- Costs of mortgage servicing rights and excess mortgage
servicing fee receivables are capitalized and amortized on an accelerated basis
over the estimated servicing period. Each quarter the Company reviews the
carrying value of its mortgage servicing rights for impairment based on fair
value for purposes of determining fair value, the mortgage servicing rights are
stratified into pools based on loan type, note rate, and date of origination.
Based on this analysis, the Company records a valuation allowance to reduce the
carrying value to estimated realizable value.
INTANGIBLE ASSETS -- Goodwill, the price paid over the book value of acquired
businesses, is included in other assets and is amortized over periods ranging up
to 25 years. Other intangible assets are amortized over their estimated useful
lives, which range from seven to 10 years, using straight-line and accelerated
methods, as appropriate.
INCOME TAXES -- Deferred taxes are recorded to reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities and
the financial reporting amounts at each year-end.
STATEMENT OF CASH FLOWS -- For the purposes of reporting cash flows, cash
equivalents include cash and due from banks and federal funds sold.
STOCK-BASED COMPENSATION -- The Company grants stock options for a fixed number
of shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and accordingly recognizes no compensation expense for the stock option grants.
46 First Bank System, Inc. and Subsidiaries
<PAGE>
PER SHARE CALCULATIONS -- Primary earnings per share is computed by dividing net
income (less preferred stock dividends) by the average number of common shares
and dilutive common stock equivalents outstanding during the year. To compute
the dilutive effect of restricted common shares, the treasury stock method is
applied to the unvested portion of the shares granted and the related
unamortized expense. Fully diluted earnings per share computations assume the
conversion of the Series 1991A preferred stock during the period that the stock
was outstanding.
NOTE B. Accounting Changes
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -- In January 1995, the Company
adopted Statement of Financial Accounting Standards No. ("SFAS") 114,
"Accounting by Creditors for Impairment of a Loan." This Statement, which did
not have a material effect on the Company, requires creditors to establish an
allowance when it is probable that not all principal and interest due on a loan
will be collected. The impairment is calculated on the present value of expected
future cash flows based on effective interest rates, observable market price or
fair value of a collateral dependent loan. In addition, the Company has
reclassified in-substance foreclosures, where it has not taken possession of the
collateral, from other real estate to nonperforming loans for all periods.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS -- Effective October 1, 1995, the
Company adopted SFAS 122, "Accounting for Mortgage Servicing Rights," which
amends SFAS 65, "Accounting for Certain Mortgage Banking Activities." The new
statement requires mortgage banking enterprises to recognize rights to service
mortgage loans for others as separate assets regardless of whether the loans
were originated or purchased. In addition, a valuation reserve must be
maintained for impairment of the mortgage servicing rights based on the
predominant risk characteristics of the servicing portfolio. The adoption of
SFAS 122 did not have a material effect on the Company.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF -- SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," 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. While the Company will adopt SFAS 121 in the first quarter of 1996,
the financial statement impact of adoption has not yet been determined.
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 Opinion 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. The Company plans to continue 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"). The value of the transaction was approximately $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 exchanged
.8829 shares of its common stock for each common share of FirsTier and accounted
for the transaction as a purchase.
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
will be 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 to be substantially completed in the first
quarter of 1996.
First Bank System, Inc. and Subsidiaries 47
<PAGE>
METROPOLITAN FINANCIAL CORPORATION -- On January 24, 1995, the Company issued
21.7 million shares to complete its merger with Metropolitan Financial
Corporation ("MFC"). The regional financial services holding company,
headquartered in Minneapolis, Minnesota, had approximately $7.9 billion in
assets and $5.5 billion in deposits. MFC's 211 offices were principally located
in North Dakota, Minnesota, Nebraska, Iowa, Kansas, South Dakota, Wisconsin, and
Wyoming. The Company used the pooling of interests method to account for the
transaction. Accordingly, the Company's financial statements for all periods
have been restated to include MFC's accounts and operations.
BOULEVARD BANCORP, INC. -- On March 25, 1994, the Company completed the
acquisition of Boulevard Bancorp, Inc. ("Boulevard"), a $1.6 billion commercial
bank holding company headquartered in Chicago, Illinois, which was accounted for
as a purchase. Under the terms of the purchase agreement, 6.2 million shares of
the Company's common stock were issued and Boulevard's outstanding stock options
and warrants were converted into stock options and warrants for the Company's
common stock. The Company bought back existing shares of its common stock
approximately equal to the number of shares issued at the time of closing of the
Boulevard acquisition. The results of operations of Boulevard are included in
the Company's Consolidated Statement of Income since the date of acquisition.
OTHER ACQUISITIONS -- During 1995 and 1994, the Company acquired several smaller
financial institutions in its existing markets, all of which further strengthen
the Company's retail banking franchise. These acquisitions, accounted for as
purchases, were not material to the financial condition or operating results of
the Company.
These acquisitions include the November 1, 1995, acquisition of two commercial
bank holding companies--Midwestern Services, Inc. and Southwest Holdings,
Inc.--both of Omaha, Nebraska. Together, the two companies had total assets of
$424 million, total deposits of $380 million, and 12 branches in Omaha.
In addition, on March 16, 1995, the Company acquired First Western
Corporation, parent company of Western Bank, with $317 million in assets, $267
million in deposits, and nine branches in and around Sioux Falls, South Dakota.
On September 30, 1994, the Company completed the acquisition of Green Mountain
Bancorporation, the holding company for the $35 million Green Mountain Bank,
located in Lakewood, Colorado. On September 9, 1994, the Company completed its
acquisition of the $121 million United Bank of Bismarck, located in Bismarck,
North Dakota. On April 29, 1994, the Company completed the acquisition of First
Financial Investors, Inc., a $200 million savings bank holding company located
in Duluth, Minnesota. On March 25, 1994, the Company completed its acquisition
of Rocky Mountain Financial Corporation, a $537 million savings bank holding
company located in Cheyenne, Wyoming. On March 11, 1994, the Company completed
the acquisition of $11.3 million in deposits of two branches of Pioneer Federal
Savings and Loan Association, a failed savings bank in Kansas. On February 28,
1994, the Company completed the acquisition of American Bancshares of Mankato, a
$116 million bank holding company.
PLANNED DIVESTITURES -- On September 7, 1995, the Company announced that it
would seek a buyer for most of its mortgage banking company and that it will
deliver mortgage loan products through its bank branches and telemarketing. Loan
production was approximately $1.6 billion in 1995 and $2.7 billion in 1994.
On December 8, 1995, the Company sold Edina Realty, Inc., its real estate
brokerage subsidiary, to a local investor group. This subsidiary was accounted
for as discontinued operations. Edina's assets, liabilities and cash flows were
not material to the Company's financial statements and were not segregated.
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 entered into a definitive agreement with Wells Fargo & Company
("Wells Fargo"). Under the terms of a settlement agreement dated January 23,
1996, among the Company, First Interstate and Wells Fargo, the Company received
$125 million on January 24, 1996, and will receive an additional $75 million
upon consummation of the First Interstate/Wells Fargo transaction, which is
expected to occur in the second quarter of 1996. In addition, all litigation
among the parties related to the acquisition of First Interstate has been
settled.
48 First Bank System, Inc. and Subsidiaries
<PAGE>
NOTE D. Restrictions on Cash and Due from Banks
Bank subsidiaries are required to maintain minimum average reserve balances with
the Federal Reserve Bank. The amount of those reserve balances was approximately
$192 million at December 31, 1995.
NOTE E. Securities
The detail of the amortized cost, gross unrealized holding gains and losses, and
fair value of available-for-sale securities at December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Amortized Holding Holding Fair Amortized Holding Holding Fair
(In Millions) Cost Gains Losses Value Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury........ $ 921 $ 8 $ (4) $ 925 $1,177 $ 1 $ (65) $1,113
Mortgage-backed
securities.......... 1,703 13 (23) 1,693 3,400 2 (105) 3,297
Other U.S. agencies.. 157 1 (1) 157 333 1 (11) 323
State and political.. 174 5 -- 179 178 3 -- 181
Other................ 265 38 (1) 302 269 11 (9) 271
-------------------------------------------------------------------------------------------
Total........... $3,220 $65 $(29) $3,256 $5,357 $18 $(190) $5,185
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities carried at $1.2 billion at December 31, 1995, and $1.6 billion at
December 31, 1994, were pledged to secure public, private and trust deposits and
for other purposes required by law. Securities sold under agreements to
repurchase were collateralized by securities and securities purchased under
agreements to resell with an amortized cost of $.3 billion and $.9 billion at
December 31, 1995, and 1994, respectively.
Gross realized gains and losses are shown in the table below. Included in the
1994 gross realized losses is $111.2 million related to the sale of $1.6 billion
of securities as a result of MFC's actions to reduce interest rate risk
consistent with prior regulatory requests and to align more closely the interest
rate risk profile of MFC with that of the Company.
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains $ 1.7 $ 3.1 $ 3.3
Gross realized losses (1.7) (118.1) (3.0)
------------------------
Net realized gains (losses) $ -- $(115.0) $ .3
------------------------
Income taxes (credit) on realized gains or losses $ -- $ (43.7) $ .1
- ------------------------------------------------------------------------------
</TABLE>
For amortized cost, fair value and yield by maturity date of available-for-
sale securities outstanding as of December 31, 1995, see Table 10 on page 28
from which such information is incorporated by reference into these Notes to
Consolidated Financial Statements.
First Bank System, Inc. and Subsidiaries 49
<PAGE>
NOTE F. Loans and Allowance for Credit Losses
The composition of the loan portfolio at December 31 was as follows:
<TABLE>
<CAPTION>
(In Millions) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL:
Commercial................................................ $ 8,271 $ 7,285
Financial institutions.................................... 1,060 787
Real estate:
Commercial mortgage..................................... 2,784 2,454
Construction............................................ 403 330
----------------
Total commercial.................................... 12,518 10,856
----------------
CONSUMER:
Residential mortgage...................................... 4,655 5,098
Residential mortgage held for sale........................ 257 197
Home equity and second mortgage........................... 2,805 2,453
Credit card............................................... 2,586 2,409
Automobile................................................ 1,821 1,770
Revolving credit.......................................... 757 725
Installment............................................... 607 712
Student*.................................................. 394 336
----------------
Total consumer...................................... 13,882 13,700
----------------
Total loans......................................... $26,400 $24,556
- ------------------------------------------------------------------------------
</TABLE>
*All or part of the student loan portfolio may be sold when the repayment period
begins.
Certain directors and executive officers of the Company, including their
immediate families, companies in which they are principal owners, and trusts in
which they are involved, are loan customers of the Company and its subsidiaries.
These loans were made in the ordinary course of business at the subsidiaries'
normal credit terms, including interest rate and collateralization, and were all
current as to their terms at December 31, 1995, and 1994. The aggregate dollar
amounts of these loans were $8.4 million and $9.0 million at December 31, 1995,
and 1994, respectively. During 1995, additions totaled $3.9 million and
repayments totaled $4.5 million.
Nonaccrual and renegotiated loans totaled $118 million, $168 million, and
$225 million at December 31, 1995, 1994, and 1993, respectively. At December 31,
1995, the Company had $69 million in loans considered impaired under SFAS 114,
included in its nonaccrual loans. Of this amount, $61 million was valued using
the fair value of the loans' collateral, and $8 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 year ended December 31, 1995, the average recorded
investment in impaired loans was approximately $77 million. The effect of
nonaccrual and renegotiated loans on interest income was as follows:
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income that would have been accrued at
original contractual rates......................... $11.5 $13.7 $19.3
Amount recognized as interest income................. 2.3 2.7 3.7
-----------------------
Foregone revenue..................................... $ 9.2 $11.0 $15.6
- ------------------------------------------------------------------------------
</TABLE>
Commitments to lend additional funds to customers whose loans were classified
as nonaccrual or renegotiated at December 31, 1995, totaled $20.5 million.
During 1995, there were no loans that were restructured at market interest rates
and returned to a fully performing status.
50 First Bank System, Inc. and Subsidiaries
<PAGE>
Activity in the allowance for credit losses was as follows:
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year............................ $474.7 $466.1 $483.8
Add:
Provision charged to operating expense................. 115.0 123.6 133.1
Deduct:
Loans charged off...................................... 209.1 226.8 239.2
Less recoveries of loans charged off................... 88.1 86.5 76.9
----------------------
Net loans charged off.................................. 121.0 140.3 162.3
Additions from acquisitions............................. 4.8 25.3 11.5
----------------------
Balance at end of year................................... $473.5 $474.7 $466.1
- --------------------------------------------------------------------------------
</TABLE>
NOTE G. Bank Premises and Equipment
Bank premises and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
(In Millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land ............................................................ $ 70 $ 85
Buildings and improvements....................................... 386 417
Furniture, fixtures and equipment ............................... 373 391
Capitalized building leases ..................................... 35 35
Capitalized equipment leases .................................... 37 35
- --------------------------------------------------------------------
901 963
Less accumulated depreciation and amortization 488 484
------------
Total .......................................................... $413 $479
- --------------------------------------------------------------------------------
</TABLE>
First Bank System, Inc. and Subsidiaries 51
<PAGE>
NOTE H. Long-Term Debt
Long-term debt (debt with original maturities of more than one year) at December
31 consisted of the following:
<TABLE>
<CAPTION>
(In Millions) 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
FIRST BANK SYSTEM, INC. (Parent Company):
Floating-rate subordinated capital notes -- due November 29, 1996.. $ - $ 150
Fixed-rate subordinated notes:
8.25% due October 1, 1999......................................... - 86
6.625% due May 15, 2003........................................... 100 100
8.00% due July 2, 2004............................................ 125 125
7.625% due May 1, 2005............................................ 150 -
6.875% due September 15, 2007..................................... 250 -
Floating-rate subordinated notes -- due November 30, 2010.......... 107 107
Medium-term notes.................................................. 580 514
Capitalized lease obligations and other............................ 14 15
----------------
1,326 1,097
SUBSIDIARIES:
Fixed-rate subordinated notes:
6.00% due October 15, 2003........................................ 100 100
7.55% due June 15, 2004........................................... 100 100
8.35% due November 1, 2004........................................ 100 100
Step-up subordinated notes -- due August 15, 2005.................. 100 100
Federal Home Loan Bank advances.................................... 1,099 1,385
Bank notes......................................................... 300 -
Capitalized lease obligations...................................... 35 39
Mortgage indebtedness and notes.................................... 41 60
----------------
Total............................................................. $3,201 $2,981
- ------------------------------------------------------------------------------------
</TABLE>
The floating-rate subordinated notes due November 30, 2010, may be redeemed at
par at the Company's option. The annual interest rate for each quarterly period
is one-eighth of 1 percent above the London Interbank Offered Rate ("LIBOR") for
three-month Eurodollar deposits, subject to a minimum of 5.25 percent. At
December 31, 1995, the interest rate was 6.0625 percent.
The step-up subordinated notes due August 15, 2005, are issued by the
Company's subsidiary bank, First Bank National Association. The interest rate on
these notes is 6.25 percent through August 14, 2000, and 7.30 percent
thereafter. The notes have a one-time call feature at the option of the Bank on
August 15, 2000.
Notes issued under the Company's medium-term note program may mature in 9
months to 15 years and bear fixed or floating interest rates. The notes
outstanding at December 31, 1995, mature from March 1996 to May 1999 and have
rates of 5.87 percent to 9.89 percent. The weighted average interest rate at
December 31, 1995, was 6.12 percent.
The Federal Home Loan Bank advances outstanding at December 31, 1995, mature
from January 1996, through May 2008. All long-term advances have fixed rate
interest, ranging from 4.24 percent to 7.90 percent. The weighted average
interest rate at December 31, 1995, was 5.74 percent.
The $300 million in bank notes outstanding at December 31, 1995, were issued
under the $5 billion bank/thrift note programs. The maturities of these notes
ranged from 23 to 25 months and the interest rate at December 31, 1995, was
5.96%.
Maturities of long-term debt outstanding at December 31, 1995 were:
<TABLE>
<CAPTION>
Parent
(In Millions) Consolidated Company
- ---------------------------------------------------------
<S> <C> <C>
1996................................. $ 597 $ 248
1997................................. 870 185
1998................................. 343 98
1999................................. 152 49
2000................................. 38 1
Thereafter........................... 1,201 745
------------------
Total........................... $3,201 $1,326
- ---------------------------------------------------------
</TABLE>
52 First Bank System, Inc. and Subsidiaries
<PAGE>
NOTE I. Shareholders' Equity
COMMON STOCK -- At December 31, 1995, the Company had 6,217,080 shares of common
stock reserved for future issuances under the Dividend Reinvestment Plan,
Employee Stock Purchase Plan, and the Stock Option Plans (see Note K). In
addition, 3,952,000 common shares are reserved for issuance upon conversion of
the Series 1991A Convertible Preferred Stock.
On February 21, 1996, the Board of Directors authorized the repurchase of up
to 25 million 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. Under the previous authorizations, the Company
repurchased 11.9 million shares in 1995.
Approximately 8.2 million common shares sold through a private placement in
July 1990 remain outstanding. The shares carry periodic stock purchase rights
("PSPRs") and risk event warrants. The PSPRs become exercisable if the Company's
annual dividend falls below $.82 per share before the year 2000. Upon exercise,
PSPR holders will receive cash or the Company's common or preferred shares equal
to the dividend shortfall.
The risk event warrants become exercisable when a change in control occurs and
the value received by common shareholders is less than $13.875 per share. If
exercised, the Company has the option to pay warrant holders the shortfall in
cash, common or preferred stock.
The Company's Dividend Reinvestment Plan provides for automatic reinvestment
of dividends and quarterly cash purchases of up to $5,000 worth of additional
shares at market price.
PREFERRED STOCK -- The Company has six classes of cumulative preferred stock,
with 10 million shares authorized. Since 1992, the Company has redeemed three of
the four classes of $1.00 par value cumulative preferred stock and redeemed both
classes of $.01 par value cumulative preferred stock.
Series 1991A Convertible Preferred Stock, issued in November 1991, has
2,064,900 shares outstanding at $1.00 par value, redeemable at the option of the
Company on or after January 1, 1996, initially at $52.1375 per share, and
thereafter at prices declining to its stated value of $50 per share on or after
July 1, 2002. Dividends are paid at a rate of 7.125 percent per annum. Series
1991A is convertible at the option of the holder at any time into common stock
of the Company at the rate of 1.7256 shares of common stock for each share of
preferred stock, which is equivalent to a conversion price of $28.975 per share
of common stock. During 1995, approximately 53,600 shares were converted into
common stock.
In January 1995, the Company redeemed for $27.00 per share in cash, plus
accumulated and unpaid dividends, 488,750 shares of Series B, $2.875 Cumulative
Perpetual Preferred Stock. Dividends on the Series B shares, which had a $.01
par value, prior to redemption were $2.875 per share. In April 1994, the Company
redeemed 3,560,000 and 1,405,000 shares of $1.00 par value Series 1989A and
Series 1989B, respectively, at a cost of $166.0 million. Prior to the
redemptions, the annual dividend was 10.5 percent on the Series 1989A and the
average annual dividend rate on the Series 1989B shares was 7.41 percent in
1993.
Shares of the Company's preferred stock issuances rank prior to common stock
as to dividends and liquidation and have no voting rights except (i) in the
event of certain dividend arrearages (in which event, holders of shares of the
preferred stock are entitled to elect two additional directors to the Company's
Board of Directors to serve until such dividend arrearages have been
eliminated); and (ii) on matters that would have an adverse effect upon a series
of the preferred stock, including the issuance of any other preferred stock
ranking prior to the preferred stock.
