-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVmp9uI3/gL6aGikQmZQmDMEGMXGd6MwbEjcfsbR2E9yOj9/nxNWqhg6SZvSXRvf zLLhjFgfUqFHwt0S8nXphg== 0000897101-96-000250.txt : 19960515 0000897101-96-000250.hdr.sgml : 19960515 ACCESSION NUMBER: 0000897101-96-000250 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BANK SYSTEM INC CENTRAL INDEX KEY: 0000036104 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 410255900 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06880 FILM NUMBER: 96564269 BUSINESS ADDRESS: STREET 1: FIRST BANK PL STREET 2: 601 SECOND AVE S CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4302 BUSINESS PHONE: 6129731111 FORMER COMPANY: FORMER CONFORMED NAME: FIRST BANK STOCK CORP DATE OF NAME CHANGE: 19720317 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM (NOT APPLICABLE) COMMISSION FILE NUMBER 1-6880 FIRST BANK SYSTEM, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 41-0255900 (I.R.S. Employer Identification No.) FIRST BANK PLACE, 601 SECOND AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55402-4302 (Address of principal executive offices and Zip Code) 612-973-1111 (Registrant's telephone number, including area code) (NOT APPLICABLE) (Former name, former address and former fiscal year, if changed since last report). Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___ Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1996 Common Stock, $1.25 Par Value 137,827,945 shares
FINANCIAL SUMMARY
THREE MONTHS ENDED MARCH 31 MARCH 31 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1996 1995 Income before nonrecurring items $ 160.1 $ 133.8 Nonrecurring items 16.7 -- Net income $ 176.8 $ 133.8 PER COMMON SHARE Primary income before nonrecurring items $ 1.16 $ .97 Nonrecurring items .12 -- Primary net income $ 1.28 $ .97 Fully diluted income before nonrecurring items $ 1.14 $ .96 Nonrecurring items .12 -- Fully diluted net income $ 1.26 $ .96 Earnings on a cash basis (fully diluted)* $ 1.59 $ 1.06 Dividends paid .4125 .3625 Common shareholders' equity 22.92 19.58 RETURN ON AVERAGE ASSETS Income before nonrecurring items 1.84% 1.66 % Nonrecurring items .19 -- Return on average assets 2.03% 1.66% RETURN ON AVERAGE COMMON EQUITY Income before nonrecurring items 21.0% 21.1 % Nonrecurring items 2.2 -- Return on average common equity 23.2% 21.1 % Net interest margin (taxable-equivalent basis) 4.86% 5.05% Efficiency ratio before nonrecurring items 50.7 55.7 Efficiency ratio 56.7 55.7
MARCH 31 DECEMBER 31 1996 1995 PERIOD END Loans $26,878 $26,400 Allowance for credit losses 530 474 Assets 36,572 33,874 Total shareholders' equity 3,329 2,725 Tangible common equity to total assets 7.1% 6.5% Tier 1 capital ratio 7.1 6.5 Total risk-based capital ratio 11.9 11.0 Leverage ratio 6.7 6.1
* Calculated by adding amortization of goodwill and other intangible assets to net income. Refer to "Earnings Summary" on page 2 for a description of nonrecurring items. TABLE OF CONTENTS AND FORM 10-Q CROSS-REFERENCE INDEX
PART I -- FINANCIAL INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 2) 2 Financial Statements (Item 1) 13 PART II -- OTHER INFORMATION Submission of Matters to a Vote of Security Holders (Item 4) 25 Exhibits and Reports on Form 8-K (Item 6) 25 Signature 26 Exhibit 3 -- Bylaws of First Bank System, Inc. * Exhibit 10A -- First Bank System, Inc. 1996 Stock Incentive Plan * Exhibit 10B -- First Bank System, Inc. Restated Employee Stock Purchase Plan, as amended * Exhibit 11 -- Computation of Primary and Fully Diluted Net Income Per Common Share 27 Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges 28 Exhibit 27 -- Article 9 Financial Data Schedule * * Copies of this exhibit will be furnished upon request and payment of the Company's reasonable expenses in furnishing the exhibit.
MANAGEMENT'S DISCUSSION AND ANALYSIS EARNINGS SUMMARY First Bank System, Inc. (the "Company") reported first quarter 1996 net income of $176.8 million, an increase of $43 million, or 32 percent, from the first quarter of 1995. On a per share basis, net income was $1.28 in the first quarter of 1996, compared with $.97 in the first quarter of 1995, an increase of 32 percent. Return on average assets and return on average common equity were 2.03 percent and 23.2 percent, respectively, in the first quarter of 1996, compared with returns of 1.66 percent and 21.1 percent in the first quarter of 1995. Several nonrecurring items affected operating results in the first quarter of 1996. The impact of these items on net income was $16.7 million ($48.6 million on a pretax basis) or $.12 per share. Nonrecurring pretax gains included $125 million received from First Interstate Bancorp ("First Interstate") as partial payment of a termination fee, net of $10 million in transaction costs; $45.8 million in gain on the sale of the Company's mortgage banking operations; and $14.6 million in net securities gains. Nonrecurring pretax charges included $31.3 million in merger and integration charges associated with the acquisitions of FirsTier Financial, Inc. ("FirsTier") and the corporate trust business of BankAmerica Corporation ("BankAmerica"); $38.6 million in branch distribution resizing expenses; a $29.5 million valuation adjustment of cardholder and core deposit intangibles; $10.1 million for a one-time employee bonus; and $17.3 million to acquire software and write off other miscellaneous assets. Excluding these nonrecurring items, operating earnings for the first quarter of 1996 were $160.1 million, an increase of $26.3 million, or 20 percent, from the first quarter of 1995. On a per share basis, operating earnings were $1.16 in the first quarter of 1996, compared with $.97 in the first quarter of 1995, an increase of 20 percent. Return on average assets and return on average common equity, excluding nonrecurring items, were 1.84 percent and 21.0 percent, respectively, in the first quarter of 1996, compared with returns of 1.66 percent and 21.1 percent in the first quarter of 1995. Excluding nonrecurring items, the efficiency ratio improved to 50.7 percent in the first quarter of 1996 from 55.7 percent in the first quarter of 1995. TABLE 1. Summary of Consolidated Income
THREE MONTHS ENDED (TAXABLE-EQUIVALENT BASIS; MARCH 31 MARCH 31 DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1996 1995 Interest income $659.3 $629.1 Interest expense 280.0 262.3 Net interest income 379.3 366.8 Provision for credit losses 31.0 26.0 Net interest income after provision for credit losses 348.3 340.8 Nonrecurring gains 175.4 -- Other noninterest income 208.1 179.6 Nonrecurring charges 126.8 -- Other noninterest expense 297.6 304.3 Income before income taxes 307.4 216.1 Taxable-equivalent adjustment 4.7 3.5 Income taxes 125.9 78.8 Net income $176.8 $133.8 Return on average assets 2.03% 1.66% Return on average common equity 23.2 21.1 Net interest margin 4.86 5.05 Efficiency ratio 56.7 55.7 Efficiency ratio before nonrecurring items 50.7 55.7 Per Common Share: Net income $1.28 $.97 Dividends paid .4125 .3625
Stronger first quarter operating results reflected growth in net interest and noninterest income, lower operating expenses, and effective capital management. Net interest income on a taxable-equivalent basis was $379.3 million, an increase of $12.5 million, or 3 percent, from the first quarter of 1995. The increase reflects the impact of recent acquisitions and core loan growth. Excluding nonrecurring items, noninterest income for the quarter was $208.1 million, an increase of $28.5 million, or 16 percent, from the same quarter of 1995. The increase was primarily due to recent acquisitions and growth in credit card and trust fees. First quarter noninterest expense, excluding nonrecurring items, totaled $297.6 million, a decrease of $6.7 million, or 2 percent, from the first quarter of 1995. Compared with noninterest expense for the first quarter of 1995, adjusted to include the operations of acquired businesses on a pro forma basis, noninterest expense declined in the current quarter $45.7 million, or 13 percent. Credit quality remained strong in the first quarter of 1996. Nonperforming assets totaled $157.1 million at March 31, 1996, up $3.4 million, or 2 percent, from December 31, 1995, as a result of the acquisition of FirsTier, and down $58.6 million, or 27 percent, from March 31, 1995. The ratio of the allowance for credit losses to nonperforming loans at quarter-end was 461 percent, compared with 401 percent at the end of 1995 and 318 percent at March 31, 1995. ACQUISITION AND DIVESTITURE ACTIVITY On February 16, 1996, the Company completed its acquisition of Omaha-based FirsTier for $717 million. FirsTier had $3.7 billion in assets, $2.9 billion in deposits, and 63 offices in Nebraska and Iowa. Under terms of the purchase agreement, the Company issued .8829 shares of its common stock for each common share of FirsTier, or a total of 16.5 million shares. As a purchase transaction, the results of operations of FirsTier are included in the Company's results from the date of acquisition. On February 26, 1996, the Company announced that it had entered into agreements with three parties for the sale of the Company's servicing and mortgage loan production business. Effective February 29, 1996, Bank of America, fsb, a subsidiary of BankAmerica, purchased approximately $14 billion in mortgage servicing rights. Columbia National, Inc., of Maryland, and Knutson Mortgage Co., of Minnesota, agreed to purchase the Company's loan production business. The Company will now deliver mortgage loan products through bank branches and telemarketing. These transactions resulted in a net gain of $45.8 million. On August 22, 1995, the Company announced that it had signed a definitive agreement to acquire the corporate trust business of BankAmerica. After the acquisition, the Company became the nation's leading provider of domestic corporate trust services as measured by revenues. Approximately 80 percent of the transaction was completed in December 1995, with the remainder completed in the first quarter of 1996. On January 24, 1996, First Interstate announced that it had terminated the merger agreement with the Company and entered into a definitive agreement with Wells Fargo & Company. Under the terms of a settlement agreement, the Company received $125 million on January 24, 1996. The agreement called for an additional $75 million to be paid upon consummation of the merger of First Interstate and Wells Fargo & Company, which the Company received on April 1, 1996, and which will be included in the Company's second quarter results. LINE OF BUSINESS FINANCIAL REVIEW Financial performance is measured by major lines of business, which include: Retail Banking, Payment Systems, Business Banking and Private Financial Services, Commercial Banking, and Trust and Investment Group. Business line results are derived from the Company's business unit profitability reporting system. Designations, assignments, and allocations may change from time to time as management accounting systems are enhanced or product lines change. During first quarter 1996 certain organization and methodology changes were made and 1995 results are presented on a consistent basis. RETAIL BANKING -- Retail Banking, which delivers products and services to the broad consumer market and small-business through branch offices, telemarketing, direct mail, and automated teller machines ("ATM"), contributed net income of $52.8 million, a 16 percent increase over the first quarter of 1995. First quarter return on assets increased to 1.58 percent from 1.30 percent in the same quarter a year ago. First quarter return on average common equity increased to 21.4 percent compared to 21.3 percent in the first quarter of the prior year. Net interest income increased over the first quarter of 1995 due to nonmortgage consumer loan growth resulting from recent acquisitions and growth in core consumer loans. First quarter noninterest income was higher than in the same period of last year primarily as a result of recent acquisitions. Noninterest expense improved reflecting the benefits of continued streamlining of branch operations, as well as the integration of recent business combinations. The efficiency ratio improved to 59.1 percent in the first quarter of 1996 compared with 64.9 percent in the first quarter of 1995. PAYMENT SYSTEMS -- Payment Systems includes consumer and business credit card, corporate and purchasing card services, card-accessed secured and unsecured lines of credit, ATM processing, and merchant processing. Net earnings were $25.6 million in the first quarter of 1996, a 38 percent increase from the first quarter of 1995. Return on assets was 2.44 percent, up from 2.05 percent in the first quarter of 1995, and return on equity was 27.3 percent up from 22.2 percent for the same quarter in the previous year. TABLE 2. Line of Business Financial Performance
THREE MONTHS ENDED MARCH 31, BUSINESS BANKING AND PRIVATE TRUST AND RETAIL FINANCIAL COMMERCIAL INVESTMENT BANKING PAYMENT SYSTEMS SERVICES BANKING GROUP (DOLLARS IN MILLIONS) 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 CONDENSED INCOME STATEMENT: Net interest income (taxable-equivalent basis) $183.3 $177.1 $40.3 $40.9 $90.6 $81.7 $54.0 $58.1 $7.4 $6.7 Provision for credit losses 6.0 .7 19.2 20.3 3.2 2.6 2.6 2.4 -- -- Noninterest income 39.8 34.3 68.7 59.3 28.1 23.7 17.5 18.0 49.4 33.3 Noninterest expense 131.8 137.3 48.3 49.9 48.4 49.3 22.9 23.8 37.1 27.2 Income taxes and taxable-equivalent adjustment 32.5 27.9 15.9 11.4 25.5 20.4 17.5 19.0 7.5 4.9 Income before nonrecurring items $52.8 $45.5 $25.6 $18.6 $41.6 $33.1 $28.5 $30.9 $12.2 $7.9 AVERAGE BALANCE SHEET DATA: Commercial loans $444 $311 $912 $643 $6,358 $5,273 $5,328 $4,792 $-- $-- Consumer loans 10,011 10,632 2,501 2,294 555 468 -- -- -- -- Assets 13,459 14,174 4,222 3,679 9,247 7,676 6,560 6,057 1,158 726 Deposits 16,942 17,484 44 32 3,336 3,237 1,504 1,775 892 805 Common equity 992 866 377 340 876 657 459 424 272 177 Return on average assets 1.58% 1.30% 2.44% 2.05% 1.81% 1.75% 1.75% 2.07% * * Return on average common equity ("ROCE") 21.4 21.3 27.3 22.2 19.1 20.4 25.0 29.6 18.0% 18.1% ROCE on a cash basis ** 23.0 22.6 29.2 24.1 19.7 20.9 25.1 29.7 22.0 21.2 Efficiency ratio 59.1 64.9 44.3 49.8 40.8 46.8 32.0 31.3 65.3 68.0
* Not meaningful ** Calculated by adding amortization of goodwill and other intangible assets to net income. Note: Preferred dividends and nonrecurring items are not allocated to the business lines. FBS's mortgage banking operations, which were sold in first quarter 1996, are not reflected in the table. Fee-based noninterest income for Payment Systems increased 16 percent in the first quarter of 1996 compared with the same period in 1995. The increase was due to growth in the sales volume of the Corporate Card, the Purchasing Card, the First Bank WorldPerks(R) VISA(R) card, and the expansion of the ATM network. Net interest income decreased slightly due to a change in the loan mix. Average commercial loans, which are primarily noninterest-earning Corporate and Purchasing Card balances, comprised 27 percent of the portfolio during the first quarter of 1996 compared with 22 percent in first quarter of 1995. The decrease in the provision for credit losses reflects lower net charge-offs on credit card loans. Noninterest expense decreased due to ongoing expense control and the recognition of initial investment expenses in the first quarter of 1995 associated with the expansion of the ATM network. BUSINESS BANKING AND PRIVATE FINANCIAL SERVICES -- Business Banking and Private Financial Services includes middle-market banking services, private banking, and personal trust. Net income for the first quarter of 1996 increased 26 percent to $41.6 million compared with the first quarter of 1995. First quarter return on assets was 1.81 percent compared with 1.75 percent in 1995, and return on equity was 19.1 percent compared with 20.4 percent in 1995. The increase in net interest income is due to recent acquisitions and growth in core middle-market business lending reflected in an increase in average commercial loans of 21 percent. Noninterest income in the first quarter of 1996 was higher than in the first quarter of 1995 as a result of recent acquisitions and a change in the fee structure for some services provided. Noninterest expense was lower in the first quarter of 1996 compared to the same period of 1995 despite the impact of additional expenses relating to recent acquisitions. The reduction in noninterest expense reflects the benefits of increased operational efficiencies, as well as the integration of recent business acquisitions. Although the acquisitions have improved net earnings, the return on equity reflects increased investment in these businesses. The efficiency ratio improved to 40.8 percent from 46.8 percent in the same period of 1995. COMMERCIAL BANKING -- Commercial Banking provides lending, treasury management, and other financial services to middle-market, large corporate and mortgage banking companies. Return on assets was 1.75 percent in the first quarter of 1996 compared with 2.07 percent in the first quarter of 1995. Return on equity remained strong at 25.0 percent in the first quarter of 1996 compared with 29.6 percent in the same quarter a year ago. Although average loans increased $536 million, or 11 percent, from the first quarter of 1995, net interest income decreased due to lower interest recoveries and a narrowing of the net interest margin on loans. Noninterest income and noninterest expense remained relatively flat in the first quarter of 1996 compared with the same period of 1995. The decline in deposits relates to less activity in the mortgage banking sector. The efficiency ratio remained low at 32.0 percent in the first quarter of 1996 compared with 31.3 percent in the first quarter of 1995. TRUST AND INVESTMENT GROUP -- The Trust and Investment Group includes institutional and corporate trust services, investment management services, and a full-service brokerage company. Earnings increased 54 percent to $12.2 million in the first quarter of 1996 compared with the similar period in the prior year. The return on average equity was 18.0 percent in the first quarter of 1996 compared with 18.1 percent in the first quarter of 1995. The current quarter's net earnings increased over the first quarter of 1995 primarily due to the Company's acquisition strategy to grow its fee-based businesses. Although the acquisitions have improved net earnings, the return on equity reflects increased investment in these businesses. The efficiency ratio improved to 65.3 percent in the first quarter compared with 68.0 in the first quarter of 1995, reflecting the effective integration of acquisitions, process re-engineering efforts, and revenue growth. INCOME STATEMENT ANALYSIS NET INTEREST INCOME -- Net interest income on a taxable-equivalent basis was $379.3 million in the first quarter of 1996, an increase of $12.5 million, or 3 