10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 Commission File No. 1-4114 FIRST INTERSTATE BANCORP (Exact name of registrant as specified in its charter) DELAWARE 95-1418530 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 633 WEST FIFTH STREET LOS ANGELES, CALIFORNIA 90071 (Address of principal executive offices) (Zip Code) (213) 614-3001 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock, $2 par value New York and Pacific Stock Exchanges Series F Preferred Stock New York Stock Exchange Series G Preferred Stock New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Senior Medium Term Notes, Series A Subordinated Medium Term Notes, Series C 10.5% Notes Due March 1, 1996 12.75% Subordinated Notes Due May 1, 1997 Floating Rate Subordinated Notes Due June 1997 11.0% Notes Due March 5, 1998 8.625% Subordinated Capital Notes Due April 1, 1999 9.125% Notes Due February 1, 2004 9.00% Notes Due November 15, 2004 8.15% Notes Due March 15, 2002 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceeding 12 months (or for such shorter period that the registrant has been required to file such (reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. State the aggregate market value of the voting stock held by nonaffiliates of the registrant: CLASS MARKET VALUE AT FEBRUARY 28, 1995 Common Stock, $2 par value $6,167,071,021 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CLASS OUTSTANDING AT FEBRUARY 28, 1995 Common stock, $2 par value 75,785,819 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the year ended December 31, 1994 are incorporated by reference into Part II. Portions of the definitive Proxy Statement for the 1995 annual meeting of stockholders are incorporated by reference into Part III. PART I ITEM 1. BUSINESS The Corporation was incorporated under the laws of the State of Delaware and began operations in 1958 under the name "Firstamerica Corporation". The name Western Bancorporation was adopted in 1961 and changed to First Interstate Bancorp in 1981. The Corporation is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. At December 31, 1994, it owned directly all of the shares of capital stock of 16 banks (the "Subsidiary Banks") which operated approximately 1,100 banking offices in 13 states. Ranked according to assets, the Corporation was the fourteenth largest commercial banking organization in the United States at December 31, 1994, having total deposits of $48.4 billion and total assets of $55.8 billion. During December 1994, the average number of full-time equivalent persons employed by the Corporation and its subsidiaries was 27,394. The Subsidiary Banks accept checking, savings and other time deposit accounts and employ these funds principally by making consumer, real estate and commercial loans and investing in securities and other interest bearing assets. All Subsidiary Banks are members of the Federal Deposit Insurance Corporation, all but three exercise trust powers, and the thirteen national banks and one of the three state banks are members of the Federal Reserve System. The Corporation also provides banking-related financial services and products. These include asset-based commercial financing, asset management and investment counseling, bank card operations, mortgage banking, venture capital and investment products. It engages in these activities both through non-bank subsidiaries of the Corporation and through the Subsidiary Banks and their subsidiaries. The larger Subsidiary Banks provide international banking services on a limited basis through the international departments of their domestic offices and through a business development agreement with Standard Chartered PLC. They also maintain correspondent relationships with major banks throughout the world. International banking is subject to special risks such as fluctuating exchange rates, currency revaluations and the policies of foreign governments. United States governmental guarantees and insurance against political risks are sometimes available and are used in certain circumstances to minimize the impact of such factors. The Subsidiary Banks are responsible to the Corporation for achieving mutually agreed upon goals under the management of their own officers and directors. The Corporation retains a staff of specialists who provide assistance and advice to subsidiaries in the areas of investments, credit, accounting, personnel, business development, operations, asset and liability management, budgeting and planning, loan participations, protective controls and compliance with government regulations. Internal audits and reviews are performed to determine the adequacy of internal control systems, compliance with general corporate policy and consistency of accounting practices in accordance with the Corporation's accounting policies. The Corporation monitors the Subsidiary Banks' credit policy, procedures and administration by reviewing portfolio quality, balance and mix. The Corporation and the Subsidiary Banks on a continuous basis identify and evaluate possible acquisitions of banks and savings and loan associations within the geographic territory served by the Corporation and its Subsidiary Banks. During 1993 and 1994 the Corporation completed five transactions resulting in the acquisition of deposits from both the Resolution Trust Corporation and the Federal Deposit Insurance Corporation. In addition, the Corporation was party to business combinations with various operating entities located within the territory. These transactions resulted in the acquisition of $8.4 billion of deposits and $9.7 billion of assets. Additional details of these transactions are included in the Consolidated Financial Statements and Notes to the Financial Statements attached as an exhibit to this document. COMPETITION The commercial banking business is highly competitive. Subsidiary Banks compete with other commercial banks and with other financial and non-financial institutions, including savings and loan associations, finance companies, credit unions, money market mutual funds and credit card issuers. SUPERVISION AND REGULATION The Corporation, as a bank holding company, is subject to regulation under the Bank Holding Company Act of 1956, as amended (BHCA) and is registered with the Federal Reserve Board under the BHCA. The acquisition of more than 5% of the voting shares of any bank (not already majority owned) requires the prior approval of the Federal Reserve Board. The BHCA also prohibits the Federal Reserve Board from approving an application which would result in the Corporation or any non-bank subsidiary thereof acquiring all or substantially all the assets or more than 5% of the voting shares of any bank (not already majority owned) located outside of California unless an acquisition of such bank by a California-based bank holding company is specifically authorized by the laws of the state in which the bank is located. The laws of several states permit such acquisitions. The BHCA also prohibits the Corporation, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to its Subsidiary Banks, except that the Corporation may engage in, and may own shares of companies engaged in, certain businesses found by the Federal Reserve Board to be so closely related to banking "as to be a proper incident thereto." The BHCA does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The Corporation is required by the BHCA to file annual reports of its operations with the Federal Reserve Board and is subject to examination by the Federal Reserve Board. Under legislation enacted in 1974, the Federal Reserve Board was given jurisdiction to regulate the terms of certain debt issues of bank holding companies including the authority to impose reserve requirements on such debt. The Subsidiary Banks, as subsidiaries of the Corporation within the meaning of Section 23A of the Federal Reserve Act, are subject to certain restrictions on loans to the Corporation or its non-bank subsidiaries, or investments in the stock or other securities of the Corporation or its non-bank subsidiaries and on advances to any borrower collateralized by such stock or other securities. Further, the Subsidiary Banks are also subject to certain restrictions on most types of transactions with the Corporation or its non-bank subsidiaries, requiring that the terms of such transactions be substantially equivalent to terms of similar transactions with non-affiliated firms. Each of the 16 Subsidiary Banks is either a state or national bank. Three Subsidiary Banks are state-chartered and are subject to supervision and regular examination by the bank supervisory authorities of the respective states in which they are chartered. The remaining Subsidiary Banks are national banks and are subject to supervision and regular examination by the Office of the Comptroller of the Currency. Those Subsidiary Banks which are members of the Federal Reserve System are subject to applicable provisions of the Federal Reserve Act, and First Interstate Bank of California, the Corporation's only state- chartered member bank subsidiary, is subject to regular examination by the Federal Reserve Bank of San Francisco. The deposit accounts held by all of the Subsidiary Banks are insured by the FDIC; as such they are subject to the provisions of the Federal Deposit Insurance Act and, in the case of insured banks not members of the Federal Reserve System, to regular examination by the FDIC. The federal and state laws and regulations of general application to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, and numerous other aspects of their business. The Corporation, as the holder of common stock of Subsidiary Banks which are national banks, may be subject to assessment for the restoration of impaired capital of such banks, as and to the extent provided in Section 5205 of the Revised Statutes of the United States (12 U.S.C. Section 55). Similarly, First Interstate Bank of California may be subject to assessment for the restoration of impaired capital, as and to the extent provided in Section 662 of the California Financial Code. These statutes provide for the restoration of impaired capital by the sale of bank stock, but impose no personal liability upon the stockholder. The Corporation is a legal entity separate and distinct from the Subsidiary Banks. The principal source of the Corporation's revenues is dividends received from the Subsidiary Banks. Another source of revenue, not presently utilized, would be charges to the Subsidiary Banks for administrative services provided by the Corporation. Various statutory provisions limit the amount of dividends the Subsidiary Banks and certain non-bank subsidiaries can pay without regulatory approval, and various regulations also restrict the payment of dividends. In 1989, Congress enacted a law that purports to make banks liable to the FDIC for expenses the FDIC incurs in the case of either its provision of financial assistance to, or the failure of, any affiliated bank. Under that law, the Subsidiary Banks could theoretically be held liable to the FDIC in the event of financial assistance to, or failure of, any other Subsidiary Bank, and theoretically that liability could be substantial enough to cause the surviving Subsidiary Banks either to require financial assistance from the FDIC or to cause the failure of such Subsidiary Banks. On December 19, 1991, comprehensive legislation was enacted that reforms the regulation and supervision of banks and bank holding companies. Among the more significant aspects of the legislation is a requirement that federal regulators prescribe standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, employee, director and principal shareholder compensation, fees and benefits, standards specifying a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses without impairing capital, and to the extent possible, a minimum ratio of market value to book value of publicly traded shares of bank holding companies, such as the Corporation. The legislation also provides for a system of early intervention by the regulators and prompt corrective action at troubled banks. Under that system, a bank may not pay dividends if its capital fails to meet any required minimum and will be expected to submit to its regulator an acceptable plan to restore its capital to adequate levels. While a bank is undercapitalized, its regulator may preclude its growth, require its recapitalization through the sale of shares, require its acquisition or merger, prohibit its parent from paying dividends, and require divestitures by its parent, including divestiture of the bank itself. Its parent holding company will be expected to guarantee that the bank will comply with the bank's capital restoration plan until the bank has been adequately capitalized, on average, for four consecutive quarters, unless the parent is willing to accept loss or closure of the bank by regulators. This guarantee is limited to the lesser of 5% of the bank's total assets at the time it became undercapitalized or the amount necessary to bring the bank into compliance with all applicable capital standards. If the bank does not submit an acceptable capital restoration plan or if its parent holding company does not guarantee such plan, the regulators will be required to take one or more actions, including requiring recapitalization of the bank through its sale of securities or forced sale or merger, restricting transactions with affiliates, restricting interest rates paid on deposits, restricting asset growth, restructuring activities, replacing management of the bank, prohibiting deposits from correspondent banks, requiring prior approval of dividends by the holding company, and requiring divestiture. The law requires the regulators, in such cases, to require the sale of securities by the bank or to force a sale or merger of the bank, to restrict affiliate transactions, and to restrict interest rates unless the regulator determines that these actions would not resolve the problems of the bank at the least possible long-term loss to the Bank Insurance Fund of the FDIC. The law also limits advances to any undercapitalized bank by any Federal Reserve Bank from being outstanding more than 60 days in any 120-day period unless the head of the bank regulatory agency certifies that, giving due regard to economic conditions and circumstances in the market in which the bank operates, the bank is not and is not expected to become critically undercapitalized and is not expected to be placed in conservatorship or receivership. None of the Corporation's Subsidiary Banks is undercapitalized. The foregoing references to applicable statutes and regulations are brief summaries thereof, which do not purport to be complete and are qualified in their entirety by reference to such statutes and regulations. From time to time various bills are introduced in the United States Congress which could result in additional or in less regulation of the business of the Corporation and the Subsidiary Banks. It cannot be predicted whether any such legislation will be adopted or how such adoption would affect the business of the Corporation or the Subsidiary Banks. The Federal Reserve Board has established risk-based capital guidelines for bank holding companies. The guidelines define Tier 1 Capital and Total Capital. Tier 1 Capital consists of common and qualifying preferred shareholders' equity, before unrealized gains and losses on available-for-sale debt securities and minority interests in equity accounts of consolidated subsidiaries, less goodwill, other nonqualifying intangibles, excess deferred tax assets and 50% of investments in unconsolidated subsidiaries. Total Capital consists of, in addition to Tier 1 Capital, mandatory convertible debt, preferred stock not qualifying as Tier 1 Capital, subordinated and other qualifying term debt and a portion of the allowance for loan losses less the remaining 50% of investments in unconsolidated subsidiaries. The Tier 1 component must comprise at least 50% of qualifying Total Capital. Risk-based capital ratios are calculated with reference to risk-weighted assets, as outlined by bank supervisory authorities, which include both on and off- balance sheet exposures. The minimum required qualifying Total Capital ratio is 8%, of which at least 4% must consist of Tier 1 Capital. As of December 31, 1994, the Corporation's Tier 1 Capital and Total Capital ratios were 7.20% and 10.22%, respectively. The Federal Reserve Board has adopted a "minimum leverage ratio" which requires bank holding companies to maintain Tier 1 Capital of at least 3% of adjusted quarterly average assets, although the Federal Reserve Board may require a higher ratio depending upon the rating of the bank holding company and its expected growth. Regulations issued by the FDIC to implement the 1991 legislation referred to above establish five levels of capitalization for banks; any bank with a Tier 1 Capital ratio of 6%, Total Capital ratio of 10% and a leverage ratio of 5% is considered to be "well capitalized." As of December 31, 1994, the Corporation's leverage ratio was 5.35%, and all of the Subsidiary Banks had leverage ratios exceeding 5.50%. MONETARY POLICY AND ECONOMIC CONDITIONS The earnings of the Corporation are affected by the policies of regulatory authorities, including the Federal Reserve System. Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. Interest rates, credit availability and deposit levels may change due to circumstances beyond the control of the Corporation or the Subsidiary Banks because of changing conditions in national and international economies and in the money markets, as a result of actions by monetary and fiscal authorities. ITEM 2. PROPERTIES The Corporation and its Subsidiaries occupied, as of December 31, 1994, 1,192 premises in 13 western states, which consisted primarily of bank buildings. On that date, 584 premises were owned, 456 premises were leased, and the remaining 152 premises were owned in part and leased in part. In addition, the Subsidiary Banks have 1,633 ATM locations. The Corporation's headquarters are in Los Angeles, California. ITEM 3. LEGAL PROCEEDINGS There are presently pending against the Corporation and certain of its Subsidiaries a number of legal proceedings. While it is not possible to predict the outcome of these proceedings, it is the opinion of management, after consulting with counsel, that the ultimate disposition of potential or existing suits will not have a material adverse effect on the Corporation's financial position, results of operations or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to security holders during the fourth quarter of the year ended December 31, 1994. EXECUTIVE OFFICERS OF THE REGISTRANT Shown below are names and ages of all executive officers with indication of all positions and offices with the Corporation. There were no family relationships among the executive officers of the Corporation. NAME AGE OFFICE Edward M. Carson 65 Chairman of the Board William E. B. Siart 48 President and Chief Executive Officer William S. Randall 54 Chief Operating Officer James J. Curran 55 Chief Executive Officer - Northwest Region Linnet F. Deily 49 Chief Executive Officer - Texas Region John S. Lewis 40 Chief Executive Officer - Southwest Region Bruce G. Willison 46 Chief Executive Officer - California Region David S. Belles 57 Executive Vice President and Controller William J. Bogaard 56 Executive Vice President and General Counsel Theodore F. Craver 43 Executive Vice President and Treasurer Gary S. Gertz 50 Executive Vice President and General Auditor Lillian R. Gorman 41 Executive Vice President and Human Resources Director Robert E. Greene 53 Executive Vice President and Chief Credit Officer Thomas P. Marrie 56 Executive Vice President and Chief Financial Officer Richard W. Tappey 54 Executive Vice President and Administration Director David K. Wilson 40 Executive Vice President and Manager of Credit Review Mr. Carson was elected Chairman of the Board on June 1, 1990. He was Chief Executive Officer from June, 1990 to December 31, 1994 and President from January, 1985 to May 31, 1990. Mr. Siart was elected Chief Executive Officer effective January 1, 1995 and President of First Interstate Bancorp on June 1, 1990. He was Chairman, President and Chief Executive Officer of First Interstate Bank of California from December, 1985 to January, 1991. Mr. Randall was elected Chief Operating Officer effective January 1, 1995. He served as Chief Executive Officer of the Southwest Region from September, 1991 to December, 1994. He was Chairman, President and Chief Executive Officer of First Interstate Bank of Arizona, N.A. from January 11, 1990 to December, 1994. He was previously Chairman, President and Chief Executive Officer of First Interstate Bank of Washington, N.A. between July, 1985 and January, 1990. Mr. Curran was appointed Chief Executive Officer of the Northwest Region in September, 1991. He was elected Chairman and Chief Executive Officer of First Interstate Bank of Oregon, N.A. on February 1, 1991 and President on October 22, 1991. He was elected President and Chief Executive Officer of First Interstate Bank of Washington, N.A. on October 16, 1991 and served as Chairman from October 16, 1991 to March 30, 1994. He was elected President and Chief Executive Officer of First Interstate Bank of Idaho, N.A. and First Interstate Bank of Montana, N.A. on December 17, 1991 and served as Chairman from December 17, 1991 to March 15, 1994. He was previously Chairman and Chief Executive Officer of First Interstate Bank of Denver, N.A. between March, 1990 and February, 1991, and he was Chairman and Chief Executive Officer of First Interstate Bank of Idaho, N.A. between July, 1984 and March, 1990. Ms. Deily was appointed Chief Executive Officer of the Texas Region in September, 1991. She was elected Chairman of First Interstate Bank of Texas, N.A. in November, 1991. She was elected President and Chief Executive Officer January 1, 1991, having served as President and Chief Operating Officer since November, 1988. Mr. Lewis was appointed Chairman and Chief Executive Officer of the Southwest Region in December, 1994 at which time he was also elected Chairman and Chief Executive Officer of First Interstate Bank of Arizona, N.A. He has served as Chief Operating Officer of the Southwest Region since April, 1994 and as Chairman of both First Interstate Bank of New Mexico, N.A. and First Interstate Bank of Utah, N. A. since 1993. Mr. Willison was appointed Chief Executive Officer of the California Region in September, 1991. He was elected Chairman, President, and Chief Executive Officer of First Interstate Bank of California on February 1, 1991 and previously was Chairman and Chief Executive Officer of First Interstate Bank of Oregon, N.A. between January, 1986 and February, 1991. Mr. Belles was elected Executive Vice President and Controller effective September, 1994 having assumed responsibility for the management of the Corporate Controller's Group in June, 1994. He previously served as Chief Financial Officer of the Northwest Region. Mr. Bogaard was elected Executive Vice President and General Counsel in September, 1982. Mr. Craver was elected Executive Vice President and Treasurer in September, 1991. He was elected Executive Vice President and Chief Financial Officer of First Interstate Bank, Ltd. in June, 1988 Mr. Gertz was elected Executive Vice President and General Auditor in April, 1991. Between August, 1986 and April, 1991 he held various managerial positions with First Interstate Bank of California, including General Auditor, Chief Financial Officer and Division Manager. Ms. Gorman was elected Executive Vice President in January, 1994. She has served as Human Resources Director since October, 1990. She was named Director of First Interstate Bank of California's Human Resources Division in 1986 and became a Senior Vice President in 1987. Between 1985 and 1989, she was Manager of Human Resources Strategic Planning at First Interstate Bancorp. Mr. Greene was elected Executive Vice President and Chief Credit Officer in October, 1987. Mr. Marrie was elected Executive Vice President and Chief Financial Officer in December, 1988. Mr. Tappey was elected Executive Vice President in July, 1991. He was Executive Vice President and head of the Banking Service Group of First Interstate Bank of California from July 1990, and previously held various management positions with First Interstate Bank of California since joining the bank in January, 1961. Mr. Wilson was elected Executive Vice President and Manager of Credit Review effective March, 1995. He previously served as Senior Vice President and Manager of Credit Review for the Northwest Region. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS (a) $2 par value Common Stock The below listed information contained in the Annual Report to Shareholders for the year ended December 31, 1994, with respect to the Corporation's $2 par value Common Stock is incorporated herein by reference: Page Principal Market 60 Sales Prices 33 Dividends Paid 33 As of February 28, 1995, there were 24,976 holders of record of the Corporation's $2 par value Common Stock. ITEM 6. SELECTED FINANCIAL DATA Consolidated Balance Sheets and Consolidated Statements of Operations on pages 56 and 57 of the Annual Report to Shareholders for the year ended December 31, 1994 are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion & Analysis 1992 - 1994 on pages 11 through 33 of the Annual Report to Shareholders for the year ended December 31, 1994 is incorporated herein by reference. Subsequent Events: On March 15, 1995, the Corporation issued $100 million of 8.15% Subordinated Notes Due March 15, 2002. Interest on the Notes is payable semi-annually on March 15 and September 15 of each year, commencing September 15, 1995. The Notes are redeemable at the option of the Corporation, upon not less than 30 days prior written notice, in whole on any interest payment date on or after March 15, 1998, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus interest accrued and unpaid to the redemption date. The Notes are subordinate to all present and future Senior Debt of the Corporation. In addition these Notes are considered to be Total Capital, but not Tier 1 Capital, for regulatory purposes. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Registrant included in the Annual Report to Shareholders for the year ended December 31, 1994 are incorporated herein by reference: Consolidated Financial Statements of First Interstate Bancorp and Subsidiaries: Consolidated Balance Sheet - December 31, 1994 and 1993 Consolidated Statement of Operations - Years Ended December 31, 1994, 1993 and 1992 Consolidated Statement of Cash Flows - Years Ended December 31, 1994, 1993 and 1992 Statement of Shareholders' Equity - Years Ended December 31, 1994, 1993 and 1992 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors Summary of Quarterly Results on page 33 of the Annual Report to Shareholders for the year ended December 31, 1994 is incorporated herein by reference. The below listed financial data contained in the Annual Report to Shareholders for the year ended December 31, 1994 is incorporated herein by reference: Page Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential: Average balance sheets and net interest earnings 58-59 Change in interest income and expense 14 Investment Portfolio: Investment types 40 Maturities and yields 16, 24 Investment concentrations 26-27 Loan Portfolio: Loan types 41 Maturities and sensitivity 25 Risk Elements: Nonaccrual, past due and restructured loans 30-31 Potential problem loans 30-31 Foreign outstandings 28 Loan concentrations 27 Summary of Credit Loss Experience: Credit loss experience 28-29 Allocation of allowance 29 Deposits: Average deposits 58-59 Maturities of time certificates of deposit 19 Return on Equity and Assets 55 Short Term Borrowings 41 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 Information required under this item relating to Directors of the Registrant is contained in the Registrant's 1994 Proxy Statement ("1994 Proxy Statement") with respect to the Registrant's Annual Meeting of Shareholders to take place on April 28, 1995, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, and is incorporated herein by reference. Information required under this item related to Executive Officers of the Registrant is contained in Part I of this report under the caption "Executive Officers of the Registrant." ITEM 11. EXECUTIVE COMPENSATION Information required under this item is contained in the Registrant's 1994 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this item is contained in the Registrant's 1994 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this item is contained in the Registrant's 1994 Proxy Statement, pursuant to Regulation 14A, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1 - Financial Statements The following consolidated financial statements of the Registrant included in the Annual Report to Shareholders for the year ended December 31, 1994 are incorporated herein by reference in Item 8: Consolidated Financial Statements of First Interstate Bancorp and Subsidiaries: Consolidated Balance Sheet - December 31, 1994 and 1993 Consolidated Statement of Operations - Years Ended December 31, 1994, 1993 and 1992 Consolidated Statement of Cash Flows - Years Ended December 31, 1994, 1993 and 1992 Statement of Shareholders' Equity - Years Ended December 31, 1994, 1993 and 1992 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors (a) 2 - Other Schedules All other schedules to the consolidated financial statements of the Registrant required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted. (a) 3 - Exhibits: (1) Dealer agreement dated as of December 9, 1994 among Registrant and various dealers named there- in incorporated by reference to the Registrant's Form 8-K dated March 24, 1995) (3.1) Composite Certificate of Incorporation of Regis- trant incorporating all amendments filed prior to January 30, 1988 (incorporated by reference to the Registrant's Form 10-K filed in March, 1990) (3.2) By laws of Registrant incorporating all amend- ments through July 20, 1993 (incorporated by reference to the Registrant's Form 10-K filed in March, 1994) (4.1) Terms of Series F Preferred Stock (incorporated by reference to Registrant's Form S-3 Regis- tration Statement No. 33-42889) (4.2) Terms of Series G Preferred Stock (incorporated by reference to Registrant's Form S-3 Regis- tration Statement No. 33-47174 (4.3) Registrant has outstanding certain long term debt. See Note F of "Notes to Financial State- ments" at Page 42 of the 1994 Annual Report to shareholders. Such long term debt does not exceed 10% of the total assets of Registrant and its consolidated subsidiaries; therefore, copies of constituent instruments defining the rights of holders of such long term debt are not included as exhibits. Registrant agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request. (10.1) 1983 Performance Stock Plan (incorporated by reference to Registrant's Form S-8 Registration Statement No.2-82812) (10.2) 1988 Performance Stock Plan (incorporated by reference to Registrant's Form S-8 Registration Statement No. 33-23404) (10.3) First Interstate Bancorp 1991 Performance Stock Plan (incorporated by reference to Registrant's Form S-8 Registration Statement No. 33-38903) (10.4) First Interstate Bancorp 1995 Performance Stock Plan (10.5) First Interstate Bancorp 1991 Director Option Plan (incorporated by reference to Registrant's Form S-8 Registration Statement No. 33-37299) (10.6) First Interstate Bancorp 1995 Regional Executive Incentive Plan (10.7) First Interstate Bancorp Corporate Executive Incentive Plan (10.8) First Interstate Bancorp 1995 Management Incent- ive Plan (10.9) 1989 Restatement of the Supplemental Employee Savings Plan of Registrant (incorporated by reference to the Registrant's Form 10-K filed in March 1990) (10.10) 1992 Restatement of the Supplemental Executive Retirement Plan of Registrant (incorporated by reference to Registrant's Form 10-K filed in March 1992) (10.11) 1989 Restatement of First Interstate Bancorp Benefit Retirement Plan (incorporated by refer- ence to Registrant's Form 10-K filed in March 1990) (10.12) Retirement Plan for Directors, amended and re- stated (incorporated by reference to Registrant's Form 10-K filed in March, 1994) (10.13) Dividend Reinvestment and Stock Purchase Plan, as amended(incorporated by reference to Registrant's Form S-3 Registration Statement No. 33-50054) (10.14) Form of Employment Agreement between Registrant and Edward M. Carson (incorporated by reference to Registrant's Form 10-K filed in March 1990) (10.15) Form of Employment Agreement between Registrant and William E. B. Siart, William S. Randall, Bruce G. Willison and James J. Curran (10.16) Form of Split-Dollar Life Insurance Agreement between Registrant and Edward M. Carson, William E.B. Siart, William S. Randall, Bruce G. Willison and James J. Curran (incorporated by reference to Registrant's Form 10-K filed in March 1992) (10.17) Form of Split-Dollar Insurance Agreement between Registrant and Registrant's Directors (incorpor- ated by reference to Registrant's Form 10-K filed in March 1992) (10.18) $500,000,000 Credit Agreement dated as of May 31, 1994 among First Interstate Bancorp and certain banks (incorporated by reference to Registrant's Form 10-Q for the quarter ending June 30, 1994 filed in August 1994) (10.19) Other Agreements (1) (incorporated by reference to Registrant's Form 10-K filed in March 1993) (11) Computation of Earnings Per Share (12) Computation of Ratio of Earnings to Fixed Charges (13) Annual Report to Shareholders for the year ended December 31, 1994 (21) Subsidiaries of the Registrant (23) Consent of Ernst & Young LLP, Independent Auditors (27) Financial Data Schedule (b) - Reports on Form 8-K A report on Form 8-K dated January 19, 1994 announced the Corporation's 1993 fourth quarter and annual results; the date, time and place of its 1994 Annual Meeting of Stock- holders; and a repurchase program for up to 1,500,000 shares of Common Stock. Copies of related documents were included in such filing. A report on Form 8-K dated March 22, 1994 announced the Corporation's next phase of its ongoing strategic plan. Key elements include reduction in the expense/revenue ratio, improved capital management, internal revenue growth, appropriate acquisition growth and earnings improvement. Copies of related documents were included in such filing. A report on Form 8-K dated April 20, 1994 announced the Corporation's 1994 first quarter results and the repurchase of up to 6,500,000 shares of Common Stock. Copies of related documents were included in such filing. A report on Form 8-K dated July 20, 1994 announced the Corporation's 1994 second quarter results and purchases under the previously announced repurchase program for up to 6,500,000 shares of Common Stock, as well as completion of the repurchase program for 1,500,000 shares. Copies of related documents were included in such filing. A report on Form 8-K dated September 21, 1994 announced the adoption of a restructuring plan to better position the Corporation for the introduction of full interstate bank- ing, purchases under the previously announced 1.5 million and 6.5 million share repurchase programs and the approval by the Board of Directors of a plan to repurchase up to an additional 1.2 million shares in connection with the proposed acquisition of Levy Bancorp. Copies of related documents were included in such filing. A report on Form 8-K dated October 25, 1994 announced that President William E. B. Siart will succeed Edward M. Carson as Chief Executive Officer of the Corporation, William S. Randall, head of the Corporation's Southwest Region, will become Executive Vice President and Chief Operating Officer of the Corporation, effective January 1, 1995, and Mr. Carson will remain Chairman of the Corporation until his retirement on May 1, 1995. Copies of related documents were included in such filing. A report on Form 8-K dated February 17, 1995 announced the date, time and place of its 1995 Annual Meeting of Stock- holders. Copies of related documents were included in such filing. A report on Form 8-K dated March 24, 1995 announced that Registrant has entered into a Dealer Agreement dated as of December 9, 1994 among Registrant and various dealers named therein. Copies of related documents were included in such filing. 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 its behalf by the undersigned, thereunto duly authorized, this 24th day of March, 1995. FIRST INTERSTATE BANCORP Registrant By /s/ Edward S. Garlock Edward S. Garlock Secretary POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David S. Belles and Edward S. Garlock, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ E. M. Carson Chairman of the Board 03/24/95 E. M. Carson Director /s/ William E. B. Siart President and Chief Executive Officer 03/24/95 William E. B. Siart Director /s/ William S. Randall Chief Operating Officer 03/24/95 William S. Randall (Principal Financial Officer) Signature Title Date /s/ David S. Belles Executive Vice President 03/24/95 David S. Belles (Principal Accounting Officer) /s/ John E. Bryson John E. Bryson Director 03/24/95 /s/ Jewel Plummer Cobb Jewel Plummer Cobb Director 03/24/95 /s/ Ralph P. Davidson Ralph P. Davidson Director 03/24/95 /s/ Myron Du Bain Myron Du Bain Director 03/24/95 /s/ Don C. Frisbee Don C. Frisbee Director 03/24/95 /s/ George M. Keller George M. Keller Director 03/24/95 /s/ W. F. Kieschnick W. F. Kieschnick Director 03/24/95 /s/ William F. Miller William F. Miller Director 03/24/95 /s/ J. J. Pinola J. J. Pinola Director 03/24/95 /s/ Thomas L. Lee Thomas L. Lee Director 03/24/95 Signature Title Date /s/ Steven B. Sample Steven B. Sample Director 03/24/95 /s/ Forrest N. Shumway Forrest N. Shumway Director 03/24/95 /s/ Richard J. Stegemeier Richard J. Stegemeier Director 03/24/95 /s/ Daniel M. Tellep Daniel M. Tellep Director 03/24/95 EX-10 2 12 EXHIBIT (10.4) FIRST INTERSTATE BANCORP 1995 PERFORMANCE STOCK PLAN 1. Purpose. The purpose of the 1995 Performance Stock Plan (the "Plan") is to promote the interests of First Interstate Bancorp (the "Company") and its Subsidiaries by providing performance incentives to certain of its key employees who are responsible for the management, growth and financial success of the Company. Pursuant to the Plan, stock options, stock appreciation rights, restricted stock awards, performance units and stock awards may be granted. 