UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the quarter ended March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
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) 292-5339
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 such shorter period that
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X__ No ____
There were 26,291,367 shares of common stock, par value $5 per share,
of the registrant outstanding as of April 29, 1994.
TABLE OF CONTENTS
PART I
Item Page
- - ---- ----
1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 3
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 12
PART II
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 32
4. Submission of Matters to a Vote of Security Holders . . . . . . . 32
5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 32
6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 33
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PART I
Item 1. Financial Statements.
Set forth below are the consolidated financial statements of
Fourth Financial Corporation.
Consolidated Statements of Condition as of March 31, 1994,
December 31, 1993 and March 31, 1993
Consolidated Statements of Income for the three-month periods
ended March 31, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for
the three-month periods ended March 31, 1994 and 1993
Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 1994 and 1993
Notes to Consolidated Financial Statements
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
March 31, December 31, March 31,
1994 1993 1993
---------- ------------ -----------
(Dollars in thousands)
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . $ 311,265 $ 313,799 $ 285,186
Interest-bearing deposits in other financial institutions . . . . . 2,151 2,232 4,197
Investment securities (Market value-$3,035,355, $2,930,908,
and $2,918,730) . . . . . . . . . . . . . . . . . . . . . . . . . 3,056,684 2,929,543 2,842,642
Trading account securities. . . . . . . . . . . . . . . . . . . . . 2,972 474 2,002
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . 18,305 4,575 80,285
Loans and leases:
Total loans and leases. . . . . . . . . . . . . . . . . . . . . . 3,172,196 3,257,787 2,827,013
Allowance for credit losses . . . . . . . . . . . . . . . . . . . (66,742) (66,368) (74,857)
---------- ---------- ----------
Net loans and leases. . . . . . . . . . . . . . . . . . . . . . 3,105,454 3,191,419 2,752,156
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . 146,000 142,972 126,073
Income receivable and other assets. . . . . . . . . . . . . . . . . 148,200 94,061 197,661
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . 61,822 63,798 58,390
---------- ---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $6,852,853 $6,742,873 $6,348,592
========== ========== ==========
Liabilities And Stockholders' Equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . $ 913,894 $ 944,290 $ 844,145
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . 4,292,950 4,363,446 4,277,317
---------- ---------- ----------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . 5,206,844 5,307,736 5,121,462
Federal funds purchased and securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505,261 493,927 404,910
Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . 400,000 250,000 50,000
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 22,943 23,002 24,065
Accrued interest, taxes, and other liabilities. . . . . . . . . . . 114,437 55,874 179,058
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,501 13,989 24,180
---------- ---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 6,258,986 6,144,528 5,803,675
---------- ---------- ----------
Minority interest in subsidiary . . . . . . . . . . . . . . . . . . -- -- 1,338
Stockholders' Equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000 103,641
Common stock, par value $5 per share
Authorized: 50,000,000 shares
Issued: 26,575,251, 26,575,251, and 25,324,164 shares. . . . . 132,876 132,876 126,621
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . 105,905 105,905 102,005
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 251,026 239,456 212,459
Less: Treasury stock at cost (111,518 shares) . . . . . . . . . . (3,245) (3,245) --
Stock option loans. . . . . . . . . . . . . . . . . . . . . (1,785) (1,795) (1,147)
---------- ---------- ----------
Stockholders' equity before net unrealized gains on
available-for-sale securities. . . . . . . . . . . . . . 584,777 573,197 543,579
Net unrealized gains on available-for-sale securities . . . . . . . 9,090 25,148 --
---------- ---------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . 593,867 598,345 543,579
---------- ---------- ----------
Total liabilities and stockholders' equity. . . . . . . . . . . $6,852,853 $6,742,873 $6,348,592
========== ========== ==========
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
------------------------------------
March 31, March 31, Percent
1994 1993 Change
----------- ----------- -------
(Dollars in thousands,
except per share amounts)
Interest Income:
Interest and fees on loans and leases . . . . . . . . . . . . . . . . $64,354 $61,772 4.2%
Interest on short-term investments . . . . . . . . . . . . . . . . . . 144 927 (84.5)
Interest and dividends on investment securities:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,524 36,572 (2.9)
Tax-preferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,364 4,700 (7.1)
Interest and dividends on trading account securities . . . . . . . . . 38 34 11.8
------- -------
Total interest income. . . . . . . . . . . . . . . . . . . . . . . 104,424 104,005 .4
------- -------
Interest Expense:
Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . 34,393 38,701 (11.1)
Interest on borrowings . . . . . . . . . . . . . . . . . . . . . . . . 6,943 2,450 1.8X
Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . 291 592 (50.8)
------- -------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . 41,627 41,743 (.3)
------- -------
Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . 62,797 62,262 .9
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . 260 3,206 (91.9)
------- -------
Net Interest Income After Provision For Credit Losses. . . . . . . . . . 62,537 59,056 5.9
------- -------
Noninterest Income:
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,383 4,436 21.3
Service charges on deposit accounts. . . . . . . . . . . . . . . . . . 8,852 7,262 21.9
Bank card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,591 3,585 .2
Investment securities gains. . . . . . . . . . . . . . . . . . . . . . 3,564 749 3.8X
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,525 6,502 (15.0)
------- -------
Total noninterest income . . . . . . . . . . . . . . . . . . . . . 26,915 22,534 19.4
------- -------
Noninterest Expense:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . 29,486 26,130 12.8
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . 5,541 5,359 3.4
Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,129 4,019 2.7
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,992 3,163 (5.4)
Bank card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,807 1,852 (2.4)
Amortization of intangible assets. . . . . . . . . . . . . . . . . . . 1,976 2,195 (10.0)
Nonoperating charge. . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,549
Net costs of operation of other real estate and nonperforming assets . (117) 233
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,405 13,675 (2.0)
------- -------
Total noninterest expense. . . . . . . . . . . . . . . . . . . . . 59,219 63,175 (6.3)
------- -------
Income Before Income Taxes and Cumulative
Effect of a Change in Accounting Principle. . . . . . . . . . . . . . . 30,233 18,415 64.2
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . 10,032 4,733 1.1X
------- -------
Income Before Cumulative Effect of a Change in Accounting Principle. . . 20,201 13,682 47.6
Cumulative effect of a change in accounting for income taxes . . . . . -- 10,514
------- -------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,201 $24,196 (16.5)
======= =======
Net Income Applicable To Common and Common-Equivalent Shares . . . . . . $18,451 $22,446 (17.8)
======= =======
Primary Earnings Per Common Share:
Income applicable to common and common-equivalent shares
before cumulative effect of a change in accounting principle. . . . . $ .70 $ .47 48.9%
Cumulative effect of a change in accounting for income taxes . . . . . -- .41
------- -------
Net income applicable to common and common-equivalent shares . . . . . $ .70 $ .88 (20.5)
======= =======
Fully Diluted Earnings Per Common Share:
Income before cumulative effect of a change in accounting principle. . $ .68 $ .46 47.8
Cumulative effect of a change in accounting for income taxes . . . . . -- .35
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .68 $ .81 (16.0)
======= =======
Dividends Per Common Share . . . . . . . . . . . . . . . . . . . . . . . $ .26 $ .24 8.3
======= =======
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Preferred Stock Common Stock Treasury Stock Net
--------------- --------------- -------------- Stock Unrealized
Capital Retained Option Gains on
Shares Amount Shares Amount Surplus Earnings Shares Amount Loans Securities Total
------ -------- ------ -------- -------- -------- ------ ------- ------ ---------- --------
(In thousands)
Balance, January 1,
1993 . . . . . . . . . 1,222 $103,641 25,218 $126,091 $101,717 $195,433 -- $ -- $(1,069) $ -- $525,813
Net income. . . . . . -- -- -- -- -- 24,196 -- -- -- -- 24,196
Issuance of common
stock under stock
option plans . . . . -- -- 21 106 87 -- -- -- -- -- 193
Cash dividends:
Preferred stock . . -- -- -- -- -- (1,750) -- -- -- -- (1,750)
Common stock. . . . -- -- -- -- -- (5,366) -- -- -- -- (5,366)
Pooled companies. . -- -- -- -- -- (54) -- -- -- -- (54)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- (78) -- (78)
