NEW YORK (AP) _ First Bank Systems Inc. agreed Monday to acquire Omaha-based FirsTier Financial Inc. in a $700 million stock deal that will create Nebraska's largest banking company.

The merger is First Bank System's latest move to expand in Nebraska. The Minneapolis-based company acquired a 16-branch bank earlier this year and has two other deals pending to acquire Omaha banks.

When those deals and the FirsTier acquisition are consummated, First Bank Systems will be Nebraska's leading bank, with $4.5 billion in deposits, $5 billion in assets, the biggest share of the banking market in Lincoln and the No. 2 position in Omaha.

Many small banks are being bought out by larger, out-of-state institutions that want to reach more customers and take advantage of new laws that make it cheaper for them to operate branches across state lines.

First Bank Systems is the nation's 28th largest bank, according to Keefe, Bruyette & Woods Inc., a New York investment firm. It has $33.5 billion in assets and 349 offices in 12 Midwestern states.

FirsTier has $3.6 billion in assets, $2.8 billion in deposits and 63 branches in Nebraska and Iowa.

First Bank will exchange 0.8829 of a share of its stock, the equivalent of $38 a share, for each share of FirsTier common stock. The deal, expected to close in early 1996, is subject to regulatory and shareholder approvals.

As part of the merger, First Bank Systems plans to shut 25 branches that overlap with its existing offices and will cut some jobs, said Richard Zona, chief financial officer. It is not yet known how many posts will be eliminated.

Zona said some staffers will be laid off and some jobs will be cut through attrition. FirsTier has 1,700 employees.

First Bank Systems stock rose 37 1/2 cents to close at $43.37 1/2 on the New York Stock Exchange, while FirsTier fell $2 to end at $37 on the Nasdaq Stock Market.