2. Administration. The Plan shall be administered by a Committee (the "Committee") consisting of those members of the Compensation Committee of the Board of Directors of the Company who are (a) at least the minimum number of members required under Rule 16b-3 (or any successor rule) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 ("Rule 16b-3"), (b) "disinterested persons" as defined under such rule and (c) "outside directors" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended ("Internal Revenue Code") and the regulations thereunder. The Committee shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary. Decisions of the Committee shall be final and binding on all persons who have an interest in the Plan. 3. Eligibility. The persons eligible to participate in the Plan shall be those key employees (including officers, whether or not directors) of the Company and its Subsidiaries selected by the Committee. Directors who are not officers are not eligible to participate in the Plan. 4. Shares Subject to the Plan. The shares subject to the Plan shall be shares of the Company's $2 par value Common Stock ("Common Stock"). The aggregate number of shares of Common Stock which may be delivered pursuant to awards granted under this Plan shall not exceed 5,000,000, subject to adjustment pursuant to Section 9. The maximum number of shares of Common Stock for which stock options, including those containing Stock Appreciation Rights, may be granted under this Plan shall not exceed 150,000 per Participant during any calendar year, subject to adjustment pursuant to Section 9. If Restricted Stock is forfeited or if an option shall expire or terminate for any reason, except for the surrender thereof upon exercise of a related Stock Appreciation Right, without having been exercised in full, such Restricted Stock or the shares applicable to the unexercised portion of such option shall become available under the Plan for all purposes. To the extent any award of Performance Units is paid in cash rather than shares, the number of shares represented by such Performance Units shall again be available for purposes of the Plan. If shares of Common Stock already owned by a Participant are tendered or exchanged under Section 5.3(b) in full or partial payment of the purchase price of an exercised option, such tendered or exchanged shares shall be added back to the number of shares available for issuance or delivery under this Plan; provided that for purposes of determining the number of shares available for the granting of Incentive Options, the aggregate number of shares available for delivery or issuance under this Plan shall not be increased by the number of shares tendered or exchanged. If any of the foregoing provisions for determining the number of shares available for issuance under the Plan would cause the Plan to not be considered to be described under Rule 16b-3, such provision shall have no effect, and the number of shares available for issuance shall instead be determined in a manner which complies with such rule. Either authorized and unissued shares or treasury shares may be delivered under the Plan; provided, however, that unissued shares shall not be awarded as Restricted Stock, or pursuant to Performance Units, or as Stock Awards to any Participant unless the Committee expressly determines, after consideration of all other remuneration paid or payable to the Participant, that the services already rendered to the Company and its Subsidiaries by the Participant have a value of not less than the par value of the shares so awarded. 5. Stock Options. Stock options granted under the Plan may be either incentive stock options qualifying under Section 422 of the Internal Revenue Code ("Incentive Options") or non- qualified stock options ("Non-Qualified Options"). The options shall be evidenced by agreements in such form as the Committee may, from time to time, approve ("Stock Option Agreement") and shall be subject to the following terms and conditions. 5.1 Option Price. The option price of the shares of Common Stock subject to each option shall be determined by the Committee but shall be not less than 100% of the Fair Market Value of such shares on the date of granting of the option. 5.2 Terms of Exercise. Each option granted under the Plan shall be exercisable in whole or in part on such terms as the Committee may determine, but in no event shall the option be exercisable within six months of or more than 10 years after the date the option is granted. 5.3 Manner of Exercise. The option shall be exercised in the manner specified by the Committee. Payment of the option price may be by any of the following methods, as determined by the Committee at the date of grant and provided for in the Stock Option Agreement: (a) In cash; (b) In shares of Common Stock already owned by the holder of the option ("Optionee") or partly in cash and partly in shares of Common Stock. If Common Stock is used to pay the purchase price (i.e., a "Stock-for-Stock Swap Transaction"), the Common Stock used must have been owned by the Optionee for at least six months prior to the date of exercise and must not have been used in a Stock-for-Stock Swap Transaction within the preceding six months (i.e., the Common Stock must be "mature"). Payments made in Common Stock shall be valued at the Fair Market Value of the Common Stock on the date of exercise. Any portion of the option price representing a fraction of a share shall be paid in cash. (c) Subject to such guidelines as may be promulgated by the Committee, an Optionee may deliver a notice instructing the Company to deliver the shares being purchased to a broker, subject to the broker's delivery of cash to the Company equal to the purchase price and any applicable tax withholding amount. 5.4 Additional Terms of Incentive Options. An Incentive Option granted pursuant to the Plan: (a) Must be designated as an Incentive Option by the Committee. (b) Shall only be an Incentive Option to the extent that the aggregate Fair Market Value of the Common Stock (determined as of the date of grant of the option) with respect to which the option is first exercisable in any calendar year does not exceed $100,000. For the purpose of the preceding sentence all options granted by the Company and any Parent or Subsidiary which are intended to be incentive stock options under Section 422 of the Internal Revenue Code shall be taken into account. To the extent the $100,000 limit is exceeded, the $100,000 in options (measured as described above) granted earliest in time will be treated as incentive stock options; and (c) If issuable to an employee who on the date of grant is the owner of stock (determined with application of the ownership attribution rules of Section 424(d) of the Internal Revenue Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the Incentive Option price shall not be less than 110% of the Fair Market Value of the Common Stock on the date of grant and the Incentive Option shall not have a term in excess of five years from the date of grant. 5.5 Termination of Right to Exercise Options. Each option granted under this Plan shall set forth a termination date thereof, which date shall be determined by the Committee. In any event, all options granted pursuant to the Plan shall terminate upon the first to occur of the following events: (a) The expiration of 10 years from the date such option was granted, or any earlier termination date specified in the Stock Option Agreement; (b) The expiration of three months from the date an Optionee ceases to be employed by the Company or a Subsidiary other than by reason of death, Retirement, Disability or termination of employment for cause as determined by the Committee; (c) The expiration of one year from the date an Optionee ceases to be employed by the Company or a Subsidiary by reason of Disability or death; (d) The expiration of three years from the date an Optionee ceases to be employed by the Company or a Subsidiary by reason of Retirement; (e) The termination of the Optionee's employment for cause, as determined by the Committee; or (f) The termination of the Plan pursuant to Section 10; provided, that if an Optionee's death occurs after the Optionee ceases to be employed by the Company or a Subsidiary for a reason other than Retirement but at a time when the Optionee has a right to exercise any options pursuant to the foregoing, the right to exercise such option shall not expire prior to one year from the date of death of the Optionee. Subsequent to termination of the Optionee's employment for any reason, only that portion of an option which was exercisable on the date of termination of employment shall be exercisable, and only during the period, if any, set forth above. Failure to exercise an Incentive Option within three months of the date the Optionee ceases to be employed by the Company or a Subsidiary by reason of Retirement shall cause an Incentive Option to cease to be treated as an incentive stock option for purposes of Section 421 of the Internal Revenue Code. 5.6 Stock Appreciation Rights. Any option granted pursuant to the Plan may, in the discretion of the Committee, contain a stock appreciation right ("Stock Appreciation Right"). A Stock Appreciation Right will permit the holder thereof to exercise such right by the surrender of the option or portion thereof which is then exercisable and receive in exchange therefor, upon such terms, restrictions and conditions as the Committee deems advisable, an amount equal to the excess of the Fair Market Value of the shares of Common Stock offered by the option surrendered, or portion thereof, determined on the date of surrender, over the aggregate option exercise price of such shares. Such payment may be made in shares of Common Stock valued at Fair Market Value, in cash, or partly in cash and partly in shares of Common Stock as the holder may elect, subject to the consent or disapproval of the Committee in its sole discretion. If a Stock Appreciation Right extends to less than all the shares of Common Stock covered by the related option and if a portion of the related option is thereafter exercised, the number of shares subject to the unexercised Stock Appreciation Right shall be reduced only if and to the extent that the remaining number of shares covered by such related option is less than the remaining number of shares subject to such Stock Appreciation Right. The Stock Appreciation Right, in addition to any other restrictions imposed by the Committee: (a) shall expire no later than the underlying stock option; (b) shall not permit the issuance of cash or shares of a value which exceeds the difference between the exercise price of the underlying stock option and the Fair Market Value of the Common Stock subject to the underlying option at the time the Stock Appreciation Right is exercised; (c) shall be transferable only when the underlying stock option is transferable, and under the same conditions; (d) shall be exercisable only when the underlying stock option is eligible to be exercised and then only when the Fair Market Value of the stock subject to the underlying option exceeds the option exercise price; and (e) shall contain such conditions upon exercise (including, without limitation, conditions limiting the time of exercise to specified periods) as may be required to satisfy applicable regulatory requirements, including, without limitation, Rule 16b- 3 (or any successor rule) promulgated by the Securities and Exchange Commission. In the event of the exercise of a Stock Appreciation Right, shares represented by the option or part thereof surrendered upon such exercise shall not be available for reissuance under the Plan. 5.7 Award of Accelerated Ownership Stock Option. If the Committee so provides in the Stock Option Agreement, effective as of the date of exercise by an Optionee of all or part of an option using "mature" Common Stock as defined in Section 5.3 of the Plan as payment for the full purchase price (except that cash may be used to purchase the nearest whole share of Common Stock), an Employee shall be granted an accelerated ownership Non- Qualified Option ("AO") to purchase at the Fair Market Value as of the date of said exercise and grant, the number of share of Common Stock equal to the sum of the number of whole shares used by the Optionee in payment of the purchase price. An AO may be exercised between the date of vesting and the original date of expiration of the underlying option to which the AO is related. No AO shall vest sooner than six months after its date of grant. The AO shall be evidenced by an agreement containing such additional terms and conditions as the Committee shall approve, which conditions may provide that upon exercise of any AO, an additional AO may be granted with respect to the number of whole shares used to exercise the AO. 5.8 Options Non-transferable. Except as otherwise provided in the Stock Option Agreement, no option rights shall be assignable or transferable except by will or the laws of descent and distribution (except to the extent not permitted in the case of an Incentive Option). During the lifetime of an Optionee, an option or Stock Appreciation Right shall be exercisable only by the Optionee or by the Optionee's guardian or legal representative. After the death of an Optionee, the option or Stock Appreciation Right may be exercised prior to its termination by the Optionee's legal representative, heir or legatee. The foregoing shall not restrict, to the extent permitted by the Committee and provided for in the Stock Option Agreement, and subject to such terms and conditions as deemed appropriate by the Committee, transfers for estate and financial planning purposes, provided the inclusion of such features would not render the particular award ineligible for the benefits of Rule 16b-3. Nothing contained herein shall require the Committee to permit such other transfers. 6. Restricted Stock Awards. The award of restricted stock ("Restricted Stock") to employees may be made in the discretion of the Committee pursuant to agreements in such forms as the Committee may, from time to time, approve ("Restricted Stock Agreement"), subject to the following terms and conditions. 6.1 Restricted Period. The Committee shall set a restricted period during which the Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as permitted by this Plan and the Restricted Stock Agreement (the "Restricted Period"). If a holder of Restricted Stock ceases to be an employee of the Company or a Subsidiary during the Restricted Period for any reason other than death, Disability or Retirement, all shares of Restricted Stock which are then subject to the restrictions imposed by the Committee shall upon such termination of employment be immediately forfeited and returned to the Company. If a holder of Restricted Stock ceases to be an employee of the Company or a Subsidiary during the Restricted Period by reason of death, Disability or Retirement, shares of Restricted Stock shall become free of the restrictions imposed by the Committee only to the extent determined by the Committee, and the Company will deliver to the holder, or the holder's successor, as the case may be, within 60 days, such shares of Common Stock as are freed from restrictions, and all other shares shall be forfeited and returned to the Company. The Committee may, at any time, reduce or terminate the Restricted Period. Subject to the foregoing, at the end of the Restricted Period, the holder of Restricted Stock shall be entitled to receive the Restricted Stock free of restrictions. In the event that employees of the Company or its Subsidiaries become employees of another company pursuant to a stock or asset sale, merger or similar transaction, or in the event of a corporate reorganization, reduction in force or similar event, the Committee shall have the authority, which shall be exercised in its sole discretion, to continue to credit service for purposes of satisfying the restricted period requirements set forth in the Restricted Stock Agreement. Such Committee authority shall only apply to Restricted Stock granted to individuals who are not subject to Section 16 of the Securities Exchange Act of 1934. 6.2 Restrictive Legend and Deposit of Certificates. Each certificate issued in respect of shares of Restricted Stock awarded under the Plan shall be registered in the name of the Participant, shall be deposited by the Participant with the Company together with a stock power endorsed in blank and shall bear the following legend: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions contained in an Agreement entered into between the registered owner and First Interstate Bancorp. A copy of such Agreement is on file in the office of the Secretary of First Interstate Bancorp, 633 West Fifth Street, Los Angeles, California 90071." 6.3 Rights as Shareholder. Subject to the terms of the Restricted Stock Agreement, the holder of Restricted Stock shall have all the rights of a shareholder with respect to the Restricted Stock, including the right to vote such shares; provided, however, that dividends paid with respect to the shares of Restricted Stock shall be deposited with the Company and shall be subject to forfeiture until the expiration of the Restricted Period, subject to the condition that the sums so deposited shall be free of restriction and not subject to forfeiture to the extent applied by the Company to satisfy that employee's withholding obligations with respect to Restricted Stock pursuant to Section 13 of the Plan, or otherwise released by the Committee in its sole discretion. The holder of Restricted Stock shall not be entitled to interest with respect to the dividends so deposited. 6.4 Purchase Price. Unless the purchase price of Restricted Stock is its par value, it shall be at least equal to 50% of Fair Market Value, unless otherwise allowed under Rule 16b- 3. 7. Performance Units. The award of performance units ("Performance Units") to employees shall be made in the discretion of the Committee pursuant to agreements in such form as the Committee may, from time to time, approve ("Performance Unit Agreement"), subject to the following terms and conditions. 7.1 Payment of Shares and Dividends. Each Performance Unit shall represent one share of Common Stock and shall, at the time and to the extent it becomes vested, be payable by the delivery of one share of Common Stock, subject to the provisions of Section 9 of this Plan, or, if and to the extent provided in the Performance Unit Agreement, cash based on the Fair Market Value of the Common Stock at the time of payment. In addition, each Participant who has been awarded Performance Units shall receive additional Performance Unit credit based on the value of any dividends which would have been paid to the Participant if he or she had owned a number of shares of Common Stock equal to the number of his or her Performance Units. The amount of such dividend credit shall be applied towards additional Performance Units for the Participant at the value of shares of Common Stock on the dividend date. 7.2 Performance Conditions. The Performance Unit Agreements shall specify any terms and conditions relating to performance or otherwise which may be established in the discretion of the Committee. 7.3 Incentive Plan Deferrals. Performance Units under this Plan may be attributable to a Participant's deferral election under the annual Management Incentive Plan, Regional Incentive Plan or Corporate Executive Incentive Plan, or any successor plan thereto. Such Performance Units will be payable at the time selected by the Participant and permitted by the Committee in the applicable Performance Unit Agreement in shares of Common Stock, one share for each Performance Unit or, if permitted by the Committee and provided in the Performance Unit Agreement, in cash based on the Fair Market Value of the Common Stock at the time of payment. 8. Stock Awards. The award of Common Stock ("Stock Award") to employees may be made in the discretion of the Committee at such times and in such amounts as the Committee deems appropriate. 8.1 No Restrictions. Common Stock issued to a Participant pursuant to a Stock Award shall not be subject to any restrictions under the Plan. 8.2 Corporate Executive Incentive Plan. The Committee may, in its discretion, issue Stock Awards to key employees who are also participants in the Corporate Executive Incentive Plan ("CEIP"). A Stock Award to participants in the CEIP pursuant to this Plan shall be made solely on account of the achievement of the performance goals established by the Committee under the CEIP for the year in question. No such award shall be issued under this Plan until the Committee has certified in writing that such performance goals have been achieved and has determined the amount of the participant's cash award under the CEIP. The maximum stock award attainable by participants in the CEIP under this Plan shall be that number of shares which is equivalent in value to one-third of the participant's cash award under the CEIP, based on the Fair Market Value of the Common Stock on the date that such cash award is approved by the Committee. 9. Changes in Capitalization. If there are any changes in the capitalization of the Company affecting in any manner the number or kind of outstanding shares of Common Stock of the Company, whether such changes have been occasioned by declaration of stock dividends, stock split-ups, reclassifications or recapitalization of such stock, or because the Company has merged or consolidated with some other corporation (and provided the option is not thereby terminated pursuant to Section 10 hereof), or for any other reason whatsoever, then the number and kind of shares then subject to this Plan and to outstanding options and the prices to be paid therefor, as well as any related Stock Appreciation Right, and the number of Performance Units then outstanding shall be proportionately adjusted by the Committee whenever and to the extent that the Committee determines that any such change equitably requires an adjustment. Any shares of Common Stock or other securities received by a holder of Restricted Stock with respect to such Restricted Stock by reason of any such change shall be subject to the same restrictions and shall be deposited with the Company. 10. Mergers or Consolidations. If the Company, at any time, should elect to dissolve, undergo a reorganization, merge or consolidate with any other corporation and the Company is not the surviving corporation, then (unless in the case of a reorganization, merger or consolidation, one or more of the surviving corporations assumes the options under the Plan or issues substitute options in place thereof) each Optionee holding outstanding options not yet exercised shall be notified of the Optionee's right to exercise such options and any related Stock Appreciation Right to the extent then exercisable prior to such dissolution, reorganization, merger or consolidation. Subject to Section 11, the Committee may, in its discretion and on such terms and conditions as it deems appropriate, accelerate the vesting of such options and any related Stock Appreciation Right with respect to all shares covered thereby. Any option and related Stock Appreciation Right not so exercised within 30 days of such notification shall thereupon be deemed terminated and simultaneously the Plan itself shall be deemed terminated. 11. Acceleration of Options, Stock Appreciation Rights, and Restricted Stock Awards. In the event of a Change in Control, (i) each option and each related Stock Appreciation Right shall become immediately exercisable to the full extent theretofore not exercisable, (ii) the Restricted Period for Restricted Stock shall immediately expire, and (iii) unless otherwise provided in Performance Unit Agreements, all Performance Units shall be immediately payable in Common Stock in the maximum amount available under the terms of such Performance Unit Agreements; provided, however, that Awards other than Restricted Stock Awards shall not, in any event, be so accelerated to a date less than six months after the date of grant. Acceleration of Awards shall comply with applicable regulatory requirements, including, without limitation, Rule 16b-3. Notwithstanding the foregoing, any Participant shall be entitled to decline the acceleration of all or any of his or her options, Stock Appreciation Rights or Restricted Stock if he or she determines that such acceleration may result in adverse tax consequences to him or her. 12. Expiration of Options. In the event employees of the Company or its Subsidiaries become employees of another company pursuant to a stock or asset sale, merger, or similar transaction or in the event of a corporate reorganization, reduction in force or similar event, the Committee shall have the authority, which shall be exercised in its sole discretion, to modify the dates upon which options previously granted (including any related Stock Appreciation Rights) shall expire. Such Committee authority shall only apply to options granted to individuals who are not subject to Section 16 of the Securities Exchange Act of 1934. Any modification to the terms under which the option would otherwise expire shall not cause the option to expire later than the date the option was originally scheduled to expire pursuant to the terms of the original Stock Option Agreement. 13. Effect on Employment. Nothing herein shall be construed to limit or restrict the right of the Company or any of its Subsidiaries to terminate the employment of any Participant in the Plan, at any time, with or without cause, or to increase or decrease the compensation of such Participant from the rate of compensation in existence at the time the employee became a Participant. 14. Withholding. The Company shall have the right to withhold from amounts due Participants, or to collect from Participants directly, the amount which the Company deems necessary to satisfy any taxes required by law to be withheld by reason of participation in the Plan. There is no obligation under this Plan that any Participant be advised of the existence of the tax or the amount required to be withheld. The Participant may, prior to the payment of any Award, pay such amounts to the Company in cash or in shares of Common Stock already owned (which shall be valued at their Fair Market Value on the date of payment). The Company may also require, or grant Participants the right to elect, subject to such terms and conditions as the Committee may establish, that shares be withheld to satisfy tax withholding requirements arising from the exercise of an option, the receipt of a Stock Award or the vesting of a Restricted Stock award. Notwithstanding any other provision of this Plan, the Committee may impose such conditions on the payment of any withholding obligation as may be required to satisfy applicable regulatory requirements, including, without limitation, Rule 16b-3 (or any successor rule) promulgated by the Securities and Exchange Commission. 15. Additional Definitions. "Awards" shall mean an Incentive Option, a Non-Qualified Option, a Stock Appreciation Right, A Restricted Stock award, a Performance Unit or a Stock Award. "Change in Control" of the Company means and shall be deemed to have occurred if and when any one of the following five events occurs: (a) any "person" (as such term is used Section 13(d) of the Securities Exchange Act of 1934) or group becomes a beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (b) individuals who were members of the Board of Directors of the Company immediately prior to a meeting of the stockholders of the Company involving a contest for the election of Directors do not constitute a majority of the Board of Directors following such election; (c) the stockholders of the Company approve the dissolution or liquidation of the Company; (d) the stockholders of the Company approve an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities which are not Subsidiaries, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are, or are to be, owned by former stockholders of the Company (excluding from the term "former stockholders" a stockholder who is, or as a result of the transaction in question becomes, an "affiliate", as that term is used in the Exchange Act and the Rules promulgated thereunder, of any party to such merger, consolidation or reorganization); or (e) the stockholders of the Company approve the sale of substantially all of the Company's business and/or assets to a person or entity which is not a Subsidiary. "Disability" shall mean such physical or mental condition affecting the employee as shall be determined by the Committee, in its sole discretion, to constitute a disability causing a termination of employment. "Fair Market Value" on a specified day means the closing price on that day of the Common Stock as reported on New York Stock Exchange-Composite Tape, or if no sale of the Common Stock was so reported on that date, on the next preceding day on which there was such a sale. "Parent" means any corporation owning directly or indirectly 50% or more of the total combined voting power of all classes of stock of the Company. "Participant" means an eligible employee selected by the Committee to participate in the Plan. "Retirement" means normal or early retirement in accordance with the provisions of the Retirement Plan of First Interstate Bancorp and its Affiliates. "Subsidiary" means any corporation of which the Company owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock. If an entity ceases to be a Subsidiary, each employee of that entity shall no longer be deemed employed by the Company or a Subsidiary under the Plan (unless the employee continues to be employed by the Company or another entity which is a Subsidiary). 16. Amendment of Plan. The Board of Directors of the Company may make such amendments to this Plan and to any agreements thereunder as it shall deem advisable, including, but not limited to, accelerating the time at which an option may be exercised or the time when restrictions on Restricted Stock shall expire. Such amendments shall be subject to shareholder approval to the extent such approval is required by Rule 16b-3 or the federal tax rules applicable to Incentive Options or other applicable law. Without the consent of the Participant, no amendment shall impair rights of any Participant under the Plan, except as permitted by the Plan. 17. Construction of the Plan. It is the intent of the Company that this Plan and the Awards hereunder satisfy and be interpreted in a manner that, in the case of Participants who are or may be subject to Section 16 of the Securities Exchange Act of 1934, satisfies the applicable requirements of Rule 16b-3 so that such persons (unless they otherwise agree) will be entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16. If any provision of this Plan or of any Award would conflict with this intent, that provision to the extent possible shall be interpreted and deemed amended so as to avoid such conflict, but to the extent such conflict cannot be avoided, such provision shall be disregarded as to such Participants. 18. Effective Date and Termination of Plan. The Plan shall be effective upon filing with the Securities and Exchange Commission, subject to receipt of shareholder approval of the Plan at the 1995 Annual Shareholder Meeting. All Awards pursuant to the Plan prior to the receipt of shareholder approval shall be subject to receipt of such approval. If such approval is not received the Awards shall be forfeited. The Plan shall terminate 10 years from the effective date; provided, however, that the Board of Directors of the Company may terminate the Plan at any prior time within its absolute discretion. No such termination, other than as provided for in Section 10 hereof, shall in any way affect any Award then outstanding. EX-10 3 -13- EXHIBIT (10.6) FIRST INTERSTATE 1995 REGIONAL EXECUTIVE INCENTIVE PLAN Effective January 1, 1995 1. Objectives. The 1994 Regional Executive Incentive Plan is designed to focus the efforts of certain executive employees of selected Subsidiaries on the continued improvement in the performance of such Subsidiaries, and to aid in attracting, motivating and retaining superior executives by providing an incentive and reward for those executive employees who contribute most to the operating progress and performance of the Corporation's Subsidiaries. 2. Definitions. The following definitions shall be applicable to the terms used in the Plan: (a) "Administrator" means the Chief Executive Officer of Bancorp. (b) "Award" means a cash distribution to be made to a Participant for a Performance Year as determined in accordance with the provisions of the Plan. (c) "Award Fund" means the total of the Target Awards for each Participant as determined and approved in accordance with Section 5 hereof. (d) "Bancorp" means First Interstate Bancorp, a Delaware Corporation. (e) "Change in Control" shall have the meaning set forth in Section 17. (f) "Committee" means the Compensation Committee of the Board of Directors of Bancorp. (g) "First Interstate" means the consolidated group of companies comprising First Interstate Bancorp. (h) "Fiscal Year" means the customary fiscal year of Bancorp. (i) "Management Incentive Plan" means the First Interstate Bancorp 1995 Management Incentive Plan. (j) "Offset Value" shall have the meaning set forth in Section 18(b) and (c). (k) "Participant" means an eligible executive who, pursuant to Section 4 hereof, automatically becomes a Participant in the Plan for a Fiscal Year. (l) "Performance Year" means the Fiscal Year. (m) "Plan" means this First Interstate Bancorp 1995 Regional Executive Incentive Plan, as set forth herein. (n) "Policies" shall have the meaning set forth in Section 18(a). (o) "PSP" shall have the meaning set forth in Section 7(c). (p) "Region" means any of the California, Northwest, Southwest or Texas regions consisting of First Interstate banks and as defined by First Interstate Bancorp. (q) "Split-Dollar Life Insurance Agreement" shall have the meaning set forth in Section 18(a). (r) "Subsidiary" means a bank, corporation, association or similar organization of which the majority of the outstanding shares of voting stock is owned by Bancorp, directly or indirectly. (s) "Target Award" is determined for each Partic- ipant by multiplying the Participant's base pay rate in effect at the end of the Performance Year by the Target Award Percentage applicable to the Participant set forth under Item I of the Target Award Guidelines attached as Table A. 3. Adoption and Administration of the Plan. The Plan shall become effective as of January 1, 1995 upon adoption by the Committee. Subject to the provisions of this Plan and in the absence of specific action by the Committee, this Plan shall be administered by the Administrator. The Plan shall not be modified except with the consent of the Committee. All decisions of the Administrator or the Committee shall be final and binding. 4. Participation and Target Awards. (a) Determination of Participants and Target Awards. The Chief Executive Officer of each Region shall be Participants in the Plan. As provided in the Plan, participation for an individual may be terminated. Except as provided in Sections 8(b) and 10, to be considered eligible for an Award, a Participant must be participating in the Plan or the Management Incentive Plan for at least six months during the Performance Year. (b) Notification. Each Participant shall be notified of his or her eligibility for participation in the Plan for such Performance Year or shall be notified of his or her termination, as applicable, by a letter from the Adminis- trator or his or her designee. A copy of this Plan shall be provided to each Participant. A Participant shall have no right to or interest in an Award unless and until the Participant's Award has been determined and certified by the Committee. 5. Determination of Award. (a) Performance Review. As soon as practicable after the close of each Performance Year, a determination of each Region's performance shall be made by the Administrator. The Administrator's determination shall be subject to the approval by the Committee. (b) Award Fund. The Committee shall determine the total amount of the Award Fund authorized under this Plan for the Performance Year. The Award Fund amount for a Region may be determined in any manner the Committee deems appropriate from time to time. Without limiting the Committee's discretion to choose other methods to calculate the size of the Award Fund, it is anticipated that the Award Fund amount for the Participants will equal the sum of the Target Awards for each Participant multiplied by a percentage representing the performance of the Region determined by the Administrator. The maximum Award Fund amount may not exceed 1.5 times the sum of Target Awards. (c) Limitations. The Committee shall have the right to reduce an Award to an actual award percentage of no less than 0%. Award payments will be charged against Bancorp or the Subsidiary for which the Participant is an employee, as appropriate. 6. Allocation of Award Fund to Participants. The Award Fund shall be available for allocation to Participants on a totally discretionary basis in a manner designed to give the Administrator the flexibility to take into account the individual performance of each Participant. Based on its evaluation of a Participant's performance, the Administrator may determine an Award equal to any percentage of the Participant's Target Award up to 150%. In the event the amount of the Award Fund exceeds the total Awards for a Performance Year, such excess shall not be carried forward for purposes of Awards in future Performance Years. Award payments will be charged against the Subsidiary for which the Participant is an employee, as appropriate. 7. Time of Payment of Awards, Deferrals, Hardships. (a) Payment Date. Except as provided in (b) below, as soon as practicable after the determination of Awards and approval by the Committee, any Award, less any legally required withholding, shall be paid to the Participant or, in the event of a Participant's death, in accordance with Section 8 hereof. (b) Deferrals. In the year prior to the year in which an Award is earned, a Participant may elect, on a form specified by Bancorp, to defer the receipt of any Award to which he or she may be entitled for such Performance Year until the earlier of (1) termination of employment (the first to occur of retirement, death, disability, or termination of employment) or (2) January 1 of a specified calendar year. In such event: (i) The amount the Participant elects, net of any legally required withholding, shall become the deferred Award; (ii) Interest on such deferred Award will be the Moody's Investment Grade Corporate Bond Yield as shown in Moody's Yield Average for the last full month of each previous calendar year and will be credited quarterly; and (iii) Such deferred Award, plus accumulated interest, shall be paid upon the earlier of (1) or (2) above, in the form of a lump sum, equal annual install ments over not more than 10 years, or such other method as may be selected by the Participant and agreed to by the Administrator or, in the case of any payment to the Administrator, by the Committee. (c) Deferrals into Performance Units. As an alternative to a deferral payable in cash, as described in subsection (b), the deferred Award may, if the Participant elects and the Committee permits, be invested in Performance Units under Section 7.3 of the First Interstate Bancorp 1991 Performance Stock Plan or the 1995 Performance Stock Plan (each, a "PSP"). The amount deferred shall be deemed to be converted into Performance Units under Section 7.3 of the PSP as of the date the Award would have been payable if no deferral had occurred, based on the fair market value, determined in accordance with the terms of said plan, of the common stock of Bancorp on that date. The timing and manner of payment of deferrals shall be governed by a Performance Unit Agreement entered into by the Participant under the PSP. (d) Hardship Withdrawal. A Participant may request in writing, citing the reasons for the request, that the Committee permit the early payment of all or part of a Deferred Award. Within 90 days after receipt, the Committee shall rule on the request. The Committee shall grant the request only if, in its sole discretion, the Committee makes a specific finding of financial hardship that is an unanticipated emergency caused by an event beyond the control of the Participant. The amount payable hereunder shall not exceed the amount necessary to avoid such hardship. (e) Acceleration of Deferrals. Anything in this Plan to the contrary notwithstanding, the Committee may accelerate the payment of all deferred Awards hereunder at any time in its sole discretion. In addition, the Committee reserves the right to pay any deferred Awards in the form of a lump sum if the amount is less than $10,000.00. 