Capital transactions
of pooled companies. -- -- 85 424 201 -- -- -- -- -- 625
------ -------- ------ -------- -------- -------- ---- ------- ------- -------- --------
Balance, March 31,
1993 . . . . . . . . . 1,222 $103,641 25,324 $126,621 $102,005 $212,459 -- $ -- $(1,147) $ -- $543,579
====== ======== ====== ======== ======== ======== ==== ======= ======= ======== ========
Balance, January 1,
1994 . . . . . . . . . 250 $100,000 26,575 $132,876 $105,905 $239,456 (112) $(3,245) $(1,795) $ 25,148 $598,345
Net income. . . . . . -- -- -- -- -- 20,201 -- -- -- -- 20,201
Cash dividends:
Preferred stock . . -- -- -- -- -- (1,750) -- -- -- -- (1,750)
Common stock . . . -- -- -- -- -- (6,881) -- -- -- -- (6,881)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- 10 -- 10
Net change in
unrealized gains
on available-for-
sale securities. . . -- -- -- -- -- -- -- -- -- (16,058) (16,058)
------ -------- ------ -------- -------- -------- ---- ------- ------- -------- --------
Balance, March 31,
1994 . . . . . . . . . 250 $100,000 26,575 $132,876 $105,905 $251,026 (112) $(3,245) $(1,785) $ 9,090 $593,867
====== ======== ====== ======== ======== ======== ==== ======= ======= ======== ========
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
-----------------------
March 31, March 31,
1994 1993
----------- -----------
Increase (Decrease) in Cash and Due from Banks (In thousands)
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,201 $ 24,196
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 65
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 3,206
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,998 6,251
Accretion of discounts on investment securities, net of amortization of premiums . . . . 6,055 2,676
Write-down of other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . 70 258
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418 (382)
Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,564) (749)
Write-down of core deposit intangibles, purchased mortgage
servicing rights, premises and equipment, and other assets. . . . . . . . . . . . . . . -- 5,444
Gain on sales of premises and equipment, other real estate owned, and other assets . . . (610) (681)
Change in assets and liabilities:
Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,238) 1,524
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,062 (322)
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,385 249,981
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,469 53,410
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,593) (2,059)
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 205
---------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . 133,415 343,023
---------- ----------
Cash Flows From Investing Activities:
Proceeds from settlement of sales of available-for-sale investment securities. . . . . . . 403,355 --
Proceeds from maturities and prepayments of available-for-sale investment securities . . . 67,178 --
Purchases of available-for-sale investment securities. . . . . . . . . . . . . . . . . . . (493,997) --
Proceeds from settlement of sales of held-to-maturity investment securities. . . . . . . . -- 5,077
Proceeds from maturities and prepayments of held-to-maturity investment securities . . . . 158,503 223,830
Purchases of held-to-maturity investment securities. . . . . . . . . . . . . . . . . . . . (290,699) (677,425)
Proceeds from sales of premises and equipment, other real estate owned, and other assets . 2,482 4,115
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,436) (7,694)
Change in assets and liabilities:
Interest-bearing deposits in other financial institutions. . . . . . . . . . . . . . . . 84 444
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . (13,730) 119,836
Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,382) 13,577
---------- ----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . (183,642) (318,240)
---------- ----------
Cash Flows From Financing Activities:
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,488) (4,998)
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,881) (5,366)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,750) (1,750)
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . -- 193
Net change in stock option loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 (78)
Capital transactions of pooled companies . . . . . . . . . . . . . . . . . . . . . . . . . -- 527
Change in liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,473) (257,802)
Federal funds purchased and securities sold under agreements to repurchase . . . . . . . 11,334 78,773
Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 50,000
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59) 373
---------- ----------
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . 47,693 (140,128)
---------- ----------
Decrease in cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,534) (115,345)
Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . . . . . . . 313,799 400,531
---------- ----------
Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $ 311,265 $ 285,186
========== ==========
Supplemental Disclosures:
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,126 $ 41,537
========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7 $ 1,413
========== ==========
See accompanying notes.
FOURTH FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - Basis of Presentation
The consolidated financial statements include the accounts of Fourth
Financial Corporation and its wholly-owned subsidiaries (the
"Company"). They have been prepared in accordance with the
instructions to Form 10-Q and do not include all information and
footnotes required by generally accepted accounting principles for
complete financial statements. All significant intercompany balances
and transactions have been eliminated. In the opinion of management,
the consolidated financial statements contain the adjustments (all of
which are normal and recurring in nature) necessary to present fairly
the financial position and results of operations for the periods
presented. Results of operations for the interim periods presented are
not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole. These statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year ended
December 31, 1993.
The consolidated financial statements for prior periods have been
restated to reflect the poolings of interests of Southgate Banking
Corporation ("SBC"), Nichols Hills Bancorporation, Inc. ("NHB"),
Commercial Landmark Corporation ("CLC"), Western National
Bancorporation, Inc. ("WNB"), and Ponca Bancshares, Inc. ("PBI").
Certain reclassifications of previously reported amounts also have been
made to conform with current year presentation format.
2 - Investment and Trading Securities
The following table presents the book values of investment
securities.
March 31, December 31, March 31,
1994 1993 1993
------------- ------------- --------------
(In thousands)
Held-to-maturity (at amortized cost) . . . . . . . . . . . . $1,985,858 $1,811,767 $2,842,642
Available-for-sale (at estimated fair value) . . . . . . . . 1,070,826 1,117,776 --
---------- ---------- ----------
$3,056,684 $2,929,543 $2,842,642
========== ========== ==========
The sales price, gains, and losses realized from the sale of
available-for-sale 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.
Three Months Ended
------------------
March 31, 1994
------------------
(In thousands)
Sales price of available-for-sale investment securities . . . . . . . . . . . . $452,151
========
Gross realized gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,830
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,413
--------
Net gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,417
========
The change in net unrealized holding gain or loss on trading
securities that has been included in earnings for the period ended
March 31, 1994 is a loss of $35,000.
3 - Preferred Stock
March 31, December 31, March 31,
1994 1993 1993
------------- ------------- --------------
(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 $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: 181,700 shares at March 31, 1993 . . . . . . . . . -- -- 1,130
WNB's 1987 convertible preferred stock
Issued: 117,487 shares at March 31, 1993 . . . . . . . . . -- -- 769
WNB's 1989 convertible preferred stock
Issued: 672,464 shares at March 31, 1993 . . . . . . . . . -- -- 1,742
-------- -------- --------
$100,000 $100,000 $103,641
======== ======== ========
The table includes the preferred stock of CLC and WNB. These bank
holding companies were acquired in 1993 poolings-of-interests
transactions. 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. The par value,
shares authorized, and shares issued in the previous table have been
adjusted by the merger exchange ratios to reflect equivalent Company
common shares.
4 - Nonoperating Charge
During the first quarter of 1993, the Company recorded a
nonoperating charge of $6,549,000 to reflect merger, integration, and
restructuring charges associated with the prior-year acquisitions and
to accelerate core deposit intangible amortization, data processing
hardware depreciation, and software amortization. Merger,
integration, and restructuring charges included severance and other
compensation and systems conversion costs.
5 - Earnings and Dividends Per Common Share
Earnings per common share are based on the following weighted
average numbers of shares outstanding.
Three Months Ended
March 31,
------------------------
1994 1993
---------- ----------
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,463,733 25,568,455
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,912,008 29,634,804
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 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.