percent, from the first quarter of 1995. The improvement was primarily attributable to an increase in average loans of $1.7 billion, or 7 percent, from the first quarter of 1995, reflecting the addition of acquisitions and core loan growth. During the first quarter of 1996, $1.3 billion ($.8 billion in average balances) of residential mortgage loans were securitized and reclassified to available-for-sale securities to enhance liquidity and financial management flexibility. Excluding residential mortgage loan balances, average loans for the first quarter were higher by $2.9 billion, or 15 percent, than in the first quarter of 1995. This increase reflected growth in core commercial and consumer loans, including loans to small- and middle-market businesses, credit cards and home equity loans, as well as approximately $1 billion in average balances attributable to the FirsTier acquisition. Without FirsTier and residential mortgage loans, average loans for the first quarter of 1996 increased 9 percent from the first quarter of 1995, including growth of 12 percent in commercial loans and 13 percent in home equity loans. Average securities for the first quarter were down $105 million from 1995, despite the transfer of securitized mortgage loan balances in 1996, as lower yielding assets continued to decline as a result of sales and maturities over the past year. Partially offsetting the impact of higher average loan balances in the first quarter of 1996, compared with the first quarter of 1995, were the effects of a lower average yield on loans and a change in the mix of interest-bearing liabilities in the current quarter. The average yield on loans was 8.81 percent, or 25 basis points lower than in the same period for 1995, as a result of declining market interest rates over the past three quarters. The average cost of interest-bearing liabilities in the first quarter of 1996, however, was essentially unchanged from that of the first quarter of last year. The effect of a decrease in the average cost of borrowings, reflecting lower market interest rates, was offset by the impact of a shift in the composition of interest-bearing liabilities over the past year from lower rate deposits to higher rate borrowings. Average interest-bearing deposits decreased $1.2 billion, or 6 percent, during this period, while average borrowings increased $2.3 billion, or 42 percent, including funds borrowed for the repurchase of common stock. The decline in average deposit balances reflects the divestiture in 1995 of $848 million in deposits, as well as the national trend over the past year of consumers moving funds into alternative investment vehicles. The net interest margin in the first quarter of 1996 was 4.86 percent, down from 5.05 percent in the first quarter of 1995, but up from 4.83 percent in the fourth quarter of 1995. TABLE 3. Analysis of Net Interest Income
THREE MONTHS ENDED MARCH 31 MARCH 31 (DOLLARS IN MILLIONS) 1996 1995 Net interest income (taxable-equivalent basis) $379.3 $366.8 Average balances of earning assets supported by: Interest-bearing liabilities $24,661 $23,534 Noninterest-bearing liabilities 6,710 5,932 Total earning assets $31,371 $29,466 Average yields and weighted average rates (taxable-equivalent basis): Earning assets yield 8.45% 8.66% Rate paid on interest-bearing liabilities 4.57 4.52 Gross interest margin 3.88% 4.14% Net interest margin 4.86% 5.05% Net interest margin without taxable-equivalent increments 4.80% 5.00%
TABLE 4. Noninterest Income
THREE MONTHS ENDED MARCH 31 MARCH 31 (DOLLARS IN MILLIONS) 1996 1995 Credit card fees $62.8 $51.6 Trust fees 56.2 41.7 Service charges on deposit accounts 33.9 32.1 Investment products fees and commissions 8.5 5.5 Trading account profits and commissions 2.7 3.2 Securities gains 14.6 -- Termination fee, net 115.0 -- Gain on sale of mortgage banking operations 45.8 -- Other 44.0 45.5 Total noninterest income $383.5 $179.6
PROVISION FOR CREDIT LOSSES -- The provision for credit losses was $31.0 million in the first quarter of 1996, up $5.0 million, or 19 percent, from the first quarter of 1995. Net charge-offs totaled $33.5 million, up $1.4 million, from the same quarter a year ago, reflecting higher loan volume. Commercial loan net recoveries for the quarter were $3.5 million, compared with $.7 million in the first quarter of 1995. Consumer loan net charge-offs increased $4.2 million, or 13 percent, from the first quarter of 1995, to $37.0 million reflecting higher loan balances. The allowance for credit losses was $530.1 million at March 31, 1996, up from $473.5 million at December 31, 1995, and $470.4 million at March 31, 1995, because of the addition of FirsTier reserves. Reserve coverage remains strong as the allowance for credit losses to nonperforming loans ratio increased to 461 percent at quarter-end, compared with 401 percent at the end of 1995 and 318 percent at the end of the first quarter of 1995. NONINTEREST INCOME -- Noninterest income in the first quarter of 1996 was $383.5 million compared with $179.6 million in the first quarter of 1995, an increase of $203.9 million. Nonrecurring gains included in noninterest income in the first quarter of 1996 totaled $175.4 million, including the $125 million termination fee received from First Interstate, net of $10 million in transaction costs, the $45.8 million in gain on the sale of the Company's mortgage banking operations, and $14.6 million in net securities gains. Excluding nonrecurring items, noninterest income was $208.1 million, an increase of $28.5 million, or 16 percent, from the first quarter of 1995. The improvement resulted primarily from the addition of FirsTier and other acquisitions and growth in credit card and trust fees. Credit card fees increased $11.2 million, or 22 percent, from the first quarter of 1995, reflecting higher sales volumes for Purchasing Card, Corporate Card, and the First Bank WorldPerks VISA card and merchant processing. Trust fees increased $14.5 million, or 35 percent, from the first quarter of 1995, primarily related to the acquisition of the corporate trust business of BankAmerica. Investment product fees in the first quarter were higher by $3.0 million, or 55 percent, than in the same period of last year, reflecting an increase in sales of mutual funds and annuities. NONINTEREST EXPENSE -- First quarter noninterest expense was $424.4 million, an increase of $120.1 million, from $304.3 in the first quarter of 1995. Nonrecurring charges recorded in the first quarter of 1996 totaled $126.8 million. Merger, integration and resizing charges of $69.9 million consisted of $31.3 million associated with the acquisitions of FirsTier and the BankAmerica corporate trust business, including costs incurred for systems conversion, lease terminations and consolidation of facilities, and $38.6 million in branch distribution resizing expenses. Resizing charges are associated with the Company's streamlining of the branch distribution network and trust operations. The Company is expanding alternative distribution channels, including telemarketing, automated teller machines and in-store branches. The resizing charges include a valuation adjustment of $25.6 million associated with the planned sale of bank-owned properties as the Company consolidates branch locations reducing the space requirements of branch facilities. The Company is presently marketing these bank-owned facilities and expects to dispose of them over the next 12 months. Also included in resizing charges is severance of $10 million. The Company also recorded a $29.5 million valuation adjustment, which is included in goodwill and other intangible assets expense, to reduce the carrying value of credit card and core deposit intangibles to their estimated fair value. The credit card intangible was written down following the Company's evaluation of alternatives to enhance the profitability of a segment of its credit card portfolio. The core deposit intangible adjustment is due to an assessment of the mix of deposits and the impact of market interest rates on the profitability of those deposits at certain acquired entities. Salaries and benefits expense for the quarter included $10.1 million for a one-time, $750 per-employee bonus to thank employees for staying focused on customers and shareholder value during the bid for First Interstate. Other noninterest expense included $17.3 million to acquire credit card and revolving credit software and to write off other miscellaneous assets. TABLE 5. Noninterest Expense
THREE MONTHS ENDED MARCH 31 MARCH 31 (DOLLARS IN MILLIONS, EXCEPT PER EMPLOYEE DATA) 1996 1995 Salaries $123.4 $112.1 Employee benefits 28.9 28.5 Total personnel expense 152.3 140.6 Goodwill and other intangible assets 47.4 14.1 Net occupancy 25.8 25.7 Furniture and equipment 23.8 23.5 Other personnel costs 9.7 7.6 Professional services 8.3 6.6 Advertising 6.8 6.3 Postage 6.2 5.9 Printing, stationery and supplies 6.0 4.8 Telephone 5.8 5.8 Third party data processing 5.4 4.3 FDIC insurance 3.5 13.6 Merger, integration, and resizing 69.9 -- Other 53.5 45.5 Total noninterest expense $424.4 $304.3 Efficiency ratio* 56.7% 55.7% Efficiency ratio before nonrecurring items 50.7 55.7 Quarterly average number of employees (full-time equivalents) 13,246 13,874 Annualized personnel expense per employee $45,991 $40,536
*Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income net of securities gains and losses. Excluding nonrecurring charges, noninterest expense totaled $297.6 million, a decrease of $6.7 million, or 2 percent, from the first quarter of 1995. The reduction in operating expenses was achieved as a result of lower FDIC premium expense in 1996, effective acquisition integration, and ongoing expense control. Compared with noninterest expense for the first quarter of 1995, adjusted to include the operations of acquired businesses on a pro forma basis, noninterest expense declined in the current quarter by $45.7 million, or 13 percent. Excluding nonrecurring items, the Company's efficiency ratio improved to 50.7 percent for the quarter from 55.7 percent for the same quarter a year ago. Total salaries and benefits expense for the first quarter of 1996, excluding nonrecurring charges, remained relatively flat at $142.2 million, compared with $140.6 million for the first quarter of 1995. Average full-time equivalent employees decreased 5 percent to 13,246 in the first quarter of 1996, from 13,874 in the first quarter of 1995. FDIC insurance expense was lower by $10.1 million, or 74 percent, in the first quarter than in the same period of last year because the FDIC has suspended the assessment of premiums on deposits covered by the Bank Insurance Fund, which is now fully funded. The Company continues to pay insurance premiums on approximately $6.1 billion of deposits covered by the Savings Association Insurance Fund ("SAIF"). Compared with the same period in 1995, amortization of goodwill and intangibles for the first quarter, excluding nonrecurring charges, increased $3.8 million, or 27 percent, as a result of recent acquisitions. The $2.1 million, or 28 percent, increase in other personnel expense and the $1.7 million, or 26 percent, increase in professional services fees related primarily to several technology projects currently in process. Third party data processing was $1.1 million, or 26 percent, higher in the first quarter of 1996 than in the first quarter of last year as a result of increased transaction volume in the payment systems business. PROVISION FOR INCOME TAXES -- The provision for income taxes was $125.9 million in the first quarter of 1996, compared with $78.8 million in the first quarter of 1995. The increase was primarily the result of a higher level of taxable income, including $31.9 million of taxes related to the nonrecurring items discussed above. CONTINGENCIES Various legislative proposals have been made, but not enacted, that would affect the SAIF premium assessments, including a one-time special assessment for SAIF deposits. It is not clear when such legislation will be passed, if at all. Based on current proposals, the Company may be subject to a special assessment of up to $57 million. The Company expects to receive a tax refund of approximately $55 million to $65 million from the State of Minnesota relating to the exemption of interest income received on investments in U.S. government securities for the years 1979 to 1983. The refund is subject to final audit reports by the State, as well as appropriate funding authority to pay the claims, both of which are anticipated in 1996. BALANCE SHEET ANALYSIS LOANS -- The Company's loan portfolio increased $478 million, or 2 percent, to $26.9 billion at March 31, 1996, from $26.4 billion at December 31, 1995. Growth in most commercial and consumer loan categories was partially offset by a decrease in residential mortgage-related balances. This decrease reflects the securitization of $1.3 billion of residential mortgage loans resulting in a reclassification to available-for-sale securities, during the first quarter of 1996. The securitization will enhance liquidity and financial management flexibility. SECURITIES -- At March 31, 1996, securities totaled $4.4 billion compared with $3.3 billion at December 31, 1995, reflecting the securitization discussed above. DEPOSITS -- Noninterest-bearing deposits were $6.6 billion at March 31, 1996, up slightly from $6.4 billion at December 31, 1995. Interest-bearing deposits were $17.8 billion at March 31, 1996, up $1.6 billion from December 31, 1995. The increase in deposit balances reflects the acquisition of FirsTier during the first quarter of 1996. BORROWINGS -- Short-term borrowings, which include federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings, were $4.2 billion at March 31, 1996, down slightly from $4.4 billion at the end of 1995. The decrease was primarily due to a $100 million reduction in notes outstanding under the $5 billion bank/thrift note programs. The remaining outstanding notes have a weighted average interest rate of 5.39 percent and range in original maturities from 6 to 9 months. Long-term debt was $3.5 billion at March 31, 1996, up from $3.2 billion at December 31, 1995. In March 1996, the Company placed $125 million in 6.875 percent subordinated debt in the form of 10-year noncallable notes. The Company also issued $300 million in medium-term bank notes during the first quarter of 1996. The effect of these issuances was partially offset by the early retirement and maturities of approximately $145 million of Federal Home Loan Bank Advances. CORPORATE RISK MANAGEMENT CREDIT MANAGEMENT -- The Company's strategy for credit risk management includes stringent, centralized credit policies, and standard underwriting criteria for specialized lending categories, such as mortgage banking, real estate construction, and consumer credit. The strategy also emphasizes diversification on both a geographic and customer level, regular credit examinations, and quarterly management reviews of large loans and loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take any necessary charge-offs promptly, and maintain strong reserve levels. In the Company's retail banking operations, a standard credit scoring system is used to assess consumer credit risks and to price consumer products accordingly. Commercial banking operations rely on a strong credit culture that combines prudent credit policies and individual lender accountability. In addition, the commercial lenders generally focus on middle-market companies within their regions. In evaluating its credit risk, the Company considers its loan portfolio composition, its level of allowance coverage, and macroeconomic concerns. Most economic indicators in the Company's primary operating region, which includes Minnesota, Colorado, Montana, North Dakota, South Dakota, Wisconsin, Iowa, Kansas, Nebraska, Wyoming, and Illinois, compare favorably with national trends. Approximately 80 percent of the loan portfolio consists of extensions of credit to customers in this operating region. TABLE 6. Summary of Allowance for Credit Losses
THREE MONTHS ENDED MARCH 31 MARCH 31 (DOLLARS IN MILLIONS) 1996 1995 Balance at beginning of period $473.5 $474.7 CHARGE-OFFS: Commercial: Commercial 5.7 4.6 Financial institutions -- -- Real estate: Commercial mortgage 5.5 7.3 Construction -- -- Total commercial 11.2 11.9 Consumer: Residential mortgage 1.0 1.3 Credit card 21.2 23.0 Other 23.1 15.5 Total consumer 45.3 39.8 Total 56.5 51.7 RECOVERIES: Commercial: Commercial 8.3 10.2 Financial institutions -- .1 Real estate: Commercial mortgage 6.4 2.3 Construction -- -- Total commercial 14.7 12.6 Consumer: Residential mortgage .2 .3 Credit card 2.5 2.7 Other 5.6 4.0 Total consumer 8.3 7.0 Total 23.0 19.6 NET CHARGE-OFFS: Commercial: Commercial (2.6) (5.6) Financial institutions -- (.1) Real estate: Commercial mortgage (.9) 5.0 Construction -- -- Total commercial (3.5) (.7) Consumer: Residential mortgage .8 1.0 Credit card 18.7 20.3 Other 17.5 11.5 Total consumer 37.0 32.8 Total 33.5 32.1 Provision charged to operating expense 31.0 26.0 Additions related to acquisitions 59.1 1.8 Balance at end of period $530.1 $470.4 Allowance as a percentage of period-end loans 1.97% 1.87% Allowance as a percentage of nonperforming loans 461 318 Allowance as a percentage of nonperforming assets 337 218
ANALYSIS OF NET CHARGE-OFFS AND ALLOWANCE FOR CREDIT LOSSES -- Net loan charge-offs totaled $33.5 million in the first quarter of 1996, up from $32.1 million in the first quarter of 1995. Commercial loan net recoveries for the quarter were $3.5 million, compared with $.7 million in the first quarter of 1995, reflecting continued improvement in the credit quality of this portfolio. Consumer loan net charge-offs increased $4.2 million, or 13 percent, from the first quarter of 1995, reflecting higher loan balances. TABLE 7. Nonperforming Assets*
MARCH 31 DECEMBER 31 (DOLLARS IN MILLIONS) 1996 1995 COMMERCIAL: Commercial $20.7 $25.1 Real estate: Commercial mortgage 46.5 42.3 Construction 1.3 1.5 Total commercial 68.5 68.9 CONSUMER: Residential mortgage 33.4 37.3 Credit card 5.9 5.7 Other 7.1 6.3 Total consumer 46.4 49.3 Total nonperforming loans 114.9 118.2 OTHER REAL ESTATE 36.5 33.2 OTHER NONPERFORMING ASSETS 5.7 2.3 Total nonperforming assets $157.1 $153.7 Accruing loans 90 days or more past due $42.8 $38.8 Nonperforming loans to total loans .43% .45% Nonperforming assets to total loans plus other real estate .58 .58