8. Death of a Participant. (a) Beneficiary Designation. A Participant may file a designation of a beneficiary or beneficiaries on a form to be provided which designation may be changed or revoked by the Participant's sole action, provided that such change or revocation is filed in written form. (b) Death during Performance Year. In case of the death of a Participant during a Performance Year, Bancorp or the Subsidiary, as appropriate, may pay a pro rata portion of the Award to which the Participant would have been entitled for such Performance Year. Such pro rata portion shall be equal to (1) the ratio which the Participant's completed calendar months of participation during the Performance Year bears to 12 multiplied by (2) the amount the Committee determines the Participant would have been entitled to had he or she lived. (c) Death after Performance Year. In case of the death of a Participant after the end of a Performance Year, but before the delivery of an Award to which he or she may be entitled, such Award shall be delivered to the Participant's designated beneficiary. (d) Failure to Designate Beneficiary. If a Participant dies having failed to designate any beneficiary, or if no beneficiary survives the Participant or survives to the date of any payment in question, the amount otherwise payable to such beneficiary shall be paid to the Participant's surviving spouse, if any, and otherwise to the Participant's heirs at law, as determined under the law governing succession to personal property for the state in which the Participant resided on the day the Participant died. 9. Transfer of a Participant. In the event a Parti- cipant for any Performance Year is transferred during such Performance Year so that they are no longer eligible to participate in this Plan, such Participant's Award, consistent with Subsection 4(a), shall normally be calculated as the sum of the following: (a) the Award the Participant would have received, had he or she not been transferred, multiplied by the ratio which his or her completed months of participation during such Performance Year prior to the transfer bears to 12, plus (b) the Award, if any, the Participant is entitled to receive based on service after the transfer determined on a Performance Year basis and then multiplied by the ratio which his or her completed months of participation during such Performance Year subsequent to such transfer bears to 12. 10. Retirement or Disability of Participant. In case a Participant becomes totally and permanently disabled during a Performance Year, or retires from active employment after attaining age 55 during a Performance Year, the Committee may but need not grant the Participant an Award. Generally, if an Award is granted, it will be based on a pro rata portion of the Award. 11. Termination of Employment. If the employment of a Participant with a Subsidiary is terminated prior to the approval of an Award by the Committee as specified in Section 5(a), for reasons other than those specified in Sec- tions 8, 9 or 10 hereof, the right to and the amount of an Award shall be forfeited. 12. Termination and Modification. No Award shall be granted under the Plan after any date as of which the Plan shall have been terminated. The Board of Directors of Bancorp or the Committee may at any time modify, terminate or from time to time suspend and, if suspended, may reinstate the provisions of this Plan, including Table A. The Committee may consider but shall not be bound by sugges- tions of Participants in connection with its periodic amend- ment of relative weights of the goals set forth by the Committee. 13. Effect of Other Plans. Eligibility in or the receipt of any Award under the Plan shall not be affected by or affect any other compensation or benefit plans in effect for Bancorp or a Subsidiary. 14. No Employment Rights. Nothing contained in nor any action under the Plan will confer upon any individual any right to continue in the employment of Bancorp or a Subsidiary and does not constitute any contract or agreement of employment or interfere in any way with the right of Bancorp or a Subsidiary to terminate any individual's employment. 15. Withholding Tax. As required by law, federal, state or local taxes that are subject to the withholding of tax at the source shall be withheld by Bancorp or a Subsidiary as necessary to satisfy such requirements. 16. Effective Date. This Plan shall be effective as of January 1, 1995. The Plan, including Table A, shall remain in effect as amended from time to time. 17. Provisions Applicable in the Event of a Change in Control. (a) In the event of a "Change in Control" (as de- fined below), notwithstanding any provisions to the contrary in this Plan, the operation of this Plan shall be modified as set forth below in this Section 17. These modifications shall only apply with respect to Target Awards for the Performance Year in which a Change in Control occurs. (b) Notwithstanding any provision to the contrary in this Plan, within ten (10) days after the Change in Con- trol of Bancorp each Participant shall be paid 100% of his or her Target Award for the year in which the Change in Con- trol occurs, based on the base pay rate then in effect. (c) A "Change in Control" of Bancorp means and shall be deemed to have occurred if and when any one of the following five events occurs: (i) within the meaning of Section 13(d) of the Securities Exchange Act of 1934, any person or group becomes a beneficial owner, directly or indirectly, of securities of Bancorp representing 20% or more of the combined voting power of Bancorp's then outstand ing securities; (ii) individuals who were members of the Board of Directors of Bancorp immediately prior to a meeting of the stockholders of Bancorp involving a contest for the election of Directors shall not constitute a majority of the Board of Directors following such election; (iii) the stockholders of Bancorp approve the dissolution or liquidation of Bancorp; (iv) the stockholders of Bancorp approve an agreement to merge or consolidate, or otherwise organize, with or into one or more entities which are not subsidiaries, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are, or are to be, owned by former stockholders of Bancorp (excluding from the term "former stockholders" a stockholder who is, or as a result of the transaction in question becomes, an "affiliate," as that term is used in the Securities Exchange Act of 1934 and the Rules promulgated thereunder, of any party to such merger, consolidation or reorganization); or (v) the stockholders of Bancorp approve the sale of substantially all of Bancorp's business and/or assets to a person or entity which is not a subsidiary. (d) Any Participant shall be entitled to refuse all or any portion of any Target Award under this Plan if he or she determines that receipt of such payment may result in adverse tax consequences to him or her. Bancorp shall be totally and permanently relieved of any obligation to pay any Award which a Participant explicitly so refuses in writing. 18. Provisions Applicable to Offsets for Split-Dollar Life Insurance Agreements. (a) Notwithstanding anything contained herein to the contrary, any benefits payable under this Plan shall be offset by the value of benefits received by the Participant under certain life insurance policies as set forth in this Section. Participants in this Plan may own life insurance policies (the "Policies") purchased on their behalf by Bancorp. The ownership of these Policies by each Participant is, however, subject to certain conditions (set forth in a "Split-Dollar Life Insurance Agreement" between each Participant and Bancorp) and, if the Participant fails to meet the conditions set forth in the Split-Dollar Life Insurance Agreement, the Participant may lose certain rights under the Policy. (b) In the event that a Participant satisfies the conditions specified in Section 4 or 5 of the Split-Dollar Life Insurance Agreement, so that the Participant or his or her beneficiary becomes entitled to benefits under one of those sections, the value of those benefits shall constitute an offset to any benefits otherwise payable under this Plan. As the case may be, this offset (the "Offset Value") shall be equal to the value of benefits payable under the Split- Dollar Life Insurance Agreement and shall be determined as of the date that the Participant satisfies the conditions specified in Section 4 or 5 of the Split-Dollar Life Insur- ance Agreement, that is, the cash value of the Policy or, in the case of the Participant's death, the death benefit payable to the beneficiary under the Policy reduced by one times the Participant's annual base salary (maximum $500,000) at the time of death. The Offset Value shall then be compared to the Participant's deferred award (including interest accumulated on such award) under this Plan, and such amounts shall be reduced, but not to less than zero, by the Offset Value. (c) If the Policy in subsection (a) is not on the life of the Participant and the insured dies prior to dis- tribution of benefits under this Plan, then the value of the benefits received by the Participant under the Policy will offset the Participant's deferred award (including interest accumulated on such award) under this Plan. This offset ("Offset Value") shall be equal to the amount of death benefit payable to the Participant and shall be determined as of the date of death of the insured. This Offset Value shall then be compared to the Participant's deferred award (including interest accumulated on such award) under this Plan, and such amounts shall be reduced, but not to be less than zero, by the Offset Value. (d) Notwithstanding anything contained herein to the contrary, if, in addition to the benefits otherwise payable under this Plan, the Participant or his or her beneficiary is entitled to benefits under the plans set forth in Table B. The "Offset Value" shall be applied to offset the benefits payable under this Plan and such plans in the order set forth in Table B: 19. Dispute Resolution. (a) If a Participant who has applied for retirement under the Retirement Plan for Employees of First Interstate Bancorp and its Affiliates, or, in the case of the Participant's death, his or her beneficiary, disagrees with the Compensation Committee of the Board of Directors of First Interstate Bancorp (the "Administrator") regarding the interpretation of this Plan, and if the Participant or his or her beneficiary has exhausted the claims review and appeal procedure under Section 503 of the Employee Retirement Income Security Act of 1974 with respect to his or her claim for benefits under this Plan, then the Participant or his or her beneficiary may, if he or she desires, submit any claim for benefits under this Plan or dispute regarding the interpretation of this Plan to arbi- tration; provided that, the request for arbitration must be brought within the time limit for bringing a judicial proceeding with respect to such claim for benefits, or if less, within one year after the Administrator's final denial of such claim for benefits. This right to select arbitration shall be solely that of Participant or his or her beneficiary and Participant or his or her beneficiary may decide whether or not to arbitrate in his or her discre- tion. The "right to select arbitration" is not mandatory on Participant or his or her beneficiary and Participant or his or her beneficiary may choose in lieu thereof to bring an action in an appropriate civil court. Once an arbitration is commenced, however, it may not be discontinued without the mutual consent of both parties to the arbitration. During the lifetime of the Participant only he or she can use the arbitration procedure set forth in this section. (b) Any claim for arbitration may be filed in writing with an arbitrator of Participant's or beneficiary's choice who is selected by the method described in the next four sentences. The first step of the selection shall consist of Participant or his or her beneficiary submitting a list of five potential arbitrators to the Administrator. Each of the five arbitrators must be either (1) a member of the National Academy of Arbitrators located in the State of California or (2) a retired California Superior Court or Appellate Court judge. Within one week after receipt of the list, the Administrator shall select one of the five arbitrators as the arbitrator for the dispute in question. If the Administrator fails to select an arbitrator in a timely manner, Participant or his or her beneficiary shall then designate one of the five arbitrators as the arbitrator for the dispute in question. (c) The arbitration hearing shall be held within seven days (or as soon thereafter as possible) after the picking of the arbitrator. No continuance of said hearing shall be allowed without the mutual consent of Participant or his or her beneficiary and the Administrator. Absence from or nonparticipation at the hearing by either party shall not prevent the issuance of an award. Hearing procedures which will expedite the hearing may be ordered at the arbitrator's discretion, and the arbitrator may close the hearing in his or her sole discretion when he or she decides he or she has heard sufficient evidence to satisfy issuance of an award. (d) The arbitrator's award shall be rendered as expeditiously as possible and in no event later than one week after the close of the hearing. In the event the arbitrator finds that Bancorp has violated the terms of this Plan, he or she shall order Bancorp immediately to take the necessary steps to remedy such violation. The award of the arbitrator shall be final and binding upon the parties. The award may be enforced in any appropriate court as soon as possible after its rendition. If an action is brought to confirm the award, both Bancorp and Participant agree that no appeal shall be taken by either party from any decision rendered in such action. (e) Solely for purposes of determining the allo- cation of the costs described in this Section 19(e), the Administrator will be considered the prevailing party in a dispute if the arbitrator determines (1) that Bancorp has not violated the terms of this Plan, and (2) the claim by Participant or his or her beneficiary was not made in good faith. Otherwise, Participant or his or her beneficiary will be considered the prevailing party. In the event that Bancorp is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (excluding any attorneys' fees incurred by Bancorp) including stenographic reporter, if employed, shall be paid by the other party. In the event that Participant or his or her beneficiary is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (including all attorneys' fees incurred by Participant or his or her beneficiary in pursuing his or her claim), including the fees of a steno- graphic reporter if employed, shall be paid by Bancorp. IN WITNESS WHEREOF, First Interstate Bancorp hereby adopts this 1995 Regional Executive Incentive Plan as of January 1, 1995. FIRST INTERSTATE BANCORP By ___________________________ TABLE A 1995 REGIONAL EXECUTIVE INCENTIVE PLAN I. Target Award Percentage Target Award Participant Level Percentage California 37.5 Northwest 37.5 Texas 37.5 Southwest 37.5 TABLE B EMPLOYEE BENEFIT PLANS FIRST The First Interstate Bancorp Excess Benefit Retirement Plan; SECOND The First Interstate Bancorp Supplemental Executive Retirement Plan; THIRD The Supplemental Employee Savings Plan of First Interstate Bancorp; FOURTH The First Interstate Bancorp Management Incentive Plans; FIFTH The First Interstate Bancorp Annual Incentive Compensation Plans; SIXTH The First Interstate Bancorp Profit Improvement Plans; SEVENTH The First Interstate Bancorp Corporate Executive Incentive Plan; EIGHTH The First Interstate Bancorp Regional Executive Incentive Plan; and NINTH The First Interstate Bancorp Supplemental Retirement Plans. EX-10 4 -7- EXHIBIT (10.7) FIRST INTERSTATE CORPORATE EXECUTIVE INCENTIVE PLAN Effective January 1, 1995 1. Objectives. The Corporate Executive Incentive Plan is designed to focus the efforts of certain key executive employees of First Interstate Bancorp and the Regions on the continued improvement in the performance of First Interstate, and to aid in attracting, motivating and retaining superior executives by providing an incentive and reward for those executive employees who contribute most to the operating progress and performance of the First Interstate. 2. Definitions. The following definitions shall be applicable to the terms used in the Plan: (a) "Award" means a cash distribution to be made to a Participant for a Performance Year as determined in accordance with the provisions of the Plan. (b) "Bancorp" means First Interstate Bancorp, a Delaware corporation. (c) "Change in Control" shall have the meaning set forth in Section 16. (d) "Committee" means the Compensation Committee of the Board of Directors of Bancorp. (e) "First Interstate" means the consolidated group of companies comprising First Interstate Bancorp. (f) "Fiscal Year" means the customary fiscal year of Bancorp. (g) "Management Incentive Plan" means the First Interstate annual Management Incentive Plan. (h) "Offset Value" shall have the meaning set forth in Section 17(b) and (c). (i) "Participant" means an eligible executive who, pursuant to Section 4 hereof, automatically becomes a participant in the Plan for a Fiscal Year. (j) "Performance Year" means the Fiscal Year. (k) "Plan" means this First Interstate Corporate Executive Incentive Plan, as set forth herein. (l) "Policies" shall have the meaning set forth in Section 17(a). (m) "PSP" shall have the meaning set forth in Section 6(c). (n) "Region" means any of the California, Northwest, Southwest or Texas regions as defined by First Interstate Bancorp consisting of First Interstate banks. (o) "Split-Dollar Life Insurance Agreement" shall have the meaning set forth in Section 17(a). (p) "Subsidiary" means a bank, corporation, association or similar organization of which the majority of the outstanding shares of voting stock is owned by Bancorp, directly or indirectly. (q) "Target Award" is determined for each Par- ticipant by multiplying the Participant's base pay rate in effect at the end of the Performance Year by the Target Award Percentage applicable to the Participant set forth under Item I of the Target Award Guidelines attached as Table A. 3. Adoption and Administration of the Plan. The Plan shall become effective as of January 1, 1995 upon adoption by the Board of Directors of Bancorp, subject to shareholder approval. Subject to the provisions of this Plan and in the absence of specific action by the Committee, this Plan shall be administered by the Administrator. The Plan shall not be modified, terminated or suspended except with the consent of the Committee. All decisions of the Administrator or the Committee shall be final and binding. 4. Participation and Target Awards. (a) Determination of Participants and Target Awards. The Chairman of the Board of Directors of Bancorp, the Chief Executive Officer of Bancorp, the Chief Operating Officer of Bancorp and the Chief Executive Officer of each Region shall be Participants in the Plan. Except as provided in Sections 7(b) and 9, to be considered eligible for an Award, a Participant must be participating in the Plan, the Regional Executive Incentive Plan or the Management Incent- ive Plan for at least six months during the Performance Year. (b) Notification. Each Participant shall be noti- fied of his or her eligibility for participation in the Plan for such Performance Year or shall be notified of his or her termination, as applicable, by a letter from the Administra tor or his or her designee. A copy of this Plan shall be provided to each Participant. A Participant shall have no right to or interest in an Award unless and until the Participant's Award has been determined and certified by the Committee. 5. Determination of Award. (a) Performance Review. As soon as practicable after the close of each Performance Year, a determination of the First Interstate's performance will be made by the Committee. (b) Awards. The Awards shall be available to Participants on the basis of the goals and percentages described in Table B. Based on the goals and the extent to which they are achieved, the Committee shall calculate the Award by using the formula contained in Table B. The Committee shall compare First Interstate's performance with the performance goals and, if achieved, shall certify, in writing, that the performance goals and any other material terms were in fact satisfied. (c) Limitations. The Committee shall have the right to reduce an Award to an actual award percentage of no less than 0% upon attainment of a goal for which an Award is payable. 6. Time of Payment of Awards, Deferrals, Hardships. (a) Payment Date. Except as provided in (b) below, as soon as practicable after the determination of Awards and certification by the Committee, any Award, less any legally required withholding, shall be paid to the Participant or, in the event of a Participant's death, in accordance with Section 7 hereof. (b) Deferrals. In the year prior to the year in which an Award is earned, a Participant may elect, on a form specified by Bancorp, to defer the receipt of any Award to which he or she may be entitled for such Performance Year until the earlier of (1) termination of employment (the first to occur of retirement, death, disability, or termination of employment) or (2) January 1 of a specified calendar year. In such event: (i) The amount the Participant elects, net of any legally required withholding, shall become the deferred Award; (ii) Interest on such deferred Award will be the Moody's Investment Grade Corporate Bond Yield as shown in Moody's Yield Average for the last full month of each previous calendar year and will be credited quarterly; and (iii) Such deferred Award, plus accumulated interest, shall be paid upon the earlier of (1) or (2) above, in the form of a lump sum, equal annual install- ments over not more than 10 years, or such other method as may be selected by the Participant and agreed to by the Committee. (c) Deferrals into Performance Units. As an alternative to a deferral payable in cash, as described in subsection (b), the deferred Award may, if the Participant elects and the Committee permits, be invested in Performance Units under Section 7.3 of the First Interstate Bancorp 1995 Performance Stock Plan (the "PSP"). The amount deferred shall be deemed to be converted into Performance Units under Section 7.3 of the PSP as of the date the Award would have been payable if no deferral had occurred, based on the fair market value, determined in accordance with the terms of the PSP, of the common stock of Bancorp on that date. The timing and manner of payment of deferrals shall be governed by a Performance Unit Agreement entered into by the Participant under the PSP. (d) Hardship Withdrawal. A Participant may request in writing, citing the reasons for the request, that the Committee permit the early payment of all or part of a deferred Award. Within 90 days after receipt, the Committee shall rule on the request. The Committee shall grant the re- quest only if, in its sole discretion, the Committee makes a specific finding of financial hardship that is an unanticipated emergency caused by an event beyond the control of the Participant. The amount payable hereunder shall not exceed the amount necessary to avoid such hardship. (e) Acceleration of Deferrals. Anything in this Plan to the contrary notwithstanding, the Committee may accelerate the payment of all deferred Awards with respect to Bancorp or any Subsidiary at any time in its sole discretion. In addition, the Committee reserves the right to pay any deferred Awards in the form of a lump sum if the amount is less than $10,000.00. 7. Death of a Participant. (a) Beneficiary Designation. A Participant may file a designation of a beneficiary or beneficiaries on a form to be provided which designation may be changed or re- voked by the Participant's sole action, provided that such change or revocation is filed in written form. (b) Death during Performance Year. In case of the death of a Participant during a Performance Year, Bancorp may pay a pro rata portion of the Award to which the Participant would have been entitled for such Performance Year. Such pro rata portion shall be equal to (1) the ratio which the Participant's completed calendar months of participation during the Performance Year bears to 12 multiplied by (2) the amount the Committee determines the Participant would have been entitled to had he or she lived. (c) Death after Performance Year. In case of the death of a Participant after the end of a Performance Year, but before the delivery of an Award to which he or she may be entitled, such Award shall be delivered to the Participant's designated beneficiary. (d) Failure to Designate Beneficiary. If a Participant dies having failed to designate any beneficiary, or if no beneficiary survives the Participant or survives to the date of any payment in question, the amount otherwise payable to such beneficiary shall be paid to the Participant's surviving spouse, if any, and otherwise to the Participant's heirs at law, as determined under the law governing succession to personal property for the state in which the Participant resided on the day the Participant died. 8. Transfer of a Participant. In the event a Parti- cipant for any Performance Year is transferred during such Performance Year from Bancorp or a Subsidiary to another Subsidiary or Bancorp, such Participant's Award, consistent with Subsection 4(a), shall normally be calculated as the sum of the following: (a) the Award the Participant would have received, had he or she not been transferred, multiplied by the ratio which his or her completed months of participation during such Performance Year prior to the transfer bears to 12, plus (b) the Award, if any, the Participant is entitled to receive based on service after the transfer determined on a Performance Year basis and then multiplied by the ratio which his or her completed months of participation during such Performance Year subsequent to such transfer bears to 12. 9. Retirement or Disability of Participant. In case a Participant becomes totally and permanently disabled during a Performance Year, or retires from active employment after attaining age 55 during a Performance Year, the Committee may but need not grant the Participant an Award. Generally, if an Award is granted, it will be based on a pro rata portion of the Award (but in no event greater than the full Award that the Participant would have received upon satisfaction of the performance goals). 10. Termination of Employment. If the employment of a Participant with Bancorp or a Subsidiary is terminated prior to the certification of the Committee for reasons other than those specified in Sections 7, 8, or 9 hereof, the right to and the amount of an Award shall be forfeited. 11. Termination and Modification. No Award shall be granted under the Plan after any date as of which the Plan shall have been terminated. The Board of Directors of Bancorp or the Committee may at any time modify, terminate or from time to time suspend and, if suspended, may reinstate the provisions of this Plan, including any of the tables. No Award shall be increased and no Award shall be reallocated to increase the Award to another Participant. 12. Effect of Other Plans. Eligibility in or the receipt of any Award under the Plan shall not be affected by or affect any other compensation or benefit plans in effect for Bancorp or a Subsidiary. 13. No Employment Rights. Nothing contained in nor any action under the Plan will confer upon any individual any right to continue in the employment of Bancorp or a Subsidiary and does not constitute any contract or agreement of employment or interfere in any way with the right of Bancorp or a Subsidiary to terminate any individual's employment. 14. Withholding Tax. As required by law, federal, state or local taxes that are subject to the withholding of tax at the source shall be withheld by Bancorp or a Subsidiary as necessary to satisfy such requirements. 15. Effective Date. Subject to shareholder approval, this Plan shall be effective as of January 1, 1995. 16. Provisions Applicable in the Event of a Change in Control. (a) In the event of a "Change in Control" (as de- fined below), notwithstanding any provisions to the contrary in this Plan, the operation of this Plan shall be modified as set forth below in this Section 16. These modifications shall only apply with respect to Target Awards for the Performance Year in which a Change in Control occurs. (b) Notwithstanding any provision to the contrary in this Plan, within ten (10) days after the Change in Con- trol of Bancorp each Participant shall be paid 100% of his or her Target Award for the year in which the Change in Con- trol occurs, based on the base pay rate then in effect. (c) A "Change in Control" of Bancorp means and shall be deemed to have occurred if and when any one of the following five events occurs: (i) within the meaning of Section 13(d) of the Securities Exchange Act of 1934, any person or group becomes a beneficial owner, directly or indirectly, of securities of Bancorp representing 20% or more of the combined voting power of Bancorp's then outstand ing securities; (ii) individuals who were members of the Board of Directors of Bancorp immediately prior to a meeting of the stockholders of Bancorp involving a contest for the election of Directors shall not constitute a majority of the Board of Directors following such election; (iii) the stockholders of Bancorp approve the dissolution or liquidation of Bancorp; (iv) the stockholders of Bancorp approve an agreement to merge or consolidate, or otherwise organize, with or into one or more entities which are not subsidiaries, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are, or are to be, owned by former stockholders of Bancorp (excluding from the term "former stockholders" a stockholder who is, or as a result of the transaction in question becomes, an "affiliate," as that term is used in the Securities Exchange Act of 1934 and the Rules promulgated thereunder, of any party to such merger, consolidation or reorganization); or (v) the stockholders of Bancorp approve the sale of substantially all of Bancorp's business and/or assets to a person or entity which is not a subsidiary. (d) Any Participant shall be entitled to refuse all or any portion of any Target Award under this Plan if he or she determines that receipt of such payment may result in adverse tax consequences to him or her. Bancorp shall be totally and permanently relieved of any obligation to pay any Award which a Participant explicitly so refuses in writing. 17. Provisions Applicable to Offsets for Split-Dollar Life Insurance Agreements. (a) Notwithstanding anything contained herein to the contrary, any benefits payable under this Plan shall be offset by the value of benefits received by the Participant under certain life insurance policies as set forth in this Section. Participants in this Plan may own life insurance policies (the "Policies") purchased on their behalf by Bancorp. The ownership of these Policies by each Participant is, however, subject to certain conditions (set forth in a "Split-Dollar Life Insurance Agreement" between each Participant and Bancorp) and, if the Participant fails to meet the conditions set forth in the Split-Dollar Life Insurance Agreement, the Participant may lose certain rights under the Policy. (b) In the event that a Participant satisfies the conditions specified in Section 4 or 5 of the Split-Dollar Life Insurance Agreement, so that the Participant or his or her beneficiary becomes entitled to benefits under one of those sections, the value of those benefits shall constitute an offset to any benefits otherwise payable under this Plan. As the case may be, this offset (the "Offset Value") shall be equal to the value of benefits payable under the Split- Dollar Life Insurance Agreement and shall be determined as of the date that the Participant satisfies the conditions specified in Section 4 or 5 of the Split-Dollar Life Insur- ance Agreement, that is, the cash value of the Policy or, in the case of the Participant's death, the death benefit payable to the beneficiary under the Policy reduced by one times the Participant's annual base salary (maximum $500,000) at the time of death. The Offset Value shall then be compared to the Participant's deferred award (including interest accumulated on such award) under this Plan, and such amounts shall be reduced, but not to less than zero, by the Offset Value. (c) If the Policy in subsection (a) is not on the life of the Participant and the insured dies prior to dis- tribution of benefits under this Plan, then the value of the benefits received by the Participant under the Policy will offset the Participant's deferred award (including interest accumulated on such award) under this Plan. This offset ("Offset Value") shall be equal to the amount of death benefit payable to the Participant and shall be determined as of the date of death of the insured. This Offset Value shall then be compared to the Participant's deferred award (including interest accumulated on such award) under this Plan, and such amounts shall be reduced, but not to be less than zero, by the Offset Value. (d) Notwithstanding anything contained herein to the contrary, if, in addition to the benefits otherwise payable under this Plan, the Participant or his or her beneficiary is entitled to benefits under any of the plans set forth in Table C, the "Offset Value" shall be applied to offset the benefits payable under this Plan and such plans in the order set forth in Table C. 18. Dispute Resolution. (a) If a Participant who has applied for retirement under the Retirement Plan for Employees of First Interstate Bancorp and its Affiliates, or, in the case of the Participant's death, his or her beneficiary, disagrees with the Committee regarding the interpretation of this Plan, and if the Participant or his or her beneficiary has exhausted the claims review and appeal procedure under Section 503 of the Employee Retirement Income Security Act of 1974 with respect to his or her claim for benefits under this Plan, then the Participant or his or her beneficiary may, if he or she desires, submit any claim for benefits under this Plan or dispute regarding the interpretation of this Plan to arbitration; provided that, the request for arbitration must be brought within the time limit for bringing a judicial proceeding with respect to such claim for benefits, or if less, within one year after the Committee's final denial of such claim for benefits. This right to select arbitration shall be solely that of Partici- pant or his or her beneficiary and Participant or his or her beneficiary may decide whether or not to arbitrate in his or her discretion. The "right to select arbitration" is not mandatory on Participant or his or her beneficiary and Participant or his or her beneficiary may choose in lieu thereof to bring an action in an appropriate civil court. Once an arbitration is commenced, however, it may not be discontinued without the mutual consent of both parties to the arbitration. During the lifetime of the Participant only he or she can use the arbitration procedure set forth in this section. (b) Any claim for arbitration may be filed in writing with an arbitrator of Participant's or beneficiary's choice who is selected by the method described in the next four sentences. The first step of the selection shall consist of Participant or his or her beneficiary submitting a list of five potential arbitrators to the Committee. Each of the five arbitrators must be either (1) a member of the National Academy of Arbitrators located in the State of California or (2) a retired California Superior Court or Appellate Court judge. Within one week after receipt of the list, the Committee shall select one of the five arbitrators as the arbitrator for the dispute in question. If the Committee fails to select an arbitrator in a timely manner, Participant or his or her beneficiary shall then designate one of the five arbitrators as the arbitrator for the dispute in question. (c) The arbitration hearing shall be held within seven days (or as soon thereafter as possible) after the picking of the arbitrator. No continuance of said hearing shall be allowed without the mutual consent of Participant or his or her beneficiary and the Committee. Absence from or nonparticipation at the hearing by either party shall not prevent the issuance of an award. Hearing procedures which will expedite the hearing may be ordered at the arbitrator's discretion, and the arbitrator may close the hearing in his or her sole discretion when he or she decides he or she has heard sufficient evidence to satisfy issuance of an award. (d) The arbitrator's award shall be rendered as expeditiously as possible and in no event later than one week after the close of the hearing. In the event the arbitrator finds that Bancorp has violated the terms of this Plan, he or she shall order Bancorp immediately to take the necessary steps to remedy such violation. The award of the arbitrator shall be final and binding upon the parties. The award may be enforced in any appropriate court as soon as possible after its rendition. If an action is brought to confirm the award, both Bancorp and Participant agree that no appeal shall be taken by either party from any decision rendered in such action. (e) Solely for purposes of determining the al- location of the costs described in this Section 18(e), the Committee will be considered the prevailing party in a dispute if the arbitrator determines (1) that Bancorp has not violated the terms of this Plan, and (2) the claim by the Participant or his or her beneficiary was not made in good faith. Otherwise, the Participant or his or her beneficiary will be considered the prevailing party. In the event that Bancorp is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (excluding any attorneys' fees incurred by Bancorp) including stenographic reporter, if employed, shall be paid by the other party. In the event that the Participant or his or her beneficiary is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (including all attorneys' fees incurred by the Participant or his or her beneficiary in pursuing his or her claim), including the fees of a stenographic reporter if employed, shall be paid by Bancorp. IN WITNESS WHEREOF, First Interstate Bancorp hereby adopts this First Interstate Corporate Executive Incentive Plan as of January 1, 1995, subject to shareholder approval. FIRST INTERSTATE BANCORP By ___________________________ TABLE A 1995 CORPORATE EXECUTIVE INCENTIVE PLAN I. Target Award Percentage Target Award Participant Level Percentage Chief Executive Officer 90% of the Corporation Chief Operating Officer 90% of the Corporation Chief Executive Officer 30% of a Region II. Maximum Award Percentage 150% of Target Award Percentage III. Salary Data for Computation of Awards Chairman $790,000 Chief Executive Officer $720,000 Chief Operating Officer $520,000 Chief Executive Officer - CA Region $435,000 Chief Executive Officer - SW Region $225,000 Chief Executive Officer - NW Region $395,000 Chief Executive Officer - TX Region $345,000 TABLE B CORPORATE EXECUTIVE INCENTIVE PLAN GOAL'S I. ROE Consolidated return on average common equity (ROCE) as published in the Annual Report, will be measured against the 10 year median ROCE of the peer group as well as the "performance year's" median peer group ROCE. FI ROCE 50% of the total award is based on a matrix consisting of a scale of six ROCE achievement levels, anchored by the 10 year median ROCE of the peer group (14% for 1994) and each of the achievement levels is related to a "% of target award" payout. If First Interstate earned the median ROCE, the payout for this portion of the award would be 50% of the 50% or 25%. FI ROCE % of Target Award Payout "A" <14% 0% 14% 50% 15% 60% 16% 70% 17% 85% 18% 100% 19% or > 125% FI ROCE RELATIVE TO "PERFORMANCE YEAR" PEER GROUP MEDIAN ROCE 50% of the total award is based on a matrix consisting of a scale of six ROCE achievement levels, anchored by the "performance year's" median peer group ROCE and each of the achievement levels is related to a " % of target award" payout. If First Interstate earned the median ROCE, for the payout this portion of the award would be 50% of the 50% or 25%. FI ROCE % of Target Award Payout "B" 125% CALCULATION FORMULA A Participant's Award is calculated by multiplying the Participant's Target Award by the following percentage: (A x 50%) + (B x 50%) where "A" is the percentage representing the Corporation's performance against it's internal ROCE objective; and "B" is the percentage representing the Corporation's performance compared to the peer group median ROCE for the Performance Year. The Target Award for the Chief Executive Officer of the Corporation and the President of the Corporation is 90% of year-end base salary. The Target Award for all other Participants is 30% of year-end base salary. For purposes of calculating Awards, year-end base salary shall not be treated as increasing in any performance Year by more than the average salary increases for employees at this level at comparable banks, taking into consideration, increases on account of promotions. II. Revenue. III. Gross Income. A Participant's Target Award with respect to Gross Income is 0%. IV. Pre-Tax Income. A Participant's Target Award with respect to Pre-Tax Income is 0%. V. Deposits. A Participant's Target Award with respect to Deposits is 0%. VII. Non-Interest Expenses. A Participant's Target Award with respect to Non-Interest Expenses is 0%. VIII.Non-Performing Assets. A Participant's Target Award with respect to Non-Performing Assets is 0%. IX. Total Shareholder Return. A Participant's Target Award with respect to Total Shareholder Return is 0%. PEER GROUP BankAmerica NationsBank BancOne First Union PNC Financial Wells Fargo Norwest Fleet Financial NBD Bancorp SunTrust Barnett Banks Wachovia Mellon Bank First Fidelity KeyCorp National City Society Corp US Bancorp First of America If any of the peer banks do not continue to exist as a result of merger, the remaining banks will be used as the peer group. TABLE C APPLICABLE PLANS AND ORDER OF DESCENT FIRST The First Interstate Bancorp Excess Benefit Retire ment Plan; SECOND The First Interstate Bancorp Supplemental Executive Retirement Plan; THIRD The Supplemental Employee Savings Plan of First Interstate Bancorp; FOURTH The First Interstate Bancorp Management Incentive Plans; FIFTH The First Interstate Bancorp Annual Incentive Compensation Plans; SIXTH The First Interstate Bancorp Profit Improvement Plans; SEVENTH The First Interstate Bancorp Corporate Executive Incentive Plan; EIGHTH The First Interstate Bancorp Regional Executive Incentive Plan; and NINTH The First Interstate Bancorp Supplemental Retirement Program. EX-10 5 -4- EXHIBIT (10.8) FIRST INTERSTATE 1995 MANAGEMENT INCENTIVE PLAN Effective January 1, 1995 1. Objectives. The 1995 Management Incentive Plan is designed to focus the efforts of certain key employees of First Interstate on the continued improvement in the performance of First Interstate and to aid in attracting, motivating and retaining superior executives by providing an incentive and reward for those key employees who contribute most to the operating progress and performance of First Interstate. 