PREFERRED STOCK PURCHASE RIGHTS -- Each share of the Company's outstanding
common stock has an associated preferred stock purchase right ("Right"). The
Rights are designed to help management obtain fair and equal treatment for all
shareholders in the event of a potential takeover.
Each Right initially entitles the registered holder to purchase from the
Company one one-hundredth of a share of the Company Series A Junior
Participating Preferred Stock, par value $1, at a price of $80, subject to
adjustment.
If any person or group acquires 20 percent or more of the Company's common
stock outstanding, each Right (except any held by the acquiring party) will
thereafter entitle the holder to receive the
First Bank System, Inc. and Subsidiaries 53
<PAGE>
Company's common shares having a market value of twice the purchase price.
In the event that the Company is acquired or 50 percent or more of its
consolidated assets or earnings power is sold, each Right will thereafter
entitle the holder to receive, upon exercise, shares of common stock of the
acquiring company having a market value of two times the purchase price.
The Rights are not exercisable until 10 days after a public announcement of the
purchase or tender offer of 20 percent or more of the Company's common stock
outstanding. The Rights are transferable only with the underlying common stock.
The Rights expire July 1996, unless the Company redeems them at a price of
$.01 per Right prior to the acquisition of at least one-fifth of the Company's
common stock. Until the Right is exercised, the Rightholder has no rights as a
Company stockholder, including the right to vote or to receive dividends.
NOTE J. Merger and Integration Charges
In December 1994, the Company recorded a $111.2 million loss on the sale of $1.6
billion of securities in January 1995 as a result of MFC's actions to reduce
interest rate risk consistent with prior regulatory requests and to align more
closely the interest rate risk profile of MFC with that of the Company.
The Company also recorded additional provision for credit losses of $16.5
million and $66.2 million in merger and integration charges relating to the
acquisition of MFC. Merger-related charges included $26.4 million in costs
incurred as of December 31, 1994, for systems conversions, including outside
consulting fees for assistance in the conversion of MFC data processing systems,
preparation and mailing of numerous customer communications related to the
acquisition and conversion of customer accounts, printing and distribution of
training materials and policy and procedure manuals of MFC employees, branch
signage, and similar expenses related to the conversion and integration of MFC
branches and operations to the Company's model. Additionally, $6.2 million
represented contract terminations, $19.6 million represented asset writedowns,
primarily related to premise and equipment writeoffs for redundant main office
space and branches, and $14.0 million represented other costs. Cash expenditures
related to these charges totaled approximately $58.2 million during 1995. The
remaining cash expenditures are expected to occur in early 1996 consistent with
the amounts accrued. In addition, $56.5 million of severance-related charges
were recorded related to MFC's pre-existing change in control plan. A provision
for other real estate related reserves of $2.6 million was also recorded to
provide for the Company's strategy of accelerated disposition of problem assets.
In 1993, the Company recorded merger and integration charges of $72.2 million
relating to the acquisition of Colorado National Bankshares, Inc. Charges of
$29.7 million were recorded for systems and operational conversions and required
customer communications. Premises and equipment write downs of $14.3 million
related to redundant main office and branch facilities. Other charges, totaling
$28.2 million, primarily involved severance.
54 First Bank System, Inc. and Subsidiaries
<PAGE>
NOTE K. Employee Benefits
PENSION PLAN -- Pension benefits are provided to substantially all employees
based on years of service and employees' compensation while employed with the
Company. Employees are fully vested after five years of service.
The Company's funding policy is to contribute actuarially determined amounts
to the plan sufficient to meet the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, plus additional amounts as the Company
determines to be appropriate. The actuarial cost method used to compute the
pension contribution is the projected unit credit method.
Prior to their acquisition dates, employees of acquired companies were covered
by separate, noncontributory pension plans that provided benefits based on years
of service and compensation. As of December 31, 1995, the Company has merged the
acquired company plans into its own plan with the exception of the MFC plan,
which will be merged in 1997. The funded status and income statement effects of
these plans have been aggregated with the Company's plan in the table below.
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $298.3 million in 1995, $271.1 million in 1994, and
$255.5 million in 1993........................................... $(308.6) $(281.2) $(264.6)
---------------------------
Projected benefit obligation for service rendered to date............. $(329.1) $(291.5) $(295.6)
Plan assets at fair value, primarily listed stocks and U.S. bonds..... 314.3 287.4 272.7
---------------------------
Excess (deficiency) of plan assets over projected benefit obligation.. (14.8) (4.1) (22.9)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions................... 25.7 20.7 37.5
Unrecognized net asset at end of year (amortized over 15 years)....... (21.8) (25.1) (32.6)
---------------------------
Accrued pension cost included in other liabilities.................... $ (10.9) $ (8.5) $ (18.0)
---------------------------
Net pension cost includes the following components:
Service cost-benefits earned during the period....................... $ 17.7 $ 20.4 $ 18.5
Interest cost on projected benefit obligation........................ 24.6 21.8 21.4
Actual return on plan assets......................................... (57.3) (10.9) (30.6)
Net amortization and deferral........................................ 26.1 (18.7) 2.6
---------------------------
Net periodic pension benefit cost..................................... $ 11.1 $ 12.6 $ 11.9
- ---------------------------------------------------------------------------------------------------
</TABLE>
The aggregate disclosures reflect the following weighted average assumptions
for the Company and acquired companies that sponsored plans.
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate........... 7.0% 8.0% 7.0%
Expected long-term rate of return........ 9.5 9.5 10.0
Rate of increase in future compensation.. 5.6 5.6 6.0
- -------------------------------------------------------------
</TABLE>
First Bank System, Inc. and Subsidiaries 55
<PAGE>
OTHER POSTRETIREMENT PLANS -- In addition to providing pension benefits, the
Company provides certain health care and death benefits to retired employees.
Nearly all employees may become eligible for health care benefits at or after
age 55 if they have completed at least five years of service and their age plus
years of service is equal to or exceeds 65 while working for the Company.
The Company subsidizes the cost of coverage for employees who retire before age
65 with at least 10 years of service. The amount of the subsidy is based on the
employee's age and service at the time of retirement and remains frozen until
the retiree reaches age 65. After age 65 the retiree assumes responsibility for
the full cost of the coverage. The plan also contains other cost-sharing
features such as deductibles and coinsurance. The Company continues to subsidize
the coverage for employees who retired before 1993 and certain employees who
retired before 1995.
The Company accrues the estimated cost of retiree benefit payments, other than
pensions, during the employees' active service and currently intends to fund the
postretirement benefit costs as they are incurred. The following table sets
forth the plan's funded status recognized in the Company's balance sheet and
statement of income at December 31:
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(47.9) $(41.7) $(49.0)
Fully eligible active plan participants (2.4) (3.6) (3.4)
Other active plan participants (12.2) (11.3) (14.9)
-------------------------
Total unfunded accumulated postretirement benefit obligation (62.5) (56.6) (67.3)
Unrecognized net (gain) loss from past experience different from that assumed
and from changes in assumptions (5.5) (10.1) 5.5
Unrecognized implementation obligation 4.2 4.4 4.7
-------------------------
Accrued postretirement benefit cost $(63.8) $(62.3) $(57.1)
-------------------------
Net periodic postretirement benefit cost includes the following components:
Service cost-benefits attributed to service during the period $ 1.1 $ 1.4 $ 1.5
Interest cost on accumulated postretirement benefit obligation 4.3 4.2 4.9
Net amortization and deferral (.1) .3 .3
-------------------------
Total postretirement benefit cost $ 5.3 $ 5.9 $ 6.7
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In 1995 the assumed annual rates of increase in the cost of health care
benefits for participants under 65 and 65 and older were 10.0 percent and 6.5
percent, respectively. For 1996 the annual rate of increase assumptions are 9.1
percent and 6.0 percent, respectively. Both rates were assumed to decrease
gradually to 5.5 percent by 2000 and remain at that level thereafter. Trends in
health care costs have a significant effect on the amounts reported. For
example, increasing the health care cost trend rate assumptions by 1 percent in
each year increases the accumulated postretirement benefit obligation as of
December 31, 1995, by $6.6 million. In addition, the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for
the year then ended would increase by $.6 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0 percent as of December 31, 1995, and
8.0 percent as of December 31, 1994.
STOCK PURCHASE PLAN -- The 1984 Employee Stock Purchase Plan, as amended in 1989
and 1991, permits all eligible employees with at least one year of service and
directors to purchase common stock. Plan participants can purchase stock for 85
percent to 100 percent of the fair market value, which is based on the price at
the beginning or the end of the purchase period, whichever is lower. Any
discount is determined by a committee of the Board of Directors. In 1995, the
purchase price was 85 percent of fair market value. The plan results in no
compensation expense to the Company.
56 First Bank System, Inc. and Subsidiaries
<PAGE>
STOCK INCENTIVE PLANS -- The Company maintains a 1991 Stock Incentive Plan with
authorization for issuance of up to five million common shares through April
2001 and a 1994 Stock Incentive Plan with authorization for issuance of up to
five million common shares through January 2004. The terms of both plans are
substantially the same. Both allow for the granting of nonqualified stock
options, incentive stock options, stock appreciation rights ("SARs"), restricted
stock or stock units ("RSUs"), performance awards, and other stock-based awards
at or above 100 percent of the market price at the date of grant. The 1991 Stock
Incentive Plan also provides automatic grants of stock options to nonemployee
directors. The rights of restricted stock and RSU holders to transfer shares are
generally limited during the restriction period. At December 31, 1995, there
were 2,142,927 shares (subject to adjustment for forfeitures), available for
grant under the Plans.
Restricted shares vest over three to seven years, with the vesting of certain
shares being subject to acceleration based on the performance of the Company in
comparison to the performance of a predetermined group of regional banks.
Compensation expense for restricted stock is based on the market price of the
Company stock at the time of the grant and amortized on a straight-line basis
over the vesting period. For the performance-based restricted shares,
compensation expense is amortized using the estimated vesting period.
Options granted are generally exercisable up to 10 years from the date of
grant. On the date exercised, the option proceeds equal to the par value
of the shares are credited to common stock and additional proceeds are credited
to capital surplus. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The stock incentive plans of the acquired companies were terminated at the
respective merger closing dates. Option holders under such plans receive the
Company's common stock, or options to buy the Company's stock based on the
conversion terms of the various merger agreements.
The historical option information presented below has been restated to reflect
the options originally granted under the acquired companies plans. The number
and exercise price (option price) of options and restricted shares granted under
these plans were as follows:
<TABLE>
<CAPTION>
Additional Shares Outstanding
Available Under Outstanding Exercise Restricted
Incentive Plan Options Price Per Share Shares
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1992* 2,811,057 5,031,065 $ 2.31 -30.125 171,383
---------
Granted:
Stock Options 1,517,953 22.24 -33.75 -
Restricted Stock - 105,300
Exercised (2,285,546) 2.31 -30.125 -
Cancelled/Vested (54,883) 8.41 -33.75 (15,387)
-------------------------------------------------------
DECEMBER 31, 1993* 2,729,069 4,208,589 $ 4.19 -33.75 261,296
---------
Granted:
Stock Options 6,576,268 22.05 -39.00 -
Restricted Stock - 192,732
Exercised (2,052,389) 4.23 -35.25 -
Cancelled/Vested (340,319) 8.41 -35.625 (26,084)
-------------------------------------------------------
DECEMBER 31, 1994* 3,775,822 8,392,149 $ 4.19-39.00 427,944
---------
Granted:
Stock Options 2,083,807 33.125-53.125 -
Restricted Stock - 149,806
Exercised (3,545,183) 5.75 -41.375 -
Cancelled/Vested (1,044,808) 4.19 -38.625 (22,882)
-------------------------------------------------------
DECEMBER 31, 1995* 2,142,927 5,885,965 $ 8.41 -53.125 554,868
- ------------------------------------------------------------------------------------------------
</TABLE>
* At December 31, 1995, 1994, 1993, and 1992 options for 2,872,512; 3,698,081;
2,430,045; and 3,723,110 shares, respectively, were exercisable.
First Bank System, Inc. and Subsidiaries 57
<PAGE>
NOTE L. Income Taxes
The components of income tax expense were:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL:
Current tax........................................ $234.7 $156.3 $ 95.1
Deferred tax provision............................. 68.3 8.3 68.6
----------------------------
Federal income tax................................ 303.0 164.6 163.7
----------------------------
STATE:
Current tax........................................ 26.3 36.6 27.8
Deferred tax provision (credit).................... 5.0 (9.4) 7.1
----------------------------
State income tax.................................. 31.3 27.2 34.9
----------------------------
Total income tax provision........................ $334.3 $191.8 $198.6
- --------------------------------------------------------------------------------
</TABLE>
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate was as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate (35%)........................ $315.8 $176.9 $195.8
State income tax, at statutory rates, net of
federal tax benefit.............................. 20.4 17.7 23.9
Tax effect of:
Tax-exempt interest:
Loans......................................... (5.1) (6.0) (7.9)
Securities.................................... (3.9) (4.1) (4.4)
Amortization of goodwill.......................... 12.4 10.3 8.5
Other items....................................... (5.3) (3.0) (17.3)
----------------------------
Applicable income taxes............................ $334.3 $191.8 $198.6
- --------------------------------------------------------------------------------
</TABLE>
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.
At December 31, 1995, for income tax purposes, the Company had federal net
operating loss carryforwards of $88.5 million available that expire in years
2005 through 2009. In addition, the Company had state net operating loss
carryforwards of $111.2 million available, primarily in one taxing jurisdiction.
These carryforwards expire in years 2006 through 2009.
58 First Bank System, Inc. and Subsidiaries
<PAGE>
Deferred income tax assets and liabilities reflect the tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for the same items for income tax
reporting purposes. Significant components of the Company's deferred tax assets
and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves......................................... $ 162.2 $166.5
Real estate and other asset basis differences.............. 48.1 33.2
Federal operating loss carryforward........................ 31.0 29.7
Postretirement liability................................... 25.4 23.1
Alternative minimum tax credit carryforward................ 10.5 11.7
Deferred gain on sale of buildings......................... 9.8 12.2
Deferred loan fees......................................... 9.1 10.9
Accrued severance, pension and retirement benefits......... 8.8 8.6
State operating loss carryforward.......................... 5.6 19.8
Accelerated depreciation................................... 5.0 4.4
Contingent liabilities and other miscellaneous accruals.... 69.8 137.7
----------------
Gross deferred tax assets................................. 385.3 457.8
DEFERRED TAX LIABILITIES:
Leasing activities......................................... (63.1) (46.2)
Deferred gains and other investment basis differences...... (22.3) (39.7)
Adjustment of available-for-sale securities to market value (13.8) 66.2
Other deferred liabilities and reserves.................... (64.3) (61.1)
----------------
Gross deferred tax liabilities............................ (163.5) (80.8)
Deferred tax assets valuation reserve...................... (5.5) (14.0)
----------------
NET DEFERRED TAX ASSETS.................................... $ 216.3 $363.0
- -------------------------------------------------------------------------------
</TABLE>
Realization of the deferred tax asset over time is dependent upon the Company
generating sufficient taxable earnings in future periods. In determining that
realization of the deferred tax asset was more likely than not, the Company gave
consideration to a number of factors, including its recent earnings history, its
expectations for earnings in the future and, where applicable, the expiration
dates associated with tax carryforwards.
The Company's valuation allowance decreased $8.5 million from December 31,
1994, to December 31, 1995, due to utilization of net operating losses.
First Bank System, Inc. and Subsidiaries 59
<PAGE>
NOTE M. Financial Instruments With Off-Balance Sheet Risk and Credit
Concentrations
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 at December 31, 1995, and 1994, were as follows:
<TABLE>
<CAPTION>
(In Millions) 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Commercial............................................. $7,240 $7,006
Corporate and purchasing cards......................... 8,895 3,210
Consumer credit card................................... 9,247 7,875
Other consumer......................................... 3,264 2,628
Letters of credit:
Standby................................................ 1,412 1,321
Commercial............................................. 161 175
Interest rate swap contracts:
Hedges................................................. 2,839 2,674
Intermediated.......................................... 169 127
Interest rate options contracts:
Hedge interest rate floors purchased................... 1,250 950
Hedge interest rate caps purchased..................... 200 250
Intermediated interest rate caps and floors purchased.. 126 127
Intermediated interest rate caps and floors written.... 126 127
Liquidity support guarantees............................ 142 142
Forward contracts....................................... 294 196
Commitments to sell loans............................... 223 935
Mortgages sold with recourse............................ 242 312
Foreign currency commitments:
Commitments to purchase................................ 792 941
Commitments to sell.................................... 785 941
- ------------------------------------------------------------------------
</TABLE>
COMMITMENTS TO EXTEND CREDIT -- Commitments to extend credit are legally binding
and generally have fixed expiration dates or other termination clauses. The
contractual amount represents the Company's exposure to credit loss, in the
event of default by the borrower. The Company manages this credit risk by using
the same credit policies it applies to loans. Collateral is obtained to secure
commitments based on management's credit assessment of the borrower. The
collateral may include marketable securities, receivables, inventory, equipment,
and real estate. Since the Company expects many of the commitments to expire
without being drawn, total commitment amounts do not necessarily represent the
Company's future liquidity requirements. In addition, the commitments include
consumer credit lines that are cancelable upon notification to the consumer.
LETTERS OF CREDIT -- Standby letters of credit are conditional commitments the
Company issues to guarantee the performance of a customer to a third party. The
guarantees frequently support public and private borrowing arrangements,
including commercial paper issuances, bond financings, and other similar
transactions. The Company issues commercial letters of credit on behalf of
customers to ensure payment or collection in connection with trade transactions.
In the event of a customer's nonperformance, the Company's credit loss exposure
is the same as in any extension of credit, up to the letter's contractual
amount. Management assesses the borrower's credit to determine the necessary
collateral, which may include marketable securities, real estate, accounts
receivable, and inventory. Since the conditions requiring the Company to fund
letters of credit may not occur, the Company expects its liquidity requirements
to be less than the total outstanding commitments.
60 First Bank System, Inc. and Subsidiaries
<PAGE>
INTEREST RATE OPTIONS AND SWAPS -- Interest rate swaps are contracts to exchange
fixed and floating rate interest payment obligations based on a notional
principal amount. The Company enters into swaps to hedge its balance sheet
against fluctuations in interest rates and as an intermediary for customers. At
December 31, 1995, and 1994, interest rate swaps totaling $2.8 billion and $2.7
billion, respectively, hedged commercial loans, medium-term notes, subordinated
debt, deposit notes, wholesale certificates of deposit, deposit accounts, and
savings certificates.
The Company receives fixed rate interest and pays floating rate interest on all
hedges as of December 31, 1995. Activity with respect to interest rate swap
hedges was as follows:
<TABLE>
<CAPTION>
(In Millions) 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Notional amount outstanding at beginning of year.. $2,673.8 $3,010.8 $2,909.8
Additions......................................... 625.0 1,275.0 400.0
Maturities........................................ (460.0) (824.1) (275.8)
Terminations...................................... - (787.9) (23.2)
--------------------------------
Notional amount outstanding at end of year....... $2,838.8 $2,673.8 $3,010.8
- -----------------------------------------------------------------------------------
Weighted average interest rates paid.............. 5.86% 6.09% 3.54%
Weighted average interest rates received.......... 6.83 6.91 6.74
- -----------------------------------------------------------------------------------
</TABLE>
For the hedging portfolio's notional balances and yields by maturity date as
of year-end 1995, see Table 17 on page 35. For a description of the
Company's objectives for using derivative financial instruments, refer to
Interest Rate Risk Management on pages 33 through 36. Such information
is incorporated by reference into these Notes to Consolidated Financial
Statements.