* Throughout this document, nonperforming assets and related ratios do not include loans more than 90 days past due and still accruing interest. ANALYSIS OF NONPERFORMING ASSETS -- Nonperforming assets include all nonaccrual loans, restructured loans, other real estate and other nonperforming assets owned by the Company. At March 31, 1996, nonperforming assets totaled $157.1 million, up $3.4 million, or 2 percent, from the balance at December 31, 1995. The increase is due to the addition of approximately $14 million of nonperforming assets from the FirsTier acquisition. The ratio of nonperforming assets to loans and other real estate was .58 percent at March 31, 1996, or unchanged from the level at December 31, 1995. INTEREST RATE RISK MANAGEMENT -- The Company's policy is to maintain a low interest rate risk position. The Company limits the exposure of net interest income to risks associated with interest rate movements through asset/liability management strategies. The Company's Asset and Liability Management Committee ("ALCO") uses three methods for measuring and managing interest rate risk: Net Interest Income Simulation Modeling, Static Gap Analysis and Market Value/Duration Analysis. Net Interest Income Simulation: The Company has developed a net interest income simulation model to measure near-term (under one year) risk due to changes in interest rates. The model is particularly useful because it incorporates substantially all the Company's assets and liabilities and off-balance sheet instruments, together with forecasted changes in the balance sheet mix and assumptions that reflect the current interest rate environment. The balance sheet changes are based on forecasted prepayments of loans, loan and deposit growth, and historical pricing spreads. The model is updated monthly with the current balance sheet structure and the current forecast of expected balance sheet changes. ALCO uses the model to simulate the effect of immediate and sustained parallel shifts in the current yield curve of 1 percent, 2 percent and 3 percent. ALCO also calculates the sensitivity of the simulation results to changes in the key assumptions, such as the Prime/LIBOR spread. The results from the simulation are reviewed by ALCO monthly and are used to guide ALCO's hedging strategies. ALCO has established guidelines, approved by the Company's Board of Directors, that limit the estimated change in net interest income, assuming modest changes in Prime/LIBOR spreads and deposit pricing lags, over the succeeding 12 months to approximately 3 percent of forecasted net interest income, given a 1 percent change in interest rates. Static Gap Analysis: A traditional gap analysis provides a point-in-time measurement of the relationship between the repricing amounts of the interest rate sensitive assets and liabilities. While the gap analysis provides a useful snapshot of interest rate risk, it does not capture all aspects of interest rate risk. As a result, ALCO uses the gap analysis primarily for managing interest rate risk beyond one year and has established guidelines, approved by the Company's Board of Directors, for the gap position in the one- to three-year time periods. The Company's natural asset sensitive gap position has been modified through the use of off-balance sheet hedging instruments to maintain a low risk position with the cumulative one year position reflecting a negative gap of $406 million. Market Value/Duration Analysis: One of the limiting factors of the net interest income simulation model is its dependence upon accurate forecasts of future business activity and the resulting effect on balance sheet assets and liabilities. As a result, its usefulness is greatly diminished for periods beyond two years. The Company measures this longer-term component of interest rate risk (referred to as market value or duration risk) by modeling the effect of interest rate changes on the estimated discounted future cash flows of the Company's assets, liabilities and off-balance sheet instruments. TABLE 8. Interest Rate Swap Hedging Portfolio Notional Balances and Yields by Maturity Date
At March 31, 1996 (Dollars in Millions) Weighted Weighted Average Average Receive Fixed Swaps* Notional Interest Rate Interest Rate Maturity Date Amount Received Paid 1996 (remaining nine months) $333 7.97 % 5.39 % 1997 275 6.42 5.33 1998 606 5.99 5.40 1999 575 6.88 5.35 2000 150 6.57 5.30 After 2000** 1,025 6.90 5.41 Total $2,964 6.77 % 5.38 %
*At March 31, 1996, the Company did not have any swaps in its portfolio that required it to pay fixed-rate interest. **At March 31, 1996, all swaps with a maturity after 2000 hedge fixed rate subordinated notes. While each of the interest rate risk measurements has limitations, taken together they represent a comprehensive view of the magnitude of the Company's interest rate risk over various time intervals. The Company uses a variety of balance sheet and off-balance sheet financial instruments ("derivatives") to manage its interest rate risk. The Company manages the forecasted net interest income at risk by entering into off-balance sheet transactions (primarily interest rate swaps), investing in fixed rate assets or increasing variable rate liabilities. To a lesser degree, the Company also uses interest rate caps and floors to hedge this risk. These derivatives help maintain acceptable levels of rate risk. The Company does not enter into derivative contracts for speculative purposes. As of March 31, 1996, the Company received payments on $3.0 billion notional amount of interest rate swap agreements, based on fixed interest rates, and made payments based on variable interest rates. These swaps had an average fixed rate of 6.77 percent and an average variable rate, which is tied to various LIBOR rates, of 5.38 percent. The maturity of these agreements ranges from one month to 11 years with an average remaining maturity of 4.38 years. Swaps increased net interest income for the quarters ended March 31, 1996 and 1995 by $7.9 million and $4.5 million, respectively. The Company also purchases interest rate caps and floors to minimize the impact of fluctuating interest rates on earnings. The total notional amount of cap agreements purchased as of March 31, 1996, was $200 million. The impact of caps on net interest income was not material for the quarters ended March 31, 1996 and 1995. To hedge against falling interest rates, the Company uses interest rate floors. The total notional amount of floor agreements purchased as of March 31, 1996 was $1.25 billion. LIBOR- based floors totaled $950 million and Constant Maturity Treasury floors totaled $300 million. The impact of floors on net interest income was not material for the quarters ended March 31, 1996 and 1995. TABLE 9. Capital Ratios
MARCH 31 DECEMBER 31 (DOLLARS IN MILLIONS) 1996 1995 Tangible common equity* $2,532 $2,184 As a percent of assets 7.1% 6.5% Tier 1 capital** $2,286 $1,989 As a percent of risk-adjusted assets 7.1% 6.5% Total risk-based capital** $3,832 $3,367 As a percent of risk-adjusted assets 11.9% 11.0% Leverage ratio** 6.7 6.1
*Defined as common equity less goodwill. **In accordance with regulatory guidelines, unrealized securities gains and losses are excluded from these calculations. CAPITAL MANAGEMENT -- The Company is committed to managing capital for maximum shareholder benefit and maintaining strong protection for depositors and creditors. At March 31, 1996, total tangible common equity was $2.5 billion, or 7.1 percent of assets, compared with 6.5 percent at December 31, 1995. The total risk-based capital ratio increased to 11.9 percent at March 31, 1996, from 11.0 percent at December 31, 1995. The increase in the capital ratios reflects earnings retention as well as the issuance of common stock to complete the FirsTier acquisition, partially offset by the related common stock repurchases. On February 21, 1996, the Board of Directors authorized the repurchase of up to 25 million common shares through December 1997. This new authorization replaces previous authorizations, which provided for the repurchase of up to 24.3 million shares through the end of 1996. Approximately 3.7 million shares were repurchased under this program in the first quarter of 1996, of which 3.4 million related to the FirsTier acquisition. ACCOUNTING CHANGES SFAS 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" -- The Company adopted Statement of Financial Accounting Standards No. ("SFAS") 121 on January 1, 1996, which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. The Company recorded a $25.6 million adjustment to the carrying value of certain bank premises following a decision to sell several buildings in connection with the streamlining of the branch distribution network. See Note H for further discussion. SFAS 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" -- SFAS 123 provides an alternative to APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for stock-based compensation issued to employees. The Statement allows for a fair value based accounting method for stock options and similar equity instruments. Companies that continue to account for such arrangements under APB Opinion No. 25 must disclose the pro forma effect of its fair value based accounting for those arrangements on net income and earnings per share. These disclosure requirements become effective in 1996's year-end financial statements. The Company continues to account for such arrangements in accordance with APB Opinion No. 25. CONSOLIDATED BALANCE SHEET
MARCH 31 DECEMBER 31 (IN MILLIONS, EXCEPT SHARES) 1996 1995 (UNAUDITED) ASSETS Cash and due from banks $2,053 $1,837 Federal funds sold 24 35 Securities purchased under agreements to resell 556 230 Trading account securities 142 86 Available-for-sale securities 4,430 3,256 Loans 26,878 26,400 Less allowance for credit losses 530 474 Net loans 26,348 25,926 Bank premises and equipment 419 413 Interest receivable 220 197 Customers' liability on acceptances 180 223 Other assets 2,200 1,671 Total assets $36,572 $33,874 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing $6,553 $6,357 Interest-bearing 17,793 16,157 Total deposits 24,346 22,514 Federal funds purchased 1,609 2,000 Securities sold under agreements to repurchase 584 269 Other short-term funds borrowed 2,029 2,116 Long-term debt 3,504 3,201 Acceptances outstanding 180 223 Other liabilities 991 826 Total liabilities 33,243 31,149 Shareholders' equity: Preferred stock 96 103 Common stock, par value $1.25 a share-authorized 200,000,000 shares; issued: 3/31/96 - 144,360,504 shares; 12/31/95 - 135,632,324 shares 180 170 Capital surplus 1,275 909 Retained earnings 1,969 1,918 Unrealized gain (loss) on securities, net of tax (1) 23 Less cost of common stock in treasury: 3/31/96 - 3,277,809 shares; 12/31/95 - 8,297,756 shares (190) (398) Total shareholders' equity 3,329 2,725 Total liabilities and shareholders' equity $36,572 $33,874
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED (IN MILLIONS, EXCEPT PER SHARE DATA) MARCH 31 MARCH 31 (UNAUDITED) 1996 1995 INTEREST INCOME Loans $574.7 $547.2 Securities: Taxable 63.8 66.5 Exempt from federal income taxes 4.9 2.8 Other interest income 11.2 9.1 Total interest income 654.6 625.6 INTEREST EXPENSE Deposits 167.0 178.4 Federal funds purchased and repurchase agreements 31.4 30.9 Other short-term funds borrowed 32.1 6.5 Long-term debt 49.5 46.5 Total interest expense 280.0 262.3 Net interest income 374.6 363.3 Provision for credit losses 31.0 26.0 Net interest income after provision for credit losses 343.6 337.3 NONINTEREST INCOME Credit card fees 62.8 51.6 Trust fees 56.2 41.7 Service charges on deposit accounts 33.9 32.1 Investment products fees and commissions 8.5 5.5 Securities gains 14.6 -- Termination fee 115.0 -- Gain on sale of mortgage banking operations 45.8 -- Other 46.7 48.7 Total noninterest income 383.5 179.6 NONINTEREST EXPENSE Salaries 123.4 112.1 Employee benefits 28.9 28.5 Goodwill and other intangible assets 47.4 14.1 Net occupancy 25.8 25.7 Furniture and equipment 23.8 23.5 Other personnel costs 9.7 7.6 Professional services 8.3 6.6 Advertising 6.8 6.3 Third party data processing 5.4 4.3 FDIC insurance 3.5 13.6 Merger, integration, and resizing 69.9 -- Other 71.5 62.0 Total noninterest expense 424.4 304.3 Income before income taxes 302.7 212.6 Applicable income taxes 125.9 78.8 Net income $176.8 $133.8 Net income applicable to common equity $175.1 $131.9 EARNINGS PER COMMON SHARE Average common and common equivalent shares 137,020,911 135,545,733 Net income $1.28 $.97
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
UNREALIZED COMMON GAINS/(LOSSES) (IN MILLIONS, EXCEPT SHARES) SHARES PREFERRED COMMON CAPITAL RETAINED ON SECURITIES, TREASURY (UNAUDITED) OUTSTANDING* STOCK STOCK SURPLUS EARNINGS NET OF TAXES STOCK** TOTAL BALANCE DECEMBER 31, 1994 133,832,409 $118.1 $168.3 $865.8 $1,592.8 $(106.4) $(26.7) $2,611.9 Net Income 133.8 133.8 Dividends declared: Preferred (1.9) (1.9) Common (48.6) (48.6) Purchase of treasury stock (1,040,475) (39.7) (39.7) Issuance of common stock: Acquisitions 1,619,998 .3 4.3 52.4 57.0 Dividend reinvestment 57,142 .1 2.1 2.2 Stock option and stock purchase plans 926,355 .7 (2.0) (3.7) 10.9 5.9 Stock warrants exercised 25,926 (.7) .9 .2 Redemption/conversion of preferred stock (12.2) (1.0) (13.2) Change in unrealized gains/(losses) 49.8 49.8 BALANCE MARCH 31, 1995 135,421,355 $105.9 $169.3 $868.2 $1,670.7 $(56.6) $(.1) $2,757.4 BALANCE DECEMBER 31, 1995 127,334,568 $103.2 $169.5 $909.3 $1,918.2 $22.5 $(397.8) $2,724.9 Net Income 176.8 176.8 Dividends declared: Preferred (1.7) (1.7) Common (59.5) (59.5) Purchase of treasury stock (3,713,727) (217.0) (217.0) Issuance of common stock: Acquisitions 16,460,215 10.7 361.7 (44.4) 384.2 712.2 Dividend reinvestment 53,514 3.1 3.1 Stock option and stock purchase plans 694,819 .2 4.4 (13.1) 23.2 14.7 Conversion of preferred stock 253,306 (7.3) (7.4) 14.7 -- Change in unrealized gains/(losses) (24.0) (24.0) BALANCE MARCH 31, 1996 141,082,695 $95.9 $180.4 $1,275.4 $1,968.9 $(1.5) $(189.6) $3,329.5
*Defined as total common shares less common stock held in treasury. **Ending treasury shares were 3,277,809 at March 31, 1996; 8,297,756 at December 31, 1995; 2,976 at March 31, 1995; and 767,000 at December 31, 1994. CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31 MARCH 31 (UNAUDITED, IN MILLIONS) 1996 1995 OPERATING ACTIVITIES Net cash provided by operating activities $189.6 $197.9 INVESTING ACTIVITIES Net cash provided (used) by: Interest-bearing deposits with banks -- 28.9 Loans outstanding 483.4 (446.6) Securities purchased under agreements to resell (285.3) 109.6 Available-for-sale securities: Sales 921.4 1,739.7 Maturities 432.7 172.0 Purchases (371.1) (138.5) Proceeds from sales of other real estate 6.1 10.5 Net purchases of bank premises and equipment (16.7) (14.5) Cash and cash equivalents of acquired subsidiaries 116.5 16.3 Acquisitions, net of cash received (31.2) -- Other -- net 10.9 1.0 Net cash provided by investing activities 1,266.7 1,478.4 FINANCING ACTIVITIES Net cash used by: Deposits (936.2) (1,042.5) Federal funds purchased and securities sold under agreements to repurchase (260.9) (288.7) Short-term borrowings (86.8) (393.9) Long-term debt transactions: Proceeds 499.0 -- Principal payments (205.7) (73.8) Redemption of preferred stock -- (13.2) Proceeds from issuance of common stock 17.8 8.3 Purchase of treasury stock (217.0) (39.7) Cash dividends (61.2) (50.5) Net cash used by financing activities (1,251.0) (1,894.0) Change in cash and cash equivalents 205.3 (217.7) Cash and cash equivalents at beginning of period 1,871.6 1,841.9 Cash and cash equivalents at end of period $2,076.9 $1,624.2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, and cash flow activity required under generally accepted accounting principles. In the opinion of management of the Company, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of results have been made and the Company believes such presentation is adequate to make the information presented not misleading. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Certain amounts in prior periods have been reclassified to conform to the current presentation. NOTE B. Accounting Changes ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF -- Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. ("SFAS") 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. The Company recorded a $25.6 million adjustment to the carrying value of certain bank premises following a decision to sell several buildings in connection with the streamlining of the branch distribution network. See Note H for further discussion. The Company also performed an evaluation of those intangible assets not covered by SFAS 121. In this regard, the Company recorded a charge of $29.5 million of credit card holder and core deposit intangibles to reduce the carrying value of these assets to their fair value. The Company performed an analysis of the fair value of these assets following its reassessment of business alternatives for a segment of its credit card portfolio and a change in the mix of deposits at certain acquired entities, respectively. ACCOUNTING FOR STOCK-BASED COMPENSATION -- SFAS 123, "Accounting for Stock-Based Compensation," establishes a new fair value based accounting method for stock-based compensation plans. Companies may continue to apply the accounting provisions of APB 25, "Accounting for Stock Issued to Employees," in determining net income; however, they must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS 123 had been applied. These disclosure requirements are effective beginning in 1996's year-end financial statements. The Company continues to account for such arrangements in accordance with APB Opinion No. 25. NOTE C. Business Combinations and Divestitures FIRSTIER FINANCIAL, INC. -- On February 16, 1996, the Company issued 16.5 million shares to complete its acquisition of Omaha-based FirsTier Financial, Inc. ("FirsTier"). FirsTier had $3.7 billion in assets, $2.9 billion in deposits, and 63 offices in Nebraska and Iowa. Under terms of the purchase agreement, the Company exchanged .8829 shares of its common stock for each common share of FirsTier. In addition, FirsTier's outstanding stock options were converted into stock options for the Company's common stock. The acquisition of FirsTier was accounted for under the purchase method of accounting, and accordingly, the purchase price of $717 million was allocated to assets acquired and liabilities assumed based on their fair market values at the date of acquisition. The excess of the purchase price over the fair market values of net assets acquired was recorded as goodwill. Core deposit intangibles of $63 million will be amortized over the estimated lives of the deposits of approximately 10 years, and goodwill of $289 million will be amortized over approximately 25 years. The results of operations of FirsTier have been included in the Company's Consolidated Statement of Income since the date of acquisition but did not have a significant effect on earnings. The following pro forma operating results of the Company assume that the FirsTier acquisition had occurred at the beginning of each period presented. In addition to combining the historical results of operations of the two companies, the pro forma results include adjustments for the estimated effect of purchase accounting on the Company's results.