The adjustment of net income for CLC's and WNB's convertible debt
interest expense (net of income taxes) was as follows:
Three Months Ended
March 31,
------------------------
1994 1993
---------- ----------
(In thousands)
Interest expense adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 3
Dividends per common share represent the Company's historical dividends
declared without adjustment for the poolings of interests.
FOURTH FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
Three Months Ended
-----------------------------------
March 31, March 31, Percent
1994 1993(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 104,424 $ 104,005 .4%
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 62,797 62,262 .9
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 65,109 64,761 .5
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 260 3,206 (91.9)
Income before cumulative effect of a change in accounting principle . . 20,201 13,682 47.6
Cumulative effect of a change in accounting for income taxes. . . . . . -- 10,514
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,201 24,196 (16.5)
Net income applicable to common and common-equivalent shares. . . . . . 18,451 22,446 (17.8)
Per Common Share Data:
Primary earnings per common share:
Net income applicable to common and common-equivalent shares
before cumulative effect of a change in accounting principle . . . . $ .70 $ .47 48.9%
Cumulative effect of a change in accounting for income taxes . . . . -- .41
Net income applicable to common and common-equivalent shares . . . . .70 .88 (20.5)
Fully diluted earnings per common share:
Income before cumulative effect of a change in accounting principle . .68 .46 47.8
Cumulative effect of a change in accounting for income taxes. . . . . -- .35
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68 .81 (16.0)
Fully diluted earnings per common share as originally reported(1) . . . .68 .86 (20.9)
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .26 .24 8.3
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 18.66 17.37 7.4
Book value exclusive of net unrealized gains on
available-for-sale securities at period-end. . . . . . . . . . . . . . 18.32 17.37 5.5
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3/4-25 1/4 31-28 1/2
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 26,464 25,568 3.5
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 26,464 25,324 4.5
Period-end common shares outstanding assuming full dilution (000s). . . 29,912 29,675 .8
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,852,853 $6,348,592 7.9%
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 9,501 24,180 (60.7)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 493,867 439,938 12.3
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 593,867 543,579 9.3
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,739,514 6,121,231 10.1
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 495,921 429,833 15.4
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 595,921 532,344 11.9
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.22% 1.60%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 13.75 18.43
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 15.09 21.18
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.26 4.70
Asset Quality Ratios:
Net (recoveries) charge-offs (annualized)/average loans and leases. . . (.01)% .20%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . 1.18 2.02
Allowance for credit losses/period-end nonperforming loans. . . . . . . 237.41 191.84
Allowance for credit losses/period-end loans and leases . . . . . . . . 2.10 2.65
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 8.67% 8.56%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 89.43 90.45
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.88 8.05
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 13.02 13.63
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 14.27 14.88
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 37.14 27.27
<FN>
__________
(1) Prior year financial statements have been restated to reflect poolings of interests. Fully diluted earnings
per share as originally reported represent historical earnings per share as reported in the quarterly report
for the period indicated. Dividends per common share represent historical dividends declared without
adjustment for the poolings of interests.
(2) Stated on a tax-equivalent basis assuming a marginal tax rate of 35%.
(3) Range of the high and low bid prices for the period.
(4) Financial ratios are based on daily averages for all statement of condition items. Earnings have been
annualized where appropriate.
(5) Investments in subsidiaries divided by period-end stockholders' equity.
(6) Tier I capital divided by current quarter average assets less certain intangibles.
(7) Tier I capital is composed of common plus preferred stockholders' equity less certain intangibles. 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.
(8) 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 the first quarter of 1994 was $20.2 million compared
to $24.2 million in the first quarter of 1993 when the cumulative effect
of the change in accounting for income taxes added $10.5 million to net
income. Income before the cumulative effect of a change in accounting
principle for the first quarter of 1994 was $20.2 million, 47.6% higher
than the $13.7 million recorded in the same quarter of 1993. Fully
diluted earnings per share on income before the cumulative effect of a
change in accounting principle were $.68 and $.46 for the first quarters
of 1994 and 1993, respectively. Fully diluted earnings per share on net
income were $.68 and $.81 for the comparable quarters. For the first
quarter of 1994, return on assets and return on common equity were 1.22%
and 15.09%, respectively. Return on assets was 1.60% and return on common
equity was 21.18% for the first quarter of 1993.
These financial results reflect acquisitions accounted for as
poolings of interests for both years, as the prior period was restated.
However, acquisitions accounted for using the purchase method of
accounting are only included in the results of operations for the periods
subsequent to acquisition. There were no acquisitions completed during
the first quarter of 1994. During 1993 the Company completed the eight
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)
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
---------- ------- ---------
$1,223,483 $30,313 4,385,118
========== ======= =========
<FN>
- - ----------
(1) An additional 108,748 shares were issued on December 3, 1993 to acquire the minority interest of WNB's bank
subsidiary.
One deposit assumption transaction also was completed during 1993.
On April 2, 1993, $99,399,000 of 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 to assume
these liabilities.
During the first quarter of 1993, a nonoperating charge of $6.5
million (after-tax $4.8 million, or $.16 per fully diluted share) was
taken to record merger, integration, and restructuring charges associated
with prior-year acquisitions and to accelerate core deposit intangible
amortization, data processing hardware depreciation, and software
amortization. The merger, integration, and restructuring charges include
severance and other compensation and systems conversion costs.
Net interest income increased by $535,000 to total $62.8 million for
the first quarter of 1994 as compared to $62.3 million for the first three
months of 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 $6.1 billion for the first quarter of 1994,
a $604.6 million, or 11.0%, increase over the comparable quarter of 1993.
Comparing the first quarters of 1994 and 1993, average loans and leases
increased $379.3 million, while average investment securities increased
$322.3 million. The increased average assets were principally funded by
increases in net federal funds purchased and securities sold under
agreements to repurchase of $367.1 million and Federal Home Loan Bank
borrowings of $244.7 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 4.26%
in the first quarter of 1994 from 4.70% in the comparable quarter of 1993.
The provisions for credit losses totaled $260,000 and $3.2 million
for the first quarters of 1994 and 1993, respectively. The 91.9% decrease
in the provision reflects continued improvement in credit quality as
demonstrated by a lower level of nonperforming assets and net recoveries
in 1994 as compared to 1993, and the strong allowance for credit losses.
At March 31, 1994, nonperforming assets were $37.7 million or .55% of
assets, down from $57.6 million or .91% of assets at March 31, 1993. Net
recoveries in the 1994 first quarter were $114,000 compared to net charge-
offs of $1.4 million in the same quarter of 1993. The allowance for
credit losses was $66.7 million or 237.41% of nonperforming loans at March
31, 1994, compared to a ratio of 191.84% at March 31, 1993.
Noninterest income was $26.9 million in the first three months of
1994, a $4.4 million increase over the 1993 noninterest income of $22.5
million. Investment securities gains recognized during the first quarter
of 1994 totaled $3.6 million compared to $749,000 in the first three
months of 1993. In anticipation of rising interest rates, the Company
elected to sell $448.7 million of its available-for-sale securities,
accounting for the increase in investment securities gains. Service
charges on deposit accounts increased $1.6 million and trust fees
increased $947,000. The larger customer base plus aggressive sales
efforts resulted in a larger volume of service charge transactions and
additional trust business.
Operating expenses (noninterest expense less the nonoperating charge
and net costs of operations of other real estate and nonperforming assets)
increased 5.9% to total $59.3 million in the first three months of 1994.
The Company's efficiency ratio (operating expense/fee income plus tax-
equivalent net interest income) was 67.08% for the current-year quarter
compared to 64.72% for the first quarter of the prior year. The higher
efficiency ratio in the current year principally reflects the effect of
abnormally large securities amortization on tax-equivalent net interest
income rather than significantly higher expenses.