Interest rate caps are also used to minimize the impact of fluctuating
interest rates on earnings. The total notional amount of cap agreements
purchased at December 31, 1995, was $200 million with an average strike level of
3-month LIBOR at 6.00 percent. The total notional amount of cap agreements
purchased at December 31, 1994, was $250 million with an average strike level of
3-month LIBOR at 6.10 percent. The premium on caps is amortized over the life of
the contract. The impact of the caps on net interest income was not material for
the years ended December 31, 1995, 1994 and 1993.
At December 31, 1995, and 1994, LIBOR based interest rate floors totaling $950
million with an average remaining maturity of 2.0 years and 3.0 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 December 31,
1995, and December 31, 1994. Constant Maturity Treasury (CMT) interest rate
floors totaling $300 million with an average remaining maturity of 9 months at
December 31, 1995, 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 December 31, 1995.
In addition to utilizing swaps and options as part of its asset/liability
management strategy, the Company acts as an intermediary for swap and option
agreements on behalf of its customers. To reduce its exposure to the resulting
interest rate and market risks, the Company enters into generally matching or
offsetting positions. The total notional amount of customer swap agreements,
including the offsetting positions, was $169 million and $127 million at
December 31, 1995, and 1994, respectively. The total notional amount of customer
option agreements, including the offsetting positions, was $252 million and $254
million at December 31, 1995, and 1994, respectively.
Interest rate swap and option contracts will result in gains and losses
subsequent to the date of the contract, due to interest rate movements. For
customer intermediated swaps and options, the Company records these gains and
losses as they occur in trading income. For swaps and options used as hedges,
the Company recognizes gains or losses by adjusting interest income or expense
over the terms of the hedge. The gain or loss on a terminated hedge is amortized
over the life of the original swap or the life of the hedged item, whichever is
shorter. The amortization of deferred gains and losses increased net interest
income by $6.3 million and $3.1 million during 1995, and 1994, respectively.
Unamortized deferred gains were $1.3 million at December 31, 1995. The Company
will amortize these net gains through the year 2000.
The credit risk related to interest rate swap and option agreements is that
counterparties may be unable to meet the contractual terms. The Company
First Bank System, Inc. and Subsidiaries 61
<PAGE>
estimates this risk by calculating the present value of the cost to replace all
outstanding contracts in a gain position at current market rates, reported on a
net basis by counterparty. At December 31, 1995, and 1994, the gain position of
these contracts, in the aggregate, was approximately $124 million and $12
million, respectively.
The Company manages the credit risk of its interest rate swap and option
contracts through credit approvals, limits, bilateral collateral agreements, and
monitoring procedures. Commercial lending officers perform credit analyses to
establish counterparty limits. Senior management approves counterparty limits
and periodically reviews the limits to monitor compliance. In addition, the
Company reduces the assumed counterparty credit risk through master netting
agreements that permit the Company to settle interest rate contracts with the
same counterparty on a net basis.
LIQUIDITY SUPPORT GUARANTEES -- Through liquidity support guarantees, the
Company agrees to provide market support for its customers' commercial paper or
tax-exempt bonds. These contracts are secured by notes receivable, bonds or
private insurance, guaranteeing payment of principal and interest on any
unreimbursed funds advanced. Since the conditions that require the Company to
fund the guarantees may not occur, total guarantee amounts do not necessarily
represent the Company's future funding obligation.
FORWARD CONTRACTS AND COMMITMENTS TO SELL MORTGAGE LOANS -- Forward contracts
are agreements for the delayed delivery of securities or cash settlement money
market instruments. The Company enters into these contracts to hedge the
interest rate risk of its mortgage loans held for sale. At December 31, 1995,
and 1994, forward contracts outstanding were approximately $300 million and $200
million, respectively. At December 31, 1995, net unamortized deferred gains on
the forward agreements were $.9 million. The Company manages its credit risk on
forward contracts, which arises from nonperformance by counterparties, through
credit approval and limit procedures.
The Company is committed under agreements to sell mortgage loans pursuant to
master delivery commitments. The remaining balance on those commitments was $223
million at December 31, 1995, and $935 million at December 31, 1994.
MORTGAGES SOLD WITH RECOURSE -- The Company is obligated under recourse
provisions related to the sale of certain residential mortgages. The contract
amount of these mortgages, excluding the Government National Mortgage
Association ("GNMA") agreements, was $172 million at December 31, 1995, and $196
million at December 31, 1994. Mortgages sold with recourse under sale/servicing
agreements with GNMA totaled $.7 billion at December 31, 1995, and $1.2 billion
at December 31, 1994. The Company has secondary recourse obligations under these
agreements, but the liability is not material.
FOREIGN CURRENCY COMMITMENTS -- The Company uses foreign currency commitments to
help customers reduce the risks associated with changes in foreign currency
exchange rates. Through these contracts, the Company exchanges currencies at
specified rates on specified dates with various counterparties. The Company
minimizes the market and liquidity risks by taking offsetting positions. In
addition, the Company controls the market risks by limiting the net exposure
through policies, procedures, and monitoring. The Company manages its credit
risk, or potential risk of loss from default by a counterparty, through credit
limit approval and monitoring procedures. The aggregate replacement cost of
contracts in a gain position at December 31, 1995, was not significant.
CREDIT CONCENTRATIONS -- The Company primarily lends to borrowers in the 11
states where it has banking offices. Approximately 80 percent of the Company's
commercial and financial institutions loans were made to borrowers in this
operating region representing a diverse range of industries. Collateral may
include marketable securities, accounts receivable, inventory, and equipment.
For detail of the Company's real estate portfolio by property type and
geography as of December 31, 1995, and 1994, see Table 8 on page 26. This
information is incorporated by reference into these Notes to Consolidated
Financial Statements. Such loans are collateralized by the related property.
62 First Bank System, Inc. and Subsidiaries
<PAGE>
Approximately 80 percent of the total consumer portfolio consists of loans to
customers in the Company's operating region. Residential mortgages, home equity,
and auto loans are secured, but other consumer loans are generally not secured.
For detail of the Company's consumer loan portfolio referenced here, see Table 7
on page 25 under the category "Consumer" as of December 31, 1995, and 1994,
which is incorporated by reference into these Notes to Consolidated Financial
Statements.
NOTE N. Fair Values of Financial Instruments
SFAS 107, "Disclosures about Fair Value of Financial Instruments," requires the
disclosure of the fair value, where practically estimable, of all financial
instruments, both on and off balance sheet. Financial instruments are generally
defined as cash, equity instruments or investments, and contractual obligations
to pay or receive cash or another financial instrument. The Statement indicates
that quoted market prices are the preferred means of estimating value. When
market quotes are unavailable, valuation techniques including discounted cash
flow calculations and pricing models or services should be used.
Due to the nature of its business and its customers' needs, the Company offers
a large number of financial instruments, most of which are not actively traded.
Accordingly, the Company uses several valuation techniques and aggregation
methods for valuing various products. The Company also uses various assumptions,
such as the discount rate and cash flow timing and amounts. As a result, the
fair value estimates can neither be substantiated by independent market
comparisons, nor realized by the immediate sale or settlement of the financial
instrument. Also, the estimates reflect a point in time and could change
significantly based on changes in economic factors, such as interest rates.
Furthermore, the required disclosures exclude the estimated values of certain
financial instruments and all nonfinancial instrument cash flows. Finally, the
fair value disclosure is not intended to estimate a market value of the Company
as a whole. A summary of the Company's valuation techniques and assumptions
follows.
CASH AND CASH EQUIVALENTS -- The carrying value of cash, federal funds sold, and
securities under resale agreements was assumed to approximate fair value.
SECURITIES -- Generally, trading securities and available-for-sale securities
were valued using available market quotes. In some instances, for securities
that are not widely traded, market quotes for comparable securities were used.
LOANS -- The loan portfolio consists of both variable and fixed rate loans, the
fair value of which was estimated using discounted cash flow analyses and other
valuation techniques. To calculate discounted cash flows, the loans were
aggregated into pools of similar types and expected repayment terms. The
expected cash flows were reduced for estimated historical prepayment experience.
Projected cash flows on nonaccrual loans were further reduced by the amount of
the estimated losses on the portfolio and discounted over an assumed average
remaining life of one to two years.
Commercial and Financial Institutions: The fixed rate loans in the commercial
and financial institutions portfolio (excluding nonaccrual loans) had a weighted
average rate of 8.0 percent in 1995 and 8.1 percent in 1994. The weighted
average maturity was 1.8 years in 1995 and 1.7 years in 1994. The floating rate
loans had a weighted average rate of 8.2 percent in 1995 and 8.4 percent in
1994. The high-grade corporate bond yield curve was used to arrive at the
discount rates applied to these loans.
Commercial Real Estate and Construction: The fixed rate portion of this
portfolio (excluding nonaccrual loans) had a weighted average interest rate of
8.9 percent in 1995 and 8.8 percent in 1994 and a weighted average remaining
maturity of 4.2 years in 1995 and 4.5 years in 1994. The floating rate loans
(excluding nonaccrual loans) had a weighted average interest rate of 8.6 percent
in 1995 and 8.7 percent in 1994. The weighted average remaining maturity was 3.6
years in 1995 and 3.7 years in 1994. The high-grade corporate bond yield curve
was used to arrive at the discount rates applied to these loans.
First Bank System, Inc. and Subsidiaries 63
<PAGE>
Residential First Mortgages: These loans were segregated into pools of similar
coupons and maturities. The pools were matched to similar mortgage-backed
securities, and market quotes were obtained. The estimated value also reflects
the related fair value of mortgage servicing rights, which was calculated using
a discounted cash flow analysis. The fixed rate portion of this portfolio had a
weighted average interest rate of 7.7 percent in 1995 and in 1994. The weighted
average contractual remaining maturity was 16.0 years in 1995 and 16.7 years in
1994.
Consumer Installment: The fair value of the consumer installment portfolio was
based on an approach the Company uses in evaluating potential acquisitions.
Prepayment assumptions ranging from 20 to 25 percent were applied to scheduled
cash flows, based upon the Company's experience. The floating rate portion of
the consumer installment portfolio had a weighted average rate of 9.6 percent in
1995 and 9.0 percent in 1994. On the fixed rate portion, the weighted average
rate was 8.9 percent in 1995 and 8.7 percent in 1994. The weighted average
remaining maturity was 1.8 years in 1995 and 1.4 years in 1994.
Revolving Home Equity Lines, Second Mortgages and Consumer Lines: The fair value
of revolving home equity lines, second mortgages, and consumer lines was based
on the approach the Company uses in evaluating potential acquisitions of similar
portfolios. In 1995, estimated net income adjusted for account attrition was
discounted using an estimated cost of capital of 12.4 percent for secured lines
and loans and 14.4 percent for unsecured. In 1994, the estimated cost of capital
was 12.1 percent for secured and 13.6 percent for unsecured. The home equity
lines had a weighted average interest rate of 10.0 percent in 1995 and 10.3
percent in 1994, with a weighted average life of 5.0 years in 1995 and 5.4 years
in 1994. Fixed rate second mortgages had a weighted average rate of 9.6 percent
in 1995 and 8.9 percent in 1994. The weighted average remaining maturity was 3.1
years in 1995 and 3.6 years in 1994. Retail credit cards had a weighted average
interest rate of 12.6 percent in 1995 and 12.4 percent in 1994, with an
estimated weighted average life of 6.0 years in 1995 and 7.1 years in 1994.
Other revolving lines had a weighted average interest rate of 12.6 percent in
1995 and 12.4 percent in 1994, with an estimated weighted average life of 7.8
years in 1995 and 1994.
CORE DEPOSIT INTANGIBLE -- Core deposits provide a stable, low-cost source of
funds that can be invested to earn a return that exceeds their cost. The fair
value of the Company's core deposit intangible was calculated using a discounted
cash flow model that estimates the present value of the difference between the
ongoing cost of the core deposits and alternative funds at current market rates.
This is the same method the Company uses in calculating the value of the core
deposit intangible of an acquired bank.
DEPOSIT LIABILITIES -- The fair value of demand deposits, savings accounts, and
certain money market deposits is equal to the amount payable on demand at year-
end. Fair values for fixed rate certificates of deposits were estimated using a
discounted cash flow analysis based on the discount rates of the high-grade
corporate bond yield curve. The weighted average interest rate for the
certificates of deposits was 5.7 percent in 1995 and 5.3 percent in 1994 and the
weighted average maturity was 1.2 years in 1995 and 1994.
SHORT-TERM BORROWINGS -- Federal funds purchased, borrowings under repurchase
agreements, and other short-term borrowings are at variable rates or have short-
term maturities. Their carrying value is assumed to approximate their fair
value.
LONG-TERM DEBT -- Medium-term notes, Federal Home Loan Bank Advances, capital
lease obligations, and mortgage note obligations totaled $2,067 million in 1995
and $1,985 million in 1994. Their estimated fair value was determined using a
discounted cash flow analysis based on current market rates of similar maturity
debt securities to discount cash flows. The weighted average interest rate was
6.0 percent in 1995 and 6.1 percent in 1994, with a weighted average maturity of
2.1 years in 1995 and 2.5 years in 1994. Other long-term debt instruments were
valued using available market quotes.
LOAN COMMITMENTS, LETTERS OF CREDIT AND GUARANTEES -- The Company's commitments
have variable rates and do not expose the Company to interest rate risk. No
premium or discount was ascribed to the loan commitments because virtually all
funding would be at current market rates.
INTEREST RATE SWAPS, OPTIONS, FLOORS, AND CAPS -- The interest rate options and
swap cash flows were estimated using a third party pricing model and discounted
based on appropriate LIBOR, Eurodollar future, and Treasury Note yield curves.
64 First Bank System, Inc. and Subsidiaries
<PAGE>
The estimated fair values of the Company's financial instruments are shown in
the table below.
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------
Carrying Fair Carrying Fair
(Dollars in Millions) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks............................. $ 1,837 $ 1,837 $ 1,707 $ 1,707
Federal funds sold and resale agreements............ 265 265 471 471
Trading account securities.......................... 86 86 77 77
Available-for-sale securities....................... 3,256 3,256 5,185 5,185
Loans:
Commercial:
Commercial...................................... 8,271 8,523 7,285 7,429
Financial institutions.......................... 1,060 1,015 787 719
Commercial real estate and construction......... 3,187 3,531 2,784 2,940
Consumer:
Residential mortgage............................ 4,655 4,742 5,098 4,840
Residential mortgage held for sale.............. 257 257 197 197
Home equity and second mortgage................. 2,805 2,909 2,453 2,520
Credit card and revolving lines................. 3,343 3,586 3,134 3,371
Other consumer installment...................... 2,822 2,828 2,818 2,862
Allowance for credit losses....................... (474) - (475) -
-------------------------------------------
Total loans..................................... 25,926 27,391 24,081 24,878
-------------------------------------------
Total financial assets.......................... 31,370 32,835 31,521 32,318
NONFINANCIAL ASSETS:
Core deposit intangible............................. 77 732 77 863
Mortgage servicing portfolio........................ 40 148 47 138
-------------------------------------------
Total........................................... 31,487 $33,715 31,645 $33,319
------- -------
Other assets.......................................... 2,387 2,483
------- -------
Total Assets.................................... $33,874 $34,128
------- -------
FINANCIAL LIABILITIES:
Deposits:
Noninterest-bearing deposits...................... $ 6,357 $ 6,357 $ 5,933 $ 5,933
Interest-bearing checking and other savings....... 8,399 8,399 8,908 8,908
Savings certificates and certificates > $100,000.. 7,758 7,799 9,415 9,221
-------------------------------------------
Total deposits.................................. 22,514 22,555 24,256 24,062
Federal funds purchased............................. 2,000 2,000 1,630 1,630
Securities sold under agreements to repurchase...... 269 274 938 940
Other short-term funds borrowed..................... 2,116 2,116 658 658
Long-term debt...................................... 3,201 3,267 2,981 2,891
-------------------------------------------
Total financial liabilities..................... 30,100 $30,212 30,463 $30,181
------- -------
NONFINANCIAL LIABILITIES.............................. 1,049 1,053
SHAREHOLDERS' EQUITY.................................. 2,725 2,612
------- -------
Total Liabilities and Shareholders' Equity...... $33,874 $34,128
------- -------
Off-Balance Sheet Financial Instruments:
Unrecognized gain on interest rate swaps and options. N/A $ 101 N/A $ 8
Unrecognized loss on interest rate swaps and options. N/A - N/A 121
Loan commitments..................................... N/A - N/A -
Letters of credit.................................... N/A - N/A -
- ---------------------------------------------------------------------------------------------------
</TABLE>
First Bank System, Inc. and Subsidiaries 65
<PAGE>
NOTE O. Commitments and Contingent Liabilities
Rental expense for operating leases amounted to $61.2 million in 1995, $77.5
million in 1994, and $82.2 million in 1993. Future minimum payments, net of
sublease rentals, under capitalized leases and noncancelable operating leases
with initial or remaining terms of one year or more, consisted of the following
at December 31, 1995:
<TABLE>
<CAPTION>
Capitalized Operating
(In Millions) Leases Leases
- ----------------------------------------------------------------------
<S> <C> <C>
1996........................................ $11.5 $ 57.1
1997........................................ 11.5 54.3
1998........................................ 4.5 51.2
1999........................................ 4.5 49.7
2000........................................ 4.5 50.9
Thereafter.................................. 58.4 448.6
----------------
Total minimum lease payments................ 94.9 $711.8
------
Less amount representing interest........... 46.5
-----
Present value of net minimum lease payments. $48.4
- ----------------------------------------------------------------------
</TABLE>
The Company currently has a 10-year lease for approximately 640,000 square
feet in First Bank Place, located in Minneapolis. The Company has eight five-
year options to renew the lease. Minimum rental payments are approximately $12.5
million annually.
In St. Paul, the Company occupies a 368,000 square feet facility under a lease
that extends until November 2012, with two five-year renewal options. Minimum
rental payments are approximately $4.2 million annually.
A wholly-owned subsidiary of First Bank National Association (the "Bank") is a
partner in a joint venture that owns and operates a twin-tower office complex
known as Pillsbury Center. The Bank and the Parent Company have long-term
agreements to occupy space in one of the towers. Approximately two-thirds of the
space has been sublet for the remaining life of the long-term lease obligation
and the remaining space has been sublet through the year 2001. The unamortized
portion of the capitalized lease was $22.7 million at December 31, 1995, and
$23.0 million at December 31, 1994. Minimum annual payments required under the
leases are approximately $2.7 million.
Various 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.
Various legal proceedings are currently pending against the Company. Due to
their complex nature, it may be years before some matters are resolved. In the
opinion of management, the aggregate liability, if any, will not have a material
adverse affect on the Company's financial position, liquidity or results of
operations.
66 First Bank System, Inc. and Subsidiaries
<PAGE>
NOTE P. Supplemental Disclosures to the Consolidated Financial Statements
CONSOLIDATED BALANCE SHEET -- Time certificates of deposit in denominations of
$100,000 or more totaled $900 million and $1,318 million at December 31, 1995,
and 1994, respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS -- Listed below are supplemental
disclosures to the Consolidated Statement of Cash Flows.
