UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-4170
Fourth Financial Corporation
(Exact name of registrant as specified in its charter)
Kansas 48-0761683
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 North Broadway
Wichita, Kansas 67202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (316) 261-4444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $5.00 per share
(Title of Class)
Depositary Shares, each representing a 1/16th interest in a share of Class
A 7% Cumulative Convertible Preferred Stock, Par Value $100.00 per
share, Liquidation Preference $400.00 per share (equivalent
to $25.00 per Depositary Share)
(Title of Class)
Indicate by check mark whether 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 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes__X__ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
As of March 1, 1994, the aggregate market value of the voting stock of
Registrant held by nonaffiliates of Registrant was approximately
$624,500,000. Such value was computed by reference to the reported last
sales price of such stock on March 1, 1994. At March 1, 1994, 26,463,733 shares
of Common Stock, par value $5 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the April 21, 1994 Annual Meeting
of Stockholders of Registrant (the "1994 Proxy Statement") to be filed pursuant
to Regulation 14A are incorporated by reference into Part III of this report.
TABLE OF CONTENTS
Item Page
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .10
4. Submission of Matters to a Vote of Security Holders. . . . . . . .10
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . .11
6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . .11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . .. . . . . .11
8. Financial Statements and Supplementary Data. . . . . . .. . . . . .11
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . .. . . . .12
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . .12
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . .12
12. Security Ownership of Certain Beneficial Owners and Management . .12
13. Certain Relationships and Related Transactions . . . . . . . . . .12
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Financial Information. . . . . . . . . . . . . . . . . . . . . . . Appendix A
PART I
Item 1. Business.
General
Fourth Financial Corporation ("Registrant" or the "Company") is
a bank holding company headquartered in Wichita, Kansas, which offers
a broad range of bank and bank-related services through its
subsidiaries, BANK IV Kansas, National Association ("BANK IV Kansas")
and BANK IV Oklahoma, National Association ("BANK IV Oklahoma"). The
Company is the largest bank holding company in Kansas and, at
December 31, 1993, had total assets of $6.7 billion, total deposits of
$5.3 billion, and stockholders' equity of $598 million. BANK IV Kansas,
whose predecessor was originally organized in 1887, is the largest
commercial bank in Kansas and, at December 31, 1993, had approximately
11% of all insured deposits in Kansas. BANK IV Kansas, the only major
statewide bank in Kansas, has 78 offices in 31 communities. BANK IV
Oklahoma has 39 offices in eleven communities. Registrant has entered
into agreements to acquire additional banks in Oklahoma, Kansas, and
Missouri and intends to continue expanding its operations throughout
Oklahoma and Kansas and into Missouri. See "Pending Acquisitions"
below.
The two BANK IV banks provide a wide range of commercial and
retail banking services. BANK IV Kansas' commercial and retail
operations are conducted through three metropolitan divisions and a
fourth division which oversees eleven smaller community banking
operations. Each separate BANK IV market-based unit is operated
semi-autonomously under the management of a local president. Trust,
commercial and retail investments, mortgage banking, leasing, and bank
card services are each managed on a line-of-business basis. At
December 31, 1993, the BANK IV banks held total assets of $6.1 billion
in various fiduciary capacities and exercised investment authority over
$2.5 billion of these assets. Also on that date, the BANK IV banks
serviced a $1.0 billion residential mortgage loan portfolio, of which
$384 million was serviced for others. The BANK IV banks operate the VIA
system, a network of 302 automated teller machines located throughout
Kansas and Oklahoma serving over 227,000 accounts.
In addition, Registrant owns several other subsidiaries which
perform various financially-related services such as reinsurance of
credit life and health insurance policies. Such subsidiaries in the
aggregate do not account for a material portion of the Company's
revenues or profits.
Recent Acquisitions
During 1993, the Company acquired two banks located in Kansas and
eight banks located in Oklahoma. The Company also assumed the deposits
and acquired substantially all of the assets of Commercial Bank and
Trust Company, Tulsa, Oklahoma ("Commercial-Tulsa") and assumed $99.4
million of deposits of a failed bank located in Mission, Kansas by
paying a premium of $1.1 million to the Federal Deposit Insurance
Corporation.
The Kansas banks acquired were Southgate Bank and Trust Company,
Prairie Village, Kansas ("Southgate"), and Farmers & Merchants State
Bank, Derby, Kansas ("F&M"). The Oklahoma banks acquired were Guaranty
Bank & Trust Company, Tulsa, Oklahoma ("Guaranty"); Bank of Woodward,
Woodward and Waukomis, Oklahoma ("Woodward"); Nichols Hills Bank and
Trust Company, Nichols Hills (Oklahoma City), Oklahoma ("Nichols
Hills"); Commercial Bank and Trust Co., Muskogee, Oklahoma
("Commercial-Muskogee"); First Bank & Trust Co. of Ft. Gibson, Ft.
Gibson, Oklahoma ("Ft. Gibson"); First Bank and Trust Co. of Tahlequah,
Tahlequah, Oklahoma ("Tahlequah"); Western National Bank of Tulsa,
Tulsa, Oklahoma ("Western"); and Security Bank & Trust Company of Ponca
City, Ponca City, Oklahoma ("Ponca").
The following table sets forth for each such bank acquisition the
amount of assets of the acquired bank at the date of acquisition, the
amount paid by the Company, the number of shares of common stock of the
Company issued, and the accounting method used to account for the
acquisition.
No. of Accounting
Bank Assets Cash Paid Shares Method
- ---------- -------- --------- --------- ----------
(In thousands)
Southgate $ 62,628 - 451,310 Pooling
Guaranty 82,606 $ 4,386 - Purchase
Woodward 130,192 17,859 - Purchase
Derby 61,565 8,068 - Purchase
Nichols Hills 97,869 - 469,906 Pooling
Commercial-Muskogee
Ft. Gibson, Tahlequah
and Commercial-Tulsa 465,060 - 1,874,812 Pooling
Western 206,288 - 1,110,695 Pooling
108,748(1) Purchase
Ponca 117,275 - 478,395 Pooling
<FN>
__________
(1) To acquire minority interest.
Pending Acquisitions
The Company has entered into definitive agreements to acquire a
Missouri savings association, Great Southern Savings Bank, Springfield,
Missouri ("Great Southern"); two Kansas banks, Emprise Bank, National
Association, Hutchinson, Kansas ("Emprise") and First National Bank and
Trust Company in Dodge City, Dodge City, Kansas ("First National"); one
Oklahoma bank, Metro Bank of Broken Arrow, Broken Arrow, Oklahoma
("Metro"); and one Oklahoma savings association, Equity Bank for
Savings, F.A., Oklahoma City, Oklahoma ("Equity"). The following table
sets forth for each such proposed acquisition the amount of assets of
the financial institution at December 31, 1993 (unaudited), the amount
of cash proposed to be paid by the Company, the number of shares of
common stock of the Company proposed to be issued, and the accounting
method to be used to account for the acquisition.
Cash to No. of Accounting
Bank Assets be Paid Shares Method
- -------- ------- ------- --------- ----------
(In thousands)
Great Southern $530,368 - 2,798,813 Pooling
Emprise 268,450 $29,953 - Purchase
First National and Metro 148,818 - 662,220 Pooling
Equity 520,224 92,046 - Purchase
All of such agreements are subject to various conditions,
including obtaining regulatory approvals, the banks or holding
companies meeting specified net worth requirements, and, in the case of
the two proposed acquisitions for Fourth Stock, that the transactions
be eligible for treatment for accounting purposes as "poolings of
interests." The Company is in various stages of obtaining the required
regulatory approvals and it is anticipated that all of the various
pending transactions will be completed in the second and third quarters
of 1994.
The Company has also agreed in principle to acquire an automobile
leasing company for a cash purchase price of approximately $28.5
million. The proposed acquisition is subject to various conditions,
among which are negotiation and execution of a definitive agreement,
completion of the Company's due diligence investigation, and obtaining
regulatory approvals.
The Company continues to be engaged in an active acquisition
program. Pursuant to that program, the Company is presently
considering or engaging in discussions concerning additional
acquisitions. However, except for the pending transactions described
above, as of March 1, 1994, the Company has no binding commitments,
agreements, or understandings to acquire any additional financial
institutions, but additional acquisition agreements may be negotiated
or entered into at any time.
Competition
BANK IV Kansas is the largest bank in Kansas, and as of
September 30, 1993 (the latest date for which statewide information is
available), held approximately 14.9% of the total bank deposits in
Kansas. As of December 31, 1993, BANK IV Kansas was the largest of
approximately 490 commercial banks in the State of Kansas. As of
June 30, 1993, BANK IV Kansas ranked 114th largest, as measured by
total assets, out of approximately 11,100 commercial banks in the
United States. BANK IV Oklahoma is the third-largest bank in Tulsa,
Oklahoma, and the fifth-largest out of nearly 400 banks in Oklahoma.
There are one or more other commercial banks located in each
BANK IV community, resulting in strong competition in all areas of bank
services. The principal methods of competition in the commercial
banking industry are price, service, and interest rates paid to
depositors and charged to credit customers. In addition, banks compete
for loans and deposits with other types of financial institutions such
as savings and loan associations, credit unions, money market mutual
funds, and finance companies. Increasingly, banks also compete for both
consumer and commercial loans and for deposits with large retail and
commercial enterprises. Among other things, this increased competition
has resulted in banks being required to accept lower interest rates on
loans and to pay interest on a larger percentage of their deposits.
Lines of Business and Reportable Segments
Registrant and its subsidiaries engage primarily in commercial
banking. Registrant and its subsidiaries, therefore, did not engage in
material operations in separate reportable industry segments for the
last three fiscal years.
Employees
As of March 1, 1994, Registrant and its subsidiaries had a total
of 3,437 full-time-equivalent employees. Registrant had 982
full-time-equivalent employees. BANK IV Kansas had 1,646, BANK IV
Oklahoma had 807, and Fourth Financial Insurance Company and BANK IV
Community Development Corporation each had one.
Regulation and Supervision
Federal Regulation. The Company is subject to the Bank Holding
Company Act of 1956, as amended (the "Act"), and to regulation by the
Board of Governors of the Federal Reserve System (the "Board"). The Act
limits the nonbanking activities which may be engaged in by the Company
and its subsidiaries to those so closely related to banking or managing
or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is a proper incident to banking or
managing or controlling banks, the Board must consider whether
performance of an activity by an affiliate of a bank holding company
can reasonably be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency. The
benefits of the activity must also outweigh possible adverse effects,
such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices.
The Act also prohibits bank holding companies from acquiring
substantially all the assets of, or owning more than 5% of the voting
shares of, any bank which is not already majority-owned, or of any
nonbanking company, without the prior approval of the Board. No
application to acquire shares or assets of a bank located outside the
state in which the operations of the applicant's banking subsidiaries
are principally conducted may be approved by the Board unless such
acquisition is specifically authorized by a statute of the state in
which the bank whose shares or assets are to be acquired is located.
The Company, its nonbanking subsidiaries, BANK IV Kansas, and
BANK IV Oklahoma, are all affiliates of each other within the meaning
of the Federal Reserve Act. As such, they are subject to certain
restrictions on loans by the two BANK IV banks to the Company or such
nonbanking subsidiaries and on investments in and loans secured by
their stock or other securities. The Company and its subsidiaries,
including the two BANK IV banks, are also subject to certain
restrictions on the issuance, underwriting, and distribution of
securities. In addition, the Board may examine the Company or any of
its subsidiaries.
As a bank holding company, the Company is a legal entity separate
and distinct from its subsidiaries. The principal sources of funds
available for dividends on the Company's common stock and its preferred
stock are dividends from the two BANK IV banks and cash and other
investments held by the Company. The approval of the Comptroller of the
Currency (the "Comptroller") is required if total dividends declared by
a national bank in any one year exceed the bank's net profits for that
year plus the profits for the two preceding years retained by the bank.
In 1994, the BANK IV banks may pay an aggregate of approximately $15.8
million (in addition to their 1994 net profits) in dividends to the
Company without obtaining regulatory approval.
The Comptroller's approval was required and obtained for
dividends paid by the BANK IV banks in 1993. Because of the financial
strength of Registrant, and both banks' anticipated earnings capacity,
the BANK IV banks both anticipate they will be able to obtain
permission from the Comptroller to pay dividends in 1994 to the extent
justified by their respective financial conditions and subject to the
capital requirements described in the next section.
Capital Guidelines. Bank holding companies, such as the Company,
and their bank subsidiaries are required to maintain three capital
ratios which measure capital adequacy. Capital is separated into
"Tier 1 capital" (as applied to the Company, common stockholders'
equity and Preferred Stock, less certain intangible assets) and "Tier 2
capital" (as applied to the Company, the allowance for credit losses
limited to 1.25% of risk-weighted assets).
The first two ratios, which are based on the degree of credit
risk in the company's assets, provide for weighting assets based on
assigned risk factors and include off-balance-sheet items such as loan
commitments and stand-by letters of credit. The ratio of total capital
(Tier 1 capital plus Tier 2 capital) to risk-weighted assets and
off-balance-sheet commitments and contingencies must be at least 8.0%
and the ratio of Tier 1 capital to risk-weighted assets and off-
balance-sheet commitments must be at least 4.0%.
The capital leverage ratio supplements the risk-based capital
guidelines. Banks and bank holding companies are to maintain a minimum
ratio of Tier 1 capital to average adjusted total assets of 3.0%.
These ratio requirements are minimums. Any institution operating
at or near those levels would be expected by the regulators to have
well-diversified risk, including no undue interest rate risk exposures,
excellent asset quality, high liquidity, and good earnings and, in
general, would have to be considered a strong banking organization. All
other organizations and any institutions experiencing or anticipating
significant growth are expected to maintain capital ratios at least one
to two percent above the minimum levels, and higher capital ratios can
be required if warranted by particular circumstances or risk profile.
A bank's deposit insurance premium is based, in part, on the
bank's capital levels. The Federal Deposit Insurance Corporation is
the single insurer of deposits in financial institutions. Deposit
insurance premium rates range from 0.23% to 0.31% of a bank's
assessment base (as defined), depending on the bank's supervisory
rating by the bank's primary regulator and its capital level. A bank
is typically defined to be "well capitalized" if it maintains a Tier I
capital ratio of at least 6.0%, a total risk-based capital ratio of at
least 10.0%, and a leverage ratio of at least 5.0%. It is the
Company's intention to maintain sufficient capital in each of its bank
subsidiaries to permit them to maintain a "well capitalized"
designation. The capital ratios for both of the Company's subsidiary
banks exceeded the "well capitalized" regulatory capital requirements
at December 31, 1993.
Because of the Company's intention to continue making
acquisitions, it is anticipated that the Comptroller will expect the
BANK IV banks to maintain the greater of a 6.0% leverage ratio or a
10.0% total risk-based capital ratio. At December 31, 1993, the
Company's capital exceeded the amount required by the greater of a 6.0%
leverage or a 10.0% risk-based capital ratio by an aggregate of
approximately $107.9 million.
Pending and Proposed Legislation. There are various pending and
proposed bills in Congress that, among other things, would
substantially eliminate existing federal and state law restrictions on
interstate banking and on interstate acquisitions of banks and bank
holding companies and would restructure the federal supervision of
financial institutions. The Company is unable to predict with any
certainty the effect any such legislation would have on the Company and
its subsidiaries.
Kansas Regulation. A Kansas bank holding company is prohibited
from acquiring, directly or indirectly, any voting shares in any Kansas
bank if, after such acquisition, all of the Kansas banks in which such
bank holding company or any subsidiary of such bank holding company has
ownership or control of any voting shares would have, in the aggregate,
more than 15% of the total deposits of all banks domiciled in Kansas
plus the total deposits, savings deposits, shares and other accounts in
savings and loan associations, federal savings banks, and building and
loan associations in Kansas as determined by the Kansas bank
commissioner on the basis of the most recent reports to supervisory
authorities which are available at the time of the acquisition. The
statute contains an exception from the 15%-of-statewide-deposits
limitation in the case of an acquisition that the Kansas bank
commissioner determines would be in the public interest to prevent the
failure or probable failure of the acquired bank. As of December 31,
1993, BANK IV Kansas had approximately 11.0% (12.0% on a pro forma
basis) of the total deposits of all Kansas banks, savings and loan
associations, federal savings banks, and building and loan associations
according to the most recent information available to the Company.
Bank holding companies located in Nebraska, Missouri, Colorado,
Oklahoma, and Arkansas are permitted to acquire banks and bank holding
companies located in Kansas upon obtaining the approval of the Kansas
State Banking Board. Among the factors to be considered in granting
such approval are whether existing subsidiaries of the applicant are
operated in a safe, sound, and prudent manner, the adequacy of services
being provided by existing subsidiaries of the applicant, whether the
applicant proposes to provide adequate and appropriate services in the
communities served by the Kansas banks to be acquired, whether the
proposed acquisition will result in a Kansas bank or bank holding
company located in Kansas that has adequate capital and good earnings
prospects, and whether the proposed acquisition is in the interests of
the depositors and creditors of the bank or bank holding company which
is the subject of the proposed acquisition and in the public interest
generally. Such acquisitions are also subject to the deposits
limitation described above. No application can be approved unless the
state banking board finds that the laws of the state or jurisdiction in
which the applicant bank holding company is located permit a Kansas
bank holding company to acquire a bank located in that state or
jurisdiction on terms that are substantially no more restrictive than
those established under the Kansas statute. The Kansas statute would
also permit Iowa banks or bank holding companies to acquire Kansas
banks and bank holding companies if Iowa were to adopt appropriate
reciprocal legislation.
Oklahoma Regulation. The Company is permitted under Oklahoma law
to acquire additional banks, but such banks must have been in existence
and continuous operation for at least five years. Oklahoma prohibits a
multi-bank holding company from acquiring any additional banks if such
acquisition would result in the bank holding company having direct or
indirect ownership of banks located in Oklahoma that would have in
excess of 11% of the aggregate deposits of all financial institutions
located in Oklahoma which have deposits insured by the Federal Deposit
Insurance Corporation or National Credit Union Administration. As of
December 31, 1993, BANK IV Oklahoma had approximately 4.8% (6.0% on a
pro forma basis) of the total deposits of insured Oklahoma savings and
loans, credit unions, and banks. This restriction is not expected to
affect the Oklahoma acquisition activities of the Company in the near
future.
Missouri Regulation. The Company is also permitted under
Missouri law to acquire additional banks. Missouri law prohibits an
adjoining-state bank holding company from obtaining control of any bank
if the total deposits in that bank together with the total deposits in
all banks controlled by the adjoining-state bank holding company exceed
13% of the total deposits in all depository financial institutions in
Missouri which have deposits insured by an agency of the federal
government. As of December 31, 1992, the latest date for which
information concerning deposits in Missouri financial institutions is
available to the Company, Great Southern had approximately 0.5% of the
total deposits of federally insured depository financial institutions
in Missouri. This restriction is not expected to affect the Missouri
acquisition activities of the Company in the near future.
Government Monetary Policy and Economic Controls
The earnings of Registrant and the BANK IV banks are affected by
the policies of regulatory authorities. An important function of the
Federal Reserve System is to regulate the national supply of bank
credit in order to affect the level of economic activity. Among the
instruments used to implement these objectives are open market
operations in U.S. Government securities, changes in the discount rate
on member bank borrowings, and changes in reserve requirements. These
instruments are used in varying combinations to influence overall
growth and distribution of bank loans, investments and deposits, and
their use may also affect interest rates charged on loans or paid for
deposits.
Statistical Disclosure
The information required by Guide 3, "Statistical Disclosure by
Bank Holding Companies," has been integrated throughout the attached
Appendix under the captions "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," and such information is hereby incorporated
herein by reference.
Executive Officers of the Registrant
Listed below are the names and ages of all executive officers of
Registrant and offices held by them with Registrant and the BANK IV
banks.
Name Age Positions and Offices
- ------------ ----- ---------------------
Darrell G. Knudson 56 Chairman of the Board, President,
and Chief Executive Officer of
Registrant and Director of BANK IV
Kansas and BANK IV Oklahoma
K. Gordon Greer 57 Chairman of the Board, President,
and Chief Executive Officer of BANK
IV Kansas
Edward F. Keller 53 Chairman of the Board and Chief
Executive Officer of BANK IV
Oklahoma
Michael R. Ritchey 54 President, Trust and Asset
Management, and Senior Trust Officer
of Registrant and of BANK IV Kansas;
Executive Vice President of
BANK IV Oklahoma
David L. Strohm 42 Executive Vice President and
Treasurer of Registrant; Executive
Vice President of BANK IV Kansas
and BANK IV Oklahoma
James J. Gartner 52 Executive Vice President and
Director of the Risk Control Group
of Registrant
William J. Rainey 47 Executive Vice President, Secretary
and General Counsel of Registrant
Michael J. Shonka 46 Senior Vice President and Chief
Financial Officer of Registrant;
Senior Vice President of BANK IV
Kansas and BANK IV Oklahoma
John F. Guettler 48 Senior Vice President and Director
of Human Resources of Registrant
Mr. Knudson is a member of the Executive Committee of Registrant.
There is no family relationship between any of the executive
officers of Registrant.
Mr. Knudson was elected Vice Chairman of Registrant effective
December 31, 1990, Chairman of the Board on July 1, 1991, and President
on March 16, 1992. Mr. Knudson was Vice Chairman of First Bank System,
Inc., a Minnesota-based multi-bank holding company, from 1982 until his
resignation in 1990 to join Registrant.
Mr. Greer has been Chairman of the Board of BANK IV Kansas since
December, 1992, and President of BANK IV Kansas (or its predecessor
BANK IV Wichita) since March, 1989. He was a director and President of
the Company from September, 1990 through March, 1992 and was also
Chairman of the Board of BANK IV Kansas (or its predecessor BANK IV
Wichita) from January, 1991 through December, 1991.
Mr. Keller has been Chairman of the Board of BANK IV Oklahoma
since December 31, 1992, and was Chairman of the Board and Chief
Executive Officer of The Fourth National Bank of Tulsa prior to its
acquisition by the Company in December, 1992.
Mr. Ritchey has been the senior trust officer of the Company and
its subsidiary banks and responsible for their trust operations for
more than five years. He was elected Executive Vice President of
Registrant in February, 1990.
Mr. Strohm was elected to his present position with BANK IV
Kansas in January, 1994, was elected to his present position with BANK
IV Oklahoma in January, 1993, and was elected Executive Vice President
of Registrant in September, 1990 and Treasurer in 1986. Mr. Strohm has
been responsible for supervising Registrant's funds management,
treasury, and asset and liability management functions since 1983. He
has also been responsible for supervising Registrant's acquisition
activities since 1993.
Mr. Gartner was Senior Vice President and Senior Credit Officer
of First Bank South Dakota, N.A. (from July 1987) and Senior Credit
Officer of First Bank North Dakota, N.A. and First Bank East Grand
Forks, N.A. from 1990, until he became employed by Registrant in
February, 1992.
Mr. Rainey was Senior Vice President, General Counsel, and
Secretary of Valley National Corporation (Arizona bank holding company)
from 1987 to 1991 and Vice President and General Counsel of Cabot
Corporation, Boston, Massachusetts (specialty chemicals and energy)
from 1991 to 1993. He commenced his employment with Registrant on
February 28, 1994.
Mr. Shonka, Registrant's chief financial officer, has been Senior
Vice President of Registrant since January, 1988.
Mr. Guettler has held his present position since December, 1988.
Directors of the Registrant
Listed below are the names and principal occupations of
Registrant's directors.
Name Principal Occupation
Lionel D. Alford . . . . . . . . . .President, Alford, Inc. (investments and
consulting)
Thomas R. Clevenger. . . . . . . . .Investments
Jordan L. Haines . . . . . . . . . .Chairman of the Board of Registrant until
his retirement in 1991
Joseph M. Klein. . . . . . . . . . .President, CCI Corporation (truck parts
distributor)
Lawrence M. Jones. . . . . . . . . .Chairman and Chief Executive Officer, The
Coleman Company, Inc. (manufacturer of
outdoor recreational products) until
his retirement in December, 1993
Darrell G. Knudson . . . . . . . . .Chairman of the Board of Registrant
Fred L. Merrill, Sr. . . . . . . . .Chief Executive Officer, Cereal Food
Processors, Inc. (flour mills)
Russell W. Meyer, Jr.. . . . . . . .Chairman and Chief Executive Officer, The
Cessna Aircraft Company (general aviation
aircraft manufacturer)
Laird G. Noller. . . . . . . . . . .President, Noller Enterprises (automobile
dealerships)
Patrick E. O'Shaughnessy . . . . . .Chairman and Chief Executive Officer, Lario
Oil & Gas Company (oil exploration)
Robert F. Vickers. . . . . . . . . .Trustee and Administrator, The Vickers
Trusts
Ken Wagnon . . . . . . . . . . . . .Owner, franchise restaurants and other
investments, and President,
Capital Enterprises, Inc. (accounting and
management services)
Item 2. Properties.
Kansas
The only significant real property owned by Registrant is a
building located in Wichita, Kansas, acquired in January 1994 that is
being remodeled for use as a data processing and operations facility.
BANK IV Kansas owns substantially all of its banking facilities, but
the land on which some of such facilities are located is leased and 13
branch facilities, including seven branches located in supermarkets,
are leased entirely. Registrant believes that all of such properties
are well maintained and suitable for their intended purposes. Described
below are the principal buildings operated by BANK IV Kansas.
Wichita
Registrant and BANK IV Kansas occupy a four-building complex
located in downtown Wichita, Kansas. The Fourth Financial Center is a
ten-level office building located at 100 North Broadway. The building
is located on an 88,450-square-foot tract of land and contains
approximately 396,000 square feet of gross area, which includes a
25,000-square-foot enclosed courtyard. The building contains
approximately 312,000 rentable square feet, of which BANK IV Kansas and
Registrant utilize approximately 156,000 square feet with the balance
being leased to tenants. Fourth Operations Center is a five-level
office building located adjacent to Fourth Financial Center and
connected by an enclosed pedestrian walkway. The 63,000-square-foot
building is located on a 13,020-square-foot tract of land and houses
operating functions of Registrant and its subsidiaries. A 450-car,
six-level parking garage and walk-in bank facility is located just west
of Fourth Financial Center and is connected to it by an enclosed
pedestrian walkway.
Another building, Exchange Place, is located one block west of
the Fourth Financial Center. Exchange Place is located on five tracts
of land, two of which are owned by BANK IV Kansas and three of which
are leased. The leases on the three leased tracts expire on August 31,
2003, and on December 31, 2009. The building, constructed prior to 1903
with various additions to the basic structure being completed through
1957, is an eight-level structure plus a full basement, a mezzanine
floor, and an eighth floor mechanical area. The building contains
approximately 147,000 square feet of rentable space of which BANK IV
Kansas and Registrant are currently occupying approximately 118,700
square feet and the remaining 28,300 square feet are leased.
Topeka
BANK IV Kansas owns the BANK IV Tower, a 16-story office building
in downtown Topeka, Kansas containing 146,900 square feet. At February
1, 1994, BANK IV Kansas occupied approximately 127,700 square feet of
the building with approximately 19,200 square feet available for lease
and expansion. A 260-car, eight-level parking garage is attached to the
building.
Townsite Plaza Development, Inc., a subsidiary of BANK IV Kansas,
owns and operates three buildings located immediately east of the
BANK IV Tower above a municipal subsurface garage. The three buildings,
constructed between 1976 and 1981, contain an aggregate of
approximately 138,000 square feet of rentable space, of which a total
of 112,350 square feet was leased as of February 1, 1994.
Oklahoma
BANK IV Oklahoma does not own any major building facilities. It
leases 71,000 square feet in the BANK IV Center Building in downtown
Tulsa which is used as the BANK IV Oklahoma headquarters. In addition,
BANK IV Oklahoma owns banking facilities in Muskogee, Nichols Hills,
Braman, Ponca City, Shidler, Fort Gibson, Tahlequah, Woodward, and
Waukomis, and 15 branch facilities in Tulsa. Its remaining ten
facilities in Tulsa are leased. BANK IV Oklahoma believes its
facilities are substantially all well-maintained and generally suitable
for their intended purposes.
Item 3. Legal Proceedings.
Except for the legal proceeding described in the next paragraph,
neither Registrant nor any of its subsidiaries is a party to any
pending legal proceedings required to be disclosed in this Item.
Because of the nature of their businesses, the BANK IV banks are at all
times subject to legal actions, which are ordinary routine litigation
incidental to their normal business operations. Claims in various
amounts of up to approximately $20,000,000 have been asserted; however,
after consultation with its legal counsel, Registrant does not
anticipate that any potential liabilities arising from these claims
would have a material effect on the results of operations.
BANK IV Kansas and the United States Department of Justice have
agreed to settle an action against BANK IV Kansas seeking statutory
civil penalties and injunctive relief for alleged violations of the
Clean Air Act and regulations promulgated thereunder. The lawsuit,
filed in the United States District Court for the District of Kansas,
is captioned United States of America v. BANK IV Kansas, et al., Case
No. 93-2315-KVH. The lawsuit arises out of the demolition by the bank
of an apartment building in Independence, Kansas, which allegedly
contained asbestos-containing building materials. It is alleged that
the bank failed to inspect the building prior to demolition, failed to
notify the appropriate governmental agencies of its intent to demolish
the building, and failed to comply with certain work practice
requirements. The proposed consent decree provides for the payment of
$127,500. The settlement is subject to a mandatory 30-day public
comment period and court approval.
Item 4. Submission of Matters to a Vote of Security Holders.
No information is required in response to this Item as no matters
were submitted to a vote of Registrant's security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
(a) Market Information. The Common Stock of Registrant is
traded in the national over-the-counter market. The NASDAQ symbol for
the Common Stock is FRTH.
Information concerning the high and low bid prices for the
Registrant's Common Stock for each full quarterly period within the two
most recent fiscal years is contained in the attached Appendix under
the caption "Quarterly Financial Data" and is hereby incorporated
herein by reference.
(b) Holders. There were approximately 5,940 holders of record
of Registrant's Common Stock at March 1, 1994.
(c) Dividends. The information concerning the payment of
dividends by Registrant during the past two fiscal years contained in
the attached Appendix under the caption "Quarterly Financial Data" is
hereby incorporated herein by reference. The information concerning
restrictions on the ability of Registrant's subsidiaries to transfer
funds to Registrant contained in Item 1 under the caption "Regulation
and Supervision," in Note 19 - Restrictions on Intercompany Funds
Transfers of the Notes to Consolidated Financial Statements contained
in the attached Appendix, and under the caption "Parent Company Funding
Sources and Dividends" in the attached Appendix is hereby incorporated
herein by reference.
Item 6. Selected Financial Data.
The information required by Item 301 of Regulation S-K, contained
in the attached Appendix under the caption "Selected Consolidated
Financial Data," is hereby incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information required by Item 303 of Regulation S-K, contained
in the attached Appendix under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," is hereby
incorporated by reference.