2. Definitions. The following definitions shall be applicable to the terms used in the Plan: (a) "Administrator" means the Chief Executive Officer of Bancorp. (b) "Award" means a cash distribution to be made to a Participant for a Performance Year as determined in accordance with the provisions of the Plan. (c) "Award Fund" means the total of the Target Awards for each Participant as determined and approved in accordance with Section 5 hereof. (d) "Bancorp" means First Interstate Bancorp, a Delaware corporation. (e) "Change in Control" shall have the meaning set forth in Section 17. (f) "Committee" means the Compensation Committee of the Board of Directors of Bancorp. (g) "First Interstate" means the consolidated group of companies comprising First Interstate Bancorp. (h) "Fiscal Year" means the customary fiscal year of Bancorp. (i) "Offset Value" shall have the meaning set forth in Section 18(b) and (c). (j) "Participant" means a person who, pursuant to Section 4 hereof, is designated as a Participant in the Plan for a Fiscal Year. (k) "Performance Year" means the Fiscal Year. (l) "Plan" means this First Interstate 1995 Management Incentive Plan, as set forth herein. (m) "Policies" shall have the meaning set forth in Section 18(a). (n) "PSP" shall have the meaning set forth in Section 7(c). (o) "Split-Dollar Life Insurance Agreement" shall have the meaning set forth in Section 18(a). (p) "Subsidiary" means a bank, corporation, association or similar organization of which the majority of the outstanding shares of voting stock is owned directly or indirectly by Bancorp, directly or indirectly. (q) "Target Award" is determined for each Participant by multiplying the Participant's base pay rate in effect at the end of the Performance Year by the Target Award Percentage applicable to the Participant set forth under Item I of the Target Award Guidelines attached as Table A. 3. Adoption and Administration of the Plan. The Plan shall become effective as of January 1, 1995 upon adoption by the Committee. Subject to the provisions of this Plan and in the absence of specific action by the Committee, this Plan shall be administered by the Administrator. The Plan shall not be modified except with the consent of the Committee. All decisions of the Administrator or the Committee shall be final and binding. 4. Participation and Target Awards. (a) Determination of Participants and Target Awards. Prior to the beginning of each Performance Year, or as soon as practicable thereafter, the Administrator shall prepare a list of proposed Participants in the Plan for such Performance Year and shall, for each such Participant establish a preliminary Target Award Percentage. Each Subsidiary shall be given an opportunity to make suggestions with respect to both proposed Participants and their preliminary Target Award Percentages. Any such suggestions shall, however, not be binding on the Administrator. Additional Participants may be included during the Performance Year and, as provided in the Plan, participation for an individual may be terminated. Except as provided in Section 8(b) and 10, to be considered eligible for an Award, a Participant must participate in the Plan for at least six months during the Performance Year. (b) Notification. Each Participant shall be noti- fied of his or her participation in the Plan for such Per- formance Year or shall be notified of his or her termina- tion, as applicable, by a letter from the Administrator or his or her designee. A summary of this Plan shall be pro- vided to each Participant. A Participant shall have no right to or interest in an Award unless and until the Participant's Award has been determined and allocated to the Participant. 5. Determination of Award Fund. (a) Performance Review. As soon as practicable after the close of each Performance Year, a determination of the Corporation's performance and the performance of each Region participating in this Plan shall be made by the Administrator. The Administrator's determination shall be subject to approval by the Committee. (b) Award Fund. The Committee shall determine the total amount of the Award Fund authorized for First Interstate for the Performance Year. The Award Fund shall contain a separate pool of funds for Bancorp and each participating Subsidiary. The Award Fund amount for Bancorp and each participating Subsidiary may be determined in any manner the Committee deems appropriate from time to time. Without limiting the Committee's discretion to choose other methods to calculate the size of the Award Fund, it is anticipated that the Award Fund amount for the Participants employed by Bancorp or a participating Subsidiary will equal the sum of the Target Awards for each Participant of Bancorp or the participating Subsidiary, as applicable, multiplied by the following percentage calculated for such a Participant: (AxC) + (BxD), where A is the percentage, if any, of the Participant's Award to be based on First Interstate's performance, B is the percentage, if any, of the Participant's Award to be based on a Region's performance, as such percentages are set forth under Item II of the Target Award Guidelines attached as Table A, C is a percentage representing the performance of First Interstate determined by the Administrator, and D is a percentage representing the performance of the Region determined by the Administrator. 6. Allocation of Award Fund to Participants. The Award Fund shall be available for allocation to Participants on a totally discretionary basis in a manner designed to give the Administrator the flexibility to take into account the individual performance of each Participant. Based on its evaluation of a Participant's performance, the Administrator may determine an Award equal to any percentage of the Participant's Target Award up to the maximum percentage set forth under Item III of the Target Award Guidelines attached as Table A. The total Awards determined by the Administrator for Bancorp or a participating Subsidiary for a Performance Year shall not exceed the amount of the Award Fund for the particular employer for such Performance Year. In the event the amount of the Award Fund exceeds the total Awards for a Performance Year, such excess shall not be carried forward for purposes of Awards in future Performance Years. Award payments will be charged against Bancorp or the Subsidiary for which the Participant is an employee, as appropriate. 7. Time of Payment of Awards, Deferrals, Hardships. (a) Payment Date. Except as provided in (b) below, as soon as practicable after the allocation of Awards in respect of Participants, any Award, less any legally required withholding, shall be paid to the Participant or, in the event of a Participant's death, in accordance with Section 8 hereof. (b) Deferrals. In the year prior to the year in which the Award is earned, a Participant may elect, on a form specified by Bancorp, to defer the receipt of any Award to which he or she may be entitled for such Performance Year until the earlier of (1) termination of employment (the first to occur of retirement, death, disability, or termination of employment) or (2) January 1 of a specified calendar year. In such event: (i) The amount the Participant elects, net of any legally required withholding, shall become the deferred Award; (ii) Interest on such deferred Award will be the Moody's Investment Grade Corporate Bond Yield as shown in Moody's Yield Average for the last full month of each previous calendar year and will be credited quarterly; and (iii) Such deferred Award, plus accumulated interest, shall be paid upon the earlier of (1) or (2) above, in the form of a lump sum, equal annual installments over not more than 10 years, or such other method as may be selected by the Participant and agreed to by the Administrator. (c) Deferrals into Performance Units. As an alternative to a deferral payable in cash, as described in subsection (b), the deferred Award may, if the Participant elects and the Committee permits, be invested in Performance Units under Section 7.3 of the First Interstate Bancorp 1991 Performance Stock Plan (the "PSP"). The amount deferred shall be deemed to be converted into Performance Units under Section 7.3 of the PSP as of the date the Award would have been payable if no deferral had occurred, based on the fair market value, determined in accordance with the terms of the PSP, of the common stock of Bancorp on that date. The timing and manner of payment of deferrals shall be governed by a Performance Unit Agreement entered into by the Participant under the PSP. (d) Hardship Withdrawal. A Participant may request in writing, citing the reasons for the request, that the Committee permit the early payment of all or part of a De- ferred Award. Within 90 days after receipt, the Committee shall rule on the request. The Committee shall grant the re- quest only if, in its sole discretion, the Committee makes a specific finding of financial hardship that is an unanticipated emergency caused by an event beyond the control of the Participant. The amount payable hereunder shall not exceed the amount necessary to avoid such hardship. (e) Acceleration of Deferrals. Anything in this Plan to the contrary notwithstanding, the Committee may accelerate the payment of all deferred Awards with respect to Bancorp or any Subsidiary at any time in its sole discretion. In addition, the Committee reserves the right to pay any deferred Awards in the form of a lump sum if the amount is less than $10,000.00. 8. Death of a Participant. (a) Beneficiary Designation. A Participant may file a designation of a beneficiary or beneficiaries on a form to be provided which designation may be changed or revoked by the Participant's sole action, provided that such change or revocation is filed in written form. (b) Death during Performance Year. In case of the death of a Participant during a Performance Year, Bancorp or the Subsidiary, as appropriate, may pay a pro rata portion of the Award to which the Participant would have been entitled for such Performance Year. Such pro rata portion shall be equal to (1) the ratio which the Participant's completed calendar months of participation during the Performance Year bears to 12 multiplied by (2) the amount the Committee determines the Participant would have been entitled to had he or she lived. (c) Death after Performance Year. In case of the death of a Participant after the end of a Performance Year, but before the delivery of an Award to which he or she may be entitled, such Award shall be delivered to the Participant's designated beneficiary. (d) Failure to Designate Beneficiary. If a Participant dies having failed to designate any beneficiary, or if no beneficiary survives the Participant or survives to the date of any payment in question, the amount otherwise payable to such beneficiary shall be paid to the Participant's surviving spouse, if any, and otherwise to the Participant's heirs at law, as determined under the law governing succession to personal property for the state in which the Participant resided on the day the Participant died. 9. Transfer of a Participant. In the event a Participant for any Performance Year is transferred during such Performance Year from Bancorp or a Subsidiary to another Subsidiary or Bancorp, such Participant's Award, consistent with Subsection 4(a), shall normally be calculated as the sum of the following: (a) the Award the Participant would have received under the Plan, had he or she not been transferred, multi- plied by the ratio which his or her completed months of participation during such Performance Year prior to the transfer bears to 12, plus (b) the Award, if any, the Participant is entitled to receive under the Plan based on service after the transf- er determined on a Performance Year basis and then multi- plied by the ratio which his or her completed months of participation during such Performance Year subsequent to such transfer bears to 12. 10. Retirement or Disability of Participant. In case a Participant becomes totally and permanently disabled during a Performance Year, or retires from active employment after attaining age 55 during a Performance Year, the Committee may but need not grant the Participant an Award. Generally, if an Award is granted, it will be based on a pro rata portion of the Award. 11. Termination of Employment. If the employment of a Participant with First Interstate is terminated prior to the approval of the Committee as specified in Section 5(a) for reasons other than those specified in Sections 8, 9 or 10 hereof, the right to and the amount of an Award shall be forfeited. 12. Termination and Modification. No Award shall be granted under the Plan after any date as of which the Plan shall have been terminated. The Board of Directors of Bancorp or the Committee may at any time modify, terminate or from time to time suspend and, if suspended, may reinstate the provisions of this Plan, including Table A. The Committee may consider but shall not be bound by sugges- tions of participating Subsidiaries in connection with its periodic amendment of relative weights set forth under Item II of Table A. 13. Effect of Other Plans. Eligibility in or the receipt of any Award under the Plan shall not be affected by or affect any other compensation or benefit plans in effect for First Interstate; provided, however that the receipt of an Award under the Corporate Executive Incentive Plan in a Performance year shall preclude participation in any Award under this Plan for such year. 14. No Employment Rights. Nothing contained in nor any action under the Plan will confer upon any individual any right to continue in the employment of First Interstate and does not constitute any contract or agreement of employ ment or interfere in any way with the right of First Interstate to terminate any individual's employment. 15. Withholding Tax. As required by law, federal, state or local taxes that are subject to the withholding of tax at the source shall be withheld by First Interstate as necessary to satisfy such requirements. 16. Effective Date. This Plan shall be effective as of January 1, 1995. The Plan, including Table A, shall remain in effect as amended from time to time. 17. Provisions Applicable in the Event of a Change in Control. (a) In the event of a "Change in Control" (as de- fined below), notwithstanding any provisions to the contrary in this Plan, the operation of this Plan shall be modified as set forth below in this Section 17. These modifications shall only apply with respect to Target Awards for the Performance Year in which a Change in Control occurs. (b) Notwithstanding any provision to the contrary in this Plan, within ten (10) days after the Change in Con- trol of Bancorp each Participant shall be paid 100% of his or her Target Award for the year in which the Change in Control occurs, based on the base pay rate then in effect. (c) A "Change in Control" of Bancorp means and shall be deemed to have occurred if and when any one of the following five events occurs: (i) within the meaning of Section 13(d) of the Securities Exchange Act of 1934, any person or group becomes a beneficial owner, directly or indirectly, of securities of First Interstate Bancorp representing 20% or more of the combined voting power of First Interstate Bancorp's then outstanding securities; (ii) individuals who were members of the Board of Directors of First Interstate Bancorp immediately prior to a meeting of the stockholders of First Interstate Bancorp involving a contest for the election of Directors shall not constitute a majority of the Board of Directors following such election; (iii) the stockholders of First Interstate Bancorp approve the dissolution or liquidation of First Interstate Bancorp; (iv) the stockholders of First Interstate Bancorp approve an agreement to merge or consolidate, or otherwise organize, with or into one or more entities which are not subsidiaries, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are, or are to be, owned by former stockholders of First Interstate Bancorp (excluding from the term "former stockholders" a stockholder who is, or as a result of the transaction in question becomes, an "affiliate," as that term is used in the Securities Exchange Act of 1934 and the Rules promulgated thereunder, of any party to such merger, consolidation or reorganization); or (v) the stockholders of First Interstate Bancorp approve the sale of substantially all of First Interstate Bancorp's business and/or assets to a person or entity which is not a subsidiary. (d) Any Participant shall be entitled to refuse all or any portion of any Target Award under this Plan if he or she determines that receipt of such payment may result in adverse tax consequences to him or her. First Interstate Bancorp shall be totally and permanently relieved of any obligation to pay any Award which a Participant explicitly so refuses in writing. 18. Provisions Applicable to Offsets for Split-Dollar Life Insurance Agreements. (a) Notwithstanding anything contained herein to the contrary, any benefits payable under this Plan shall be offset by the value of benefits received by the Participant under certain life insurance policies as set forth in this Section. Participants in this Plan may own life insurance policies (the "Policies") purchased on their behalf by Bancorp ("the Company"). The ownership of these Policies by each Participant is, however, subject to certain conditions (set forth in a "Split-Dollar Life Insurance Agreement" between each Participant and Bancorp) and, if the Participant fails to meet the conditions set forth in the Split-Dollar Life Insurance Agreement, the Participant may lose certain rights under the Policy. (b) In the event that a Participant satisfies the conditions specified in Section 4 or 5 of the Split-Dollar Life Insurance Agreement, so that the Participant or his or her beneficiary becomes entitled to benefits under one of those sections, the value of those benefits shall constitute an offset to any benefits otherwise payable under this Plan. As the case may be, this offset (the "Offset Value") shall be equal to the value of benefits payable under the Split- Dollar Life Insurance Agreement and shall be determined as of the date that the Participant satisfies the conditions specified in Section 4 or 5 of the Split-Dollar Life Insur- ance Agreement, that is, the cash value of the Policy or, in the case of the Participant's death, the death benefit payable to the beneficiary under the Policy reduced by one times the Participant's annual base salary (maximum $500,000) at the time of death. The Offset Value shall then be compared to the Participant's deferred award (including interest accumulated on such award) under this Plan, and such amounts shall be reduced, but not to less than zero, by the Offset Value. (c) If the Policy in subsection (a) is not on the life of the Participant and the insured dies prior to distribution of benefits under this Plan, then the value of the benefits received by the Participant under the Policy will offset the Participant's deferred award (including interest accumulated on such award) under this Plan. This offset ("Offset Value") shall be equal to the amount of death benefit payable to the Participant and shall be determined as of the date of death of the insured. This Offset Value shall then be compared to the Participant's deferred award (including interest accumulated on such award) under this Plan, and such amounts shall be reduced, but not to be less than zero, by the Offset Value. (d) Notwithstanding anything contained herein to the contrary, if, in addition to the benefits otherwise payable under this Plan, the Participant or his or her beneficiary is entitled to benefits under (i) the First Interstate Bancorp Annual Incentive Compensation Plans, (ii) the First Interstate Bancorp Profit Improvement Plans, (iii) the First Interstate Bancorp Management Incentive Plans, (iv) the Supplemental Employee Savings Plan of First Inter- state Bancorp, (v) the First Interstate Bancorp Excess Benefit Retirement Plan, (vi) the First Interstate Bancorp Supplemental Executive Retirement Plan; (vii) the First Interstate Supplemental Retirement Program or (viii) the First Interstate Executive Incentive Plans, the "Offset Value" shall be applied to offset the benefits payable under this Plan and such plans in the following order: 1. The First Interstate Bancorp Exces s Benefit Retirement Plan; 2. The First Interstate Bancorp Supplemental Executive Retirement Plan; 3. The Supplemental Employee Savings Plan of First Interstate Bancorp; 4. The First Interstate Bancorp Management Incen- tive Plans; 5. The First Interstate Bancorp Annual Incentive Compensation Plans; 6. The First Interstate Bancorp Profit Improve- ment Plans. 7. The First Interstate Bancorp Corporate Execu- tive Incentive Plan. 8. The First Interstate Bancorp Regional Execu- tive Incentive Plan. 9. The First Interstate Bancorp Supplemental Retirement Program. 19. Dispute Resolution. (a) If a Participant who has applied for retirement under the Retirement Plan for Employees of First Interstate Bancorp and Its Affiliates, or, in the case of the Participant's death, his or her beneficiary, disagrees with the Compensation Committee of the Board of Directors of First Interstate Bancorp (the "Administrator") regarding the interpretation of this Plan, and if the Participant or his or her beneficiary has exhausted the claims review and appeal procedure under Section 503 of the Employee Retirement Income Security Act of 1974 with respect to his or her claim for benefits under this Plan, then the Participant or his or her beneficiary may, if he or she desires, submit any claim for benefits under this Plan or dispute regarding the interpretation of this Plan to arbi- tration; provided that, the request for arbitration must be brought within the time limit for bringing a judicial proceeding with respect to such claim for benefits, or if less, within one year after the Administrator's final denial of such claim for benefits. This right to select arbitration shall be solely that of Participant or his or her beneficiary and Participant or his or her beneficiary may decide whether or not to arbitrate in his or her discre- tion. The "right to select arbitration" is not mandatory on Participant or his or her beneficiary and Participant or his or her beneficiary may choose in lieu thereof to bring an action in an appropriate civil court. Once an arbitration is commenced, however, it may not be discontinued without the mutual consent of both parties to the arbitration. During the lifetime of the Participant only he or she can use the arbitration procedure set forth in this section. (b) Any claim for arbitration may be filed in writing with an arbitrator of Participant's or beneficiary's choice who is selected by the method described in the next four sentences. The first step of the selection shall consist of Participant or his or her beneficiary submitting a list of five potential arbitrators to the Administrator. Each of the five arbitrators must be either (1) a member of the National Academy of Arbitrators located in the State of California or (2) a retired California Superior Court or Appellate Court judge. Within one week after receipt of the list, the Administrator shall select one of the five arbitrators as the arbitrator for the dispute in question. If the Administrator fails to select an arbitrator in a timely manner, Participant or his or her beneficiary shall then designate one of the five arbitrators as the arbitrator for the dispute in question. (c) The arbitration hearing shall be held within seven days (or as soon thereafter as possible) after the picking of the arbitrator. No continuance of said hearing shall be allowed without the mutual consent of Participant or his or her beneficiary and the Administrator. Absence from or nonparticipation at the hearing by either party shall not prevent the issuance of an award. Hearing procedures which will expedite the hearing may be ordered at the arbitrator's discretion, and the arbitrator may close the hearing in his or her sole discretion when he or she decides he or she has heard sufficient evidence to satisfy issuance of an award. (d) The arbitrator's award shall be rendered as expeditiously as possible and in no event later than one week after the close of the hearing. In the event the arbitrator finds that Bancorp has violated the terms of this Plan, he or she shall order Bancorp immediately to take the necessary steps to remedy such violation. The award of the arbitrator shall be final and binding upon the parties. The award may be enforced in any appropriate court as soon as possible after its rendition. If an action is brought to confirm the award, both Bancorp and Participant agree that no appeal shall be taken by either party from any decision rendered in such action. (e) Solely for purposes of determining the allocation of the costs described in this Section 19(e), the Administrator will be considered the prevailing party in a dispute if the arbitrator determines (1) that Bancorp has not violated the terms of this Plan, and (2) the claim by Participant or his or her beneficiary was not made in good faith. Otherwise, Participant or his or her beneficiary will be considered the prevailing party. In the event that Bancorp is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (excluding any attorneys' fees incurred by Bancorp) including stenographic reporter, if employed, shall be paid by the other party. In the event that Participant or his or her beneficiary is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (including all attorneys' fees incurred by Participant or his or her beneficiary in pursuing his or her claim), including the fees of a stenographic reporter if employed, shall be paid by Bancorp. IN WITNESS WHEREOF, Bancorp hereby adopts this Restatement as of January 1, 1995. FIRST INTERSTATE BANCORP By ___________________________ TABLE A 1994 MANAGEMENT INCENTIVE PLAN I. Target Award Percentage Participant Level 1 Target Award Percentage (the exact percentage to be selected by the Administrator) Level A 60% to 75% Level B 37.5% to 60% Level C 25% to 50% Level D 15% to 30% II. Relative Performance Weights Level A - [100% for Bancorp employees 40% Bancorp/60% Subsidiary for other employees] Level B - [100% for Bancorp employees 25% Bancorp/75% Subsidiary for other employees] Levels C & D - [100% for Bancorp employees 10% Bancorp/90% Subsidiary for other employees] III. Actual Award Percentage For any individual Participant, a percentage no less than 0% and no more than 150% of his or her Target Award. Level A: Bancorp Managing Committee (excluding Chief Executive Officer and President) Level B: Regional Managing Committee Levels C & D: Other Participants EX-10 6 13 EXHIBIT (10.15) AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement ("Agreement") is dated as of ______________, 1995, and is entered into by and between _________________________________, ("Employee") and First Interstate Bancorp, a Delaware corporation ("First Interstate"). This Agreement terminates and supersedes the Employment Agreement dated ______________, _____ between First Interstate and Employee and sets forth the terms and conditions of Employee's continued employment with First Interstate. Employee and First Interstate hereby agree that Employee will render services to First Interstate on the following terms and conditions: 1. Employment. Upon the terms and subject to the conditions contained herein, during the term of this Agreement, First Interstate hereby agrees to employ Employee to provide full-time services for First Interstate. During the term hereof, Employee agrees to devote his or her best efforts to the business of First Interstate, and shall perform his or her duties in a diligent, trustworthy, business-like manner, all for the purpose of advancing the business of First Interstate. 2. Duties. The duties of Employee shall be those duties which can reasonably be expected to be performed by a person with the title of ____________________________________________________________ __________________________________________________. Except as provided in paragraph 10 of this Agreement, Employee's duties may, from time to time, be changed or modified at the discretion of the Chief Executive Officer or the Compensa- tion Committee of First Interstate. 3. Salary and Benefits. First Interstate shall, during the term of this Agreement, pay Employee a base salary, which shall initially be the salary in effect on the date of this Agreement. Such salary shall be paid in semimonthly installments less applicable withholding and salary reductions. First Interstate may, in its discretion, periodically increase the base salary and/or grant a bonus or other compensation or benefits to Employee, during the term of the Agreement. First Interstate may not, however, reduce Employee's base salary during the term of this Agreement. Employee shall be entitled to participate in the employee benefit programs generally available to employees of First Interstate. 4. Term of Agreement. This Agreement shall be effective beginning on the date of this Agreement and shall continue until either party, in its sole discretion and for any reason, provides written notice of termination to the other party. Such termination will be effective no earlier than the first day of the 14th month following the notice so that, for example, a notice delivered on September 1, 1994 could terminate this Agreement no earlier than November 1, 1995. Notwithstanding the preceding sentences, and except as otherwise provided in paragraph 9, this Agreement shall terminate on the Employee's last day of employment if the Employee voluntarily terminates for any reason or is terminated by First Interstate for a reason described in paragraph 5. 5. Termination. During the term of this Agree- ment, and except as otherwise provided in paragraph 10 of this Agreement, the parties agree that First Interstate may terminate the employment of the Employee only for "Cause" or for breach of the provisions of paragraph 8 or as set forth in paragraph 9. Cause for termination shall be limited to the following: (1) Employee engages in an act of dishonesty or moral turpitude (including but not limited to conviction of a felony) which materially injures or damages First Interstate, (2) Employee willfully fails to substantially perform his or her duties hereunder and such willful failure results in demonstrable material injury and damage to First Interstate, (3) it is determined that Employee has misrepre- sented or concealed a material fact for the purpose of securing employment or this Employment Agreement, or (4) Employee's performance is substantially below the standard of performance which can reasonably be expected from an individual occupying Employee's position or Employee substantially fails to meet performance objectives which have been previously agreed to between Employee and First Interstate, such as performance objectives relating to profit. 6. Remedy for Breach. In the event that First Interstate breaches this Agreement by terminating the employment of Employee other than pursuant to paragraph 5, and provided that Employee executes a release agreement in the form attached hereto as Exhibit A, First Interstate agrees to pay to Employee, as damages and not as a penalty for such breach, a sum of money equal to Employee's monthly base salary multiplied by 24. Unless First Interstate determines in its complete discretion to pay such amount more quickly, damages owed to Employee shall be paid at the same time and in the same manner as if employment under this Agreement had continued for 24 months past the date of breach. By signing the Agreement Employee agrees that the payments to which Employee may become entitled under this paragraph are in lieu of any other payments to which Employ- ee might be entitled and that First Interstate's discharge of its obligations under this paragraph shall constitute full satisfaction of any and all claims of any nature whatsoever that Employee might otherwise possess against First Interstate and its subsidiaries, except (1) such claims as are specifically provided for in the terms of any generally applicable employee benefit or executive compensation plans evidenced by written agreements or (2) any claims for personal injuries (other than claims that are based on or relate to a contention that First Interstate has wrongfully discharged Employee). 7. Successors. The rights and obligations of First Interstate under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of First Interstate. 8. Non-Disclosure of Confidential Information. Employee agrees that during the term of this Agreement and thereafter Employee will not disclose any information or data concerning the business or customers of First Inter- state that is disclosed to Employee or acquired by Employee in confidence at any time during the period of his or her employment. Employee further agrees that he or she will neither publicly disclose the terms of this Agreement nor publicly discuss First Interstate in a manner that tends to portray First Interstate in an unfavorable light. Violation of these provisions subsequent to the termination of this Agreement will cause Employee to immediately forfeit his or her right to any payments under paragraph 6 that have not yet been paid. Notwithstanding anything contained in paragraph 14, First Interstate shall have the right to file a suit to enjoin any action of Employee which would constitute a breach of this paragraph 8. 