<TABLE>
<CAPTION>
Year Ended December 31 (In Millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes paid................................................... $ 253.8 $ 155.6 $ 122.4
Interest paid....................................................... 1,072.8 833.1 845.6
Net noncash transfers to foreclosed property........................ 19.5 41.4 42.8
Noncash merger-related transfers to securities held for sale........ - - 181.6
Change in unrealized gain (loss) on available-for-sale securities,
net of taxes of $79.2 in 1995, $89.6 in 1994 and $23.7 in 1993..... 128.9 (144.4) 38.0
------------------------------
Cash acquisitions of businesses:
Fair value of noncash assets acquired.............................. $ 120.2 $ 805.9 $ 276.6
Liabilities assumed................................................ (2.7) (698.7) (258.0)
------------------------------
Net............................................................ $ 117.5 $ 107.2 $ 18.6
------------------------------
Stock acquisitions of businesses:
Fair value of noncash assets acquired.............................. $ 746.9 $ 1,805.8 $ 571.5
Net cash acquired.................................................. 55.4 74.5 8.9
Liabilities assumed................................................ (696.7) (1,648.0) (563.4)
------------------------------
Net value of common stock issued............................... $ 105.6 $ 232.3 $ 17.0
---------------------------------------------------------------------------------------------------
</TABLE>
NOTE Q. First Bank System, Inc. (Parent Company)
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
December 31 (In Millions) 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Deposits with banks, principally interest-bearing (including $244 and $397 with subsidiaries).. $ 244 $ 398
Available-for-sale securities.................................................................. 209 136
Investments in:
Bank and thrift affiliates.................................................................... 2,940 2,812
Nonbank affiliates............................................................................ 115 102
Advances to:
Bank and thrift affiliates.................................................................... 372 155
Nonbank affiliates............................................................................ 61 100
Other assets................................................................................... 382 338
--------------
Total assets................................................................................. $4,323 $4,041
--------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term funds borrowed...................................................................... $ 21 $ 6
Advances from subsidiaries..................................................................... 40 70
Long-term debt................................................................................. 1,326 1,097
Other liabilities.............................................................................. 211 256
Shareholders' equity........................................................................... 2,725 2,612
--------------
Total liabilities and shareholders' equity................................................... $4,323 $4,041
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
First Bank System, Inc. and Subsidiaries 67
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
Year Ended December 31 (In Millions) 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries (including $613.7, $447.9
and $379.1 from bank and thrift subsidiaries)................ $633.2 $ 480.9 $385.1
Interest from subsidiaries.................................... 40.3 19.0 20.4
Service and management fees from subsidiaries................. 88.2 103.4 90.2
Other income.................................................. 25.4 23.7 20.3
-------------------------
Total income................................................ 787.1 627.0 516.0
EXPENSES
Interest on short-term funds borrowed......................... 3.0 2.8 2.4
Interest on long-term debt.................................... 80.5 55.0 51.8
Operating expenses paid to subsidiaries....................... 8.4 8.3 7.0
Other expenses................................................ 103.3 193.3 117.8
-------------------------
Total expenses.............................................. 195.2 259.4 179.0
-------------------------
Income before income taxes and equity
in undistributed income of subsidiaries...................... 591.9 367.6 337.0
Income tax credit............................................. (20.2) (41.4) (17.2)
-------------------------
Income of parent company...................................... 612.1 409.0 354.2
Equity (deficiency) in undistributed income of subsidiaries:
Bank and thrift affiliates................................... (44.4) (81.5) (4.2)
Nonbank affiliates........................................... .4 (22.5) 13.2
-------------------------
(44.0) (104.0) 9.0
-------------------------
Net income.................................................. $568.1 $ 305.0 $363.2
- ------------------------------------------------------------------------------------------
</TABLE>
Transfer of funds -- dividends, loans or advances -- from bank and thrift
subsidiaries to the Company is restricted. Federal law prohibits loans unless
they are secured and generally limits any loan to the Company or individual
affiliate to 10 percent of the bank's or thrift's equity. In aggregate, loans to
the Company and all affiliates cannot exceed 20 percent of the bank's or
thrift's equity.
Dividend payments to the Company by its subsidiary banks and thrift are
subject to regulatory review and statutory limitations and, in some instances,
regulatory approval. The approval of the Comptroller of the Currency is required
if total dividends by a national bank in any calendar year exceed the bank's net
profits (as defined) for that year combined with its retained net profits for
the preceding two calendar years or if the bank's retained earnings are less
than zero. Furthermore, dividends are restricted by the Comptroller of the
Currency's minimum capital constraints for all national banks. Within these
guidelines, all bank subsidiaries have the ability to pay dividends without
prior regulatory approval except one bank, which bank represented two percent of
total assets at December 31, 1995.
First Bank, fsb (the "Thrift") is required to give the Office of Thrift
Supervision ("OTS") 30-day notice prior to declaration of a cash dividend to the
parent company. The Thrift's dividends to the parent company are generally
limited to earnings in the calendar year plus 50 percent of the surplus capital
(the percentage by which the Thrift's regulatory capital ratios exceed the
minimum capital ratios required by the OTS) at the beginning of the year. In
addition, dividends are restricted by the OTS's minimum capital constraints for
all thrifts.
68 First Bank System, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31 (In Millions) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................................$ 568.1 $ 305.0 $ 363.2
Adjustments to reconcile net income to net cash
provided by operating activities:
(Equity) deficiency in undistributed income of subsidiaries... 44.0 104.0 (9.0)
(Increase) decrease in accrued receivables, net............... (36.0) 46.1 (5.7)
Decrease in accrued liabilities, net.......................... (114.1) (21.4) (30.7)
Amortization of goodwill and other intangibles................ 5.6 5.5 5.4
Deferred tax provision........................................ 37.8 27.5 13.4
Provision for merger and integration.......................... - 72.8 -
Other -- net.................................................. .2 (38.1) (37.8)
---------------------------
Net cash provided by operating activities................... 505.6 501.4 298.8
INVESTING ACTIVITIES
Securities transactions:
Sales and maturities.......................................... 88.5 20.4 22.5
Purchases..................................................... (126.9) (47.1) (56.2)
Investment in subsidiaries...................................... (121.9) (83.7) (43.2)
Equity distributions from subsidiaries.......................... 150.0 235.0 -
Net decrease (increase) in short-term advances to affiliates.... 52.3 (50.0) 54.2
Long-term advances made to affiliates........................... (259.7) - (22.4)
Principal collected on long-term advances made to affiliates.... 25.2 .3 126.0
Other -- net.................................................... 5.6 (31.6) 23.3
---------------------------
Net cash (used) provided by investing activities............ (186.9) 43.3 104.2
FINANCING ACTIVITIES
Net (decrease) increase in short-term funds borrowed............ (12.9) (25.1) 43.4
Proceeds from long-term debt.................................... 654.1 405.1 240.0
Principal payments on long-term debt............................ (424.7) (145.1) (248.6)
Redemption of preferred stock................................... (13.2) (167.0) (115.2)
Proceeds from dividend reinvestment, stock option, and
stock purchase plans.......................................... 67.7 40.3 50.4
Purchase of treasury stock and stock warrants................... (545.2) (245.8) (204.1)
Stock warrants exercised........................................ .3 7.9 .9
Cash dividends.................................................. (199.2) (168.6) (151.0)
---------------------------
Net cash used by financing activities....................... (473.1) (298.3) (384.2)
---------------------------
Change in cash and cash equivalents......................... (154.4) 246.4 18.8
Cash and cash equivalents at beginning of year.................. 398.2 151.8 133.0
---------------------------
Cash and cash equivalents at end of year....................$ 243.8 $ 398.2 $ 151.8
- -------------------------------------------------------------------------------------------
</TABLE>
First Bank System, Inc. and Subsidiaries 69
<PAGE>
REPORT OF MANAGEMENT
The financial statements of First Bank System, Inc. were prepared by management,
which is responsible for their integrity and objectivity. The statements have
been prepared in conformity with generally accepted accounting principles
appropriate in the circumstances and include amounts that are based on
management's best estimates and judgment. All financial information throughout
the annual report is consistent with that in the financial statements.
The Company maintains accounting and internal control systems that are
believed to provide reasonable assurance that assets are safeguarded and
transactions are properly authorized and recorded. To monitor compliance, the
Company carries out an extensive audit program. This program includes a review
for compliance with written policies and procedures and a comprehensive review
of the adequacy and effectiveness of internal control systems. However, there
are limits inherent in all systems of internal accounting control and management
recognizes that errors or irregularities may occur. Based on the recognition
that the costs of such systems should not exceed the benefits to be derived,
management believes the Company's system provides an appropriate cost/benefit
balance.
The Company's independent auditors, Ernst & Young LLP, have been engaged to
render an opinion on the financial statements and to assist in carrying out the
audit program described above. Their opinion on the financial statements is
based on procedures performed in accordance with generally accepted auditing
standards, including tests of the accounting records to the extent necessary to
allow them to report on the fairness of the financial statements. Ernst & Young
LLP has full access to the Audit Committee and the Board of Directors.
The management of the Company is committed to and has always maintained and
enforced a philosophy of high ethical standards in the conduct of its business.
Written policies covering conflicts of interest and other subjects are
formulated in a Code of Ethics which is uniformly applicable to all officers and
employees of the Company.
/s/ John F. Grundhofer
- ----------------------------
JOHN F. GRUNDHOFER
Chairman, President
and Chief Executive Officer
/s/ Richard A. Zona
- ----------------------------
RICHARD A. ZONA
Vice Chairman-Finance
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
First Bank System, Inc.
We have audited the accompanying consolidated balance sheets of First Bank
System, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Bank System,
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
- ----------------------------
Minneapolis, Minnesota
January 9, 1996
Except for Note C,
as to which the date
is February 16, 1996
70 First Bank System, Inc. and Subsidiaries
<PAGE>
CONSOLIDATED BALANCE SHEET -- FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
% Change
December 31 (Dollars In Millions) 1995 1994 1993 1992 1991 1994-1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from banks.............. $ 1,837 $ 1,707 $ 1,767 $ 2,011 $ 1,650 7.6%
Federal funds sold and resale
agreements......................... 265 471 1,338 1,710 1,509 (43.7)
Interest-bearing deposits with
banks.............................. - 28 82 484 446 *
Trading account securities........... 86 77 55 94 151 11.7
Securities held for sale............. - - - 295 1,201 *
Securities:
U.S. Treasury...................... 925 1,113 1,554 1,827 1,174 (16.9)
Mortgage-backed securities......... 1,693 3,297 2,861 3,196 2,102 (48.7)
State and political subdivisions... 179 181 196 188 166 (1.1)
U.S. agencies and other............ 459 594 419 586 101 (22.7)
------------------------------------------------------
Total securities................. 3,256 5,185 5,030 5,797 3,543 (37.2)
Loans................................ 26,400 24,556 23,497 20,692 18,766 7.5
Less allowance for credit losses... 474 475 466 484 453 (.2)
------------------------------------------------------
Net loans........................ 25,926 24,081 23,031 20,208 18,313 7.7
Other assets......................... 2,504 2,579 2,067 2,159 1,695 (2.9)
------------------------------------------------------
Total assets.................. $33,874 $34,128 $33,370 $32,758 $28,508 (.7)%
------------------------------------------------------
Liabilities and Shareholders'
Equity
Deposits:
Noninterest-bearing................ $ 6,357 $ 5,933 $ 7,743 $ 6,243 $ 4,880 7.1%
Interest-bearing................... 16,157 18,323 18,643 20,152 18,089 (11.8)
------------------------------------------------------
Total deposits................... 22,514 24,256 26,386 26,395 22,969 (7.2)
Short-term borrowings................ 4,385 3,226 1,334 1,540 1,409 35.9
Long-term debt....................... 3,201 2,981 2,070 1,151 1,360 7.4
Other liabilities.................... 1,049 1,053 836 927 639 (.4)
------------------------------------------------------
Total liabilities............. 31,149 31,516 30,626 30,013 26,377 (1.2)
Shareholders' equity................. 2,725 2,612 2,744 2,745 2,131 4.3
------------------------------------------------------
Total liabilities and
shareholders' equity........ $33,874 $34,128 $33,370 $32,758 $28,508 (.7)%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Not meaningful
First Bank System, Inc. and Subsidiaries 71
<PAGE>
CONSOLIDATED STATEMENT OF INCOME -- FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
Year Ended December 31 % Change
(Dollars In Millions) 1995 1994 1993 1992 1991 1994-1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans.............................. $2,273.4 $1,914.7 $1,730.7 $1,687.2 $1,842.1 18.7%
Securities:
Taxable.......................... 226.0 327.9 352.1 336.5 377.6 (31.1)
Exempt from federal income taxes. 11.2 12.0 14.6 12.0 19.1 (6.7)
FSLIC notes and covered assets..... - - - - 25.9 *
Other interest income.............. 34.6 33.5 37.1 70.4 104.3 3.3
-----------------------------------------------------------
Total interest income............ 2,545.2 2,288.1 2,134.5 2,106.1 2,369.0 11.2
Interest Expense
Deposits........................... 706.7 597.3 648.3 797.7 1,125.9 18.3
Federal funds purchased and
repurchase agreements............. 118.1 103.1 31.8 37.1 59.9 14.5
Other short-term funds borrowed.... 90.2 20.4 20.1 17.1 29.8 *
Long-term debt..................... 190.0 147.9 96.1 101.2 138.6 28.5
-----------------------------------------------------------
Total interest expense........... 1,105.0 868.7 796.3 953.1 1,354.2 27.2
-----------------------------------------------------------
Net interest income................ 1,440.2 1,419.4 1,338.2 1,153.0 1,014.8 1.5
Provision for credit losses (1994
and 1992 include $16.5 and
$13.6, respectively, in
merger-related provisions)...... 115.0 123.6 133.1 191.7 210.2 (7.0)
-----------------------------------------------------------
Net interest income after
provision for credit losses....... 1,325.2 1,295.8 1,205.1 961.3 804.6 2.3
Noninterest Income
Credit card fees................... 232.7 179.0 137.1 116.9 94.4 30.0
Trust fees......................... 175.3 159.2 146.1 127.8 115.5 10.1
Service charges on deposit accounts 123.7 127.3 126.0 114.8 102.0 (2.8)
Investment products fees and
commissions....................... 27.6 29.6 24.3 21.8 10.5 (6.8)
Securities gains (losses).......... - (115.0) .3 46.3 42.3 *
Gain on sale of branches........... 31.0 - - - - *
Other.............................. 192.8 178.8 185.1 186.1 192.3 7.8
-----------------------------------------------------------
Total noninterest income......... 783.1 558.9 618.9 613.7 557.0 40.1
Noninterest Expense
Salaries........................... 441.0 450.7 439.8 426.3 401.2 (2.2)
Employee benefits.................. 96.4 105.7 99.1 94.9 87.3 (8.8)
Net occupancy...................... 98.6 103.8 109.7 97.7 92.7 (5.0)
Furniture and equipment............ 94.2 88.3 80.7 72.7 68.8 6.7
Amortization of goodwill and other
intangible assets................. 57.1 50.4 41.3 34.0 29.3 13.3
Other personnel costs.............. 40.9 35.7 31.0 23.3 19.2 14.6
Professional services.............. 36.9 38.5 41.5 43.8 40.3 (4.2)
FDIC insurance..................... 35.8 58.4 57.5 51.5 46.5 (38.7)
Advertising........................ 32.0 35.5 25.6 26.7 26.1 (9.9)
Third party data processing........ 17.8 20.3 27.1 26.7 27.5 (12.3)
Merger and integration............. - 66.2 72.2 84.0 - *
Merger-related severance........... - 56.5 - - - *
Other (1992 includes $26.4 in
merger-related
other real estate expense)....... 255.2 239.4 239.2 264.7 229.0 6.6
-----------------------------------------------------------
Total noninterest expense........ 1,205.9 1,349.4 1,264.7 1,246.3 1,067.9 (10.6)
-----------------------------------------------------------
Income from continuing operations
before income taxes and
cumulative effect of changes in
accounting principles........... 902.4 505.3 559.3 328.7 293.7 78.6
Applicable income taxes............ 334.3 191.8 198.6 115.7 30.3 74.3
-----------------------------------------------------------
Income from continuing operations
before cumulative effect
of changes in accounting
principles...................... 568.1 313.5 360.7 213.0 263.4 81.2
Income (loss) from discontinued
operations........................ - (8.5) 2.5 2.7 1.1 *
-----------------------------------------------------------
Income before cumulative effect
of changes in accounting
principles...................... 568.1 305.0 363.2 215.7 264.5 86.3
Cumulative effect of changes in
accounting principles............. - - - 233.2 - *
-----------------------------------------------------------
Net income......................... $ 568.1 $ 305.0 $ 363.2 $ 448.9 $ 264.5 86.3
----------------------------------------------------------------------
Net income applicable to common
equity............................ $ 560.6 $ 292.4 $ 334.0 $ 417.3 $ 235.7 91.7%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*Not meaningful
72 First Bank System, Inc. and Subsidiaries
<PAGE>
QUARTERLY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
(In Millions, Except Per Share Data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Loans........................................ $ 580.4 $ 573.8 $ 572.0 $ 547.2 $ 521.4 $ 491.3 $ 468.3 $ 433.7
Securities:
Taxable.................................. 50.8 52.6 56.1 66.5 85.9 89.7 81.1 71.2
Exempt from federal income taxes......... 2.8 2.8 2.8 2.8 2.9 3.0 3.1 3.0
Other interest income........................ 8.2 8.3 9.0 9.1 9.7 8.4 8.7 6.7
------------------------------------------------------------------------------------
Total interest income...................... 642.2 637.5 639.9 625.6 619.9 592.4 561.2 514.6
Interest Expense
Deposits..................................... 168.5 173.0 186.8 178.4 164.2 151.5 144.7 136.9
Federal funds purchased and repurchase
agreements................................. 30.5 24.8 31.9 30.9 36.6 34.5 22.3 9.7
Other short-term funds borrowed.............. 33.4 34.6 15.7 6.5 8.9 3.8 3.9 3.8
Long-term debt............................... 49.5 48.0 46.0 46.5 43.6 39.5 36.4 28.4
------------------------------------------------------------------------------------
Total interest expense..................... 281.9 280.4 280.4 262.3 253.3 229.3 207.3 178.8
------------------------------------------------------------------------------------
Net interest income.......................... 360.3 357.1 359.5 363.3 366.6 363.1 353.9 335.8
Provision for credit losses.................. 31.0 31.0 27.0 26.0 44.0 27.0 26.0 26.6
------------------------------------------------------------------------------------
Net interest income after provision for
credit losses.............................. 329.3 326.1 332.5 337.3 322.6 336.1 327.9 309.2
Noninterest Income
Credit card fees............................. 61.7 62.7 56.7 51.6 50.3 49.2 43.5 36.0
Trust fees................................... 47.8 42.8 43.0 41.7 41.7 38.9 40.1 38.5
Service charges on deposit accounts.......... 30.4 30.9 30.3 32.1 30.7 32.1 32.3 32.2
Investment products fees and commissions..... 7.6 7.8 6.7 5.5 6.4 7.5 8.3 7.4
Securities losses............................ -- -- -- -- (112.2) (2.8) -- --
Gain on sale of branches..................... -- 31.0 -- -- -- -- -- --
Other........................................ 49.8 41.3 53.0 48.7 44.5 45.4 41.6 47.3
------------------------------------------------------------------------------------
Total noninterest income................... 197.3 216.5 189.7 179.6 61.4 170.3 165.8 161.4
Noninterest Expense
Salaries..................................... 111.1 108.0 109.8 112.1 116.5 114.5 113.2 106.5
Employee benefits............................ 20.4 22.1 25.4 28.5 24.4 27.1 26.9 27.3
Net occupancy................................ 24.3 24.3 24.3 25.7 25.0 26.9 26.4 25.5
Furniture and equipment...................... 22.4 23.5 24.8 23.5 22.6 21.5 22.8 21.4
Amortization of goodwill and other
intangible assets.......................... 14.9 13.9 14.2 14.1 13.8 13.2 12.7 10.7
Other personnel costs........................ 12.5 11.0 9.8 7.6 8.6 8.5 10.0 8.6
Professional services........................ 11.3 8.5 10.5 6.6 11.9 9.6 9.5 7.5
FDIC insurance............................... 5.6 2.8 13.8 13.6 14.4 13.7 15.7 14.6
Advertising.................................. 8.1 8.4 9.2 6.3 8.5 7.7 9.8 9.5
Third party data processing.................. 4.9 4.2 4.4 4.3 5.6 4.8 5.0 4.9
Merger and integration....................... -- -- -- -- 64.8 1.4 -- --
Merger-related severance..................... -- -- -- -- 56.5 -- -- --
Other........................................ 51.8 84.4 57.0 62.0 63.1 63.7 56.0 56.6
------------------------------------------------------------------------------------
Total noninterest expense.................. 287.3 311.1 303.2 304.3 435.7 312.6 308.0 293.1
------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes........................ 239.3 231.5 219.0 212.6 (51.7) 193.8 185.7 177.5
Applicable income taxes (credit)............. 88.6 85.8 81.1 78.8 (18.3) 74.3 70.2 65.6
------------------------------------------------------------------------------------
Income (loss) from continuing operations..... 150.7 145.7 137.9 133.8 (33.4) 119.5 115.5 111.9
Income (loss) from discontinued operations... -- -- -- -- (1.9) (7.0) 1.6 (1.2)
------------------------------------------------------------------------------------
Net income (loss)............................ $ 150.7 $ 145.7 $ 137.9 $ 133.8 $ (35.3) $ 112.5 $ 117.1 $ 110.7
------------------------------------------------------------------------------------
Net income (loss) applicable to common
equity..................................... $ 148.8 $ 143.9 $ 136.0 $ 131.9 $ (37.6) $ 110.3 $ 114.9 $ 104.8
------------------------------------------------------------------------------------
Primary net income (loss) per common share... $ 1.14 $ 1.08 $ 1.00 $ .97 $ (.28) $ .80 $ .83 $ .79
Fully diluted net income (loss) per
common share............................... $ 1.12 $ 1.06 $ .99 $ .96 $ (.28) $ .79 $ .82 $ .78
Selected Average Balances
Loans........................................ $26,022 $25,536 $25,364 $24,592 $24,320 $23,937 $24,105 $23,056
Earning assets............................... 29,904 29,480 29,559 29,466 30,682 30,687 30,674 28,970
Total assets................................. 33,160 32,768 32,905 32,702 34,031 33,908 34,049 32,159
Deposits..................................... 21,995 22,107 23,181 23,575 24,076 24,337 25,325 24,911
Long-term debt............................... 3,146 2,892 2,876 2,935 2,872 2,741 2,649 2,163
Common equity................................ 2,640 2,693 2,670 2,531 2,645 2,650 2,617 2,497
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The fourth quarter of 1994 includes $16.5 million in provision for credit
losses, $64.8 million in merger-related charges, and $56.5 million in severance
related to the MFC acquisition. The third quarter of 1994 includes $1.4 million
in merger-related charges related to the MFC acquisition.