THREE MONTHS ENDED MARCH 31, (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 1996 1995 Net interest income $389.3 $391.2 Net income 174.6 139.3 Net income per share 1.22 .95
The pro forma information may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. BANKAMERICA CORPORATE TRUST BUSINESS -- On August 22, 1995, the Company announced that it had signed a definitive agreement to acquire the corporate trust business of BankAmerica Corporation. After the acquisition, the Company became the nation's leading provider of domestic corporate trust services as measured by revenues. Approximately 80 percent of the transaction was completed in December 1995 with the remainder completed in the first quarter of 1996. SALE OF MORTGAGE BANKING OPERATIONS -- On February 26, 1996, the Company announced that it had entered into agreements with three parties for the sale of the Company's servicing and mortgage loan production business. Effective February 29, 1996, Bank of America, fsb, a subsidiary of BankAmerica Corporation, purchased approximately $14 billion in mortgage servicing rights resulting in a net gain of $45.8 million. Columbia, National, Inc., of Maryland, and Knutson Mortgage Co., of Minnesota, agreed to purchase the Company's loan production business. The Company will now deliver mortgage loan products through its bank branches and telemarketing. FIRST INTERSTATE BANCORP -- On November 6, 1995, the Company and First Interstate Bancorp ("First Interstate") announced that they had entered into a definitive agreement whereby the Company would exchange 2.6 shares of its common stock for each share of First Interstate common stock. On January 24, 1996, First Interstate announced that it had terminated the merger agreement with the Company and had entered into a definitive agreement with Wells Fargo & Company ("Wells Fargo"). Under the terms of a settlement agreement, the Company received $125 million on January 24, 1996. The Company received an additional $75 million on April 1, 1996, upon consummation of the merger of First Interstate and Wells Fargo, which will be included in second quarter results. In addition, all litigation among the parties related to the acquisition of First Interstate has been settled. NOTE D. Securities The detail of the amortized cost and fair value of available-for-sale securities consisted of the following:
MARCH 31, 1996 DECEMBER 31, 1995 AMORTIZED FAIR AMORTIZED FAIR (IN MILLIONS) COST VALUE COST VALUE U.S. Treasury $709 $702 $921 $925 Mortgage-backed securities 2,895 2,901 1,703 1,693 Other U.S. agencies 168 167 157 157 State and political 540 537 174 179 Other 121 123 265 302 Total $4,433 $4,430 $3,220 $3,256
NOTE E. Loans The composition of the loan portfolio was as follows:
MARCH 31 DECEMBER 31 (IN MILLIONS) 1996 1995 COMMERCIAL: Commercial $9,336 $8,271 Financial institutions 901 1,060 Real estate: Commercial mortgage 3,048 2,784 Construction 484 403 Total commercial 13,769 12,518 CONSUMER: Residential mortgage 3,399 4,655 Residential mortgage held for sale 258 257 Home equity and second mortgage 2,959 2,805 Credit card 2,469 2,586 Automobile 2,125 1,821 Revolving credit 749 757 Installment 682 607 Student* 468 394 Total consumer 13,109 13,882 Total loans $26,878 $26,400
*All or part of the student loan portfolio may be sold when the repayment period begins. At March 31, 1996, the Company had $69 million in loans considered impaired under SFAS 114 included in nonaccrual loans. Of this amount, $57 million was valued using the fair value of the loans' collateral and $12 million was below the Company's threshold for valuing individual loans. The carrying value of the impaired loans was less than or equal to the present value of expected future cash flows and, accordingly, no allowance for credit losses was specifically allocated to impaired loans. For the quarter ended March 31, 1996, the average recorded investment in impaired loans was approximately $69 million. No interest income was recognized on these impaired loans during the quarter. NOTE F. Long-Term Debt Long-term debt (debt with original maturities of more than one year) consisted of the following:
MARCH 31 DECEMBER 31 (IN MILLIONS) 1996 1995 Fixed-rate subordinated notes: 6.625% due May 15, 2003 $100 $100 6.00% due October 15, 2003 100 100 7.55% due June 15, 2004 100 100 8.00% due July 2, 2004 125 125 8.35% due November 1, 2004 100 100 7.625% due May 1, 2005 150 150 6.875% due April 1, 2006 125 -- 6.875% due September 15, 2007 250 250 Step-up subordinated notes - due August 15, 2005 100 100 Floating-rate subordinated notes - due November 30, 2010 107 107 Federal Home Loan Bank advances (4.36% to 7.9%) - maturities to August 2000 954 1,099 Medium-term notes (5.35% to 8.2%) - maturities to August 1999 613 580 Bank notes (5.34-6.38%) - maturities to March 1999 600 300 Other 80 90 Total $3,504 $3,201
NOTE G. Shareholders' Equity On February 21, 1996, the Board of Directors authorized the repurchase of up to 25 million common shares through December 1997. Approximately 3.7 million shares have been repurchased under the new program as of March 31, 1996. This new authorization replaces previous authorizations, which provided for the repurchase of up to 24.3 million shares through the end of 1996. Under previous authorizations, the Company repurchased 11.9 million shares in 1995. NOTE H. Merger, Integration and Resizing Charges During the first quarter of 1996, the Company recorded merger, integration and resizing charges of $69.9 million. Merger and integration charges of $31.3 million were associated with the acquisitions of FirsTier and the BankAmerica corporate trust business. Resizing charges of $38.6 million were associated with the Company's streamlining of the branch distribution network and trust operations as the Company expands its alternative distribution channels, including telemarketing, automated teller machines and in-store branches. The components of the charges are shown below:
THREE MONTHS ENDED MARCH 31 (IN MILLIONS) 1996 Systems conversions, required customer communications and professional services $29.7 Premise writedowns 26.0 Severance 14.2 Total merger, integration and resizing charges $69.9
Systems conversions, required customer communications and professional services relate to preparation and mailing of numerous customer communications for the acquisitions and conversion of customer accounts, printing and distribution of training materials and policy and procedure manuals, outside consulting fees, and similar expenses related to the conversion and integration of acquired branches and operations. Premise writedowns include a valuation adjustment of $25.6 million associated with the planned sale of bank-owned properties as the Company consolidates and reduces the space requirements of branch facilities. The Company is presently marketing these bank-owned facilities and expects to dispose of them over the next 12 months. Severance charges include the cost of terminations, other benefits, and outplacement costs associated with the elimination of employees primarily in branch offices and in centralized corporate support and data processing functions. The following table presents a summary of activity with respect to the Company's merger, integration and resizing accrual:
THREE MONTHS ENDED MARCH 31 (IN MILLIONS) 1996 BALANCE AT DECEMBER 31, 1995 $12.6 Provision charged to operating expense 69.9 Cash outlays (12.6) Noncash writedowns (26.0) Balance at March 31, 1996 $43.9
The Company expects that substantially all remaining costs will be paid by the end of 1996. Additional noncash writedowns are not expected to be significant. NOTE I. Income Taxes The components of income tax expense were:
THREE MONTHS ENDED MARCH 31 MARCH 31 (IN MILLIONS) 1996 1995 FEDERAL: Current tax $115.9 $52.8 Deferred tax provision 1.8 18.3 Federal income tax 117.7 71.1 STATE: Current tax 8.4 3.7 Deferred tax provision (credit) (.2) 4.0 State income tax 8.2 7.7 Total income tax provision $125.9 $78.8
The reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate was as follows:
THREE MONTHS ENDED MARCH 31 MARCH 31 (IN MILLIONS) 1996 1995 Tax at statutory rate (35%) $105.9 $74.4 State income tax, net of federal tax benefit 5.3 5.0 Tax effect of: Tax-exempt interest: Loans (1.2) (1.3) Securities (1.7) (1.0) Amortization of goodwill 16.5 3.4 Other items 1.1 (1.7) Applicable income taxes $125.9 $78.8
The Company expects to receive a tax refund of approximately $55 million to $65 million from the State of Minnesota relating to the exemption of interest income received on investments in U.S. government securities for the years 1979 to 1983. The refund is subject to final audit reports by the State, as well as appropriate funding authority to pay the claims, both of which are anticipated in the second quarter of 1996. The Company's net deferred tax asset was $247.8 million at March 31, 1996, and $216.3 million at December 31, 1995. NOTE J. Commitments, Contingent Liabilities and Off-Balance Sheet Financial Instruments OFF-BALANCE SHEET FINANCIAL INSTRUMENTS -- In the normal course of business, the Company uses various financial instruments with off-balance sheet risk to meet the financing needs of its customers and to manage its interest rate risk. These instruments carry varying degrees of credit, interest rate or liquidity risk. The contract or notional amounts of these financial instruments were as follows:
MARCH 31 DECEMBER 31 (IN MILLIONS) 1996 1995 Commitments to extend credit: Commercial $8,145 $7,240 Corporate and purchasing cards 5,917 5,220 Consumer credit card 10,129 9,247 Other consumer 3,435 3,264 Letters of credit: Standby 1,391 1,412 Commercial 187 161 Interest rate swap contracts: Hedges 2,964 2,839 Intermediated 179 169 Interest rate options contracts: Hedge interest rate floors purchased 1,250 1,250 Hedge interest rate caps purchased 200 200 Intermediated interest rate caps and floors purchased 179 126 Intermediated interest rate caps and floors written 179 126 Liquidity support guarantees 101 142 Forward contracts 321 294 Commitments to sell loans -- 223 Mortgages sold with recourse 233 242 Foreign currency commitments: Commitments to purchase 1,087 792 Commitments to sell 1,080 785
Activity for the three months ending March 31, 1996, with respect to interest rate swaps which the Company uses to hedge commercial loans, subordinated debt, bank notes, long-term certificates of deposit, deposit accounts, and savings certificates was as follows:
(IN MILLIONS) Notional amount outstanding at December 31, 1995 $2,838.8 Additions 225.0 Maturities (100.0) Terminations -- Notional amount outstanding at March 31, 1996 $2,963.8 Weighted average interest rates paid 5.38% Weighted average interest rates received 6.77%
The Company receives fixed rates and pays floating rates on all hedges as of March 31, 1996. Net unamortized deferred gains were $.3 million at March 31, 1996, which amortize through the year 2000. At March 31, 1996 and December 31, 1995, LIBOR based interest rate floors totaling $950 million with a remaining maturity of 1.73 years to 2.00 years, respectively, hedged floating rate commercial loans. The strike rate on these LIBOR based floors ranged from 3.25 percent to 4.00 percent at March 31, 1996 and December 31, 1995. Constant Maturity Treasury (CMT) interest rate floors totaling $300 million with a remaining maturity of 6 months and 9 months at March 31, 1996 and December 31, 1995, respectively, hedged the reinvestment risk of fixed rate residential mortgage loans. The strike rate on these CMT floors ranged from 6.25 percent to 6.36 percent at March 31, 1996 and December 31, 1995. At March 31, 1996 and December 31, 1995, the total notional amount of interest rate caps purchased was $200 million with an average strike level at 6.00 percent. COMMITMENTS AND CONTINGENT LIABILITIES -- Varous legislative proposals have been made, but not enacted, that would affect the Savings Association Insurance Fund ("SAIF") premium assessments, including a one-time special assessment for SAIF deposits. It is not clear when such legislation will be passed, if at all. Based on current proposals, the Company may be subject to a special assessment of up to $57 million. NOTE K. Supplemental Information to the Consolidated Financial Statements CONSOLIDATED BALANCE SHEET -- Time certificates of deposit in denominations of $100,000 or more totaled $1,007 million and $900 million at March 31, 1996, and December 31, 1995, respectively. CONSOLIDATED STATEMENT OF CASH FLOWS -- Listed below are supplemental disclosures to the Consolidated Statement of Cash Flows.
