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 quarter ended June 30, 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 26,857,064 shares of common stock, par value $5 per share, of
the registrant outstanding as of July 29, 1994.
TABLE OF CONTENTS
PART I
Item in
Form 10-Q Page
- --------- -----
1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 3
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 15
PART II
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .
5. Other Information . . . . . . . . . . . . . . . . . . . . . . . .
6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I
Item 1. Financial Statements.
Set forth below are the consolidated financial statements of Fourth
Financial Corporation.
Consolidated Statements of Condition as of June 30, 1994, December 31,
1993 and June 30, 1993
Consolidated Statements of Income for the three-month and six-month
periods ended June 30, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for the
six-month periods ended June 30, 1994 and 1993
Consolidated Statements of Cash Flows for the six-month periods ended
June 30, 1994 and 1993
Notes to Consolidated Financial Statements
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
June 30, December 31, June 30,
1994 1993 1993
---------- ------------ -----------
(Dollars in thousands)
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . $ 391,918 $ 320,660 $ 307,872
Interest-bearing deposits in other financial institutions . . . . . 1,829 3,025 5,371
Investment securities (Market value-$3,217,704, $2,964,525,
and $3,386,615) . . . . . . . . . . . . . . . . . . . . . . . . . 3,275,160 2,962,702 3,315,469
Trading account securities. . . . . . . . . . . . . . . . . . . . . 1,833 474 1,508
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . 16,705 6,063 26,480
Loans and leases:
Total loans and leases. . . . . . . . . . . . . . . . . . . . . . 3,620,509 3,351,912 3,065,782
Allowance for credit losses . . . . . . . . . . . . . . . . . . . (73,573) (67,617) (74,313)
---------- ---------- ----------
Net loans and leases. . . . . . . . . . . . . . . . . . . . . . 3,546,936 3,284,295 2,991,469
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . 155,425 145,719 136,254
Income receivable and other assets. . . . . . . . . . . . . . . . . 146,189 96,165 156,531
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . 109,537 66,960 70,013
---------- ---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $7,645,532 $6,886,063 $7,010,967
========== ========== ==========
Liabilities And Stockholders' Equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . $ 991,521 $ 977,944 $ 942,796
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . 4,731,260 4,458,619 4,555,239
---------- ---------- ----------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . 5,722,781 5,436,563 5,498,035
Federal funds purchased and securities sold under agreements to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639,369 491,627 445,613
Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . 490,990 250,000 250,000
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 82,715 23,002 27,867
Accrued interest, taxes, and other liabilities. . . . . . . . . . . 107,148 56,603 195,205
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,532 20,283 30,610
---------- ---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 7,052,535 6,278,078 6,447,330
---------- ---------- ----------
Minority interest in subsidiaries . . . . . . . . . . . . . . . . . -- 1,135 2,528
Stockholders' Equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000 103,641
Common stock, par value $5 per share
Authorized: 50,000,000 shares
Issued: 27,201,925, 27,165,962, and 25,978,945 shares. . . . . 136,010 135,830 129,895
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . 106,540 106,102 103,777
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 266,659 244,810 224,969
Less: Treasury stock at cost (356,684 and 111,518 shares) . . . . (10,054) (3,245) --
Stock option loans. . . . . . . . . . . . . . . . . . . . . (1,793) (1,795) (1,173)
---------- ---------- ----------
Stockholders' equity before net unrealized
gains (losses) on available-for-sale securities. . . . . 597,362 581,702 561,109
Net unrealized gains (losses) on available-for-sale securities. . . (4,365) 25,148 --
---------- ---------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . 592,997 606,850 561,109
---------- ---------- ----------
Total liabilities and stockholders' equity. . . . . . . . . . . $7,645,532 $6,886,063 $7,010,967
========== ========== ==========
<FN>
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
June 30, June 30, Percent June 30, June 30, Percent
1994 1993 Change 1994 1993 Change
------------ ------------ -------- ------------ ------------ --------
(Dollars in thousands, except per share amounts)
Interest Income:
Interest and fees on loans and leases. . . . $ 71,784 $ 64,701 10.9% $138,260 $128,349 7.7%
Interest on short-term investments . . . . . 411 504 (18.5) 623 1,479 (57.9)