First Bank System, Inc. and Subsidiaries 73
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
<TABLE>
<CAPTION>
Year ended December 31 1995 1994
- -------------------------------------------------------------------------------------------
Interest Interest
Yields Yields
(Dollars In Millions) Balance Interest and Rates Balance Interest and Rates
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities:
U.S. Treasury.......... $ 973 $ 60.6 6.23% $ 1,574 $ 82.8 5.26%
Mortgage-backed
securities............ 1,989 135.5 6.81 3,288 208.7 6.35
State & political
subdivisions.......... 176 18.6 10.57 188 20.0 10.64
U.S. agencies and other 474 28.3 5.97 619 34.4 5.56
------------------ ------------------
Total securities... 3,612 243.0 6.73 5,669 345.9 6.10
Unrealized loss on
available-for-sale
securities................ (45) (69)
------- -------
Net securities..... 3,567 5,600
Trading account securities. 92 5.0 5.43 73 3.4 4.66
Federal funds sold and
resale agreements......... 280 16.2 5.79 405 16.5 4.07
FSLIC notes and covered
assets.................... - - - - - -
Loans:
Commercial:
Commercial......... 8,013 687.8 8.58 6,832 506.6 7.42
Financial
institutions....... 774 31.7 4.10 1,146 30.1 2.63
Real estate:
Commercial mortgage 2,474 223.4 9.03 2,365 202.2 8.55
Construction....... 358 33.7 9.41 268 21.4 7.99
------------------ ------------------
Total commercial... 11,619 976.6 8.41 10,611 760.3 7.17
Consumer:
Residential
mortgage........... 4,904 371.9 7.58 5,345 385.6 7.21
Residential
mortgage held for
sale............... 265 20.3 7.66 387 27.4 7.08
Home equity and
second mortgage.... 2,620 253.5 9.68 2,223 193.2 8.69
Credit card........ 2,341 290.5 12.41 2,054 248.9 12.12
Other.............. 3,634 368.5 10.14 3,243 308.3 9.51
------------------ ------------------
Total consumer..... 13,764 1,304.7 9.48 13,252 1,163.4 8.78
------------------ ------------------
Total loans........ 25,383 2,281.3 8.99 23,863 1,923.7 8.06
Allowance for credit
losses................ 473 486
------- -------
Net loans.......... 24,910 23,377
Other earning assets....... 236 13.5 5.72 255 13.7 5.37
------------------ ------------------
Total earning
assets*............ 29,603 2,559.0 8.64 30,265 2,303.2 7.61
Cash and due from banks.... 1,664 1,749
Other assets............... 2,137 2,086
------- -------
Total assets....... $32,886 $33,545
------- -------
Liabilities and
Shareholders' Equity
Noninterest-bearing
deposits.................. $ 5,584 $ 6,310
Interest-bearing deposits:
Interest checking.. 2,825 44.5 1.58 2,940 44.4 1.51
Money market
accounts........... 3,858 145.3 3.77 4,035 110.2 2.73
Other savings
accounts........... 1,712 42.1 2.46 2,245 49.5 2.20
Savings
certificates....... 7,669 404.8 5.28 7,750 315.4 4.07
Certificates over
$100,000........... 1,060 70.0 6.60 1,381 77.8 5.63
------------------ ------------------
Total
interest-bearing
deposits........... 17,124 706.7 4.13 18,351 597.3 3.25
Short-term borrowings...... 3,440 208.3 6.06 2,658 123.5 4.65
Long-term debt............. 2,963 190.0 6.41 2,609 147.9 5.67
------------------ ------------------
Total
interest-bearing
liabilities........ 23,527 1,105.0 4.70 23,618 868.7 3.68
Other liabilities.......... 1,036 871
Preferred equity........... 105 143
Common equity.............. 2,664 2,646
Unrealized loss on
available-for-sale
securities, net of tax.... (30) (43)
------- -------
Total liabilities
and shareholders'
equity............. $32,886 $33,545
------- -------
Net interest income........ $1,454.0 $1,434.5
-------- --------
Gross interest margin...... 3.94% 3.93%
-------- --------
Gross interest margin
without
taxable-equivalent
increments................ 3.90% 3.88%
-------- --------
Percent of Earning Assets
Interest income............ 8.64% 7.61%
Interest expense........... 3.73 2.87
-------- --------
Net interest margin 4.91 4.74
-------- --------
Net interest margin
without
taxable-equivalent
increments................ 4.87% 4.69%
-------- --------
</TABLE>
Interest and rates are presented on a fully taxable-equivalent basis under a tax
rate of 35 percent for 1995, 1994 and 1993 and 34 percent for 1992 and 1991.
Interest income and rates on loans include loan fees. Nonaccrual loans are
included in average loan balances.
*Before deducting the allowance for credit losses and excluding the unrealized
loss on available-for-sale securities.
**Not meaningful
74 First Bank System, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991 1994-1995
- -------------------------------- ------------------------------- ------------------------------ ---------------
Interest Interest Interest
Yields Yields Yields % Change
Balance Interest and Rates Balance Interest and Rates Balance Interest and Rates Average Balance
- -------------------------------- ------------------------------- ------------------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,797 $ 101.5 5.65% $ 1,557 $ 98.2 6.31% $ 1,043 $ 81.7 7.83% (38.2)%
3,323 207.8 6.25 2,673 207.3 7.76 2,901 262.3 9.04 (39.5)
202 22.4 11.09 153 18.1 11.83 242 27.5 11.36 (6.4)
630 38.1 6.05 444 26.2 5.90 483 33.2 6.87 (23.4)
- ------------------- ------------------ -------------------
5,952 369.8 6.21 4,827 349.8 7.25 4,669 404.7 8.67 (36.3)
- - -
- ------- ------- -------
5,952 4,827 4,669
117 4.7 4.02 137 6.5 4.74 176 12.1 6.88 26.0
755 22.3 2.95 1,318 45.1 3.42 1,292 75.8 5.87 (30.9)
- - - - - - 366 25.9 7.08 **
5,804 403.6 6.95 5,490 407.1 7.42 6,254 573.2 9.17 17.3
1,534 42.5 2.77 1,096 40.8 3.72 710 31.2 4.39 (32.5)
2,213 190.5 8.61 2,164 194.5 8.99 2,240 227.5 10.16 4.6
213 15.5 7.28 270 20.4 7.56 337 30.7 9.11 33.6
- ------------------- ------------------ -------------------
9,764 652.1 6.68 9,020 662.8 7.35 9,541 862.6 9.04 9.5
4,860 384.6 7.91 3,851 347.7 9.03 3,401 322.6 9.49 (8.3)
1,040 72.4 6.96 867 70.5 8.13 688 65.7 9.55 (31.5)
1,539 127.1 8.26 1,135 100.5 8.85 889 82.1 9.24 17.9
1,733 233.1 13.45 1,709 243.0 14.22 1,495 217.3 14.54 14.0
2,872 272.6 9.49 2,526 279.2 11.05 2,503 316.4 12.64 12.1
- ------------------- ------------------ -------------------
12,044 1,089.8 9.05 10,088 1,040.9 10.32 8,976 1,004.1 11.19 3.9
- ------------------- ------------------ -------------------
21,808 1,741.9 7.99 19,108 1,703.7 8.92 18,517 1,866.7 10.08 6.4
489 496 485 (2.7)
- ------- ------- -------
21,319 18,612 18,032 6.6
275 13.5 4.91 509 23.7 4.66 261 18.2 6.97 (7.5)
- ------------------- ------------------ -------------------
28,907 2,152.2 7.45 25,899 2,128.8 8.22 25,281 2,403.4 9.51 (2.2)
1,786 1,558 1,372 (4.9)
1,987 1,876 1,507 2.4
- ------- ------- -------
$32,191 $28,837 $27,675 (2.0)%
- ------- ------- -------
$ 6,688 $ 5,000 $ 4,012 (11.5)%
2,789 45.2 1.62 2,553 59.5 2.33 2,028 64.6 3.19 (3.9)
4,077 106.8 2.62 3,980 129.4 3.25 3,779 205.9 5.45 (4.4)
2,157 49.2 2.28 1,666 59.0 3.54 1,458 72.6 4.98 (23.7)
8,297 357.4 4.31 7,836 426.0 5.44 7,879 581.9 7.39 (1.0)
1,629 89.7 5.51 1,918 123.8 6.45 2,778 200.9 7.23 (23.2)
- ------------------- ------------------ -------------------
18,949 648.3 3.42 17,953 797.7 4.44 17,922 1,125.9 6.28 (6.7)
1,307 51.9 3.97 1,179 54.2 4.60 1,502 89.7 5.97 29.4
1,633 96.1 5.88 1,453 101.2 6.96 1,663 138.6 8.33 13.6
- ------------------- ------------------ -------------------
21,889 796.3 3.64 20,585 953.1 4.63 21,087 1,354.2 6.42 (.4)
845 757 640 18.9
360 405 340 (26.6)
2,409 2,090 1,596 .7
- - - (30.2)
- ------- ------- -------
$32,191 $28,837 $27,675 (2.0)%
- ------- ------- ------- -----
$1,355.9 $1,175.7 $1,049.2
-------- -------- --------
3.81% 3.59% 3.09%
----- ----- -----
3.75% 3.50% 2.95%
----- ----- -----
7.45% 8.22% 9.51%
2.76 3.68 5.36
----- ----- -----
4.69 4.54 4.15
----- ----- -----
4.63% 4.45% 4.01%
----- ----- -----
</TABLE>
First Bank System, Inc. and Subsidiaries 75
<PAGE>
SUPPLEMENTAL FINANCIAL DATA
<TABLE>
<CAPTION>
EARNINGS PER SHARE SUMMARY
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary income from continuing operations before
cumulative effect of accounting changes ......... $4.19 $2.21 $2.46 $1.46 $2.00
Income (loss) from discontinued operations ........ -- (.06) .02 .02 .01
Cumulative effect of accounting changes ........... -- -- -- 1.87 --
---------------------------------------------------------------------
Primary net income ................................ $4.19 $2.15 $2.48 $3.35 $2.01
---------------------------------------------------------------------
Fully diluted income from continuing operations
before cumulative effect of accounting changes .. $4.11 $2.20 $2.45 $1.45 $1.92
Income (loss) from discontinued operations ........ -- (.06) .02 .02 .01
Cumulative effect of accounting changes ........... -- -- -- 1.79 --
---------------------------------------------------------------------
Fully diluted net income .......................... $4.11 $2.14 $2.47 $3.26 $1.93
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Return on average assets .......................... 1.73% .91% 1.13% 1.56% .96%
Return on average common equity ................... 21.3 11.2 13.9 20.0 14.8
Average total equity to average assets ............ 8.3 8.2 8.6 8.7 7.0
Dividends per share to net income per share ....... 34.6 54.0 40.3 26.3 40.8
- -----------------------------------------------------------------------------------------------------------------------------------
Other Statistics
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding--year end* .............. 127,334,568 133,832,409 130,408,480 131,568,900 115,510,787
Average common shares outstanding and common stock
equivalents:
Primary ....................................... 133,936,030 136,274,991 134,588,664 124,670,657 117,259,058
Fully diluted ................................. 138,148,158 140,128,566 138,328,002 130,497,272 123,053,421
Number of shareholders--year-end** ................ 21,033 25,481 25,653 28,572 26,384
Average number of employees (full-time equivalents) 13,231 14,725 14,867 14,596 14,467
Common dividends paid (millions) .................. $ 191.7 $ 156.0 $ 121.8 $ 80.8 $ 69.8
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Defined as total common shares less common stock held in treasury.
**Based on number of common stock shareholders of record.
<TABLE>
<CAPTION>
Stock Price Range and Dividends
1995 1994
-------------------------------------------------------------------------
Sales Price | Sales Price
----------------- Dividends | ----------------- Dividends
High Low Paid | High Low Paid
- ----------------------------------------------------------------------------------------------|------------------------------------
<S> <C> <C> <C> | <C> <C> <C>
First quarter ....................................... $40.50 $32.63 $.3625 | $33.13 $29.38 $.29
Second quarter ...................................... 44.63 38.88 .3625 | 39.00 31.50 .29
Third quarter ....................................... 48.25 39.50 .3625 | 38.50 35.25 .29
Fourth quarter ...................................... 53.75 47.63 .3625 | 37.50 32.13 .29
Closing price--December 31 .......................... 49.63 | 33.22
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The common stock of First Bank System, Inc. is traded on the New York Stock
Exchange, under the ticker symbol, "FBS."
76 First Bank System, Inc. and Subsidiaries
<PAGE>
COMMERCIAL LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
Maturing
------------------------------------------------
In 1 Year After 1 Year
At December 31, 1995 (In Millions) or Less Through 5 Years After 5 Years
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 6,382 $ 1,683 $ 206
Financial institutions 995 65 -
Real estate:
Commercial mortgage 1,611 885 288
Construction 357 35 11
----------------------------------------------
Total $ 9,345 $ 2,668 $ 505
- --------------------------------------------------------------------------------------------------
Due in Due After
One Year One Year Total
- --------------------------------------------------------------------------------------------------
Loans at fixed interest rates $ 1,299 $ 2,184 $ 3,483
Loans at variable interest rates 8,046 989 9,035
----------------------------------------------
Total $ 9,345 $ 3,173 $ 12,518
- --------------------------------------------------------------------------------------------------
</TABLE>
The maturities of loans shown above are based
on remaining scheduled repayments.
Time Certificates of Deposit and Other Time Deposits in Denominations of
$100,000 or More at December 31
<TABLE>
<CAPTION>
Under Three Six to Over
Three to Six Twelve Twelve
(In Millions) Months Months Months Months Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 $ 349 $ 124 $ 164 $ 263 $ 900
1994 399 138 266 515 1,318
1993 379 188 263 637 1,467
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Short-Term Funds Borrowed
Average Maximum Average Weighted
Daily Outstanding Interest Rate Average
Outstanding Amount Month-End Paid During Interest Rate
(In Millions) at Year-End Outstanding Balance the Year at Year-End
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Federal funds purchased and
securities sold under
agreements to repurchase $ 2,269 $ 1,969 $ 2,562 6.00% 5.11%
Other 2,116 1,471 2,554 6.13 5.77
-------------------------
Total $ 4,385 $ 3,440 4,763 6.06 5.43
-------------------------
1994
Federal funds purchased and
securities sold under
agreements to repurchase $ 2,568 $ 2,264 $ 3,223 4.55% 5.49%
Other 658 394 864 5.18 5.72
-------------------------
Total $ 3,226 $ 2,658 3,680 4.65 5.53
-------------------------
1993
Federal funds purchased and
securities sold under
agreements to repurchase $ 922 $ 990 $ 1,388 3.21% 3.15%
Other 412 317 512 6.34 2.87
-------------------------
Total $ 1,334 $ 1,307 1,742 3.97 3.07
- --------------------------------------------------------------------------------------------------------
</TABLE>
First Bank System, Inc. and Subsidiaries 77
<PAGE>
ANNUAL REPORT ON FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1995.
Commission File Number 1-6880
FIRST BANK SYSTEM, INC.
Incorporated in the State of Delaware
IRS Employer Identification #41-0255900
Address: 601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Telephone: (612) 973-1111
Securities registered pursuant to Section 12(b) of the Act (all registered on
the New York Stock Exchange): Common Stock, Par Value $1.25; $3.5625 Cumulative
Convertible Preferred Stock, Series 1991A; Preferred Share Purchase Rights.
Securities registered pursuant to Section 12(g) of the Act: Warrants to
Purchase Shares of Common Stock.
As of January 31, 1996, First Bank System, Inc. had 135,632,324 shares of
common stock outstanding. The aggregate market value of common stock held by
non-affiliates as of January 31, 1996, was approximately $6,630,000,000.
First Bank System, Inc. (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 and (2) has been subject to such filing requirements for the past 90
days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in the Company's definitive proxy statement incorporated by reference
herein.
This Annual Report and Form 10-K incorporates into a single document the
requirements of the accounting profession and the Securities and Exchange
Commission. Only those sections of the Annual Report referenced in the following
cross-reference index are incorporated in the Form 10-K.
CROSS-REFERENCE PAGE
- -------------------------------------------------------------------------------
PART I
ITEM 1 Business
General............................................................79
Distribution of Assets, Liabilities and
Stockholders' Equity; Interest Rates
and Interest Differential..............................18-20, 74-75
Investment Portfolio........................................27-28, 71
Loan Portfolio.........................24-27, 29-33, 45-46, 50-51, 77
Summary of Loan Loss Experience.............................20, 29-33
Deposits................................................28, 74-75, 77
Return on Equity and Assets........................................76
Short-Term Borrowings..............................................77
ITEM 2 Properties.........................................................80
ITEM 3 Legal Proceedings................................................none
ITEM 4 Submission of Matters to a Vote of Security Holders..............none
PART II
ITEM 5 Market for the Registrant's Common
Equity and Related Stockholder Matters...................38, 68, 76
ITEM 6 Selected Financial Data............................................15
ITEM 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.................14-40
ITEM 8 Financial Statements and Supplementary Data....................73, 80
ITEM 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure...........................................none
PART III
ITEM 10 Directors and Executive Officers of the Registrant................82*
ITEM 11 Executive Compensation..............................................*
ITEM 12 Security Ownership of Certain
Beneficial Owners and Management..................................*
ITEM 13 Certain Relationships and Related Transactions......................*
PART IV
ITEM 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K..........................................80
*First Bank System's definitive proxy statement for the 1996 Annual Meeting of
Shareholders is incorporated herein by reference, other than the sections
entitled "Report of the Compensation and Human Resources Committee on Executive
Compensation" and "Comparative Stock Performance."