Item 8. Financial Statements and Supplementary Data.
Set forth below are the consolidated financial statements of
Registrant and its subsidiaries, appearing in the attached Appendix,
which are hereby incorporated by reference:
a. Consolidated Statements of Condition
b. Consolidated Statements of Income
c. Consolidated Statements of Changes in Stockholders'
Equity
d. Consolidated Statements of Cash Flows
e. Notes to Consolidated Financial Statements
f. Report of Independent Auditors
g. Reports of Other Auditors
The information required by Item 302 of Regulation S-K, contained
in the attached Appendix under the caption "Quarterly Financial Data,"
is hereby incorporated by reference.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
No information is required in response to this Item.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 401 of Regulation S-K will be
contained in the 1994 Proxy Statement under the caption "Election of
Directors" and is hereby incorporated by reference. The information
required by Item 405 of Regulation S-K will be contained in the 1994
Proxy Statement under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" and is hereby incorporated by
reference.
Information concerning the executive officers of Registrant is
contained in Item 1 of this report under the caption "Executive
Officers of the Registrant."
Item 11. Executive Compensation.
The information required by Item 402 of Regulation S-K will be
contained in the 1994 Proxy Statement under the captions "Compensation
of Directors and Executive Officers," "Compensation Committee
Interlocks and Insider Participation," "Report of Compensation
Committee on Executive Compensation," and "Company Performance" and is
hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information required by Item 403 of Regulation S-K will be
contained in the 1994 Proxy Statement under the caption "Stock
Ownership" and is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 404 of Regulation S-K will
appear under the caption "Transactions with Management" in the 1994
Proxy Statement and is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a) The following documents are filed as part of this
report:
(1) Financial Statements: the financial statements,
notes, and independent auditors' reports described in
Item 8 to which reference is hereby made.
(2) Financial Statement Schedules: none.
(3) Exhibits: the following exhibits:
Exhibit
No. Description
-------
3.01 - Restated Articles of Incorporation and
amendments (Exhibit 3.01 to Form 10-Q for the
quarter ended June 30, 1992, previously filed
by Registrant).*
3.02 - Certificate of Designation (Exhibit 3.02 to
Form 10-K for year ended December 31, 1991,
previously filed by Registrant (the "1991 10-
K")).*
3.03 - Form of Deposit Agreement (Exhibit 3.03 to
1991 10-K).*
3.04 - Form of Depositary Receipt (Exhibit 3.04 to
1991 10-K).*
3.05 - Bylaws.
10.01 - Amended and Restated Fourth Financial
Corporation 1981 Incentive Stock Option Plan
(Exhibit 4(a) to Post-Effective Amendment
No. 2 to Form S-8, Regis. No. 2-80907,
previously filed by Registrant).*
10.02 - Amended and Restated Fourth Financial
Corporation 1986 Incentive Stock Option Plan
(Exhibit 10.02 to Form 10-K for the year ended
December 31, 1990, previously filed by
Registrant).*
10.03 - Revolving Credit and Term Loan Agreement,
dated as of July 1, 1987, between Chemical
Bank and Registrant (Exhibit 10.04 to Form 10-
K for the year ended December 31, 1987,
previously filed by Registrant).*
10.04 - First Amendment dated as of July 1, 1989, to
Revolving Credit and Term Loan Agreement
(Exhibit 10.04 to Form 10-K for the year ended
December 31, 1989, previously filed by
Registrant).*
10.05 - Second Amendment dated as of November 15,
1989, to Revolving Credit and Term Loan
Agreement (Exhibit 10.05 to Form 10-K for the
year ended December 31, 1989, previously filed
by Registrant).*
10.06 - Third Amendment, dated as of March 29, 1991,
to Revolving Credit and Term Loan Agreement
(Exhibit 10.06 to 1991 10-K).*
10.07 - Fourth Financial Corporation 1993 Employee
Stock Purchase Plan.
10.08 - Fourth Financial Corporation 1993 Incentive
Stock Option Plan.
10.09 - Fourth Financial Corporation Amended and
Restated Non-Employee Directors Deferred Fee
Plan.
10.10 - Fourth Financial Corporation Non-Employee
Directors Stock Option Plan.
10.11 - Agreement and Plan of Reorganization, dated as
of October 12, 1993, between Fourth Financial
Corporation and Great Southern Bancorp, Inc.
(Exhibit 2.1 to Form 8-K, dated October 12,
1993).*
10.12 - Stock Purchase Agreement, dated as of January
31, 1994, between BANK IV Kansas, National
Association, and Emprise Financial
Corporation.
10.13 - Agreement and Plan of Reorganization, dated as
of February 2, 1994, among Fourth Financial
Corporation, First Dodge City Bancshares,
Inc., First National Bancshares of Dodge City,
Inc., Metro Bancshares, Inc., Metro Bank of
Broken Arrow, First National Bank and Trust
Company in Dodge City, and the stockholders of
First Dodge City Bancshares, Inc.
10.14 - Stock Purchase Agreement, dated as of February
9, 1994, among Fourth Financial Corporation,
LSB Industries, and Prime Financial
Corporation.
10.15 - $35,000,000 line of credit agreement, dated as
of June 21, 1993, between Fourth Financial
Corporation and Continental Bank N.A.
22 - Subsidiaries of Registrant.
24.01 - Consent of Ernst & Young.
24.02 - Consent of Arthur Andersen & Co.
24.03 - Consent of Sartain Fischbein & Co.
24.04 - Consent of GRA, Thompson, White & Co, P.A.
24.05 - Consent of Grant Thornton.
24.06 - Consent of Deloitte & Touche.
Exhibits 10.01, 10.02, 10.07, 10.08, 10.09, 10.10, and 10.13 are
compensation plans required to be filed as exhibits pursuant to
Item 14(c).
___________
* Document has been previously filed with the Securities and Exchange
Commission and is incorporated by reference and made a part hereof.
(b) Reports on Form 8-K
During the last quarter of the period covered by this report
Registrant filed two reports on Form 8-K. The first report dated
October 12, 1993, reported under Item 5 the Registrant's agreement to
acquire Great Southern Bancorp, Inc. Another Form 8-K, dated
November 12, 1993, reported under Item 5 three agreements in principle
to acquire four financial institutions.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOURTH FINANCIAL CORPORATION
By: /s/ Darrell G. Knudson
------------------
Darrell G. Knudson
Chairman of the Board
Date: March 11, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Darrell G. Knudson Chairman of the Board March 11, 1994
Darrell G. Knudson (Principal Executive Officer)
/s/ Michael J. Shonka Senior Vice President March 11, 1994
Michael J. Shonka (Principal Financial Officer)
/s/ Barbara M. Noyes Vice President and Controller March 11, 1994
Barbara M. Noyes (Principal Accounting Officer)
/s/ Lionel D. Alford Director March 11, 1994
Lionel D. Alford
/s/ Thomas R. Clevenger Director March 11, 1994
Thomas R. Clevenger
/s/ Jordan L. Haines Director March 11, 1994
Jordan L. Haines
/s/ Lawrence M. Jones Director March 11, 1994
Lawrence M. Jones
/s/ Joseph M. Klein Director March 11, 1994
Joseph M. Klein
/s/ Darrell G. Knudson Director March 11, 1994
Darrell G. Knudson
/s/ Russell W. Meyer, Jr. Director March 11, 1994
Russell W. Meyer, Jr.
/s/ Fred L. Merrill, Sr. Director March 11, 1994
Fred L. Merrill, Sr.
/s/ Laird G. Noller Director March 11, 1994
Laird G. Noller
/s/ Patrick E. O'Shaughnessy Director March 11, 1994
Patrick E. O'Shaughnessy
/s/ Robert F. Vickers Director March 11, 1994
Robert F. Vickers
/s/ Ken Wagnon Director March 11, 1994
Ken Wagnon
FOURTH FINANCIAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Pages
Consolidated Statements of Condition. . . . . . . . . . . . . . A-2
Consolidated Statements of Income . . . . . . . . . . . . . . . A-3
Consolidated Statements of Changes in Stockholders' Equity. . . A-4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . A-5
Notes to Consolidated Financial Statements . . . . . . . . . . A-6 - A-46
Report of Independent Auditors. . . . . . . . . . . . . . . . . A-36
Reports of Other Auditors . . . . . . . . . . . . . . . . . . . A-37 - A-42
Selected Consolidated Financial Data . . . . . . . . . . . . . A-43
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . A-44 - A-74
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
-------------------------
1993 1992
----------- -----------
(Dollars in thousands)
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313,799 $ 400,531
Interest-bearing deposits in other financial institutions . . . . . . . . . . . . 2,232 4,641
Investment securities (Market value-$2,930,908 and $2,610,180) . . . . . . . . . 2,929,543 2,564,918
Trading account securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 474 3,524
Federal funds sold and securities purchased under agreements to resell . . . . . 4,575 200,121
Loans and leases:
Total loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,257,787 2,841,036
Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . (66,368) (73,055)
---------- ----------
Net loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,191,419 2,767,981
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,972 123,336
Income receivable and other assets . . . . . . . . . . . . . . . . . . . . . . . 94,061 440,208
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,798 63,522
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,742,873 $6,568,782
========== ==========
Liabilities And Stockholders' Equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944,290 $1,036,371
Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,363,446 4,343,546
---------- ----------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,307,736 5,379,917
Federal funds purchased and securities sold under agreements to repurchase . . . 493,927 326,137
Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . 250,000 --
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,002 23,692
Accrued interest, taxes, and other liabilities . . . . . . . . . . . . . . . . . 55,874 282,585
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,989 29,340
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,144,528 6,041,671
---------- ----------
Minority interest in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,298
Stockholders' Equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 103,641
Common stock, par value $5 per share
Authorized: 50,000,000 shares
Issued: 26,575,251 and 25,218,204 shares . . . . . . . . . . . . . . . . . . 132,876 126,091
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,905 101,717
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239,456 195,433
Less: Treasury stock at cost (111,518 shares) . . . . . . . . . . . . . . . . . (3,245) --
Stock option loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,795) (1,069)
---------- ----------
Stockholders' equity before net unrealized gains on
available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . 573,197 525,813
Net unrealized gains on available-for-sale securities . . . . . . . . . . . . . 25,148 --
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 598,345 525,813
---------- ----------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . $6,742,873 $6,568,782
========== ==========
<FN>
The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
----------------------------------
1993 1992 1991
--------- --------- ---------
(Dollars in thousands,
except per share amounts)
Interest Income:
Interest and fees on loans and leases . . . . . . . . . . . . . . . . . $254,730 $260,741 $305,778
Interest on short-term investments . . . . . . . . . . . . . . . . . . . 1,937 4,336 13,724
Interest and dividends on investment securities:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,800 140,701 133,983
Tax-preferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,864 21,119 25,489
Interest and dividends on trading account securities . . . . . . . . . . 136 222 594
-------- -------- --------
Total interest income. . . . . . . . . . . . . . . . . . . . . . . . 433,467 427,119 479,568
-------- -------- --------
Interest Expense:
Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 154,725 179,013 254,005
Interest on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 18,909 10,060 13,070
Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . . 1,867 3,324 4,134
-------- -------- --------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . 175,501 192,397 271,209
-------- -------- --------
Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,966 234,722 208,359
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . 7,056 21,343 43,665
-------- -------- --------
Net Interest Income After Provision For Credit Losses. . . . . . . . . . . 250,910 213,379 164,694
-------- -------- --------
Noninterest Income:
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,310 17,627 17,335
Service charges on deposit accounts. . . . . . . . . . . . . . . . . . . 32,711 26,820 23,211
Bank card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,658 13,531 13,927
Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . 1,311 2,520 4,721
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,113 22,516 26,702
-------- -------- --------
Total noninterest income . . . . . . . . . . . . . . . . . . . . . . 89,103 83,014 85,896
-------- -------- --------
Noninterest Expense:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . 114,575 100,491 93,123
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 22,004 19,030 17,944
Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,307 14,458 14,020
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,071 11,679 10,915
Bank card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,577 5,021 7,074
Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . 9,132 5,424 5,080
Nonoperating charge. . . . . . . . . . . . . . . . . . . . . . . . . . . 12,708 5,573 6,997
Net costs of operation of other real estate and nonperforming assets . . 3,088 2,356 6,736
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,524 52,894 48,452
-------- -------- --------
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . 252,986 216,926 210,341
-------- -------- --------
Income Before Income Taxes, Extraordinary Item and Cumulative
Effect of a Change in Accounting Principle . . . . . . . . . . . . . . . 87,027 79,467 40,249
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,845 18,534 9,537
-------- -------- --------
Income Before Extraordinary Item and Cumulative Effect of a Change
in Accounting Principle. . . . . . . . . . . . . . . . . . . . . . . . . 65,182 60,933 30,712
Extraordinary item - tax benefit from utilization of net
operating loss carryforward. . . . . . . . . . . . . . . . . . . . . . -- -- 1,397
Cumulative effect of a change in accounting for income taxes . . . . . . 10,509 2,373 --
-------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,691 $ 63,306 $ 32,109
======== ======== ========
Net Income Applicable to Common and Common-Equivalent Shares . . . . . . . $ 68,691 $ 57,355 $ 32,109
======== ======== ========
Primary Earnings Per Common Share:
Income applicable to common and common-equivalent shares
before extraordinary item and cumulative effect of a
change in accounting principle . . . . . . . . . . . . . . . . . . . . $2.26 $2.17 $1.26
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- .06
Cumulative effect of a change in accounting for income taxes . . . . . . .41 .10 --
----- ----- -----
Net income applicable to common and common-equivalent shares . . . . . . $2.67 $2.27 $1.32
===== ===== =====
Fully Diluted Earnings Per Common Share:
Income before extraordinary item and cumulative effect
of a change in accounting principle. . . . . . . . . . . . . . . . . . $2.19 $2.11 $1.23
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- .05
Cumulative effect of a change in accounting for income taxes . . . . . . .35 .08 --
----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.54 $2.19 $1.28
===== ===== =====
Dividends Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . $ .98 $ .88 $ .88
===== ===== =====
<FN>
The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Net
Preferred Stock Common Stock Treasury Stock Stock Unrealized
--------------- --------------- Capital Retained -------------- Option Gains on
Shares Amount Shares Amount Surplus Earnings Shares Amount Loans Securities Total
------ -------- ------ -------- -------- -------- ------ ------- ------ ---------- -------
(In thousands)
Balance, December 31,
1990
As previously
reported . . . . . . -- $ -- 21,485 $107,425 $ 82,537 $135,248 -- $ -- $ (705) $ -- $324,505
Adjustment for
poolings
of interests . . . . 790 2,511 2,719 13,596 14,897 5,504 -- -- (235) -- 36,273
------ -------- ------ -------- -------- -------- ---- ------- ------- ------- --------
Adjusted balance. . 790 2,511 24,204 121,021 97,434 140,752 -- -- (940) -- 360,778
Net income. . . . . . -- -- -- -- -- 32,109 -- -- -- -- 32,109
Purchase of stock
for treasury . . . . -- -- -- -- -- -- (40) (697) -- -- (697)
Issuance of common
stock under stock
option plans . . . . -- -- 147 736 835 -- 40 697 -- -- 2,268
Cash dividends:
Common stock. . . . -- -- -- -- -- (16,434) -- -- -- -- (16,434)
Pooled companies. . -- -- -- -- -- (95) -- -- -- -- (95)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- (346) -- (346)
Capital transactions
of pooled companies. 92 576 73 366 501 -- -- -- 60 -- 1,503
------ -------- ------ -------- -------- -------- ---- ------- ------- -------- --------
Balance, December 31,
1991 . . . . . . . . . 882 3,087 24,424 122,123 98,770 156,332 -- -- (1,226) -- 379,086
Adjustment for pool-
ing of interests . . -- -- 479 2,392 2,833 -- -- -- -- -- 5,225
------ -------- ------ -------- -------- -------- ---- ------- ------- -------- --------
Adjusted balance,
January 1, 1992. . . . 882 3,087 24,903 124,515 101,603 156,332 -- -- (1,226) -- 384,311
Net income. . . . . . -- -- -- -- -- 63,306 -- -- -- -- 63,306
Issuance of
preferred stock. . . 250 100,000 -- -- (3,080) -- -- -- -- -- 96,920
Issuance of common
stock under stock
option plans . . . . -- -- 163 813 1,657 -- -- -- -- -- 2,470
Cash dividends:
Preferred stock . . -- -- -- -- -- (5,951) -- -- -- -- (5,951)
Common stock . . . -- -- -- -- -- (16,768) -- -- -- -- (16,768)
Pooled companies. . -- -- -- -- -- (1,486) -- -- -- -- (1,486)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- (18) -- (18)
Capital transactions
of pooled companies. 90 554 152 763 1,537 -- -- -- 175 -- 3,029
------ -------- ------ -------- -------- -------- ---- ------- ------- -------- --------
Balance, December 31,
1992 . . . . . . . . . 1,222 103,641 25,218 126,091 101,717 195,433 -- -- (1,069) -- 525,813
Net income. . . . . . -- -- -- -- -- 75,691 -- -- -- -- 75,691
Purchase of stock
for treasury . . . . -- -- -- -- -- -- (112) (3,245) -- -- (3,245)
Issuance of common
stock under stock
option plans . . . . -- -- 199 993 2,414 -- -- -- -- -- 3,407
Cash dividends:
Preferred stock . . -- -- -- -- -- (7,000) -- -- -- -- (7,000)
Common stock . . . -- -- -- -- -- (22,705) -- -- -- -- (22,705)
Pooled companies. . -- -- -- -- -- (1,963) -- -- -- -- (1,963)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- (726) -- (726)
Capital transactions
of pooled companies. (972) (3,641) 1,158 5,792 1,774 -- -- -- -- -- 3,925
Net unrealized gains
on available-for-
sale securities. . . -- -- -- -- -- -- -- -- -- 25,148 25,148
------ -------- ------ -------- -------- -------- ---- ------- ------- -------- --------
Balance, December 31,
1993 . . . . . . . . . 250 $100,000 26,575 $132,876 $105,905 $239,456 (112) $(3,245) $(1,795) $ 25,148 $598,345
====== ======== ====== ======== ======== ======== ==== ======= ======= ======== ========
<FN>
The accompanying notes are an integral part of the financial statements.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------
1993 1992 1991
----------- ----------- -----------
Increase (Decrease) in Cash and Due from Banks (In thousands)
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,691 $ 63,306 $ 32,109
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 219 171
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . 7,056 21,343 43,665
Provision for security losses. . . . . . . . . . . . . . . . . . . . . . . . -- -- 1,491
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 24,374 20,033 18,455
Accretion of discounts on investment securities,
net of amortization of premiums . . . . . . . . . . . . . . . . . . . . . . 15,692 9,268 409
Write-down of other real estate owned. . . . . . . . . . . . . . . . . . . . 4,376 3,005 4,713
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,711) (1,071) (4,466)
Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . . . (1,311) (2,520) (4,721)
Write-down of core deposit intangibles, purchased mortgage
servicing rights, premises and equipment, and other assets. . . . . . . . . 6,652 -- --
Gain on sales of premises and equipment, other real estate
owned, and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . (2,934) (3,405) (4,562)
Gain on sale of credit card loans. . . . . . . . . . . . . . . . . . . . . . -- (169) (3,226)
Change in assets and liabilities, net of
effects from purchases of acquired entities:
Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,062 4,125 (3,477)
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . (109,631) 2,087 (1,158)
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317,285 (29,815) 43,903
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,156) 14,588 44,902
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,681 3,823 11,147
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,970) (7,640) (7,366)
---------- ---------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . 324,309 97,177 171,989
---------- ---------- ----------
Cash Flows From Investing Activities:
Purchase of banks, net of cash acquired . . . . . . . . . . . . . . . . . . . (2,468) (7,662) (2,280)
Purchase of consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . -- (60,751) --
Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . 10,202 70,444 249,716
Proceeds from maturities and prepayments of investment securities. . . . . . . 1,037,690 946,753 1,378,158
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . (1,488,299) (1,320,880) (2,001,658)
Purchase of mortgage servicing rights. . . . . . . . . . . . . . . . . . . . . -- (1,247) (28)
Proceeds from sale of credit card loans. . . . . . . . . . . . . . . . . . . . -- 4,038 25,473
Proceeds from sales of premises and equipment,
other real estate owned, and other assets . . . . . . . . . . . . . . . . . . 15,740 28,775 42,759
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . (34,757) (17,788) (14,278)
Change in assets and liabilities, net of effects from
purchases of acquired entities:
Interest-bearing deposits in other financial institutions. . . . . . . . . . 3,432 728 1,372
Federal funds sold and securities purchased under agreements to resell . . . 205,698 (1,782) 242,243
Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (201,051) 128,093 166,301
---------- ---------- ----------
Net cash provided by (used in) investing activities. . . . . . . . . . . (453,813) (231,279) 87,778
---------- ---------- ----------
Cash Flows From Financing Activities:
Transfers associated with the assumptions of savings
and loan association net liabilities, less premiums paid. . . . . . . . . . . 91,832 46,413 187,461
Other transfer associated with the assumption of
deposits, net of premium paid . . . . . . . . . . . . . . . . . . . . . . . . -- 28,998 --
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . (15,125) (17,560) (10,338)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . -- -- 35,000
Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . . (3,245) -- (697)
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . (22,705) (16,768) (16,434)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . (7,000) (5,368) --
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . . . . 3,407 2,470 2,268
Net change in stock option loans . . . . . . . . . . . . . . . . . . . . . . . (726) (18) (346)
Proceeds from issuance of preferred stock, net of offering costs . . . . . . . -- 96,920 --
Capital transactions of pooled companies . . . . . . . . . . . . . . . . . . . (1,524) (346) 331
Change in liabilities, net of effects from purchases of acquired entities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (414,912) (152,290) (353,645)
Federal funds purchased and securities sold under agreements to repurchase . 167,790 177,913 (73,375)
Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . . . . 250,000 -- --
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,020) (18,960) (47,715)
---------- ---------- ----------
Net cash provided by (used in) financing activities. . . . . . . . . . . 42,772 141,404 (277,490)
---------- ---------- ----------
Increase (decrease) in cash and due from banks . . . . . . . . . . . . . . . . . (86,732) 7,302 (17,723)
Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . 400,531 387,535 405,258
Adjustment for pooling of interests. . . . . . . . . . . . . . . . . . . . . . . -- 5,694 --
---------- ---------- ----------
Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . $ 313,799 $ 400,531 $ 387,535
========== ========== ==========
Supplemental Disclosures:
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 178,079 $ 199,110 $ 278,256
========== ========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,377 $ 20,940 $ 13,128
========== ========== ==========
<FN>
See accompanying notes.
FOURTH FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of
Fourth Financial Corporation and its wholly-owned subsidiaries (the
"Company"). All significant intercompany balances and transactions
have been eliminated.
The consolidated financial statements for prior years have been
restated to reflect the poolings of interests detailed in Footnote 2 -
Bank Acquisitions. Certain reclassifications of previously reported
amounts have been made to conform with current year presentation
format.
Investment and Trading Account Securities
Management determines the appropriate classification of
securities at the time of purchase. Securities are classified as
"Held-to-maturity" when management has the intent and the Company has
the positive ability to hold the securities to maturity. Held-to-
maturity securities are stated at cost, adjusted for amortization of
premiums and accretion of discounts, both computed on the constant
yield method. The prepayment history of each mortgage-backed security
pool is used to recalculate the yield used to amortize and accrete the
premium and discount on these securities. Amortization, accretion, and
interest and dividends on held-to-maturity securities are included in
"Interest and dividends on investment securities."
In May 1993, the Financial Accounting Standards Board issued
Financial Accounting Standard ("FAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." As permitted by the
Statement, the Company elected to adopt the provisions of the new
standard as of December 31, 1993. Marketable equity securities and
debt securities that at the time of adoption (and subsequently upon
purchase) were deemed to be available-for-sale for the implementation
of asset and liability management strategies, possible liquidity needs,
and other purposes were classified as available-for-sale. Available-
for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of
stockholders' equity. In accordance with FAS No. 115, prior-period
financial statements have not been restated to reflect the change in
accounting principle. At December 31, 1993, investment securities were
increased $41,227,000; deferred income taxes payable were increased
$16,079,000; and stockholders' equity was increased $25,148,000 to
reflect the net unrealized gains on available-for-sale securities
previously carried at amortized cost or lower of cost or market. The
amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity.
Amortization, accretion, and interest and dividends on securities
classified as available-for-sale are included in "Interest and
dividends on investment securities." Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-
sale securities are included in "Investment securities gains." The
cost of securities sold is based on the specific identification method.
Securities held for sale to customers and in anticipation of
short-term market movements are classified as "Trading account
securities." Securities held in the trading account are stated at
market value. Gains and losses, both realized and unrealized, are
reflected in "Other noninterest income." The specific identification
method is used to determine the cost of securities sold.
Loans and Leases
Loans are reported at the principal amount outstanding, net of
unearned discount. Interest income on loans is accrued based on the
unpaid principal and the applicable rate. Interest on discounted loans
and leases is generally accrued on a basis approximating a level yield
over the terms of the loans or leases.
Residential mortgage loans and educational loans held for sale
are stated at the lower of cost or market value. These loans are
analyzed on an aggregate basis to determine the lower of cost or market
value. Net gains or losses on the sale of these loans, including
adjustments to market value, are part of normal operations and are
reflected in "Other noninterest income." The specific identification
method is used to determine the cost of loans sold.
A loan is placed on nonaccrual status when principal or interest
is due and has remained unpaid for 90 days or more unless the loan is
both well secured and in the process of collection. A loan is also
placed on nonaccrual status when there is reasonable doubt as to the
ability of the borrower to continue to pay principal or interest. At
the time a loan is classified as nonaccrual, interest previously
recorded but not collected is reversed. Interest payments received on
such loans are generally recorded as a reduction in carrying value
unless such carrying value is deemed to be collectible. A loan is not
reclassified as accruing until all principal and interest payments are
brought current and the borrower has demonstrated the ability to
service the loan in accordance with its contractual terms.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures in accordance with FAS No. 107,
"Disclosures About Fair Value of Financial Instruments." Because there
is no market for many of these financial instruments, the Company has
no basis to determine whether these estimated fair values would be
indicative of the value that could be obtained in an arm's-length sale.
Cash and due from banks: The carrying amounts reported in the
consolidated statements of condition for cash and due from banks
approximate those assets' fair values.
Interest-bearing deposits in other financial institutions: Fair
values of $2,279,000 for these fixed-rate certificates of deposit
were estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates
with similar maturities. The carrying amount of these
certificates of deposit was $2,232,000.
Investment and trading account securities: Fair values for
investment securities were based on quoted market prices, where
available. If quoted market prices were not available, fair
values were based on quoted market prices of comparable
instruments.
Federal funds sold and securities purchased under agreements to
resell: The carrying amounts of federal funds sold and
securities purchased under agreements to resell approximate their
fair values.
Loans and leases: For variable-rate loans that reprice in
accordance with indices, fair values were estimated to be equal
to carrying values. A significant portion of a credit card
portfolio's value results from the ongoing cardholder
relationship that generates receivables and fees over time. This
relationship value is not defined as a financial instrument and
therefore not disclosed under FAS No. 107. The carrying values
of the credit card receivables approximate their fair values.
The fair values for one-to-four family fixed-rate mortgage loans
were based on quoted market prices of similar loans, adjusted for
differences in loan characteristics. The fair values for other
fixed-rate loans were estimated using discounted cash flow
analyses, using interest rates currently being offered for loans
with similar terms. Because the allowance for credit losses
provides for the credit risk inherent in the loan and lease
portfolio, neither the cash flows nor discount rates were
adjusted to reflect changes in credit risk subsequent to when
loans were originated. Nonperforming loans have not been
discounted.
Off-balance-sheet instruments: No premium or discount was
ascribed to loan commitments because virtually all funding will
be at current market rates. The estimated fair values of the
interest rate swaps generally represent an estimate of the amount
the Company would receive or pay to terminate the agreement at
the reporting date. These values were based on dealer quotes
with respect to the amortizing swaps. For swaps with fixed
maturities, the estimated values represent the present value of
the cash flow stream discounted at current interest rate spreads.
Deposit liabilities: For deposits with no defined maturities,
demand deposits, interest-bearing checking deposits, and savings
deposits, FAS No. 107 defines fair value as the amount payable on
demand at the reporting date (i.e., their carrying amounts).
Included in "Intangible assets" at December 31, 1993 was
$15,828,000 (net of accumulated amortization) representing the
value of core deposits assumed in deposit assumption
transactions. The value of the core deposit relationships built
by the Company over time was neither considered in the fair value
amounts nor recorded as an intangible asset in the statements of
condition. The carrying amounts for variable-rate certificates
of deposit approximated their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit were estimated
using a discounted cash flow calculation that applies interest
rates currently being offered on certificates with similar
maturities.
Federal funds purchased, securities sold under agreements to
repurchase, and other borrowings: The carrying amounts of
federal funds purchased, borrowings under repurchase agreements,
and other short-term borrowings approximate their fair values.
Federal Home Loan Bank borrowings: The carrying amounts of the
short-term portion of these borrowings approximate their fair
values. A discounted cash flow analysis, using the current rates
on Federal Home Loan Bank borrowings of similar maturities, was
used to estimate the fair values of these borrowings with
maturities greater than one year.
Long-term borrowings: The fair values of the Company's long-term
debt were estimated using discounted cash flow analyses, based on
the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
Other Real Estate and Nonperforming Assets
Other real estate and nonperforming assets include assets
acquired from loan settlements and foreclosures. These assets are
carried at the lower of the loan carrying amount or fair value minus
estimated selling costs and are included in "Income receivable and
other assets" in the consolidated statements of condition. At the time
of acquisition or repossession, any write-down necessary to record an
asset at its fair value is charged to the allowance for credit losses.
A valuation allowance for estimated selling costs is recorded through
a charge to "Net costs of operation of other real estate and
nonperforming assets." Losses and gains as well as net costs
associated with these properties are also included in "Net costs of
operation of other real estate and nonperforming assets" in the
consolidated statements of income.
In accordance with the Securities and Exchange Commission's
Financial Reporting Release 28 ("FRR 28"), "Other real estate and
nonperforming assets" previously has included certain loans valued at
the fair value of the underlying collateral even though the Company did
not have possession of that collateral. The main objective of FRR 28
was to require a systematic methodology to be applied to the
recognition and measurement of potential losses inherent in loans,
where the repayment of the loan was expected to come only from the
operation or the sale of the collateral. Collateral was to be
considered repossessed in substance and accounted for at fair value in
those cases where the borrower had little or no equity in the
collateral considering the property's fair value and where, considering
economic conditions, the borrower's ability to rebuild equity was
doubtful.
