How did First Bank System perform financially in 1994?

Net income reached a record $419.8 million, or $3.57 per share, up 40.9% from 1993's $298.0 million. The 1993 figure included $50.0 million of after-tax merger charges, so underlying earnings growth was 20.6%. Return on average common equity reached 19.3%, and return on average assets 1.63%.

What is the Metropolitan Financial acquisition and how does it affect shareholders?

FBS completed the acquisition of Metropolitan Financial Corporation on January 24, 1995, issuing about 21.7 million shares. MFC had roughly $7.9 billion in assets and 211 offices, and it adds Iowa, Kansas, Nebraska and Wyoming. The deal is accounted for as a pooling of interests, so prior periods are restated. This report excludes MFC, so the 1994 figures reflect FBS alone.

Is FBS's credit quality improving?

Yes. Nonperforming assets fell to $153.0 million from $226.0 million, the allowance for credit losses covered nonperforming loans 385% (up from 269%), and the provision for credit losses dropped to $93.0 million from $125.2 million. Net charge-offs declined to $104.6 million from $150.0 million. Management says it will not loosen credit standards despite rising rates, though the credit card portfolio carries higher loss rates.

What are FBS's capital return plans?

The company repurchased about $700 million of common and preferred stock over the prior two years, raised its quarterly dividend to $0.3625 (annualized $1.45, a 25% increase), and announced intentions to buy back 16 million shares by end-1996. Investors should note that the Tier 1 capital ratio fell to 8.0% from 9.2%, reflecting these buybacks and preferred redemptions.

What drives FBS's growth beyond traditional lending?

Payment systems are a major growth engine: FBS is the largest issuer of Visa corporate and purchasing cards in the U.S., the seventh-largest processor of Visa and MasterCard transactions, and it has a WorldPerks co-branded card with Northwest Airlines. Fee income from these businesses and trust services now accounts for more than one-third of total revenue, which reduces reliance on interest margins.

US BANCORP \DE\ 10-K FY1994 Annual Report

01—Abstract

Summary

Summary of the 10-K filed February 24, 1995. Cited figures are marked; the original filing is the authoritative source.

First Bank System (FBS), a Minneapolis-based regional bank holding company with $26.2 billion^a in year-end 1994 assets (before the January 1995 Metropolitan Financial Corporation acquisition), reported record 1994 net income of $419.8 million, or $3.57 per share, up 40.9% from 1993.

Excluding 1993 merger-related charges, earnings rose 20.6%^b. Return on average common equity improved to 19.3% from 13.8%, and return on average assets rose to 1.63% from 1.17%. The efficiency ratio improved to 57.2% from 59.8% (ex-charges), and management targets the low 50s over the next few years.

Credit quality strengthened for a fifth consecutive year. Nonperforming assets fell 32.3% to $153.0 million^c, the ratio of nonperforming assets to loans plus other real estate dropped to 0.79%, and the allowance covered nonperforming loans 385%. The provision for credit losses declined to $93.0 million from $125.2 million.

Growth came from fee-generating payment systems (Visa corporate and purchasing cards, the Northwest Airlines WorldPerks card, and merchant processing), home equity lending, and trust and investment services, which together accounted for more than one-third of revenue. Looking ahead, the pending MFC acquisition (about $7.9 billion^d in assets, accounted for as a pooling of interests, with roughly 21.7 million shares issued) will extend the franchise into Iowa, Kansas, Nebraska and Wyoming.

Management also raised the annual dividend 25% to $1.45 per share and authorized repurchases of up to 16 million shares by the end of 1996. Investors should weigh strong profitability and capital return against the dilution from the MFC share issuance and the Tier 1 capital ratio, which fell to 8.0% from 9.2% after preferred redemptions and buybacks.

02—Key points

Key Highlights

Record 1994 net income of $419.8 million ($3.57 per share), up 40.9% year over year; up 20.6% excluding 1993 merger charges.
Return on average common equity rose to 19.3% from 13.8%, and return on average assets to 1.63% from 1.17%.
Efficiency ratio improved to 57.2% from 59.8% (ex-charges); management targets the low 50s in coming years.
Nonperforming assets fell 32.3% to $153.0 million; NPA-to-loans-plus-OREO ratio improved to 0.79% from 1.20%.
Net interest margin widened to 5.28% from 5.07%, and fee income from payment systems and trust businesses grew strongly.
Pending Metropolitan Financial Corporation acquisition (~$7.9 billion in assets, closed January 24, 1995) expands the footprint into four new states; 21.7 million shares issued.
Dividend raised 25% to $1.45 annualized; plan to repurchase 16 million shares by year-end 1996. Tier 1 capital ratio declined to 8.0% from 9.2%.

03—Questions

Frequently Asked Questions

How did First Bank System perform financially in 1994?
Net income reached a record $419.8 million, or $3.57 per share, up 40.9% from 1993's $298.0 million. The 1993 figure included $50.0 million of after-tax merger charges, so underlying earnings growth was 20.6%. Return on average common equity reached 19.3%, and return on average assets 1.63%.
What is the Metropolitan Financial acquisition and how does it affect shareholders?
FBS completed the acquisition of Metropolitan Financial Corporation on January 24, 1995, issuing about 21.7 million shares. MFC had roughly $7.9 billion in assets and 211 offices, and it adds Iowa, Kansas, Nebraska and Wyoming. The deal is accounted for as a pooling of interests, so prior periods are restated. This report excludes MFC, so the 1994 figures reflect FBS alone.
Is FBS's credit quality improving?
Yes. Nonperforming assets fell to $153.0 million from $226.0 million, the allowance for credit losses covered nonperforming loans 385% (up from 269%), and the provision for credit losses dropped to $93.0 million from $125.2 million. Net charge-offs declined to $104.6 million from $150.0 million. Management says it will not loosen credit standards despite rising rates, though the credit card portfolio carries higher loss rates.
What are FBS's capital return plans?
The company repurchased about $700 million of common and preferred stock over the prior two years, raised its quarterly dividend to $0.3625 (annualized $1.45, a 25% increase), and announced intentions to buy back 16 million shares by end-1996. Investors should note that the Tier 1 capital ratio fell to 8.0% from 9.2%, reflecting these buybacks and preferred redemptions.
What drives FBS's growth beyond traditional lending?
Payment systems are a major growth engine: FBS is the largest issuer of Visa corporate and purchasing cards in the U.S., the seventh-largest processor of Visa and MasterCard transactions, and it has a WorldPerks co-branded card with Northwest Airlines. Fee income from these businesses and trust services now accounts for more than one-third of total revenue, which reduces reliance on interest margins.

04—Continue

← View all 10-K filings