78 First Bank System, Inc. and Subsidiaries
<PAGE>
GENERAL -- First Bank System, Inc. (the "Company") is a regional, multi-state
bank holding company headquartered in Minneapolis, Minnesota. The Company was
incorporated in Delaware in 1929 and owns more than 99 percent of the capital
stock of each of nine banks, a savings association and seven trust companies,
having 324 banking offices in Minnesota, Colorado, Wisconsin, Illinois, Montana,
North Dakota, South Dakota, Iowa, Kansas, Nebraska, and Wyoming. The Company
also has various nonbank subsidiaries engaged in financial services, principally
in the Upper Midwest.
The banks are engaged in general commercial banking business, principally in
domestic markets. They range in size from $36 million to $10.5 billion in
deposits and provide a wide variety of services to individuals, businesses,
industry, institutional organizations, governmental entities, and other
financial institutions. Depository services include checking accounts, savings
accounts, and time certificate contracts. Ancillary services such as treasury
management and receivable lockbox collection are provided for corporate
customers. Nine banks, a savings association, and seven trust companies provide
a full range of fiduciary activities for individuals, estates, foundations,
business corporations, and charitable organizations.
The Company provides banking services through its subsidiary banks to both
domestic and foreign customers and correspondent banks. These services include
consumer banking, commercial lending, financing of import/export trade, foreign
exchange, and investment services.
The Company, through its subsidiaries, also provides services in mortgage
banking, trust, commercial and agricultural finance, data processing, leasing,
and brokerage services.
On a full-time equivalent basis, employment during 1995 averaged a total of
13,231 employees.
COMPETITION -- The commercial banking business is highly competitive. Subsidiary
banks compete with other commercial banks and with other financial institutions,
including savings and loan associations, mutual savings banks, finance
companies, mortgage banking companies, credit unions, and investment companies.
In recent years, competition has increased from institutions not subject to the
same regulatory restrictions as domestic banks and bank holding companies.
GOVERNMENT POLICIES -- The operations of the Company's various operating units
are affected by state and federal legislative changes and by policies of various
regulatory authorities, including those of the several states in which they
operate, the United States and foreign governments. These policies include, for
example, statutory maximum legal lending rates, domestic monetary policies of
the Board of Governors of the Federal Reserve System, United States fiscal
policy, international currency regulations and monetary policies, and capital
adequacy and liquidity constraints imposed by bank regulatory agencies.
SUPERVISION AND REGULATION -- The Company is a registered bank holding company
under the Bank Holding Company Act of 1956 (the "Act") and is subject to the
supervision of, and regulation by, the Board of Governors of the Federal Reserve
System (the "Board").
Under the Act, a bank holding company may engage in banking, managing or
controlling banks, furnishing or performing services for banks it controls, and
conducting activities that the Board has determined to be closely related to
banking. The Company must obtain approval of the Board before acquiring control
of a bank or acquiring more than 5 percent of the outstanding voting shares of a
company engaged in a "bank-related" business. Under the Act and state laws, the
Company is subject to certain restrictions as to states in which the Company can
acquire a bank.
On September 29, 1994, the Act was amended by The Interstate Banking and
Branch Efficiency Act of 1994, which authorizes interstate bank acquisitions
anywhere in the country, effective one year after the date of enactment and
interstate branching by acquisition and consolidation, effective June 1, 1997,
in those states that have not opted out by that date.
National banks are subject to the supervision of, and are examined by, the
Comptroller of the Currency. All subsidiary banks of the Company are members of
the Federal Deposit Insurance Corporation ("FDIC"), and as such, are subject to
examination thereby. In practice, the primary federal regulator makes regular
examinations of each subsidiary bank subject to its regulatory review or
participates in joint examinations with other federal regulators. Areas subject
to regulation by federal authorities include the allowance for credit losses,
investments, loans, mergers, issuance of securities, payment of dividends,
establishment of branches and other aspects of operations.
The Company and its saving association subsidiary are subject to the
supervision of and are examined by the OTS. The savings association is a member
of SAIF, which is administered and is subject to examination by the FDIC. As a
saving association, the Company's subsidiary must meet the requirements of a
qualified thrift lender to avoid certain restrictions relating to dividends,
branching and certain new activities. As of December 31, 1995, the savings
association was a "qualified thrift lender." Similar to its banking
subsidiaries, the savings association is also subject to regulation by the OTS
in the areas of credit losses, investments, loans, mergers, issuance of
securities, payment of dividends, establishment of branches, and other aspects
of operations.
First Bank System, Inc. and Subsidiaries 79
<PAGE>
PROPERTIES -- At December 31, 1995, the Company's subsidiaries owned and
operated a total of 252 facilities and leased an additional 214 facilities, all
of which are well maintained.
The Company's three largest facilities are located in Denver, Minneapolis and
St. Paul. In Denver, Colorado National Bank occupies approximately 70 percent of
the Colorado National Bank Tower and 100 percent of the Colorado National Bank
building. In Minneapolis, First Bank National Association and the Company's
corporate offices occupy parts of five buildings, leasing 31 floors in First
Bank Place, part of the second floor in the Pillsbury Center, and two floors in
the Fifth Street Towers. The Company also occupies 10 floors in the Sixth and
Marquette bank building, and six floors of the 1010 Building in Minneapolis. The
Company's primary St. Paul presence is the Energy Park Operations Center, and in
downtown St. Paul, where it occupies approximately one-fourth of the First
National Bank Building, four floors in the First Trust Center, and approximately
70 percent of the space in the Pioneer/ Endicott building complex.
The Company is currently constructing a 150,000 square foot service center in
Fargo, North Dakota. The Center will be owned by FBS, is scheduled to open in
mid-1996, and will provide space for the growth of service operations.
Additional information with respect to premises and equipment is presented in
Notes G and O of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
EXHIBITS
Financial Statements Filed Page
- -------------------------------------------------------------------
<S> <C>
First Bank System, Inc. and Subsidiaries
Consolidated Financial Statements..............................41
Notes to Consolidated Financial Statements.....................45
Report of Independent Auditors.................................70
</TABLE>
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are omitted since the required information is included in the
footnotes or is not applicable.
During the three months ended December 31, 1995, the Company filed the
following reports on Form 8-K:
Form 8-K filed November 13, 1995, relating to the Company's announcement that
it had signed a purchase agreement to merge with First Interstate Bancorp
("First Interstate").
Form 8-K/A filed on November 15, 1995, amending Form 8-K filed on August 18,
1995, which includes unaudited financial statements of FirsTier Financial, Inc.
filed pursuant to Item 7(a).
Form 8-K filed November 16, 1995, which discussed the updating of the
description of the Rights contained in Item 1 of the FBS Registration Statement
on Form 8-A dated December 21, 1988, as amended.
Form 8-K filed November 16, 1995, which includes First Interstate's unaudited
financial statements and pro forma financial information filed pursuant to Item
7.
Form 8-K filed December 13, 1995, discussing the Company's stock repurchase
program.
Form 8-K filed December 15, 1995, regarding the complaint filed by the Company
and Eleven Acquisition Corp. against Wells Fargo & Company.
The following Exhibit Index lists the Exhibits to Annual Report on Form 10-K.
(1)3A Restated Certificate of Incorporation, as amended. Filed as
Exhibit 2.1 to Form 8-A/A-2 dated October 6, 1994.
3B By-laws.
4 [Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of
instruments defining the rights of holders of long-term debt are
not filed. First Bank System, Inc. agrees to furnish a copy
thereof to the Securities and Exchange Commission upon request.]
(1)4A Certificate of Designation for First Bank System, Inc. Series
1990A Preferred Stock. Filed as Exhibit 4.4 to Amendment No.1 to
Registration Statement on Form S-3, File No.33-42650.
(1)4B Certificate of Designation for First Bank System, Inc. Series
1991A Convertible Preferred Stock. Filed as Exhibit 4.3 to
Registration Statement on Form S-4, File No. 33-50700.
(1)4C Certificate of Designation for First Bank System, Inc. Series A
Junior Participating Preferred Stock, as amended. Filed as Exhibit
2.4 to Form 8-A/A-2 dated October 6, 1994.
(1)4D Rights Agreement dated as of December 21, 1988, between First Bank
System, Inc. and Morgan Shareholder Services Trust Company (now
known as First Chicago Trust Company of New York), as amended by
Amendment No. 1 dated as of May 30, 1990, Amendment No. 2 dated as
of February 17, 1993, and Amendment No. 3 dated November 9, 1995.
Filed as Exhibit 4.6 to Registration Statement on Form S-4, File
No. 333-0029.
(1)10A Stock Purchase Agreements dated as of May 30, 1990, among
Corporate Partners, L.P.; Corporate Offshore Partners, L.P.; The
State Board of Administration of Florida and First Bank System,
Inc. and related documents. Filed as Exhibits 4.8-4.15 to
Registration Statement on Form S-3, File No. 33-42650.
(1)(2)10B First Bank System, Inc. 1987 Stock Option Plan. Filed as Exhibit
10E to report on Form 10-K for fiscal year ended December 31,
1991.
(1)(2)10C First Bank System, Inc. Nonqualified Supplemental Executive
Retirement Plan. Filed as Exhibit 10C to report on Form 10-Q for
quarter ended March 31, 1995.
(1)(2)10D First Bank System, Inc. Executive Deferral Plan. Filed as Exhibit
10G to report on Form 10-K for fiscal year ended December 31,
1991.
(1)(2)10E First Bank System, Inc. Annual Incentive Plan. Filed as Exhibit
10H to report on Form 10-K for fiscal year ended December 31,
1992.
(1)(2)10F First Bank System, Inc. Independent Director Retirement and Death
Benefit Plan. Filed as Exhibit 10I to report on Form 10-K for
fiscal year ended December 31, 1992.
(1)(2)10G First Bank System, Inc. Deferred Compensation Plan for Directors.
Filed as Exhibit 10J to report on Form 10-K for fiscal year ended
December 31, 1992.
(1)(2)10H First Bank System, Inc. 1995 Executive Incentive Plan. Filed as
Exhibit 10B to report on Form 10-Q for quarter ended March
31,1995.
(1)(2)10I First Bank System, Inc. Restated Employee Stock Purchase Plan.
Filed as Exhibit 10L to report on Form 10-K for fiscal year ended
December 31, 1991.
80 First Bank System, Inc. and Subsidiaries
<PAGE>
(1)(2)10J Form of Change-in-Control Agreement between First Bank System,
Inc. and certain officers of the Company. Filed as Exhibit 10M to
report on Form 10-K for fiscal year ended December 31, 1991.
(1)(2)10K First Bank System, Inc. 1991 Stock Incentive Plan, as amended.
Filed as Exhibit 10A to report on Form 10-Q for quarter ended
March 31, 1995.
(1)(2)10L First Bank System, Inc. 1994 Stock Incentive Plan. Filed as
Exhibit 10M to report on Form 10-K for fiscal year ended December
31, 1993.
(1)(2)10M Agreement between First Bank System, Inc. and John F. Grundhofer
dated January 18, 1995. Filed as Exhibit 10O to report on Form
10-K for fiscal year ended December 31, 1994.
(1)(2)10N Deferred Income Agreement between First Bank System, Inc. and John
F. Grundhofer dated November 1, 1993. Filed as Exhibit 10O to
report on Form 10-K for fiscal year ended December 31, 1993.
(1)(2)10O Description of First Bank System, Inc. Stock Option Loan Policy.
Filed as Exhibit 10P to report on Form 10-K for fiscal year ended
December 31, 1993.
(1)(2)10P Employment Agreement dated as of April 30, 1993, by and between
First Bank System, Inc. and Will F. Nicholson, Jr. Filed as
Exhibit 10R to report on Form 10-K for fiscal year ended December
31, 1994.
(1)(2)10Q Employment Agreement dated as of December 31, 1994 by and between
First Bank System, Inc. and Will F. Nicholson, Jr. Filed as
Exhibit 10S to report on Form 10-K for fiscal year ended December
31, 1994.
(1)(2)10R Consulting Agreement dated as of January 23, 1995, by and between
First Bank System, Inc. and Norman M. Jones. Filed as Exhibit 10T
to report on Form 10-K for fiscal year ended December 31, 1994.
(1)10S Agreement of Merger and Consolidation, dated July 21, 1994, by and
between First Bank System, Inc. and Metropolitan Financial
Corporation. Filed as Exhibit 2.1 to Form 8-K filed August 5,
1994.
(1)10T Agreement of Merger and Consolidation dated August 6, 1995 by and
between First Bank System, Inc. and FirsTier Financial, Inc. Filed
as Exhibit 2.1 to Registration Statement on Form S-4, File No.
333-00299.
(1)10U Settlement Agreement, dated as of January 23, 1996, between First
Bank System, Inc., First Interstate Bancorp and Wells Fargo & Co.
Filed as Exhibit 2.1 to Form 8-K filed January 26, 1996.
11 Statement re: Computation of Primary and Fully Diluted Net Income
per Common Share.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
13 Annual Report to Shareholders for the year ended December 31,
1995.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
Copies of the Exhibits will be furnished upon request and payment of the
Company's reasonable expenses in furnishing the Financial Statement Schedule and
Exhibits.
(1) Exhibit has heretofore been filed with the Securities and Exchange
Commission and is incorporated herein as an exhibit by reference.
(2) Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on February
21, 1996, on its behalf by the undersigned thereunto duly authorized.
First Bank System, Inc.
John F. Grundhofer
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 21, 1996, by the following persons on behalf
of the registrant and in the capacities indicated.
JOHN F. GRUNDHOFER
Chairman, President, Chief Executive Officer, and Director
(principal executive officer)
RICHARD A. ZONA
Vice Chairman-Finance
SUSAN E. LESTER
Executive Vice President and Chief Financial Officer
(principal financial officer)
DAVID J. PARRIN
Senior Vice President and Controller
(principal accounting officer)
ARTHUR D. COLLINS, JR.
Director
PETER H. COORS
Director
ROGER L. HALE
Director
DELBERT W. JOHNSON
Director
NORMAN M. JONES
Director
JOHN H. KAREKEN
Director
RICHARD L. KNOWLTON
Director
JERRY W. LEVIN
Director
KENNETH A. MACKE
Director
MARILYN CARLSON NELSON
Director
EDWARD J. PHILLIPS
Director
JAMES J. RENIER
Director
S. WALTER RICHEY
Director
RICHARD L. ROBINSON
Director
RICHARD L. SCHALL
Director
LYLE E. SCHROEDER
Director
First Bank System, Inc. and Subsidiaries 81
<PAGE>
EXECUTIVE OFFICERS
JOHN F. GRUNDHOFER
Mr. Grundhofer, 57, has been Chairman of the Board, President and Chief
Executive Officer of First Bank System since 1990.
PHILIP G. HEASLEY
Mr. Heasley, 46, has served as Vice Chairman since 1993. He is responsible for
retail bank products, Payment Systems, and operations and technology. In
February 1996, Mr. Heasley assumed additional responsibility for consumer and
small business sales and services carried out through bank branches.
RICHARD A. ZONA
Mr. Zona, 51, was named Vice Chairman-Finance in February 1996, and assumed
responsibility for private financial services and business banking. Mr. Zona
previously served as Vice Chairman and Chief Financial Officer.
J. ROBERT HOFFMANN
Mr. Hoffmann, 50, has been Executive Vice President and Chief Credit Officer
since 1990.
SUSAN E. LESTER
Ms. Lester, 39, was named Executive Vice President and Chief Financial Officer
in February 1996. She had served as Executive Vice President, Finance, since
December 1995. From May 1994 to November 1995, Ms. Lester was Executive Vice
President and Chief Financial Officer of Shawmut National Corporation. Before
that, she served as Executive Vice President and Controller at First Bank
System.
LEE R. MITAU
Mr. Mitau, 47, was named Executive Vice President, General Counsel and Secretary
in 1995. Previously, he was a Senior Partner at Dorsey & Whitney P.L.L.P.
JOHN M. MURPHY, JR.
Mr. Murphy, 54, has been Chairman and Chief Investment Officer, First Trust
National Association, since 1990.
DANIEL C. ROHR
Mr. Rohr, 49, has served as Executive Vice President of the Commercial Banking
Group since 1990.
ROBERT H. SAYRE
Mr. Sayre, 56, has served as Executive Vice President of Human Resources since
1990.
DAVID R. EDSTAM
Mr. Edstam, 48, was named Executive Vice President and Treasurer in 1995. He
previously served as Senior Vice President and Treasurer.
ELIZABETH A. MALKERSON
Ms. Malkerson, 46, has been Senior Vice President of Corporate Relations since
1990.
DAVID J. PARRIN
Mr. Parrin, 40, has been Senior Vice President and Controller since 1994.
Previously, he was a Partner at Ernst & Young LLP.
DIRECTORS
JOHN F. GRUNDHOFER
Chairman, President and Chief Executive Officer
First Bank System, Inc.
Minneapolis, Minnesota
ARTHUR D. COLLINS, JR.*
Chief Operating Officer
Medtronic, Inc.
Minneapolis, Minnesota
PETER H. COORS*
Vice Chairman and Chief Executive Officer
Coors Brewing Company
Golden, Colorado
ROGER L. HALE
President and Chief Executive Officer
TENNANT
Minneapolis, Minnesota
DELBERT W. JOHNSON
Chairman and Chief Executive Officer
Pioneer Metal Finishing, Inc.
Minneapolis, Minnesota
NORMAN M. JONES
Chairman of the Board
First Bank, fsb
Minneapolis, Minnesota
JOHN H. KAREKEN
Professor Emeritus of Banking and Finance
Curtis L. Carlson
School of Management
University of Minnesota
Minneapolis, Minnesota
RICHARD L. KNOWLTON
Chairman
The Hormel Foundation
Austin, Minnesota
JERRY W. LEVIN**
Chairman and Chief Executive Officer
Revlon, Inc.
New York, New York
KENNETH A. MACKE
Macke Partners
Golden Valley, Minnesota
MARILYN CARLSON NELSON
Vice Chair
Carlson Holdings, Inc.
Minneapolis, Minnesota
EDWARD J. PHILLIPS
Chairman and Chief Executive Officer
Phillips Beverage Company
Minneapolis, Minnesota
JAMES J. RENIER
Retired Chairman of the Board and Chief Executive Officer
Honeywell Inc.
Minneapolis, Minnesota
S. WALTER RICHEY
President and Chief Executive Officer
Meritex, Inc.
Minneapolis, Minnesota
RICHARD L. ROBINSON
Chairman and Chief Executive Officer
Robinson Dairy, Inc.