During 1993, banking system regulators issued guidance confirming
that the loss recognition on collateral-dependent loans should be based
on the fair value of the collateral, but that such loans need not be
reported as "Other real estate" unless possession of the underlying
collateral has been obtained. The Company's consolidated statement of
condition reflects the adoption of this regulatory guidance as of
December 31, 1993, and the 1992 consolidated statement of condition has
been restated to reclassify substantive repossessions from "Other
assets" to "Loans." These loans are all classified as nonaccrual
loans.
Allowance for Credit Losses
The allowance for credit losses is the amount deemed by
management to be reasonably necessary to provide for possible losses on
loans that may become uncollectible. Additions to the allowance are
charged to expense as the provision for credit losses. Loan losses and
recoveries are charged or credited directly to the allowance. It is
the Company's policy to charge off any loan or portion of that loan
when it is deemed to be uncollectible in the ordinary course of
business.
An evaluation of the overall quality of the portfolio is
performed to determine the necessary level of the allowance for credit
losses. This evaluation takes into consideration the classification of
loans and the application of loss estimates to these classifications.
It is the responsibility of management in each of the Company's markets
to classify its loans as pass, special mention, substandard, doubtful,
or loss. The classification criteria are established by the credit
administration function of the Company, which is independent of all
lending functions, and are intended to be consistent with the criteria
applied by federal banking system examiners. These classifications
take into consideration all sources of repayment, underlying
collateral, the value of such collateral, and current and anticipated
economic conditions, trends, and uncertainties. The Company has an
independent loan review function which reviews the loans periodically.
The Company's bank subsidiaries also are subjected to periodic
examinations by the Office of the Comptroller of the Currency.
Loss factors are developed by loan type and classification using
historical loss data and statistical modeling techniques. The
application of these loss factors to the portfolio classifications,
combined with analyses of general economic conditions, trends in
portfolio volume, maturity, and composition, and estimates of potential
future losses on specific large loans and those loans requiring special
attention, provide management with data essential to identify and
estimate the credit risk inherent in the portfolio. The allowance for
credit losses reflects the result of these estimates and is deemed to
be adequate at each balance sheet date.
Loan and Loan Commitment Fees
The Company generally recognizes loan and loan commitment fees as
revenue when received and related costs as expenses when incurred. FAS
No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating Loans," provides for the deferral of such fees and direct
loan origination costs and the amortization of such fees and costs over
the lives of the related loans as an adjustment of yield. However, the
adoption of FAS No. 91 would not have a material effect on operating
results.
Bank Premises and Equipment
Land is stated at cost, and buildings and equipment are stated at
cost less accumulated depreciation. For financial reporting purposes,
depreciation is included in operating expenses and is computed
principally on the straight-line method over the estimated useful lives
of the related assets. Accelerated methods are generally used for
income tax purposes with deferred income taxes provided for timing
differences. Additions, major replacements, and improvements to
buildings and equipment are added to the asset accounts at cost.
Maintenance, repairs, and minor replacements are charged directly to
operating expense.
The costs incidental to the operation and maintenance of
buildings, net of income received from tenants, are reflected as "Net
occupancy" expense in the accompanying consolidated statements of
income.
Income Taxes
The Company and its subsidiaries, except the insurance
subsidiary, file a consolidated federal income tax return. The income
tax effects of transactions are recognized in the years in which they
enter into the determination of reported income, regardless of when
they are recognized for tax return purposes. When income and expenses
are recognized in different periods for tax purposes, applicable
deferred taxes are provided in the financial statements. Effective
January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required
by FAS No. 109, "Accounting for Income Taxes." As permitted under the
new rules, prior years' financial statements have not been restated.
2 - Acquisitions
Purchase Transactions
During 1993 three acquisitions accounted for as purchases were
completed: Guaranty Bancorporation ("GB"), Bancshares of Woodward,
Inc. ("BOW"), and F&M Bank Services, Inc. ("FBS"). The following table
presents information regarding these purchase transactions.
Acquisition Bank Subsidiary Assets
Date Company Acquired Location Acquired Cash Paid
- ----------- ------------------ ------------------------------------- ---------- -----------
(In thousands)
May 14, 1993 GB Guaranty Bank & Trust Company
Tulsa, OK . . . . . . . . . . . . . . $ 82,606 $ 4,386
May 28, 1993 BOW Bank of Woodward
Woodward and Waukomis, OK . . . . . . 130,192 17,859
May 28, 1993 FBS Farmers & Merchants State Bank
Derby, KS . . . . . . . . . . . . . . 61,565 8,068
-------- -------
$274,363 $30,313
======== =======
During 1992 two acquisitions accounted for as purchases were completed:
Farmers and Merchants Bank ("FMB") and Southern Bancorp, Inc. ("SBI").
The following table presents information regarding these purchase transactions.
Acquisition Bank Subsidiary Assets
Date Company Acquired Location Acquired Cash Paid
- ----------- ------------------ ------------------------------------- ---------- -----------
(In thousands)
July 31, 1992 FMB Farmers and Merchants Bank
Colby, KS . . . . . . . . . . . . . . $ 66,827 $ 8,921
December 11, 1992 SBI Southern National Bank
Tulsa, OK . . . . . . . . . . . . . . 64,510 9,951
-------- -------
$131,337 $18,872
======== =======
The following table presents supplementary information regarding the cash
paid in these purchase transactions.
1993 1992
-------- --------
(In thousands)
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . $274,363 $131,337
Fair value of liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . (253,378) (115,464)
Cost in excess of net assets acquired . . . . . . . . . . . . . . . . . . . . . 9,328 2,999
-------- --------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,313 18,872
Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,845 11,210
-------- --------
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,468 $ 7,662
======== ========
For each of these transactions, the consolidated statements of
income include only the income and expenses of the acquired company
since acquisition. The purchase price has been allocated to the net
identifiable assets acquired based on their fair values with the excess
allocated to cost in excess of net assets acquired. The effect on
results of operations for 1993 and 1992, had the purchase transactions
occurred at the beginning of these years, was not material.
Poolings of interests
The following table presents the five 1993 business combinations
accounted for as poolings of interests. The consolidated statements
for the prior periods have been restated as if the entities had been
combined at the beginning of the periods presented, with the exception
that periods prior to January 1, 1992 have not been restated for the
results of operations of Ponca Bancshares, Inc. ("PBI") which were not
material. Adjustments to conform the acquired companies' accounting
policies to those of the Company were not material.
Company Acquired/ Company Assets Shares
Date Location Abbreviation Acquired Issued
- ------------------ ------------------------------------- ------------ ------------ --------
(In thousands)
February 12, 1993 Southgate Banking Corporation, SBC $ 62,628 451,310
Prairie Village, KS
May 28, 1993 Nichols Hills Bancorporation, Inc., NHB 97,869 469,906
Nichols Hills (Oklahoma City), OK
September 17, 1993 Commercial Landmark Corporation, CLC 465,060 1,874,812
Muskogee, OK
December 3, 1993 Western National Bancorporation, Inc., WNB 206,288 1,110,695
Tulsa, OK
December 10, 1993 Ponca Bancshares, Inc., PBI 117,275 478,395
Ponca City, OK -------- ---------
$949,120 4,385,118
======== =========
In addition to the business combinations listed, the Company
issued 108,748 shares to acquire the minority interest of Western
National Bank of Tulsa, the bank subsidiary of WNB. As prescribed by
Accounting Principles Board Opinion No. 16, the acquisition of the
minority interest was accounted for as a purchase. The fair market
value of shares issued exceeded the net asset value of the minority
interest by $1,673,000 at the time of acquisition.
The following table presents the four 1992 business combinations
accounted for as poolings of interests. The consolidated statements
for the prior periods have been restated as if the entities had been
combined at the beginning of the periods presented. Adjustments to
conform the acquired companies' accounting policies to those of the
Company were not material.
Company Acquired/ Company Assets Shares
Date Location Abbreviation Acquired Issued
- ------------------ ------------------------------------- ------------ ------------ --------
(In thousands)
September 9, 1992 KNB Bancshares, Inc., KNB $ 99,256 267,390
Prairie Village, KS
October 30, 1992 Mission Hills Bancshares, Inc., MHB 94,762 358,709
Mission Woods, KS
December 30, 1992 United Bank of Kansas, Inc., UBK 122,885 663,739
Liberal, KS
December 31, 1992 Fourth National Corporation, FNC 368,325 1,639,941
Tulsa, OK -------- ----------
$685,228 2,929,779
======== =========
The effect of pooling-of-interests accounting treatment on previously
reported selected operating results is as follows:
Nine Months
Ended Year Ended December 31,
September 30, -------------------------
1993 1992 1991
---------------- ---------- ----------
(Dollars in thousands, except per share data)
Interest income:
Company. . . . . . . . . . . . . . . . . . . . . . $305,596(1) $352,697 $409,274
Pooled companies . . . . . . . . . . . . . . . . . 17,921 74,422 70,294
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $323,517 $427,119 $479,568
======== ======== ========
Net interest income:
Company. . . . . . . . . . . . . . . . . . . . . . $180,407(1) $191,483 $174,782
Pooled companies . . . . . . . . . . . . . . . . . 11,292 43,239 33,577
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $191,699 $234,722 $208,359
======== ======== ========
Net income:
Company. . . . . . . . . . . . . . . . . . . . . . $ 56,096(1) $ 53,187 $ 25,320
Pooled companies . . . . . . . . . . . . . . . . . (587) 10,119 6,789
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 55,509 $ 63,306 $ 32,109
======== ======== ========
Net income applicable to common stock:
Company. . . . . . . . . . . . . . . . . . . . . . $ 50,846(1) $ 47,236 $ 25,320
Pooled companies . . . . . . . . . . . . . . . . . (587) 10,119 6,789
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 50,259 $ 57,355 $ 32,109
======== ======== ========
Primary earnings per common share, after cumulative
effect of a change in accounting principle:
Company. . . . . . . . . . . . . . . . . . . . . . $ 2.06(1) $ 2.17 $ 1.18
Pooled companies . . . . . . . . . . . . . . . . . (.10) .10 .14
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 1.96 $ 2.27 $ 1.32
======== ======== ========
Fully diluted earnings per common share,
after cumulative effect of a change in
accounting principle:
Company. . . . . . . . . . . . . . . . . . . . . . $ 1.99(1) $ 2.16 $ 1.18
Pooled companies . . . . . . . . . . . . . . . . . (.12) .03 .10
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 1.87 $ 2.19 $ 1.28
======== ======== ========
<FN>
_________
(1) Includes SBC, NHB, and CLC which were acquired prior to September 30, 1993.
Pending Acquisitions
Pending acquisitions as of December 31, 1993 are listed in the table below.
The proposed transactions are subject to approval by regulators and other
contractual conditions.
Assets Number of
December 31, 1993 Cash Expected Shares Expected Accounting
Bank (Unaudited) To Be Paid To Be Issued Method
------ ----------------- ------------- --------------- ----------
(In thousands)
Great Southern Savings Bank
Springfield, MO ("Great Southern"). . . $ 530,368 $ -- 2,798,813 Pooling
Emprise Bank, National Association,
Hutchinson, KS ("Emprise"). . . . . . . 268,450 29,953 -- Purchase
First National Bank and Trust Company
in Dodge City, Dodge City, KS and
Metro Bank of Broken Arrow, Broken
Arrow, OK, ("First National") . . . . . 148,818 -- 662,220 Pooling
Equity Bank for Savings, F.A.
Oklahoma City, OK ("Equity"). . . . . . 520,224 92,046 -- Purchase
---------- -------- ---------
$1,467,860 $121,999 3,461,033
========== ======== =========
3 - Assumption of Deposits
On April 2, 1993, $99,399,000 of deposits and other liabilities
were assumed by the Kansas bank subsidiary from a failed bank in
Mission, Kansas. A premium of $1,141,000 was paid to the Federal
Deposit Insurance Corporation ("FDIC") to assume these deposits.
During 1992, the Company completed two deposit assumption
transactions. On March 27, 1992, $46,484,000 of deposits and other
liabilities were assumed by the Kansas bank subsidiary from a failed
savings and loan in Hays, Kansas. A premium of $57,000 was paid to the
Resolution Trust Corporation ("RTC") to assume these deposits. On
December 31, 1992, the Company's Oklahoma bank subsidiary assumed the
deposits and acquired the branch facilities and equipment of nine
offices from a S&L in Tulsa, Oklahoma. The following table presents
supplementary information regarding the cash paid in this transaction.
1992
--------------
(In thousands)
Fair value of assets acquired . . . . . . . . . . . . . . . $346,595
Fair value of liabilities assumed . . . . . . . . . . . . . (349,355)
Cost in excess of net assets acquired . . . . . . . . . . . 2,376
Value of core deposits assumed . . . . . . . . . . . . . . 15,240
--------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . 14,856
Cash acquired . . . . . . . . . . . . . . . . . . . . . . 43,854
--------
Net cash received . . . . . . . . . . . . . . . . . . . . $ 28,998
========
4 - Cash and Due from Banks
The subsidiary banks are required by federal law to maintain
reserves against their deposit liabilities. These reserves can be
maintained in the form of vault cash or balances at a Federal Reserve
Bank. The average cash and Federal Reserve balances maintained as
reserves were $117,490,000 for 1993 and $93,282,000 for 1992. Cash and
due from banks also includes checks in process of collection and
balances maintained at correspondent banks for services rendered.
5 - Investment Securities
In May 1993, the Financial Accounting Standards Board issued FAS
No. 115 which modified the accounting for investment securities. As
permitted by the statement, the Company elected to adopt the provisions
of the new standard as of December 31, 1993. In accordance with FAS
No. 115, prior-period financial statements have not been restated to
reflect the change in accounting principle. Pursuant to FAS 115, the
Company's investment securities at December 31, 1993 were classified as
either held-to-maturity securities or available-for-sale securities.
Those securities classified as held-to-maturity securities are those
management has the intent and the Company has the positive ability to
hold until maturity. The available-for-sale securities are those
securities deemed to be available for sale for the implementation of
asset and liability management strategies, possible liquidity needs,
and other purposes. At December 31, 1992, the Company's "Investment
securities" were carried at amortized cost since management had the
intent and the Company had the ability to hold the securities on a
long-term basis.
The following table presents the amortized cost and estimated
fair value of investment securities classified as held-to-maturity and
carried at amortized cost.
Held-to-maturity
December 31, 1993 December 31, 1992
------------------------------------------ ------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---------- ---------- ---------- --------- ---------- ---------- ---------- ---------
(In thousands) (In thousands)
U.S. Treasury obligations. $ 1,514 $ 21 $ -- $ 1,535 $ 284,856 $ 5,377 $ (457) $ 289,776
Obligations of U.S.
government agencies
and corporations:
Mortgage-backed. . . . . 1,751,443 13,443 (12,191) 1,752,695 1,731,879 18,219 (10,301) 1,739,797
Other. . . . . . . . . . 359 43 (1) 401 279,783 6,736 (397) 286,122
Obligations of states and
political subdivisions. . 4,750 13 (56) 4,707 215,471 25,345 (36) 240,780
Other securities:
Collateralized auto
receivables . . . . . . 12,364 88 -- 12,452 28,935 594 -- 29,529
Corporate notes and
bonds . . . . . . . . . -- -- -- -- 10,580 179 (11) 10,748
Foreign debt securities. 2,155 5 -- 2,160 -- -- -- --
Money market mutual
funds . . . . . . . . . 212 -- -- 212 220 -- -- 220
---------- ------- -------- ---------- ---------- ------- -------- ----------
Total debt securities. 1,772,797 13,613 (12,248) 1,774,162 2,551,724 56,450 (11,202) 2,596,972
Federal Home Loan
Bank stock(1) . . . . . 24,911 -- -- 24,911 1,166 -- -- 1,166
Federal Reserve
Bank stock(1) . . . . . 12,589 -- -- 12,589 8,452 -- -- 8,452
Other equity
securities(1) . . . . . 1,470 -- -- 1,470 3,576 18 (4) 3,590
---------- ------- -------- ---------- ---------- ------- -------- ----------
Total. . . . . . . . . $1,811,767 $13,613 $(12,248) $1,813,132 $2,564,918 $56,468 $(11,206) $2,610,180
========== ======= ======== ========== ========== ======= ======== ==========
<FN>
- -----------
(1) Securities do not have a readily determinable fair value.
The amortized cost and estimated fair value of the held-to-maturity debt
securities at December 31, 1993 are shown below by contractual maturity.
December 31, 1993
-------------------------------
Estimated
Amortized Fair
Cost Value
---------- ----------
(In thousands)
Due in one year or less . . . . . . . . . . . . . . $ 2,071 $ 2,126
Due after one year through five years . . . . . . . 17,258 17,314
Due after five years through ten years. . . . . . . 25 27
Due after ten years . . . . . . . . . . . . . . . . 2,000 2,000
---------- ----------
21,354 21,467
Mortgage-backed securities. . . . . . . . . . . . . 1,751,443 1,752,695
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . $1,772,797 $1,774,162
========== ==========
The following table presents the amortized cost and estimated fair
value of investment securities classified as available-for-sale and
carried at estimated fair value.
Available-for-sale
December 31, 1993
------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(In thousands)
U.S. Treasury obligations. . . . . . . . . . . . . . . . . $ 297,891 $10,518 $ (78) $ 308,331
Obligations of U.S. government agencies
and corporations:
Mortgage-backed. . . . . . . . . . . . . . . . . . . . . 215,889 4,530 (1,571) 218,848
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 299,900 7,179 (803) 306,276
Obligations of states and political subdivisions . . . . . 222,130 21,266 (463) 242,933
Corporate notes and bonds. . . . . . . . . . . . . . . . . 39,567 710 (40) 40,237
---------- ------- -------- ----------
Total debt securities. . . . . . . . . . . . . . . . . 1,075,377 44,203 (2,955) 1,116,625
Equity securities. . . . . . . . . . . . . . . . . . . . . 1,172 -- (21) 1,151
---------- ------- -------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $1,076,549 $44,203 $ (2,976) $1,117,776
========== ======= ======== ==========
The amortized cost and estimated fair value of the available-for-sale
debt securities at December 31, 1993 are shown below by contractual maturity.
December 31, 1993
-------------------------------
Estimated
Amortized Fair
Cost Value
---------- ----------
(In thousands)
Due in one year or less . . . . . . . . . . . . . . $ 89,296 $ 90,289
Due after one year through five years . . . . . . . 615,487 641,886
Due after five years through ten years. . . . . . . 128,606 134,916
Due after ten years . . . . . . . . . . . . . . . . 26,099 30,686
---------- ----------
859,488 897,777
Mortgage-backed securities. . . . . . . . . . . . . 215,889 218,848
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . $1,075,377 $1,116,625
========== ==========
The fair values of investment securities are based upon available
market data and estimates which often reflect transactions of
relatively small size and which are not necessarily indicative of
prices at which larger amounts of particular issues could be readily
sold. Expected maturities may differ from contractual maturities
because borrowers have the right to call or prepay obligations with or
without call or prepayment penalties.
The book value of investment securities pledged to secure public
deposits and for other purposes, as required or permitted by law,
aggregated $1,135,612,000 at December 31, 1993.
The gross proceeds, gains, and losses realized from the sale of
investment securities are detailed in the following table. This table
does not include proceeds from nor realized gains and losses
attributable to prepayments of investment securities.
1993 1992 1991
----------- ------------ ------------
Proceeds from sale of investment securities . . . . . . . . $10,202,000 $ 70,444,000 $249,716,000
=========== ============ ============
Gross realized gains . . . . . . . . . . . . . . . . . . . $ 55,000 $ 2,311,000 $ 5,540,000
Gross realized losses . . . . . . . . . . . . . . . . . . . 43,000 47,000 978,000
----------- ------------ ------------
Net gains . . . . . . . . . . . . . . . . . . . . . . . $ 12,000 $ 2,264,000 $ 4,562,000
=========== ============ ============
Gross securities gains in 1992 include $688,000 realized by a
pooled company associated with securities which were sold due to a
deterioration in credit quality. A gain was realized because the
securities had previously been written down to 37.0% of par value.
Not included in the table above are $299,685,000 of 1992 sales of
short-term Treasury Bills related to the restructuring of the
securities portfolio obtained with the assumption of deposits from a
Tulsa, Oklahoma S&L. These securities were sold within 14 days of
maturity; thus the market risk had been substantially eliminated as a
pricing factor, and a gain of only $5,000 was realized. "Income
receivable and other assets" includes the receivable for the proceeds
from this sale, which were received January 4, 1993.
6 - Loans and Leases
The book value and estimated fair value of loans and leases are
as follows:
December 31, 1993 December 31, 1992
--------------------- ---------------------
Amount Percent Amount Percent
----------- --------- ----------- ---------
(Dollars in thousands)
Commercial and industrial . . . . . . . . . . . . . . . . . . $ 849,026 26.1% $ 737,924 26.0%
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . 164,752 5.0 143,383 5.0
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,962 2.4 55,754 2.0
Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 34,576 1.1 41,282 1.4
Real estate, less unearned discount:
Construction. . . . . . . . . . . . . . . . . . . . . . . . 92,158 2.8 63,948 2.2
Secured by 1-4 family residences. . . . . . . . . . . . . . 781,946 24.0 690,202 24.3
Permanent commercial real estate and other. . . . . . . . . 500,129 15.4 436,888 15.4
Residential mortgage loans held for sale. . . . . . . . . . 110,132 3.4 501 --
Consumer, less unearned discount. . . . . . . . . . . . . . . 417,126 12.8 467,916 16.5
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . 91,562 2.8 81,012 2.9
Educational . . . . . . . . . . . . . . . . . . . . . . . . . 55,968 1.7 41,889 1.5
Lease financing . . . . . . . . . . . . . . . . . . . . . . . 40,195 1.2 29,490 1.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,255 1.3 50,847 1.8
---------- ------ ---------- ------
Loans and leases - book value . . . . . . . . . . . . . . $3,257,787 100.0% $2,841,036 100.0%
========== ====== ========== ======
Loans and leases - estimated fair value . . . . . . . . . $3,281,535 $2,859,833
========== ==========
The Company manages exposure to credit risk through loan portfolio
diversification by customer and market, as well as by product.
Although the aggregate legal lending limits of the Company's bank
subsidiaries totaled $79,422,000 at December 31, 1993, the Company had
no single lending relationship with an aggregate loan amount
outstanding in excess of $20,000,000. The Company principally lends to
businesses and individuals in Kansas, Oklahoma, and the contiguous
states or to Kansas and Oklahoma based customers that do business in
other states.
Nonaccrual loans and troubled debt restructurings are summarized
below:
December 31,
---------------------
1993 1992
-------- --------
(In thousands)
Nonaccrual loans . . . . . . . . . . . . . . . . $33,833 $36,772
Troubled debt restructurings . . . . . . . . . . 290 1,906
------- -------
$34,123 $38,678
======= =======
The effect of nonaccrual loans and troubled debt restructurings on
interest income was:
Year Ended December 31,
----------------------------
1993 1992 1991
------ ------ ------
(In thousands)
Interest income which would have been
recorded pursuant to the original terms . . . . . . . . . . $4,039 $7,823 $11,241
====== ====== =======
Interest income recorded . . . . . . . . . . . . . . . . . . $1,504 $1,598 $ 2,073
====== ====== =======
In the ordinary course of business, the Company has made loans to
directors and executive officers of the Company and its significant
subsidiaries. Loans to these customers were transacted on the same
terms, including similar interest rates and collateral terms, as those
prevailing at the time for comparable transactions with unrelated
persons and, in management's opinion, did not involve more than a
normal risk of collectibility or present other unfavorable features at
the time they were made. An analysis of aggregate loan activity with
this group, including their immediate families, companies in which they
are principal owners, and trusts in which they are involved, follows:
1993
--------------
(In thousands)
Loans outstanding at December 31, 1992. . . . . . . . $ 39,236
New loans . . . . . . . . . . . . . . . . . . . . . 214,894
Repayments. . . . . . . . . . . . . . . . . . . . . (176,635)
Other changes . . . . . . . . . . . . . . . . . . . 271
--------
Loans outstanding at December 31, 1993. . . . . . . . $ 77,766
========
Other changes include loans outstanding at December 31, 1992 to
directors elected or retired in 1993, loans purchased or sold during
the current year, and any other loans outstanding at December 31, 1992
to related individuals or entities not considered to be related parties
at December 31, 1993.
7 - Allowance for Credit Losses
Changes in the allowance for credit losses are as follows:
1993 1992 1991
------- ------- -------
(In thousands)
Balance at January 1, as previously reported . . . . . . . . . . . . . . . . $60,498 $57,459 $53,049
Adjustment for poolings of interests . . . . . . . . . . . . . . . . . . . 12,557 13,210 9,672
------- ------- -------
Balance at January 1, as restated. . . . . . . . . . . . . . . . . . . . . . 73,055 70,669 62,721
Allowance for credit losses of purchased banks . . . . . . . . . . . . . . 3,266 1,739 464
Allowance for purchased loans. . . . . . . . . . . . . . . . . . . . . . . -- 3,424 --
------- ------- -------
76,321 75,832 63,185
Provisions charged to operating expense. . . . . . . . . . . . . . . . . . 7,056 21,343 43,665
Recoveries on loans and leases previously charged off. . . . . . . . . . . 9,799 6,958 7,189
Loans and leases charged off . . . . . . . . . . . . . . . . . . . . . . . (26,808) (31,078) (44,559)
------- ------- -------
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . $66,368 $73,055 $69,480
======= ======= =======
8 - Bank Premises and Equipment
A summary of land, buildings, and equipment appears below:
December 31, 1993 December 31, 1992
------------------------------- --------------------------------
Accumulated Book Accumulated Book
Cost Depreciation Value Cost Depreciation Value
-------- ------------ ------- -------- ------------ --------
(In thousands)
Land . . . . . . . . . . . . . . . . . . $ 22,993 $ -- $ 22,993 $ 21,382 $ -- $ 21,382
Buildings and leasehold improvements . . 153,368 71,155 82,213 136,342 63,796 72,546
Furniture and equipment. . . . . . . . . 111,207 73,441 37,766 89,770 60,362 29,408
-------- -------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . $287,568 $144,596 $142,972 $247,494 $124,158 $123,336
======== ======== ======== ======== ======== ========
Depreciation expense amounted to $15,705,000 in 1993, $14,204,000 in 1992,
and $13,470,000 in 1991.
9 - Intangible Assets
Included in intangible assets are the following items:
December 31, 1993 December 31, 1992
------------------------------- --------------------------------
Accumulated Book Accumulated Book
Cost Amortization Value Cost Amortization Value
-------- ------------ ------- -------- ------------- -------
(In thousands)
Cost in excess of net assets acquired . . $64,728 $18,259 $46,469 $53,386 $14,992 $38,394
Value of core deposits assumed. . . . . . 28,055 12,227 15,828 26,825 5,335 21,490
Purchased mortgage servicing rights . . . 5,749 4,248 1,501 5,749 2,111 3,638
------- ------- ------- ------- ------- -------
$98,532 $34,734 $63,798 $85,960 $22,438 $63,522
======= ======= ======= ======= ======= =======
The cost of purchased entities in excess of fair value of net assets
acquired is being amortized on a straight-line basis over a period of
twenty years. The value of core deposits assumed and the purchased
mortgage servicing rights are being amortized using accelerated methods
over the estimated periods benefitted, not exceeding ten years.
10 - Deposits
The book value and estimated fair value of deposits are presented
below:
December 31,
-----------------------------
1993 1992
------------ ------------
(In thousands)
Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . $ 944,290 $1,036,371
Interest-bearing deposits:
Interest-bearing checking deposits . . . . . . . . . . . . . . . . . 908,792 800,606
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,259,486 1,220,952
Time deposits under $100,000 . . . . . . . . . . . . . . . . . . . . 1,835,211 1,923,026
Time deposits of $100,000 or more . . . . . . . . . . . . . . . . . . 359,957 398,962
---------- ----------
Total interest-bearing deposits . . . . . . . . . . . . . . . . . . 4,363,446 4,343,546
---------- ----------
Deposits - book value . . . . . . . . . . . . . . . . . . . . . . $5,307,736 $5,379,917
========== ==========
Deposits - estimated fair value . . . . . . . . . . . . . . . . . $5,350,182 $5,424,630
========== ==========
11 - Purchased Funds, Borrowings and Long-Term Debt
The following schedules summarize, by category, purchased funds,
borrowings, and long-term debt.
Federal funds purchased and securities sold
under agreements to repurchase
December 31, 1993 December 31, 1992
-------------------- ---------------------
Amount Rate Amount Rate
-------- -------- --------- --------
(Dollars in thousands)
Federal funds purchased . . . . . . . . . . . . . . . . . . . . $370,026 2.96% $261,048 2.92%
Securities sold under agreements to repurchase. . . . . . . . . 123,901 3.27 65,089 3.49
-------- --------
Total book value. . . . . . . . . . . . . . . . . . . . . . . $493,927 3.04 $326,137 3.03
======== ========
Estimated fair value. . . . . . . . . . . . . . . . . . . . . $493,927 $326,137
======== ========
Federal funds purchased and securities sold under agreements to
repurchase generally mature daily or on demand.
Federal Home Loan Bank borrowings
December 31, 1993 December 31, 1992
-------------------- ---------------------
Amount Rate Amount Rate
-------- -------- --------- --------
(Dollars in thousands)
Federal Home Loan Bank borrowings - book value. . . . . . . . . $250,000 4.01% $ -- --%
======== ========
Estimated fair value. . . . . . . . . . . . . . . . . . . . . . $251,402 $ --
======== ========
At December 31, 1993, Federal Home Loan Bank borrowings included
$175,000,000 with an average rate of 3.76% that matures in 1994.
The remaining balance matures in 1995 ($50,000,000) and 1996 ($25,000,000).
Other borrowings
December 31, 1993 December 31, 1992
-------------------- ---------------------
Amount Rate Amount Rate
-------- -------- --------- --------
(Dollars in thousands)
Treasury tax and loan . . . . . . . . . . . . . . . . . . . . . $23,002 2.75% 17,306 2.67
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 5,961 6.57
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . -- -- 425 2.80
-------- --------
Total book value. . . . . . . . . . . . . . . . . . . . . . . $ 23,002 2.75 $ 23,692 3.65
======== ========
Estimated fair value. . . . . . . . . . . . . . . . . . . . . $ 23,002 $ 23,692
======== ========
Treasury tax and loan borrowings generally mature daily or on
demand. The $5,961,000 of notes payable at December 31, 1992 were
debts of pooled companies. These notes were paid in full at the
acquisition dates. Commercial paper has a maximum maturity of 270
days.
The Company has a $35,000,000 committed line of credit from an
unaffiliated bank. Amounts borrowed under the agreement have
alternative fluctuating interest rates. A commitment fee of 1/8 of 1%
is charged on this commitment, which matures on May 31, 1994. There
have been no borrowings under this agreement. The Company is required
to maintain capital ratios above the regulatory "Well Capitalized"
standard and the ratio of nonperforming assets to total loans plus
other real estate owned may not exceed 4.0%. In the event of a default
on either of these covenants, the lender would have the right to impose
additional covenants, and increase fees and margins as it may deem
prudent, or the lender could deny any future advances, as well as cause
the obligations then outstanding to become immediately due and payable.