THREE MONTHS ENDED MARCH 31 MARCH 31 (IN MILLIONS) 1996 1995 Income taxes paid $43.5 $36.9 Interest paid 270.2 244.0 Net noncash transfers to foreclosed property 9.7 8.8 Change in unrealized gain (loss) on available-for-sale securities, net of taxes of $14.7 in 1996 and $30.8 in 1995 (24.0) 49.8 Cash acquisitions of businesses: Fair value of noncash assets acquired $31.2 $-- Liabilities assumed -- -- Net $31.2 $-- Stock acquisitions of businesses: Fair value of noncash assets acquired $3,627.9 $329.3 Net cash acquired 116.5 16.3 Liabilities assumed (3,032.2) (288.6) Net value of common stock issued $712.2 $57.0
CONSOLIDATED DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES
1996 1995 % CHANGE INTEREST INTEREST AVERAGE FOR THE THREE MONTHS ENDED MARCH 31 YIELDS YIELDS BALANCE (IN MILLIONS) AND AND INCREASE (UNAUDITED) BALANCE INTEREST RATES BALANCE INTEREST RATES (DECREASE) ASSETS Securities: U.S. Treasury $896 $14.0 6.28% $1,065 $16.2 6.17% (15.9)% Mortgage-backed securities 2,514 43.3 6.93 2,464 41.6 6.85 2.0 State & political subdivisions 344 7.9 9.24 175 4.6 10.66 96.6 U.S. agencies and other 396 6.1 6.20 551 8.3 6.11 (28.1) Total securities 4,150 71.3 6.91 4,255 70.7 6.74 (2.5) Unrealized gain (loss) on available-for-sale securities 33 (138) Net securities 4,183 4,117 Trading account securities 108 1.3 4.84 82 1.1 5.44 31.7 Federal funds sold and resale agreements 490 6.4 5.25 311 4.6 6.00 57.6 Loans: Commercial: Commercial 8,667 174.0 8.07 7,496 163.7 8.86 15.6 Financial institutions 1,029 11.7 4.57 724 6.9 3.87 42.1 Real estate: Commercial mortgage 2,904 66.2 9.17 2,444 52.9 8.78 18.8 Construction 443 10.4 9.44 357 8.2 9.32 24.1 Total commercial 13,043 262.3 8.09 11,021 231.7 8.53 18.3 Consumer: Residential mortgage 3,870 74.1 7.70 5,069 96.1 7.69 (23.7) Residential mortgage held for sale 220 4.0 7.31 174 3.5 8.16 26.4 Home equity and second mortgage 2,879 68.8 9.61 2,445 56.7 9.40 17.8 Credit card 2,500 73.3 11.79 2,294 71.5 12.64 9.0 Other 3,817 94.3 9.94 3,589 89.7 10.14 6.4 Total consumer 13,286 314.5 9.52 13,571 317.5 9.49 (2.1) Total loans 26,329 576.8 8.81 24,592 549.2 9.06 7.1 Allowance for credit losses 501 478 4.8 Net loans 25,828 24,114 7.1 Other earning assets 294 3.5 4.79 226 3.5 6.28 30.1 Total earning assets* 31,371 659.3 8.45 29,466 629.1 8.66 6.5 Cash and due from banks 1,725 1,677 2.9 Other assets 2,416 2,175 11.1 Total assets $35,044 $32,702 7.2% LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits $6,148 $5,511 11.6 % Interest-bearing deposits: Interest checking 3,000 10.2 1.37 2,967 12.4 1.69 1.1 Money market accounts 4,078 36.3 3.58 3,739 34.3 3.72 9.1 Other savings accounts 1,648 8.9 2.17 1,933 12.2 2.56 (14.7) Savings certificates 7,272 97.6 5.40 8,347 102.3 4.97 (12.9) Certificates over $100,000 901 14.0 6.25 1,078 17.2 6.47 (16.4) Total interest-bearing deposits 16,899 167.0 3.97 18,064 178.4 4.01 (6.4) Short-term borrowings 4,498 63.5 5.68 2,535 37.4 5.98 77.4 Long-term debt 3,264 49.5 6.10 2,935 46.5 6.43 11.2 Total interest-bearing liabilities 24,661 280.0 4.57 23,534 262.3 4.52 4.8 Other liabilities 1,102 1,020 8.0 Preferred equity 101 106 (4.7) Common equity 3,012 2,623 14.8 Unrealized gain (loss) on available-for-sale securities, net of taxes 20 (92) (121.7) Total liabilities and shareholders' equity $35,044 $32,702 7.2% Net interest income $379.3 $366.8 Gross interest margin 3.88% 4.14% Gross interest margin without taxable- equivalent increments 3.82% 4.09% Net interest margin 4.86% 5.05% Net interest margin without taxable- equivalent increments 4.80% 5.00%
Interest and rates are presented on a fully taxable-equivalent basis under a tax rate of 35 percent. Interest income and rates on loans include loan fees. Nonaccrual loans are included in average loan balances. *Before deducting the allowance for credit losses and excluding the unrealized gain (loss) on available-for-sale securities. PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- The 67th Annual Meeting of Stockholders of First Bank System, Inc. was held on Wednesday, April 17, 1996, at the Minneapolis Convention Center. John F. Grundhofer, Chairman, President and Chief Executive Officer, presided. The holders of 125,135,445 shares of common stock, 86.8 percent of the 144,143,244 outstanding shares entitled to vote as of the record date, were represented at the meeting in person or by proxy. The candidates for election as Class I Directors listed in the proxy statement were elected to serve three-year terms expiring at the 1999 annual shareholders' meeting. The tabulation for each nominee for office is listed in the table below. The proposal to ratify the appointment of Ernst & Young LLP as the Company's independent auditors for the year ending December 31, 1996, was approved. The 1996 Stock Incentive Plan was approved. The proposal to amend the Company's Employee Stock Purchase Plan to increase the shares of the Company's Common Stock available for issuance thereunder was approved. SUMMARY OF MATTERS VOTED UPON BY SHAREHOLDERS
NUMBER OF SHARES IN FAVOR WITHHELD Election of Class I Directors: Roger L. Hale 123,423,623 1,711,822 Richard L. Knowlton 123,406,042 1,729,403 Edward J. Phillips 123,368,029 1,767,416 James J. Renier 123,380,587 1,754,858 Richard L. Schall 123,374,197 1,761,248 In Favor Against Abstained Non Vote Other Matters: Ratification of appointment of Ernst & Young LLP as independent auditors 123,677,195 397,197 1,061,053 0 Approval of 1996 Stock Incentive Plan 83,473,286 27,922,197 1,400,500 12,339,462 Amendment to Employee Stock Purchase Plan 101,369,495 10,073,819 1,352,669 12,339,462
For a copy of the meeting minutes, please write to the Office of the Secretary, First Bank System, P.O. Box 522, Minneapolis, Minnesota 55480. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 3 Bylaws of First Bank System, Inc.* 10A First Bank System, Inc. 1996 Stock Incentive Plan* 10B First Bank System, Inc. Restated Employee Stock Purchase Plan, as amended* 11 Computation of Primary and Fully Diluted Net Income Per Common Share 12 Computation of Ratio of Earnings to Fixed Charges 27 Article 9 Financial Data Schedule* (B) REPORTS ON FORM 8-K During the three months ended March 31, 1996, the Company filed the following Current Reports on Form 8-K: Form 8-K filed January 9, 1996, relating to fourth quarter 1995 earnings. Form 8-K filed January 19, 1996, discussing a change to the previously announced capital management program. Form 8-K filed on January 29, 1996, discussing the termination of its merger agreement with First Interstate Bancorp. * Copies of this exhibit will be furnished upon request and payment of the Company's reasonable expenses in furnishing the exhibit. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST BANK SYSTEM, INC. By: /s/ David J. Parrin David J. Parrin Senior Vice President and Controller (Chief Accounting Officer and Duly Authorized Officer) DATE: May 14, 1996 First Bank System P.O. BOX 522 MINNEAPOLIS, MINNESOTA 55480 First Class U.S. Postage PAID Permit No. 2440 Minneapolis, MN SHAREHOLDER INQUIRIES FINANCIAL INFORMATION FBS news and financial results are available by fax, mail or on-line. Fax. To access FBS's fax-on-demand service, call 1-800-758-5804. When asked, enter FBS's extension number, 312402. Enter "1" for the most current news release or "2" for a menu of recent releases. Enter your fax and phone numbers as directed. The information will be faxed to you immediately. Mail. If you don't have access to a fax machine or prefer not to use FBS's fax-on-demand service, we will, on request, automatically mail to you our quarterly earnings news release. To be added to FBS's mailing list, please contact Corporate Relations, First Bank System, First Bank Place, Minneapolis, Minnesota, 55402, (612) 973-2434. Internet. For information about FBS, including news releases, product information, and a list of service locations, access FBS's home page on the world wide web. The address is www.fbs.com. For further information contact John Danielson, Senior Vice President, (612) 973-2261, or Karin Glasgow, Assistant Vice President, (612) 973-2264. STOCK AND DIVIDEND INFORMATION For matters related specifically to First Bank System stock records or dividend payments, contact the Office of the Corporate Secretary, (612) 973-0334. DIVIDEND REINVESTMENT For information regarding First Bank System's dividend reinvestment plan, contact First Chicago Trust Company of New York, P.O. Box 2598, Jersey City, New Jersey 07303-2598, (800) 446-2617. EX-3 2 BYLAWS OF FIRST BANK SYSTEM Amended as of 04/17/96 BYLAWS OF FIRST BANK SYSTEM, INC. ARTICLE I. OFFICES Section 1. Offices. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation shall have offices at such other places as the Board of Directors may from time to time determine. ARTICLE II. STOCKHOLDERS Section 1. Annual Meeting. The annual meeting of the stockholders for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held on such date as the Board of Directors shall each year fix. Each such annual meeting shall be held at such place, within or without the State of Delaware, and hour as shall be determined by the Board of Directors. The day, place and hour of such annual meeting shall be specified in the notice of annual meeting. The meeting may be adjourned from time to time and place to place until its business is completed. Section 2. Special Meeting. Special meetings of stockholders may be called by the Board of Directors or the chief executive officer. The notice of such meeting shall state the purpose of such meeting and no business shall be transacted thereat except as stated in the notice thereof. Any such meeting may be held at such place within or without the State of Delaware as may be fixed by the Board of Directors or the Chief Executive Officer, and as may be stated in the notice of such meeting. Section 3. Notice of Meeting. Notice of every meeting of the stockholders shall be given in the manner prescribed by law. Section 4. Quorum. Except as otherwise required by law, the Certificate of Incorporation or these Bylaws, the holders of not less than one-third of the shares entitled to vote at any meeting of the stockholders, present in person or by proxy, shall constitute a quorum and the act of the majority of such quorum shall be deemed the act of the stockholders. If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, date, or time. Section 5. Qualification of Voters. The Board of Directors may fix a day and hour not more than sixty nor less than ten days prior to the day of holding any meeting of the stockholders as the time as of which the stockholders entitled to notice of and to vote at such meeting shall be determined. Only those persons who were holders of record of voting stock at such time shall be entitled to notice of and to vote at such meeting. Section 6. Procedure. The presiding officer at each meeting of stockholders shall conclusively determine the order of business, all matters of procedure and whether or not a proposal is proper business to be transacted at the meeting and has been properly brought before the meeting. The Board shall appoint two or more inspectors of election to serve at every meeting of the stockholders at which Directors are to be elected. Section 7. Nomination of Directors. Only persons nominated in accordance with the following procedures shall be eligible for election by stockholders as Directors. Nominations of persons for election as Directors at a meeting of stockholders called for the purpose of electing Directors may be made (a) by or at the direction of the Board of Directors or (b) by any stockholder in the manner herein provided. For a nomination to be properly made by a stockholder, the stockholder must give written notice to the Secretary of the Corporation so as to be received at the principal executive offices of the Corporation not later than (i) with respect to an annual meeting of stockholders, 90 days in advance of such meeting and (ii) with respect to a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which the notice of such meeting is first given to stockholders. Each such notice shall set forth (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understanding between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board; and (e) the consent of each nominee to serve as a Director of the Corporation if so elected. ARTICLE III. DIRECTORS Section 1. Number and Election. The Board of Directors of the Corporation shall consist of sixteen Directors. Commencing with the annual election of Directors by the stockholders in 1986, the Directors shall be divided into three classes: Class I, Class II and Class III, each such class, as nearly as possible, to have the same number of Directors. The term of office of the initial Class I Directors shall expire at the annual election of Directors by the stockholders in 1987, the term of office of the initial Class II Directors shall expire at the annual election of Directors by the stockholders in 1988, and the term of office of the initial Class III Directors shall expire at the annual election of Directors by the stockholders in 1989. At each annual election of Directors by the stockholders held after 1985, the Directors chosen to succeed those whose terms have then expired shall be identified as being of the same class as the Directors they succeed and shall be elected by the stockholders for a term expiring at the third succeeding annual election of Directors. In all cases, Directors shall hold office until their respective successors are elected by the stockholders and have qualified. In the event that the holders of any class or series of stock of the Corporation having a preference as to dividends or upon liquidation of the Corporation shall be entitled, by a separate class vote, to elect Directors as may be specified pursuant to Article Fourth of the Corporation's Restated Certificate of Incorporation, then the provisions of such class or series of stock with respect to their rights shall apply. The number of Directors that may be elected by the holders of any such class or series of stock shall be in addition to the number fixed pursuant to the preceding paragraph. Except as otherwise expressly provided pursuant to Article Fourth of the Corporation's Restated Certificate of Incorporation, the number of Directors that may be so elected by the holders of any such class or series of stock shall be elected for terms expiring at the next annual meeting of stockholders and without regard to the classification of the remaining members of the Board of Directors and vacancies among Directors so elected by the separate class vote of any such class or series of stock shall be filled by the remaining Directors elected by such class or series, or, if there are no such remaining Directors, by the holders of such class or series in the same manner in which such class or series initially elected a Director. If at any meeting for the election of Directors, more than one class of stock, voting separately as classes, shall be entitled to elect one or more Directors and there shall be a quorum of only one such class of stock, that class of stock shall be entitled to elect its quota of Directors notwithstanding the absence of a quorum of the other class or classes of stock. Section 2. Vacancies. Vacancies and newly created directorships resulting from an increase in the number of Directors shall be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, and such Directors so chosen shall hold office until the next election of the class for which such Directors shall have been chosen, and until their successors are elected and qualified. Section 3. Regular Meetings. Regular meetings of the Board shall be held at such times and places as the Board may from time to time determine. Section 4. Special Meetings. Special meetings of the Board may be called at any time, at any place and for any purpose by the Chairman of the Board, or the President, or by any officer of the Corporation upon the request of a majority of the entire Board. Section 5. Notice of Meetings. Notice of regular meetings of the Board need not be given. Notice of every special meeting of the Board shall be given to the Directors at their usual places of business, or at such other addresses as shall have been furnished by them for the purpose. Such notice shall be given at least twelve hours (three hours if meeting is to be conducted by conference telephone) before the meeting by telephone or by being personally delivered, mailed, or telegraphed. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. Section 6. Quorum. Except as may be otherwise provided by law or in these Bylaws, the presence of one-third of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board, and the act of a majority of such quorum shall be deemed the act of the Board. Less than a quorum may adjourn any meeting of the Board from time to time without notice. Section 7. Participation in Meetings by Conference Telephone. Members of the Board, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 8. Powers. The business, property, and affairs of the Corporation shall be managed by or under the direction of its Board of Directors, which shall have and may exercise all the powers of the Corporation to do all such lawful acts and things as are not by law, or by the Certificate of Incorporation, or by these Bylaws, directed or required to be exercised or done by the stockholders. Section 9. Compensation of Directors. Directors shall receive such compensation for their services as shall be determined by a majority of the entire Board provided that Directors who are serving the Corporation as officers or employees and who receive compensation for their services as such officers or employees shall not receive any salary or other compensation for their services as Directors. Section 10. Committees of the Board. A majority of the entire Board of Directors may designate one or more standing or temporary committees consisting of one or more Directors. The Board may invest such committees with such powers and authority, subject to the limitations of law and such conditions as it may see fit. ARTICLE IV. EXECUTIVE COMMITTEE Section 1. Election. At any meeting of the Board, an Executive Committee, composed of the Chairman of the Board, the President, and not less than three other members, may be elected by a majority vote of the entire Board to serve until the Board shall otherwise determine. Either the Chairman of the Board or the President, whichever is the chief executive officer, shall be the Chairman of the Executive Committee, and the other shall be the Vice Chairman thereof, unless the Board shall otherwise determine. Members of the Executive Committee shall be members of the Board. Section 2. Powers. The Executive Committee shall have and may exercise all of the powers of the Board of Directors when the Board is not in session, except that, unless specifically authorized by the Board of Directors, it shall have no power to (a) elect directors or officers; (b) alter, amend, or repeal these Bylaws or any resolution of the Board of Directors relating to the Executive Committee; (c) declare any dividend or make any other distribution to the stockholders of the Corporation; (d) appoint any member of the Executive Committee; or (e) take any other action which legally may be taken only by the Board. Section 3. Rules. The Executive Committee shall adopt such rules as it may see fit with respect to the calling of its meetings, the procedure to be followed thereat, and its functioning generally. Any action taken with the written consent of all members of the Executive Committee shall be as valid and effectual as though formally taken at a meeting of said Executive Committee. Section 4. Vacancies. Vacancies in the Executive Committee may be filled at any time by a majority vote of the entire board. ARTICLE V. OFFICERS Section 1. Number. The officers of the Corporation shall be appointed or elected by the Board of Directors. The officers shall be a Chairman of the Board, a President, one or more Vice Chairmen, such number of Vice Presidents or other officers as the Board may from time to time determine, a Secretary, a Treasurer, and a Controller. The Chairman of the Board shall be the Chief Executive Officer unless the Board shall determine otherwise. The Chairman of the Board or, in his absence or if such office be vacant, the President shall preside at all meetings of the stockholders and of the Board. In the absence of the Chairman of the Board and the President, any other Board member designated by the Board may preside at all meetings of the stockholders and of the Board. The Board of Directors may appoint or elect a person as a Vice Chairman without regard to whether such person is a member of the Board of Directors. Section 2. Staff and Divisional Officers. The Chief Executive Officer may appoint at his discretion such persons to hold the title of staff vice president, divisional chairman, divisional president, divisional vice president or other similar designation. Such persons shall not be officers of the Corporation and shall retain such title at the sole discretion of the Chief Executive Officer who may at his will and from time to time make or revoke such designation. Section 3. Terms of Office. All officers, agents, and employees of the Corporation shall hold their respective offices or positions at the pleasure of the Board of Directors or the appropriate appointing authority and may be removed at any time by such authority with or without cause. Section 4. Duties. The officers, agents, and employees shall perform the duties and exercise the powers usually incident to the offices or positions held by them respectively, and/or such other duties and powers as may be assigned to them from time to time by the Board of Directors or the Chief Executive Officer. ARTICLE VI. INDEMNIFICATION OF DIRECTORS, OFFICERS, AND EMPLOYEES Section 1. The Corporation shall indemnify to the full extent permitted by, and in the manner permissible under the Delaware General Corporation Law, as amended from time to time, any person made, or threatened to be made, a party to any action, suit, or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that such person is or was a director, advisory director, or officer of the Corporation or any predecessor of the Corporation, or served any other enterprise as a director, advisory director or officer at the request of the Corporation or any predecessor of the Corporation. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any director, advisory director, or officer may be entitled apart from the provisions of this Article. The Board of Directors in its discretion shall have power on behalf of the Corporation to indemnify any person, other than a director, advisory director or officer, made a party to any action, suit, or proceeding by reason of the fact that such person, or the testator or intestate of such person, is or was an employee of the Corporation. Section 2. Expenses incurred by a director, advisory director or officer in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, advisory director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by Delaware law. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. ARTICLE VII. STOCK Section 1. Stock Certificates. The interest of each stockholder of the Corporation shall be evidenced by a certificate or certificates for shares of stock in such form as the Board of Directors may from time to time prescribe. The shares of the stock of the Corporation shall be transferable on the books of the Corporation by the holder thereof in person or by his attorney upon surrender for cancellation of a certificate or certificates for the same number of shares with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the validity of the signature as the Corporation or its agents may reasonably require. Section 2. Signatures. The certificates of stock shall be signed by the Chairman, President, or a Vice President and by the Secretary or an Assistant Secretary, provided that if such certificates are signed by a transfer agent or transfer clerk and by a registrar, the signatures of such Chairman, President, Vice President, Secretary, or Assistant Secretary may be facsimiles, engraved, or printed. Section 3. Replacement. No certificate for shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, stolen, or destroyed except upon production of such evidence of such loss, theft, or destruction and upon delivery to the Corporation of a bond of indemnity in such amount, and upon such terms and secured by such surety as the Board of Directors or the Executive Committee in its discretion may require. ARTICLE VIII. MISCELLANEOUS Section 1. Seal. The Corporation seal shall bear the name of the Corporation, the date 1929 and the words "Corporation Seal, Delaware". Section 2. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January in each year and shall end on the thirty-first day of December following. ARTICLE IX. AMENDMENTS Section 1. These Bylaws, or any of them, may from time to time be supplemented, amended, or repealed (a) by a majority vote of the entire Board of Directors or (b) at any annual or special meeting of the stockholders. ARTICLE X. EMERGENCY BYLAW Section 1. Operative Event. The Emergency Bylaw provided in this Article X shall be operative during any emergency resulting from an attack on the United States, any nuclear or atomic incident, or other event which creates a state of disaster of sufficient severity to prevent the normal conduct and management of the affairs and business of the Corporation, notwithstanding any different provision in the preceding articles of the Bylaws or in the Certificate of Incorporation of the Corporation or in the General Corporation Law of Delaware. To the extent not inconsistent with this Emergency Bylaw, the Bylaws provided in the preceding Articles shall remain in effect during such emergency and upon the termination of such emergency the Emergency Bylaw shall cease to be operative unless and until another such emergency shall occur. Section 2. Notice of Meeting. During any such emergency, any meeting of the Board of Directors may be called by any officer of the Corporation or by any Director. Notice shall be given by such person or by any officer of the Corporation. The notice shall specify the place of the meeting, which shall be the head office of the Corporation at the time if feasible and otherwise any other place specified in the notice. The notice shall also specify the time of the meeting. Notice may be given only to such of the Directors as it may be feasible to reach at the time and by such means as may be feasible at the time, including publication or radio. If given by mail, messenger, telephone, or telegram, the notice shall be addressed to the Directors at their residences or business addresses, or such other places as the person giving the notice shall deem most suitable. Notice shall be similarly given, to the extent feasible, to the other persons serving as Directors referred to in Section 3 below. Notice shall be given at least two days before the meeting if feasible in the judgment of the person giving the notice and otherwise on any shorter time he may deem necessary. Section 3. Quorum. During any such emergency, at any meeting of the Board of Directors, a quorum shall consist of one-third of the number of Directors fixed at the time pursuant to Article III of the Bylaws. If the Directors present at any particular meeting shall be fewer than the number required for such quorum, other persons present, to the number necessary to make up such quorum, shall be deemed Directors for such particular meeting as determined by the following provisions and in the following order of priority: (a) All Executive Vice Presidents of the Corporation in order of their seniority of first election to such office, or if two or more shall have been first elected to such office on the same day, in the order of their seniority in age; and (b) All Senior Vice Presidents of the Corporation in order of their seniority of first election to such office, or if two or more shall have been first elected to such office on the same day, in the order of their seniority in age; and (c) All Vice Presidents of the Corporation in order of their seniority of first election to such office, or if two or more shall have been first elected to such office on the same day, in the order of their seniority in age; and (d) Any other persons that are designated on a list that shall have been approved by the Board of Directors before the emergency, such persons to be taken in such order of priority and subject to such conditions as may be provided in the resolution approving the list. Section 4. Lines of Management Succession. The Board of Directors, during as well as before any such emergency, may provide and from time to time modify lines of succession in the event that during such an emergency any or all officers or agents of the Corporation shall for any reason be rendered incapable of discharging their duties. Section 5. Office Relocation. The Board of Directors, during as well as before any such emergency, may, effective in the emergency, change the head office or designate several alternative head offices or regional offices, or authorize the officers to do so. Section 6. Liability. No officer, director, or employee acting in accordance with this Emergency Bylaw shall be liable except for willful misconduct. Section 7. Repeal or Amendment. This Emergency Bylaw shall be subject to repeal or change by further action of the Board of Directors or by action of the stockholders, except that no such repeal or change shall modify the provisions of the next preceding paragraph with regard to action or inaction prior to the time of such repeal or change. Any such amendment of this Emergency Bylaw may make any further or different provision that may be practical and necessary for the circumstances of the emergency deems it to be in the best interest of the Corporation to do so. EX-10.A 3 1996 STOCK INCENTIVE PLAN EXHIBIT 10.a FIRST BANK SYSTEM, INC. 1996 STOCK INCENTIVE PLAN SECTION 1. PURPOSE; EFFECT ON PRIOR PLANS. (a) PURPOSE. The purpose of the First Bank System, Inc. 1996 Stock Incentive Plan (the "Plan") is to aid in attracting and retaining management personnel and members of the Board of Directors who are not also employees ("Non-Employee Directors") of First Bank System, Inc. (the "Company") capable of assuring the future success of the Company, to offer such personnel and Non-Employee Directors incentives to put forth maximum efforts for the success of the Company's business and to afford such personnel and Non-Employee Directors an opportunity to acquire a proprietary interest in the Company. (b) EFFECT ON PRIOR PLANS. The Company hereby adopts these proposed amendments and restatements of the 1991 Stock Incentive Plan and the 1994 Stock Incentive Plan, subject to stockholder approval. As so amended, restated, established and approved, the Plan shall be known as the 1996 Stock Incentive Plan. All outstanding options issued, restricted stock issued and other awards issued under other plans of the Company shall remain subject to the terms and conditions of the plans under which they were issued, but shares of stock relating to outstanding options, restricted stock or other awards under the 1991 Stock Incentive Plan and the 1994 Stock Incentive Plan are considered as shares of stock subject to the Plan under Section 4 of the Plan. SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, as determined by the Committee. (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award or other Stock-Based Award granted under the Plan. (c) "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (e) "Committee" shall mean a committee of the Board of Directors of the Company designated by such Board to administer the Plan and composed of not less than three directors, each of whom is a "disinterested person" within the meaning of Rule 16b-3. Each member of the Committee shall be an "outside director" within the meaning of Section 162(m) of the Code. (f) "Eligible Person" shall mean any employee, officer, consultant or independent contractor providing services to the Company or any Affiliate who the Committee determines to be an Eligible Person. Eligible Person shall not include any Non-Employee Director, who shall receive Awards only pursuant to Section 6(g) of the Plan. (g) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee or, in the case of grants pursuant to Section 6(g), the Board of Directors. Notwithstanding the foregoing, for purposes of the Plan, the Fair Market Value of Shares on a given date shall be the closing price of the Shares as reported on the New York Stock Exchange on such date, if the Shares are then quoted on the New York Stock Exchange. (h) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision. (i) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan, or Section 6(g) of the Plan in the case of grants to Non-Employee Directors, that is not intended to be an Incentive Stock Option. (j) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (k) "Other Stock-Based Award" shall mean any right granted under Section 6(e) of the Plan. (l) "Participant" shall mean an Eligible Person designated to be granted an Award under the Plan. (m) "Performance Award" shall mean any right granted under Section 6(d) of the Plan. (n) "Person" shall mean any individual, corporation, partnership, association or trust. (o) "Restricted Stock" shall mean any Share granted under Section 6(c) of the Plan. (p) "Restricted Stock Unit" shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date. (q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. (r) "Shares" shall mean shares of Common Stock, $1.25 par value, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 7(c) of the Plan. (s) "Stock Appreciation Right" shall mean any right granted under Section 6(b) of the Plan. SECTION 3. ADMINISTRATION. The Plan shall be administered by the Committee; provided, however, that Section 6(g) of the Plan shall not be administered by the Committee but rather by the Board of Directors subject to the provisions and restrictions of such Section 6(g). Subject to the terms of the Plan and applicable law, and except with respect to Section 6(g) of the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of Options or the lapse of restrictions relating to Restricted Stock or Restricted Stock Units; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) determine whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or the Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate. SECTION 4. SHARES AVAILABLE FOR AWARDS. (a) SHARES AVAILABLE. Subject to adjustment as provided in Section 7(c), the number of Shares available for granting Awards under the Plan shall be 17,000,000 (5,000,000 of which were previously authorized under the 1991 Stock Incentive Plan, 5,000,000 of which were previously authorized under the 1994 Stock Incentive Plan and 7,000,000 of which will be authorized upon stockholder approval of the Plan). Not more than 1,000,000 of such Shares will be available for grant of additional Awards of Restricted Stock following the effective date of the Plan determined in accordance with Section 10 of the Plan. If any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. In addition, any Shares that are used by a Participant as full or partial payment to the Company of the purchase price relating to an Award, or in connection with satisfaction of tax obligations relating to an Award in accordance with the provisions of Section 8 of the Plan, shall again be available for granting Awards under the Plan. (b) ACCOUNTING FOR AWARDS. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. (c) INCENTIVE STOCK OPTIONS. Notwithstanding the foregoing, the number of Shares available for granting Incentive Stock Options under the Plan shall not exceed 7,000,000, subject to adjustment as provided in the Plan and Section 422 or 424 of the Code or any successor provisions. (d) AWARD LIMITATIONS UNDER THE PLAN. No Eligible Person may be granted any Award or Awards, the value of which Awards are based solely on an increase in the value of the Shares after the date of grant of such Awards, for more than 1,000,000 Shares, in the aggregate, in any calendar year beginning with the year commencing January 1, 1996. The foregoing limitation specifically includes the grant of any "performance-based" Awards within the meaning of ss.162(m) of the Code. SECTION 5. ELIGIBILITY. Any Eligible Person, including any Eligible Person who is an officer or director of the Company or any Affiliate, shall be eligible to be designated a Participant; PROVIDED, HOWEVER, that an Incentive Stock Option may only be granted to full or part-time employees (which term as used herein includes, without limitation, officers and directors who are also employees) and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code or any successor provision. Non-Employee Directors shall receive Awards of Non-Qualified Stock Options as provided in Section 6(g) of the Plan. SECTION 6. AWARDS. (a) OPTIONS. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (i) EXERCISE PRICE. The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. (ii) OPTION TERM. The term of each Option shall be fixed by the Committee. (iii) TIME AND METHOD OF EXERCISE. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made. (iv) RELOAD OPTIONS. The Committee may grant "reload" options, separately or together with another Option, pursuant to which, subject to the terms and conditions established by the Committee and any applicable requirements of Rule 16b-3 or any other applicable law, the Participant would be granted a new Option when the payment of the exercise price of a previously granted option is made by the delivery of shares of the Company's Common Stock owned by the Participant pursuant to Section 6(a)(iii) hereof or the relevant provisions of another plan of the Company, and/or when shares of the Company's Common Stock are tendered or forfeited as payment of the amount to be withheld under applicable income tax laws in connection with the exercise of an option, which new Option would be an option to purchase the number of Shares not exceeding the sum of (A) the number of shares of the Company's Common Stock provided as consideration upon the exercise of the previously granted option to which such "reload" option relates and (B) the number of shares of the Company's Common Stock tendered or forfeited as payment of the amount to be withheld under applicable income tax laws in connection with the exercise of the option to which such "reload" option relates. "Reload" options may be granted with respect to options granted under this Plan or any other stock option plan of the Company. Such "reload" options shall have a per share exercise price equal to the Fair Market Value as of the date of grant of the new Option. (b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to grant Stock Appreciation Rights to Participants subject to the terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate. (c) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (i) RESTRICTIONS. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. (ii) STOCK CERTIFICATES. Any Restricted Stock granted under the Plan shall be evidenced by issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the restrictions applicable to such Restricted Stock. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted. (iii) FORFEITURE; DELIVERY OF SHARES. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units at such time subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. Shares representing Restricted Stock that is no longer subject to restrictions shall be delivered to the holder thereof promptly after the applicable restrictions lapse or are waived. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holders of the Restricted Stock Units. (d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant Performance Awards to Participants subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee. (e) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan; provided, however, that such grants must comply with Rule 16b-3 and applicable law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(e) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted. (f) GENERAL. Except as otherwise specified with respect to Awards to Non-Employee Directors pursuant to Section 6(g) of the Plan: (i) NO CASH CONSIDERATION FOR AWARDS. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. (ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments. (iv) LIMITS ON TRANSFER OF AWARDS. No Award and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant. Each Award or right under any Award shall be exercisable during the Participant's lifetime only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. (v) TERM OF AWARDS. The term of each Award shall be for such period as may be determined by the Committee. (vi) RESTRICTIONS; SECURITIES EXCHANGE LISTING. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee (or, in the case of grants under Section 6(g) of the Plan, the Board of Directors) may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission and any applicable federal or state securities laws, and the Committee (or, in the case of grants under Section 6(g) of the Plan, the Board of Directors) may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange. (g) NON-QUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS. The Board of Directors shall issue Non-Qualified Stock Options to Non-Employee Directors in accordance with this Section 6(g). Each Non-Employee Director serving on the Company's Board of Directors immediately prior to the 1996 Annual Meeting of Stockholders of the Company was granted an Option to purchase 2,500 Shares (subject to adjustment pursuant to Section 7(c) of the Plan) pursuant to the terms of the 1991 Stock Incentive Plan. Each Non-Employee Director first elected or appointed to the Company's Board of Directors after the 1996 Annual Meeting of Stockholders and during the term of the Plan shall be granted, as of the date of such Director's first election or appointment to the Board of Directors, a Non-Qualified Stock Option to purchase 2,500 Shares (subject to adjustment pursuant to Section 7(c) of the Plan). After the initial grant to each Non-Employee Director as set forth above in this Section 6(g), each such Director shall be granted during the term of the Plan, as of the date of each Annual Meeting of Stockholders of the Company commencing with the 1996 Annual Meeting of Stockholders of the Company, if such Director's term of office continues after such date, a Non-Qualified Stock Option to purchase 1,500 Shares (subject to adjustment pursuant to Section 7(c) of the Plan). Each Non-Qualified Stock Option granted to a Non-Employee Director pursuant to this Section 6(g) shall be exercisable in full as of the date of grant, shall have an exercise price equal to the Fair Market Value of a Share on the date of grant and shall expire on the tenth anniversary of the date of grant, except as provided below. This Section 6(g) shall not be amended more than once every six months other than to comport with changes in the Code, the Employee Retirement Income Security Act or the rules and regulations thereunder. Except as hereinafter provided, each Option granted pursuant to this Section 6(g) (including those Options granted pursuant to Section 6(h) of the 1991 Stock Incentive Plan as provided therein) shall include a provision entitling the optionee to a further Non-Qualified Stock Option (a "Non-Employee Director Reload Option") in the event the optionee exercises such an Option, in whole or in part, by surrendering other Shares in accordance with this Section 6(g) and the terms of the Option. Any such Non-Employee Director Reload Option (i) shall be for a number of Shares equal to the number of Shares surrendered as part or all of the exercise price of the Option to which it relates; (ii) shall have an expiration date which is the same as the expiration date of the Option to which it relates; (iii) shall have an exercise price equal to the Fair Market Value of a Share on the date of exercise of the Option to which it relates; and (iv) shall be exercisable in full as of the date of grant. A Non-Employee Director Reload Option may be reloaded under the same terms, provided that the original Option to which such series of Non-Employee Director Reload Options relates may be reloaded a maximum of three times. Non-Employee Director Reload Options shall only be granted to a Director during such Director's term as a Non-Employee Director. Any such Non-Employee Director Reload Option shall be subject to availability of sufficient shares for grant under the Plan. Shares surrendered as part or all of the exercise price of the Option to which it relates that have been owned by the optionee less than six months will not be counted for purposes of determining the number of Shares that may be purchased pursuant to a Non-Employee Director Reload Option. All grants of Non-Qualified Stock Options pursuant to this Section 6(g) shall be automatic and non-discretionary and shall be made strictly in accordance with the foregoing terms and the following additional provisions: (i) Non-Qualified Stock Options granted to a Non-Employee Director hereunder shall terminate and may no longer be exercised if such Director ceases to be a Non-Employee Director of the Company, except that: (A) If such Director's term shall be terminated for any reason other than gross and willful misconduct, death, disability, or retirement, such Director may at any time within a period of three months after such termination, but not after the termination date of the Option, exercise the Option. (B) If such Director's term shall be terminated by reason of gross and willful misconduct during the course of the term, including but not limited to, wrongful appropriation of funds of the Company or the commission of a gross misdemeanor or felony, the Option shall be terminated as of the date of the misconduct. (C) If such Director's term shall be terminated by reason of disability or retirement, such Director may exercise the Option in accordance with the terms thereof as though such termination had never occurred. If such Director shall die following any such termination, the Option may be exercised in accordance with its terms by the personal representatives or administrators of such Director or by any person or persons to whom the Option has been transferred by will or the applicable laws of descent and distribution. (D) If such Director shall die while a Director of the Company or within three months after termination of such Director's term for any reason other than disability or retirement or gross and willful misconduct, the Option may be exercised in accordance with its terms by the personal representatives or administrators of such Director or by any person or persons to whom the Option has been transferred by will or the applicable laws of descent and distribution. (ii) Non-Qualified Stock Options granted to Non-Employee Directors may be exercised in whole or in part from time to time by serving written notice of exercise on the Company at its principal executive offices, to the attention of the Company's Secretary. The notice shall state the number of shares as to which the Option is being exercised and be accompanied by payment of the purchase price. A Non-Employee Director may, at such Director's election, pay the purchase price by check payable to the Company, by promissory note, or in shares of the Company's Common Stock, or in any combination thereof having a Fair Market Value on the exercise date equal to the applicable exercise price. If payment or partial payment is made by promissory note, such note shall be a full recourse note and shall (A) be secured by the Shares to be delivered upon exercise of such Option, (B) be limited in principal amount to the maximum amount permitted under applicable laws, rules and regulations, (C) be for a term of six years and (D) bear interest at the applicable federal rate (as determined in accordance with Section 1274(d) of the Code), compounded semi-annually. SECTION 7. AMENDMENT AND TERMINATION; ADJUSTMENTS. Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan: (a) AMENDMENTS TO THE PLAN. The Board of Directors of the Company may amend, alter, suspend, discontinue or terminate the Plan; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the stockholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval: (i) would cause Rule 16b-3 to become unavailable with respect to the Plan; (ii) would violate the rules or regulations of the New York Stock Exchange, any other securities exchange or the National Association of Securities Dealers, Inc. that are applicable to the Company; or (iii) would cause the Company to be unable, under the Code, to grant Incentive Stock Options under the Plan. (b) AMENDMENTS TO AWARDS. Except with respect to Awards granted pursuant to Section 6(g) of the Plan, the Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. The Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, without the consent of the Participant or holder or beneficiary thereof, except as otherwise herein provided. (c) ADJUSTMENTS. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company or other similar corporate transaction or event affecting the Shares would be reasonably likely to result in the diminution or enlargement of any of the benefits or potential benefits intended to be made available under the Plan or under an Award (including, without limitation, the benefits or potential benefits of provisions relating to the term, vesting or exercisability of any Option, the availability of any tandem stock appreciation rights or "reload" option rights, if any, contained in any Option Award, and any "change in control" or similar provisions of any Award), the Committee (or, in the case of grants under Section 6(g) of the Plan, the Board of Directors) shall, in such manner as it shall deem equitable or appropriate in order to prevent such diminution or enlargement of any such benefits or potential benefits, adjust any or all of (i) the number and type of Shares (or other securities or other property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number. (d) CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee (or, in the case of grants under Section 6(g) of the Plan, the Board of Directors) may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect. SECTION 8. INCOME TAX WITHHOLDING. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all federal and state taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined. SECTION 9. GENERAL PROVISIONS. (a) NO RIGHTS TO AWARDS. Except as otherwise provided in Section 6(g) of the Plan, no Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to different Participants. (b) DELEGATION. The Committee may delegate to one or more officers of the Company or any Affiliate or a committee of such officers the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to Eligible Persons who are not officers or directors of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended. (c) AWARD AGREEMENTS. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company. (d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (e) NO RIGHT TO EMPLOYMENT, ETC. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ, or as giving a Non-Employee Director the right to continue as a Director, of the Company or any Affiliate. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment, or terminate the term of a Non-Employee Director, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (f) GOVERNING LAW. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Minnesota. (g) SEVERABILITY. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee (or, in the case of grants under Section 6(g) of the Plan, the Board of Directors), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee (or, in the case of grants under Section 6(g) of the Plan, the Board of Directors), materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect. (h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee (or, in the case of grants under Section 6(g) of the Plan, the Board of Directors) shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. (j) HEADINGS. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. (k) SECTION 16 COMPLIANCE. The Plan is intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time and in all events the Plan shall be construed in accordance with the requirements of Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative. The Board of Directors, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan with respect to persons who are officers or directors subject to Section 16 of the Securities and Exchange Act of 1934, as amended, without so restricting, limiting or conditioning the Plan with respect to other Participants. SECTION 10. EFFECTIVE DATE OF THE PLAN. The Plan shall be effective as of the date of its approval by the stockholders of the Company. SECTION 11. TERM OF THE PLAN. Awards shall only be granted under the Plan during a 10-year period beginning on the effective date of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond the end of such 10-year period, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond the end of such period. EX-10.B 4 EXMPLOYEE STOCK PURCHASE PLAN 1984 EXHIBIT 10.b FIRST BANK SYSTEM, INC. EMPLOYEE STOCK PURCHASE PLAN 1984 (As Amended and Restated February 15, 1989 and As Amended and Restated April 24, 1991 and reflecting further amendments through April 17, 1996) ARTICLE I. INTRODUCTION Section 1.01 Purpose. The purpose of this 1984 Employee Stock Purchase Plan (amended and restated as of February 15, 1989) (the "Plan") is to provide employees of First Bank System, Inc., a Delaware corporation (the "Company"), and certain related corporations with an opportunity to share in the ownership of the Company by providing them with a convenient means for regular and systematic purchases of the Company's Common Stock, par value $1.25 per share, and, thus, to develop a stronger incentive to work for the continued success of the Company. The Plan shall constitute an amendment and restatement of the Company's existing 1984 Employee Stock Purchase Plan (as amended January 31, 1987) (the "Former Plan") and as such shall supersede and replace the Former Plan. No additional offers to purchase shares of the Company's Common Stock or any other rights or benefits shall be provided or granted under the Former Plan; provided, however, that the Former Plan shall deem to be outstanding to the extent necessary solely for the purpose of determining the terms and conditions of any such purchase offer or other rights previously granted under the Former Plan. Section 1.02 Rules of Interpretation. It is intended that the Plan be an "employee stock purchase plan"as defined in Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations promulgated thereunder, if approved by the Company's shareholders. Accordingly, the Plan will be interpreted and administered in a manner consistent therewith if so approved. All Participants in the Plan will have the same rights and privileges consistent with the provisions of the Plan. Section 1.03 Definitions. For purposes of the Plan, the following terms will have the meanings set forth below: (a) "Acceleration Date" means the earlier of the date of shareholder approval or approval by the Company's Board of Directors of (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Company Stock would be converted into cash, securities or other property, other than a merger of the Company in which shareholders immediately prior to the merger have the same proportionate ownership of stock in the surviving corporation immediately after the merger; (ii) any sale lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the assets of the Company; or (iii) any plan of liquidation or dissolution of the Company. (b) "Affiliate" means any parent or subsidiary corporation of the Company, as defined in Sections 425(e) and 425(f) of the Code, whether now or hereafter acquired or established. (c) "Committee" means the committee appointed under Section 10.01. (d) "Company" means First Bank System, Inc. a Delaware corporation, and its successors by merger or consolidation as contemplated by Article XI herein. (e) "Current Compensation" means all gross cash compensation (including wage, salary, incentive, bonus and overtime earnings) paid by the Company or an Affiliate to a Participant, but excluding all expense allowances or reimbursements, stock options and compensation or income payable in a form other than cash, but including amounts which would have constituted compensation but for a Participant's election to defer or reduce compensation pursuant to any deferred compensation, cafeteria, capital accumulation or any other similar plan provided by the Company. (f) "Fair Market Value" as of a given date means such value of the Common Stock as reasonably determined by the committee but which is not less than the last sale price as reported by the New York Stock Exchange. (g) "Participant" means a Permanent Full-Time Employee who is eligible to participate in the Plan under Section 2.01 and who has elected to participate in the Plan. (h) "Participating Affiliate" means an Affiliate which has been designated by the Committee in advance of the Purchase Period in question as a corporation whose eligible Permanent Full-Time Employees may participate in the Plan. (i) "Permanent Full-Time Employee" means an employee of the Company or a Participating Affiliate as of the first day of a Purchase Period, including an officer or director who is also an employee, except an employee whose customary employment is less than 20 hours per week or any employee who has not been employed by the Company or its Affiliates for more than one (1) year. (j) "Plan" means the First Bank System, Inc. 1984 Employee Stock Purchase Plan as amended and restated as of February 15, 1989), the provisions of which are set forth herein. (k) "Purchase Period" means a period beginning on such business day as may be designated by the Committee prior thereto and ending on the earlier of such business day as may be designated by the Committee prior to the first business day of such Purchase Period or any Acceleration Date; provided, however, that in no event shall the Committee designate a Purchase Period which is less than six (6) months in duration. (l) "Stock" means the Company's Common Stock, $1.25 par value, as such stock may be adjusted for changes in the stock or the Company as contemplated by Article XI herein. (m) "Stock Purchase Account" means the account maintained on the books and records of the Company recording the amount received from each Participant through payroll deductions made under the Plan. ARTICLE II. ELIGIBILITY AND PARTICIPATION Section 2.01 Eligible Employees. All Permanent Full-Time Employees shall be eligible to participate in the Plan beginning on the first day of the first Purchase Period to commence after such person becomes a Permanent Full-Time Employee. Subject to the provisions of Article VI, each such employee will continue to be eligible to participate in the Plan so long as he or she remains a Permanent Full-Time Employee. Section 2.02 Election to Participate. An eligible Permanent Full-Time Employee may elect to participate in the Plan for a given Purchase Period by filing with the Company, in advance of that Purchase Period and in accordance with such terms and conditions as the Committee in its sole discretion may impose, a form provided by the Company for such purpose (which authorizes regular payroll deductions from Current Compensation beginning with the first payday in that Purchase Period and continuing until the employee withdraws from the Plan or ceases to be eligible to participate in the Plan). Section 2.03 Limits on Stock Purchase. No employee shall be granted any right to purchase Stock hereunder if such employee, immediately after such a right to purchase is granted, would own, directly or indirectly, within the meaning of Section 423(b)(3) and Section 425(d) of the Code, stock possessing 5% or more of the total combined voting power or value of all the then classes of the capital stock of the Company or of all Affiliates. Section 2.04 Voluntary Participation. Participation in the Plan on the part of the Participant is voluntary and such participation is not a condition of employment nor does participation in the Plan entitle a Participant to be retained as an employee. ARTICLE III. PAYROLL DEDUCTIONS AND STOCK PURCHASE ACCOUNT Section 3.01 Deduction from Pay. The form described in Section 2.02 will permit a participant to elect payroll deductions of any whole dollar amount or whole percentage of Current Compensation for each pay period, subject to such limitations as the Committee in its sole discretion may impose. A Participant may cease making payroll deductions at any time, as provided in Section 6.01. Section 3.02 Credit to Account. Payroll deductions will be credited to the Participant's Stock Purchase Account on each payday. Section 3.03 Interest. No interest will be paid upon payroll deductions or on any amount credited to, or on deposit in, a Participant's Stock Purchase Account. Section 3.04 Nature of Account. The Stock Purchase Account is established solely for accounting purposes, and all amounts credited to the Stock Purchase Account will remain part of the general assets of the Company or the Participating Affiliate (as the case may be). Section 3.05 No Additional Contributions. A Participant may not make any payment into the Stock Purchase Account other than the payroll deductions made pursuant to the Plan. ARTICLE IV. RIGHT TO PURCHASE SHARES Section 4.01 Number of Shares. Each Participant will have the right to purchase on the last business day of the Purchase Period all, but not less than all, of the largest number of whole shares of Stock that can be purchased at the price specified in Section 4.02 with the entire credit balance in the Participant's Stock Purchase Account, subject to the limitations that (a) no more than 5,000 shares of Stock may be purchased under the Plan by any one Participant for a given Purchase Period and (b) in accordance with Section 423(b)(8) of the Code, no more than $25,000 in Fair Market Value (determined at the beginning of each Purchase Period) of Stock and other stock may be purchased under the Plan and all other employee stock purchase plans (if any) of the Company and the Affiliates by any one Participant for each calendar year. If the purchases for all Participants would otherwise cause the aggregate number of shares of Stock to be sold under the Plan to exceed the number specified in Section 10.03, however, each Participant shall be allocated a pro rata portion of the Stock to be sold. Section 4.02 Purchase Price. The purchase price for any Purchase Period shall be that price as announced by the Committee prior to the first business day of that Purchase Period, which price may, in the discretion of the Committee, be a price which is not fixed or determinable as of the first business day of that Purchase Period; provided, however, that in no event shall the purchase price for any Purchase Period be less than (a) 85% of the Fair Market Value of the Stock on the first business day of that Purchase Period or (b) 85% of the Fair Market Value of the Stock on the last business