Denver, Colorado
RICHARD L. SCHALL
Retired Vice Chairman of the Board
Dayton Hudson Corporation
Minneapolis, Minnesota
LYLE E. SCHROEDER
President and Chief Executive Officer
Sioux Valley Hospital
Sioux Falls, South Dakota
*Elected effective February 21, 1996
**Elected effective July 19, 1995
82 First Bank System, Inc. and Subsidiaries
<PAGE>
FBS LOCATIONS*
MINNESOTA
Albert Lea
Alexandria (2)
Amboy
Anoka (2)
Apple Valley
Austin
Babbitt
Blaine
Blooming Prairie
Bloomington (4)
Brainerd
Brooklyn Center
Brooklyn Park
Burnsville
Chisago City
Cloquet
Columbia Heights
Cottage Grove
Duluth (7)
Eagan (2)
East Grand Forks
Eden Prairie (2)
Edina (3)
Elk River
Fairmont
Fergus Falls
Forest Lake
Grand Rapids
Hibbing
Hopkins
Lamberton
Little Canada
Mankato (2)
Maple Grove
Minneapolis (15)
Minnetonka (2)
Monticello
Moorhead
New Prague
Oakdale
Owatonna
Pine City
Pine River
Plymouth (2)
Princeton
Prior Lake
Ramsey
Robbinsdale
Rochester (4)
Sauk Rapids
Shoreview
St. Anthony
St. Cloud (2)
St. Louis Park
St. Paul (6)
Stillwater
Virginia
Wayzata
West St. Paul
White Bear Lake (2)
Willmar
Woodbury
COLORADO
Arvada (2)
Aspen
Aurora (4)
Boulder (2)
Broomfield
Canon City
Colorado Springs (6)
Denver (18)
Englewood (3)
Evergreen
Fort Collins (2)
Glenwood Springs
Golden
Grand Junction (2)
Greeley
Highlands Ranch
La Junta
Lakewood (4)
Littleton (4)
Longmont
Loveland
Northglenn
Parker
Pueblo (4)
Westminster (2)
Wheat Ridge
ILLINOIS
Chicago (6)
Des Plaines (3)
Downers Grove
IOWA
Altoona
Alvord
Ankeny
Carlisle
Clear Lake
Council Bluffs (4)
Des Moines (6)
Doon
Hampton
Iowa Falls
Knoxville
Mason City (2)
Nevada
Pella
Red Oak
Rock Valley
Wellman
West Des Moines (2)
Williamsburg
KANSAS
Andover
Augusta
Clay Center
El Dorado
Emporia (2)
Eureka
Gardner
Holton
Iola
Lawrence (2)
Manhattan
Overland Park
Prairie Village
Pratt
Topeka (2)
Wichita (4)
MONTANA
Billings (2)
Bozeman
Butte
Great Falls (3)
Havre
Helena
Miles City
Missoula (2)
NEBRASKA
Beatrice
Bellevue
Blair
Columbus
David City
Elkhorn
Fremont (2)
Gering
Grand Island (2)
Hastings
Kearney (2)
La Vista
Lincoln (10)
Millard
Norfolk (2)
North Platte
Omaha (21)
Scottsbluff (3)
NORTH DAKOTA
Beulah
Bismarck (4)
Devils Lake
Dickinson
Fargo (5)
Grafton
Grand Forks (4)
Jamestown
Langdon
Lisbon
Mandan
Minot (2)
Valley City
Wahpeton
West Fargo
Williston
SOUTH DAKOTA
Aberdeen
Colton
Hartford
Humboldt
Mitchell
Pierre
Rapid City (4)
Sioux Falls (7)
WISCONSIN
Brookfield
Brown Deer
Hudson
LaCrosse
Milwaukee (2)
Onalaska
WYOMING
Casper
Cheyenne (2)
Cody
Evanston
Gillette
Green River
Lander
Laramie
Riverton
Rock Springs
Sheridan
Torrington
Worland
CORPORATE TRUST OFFICES
Billings, MT
Cheyenne, WY
Chicago, IL
Denver, CO
Des Plaines, IL
Duluth, MN
Fargo, ND
Grand Junction, CO
Los Angeles, CA
Milwaukee, WI
Minneapolis, MN
New York, NY
Portland, OR
Pueblo, CO
Rochester, MN
San Francisco, CA
Seattle, WA
Sioux Falls, SD
St. Paul, MN
REPUBLIC ACCEPTANCE CORP. OFFICES
Des Plaines, IL
Lakewood, CO
Milwaukee, WI
Minneapolis, MN
St. Louis, MO
*First Bank System, Inc. primarily serves Minnesota, Colorado, Illinois, Iowa,
Kansas, Montana, Nebraska, North Dakota, South Dakota, Wisconsin, and Wyoming
through 356 banking locations and 18 nonbank offices. This includes the offices
of FirsTier Financial, Inc., which FBS acquired February 16, 1996.
First Bank System, Inc. and Subsidiaries 83
<PAGE>
CORPORATE DATA
EXECUTIVE OFFICES
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
(612) 973-1111
ANNUAL MEETING
The annual meeting of shareholders will be held at the Minneapolis Convention
Center, 1301 Second Avenue South, Minneapolis, Minnesota 55403, at 2 p.m. on
Wednesday, April 17, 1996.
SECURITIES INFORMATION
First Bank System Common Stock is traded on the New York Stock Exchange under
the ticker symbol FBS and also may be found under the listing FtBkSy. The
transfer agent and registrar for First Bank System is First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500.
DIVIDEND REINVESTMENT
First Bank System shareholders can take advantage of a plan that provides
automatic reinvestment of dividends and/or optional cash purchases of additional
shares at market price of up to $5,000 per quarter. If you would like more
information, contact First Chicago Trust Company of New York, P.O. Box 2598,
Jersey City, New Jersey 07303-2598, (800) 446-2617.
INVESTMENT COMMUNITY CONTACTS
John R. Danielson
Senior Vice President, Investor Relations
(612) 973-2261
General Information, Investor Relations
(612) 973-2263
First Bank System, Inc.
P.O. Box 522
Minneapolis, Minnesota 55480
FINANCIAL INFORMATION
FBS news and financial results are available by fax, mail, or on-line.
Fax. To access our 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 FSB's fax-
on-demand service, we will be glad to automatically mail to you our quarterly
earnings news release. To get on our mailing list, please contact Corporate
Relations, First Bank System, First Bank Place, Minneapolis, Minnesota 55402,
(612) 973-2434.
Internet. To access information about FBS, including news releases, product
information, and a list of service locations, visit our home page on the world
wide web. Our address is www.fbs.com.
For additional annual reports, quarterly financial data on Form 10-Q, or
information about the 1996 annual meeting of shareholders, please contact
Corporate Relations, First Bank System, First Bank Place, Minneapolis, Minnesota
55402, (612) 973-2434.
COMMUNITY RESPONSIBILITY REPORT
For information about FBS's community reinvestment activities, call FBS
Community Relations, (612) 973-2440.
First Bank System is an Equal Employment Opportunity/Affirmative Action
employer.
84 First Bank System, Inc. and Subsidiaries
<PAGE>
Design and Typography: The Nancekivell Group / Printing: Banta
Direct Marketing Group: The Press
<PAGE>
[LOGO] First Bank System
P.O. Box 522
Minneapolis, Minnesota
55480
<PAGE>
GRAPHICS APPENDIX
Inside Front Cover
- ------------------
Map of the United States. The 11 Midwest and Rocky Mountain states (Montana,
Wyoming, Colorado, North Dakota, South Dakota, Nebraska, Kansas, Minnesota,
Iowa, Wisconsin, and Illinois) in which FBS has retail banking offices are
shaded.
Page 1:
- -------
Graphs illustrate the following information:
Return on average common equity (percent)
1991: 14.7
1992: 12.6
1993: 15.8
1994: 17.6
1995: 21.3
Return on average assets (percent)
1991: 0.95
1992: 1.02
1993: 1.28
1994: 1.40
1995: 1.73
Earnings per share (dollars and fully diluted)
1991: 1.92
1992: 2.08
1993: 2.82
1994: 3.32
1995: 4.11
Efficiency ratio (percent)
1991: 68.3
1992: 65.2
1993: 60.4
1994: 58.1
1995: 53.3
Shareholders' equity to assets ratio (percent)
1991: 7.5
1992: 8.4
1993: 8.2
1994: 7.7
1995: 8.0
Allowance coverage of nonperforming loans ratio (percent)
1991: 120
1992: 149
1993: 208
1994: 283
1995: 401
Graphs before merger-related items and nonrecurring items.
1
<PAGE>
Page 3
- ------
Photograph of John F. Grundhofer, chairman, president and chief executive
officer
Graph illustrates the following information: Six-year total return* (percent)
Index: 12/31/89 = 100
FBS = FBS Common Stock
S&P500 = Standard & Poor's Index of 500 Stocks
KBW 50 = Keefe Bruyette & Woods 50-bank index
1989: FBS/100, S&P500/100, KBW 50/100
1990: FBS/83, S&P500/97, KBW 50/72
1991: FBS/159, S&P500/126, KBW 50/114
1992: FBS/193, S&P500/136, KBW 50/145
1993: FBS/217, S&P500/150, KBW 50/153
1994: FBS/243, S&P500/152, KBW 50/145
1995: FBS/375, S&P500/209, KBW 50/232
* Capital appreciation plus dividends
$100 invested in FBS stock in 1989 would have been worth $375 at year-end 1995,
compared with $232 for the KBW index of 50 banks and $209 for the S&P 500.
Page 5
- ------
Table entitled "Recent Acquisitions" (assets in Millions)
BankAmerica Corporate Trust, closing date: 1Q96, location: National,
assets: N/A
FirsTier Financial, Inc., closing date: 1Q96, location: Nebraska,
assets: 3,700
Midwestern Services, Inc., closing date: 4Q95, location: Nebraska,
assets: 229
Southwest Holdings, Inc., closing date: 4Q95, location: Nebraska,
assets: 195
Metropolitan Financial Corporation, closing date: 1Q95, location: Midwest,
assets: 7,900
First Western Corporation, closing date: 1Q95, location: South Dakota,
assets: 317
2
<PAGE>
Page 7
- ------
Graphs illustrate the following information:
Pie chart shows that the Retail and Community Banking Group accounts for 57
percent of FBS net income.
Net Income (Millions)
1993: 202
1994: 252
1995: 322
Net Interest Income (Millions)
1993: 949
1994: 1,021
1995: 1,052
Noninterest Income (Millions)
1993: 228
1994: 237
1995: 221
Efficiency Ratio (percent)
1993: 69.4
1994: 64.9
1995: 56.8
Graphs before merger-related items and nonrecurring items.
Page 9
- ------
Graphs illustrate the following information:
Pie chart shows that the Payment Systems group accounts for 15 percent of FBS
net income.
Net Income (Millions)
1993: 68
1994: 78
1995: 85
Net Interest Income (Millions)
1993: 148
1994: 172
1995: 156
Noninterest Income (Millions)
1993: 157
1994: 195
1995: 261
Efficiency Ratio (percent)
1993: 43.6
3
<PAGE>
1994: 46.2
1995: 49.2
Graphs before merger-related items and nonrecurring items.
Page 11
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Graphs illustrate the following information:
Pie chart shows that the Commercial Banking group accounts for 19 percent of FBS
net income.
Net Income (Millions)
1993: 105
1994: 106
1995: 111
Net Interest Income (Millions)
1993: 227
1994: 216
1995: 218
Noninterest Income (Millions)
1993: 60
1994: 58
1995: 60
Efficiency Ratio (percent)
1993: 33.7
1994: 32.8
1995: 31.9
Graphs before merger-related items and nonrecurring items.
Page 13
- -------
Graphs illustrate the following information:
Pie chart shows that the Trust and Investment group accounts for 9 percent of
FBS net income.
Net Income (Millions)
1993: 36
1994: 35
1995: 50
Net Interest Income (Millions)
1993: 32
1994: 25
1995: 29
Noninterest Income (Millions)
1993: 173
1994: 180
1995: 211
4
<PAGE>
Efficiency Ratio (percent)
1993: 71.2
1994: 71.9
1995: 66.4
Graphs before merger-related items and nonrecurring items.
5
<PAGE>
EXHIBIT 3(b)
BYLAWS
OF
FIRST BANK SYSTEM, INC.
ARTICLE I.
OFFICES
Section 1. Offices.
The registered office of the Corporation in the State of Delaware shall be
in the City of Wilmington, County of New Castle, State of Delaware.
The Corporation shall have offices at such other places as the Board of
Directors may from time to time determine.
ARTICLE II.
STOCKHOLDERS
Section 1. Annual Meeting.
The annual meeting of the stockholders for the election of Directors and
for the transaction of such other business as may properly come before the
meeting shall be held on such date as the Board of Directors shall each year
fix. Each such annual meeting shall be held at such place, within or without the
State of Delaware, and hour as shall be determined by the Board of Directors.
The day, place and hour of such annual meeting shall be specified in the notice
of annual meeting.
The meeting may be adjourned from time to time and place to place until its
business is completed.
Section 2. Special Meeting.
Special meetings of stockholders may be called by the Board of Directors or
the chief executive officer. The notice of such meeting shall state the purpose
of such meeting and no business shall be transacted thereat except as stated in
the notice thereof. Any such meeting may be held at such place within or without
the State of Delaware as may be fixed by the Board of Directors or the Chief
Executive Officer, and as may be stated in the notice of such meeting.
Section 3. Notice of Meeting.
Notice of every meeting of the stockholders shall be given in the manner
prescribed by law.
<PAGE>
Section 4. Quorum.
Except as otherwise required by law, the Certificate of Incorporation or
these Bylaws, the holders of not less than one-third of the shares entitled to
vote at any meeting of the stockholders, present in person or by proxy, shall
constitute a quorum and the act of the majority of such quorum shall be deemed
the act of the stockholders.
If a quorum shall fail to attend any meeting, the chairman of the meeting
may adjourn the meeting to another place, date, or time.
Section 5. Qualification of Voters.
The Board of Directors may fix a day and hour not more than sixty nor less
than ten days prior to the day of holding any meeting of the stockholders as the
time as of which the stockholders entitled to notice of and to vote at such
meeting shall be determined. Only those persons who were holders of record of
voting stock at such time shall be entitled to notice of and to vote at such
meeting.
Section 6. Procedure.
The presiding officer at each meeting of stockholders shall conclusively
determine the order of business, all matters of procedure and whether or not a
proposal is proper business to be transacted at the meeting and has been
properly brought before the meeting.
The Board shall appoint two or more inspectors of election to serve at
every meeting of the stockholders at which Directors are to be elected.
Section 7. Nomination of Directors.
Only persons nominated in accordance with the following procedures shall be
eligible for election by stockholders as Directors. Nominations of persons for
election as Directors at a meeting of stockholders called for the purpose of
electing Directors may be made (a) by or at the direction of the Board of
Directors or (b) by any stockholder in the manner herein provided. For a
nomination to be properly made by a stockholder, the stockholder must give
written notice to the Secretary of the Corporation so as to be received at the
principal executive offices of the Corporation not later than (i) with respect
to an annual meeting of stockholders, 90 days in advance of such meeting and
(ii) with respect to a special meeting of stockholders for the election of
directors, the close of business on the seventh day following the date on which
the notice of such meeting is first given to stockholders. Each such notice
shall set forth (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understanding between the
stockholder and each nominee and any other person
2
<PAGE>
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board; and (e) the consent of each nominee to serve as a
Director of the Corporation if so elected.
ARTICLE III.
DIRECTORS
Section 1. Number and Election.
The Board of Directors of the Corporation shall consist of seventeen
Directors. Commencing with the annual election of Directors by the stockholders
in 1986, the Directors shall be divided into three classes: Class I, Class II
and Class III, each such class, as nearly as possible, to have the same number
of Directors. The term of office of the initial Class I Directors shall expire
at the annual election of Directors by the stockholders in 1987, the term of
office of the initial Class II Directors shall expire at the annual election of
Directors by the stockholders in 1988, and the term of office of the initial
Class III Directors shall expire at the annual election of Directors by the
stockholders in 1989. At each annual election of Directors by the stockholders
held after 1985, the Directors chosen to succeed those whose terms have then
expired shall be identified as being of the same class as the Directors they
succeed and shall be elected by the stockholders for a term expiring at the
third succeeding annual election of Directors. In all cases, Directors shall
hold office until their respective successors are elected by the stockholders
and have qualified.
In the event that the holders of any class or series of stock of the
Corporation having a preference as to dividends or upon liquidation of the
Corporation shall be entitled, by a separate class vote, to elect Directors as
may be specified pursuant to Article Fourth of the Corporation's Restated
Certificate of Incorporation, then the provisions of such class or series of
stock with respect to their rights shall apply. The number of Directors that may
be elected by the holders of any such class or series of stock shall be in
addition to the number fixed pursuant to the preceding paragraph. Except as
otherwise expressly provided pursuant to Article Fourth of the Corporation's
Restated Certificate of Incorporation, the number of Directors that may be so
elected by the holders of any such class or series of stock shall be elected for
terms expiring at the next annual meeting of stockholders and without regard to
the classification of the remaining members of the Board of Directors and
vacancies among Directors so elected by the separate class vote of any such
class or series of stock shall be filled by the remaining Directors elected by
such class or series, or, if there are no such remaining Directors, by the
holders of such class or series in the same manner in which such class or series
initially elected a Director.
If at any meeting for the election of Directors, more than one class of
stock, voting separately as classes, shall be entitled to elect one or more
Directors and there shall be a quorum of only one such class of stock, that
class of stock shall be entitled to elect its quota of Directors notwithstanding
the absence of a quorum of the other class or classes of stock.
3
<PAGE>
Section 2. Vacancies.
Vacancies and newly created directorships resulting from an increase in the
number of Directors shall be filled by a majority of the Directors then in
office, although less than a quorum, or by a sole remaining Director, and such
Directors so chosen shall hold office until the next election of the class for
which such Directors shall have been chosen, and until their successors are
elected and qualified.
Section 3. Regular Meetings.
Regular meetings of the Board shall be held at such times and places as the
Board may from time to time determine.
Section 4. Special Meetings.
Special meetings of the Board may be called at any time, at any place and
for any purpose by the Chairman of the Board, or the President, or by any
officer of the Corporation upon the request of a majority of the entire Board.
Section 5. Notice of Meetings.
Notice of regular meetings of the Board need not be given.
Notice of every special meeting of the Board shall be given to the
Directors at their usual places of business, or at such other addresses as shall
have been furnished by them for the purpose. Such notice shall be given at least
twelve hours (three hours if meeting is to be conducted by conference telephone)
before the meeting by telephone or by being personally delivered, mailed, or
telegraphed. Such notice need not include a statement of the business to be
transacted at, or the purpose of, any such meeting.
Section 6. Quorum.
Except as may be otherwise provided by law or in these Bylaws, the presence
of one-third of the entire Board shall be necessary and sufficient to constitute
a quorum for the transaction of business at any meeting of the Board, and the
act of a majority of such quorum shall be deemed the act of the Board.
Less than a quorum may adjourn any meeting of the Board from time to time
without notice.
Section 7. Participation in Meetings by Conference Telephone.
Members of the Board, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by
4
<PAGE>
means of which all persons participating in the meeting can hear each other and
such participation shall constitute presence in person at such meeting.
Section 8. Powers.
The business, property, and affairs of the Corporation shall be managed by
or under the direction of its Board of Directors, which shall have and may
exercise all the powers of the Corporation to do all such lawful acts and things
as are not by law, or by the Certificate of Incorporation, or by these Bylaws,
directed or required to be exercised or done by the stockholders.
Section 9. Compensation of Directors.
Directors shall receive such compensation for their services as shall be
determined by a majority of the entire Board provided that Directors who are
serving the Corporation as officers or employees and who receive compensation
for their services as such officers or employees shall not receive any salary
or other compensation for their services as Directors.
Section 10. Committees of the Board.
A majority of the entire Board of Directors may designate one or more
standing or temporary committees consisting of one or more Directors. The Board
may invest such committees with such powers and authority, subject to the
limitations of law and such conditions as it may see fit.
ARTICLE IV.
EXECUTIVE COMMITTEE
Section 1. Election.