At December 31, 1993, the Company was in compliance with all the terms
of this agreement.
Long-term debt
December 31, 1993 December 31, 1992
----------------- -----------------
Amount Rate Amount Rate
---------- ------ ---------- ------
(Dollars in thousands)
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,125 8.60% $21,875 8.60%
Mortgage indebtedness and other notes payable . . . . . . . . . . 864 4.60 5,950 6.94
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . -- -- 1,515 6.70
------- -------
Total book value. . . . . . . . . . . . . . . . . . . . . . . . $13,989 8.35 $29,340 8.17
======= =======
Estimated fair value. . . . . . . . . . . . . . . . . . . . . . $14,352 $30,358
======= =======
The parent company's term loan with an unaffiliated bank requires
semiannual installments of $4,375,000, due the last day of March and
September through March 1995. The Company is required to maintain
consolidated net worth above an adjusted base of $498,076,000 at
December 31, 1993; maintain a ratio of consolidated equity to
consolidated assets above the level required by the Federal Reserve
Board of Governors; maintain investments in subsidiaries below 140% of
consolidated equity; and to maintain a level of consolidated tangible
net worth exceeding consolidated funded debt. The Company is in
compliance with all of the terms of the agreement.
The mortgage indebtedness and other notes payable of $5,950,000 in
1992 includes $5,368,000 from current year pooling-of-interests
acquisitions. The majority (87.5%) of the acquired balance was paid
off at the acquisition dates. Certain buildings and real estate have
been pledged as collateral on mortgage indebtedness and other notes
payable. Maturities of this long-term debt for years subsequent to
December 31, 1993, are as follows:
Years ended December 31, (In thousands)
------------------------ --------------
1994 . . . . . . . . . . . . . $ 554
1995 . . . . . . . . . . . . . 75
1996 . . . . . . . . . . . . . 29
1997 . . . . . . . . . . . . . 32
1998 . . . . . . . . . . . . . 14
Thereafter . . . . . . . . . . 160
------
Total . . . . . . . . . . . . $ 864
======
The subordinated debentures were also obligations of a pooled
company. The interest rate was 2% above the average of the one year
United States treasury bill obligations issued in the two previous
Treasury auctions preceding December 31 each year. Although the
debentures were not due until December 31, 1998, they were subject to
redemption at the face amount plus accrued interest on any quarterly
interest payment date after December 31, 1991. These debentures were
redeemed by the Company in 1993.
12 - Preferred Stock
December 31, December 31,
1993 1992
------------- -------------
(Dollars in thousands)
Class A cumulative convertible preferred stock,
par value $100 per share
Authorized: 250,000 shares
Issued: 250,000 shares (at liquidation preference) . . . . . . . $100,000 $100,000
Class B preferred stock, no par value
Authorized: 5,000,000 shares . . . . . . . . . . . . . . . . . . -- --
CLC's convertible preferred stock, par value $6.22 per share
Authorized: 771,720 shares
Issued: None and 181,700 shares. . . . . . . . . . . . . . . . . -- 1,130
WNB's 1987 convertible preferred stock
Issued: None and 51,368 shares . . . . . . . . . . . . . . . . . -- 769
WNB's 1989 convertible preferred stock
Issued: None and 398,749 shares. . . . . . . . . . . . . . . . . -- 1,742
-------- --------
$100,000 $103,641
======== ========
On February 24, 1992, the Company issued 250,000 shares of nonvoting
Class A Cumulative Convertible Preferred Stock. This preferred stock
was issued in the form of 4,000,000 depositary shares each representing
a 1/16 interest in a share of preferred stock and each having a
liquidation preference of $25.00. Dividends are payable quarterly
beginning June 1, 1992 at an annual rate of $1.75 per depositary share.
The depositary shares are not redeemable by the Company prior to March
1, 1997. However, they may be converted at the election of
shareholders into a total of 3,448,275 shares of the Company's common
stock at a conversion price of $29.00 per common share.
At the Company's annual meeting in April 1992, the stockholders
authorized 5,000,000 shares of a new class of preferred stock,
designated Class B Preferred Stock. The Board of Directors has been
authorized to set the dividend, voting, conversion, redemption, and
other rights of this stock when and if issued.
The restatement of prior-period financial statements for the
poolings of interests resulted in the inclusion of CLC's and WNB's
convertible preferred stock in the Company's prior-period financial
statements. The par value, shares authorized, and shares issued in the
previous table have been adjusted by the exchange ratio to reflect
equivalent Company shares at December 31, 1992. Prior to CLC's merger
with the Company, CLC's preferred stock was converted to CLC common
stock, which was then exchanged for Company common stock. All of WNB's
preferred stock was exchanged for Company common stock in the business
combination.
CLC's convertible preferred stock was convertible into one share of
CLC common stock for each share of CLC preferred stock at the option of
the holder. Dividends were noncumulative and could only be paid if
covered by current-period profits and approved by CLC's Board of
Directors. Dividends were payable at the following rates:
1991 - 5% of par
1992 - 7% of par
1993 - 8% of par
1994 and thereafter - 8.75% of par
WNB's 1987 convertible preferred stock was convertible into
approximately 2.2 shares of WNB common stock for each share of WNB 1987
preferred stock. The 1987 preferred was redeemable by WNB at any time
after December 31, 1992, at book value plus any unpaid cumulative
dividends. Dividends accumulated at 3.5% annually. At December 31,
1992, cumulative unpaid dividends amounted to $108,000 which had not
been charged to retained earnings. The WNB 1987 preferred stock
shareholders received 117,487 Company shares in the business
combination and no dividends were declared.
Each share of WNB 1989 preferred stock was convertible into one
share of WNB common stock and was redeemable by WNB at any time after
December 31, 2000, at book value increased by 3.0% per year compounded
quarterly, plus any unpaid cumulative dividends. The dividends
accumulated at 12%, but were payable only in additional shares of 1989
preferred stock. At December 31, 1992, cumulative undeclared dividend
shares totaled 198,731 (as adjusted for the business combination
exchange ratio). The WNB 1989 preferred stock shareholders received
672,462 shares of Company stock in the business combination and no
dividends were declared.
13 - Nonoperating Charge
During 1993, the Company recorded a nonoperating charge of
$12,708,000 to reflect merger, integration, and restructuring charges
associated with the current- year acquisitions and to accelerate core
deposit intangible amortization, data processing hardware depreciation,
and software amortization. Acquisition-related premises and equipment
write-downs totaled $1,252,000 and were associated with dispositions of
excess facilities and equipment. Merger, integration, and
restructuring charges also included severance and other compensation of
$2,970,000; systems conversion costs of $1,579,000; and other
restructuring expenses related to acquisitions of $1,233,000.
The 1992 nonoperating charge of $5,573,000 was principally
associated with the consolidation of Oklahoma data processing,
operations, and staff functions. This expense included severance and
other compensation of $886,000; systems conversion costs of $1,941,000;
acquisition-related premises and equipment write-downs of $621,000; the
settlement of lease obligations on excess facilities of $991,000; and
other restructuring expenses of $884,000 related to acquisitions. Also
included in the 1992 nonoperating charge was a $250,000 computer write-
down.
The $6,997,000 nonoperating charge for 1991 recognized the costs of
a work force reduction. This charge included $5,648,000 attributable
to an early retirement incentive plan, $1,062,000 for the cost of
severance compensation, and $287,000 associated with the closing of
five loan production offices.
14 - Income Taxes
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method required by FAS No. 109, "Accounting for Income Taxes." As
permitted under the new rules, prior years' financial statements have
not been restated. The cumulative effect of adopting FAS No. 109 as of
January 1, 1993 was to increase net income by $10,509,000. The
$2,373,000 increase for the year ended December 31, 1992 was a result
of the 1993 pooling-of-interests transactions. Two of the "pooled"
companies elected early adoption of FAS No. 109 effective January 1,
1992.
At December 31, 1993, the Company had net operating loss and
general business credit carryforwards of $14,777,000 and $424,000,
respectively, which can be carried forward to reduce future federal
income taxes payable. These carryforwards are principally related to
previous losses of banks acquired in 1992 and 1993. Utilization of the
carryforwards is limited by tax law to the future earnings of and other
limits on the use of tax attributes of acquired companies. Net
operating loss carryforwards expire in years 2000 through 2007 and
general business credit carryforwards expire in years 1994 through 2005
if not utilized. For financial reporting purposes, a valuation
allowance of $13,211,000 has been recognized to offset the deferred tax
assets related to these carryforwards and other deferred tax assets
whose realization is uncertain. If realized, the tax benefit on
$3,413,000 of net operating loss carryforwards will be applied to
reduce "cost in excess of net assets acquired" recorded in connection
with acquisitions accounted for as purchases. The net change in the
valuation allowance for deferred tax assets for 1993 was a decrease of
$3,294,000. Pursuant to FAS No. 109, the Company's third quarter 1993
financial statements reflected certain adjustments to recognize the
impact of the new tax law on the Company's financial condition. These
adjustments reduced 1993 income tax expense by $616,000.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of
December 31, 1993 are as follows:
December 31, 1993
-----------------
(In thousands)
Deferred tax assets:
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . $18,874
Net operating loss carryforwards. . . . . . . . . . . . . . . . . . . . . . 8,159
Write-down of other real estate owned . . . . . . . . . . . . . . . . . . . 5,425
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,043
Core deposit amortization . . . . . . . . . . . . . . . . . . . . . . . . . 1,854
Nonoperating charge accrual . . . . . . . . . . . . . . . . . . . . . . . . 1,132
Pension contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,018
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
-------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . 38,839
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . (13,211)
-------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . 25,628
-------
Deferred tax liabilities:
Securities fair value adjustment. . . . . . . . . . . . . . . . . . . . . . (16,079)
Purchase accounting adjustment. . . . . . . . . . . . . . . . . . . . . . . (4,173)
Discount accretion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,145)
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,343)
Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,121)
Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,752)
-------
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . (29,613)
-------
Net deferred tax liability. . . . . . . . . . . . . . . . . . . . . . . . $(3,985)
=======
Significant components of the provision for income taxes are as follows:
Liability Deferred Deferred
Method Method Method
------------ ------------ ------------
December 31, December 31, December 31,
1993 1992 1991
------------ ------------ ------------
(In thousands)
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $23,636 $16,166 $11,203
State . . . . . . . . . . . . . . . . . . . . . . . . . . 3,920 3,439 2,800
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 27,556 19,605 14,003
------- ------- -------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . (5,936) (312) (3,578)
State . . . . . . . . . . . . . . . . . . . . . . . . . . 225 (759) (888)
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . (5,711) (1,071) (4,466)
------- ------- -------
Total income tax expense. . . . . . . . . . . . . . . $21,845 $18,534 $ 9,537
======= ======= =======
Tax effects of investment securities transactions included in the
above amounts are $459,000 in 1993, $504,000 in 1992, and $954,000 in 1991.
The components of the provision for deferred income taxes for the
periods ended December 31, 1992 and December 31, 1991 are as follows:
December 31, December 31,
1992 1991
------------ ------------
(In thousands)
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . $(1,571) $(1,823)
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . (939) (1,012)
Write-down of other real estate owned. . . . . . . . . . . . . . . . . . 972 (791)
Bond discount accretion. . . . . . . . . . . . . . . . . . . . . . . . . 147 (646)
Leasing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 142
Cash basis tax reporting . . . . . . . . . . . . . . . . . . . . . . . . -- (596)
Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . (385) (478)
Write-down of investment securities. . . . . . . . . . . . . . . . . . . -- 465
State taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 334
Utilization of loss carryforwards against deferred tax liability . . . . -- (381)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 320
------- -------
Provision for deferred income taxes. . . . . . . . . . . . . . . . . . $(1,071) $(4,466)
======= =======
The effective income tax rates differ from the federal statutory rates
for the reasons shown in the following table.
Liability Method Deferred Method Deferred Method
------------------- ------------------- -------------------
December 31, 1993 December 31, 1992 December 31, 1991
------------------- ------------------- -------------------
Amount Rate Amount Rate Amount Rate
--------- -------- --------- -------- --------- --------
(Dollars in thousands)
Income tax expense at federal statutory rate . . . $30,459 35.0% $27,019 34.0% $13,685 34.0%
Tax-preferred income on obligations of states,
political subdivisions, and U.S. possessions. . . (6,457) (7.4) (7,076) (8.9) (8,637) (21.5)
Goodwill and purchase accounting amortization. . . 1,271 1.5 986 1.2 1,018 2.5
State taxes, net of federal income tax benefit . . 2,688 3.1 1,693 2.1 1,374 3.4
Alternative minimum tax. . . . . . . . . . . . . . -- -- -- -- 2,348 5.8
Investment tax credit. . . . . . . . . . . . . . . -- -- (232) (.3) -- --
Benefit of net operating losses and
alternative minimum tax credits . . . . . . . . . (4,090) (4.7) (5,208) (6.6) (1,486) (3.7)
Deferred tax benefits not recorded due to
uncertainty of realization. . . . . . . . . . . . -- -- -- -- 605 1.5
Other, net . . . . . . . . . . . . . . . . . . . . (2,026) (2.4) 1,352 1.8 630 1.7
------- ---- ------- ---- ------- -----
Actual income tax expense. . . . . . . . . . . $21,845 25.1% $18,534 23.3% $ 9,537 23.7%
======= ==== ======= ==== ======= ====
15 - Employee Benefit Plans
The Company and its subsidiaries have two types of pension plans.
The Company's defined benefit plan covers substantially all employees.
The supplemental executive retirement plan provides for payments equal
to the benefit which would have been paid under the pension plan and
the savings and investment plan if certain Internal Revenue Code
limitations had not been imposed including Section 415, Section
401(a)(17), and the Section 401(a)(4) prohibition on deferred
compensation as eligible compensation under the pension plan.
The plans' funded status and amounts included in the consolidated
financial statements are presented below:
December 31, 1993 December 31, 1992
------------------------- -------------------------
Supplemental Supplemental
Defined Executive Defined Executive
Benefit Retirement Benefit Retirement
Plan Plan Plan Plan
---------- ------------ ---------- ------------
(In thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation . . . . . . . . . . . . . . . . $(20,425) $ (737) $(14,682) $(1,035)
======== ======= ======== =======
Accumulated benefit obligation. . . . . . . . . . . . . . $(21,695) $ (799) $(15,410) $(1,050)
======== ======= ======== =======
Projected benefit obligation. . . . . . . . . . . . . . . $(28,234) $(1,169) $(20,880) $(1,107)
Plan assets, at fair value. . . . . . . . . . . . . . . . . 20,086 -- 16,580 --
-------- ------- -------- -------
Funded status . . . . . . . . . . . . . . . . . . . . . . . (8,148) (1,169) (4,300) (1,107)
Prior service cost (benefit) not yet recognized in
periodic pension cost, being amortized over 10 years . . . (1,641) 1 41 55
Unrecognized net (asset) obligation from date of
initial application, being amortized over 15 years . . . . (2,541) 104 (2,900) 119
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions. . 10,499 377 5,342 258
-------- ------- -------- -------
Accrued pension cost included in
consolidated statements of condition . . . . . . . . . . $ (1,831) $ (687) $ (1,817) $ (675)
======== ======= ======== =======
Effective January 1, 1994, the pension plan was amended to reduce
the pension benefits by approximately 10%. Both the projected benefit
obligation and the prior service benefit reflect this change. The
accumulated benefit obligation at December 31, 1993 was not affected by
this plan amendment.
The assets of the defined benefit plan are administered by the trust
division of a subsidiary bank and consist of a wide variety of
diversified securities including common stocks, corporate bonds, and
U.S. Treasury obligations. The trust also participates in commingled
funds for qualified employee benefit accounts, including two equity
funds and one fixed-income fund. Contributions to the plan are based
upon the Projected Unit Credit Actuarial Funding method and are limited
to amounts that are currently deductible for tax reporting purposes.
Net pension cost includes the following components:
Year Ended December 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(In thousands)
Service cost-benefits earned during the year. . . . . . . . . . $2,329 $1,441 $1,425
Interest cost on the projected benefit obligation . . . . . . . 1,579 1,414 1,744
Actual return on plan assets. . . . . . . . . . . . . . . . . . (2,119) (1,397) (3,865)
Net amortization and deferrals. . . . . . . . . . . . . . . . . 691 (314) 1,560
------ ------ ------
Net periodic pension cost . . . . . . . . . . . . . . . . . . $2,480 $1,144 $ 864
====== ====== ======
Assumptions used in the accounting include:
As of December 31,
------------------------------------
1993 1992 1991
-------- -------- --------
Discount rates. . . . . . . . . . . . . . . . . . . . . . . . . 7.00% 7.00% 7.75%
Average rates of increase in compensation levels. . . . . . . . 4.70% 4.70% 6.00%
Expected long-term rate of return on assets . . . . . . . . . . 8.75% 9.25% 9.25%
The Company and its subsidiaries also maintain a contributory
savings and investment plan for substantially all employees. The
savings and investment plan and related trust qualify under Section 401
of the Internal Revenue Code as a qualified profit-sharing plan and
trust. According to the plan, an employee may contribute from 2% to 4%
of base salary, which the employer then supplements with a contribution
of 50% of the employee's contributed amount. Employees may contribute
up to an additional 11% of base salary in pre-tax dollars, but without
further employer contributions. The plan also provides for an
additional matching contribution of up to an additional 2% of the
employee's eligible compensation based on the Company's achievement of
established earnings-per-share targets. Vesting in the employer
contributions ranges from 20% with three years to 100% with seven years
of service. During 1993, employees could elect to invest in one or
more of four investment funds, in 25% increments. These funds included
a Fourth Financial Corporation common stock fund, a fixed-income fund,
an equity fund, and a money market fund. An additional fund, an
international equity fund, was added effective January 1, 1994, and the
fund elections may now be made in 10% increments. Forfeitures are used
to reduce the Company's contributions. The expense for this plan plus
similar plans of pooled companies which were merged with this plan was
$1,823,000 in 1993, $1,951,000 in 1992, and $1,150,000 in 1991. This
expense includes additional matching contributions of $629,000 and
$625,000 for 1993 and 1992, respectively, attributable to the
achievement of performance goals. No additional performance-based
matching contribution was made for 1991.
The restatement of prior period financial statements for the
poolings of interests resulted in the inclusion of SBC's contributory
Employee Stock Ownership Plan ("ESOP") and PBC's noncontributory ESOP.
Both plans covered substantially all employees with one year of
service. Annual contributions to these plans were determined by the
respective Boards of Directors of SBC and PBC. In 1993, 1992, and
1991, contributions made to the plans totaled $230,000, $247,000, and
$316,000, respectively. The SBC ESOP was terminated February 12, 1993
and all stock was allocated to the participants. At December 31, 1993,
the PBC ESOP was in the process of being terminated.
Effective January 1, 1990, the Company discontinued providing
medical coverage for employees who retired at age 65 or older. The
Company continues to underwrite approximately $30,000 of the annual
cost of health care benefits for such employees who retired prior to
January 1, 1990. Employees retiring after age 55 but before age 65 and
with at least ten years' service may continue participation in the
Company's health plan until age 65, but the plan requires that the full
cost of providing coverage under the plan be paid by the covered
retirees. Financial Accounting Standard ("FAS") No. 106 establishes
accounting standards for "Employers' Accounting for Postretirement
Benefits Other Than Pensions." Although it applies to all forms of
postretirement benefits, FAS No. 106 focuses principally on
postretirement health care benefits. The Statement provides that the
expected cost of postretirement benefits be accrued during the years
that the employee renders services. This Statement was effective for
1993; however, the adoption of FAS No. 106 would not have a material
effect on the Company's statement of condition and operating results.
16 - Stock Option and Stock Purchase Plans
The Company grants options to key employees under incentive stock
option plans at prices equal to the market value on the date of grant.
Terms of the plans generally provide for the exercise of the options
for periods of up to ten years, as determined by the Board of
Directors. Under the 1981 stock option plan, 162,141 shares were
reserved for issuance, of which 94,975 shares were under option, and
28,100 were exercisable at December 31, 1993. Options may no longer be
granted under this plan. At December 31, 1993, there were 867,653
shares reserved for issuance under the 1986 stock option plan of which
703,063 were under option, and 78,426 were exercisable. The 1993
stock option plan, which is substantially identical to the 1986 plan,
was approved and adopted in 1993. Under the 1993 plan, a maximum of
1,000,000 shares may be issued; however, at December 31, 1993, no
options had been granted.
The following table presents information regarding stock option
transactions and prices:
Shares Under Option
-------------------------------------------------------------------------
1993 1992 1991
----------------------- ----------------------- -----------------------
Price Price Price
Number Per Share Number Per Share Number Per Share
---------- ------------ --------- ------------- ---------- ------------
Balance at January 1 . . . . . . . 684,339 $14.80-29.88 518,297 $14.80-23.50 804,928 $11.30-24.70
Granted. . . . . . . . . . . . . . 299,100 27.50-30.38 248,900 22.87-29.88 14,000 18.37-19.63
Exercised. . . . . . . . . . . . . (172,747) 14.80-23.20 (74,858) 14.80-23.20 (220,138) 11.30-18.20
Terminated or canceled . . . . . . (12,654) -- (8,000) -- (80,493) --
-------- -------- --------
Balance at December 31 . . . . . . 798,038 17.00-30.38 684,339 14.80-29.88 518,297 14.80-23.50
======== ======== ========
An optionee may pay the option exercise price by tendering stock of
the Company having a market value equal to the exercise price. The
optionee must have held the tendered stock for at least six months
before it can be used to exercise an option. Transactions under this
program are accounted for as the purchase and reissuance of treasury
stock. The following is a summary of activity:
1993 1992 1991
---------- ---------- ----------
Shares tendered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,399 23,954 74,933
Shares issued under the stock option plans (including
reissued treasury stock). . . . . . . . . . . . . . . . . . . . . . . . 75,720 37,891 108,759
An optionee also may borrow the amount of the option exercise price
from the Company. The loans under this program bear interest at the
Company's base rate adjusted quarterly and mature annually. Although
the Company reserves the right not to renew any loan at maturity, it is
the Company's present intention to allow each borrowing to be renewed
for additional annual periods. At a minimum, Company stock valued at
125% of the loan amount must collateralize the loan. Such loans, which
amounted to $1,795,000 and $1,069,000 at December 31, 1993 and 1992,
respectively are reported as a reduction of stockholders' equity.
The Fourth Financial Corporation 1993 Non-Employee Directors Stock
Option Plan (the "Directors Option Plan") was approved and adopted in
1993. The plan will terminate, for the purposes of granting options,
in ten years unless the plan is earlier terminated by the Board of
Directors.
The Directors Option Plan provides that each year, on the first
Monday following the Company's annual meeting of stockholders, each
non-employee director of the Company will automatically receive an
option to acquire 2,000 shares of the Company's common stock and each
non-employee director of the Company's subsidiaries will automatically
receive an option to acquire 1,000 shares of the Company's common
stock. A total of 500,000 shares of common stock were reserved for
issuance under the Directors Option Plan.
On April 26, 1993 twelve non-employee directors of the Company
received an aggregate of 24,000 options and 20 non-employee directors
of the Company's subsidiaries received an aggregate of 20,000 options
for a total of 44,000 shares at an exercise price of $29.50. Each
option was immediately exercisable and will expire ten years from the
date of grant. No options were exercised in 1993.
Under the 1988 Employee Stock Purchase Plan, which expired in April,
1993, and the 1993 Employee Plan which replaced it, employees are
offered the option to purchase shares of the Company's common stock at
85% of the lower of the fair market value of such shares on the date
granted or one year thereafter. Options issued under the plan are
exercisable one year from the date of grant. At December 31, 1993,
750,000 shares were reserved for issuance, including 180,597 shares
under option. No options under the plan were exercisable at December
31, 1993. Additional data regarding the Employee Stock Purchase Plan
are as follows:
Shares Under Option
-------------------------------------------------------------------------
1993 1992 1991
----------------------- ----------------------- -----------------------
Price Price Price
Number Per Share Number Per Share Number Per Share
---------- ------------ ---------- ------------ ---------- ------------
Balance at January 1. . . . . . . 165,078 $23.06 214,611 $16.36 150,467 $21.89
Granted . . . . . . . . . . . . . 192,109 24.81 178,534 23.06 263,374 16.36
Exercised . . . . . . . . . . . . (71,259) 23.06 (111,612) 16.36 (42,117) 16.36
Terminated or canceled. . . . . . (105,331) -- (116,455) -- (157,113) --
-------- -------- --------
Balance at December 31. . . . . . 180,597 24.81 165,078 23.06 214,611 16.36
======== ======== ========
17 - Earnings Per Common Share
Earnings per common share are based on the following weighted average
numbers of shares outstanding.
1993 1992 1991
---------- ---------- ----------
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . 25,733,838 25,310,475 24,417,006
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . 29,764,552 28,897,968 25,202,528
Primary earnings per common share were computed by dividing net
income applicable to common and common-equivalent shares by the
weighted average common and common-equivalent shares outstanding during
the period (common share equivalents include CLC's preferred stock and
WNB's 1987 preferred stock). Fully diluted earnings per common share
were computed by adjusting net income for interest expense (net of
income taxes) associated with CLC's and WNB's convertible debt. The
adjusted net income was then divided by the weighted average of common
and common-equivalent shares outstanding plus the number of shares
which would have been outstanding during the year had the Class A
convertible preferred stock, the CLC and WNB convertible notes and
debentures, and WNB's 1989 preferred stock been converted in accordance
with their respective governing instruments. Stock options outstanding
have been excluded from the computations as they were not materially
dilutive.
CLC's 9.5% convertible capital debentures were convertible into
common stock based on the net book value (as defined by the debenture)
of CLC. The $300,000 of debentures outstanding in March 1993 were
converted to CLC common stock and were exchanged for the Company's
stock (14,683 shares) in the business combination.
WNB's convertible notes were convertible into common stock at $4.00
per share. The $61,247 of notes outstanding in October 1993 were
converted to WNB common stock and were exchanged for the Company's
stock (6,134 shares) in the business combination. At December 31,
1991, $593,677 of convertible debentures bearing interest at 12% were
outstanding. These debentures were repaid during 1992.
The adjustment of net income for CLC's and WNB's convertible debt
interest expense (net of income taxes) was as follows:
1993 1992 1991
------ ------ ------
(In thousands)
Interest expense adjustment . . . . . . . . . . . . . . . . . . . $ 4 $ 85 $264
18 - Dividends Per Common Share
Dividends per common share represent the Company's historical
dividends declared without adjustment for the poolings of interests.
The following table presents dividends declared by entities pooled
during 1993 and 1992 prior to combination with the Company.
1993 1992 1991
--------------------- --------------------- ---------------------
Per Per Per
Equivalent Equivalent Equivalent
Pooled Entity Historical Share Historical Share Historical Share
- --------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
SBC . . . . . . . . . . . . . . . . . . $ -- $ -- $ -- $ -- $ -- $ --
NHB . . . . . . . . . . . . . . . . . . .43 .48 -- -- -- --
CLC . . . . . . . . . . . . . . . . . . .93 .72 -- -- -- --
WNB . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
PBI . . . . . . . . . . . . . . . . . . .99 .81 .15 .12 n/a n/a
KNB . . . . . . . . . . . . . . . . . . n/a n/a 3.06 .22 -- --
MHB . . . . . . . . . . . . . . . . . . n/a n/a 1.51 .44 -- --
UBK . . . . . . . . . . . . . . . . . . n/a n/a 17.78 .61 3.50 .12
FNC . . . . . . . . . . . . . . . . . . n/a n/a .25 .44 -- --
19 - Restrictions on Intercompany Funds Transfers
Restrictions imposed by federal law limit the transfer of funds to
the Company and certain other affiliates from the subsidiary banks in
the form of loans or other extensions of credit, investments, and
purchases of assets. Transfers by the subsidiary banks to the Company
or any such single affiliate may not exceed 10% and transfers in the
aggregate may not exceed 20% of a bank's capital, surplus, and
undivided profits, after adding back the allowance for credit losses
and subtracting certain intangibles. Based on these limitations,
approximately $52,949,000 was available for transfer to the Company at
December 31, 1993. In addition, the approval of the Comptroller of the
Currency is required if dividends declared by either of the Company's
national bank subsidiaries in 1994 exceed the bank's net profits for
that year combined with its retained net profits for 1992 and 1993. In
1994, the subsidiary banks may distribute to the Company (in addition
to their 1994 net profits) an aggregate of approximately $15,764,000 in
dividends without approval from regulatory agencies.
20 - Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business in meeting the financing needs of
its customers and managing its own exposure to fluctuations in interest
rates, the Company is a party to various financial instruments. These
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the Statements
of Condition. The contract or notional amounts of these instruments
are an indicator of the Company's activities in particular classes of
financial instruments. The following schedule summarizes the contract
or notional amount of these instruments.
Contract or
Notional Amount
-------------------------
December 31,
-------------------------
1993 1992
---------- ----------
(In thousands)
Commitments to extend credit:
Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,422 $ 75,614
Commercial letters of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . 13,728 19,827
Credit card lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,338 306,755
Other loan commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,122,794 800,973
Commitments to sell loans:
Commitments to sell residential mortgage loans. . . . . . . . . . . . . . . . . . 10,159 2,499
Interest rate instruments:
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251,000 1,000
Forward foreign currency contracts:
Commitments to purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,717 67
Commitments to sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Commitments to extend credit are agreements to lend to a customer as
long as the customer is in compliance with the conditions established
in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Company uses the same credit policies in making
commitments as it does for direct extensions of credit. The Company
evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company
upon extension of credit, is based on management's credit evaluation of
the customer. Collateral held varies but may include accounts
receivable, inventory, real estate, equipment, and income-producing
commercial properties.
Standby letters of credit irrevocably obligate the issuing bank to
pay a third-party beneficiary when a customer fails to repay an
outstanding debt instrument or fails to perform some contractual non-
financial obligation. Standby letters of credit are primarily issued
to secure bonds from insurance companies, provide security for self-
insured portions of workers compensation insurance, and collateralize
guaranties or secure loans to other financial institutions. A
commercial letter of credit is issued to facilitate trade or commerce.
Under the terms of a commercial letter of credit, drafts will be drawn
when the underlying transaction is consummated as intended. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Substantially all
letters of credit mature within two years.
At December 31, 1993, the Company was committed under agreements
with the Federal National Mortgage Association to sell $13.5 million of
30-year fixed-rate residential mortgage loans with coupons ranging from
6.71% to 7.30%. Residential mortgage loans held for sale included $3.3
million of such loans at December 31, 1993. These commitments were all
met in January 1994.
Subsequent to December 31, 1993, the Company entered into similar
contracts for the sale of $106.8 million of 15-year fixed-rate
residential mortgage loans with rates of 7.00% or less. The maturities
of these commitments extend to March 14, 1994. These commitments were
satisfied by residential mortgage loans held for sale at December 31,
1993.