Net Interest Income
For the first three months of 1994, net interest income amounted to
$62.8 million, representing an increase of $535,000 over the $62.3 million
earned during the comparable period of 1993. On a fully tax-equivalent
basis, net interest income increased $348,000 to total $65.1 million in
1994 from $64.8 million in 1993. The increase in net interest income was
attributable to an increased level of interest-earning assets due to loan
growth, acquisitions, assumption of 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 4.26% in the first quarter of 1994 compared to 4.70%
for the same period of 1993. 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 31
basis points while the earning asset yield declined 75 basis points. As
interest rates declined during prior periods, rates paid on deposit
liabilities with relatively short maturities repriced more rapidly than
the longer term investment securities resulting in an improved net yield
during those periods. As the investment securities subsequently matured
and were reinvested at the low rates, the net yield declined.
The prevailing low interest rates also stimulated a high volume of
mortgage loan originations and refinancings nationwide. Although the
Company 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, in particular those securities with large purchase premiums.
These prepayments resulted in higher-than-normal securities premium
amortization during the first quarter of 1994. This abnormal amortization
reduced the net yield for the current quarter by approximately 10 basis
points.
Loan fees included in net interest income amounted to $2.6 million
and $2.3 million for the first three months of 1994 and 1993,
respectively. The increase in loan fees in the first quarter of 1994 as
compared to the first quarter of 1993 was principally attributable to an
increase in the volume of residential mortgage loan originations and the
refinancing of existing mortgages. The dollar volume of residential
mortgage loan originations and refinancings increased $61.3 million or
129.3% between the first quarters of 1994 and 1993. However, the recent
increase in mortgage rates has slowed the originations and refinancing of
existing mortgages. In comparison to the fourth quarter of 1993, when the
dollar volume of residential mortgage loan originations and refinancings
were $153.1 million, the first quarter of 1994 reflects a $44.3 million
decrease in residential mortgage loan originations and refinancings.
The following table provides the dollar volume and the number of
residential mortgage loan originations and refinancings during the first
quarters of 1994 and 1993.
Three Months Ended March 31,
----------------------------
1994 1993
---------- ----------
(Dollars in thousands)
Residential mortgage loan originations and refinancings:
Dollar volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108,756 $ 47,423
Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,762 711
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.
Comparison of Three-Month Periods Ended
March 31, 1994 to 1993
---------------------------------------------
Change
Total Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $2,575 $ 8,278 $ (5,013) $ (690)
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (22) (28) 14 (8)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . (762) (767) 37 (32)
Taxable investment securities . . . . . . . . . . . . (1,048) 4,774 (5,087) (735)
Tax-preferred investment securities(1). . . . . . . . (512) 459 (912) (59)
Trading account securities(1) . . . . . . . . . . . . 1 3 (1) (1)
------ ------- -------- --------
Total interest income change. . . . . . . . . . . . 232 12,719 (10,962) (1,525)
------ ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . (1,555) 845 (2,234) (166)
Time deposits . . . . . . . . . . . . . . . . . . . . (2,753) (1,084) (1,732) 63
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 2,180 2,077 54 49
Federal Home Loan Bank borrowings . . . . . . . . . . 2,403 2,251 7 145
Other borrowings. . . . . . . . . . . . . . . . . . . (90) (31) (67) 8
Long-term debt. . . . . . . . . . . . . . . . . . . . (301) (223) (120) 42
------ ------- -------- --------
Total interest expense change . . . . . . . . . . . (116) 3,835 (4,092) 141
------ ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . 348 $ 8,884 $ (6,870) $ (1,666)
------ ======= ======== ========
Decrease in taxable equivalent adjustment. . . . . . . 187
------
Net interest income change . . . . . . . . . . . . . . $ 535
======
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
The following table presents average balances, income
and expense, and yields and rates for the three-month periods
ended March 31, 1994 and 1993.
Three Months Ended
-----------------------------------------------------
March 31, 1994 March 31, 1993
-------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------
(Dollars in thousands)
Assets:
Interest-Earning Assets:
Loans and leases(1)(2). . . . . . . . . . . . . . . . $3,203,280 $ 64,422 8.13% $2,823,952 $ 61,847 8.85%
Interest-bearing deposits in other financial
institutions . . . . . . . . . . . . . . . . . . . . 2,183 29 5.30 4,935 51 4.16
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . 13,626 115 3.43 108,140 877 3.29
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . . . . 2,674,402 35,524 5.33 2,365,880 36,572 6.19
Tax-preferred(1). . . . . . . . . . . . . . . . . . 227,219 6,602 11.62 213,447 7,114 13.33
Trading account securities(1) . . . . . . . . . . . . 3,134 44 5.63 2,931 43 5.79
---------- -------- --------- --------
Total interest-earning assets(1). . . . . . . . . 6,123,844 106,736 7.02 5,519,285 106,504 7.77
Cash and due from banks . . . . . . . . . . . . . . . . 357,880 325,562
Bank premises and equipment . . . . . . . . . . . . . . 145,198 122,262
Income receivable and other assets. . . . . . . . . . . 116,596 167,995
Intangible assets, net. . . . . . . . . . . . . . . . . 62,850 60,618
Allowance for credit losses . . . . . . . . . . . . . . (66,854) (74,491)
---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . $6,739,514 $6,121,231
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Savings and interest checking . . . . . . . . . . . $2,139,455 $ 11,952 2.27% $2,013,431 $ 13,507 2.72%
Time under $100,000 . . . . . . . . . . . . . . . . 1,804,880 18,850 4.24 1,884,143 22,046 4.75
Time of $100,000 or more. . . . . . . . . . . . . . 364,123 3,591 4.00 382,294 3,148 3.34
---------- -------- ---------- --------
Total interest-bearing deposits . . . . . . . . . 4,308,458 34,393 3.24 4,279,868 38,701 3.67
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . 546,769 4,271 3.17 274,143 2,091 3.09
Federal Home Loan Bank borrowings . . . . . . . . . . 256,389 2,510 3.97 11,667 107 3.73
Other borrowings. . . . . . . . . . . . . . . . . . . 20,489 162 3.20 23,375 252 4.36
Long-term debt. . . . . . . . . . . . . . . . . . . . 13,852 291 8.40 22,405 592 10.57
---------- -------- ---------- --------
Total interest-bearing liabilities. . . . . . . . 5,145,957 41,627 3.28 4,611,458 41,743 3.67
-------- --------
Noninterest-bearing deposits. . . . . . . . . . . . . . 930,734 884,709
Other liabilities and minority interest in subsidiary . 66,902 91,389
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . 6,143,593 5,587,556
Minority interest in subsidiary . . . . . . . . . . . . -- 1,331
Preferred stockholders' equity. . . . . . . . . . . . . 100,000 102,511
Common stockholders' equity . . . . . . . . . . . . . . 495,921 429,833
---------- ----------
Total stockholders' equity. . . . . . . . . . . . 595,921 532,344
---------- ----------
Total liabilities and stockholders' equity. . . . $6,739,514 $6,121,231
========== ==========
Net interest income(1). . . . . . . . . . . . . . . . . . $ 65,109 $ 64,761
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . . . . . . 7.02% 7.77%
Interest expense/interest-earning assets. . . . . . . . 2.76 3.07
----- -----
Net yield on earning assets(1). . . . . . . . . . 4.26% 4.70%
===== =====
<FN>
_________
(1) Income and rates are stated on a tax-equivalent basis assuming a marginal tax rate of 35%.
(2) Nonaccrual loans are included in loans and leases.
