Business Context and Reporting Period
This Form 8-K, filed on July 21, 1994, by First Bank System, Inc. ("FBS"), announces a definitive merger agreement with Metropolitan Financial Corporation ("MFC"). The filing includes MFC's audited financial statements for the years ended December 31, 1993, 1992, and 1991, as well as unaudited condensed statements for the quarter ended March 31, 1994. The merger is structured as a "pooling of interests" and is intended to be tax-free for MFC common stockholders.
Key Financial Metrics (Metropolitan Financial Corporation)
| Metric | Year Ended Dec 31, 1993 | Year Ended Dec 31, 1992 | Q1 1994 (Unaudited) |
|---|---|---|---|
| Total Assets | $7,006.8 million | $6,146.5 million | $7,854.8 million |
| Total Deposits | $5,354.6 million | $5,207.0 million | $5,697.7 million |
| Net Interest Income | $198.1 million | $152.6 million | $52.6 million |
| Net Income | $65.2 million | $137.1 million | $12.2 million |
| Diluted EPS | $2.01 | $4.43 | $0.37 |
| Shareholders' Equity | $504.4 million | $426.6 million | $499.2 million |
| Cash & Equivalents | $167.4 million | $252.9 million | $139.9 million |
Debt and Liquidity: Total borrowings (FHLB advances and other) were $1.05 billion at year-end 1993. The company maintains a line of credit with the Federal Home Loan Bank of $100 million, which was undrawn as of December 31, 1993.
Material Changes and Acquisitions
- Merger Agreement: FBS will acquire MFC. MFC common stock converts to 0.6803 shares of FBS common stock. MFC Series B Preferred Stock converts to $27.00 cash per share plus dividends. Warrants convert to purchase FBS stock at $6.96 per share.
- Price Collar: The conversion ratio adjusts if FBS stock averages below $33.00 or above $40.50. Either party may terminate if the average price falls below $29.50.
- Recent Acquisitions: MFC completed the acquisition of Rocky Mountain Financial Corporation on March 25, 1994, for $64.2 million in cash. This transaction increased MFC's assets by approximately $537 million and deposits by $428 million.
- Profitability Decline: Net income for 1993 ($65.2 million) decreased significantly from 1992 ($137.1 million). The 1992 figure included a $75.9 million cumulative effect of an accounting change (SFAS 109) and a $6.3 million extraordinary item related to FHLB prepayment penalties.
- Q1 1994 Performance: Net income for the first quarter of 1994 was $12.2 million, compared to $15.3 million in Q1 1993, despite higher net interest income.
Outlook, Risks, and Contingencies
- Regulatory Approvals: The merger is subject to approval by stockholders of both companies and required regulatory approvals.
- Stock Option Agreement: FBS holds the right to purchase up to 19.9% of MFC's outstanding common stock at $24.66 per share if MFC enters into a merger with a third party or if a third party acquires 20% or more of MFC stock.
- Pro Forma Information: Pro forma financial information reflecting the merger will be filed within 60 days of this report.
- Tax Position: MFC holds net operating loss carryforwards of approximately $42.4 million (regular tax) and $14.7 million (AMT) as of March 31, 1994. Management believes these will be realized before expiration.
- Accounting Changes: MFC adopted SFAS 115 (Accounting for Certain Investments) in 1993, resulting in a $4.2 million increase to shareholders' equity for unrealized gains on available-for-sale securities.
Investor Verification Checklist
- Verify the final conversion ratio for MFC common stock based on FBS's stock price prior to the stockholder meetings.
- Confirm receipt of regulatory approvals from the Office of Thrift Supervision (OTS) and other relevant bodies.
- Review the upcoming pro forma financial statements to assess the combined entity's capital ratios and earnings power.
- Monitor the status of the $64.2 million Rocky Mountain acquisition integration and its impact on Q2 1994 results.
- Assess the impact of the "pooling of interests" accounting method on reported earnings per share compared to a purchase method.