day of that Purchase Period, in each case rounded up to the next higher full cent, whichever is lower. ARTICLE V. EXERCISE OF RIGHT Section 5.01 Purchase of Stock. On the last business day of a Purchase Period, the entire credit balance in each Participant's Stock Purchase Account will be used to purchase the largest number of whole shares of Stock purchasable with such amount (subject to the limitations of Section 4.01), unless the Participant has filed with the Company, in advance of that date and subject to such terms and conditions as the Committee in its sole discretion may impose, a form provided by the Company (which elects to receive the entire credit balance in cash). Section 5.02 Cash Distributions. Any amount remaining in a Participant's Stock Purchase Account after the last business day of a Purchase Period will be paid to the Participant in cash within 30 days after the end of that Purchase Period. Section 5.03 Notice of Acceleration Date. The Company shall use its best efforts to notify each Participant in writing at least ten days prior to any Acceleration Date that the then current Purchase Period will end on such Acceleration Date. ARTICLE VI. WITHDRAWAL FROM PLAN Section 6.01 Voluntary Withdrawal. A Participant may, in accordance with such terms and conditions as the Committee in its sole discretion may impose, withdraw from the Plan and cease making payroll deductions by filing with the Company a form provided for this purpose. In such event, the entire credit balance in the Participant's Stock Purchase Account will be paid to the Participant in cash within 30 days. A Participant who withdraws from the Plan will not be eligible to reenter the Plan until the beginning of the next Purchase Period. Section 6.02 Death. Subject to such terms and conditions as the Committee in its sole discretion may impose, upon the death of a Participant, no further amounts shall be credited to the Participant's Stock Purchase Account. Thereafter, on the last business day of the Purchase Period during which such Participant's death occurred and in accordance with Section 5.01, the entire credit balance in such Participant's Stock Purchase Account will be used to purchase Stock, unless Participant's estate has filed with the Company, in advance of that day and subject to such terms and conditions as the Committee in it sole discretion may impose, a form provided by the Company which elects to have the entire credit balance in such Participant's Stock Purchase Account will be used to purchase Stock, unless Participant's estate has filed with the Company, in advance of that day and subject to such terms and conditions as the Committee in its sole discretion may impose, a form provided by the Company which elects to have the entire credit balance in such participant's Stock Account distributed in cash, in accordance with Section 5.02 or at such earlier time as the Committee in its sole discretion may decide. Each Participant, however, may designate one or more beneficiaries who, upon death, are to receive the stock or the amount that otherwise would have been distributed or paid to the Participant's estate and may change or revoke any such designation from time to time. No such designation, change or revocation will be effective unless made by the Participant in writing and filed with the Company during the Participant's lifetime. Unless the Participant has otherwise specified in the beneficiary designation, the beneficiary or beneficiaries so designated will become fixed as of death so that, if a beneficiary survives the Participant but dies before the receipt of the payment due such beneficiary, the payment will be made to such beneficiary's estate. Section 6.03 Termination of Employment. Subject to such terms and conditions as the Committee in its sole discretion may impose, upon a Participant's normal or early retirement with the consent of the Company under any pension or retirement plan of the Company or Participating Affiliate, no further amounts shall be credited to the Participant's Stock Purchase Account. Thereafter, on the last business day of the Purchase Period during which such Participant's approved retirement occurred and in accordance with Section 5.01, the entire credit balance in such Participant's Stock Purchase Account will be used to purchase Stock, unless such Participant has filed with the Company, in advance of that day and subject to such terms and conditions as the Committee in its sole discretion may impose, a form provided by the Company which elects to receive the entire credit balance in such Participant's Stock Purchase Account in cash, in accordance with Section 5.02; provided, however, that such Participant shall have no right to purchase Stock in the event that the last day of such a Purchase Period occurs more than three (3) months following the termination of such Participant's employment with the Company by reason of such an approved retirement. In the event of any other termination of employment (other than death) with the Company or a Participatory Affiliate by a Participant, participation in the Plan will cease on the date the Participant ceases to be a Permanent Full-Time Employee for any reason. In such event, the entire credit balance in such Participant's Stock Purchase Account will be paid to the Participant in cash within 30 days. For purposes of this Section, a transfer of employment to any Affiliate, or a leave of absence which has been approved by the Committee, will not be deemed a termination of employment as a Permanent Full-Time Employee. ARTICLE VII. NONTRANSFERABILITY Section 7.01 Nontransferable Right to Purchase. The right to purchase Stock hereunder may not be assigned, transferred, pledged or hypothecated (whether by operation of law or otherwise), except as provided in Section 6.02, and will not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition or levy of attachment or similar process upon the right to purchase will be null and void and without effect. Section 7.02 Nontransferable Account. Except as provided in Section 6.02, the amounts credited to a Stock Purchase Account may not be assigned, transferred, pledged or hypothecated in any way, and any attempted assignment, transfer, pledge, hypothecation or other disposition of such amount will be null and void and without effect. ARTICLE VIII. STOCK CERTIFICATES Section 8.01 Delivery. Promptly after the last day of each Purchase Period and subject to such terms and conditions as the Committee in its sole discretion may impose, the Company will cause to be delivered to or for the benefit of the Participant a certificate representing the Stock purchased on the last business day of such Purchase Period. Section 8.02 Securities Laws. The Company shall not be required to issue or deliver any certificate representing Stock prior to registration under the Securities Act of 1933, as amended, or registration or qualification under any state law if such registration is required. The Company will use its best efforts to accomplish such registration (if and to the extent required) not later than a reasonable time following the Purchase Period, and delivery of certificates may be deferred until such registration is accomplished. Section 8.03 Completion of Purchase. A Participant will have no interest in the Stock purchased until a certificate representing the same is issued to or for the benefit of the Participant. Section 8.04 Form of Ownership. The certificates representing Stock issued under the Plan will be registered in the name of the Participant or jointly in the name of the Participant and another person, as the Participant may direct on a form provided by the Company. ARTICLE IX. EFFECTIVE DATE AND AMENDMENT OR TERMINATION OF PLAN Section 9.01 Effective Date. The Plan will become effective on February 15, 1989, but only if the Plan is approved by the Company's shareholders at their 1989 annual meeting. Section 9.02 Powers of Board. The Board of Directors of the Company may at any time amend or terminate the Plan, except that no amendment will be made without prior approval of the shareholders which would (a) authorize an increase in the number of shares of Stock which may be purchased under the Plan, except as provided in Section 11.01, (b) permit the issuance of Stock before payment therefor in full, or (c) reduce the price per share at which the Stock may be purchased. Section 9.03 Automatic Termination. No Purchase Period shall begin after May 1, 2001. ARTICLE X. ADMINISTRATION Section 10.01 Appointment of Committee. The Board of Directors of the Company shall appoint a Committee to administer the Plan consisting of three or more persons (who may, but need not be, directors of the Company or of a Participating Affiliate). The Board will determine the size of the Committee from time to time and will have the power to remove and replace the members thereof. Section 10.02. Powers of Committee. Subject to the provisions of the Plan, the Committee will have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan, to establish deadlines by which the various administrative forms must be received in order to be effective, and to adopt such other rules and regulations for administering the Plan as it may deem appropriate. The Committee shall have full and complete authority to determine whether all or any part of the Stock acquired pursuant to the Plan shall be subject to restrictions on the transferability thereof or any other restrictions affecting in any manner a Participant's rights with respect thereto but any such restrictions shall be contained in the form by which a Participant elects to participate in the Plan pursuant to Section 2.02. Decisions of the Committee will be final and binding on all parties who have an interest in the Plan. Section 10.03 Stock to be Sold. The Stock to be issued and sold under the Plan may be treasury stock or authorized but unissued Stock, or the Company may purchase Stock in the market for sale under the Plan. Except as provided in Section 11.01, the aggregate number of shares of Stock to be sold under the Plan will not exceed 4,600,000 shares. Section 10.03. Notices. Notices to the Committee should be addressed as follows: First Bank System, Inc. 1200 First Bank Place East Minneapolis, Minnesota 55480 Attn: Employee Stock Purchase Plan Committee ARTICLE XI. ADJUSTMENT FOR CHANGES IN STOCK OR COMPANY Section 11.01 Stock Dividend or Reclassification. If the outstanding shares of Stock are increased, decreased, changed into or exchanged for a different number or kind of securities of the Company, or shares of a different par value or without par value, through reorganization, recapitalization, reclassification, stock dividend, stock split, amendment to the Company's Articles of Incorporation, reverse stock split or otherwise, an appropriate adjustment shall be made in the maximum numbers and/or kind of securities to be sold under this Plan with a corresponding adjustment in the purchase price to be paid therefor. Section 11.02 Merger or Consolidation. If the Company is merged into or consolidated with one or more corporations during the term of the Plan, appropriate adjustments will be made to give effect thereto on an equitable basis in terms of issuance of shares of the corporation surviving the merger or of the consolidated corporation, as the case may be. ARTICLE XII. APPLICABLE LAW Rights to purchase Stock granted under this Plan shall be construed and shall take effect in accordance with the laws of the State of Minnesota. ARTICLE XIII. PARTICIPATION OF NON-EMPLOYEE DIRECTORS Section 13.01 Eligible Directors. Each director of the Company is eligible to participate in the Plan pursuant to this Article XIII unless such director is an employee of the Company or Affiliate. An eligible director is herein referred to as a "non-employee Director." A Non-employee Director shall be eligible to participate in the Plan beginning on the first day of the first Purchase Period to commence after such person becomes a Non-employee Director. Subject to the provisions of this Article XIII, each such Non-employee Director will continue to be eligible to participate in the Plan so long as he or she remains a Non-employee Director. Section 13.02 Election to Participate. A Non-employee Director may elect to participate in the Plan by filing with the Company, in advance of the first succeeding Purchase Period following adoption of this Article XIII or, in the case of a newly appointed or elected Non-employee Director, following such appointment or election, a form provided by the Company for such purpose (which authorizes the Company to deduct for the purchase of Stock hereunder all or a portion of the Director Compensation (as defined below) that such Non-employee Director is entitled to receive for the period beginning with the first day in that Purchase Period and continuing until the Non-employee Director ceases to be eligible to participate in the Plan). "Director Compensation" shall mean all amounts which the director would be entitled to receive for serving as a director in the relevant Purchase Periods, including fees for attendance at meetings of the Board of Directors or any committee of the Board of Directors or for any other services as a director of the Company. Section 13.03. Deduction from Director Compensation. The form described in Section 13.02 will permit a Non-employee Director to elect deductions of any whole dollar amount or whole percentage of Director Compensation to be used to purchase Stock hereunder. Director Compensation will be credited to the Non-employee Director's Stock Purchase Account on each day that Director Compensation would otherwise be paid to such Non-employee Director, subject to Section 3.04. Section 13.04 Interest. No interest will be paid upon deductions from Director Compensation or on any amount credited to, or on deposit in, a Nonemployee Director's Stock Purchase Account. Section 13.05 No Additional Contributions. A Non-employee Director may not make any payment into the Stock Purchase Account other than the deductions from Director Compensation made pursuant to the Plan. Section 13.06 Purchase of Shares; Purchase Price. (a) Each Non-employee Director will automatically purchase on the last day of the Purchase Period all of the largest number of whole shares of stock that can be purchased at the purchase price specified in Section 13.06(b) with the entire credit balance in the Non-employee Director's Stock Purchase Account. Any amount remaining in a Non-employee Director's Stock Purchase Account after the last business day of a Purchase Period will remain in the Non-employee Director's Stock Purchase Account, except that for the Purchase Period in which the Non-employee Director ceases to be eligible to participate in the Plan, any amount remaining in such account after giving effect to the purchase for such period will be paid to the Non-employee director in cash within 30 days. (b) The purchase price for Non-employee Directors for any Purchase Period shall be the lower of (i) 85% of the Fair Market Value of the Stock on the first business day of that Purchase Period or (b) 85% of the Fair Market Value of the Stock on the last business day of that Purchase Period, in each case rounded up to the next higher full cent. Section 13.07 No Voluntary Withdrawal. A Non-employee Director may not voluntarily withdraw from the Plan. Section 13.08 Death. Upon the death of a Non-employee Director, no further amounts shall be credited to the Non-employee Director's Stock Purchase Account. Thereafter, on the last business day of the Purchase Period during which such Non-employee Director's death occurred and in accordance with Section 13.06, the entire credit balance in such Non-employee Director's Stock Purchase Account will be used to purchase Stock. Each Non-employee Director, however, may designate one or more beneficiaries who, upon death, are to receive the stock and any amount that otherwise would have been distributed or paid to the Non-employee Director's estate and may change or revoke any such designation from time to time. No such designation, change or revocation will be effective unless made by the Non-employee Director in writing and filed with the Company during the Non-employee Director's lifetime. Unless the Non-employee Director has otherwise specified in the beneficiary designation, the beneficiary or beneficiaries so designated will become fixed as of death so that, if a beneficiary survives the Non-employee Director but dies before the receipt of the payment due such beneficiary, the payment will be made to such beneficiary's estate. Section 13.10 Termination as a Director. Participation in the Plan will cease on the date the Non-employee Director ceases to be eligible to participate in the Plan pursuant to Section 13.01. In such event, on the last business day of the Purchase Period during which such Non-employee Director ceased to be eligible under Section 13.01 and in accordance with Section 13.06 the entire credit balance in such Non-employee Director's Stock Purchase Account will be used to purchase Stock. Section 13.11 Nontransferable Right to Purchase. The right to purchase Stock hereunder may not be assigned, transferred, pledged or hypothecated (whether by operation of law or otherwise), except as provided in Section 13.08 and will not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition or levy of attachment or similar process upon the right to purchase will be null and void and without effect. Section 13.12 Nontransferable Account. Except as provided in Section 13.08 the amounts credited to a Stock Purchase Account may not be assigned, transferred, pledged or hypothecated in any way, and any attempted assignment, transfer, pledge, hypothecation or other disposition of such amounts will be null and void and without effect. Section 13.13 Stock Certificates. All matters pertaining to the issuance and delivery of and the Non-employee Director's interest in the Stock purchased pursuant to this Plan and the certificates representing such Stock shall be governed by Article VIII. Section 13.14 Tax Matters. This Article XIII is not subject to Section 423 of the Code or any other provision of the Plan which refers to, or is based upon, such section. For tax purposes, this Article XIII shall be treated as separate and apart from the balance of the Plan. EX-11 5 COMPUTATION OF INCOME PER COMMON SHARE EXHIBIT 11 COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER COMMON SHARE
THREE MONTHS ENDED MARCH 31 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1996 1995 PRIMARY: Average shares outstanding 134,586,125 133,797,144 Net effect of the assumed purchase of stock under the stock option and stock purchase plans--based on the treasury stock method using average market price 2,434,786 1,748,589 137,020,911 135,545,733 Net income $176.8 $133.8 Preferred dividends (1.7) (1.9) Net income applicable to common equity $175.1 $131.9 Net income per common share $1.28 $.97 FULLY DILUTED:* Average shares outstanding 134,586,125 133,797,144 Net effect of the assumed purchase of stock under the stock option and stock purchase plans--based on the treasury stock method using average market price or period-end market price, whichever is higher 2,693,688 2,151,338 Assumed conversion of Series 1991A Preferred Stock 3,443,702 3,655,684 140,723,515 139,604,166 Net income $176.8 $133.8 Preferred dividends, excluding 1991A Preferred Stock -- -- Net income applicable to common equity $176.8 $133.8 Net income per common share $1.26 $.96
*This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 17 of APB Opinion No. 15 because it results in dilution of less than 3%. EX-12 6 COMPUTATION OF EARNINGS TO FIXED CHARGES EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended March 31 (Dollars In Millions) 1996 EARNINGS 1. Net income $176.8 2. Applicable income taxes 125.9 3. Net income before taxes (1 + 2) $302.7 4. Fixed charges: a. Interest expense excluding interest on deposits $113.0 Portion of rents representative of interest and amortization of debt b. expense 6.6 c. Fixed charges excluding interest on deposits (4a + 4b) 119.6 d. Interest on deposits 167.0 e. Fixed charges including interest on deposits (4c + 4d) $286.6 5. Amortization of interest capitalized $-- 6. Earnings excluding interest on deposits (3 + 4c + 5) 422.3 7. Earnings including interest on deposits (3 + 4e + 5) 589.3 8. Fixed charges excluding interest on deposits (4c) 119.6 9. Fixed charges including interest on deposits (4e) 286.6 RATIO OF EARNINGS TO FIXED CHARGES 10. Excluding interest on deposits (line 6/line 8) 3.53 11. Including interest on deposits (line 7/line 9) 2.06
EX-27 7 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST BANK SYSTEM, INC. MARCH 31, 1996, 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 2,053,000 0 580,000 142,000 4,430,000 0 0 26,878,000 530,000 36,572,000 24,346,000 4,222,000 991,000 3,504,000 0 96,000 180,000 3,053,000 36,572,000 574,700 68,700 11,200 654,600 167,000 280,000 374,600 31,000 14,600 424,400 302,700 176,800 0 0 176,800 1.28 1.26 4.86 114,800 42,800 100 0 473,500 56,500 23,000 530,100 0 0 0
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