9. Illness, Incapacity, or Death. In the event of illness or incapacity of Employee, First Interstate shall continue Employee's salary for six months and may, at its sole option, continue payment of Employee's salary until he or she is able to return to work. If Employee is unable to work due to illness or incapacity for a period greater than six months, First Interstate may elect, in its discretion, to terminate this Agreement. If Employee should die during the term of this Agreement, Employee's employment shall be treated as terminating and First Interstate's obligations hereunder shall terminate as of the end of the month in which Employee's death occurs. Employee's death during a payout period under paragraph 6 of this Agreement shall, however, not be treated the same as a death during employment, i.e., the obligation to make payments under paragraph 6 shall not terminate as of the end of the month in which death occurs. 10. Change in Control. Upon a Change in Control of First Interstate, as defined herein, Employee and First Interstate agree that, notwithstanding any provisions to the contrary in this Agreement, the terms and conditions of this Agreement will be modified as follows: (a) The term of this Agreement will automatically be extended to the date two years following the date of the Change in Control of First Interstate. (b) Employee's duties shall remain defined as set forth in paragraph 2 of this Agreement, or as otherwise modified pursuant to paragraph 2 prior to the date of the Change in Control. Following the Change in Control, Employee's duties may not be changed and the Chief Executive Officer and the Compensation Committee shall no longer have the power to change, modify, add to, or take away from the scope of Employee's duties. In addition, Employee shall be entitled to benefits under First Interstate's employee benefits programs which are at least as favorable, in the aggregate, as the most favorable of those benefits provided to Employee under such programs prior to the Change in Control or, if more favorable to Employee, those provided generally at any time after the Change in Control to other peer executives of First Interstate. Any breach of this subparagraph (b) (which shall be deemed to include the transfer of Employee's job location to a site more than 50 miles away from his or her place of employment prior to the Change in Control), as determined by Employee in good faith, may be deemed a material breach of this Agreement, and will entitle Employee, at his or her election, to terminate this Agreement and receive damages pursuant to paragraph 6 of this Agreement (as modified by subparagraphs 10(c) and 10(d) below and without regard to the requirement that Employee execute a release). (c) Upon a Change in Control, paragraphs 5 and 8 of this Agreement shall have no further force or effect, and the employment of Employee may be term- inated by First Interstate without causing a breach of the Agreement only if (1) Employee engages in an act of dishonesty or moral turpitude (including but not limited to conviction of a felony) which materially injures or damages First Interstate or (2) Employee willfully fails to substantially perform his or her duties hereunder and such willful failure results in demonstrable material injury and damage to First Interstate. The terms of paragraph 9 shall remain in full force and effect following a Change in Control. If Employee is terminated for a reason other than one listed in the second preceding sentence, First Interstate shall be treated as having breached this Agreement and Employee shall be entitled to the payment described in subparagraph (d) below (as damages and not as a penalty for such breach). Such payment shall be paid in a lump sum no later than 10 days following the date of breach and there shall be no excuse for a delay in payment. (d) The amount First Interstate agrees to pay Employee under this paragraph 10 shall equal an amount determined by adding (1) and (2) and, if Employee's employment is terminated in the same calendar year in which the Change in Control occurs, by reducing the result by (3), where (1) is equal to $30,000 plus three times the sum of (A) the amount of Employee's annual base salary in effect immediately prior to Employee's termination of employment and (B) the aggregate of the amounts of Employee's target bonus awards for the year in which Employee's employment terminates under all of First Interstate's incentive plans or programs in which Employee was then participating, (2) is equal to the sum of (A) the aggregate of the increases in the single sum actuarial equivalents of Employee's vested accrued benefits under the Retirement Plan for the Employees of First Interstate Bancorp and its Affiliates or any successor plan (hereinafter referred to as the "Pension Plan") and each nonqualified defined benefit pension plan sponsored by First Interstate other than the First Interstate Bancorp Supplemental Executive Retirement Plan (the "SERP") that would result if Employee were credited with three additional years of Service and Benefit Service (as such terms are defined in the Pension Plan) and three additional years of age, provided that the additional years of Service shall in no event alter the determi- nation of Employee's Basic Monthly Salary (as defined in the Pension Plan), and (B) the aggregate of the single sum actuarial equivalents of Employee's vested accrued benefits under all nonqualified employee deferred compensation plans sponsored by First Interstate (including the SERP) determined without regard to the provisions of the preceding clause (A), and (3) is an amount equal to the aggregate of the amounts of any bonus awards paid to Employee under First Interstate's incentive plans or programs that were accelerated because of the Change in Control, multiplied by a fraction, the numerator of which is the number of full months between the date of Employee's termination of employment and January 1 of the year following the year in which the Change in Control occurred, and the denominator of which is 12. The single sum actuarial equivalents described above shall be determined using the interest rate and mortality table set forth in the Pension Plan for purposes of converting benefits to lump sum payments. Nothing contained herein shall affect the application of any provisions regarding offsets or non-duplication of benefits applicable to any of the nonqualified deferred compensation plan benefits referred to herein. Upon payment of the amount described under clause (2)(B) above, no further benefits shall be payable to Employee under the plans described therein. (e) Following a Change in Control, Employee's base annual salary for the remaining term of this Agreement shall be no less than his or her base salary immediately prior to the date of the Change in Control. (f) A "Change in Control" of First Interstate means and shall be deemed to have occurred if and when any one of the following five events occurs: (1) within the meaning of Section 13(d) of the Securities Exchange Act of 1934, any person or group becomes a beneficial owner, directly or indirectly, of securities of First Interstate representing 20% or more of the combined voting power of First Interstate's then outstanding securities; (2) individuals who were members of the Board of Directors of First Interstate immediately prior to a meeting of the stockholders of First Interstate involving a contest for the election of Directors shall not constitute a majority of the Board of Directors following such election; (3) the stockholders of First Interstate approve the dissolu- tion or liquidation of First Interstate; (4) the stockholders of First Interstate approve an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities which are not subsidiar- ies, as a result of which less than 50% of the out- standing voting securities of the surviving or result ing entity are, or are to be, owned by former stock holders of First Interstate (excluding from the term "former stockholders" a stockholder who is, or as a result of the transaction in question becomes, an "affiliate", as that term is used in the Securities Exchange Act of 1934 and the Rules promulgated thereun- der, of any party to such merger, consolidation or reorganization); or (5) the stockholders of First Interstate approve the sale of substantially all of First Interstate's business and/or assets to a person or entity which is not a subsidiary. (g) Paragraph 14 shall no longer apply and the following arbitration provisions shall apply: (1) Because it is agreed that time will be of the essence in determining whether any payments are due to Employee under this Agreement following a Change in Control, Employee may, if he or she desires, submit any claim for payment under this Agreement or dispute regarding the interpretation of this Agreement to arbitration. This right to select arbitration shall be solely that of Employee and Employee may decide whether or not to arbitrate in his or her discretion. The "right to select arbitration" is not mandatory on Employee and Employee may choose in lieu thereof to bring an action in an appropriate civil court. Once an arbitration is commenced, however, it may not be discontinued without the mutual consent of both parties to the arbitration. (2) Any claim for arbitration may be filed in writing with an arbitrator of Employee's choice who is selected by the method described in the next four sentences. The first step of the selection shall consist of Employee submitting a list of five potential arbitrators to First Interstate. Each of the five arbitrators must be either (A) a member of the National Academy of Arbitrators located in the State of California or (B) a retired California Superior Court or Appellate Court judge. Within one week after receipt of the list, First Interstate shall select one of the five arbitrators as the arbitrator for the dispute in question. If First Interstate fails to select an arbitrator in a timely manner, Employee shall then designate one of the five arbitrators as the arbitrator for the dispute in question. (3) The arbitration hearing shall be held within seven days (or as soon thereafter as possible) after the picking of the arbitrator. No continuance of said hearing shall be allowed without the mutual consent of Employee and First Interstate. Absence from or nonparticipation at the hearing by either party shall not prevent the issuance of an award. Hearing procedures which will expedite the hearing may be ordered at the arbitrator's discretion, and the arbitrator may close the hearing in his or her sole discretion when he or she decides he or she has heard sufficient evidence to satisfy issuance of an award. (4) The arbitrator's award shall be rendered as expeditiously as possible and in no event later than one week after the close of the hearing. In the event the arbitrator finds that First Interstate has breached this Agreement, he or she shall order First Interstate to immediately take the necessary steps to remedy the breach. The award of the arbitrator shall be final and binding upon the parties. The award may be enforced in any appropriate court as soon as possible after its rendition. If an action is brought to confirm the award, both First Interstate and Employee agree that no appeal shall be taken by either party from any decision rendered in such action. (5) Solely for purposes of determining the allocation of the costs described in this subsection, First Interstate will be considered the prevailing party in a dispute if the arbitrator determines (A) that First Interstate has not breached this Agreement and (B) the claim by Employee was not made in good faith. Otherwise, Employee will be considered the prevailing party. In the event that First Interstate is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (excluding any attorneys' fees incurred by First Interstate) including stenographic reporter, if employed, shall be paid by Employee. In the event that Employee is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (including all attorneys' fees incurred by Employee in pursuing his or her claim), including the fees of a stenographic reporter if employed, shall be paid by First Interstate. (h) Paragraph 15 shall be deleted. (i) First Interstate agrees that, if Employee is terminated under circumstances that constitute a breach of this Agreement, First Interstate will make no statements with regard to Employee which might be interpreted to reflect adversely upon his or her job competency. (j) Employee shall be entitled to refuse all or any portion of any payment under this Agreement if he or she determines that receipt of such payment may result in adverse tax consequences to him or her. First Interstate shall be totally and permanently relieved of any obligation to pay any amount which Employee explicitly so refuses in writing. 11. Consultation with Legal Counsel. Employee acknowledges that he or she has been encouraged to consult with legal counsel before signing this Agreement. 12. Governing Law. This Agreement is made and entered into in the State of California, and the laws of California shall govern its validity and interpretation in the performance by the parties hereto of their respective duties and obligations hereunder. 13. Entire Agreement. This Agreement constitutes the entire agreement between the parties respecting the employment of Employee, and there are no representations, warranties or commitments, other than those set forth herein. This Agreement may be amended or modified only by an instrument in writing executed by all of the parties hereto. This is an integrated agreement. 14. Arbitration. Except as otherwise provided in paragraph 8, any dispute, controversy, or claim arising out of or relating to this Agreement or breach thereof, or arising out of or relating in any way to the employment of the Employee or the termination thereof, shall be submitted to arbitration in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court in the State of California, or in any other court of competent jurisdiction. In reaching his or her decision, the arbitrator shall have no authority to ignore, change, modify, add to or delete from any provision of this Agreement, but instead is limited to interpreting this Agreement. In the case of any arbitration or subsequent judicial proceeding arising after a Change in Control, Employee shall be awarded his or her costs, including attorneys' fees. 15. Assistance in Litigation. Employee shall make himself or herself available, upon the request of First Interstate, to testify or otherwise assist in litigation, arbitration, or other disputes involving First Interstate, or its directors, officers, employees, subsidiaries, or parent corporations, (1) during the term of this Agreement at no additional cost and (2) at any time following the termination of this Agreement so long as Employee receives a reasonable fee for his or her services plus reimbursement of out-of-pocket expenses. 16. Notices. Any notice or communications required or permitted to be given to the parties hereto shall be delivered personally or be sent by United States registered or certified mail, postage prepaid and return receipt requested, and addressed or delivered as follows, or as such other addresses the party addressed may have substi- tute by notice pursuant to this section: (a) If to First Interstate: First Interstate Bancorp 633 West 5th Street Los Angeles, California 90071 Attention: Corporate Secretary (b) If to Employee: 17. Captions. The captions of this Agreement are inserted for convenience and do not constitute a part hereof. 18. Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any other respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein and there shall be deemed substituted therefor such other provision as will most nearly accomplish the intent of the parties to the extent permitted by the applicable law. In case this Agreement, or any one or more of the provisions hereof, shall be held to be invalid, illegal or unenforce- able within any governmental jurisdiction or subdivision thereof, this Agreement or any such provision thereof shall not as a consequence thereof be deemed to be invalid, illegal or unenforceable in any other governmental jurisdic- tion or subdivision thereof. 19. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same Agreement. IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first written above in Los Angeles, California. EXECUTED: _______________, 19__. First Interstate Bancorp By ___________________________ EXECUTED: _______________, 19__. ___________________________ [Name of Employee] EXHIBIT A RESIGNATION AND GENERAL RELEASE AGREEMENT In consideration of the covenants undertaken and releases contained in this Resignation and General Release Agreement (the "Agreement"), _________________ ("______") and First Interstate Bancorp ("First Interstate"), agree as follows: ______ hereby resigns, effective ___________, 199_, from his or her position as _______________________ of First Interstate, and as an officer, director, employee, or in any other capacity with First Interstate or any of First Interstate's divisions, subsidiaries or affiliates. First Interstate shall as severance continue to and including ______, 199_, to pay to ______ his or her monthly base salary of $_______________, less standard withholding and authorized deductions. Such severance payment is for and in lieu of all accrued but unpaid wages including vacation pay and any bonus, and any other payments or benefits and none shall accrue beyond _________________, 199_, provided, however, that First Interstate shall pay to ______ on or before ___________, 199_, his or her accrued but unused vacation to that date. _______ shall have the option to convert and continue his or her health insurance after ____________, 199_, as may be required or authorized by law under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Except for those obligations created by or arising out of this Agreement and any benefits specifically provided for in the terms of any employee pension benefit plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974) evidenced by written agreements, ______ hereby acknowledges full and complete satisfaction of and releases and discharges and covenants not to sue First Interstate, its divisions, subsidiaries, parent, affiliated corporations, past and present, and each of them, as well as their directors, officers, shareholders, representatives, assignees, successors, agents and employees, past and present, and each of them (individually and collectively, "Releasees") from and with respect to any and all claims, wages, agreements, obligations, demands and causes of action, known or unknown, suspected or unsuspected, arising out of or in any way connected with his or her employment relationship with, or his or her separation or resignation from, First Interstate, including, without limiting the generality of the foregoing, any claim for severance pay, bonus or similar benefit, sick leave, vacation pay, life insurance, health or medical insurance or any other fringe benefit, workers' compensation or disability, or any other occurrences, acts or omissions whatever, known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of Releasees committed or omitted prior to the date of this Agreement, including, without limiting the generality of the foregoing, any claim under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the California Fair Employment and Housing Act, the California Family Rights Act, or any other federal, state or local law, regulation or ordinance. This Agreement is intended to be effective as a bar to every claim, demand and cause of action stated above. Accordingly, ______ hereby expressly waives any rights and benefits conferred by Section 1542 of the California Civil Code, which provides that, "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." If any provision of this Agreement or its appli- cation is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or application and, therefore, the provisions of this Agreement are declared to be severable. _______ agrees to keep the terms of this Agreement confidential. _______________ acknowledges that he or she has been encouraged to consult with legal counsel before signing this Agreement. [For employees 40 or older] _____ will be provided ample time and opportunity to consider the terms of this Agreement and to consult with an attorney if he or she chooses to do so. If _____ agrees to all the provisions of this Agreement, he or she shall return the executed original of this Agreement to ________________________. _____ shall have twenty-one (21) days from the date he or she receives this Agreement in which to sign this Agreement. He or she shall have seven (7) days from the date he or she signs the Agreement within which to revoke it. The undersigned have read and understand the conse- quences of this Agreement and voluntarily sign it. The under signed declare under penalty of perjury that the foregoing is true and correct. EXECUTED this ______ day of ________ 199_, at ____________ County, California. FIRST INTERSTATE BANCORP ________________________ [Name] By _______________________ ________________________ [Signature] Title _______________________ EX-11 7
EXHIBIT (11) FIRST INTERSTATE BANCORP COMPUTATION OF EARNINGS PER SHARE (dollars in thousands except for per share amounts) Year Ended December 31 --------------------- --------------------- --------------------- 1994 1993 1992 --------------------- --------------------- --------------------- Net income $ 733,510 $ 736,716 $ 282,261 Less dividends on preferred stock 33,250 46,624 59,183 --------------------- --------------------- --------------------- Net income, as adjusted, for calculation of primary and fully diluted earnings per share $ 700,260 $ 690,092 $ 223,078 Less: Extraordinary Item -- (24,788) -- Cumulative effect of accounting changes -- 200,103 -- --------------------- --------------------- --------------------- Income before extraordinary item and cumulative effect of accounting changes for calculation of primary and fully diluted earnings per share $ 700,260 $ 514,777 $ 223,078 ===================== ===================== ===================== Weighted average number of shares outstanding 78,852,492 75,823,371 68,780,642 Dilutive effect of outstanding stock options (as determined by application of the treasury stock method) 1,550,473 1,190,527 346,101 Shares issuable from assumed conversion of Class A Common Stock -- --(1) 4,303 Stock units under Management Incentive Plan 18,977 8,851 4,178 --------------------- --------------------- --------------------- Weighted average number of shares, as adjusted, for calculation of primary earnings per share 80,421,942 77,022,749 69,135,224 Additional dilutive effect of outstanding stock options 73,184 224,636 374,009 --------------------- --------------------- --------------------- Weighted average number of shares, as adjusted, for calculation of fully diluted earnings per share 80,495,126 77,247,385 69,509,233 ===================== ===================== ===================== Primary and fully diluted earnings per share (2): Income before extraordinary item and cumulative effect ofaccounting changes $ 8.71 $ 6.68 $ 3.23 Extraordinary Item -- (0.32) -- Cumulative effect of accounting changes -- 2.60 -- --------------------- --------------------- --------------------- Net income $ 8.71 $ 8.96 $ 3.23 ===================== ===================== ===================== (1) Shares previously issuable from assumed conversion of Class A Common Stock were issued in February and are included in the actual average shares number. (2) Fully diluted earnings per share are considered equal to primary earnings per share because the addition of potentially dilutive securities which are not common stock equivalents resulted in dilution of less than three percent.
EX-12 8
EXHIBIT (12) FIRST INTERSTATE BANCORP COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (in thousands) Year Ended December 31 -------------------------------------- 1994 1993 1992 ------------ ------------ ------------ A. First Interstate Bancorp and Subsidiaries (Consolidated): Earnings: 1.Income before income taxes, extraordinary item and cumulative effect of accounting changes $ 1,183 $ 881 $ 403 2.Plus interest expense (a) 915 921 1,223 ------------ ------------ ------------ 3.Earnings including interest on deposits 2,098 1,802 1,626 4.Less interest on deposits 725 720 933 ------------ ------------ ------------ 5.Earnings excluding interest on deposits $ 1,373 $ 1,082 $ 693 ============ ============ ============ Fixed Charges: 6.Including interest on deposits (Line 2) $ 915 $ 921 $ 1,223 7.Less interest on deposits (Line 4) 725 720 933 ------------ ------------ ------------ 8.Excluding interest on deposits $ 190 $ 201 $ 290 ============ ============ ============ Ratio of Earnings to Fixed Charges: Including interest on deposits (Line 3 divided by Line 6) 2.29 1.96 1.33 ============ ============ ============ Excluding interest on deposits (Line 5 divided by Line 8) 7.22 5.39 2.39 ============ ============ ============ B. First Interstate Bancorp (Parent Corporation): Earnings: 9.Income (loss) before income taxes, extraordinary item, cumulative effect of accounting changes and equity in undistributed income of subsidiaries $ 348 $ 311 $ (191) 10.Plus interest expense (a) 102 132 215 ------------ ------------ ------------ 11.Earnings including interest expense $ 450 $ 443 $ 24 ============ ============ ============ Fixed Charges: 12.Interest expense (Line 10) $ 102 $ 132 $ 215 ============ ============ ============ Ratio of Earnings to Fixed Charges: (Line 11 divided by Line 12) 4.40 3.35 (b) ============ ============ ============ (a) Includes amounts representing the estimated interest component of net rental payments. (b) For the year ended December 31, 1992, fixed charges exceeded earnings by $191 million.
EX-13 9 MANAGEMENT'S DISCUSSION & ANALYSIS FIRST INTERSTATE BANCORP Overview of 1994 Performance First Interstate Bancorp recorded consolidated net income in 1994 of $733.5 million, or $8.71 per share, including the effect of $141.3 million of restructuring charges ($87.6 million after taxes, or $1.09 per share). Before the effect of these charges, which are described in detail on the following page, after-tax earnings were $821.1 million, or $9.80 per share. This compares to earnings before an extraordinary item and the cumulative effect of accounting changes for 1993 of $561.4 million, or $6.68 per share, and net income of $736.7 million, or $8.96 per share. These results represent a substantial improvement from net income of $282.3 million, or $3.23 per share, reported for 1992. The Corporation recorded an extraordinary item reflecting aftertax charges associated with long term debt repurchases and redemptions of $985 million during 1993. As a result, 1993 net income was reduced by $24.8 million ($0.32 per share). In addition, the cumulative effect of two accounting changes that were adopted early in 1993 resulted in a net after-tax addition of $200.1 million, or $2.60 per share. Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes," resulted in the recognition of additional tax benefits of $305.0 million ($3.96 per share). This accounting change was partially offset by the Corporation's decision to adopt SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," on an immediate rather than a prospective basis, which reduced net income by $104.9 million ($1.36 per share). Based on consolidated income before the cumulative effect of accounting changes and the extraordinary item described above, the return on average assets for 1994 rose to 1.38%, a material improvement from 1.14% in 1993. At the same time, the return on average common shareholders' equity rose to 21.56% from 17.33% a year earlier. The Corporation's significant increase in overall profitability in 1994 resulted primarily from two factors: revenue growth and an excellent risk profile. The primary factor contributing to earnings growth in 1994 was a 12% increase in total revenue. Total revenue, which includes taxable- equivalent net interest income and noninterest income, was up $361.3 million in 1994. Net interest income contributed over 70% of the 1994 increase in total revenue. This resulted principally from earning asset growth, coupled with a shift in the mix of earning assets to a higher proportion of loans. At the same time, the net interest margin increased to 5.14% in 1994, up 23 basis points from the 1993 level. The remainder of the increase in total revenue was spread over most major categories of noninterest income. Second, reflecting the risk profile of the Corporation, no provision for credit losses was recorded in 1994. The provision for credit losses amounted to $112.6 million in 1993 and $314.3 million in 1992. In addition, expenses arising from the maintenance, sales and valuation adjustments of other real estate acquired through foreclosure (ORE) reflected a net recovery of $12.4 million in 1994, versus expenses of $33.6 million and $159.6 million in 1993 and 1992, respectively. Nonperforming assets were reduced to $258 million at yearend 1994, down nearly 17% from $309 million a year earlier. This follows a decline of nearly 60% at yearend 1993 versus a year earlier. Consistent implementation of the Corporation's risk management techniques has resulted in the reduction of consolidated nonperforming assets to 0.46% of total assets, an improvement from 0.60% at yearend 1993 and 1.48% at yearend 1992. Net chargeoffs declined to $133.0 million in 1994 (0.46% of average loans), compared to $218.1 million in 1993 (0.90%) and $459.6 million in 1992 (1.79%). Reflecting the factors noted above, the allowance for credit losses declined to 2.81% of loans at December 31, 1994, versus 3.85% at yearend 1993 and 4.41% at yearend 1992. Noninterest expenses totaled $2,197.8 million in 1994 and $2,032.4 million in 1993. The increase in 1994 resulted primarily from the restructuring charges noted above and the effect of integrating 10 acquisitions during the year. Restructuring Plan On September 20, 1994, the Corporation announced that management had adopted a Restructuring Plan (Plan) to improve efficiency and better position the Corporation for the introduction of full interstate banking. This Plan resulted in restructuring charges in 1994 of $141.3 million, consisting of the following (in millions): Early Retirement Program $ 82.0 Severance and Outplacement Services 40.0 Facility and Equipment Valuations 15.0 Other 4.3 TOTAL RESTRUCTURING CHARGES $141.3 The restructuring charges will be funded out of operating cash flows with payments for severance and outplacement services occuring approximately ratably over the next year. Payment of the cost of the Early Retirement Program into the Corporation's qualified retirement plan will depend on the timing of the Corporation's contributions to the plan. In addition, it is expected that restructuring charges of another $23.7 million for relocation of staff and facilities, as well as retention payments for certain personnel displaced in the restructuring program, will be incurred and expensed as the program is implemented. Such costs are expected to be incurred relatively evenly through the third quarter of 1995. The total expected cost of the Plan, therefore, will be approximately $165 million. The Plan calls for the consolidations of operations and administrative functions, formation of a company-wide Risk Management Group, and implementation of "best practices" in business lines. As part of the Plan, 1,854 personnel took advantage of the Corporation's Early Retirement Program. In the course of implementing the Plan, another approximately 3,300 personnel are expected to be involuntarily terminated. Because some of the vacancies created by the Early Retirement Program and by the geographic consolidations will have to be filled, the total permanent reduction is expected to be approximately 3,000 full-time equivalent staff. The Plan is expected to result in annualized expense savings of $167 million by June 1996; the savings are expected to be achieved progressively through this time period. Of the $167 million, staff savings total $107 million, facilities savings total $20 million, and other savings (primarily in the areas of purchasing, appraisals, and branch savings) total $40 million. As a result, the Corporation expects to achieve a 58% efficiency ratio in 1995. The Plan should have limited impact on the revenues of the Corporation. The expense savings of this Plan described above are before the impact of any acquisitions announced by the Corporation after March 22, 1994. The Corporation has announced the following acquisitions since that date: 17 branches from the Resolution Trust Corporation in Oregon and Washington; Sacramento Savings Bank and Levy Bancorp in California; North Texas Bancshares and Park Forest National Bank in Texas; and University Savings Bank in Washington. Earnings Summary The following tables summarize the Corporation's financial results for the last three years:
Change 94/93 Change 93/92 Change 92/91 AMOUNTS (millions) 1994 1993 1992 $ % $ % $ % Net interest income(1) $2,347.9 $2,086.7 $2,032.3 261.2 12.5 54.4 2.7 (85.5) (4.0) Provision for credit losses _ 112.6 314.3 (112.6) n/m (201.7) (64.2) (495.9) (61.2) Net interest income after provision for credit losses(1) 2,347.9 1,974.1 1,718.0 373.8 18.9 256.1 14.9 410.4 31.4 Noninterest income 1,054.3 954.2 912.1 100.1 10.5 42.1 4.6 (272.3) (23.0) Noninterest expenses Operating 2,068.9 1,998.8 2,049.6 70.1 3.5 (50.8) (2.5) (280.6) (12.4) Provision for restructuring 141.3 _ _ 141.3 n/m _ n/m (90.0) n/m Other real estate (12.4) 33.6 159.6 (46.0) n/m (126.0) (78.9) (152.4) (48.8) Pretax earnings(1) 1,204.4 895.9 420.9 308.5 34.4 475.0 n/m 661.1 n/m Income taxes 449.5 319.9 120.9 129.6 40.5 199.0 n/m 99.1 n/m Taxable-equivalent adjustment 21.4 14.6 17.7 6.8 46.6 (3.1) (17.5) (8.4) (32.2) Extraordinary item _ (24.8) _ 24.8 n/m (24.8) n/m _ n/m Cumulative effect of accounting changes _ 200.1 _ (200.1) n/m 200.1 n/m _ _ NET INCOME $ 733.5 $ 736.7 $ 282.3 (3.2) (0.4) 454.4 n/m 570.4 n/m (1)Taxable-equivalent basis.
Change 94/93 Change 93/92 Change 92/91 PER COMMON SHARE 1994 1993 1992 $ % $ % $ % Earnings : Income before extraordinary item and cumulative effect of accounting changes $8.71 $6.68 $3.23 2.03 30.4 3.45 n/m 8.47 n/m Extraordinary item _ (0.32) _ 0.32 n/m (0.32) n/m _ _ Cumulative effect of accounting changes _ 2.60 _ (2.60) n/m 2.60 n/m _ _ Net income 8.71 8.96 3.23 (0.25) (2.8) 5.73 n/m 8.47 n/m Dividends paid 2.75 1.60 1.20 1.15 71.9 0.40 33.3 (0.60) (33.3)
Earnings Detail Summarized below are taxable-equivalent interest income and interest expense, as well as the consequences of changes in volumes and rates.
Change 94/93 Change 93/92 Change 92/91 AMOUNTS (millions) 1994 1993 1992 $ % $ % $ % Interest income $3,213.4 $2,958.8 $3,207.4 254.6 8.6 (248.6) (7.8) (754.0) (19.0) Interest expense 865.5 872.1 1,175.1 (6.6) (0.8) (303.0) (25.8) (668.5) (36.3) Net interest income $2,347.9 $2,086.7 $2,032.3 261.2 12.5 54.4 2.7 (85.5) (4.0) MARGINS (as a % of earning assets) Earning asset yield 7.04 6.96 7.71 1.1 (9.7) (18.2) Interest expense 1.90 2.05 2.82 (7.3) (27.3) (35.8) Net interest margin 5.14 4.91 4.89 4.7 0.4 (3.0)
1994 change due to 1993 Change due to 1992 Change due to Volume Rate Net Volume Rate Net Volume Rate Net Interest earned on: Total loans $394.0 $(76.1) $317.9 $(98.6) $(155.9) $(254.5) $(462.5) $(374.1) $(836.6) Trading account securities (3.0) (1.1) (4.1) (13.1) (0.8) (13.9) (12.5) (7.8) (20.3) Held-to-maturity securities 28.8 (34.1) (5.3) 259.3 (159.9) 99.4 362.8 (179.7) 183.1 Available-for-sale securities (5.2) 0.6 (4.6) 17.3 (3.2) 14.1 (13.8) (5.1) (18.9) Federal funds, repurchases (25.1) 4.4 (20.7) (16.3) (9.5) (25.8) 16.3 (31.0) (14.7) Time deposits, due from banks (32.9) 0.8 (32.1) (36.9) (10.0) (46.9) 29.3 (45.6) (16.3) Other assets held for sale 5.3 (1.8) 3.5 (21.4) 0.4 (21.0) (24.0) (6.3) (30.3) Total change 361.9 (107.3) 254.6 90.3 (338.9) (248.6) (104.4) (649.6) (754.0) Interest paid on: Savings deposits 42.5 (33.7) 8.8 29.7 (144.1) (114.4) 69.3 (387.6) (318.3) Other time deposits 2.6 (6.3) (3.7) (45.9) (52.5) (98.4) (141.0) (134.0) (275.0) Short term borrowings 8.3 9.9 18.2 1.5 _ 1.5 (26.0) (3.8) (29.8) Long term debt (35.8) 5.9 (29.9) (88.5) (3.2) (91.7) (2.2) (43.2) (45.4) Total change 17.6 (24.2) (6.6) (103.2) (199.8) (303.0) (99.9) (568.6) (668.5) Net interest income $344.3 $(83.1) $261.2 $193.5 $(139.1) $ 54.4 $ (4.5) $(81.0) $(85.5) Notes: Taxable-equivalent basis using statutory tax rates which vary depending on the tax rates of the various states in which the subsidiary banks are located, but which approximate 40% in 1994 and 1993, and 39% in 1992. Taxable-equivalent adjustments to net interest income with offsetting adjustments to income tax expense are designed to reflect income and corresponding yields as if all interest income were fully taxable. The change in interest due to both rate/volume has been allocated entirely to change due to rate.
Earning Assets and Interest Income Earning Assets: In 1994, earning assets averaged $45.6 billion, an increase of $3.1 billion (7.3%). This follows an increase of $920 million (2.2%) in 1993 and a decline of $423 million (1.0%) in 1992. Over the last year, the loan component of earning assets increased as a result of increased demand and the completion of 10 acquisitions. The lower level of loans in the two preceding years reflected adverse economic conditions resulting in lower demand as well as the Corporation's focus on improving credit quality. The average yield on earning assets was 7.04% in 1994, versus 6.96% in 1993 and 7.71% in 1992. The current trend of increasing loan growth and a decline in the investment securities portfolio reflecting maturities is expected to continue throughout 1995. The following table provides a comparison of average earning asset volumes for the last three years:
AVERAGE EARNING Change 94/93 Change 93/92 Change 92/91 ASSET VOLUMES (millions)(1) 1994 1993 1992 $ % $ % $ % Commercial, financial and agricultural $ 8,287 $ 7,618 $ 8,111 669 8.8 (493) (6.1) (2,348) (22.4) Real estate construction 806 913 1,746 (107) (11.7) (833) (47.7) (931) (34.8) Real estate mortgage 7,586 5,413 5,472 2,173 40.1 (59) (1.1) (174) (3.1) Instalment 11,660 9,943 9,756 1,717 17.3 187 1.9 (381) (3.7) Foreign 83 160 406 (77) (48.1) (246) (60.6) (755) (65.0) Lease financing 222 81 203 141 n/m (122) (60.1) (408) (66.8) Total loans 28,644 24,128 25,694 4,516 18.7 (1,566) (6.1) (4,997) (16.3) Trading account securities 113 166 385 (53) (31.9) (219) (56.9) (182) (32.1) Held-to-maturity securities U.S. Treasury and agencies 14,000 14,113 9,745 (113) (0.8) 4,368 44.8 4,479 85.1 Other 1,624 996 1,465 628 63.1 (469) (32.0) (82) (5.3) Held-to-maturity securities 15,624 15,109 11,210 515 3.4 3,899 34.8 4,397 64.5 Available-for-sale securities 324 458 83 (134) (29.3) 375 n/m (165) (66.5) Federal funds, repurchases 471 1,282 1,706 (811) (63.3) (424) (24.9) 284 20.0 Time deposits, due from banks 380 1,342 2,228 (962) (71.7) (886) (39.8) 471 26.8 Other assets held for sale 82 29 288 53 n/m (259) (89.9) (231) (44.5) TOTAL $45,638 $42,514 $41,594 3,124 7.3 920 2.2 (423) (1.0) (1)Loans are net of unearned income and deferred fees.