Provision for Credit Losses
The provisions for credit losses were $260,000 and $3.2 million for
the first three months of 1994 and 1993, respectively. The lower
provision for credit losses in the first quarter of 1994 reflects the
continued improvement in credit quality as demonstrated by a lower level
of nonperforming assets and net recoveries in the current quarter as
compared to the first quarter of 1993, and the strong allowance for credit
losses. Net recoveries for the first quarter of 1994 totaled $114,000 as
compared to net charge-offs of $1.4 million or .20% of average loans for
the first quarter of 1993. Nonperforming loans at March 31, 1994 were
$28.1 million, down from $39.0 million at March 31, 1993. The March 31,
1994 allowance for credit losses of $66.7 million was 237.41% of
nonperforming loans at that date, compared to the March 31, 1993 ratio of
allowance for credit losses to nonperforming loans of 191.84%.
Noninterest Income
Total noninterest income was $26.9 million for the first three
months of 1994, representing an increase of $4.4 million or 19.4% over the
$22.5 million recorded in the comparative period of 1993. Investment
securities gains realized during the first quarter of 1994 totaled $3.6
million compared to $749,000 in the first quarter of 1993. In
anticipation of rising interest rates, the Company elected to sell $448.7
million of its available-for-sale securities, accounting for the increase
in investment securities gains. Fees collected in the normal course of
business increased 7.2% to total $23.4 million for the first quarter of
1994 from $21.8 million in the first quarter of 1993.
The most significant changes in noninterest income between the first
quarters of 1994 and 1993 occurred in trust fees and service charges on
deposit accounts. The $947,000 or 21.3% increase in trust fees was the
result of increased sales efforts which generated new trust business. The
$1.6 million or 21.9% 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.
Brokerage and annuity sales fees were $1.1 million for the first quarter
of 1994 compared to $1.6 million for the same quarter of 1993. The lower
brokerage and annuity sales fees were attributable to a reduced volume of
brokerage transactions associated with uncertain market conditions.
The following table provides an analysis of noninterest income
segregated between fees collected in the normal course of business and
other revenues for the three-month periods ended March 31, 1994 and 1993.
Three Months Ended
------------------------------
March 31,
-------------------- Percent
1994 1993 Change
-------- -------- -------
(Dollars in thousands)
Fee income:
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,383 $ 4,436 21.3%
Service charges on deposit accounts . . . . . . . . . . . . . . . . . 8,852 7,262 21.9
Bank card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,591 3,585 .2
Brokerage and annuity sales commissions . . . . . . . . . . . . . . . 1,083 1,571 (31.1)
Trading account profits and commissions . . . . . . . . . . . . . . . 127 189 (32.8)
Real estate loan service fees . . . . . . . . . . . . . . . . . . . . 589 701 (16.0)
Safe deposit rent . . . . . . . . . . . . . . . . . . . . . . . . . . 468 400 17.0
Travelers and official check fees and item handling charges . . . . . 593 518 14.5
Insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . 427 348 22.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,238 2,775 (19.4)
------- -------
Total fee income . . . . . . . . . . . . . . . . . . . . . . . . . 23,351 21,785 7.2
Other revenues:
Investment securities gains . . . . . . . . . . . . . . . . . . . . . 3,564 749 3.8X
------- -------
Total noninterest income. . . . . . . . . . . . . . . . . . . . . . $26,915 $22,534 19.4
======= =======
Fee income (annualized)/average assets . . . . . . . . . . . . . . . 1.41% 1.44%
Noninterest income (annualized)/average assets. . . . . . . . . . . . 1.62% 1.49%
Noninterest Expense
Noninterest expense amounted to $59.2 million and $63.2 million for
the first three months of 1994 and 1993, respectively. Noninterest
expense for both periods includes certain nonoperating items such as net
costs of operation of other real estate and nonperforming assets, the
nonoperating charge, and other unusual items.
In the first quarter of 1994, the gains from sales of other real
estate and nonperforming assets exceeded the costs of operation of such
assets resulting in a net gain of $117,000, as compared to the net costs
of operation of other real estate and nonperforming assets in the first
quarter of 1993 of $233,000. The decline in this category of expense
between the first quarters of 1994 and 1993 reflects the lower level of
other real estate and nonperforming assets. The $6.5 million nonoperating
charge recorded in the first quarter of 1993 included severance and other
compensation and system conversion costs, all associated with the merger
and integration of prior-year acquisitions. The first quarter 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. SBC, a prior-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.
Operating expense increased $3.3 million or 5.9% to total $59.3
million for the first three months of 1994. The Company's efficiency
ratio (operating expense/fee income plus tax-equivalent net interest
income) was 67.08% for the first quarter of 1994 as compared to 64.72% for
the first quarter of 1993. The increased efficiency ratio principally
reflects the effect that the unusually high securities premium
amortization had on tax-equivalent net interest income. With more normal
securities premium amortization the efficiency ratio for the first quarter
of 1994 would have been approximately 65.4%. Operating expenses in both
three-month periods reflect the large number of acquisitions and the
substantial commitment of Company resources required 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. 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 should represent a smaller portion of total expenses as the
company grows.
The following table presents an analysis of noninterest expense for
the three month periods ended March 31, 1994 and 1993.
Three Months Ended
------------------------------
March 31,
-------------------- Percent
1994 1993 Change
-------- -------- -------
(Dollars in thousands)
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . $ 29,486 $ 26,130 12.8%
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . 5,540 5,359 3.4
Net occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,129 4,019 2.7
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,992 3,163 (5.4)
Bank card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,807 1,852 (2.4)
Advertising and public relations . . . . . . . . . . . . . . . . . . . . 2,072 2,208 (6.2)
Communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 964 794 21.4
Postage and freight . . . . . . . . . . . . . . . . . . . . . . . . . . 1,604 1,507 6.4
Supplies, printed materials and forms. . . . . . . . . . . . . . . . . . 1,183 1,554 (23.9)
Federal Reserve service fees . . . . . . . . . . . . . . . . . . . . . . 384 334 15.0
Loan acquisition and maintenance . . . . . . . . . . . . . . . . . . . . 674 452 49.1
Outside service fees . . . . . . . . . . . . . . . . . . . . . . . . . . 780 1,236 (36.9)
Consulting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601 293 1.1X
Other professional fees and examinations . . . . . . . . . . . . . . . . 1,084 1,157 (6.3)
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . 1,976 2,195 (10.0)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,060 3,762 7.9
-------- --------
Total operating expense . . . . . . . . . . . . . . . . . . . . . . . 59,336 56,015 5.9
Net costs of operation of other real estate and nonperforming assets . . (117) 233
Nonoperating charge. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,549
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 65
Lawsuit settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 313
-------- --------
Total noninterest expense. . . . . . . . . . . . . . . . . . . . . . . $ 59,219 $ 63,175 (6.3)
======== ========
Noninterest expense (annualized)/average assets. . . . . . . . . . . . . 3.56% 4.19%
Noninterest expense less noninterest
income (annualized)/average assets . . . . . . . . . . . . . . . . . . 1.94% 2.69%
Operating expense less fee income (annualized)/average assets. . . . . . 2.17% 2.27%
Operating expense/fee income plus tax-equivalent net interest income . . 67.08% 64.72%
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." The cumulative effect of adopting FAS No.
109 as of January 1, 1993 was to increase net income by $10.5 million.
Income tax expense amounted to $10.0 million and $4.7 million for
1994 and 1993, respectively. The higher tax expense in the current period
was principally attributable to a higher level of income before taxes.
Statements of Condition
Total assets amounted to $6.9 billion and $6.3 billion at March 31,
1994 and 1993, respectively. Between March 31, 1994 and March 31, 1993,
the Company completed three bank acquisitions accounted for as purchases
and one bank deposit assumption transaction. Assets acquired in these
four transactions totaled $373.8 million. The statements of condition for
both period ends reflect the five 1993 business combinations accounted for
as poolings of interests. In aggregate these pooled companies had assets
of $949.1 million. The following sections describe the changes in the
major Statement of Condition categories.