Single-family mortgage loans which the Company's subsidiaries
originate for sale are sold without recourse. However, the Company is
obligated under recourse provisions related to $13,253,000 of loans it
is servicing. These loans were included in the $371,000,000 mortgage
loan servicing portfolio purchased during 1990. A pooled company was
also committed to $334,000 of recourse loans at December 31, 1993. The
Company assesses the credit risk of these and other loan commitments
when evaluating the adequacy of the allowance for credit losses.
Interest rate swaps involve the contractual exchange of fixed and
floating rate interest payments based on an established notional
amount. The Company uses interest rate swaps to modify the interest
sensitivity position inherent in the repricing characteristics of
specific assets or liabilities. The net interest received or paid on
the interest rate swaps is accounted for as an adjustment to the
interest income or interest expense on the assets or liabilities,
respectively, that the swap was intended to modify.
At December 31, 1993 and 1992 interest rate swaps were as follows:
December 31, 1993
-----------------------------------------------------------------
Weighted Estimated
Notional Average Weighted Average Rate Fair
Amount Term Received Paid Value
---------- -------- ---------- --------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $ 51,000 29 months (1) 5.89% 3.47% 157
Pay fixed rate . . . . . . . . . . . . . . 200,000 10 months 3.44% 3.94% (722)
December 31, 1992
-----------------------------------------------------------------
Weighted Estimated
Notional Average Weighted Average Rate Fair
Amount Term Received Paid Value
---------- -------- ---------- --------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $ 1,000 52 months 10.00% 3.13% 133
<FN>
________
(1)The term of $50.0 million of these swaps may extend up to an additional 48 months after the initial term depending on the
variable rate index at the end of the initial term and each quarter thereafter as compared to that same index when the swaps
were initiated.
The Company enters into forward foreign currency contracts to assist
customers with their foreign currency needs related to foreign
operations, exporting, or importing. These customer-driven contracts
are generally hedged with offsetting contracts. The market value gains
and losses relating to currency exchange contracts are recorded at
settlement in "Other noninterest income." The contracts held at
December 31, 1993 all matured in January 1994.
21 - Commitments and Contingencies
At December 31, 1993, the Company was committed to make future
rental payments under several long-term lease agreements for land,
buildings, and equipment. There were no material capital leases.
Future minimum rental payments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of one
year as of December 31, 1993 are as follows:
Years ending December 31, (In thousands)
------------------------- --------------
1994 . . . . . . . . . . . . . $ 3,926
1995 . . . . . . . . . . . . . 3,297
1996 . . . . . . . . . . . . . 2,909
1997 . . . . . . . . . . . . . 2,162
1998 . . . . . . . . . . . . . 1,633
Later years . . . . . . . . . 7,826
------
Total . . . . . . . . . . . $21,753
=======
Total rental expense (net of sublease income, which is not material)
amounted to $5,670,000, $6,373,000, and $5,736,000 for 1993, 1992, and
1991, respectively.
The Company and its subsidiaries are defendants in various matters
of litigation which arose in the ordinary course of operations. Some
of the pending litigation seeks damages in substantial amounts, but
management, after consultation with legal counsel, does not anticipate
that potential liabilities, if any, arising from these claims would
have a material effect on the results of operations of the Company.
22 - Condensed Financial Information of Parent Corporation
In the following condensed financial information of Fourth Financial
Corporation (parent only), investments in subsidiaries are recorded
using the equity method of accounting.
Fourth Financial Corporation (Parent Only)
Condensed Statements Of Condition
December 31,
-------------------------
1993 1992
----------- ----------
(In thousands)
Assets:
Cash in subsidiary banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 248
Interest-bearing deposits in subsidiary banks. . . . . . . . . . . . . . . . . . . 1,856 4,665
Securities repurchase agreement with subsidiary bank . . . . . . . . . . . . . . . 23,100 55,900
Investments securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,145 104
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,281 13,215
Investments in bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 480,601 447,782
Investments in other subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 46,615 5,329
Other assets (including receivables from subsidiaries
of $4,718 in 1993 and $945 in 1992) . . . . . . . . . . . . . . . . . . . . . . . 9,725 4,311
Cost in excess of net assets acquired. . . . . . . . . . . . . . . . . . . . . . . 39,625 31,201
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $621,048 $562,755
======== ========
Liabilities And Stockholders' Equity:
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 425
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 5,850
Other liabilities (including amounts owed to subsidiaries
of $314 in 1993 and $977 in 1992) . . . . . . . . . . . . . . . . . . . . . . . . 9,578 8,158
Long-term debt (including notes due subsidiaries
of $0 in 1993 and $634 in 1992) . . . . . . . . . . . . . . . . . . . . . . . . . 13,125 22,509
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,703 36,942
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598,345 525,813
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . $621,048 $562,755
======== ========
Fourth Financial Corporation (Parent Only)
Condensed Statements of Income
Year Ended December 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(In thousands)
Dividends from subsidiaries:
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,595 $ 56,122 $ 47,439
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470 250 600
Fee income (principally from subsidiaries) . . . . . . . . . . . . . . . . 57,498 39,370 31,752
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,760 3,555 1,253
Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . . 161 -- --
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 -- --
-------- -------- --------
Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134,799 99,297 81,044
-------- -------- --------
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . 33,023 21,660 19,457
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 10,282 8,204 8,832
Net occupancy (includes rent paid to bank subsidiaries
of $2,371 in 1993, $1,632 in 1992, and $1,400 in 1991). . . . . . . . . . 3,039 2,024 1,593
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,180 1,780 1,635
Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,429 2,407 1,897
Fees paid to bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . 42 196 307
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,869 3,171 4,621
Nonoperating charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,358 2,386 1,219
Amortization of cost in excess of net assets acquired. . . . . . . . . . . 2,680 2,628 2,024
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,577 6,718 4,425
-------- -------- --------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,479 51,174 46,010
-------- -------- --------
Income before income taxes, cumulative effect of a change in
accounting principle, and undistributed net income of subsidiaries. . . . 63,320 48,123 35,034
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,863 1,293 3,634
Cumulative effect of a change in accounting for income taxes . . . . . . . 681 384 --
Net income of subsidiaries in excess of (less than) dividends received . . 7,827 13,506 (6,559)
-------- -------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,691 $ 63,306 $32,109
======== ======== =======
Fourth Financial Corporation (Parent Only)
Condensed Statements of Cash Flows
Year Ended December 31,
--------------------------------
1993 1992 1991
-------- -------- --------
(In thousands)
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,691 $ 63,306 $ 32,109
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 7,643 6,315 6,650
Write-down of premises and equipment . . . . . . . . . . . . . . . . 1,250 -- --
Net income of subsidiaries (in excess of) less than
dividends received. . . . . . . . . . . . . . . . . . . . . . . . . (7,827) (13,506) 6,559
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . (889) (275) (365)
Investment securities gains. . . . . . . . . . . . . . . . . . . . . (161) -- --
(Gain) loss on sale of equipment . . . . . . . . . . . . . . . . . . (8) 377 1
Change in assets and liabilities, net of effects
from purchases of acquired entities:
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,517) (720) 606
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 1,420 1,281 1,720
-------- -------- --------
Net cash provided by operating activities. . . . . . . . . . . . 72,602 56,778 47,280
-------- -------- --------
Cash Flows From Investing Activities:
Purchase of banks, net of cash acquired. . . . . . . . . . . . . . . . (30,043) (9,951) --
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . (11,001) (3,310) (2,842)
Proceeds from sale of premises and equipment . . . . . . . . . . . . . 25 1,559 37
Purchases of investment securities . . . . . . . . . . . . . . . . . . (901) -- --
Proceeds from sales of investment securities . . . . . . . . . . . . . -- -- 5
Investments in subsidiaries. . . . . . . . . . . . . . . . . . . . . . (15,290) (57,520) (1,335)
-------- -------- --------
Net cash used in investing activities. . . . . . . . . . . . . . (57,210) (69,222) (4,135)
-------- -------- --------
Cash Flows From Financing Activities:
Net change in commercial paper . . . . . . . . . . . . . . . . . . . . (425) (2,751) 821
Net change in other borrowings . . . . . . . . . . . . . . . . . . . . (5,850) (6,312) (45,550)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . -- -- 35,000
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . (13,628) (11,043) (6,005)
Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . (3,245) -- (697)
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . (22,705) (16,768) (16,434)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . (7,000) (5,368) --
Proceeds from issuance of preferred stock, net of offering costs . . . -- 96,920 --
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . 3,407 2,470 2,268
Net change in stock option loans . . . . . . . . . . . . . . . . . . . (726) (18) (346)
Capital transactions of pooled companies . . . . . . . . . . . . . . . (977) (415) 926
-------- -------- --------
Net cash provided by (used in) financing activities. . . . . . . (51,149) 56,715 (30,017)
-------- -------- --------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . (35,757) 44,271 13,128
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . 60,813 16,542 3,414
-------- -------- --------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . $ 25,056 $ 60,813 $ 16,542
======== ======== ========
Supplemental Disclosures:
Cash and cash equivalents:
Cash in subsidiary banks . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 248 $ 324
Interest-bearing deposits in subsidiary banks. . . . . . . . . . . . 1,856 4,665 16,218
Securities repurchase agreements with subsidiary bank. . . . . . . . 23,100 55,900 --
-------- -------- --------
Total cash and cash equivalents. . . . . . . . . . . . . . . . . $ 25,056 $ 60,813 $ 16,542
======== ======== ========
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,900 $ 3,246 $ 4,309
======== ======== ========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,689 $ 16,094 $ 9,321
======== ======== ========
Detail of entities acquired:
Fair value of bank stock and other assets acquired . . . . . . . . . $ 20,986 $ 7,784 $ --
Cost in excess of net assets acquired. . . . . . . . . . . . . . . . 9,328 2,167 --
-------- -------- --------
Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,314 $ 9,951 $ --
======== ======== ========
FOURTH FINANCIAL CORPORATION
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Fourth Financial Corporation
We have audited the accompanying consolidated statements of
condition of Fourth Financial Corporation as of December 31, 1993 and
1992 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We did not audit the 1992 financial statements of Commercial Landmark
Corporation, Western National Bancorporation, Inc. or Ponca Bancshares,
Inc., which statements reflect total assets and interest income
constituting 12% and 15%, respectively, of the related consolidated
totals. We did not audit the 1991 financial statements of Commercial
Landmark Corporation, Western National Bancorporation, Inc., Fourth
National Corporation, United Bank of Kansas, Inc. or KNB Bancshares,
Inc., which statements reflect interest income constituting 22% of the
related consolidated total. Those statements were audited by other
auditors and our opinion, insofar as it relates to data included for
these companies, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other
auditors, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Fourth
Financial Corporation at December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles.
As discussed in Notes 1, 5 and 14 to the consolidated financial
statements, in 1993 the Company changed its method of accounting for
income taxes and investment securities.
/s/ Ernst & Young
Wichita, Kansas
January 20, 1994
WESTERN NATIONAL BANCORPORATION, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Western National Bancorporation, Inc.:
We have audited the consolidated balance sheets of Western National
Bancorporation, Inc. (Western, an Oklahoma corporation) and subsidiary
as of December 31, 1992 and 1991, and the related consolidated
statements of income, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1992 (such financial
statements are not presented herein) prior to the pooling of Western
with Fourth Financial Corporation (see Note 2 to the consolidated
financial statements of Fourth Financial Corporation contained herein).
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Western
National Bancporation, Inc. and subsidiary as of December 31, 1992 and
1991, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1992, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Tulsa, Oklahoma
March 11, 1993
COMMERCIAL LANDMARK CORPORATION AND SUBSIDIARIES
Independent Auditors' Report
The Board of Directors and Stockholders
Commercial Landmark Corporation and
Subsidiaries
Muskogee, Oklahoma
We have audited the accompanying consolidated balance sheets of
Commercial Landmark Corporation and Subsidiaries as of December 31,
1992 and 1991, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Commercial Landmark Corporation and Subsidiaries as of December 31,
1992 and 1991, and the results of their operations and their cash
flows, for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Sartain Fischbein & Co.
February 19, 1993 SARTAIN FISCHBEIN & CO.
PONCA BANCSHARES, INC.
Independent Auditors' Report
The Board of Directors
Ponca Bancshares, Inc.
Ponca, City, Oklahoma
We have audited the accompanying consolidated balance sheet of Ponca
Bancshares, Inc. and Subsidiary as of December 31, 1992 and the related
consolidated statements of earnings, stockholders' equity and cash
flows for the period from inception (February 4, 1992) to December 31,
1992. These financial statements are the responsibility of management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Ponca Bancshares, Inc. and Subsidiary as of December 31, 1992, and
the consolidated results of their operations and their cash flows for
the period then ended in conformity with generally accepted accounting
principles.
/S/ GRA, Thompson, White & Co., P.A.
GRA, Thompson, White & Co., P.A.
September 16, 1993
FOURTH NATIONAL CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Fourth National Corporation:
We have audited the consolidated balance sheets of Fourth National
Corporation (Fourth, a Delaware corporation) and subsidiaries as of
December 31, 1991 and 1990, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1991 (such financial statements
are not presented herein) prior to the pooling of Fourth with Fourth
Financial Corporation (see Note 2 to the consolidated financial
statements of Fourth Financial Corporation contained herein). These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fourth
National Corporation and subsidiaries as of December 31, 1991 and 1990,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1991, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Tulsa, Oklahoma
February 7, 1992
UNITED BANK OF KANSAS, INC. AND SUBSIDIARY
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
United Bank of Kansas, Inc.
We have audited the consolidated balance sheet of United Bank of
Kansas, Inc. and Subsidiary as of December 31, 1991, and the related
consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended December 31, 1991 (not presented
herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of United Bank of Kansas, Inc. and Subsidiary as of December 31, 1991,
and the consolidated results of their operations and their consolidated
cash flows for the year ended December 31, 1991 in conformity with
generally accepted accounting principles.
As discussed in Note B to the financial statements, the Company owns
certain municipal bonds which are in default and the subject of
litigation. The Company currently reflects these bonds in their
financial statements at their estimated market value of $2,528,950.
The ultimate outcome of the litigation and the amount ultimately
recovered on these bonds cannot presently be determined.
/s/ Grant Thornton
Grant Thornton
Wichita, Kansas
January 23, 1992
KNB BANCSHARES, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
KNB Bancshares, Inc. and Subsidiaries:
We have audited the consolidated statements of operations, changes in
stockholders' equity and cash flows of KNB Bancshares, Inc. and
Subsidiaries ("Bancshares and Subsidiaries") for the year ended
December 31, 1991 (none of which are presented herein). These
consolidated financial statements are the responsibility of the
management of Bancshares and Subsidiaries. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the results of operations and cash flows of
Bancshares and Subsidiaries for the year ended December 31, 1991 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche
Deloitte & Touche
February 7, 1992
FOURTH FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31,
----------------------------------------------------------
1993 1992(1) 1991(1) 1990(1) 1989(1)
---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
Summary Income Statement Information:
Interest income . . . . . . . . . . . . . . . . . . $ 433,467 $ 427,119 $ 479,568 $ 471,191 $ 402,947
Interest expense. . . . . . . . . . . . . . . . . . 175,501 192,397 271,209 292,655 243,235
Net interest income . . . . . . . . . . . . . . . . 257,966 234,722 208,359 178,536 159,712
Net interest income (fully tax-equivalent)(2) . . . 267,929 245,431 221,323 193,381 175,013
Provision for credit losses . . . . . . . . . . . . 7,056 21,343 43,665 49,000 27,397
Noninterest income. . . . . . . . . . . . . . . . . 89,103 83,014 85,896 68,290 55,009
Noninterest expense(3). . . . . . . . . . . . . . . 252,986 216,926 210,341 187,155 157,474
Net income before extraordinary item and cumula-
tive effect of a change in accounting principle. . 65,182 60,933 30,712 5,192 21,425
Net income. . . . . . . . . . . . . . . . . . . . . 75,691 63,306 32,109 9,092 21,425
Net income applicable to common stock . . . . . . . 68,691 57,355 32,109 9,092 21,425
Per Common Share Data(4):
Earnings per common and common equivalent share:
Primary . . . . . . . . . . . . . . . . . . . . . $ 2.67 $ 2.27 $ 1.32 $ .41 $ 1.00
Fully diluted . . . . . . . . . . . . . . . . . . 2.54 2.19 1.28 .40 1.00
Fully diluted as originally reported(1) . . . . . 2.54 2.16 1.24 .98 1.99
Common dividend(5). . . . . . . . . . . . . . . . . .98 .88 .88 .88 .82
Book value(6) . . . . . . . . . . . . . . . . . . . 18.83 16.74 15.39 14.80 15.47
Average common and common equivalent
shares outstanding (000s). . . . . . . . . . . . . 25,734 25,310 24,417 22,223 21,345
Year-end common shares outstanding (000s) . . . . . 26,464 25,218 24,425 24,204 21,901
Year-end common shares outstanding
assuming full dilution (000s). . . . . . . . . . . 29,912 29,578 25,441 24,862 21,901
Earnings Performance Ratios(7):
Return on assets. . . . . . . . . . . . . . . . . . 1.16% 1.10% .57% .17% .50%
Return on total stockholders' equity. . . . . . . . 13.74 13.00 8.66 2.62 6.57
Return on common stockholders' equity . . . . . . . 15.32 14.35 8.72 2.64 6.59
Summary Statement of Condition Information:
Year-end assets . . . . . . . . . . . . . . . . . . $6,742,873 $6,568,782 $5,627,798 $5,763,227 $4,664,372
Year-end loans and leases . . . . . . . . . . . . . 3,257,787 2,841,036 2,795,615 2,988,966 2,581,643
Year-end allowance for credit losses. . . . . . . . 66,368 73,055 69,480 62,721 42,395
Year-end long-term debt . . . . . . . . . . . . . . 13,989 29,340 47,105 18,798 28,207
Year-end common stockholders' equity. . . . . . . . 498,345 422,172 375,999 358,266 338,748
Year-end stockholders' equity . . . . . . . . . . . 598,345 525,813 379,086 360,777 341,259
Average assets. . . . . . . . . . . . . . . . . . . 6,535,871 5,769,862 5,630,089 5,204,592 4,301,151
Average loans and leases. . . . . . . . . . . . . . 2,953,470 2,822,525 2,914,788 2,835,045 2,455,848
Average investment securities . . . . . . . . . . . 2,917,071 2,300,282 1,922,956 1,433,033 1,074,579
Average deposits. . . . . . . . . . . . . . . . . . 5,319,195 4,901,015 4,932,013 4,502,677 3,676,915
Average common stockholders' equity . . . . . . . . 448,509 399,551 368,165 344,029 325,176
Average stockholders' equity. . . . . . . . . . . . 550,821 487,035 370,676 346,540 326,175
Asset Quality Ratios:
Allowance for credit losses/year-end loans
and leases . . . . . . . . . . . . . . . . . . . . 2.04% 2.57% 2.49% 2.10% 1.64%
Nonperforming assets/year-end loans plus other
real estate and nonperforming assets . . . . . . . 1.34 2.01 3.50 4.51 4.10
Allowance for credit losses/year-end
nonperforming loans. . . . . . . . . . . . . . . . 194.50 188.88 115.21 74.52 73.69
Net charge-offs/average loans and leases. . . . . . .58 .85 1.28 1.19 1.03
Capital Ratios:
Stockholders' equity/assets(7). . . . . . . . . . . 8.43% 8.44% 6.58% 6.66% 7.58%
Leverage ratio(8) . . . . . . . . . . . . . . . . . 7.61 7.99 8.41 -- --
Tier I risk-based capital(9). . . . . . . . . . . . 12.97 13.18 14.25 -- --
Total risk-based capital(9) . . . . . . . . . . . . 14.22 14.43 15.50 -- --
Common dividend payout ratio(10). . . . . . . . . . 36.70 38.77 66.67 214.63 82.00
<FN>
__________
(1) Prior year financial statements have been restated to reflect poolings of interests, refer to Notes 2 and 3 of the
Notes to Consolidated Financial Statements. Fully diluted earnings per share as originally reported represent
historical earnings per share as reported in the Company's annual report for the year indicated.
(2) Stated on a tax-equivalent basis assuming a marginal tax rate of 35% in 1993 and 34% in previous years.
(3) Noninterest expense included nonoperating charges of $12.7 million, $5.6 million and $7.0 million for 1993, 1992,
and 1991, respectively.
(4) Adjusted for the five-for-four stock split effected as a 25% stock dividend and paid on March 1, 1990.
(5) Dividends per common share represent historical dividends declared without adjustment for the poolings of interests.
(6) Refer to Note 1 of the Notes to Consolidated Financial Statements regarding the adoption of FAS No. 115 which
increased stockholders' equity by $25,148,000 at December 31, 1993.
(7) Based on daily averages for all statement of condition items.
(8) Tier I capital/fourth quarter average assets less certain intangibles.
(9) Tier I capital is composed of common stockholders' equity less certain intangibles plus preferred stockholders'
equity. Tier I capital does not include any unrealized gain or loss on securities available for sale, as regulators
had not officially adopted the change by year-end. Total capital is Tier I capital plus the allowance for credit
losses (limited to 1.25% of risk-weighted assets). Both capital amounts are divided by risk-weighted assets.
(10) Common dividend per share divided by primary earnings per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Performance Summary
Net income for 1993 was $75.7 million compared to $63.3 million
in 1992 and $32.1 million in 1991. Fully diluted earnings per share
were $2.54, $2.19, and $1.28 for 1993, 1992, and 1991, respectively.
For 1993 return on assets and return on common equity were 1.16% and
15.32%, respectively. Return on assets was 1.10% for 1992 and .57% for
1991; return on common equity was 14.35% and 8.72% for the respective
prior periods.
These financial results reflect acquisitions accounted for as
poolings of interests for the entire three-year period, as prior
periods have been restated, with the exception that periods prior to
January 1, 1992 have not been restated for the results of operations of
Ponca Bancshares, Inc. which were not material. However, acquisitions
accounted for using the purchase method of accounting are only included
in the results of operations for the periods subsequent to acquisition.
During 1991, 1992, and 1993, the Company completed the fifteen business
combinations detailed in the following schedule.
Number of
Acquisition Company Accounting Assets Cash Shares
Date Company Acquired/Location Abbreviation Method Acquired Paid Issued
- ------------- ------------------------------------ ------------ ---------- ---------- ---------- ---------
(In thousands)
1991 -
- ------
January 30 Citadel Bank of Independence, "CBI" Purchase $ 54,187 $ 3,966 --
Independence, KS
1992 -
- ------
July 31 Farmers and Merchants Bank, "FMB" Purchase 66,827 8,921 --
Colby, KS
September 9 KNB Bancshares, Inc., "KNB" Pooling 99,256 -- 267,390
Prairie Village, KS
October 30 Mission Hills Bancshares, Inc., "MHB" Pooling 94,762 -- 358,709
Mission Woods, KS
December 11 Southern Bancorp, Inc., "SBI" Purchase 64,510 9,951 --
Tulsa, OK
December 30 United Bank of Kansas, Inc., "UBK" Pooling 122,885 -- 663,739
Liberal, KS
December 31 Fourth National Corporation, "FNC" Pooling 368,325 -- 1,639,941
Tulsa, OK
1993 -
- ------
February 12 Southgate Banking Corporation, "SBC" Pooling 62,628 -- 451,310
Prairie Village, KS
May 14 Guaranty Bancorporation, "GB" Purchase 82,606 4,386 --
Tulsa, OK
May 28 Bancshares of Woodward, Inc., "BOW" Purchase 130,192 17,859 --
Woodward and Waukomis, OK
May 28 F&M Bank Services, Inc., "FBS" Purchase 61,565 8,068 --
Derby, KS
May 28 Nichols Hills Bancorporation, Inc., "NHB" Pooling 97,869 -- 469,906
Nichols Hills, OK
September 17 Commercial Landmark Corporation, "CLC" Pooling 465,060 -- 1,874,812
Muskogee, OK
December 3 Western National Bancorporation, Inc., "WNB" Pooling 206,288 -- 1,110,695(1)
Tulsa, OK
December 10 Ponca Bancshares, Inc., "PBI" Pooling 117,275 -- 478,395
Ponca City, OK
---------- ------- ---------
$2,094,235 $53,151 7,314,897
========== ======= =========
<FN>
- ----------
(1) An additional 108,748 shares were issued on December 3, 1993 to
acquire the minority interest of WNB's bank subsidiary.
Five deposit assumption transactions also were completed during the
three-year period ended December 31, 1993.
Transaction Liabilities Cash
Date Location Assumed Paid
--------------- --------------------------- ------------- ------------
(In thousands)
February 15, 1991 Wichita, KS $168,568 $ 1,848
February 15, 1991 Garden City, KS 45,126 --
March 27, 1992 Hays, KS 46,484 57
December 31, 1992 Tulsa, OK 349,355 14,856
April 2, 1993 Mission, KS 99,399 1,141
-------- -------
$708,932 $17,902
======== =======
Net income for each of the last three years included
extraordinary gains and nonoperating charges. A new accounting
standard, Financial Accounting Standard ("FAS") No. 109 - Accounting
for Income Taxes, was implemented effective January 1, 1993 and
resulted in an addition to income of $10.5 million ($.35 per fully
diluted share). Two of the companies acquired in pooling-of-interests
transactions in 1993 had elected to adopt FAS No. 109 early, resulting
in the $2.4 million ($.08 per fully diluted share) income item in 1992.
An extraordinary item of $1.4 million ($.05 per fully diluted share) in
1991 reflects the utilization of a net operating loss carryforward by
one of the pooled companies.
A nonoperating charge of $12.7 million (after-tax $8.6 million,
or $.29 per fully diluted share) was taken during 1993 to record
merger, integration, and restructuring charges associated with current-
year acquisitions and to accelerate core deposit intangible
amortization, data processing hardware depreciation, and software
amortization. The merger, integration, and restructuring charges
include premises and equipment write-downs associated with dispositions
of excess facilities and equipment, severance and other compensation,
and systems conversion costs. Both 1992 and 1991 financial results
also reflected nonoperating charges. The 1992 nonoperating charge of
$5.6 million (after-tax $3.7 million, or $.13 per fully diluted share)
was recorded to recognize costs associated with the consolidation of
Oklahoma data processing, operations, and staff functions. This
expense also includes a loss from the disposal of excess facilities and
a computer write-down. The 1991 nonoperating charge of $7.0 million
(after-tax $4.6 million, or $.18 per fully diluted share) was
associated with a work force reduction and included early retirement
benefits and severance compensation.
The increased income from operations for the current year was
principally attributable to increased net interest income, improved
credit quality, and earnings contributions from acquisitions made in
prior years. Net interest income in 1993 increased by $23.3 million to
total $258.0 million for 1993 as compared to $234.7 million for last
year. The increase in net interest income was principally related to
the increased volume of interest-earning assets. Total average
interest-earning assets were $5.9 billion for 1993, a $687.9 million,
or 13.1%, increase over 1992. Comparing 1993 and 1992, average loans
and leases increased $130.9 million, while average investment
securities increased $616.8 million. The increased average assets were
principally funded by increases in average deposits of $418.2 million,
net federal funds purchased and securities sold under agreements to
repurchase of $194.3 million, and Federal Home Loan Bank borrowings of
$162.6 million. The increase in net interest income attributable to
the increased volume of interest-earning assets was partially offset by
a decrease in the net yield on earning assets to 4.52% in 1993 from
4.68% in 1992.
The provision for credit losses totaled $7.1 million and $21.3
million for 1993 and 1992, respectively. The 66.9% decrease in the
provision reflects continued improvement in credit quality as
demonstrated by a lower level of nonperforming assets and lower net
charge-offs in 1993 as compared to 1992, and the strong allowance for
credit losses. At December 31, 1993, nonperforming assets were $43.8
million or .65% of assets, down from $57.6 million or .88% of assets at
December 31, 1992. Net charge-offs declined 29.5% to total $17.0
million in 1993 from $24.1 million in 1992. The allowance for credit
losses was $66.4 million or 194.50% of nonperforming loans at December
31, 1993, compared to a ratio of 188.88% for 1992.
Noninterest income was $89.1 million in 1993, a $6.1 million
increase over the 1992 noninterest income of $83.0 million. Service
charges on deposit accounts increased $5.9 million; brokerage and
annuity sales commissions increased $1.8 million; and bank card fees
increased $1.1 million. The larger customer base plus aggressive sales
efforts resulted in a larger volume of service charge transactions,
expanded brokerage and annuity sales activities, and additional
merchant and credit cardholder sales volumes.
Operating expenses (noninterest expense less the nonoperating
charge and net costs of operations of other real estate and
nonperforming assets) increased 13.4% to total $236.7 million in 1993.
The Company's efficiency ratio (operating expense/fee income plus tax-
equivalent net interest income) was 66.57% for 1993 compared to 64.40%
for 1992. The current-year increase in the efficiency ratio
principally reflects the Company's substantial increase in acquisition
activity in the past two years and the resultant commitment of
resources to acquisitions. Specifically, the Company makes a
substantial initial investment towards identifying and managing the
credit and other significant business risks associated with
acquisitions, converting and consolidating the operations of the
acquired entities, and instilling the BANK IV credit and sales culture,
products, and services. In addition, entities acquired during 1993 and
1992, which increased total assets by over $2.0 billion or almost
30.3%, had a combined efficiency ratio of 71.5% resulting in a higher
ratio for the entire company.
The increased net income of $31.2 million reflected in a
comparison of results of operations for 1992 and 1991 also can be
attributed to increased net interest income and a decreased provision
for credit losses. The $26.4 million increase in net interest income
between 1992 and 1991 was due to an increased level of interest-free
sources of funds, such as demand deposits and stockholders' equity, and
the widening of spreads between the yields on earning assets and the
rates paid on interest-bearing liabilities. At $21.3 million, the 1992
provision for credit losses was $22.3 million less than the 1991
provision for credit losses. The 1991 provision for credit losses of
$43.7 million reflected the high level of nonperforming assets at
December 31, 1991 of $99.3 million. By year-end 1992 nonperforming
assets had declined to $57.6 million, and the ratio of the allowance
for credit losses to nonperforming loans had increased to 188.88% from
115.21% at December 31, 1991.
Net Interest Income
For 1993, net interest income amounted to $258.0 million,
representing an increase of $23.3 million or 9.9% over the $234.7
million earned during 1992. On a fully tax-equivalent basis, net
interest income increased 9.2% to total $267.9 million in 1993 from
$245.4 million in 1992. The increase in net interest income was
attributable to an increased level of interest-earning assets due to
loan growth, acquisitions, assumptions of savings and loan association
("S&L") and bank deposits, and increased borrowings associated with a
higher level of federal funds purchased and Federal Home Loan Bank
borrowings. However, the net yield on earning assets decreased to
4.52% in 1993 compared to 4.68% in 1992. The decrease in the net yield
on earning assets is principally attributable to a sustained period of
lower rates. The average cost of funds (interest expense/earning
assets) declined 71 basis points while the earning asset yield declined
87 basis points. The prevailing low interest rates also have
stimulated a high volume of mortgage loan originations and refinancings
nationwide. Although the Company has benefitted from the originations
and refinancings in its markets through increased loan fees, the
nationwide refinancings and originations have resulted in accelerated
prepayments on the Company's mortgage-backed securities. The net yield
has declined as the proceeds from these prepayments have been
reinvested at lower current rates, also reducing the net yield.