Loans: Including the effect of acquisitions, average loans totaled $28.6 billion in 1994, an increase of $4.5 billion (18.7%). This follows declines of 6.1% and 16.3% in 1993 and 1992, respectively. Total loans accounted for approximately 63% of average earning assets in 1994, up from approximately 57% in 1993 and 62% in 1992. Loan growth is expected to continue during 1995. Nearly half of the growth in average loans from the 1993 level reflects higher average real estate mortgage outstandings (commercial and residential), which were up $2.2 billion (40.1%) to an average of $7.6 billion in 1994. This follows declines of 1.1% in 1993 and 3.1% in 1992. Most of the increase in 1994 reflects the Corporation's acquisition program, particularly in California. The combined average yield on the real estate mortgage portfolio was 7.63% in 1994, versus 8.18% in 1993 and 8.85% in 1992. Instalment loans increased $1.7 billion (17.3%) from the average 1993 level. This follows an increase of 1.9% in 1993 and a decline of 3.7% in 1992. The average yield on instalment loans was 9.25% in 1994 versus 10.09% in 1993 and 10.76% in 1992. The Corporation continues its focus on retail banking and increasing its market share in the communities in which it operates. Average commercial loans rose $669 million (8.8%) in 1994 to $8.3 billion. This increase is largely the result of loan demand and renewed marketing efforts. Commercial loan volumes declined 6.1% in 1993 and 22.4% in 1992. The average yield on the commercial loan portfolio increased to 6.79% in 1994, compared to 6.25% in 1993 and 6.91% in 1992. Construction loans averaged $806 million in 1994, down $107 million (11.7%) from the year earlier. This follows declines of 47.7% in 1993 and 34.8% in 1992. The combined yield on the construction portfolio rose to 9.42% in 1994, compared to 6.83% in 1993 and 6.25% in 1992. Foreign loans, primarily short term trade finance activity, averaged $83 million in 1994, down $77 million (48.1%). This follows declines of 60.6% in 1993 and 65.0% in 1992 and reflects the sale of approximately $1.1 billion of foreign loans in 1992. The average yield on foreign loans was 5.59% in 1994, compared to 4.48% in 1993 and 5.85% in 1992. Lease financing balances increased to an average of $222 million in 1994 from an average of $81 million in 1993. This follows reductions of 60.1% in 1993 and 66.8% in 1992. The average yield on lease financing was 7.17% in 1994, versus 8.42% in 1993 and 10.57% in 1992. At December 31, 1994, including both the effect of acquisitions and an increase in new loan originations, loans and leases totaled $33.2 billion, an increase of $7.2 billion (27.8%) from the $26.0 billion reported a year earlier. Instalment loans increased $1.5 billion (14.0%) to $12.3 billion at yearend. Growth of these consumer loans reflects the success of marketing programs targeting the sale of such products. At the same time, commercial loans increased $1.3 billion (16.2%) to $9.3 billion at yearend 1994. Residential real estate mortgages totaled $5.8 billion, $2.9 billion (99.4%) above a year ago, while commercial mortgages were up $1.1 billion (30.1%) to $4.4 billion at yearend 1994. Construction loans were $984 million at the end of 1994, an increase of $208 million (28.7%) from a year earlier. The Corporation expects that core loan growth will continue through 1995. Investment Securities: The investment securities portfolio averaged $15.9 billion in 1994, an increase of $381 million (2.4%) from the 1993 average. This follows increases of $4.3 billion (37.8%) in 1993 and $4.2 billion (59.9%) in 1992. The sharp increases in the investment securities portfolio in 1992 and 1993 affected the ongoing changes in the mix of earning assets, reducing the share of loans and increasing the volume of other investment alternatives. This pattern was reversed in 1994 as loan growth exceeded deposit growth and proceeds of maturing securities were used to fund loans, a trend that should continue during 1995. At December 31, 1994, total investment securities were $13.9 billion, down $2.7 billion (16.3%) from a year earlier. U.S. Treasury and agency securities declined $2.9 billion (19.4%) from a year earlier to a total of $12.1 billion at the end of 1994. All other investment securities amounted to $1.8 billion at yearend, up 5.9% from a year earlier. The following table compares the average life, book value and approximate market value of the investment securities portfolio at December 31, 1994 and 1993:
December 31, 1994 December 31, 1993 HELD-TO-MATURITY (millions) Expected Carrying Approximate Expected Carrying Approximate Average Life Amount Market Value Average Life Amount Market Value U.S. Treasury and agencies 22 months $12,105 $11,769 20 months $14,894 $15,004 State and political subdivisions 34 months 29 30 32 months 23 25 Other 42 months 1,561 1,481 33 months 1,456 1,460 TOTAL 25 months $13,695 $13,280 21 months $16,373 $16,489 AVAILABLE-FOR-SALE (millions) U.S. Treasury and agencies 22 months $ 42 $ 42 7 months $169 $169 Other n/m 114 114 _ _ _ TOTAL 22 months $156 $156 7 months $169 $169
The average yield on U.S. Treasury and agency securities was 5.34% in 1994, versus 5.59% in 1993 and 6.69% in 1992. The average yield on all other securities was 5.67% in 1994, compared to 5.54% and 6.32% in 1993 and 1992, respectively. The average yield on the entire held-to-maturity portfolio was 5.37% in 1994, compared to 5.59% in 1993 and 6.65% in 1992. Taxable-equivalent yields of investment securities held at December 31, 1994, are presented by maturity in the following table:
Held-to-Maturity Available-forSale Within One Five After Within One Five After one to five to 10 10 one to five to 10 10 YIELD (%) year years years years Total year years years years Total U.S. Treasury and agencies 4.92 5.41 5.79 6.02 5.46 4.39 5.67 7.85 8.00 5.29 State and political subdivisions 12.68 10.56 11.77 8.69 11.63 _ _ _ _ _ Other 4.85 5.19 6.73 7.10 6.48 _ _ _ 4.21 4.21 TOTAL 4.95 5.39 5.87 6.25 5.59 4.39 5.67 7.85 4.23 4.50
Investment securities are purchased for the primary purpose of deploying excess liquidity while accommodating anticipated loan growth by employing an investment strategy of "laddering" maturities and maintaining a short duration portfolio. A laddered portfolio generates uniform cash flows throughout the year that can be redeployed to loans as needed or reinvested. Under SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," the Corporation at the time of purchase determines whether such securities are to be "held-to-maturity" or "available-for-sale." The Corporation has adopted an investment strategy with the intent and ability to hold securities to maturity and classified $13.7 billion of securities as held-to maturity at December 31, 1994. Securities classified as held-to-maturity are carried at amortized cost. Changes in estimated fair market value are not reflected on the balance sheet or income statement. The Corporation's investment strategy of maintaining a short duration portfolio consisting of low volatility instruments proved effective at minimizing the risk to market value during the substantial rise in interest rates in 1994. Yields on one- and twoyear U.S. Treasury securities, for example, rose by approximately 350 basis points each during the year. This increase in rates resulted in an unrecognized market value loss of $415 million at December 31, 1994, or 3.0% of the book value of the portfolio. In addition, the duration of the portfolio increased slightly to 1.6 years at December 31, 1994, from 1.3 years at December 31, 1993, reflecting limited extension of portfolio securities. The Corporation's management philosophy is that the investment securities portfolio is one component of an integrated balance sheet. Changes in interest rates affect certain components of the balance sheet, including the investment securities portfolio. As interest rates rose in 1994, the market value decline in the investment portfolio was mitigated by market value increases in other components of the balance sheet, specifically core deposits. This is further supported by an increase in the net interest margin to 5.14% for 1994 from 4.91% for 1993. Other Earning Assets: While loans and investment securities are the primary components of earning assets, available funds are also deployed into other revenue- producing instruments that are low risk and highly liquid. Offset by strong growth in higher-yielding loans, interest bearing time deposits due from banks declined $962 million (71.7%) to an average of $380 million in 1994. This follows a decline of $886 million (39.8%) in 1993 and an increase of $471 million (26.8%) in 1992. The level of the interbank placement of funds typically expands and contracts in conjunction with the liquidity and yields available in the market and alternative investments for such funds. Federal funds sold and repurchase agreements averaged $471 million in 1994, a decline of $811 million (63.3%). This follows a decline of 24.9% in 1993 and an increase of 20.0% in 1992. It is expected that these earning assets will essentially remain flat during 1995. At December 31, 1994, interest bearing time deposits due from banks totaled $26 million, a substantial decline of $1.1 billion (97.8%) from the level a year earlier. At the same time, federal funds sold and repurchase agreements dropped $439 million (71.0%) to $179 million. Average Yields: The average yields on the major categories of earning assets for the last three years are presented in the following table: AVERAGE YIELDS (%)(1) 1994 1993 1992 Commercial, financial and agricultural 6.79 6.25 6.91 Real estate construction 9.42 6.83 6.25 Real estate mortgage 7.63 8.18 8.85 Instalment 9.25 10.09 10.76 Foreign 5.59 4.48 5.85 Lease financing 7.17 8.42 10.57 Total loans 8.09 8.26 8.77 Trading account securities 4.55 5.57 6.00 Held-to-maturity securities: U.S. Treasury and agencies 5.34 5.59 6.69 Other 5.67 5.54 6.32 Total held-to-maturity securities 5.37 5.59 6.65 Securities available-for-sale 4.11 3.90 4.61 Federal funds, repurchases 3.98 3.10 3.84 Time deposits, due from banks 3.61 3.42 4.17 Other assets held for sale 7.51 10.00 8.28 TOTAL EARNING ASSETS 7.04 6.96 7.71 First Interstate average prime rate 7.15 6.00 6.25 (1)Taxable-equivalent basis. Sources of Funds and Interest Expense Earning assets are supported by various sources of funds, each of which is continuously monitored to ensure adequate liquidity to satisfy customer demand and fund the Corporation's operations. The primary source of funds is a broad and diversified base of core deposits gathered by a network of 1,137 domestic banking offices in 13 states. Core deposits include interest bearing consumer funds described below and demand and noninterest bearing time deposits, which are included in the discussion of noninterest sources. Core deposits reduce the Corporation's dependence on corporate purchased funds. Core deposits represented 98% of average deposits in 1994 and 1993, versus 97% in 1992. Core deposits, less cash and due from banks, supported 88% of average earning assets in 1994, up from 86% in 1993 and 84% in 1992. Total interest bearing sources of funds increased $1.8 billion (5.8%) to an average of $32.8 billion in 1994. This follows declines of $1.1 billion (3.5%) in 1993 and $1.3 billion (3.8%) in 1992. The average rate paid on total interest bearing liabilities was 2.64% in 1994, versus 2.81% in 1993 and 3.66% in 1992. The Corporation expects that these rates will increase in 1995, reflecting the seven market rate increases since the beginning of 1994. A breakdown of the Corporation's interest bearing sources of funds follows:
AVERAGE VOLUMES Change 94/93 Change 93/92 Change 92/91 (millions) 1994 1993 1992 $ % $ % $ % Regular savings $ 5,823 $ 5,288 $ 5,129 535 10.1 159 3.1 255 5.2 NOW accounts and demand_market interest 6,644 6,115 5,893 529 8.7 222 3.8 507 9.4 Savings_market interest 11,427 10,491 9,837 936 8.9 654 6.6 745 8.2 Other savings and time under $100,000 5,787 5,799 6,624 (12) (0.2) (825) (12.5) (1,576) (19.2) Total interest bearing consumer funds 29,681 27,693 27,483 1,988 7.2 210 0.8 (69) (0.3) Large CDs, other money market funds 1,076 989 1,170 87 8.8 (181) (15.5) (612) (34.3) Short termborrowings 655 431 388 224 52.0 43 11.1 (553) (58.8) Long term debt 1,395 1,893 3,096 (498) (26.3) (1,203) (38.9) (26) (0.8) Total corporate purchased funds 3,126 3,313 4,654 (187) (5.6) (1,341) (28.8) (1,191) (20.4) TOTAL $32,807 $31,006 $32,137 1,801 5.8 (1,131) (3.5) (1,260) (3.8)
Interest Bearing Consumer Funds: These sources consist of various types of interest bearing deposits in retail accounts. Combined balances averaged $29.7 billion in 1994, up 7.2% from the $27.7 billionreported in 1993 and $27.5 billion reported in 1992. The average rate paid on consumer funds in 1994 was 2.31%, down from 2.48% in 1993 and3.24% in 1992. The Corporation expects that average rates paid on interest bearing consumer funds will increase in 1995. At December 31, 1994, interest bearing consumer funds totaled $30.5 billion, an increase from the $28.2 billion reported a year earlier. Corporate Purchased Funds: While the interest bearing consumer funds described above provide the primary source of funding, liabilities raised in the money markets provide an important additional source of liquidity. These funds consist of large certificates of deposit, short term borrowings and long term debt. Corporate purchased funds averaged $3.1 billion in 1994, a decline of $187 million (5.6%). This follows declines of $1.3 billion (28.8%) in 1993 and $1.2 billion (20.4%) in 1992. The declines in recent years reflect the impact of pricing on some of the Corporation's liability products, as well as the repurchase and redemption of long term debt during 1993. The combined cost of corporate purchased funds averaged 5.74% in 1994, versus 5.57% in 1993 and 6.09% in 1992. Corporate purchased funds totaled $4.3 billion at yearend 1994, an increase of $995 million (29.9%) from a year earlier. It is expected that corporate purchased funds will increase in 1995 to the extent that loan growth exceeds deposit growth and investment securities maturities. As of December 31, 1994, time certificates of deposit of $100,000 or more mature as follows: Within Three to six to 12 After12 AMOUNTS (millions) three months six months months months Total Time certificates of deposit $633 $207 $198 $271 $1,309 Other time deposits 88 1 17 30 136 Interest Expense: Interest rates paid over the past three years on the liability accounts discussed above are summarized in the following table: AVERAGE RATES PAID (%) 1994 1993 1992 Regular savings 2.08 2.25 2.80 NOW accounts and demand_market interest 1.25 1.52 2.08 Savings_market interest 2.35 2.40 3.17 Other savings and time under $100,000 3.69 3.81 4.73 Total interest bearing consumer funds 2.31 2.48 3.24 Large CDs, other money market funds 3.63 3.54 3.50 Short term borrowings 5.16 3.72 3.61 Long term debt 7.63 7.19 7.36 Total corporate purchased funds 5.74 5.57 6.09 TOTAL 2.64 2.81 3.66 At December 31, 1994, 90% of the Parent Corporation's long term debt had fixed coupon rates. Of this amount, 49% was converted to floating rate debt using interest rate swaps. The effect to net interest income for the years ending December 31, 1994, and December 31, 1993, was a positive increase of approximately $16 million and $47 million, respectively. Net Noninterest Sources: Noninterest sources of funds consist of demand deposits, net of cash and due from banks, and other noninterest bearing liabilities, as well as shareholders' equity and the allowance for credit losses, less net fixed assets and other assets. Demand deposits area major, stable source of funding for the Corporation and have increased steadily over the last three years. At December 31, 1994, demand and other noninterest bearing deposits increased to $16.6 billion (34% of total deposits), versus $15.4 billion (35%) a year earlier. Investable demand deposits averaged $10.3 billion in 1994, up 16.4% from the $8.9 billion average in 1993. Of the other categories of average net noninterest sources, equity capital increased $121 million, reflecting the addition of retained earnings net of the effect of the stock buyback, as well as the increase in bank premises and equipment. The average volumes of noninterest funding sources for the last three years are shown in the following table:
AVERAGE VOLUMES Change 94/93 Change 93/92 Change 92/91 (millions) 1994 1993 1992 $ % $ % $ % Demand and noninterest bearing time deposits $15,556 $13,858 $12,543 1,698 12.3 1,315 10.5 826 7.0 Less cash and due from banks 5,233 4,992 4,937 241 4.8 55 1.1 580 13.3 Investable demand deposits 10,323 8,866 7,6061,457 16.4 1,260 16.62463.3 Add: Equity capita l3,599 3,478 2,957 121 3.5 521 17.61916.9 Allowance forcredit losses 980 1,043 1,261 (63) (6.0) (218)(17.3)12911.4 Other liabilities 1,017 977 1,394 40 4.1 (417)(29.9)148 11.9 Less: Bank premises and equipment 1,065 914 960 151 16.5 (46)(4.8) (67)(6.5) Other assets 2,023 1,942 2,801 81 4.2(859)(30.7) (56) (2.0) NET NONINTEREST SOURCES $12,831 $11,508$ 9,4571,323 11.5 2,051 21.7 8379.7
Net Interest Income Taxable-equivalent net interest income amounted to $2,347.9 million in 1994, an increase of $261.2 million (12.5%) from 1993. This follows a 2.7% increase in 1993 and a 4.0% decline in 1992. The higher level of taxable-equivalent net interest income in 1994 resulted primarily from earning asset growth, up $3.1 billion (7.3%). This growth follows an increase of 2.2% in 1993 and a decline of 1.0% in 1992. In addition, the net interest margin increased 23 basis points in 1994 to 5.14%, versus 4.91% in 1993 and 4.89% in 1992. Provision for Credit Losses The Corporation recorded no provision for credit losses in 1994, which reflects significant improvements in credit quality. The Corporation has experienced a substantial reduction in the level of net chargeoffs, which declined to $133.0 million in 1994 from $218.1 million in 1993 and $459.6 million in 1992. The provision for credit losses totaled $112.6 million in 1993 and $314.3 million in 1992. In January 1995, the Corporation adopted SFAS 114, "Accounting by Creditors for Impairment of a Loan." It is not expected that adoption of this statement will have a material impact on 1995 earnings. Refer to the Risk Elements section of this report for a more complete discussion of the Corporation's credit profile. Noninterest Income Noninterest income totaled $1,054.3 million in 1994, an increase of $100.1 million (10.5%) from the level of a year earlier. Among the recurring categories of noninterest income, service charges on deposit accounts rose $48.9 million (9.5%) from 1993 and trust fees increased $15.9 million (9.0%). These compare to 1993 increases in deposit service charges and trust fees of 7.1% and 4.2%, respectively. Noninterest income in 1994 benefited from venture capital gains of $28.3 million, of which $17.0 million were reported as investment securities gains and $11.3 million were reported as other income. Of the 1993 investment securities gains, $8.1 million resulted from the sale of equity interests. Noninterest income in 1994 also benefited from interest on state tax settlements of $10.5 million. The increases in 1994 were offset in part by a lower level of other charges, commissions and fees, which declined $17.4 million (11.6%) in 1994. This decline resulted primarily from a reduction in the sale of various investment products. The major categories of noninterest income are included in the following table:
NONINTEREST INCOME Change 94/93 Change 93/92 Change 92/91 (millions) 1994 1993 1992 $ % $ % $ % Deposit service charges $ 561.9 $513.0 $478.9 48.9 9.5 34.1 7.1 7.1 1.5 Trust fees 193.3 177.4 170.3 15.9 9.0 7.1 4.2 (2.4) (1.4) Other charges, commissions and fees 132.0 149.4 163.6 (17.4) (11.6) (14.2) (8.7) (20.8) (11.3) Merchant credit card fees 39.7 44.1 37.3 (4.4) (10.0) 6.8 18.2 (16.2) (30.3) Investment securities gains (losses) 21.1 9.7 (1.8) 11.4 n/m 11.5 n/m (44.6) n/m Trading income 16.8 19.5 19.4 (2.7) (13.8) 0.1 0.5 (63.1) (76.5) Gain (loss) on sale of loans 2.5 8.0 (3.3) (5.5) (68.8) 11.3 n/m (5.6) n/m Gain (loss) on sale of subsidiaries _ _ (2.6) _ _ 2.6 n/m (29.7) n/m Other income 87.0 33.1 50.3 53.9 n/m (17.2) (34.2) (97.0) (65.9) TOTAL $ 1,054.3 $954.2 $912.1 100.1 10.5 42.1 4.6 (272.3) (23.0)
Noninterest Expenses Noninterest expenses totaled $2,197.8 million in 1994, versus $2,032.4 million in 1993 and $2,209.2 million in 1992. The $165.4 million (8.1%) increase in 1994 includes the $141.3 million restructuringcharges, as previously noted. Excluding the restructuring charges, 1994 noninterest expenses including the impact of completed acquisitions rose $24.1 million (1.2%). Net ORE expenses dropped $46.0 million in 1994 to a net recovery of $12.4 million. This follows a drop of $126.0 million in 1993 and reflects the declining level of ORE over the last three years. Including acquisitions and increased pension costs, salaries and other staff expenses increased $104.6 million (10.7%) in 1994 to $1,079.9 million. This follows a $60.1 million (5.8%) decline in 1993. Including acquisitions, the December 1994 staff level of 27,394 was up 805 (3.0%) full-time equivalent employees from December 1993. This follows a decline of 1.5% in 1993. In January 1994, the Corporation adopted SFAS 112, "Employers' Accounting for Postemployment Benefits." Implementation of this statement did not have a material impact on the Corporation's results. The Corporation's efficiency ratio, which reflects noninterest expenses before restructuring and ORE charges as a percent of taxable-equivalent net interest income plus noninterest income, was 60.8% for all of 1994. This compares to 65.7% in 1993 and 69.6% in 1992. The Corporation expects to achieve an efficiency ratio of 58% in 1995. The major categories of noninterest expenses are included in the following table:
NONINTEREST EXPENSES Change 94/93 Change 93/92 Change 92/91 (millions) 1994 1993 1992 $ % $ % $ % Salaries $ 865.9 $ 805.8 $ 853.5 60.1 7.5 (47.7) (5.6) (138.2) (13.9) Employee benefits 214.0 169.5 181.9 44.5 26.3 (12.4) (6.8) (39.0) (17.7) Total salaries and benefits 1,079.9 975.3 1,035.4 104.6 10.7 (60.1) (5.8) (177.2) (14.6) Net occupancy of bank premises 228.3 207.3 223.7 21.0 10.1 (16.4) (7.3) (21.3) (8.7) Furniture and equipment 128.3 129.9 135.7 (1.6) (1.2) (5.8) (4.3) (45.5) (25.1) FDIC assessments 102.8 100.5 90.6 2.3 2.3 9.9 10.9 6.5 7.7 Communications 117.6 105.0 91.9 12.6 12.0 13.1 14.3 (3.6) (3.8) Supplies 43.6 40.7 39.4 2.9 7.1 1.3 3.3 (8.5) (17.7) Outside contract services 91.8 165.2 130.3 (73.4) (44.4) 34.9 26.8 32.5 33.2 Advertising 46.8 52.6 35.2 (5.8) (11.0) 17.4 49.4 (0.2) (0.6) Other expenses 229.8 222.3 267.4 7.5 3.4 (45.1) (16.9) (63.3) (19.1) Total before restructuring and other real estate 2,068.9 1,998.8 2,049.6 70.1 3.5 (50.8) (2.5) (280.6) (12.0) Provision for restructuring 141.3 _ _ 141.3 n/m _ _ (90.0) n/m Other real estate (12.4) 33.6 159.6 (46.0) n/m (126.0) (78.9) (152.4) (48.8) TOTAL $2,197.8 $2,032.4 $2,209.2 165.4 8.1 (176.8) (8.0) (523.0) (19.1)
Income Taxes For 1994, the Corporation recorded income tax expense of $449.5 million on pre-tax income of $1,183.0 million, resulting in an effective income tax rate of 38.0%. This compares to an effective rate of 36.3% for 1993. The lower effective tax rate in 1993 included the benefits of two events. First, the Corporation recorded a $12.4 million benefit resulting from the enactment of the Omnibus Budget Reconciliation Act of 1993. This benefit reflects the effect of the increase in the federal statutory rate from 34% to 35% on the Corporation's net deferred tax assets as of the date of enactment. In addition, the Corporation recognized a $9.0 million benefit from the utilization in 1993 of foreign tax credit carryforwards. As of January 1, 1993, the Corporation adopted SFAS 109 on a prospective basis. The cumulative effect of the adoption of SFAS 109 increased net income by $305.0 million, and is reported separately in the consolidated statement of earnings. The Corporation's effective tax rate in 1995 is expected to approximate 38%-39%. Asset, Liability and Capital Management The objective of the asset, liability and capital management function is to structure the balance sheet to provide high levels of returns while maintaining acceptable levels of credit risk, interest rate risk, liquidity and capital. This process is managed on a consolidated basis by the Asset, Liability and Capital Committee (ALCCO), which establishes policies and procedures that define the goals and parameters for the management of individual operating units regarding liquidity, capital, investments, interest rate risk management and derivative contracts. Compliance with these policies is reported to ALCCO, which meets on a regular basis. Interest Rate Sensitivity: Interest rate risk can be measured along a variety of dimensions, including its impact on net interest income as well as the market value of portfolio equity. First Interstate relies on a combination of gap analysis and simulations of net interest income to measure and manage interest rate risk. Traditional "gap" analysis represents interest rate risk in terms of the mismatch between the stated repricing and maturities of the Corporation's earning assets and liabilities within defined time periods. At December 31, 1994, the cumulative 90 day contractual gap for the consolidated Corporation was a negative $0.3 billion, representing 0.7% of earning assets, and the cumulative one- year contractual gap was a positive $3.6 billion, representing7.5% of earning assets, as shown in the following table. In other words, approximately equal amounts of the Corporation's assets and liabilities reprice or mature within a 90 day period, and 7.5% of the Corporation's earning assets reprice or mature more quickly than the liabilities within one year.
Rate Sensitive Balances December 31, 1994 CONTRACTUAL 1 to 30 31 to 90 91 to 180 181 to 365 1 to 2 2 to 5 Over AMOUNTS (millions) days days days days years years 5 years Earning assets: Loans $12,086 $3,467 $2,132 $2,462 $1,652 $ 4,719 $ 6,730 Securities 1,299 939 878 1,616 1,981 3,260 3,878 Other(1) 284 (457) (132) 80 48 74 371 Total earning assets 13,669 3,949 2,878 4,158 3,681 8,053 10,979 Net sources: Demand deposits _ _ _ _ _ _ 10,529 Interest bearing deposits 15,038 1,185 1,506 1,540 956 11,239 364 Short term borrowings 1,550 20 _ _ _ 4 _ Long term debt 5 129 9 99 139 420 587 Other(2) _ _ _ _ _ _ 2,048 Total net sources 16,593 1,334 1,515 1,639 1,095 11,663 13,528 Incremental gap (2,924) 2,615 1,363 2,519 2,586 (3,610) (2,549) Cumulative gap (2,924) (309) 1,054 3,573 6,159 2,549 _ % of earning assets (6.2) (0.7) 2.2 7.5 13.0 5.4 _ (1)Includes the effects of swaps, financial futures and similar agreements used to manage interest rate risk. (2)Includes other funding sources such as common and preferred stock.
The "managerial" gap reflects the expected repricing or maturity of assets and liabilities as opposed to their contractual maturity. This refinement to gap analysis incorporates the options that are embedded in the balance sheet, the anticipated prepayment behavior of various asset products, particularly mortgage-backed securities and mortgage loans, and the effective maturity of various liability products with indeterminate maturities. For the purpose of constructing the "managerial" gap, prepayment rates for loans and investment securities are projected to be in line with general market expectations for these products. Specific deposit assumptions are based on historical experience for repricing sensitivity and the average life of deposit balances. Adjusting for these factors, the Corporation was asset sensitive, with $2.9 billion (6.1%) of its assets repricing more quickly than liabilities. The $2.1 billion increase in the cumulative one year gap from yearend 1993 principally reflects a reduction in the amount of fixed rate securities in the investment portfolio along with an increase in the amount of adjustable rate loans. In particular, adjustable rate mortgages increased significantly with the acquisition of Sacramento Savings Bank.
Rate Sensitive Balances December 31, 1994 MANAGERIAL 1 to 30 31 to 90 91 to 180 181 to 365 1 to 2 2 to 5 Over AMOUNTS (millions) days days days days years years 5 years Earning assets $13,512 $5,473 $3,842 $5,486 $5,843 $6,923 $6,290 Net sources: Passbook savings and NOW 3,079 750 616 1,846 1,186 2,737 2,462 Market interest 5,058 1,781 441 579 1,047 2,286 _ Other sources 5,168 1,766 2,155 2,184 2,081 3,532 6,615 Total net sources 13,305 4,297 3,212 4,609 4,314 8,555 9,077 Incremental gap 207 1,176 630 877 1,529 (1,632) (2,787) Cumulative gap 207 1,383 2,013 2,890 4,419 2,787 _ % of earning assets 0.4 2.9 4.2 6.1 9.3 5.9 _
Gap analysis provides only a static view of the Corporation's interest rate sensitivity at a specific point in time. The actual impact of interest rate movements on the Corporation's net interest income may differ from that implied by any gap measurement. The actual impact on net interest income may depend on the direction and magnitude of the interest rate movement, as well as competitive and market pressures. Given the complexity of these dynamics, the Corporation regularly performs analysis of its interest rate sensitivity using simulation analysis. This approach measures the risk to net interest income due to changes in underlying market rates while considering the dynamic aspects of the balance sheet,repricing and prepayment behavior under varying rate scenarios. In addition, simulation models capture the impacts of any embedded options, such as caps and floors, as well as relationships between rates that are not easily represented in a gap analysis. The simulation model is used to create one and three year changes in net interest income levels, which are compared to limits which ALCCO has established on the amount of earnings that may be put at risk due to changes in market interest rates. The simulation results are generally well within the established limits, but the actual position at any given time is a function of available asset opportunities, historical and expected interest rates, and long term balance sheet trends. For example, should market interest rates remain unchanged or continue to move higher, deposit pricing pressure is expected to reduce the positive impact on net interest margin that an asset sensitive gap position suggests. Similarly, if market rates begin to decline, industry pressure on deposit prices may limit the Corporation's ability to reprice liabilities quickly. Liquidity Management: This section should be read in conjunction with the consolidated and Parent Corporation's statements of cash flows included elsewhere in this report. Liquidity refers to the Corporation's ability or the financial flexibility to adjust its future cash flows to meet the needs of depositors and borrowers and to fund operationson a timely and cost effective basis. The Corporation's liquidity policy is designed to draw upon its strengths, which include an extensive interstate retail banking franchise. Core deposits have always provided the Corporation's banking subsidiaries with a major source of stable and relatively low-cost funding. Cash and cash equivalents declined $564 million for the year ended December 31, 1994. Net cash provided by investing activities during 1994 totaled $129 million. Maturities of investment securities in the held-tomaturity portfolio, net of purchases, provided cash of $3,618 million. Maturities and sales of investment securities in the available-for-sale portfolio, net of purchases, provided $193 million. Loan originations, net of repayments, used cash of $5,688 million. Proceeds from the sale of loans provided $3,054 million, while the purchase of loans used $1,263 million. Net cash used by financing activities totaled $2,048 million during 1994. Deposits, excluding the purchase of $315 million from the Resolution Trust Corporation as part of the Corporation's ongoing acquisition program, exhibited a net decrease of $1,878 million. The Corporation also reported a net increase of $580 million in short term borrowings. These borrowings were primarily federal funds purchased and securities sold under agreements to repurchase. The Corporation continues to have no commercial paper outstanding. Proceeds from the issuance of long term debt provided $125 million, while maturities of long term debt required cash of $270 million. Repurchases of common stock used cash of $712 million, while cash dividends totaled $251 million. Cash provided by operations during 1994 totaled $1,355 million. Net income totaled $734 million and noncash adjustments to reconcile net income totaled $416 million. Net changes in other assets, other liabilities and trading account securities increased cash from operations by $205 million. Given the outlook for loan generation and the prevailing economicconditions which serve to limit the Corporation's prospects to increase deposits, the trend of funding increases in the loan portfolio with maturities and paydowns from investment securities should continue in the near future. As a result, the investment portfolio is expected to show year-toyear declines again in 1995. The Parent Corporation's statement of cash flows includes a $295 million decrease in cash and cash equivalents during 1994. The Parent Corporation had $219 million of cash and other short term financial instruments at yearend 1994, a decline of $433 million from yearend 1993 that resulted primarily from the common stock repurchase program described in the Capital Management section. In 1994, affiliate banks paid a total of $605 million in dividends to the Parent Corporation. This represents an increase of $114 million from the $491 million paid in 1993 and reflects continued improved operating performance at affiliate banks and the bank capital restructuring activities undertaken in 1994. The Parent Corporation had no external short term borrowings outstanding at yearend 1994. At current rates, interest on long term debt and preferred stock dividend requirements total $129 million for 1995 and $121 million for 1996. In addition, $128 million of the Parent Corporation's long term debt will mature in 1995 and $192 million will mature in 1996. The Parent Corporation expects to retire this long term debt as it matures. Under the appropriate circumstances, the Parent Corporation could consider repurchasing any of its outstanding securities. Immediate liquidity available to the Corporation includes a $500 million senior revolving credit facility. On December 9, 1994, the Corporation announced the establishment of its $1 billion Global Medium Term Note Program. The program will allow for senior and subordinated debt and capital securities issuance in a number of countries and over a broad spectrum of maturities. The Corporation's other sources of liquidity include maturing securities in addition to those which are available for sale or repurchase activity. In addition, affiliate banks may directly access funds placed by them through existing agency agreements for the placements of federal funds and may also access the Federal Reserve for short term liquidity needs. The Parent Corporation has access to regional, national and international capital and money markets. The Corporation's debt securities are rated by Moody's Investors Service (Moody's), Standard & Poor's Corp. (S&P), Thomson BankWatch (Thomson) and Duff & Phelps Credit Rating Co. (D&P). These debt securities were upgraded by Moody's in November 1994, by S&P in December 1993, by Thomson in December 1994, and by D&P in January 1994. The upgrades should have a positive effect on the Corporation's funding costs. Securities and Loans: At December 31, 1994, securities maturing within one year amounted to $3.5 billion, or 25.5% of the held-tomaturity portfolio. The weighted average expected maturity of total held-to-maturity securities was 25 months at yearend 1994, compared to the weighted average maturities of 21 months in 1993 and 24 months at the end of 1992. The average expected maturities of U.S. Treasury and agency securities were 22 months, 20 months and 25 months at yearend 1994, 1993 and 1992, respectively. The comparable maturities of tax-exempt securities were 34 months, 32 months and 26 months at the same dates. The contractual maturity distribution of the major categories of investment securities in the held-to- maturity and availableforsale portfolios at December 31, 1994, is presented in the following table:
Held-to-Maturity Available-for-Sale CONTRACTUAL Within One Five After Within One Five After AMOUNTS One to five to 10 10 one to five to 10 10 (millions) year years years years Total year years years years Total U.S. Treasury and agencies $3,427 $4,362 $1,738 $2,578 $12,105 $16 $22 $2 $ 2 $ 42 State and political subdivisions 12 10 6 1 29 _ _ _ _ _ Other 53 667 113 728 1,561 _ _ _ 114 114 TOTAL $3,492 $5,039 $1,857 $3,307 $13,695 $16 $22 $2 $116 $156
As indicated in the preceding table, securities held to maturity that mature within one year totaled $3.5 billion on a contractual basis at yearend 1994. Contractual maturities plus estimated prepayments during 1995 are expected to equal approximately $5.8 billion. The contractual maturity schedule of the loan portfolio, excluding instalment and real estate mortgage loans, is detailed in the following table:
Within One to five After five AMOUNTS (millions) one year years years Total Commercial, financial and agricultural $4,706 $3,531 $1,057 $ 9,294 Real estate construction 779 124 59 962 Foreign 49 54 37 140 TOTAL $5,534 $3,709 $1,153 $10,396
As shown in the preceding table, loans maturing within one year totaled $5.5 billion at yearend 1994. The Corporation's policy on maturity extensions and rollovers is based on management's assessment of individual loans. Approvals for the extension or renewal of loans without reduction of principal for more than one 12-month period are generally avoided, unless fully secured and properly margined by cash or marketable securities, or are revolving lines subject to annual analysis and renewal. The following table details the remaining $4.9 billion of loans with maturities exceeding one year: AMOUNTS (millions) Fixed Rate Adjustable Rate Total Commercial, financial and agricultural $1,746 $2,842 $4,588 Real estate construction 45 138 183 Foreign 9 82 91 TOTAL $1,800 $3,062 $4,862 Capital Management: The current and projected capital position of the Corporation and its affiliates and the impact of capital plans on both short term and long term strategies is reviewed regularly by senior management. In April 1994, the Board of Directors approved a 50% increase in the quarterly cash dividend on the Corporation's common stock from $0.50 to $0.75 per share. In the first half of 1994, the Board of Directors approved the repurchase of up to 8 million shares of common stock from time to time during the year, subject to market conditions and appropriate regulatory and acquisition accounting requirements. Additionally, in connection with the acquisition of Levy Bancorp, the Board approved in September 1994 the buyback of up to 1.2 million shares of common stock. The repurchase programs were completed in 1994; a total of 9.1 million shares were repurchased. The average cost of common stock held in the treasury at yearend 1994 was $73.64. On March 18, 1994, in conjunction with completion of the acquisition of San Diego Financial Corporation, the Corporation recorded additional equity of $61.8 million through the issuance of 5.1 million shares of its common stock. An additional 702,033 shares, with proceeds of $30.3 million, were issued under the Stock Option Plan. During 1994, the Corporation recorded common stock dividends of $218.2 million and preferred stock dividends of $33.3 million. Under Federal Reserve Board regulations, the minimum capital ratios required are 4.00% for Tier 1 and 8.00% for Total Capital. Under these regulations, a well-capitalized institution is defined as having a Tier 1 ratio of 6.00%, a Total Capital ratio of 10.00% and a leverage ratio of 5.00%. At yearend 1994, the Corporation and all subsidiary banks exceeded the minimum requirements of wellcapitalized institutions. The decline in the Corporation's various capital ratios largely resulted from the common stock repurchase programs, completed acquisitions and growth in riskadjusted assets. The following tables detail the capital and leverage positions of the Corporation over the last two years:
RISK-BASED CAPITAL December 31, 1994 December 31, 1993 RATIOS (dollars in millions) $ % $ % Tier 1 Capital 2,882 7.20 3,313 9.88 Tier 1 Capital minimum requirement 1,601 4.00 1,341 4.00 Excess 1,281 3.20 1,972 5.88 Total Capital 4,091 10.22 4,385 13.08 Total Capital minimum requirement 3,203 8.00 2,683 8.00 Excess 888 2.22 1,702 5.08 Risk-adjusted assets, net of goodwill, nonqualifying intangibles, excess allowance and excess deferred tax assets 40,041 _ 33,533 _
December 31, 1994 December 31, 1993 LEVERAGE RATIO (dollars in millions) $ % $ % Tier 1 Capital 2,882 5.35 3,313 6.60 Quarterly average total assets, net of goodwill,nonqualifying intangibles and excess deferred tax assets 53,905 _ 50,198 _
Total intangibles amounted to $561 million at December 31, 1994, versus $233 million a year earlier. The higher level at yearend 1994 reflects the completion of 10 acquisitions during the year. Goodwill increased to $514 million from $204 million at yearend 1993. All other intangibles amounted to $47 million and $29 million at yearend 1994 and 1993, respectively, while excess deferred tax assets totaled $21 million and $31 million, respectively. Risk Elements The U.S. economy staged a strong performance in 1994, with real growth of 4.0%. Increases in consumer spending, home construction, business investment in capital equipment, and inventory building spurred sizable gains in bank loans. While inflation remained well contained, with consumer prices up an average of less than 3.0%, the Federal Reserve acted to prevent a future buildup in inflation and raised interest rates seven times since the beginning of 1994. Long-term interest rates rose sharply early in 1994 before edging lower at yearend. In 1995, the delayed effects of monetary tightening should slow the nation's economic growth closer to the Federal Reserve's long term goal of about 2.5%. Consumer spending and inventory building should moderate, while home-building subsides from its 1994 peak. Inflation will show some acceleration, but consumer prices are still likely to rise an average of less than 3.5%. The yield curve is expected to flatten, with an easing in long term rates. All 13 states in the First Interstate Territory should record positive job growth in 1995 for a second consecutive year and most should outperform the nation. Ongoing population gains, rising exports, and the region's technology clusters will support increases in jobs and personal income. California can be expected to counter the national trend of slower growth compared with 1994. The Territory's various local economies, however, will remain vulnerable to further reductions in defense spending, including a new round of base closings in 1995. Another large upswing in both short and long term interest rates would also pose a significant risk to interestsensitive sectors in the region. Credit Risk: The Corporation manages its credit risk by establishing and implementing strategies appropriate to the characteristics of borrowers, industries, geographic locations and risk products. Diversification of risk within each of these areas is a primary objective. Policies and procedures are developed to ensure that loan commitments conform to current strategies and guidelines. Management continues to refine the Corporation's credit policies and procedures to address the risks in the current and prospective environment and to reflect management's current strategic focus. The credit process is controlled with continuous review and analysis. It is supported by independent evaluation of the portfolio's quality by internal credit review, internal and external auditors and regulatory authorities. The Corporation has collateral management policies in place to ensure that collateral lending of all types is approached on a basis consistent with safe and sound standards. Valuation analysis is utilized to take into consideration the potentially adverse economic conditions under which liquidation could occur. Collateral accepted against the commercial loan portfolio includes accounts receivable and inventory, marketable securities, equipment, and agricultural products. Autos, second trust deeds, and marketable securities are accepted as collateral for the instalment loan portfolio. Securities: At December 31, 1994, the Corporation had $13.9 billion of investment securities, of which 87.7% were U.S. Treasury and agency securities. The remaining 12.3% of the investment portfolio consisted primarily of AAA-rated, welldiversified, asset-backed securities. The Corporation's investment policy requires investments to be made with an emphasis on geographic and issuer diversification. Other than the U.S. government and agencies, the Corporation has no other significant concentration of any single issuer in its investment securities portfolio. In addition to maintaining a low-risk credit profile, the Corporation has established investment securities policies and procedures to manage and monitor the interest rate risk exposure of the portfolio. Investments are directed toward low volatility instruments to minimize interest rate risk. At December 31, 1994, 41% of the portfolio was invested in short term U.S. Treasury and direct agency securities with a duration of 0.9 years. Fixed rate collateralized mortgage obligations structured to stabilize cash flows during volatile interest rate environments accounted for 31% of securities holdings with a duration of 1.5 years. U.S. agency mortgage pass-through securities with a duration of 3.0 years represented 20% of the portfolio. The remaining 8% of the portfolio consisted primarily of short term asset-backed securities collateralized by consumer receivables with a duration of 2.3 years. The Corporation held no leveraged instruments, structured notes or securities defined as "High Risk Mortgage Securities" under current regulatory guidelines. Loans and ORE: At yearend 1994, the Corporation's commercial loan portfolio of $9.3 billion was diversified with no single industry representing over 10% of total commercial loans. The residential mortgage, commercial mortgage and real estate construction portfolios accounted for $5.8 billion, $4.4 billion and $0.9 billion, respectively, of total loans. The following table presents a breakdown of outstanding real estate loans by geographic location at yearend 1994 and 1993. Outstandings reported by state may represent loans and ORE that are held by subsidiaries other than the banking affiliate headquartered in those states.