Loans and Leases
Between March 31, 1994 and 1993, loans and leases increased $345.2
million or 12.2% to total $3.2 billion at March 31, 1994. Increases were
realized in various commercial and retail categories. Loans added through
bank purchase transactions totaled $121.7 million. Net internal loan
growth was $223.5 million, most of which was realized in the fourth
quarter of 1993.
The commercial loan categories, including commercial and industrial,
agriculture, energy, bank stock, construction, and permanent commercial
real estate and other commercial loans secured by real estate, increased
an aggregate of $231.8 million or 15.6% between March 31, 1993 and
December 31, 1993. These same categories increased an additional $56.0
million or 3.3% from year-end 1993 to total $1.8 billion at March 31,
1994. These increases are attributable to a continued emphasis on
business development efforts and increasing credit demands associated with
the strengthening of the economy.
The $62.0 million increase in the 1-4 family mortgage portfolio
between March 31, 1994 and March 31, 1993 primarily reflects originations
and refinancing activity stimulated by relatively low mortgage interest
rates. In connection with the Company's asset and liability management
strategies, $110.1 million of residential mortgage loans were classified
as held for sale at December 31, 1993. These loans were sold during the
first quarter of 1994.
The consumer portfolio declined $62.6 million or 13.6% between March
31, 1994 and 1993. This decrease is principally due to the $30.9 million
paydown of automobile loans associated with the 1991 closure of the
Company's indirect loan production offices.
The following table shows the composition of loans and leases at
March 31, 1994, December 31, 1993, and March 31, 1993.
March 31, December 31, March 31,
1994 1993 1993
------------ ------------ ------------
(In thousands)
Commercial and industrial . . . . . . . . . . . . . . . . . . . $ 869,131 $ 849,026 $ 754,458
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . 166,360 164,752 138,187
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,872 77,962 45,711
Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 32,216 34,576 33,063
Real estate, less unearned discount:
Construction . . . . . . . . . . . . . . . . . . . . . . . . 100,640 92,158 67,481
Secured by 1-4 family residences . . . . . . . . . . . . . . 760,595 781,946 698,617
Permanent commercial real estate and other . . . . . . . . . 517,374 500,129 447,935
Residential mortgage loans held for sale. . . . . . . . . . . 12,070 110,132 823
Consumer, less unearned discount . . . . . . . . . . . . . . . 399,230 417,126 461,829
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . 86,078 91,562 77,538
Educational . . . . . . . . . . . . . . . . . . . . . . . . . . 53,323 55,968 34,181
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . 49,801 40,195 30,493
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,506 42,255 36,697
---------- ---------- ----------
Total loans and leases . . . . . . . . . . . . . . . . . . . $3,172,196 $3,257,787 $2,827,013
========== ========== ==========
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 76% of the agriculture portfolio at March 31,
1994. 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 March 31, 1994,
approximately 42% of the portfolio was in the Kansas metropolitan markets
of Wichita, Topeka and Kansas City. The Tulsa and Oklahoma City markets
represented an additional 38% 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 March 31, 1994, this portfolio included $93.7 million of
seasoned, performing loans acquired in 1990 and 1991 as part of the S&L
deposit assumptions.
At March 31, 1994, $12.1 million of fixed-rate residential first
mortgage loans were held for sale in the secondary market. 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 most of its loans within Kansas,
Oklahoma, and the contiguous states or to Kansas and Oklahoma based
customers that do business in other states. At March 31, 1994, the
Company had 21 lending relationships in which the aggregate loan amount
exceeded $8 million; of these, 11 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 March 31, 1994.
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 March 31, 1994 included $11.3 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.
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 March 31, 1994, the
carrying value of nonaccrual loans had been charged down to 62.7% 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.
The following table presents nonperforming assets and those loans
which are contractually past due 90 days or more as to principal or
interest payments.
March 31, December 31, March 31,
1994 1993 1993
------------ ------------ ------------
(Dollars in thousands)
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . $27,822 $33,833 $33,872
Troubled debt restructurings . . . . . . . . . . . . . . . . . . . 291 290 5,148
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . . . . . 28,113 34,123 39,020
Other real estate and nonperforming assets . . . . . . . . . . . . 9,579 9,667 18,538
------- ------- -------
Total nonperforming assets . . . . . . . . . . . . . . . . . . . $37,692 $43,790 $57,558
======= ======= =======
Past due loans (90 days or more) . . . . . . . . . . . . . . . . . $ 7,711 $ 9,072 $12,644
======= ======= =======
Nonperforming assets/period-end loans plus
other real estate and nonperforming assets. . . . . . . . . . . . 1.18% 1.34% 2.02%
==== ==== ======
Nonperforming assets/period-end assets . . . . . . . . . . . . . . .55% .65% .91%
==== ==== ======
Nonperforming assets decreased $19.9 million or 34.5% from March 31,
1993 to total $37.7 million at March 31, 1994. At March 31, 1994, total
nonperforming assets represented 1.18% of total loans plus other real
estate owned and nonperforming assets and .55% of total assets as compared
to 2.02% of total loans plus other real estate owned and nonperforming
assets and .91% of total assets at March 31, 1993. Companies acquired
during 1993 in pooling-of-interests transactions represent $9.6 million of
the March 31, 1994 total nonperforming assets compared to $19.2 million
for those same companies at March 31, 1993. Purchased banks added $1.8
million to nonperforming assets subsequent to March 31, 1993.
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
loans in any one market or industry.
March 31, December 31, March 31,
1994 1993 1993
------------ ------------ ------------
(Dollars in thousands)
Commercial and industrial . . . . . . . . . . . . . . . . . . . . $12,485 $14,695 $14,413
Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,226 1,526 1,194
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501 510 94
Real Estate:
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 528 1,343 1,580
Secured by 1-4 family residences . . . . . . . . . . . . . . . . 1,567 2,384 3,621
Permanent commercial real estate and other . . . . . . . . . . . 10,166 11,668 16,048
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,557 1,890 1,934
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . 83 107 136
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . . . . $28,113 $34,123 $39,020
======= ======= =======
Nonaccrual loans/nonaccrual loans and prior charge-offs. . . . . . 62.67%
======
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 $7.9 million at March 31, 1994.
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 March 31, 1994, the allowance for credit losses equaled $66.7
million or 2.10% of total loans and leases and 237.41% of nonperforming
loans. Comparatively, the allowance for credit losses at March 31, 1993
amounted to $74.9 million or 2.65% of total loans and leases and 191.84%
of nonperforming loans. The net recoveries of $114,000 in the first three
months of 1994 as compared to net charge-offs of $1.4 million in the
comparable period of 1993 and the strong coverage ratio of the allowance
for credit losses to nonperforming loans at March 31, 1994 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 three-month periods ended March 31 and presents
selected related ratios.
1994 1993
---------- ----------
(Dollars in thousands)
Balance at January 1, as previously reported . . . . . . . . . . . . . . $ 66,368 $ 73,055
Charge-offs:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 883 1,391
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6
Real estate:
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 70
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . 213 94
Permanent commercial real estate and other . . . . . . . . . . . . . 139 839
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 915 926
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 349
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 18
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 41
---------- ----------
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . 2,665 3,734
---------- ----------
Recoveries:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 1,392 817
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 146
Real estate:
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 26
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . 33 28
Permanent commercial real estate and other . . . . . . . . . . . . . 299 592
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618 366
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 136
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 88
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 72
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 23
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 36
---------- ----------
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . 2,779 2,330
---------- ----------
Net loans and leases charged off (recovered) . . . . . . . . . . . . . . (114) 1,404
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 260 3,206
---------- ----------
Balance at March 31. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,742 $ 74,857
========== ==========
Loans and leases at period-end . . . . . . . . . . . . . . . . . . . . . $3,172,196 $2,827,013
Average loans and leases . . . . . . . . . . . . . . . . . . . . . . . . $3,203,280 $2,823,952
Net (recoveries) charge-offs (annualized)/average loans and leases . . . (.01)% .20%
Allowance for credit losses/period-end nonperforming loans . . . . . . . 237.41% 191.84%
Allowance for credit losses/period-end nonperforming assets. . . . . . . 177.07% 130.05%
Allowance for credit losses/period-end loans and leases. . . . . . . . . 2.10% 2.65%
Investment Portfolio
The book values of investment securities at March 31, 1994, December
31, 1993, and March 31, 1993 are presented in the tables below.