Net interest income of $234.7 million for 1992 represented an
increase of $26.3 million over the $208.4 million earned during 1991.
On a tax-equivalent basis, net interest income increased 10.9% to total
$245.4 million in 1992 from $221.3 million in 1991. The increase in
net interest income between 1992 and 1991 was due to an increased level
of interest-free sources of funds, such as demand deposits and
stockholders' equity, and the widening of spreads between the earning
asset yields and interest-bearing liability rates. As interest rates
declined during 1992, interest-bearing liabilities repriced faster than
interest-earning assets, causing the spread to widen to 3.96% (stated
on a tax-equivalent basis) in 1992 from 3.55% in 1991.
Loan fees included in net interest income amounted to $11.4
million, $8.4 million, and $5.6 million for 1993, 1992, and 1991,
respectively. The increase in loan fees reflected an increase in the
volume of residential mortgage loan originations and the refinancing of
existing mortgages, both of which were stimulated by the continuing
relatively low mortgage rates. The dollar volume of residential
mortgage loan originations increased $175.0 million or 87.2% between
1993 and 1992 and $125.4 million or 166.5% between 1992 and 1991.
The following table provides the dollar volume and the number of
residential mortgage loan originations during each of the last three
years.
Year Ended December 31,
--------------------------------------------
1993 1992 1991
---------- ---------- ----------
(Dollars in thousands)
Residential mortgage loan originations:
Dollar volume . . . . . . . . . . . . . . . . . . . . . . . $375,647 $200,696 $75,321
Number of loans . . . . . . . . . . . . . . . . . . . . . . 5,659 3,062 1,124
The following table summarizes the changes in net interest income
on a fully tax-equivalent basis, by major category of interest-earning
assets and interest-bearing liabilities, identifying changes related to
volumes, rates, and changes related to both volumes and rates.
Nonaccrual loans are included in the loan volumes used to calculate the
following analysis of net interest income; however, interest collected
on such loans is usually recorded as a reduction in loans outstanding
and is excluded from interest income.
1993 vs 1992
---------------------------------------------
Change
Attributable to
Total ---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $ (6,050) $ 12,112 $(17,217) $ (945)
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (48) (31) (19) 2
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . (2,351) (2,159) (411) 219
Taxable investment securities . . . . . . . . . . . . 17,098 42,557 (19,441) (6,018)
Tax-preferred investment securities(1). . . . . . . . (2,965) (1,225) (1,810) 70
Trading account securities(1) . . . . . . . . . . . . (82) (45) (46) 9
-------- -------- -------- --------
Total interest income change. . . . . . . . . . . . 5,602 51,209 (38,944) (6,663)
-------- -------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . (5,646) 8,474 (12,402) (1,718)
Time deposits . . . . . . . . . . . . . . . . . . . . (18,642) 3,860 (21,773) (729)
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 3,100 4,646 (1,007) (539)
Federal Home Loan Bank borrowings . . . . . . . . . . 6,415 6,415 -- --
Other borrowings. . . . . . . . . . . . . . . . . . . (666) (342) (424) 100
Long-term debt. . . . . . . . . . . . . . . . . . . . (1,457) (1,384) (126) 53
-------- -------- -------- --------
Total interest expense change . . . . . . . . . . . (16,896) 21,669 (35,732) (2,833)
-------- -------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . 22,498 $ 29,540 $ (3,212) $ (3,830)
-------- ======== ======== ========
Decrease in taxable equivalent adjustment. . . . . . . 746
--------
Net interest income change . . . . . . . . . . . . . . $ 23,244
========
1992 vs 1991
---------------------------------------------
Change
Attributable to
Total ---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $(45,186) $ (9,697) $(36,726) $ 1,237
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . 44 334 (107) (183)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . (9,432) (7,083) (4,920) 2,571
Taxable investment securities . . . . . . . . . . . . 6,718 34,093 (21,930) (5,445)
Tax-preferred investment securities(1). . . . . . . . (6,462) (5,812) (767) 117
Trading account securities(1) . . . . . . . . . . . . (386) (356) (65) 35
-------- -------- -------- --------
Total interest income change. . . . . . . . . . . . (54,704) 11,479 (64,515) (1,668)
-------- -------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . (22,013) 9,111 (28,041) (3,083)
Time deposits . . . . . . . . . . . . . . . . . . . . (52,979) (18,529) (38,715) 4,265
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . (801) 4,313 (3,503) (1,611)
Federal Home Loan Bank borrowings . . . . . . . . . . -- -- -- --
Other borrowings. . . . . . . . . . . . . . . . . . . (2,209) (1,618) (1,054) 463
Long-term debt. . . . . . . . . . . . . . . . . . . . (810) (548) (300) 38
-------- -------- -------- --------
Total interest expense change . . . . . . . . . . . (78,812) (7,271) (71,613) 72
-------- -------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . 24,108 $ 18,750 $ 7,098 $ (1,740)
-------- ======== ======== ========
Decrease in taxable equivalent adjustment. . . . . . . 2,255
--------
Net interest income change . . . . . . . . . . . . . . $ 26,363
========
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35% in 1993 and 34% in 1992 and 1991.
The following table presents average balances, income and expense,
and yields and rates for 1993, 1992 and 1991.
1993 1992 1991
-------------------------- -------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(Dollars in thousands)
Assets:
Interest-Earning Assets:
Loans and leases(1)(2). . . $2,953,470 $255,046 8.64% $2,822,525 $261,096 9.25% $2,914,788 $306,282 10.51%
Interest-bearing deposits
in other financial
institutions . . . . . . . 4,216 190 4.49 4,858 238 4.88 1,787 194 10.86
Federal funds sold and
securities purchased under
agreements to resell . . . 52,564 1,747 3.32 111,067 4,098 3.69 233,184 13,530 5.80
Investment securities:
Taxable . . . . . . . . . 2,694,069 157,800 5.86 2,068,237 140,702 6.80 1,648,884 133,984 8.13
Tax-preferred(1). . . . . 223,002 28,469 12.77 232,045 31,434 13.55 274,072 37,896 13.83
Trading account
securities(1). . . . . . . 3,349 178 5.31 4,047 260 6.45 9,013 646 7.17
---------- -------- ---------- -------- --------- --------
Total interest-earning
securities(1). . . . . 5,930,670 443,430 7.48 5,242,779 437,828 8.35 5,081,728 492,532 9.69
Cash and due from banks . . . 338,645 302,851 313,505
Bank premises and equipment . 131,612 114,006 109,637
Income receivable and
other assets . . . . . . . . 145,562 139,294 142,492
Intangible assets, net. . . . 62,380 43,640 47,068
Allowance for credit losses . (72,998) (72,708) (64,341)
---------- ---------- ----------
Total assets. . . . . . $6,535,871 $5,769,862 $5,630,089
========== ========== ==========
Liabilities And Stockholders'
Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Savings and interest
checking . . . . . . . . $2,085,435 $ 53,476 2.56% $1,823,880 $ 59,122 3.24% $1,639,815 $ 81,135 4.95%
Time under $100,000 . . . 1,929,077 87,439 4.53 1,816,111 103,911 5.72 1,984,143 144,382 7.28
Time of $100,000 or more. 387,867 13,810 3.56 428,552 15,980 3.73 529,838 28,488 5.38
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
deposits . . . . . . . 4,402,379 154,725 3.51 4,068,543 179,013 4.40 4,153,796 254,005 6.12
Federal funds purchased
and securities sold under
agreements to repurchase . 387,555 11,697 3.02 251,711 8,597 3.42 172,571 9,398 5.45
Federal Home Loan Bank
borrowings . . . . . . . . 162,603 6,415 3.95 -- -- -- -- -- --
Other borrowings. . . . . . 21,929 797 3.63 28,619 1,463 5.11 51,180 3,672 7.17
Long-term debt. . . . . . . 18,320 1,867 10.19 31,390 3,324 10.59 36,187 4,134 11.42
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities. . . . . . 4,992,786 175,501 3.52 4,380,263 192,397 4.39 4,413,734 271,209 6.14
-------- -------- --------
Noninterest-bearing deposits. 916,816 832,472 778,217
Other liabilities and
minority interest in
subsidiary . . . . . . . . . 75,448 70,092 67,462
---------- ---------- ----------
Total liabilities . . . 5,985,050 5,282,827 5,259,413
Preferred stockholders'
equity . . . . . . . . . . . 102,312 87,484 2,511
Common stockholders' equity . 448,440 399,551 368,165
Net unrealized gains on
available-for-sale
securities . . . . . . . . . 69 -- --
---------- ---------- ----------
Total stockholders'
equity . . . . . . . . 550,821 487,035 370,676
---------- ---------- ----------
Total liabilities and
stockholders' equity . $6,535,871 $5,769,862 $5,630,089
========== ========== ==========
Net interest income(1). . . . . $267,929 $245,431 $221,323
======== ======== ========
Rate Analysis:
Interest income/
interest-earning assets(1). 7.48% 8.35% 9.69%
Interest expense/
interest-earning assets . . 2.96 3.67 5.34
----- ----- -----
Net yield on earning
assets(1) . . . . . . 4.52% 4.68% 4.35%
===== ===== =====
<FN>
_________
(1) Income and rates are stated on a tax-equivalent basis assuming a marginal tax rate of 35% in 1993 and 34% in 1992
and 1991.
(2) Nonaccrual loans are included in loans and leases.
Provision for Credit Losses
The provisions for credit losses were $7.1 million, $21.3
million, and $43.7 million for 1993, 1992, and 1991, respectively. The
provisions for 1992 and 1991 include $5.8 million and $9.2 million,
respectively, associated with the current year pooling-of-interests
transactions. The lower provision for credit losses in 1993 reflects
the continued improvement in credit quality as demonstrated by a lower
level of nonperforming assets and lower net charge-offs in 1993 as
compared to 1992, and the strong allowance for credit losses. Net
charge-offs for 1993 totaled $17.0 million or .58% of average loans as
compared to net charge-offs of $24.1 million or .85% of average loans
for 1992 and $37.4 million or 1.28% of average loans for 1991.
Nonperforming loans at December 31, 1993 were $34.1 million, down from
$38.7 million at year-end 1992 and $60.3 million at year-end 1991. The
allowance for credit losses was $66.4 million, $73.1 million, and $69.5
million at December 31, 1993, 1992, and 1991, respectively. The ratio
of allowance for credit losses to nonperforming loans increased to
194.50% at December 31, 1993, compared with 188.88% at December 31,
1992 and 115.21% at December 31, 1991.
Noninterest Income
Total noninterest income was $89.1 million for 1993, representing
an increase of $6.1 million or 7.3% over the $83.0 million recorded in
1992. Included in 1993 noninterest income were $1.3 million of
investment securities gains, compared to $2.5 million of similar gains
realized in 1992. The securities gains in both years were due
principally to called bonds. UBK, a prior-year business combination
accounted for as a pooling of interests, realized a $1.5 million gain
in 1992 from the settlement of a lawsuit. Fees collected in the normal
course of business increased 11.3% to total $87.7 million in 1993 from
$78.8 million in 1992.
The most significant changes in noninterest income between 1993
and 1992 occurred in service charges on deposit accounts, brokerage and
annuity sales commissions, and bank card fees. The $5.9 million or
22.0% increase in service charges was attributable to both consumer and
commercial customers. These increased revenues were due to a reduction
in waived fees and a larger volume of fee-based transactions. The $1.8
million or 49.7% increase in brokerage and annuity sales fees reflected
expanded sales activities, particularly in the sale of mutual funds and
annuities resulting in part from the additional BANK IV markets across
Kansas and Oklahoma now served by an investment sales representative.
These products are now available at most locations, and the low
interest rates on deposits continue to make them more attractive to
certain customers as alternative investments to interest-bearing
deposits. Bank card fees increased $1.1 million to total $14.7 million
in 1993. The increased fees were principally attributable to the
addition of merchants and credit cardholders and increased merchant and
cardholder sales volumes.
Real estate loan service fees declined $883,000 or 26.9% as
serviced loans also experienced accelerated prepayments due to the
volume of mortgage loan refinancings and originations stimulated by low
interest rates. At December 31, 1993, $384.1 million of loans were
serviced for others. In addition, servicing will be retained on the
$110.1 million of mortgages to be sold in the first quarter of 1994.
Total noninterest income was $83.0 million for 1992, as compared
to $85.9 million for 1991. Income for 1991 included a $3.2 million
gain from the sale of a credit card portfolio. This gain occurred as
a result of the exercise of a purchase option by an affinity group.
Also included in 1991 noninterest income was a $4.0 million gain for
the sale of a banking facility realized by SBC, a 1993 business
combination accounted for as a pooling of interests. Investment
securities gains were $2.5 million in 1992 and $4.7 million in 1991.
Reimbursements from the RTC for expenses incurred on its behalf in
connection with S&L deposit assumptions amounted to only $68,000 for
1992 compared to $945,000 for 1991. Fees collected in the normal
course of business increased 7.9% from $73.0 million in 1991 to $78.8
million in 1992. The increased fees were due to increased service
charges on deposit accounts and brokerage and annuity sales fees.
The following table provides an analysis of noninterest income
segregated between fees collected in the normal course of business and
other revenues for the past three years.
Percent Change
Year Ended December 31, -----------------
-------------------------------- 1992- 1991-
1993 1992 1991 1993 1992
-------- -------- -------- ------ ------
(Dollars in thousands)
Fee income:
Trust fees . . . . . . . . . . . . . . . . . . . . . $18,310 $17,627 $17,335 3.9% 1.7%
Service charges on deposit accounts . . . . . . . . . 32,711 26,820 23,211 22.0 15.5
Bank card fees . . . . . . . . . . . . . . . . . . . 14,658 13,531 13,927 8.3 (2.8)
Brokerage and annuity sales commissions . . . . . . . 5,274 3,522 1,566 49.7 124.9
Trading account profits and commissions . . . . . . . 770 840 1,360 (8.3) (38.2)
Real estate loan service fees . . . . . . . . . . . . 2,399 3,282 2,823 (26.9) 16.3
Safe deposit rent . . . . . . . . . . . . . . . . . . 1,398 1,226 1,174 14.0 4.4
Travelers and official check
fees and item handling charges . . . . . . . . . . . 2,154 2,282 2,296 (5.6) (.6)
Insurance premiums. . . . . . . . . . . . . . . . . . 1,564 1,369 1,160 14.2 18.0
Other . . . . . . . . . . . . . . . . . . . . . . . . 8,447 8,258 8,115 2.3 1.8
------- ------- -------
Total fee income . . . . . . . . . . . . . . . . . 87,685 78,757 72,967 11.3 7.9
------- ------- -------
Other revenues:
Investment securities gains . . . . . . . . . . . . . 1,311 2,520 4,721 (48.0) (46.6)
Gain on sale of credit card loans . . . . . . . . . . -- 169 3,226 -- (94.8)
Gain on sale of banking facility. . . . . . . . . . . -- -- 4,037 -- --
RTC reimbursements . . . . . . . . . . . . . . . . . 107 68 945 57.4 (92.8)
Lawsuit settlement. . . . . . . . . . . . . . . . . . -- 1,500 -- -- --
------- ------- -------
Total noninterest income. . . . . . . . . . . . . . $89,103 $83,014 $85,896 7.3 (3.4)
======= ======= =======
Fee income/average assets . . . . . . . . . . . . . . 1.34% 1.36% 1.30%
Noninterest income/average assets . . . . . . . . . . 1.36% 1.44% 1.53%
Noninterest Expense
Noninterest expense amounted to $253.0 million, $216.9 million,
and $210.3 million for 1993, 1992, and 1991, respectively. Noninterest
expense for each of these years includes certain nonoperating items
such as net costs of operation of other real estate and nonperforming
assets, the nonoperating charge primarily related to integration of
acquired companies, and other unusual items.
Net costs of operation of other real estate and nonperforming
assets were $3.1 million in 1993, $2.4 million in 1992, and $6.7
million in 1991. The increased net costs of nonperforming asset
properties in 1993 were principally attributable to write-downs
recorded by CLC. The decline in net costs of operation of other real
estate and nonperforming assets between 1992 and 1991 reflects the
lower level of other real estate and nonperforming assets. As detailed
in Note 13 to the Consolidated Financial Statements, the $12.7 million
nonoperating charge for 1993 included write-downs of excess facilities
and equipment, severance and other compensation, and system conversion
costs, all associated with the merger and integration of the current-
year acquisitions. The 1993 nonoperating charge also includes:
acceleration of core deposit intangibles amortization associated with
disintermediation of acquired deposits; and increased data processing
hardware depreciation and software amortization related to the
Company's commitment to continue to improve its technology. The $5.6
million nonoperating charge recorded during 1992 was principally
associated with the consolidation of Oklahoma data processing,
operations, and staff functions. The expense included severance and
other compensation, systems conversion costs, the cost of the disposal
of excess facilities, a computer write-down and other charges
associated with acquisitions. In 1991, a $7.0 million nonoperating
charge was recorded in connection with a work force reduction and
included early retirement benefits and severance compensation. SBC, a
current-year business combination accounted for as a pooling of
interests, settled a lawsuit during the first quarter of 1993 resulting
in $313,000 of lawsuit settlement cost. The provision for securities
losses of $1.5 million in 1991 relates to municipal securities owned by
another pooled company, which established an allowance for securities
losses to reflect the decline in market value associated with the
downgrading of the bonds by rating agencies. The bonds were
subsequently sold during 1992 resulting in a gain of $688,000.
Operating expense increased $27.9 million or 13.4% to total
$236.7 million for 1993. The Company's efficiency ratio (operating
expense/fee income plus tax-equivalent net interest income) was 66.57%
for 1993 as compared to 64.40% for 1992. The increased operating
expenses and efficiency ratio principally reflect: costs of effecting
business combinations and deposit assumption transactions; operating
expenses of purchase business combinations and deposit assumption
transactions subsequent to consummation (including intangible asset
amortization); and normal inflation-related and other cost increases.
The large number of acquisitions have required a substantial commitment
of resources for thorough assessment of credit and other business
risks; software systems conversion and operations consolidation of
acquired entities; and advertising, training, and other costs
associated with instilling the BANK IV sales and credit culture,
products, and services. Approximately $9.4 million of the current year
expenses were attributable to these activities. Approximately 78% of
the $27.9 million increase in total operating expenses was attributable
to business combinations accounted for as purchase and deposit
assumption transactions.
Entities acquired in 1993 and 1992 had a combined efficiency
ratio of 71.5% resulting in a higher ratio for the entire Company. A
portion of the higher ratio is due to amortization of intangible
assets. The ratio is also affected by excess branch capacity,
facilities improvements, and the cost of implementing service delivery
technology through such things as automated teller machines and loan
and deposit platform automation. Management anticipates that the
efficiency ratios of these acquired entities will improve as they
become more fully assimilated and become increasingly focused on sales
activities. Also, certain branches will be closed or consolidated.
The efficiency ratio will continue to be affected by due diligence and
other acquisition costs as long as the Company engages in an active
acquisition program; however, the expense will represent a smaller
portion of total expenses as the company grows.
Also reflected in the increased intangible asset amortization
between 1993 and 1992 was an acceleration of purchased mortgage
servicing rights amortization. The increased amortization reflects a
more rapid pay-off of mortgage loans which are serviced for other
investors. Amortization of purchased mortgage servicing rights was
$1.8 million in 1993, an increase of $617,000 from the 1992
amortization. The remaining unamortized balance of purchased mortgage
servicing rights at December 31, 1993 was $1.5 million.
During 1991 the Company sold approximately $22.2 million of
credit card loans associated with an affinity group. The Company
continued to service this portfolio for the purchaser through September
30, 1992, and the reimbursement for the cost of servicing was reflected
in the lower 1992 bank card expense.
Between 1992 and 1991 operating expense increased $13.8 million
or 7.1%. This increase reflected the implementation of a sales and
performance based compensation program, additional depreciation
associated with an increased investment in data processing equipment,
and the execution of retail and commercial strategies. Sales incentive
and performance based compensation increased $2.7 million, reflecting
the improved performance of the Company during 1992 as compared to
1991. The Company invested in additional data processing equipment to
provide improved customer service and convenience and to handle the
increase in transaction volumes from acquisitions. The $1.4 million
increase in advertising expense between 1992 and 1991 reflects an
increased focus on the retail customer, as well as additional product
and image advertising associated with the merger of the Kansas
subsidiary banks and promoting the Company's expansion into Oklahoma in
late 1992.
The following table presents an analysis of noninterest expense
for the past three years.
Percent Change
Year Ended December 31, --------------
-------------------------------- 1992- 1991-
1993 1992 1991 1993 1992
-------- -------- -------- ------ ------
(Dollars in thousands)
Salaries and employee benefits . . . . . . . . . . . . $114,575 $100,491 $ 93,123 14.0% 7.9%
Furniture and equipment. . . . . . . . . . . . . . . . 22,004 19,030 17,944 15.6 6.1
Net occupancy. . . . . . . . . . . . . . . . . . . . . 16,307 14,458 14,020 12.8 3.1
FDIC insurance . . . . . . . . . . . . . . . . . . . . 12,071 11,679 10,915 3.4 7.0
Bank card. . . . . . . . . . . . . . . . . . . . . . . 7,577 5,021 7,074 50.9 (29.0)
Advertising and public relations . . . . . . . . . . . 8,343 6,296 4,924 32.5 27.9
Communication. . . . . . . . . . . . . . . . . . . . . 3,731 2,650 2,470 40.8 7.3
Postage and freight. . . . . . . . . . . . . . . . . . 6,194 5,403 5,190 14.6 4.1
Supplies, printed materials and forms. . . . . . . . . 5,162 5,272 4,809 (2.1) 9.6
Federal Reserve service fees . . . . . . . . . . . . . 1,461 1,090 1,067 34.0 2.2
Loan acquisition and maintenance . . . . . . . . . . . 2,295 2,372 2,870 (3.2) (17.4)
Outside service fees . . . . . . . . . . . . . . . . . 4,064 5,719 4,884 (28.9) 17.1
Consulting fees. . . . . . . . . . . . . . . . . . . . 1,618 1,703 1,520 (5.0) 12.0
Other professional fees and examinations . . . . . . . 5,548 5,933 6,326 (6.5) (6.2)
Amortization of intangible assets. . . . . . . . . . . 9,132 5,424 5,080 68.4 6.8
Other . . . . . . . . . . . . . . . . . . . . . . . . 16,642 16,237 12,730 2.5 27.5
-------- -------- --------
Total operating expense . . . . . . . . . . . . . 236,724 208,778 194,946 13.4 7.1
Net costs of operation of other real
estate and nonperforming assets . . . . . . . . . . . 3,088 2,356 6,736 31.1 (65.0)
Nonoperating charge. . . . . . . . . . . . . . . . . . 12,708 5,573 6,997 1.3X (20.4)
Minority interest. . . . . . . . . . . . . . . . . . . 153 219 171 (30.1) 28.1
Provision for securities losses. . . . . . . . . . . . -- -- 1,491 -- --
Lawsuit settlement . . . . . . . . . . . . . . . . . . 313 -- -- -- --
-------- -------- --------
Total noninterest expense. . . . . . . . . . . . . $252,986 $216,926 $210,341 16.6 3.1
======== ======== ========
Noninterest expense/average assets . . . . . . . . . . 3.87% 3.76% 3.74%
Noninterest expense less noninterest
income/average assets . . . . . . . . . . . . . . . . 2.51% 2.32% 2.21%
Operating expense less fee
income/average assets . . . . . . . . . . . . . . . . 2.28% 2.25% 2.17%
Operating expense/fee income plus
tax-equivalent net interest income. . . . . . . . . . 66.57% 64.40% 66.24%
Income Taxes
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method required by Financial Accounting Standard ("FAS") No. 109,
"Accounting for Income Taxes." As permitted under the new rules, prior
years' financial statements have not been restated. The cumulative
effect of adopting FAS No. 109 as of January 1, 1993 was to increase
net income by $10.5 million. Two pooled companies, CLC and PBI,
elected early adoption of FAS No. 109, resulting in a $2.4 million
increase in 1992 earnings.
At December 31, 1993, the Company had net operating loss and
general business credit carryforwards of $14.8 million and $424,000,
respectively, which can be carried forward to reduce future federal
income taxes payable. These carryforwards are principally related to
previous losses of banks acquired in 1992 and 1993. Utilization of the
carryforwards is limited by tax law to the future earnings of and other
limits on the use of tax attributes of acquired companies. Net
operating loss carryforwards expire in years 2000 through 2007 and
general business credit carryforwards expire in years 1994 through 2005
if not utilized. At December 31, 1993, for financial reporting
purposes, a valuation allowance of $13.2 million offset the deferred
tax assets related to these carryforwards and other deferred tax assets
whose realization is uncertain. If realized, the tax benefit on $3.4
million of net operating loss carryforwards will be applied to reduce
"cost in excess of net assets acquired" recorded in connection with
acquisitions accounted for as purchases.
Income tax expense amounted to $21.8 million, $18.5 million, and
$9.5 million for 1993, 1992, and 1991, respectively. The higher tax
expense in each succeeding year was primarily attributable to a higher
level of income before taxes. The federal tax expense for 1991 was
computed using the Alternative Minimum Tax ("AMT") provisions of the
Tax Reform Act of 1986. In 1992, federal tax expense computed in
accordance with the then statutory tax rate of 34% exceeded AMT expense
and AMT tax credits were recognized during 1992, reducing the tax
provision to the amount which would have been recorded using the AMT
provisions. The Revenue Reconciliation Bill of 1993 contained several
provisions affecting corporations and financial institutions, including
a tax rate increase to 35% and provisions mandating specific periods
for the amortization of intangibles. Pursuant to FAS No. 109, the
Company's third quarter 1993 financial statements reflected certain
adjustments to recognize the impact of the new tax law on the Company's
financial condition. These adjustments reduced 1993 income tax expense
by $616,000.
Statements of Condition
Total assets amounted to $6.7 billion, $6.6 billion, and $5.6
billion at December 31, 1993, 1992, and 1991, respectively. Between
December 31, 1991 and December 31, 1993, the Company completed five
bank acquisitions accounted for as purchases and three bank and S&L
purchase and assumption transactions. Assets acquired in these eight
transactions totaled $900.9 million. The statements of condition for
all of the periods presented include nine business combinations
accounted for as poolings of interests. In aggregate the pooled
companies had assets of $1.6 billion. The following sections describe
the changes in the major Statement of Condition categories.
Loans and Leases
Period-end loans and leases increased $416.8 million or 14.7% to
total $3.3 billion at December 31, 1993. Increases were realized in
various commercial and retail categories. Loans added through bank
purchase transactions totaled $121.7 million. Net internal loan growth
was $295.1 million, two thirds of which was realized in the fourth
quarter of 1993.
The $91.7 million increase in the 1-4 family mortgage portfolio
between December 31, 1992 and December 31, 1993 primarily reflects
originations and refinancing activity stimulated by relatively low
mortgage interest rates. In connection with the Company's adoption of
FAS No. 115 relating to the classification of investment securities as
held-to-maturity, available-for-sale, and trading securities, the
Company evaluated its portfolio of residential mortgage loans which
could be sold in the secondary market. This evaluation resulted in a
decision to reclassify $110.1 million of residential mortgage loans as
held for sale, resulting in the increase in this category.
The consumer portfolio declined $50.8 million or 10.9%. This
decrease is principally due to the $36.2 million paydown of automobile
loans associated with the 1991 closure of the Company's indirect loan
production offices.
During 1991 and 1992, both commercial and retail loan demand were
affected by an uncertain legislative and economic environment. Between
December 31, 1991 and 1992 total loans did not change materially.
Except for the origination and refinancing activity in loans secured by
1-4 family mortgages, which was stimulated by low mortgage rates, most
loan categories showed little change.
Total loans decreased $193.4 million or 6.5% from $3.0 billion at
December 31, 1990 to $2.8 billion at year-end 1991. The decreases,
which were realized in almost all categories, were attributable to the
lack of loan demand and enhanced underwriting standards which emphasize
cash flow rather than collateral based lending. Credit card loans
decreased $16.7 million, or 17.4%, from year-end 1990 to year-end 1991
as an affinity group exercised its option to purchase its portfolio
from the Company.
Total loans increased by $407.3 million or 15.8% from December
31, 1989 to 1990. Approximately $269.8 million of this increase
occurred in the 1-4 family residential mortgage portfolio and was
principally attributable to the acquisition of loans from failed S&Ls.
Additionally, $89.3 million of the increase was associated with bank
acquisitions accounted for as purchases.
The following table shows the composition of loans and leases for
the past five years.
December 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(In thousands)
Commercial and industrial . . . . . . . . . . . . $ 849,026 $ 737,924 $ 728,222 $ 830,307 $ 817,885
Agriculture . . . . . . . . . . . . . . . . . . . 164,752 143,383 147,839 136,429 121,821
Energy . . . . . . . . . . . . . . . . . . . . . 77,962 55,754 60,053 69,091 68,136
Bank stock . . . . . . . . . . . . . . . . . . . 34,576 41,282 48,509 61,866 78,686
Real estate, less unearned discount:
Construction . . . . . . . . . . . . . . . . . 92,158 63,948 92,634 112,301 134,293
Secured by 1-4 family residences . . . . . . . 781,946 690,202 629,593 653,267 383,486
Permanent commercial real estate and other . . 500,129 436,888 425,964 440,266 421,007
Residential mortgage loans held for sale. . . . 110,132 501 2,588 923 1,867
Consumer, less unearned discount . . . . . . . . 417,126 467,916 453,102 451,752 337,894
Credit card . . . . . . . . . . . . . . . . . . . 91,562 81,012 78,913 95,590 79,241
Educational . . . . . . . . . . . . . . . . . . . 55,968 41,889 34,686 32,042 48,637
Lease financing . . . . . . . . . . . . . . . . . 40,195 29,490 27,166 25,235 20,150
Other . . . . . . . . . . . . . . . . . . . . . . 42,255 50,847 66,346 79,897 68,540
---------- ---------- ---------- ---------- ----------
Total loans and leases . . . . . . . . . . . $3,257,787 $2,841,036 $2,795,615 $2,988,966 $2,581,643
========== ========== ========== ========== ==========
Commercial and Industrial: The Company's commercial and
industrial loans generally are made to middle market and small
businesses. There are no highly leveraged transactions.