Real Estate Loans(1) Real Estate Nonperforming Loans ORE (outstanding Mortgage Construction Mortgage Construction at yearend, Res- Com- Res- Com- Res- Com- Res- Com- in millions) idential mercial idential mercial Total idential mercial idential mercial Total Total 1994 California $3,123 $1,906 $288 $233 $ 5,550 $ 8 $55 $13 $ 1 $ 77 $52 Northwest(2) 1,064 891 43 105 2,103 2 6 _ 1 9 1 Southwest(3) 1,008 1,020 44 103 2,175 3 14 _ 7 24 4 Texas 489 496 33 41 1,059 _ 4 _ _ 4 7 Other 129 92 _ 43 264 _ _ _ _ _ 8 TOTAL $5,813 $4,405 $408 $525 $11,151 $13 $79 $13 $ 9 $114 $72 1993 California $ 848 $ 978 $247 $142 $ 2,215 $ 6 $ 4 $22 $_ $ 32 $36 Northwest(2) 908 869 22 52 1,851 3 5 1 1 10 3 Southwest(3) 736 876 27 116 1,755 3 21 1 32 57 7 Texas 330 475 16 34 855 _ 5 _ _ 5 22 Other 102 98 _ 69 269 _ _ _ 45 45 14 TOTAL $2,924 $3,296 $312 $413 $ 6,945 $12 $35 $24 $78 $149 $82 (1)Net of unearned income and deferred fees (2)Includes Oregon, Washington, Montana, Idaho and Alaska (3)Includes Arizona, Nevada, Colorado, Utah, New Mexico and Wyoming
Real estate related assets comprised 72% of total nonperforming assets at the end of 1994, versus 75% in 1993 and 66% in 1992. Net chargeoffs of real estate construction and mortgage loans combined amounted to $25.0 million in 1994, a substantial decline from $81.6 million in 1993 and $212.7 million in 1992. Management considers such comparisons in determining the level and the allocation of the allowance for credit losses. The portion of the allowance allocated to real estate was approximately 14% at yearend 1994, versus 12% in 1993 and 18% in 1992. California At December 31, 1994, First Interstate Bank of California accounted for 45% of total assets, 41% of loans and 44% of total deposits. Despite the initial devastation of the Northridge earthquake in January 1994, California's economy rebounded and continues in the early phases of economic recovery. It is currently estimated that the state added 100,000 to 150,000 nonfarm jobs during 1994, with most of the gains occurring in the services sector. However, other sectors are also adding to payrolls, including construction, retail trade, government, and nondefense manufacturing. California's unemployment rate fell about 1.5 percentage points between the first and final quarters of 1994. In addition, retail sales advanced approximately 5% during 1994. With inflation running at 2%, last year thus marked the first time since 1990 in which consumers registered a real spending gain. A healthier economy has also contributed to stronger than anticipated growth in state government revenues and a slowing in the rate of residential and commercial foreclosures. The state's housing market is also helping California's economy recover. Home sales advanced substantially and residential building permits increased approximately 15% in 1994, with both single-family and multi-family permits recording double-digit gains. More importantly, the downward slide in home prices appears to be abating throughout most areas of the state. California homeowners can expect home values to begin rising again perhaps as early as spring 1995. Cross-Border Outstandings _ The Corporation had no crossborder outstandings in excess of 0.75% of consolidated assets at December 31, 1994. The following table details the Corporation's cross-border outstandings to foreign countries that represent 0.75% or more of assets for 1993 and 1992: Banks and Percent CROSS-BORDER OUTSTANDINGS(1) Other Financial All of Total (millions) Institutions Other Total Assets At December 31, 1993 Japan $ 927 $_ $ 927 1.80% At December 31, 1992 Japan 1,957 8 1,965 3.86 Italy 568 _ 568 1.12 (1)Cross-border outstandings are defined as total loans(including accrued interest), acceptances, interbank placements, other interest bearing investments and other monetary assets denominated in dollars or other non-local currency, net of third party guarantees and cash collateral. There were no outstandingsto governments andofficial institutions of Japan or Italy for the years presented. Derivatives: The Corporation has engaged in minimal derivative activities. Refer to Note M to the financial statements for further information on derivatives. Credit Losses: Loans charged off, net of recoveries, amounted to $133.0 million in 1994, down substantially from $218.1 million in 1993 and $459.6 million in 1992. Net chargeoffs represented 0.46% of average loans in 1994, compared to 0.90% in 1993 and 1.79% in 1992. Net chargeoffs of real estate construction and mortgage loans totaled $25.0 million in 1994, down substantially from $81.6 million in 1993 and $212.7 million in 1992. The high level of chargeoffs in 1993 and 1992 reflects, in part, the revaluation of land loans, primarily in California. Overall, there is continued improvement in the Corporation's credit risk profile. The following table summarizes the Corporation's loan loss experience for the last five years:
SUMMARY OF LOAN LOSS Year Ended December 31 EXPERIENCE (millions) 1994 1993 1992 1991 1990 Average amount of loans outstanding(1) $ 28,644 $ 24,128 $ 25,694 $ 30,691 $ 35,708 ALLOWANCE FOR CREDIT LOSSES Balance at beginning of year $1,001.1 $1,067.8 $1,273.0 $1,010.8 $1,437.5 Provision for the year _ 112.6 314.3 810.2 499.4 Net changes due to acquisitions (dispositions) 66.5 38.8 (59.9) (1.1) (52.5) 1,067.6 1,219.2 1,527.4 1,819.9 1,884.4 Deduct: Loans charged off: Commercial, financial and agricultural 25.0 84.3 159.8 271.1 290.2 Real estate construction 8.8 65.5 183.0 99.6 100.8 Real estate mortgage 34.2 40.2 43.1 87.6 223.0 Instalment 190.3 200.4 195.3 203.4 200.3 Foreign _ 6.6 12.0 3.8 169.7 Lease financing 2.5 1.8 13.7 23.7 28.5 Total chargeoffs 260.8 398.8 606.9 689.2 1,012.5 Less recoveries of loans previously charged off: Commercial, financial and agricultural 40.9 78.5 67.9 57.2 38.3 Real estate construction 6.2 17.3 6.6 4.5 11.4 Real estate mortgage 11.8 6.8 6.8 6.3 6.5 Instalment 65.5 66.3 55.6 56.1 58.7 Foreign 1.6 9.1 4.8 10.3 15.8 Lease financing 1.8 2.7 5.6 7.9 8.2 Total recoveries 127.8 180.7 147.3 142.3 138.9 Net loans charged off 133.0 218.1 459.6 546.9 873.6 Balance at end of year $ 934.6 $1,001.1 $1,067.8 $1,273.0 $1,010.8 Ratio of net loans charged off during the year to average amount of loans outstanding 0.46% 0.90% 1.79% 1.78% 2.45% (1)Net of unearned income and deferred fees.
The composition of net loans charged off, and the ratios to average outstandings, are presented in the following table:
COMPOSITION OF NET LOANS CHARGED OFF Net Loans Charged Off Ratio to Average Loans (%) (millions) 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 Commercial, financial and agricultural $(15.9) $ 5.8 $ 91.9 $213.9 $251.9 (0.19) 0.08 1.13 2.05 1.86 Real estate construction 2.6 48.2 176.4 95.1 89.4 0.32 5.28 10.10 3.55 2.50 Real estate mortgage 22.4 33.4 36.3 81.3 216.5 0.30 0.62 0.66 1.44 3.96 Instalment 124.8 134.1 139.7 147.3 141.6 1.07 1.35 1.43 1.45 1.29 Foreign (1.6) (2.5) 7.2 (6.5) 153.9 (1.93) (1.56) 1.78 _ 10.69 Lease financing 0.7 (0.9) 8.1 15.8 20.3 0.32 (1.06) 4.00 2.58 2.74 TOTAL $133.0 $218.1 $459.6 $546.9 $873.6 0.46 0.90 1.79 1.78 2.45
Allowance for Credit Losses: The allowance for credit losses is maintained at a level considered appropriate by management and is based on the ongoing assessment of the risks inherent in the loan portfolio, as well as on the possible impact of known and potential problems in certain off- balance sheet financial instruments and uncertain events. In evaluating the adequacy of total and subsidiary reserves, management incorporates such factors as collateral value, portfolio composition, loan concentrations, trends in local economic conditions and evaluation of the financial strength of borrowers. Allocation of the allowance for credit losses by loan category is based on management's assessment of potential losses in the respective portfolios. While reserves are allocated to specific loans and to portfolio segments, the allowance is predominantly general in nature and is available for the portfolio in its entirety. In order to commonize reserve strength, the Corporation's management adjusted levels of the allowance for credit losses among the major bank subsidiaries as of yearend 1994. This action had no effect on the Corporation's consolidated financial statements, as there was no change in the consolidated allowance. At December 31, 1994, the allowance for credit losses amounted to $934 million, or 2.81% of total outstanding loans. This compares to $1,001 million, or 3.85% at yearend 1993 and $1,068 million, or 4.41% at yearend 1992. The following table details the Corporation's allocation of the allowance for credit losses for the last five years:
ALLOCATION OF Percent of Loans in Each ALLOWANCE FOR Allowance Amount Category to Total Loans CREDIT LOSSES December 31 December 31 (millions) 1994 1993 1992 1991 1990 1994 1993 1992 1991 1990 Commercial, financial and agricultural $124.2 $ 150.6 $ 229.6 $ 348.5 $ 365.3 28.0 30.8 32.1 30.7 36.3 Real estate construction 41.3 77.3 119.3 221.3 179.1 2.9 2.8 4.8 7.6 9.7 Real estate mortgage 90.7 47.1 69.5 120.3 93.1 30.7 23.9 22.1 20.3 16.3 Instalment 145.5 153.7 142.0 136.6 132.6 36.9 41.5 39.9 35.5 31.2 Foreign 0.2 0.2 8.3 11.3 26.4 0.4 0.6 0.7 3.5 3.9 Lease financing 1.8 2.0 1.8 22.1 9.6 1.1 0.4 0.4 2.4 2.6 Unallocated allowance 530.9 570.2 497.3 412.9 204.7 n/a n/a n/a n/a n/a TOTAL $934.6 $1,001.1 $1,067.8 $1,273.0 $1,010.8 100.0 100.0 100.0 100.0 100.0
Nonperforming Assets: Loans are generally identified as nonperforming when the payment of principal or interest is 90 days past due, or sooner if management believes that collection is doubtful, or when loans are renegotiated below market interest rates. In addition to nonperforming loans, the Corporation holds ORE acquired through foreclosure. Composition of the Corporation's portfolio of nonperforming assets is shown in the following table: December 31 NONPERFORMING ASSETS (millions) 1994 1993 1992 1991 1990 Nonaccruing loans:(1) Domestic:(2) Secured by real estate $113.7 $149.3 $322.3 $ 684.3 $ 460.5 Other 72.5 77.3 255.5 394.3 439.6 Total domestic 186.2 226.6 577.8 1,078.6 900.1 Foreign _ _ _ 16.0 25.5 186.2 226.6 577.8 1,094.6 925.6 Renegotiated loans:(3) Domestic Secured by real estate _ _ _ _ 0.2 Other _ _ 0.4 0.1 2.7 Total domestic _ _ 0.4 0.1 2.9 Total nonperforming loans 186.2 226.6 578.2 1,094.7 928.5 Other Real Estate 72.0 82.1 172.9 493.1 820.8 TOTAL $258.2 $308.7 $751.1 $1,587.8 $1,749.3 %of total assets 0.5 0.6 1.5 3.2 3.4 Accruing loans past due 90 days or more: Domestic(2) Instalment $ 26.1 $ 29.8 $ 30.5 $ 27.5 $ 35.0 Other 25.1 36.3 22.8 43.0 28.8 Total Domestic 51.2 66.1 53.3 70.5 63.8 Foreign _ _ _ _ 10.6 TOTAL $ 51.2 $ 66.1 $ 53.3 $ 70.5 $ 74.4 (1)Nonaccruing loans are those loans for which there has been no payment of interest and/or principal due for 90 days or more and in the judgment of management should be so classified, as well as loans which, in the judgment of management, should be so classified at an earlier date. When loans are classified as nonaccrual, the accrual of interest ceases and previously accrued but unreceived income is generally reversed. In future periods, when income is received it is recorded as a reduction in principal where the ultimate collection of principal remains in doubt, or as income if there is no question of collectability of principal. (2)Real estate construction loans at December 31, 1994, were $21.6 million nonaccruing and $0.5 million accruing and past due 90 days or more. (3)Renegotiated loans are those loans for which the interest rate was reduced because of the inability of the borrower to service the obligation under the original terms of the agreement. Income is accrued at the lower rate as long as the borrower is current under the revised terms and conditions of the agreement. Note: The Corporation's classification of nonperforming loans includes those identified loans where management believes collection is doubtful. Management is not aware of any specific borrower relationships that are not reported as nonperforming where management has serious doubts as to the ability of such borrowers to comply with the present loan repayment terms which would cause nonperforming assets to increase materially. Areas of material known risk in the Corporation's loan portfolio are described under "Risk Elements." The following table summarizes the changes in nonperforming assets in 1994 and 1993:
RECONCILIATION OF 1994 1993 NONPERFORMING Nonperforming Nonperforming Nonperforming Nonperforming ASSETS (millions) Loans ORE Assets Loans ORE Assets Balance at January 1 $226.6 $82.1 $308.7 $578.2 $172.9 $751.1 In-migration 395.4 _ 395.4 369.1 _ 369.1 Return to accrual (115.5) _ (115.5) (89.8) - (89.8) Provision for ORE _ 4.4 4.4 _ (0.2) (0.2) Payments/sales (249.1) (84.9) (334.0) (396.4) (183.9) (580.3) Net chargeoffs/writedowns (47.3) (0.7) (48.0) (148.2) (13.5) (161.7) Transfer within nonperforming (55.6) 55.6 _ (96.9) 96.9 _ Net changes due to acquisitions 31.7 15.5 47.2 10.6 9.9 20.5 Balance at December 31 $186.2 $72.0 $258.2 $226.6 $ 82.1 $308.7
At December 31, 1994, nonperforming loans totaled $186 million, an improvement of $41 million (18.1%) from the $227 million reported a year earlier. Principal or interest payments on $124 million (67%) of nonperforming loans were contractually past due 30 days or more at yearend 1994. At the same time, principal and interest in accordance with contractual terms were current on $62 million (33%) of nonperforming loans, as shown in the following table: Total Contractually Contractually Nonperforming At December 31, 1994(millions)(1) Past Due(2) Current(3) Loans Real Estate Loans $ 86.7 $27.0 $113.7 All Others Loans 36.9 35.6 72.5 Total $123.6 $62.6 $186.2 (1) There can be no assurance that individual borrowers will continue to perform at the level indicated or that the performance characteristics will not change significantly. (2) Contractually past due is defined as a borrower whose loan principal or interest payment is 30 days or more past due. (3) Contractually current is defined as a loan for which principal and interest are being paid in accordance with contractual terms. At the end of 1994, approximately 61% of total nonperforming loans were real estate related. Of the nonperforming real estate loans, 76% were contractually past due and 24% were contractually current. In addition to nonperforming loans, nonperforming assets also include ORE. ORE includes property acquired through foreclosure or deed in lieu of foreclosure. These outstandings are recorded at the lower of the loan balance on the property at the date of transfer or the fair value of the property received, net of a reserve for estimated costs. Losses that result from the ongoing periodic valuation of these properties are charged against ORE reserves. It is the policy of the Corporation to maintain a reserve against its ORE for estimated selling costs and declines in value as determined by current appraisals. At the same time, if in the case of a particular property such conditions indicate a possible greater decline in value between appraisals, then a higher valuation reserve is provided for that property. At yearend 1994, ORE totaled $72 million (net of a $25 million reserve), a decline from $82 million (net of a $32 million reserve) in 1993 and $173 million (net of $45 million reserve) in 1992. At December 31, 1994 total nonperforming assets were $258 million, down from $309 million in 1993 and $751 million in 1992. In addition to credit assets classified as nonperforming, the Corporation reported accruing loans that were past due 90 days or more of $51 million at yearend 1994, versus $66 million a year earlier and $53 million in 1992, which included consumer instalment credit of $26 million, $30 million, and $31 million, respectively. Reflecting the Corporation's improved credit quality, interest lost on nonperforming loans was $13.5 million in 1994, down from $26.0 million reported in 1993 and $84.2 million reported in 1992. In addition to the amount of interest that would have been recorded if the loans were performing, interest lost also includes prior period interest reversals and recoveries. INTEREST LOST RECONCILIATION (thousands) 1994 1993(1) 1992 Interest income which would have been recorded under original terms: Domestic $20,581 $33,184 $84,423 Foreign _ _ 802 Interest income reversed: Domestic 2,083 2,556 11,698 Foreign _ _ _ Less interest income recorded: Domestic 9,188 9,768 12,684 Foreign _ _ _ Interest lost: Domestic 13,476 25,972 83,437 Foreign _ _ 802 TOTAL $13,476 $25,972 $84,239 (1)Restated from originally reported data. Mergers and Acquisitions At the beginning of 1993, the Corporation began an acquisition program primarily focused on key markets within the states of California, Washington and Texas. Since then, the Corporation has announced and closed 17 transactions totaling nearly $10 billion in assets, of which 15 transactions with over $9 billion in assets have been in the three targeted states. Within the 52 counties in the First Interstate Territory with over 100,000 households, the acquisition program has resulted in the achievement of top three position share in six counties and has improved market penetration in 14 others. The Corporation continues to explore acquisition opportunities in a highly disciplined manner, consistent with its strategic and financial objectives. The following table includes summary information regarding the eight acquisitions announced in 1993 and the nine announced in 1994. All of these transactions were completed by February 1, 1995. The data presented should be read in conjunction with Note P to the financial statements.
ACQUISITIONS ANNOUNCED/ Announced Announced Market CLOSED IN 1993 & 1994 Closing Asset Purchase Cost Principal Rank (dollars in millions)(1) Date Size Price Savings Market (from/to) CALIFORNIA HomeFed Bank_Fresno Cluster (RTC) 2-2--93 $ 149 $ 4.1(2) n/m Fresno 12/4 HomeFed Bank_ West L.A. Cluster (RTC) 12-3-93 248 6.1(2) n/m Los Angeles 4/4 Cal Rep Bancorp, Inc. 12-10-93 569 68.0 57% Bakersfield 7/2 First State Bank of the Oaks 1-13-94 144 23.0 71% Ventura 11/6 San Diego Financial Corp. 3-18-94 2,028 340.0 42% San Diego 9/3 Sacramento Savings Bank 11-1 94 3,026 331.0 49% Sacramento 6/2 Levy Bancorp 2-1-95 625 86.5 50% Ventura 6/2 WASHINGTON Great American_ Seattle & Olympia Clusters (RTC) 5-13-94 358 25.9(2) n/m Olympia 15/5 University Savings Bank 1-6-95 1,144 190.4 30% Seattle 5/3 Tacoma 4/3 TEXAS Tarrant Bank (FDIC) 8-25-93 60 2.9(2) n/m Ft. Worth 8/7 BancWest Bancorp 4-29-94 249 35.8 25% Austin 28/9 MNB Bancshares, Inc. 5-30-94 46 5.5 21% Dallas 8/7 Med Center Bank (branch purchase) 7-29-94 175 12.2 47% Houston 4/4 Park Forest National Bank 12-16-94 24 2.5 31% Dallas 7/7 North Texas Bancshares, Inc. 1-9-95 388 66.0 24% Ft. Worth 7/5 ARIZONA Chase Bank of Arizona 4-29-94 527 102.0 70% Phoenix 3/3 OREGON Far West, FSB_Two branches (RTC) 4-15-94 15 0.9(2) n/m Portland 2/2 TOTAL $9,775 $1,302.8 47% (1)At date of announcement (2)Deposit premium
Common Stock, Market and Quarterly Data The New York Stock Exchange is the primary market for the Corporation's $2 par value Common Stock. At December 31, 1994, the 74,203,480 outstanding shares of common stock were held by 24,902 registered shareholders. Approximately 82% of the shares outstanding are held by 283 institutional investors. Dividends paid on the $2 par value Common Stock totaled $2.75 per share in 1994, versus $1.60 in 1993 and $1.20 in 1992. The current quarterly rate of $0.75 per share has been in effect since the May 1994 payment and represents a 50% increase from the quarterly rate in effect at the end of 1993. On January 17, 1995, following the release of the Corporation's fourth quarter results, the Board of Directors declared a common stock dividend of $0.75 per share, payable on February 24 to shareholders of record on February 6, 1995. The number of shares used in the calculation of earnings results per share in 1994 were 80,421,942 compared to 77,022,749 in 1993 and 69,135,224 in 1992. The following table includes supplementary quarterly operating results and per share information for the past two years. The data presented should be read in conjunction with the foregoing discussion and analysis of financial results and with the financial statements included elsewhere in this report.
Shareholders' Dividends Market Price Average Daily Equity Paid High Low Close Closing Price 1994 4th Quarter $41.59 $0.75 $81 1/2 $66 7/8 $67 5/8 $74.52 3rd Quarter 41.24 0.75 84 1/8 72 81 1/8 78.24 2nd Quarter 42.29 0.75 85 71 3/4 77 78.85 1st Quarter 41.18 0.50 79 1/8 62 3/8 73 1/4 68.36 1993 4th Quarter $41.36 $0.50 $68 $53 1/2 $64 1/8 $61.08 3rd Quarter 41.29 0.40 67 58 3/8 66 5/8 63.19 2nd Quarter 39.84 0.40 64 1/2 52 1/2 62 3/4 57.49 1st Quarter 38.62 0.40 58 7/8 44 1/2 58 3/4 52.24
Quarterly Operations (millions, except per share amounts): Quater Ended March 31 June 30 Sept. 30 Dec. 31 1994 Interest income $729.2 $788.7 $811.9 $862.3 Interest expense 195.8 208.5 215.5 245.7 Net interest income 533.4 580.2 596.4 616.6 Provision for credit losses _ _ _ _ Investment securities gains 0.8 2.1 4.1 14.1 Other noninterest income 255.7 252.4 276.9 248.2 Operating noninterest expenses 492.9 504.5 529.5 542.0 Provision for restructuring _ _ 139.0 2.3 Other real estate _ (5.6) (0.7) (6.1) Applicable income taxes 112.9 127.6 79.6 129.4 Net income 184.1 208.2 130.0 211.3 Earnings per common share $ 2.21 $ 2.38 $ 1.49 $ 2.65 1993 Interest income $739.1 $740.6 $733.9 $730.6 Interest expense 238.3 216.8 210.4 206.6 Net interest income 500.8 523.8 523.5 524.0 Provision for credit losses 45.6 26.1 21.9 19.0 Other noninterest income 3.6 1.4 _ 4.7 Operating noninterest expenses 242.9 228.6 239.0 234.0 Provision for restructuring 498.5 498.3 497.9 504.1 Other real estate 10.4 10.0 9.6 3.6 Applicable income taxes 73.3 83.4 82.6 80.6 Income before extraordinary item and cumulative effect of accounting changes 119.5 136.0 150.5 155.4 Extraordinary item (15.4) _ _ (9.3) Cumulative effect of accounting changes 200.1 _ _ _ Net income $304.2 $136.0 $150.5 $146.1 Earnings per common share Income before extraordinary item and cumulative effect of accounting changes $ 1.38 $ 1.60 $ 1.80 $1.90 Extraordinary item (0.20) _ _ (0.12) Cumulative effect of accounting changes 2.62 _ _ _ Net income 3.80 1.60 1.80 1.78
Consolidated Balance Sheet FIRST INTERSTATE BANCORP December 31 (in millions) 1994 1993 Assets Cash and due from banks $ 6,070 $ 5,064 Time deposits, due from banks 26 1,157 Federal funds sold and securities purchased under agreements to resell 179 618 Trading account securities 64 167 Investment securities: Held-to-maturity securities (approximate market value: 1994_$13,280; 1993_$16,489) U.S. Treasury and agencies 12,105 14,894 State and political subdivisions 29 23 Other 1,561 1,456 Total held-to-maturity securities 13,695 16,373 Available-for-sale securities 156 169 Total Investment Securities 13,851 16,542 Loans (net) 33,222 25,988 Less: Allowance for credit losses 934 1,001 Net Loans 32,288 24,987 Other assets held for sale 26 133 Bank premises and equipment 1,147 948 Customers' liability for acceptances 35 48 Other assets 2,127 1,797 Total Assets $55,813 $51,461 Liabilities and Shareholders'Equity Deposits: Noninterest bearing $16,599 $15,425 Interest bearing 31,828 29,276 Total Deposits 48,427 44,701 Short term borrowings 1,574 767 Acceptances outstanding 35 48 Accounts payable and accrued liabilities 953 864 Long term debt 1,388 1,533 Total Liabilities 52,377 47,913 Shareholders' equity: Preferred Stock 350 350 Common Stock, par value $2 a share: Authorized 250,000,000 shares; Issued:1994_ 84,285,643 shares; 1993_ 79,100,546 shares 168 158 Capital surplus 1,692 1,673 Retained earnings 1,967 1,437 Unrealized gain on available-for-sale securities, net of related taxes 1 _ 4,178 3,618 Less Common Stock in treasury, at cost: 1994_10,082,163 shares; 1993_1,774,551 shares 742 70 Total Shareholders' Equity 3,436 3,548 Total Liabilities and Shareholders' Equity $55,813 $51,461 See notes to financial statements. Consolidated Statement of Operations FIRST INTERSTATE BANCORP Year Ended December 31 (in millions) 1994 1993 1992 Interest Income Loans, including fees $2,303.7 $1,980.9 $2,238.8 Trading account securities 4.9 5.6 18.0 Investment securities: Held-to-maturity Taxable 828.3 837.3 743.1 Exempt from federal income taxes 2.7 2.9 3.9 Available-for-sale 13.3 24.1 3.8 Other interest income 39.1 93.4 182.1 Total Interest Income 3,192.0 2,944.2 3,189.7 Interest Expense Deposits 725.0 719.9 932.8 Short term borrowings 34.2 16.0 14.4 Long term debt 106.3 136.2 227.9 Total Interest Expense 865.5 872.1 1,175.1 Net Interest Income 2,326.5 2,072.1 2,014.6 Provision for credit losses _ 112.6 314.3 Net Interest Income after Provision for Credit Losses 2,326.5 1,959.5 1,700.3 Noninterest Income Service charges on deposit accounts 561.9 513.0 478.9 Trust fees 193.3 177.4 170.3 Other charges, commissions and fees 132.0 149.4 163.6 Merchant credit card fees 39.7 44.1 37.3 Investment securities gains (losses) 21.1 9.7 (1.8) Trading income 16.8 19.5 19.4 Gain (loss) on sale of loans 2.5 8.0 (3.3) Loss on sale of subsidiaries _ _ (2.6) Other income 87.0 33.1 50.3 Total Noninterest Income 1,054.3 954.2 912.1 Noninterest Expenses Salaries and benefits 1,079.9 975.3 1,035.4 Net occupancy and equipment 356.6 337.2 359.4 FDIC assessments 102.8 100.5 90.6 Communications 117.6 105.0 91.9 Supplies 43.6 40.7 39.4 Outside contract services 91.8 165.2 130.3 Advertising 46.8 52.6 35.2 Other real estate (12.4) 33.6 159.6 Provision for restructuring 141.3 _ _ Other expenses 229.8 222.3 267.4 Total Noninterest Expenses 2,197.8 2,032.4 2,209.2 Income before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Changes 1,183.0 881.3 403.2 Applicable income taxes_including taxes (benefit) relating to investment securities transactions of $7.9, $4.0 and $(0.7) 449.5 319.9 120.9 Income before Extraordinary Item and Cumulative Effect of Accounting Changes 733.5 561.4 282.3 Extraordinary Item_Loss on early extinguishment of debt _ (24.8) _ Cumulative Effect of Accounting Changes_ SFAS 106 ($104.9 loss) and SFAS109($305.0 gain) _ 200.1 _ Net Income $ 733.5 $ 736.7 $ 282.3 Earnings per common share: Income before extraordinary item and cumulative effect of accounting changes $8.71 $6.68 $3.23 Extraordinary item _ (0.32) _ Cumulative effect of accounting changes _ 2.60 _ Net income $8.71 $8.96 $3.23 See notes to financial statements.