Held-to-maturity
March 31, December 31, March 31,
1994 1993 1993
---------- ------------ ----------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 97,984 $ 1,514 $ 294,607
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 1,589,828 1,751,443 1,966,464
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,578 359 237,549
Obligations of states and political subdivisions . . . . . . . . . 4,802 4,750 215,151
Other securities:
Collateralized auto receivables . . . . . . . . . . . . . . . . . 9,409 12,364 24,325
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . -- -- 12,120
Foreign debt securities . . . . . . . . . . . . . . . . . . . . . 2,150 2,155 5
Money market mutual funds . . . . . . . . . . . . . . . . . . . . 206 212 70,217
Non-agency mortgage-backed securities . . . . . . . . . . . . . . -- -- 1,081
---------- ---------- ----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 1,941,957 1,772,797 2,821,519
Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . 29,621 24,911 11,166
Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . 12,796 12,589 8,452
Other equity securities . . . . . . . . . . . . . . . . . . . . . 1,484 1,470 1,505
---------- ---------- ----------
Total, at amortized cost. . . . . . . . . . . . . . . . . . . . $1,985,858 $1,811,767 $2,842,642
========== ========== ==========
Market value in excess of (less than) book value. . . . . . . . . . $ (21,329) $ 1,365 $ 76,088
========== ========== ==========
Available-for-sale
March 31, December 31,
1994 1993
---------- ------------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 290,910 $ 308,331
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 170,223 218,848
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,530 306,276
Obligations of states and political subdivisions . . . . . . . . . 203,546 242,933
Other securities:
Collateralized credit card receivables. . . . . . . . . . . . . . 62,224 --
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . 42,544 40,237
---------- ----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 1,069,977 1,116,625
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . 849 1,151
---------- ----------
Total, at estimated fair value. . . . . . . . . . . . . . . . $1,070,826 $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 were not 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. The total carrying value
of the available-for-sale securities portfolio included unrealized gains
of $14.9 million at March 31, 1994 and $41.2 at December 31, 1993. In
anticipation of rising interest rates, the Company elected to sell $448.7
million of its available-for-sale securities during the first quarter of
1994, resulting in the recognition of $3.4 million of securities gains.
Exclusive of the adjustment to fair value for the available-for-sale
portfolio, total investment securities increased $199.1 million between
March 31, 1994 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 March 31, 1994 that exceeded 10% of consolidated
stockholders' equity.
At March 31, 1994 the held-to-maturity portfolio included $482.2
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 March 31,
1994 were $760.5 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, $142.7 million
also float on a monthly basis, most with the FHLB 11th District average
cost of funds. The remaining $617.8 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 March 31, 1994 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 March 31, 1994 mortgage-backed securities
available-for-sale portfolio were $40.8 million of CMOs that are
considered "high-risk" as defined by the Office of the Comptroller of
Currency. It is the Company's policy not to buy CMOs which would be
considered "high-risk" under the OCC guidelines; however, the OCC requires
simulation testing of mortgage derivative products at least annually to
measure their estimated maturity or price sensitivity to interest rate
increases or decreases of 300 basis points. Although these CMOs were
within the guidelines established by the OCC when purchased, subsequent
simulation testing resulted in the classification of these securities as
available-for-sale.
Scheduled principal reductions and prepayments of mortgage-backed
securities were approximately $189.3 million during the first quarter of
1994. 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
Total deposits at March 31, 1994 were $5.2 billion, which was not
materially different from total deposits at March 31, 1993. Between March
31, 1994 and 1993, $345.5 million of deposits were added through bank
acquisitions accounted for as purchases and a deposit assumption
transaction. The increased deposits from the assumptions and acquisitions
were partially offset by the attrition of time deposits associated with
the recent low interest rates offered on these instruments. 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 March 31, 1994, $222.0
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 92.3% of total deposits at March 31,
1994 compared to 91.0% at March 31, 1993.
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 March 31, 1994 and 1993 interest rate swaps were as follows:
March 31, 1994
-----------------------------------------------------------------
Weighted Weighted Average Rate
Notional Average --------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $ 51,000 26 months (1) 5.89% 3.48%
Pay fixed rate . . . . . . . . . . . . . . 200,000 7 months 3.56% 3.94%
March 31, 1993
-----------------------------------------------------------------
Weighted Weighted Average Rate
Notional Average --------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $ 1,000 48 months 10.00% 3.27%
<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 March 31, 1994. 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. . . . . . $1,681,033 $ 142,332 $ 240,195 $ 697,238 $381,295 $ 30,103 $3,172,196
Investments and trading
account securities . . . . 824,191 122,921 224,186 1,708,199 165,259 14,900 3,059,656
Other earning assets . . . 18,575 255 1,297 262 67 -- 20,456
Nonearning assets . . . . . -- -- -- -- -- 600,545 600,545
---------- --------- --------- ---------- -------- ---------- ----------
Total assets . . . . . . $2,523,799 $ 265,508 $ 465,678 $2,405,699 $546,621 $ 645,548 $6,852,853
========== ========= ========= ========== ======== ========== ==========
Liabilities and
stockholders' equity:
Deposits. . . . . . . . . . $2,919,582 $ 387,160 $ 356,094 $ 624,421 $ 5,693 $ 913,894 $5,206,844
Federal funds purchased
and securities sold under
agreements to repurchase . 505,261 -- -- -- -- -- 505,261
Federal Home Loan Bank
borrowings . . . . . . . . 275,000 -- 50,000 75,000 -- -- 400,000
Other borrowings. . . . . . 22,943 -- -- -- -- -- 22,943
Long-term debt . . . . . . 13 4,388 4,826 188 86 -- 9,501
Other liabilities . . . . . -- -- -- -- -- 114,437 114,437
Stockholders' equity . . . -- -- -- -- -- 593,867 593,867
---------- --------- --------- ---------- -------- ---------- ----------
Total liabilities and
stockholders' equity . . $3,722,799 $ 391,548 $ 410,920 $ 699,609 $ 5,779 $1,622,198 $6,852,853
========== ========= ========= ========== ======== ========== ==========
Interest rate swaps . . . . . $ 49,000 $ -- $ -- $ (49,000) $ -- $ -- $ --
Repricing gap adjusted
for interest rate swaps. . . (1,150,000) (126,040) 54,758 1,657,090 540,842 (976,650) --
Cumulative adjusted
repricing gap. . . . . . . . (1,150,000)(1,276,040)(1,221,282) 435,808 976,650 -- --
Cumulative adjusted rate-
sensitive assets/
rate-sensitive liabilities . .68 .68 .72 (*) (*) (*)
<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 could 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 liquidity position at March 31,
1994. The loans-to-deposits and loans-to-assets ratios averaged 61.14%
and 47.53%, respectively, during the first three months of 1994. Average
core deposits (demand, interest checking, savings, and time deposits under
$100,000) represented 92.07% of total deposits and 71.57% of average
assets during the three-month period.
At March 31, 1994, federal funds purchased, securities sold under
agreements to repurchase, Federal Home Loan Bank borrowings, and other
borrowings totaled $928.2 million. At that same date, additional
borrowing liquidity was also available in the form of $797.0 million 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
$189.3 million during the first quarter of 1994.