At any meeting of the Board, an Executive Committee, composed of the
Chairman of the Board, the President, and not less than three other members, may
be elected by a majority vote of the entire Board to serve until the Board shall
otherwise determine. Either the Chairman of the Board or the President,
whichever is the chief executive officer, shall be the Chairman of the Executive
Committee, and the other shall be the Vice Chairman thereof, unless the Board
shall other wise determine. Members of the Executive Committee shall be members
of the Board.
Section 2. Powers.
The Executive Committee shall have and may exercise all of the powers of
the Board of Directors when the Board is not in session, except that, unless
specifically authorized by the Board of Directors, it shall have no power to (a)
elect directors or officers; (b) alter, amend, or repeal these Bylaws or any
resolution of the Board of Directors relating to the Executive Committee; (c)
declare any dividend or make any other distribution to the stockholders of the
5
<PAGE>
Corporation; (d) appoint any member of the Executive Committee; or (e) take any
other action which legally may be taken only by the Board.
Section 3. Rules.
The Executive Committee shall adopt such rules as it may see fit with
respect to the calling of its meetings, the procedure to be followed thereat,
and its functioning generally. Any action taken with the written consent of all
members of the Executive Committee shall be as valid and effectual as though
formally taken at a meeting of said Executive Committee.
Section 4. Vacancies.
Vacancies in the Executive Committee may be filled at any time by a
majority vote of the entire board.
ARTICLE V.
OFFICERS
Section 1. Number.
The officers of the Corporation shall be appointed or elected by the Board
of Directors. The officers shall be a Chairman of the Board, a President, one or
more Vice Chairmen, such number of Vice Presidents or other officers as the
Board may from time to time determine, a Secretary, a Treasurer, and a
Controller. The Chairman of the Board shall be the Chief Executive Officer
unless the Board shall determine otherwise. The Chairman of the Board or, in his
absence or if such office be vacant, the President shall preside at all meetings
of the stockholders and of the Board. In the absence of the Chairman of the
Board and the President, any other Board member designated by the Board may
preside at all meetings of the stockholders and of the Board. The Board of
Directors may appoint or elect a person as a Vice Chairman without regard to
whether such person is a member of the Board of Directors.
Section 2. Staff and Divisional Officers.
The Chief Executive Officer may appoint at his discretion such persons to
hold the title of staff vice president, divisional chairman, divisional
president, divisional vice president or other similar designation. Such persons
shall not be officers of the Corporation and shall retain such title at the sole
discretion of the Chief Executive Officer who may at his will and from time to
time make or revoke such designation.
Section 3. Terms of Office.
All officers, agents, and employees of the Corporation shall hold their
respective offices or positions at the pleasure of the Board of Directors or the
appropriate appointing authority and may be removed at any time by such
authority with or without cause.
6
<PAGE>
Section 4. Duties.
The officers, agents, and employees shall perform the duties and exercise
the powers usually incident to the offices or positions held by them
respectively, and/or such other duties and powers as may be assigned to them
from time to time by the Board of Directors or the Chief Executive Officer.
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND EMPLOYEES
Section 1.
The Corporation shall indemnify to the full extent permitted by, and in the
manner permissible under the Delaware General Corporation Law, as amended from
time to time, any person made, or threatened to be made, a party to any action,
suit, or proceeding, whether criminal, civil, administrative, or investigative,
by reason of the fact that such person is or was a director, advisory director,
or officer of the Corporation or any predecessor of the Corporation, or served
any other enterprise as a director, advisory director or officer at the request
of the Corporation or any predecessor of the Corporation. The foregoing rights
of indemnification shall not be deemed exclusive of any other rights to which
any director, advisory director, or officer may be entitled apart from the
provisions of this Article.
The Board of Directors in its discretion shall have power on behalf of the
Corporation to indemnify any person, other than a director, advisory director or
officer, made a party to any action, suit, or proceeding by reason of the fact
that such person, or the testator or intestate of such person, is or was an
employee of the Corporation.
Section 2.
Expenses incurred by a director, advisory director or officer in defending
a civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director, advisory director or officer
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized by Delaware law.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
ARTICLE VII.
STOCK
Section 1. Stock Certificates.
The interest of each stockholder of the Corporation shall be evidenced by a
certificate or certificates for shares of stock in such form as the Board of
Directors may from time to time
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<PAGE>
prescribe. The shares of the stock of the Corporation shall be transferable on
the books of the Corporation by the holder thereof in person or by his attorney
upon surrender for cancellation of a certificate or certificates for the same
number of shares with an assignment and power of transfer endorsed thereon or
attached thereto, duly executed, and with such proof of the validity of the
signature as the Corporation or its agents may reasonably require.
Section 2. Signatures.
The certificates of stock shall be signed by the Chairman, President, or a
Vice President and by the Secretary or an Assistant Secretary, provided that if
such certificates are signed by a transfer agent or transfer clerk and by a
registrar, the signatures of such Chairman, President, Vice President,
Secretary, or Assistant Secretary may be facsimiles, engraves, or printed.
Section 3. Replacement.
No certificate for shares of stock in the Corporation shall be issued in
place of any certificate alleged to have been lost, stolen, or destroyed except
upon production of such evidence of such loss, theft, or destruction and upon
delivery to the Corporation of a bond of indemnity in such amount, and upon such
terms and secured by such surety as the Board of Directors or the Executive
Committee in its discretion may require.
ARTICLE VIII.
MISCELLANEOUS
Section 1. Seal.
The Corporation seal shall bear the name of the Corporation, the date 1929
and the words "Corporation Seal, Delaware".
Section 2. Fiscal Year.
The fiscal year of the Corporation shall begin on the first day of January
in each year and shall end on the thirty-first day of December following.
ARTICLE IX.
AMENDMENTS
Section 1.
These Bylaws, or any of them, may from time to time be supplemented,
amended, or repealed (a) by a majority vote of the entire Board of Directors or
(b) at any annual or special meeting of the stockholders.
8
<PAGE>
ARTICLE X.
EMERGENCY BYLAW
Section 1. Operative Event.
The Emergency Bylaw provided in this Article X shall be operative during
any emergency resulting from an attack on the United States, any nuclear or
atomic incident, or other event which creates a state of disaster of sufficient
severity to prevent the normal conduct and management of the affairs and
business of the Corporation, notwithstanding any different provision in the
preceding articles of the Bylaws or in the Certificate of Incorporation of the
Corporation or in the General Corporation Law of Delaware. To the extent not
inconsistent with this Emergency Bylaw, the Bylaws provided in the preceding
Articles shall remain in effect during such emergency and upon the termination
of such emergency the Emergency Bylaw shall cease to be operative unless and
until another such emergency shall occur.
Section 2. Notice of Meeting.
During any such emergency, any meeting of the Board of Directors may be
called by any officer of the Corporation or by any Director. Notice shall be
given by such person or by any officer of the Corporation. The notice shall
specify the place of the meeting, which shall be the head office of the
Corporation at the time if feasible and otherwise any other place specified in
the notice. The notice shall also specify the time of the meeting. Notice may be
given only to such of the Directors as it may be feasible to reach at the time
and by such means as may be feasible at the time, including publication or
radio. If given by mail, messenger, telephone, or telegram, the notice shall be
addressed to the Directors at their residences or business addresses, or such
other places as the person giving the notice shall deem most suitable. Notice
shall be similarly given, to the extent feasible, to the other persons serving
as Directors referred to in Section 3 below. Notice shall be given at least two
days before the meeting if feasible in the judgment of the person giving the
notice and otherwise on any shorter time he may deem necessary.
Section 3. Quorum.
During any such emergency, at any meeting of the Board of Directors, a
quorum shall consist of one-third of the number of Directors fixed at the time
pursuant to Article III of the Bylaws. If the Directors present at any
particular meeting shall be fewer than the number required for such quorum,
other persons present, to the number necessary to make up such quorum, shall be
deemed Directors for such particular meeting as determined by the following
provisions and in the following order of priority:
(a) All Executive Vice Presidents of the Corporation in order of their
seniority of first election to such office, or if two or more shall have
been first elected to such office on the same day, in the order of their
seniority in age; and
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<PAGE>
(b) All Senior Vice Presidents of the Corporation in order of their
seniority of first election to such office, or if two or more shall have
been first elected to such office on the same day, in the order of their
seniority in age; and
(c) All Vice Presidents of the Corporation in order of their seniority of
first election to such office, or if two or more shall have been first
elected to such office on the same day, in the order of their seniority in
age; and
(d) Any other persons that are designated on a list that shall have been
approved by the Board of Directors before the emergency, such persons to be
taken in such order of priority and subject to such conditions as may be
provided in the resolution approving the list.
Section 4. Lines of Management Succession.
The Board of Directors, during as well as before any such emergency, may
provide and from time to time modify lines of succession in the event that
during such an emergency any or all officers or agents of the Corporation shall
for any reason be rendered incapable of discharging their duties.
Section 5. Office Relocation.
The Board of Directors, during as well as before any such emergency, may,
effective in the emergency, change the head office or designate several
alternative head offices or regional offices, or authorize the officers to do
so.
Section 6. Liability.
No officer, director, or employee acting in accordance with this Emergency
Bylaw shall be liable except for willful misconduct.
Section 7. Repeal or Amendment.
This Emergency Bylaw shall be subject to repeal or change by further action
of the Board of Directors or by action of the stockholders, except that no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action or inaction prior to the time of such repeal or change.
Any such amendment of this Emergency Bylaw may make any further or different
provision that may be practical and necessary for the circumstances of the
emergency deems it to be in the best interest of the Corporation to do so.
10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
Computation of Primary and Fully Diluted Net Income Per Common Share
Year Ended December 31 (Dollars in millions, except per share data) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary:
Average shares outstanding....................................................... 131,794,439 133,752,000 132,757,389
Net effect of the assumed purchase of stock under the stock option and stock
purchase plans--based on the treasury stock method using average market price.. 2,141,591 2,522,991 1,831,275
-------------------------------------------------
133,936,030 136,274,991 134,588,664
-------------------------------------------------
Income from continuing operations................................................ $ 568.1 $ 313.5 $ 360.7
Preferred dividends.............................................................. (7.5) (12.6) (29.2)
-------------------------------------------------
Income from continuing operations applicable to common equity.................... $ 560.6 $ 300.9 $ 331.5
-------------------------------------------------
Income from continuing operations per common share............................... $ 4.19 $ 2.21 $ 2.46
-------------------------------------------------
Income (loss) from discontinued operations....................................... -- $ (8.5) $ 2.5
-------------------------------------------------
Income (loss) from discontinued operations per common share...................... -- $ (.06) $ .02
-------------------------------------------------
Net income....................................................................... $ 568.1 $ 305.0 $ 363.2
Preferred dividends.............................................................. (7.5) (12.6) (29.2)
-------------------------------------------------
Net income applicable to common equity........................................... $ 560.6 $ 292.4 $ 334.0
-------------------------------------------------
Net income per common share...................................................... $ 4.19 $ 2.15 $ 2.48
-------------------------------------------------
Fully diluted:*
Average shares outstanding....................................................... 131,794,439 133,752,000 132,757,389
Net effect of the assumed purchase of stock under the stock option and stock
purchase plans--based on the treasury stock method using average market price
or year-end market price, whichever is higher.................................. 2,790,528 2,720,882 1,888,873
Assumed conversion of Series 1991A Preferred Stock............................... 3,563,191 3,655,684 3,681,740
-------------------------------------------------
138,148,158 140,128,566 138,328,002
-------------------------------------------------
Income from continuing operations................................................ $ 568.1 $ 313.5 $ 360.7
Preferred dividends, excluding 1991A Preferred Stock............................. -- (5.1) (21.2)
-------------------------------------------------
Income from continuing operations applicable to common equity.................... $ 568.1 $ 308.4 $ 339.5
-------------------------------------------------
Income from continuing operations per common share............................... $ 4.11 $ 2.20 $ 2.45
-------------------------------------------------
Income (loss) from discontinued operations....................................... -- $ (8.5) $ 2.5
-------------------------------------------------
Income (loss) from discontinued operations per common share...................... -- $ (.06) $ .02
-------------------------------------------------
Net Income....................................................................... $ 568.1 $ 305.0 $ 363.2
Preferred dividends, excluding 1991A Preferred Stock............................. -- (5.1) (21.2)
-------------------------------------------------
Net income applicable to common equity........................................... $ 568.1 $ 299.9 $ 342.0
-------------------------------------------------
Net income per common share...................................................... $ 4.11 $ 2.14 $ 2.47
- ------------------------------------------------------------------------------------------------------------------------------------
* This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph
17 of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
Year Ended December 31 (Dollars in Millions) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
1. Net income from continuing operations before cumulative effect....... $ 568.1 $ 313.5 $ 360.7 $ 213.0 $ 263.4
2. Applicable income taxes.............................................. 334.3 191.8 198.6 115.7 30.3
--------------------------------------------------------
3. Income before taxes (1 + 2).......................................... $ 902.4 $ 505.3 $ 559.3 $ 328.7 $ 293.7
--------------------------------------------------------
4. Fixed charges:
a. Interest expense excluding interest on deposits................... $ 398.3 $ 271.4 $ 148.0 $ 155.4 $ 228.3
b. Portion of rents representative of interest and amortization
of debt expense................................................... 29.0 30.2 34.8 36.7 34.4
--------------------------------------------------------
c. Fixed charges excluding interest on deposits (4a + 4b)............ 427.3 301.6 182.8 192.1 262.7
d. Interest on deposits.............................................. 706.7 597.3 648.3 797.7 1,125.9
--------------------------------------------------------
e. Fixed charges including interest on deposits (4c + 4d)............ $1,134.0 $ 898.9 $ 831.1 $ 989.8 $1,388.6
--------------------------------------------------------
5. Amortization of interest capitalized................................. $ -- $ -- $ -- $ .3 $ .3
6. Earnings excluding interest on deposits (3 + 4c + 5)................. 1,329.7 806.9 742.1 521.1 556.7
7. Earnings including interest on deposits (3 + 4e + 5)................. 2,036.4 1,404.2 1,390.4 1,318.8 1,682.6
8. Fixed charges excluding interest on deposits (4c).................... 427.3 301.6 182.8 192.1 262.7
9. Fixed charges including interest on deposits (4e).................... 1,134.0 898.9 831.1 989.8 1,388.6
Ratio of Earnings to Fixed Charges
10. Excluding interest on deposits (line 6/line 8)....................... 3.11 2.68 4.06 2.71 2.12
11. Including interest on deposits (line 7/line 9)....................... 1.80 1.56 1.67 1.33 1.21
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 13
Pursuant to General Instruction (H) to Form 10-K the Company is filing an
integrated Annual Reort on Form 10-K. See page 78 for 10-K cover page for the
sections of the Annual Report incorporated into the Form 10-K.
<PAGE>
Exhibit 21
FIRST BANK SYSTEM, INC.
BANKING AND NON-BANKING SUBSIDIARIES
Bank and Trust Operations
-------------------------
MINNESOTA
- ---------
First Bank National Association
First National Bank of East Grand Forks
First Trust National Association
ARIZONA
- -------
First Trust Company of Arizona (Inactive)
CALIFORNIA
- ----------
First Trust of California, National Association
COLORADO
- --------
Colorado National Bank
Colorado National Bank Aspen
ILLINOIS
- --------
First Bank National Association
First Trust of Illinois, National Association
MONTANA
- -------
First Bank Montana, National Association
First Trust Company of Montana National Association
NEBRASKA
- --------
First Bank National Association
NEW YORK
- --------
First Trust of New York, National Association
NORTH DAKOTA
- ------------
First Bank, fsb
First Trust Company of North Dakota National Association
OREGON
- ------
First Trust Oregon
SOUTH DAKOTA
- ------------
First Bank of South Dakota (National Association)
WASHINGTON
- ----------
First Trust Washington
WISCONSIN
- ---------
First Bank (National Association)
<PAGE>
NON-BANKING SUBSIDIARIES
------------------------
State of
Subsidiary Incorporation
- ---------- -------------
FBS Associated Properties, Inc. Minnesota
FBS Card Services, Inc. Minnesota
FBS Cayman Ltd. - (Inactive) Cayman Islands
FBS Community Development Corporation Minnesota
FBS Credit Services, Inc. Minnesota
FBS Information Services Corporation Minnesota
FBS Portfolio, Inc. Minnesota
FBS Service Center, Inc. North Dakota
FBS Trade Services Limited Hong Kong
FBS Venture Capital Corporation Minnesota
First Bank System Foundation Minnesota
First Building Corporation Minnesota
First Group Royalties, Inc. Minnesota
First System Agencies, Inc. Delaware
First System Services, Inc. Minnesota
Marquette Information Services, Inc. (inactive) Minnesota
Marquette Insurance Agency, Inc. (inactive) Minnesota
Colorado National Bankshares, Inc. Colorado
Boulevard Bancorp, Inc. Delaware
Boulevard Technical Services, Incorporated Illinois
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements and related Prospectuses of First Bank System, Inc. of our report
dated January 9, 1996 (except for Note C, as to which the date is February 16,
1996), with respect to the consolidated financial statements of First Bank
System, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1995.
<TABLE>
<CAPTION>
Registration
Form Statement No. Purpose
- ---- ------------- -------
<S> <C> <C>
S-8 2-89224 Capital Accumulation Plan
S-8 33-16242 1987 Stock Option Plan
S-8 33-42333 Employee Stock Purchase Plan
S-8 33-55932 WCIC Options
S-8 33-42334 1991 Stock Option Plan
S-8 33-52835 1988 Equity Participation Plan
S-8 33-52959 1994 Stock Incentive Plan
S-8 33-53395 1991 Stock Incentive Plan
S-8 333-01099 FirsTier Financial, Inc. Omnibus Equity Plan (as assumed
by First Bank System, Inc.)
S-3 33-38268 Northern Cities Bancorp acquisition
S-3 33-33508 Dividend Reinvestment Plan
S-3 33-47785 Siouxland acquisition
S-3 33-57169 Metropolitan Financial Corporation warrants
S-3 33-55485 First Dakota Financial Corporation acquisition
S-3 33-52495 American Bankshares of Mankato acquisition
S-3 33-58521 $1 billion shelf registration
S-3 33-61667 Warrants for settlement of Edina Realty litigation
S-3 33-62251 Southwest Holdings, Inc. acquisition
S-4 33-64447 First Interstate Bancorp
</TABLE>
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 1, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
BANK SYSTEM, INC. DECEMBER 31, 1995, 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,837,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 265,000
<TRADING-ASSETS> 86,000
<INVESTMENTS-HELD-FOR-SALE> 3,256,000
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 26,400,000
<ALLOWANCE> 473,500
<TOTAL-ASSETS> 33,874,000
<DEPOSITS> 22,514,000
<SHORT-TERM> 4,385,000
<LIABILITIES-OTHER> 826,000
<LONG-TERM> 3,201,000
<COMMON> 170,000
0
103,000
<OTHER-SE> 2,452,000
<TOTAL-LIABILITIES-AND-EQUITY> 33,874,000
<INTEREST-LOAN> 2,273,400
<INTEREST-INVEST> 237,200
<INTEREST-OTHER> 34,600
<INTEREST-TOTAL> 2,545,200
<INTEREST-DEPOSIT> 706,700
<INTEREST-EXPENSE> 1,105,000
<INTEREST-INCOME-NET> 1,440,200
<LOAN-LOSSES> 115,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,205,900
<INCOME-PRETAX> 902,400
<INCOME-PRE-EXTRAORDINARY> 568,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 568,100
<EPS-PRIMARY> 4.19
<EPS-DILUTED> 4.11
<YIELD-ACTUAL> 4.91
<LOANS-NON> 118,100
<LOANS-PAST> 38,800
<LOANS-TROUBLED> 100
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 474,700
<CHARGE-OFFS> 209,100
<RECOVERIES> 88,100
<ALLOWANCE-CLOSE> 473,500
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