Consolidated Statement of Cash Flows FIRST INTERSTATE BANCORP Year Ended December 31 (in millions) 1994 1993 1992 Cash Flows from Operating Activities Net income $ 734 $ 737 $ 282 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 152 124 141 Provision for credit losses _ 113 314 Provision for foreclosed property losses (4) _ 105 Provision for deferred income taxes (benefit) 127 53 (103) Provision for restructuring 141 _ _ Cumulative effect of accounting changes _ (200) _ Loss on early extinguishment of debt _ 25 _ Decrease (increase) in trading account securities 103 (41) 169 Decrease (increase) in interest receivable 109 (16) 58 Decrease in interest payable (13) (35) (67) Other, net 6 215 (328) Net Cash Provided by Operating Activities 1,355 975 571 Cash Flows from Investing Activities: Held-to-maturity securities Proceeds from maturities 6,382 4,728 3,731 Proceeds from sales _ 32 16 Purchases (2,764) (8,211) (8,858) Available-for-sale securities Proceeds from maturities 128 969 133 Proceeds from sales 88 _ 1 Purchases (23) (160) (526) Net loan principal repayments (originations) (5,688) (3,758) 1,019 Proceeds from sales of loans 3,054 2,493 2,173 Loans purchased (1,263) (530) (126) Acquisition of subsidiaries 355 60 _ Proceeds from sales of subsidiaries and operations _ 939 15 Proceeds from sales of premises and equipment 32 24 18 Purchases of premises and equipment (241) (152) (108) Proceeds from sales of other real estate 69 121 323 Net Cash Provided (Used) by Investing Activities 129 (3,445) (2,189) Cash Flows from Financing Activities: Net increase (decrease) in deposits (1,878) 89 2,243 Deposits purchased 315 443 _ Net decrease (increase) in short term borrowings 580 437 (259) Proceeds from long term debt issued 125 _ 328 Repayments of long term debt (270) (185) (443) Reacquisition of long term debt _ (1,022) (272) Cash dividends paid (251) (172) (143) Proceeds from Preferred Stock issued _ _ 145 Redemption of Preferred Stock _ (334) (128) Proceeds from Common Stock issued 43 43 468 Reacquisition of Common Stock (712) _ _ Net Cash Provided (Used) by Financing Activities $(2,048) (701) 1,939 Net Increase (Decrease) in Cash and Cash Equivalents (564) (3,171) 321 Cash and cash equivalents at beginning of year 6,839 10,010 9,689 Cash and Cash Equivalents at End of Year 6,275 6,839 10,010 Interest paid $ 879 $ 905 $1,242 Income taxes paid 345 244 136 Loans transferred to ORE 56 97 194 Loans originated to facilitate sale of ORE 52 7 89 See notes to financial statements.
Statement of Shareholders'Equity FIRST INTERSTATE BANCORP Class A Preferred Common Common Stock Capital Retained Treasury (dollars in millions) Stock Stock Shares Amount Surplus Earnings Stock Total Balance at December 31, 1991 $594.6 $0.4 62,779,015 $129.1 $1,249.4 $ 736.3 $(70.4) $2,639.4 Net income for the year 282.3 282.3 Cashdividends: Common Stock_$1.20 a share (82.4) (82.4) Preferred Stock (59.2) (59.2) Preferred Stock issued 150.0 (4.7) 145.3 Preferred Stock redeemed (127.5) (0.2) (127.7) Common Stock issued: Stock Option Plan 152,767 0.3 4.4 4.7 Restricted Stock Plan (14,660) (0.5) (0.5) Dividend Reinvestment Plan 12,118,265 24.3 434.1 458.4 Employee Savings Plan 118,835 0.2 4.0 4.2 Incentive Plan 26,992 0.9 0.9 Other changes (0.2) (76) (0.3) (13.8) (14.3) Balance at December 31, 1992 616.9 0.4 75,181,138 153.9 1,687.1 863.2 (70.4) 3,251.1 Net income for the year 736.7 736.7 Cash dividends: Common Stock_$1.60 a share (121.3) (121.3) Preferred Stock (46.6) (46.6) Preferred Stock redeemed (266.9) (67.4) (334.3) Common Stock issued: Stock Option Plan 636,042 1.3 24.4 25.7 Restricted Stock Plan (8,056) (0.4) (0.4) Dividend Reinvestment Plan 222,152 0.4 11.8 12.2 Employee Savings Plan 56,586 0.1 2.8 2.9 Incentive Plan 45,744 0.1 2.4 2.5 Acquisition of Cal Rep Bancorp, Inc. 1,188,823 2.4 12.6 4.8 19.8 Conversion of Class A Common (0.4) 3,566 0.4 Balance at December 31, 1993 350.0 _ 77,325,995 158.2 1,673.7 1,436.8 (70.4) 3,548.3 Net income for the year 733.5 733.5 Cash dividends: Common Stock_$2.75 a share (218.2) (218.2) Preferred Stock (33.3) (33.3) Common Stock issued: Stock Option Plan 702,033 0.2 (0.1) 30.2 30.3 Restricted Stock Plan (7,568) (0.5) (0.5) Dividend Reinvestment Plan 152,033 2.9 8.6 11.5 Incentive Plan 18,074 0.4 0.8 1.2 Acquisition of San Diego Financial Corporation 5,067,513 10.1 3.2 48.5 61.8 Common Stock repurchased (9,054,600) (711.7) (711.7) Other changes 12.6 0.9 13.5 Balance at December 31, 1994 $350.0 $ _ 74,203,480 $168.5 $1,692.2 $1,968.2 $(742.5) $3,436.4 See notes to financial statements.
REPORT OF ERNST &YOUNG LLP, INDEPENDENT AUDITORS Shareholders and Board of Directors First Interstate Bancorp We have audited the accompanying consolidated balance sheets of First Interstate Bancorp and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Corporation'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 Interstate Bancorp and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes to Financial Statements, in 1994, the Corporation changed its method of accounting for investment securities and, in 1993, the Corporation changed its methods of accounting for income taxes and for postretirement benefits other than pensions. Los Angeles, California January 16, 1995
Six Year Summary FIRST INTERSTATE BANCORP 1994 1993 1992 1991 1990 1989 Per Common Share Data Earnings (loss) per share: Primary: Income (loss) before extraordinary item and cumulative effect of accounting changes $ 8.71 $ 6.68 $ 3.23 $ (5.24) $ 6.79 $ (3.89) Extraordinary item _ (0.32) _ _ _ _ Cumulative effect of accounting changes _ 2.60 _ _ 0.51 0.59 Net income (loss) 8.71 8.96 3.23 (5.24) 7.30 (3.30) Fully diluted: Income (loss) before extraordinary item and cumulative effect of accounting changes 8.71 6.68 3.23 (5.24) 6.79 (3.89) Extraordinary item _ (0.32) _ _ _ _ Cumulative effect of accounting changes _ 2.60 _ _ 0.51 0.59 Net income (loss) 8.71 8.96 3.23 (5.24) 7.30 (3.30) Dividends paid 2.75 1.60 1.20 1.80 3.00 2.98 Book value, yearend 41.59 41.36 35.04 32.57 39.78 36.78 Market price, yearend 67 5/8 64 1/8 46 3/4 30 23 1/2 41 7/8 Market price, range for year 85-62 3/8 68-44 1/2 48 1/4-29 1/4 42 1/2-20 45 7/8-15 5/8 70 3/8-40 3/4 Growth Measures (% change) Average loans 18.7 (6.1) (16.3) (14.1) (5.8) 1.9 Average earning assets 7.3 2.2 (1.0) (9.8) (7.0) 1.1 Average savings deposits 10.1 3.1 5.2 0.1 (0.7) (1.9) Average demand deposits 12.4 10.7 7.5 (0.8) 0.5 0.6 Average total assets 7.4 0.6 (0.2) (9.4) (5.8) 1.0 Performance Measures (%) Return on average assets 1.38 1.49 0.57 (0.59) 0.86 (0.22) Return on average common equity 21.56 23.24 9.63 (13.96) 19.56 (7.36) Return on average total equity 20.38 21.18 9.52 (10.42) 17.98 (4.85) Dividends paid to net income 31.57 17.86 37.15 n/m 41.10 n/m Average total equity to average total assets 6.79 7.05 6.03 5.63 4.81 4.46 Credit Allowance (millions) Loans charged off $260.8 $398.8 $606.9 $689.2 $1,012.5 $1,050.5 Recoveries of previous loan chargeoffs 127.8 180.7 147.3 142.3 138.9 121.8 Net loans charged off 133.0 218.1 459.6 546.9 873.6 928.7 Net chargeoffs to average loans 0.46% 0.90% 1.79% 1.78% 2.45% 2.45% Allowance to loans, yearend 2.81 3.85 4.41 4.52 3.06 3.76 Miscellaneous Data Shares outstanding, yearend, net 74,203,480 77,325,995 75,181,138 62,779,015 62,176,509 48,791,625 Shares outstanding, average, net 78,852,492 75,823,371 68,780,642 62,498,682 58,889,300 46,655,871 Shareholders 24,902 28,090 32,920 35,594 37,668 38,694 Employees, average December full-time equivalent 27,394 26,589 26,990 30,281 35,192 36,027 Domestic banking offices 1,137 1,020 993 1,046 1,056 1,042
Consolidated Balance Sheet FIRST INTERSTATE BANCORP (yearend, in millions) 1994 1993 1992 1991 1990 1989 Assets Cash and due from banks $ 6,070 $ 5,064 $ 5,695 $ 5,370 $ 5,171 $ 5,841 Time deposits, due from banks 26 1,157 1,970 2,304 335 2,278 Federal funds, repurchases 179 618 2,345 2,015 891 1,575 Trading account securities 64 167 126 401 625 610 Investment securities: Held-to-maturity U.S. Treasury and agencies 12,105 14,894 12,117 6,465 4,738 4,505 State and political subdivisions 29 23 8 12 704 1,189 Other 1,561 1,456 808 2,019 1,225 2,002 Total held-to-maturity 13,695 16,373 12,933 8,496 6,667 7,696 Available-for-sale 156 169 980 _ 308 _ Total Investment Securities 13,851 16,542 13,913 8,496 6,975 7,696 Loans: Commercial, financial and agricultural 9,294 7,998 7,799 8,721 12,092 15,252 Real estate construction 962 728 1,170 2,155 3,248 3,977 Real estate mortgage 10,263 6,237 5,364 5,732 5,450 5,846 Instalment 12,272 10,778 9,685 10,108 10,417 11,223 Foreign 140 166 163 1,003 1,286 1,435 Lease financing 426 126 90 701 851 969 Total Loans 33,357 26,033 24,271 28,420 33,344 38,702 Unearned income and deferred fees (135) (45) (70) (238) (337) (497) Allowance for credit losses (934) (1,001) (1,068) (1,273) (1,011) (1,437) Net Loans 32,288 24,987 23,133 26,909 31,996 36,768 Other assets held for sale 26 133 966 _ 1,166 _ Bank premises and equipment 1,147 948 897 986 1,050 976 Customers' liability for acceptances 35 48 66 309 361 452 Other assets 2,127 1,797 1,752 2,132 2,786 2,855 Total Assets $55,813 $51,461 $50,863 $48,922 $51,356 $59,051 Liabilities and Shareholders'Equity Deposits: Noninterest bearing $16,599 $15,425 $14,615 $12,525 $13,132 $13,046 Interest bearing 31,828 29,276 29,060 28,908 30,009 33,422 Total Deposits 48,427 44,701 43,675 41,433 43,141 46,468 Short term borrowings 1,574 767 331 570 854 4,936 Acceptances outstanding 35 48 168 309 361 452 Accounts payable and accrued liabilities 953 864 736 863 954 1,137 Long term debt 1,388 1,533 2,702 3,108 3,178 3,719 Total Liabilities 52,377 47,913 47,612 46,283 48,488 56,712 Shareholders' equity 3,436 3,548 3,251 2,639 2,868 2,339 Total Liabilities and Shareholders' Equity $55,813 $51,461 $50,863 $48,922 $51,356 $59,051
Consolidated Statement of Operations FIRST INTERSTATE BANCORP (in millions) 1994 1993 1992 1991 1990 1989 Interest Income Loans, including fees $2,303.7 $1,980.9 $2,238.8 $3,071.2 $3,876.2 $4,319.6 Trading account securities 4.9 5.6 18.0 37.9 60.3 64.6 Investment securities: Held-to-maturity Taxable 828.3 837.3 743.1 557.2 558.1 601.2 Exempt from federal income taxes 2.7 2.9 3.9 7.2 55.7 99.8 Available-for-sale 13.3 24.1 3.8 18.4 17.2 _ Other interest income 39.1 93.4 182.1 243.4 253.3 290.9 Total Interest Income 3,192.0 2,944.2 3,189.7 3,935.3 4,820.8 5,376.1 Interest Expense Deposits 725.0 719.9 932.8 1,526.0 2,017.7 2,111.8 Short term borrowings 34.2 16.0 14.4 44.3 169.6 502.9 Long term debt 106.3 136.2 227.9 273.3 330.3 339.0 Total Interest Expense 865.5 872.1 1,175.1 1,843.6 2,517.6 2,953.7 Net Interest Income 2,326.5 2,072.1 2,014.6 2,091.7 2,303.2 2,422.4 Provision for credit losses _ 112.6 314.3 810.2 499.4 1,204.1 Net Interest Income after Provision for Credit Losses 2,326.5 1,959.5 1,700.3 1,281.5 1,803.8 1,218.3 Noninterest Income Service charges on deposit accounts 561.9 513.0 478.9 471.8 428.6 396.9 Trust fees 193.3 177.4 170.3 172.7 159.2 149.8 Other charges, commissions and fees 132.0 149.4 163.6 184.4 173.3 190.2 Merchant credit card fees 39.7 44.1 37.3 53.5 53.1 53.2 Investment securities gains (losses) 21.1 9.7 (1.8) 42.8 10.6 4.4 Trading income 16.8 19.5 19.4 82.5 52.5 90.0 Gain (loss) on sale of loans 2.5 8.0 (3.3) 2.3 2.8 79.8 Gain (loss) on sale of subsidiaries _ _ (2.6) 27.1 90.1 (14.2) Other income 87.0 33.1 50.3 147.3 233.3 208.4 Total Noninterest Income 1,054.3 954.2 912.1 1,184.4 1,203.5 1,158.5 Noninterest Expenses Salaries and benefits 1,079.9 975.3 1035.4 1,212.6 1,224.7 1,220.0 Net occupancy and equipment 356.6 337.2 359.4 426.2 425.0 418.8 FDIC assessments 102.8 100.5 90.6 84.1 51.1 34.1 Communications 117.6 105.0 91.9 95.5 93.4 99.5 Supplies 43.6 40.7 39.4 47.9 54.6 55.9 Outside contract services 91.8 165.2 130.3 97.8 121.9 118.3 Advertising 46.8 52.6 35.2 35.2 54.7 56.9 Other real estate (12.4) 33.6 159.6 312.0 229.3 224.8 Provision for restructuring 141.3 _ _ 90.0 _ _ Other expenses 229.8 222.3 267.4 330.9 307.6 317.2 Total Noninterest Expenses 2,197.8 2,032.4 2,209.2 2,732.2 2,562.3 2,545.5 Income (Loss)before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Changes 1,183.0 881.3 403.2 (266.3) 445.0 (168.7) Applicable income taxes (benefit) 449.5 319.9 120.9 21.8 6.4 (16.8) Income (Loss) before Extraordinary Item and Cumulative Effect of Accounting Changes 733.5 561.4 282.3 (288.1) 438.6 (151.9) Extraordinary Item _ (24.8) _ _ _ _ Cumulative Effect of Accounting Changes _ 200.1 _ _ 30.1 27.4 Net Income (Loss) $ 733.5 $ 736.7 $ 282.3 $ (288.1) $ 468.7 $ (124.5)
Financial Summary FIRST INTERSTATE BANCORP (dollars in millions;interest and average rates on a taxable-equivalent basis) 1994 1993 Average Average Average Average Balance Interest Rate Balance Interest Rate Earning Assets Loans(1): Commercial, financial and agricultural $ 8,287 $ 562.5 6.79% $ 7,618 $ 476.0 6.25% Real estate construction 806 76.0 9.42 913 62.4 6.83 Real estate mortgage 7,586 578.5 7.63 5,413 442.9 8.18 Instalment 11,660 1,079.0 9.25 9,943 1,003.3 10.09 Foreign 83 4.6 5.59 160 7.2 4.48 Lease financing 222 15.9 7.17 81 6.8 8.42 Total Loans 28,644 2,316.5 8.09 24,128 1,998.6 8.26 Trading account securities 113 5.1 4.55 166 9.2 5.57 Investment securities: Held-to-maturity securities U.S. Treasury and agencies 14,000 747.3 5.34 14,113 789.6 5.59 Other 1,624 92.1 5.67 996 55.1 5.54 Total held-to-maturity securities 15,624 839.4 5.37 15,109 844.7 5.59 Available-for-sale securities 324 13.3 4.11 458 17.9 3.90 Total Investment Securities 15,948 852.7 5.35 15,567 862.6 5.54 Federal funds, repurchases 471 19.0 3.98 1,282 39.7 3.10 Time deposits, due from banks 380 13.9 3.61 1,342 46.0 3.42 Other assets held for sale 82 6.2 7.51 29 2.7 10.00 Total Earning Assets 45,638 3,213.4 7.04 42,514 2,958.8 6.96 Interest Bearing Liabilities Regular savings 5,823 120.9 2.08 5,288 119.1 2.25 NOW accounts and demand_market interest 6,644 82.7 1.25 6,115 92.7 1.52 Savings_market interest 11,427 269.0 2.35 10,491 252.0 2.40 Other savings and time under $100,000 5,787 213.3 3.69 5,799 221.1 3.81 Total Interest Bearing Consumer Funds 29,681 685.9 2.31 27,693 684.9 2.48 Large CDs, other money market funds 1,076 39.1 3.63 989 35.0 3.54 Short term borrowings 655 34.2 5.16 431 16.0 3.72 Long term debt 1,395 106.3 7.63 1,893 136.2 7.19 Total Corporate Purchased Funds 3,126 179.6 5.74 3,313 187.2 5.57 Total Interest Bearing Liabilities 32,807 865.5 2.64 31,006 872.1 2.81 Net Interest Income and Gross Spread $2,347.9 4.40 $2,086.7 4.15 Noninterest Liabilities, Equity and Assets Demand and noninterest bearing time deposits 15,556 13,858 Other liabilities 1,017 977 Preferred equity capital 350 508 Common equity capital 3,249 2,970 Total Noninterest Liabilities and Equity 20,172 18,313 Cash and due from banks 5,233 4,992 Allowance for credit losses (980) (1,043) Bank premises and equipment 1,065 914 Other assets 2,023 1,942 Total Noninterest Assets 7,341 6,805 Net Noninterest Sources 12,831 0.74 11,508 0.76 Total Assets $52,979 $49,319 Percent of Earning Assets Net interest margin 5.14 4.91 Provision for credit losses _ 0.26 Net interest margin after provision for credit losses 5.14 4.65 Noninterest income 2.31 2.24 Noninterest expenses 4.81 4.78 Earnings (loss) before income taxes, extraordinary item and cumulative effect of accounting changes 2.64 2.11 Income taxes 1.03 0.79 Extraordinary item _ (0.06) Cumulative effect of accounting changes _ 0.47 Net Income (Loss) 1.61 1.73 (1)Net of unearned income and deferred fees. Includes loan fees of $134.7 $45.3 Taxable-equivalent adjustment 21.4 14.6 Loans
1992 1991 1990 1989 Average Average Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate $ 8,111 $ 560.3 6.91% $10,459 $ 879.7 8.41% $13,532 $1,349.5 9.97% $14,809 $1,593.7 10.76% 1,746 109.1 6.25 2,677 240.0 8.97 3,583 376.0 10.49 4,243 451.1 10.63 5,472 484.2 8.85 5,646 564.4 10.00 5,461 576.6 10.56 5,783 665.8 11.51 9,756 1,049.6 10.76 10,137 1,226.1 12.09 10,953 1,355.1 12.37 10,454 1,346.8 12.88 406 28.4 5.85 1,161 111.5 9.61 1,440 159.5 11.07 1,562 176.5 11.30 203 21.5 10.57 611 68.0 11.13 739 82.3 11.14 1,056 119.3 11.30 25,694 2,253.1 8.77 30,691 3,089.7 10.07 35,708 3,899.0 10.92 37,907 4,353.2 11.48 385 23.1 6.00 567 43.4 6.87 737 60.8 8.24 825 65.0 7.87 9,745 648.9 6.69 5,266 441.6 8.39 4,681 421.6 9.01 4,407 387.0 8.78 1,465 96.4 6.32 1,547 120.6 7.79 2,438 221.1 9.07 3,820 363.8 9.52 11,210 745.3 6.65 6,813 562.2 8.25 7,119 642.7 9.03 8,227 750.8 9.13 83 3.8 4.61 248 22.7 8.38 210 17.2 8.21 _ _ _ 11,293 749.1 6.63 7,061 584.9 8.28 7,329 659.9 9.00 8,227 750.8 9.13 1,706 65.5 3.84 1,422 80.2 5.73 884 54.8 7.28 1,349 119.6 8.87 2,228 92.9 4.17 1,757 109.2 6.22 775 58.4 7.54 1,771 171.3 9.67 288 23.7 8.28 519 54.0 10.38 1,130 140.1 12.40 _ _ _ 41,594 3,207.4 7.71 42,017 3,961.4 9.43 46,563 4,873.0 10.47 50,079 5,459.9 10.90 5,129 143.7 2.80 4,874 230.4 4.73 4,870 160.0 5.12 4,906 246.3 5.02 5,893 122.8 2.08 5,386 209.5 3.89 5,135 312.1 6.08 4,901 217.5 4.44 9,837 311.7 3.17 9,092 456.6 5.02 8,553 517.9 6.06 7,891 490.7 6.22 6,624 313.5 4.73 8,200 520.8 6.35 9,807 745.2 7.60 9,271 717.4 7.74 27,483 891.7 3.24 27,552 1,417.3 5.14 28,365 1,735.2 6.12 26,969 1,671.9 6.20 1,170 41.0 3.50 1,782 108.7 6.15 3,742 282.5 7.55 5,063 439.9 8.69 388 14.5 3.61 941 44.3 5.73 2,340 169.6 7.25 5,743 502.9 8.76 3,096 227.9 7.36 3,122 273.3 8.76 3,566 330.3 9.26 3,583 339.0 9.46 4,654 283.4 6.09 5,845 426.3 7.29 9,648 782.4 8.11 14,389 1,281.8 8.91 32,137 1,175.1 3.66 33,397 1,843.6 5.52 38,013 2,517.6 6.62 41,358 2,953.7 7.14 $2,032.3 4.05 $2,117.8 3.91 $2,355.4 3.85 $2,506.2 3.76 12,543 11,717 11,875 11,762 1,394 1,246 1,709 1,835 640 420 409 473 2,317 2,346 2,199 2,092 16,894 15,729 16,192 16,162 4,937 4,357 4,518 4,586 (1,261) (1,132) (1,256) (1,170) 960 1,027 1,059 969 2,801 2,857 3,321 3,056 7, 437 7,109 7,642 7,441 9,457 0.84 8,620 1.13 8,550 1.21 8,721 1.24 $49,031 $49,126 $54,205 $57,520 4.89 5.04 5.06 5.00 0.76 1.93 1.07 2.40 4.13 3.11 3.99 2.60 2.19 2.82 2.58 2.31 5.31 6.50 5.50 5.08 1.01 (0.57) 1.07 (0.17) 0.33 0.12 0.12 0.13 _ _ _ _ _ _ 0.06 0.05 0.68 (0.69) 1.01 (0.25) $46.2 $75.6 $108.5 $141.2 17.7 26.1 52.2 83.8
EX-21 10 EXHIBIT (21) FIRST INTERSTATE BANCORP SUBSIDIARIES OF THE REGISTRANT The following is a list of the consolidated subsidiaries of the Corporation as of December 31, 1994 with each name followed by the headquarters location, percentage of its voting securities owned by the Corporation, indication of Federal Reserve Bank membership and FRB district. Beneath the names of certain subsidiaries are the names of their subsidiaries followed by the percentage of voting securities owned by their parent. The Corporation has no "parent" within the meaning of section 12b-2 of the Securities and Exchange Act of 1934. First Interstate Bank of Alaska,N.A., Anchorage, Alaska 100% M 12 (Incorporated under the National Bank Act) First Interstate Bank of Arizona,N.A., Phoenix, Arizona 100% M 12 (Incorporated under the National Bank Act) CBSA Service Corp., Scottsdale, Arizona 100% (Incorporated in Arizona) Condo Six, Inc., Scottsdale, Arizona 100% (Incorporated in Arizona) First Interstate Equity Corp., Phoenix, Arizona 100% (Incorporated in Arizona) First Interstate Financial Services Co., Phoenix, Arizona 100% (Incorporated in Arizona) First Interstate Insurance Co. of Arizona, Phoenix, Arizona 100% (Incorporated in Arizona) First Interstate Leasing Corp., Phoenix, Arizona 100% (Incorporated in Arizona) First Interstate Real Estate Mortgage Company of Arizona Phoenix, Arizona 100% (Incorporated in Arizona) GDV, Inc., Scottsdale, Arizona 100% (Incorporated in Arizona) JCG, Inc., Scottsdale, Arizona 100% (Incorporated in Arizona) ZTP, Inc., Scottsdale, Arizona 100% (Incorporated in Arizona) First Interstate Bank of California, Los Angeles, California 100% M 12 (Incorporated in California) Central Valley Security Corp., Los Angeles, California 100% (Incorporated in California) First Interstate Bank of Canada, Toronto, Canada 100% (Incorporated under section 25(1) of the Federal Reserve Act) First Interstate Investment Services,Inc.,Los Angeles, Calif. 100% (Incorporated in California) First Interstate Capital Management, Inc., San Diego, California 100% (Incorporated in California) First Interstate Portfolio Lending Services, Inc.,Los Angeles, California 100% (Incorporated in California) Leland O'Brien Rubinstein Associates, Inc., Los Angeles, California (E) 20% (Incorporated in California) First Interstate Mortgage Co., Pasadena, California 100% (Incorporated in California) First Interstate Southwest Corp., Houston, Texas 100% (Incorporated in California) Stonegate Partners, Inc., Los Angeles, California 100% (Incorporated in California) T.M.M. Realty Services, Los Angeles, California 100% (Incorporated in California) United California Bank Realty Corp., Los Angeles, California 100% (Incorporated in California) First Interstate Bancard Co., Los Angeles, California 100% (Incorporated in California) First Interstate Tower, Los Angeles, California 50% (A Joint Venture) (E) First Interstate Central Bank, Willows, California 100% NM (Incorporated in California) First Interstate Bank of Denver, N.A., Denver Colorado 100% M 12 (Incorporated under the National Bank Act) Denver Investment Advisors, Inc., Denver, Colorado 100% (Incorporated in Colorado) Downtown Capital Corp., Denver, Colorado 100% (Incorporated in Colorado) First Energy Properties,Inc., Denver, Colorado 100% (Incorporated in Colorado) First Interstate Denver Asset Corp., Denver, Colorado 100% (Incorporated in Colorado) First Interstate Switch, Inc., Denver, Colorado 100% (Incorporated in Colorado) First Interstate Bank of Englewood, N.A., Englewood, Colorado 100% M 10 (Incorporated under the National Bank Act) First Interstate Bank of Idaho, N.A., Boise, Idaho 100% M 12 (Incorporated under the National Bank Act) Day Resources Development Co., Inc., Boise, Idaho 100% (Incorporated in Idaho) First Interstate Bank,Ltd, Los Angeles, California 100% NM (Incorporated in California) First Interstate Bank of Montana, N.A., Kalispell, Montana 100% M 9 (Incorporated under the National Bank Act) First Interstate Insurance Agency of Montana, Inc., Kalispell, Montana 100% (Incorporated in Montana) First Interstate Bank of Nevada, N.A., Reno, Nevada 100% M 12 (Incorporated under the National Bank Act) Diversified Assets I,Inc., Las Vegas, Nevada 100% (Incorporated in Nevada) First Interstate Cash Centers, Inc., Las Vegas, Nevada 100% (Incorporated in Nevada) First Interstate Bank of New Mexico, N.A., Santa Fe, New Mexico 100% M 10 (Incorporated under the National Bank Act) First Interstate Bank of Oregon, N.A., Portland, Oregon 100% M 12 (Incorporated under the National Bank Act) Equity Holding Company Limited, Portland, Oregon 100% (Incorporated in Oregon) First Interstate Development Corp., Portland, Oregon 100% (Incorporated in Oregon) First Interstate Insurance Agency of Oregon,Inc., Portland,Oregon 100% (Incorporated in Oregon) First Interstate Bank of Texas, N.A., Houston, Texas 100% M 11 (Incorporated under the National Bank Act) Idlewilde Co., Houston, Texas 100% (Incorporated in Texas) First Interstate Bank of Utah, N.A., Salt Lake City, Utah 100% M 12 (Incorporated under the National Bank Act) First Interstate Insurance Agency of Utah,Inc., Park City, Utah 100% (Incorporated in Utah) First Interstate Bank of Washington, N.A., Seattle, Washington 100% M 12 (Incorporated under the National Bank Act) Evergreen Marine Leasing, Inc., Seattle, Washington 100% (Incorporated in Washington) First Interstate Electronic Services Corp., Seattle, Washington 100% (Incorporated in Washington) First Interstate Insurance Agency of Washington,Inc., Seattle, Washington 100% (Incorporated in Washington) Tacsea, Inc., Seattle, Washington 100% (Incorporated in Washington) First Interstate Bank of Wyoming, N.A., Casper, Wyoming 100% M 10 (Incorporated under the National Bank Act) First Interstate Wyoming Holdings Inc., Casper, Wyoming 100% (Incorporated in Wyoming) DAG Management, Inc., Denver, Colorado 100% (Incorporated in Colorado) First Interstate Commercial Corp., Denver, Colorado 100% (Incorporated in California) First Interstate Commercial Mortgage Co., Chicago, Illinois 100% (Incorporated in Illinois) Regency Land Co., Denver, Colorado 100% (Incorporated in Colorado) FIL Holding Co., London England 100% (Incorporated in Delaware) First Interstate Holding (UK) Ltd, London, England 100% (Incorporated in the United Kingdom) First Interstate Administracao e Servicos,Ltd, Rio De Janerio, Brazil 100% (Incorporated under section 25(a) of the Federal Reserve Act) First Interstate Franchise Services, Inc., Los Angeles, California 100% (Incorporated in California) First Interstate International Trust Co. (Cayman) Ltd,Grand Cayman, Cayman Islands 100% (Incorporated in the Cayman Islands) First Interstate Resource Finance Associates, Newport Beach, Calif. 100% (Incorporated in California) First Interstate Securities, Inc., San Diego, California 100% (Incorporated in California) First Interstate Services Co. (UK) Ltd, London, England 100% (Incorporated in the United Kingdom) First Interstate Servicios Financieros,S.A., Madrid, Spain 100% (Incorporated in Spain) San Diego Life Insurance Co., San Diego, California 100% (Incorporated in California) Western Bonding & Casualty Company, Burlington, Vermont 100% (Incorporated in Vermont) M: member of Federal Reserve System NM: nonmember of Federal Reserve System E: included in the consolidated financial statements on the basis of equity in total capital accounts and results of operations This listing does not include inactive subsidiaries of the Corporation.
EX-23 11 EXHIBIT (23) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in First Interstate Bancorp's Registration Statements on Form S-3 (Nos. 33-50054 and 33-61688) and related Prospectuses and Registration Statements on Form S-8 (Nos. 2-82812, 33-23404, 33-37299 and 33-38903) of our report dated January 16, 1995 with respect to the consolidated financial statements of First Interstate Bancorp incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1994. ERNST & YOUNG LLP Los Angeles, California March 24, 1995 EX-27 12
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST INTERSTATE BANCORP FINANCIAL STATEMENTS AND NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-31-1994 DEC-31-1994 6,070 26 179 64 156 13,695 13,280 33,222 934 55,813 48,427 1,574 953 1,388 168 0 350 2,918 55,813 2,304 849 39 3,192 725 865 2,327 0 21 2,198 1,183 734 0 0 734 8.71 8.71 5.14 186 51 0 0 1,001 261 128 934 403 0 531