The Company had commitments to extend credit at March 31, 1994,
including standby letters of credit of $105.4 million, commercial letters
of credit of $11.4 million, unused credit card lines of $324.1 million,
$83.4 million of commitments to fund 1-4 family residential mortgage loans
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 March 31, 1994, total stockholders' equity was $593.9 million or
8.67% of total assets compared to $543.6 million or 8.56% of total assets
at March 31, 1993. Included in total stockholders' equity at March 31,
1994 were $9.1 million in unrealized gains on available-for-sale
securities pursuant to FAS No. 115. For the first three months of 1994,
total stockholders' equity averaged $595.9 million or 8.84% of average
assets. The prior year-to-date average equity was $532.3 million or 8.70%
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. Recently, banking
system regulators proposed to amend the regulatory capital rules to
include net unrealized gains and losses on available-for-sale securities
in Tier I capital; however, at March 31, 1994, the proposed change had not
been finalized. Accordingly, the ratios in the following table exclude
the $9.1 million net unrealized gain on available-for-sale securities.
March 31,
-------------------------------
1994 1993
------------ ------------
(Dollars in thousands)
Tier I capital:
Common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 487,857 $ 443,018
Preferred stockholders' equity. . . . . . . . . . . . . . . . . . . . . 96,920 100,561
Less intangible assets (1) . . . . . . . . . . . . . . . . . . . . . . (60,515) (55,414)
---------- ----------
Total Tier I capital . . . . . . . . . . . . . . . . . . . . . . . . 524,262 488,165
---------- ----------
Tier II capital:
Allowance for credit losses (2) . . . . . . . . . . . . . . . . . . . . 50,353 44,785
---------- ----------
Total regulatory capital. . . . . . . . . . . . . . . . . . . . . . $ 574,615 $ 532,950
========== ==========
Risk-weighted assets and off-balance-sheet
commitments and contingencies . . . . . . . . . . . . . . . . . . . . . $4,028,127 $3,582,482
========== ==========
Adjusted average assets (3) . . . . . . . . . . . . . . . . . . . . . . . $6,654,958 $6,065,817
========== ==========
Regulatory
Minimums
----------
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 13.02% 13.63%
Total . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 14.27 14.88
Leverage ratio . . . . . . . . . . . . . . . . . . . . . 3.00 7.88 8.05
<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 March 31, 1994 would have been as follows:
March 31, 1994
----------------
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . . 13.24
Total. . . . . . . . . . . . . . . . . . . . . . . . . . 14.49
Leverage ratio . . . . . . . . . . . . . . . . . . . . . 8.01
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 March 31, 1994.
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.
A Board of Directors action in April 1994 specifically reserved the
purchase of 400,000 shares under this previous authorization to be used
for the acquisition of Oklahoma Savings, Inc ("OSI"). Through May 10,
1994, 355,466 shares of the Company's common stock had been purchased to
be used in the OSI acquisition.
Acquisitions
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. A
discussion of currently pending acquisitions is included in Part II, Item
5 of this Form 10-Q.
Frequently, common stock is used as consideration in acquisitions so
that stockholders' equity is increased as assets are acquired. Of the
four pending acquisitions represented by definitive agreements, 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.
Funding for the two currently pending purchase acquisitions, represented
by definitive agreements, will be derived from retained earnings and
borrowed funds.
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 $41.0 million and $20.0 million for the three-month periods
ended March 31, 1994, and 1993, 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 1994
dividends. At March 31, 1994, BANK IV Kansas could distribute $1.8
million in dividends without the approval of the Comptroller. BANK IV
Oklahoma will not be able to pay any additional dividends without
Comptroller approval until net profits after March 31, 1994 exceed $5.6
million.
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 March 31, 1994, 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 $40.7 million.
The parent company had approximately $47.2 million of cash and
short-term investments at March 31, 1994. In addition, the parent company
has available an unused $75.0 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 $8.8 million at March 31, 1994. 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.
PART II
Item 1. 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.
At the Company's annual meeting of stockholders held on April 21,
1994 the results of the matters voted upon were as follows:
(1) Each of the following nominees for election as director
was elected.
Affirmative Votes
Director Votes Withheld
-------------- ----------- --------
Joseph M. Klein 21,941,918 5,760
Russell W. Meyer, Jr. 21,922,332 25,346
Laird G. Noller 21,935,694 11,984
(2) An affirmative vote of the stockholders was obtained to
approve the appointment of Ernst & Young as auditors for the current
fiscal year.
Affirmative Votes Negative Votes Abstentions
----------------- -------------- -----------
21,871,620 67,012 52,241
Item 5. Other Information.
PENDING ACQUISITIONS
The Company has entered into definitive agreements with four holding
companies to acquire the financial institutions shown in the following
table.
Assets Number of
March 31, 1994 Cash Expected Shares Expected Accounting
Bank (Unaudited) To Be Paid To Be Issued Method
---- -------------- ------------- --------------- ----------
(Dollars in thousands)
Great Southern Savings Bank
Springfield, MO ("Great Southern") . . . . . . . $ 532,748 $ -- 2,798,813 Pooling
Emprise Bank, National Association,
Hutchinson, KS ("Emprise") . . . . . . . . . . . 262,720 30,125 -- Purchase
First National Bank and Trust Company in Dodge
City, Dodge City, KS and Metro Bank of Broken
Arrow, Broken Arrow, OK, ("First National"). . . 146,202 -- 662,220 Pooling
Equity Bank for Savings, F.A.
Oklahoma City, OK ("Equity") . . . . . . . . . . 493,555 91,303 -- Purchase
---------- -------- ---------
Total. . . . . . . . . . . . . . . . . . . . . $1,435,225 $121,428 3,461,033
========== ======== =========
All of such agreements are subject to various conditions, including
obtaining regulatory approvals, the banks or holding companies meeting
specified net worth requirements, that the transactions be eligible for
treatment for accounting purposes as "poolings of interests," and in the
case of Great Southern, the receipt of a "fairness" opinion from the
investment banking firm that has been advising its parent's board of
directors. The required regulatory approvals of the Emprise and Equity
acquisitions have been obtained and First National and Great Southern are
in the process of being obtained. The Company anticipates consummating
these transactions in the second quarter of 1994.
On March 23, 1994 the Company entered into an agreement in principle
to acquire Blackwell Security Bancshares, Inc., the owner of Security Bank
and Trust Co., Blackwell, Oklahoma ("Security"), for a cash purchase price
of approximately $7.6 million. Security had assets of approximately $49.8
million and deposits of approximately $43.7 million as of March 31, 1994.
On April 18, 1994 the Company entered into an agreement in principle to
acquire Oklahoma Savings Inc. ("OSI"), the parent company of Stillwater
Federal Savings Bank ("Stillwater Savings"), in exchange for shares of
Company's stock having an estimated aggregate market value of $10 million.
Due to the Company's acquisition of treasury stock in contemplation of
this transaction, it is anticipated that the acquisition will be accounted
for as a purchase pursuant to Accounting Principles Board Opinion No. 16,
"Business Combinations." Stillwater Savings had assets of approximately
$98.2 million and deposits of approximately $88.9 million at March 31,
1994. Both agreements are subject to various conditions, among which are
negotiation and execution of a definitive agreement, the Company being
satisfied as to the results of its due diligence investigations, and the
obtaining of governmental approvals, and with respect to the OSI
transaction, obtaining shareholder approvals.
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.
However, except for the pending transactions described in this section, as
of May 16, 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
There are no exhibits filed herewith:
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during the quarter
ended March 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FOURTH FINANCIAL CORPORATION
Date May 16, 1994 /s/ Darrell G. Knudson
-------------------------- ----------------------------------
Darrell G. Knudson
Chairman of the Board
Date May 16, 1994 /s/ Michael J. Shonka
-------------------------- ----------------------------------
Michael J. Shonka
Sr. Vice President and
Chief Financial Officer
(Principal Financial Officer)