Agriculture: Loans secured by feeder cattle and other livestock
accounted for approximately 58% of the agriculture portfolio at
December 31, 1993. The remainder of the agriculture portfolio is
secured by equipment, farm assets and accounts receivable and
inventory, none of which represent a significant concentration.
Energy: Loans secured by proven oil and gas reserves constitute
substantially all of the energy loan portfolio. Generally, the Company
will loan no more than 60% of the discounted value of such proven
reserves. Annual engineering reports are required on all production
loans of $100,000 or more. These reports include cash flow analyses on
all properties and provide estimates of remaining recoverable reserves,
rates of recovery, operating expenses, and taxes. There are no oil rig
acquisition loans, and loans to well-servicing companies and suppliers
are not material.
Bank Stock: Loans for the purpose of purchasing a material
interest in a bank make up this portfolio.
Real Estate: Most of the construction loans are for 1-4 family
residential construction and development. At December 31, 1993,
approximately 43.2% of the portfolio was in the Kansas metropolitan
markets of Wichita, Topeka and Kansas City. The Tulsa and Oklahoma
City markets represented an additional 39.3% of this portfolio.
The 1-4 family residence portfolio consists of loans secured by
residences located primarily in Kansas and Oklahoma and is principally
permanent first mortgage loans with the remainder consisting of home
equity loans. At December 31, 1993, this portfolio included $100.9
million of seasoned, performing loans acquired in 1990 and 1991 as part
of the S&L transactions.
At December 31, 1993 $110.1 million of fixed-rate residential
first mortgage loans were held for sale in the secondary market. Most
of these loans had original maturities of 15 and 20 years and loan
rates of 7.00% or less. Residential mortgage loans held for sale are
carried at the lower of cost or market value determined on an aggregate
basis.
Permanent commercial real estate loans include loans in the
Company's market for small office buildings/parks; neighborhood strip
shopping centers; small manufacturing machine shop buildings; office
warehouse properties; medical offices; and loans for purposes other
than funding the acquisition of the collateral properties and in which
cash flows from the properties are not the principal source of
repayment. Also included in this portfolio are loans for the financing
of apartment buildings in the Company's five metropolitan markets.
Most of these loans are "mini-perms" with five-year maturities. The
remaining commercial real estate loans are secured by farmland.
Concentrations: The Company makes substantially all of its loans
within Kansas, Oklahoma, and the contiguous states or to Kansas and
Oklahoma based customers that do business in other states. At
December 31, 1993, the Company had 20 lending relationships in which
the aggregate loan amount exceeded $8 million; of these, seven were $10
million or more. The Company had no single lending relationship with
an aggregate loan amount outstanding in excess of $20 million. The
Company had no industry concentrations greater than 10.0% of total
loans outstanding and no foreign loans at December 31, 1993.
Maturity Distribution and Interest Sensitivity of Loans
The maturity distribution of loans outstanding as of December 31,
1993 (excluding real estate-secured by 1-4 family residences, consumer,
credit card, educational, and lease financing) by type and sensitivity
to changes in interest rates is as follows:
Remaining Maturity
--------------------------------------------------
Over One
Year
One Year Through Over Five
or Less Five Years Years Total
---------- ---------- ---------- -----------
(In thousands)
Commercial and industrial . . . . . . . . . . . . . . . $ 565,040 $240,066 $ 43,920 $ 849,026
Agriculture . . . . . . . . . . . . . . . . . . . . . . 145,439 16,168 3,145 164,752
Energy . . . . . . . . . . . . . . . . . . . . . . . . 55,569 18,105 4,288 77,962
Bank stock . . . . . . . . . . . . . . . . . . . . . . 23,164 8,034 3,378 34,576
Real estate-construction . . . . . . . . . . . . . . . 66,738 23,438 1,982 92,158
Real estate-permanent commercial and other . . . . . . 144,589 243,578 111,962 500,129
Other . . . . . . . . . . . . . . . . . . . . . . . . . 35,459 6,316 480 42,255
---------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . $1,035,998 $555,705 $169,155 $1,760,858
========== ======== ======== ==========
Loans with fixed interest rates . . . . . . . . . . . . $ 254,289 $193,618 $ 43,248 $ 491,155
Loans with floating interest rates . . . . . . . . . . 781,709 362,087 125,907 1,269,703
---------- -------- -------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . $1,035,998 $555,705 $169,155 $1,760,858
========== ======== ======== ==========
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, troubled debt
restructurings, and other real estate and nonperforming assets. A loan
is placed on nonaccrual status when principal or interest is due and
has remained unpaid for 90 days or more unless the loan is both well
secured and in the process of collection. A currently performing loan
also may be placed on nonaccrual status when there is reasonable doubt
as to the ability of the borrower to continue to pay principal or
interest. Nonaccrual loans at December 31, 1993 included $13.1 million
of these "performing/nonperforming" loans. Troubled debt
restructurings are those loans for which the original contractual terms
have been modified to provide a concession because of a deterioration
in the borrower's financial condition. Other real estate and
nonperforming assets include assets acquired from loan settlements and
foreclosures.
In accordance with the Securities and Exchange Commission's
Financial Reporting Release 28 ("FRR 28"), "Other real estate and
nonperforming assets" previously has included certain loans valued at
the fair value of the underlying collateral even though the Company did
not have possession of that collateral. The main objective of FRR 28
was to require a systematic methodology to be applied to the
recognition and measurement of potential losses inherent in loans,
where the repayment of the loan was expected to come only from the
operation or the sale of the collateral. Collateral was to be
considered repossessed in substance and accounted for at fair value in
those cases where the borrower had little or no equity in the
collateral considering the property's fair value and where, considering
economic conditions, the borrower's ability to rebuild equity was
doubtful.
During 1993, banking regulators issued guidance confirming that
the loss recognition on collateral dependent loans should be based on
the fair value of the collateral, but that such loans need not be
reported as "Other real estate" unless possession of the underlying
collateral has been obtained. The Company's consolidated statement of
condition reflects the adoption of this regulatory guidance as of
December 31, 1993 and the 1992 consolidated statement of condition has
been restated to reclassify substantive repossessions from "Other
assets" to "Loans." The following table reflects the effects of this
new classification policy at December 31 for the past five years.
December 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(Dollars In thousands)
Nonaccrual loans . . . . . . . . . . . . . . . . $ 3,707 $ 6,403 $ 4,563 $ 6,416 $ 3,140
Other real estate and nonperforming assets . . . (3,707) (6,403) (4,563) (6,416) (3,140)
------- ------- ------- ------- -------
Total nonperforming assets . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
======= ======= ======= ======= =======
Generally, principal and interest payments received on nonaccrual
loans are applied as reductions of principal. For this reason and
because of charge-offs, the book value of such loans understates the
remaining contractual obligation of the borrowers. As of December 31,
1993, the carrying value of nonaccrual loans had been charged down to
71.4% of the customers' contractual principal obligations. Also, the
carrying values of other real estate and nonperforming assets have been
written down to current estimates of their fair values less a reserve
for the estimated costs to sell the properties.
Interest income of $1.5 million has been included in income for
the year ended December 31, 1993 on loans which at year-end were
considered nonaccrual loans or troubled debt restructurings. Interest
of $4.0 million would have been recorded for the year if these loans
had been current in accordance with their original terms.
The following table presents nonperforming assets and those loans
which are contractually past due 90 days or more as to principal or
interest payments at December 31 for the past five years.
December 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
(Dollars in thousands)
Nonaccrual loans . . . . . . . . . . . . . . . . . $33,833 $36,772 $55,389 $ 79,595 $ 48,874
Troubled debt restructurings . . . . . . . . . . . 290 1,906 4,918 4,576 8,660
------- ------- ------- -------- --------
Total nonperforming loans . . . . . . . . . . 34,123 38,678 60,307 84,171 57,534
Other real estate and nonperforming assets . . . . 9,667 18,876 39,017 53,031 50,445
------- ------- ------- -------- --------
Total nonperforming assets . . . . . . . . . . $43,790 $57,554 $99,324 $137,202 $107,979
======= ======= ======= ======== ========
Past due loans (90 days or more) . . . . . . . . . $ 9,072 $10,533 $ 5,455 $ 6,809 $ 11,005
======= ======= ======= ======== ========
Nonperforming assets/year-end loans plus
other real estate and nonperforming assets. . . . 1.34% 2.01% 3.50% 4.51% 4.10%
==== ==== ==== ==== ====
Nonperforming assets/year-end assets . . . . . . . .65% .88% 1.76% 2.38% 2.31%
==== ==== ==== ==== ====
Nonperforming assets decreased $13.8 million or 23.9% from
December 31, 1992 to total $43.8 million at the end of 1993. At
December 31, 1993, total nonperforming assets represented 1.34% of
total loans plus other real estate owned and nonperforming assets and
.65% of total assets as compared to 2.01% of total loans plus other
real estate owned and nonperforming assets and .88% of total assets at
December 31, 1992. Companies acquired during 1993 in pooling-of-
interests transactions represent $13.9 million of the December 31, 1993
total nonperforming assets compared to $17.6 million for those same
companies at year-end 1992. Purchased banks added $1.8 million to the
1993 nonperforming asset total. The 1993 and 1992 pooling-of-interests
combinations accounted for $61.1 million, $87.3 million, and $85.0
million of nonperforming assets at year-end 1991, 1990, and 1989,
respectively.
Management continues to focus on asset quality. An emphasis is
placed on pro-active management of problem credits, early detection of
potential problems, and timely charge-offs. A due diligence team is
responsible for assessing potential problem loans in banks to be
acquired prior to the execution of a definitive agreement. A separate
work-out department is responsible for the resolution and collection of
problem assets. An analysis of nonperforming loans by type is provided
in the following table. There are no significant concentrations of
nonperforming assets in any one market or industry.
December 31,
-------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
Commercial and industrial. . . . . . . $14,695 $13,194 $23,021 $37,288 $19,701
Agriculture. . . . . . . . . . . . . . 1,526 1,449 1,250 766 1,001
Energy . . . . . . . . . . . . . . . . 510 184 402 2,508 511
Bank stock . . . . . . . . . . . . . . -- -- 41 -- 700
Real Estate:
Construction . . . . . . . . . . . . 1,343 1,883 7,029 5,756 4,975
Secured by 1-4 family
residences. . . . . . . . . . . . . 2,384 3,861 3,752 4,454 4,257
Permanent commercial
real estate and other . . . . . . . 11,668 16,056 22,200 30,173 23,965
Consumer . . . . . . . . . . . . . . . 1,890 1,863 2,228 2,731 2,424
Lease financing. . . . . . . . . . . . 107 188 384 495 --
------- ------- ------- ------- -------
Total nonperforming loans. . . . . $34,123 $38,678 $60,307 $84,171 $57,534
======= ======= ======= ======= =======
Nonaccrual loans/nonaccrual
loans and prior charge-offs . . . . . 71.41%
=====
Potential Problem Loans
Certain loans classified for regulatory purposes as doubtful,
substandard, or special mention are included in the nonperforming loan
table. Also included in the classified loans are certain other loans
which are deemed to be potential problems.
Potential problem loans are those loans which are currently
performing but where known information about trends or uncertainties or
possible credit problems of the borrowers causes management to have
concerns as to the ability of such borrowers to comply with present
repayment terms, possibly resulting in the transfer of such loans to
nonperforming status. These loans totaled $6.3 million at December 31,
1993.
Allowance for Credit Losses
The allowance for credit losses is the amount deemed by
management to be reasonably necessary to provide for possible losses on
loans that may become uncollectible. Additions to the allowance are
charged to expense as the provision for credit losses. Loan losses and
recoveries are charged or credited directly to the allowance. It is
the Company's policy to charge off any loan or portion of that loan
when it is deemed to be uncollectible in the ordinary course of
business.
An evaluation of the overall quality of the portfolio is
performed to determine the necessary level of the allowance for credit
losses. This evaluation takes into consideration the classification of
loans and the application of loss estimates to these classifications.
It is the responsibility of management in each of the Company's markets
to classify its loans as pass, special mention, substandard, doubtful,
or loss. The classification criteria are established by the credit
administration function of the Company, which is independent of all
lending functions, and are intended to be consistent with the criteria
applied by federal banking system examiners. These classifications
take into consideration all sources of repayment, underlying
collateral, the value of such collateral, and current and anticipated
economic conditions, trends, and uncertainties. The Company has an
independent loan review function which periodically reviews the loans
and the classifications. The Company's bank subsidiaries also are
subjected to periodic examinations by the Office of the Comptroller of
the Currency.
Loss factors are developed by loan type and classification using
historical loss data and statistical modeling techniques. The
application of these loss factors to the portfolio classifications
combined with analyses of general economic conditions, trends in
portfolio volume, maturity, and composition, and estimates of potential
future losses on specific large loans and those loans requiring special
attention provide management with data essential to identify and
estimate the credit risk inherent in the portfolio. The allowance for
credit losses reflects the result of these estimates, and is deemed to
be adequate at each balance sheet date.
As of December 31, 1993, the allowance for credit losses equaled
$66.4 million or 2.04% of total loans and leases and 194.50% of
nonperforming loans. Comparatively, the allowance for credit losses
amounted to $73.1 million or 2.57% of total loans and leases and
188.88% of nonperforming loans at December 31, 1992. The decreased
level of net charge-offs in 1993 compared to 1992 and the sound
coverage ratio of the allowance for credit losses to nonperforming
loans at December 31, 1993 reflected the continuing emphasis management
is placing on resolving problem loans, reducing the risk profile of the
Company, and prudently reserving for identifiable risks.
The following table summarizes the changes in the allowance for
credit losses for the past five years and presents selected related ratios.
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Balance at January 1, as previously reported . . . $ 60,498 $ 57,459 $ 53,049 $ 33,089 $ 29,342
Adjustment for poolings of interests . . . . . . . 12,557 13,210 9,672 9,306 9,378
---------- ---------- ---------- ---------- ----------
Balance at January 1, as restated . . . . . . . . 73,055 70,669 62,721 42,395 38,720
Allowance for credit losses of purchased banks . . 3,266 1,739 464 2,827 1,643
Allowance for purchased loans . . . . . . . . . . -- 3,424 -- 2,165 --
---------- ---------- ---------- ---------- ----------
76,321 75,832 63,185 47,387 40,363
Charge-offs:
Commercial and industrial . . . . . . . . . . . 15,450 16,126 22,342 15,519 15,327
Energy . . . . . . . . . . . . . . . . . . . . . 371 254 1,690 1,127 1,170
Real estate:
Construction . . . . . . . . . . . . . . . . . 269 881 2,492 4,628 1,539
Secured by 1-4 family residences . . . . . . . 701 1,082 1,547 1,262 1,729
Permanent commercial real estate and other . . 3,954 4,624 6,184 8,865 4,757
Consumer . . . . . . . . . . . . . . . . . . . . 3,936 5,196 5,870 3,350 1,999
Credit card . . . . . . . . . . . . . . . . . . 1,596 2,243 2,470 2,046 1,231
Bank stock . . . . . . . . . . . . . . . . . . . -- -- 852 250 --
Agriculture . . . . . . . . . . . . . . . . . . 214 121 215 503 290
Lease financing . . . . . . . . . . . . . . . . 246 258 477 728 161
Other . . . . . . . . . . . . . . . . . . . . . 71 293 420 741 1,010
---------- ---------- ---------- ---------- ----------
Total charge-offs . . . . . . . . . . . . . 26,808 31,078 44,559 39,019 29,213
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial and industrial . . . . . . . . . . . 4,592 3,214 3,330 2,084 2,403
Energy . . . . . . . . . . . . . . . . . . . . . 206 230 936 1,319 411
Real estate:
Construction . . . . . . . . . . . . . . . . . 220 112 132 388 6
Secured by 1-4 family residences . . . . . . . 304 179 243 48 210
Permanent commercial real estate and other . . 1,358 409 463 294 24
Consumer . . . . . . . . . . . . . . . . . . . . 1,687 1,594 1,180 459 389
Credit card . . . . . . . . . . . . . . . . . . 496 604 418 300 281
Bank stock . . . . . . . . . . . . . . . . . . . 148 38 -- -- --
Agriculture . . . . . . . . . . . . . . . . . . 272 309 155 252 95
Lease financing . . . . . . . . . . . . . . . . 91 232 87 34 23
Other . . . . . . . . . . . . . . . . . . . . . 425 37 245 175 6
---------- ---------- ---------- ---------- ----------
Total recoveries . . . . . . . . . . . . . . 9,799 6,958 7,189 5,353 3,848
---------- ---------- ---------- ---------- ----------
Net loans and leases charged off . . . . . . . . . 17,009 24,120 37,370 33,666 25,365
Provision for credit losses . . . . . . . . . . . 7,056 21,343 43,665 49,000 27,397
---------- ---------- ---------- ---------- ----------
Balance at December 31 . . . . . . . . . . . . . . $ 66,368 $ 73,055 $ 69,480 $ 62,721 $ 42,395
========== ========== ========== ========== ==========
Loans and leases at year-end . . . . . . . . . . . $3,257,787 $2,841,036 $2,795,615 $2,988,966 $2,581,643
Average loans and leases . . . . . . . . . . . . . $2,953,470 $2,822,525 $2,914,788 $2,835,045 $2,455,848
Net charge-offs/average loans and leases . . . . . .58% .85% 1.28% 1.19% 1.03%
Allowance for credit losses/net charge-offs . . . 390.19% 302.88% 185.92% 186.30% 167.14%
Allowance for credit losses/year-end
nonperforming loans . . . . . . . . . . . . . . . 194.50% 188.88% 115.21% 74.52% 73.69%
Allowance for credit losses/year-end
nonperforming assets. . . . . . . . . . . . . . . 151.56% 126.93% 69.95% 45.71% 39.26%
Allowance for credit losses/year-end
loans and leases. . . . . . . . . . . . . . . . . 2.04% 2.57% 2.49% 2.10% 1.64%
The allowance for credit losses has been allocated by loan
category. It should be recognized that such allocations are not
necessarily indicative of future loan losses and that all of such
allowance, except for the $1.3 million allowance for purchased loans
included in the secured by 1-4 family residences and $3.5 million
allowance for purchased loans included in consumer, is available to
absorb losses on loans for any category. The allocation of the
allowance for credit losses by loan type is as follows:
December 31,
--------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
(In thousands)
Commercial and industrial. . . . . . . $24,791 $29,211 $29,799 $21,471 $14,447
Agriculture . . . . . . . . . . . . . 1,210 2,762 2,515 2,122 1,653
Energy . . . . . . . . . . . . . . . . 973 1,105 1,386 2,490 3,001
Bank stock . . . . . . . . . . . . . . 446 968 820 497 583
Real estate:
Construction . . . . . . . . . . . . 1,364 1,895 2,163 5,266 3,642
Secured by 1-4 family residences . . 3,659 4,797 5,547 6,169 1,397
Permanent commercial real estate
and other . . . . . . . . . . . . . 17,500 17,421 17,602 15,261 11,210
Consumer . . . . . . . . . . . . . . . 9,266 7,633 5,148 4,576 2,974
Credit card . . . . . . . . . . . . . 2,455 3,673 2,215 2,500 1,582
Educational. . . . . . . . . . . . . . -- -- -- -- --
Lease financing . . . . . . . . . . . 393 933 315 381 95
Other . . . . . . . . . . . . . . . . 4,311 2,657 1,970 1,988 1,811
------- ------- ------- ------- -------
Total . . . . . . . . . . . . . . $66,368 $73,055 $69,480 $62,721 $42,395
======= ======= ======= ======= =======
The following table compares the allocation of the allowance for
credit losses by loan type expressed as a percentage of the total
allowance for credit losses to the percentage of loans in each loan
type to total loans:
December 31,
----------------------------------------------------------------------------------
1993 1992 1991 1990 1989
-------------- -------------- -------------- -------------- --------------
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Commercial and industrial. 37.3% 26.1% 40.0% 26.0% 42.9% 26.1% 34.2% 27.8% 34.1% 31.7%
Agriculture . . . . . . . 1.8 5.0 3.8 5.0 3.6 5.3 3.4 4.6 3.9 4.7
Energy . . . . . . . . . . 1.5 2.4 1.5 2.0 2.0 2.1 4.0 2.3 7.1 2.6
Bank stock . . . . . . . . .7 1.1 1.3 1.4 1.2 1.7 .8 2.1 1.4 3.1
Real estate:
Construction . . . . . . 2.1 2.8 2.6 2.2 3.1 3.3 8.4 3.7 8.6 5.2
Secured by 1-4 family
residences . . . . . . 5.5 27.4 6.6 24.3 8.0 22.6 9.8 21.9 3.3 15.0
Permanent commercial
real estate and other . 26.3 15.4 23.8 15.4 25.3 15.2 24.3 14.7 26.4 16.3
Consumer . . . . . . . . . 14.0 12.8 10.4 16.5 7.4 16.2 7.3 15.1 7.0 13.1
Credit card . . . . . . . 3.7 2.8 5.0 2.9 3.2 2.8 4.0 3.2 3.7 3.0
Educational . . . . . . . -- 1.7 -- 1.5 -- 1.3 -- 1.1 -- 1.9
Lease financing . . . . . .6 1.2 1.3 1.0 .5 1.0 .6 .8 .2 .8
Other . . . . . . . . . . 6.5 1.3 3.7 1.8 2.8 2.4 3.2 2.7 4.3 2.6
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
<FN>
_____
(1) Allocation of allowance for credit losses by loan type as a percent of total allowance.
(2) Loans by type as a percent of total loans.
Investment Portfolio
The year-end book value of investment securities at December 31
for each of the last three years is presented in the tables below.
Held-to-maturity
December 31,
----------------------------------------
1993 1992 1991
---------- ---------- ----------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 1,514 $ 284,856 $ 140,835
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 1,751,443 1,731,879 1,354,866
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 279,783 126,542
Obligations of states and political subdivisions . . . . . . . . . 4,750 215,471 245,768
Other securities:
Collateralized auto receivables . . . . . . . . . . . . . . . . . 12,364 28,935 51,607
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . -- 10,580 7,121
Foreign debt securities . . . . . . . . . . . . . . . . . . . . . 2,155 -- --
Money market mutual funds . . . . . . . . . . . . . . . . . . . . 212 220 50,228
Commercial paper. . . . . . . . . . . . . . . . . . . . . . . . . -- -- 20,194
Bankers' acceptances . . . . . . . . . . . . . . . . . . . . . . -- -- 11,950
Non-agency mortgage-backed securities . . . . . . . . . . . . . . -- -- 5,672
Nonaccrual investments. . . . . . . . . . . . . . . . . . . . . . -- -- 2,529
---------- ---------- ----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 1,772,797 2,551,724 2,017,312
Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . 24,911 1,166 577
Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . 12,589 8,452 6,355
Other equity securities . . . . . . . . . . . . . . . . . . . . . 1,470 3,576 3,827
---------- ---------- ----------
Total, at amortized cost. . . . . . . . . . . . . . . . . . . . $1,811,767 $2,564,918 $2,028,071
========== ========== ==========
Excess market value . . . . . . . . . . . . . . . . . . . . . . . . $ 1,365 $ 45,262 $ 71,817
========== ========== ==========
Available-for-sale
December 31,
------------
1993
------------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 308,331
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 218,848
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,276
Obligations of states and political subdivisions . . . . . . . . . 242,933
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . . 40,237
----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 1,116,625
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . 1,151
----------
Total, at estimated fair value. . . . . . . . . . . . . . . . $1,117,776
==========
At December 31, 1993, the Company elected to adopt Financial
Accounting Standard ("FAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with FAS No.
115, prior period financial statements have not been restated to
reflect the change in accounting principle. Pursuant to FAS No. 115
the securities classified as available-for-sale are carried at fair
value. Upon adoption, the available-for-sale portfolio was increased
by a net unrealized gain of $41.2 million, deferred income taxes
payable was increased by $16.1 million, and stockholders' equity was
increased by $25.1 million.
Not including the adjustment to fair value for the available-for-
sale portfolio, investment securities increased $323.4 million between
December 31, 1992 and 1993. Acquisition transactions accounted for as
purchases added $112.0 million of investment securities. The remainder
of the increase is attributable to the Company becoming more fully
invested and a larger volume of borrowed funds.
Excluding U.S. Treasury obligations and obligations of U.S.
government agencies and corporations, there were no security holdings
of any one issuer at December 31, 1993 that exceeded 10% of
consolidated stockholders' equity.
The tables below summarize the maturity and yield distribution of
investment securities at December 31, 1993.
Held-to-maturity
Maturing
------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
---------------- ---------------- ---------------- ---------------- ------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------ -------- ------ -------- ------ -------- ------ ---------- ------
(Dollars in thousands)
U.S. Treasury
obligations . . . . $ 601 5.24% $ 913 5.09% $ -- --% $ -- --% $ 1,514 5.15%
Obligations of
U.S. government
agencies and
corporations:
Mortgage-backed. . 181 8.50 218,773 6.49 215,721 5.59 1,316,768 5.14 1,751,443 5.36
Other. . . . . . . 168 4.56 191 4.94 -- -- -- -- 359 4.76
Obligations of
states and
political
subdivisions(1) . . 1,090 7.04 3,790 6.02 25 11.54 2,000 11.54 6,905 7.80
Other securities:
Collateralized
auto receivables. -- -- 12,364 7.91 -- -- -- -- 12,364 7.91
Money market
mutual funds. . . 212 3.00 -- -- -- -- -- -- 212 3.00
Other. . . . . . . -- -- -- -- -- -- 38,970 6.41 38,970 6.41
------ -------- -------- ---------- ----------
Total. . . . . . $2,252 6.11 $236,031 6.55 $215,746 5.59 $1,357,738 5.18 $1,811,767 5.41
====== ======== ======== ========== ==========
<FN>
_________
(1) Yields on tax-preferred securities are shown on a fully tax-equivalent basis assuming a marginal
tax rate of 35%.
Available-for-sale
Maturing
------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
---------------- ---------------- ---------------- ---------------- ------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------ -------- ------ -------- ------ -------- ------ ---------- ------
(Dollars in thousands)
U.S. Treasury
obligations . . . . $48,773 6.04% $254,305 6.13% $ 5,253 5.09% $ -- --% $ 308,331 6.10%
Obligations of
U.S. government
agencies and
corporations:
Mortgage-backed. . -- -- 855 7.83 12,481 6.09 205,512 6.76 218,848 6.73
Other. . . . . . . 12,420 7.80 253,774 6.02 40,082 7.51 -- -- 306,276 6.29
Obligations of
states and
political
subdivisions(1) . . 27,171 12.84 120,264 14.12 64,812 10.46 30,686 14.23 242,933 13.02
Other securities . . 1,925 7.70 13,543 6.15 24,769 6.10 1,151 -- 41,388 6.02
------- -------- -------- -------- ----------
Total. . . . . . $90,289 8.36 $642,741 7.58 $147,397 8.36 $237,349 7.69 $1,117,776 7.78
======= ======== ======== ======== ==========
<FN>
_________
(1) Yields on tax-preferred securities are shown on a fully tax-equivalent basis assuming a marginal
tax rate of 35%.
Mortgage-backed securities have been included in the maturity
tables based on their final maturities. However, this classification
is not indicative of the interest rate risk characteristics of the
portfolio.
At December 31, 1993 the held-to-maturity portfolio included
$513.3 million of floating-rate mortgage-backed securities guaranteed
by the Federal National Mortgage Association. The yields on these
securities float on a monthly basis with the Federal Home Loan Bank
("FHLB") Board 11th District average cost of funds, which reduces the
interest rate risk associated with these investments as the changes in
the cost of funds index have historically correlated with the changes
in the Company's cost of funds. Also included in the held-to-maturity
portfolio at December 31, 1993 were $847.4 million of collateralized
mortgage obligations ("CMO"). These investments are secured by
mortgage-backed securities guaranteed by agencies of the U.S.
government. Of this CMO portfolio, $155.6 million also float on a
monthly basis with the FHLB 11th District average cost of funds. The
remaining $691.8 million of fixed-rate CMOs in the held-to-maturity
portfolio are comprised of classes with an anticipated remaining
average duration of two to three years.
The December 31, 1993 available-for-sale mortgage-backed
securities portfolio is comprised principally of securities issued by
U.S. government agencies and corporations with an estimated average
duration of up to five years. Also included in the December 31, 1993
mortgage-backed securities available-for-sale were $49.4 million of
CMOs that do not meet the Office of the Comptroller of Currency's
("OCC") guidelines to be classified as "held-to-maturity" securities.
The OCC requires simulation testing of mortgage derivative products to
measure their estimated maturity or price sensitivity to interest rate
increases or decreases of 300 basis points. Under current accounting
practices, CMOs that fall outside the OCC's volatility guidelines are
required to be included in the available-for-sale portfolio.
Scheduled principal reductions and prepayments on the mortgage-
backed securities approximated $219.6 million during the fourth quarter
of 1993. The volume of principal reductions and prepayments combined
with the Company's strong liquidity position (which is described in the
Asset and Liability Management Section) demonstrates the Company's
ability to hold a substantial portion of its investment securities to
maturity.
Deposits
Average total deposits increased $418.2 million or 8.5% between
December 31, 1993 and 1992. This increase in average deposits reflects
the assumption of deposits from S&L and bank purchase acquisitions,
which took place in December of 1992 and the second quarter of 1993.
Deposits assumed from S&Ls totaled $448.3 million and deposits acquired
through bank acquisitions accounted for as purchases totaled $246.1
million. At December 31, 1993, deposits totaled $5.3 billion, which
was not materially different from deposits at December 31, 1992. The
increased deposits from the assumptions and acquisitions were partially
offset by the attrition of time deposits associated with the current
low interest rates offered on these instruments. In addition, December
31, 1992 deposits included an unusually high volume of items in the
process of collection. In response to perceived customer needs for a
higher yield, a time deposit product was offered which provided the
customer with the opportunity to reprice the instrument twice during
its three- year term. At December 31, 1993, $222.8 million of these
adjustable-rate time deposits were outstanding. Certain customers have
reinvested maturing deposits in alternative investment instruments and
some of these customers have purchased annuities, mutual funds, and
other investments through the Company, resulting in increased fee
income. Core deposits (demand, interest checking, savings, and time
deposits under $100,000) represented 92.7% of total deposits at
December 31, 1993 compared to 91.1% at December 31, 1992.
The following table provides a breakdown of average deposits and
average rates paid, by type, for the past three years.
1993 1992 1991
-------------------- -------------------- --------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
---------- -------- ---------- -------- ---------- --------
(Dollars in thousands)
Noninterest-bearing deposits. . . . . . . . $ 916,816 -- $ 832,472 -- $ 778,217 --
Interest-bearing deposits:
Interest-bearing checking deposits. . . . 870,178 2.49% 699,112 3.10% 595,778 4.61%
Savings deposits . . . . . . . . . . . . 1,215,257 2.61 1,124,768 3.33 1,044,037 5.14
Time deposits under $100,000. . . . . . . 1,929,077 4.53 1,816,111 5.72 1,984,143 7.28
Time deposits of $100,000 or more . . . . 387,867 3.56 428,552 3.73 529,838 5.38
---------- ---------- ----------
Total interest-bearing deposits . . . . 4,402,379 3.51 4,068,543 4.40 4,153,796 6.12
---------- ---------- ----------
Total deposits . . . . . . . . . . . $5,319,195 $4,901,015 $4,932,013
========== ========== ==========
The following table sets forth, by time remaining to maturity,
certificates and other time deposits of $100,000 or more:
December 31, 1993
-----------------
(In thousands)
Under three months . . . . . . . . . . . . . . . . . . . . . . . . . . $130,256
Over three through six months . . . . . . . . . . . . . . . . . . . . 52,367
Over six through twelve months . . . . . . . . . . . . . . . . . . . . 67,877
Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . 109,457
--------
$359,957
========
Brokered deposits were immaterial at December 31, 1993.
Short-term Borrowings
Short-term borrowings include federal funds purchased, securities
sold under agreements to repurchase, Federal Home Loan Bank borrowings
with a maturity of less than one year, commercial paper, notes payable,
treasury tax and loan accounts and other borrowings. Amounts and
interest rates related to short-term borrowings for the last three
years were as follows:
1993 1992 1991
-------- -------- --------
(Dollars in thousands)
Federal funds purchased:
Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $370,026 $261,048 $103,643
Average interest rate at year-end . . . . . . . . . . . . . . . . . 2.96% 2.92% 3.06%
Average outstanding during the year . . . . . . . . . . . . . . . . $321,023 $190,780 $125,829
Weighted average interest rate . . . . . . . . . . . . . . . . . . 3.00% 3.36% 5.50%
Highest outstanding balance at any month-end . . . . . . . . . . . $474,245 $339,511 $129,633
Securities sold under agreements to repurchase:
Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $123,901 $ 65,089 $ 44,581
Average interest rate at year-end . . . . . . . . . . . . . . . . . 3.27% 3.49% 4.12%
Average outstanding during the year . . . . . . . . . . . . . . . . $ 66,532 $ 60,931 $ 46,742
Weighted average interest rate . . . . . . . . . . . . . . . . . . 3.10% 3.58% 5.30%
Highest outstanding balance at any month-end . . . . . . . . . . . $123,901 $112,345 $ 58,883
Federal Home Loan Bank borrowings:
Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $175,000 $ -- $ --
Average interest rate at year-end . . . . . . . . . . . . . . . . . 3.76% --% --%
Average outstanding during the year . . . . . . . . . . . . . . . . $ 77,534 $ -- $ --
Weighted average interest rate . . . . . . . . . . . . . . . . . . 5.05% --% --%
Highest outstanding balance at any month-end . . . . . . . . . . . $175,000 $ -- $ --
Commercial paper:
Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ -- $ 425 $ 3,176
Average interest rate at year-end . . . . . . . . . . . . . . . . . --% 2.80% 4.76%
Average outstanding during the year . . . . . . . . . . . . . . . . $ 184 $ 1,118 $ 10,163
Weighted average interest rate . . . . . . . . . . . . . . . . . . 2.85% 3.85% 6.08%
Highest outstanding balance at any month-end . . . . . . . . . . . $ 625 $ 3,528 $ 22,026
Notes payable:
Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ -- $ 5,961 $ 9,362
Average interest rate at year-end . . . . . . . . . . . . . . . . . --% 6.57% 6.97%
Average outstanding during the year . . . . . . . . . . . . . . . . $ 3,140 $ 10,158 $ 17,247
Weighted average interest rate . . . . . . . . . . . . . . . . . . 7.84% 7.98% 10.02%
Highest outstanding balance at any month-end . . . . . . . . . . . $ 134 $ 13,360 $ 56,635
Treasury tax and loan and other borrowings:
Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . $ 23,002 $ 17,306 $ 26,051
Average interest rate at year-end . . . . . . . . . . . . . . . . . 2.75% 2.67% 3.84%
Average outstanding during the year . . . . . . . . . . . . . . . . $ 18,605 $ 17,343 $ 23,770
Weighted average interest rate . . . . . . . . . . . . . . . . . . 2.97% 3.37% 5.57%
Highest outstanding balance at any month-end . . . . . . . . . . . $ 26,092 $ 25,397 $ 27,784
Asset and Liability Management
Interest Rate Risk: The Company manages its assets and
liabilities to control the exposure of its net interest income and
capital to risks associated with interest rate changes and to achieve
consistent growth in net interest income. Interest rate risk is
evaluated using various tools, including interest sensitivity gap and
simulation analysis. From time to time, interest rate swaps are used
to modify the interest sensitivity position inherent in the repricing
characteristics of specific assets or liabilities. The net interest
received or paid on the interest rate swaps is accounted for as an
adjustment to the interest income or interest expense on the assets or
liabilities, respectively, that the swap was intended to modify.
At December 31, 1993 and 1992 interest rate swaps were as follows:
December 31, 1993
-----------------------------------------------------------------
Weighted Weighted Average Rate
Notional Average --------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $ 51,000 29 months (1) 5.89% 3.47%
Pay fixed rate . . . . . . . . . . . . . . 200,000 10 months 3.44% 3.94%
December 31, 1992
-----------------------------------------------------------------
Weighted Weighted Average Rate
Notional Average --------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $ 1,000 52 months 10.00% 3.13%
<FN>
- --------
(1) The term of $50.0 million of these swaps may extend up to an additional 48 months after the initial term depending on
the variable rate index at the end of the initial term and each quarter thereafter as compared to that same index when
the swaps were initiated.
The following table presents the Company's interest sensitivity
gap position as of December 31, 1993. This table depicts the timing of
the contractual maturity or repricing of most assets and liabilities at
this date. Fixed-rate mortgage-backed securities are included in
repricing-maturity categories based upon estimates of prepayments
provided by a third-party market information service. These estimates
may vary depending upon both the volatility and the level of market
interest rates in relationship to the coupon rates of the underlying
mortgages. Interest-bearing checking and savings deposits are included
in the under-three-month category. This table does not indicate the
effect the repricing of assets and liabilities would have on net
interest income. Also, it does not reflect interest rate exposures,
such as basis risk, prepayment risk, intra-period sensitivity, and the
effect of interest rate floors and ceilings associated with certain
financial instruments.
Repricing Maturity
--------------------------------------------------------------------------------
Over Three Over Six Over One
Under Through Through Through Over
Three Six Twelve Five Five Noninterest-
Months Months Months Years Years bearing Total
---------- --------- --------- --------- ---------- ----------- ----------
(Dollars in thousands)
Assets:
Loans and leases. . . . . . $1,772,016 $ 153,203 $ 243,776 $ 678,264 $366,515 $ 44,013 $3,257,787
Investments and trading
account securities . . . . 1,119,962 169,416 291,559 1,239,671 68,182 41,227 2,930,017
Other earning assets . . . 4,673 269 1,538 327 -- -- 6,807
Nonearning assets . . . . . -- -- -- -- -- 548,262 548,262
---------- --------- --------- ---------- -------- ---------- ----------
Total assets . . . . . . $2,896,651 $ 322,888 $ 536,873 $1,918,262 $434,697 $ 633,502 $6,742,873
========== ========= ========= ========== ======== ========== ==========
Liabilities and
stockholders' equity:
Deposits. . . . . . . . . . $2,772,609 $ 375,370 $ 368,853 $ 840,427 $ 6,187 $ 944,290 $5,307,736
Federal funds purchased
and securities sold under
agreements to repurchase . 493,927 -- -- -- -- -- 493,927
Federal Home Loan Bank
borrowings . . . . . . . . 50,000 75,000 50,000 75,000 -- -- 250,000
Other borrowings. . . . . . 23,002 -- -- -- -- -- 23,002
Long-term debt . . . . . . 4,482 8 4,787 4,476 236 -- 13,989
Other liabilities . . . . . -- -- -- -- -- 55,874 55,874
Stockholders' equity . . . -- -- -- -- -- 598,345 598,345
---------- --------- --------- ---------- -------- ---------- ----------
Total liabilities and
stockholders' equity . . $3,344,020 $ 450,378 $ 423,640 $ 919,903 $ 6,423 $1,598,509 $6,742,873
========== ========= ========= ========== ======== ========== ==========
Interest rate swaps . . . . . $ 149,000 $(100,000) $ -- $ (49,000) $ -- $ -- $ --
Repricing gap adjusted
for interest rate swaps. . . (298,909) (227,490) 113,233 949,359 428,274 (964,467) --
Cumulative adjusted
repricing gap. . . . . . . . (298,909) (526,399) (413,166) 536,193 964,467 -- --
Cumulative adjusted rate-
sensitive assets/
rate-sensitive liabilities . .87 .85 .89 (*) (*) (*)
<FN>
___________
(*) Not meaningful.
The Company has a negative cumulative repricing gap in the one-
year horizon. Consequently, it is more sensitive to a rising rate
environment which, if it occurred, would adversely impact the net
interest margin. Simulation modeling has demonstrated that a sudden
and large increase in rates or a dramatic narrowing in the spread
between asset yields and liability costs would result in an adverse
impact on the net interest margin; however, the adverse impact is more
moderate if interest rates increase gradually.
Liquidity: The Company's consolidated statements of cash flows
are presented elsewhere in this report. These statements distinguish
cash flows as operating, investing, and financing. They provide a
historical accounting of the Company's ability to generate cash
required to meet its customers' and creditors' demands. Certain
statement-of-condition items and ratios are indicative of the Company's
strong liquidity position at December 31, 1993. The loans-to-deposits
and loans-to-assets ratios averaged 55.52% and 45.19%, respectively,
during 1993. During 1993, average core deposits (demand, interest
checking, savings, and time deposits under $100,000) represented 91.8%
of total deposits and 74.7% of average assets.
At December 31, 1993, federal funds purchased, securities sold
under agreements to repurchase, Federal Home Loan Bank borrowings, and
other borrowings totaled $766.9 million. At that same date, additional
borrowing liquidity was also available in the form of $1.0 billion of
unpledged investment securities classified as held-to-maturity which
could secure short-term borrowing requirements. In addition,
substantial liquidity is available from the available-for-sale
securities which could secure short-term borrowings or be sold.
Regular maturities and prepayments of investment securities,
particularly the mortgage-backed securities, also generate significant
liquidity. Scheduled principal reductions and prepayments on the
mortgage-backed securities approximated $219.6 million during the
fourth quarter of 1993.
As disclosed in Note 20 to the Consolidated Financial Statements,
the Company had commitments to extend credit at December 31, 1993,
including standby letters of credit of $91.4 million, commercial
letters of credit of $13.7 million, unused credit card lines of $325.3
million, and other loan commitments of $1.1 billion. Some of these
commitments will not be fully utilized, others will expire without
being drawn upon, and the commitments will not all be used at the same
time. Accordingly, management anticipates that the Company has ample
liquidity to meet these and other demands.
Capital Resources
At December 31, 1993, total stockholders' equity was $598.3
million or 8.87% of total assets compared to $525.8 million or 8.00% of
total assets at December 31, 1992. Included in total stockholders'
equity at December 31, 1993 were $25.1 million in unrealized gains on
available-for-sale securities recorded in connection with the Company's
adoption of FAS No. 115. For 1993, total stockholders' equity averaged
$550.8 million or 8.43% of average assets. The prior year average
equity was $487.0 million or 8.44% of average assets.
Banking system regulators apply two measures of capital adequacy
to banking companies: the risk-based capital and leverage ratios. The
risk-based capital rules provide for the weighting of assets and
off-balance-sheet commitments and contingencies according to prescribed
risk categories ranging from 0 to 100%. Regulatory capital is then
divided by risk-weighted assets to determine the risk-adjusted capital
ratios. The leverage ratio supplements the risk-based capital
guidelines by placing a constraint on the degree to which a banking
company can leverage its equity capital, regardless of the balance
sheet composition. The leverage ratio is computed by dividing Tier I
capital by quarter-to-date average assets less certain intangibles.
The following table presents the Company's risk-based capital and
leverage ratios together with the required minimums. At December 31,
1993, banking system regulators had not amended the regulatory capital
rules to include net unrealized gains and losses on available-for-sale
securities in Tier I capital. Accordingly, the ratios in the following
table exclude the $25.1 million net unrealized gain on available-for-
sale securities.
December 31,
-------------------------------
1993 1992
------------ ------------
(Dollars in thousands)
Tier I capital:
Common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 476,277 $ 425,252
Preferred stockholders' equity. . . . . . . . . . . . . . . . . . . . . 96,920 100,561
Less intangible assets (1) . . . . . . . . . . . . . . . . . . . . . . (62,296) (59,883)
---------- ----------
Total Tier I capital . . . . . . . . . . . . . . . . . . . . . . . . 510,901 465,930
---------- ----------
Tier II capital:
Allowance for credit losses (2) . . . . . . . . . . . . . . . . . . . . 49,259 44,188
---------- ----------
Total regulatory capital. . . . . . . . . . . . . . . . . . . . . . $ 560,160 $ 510,118
========== ==========
Risk-weighted assets and off-balance-sheet
commitments and contingencies . . . . . . . . . . . . . . . . . . . . . $3,940,574 $3,534,759
========== ==========
Adjusted average assets (3) . . . . . . . . . . . . . . . . . . . . . . . $6,717,389 $5,828,591
========== ==========
Regulatory
Minimums
----------
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 12.97% 13.18%
Total . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 14.22 14.43
Leverage ratio . . . . . . . . . . . . . . . . . . . . . 3.00 7.61 7.99
<FN>
___________
(1) All intangible assets except purchased mortgage servicing rights are subtracted from capital.
(2) The allowance for credit losses is limited to 1.25% of risk-weighted assets.
(3) Quarter-to-date average assets less all intangibles except purchased mortgage servicing rights.
As indicated in the preceding table, the Company's risk-based and
leverage capital ratios substantially exceed the minimums required by
banking system regulators. If the regulatory capital rules had been
amended to include the net unrealized gain on available-for-sale
securities in Tier I capital, the Company's risk-based and leverage
ratios at December 31, 1993 would have been as follows:
December 31, 1993
-----------------
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . . 13.64
Total. . . . . . . . . . . . . . . . . . . . . . . . . . 14.89
Leverage ratio . . . . . . . . . . . . . . . . . . . . . . 7.98
Including the net unrealized gains and losses on available-for-sale
securities in regulatory capital computations could result in more
volatile regulatory capital levels. However, it is the Company's
intention to simulate the estimated volatility various interest rate
forecasts could have on the net unrealized gains or losses in the
available-for-sale portfolio and maintain capital levels in excess of
those required by the regulators including the consideration of this
volatility.
The Federal Deposit Insurance Corporation adopted final
regulations under the Federal Deposit Insurance Corporation Improvement
Act, effective June 16, 1992. A bank is typically defined to be "well
capitalized" if it maintains a Tier I capital ratio of at least 6.0%,
a total risk-based capital ratio of at least 10.0% and a leverage
ratio of at least 5.0%. Generally, it is the Company's intention to
maintain sufficient capital in each of its bank subsidiaries to permit
them to maintain a "well capitalized" designation. The capital ratios
for both of the Company's subsidiary banks exceeded the "well
capitalized" regulatory capital requirements at December 31, 1993.
For 1993, the Company's board of directors had authorized the
purchase of up to 500,000 shares of the Company's common stock to be
used for general corporate purposes. A separate board of directors'
action in December 1993 authorized the purchase of an additional 71,518
shares to be used to acquire the minority interests in the subsidiaries
of First Dodge City Bancshares, Inc., a pending 1994 acquisition. A
total of 111,518 shares were purchased in 1993, 40,000 shares for
general corporate purposes and 71,518 shares specifically for the
pending acquisition. The purchase of up to 500,000 common shares, or
the equivalent in depositary shares representing interests in the
Company's Class A Cumulative Preferred Stock, or a combination of the
two has been authorized for 1994.
Acquisitions
As more fully explained in Notes 2 and 3 to the Consolidated
Financial Statements, the Company completed 14 business combinations
and three deposit assumption transactions during 1993 and 1992.
Frequently, common stock is used as consideration in acquisitions
so that stockholders' equity is increased as assets are acquired.
During 1993 and 1992 a total of almost 7.3 million common shares were
issued in pooling-of-interests transactions increasing common equity
$105.1 million. Of the four pending acquisitions represented by
definitive agreements (detailed in Item 1. Business of PART I of this
Annual Report on Form 10-K), two will be accounted for as poolings of
interests. These transactions will result in the issuance of
approximately 3.5 million shares of common stock.
The funding for the 1993 and 1992 purchase acquisitions was
primarily derived from the proceeds of the public offering of $100.0
million of depositary shares representing interests in the Company's
Class A 7.00% Cumulative Convertible Preferred Stock. Funding for
currently pending acquisitions will be derived from retained earnings.
The Company continues to be engaged in an active acquisition
program. Pursuant to that program, the Company is presently
considering or participating in discussions concerning additional
acquisitions.
Parent Company Funding Sources and Dividends
The ability of the parent company to fund various operating
expenses and dividend requirements is dependent in part on its ability
to derive funds from its bank subsidiaries. Historically, these funds
have been primarily provided by intercompany dividends. Intercompany
dividends amounted to $76.3 million, $57.8 million, and $49.5 million
for 1993, 1992, and 1991, respectively. The approval of the
Comptroller of the Currency ("Comptroller") is required if total
dividends declared by a national bank in any one year exceed the bank's
net profits for that year plus the profits for the two preceding years
retained by the bank. The Comptroller's approval was required and
received for the 1993 dividends. In 1994, the subsidiary banks may
distribute to the parent company (in addition to their 1994 net
profits) an aggregate of approximately $15.8 million in dividends
without approval from regulatory agencies.
Because of the financial strength of the parent company and the
anticipated earnings capacity of both the BANK IV banks, it is
anticipated that the banks will be able to obtain permission from the
Comptroller to pay additional dividends in 1994 to the extent justified
by their respective financial condition and subject to the capital
requirements described in the next paragraph.
Because of the Company's intention to continue making
acquisitions, it is anticipated that the Comptroller will expect the
BANK IV banks to maintain the greater of a 6.0% leverage ratio or a
10.0% total risk-based capital ratio. These ratios exceed the
otherwise applicable minimum regulatory requirements of a 3.0% leverage
ratio and an 8.0% total risk-based capital ratio. At December 31,
1993, the BANK IV banks' aggregate capital exceeded the amount required
by the greater of a 6.0% leverage or a 10.0% risk-based capital ratio
by approximately $107.9 million.
The parent company had approximately $25.1 million of cash and
short-term investments at December 31, 1993. In addition, the parent
company has available an unused $35.0 million committed line of credit
from an unaffiliated bank to be used for general corporate purposes.
The parent company has a term loan outstanding from an unaffiliated
bank in the amount of $13.1 million at December 31, 1993. This note
bears interest at 8.6% and matures in March 1995. Principal payments
of approximately $4.4 million are payable semiannually on the last day
of March and September. The borrowing agreements subject the Company
to certain restrictions and covenants related to, among others,
tangible net worth and the maintenance of specific ratios related to
leverage, funded debt, total indebtedness, nonperforming loans, and
nonperforming assets. The parent company is currently in compliance
with all restrictions and covenants under both of these agreements.
Recently Issued Accounting Standards
In May 1993, the Financial Accounting Standards Board issued
Financial Accounting Standard ("FAS") No. 114 which could have an
effect on the Company in 1994 and after. FAS No. 114 addresses the
accounting by creditors for impairment of certain loans. It is
applicable to all creditors and to all loans, uncollateralized as well
as collateralized, except large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment, loans that are
measured at fair value or at the lower of cost or fair value, leases,
and debt securities. It applies to all loans that are restructured in
a troubled debt restructuring involving a modification of terms. The
Statement requires that, when evaluating the need for an allowance for
credit losses on impaired loans that are within the scope of this
Statement, the loss accrual be measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral-
dependent. This Statement is effective for fiscal years beginning
after December 15, 1994. The Company has not completed the analyses
required to estimate the impact of FAS 114; however, the Company does
not believe the adoption of the new rules will have an adverse effect
on its financial condition.
Effects of Inflation and Changing Prices
Virtually all assets and liabilities of a banking organization
are monetary in nature. As such, they represent obligations to pay or
receive fixed and determinable amounts of money which are not affected
by future changes in prices. Changes in interest rates are the
greatest determinant of bank earnings. However, interest rates do not
necessarily move in the same direction or with the same magnitude as
prices of other goods and services. A financial institution can
respond to changes in interest rates by matching the maturities and
costs of its liabilities against its interest earning assets. How well
the institution copes with changing interest rates may then be
determined by examining its net yield on earning assets and analyzing
its asset and liability structure. Accordingly, reference to the
various supplementary schedules shown elsewhere in this report will
assist in the understanding of how the Company is positioned to react
to changing interest rates and inflationary trends.
Quarterly Financial Data (Unaudited)
1993
----------------------------------------------
4th 3rd 2nd 1st
------- ------- ------- -------
(Dollars in thousands, except per share data)
Summary Income Statement Information:
Interest income . . . . . . . . . . . . . . . . . . . . . $109,950 $111,465 $108,047 $104,005
Interest expense. . . . . . . . . . . . . . . . . . . . . 43,683 45,857 44,218 41,743
-------- -------- -------- --------
Net interest income . . . . . . . . . . . . . . . . . . . 66,267 65,608 63,829 62,262
Provision for credit losses . . . . . . . . . . . . . . . 540 425 2,885 3,206
-------- -------- -------- --------
Net interest income after provision for credit losses . . 65,727 65,183 60,944 59,056
Investment securities gains . . . . . . . . . . . . . . . 262 168 133 748
Other noninterest income. . . . . . . . . . . . . . . . . 23,326 21,860 20,820 21,786
Noninterest expense . . . . . . . . . . . . . . . . . . . (61,233) (66,043) (62,535) (63,175)
-------- -------- -------- --------
Income before income taxes and cumulative
effect of a change in accounting principle . . . . . . . 28,082 21,168 19,362 18,415
Income tax expense. . . . . . . . . . . . . . . . . . . . 7,900 4,816 4,396 4,733
-------- -------- -------- --------
Income before cumulative effect
of a change in accounting principle. . . . . . . . . . . 20,182 16,352 14,966 13,682
Cumulative effect of a change in accounting principle . . -- -- (5) 10,514
-------- -------- -------- --------
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 20,182 $ 16,352 $ 14,961 $ 24,196
======== ======== ======== ========
Net income applicable to common
and common equivalent shares . . . . . . . . . . . . . . $ 18,432 $ 14,602 $ 13,211 $ 22,446
======== ======== ======== ========
Per Common Share Data:
Earnings per common and common equivalent share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . $ .71 $ .57 $ .51 $ .88
Fully diluted . . . . . . . . . . . . . . . . . . . . . .68 .55 .50 .81
Common dividend . . . . . . . . . . . . . . . . . . . . . .26 .24 .24 .24
Book value (period-end) . . . . . . . . . . . . . . . . . 18.83 17.91 17.70 17.37
Market value (period-end) bid . . . . . . . . . . . . . . 28 3/4 29 3/4 30 1/4 30 3/4
Market value (bid):
High . . . . . . . . . . . . . . . . . . . . . . . . . $ 30 $ 31 $ 30 3/4 $ 31
Low . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3/4 28 1/2 26 3/4 28 1/2
As Previously Reported:
Net interest income . . . . . . . . . . . . . . . . . . . $ 66,267 $ 61,851 $ 54,422 $ 51,915
Net income. . . . . . . . . . . . . . . . . . . . . . . . 20,182 18,795 17,032 22,152
Net income applicable to common
and common equivalent shares . . . . . . . . . . . . . . 18,432 17,045 15,281 20,402
Fully diluted earnings per common share . . . . . . . . . .68 .67 .65 .86
1992
----------------------------------------------
4th 3rd 2nd 1st
------- ------- ------- -------
(Dollars in thousands, except per share data)
Summary Income Statement Information:
Interest income . . . . . . . . . . . . . . . . . . . . . $104,147 $106,849 $107,599 $108,524
Interest expense. . . . . . . . . . . . . . . . . . . . . 42,332 46,222 50,126 53,717
-------- -------- -------- --------
Net interest income . . . . . . . . . . . . . . . . . . . 61,815 60,627 57,473 54,807
Provision for credit losses . . . . . . . . . . . . . . . 5,418 4,124 5,307 6,494
-------- -------- -------- --------
Net interest income after provision for credit losses . . 56,397 56,503 52,166 48,313
Investment securities gains . . . . . . . . . . . . . . . 884 559 224 853
Other noninterest income. . . . . . . . . . . . . . . . . 20,288 20,464 20,811 18,931
Noninterest expense . . . . . . . . . . . . . . . . . . . (60,488) (54,009) (51,005) (51,424)
-------- -------- -------- --------
Income before income taxes and cumulative
effect of a change in accounting principle . . . . . . . 17,081 23,517 22,196 16,673
Income tax expense. . . . . . . . . . . . . . . . . . . . 4,917 5,267 4,446 3,904
-------- -------- -------- --------
Income before cumulative effect
of a change in accounting principle. . . . . . . . . . . 12,164 18,250 17,750 12,769
Cumulative effect of a change in accounting principle . . -- -- -- 2,373
-------- -------- -------- --------
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 12,164 $ 18,250 $ 17,750 $ 15,142
======== ======== ======== ========
Net income applicable to common
and common equivalent shares . . . . . . . . . . . . . . $ 10,414 $ 16,500 $ 16,000 $ 14,441
======== ======== ======== ========
Per Common Share Data:
Earnings per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . $ .41 $ .65 $ .63 $ .58
Fully diluted . . . . . . . . . . . . . . . . . . . . . .41 .62 .60 .56
Common dividend . . . . . . . . . . . . . . . . . . . . . .22 .22 .22 .22
Book value (period-end) . . . . . . . . . . . . . . . . . 16.74 16.53 16.06 15.59
Market value (period-end) bid . . . . . . . . . . . . . . 29 25 1/4 24 1/2 26 1/4
Market value (bid):
High. . . . . . . . . . . . . . . . . . . . . . . . . . $ 31 $ 26 3/4 $ 27 3/4 $ 26 1/4
Low . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1/2 23 3/4 24 1/4 22 1/2
As Previously Reported:
Net interest income . . . . . . . . . . . . . . . . . . . $ 50,423 $ 56,909 $ 48,731 $ 45,137
Net income. . . . . . . . . . . . . . . . . . . . . . . . 12,360 17,481 15,236 10,460
Net income applicable to common
and common equivalent shares . . . . . . . . . . . . . . 10,610 15,731 13,486 9,759
Fully diluted earnings per common share . . . . . . . . . .49 .63 .58 .44
The quarterly price range of the Company's common stock is the
closing bid price, as reported by the NASDAQ national market system.
Such over-the-counter market quotations reflect inter-dealer prices
without retail markup, markdown, or commission and may not necessarily
represent actual transactions.
Information for previously reported quarters has been restated to
reflect acquisitions accounted for as poolings of interests.
EXHIBITS INDEX
Exhibit
No. Description
-------
3.01 - Restated Articles of Incorporation and
amendments (Exhibit 3.01 to Form 10-Q for the
quarter ended June 30, 1992, previously filed
by Registrant).*
3.02 - Certificate of Designation (Exhibit 3.02 to
Form 10-K for year ended December 31, 1991,
previously filed by Registrant (the "1991 10-
K")).*
3.03 - Form of Deposit Agreement (Exhibit 3.03 to
1991 10-K).*
3.04 - Form of Depositary Receipt (Exhibit 3.04 to
1991 10-K).*
3.05 - Bylaws.
10.01 - Amended and Restated Fourth Financial
Corporation 1981 Incentive Stock Option Plan
(Exhibit 4(a) to Post-Effective Amendment
No. 2 to Form S-8, Regis. No. 2-80907,
previously filed by Registrant).*
10.02 - Amended and Restated Fourth Financial
Corporation 1986 Incentive Stock Option Plan
(Exhibit 10.02 to Form 10-K for the year ended
December 31, 1990, previously filed by
Registrant).*
10.03 - Revolving Credit and Term Loan Agreement,
dated as of July 1, 1987, between Chemical
Bank and Registrant (Exhibit 10.04 to Form 10-
K for the year ended December 31, 1987,
previously filed by Registrant).*
10.04 - First Amendment dated as of July 1, 1989, to
Revolving Credit and Term Loan Agreement
(Exhibit 10.04 to Form 10-K for the year ended
December 31, 1989, previously filed by
Registrant).*
10.05 - Second Amendment dated as of November 15,
1989, to Revolving Credit and Term Loan
Agreement (Exhibit 10.05 to Form 10-K for the
year ended December 31, 1989, previously filed
by Registrant).*
10.06 - Third Amendment, dated as of March 29, 1991,
to Revolving Credit and Term Loan Agreement
(Exhibit 10.06 to 1991 10-K).*
10.07 - Fourth Financial Corporation 1993 Employee
Stock Purchase Plan.
10.08 - Fourth Financial Corporation 1993 Incentive
Stock Option Plan.
10.09 - Fourth Financial Corporation Amended and
Restated Non-Employee Directors Deferred Fee
Plan.
10.10 - Fourth Financial Corporation Non-Employee
Directors Stock Option Plan.
10.11 - Agreement and Plan of Reorganization, dated as
of October 12, 1993, between Fourth Financial
Corporation and Great Southern Bancorp, Inc.
(Exhibit 2.1 to Form 8-K, dated October 12,
1993).*
10.12 - Stock Purchase Agreement, dated as of January
31, 1994, between BANK IV Kansas, National
Association, and Emprise Financial
Corporation.
10.13 - Agreement and Plan of Reorganization, dated as
of February 2, 1994, among Fourth Financial
Corporation, First Dodge City Bancshares,
Inc., First National Bancshares of Dodge City,
Inc., Metro Bancshares, Inc., Metro Bank of
Broken Arrow, First National Bank and Trust
Company in Dodge City, and the stockholders of
First Dodge City Bancshares, Inc.
10.14 - Stock Purchase Agreement, dated as of February
9, 1994, among Fourth Financial Corporation,
LSB Industries, and Prime Financial
Corporation.
10.15 - $35,000,000 line of credit agreement, dated as
of June 21, 1993, between Fourth Financial
Corporation and Continental Bank N.A.
22 - Subsidiaries of Registrant.
24.01 - Consent of Ernst & Young.
24.02 - Consent of Arthur Andersen & Co.
24.03 - Consent of Sartain Fischbein & Co.
24.04 - Consent of GRA, Thompson, White & Co, P.A.
24.05 - Consent of Grant Thornton.
24.06 - Consent of Deloitte & Touche.
Exhibits 10.01, 10.02, 10.07, 10.08, 10.09, 10.10, and 10.13 are
compensation plans required to be filed as exhibits pursuant to
Item 14(c).
___________
* Document has been previously filed with the Securities and Exchange
Commission and is incorporated by reference and made a part hereof.