Interest and dividends on
investment securities:
Taxable. . . . . . . . . . . . . . . . . . 41,445 40,636 2.0 77,176 77,750 (.7)
Tax-preferred. . . . . . . . . . . . . . . 4,210 4,804 (12.4) 8,709 9,604 (9.3)
Interest and dividends on trading
account securities. . . . . . . . . . . . . 16 33 (51.5) 54 66 (18.2)
-------- -------- -------- --------
Total interest income. . . . . . . . . . 117,866 110,678 6.5 224,822 217,248 3.5
-------- -------- -------- --------
Interest Expense:
Interest on deposits . . . . . . . . . . . . 37,189 40,430 (8.0) 72,431 79,990 (9.4)
Interest on borrowings . . . . . . . . . . . 10,700 4,206 1.5X 17,655 6,732 1.6X
Interest on long-term debt . . . . . . . . . 307 586 (47.6) 692 1,283 (46.1)
-------- -------- -------- --------
Total interest expense . . . . . . . . . 48,196 45,222 6.6 90,778 88,005 3.2
-------- -------- -------- --------
Net Interest Income. . . . . . . . . . . . . . 69,670 65,456 6.4 134,044 129,243 3.7
Provision for credit losses. . . . . . . . . -- 2,895 275 6,121 (95.5)
-------- -------- -------- --------
Net Interest Income After Provision
For Credit Losses . . . . . . . . . . . . . . 69,670 62,561 11.4 133,769 123,122 8.6
-------- -------- -------- --------
Noninterest Income:
Trust fees . . . . . . . . . . . . . . . . . 4,313 4,107 5.0 9,755 8,603 13.4
Service charges on deposit accounts. . . . . 9,366 8,300 12.8 18,428 15,763 16.9
Bank card fees . . . . . . . . . . . . . . . 4,700 3,315 41.8 8,305 6,915 20.1
Investment securities gains. . . . . . . . . 62 208 (70.2) 3,626 963 2.8X
Other. . . . . . . . . . . . . . . . . . . . 5,250 5,496 (4.5) 10,848 11,942 (9.2)
-------- -------- -------- --------
Total noninterest income . . . . . . . . 23,691 21,426 10.6 50,962 44,186 15.3
-------- -------- -------- --------
Noninterest Expense:
Salaries and employee benefits . . . . . . . 30,732 29,369 4.6 60,894 56,154 8.4
Furniture and equipment. . . . . . . . . . . 5,413 5,130 5.5 11,023 11,802 (6.6)
Net occupancy. . . . . . . . . . . . . . . . 4,105 4,131 (.6) 8,323 8,257 .8
FDIC insurance . . . . . . . . . . . . . . . 3,199 2,682 19.3 6,262 6,684 (6.3)
Bank card. . . . . . . . . . . . . . . . . . 1,989 1,659 19.9 3,809 3,525 8.1
Amortization of intangible assets. . . . . . 2,355 2,307 2.1 4,394 7,738 (43.2)
Merger and integration costs . . . . . . . . 117 2,314 (94.9) 2,768 3,215 (13.9)
Net costs of operation of other real
estate and nonperforming assets . . . . . . (263) 2,208 (403) 2,448
Other. . . . . . . . . . . . . . . . . . . . 14,080 14,164 (.6) 27,821 28,592 (2.7)
-------- -------- -------- --------
Total noninterest expense. . . . . . . . 61,727 63,964 (3.5) 124,891 128,415 (2.7)
-------- -------- -------- --------
Income Before Income Taxes and Cumulative
Effect of a Change in Accounting Principle. . 31,634 20,023 58.0 59,840 38,893 53.9
Income tax expense . . . . . . . . . . . . . 10,819 4,615 1.3X 20,497 9,514 1.2X
-------- -------- -------- --------
Income Before Cumulative Effect of a Change
in Accounting Principle . . . . . . . . . . . 20,815 15,408 35.1 39,343 29,379 33.9
Cumulative effect of a change in accounting
for income taxes. . . . . . . . . . . . . . -- (5) -- 10,582
-------- -------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . $ 20,815 $ 15,403 35.1 $ 39,343 $ 39,961 (1.5)
======== ======== ======== ========
Net Income Applicable To Common and
Common-Equivalent Shares . . . . . . . . . . $ 19,065 $ 13,653 39.6 $ 35,843 $ 36,461 (1.7)
======== ======== ======== ========
Primary Earnings Per Common Share:
Income applicable to common and common-
equivalent shares before cumulative effect
of a change in accounting principle . . . . $ .71 $ .52 36.5% $ 1.33 $ .99 34.3%
Cumulative effect of a change in
accounting for income taxes . . . . . . . . -- -- -- .40
-------- -------- -------- --------
Net income applicable to common and
common-equivalent shares. . . . . . . . . . $ .71 $ .52 36.5 $ 1.33 $ 1.39 (4.3)
======== ======== ======== ========
Fully Diluted Earnings Per Common Share:
Income before cumulative effect of a
change in accounting principle. . . . . . . $ .69 $ .51 35.3 $ 1.29 $ .97 33.0
Cumulative effect of a change in
accounting for income taxes . . . . . . . . -- -- -- .35
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . $ .69 $ .51 35.3 $ 1.29 $ 1.32 (2.3)
======== ======== ======== ========
Dividends Per Common Share . . . . . . . . . . $ .26 $ .24 8.3 $ .52 $ .48 8.3
======== ======== ======== ========
<FN>
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Net
Unrealized
Preferred Stock Common Stock Treasury Stock Stock Gains
--------------- --------------- --------------
Capital Retained Option (Losses) on
Shares Amount Shares Amount Surplus Earnings Shares Amount Loans Securities Total
------ -------- ------ -------- -------- -------- ------ ------- ------ ---------- -------
(In thousands)
Balance, January 1,
1993
As previously
reported . . . . . . 1,222 $103,641 25,218 $126,091 $101,717 $195,433 -- $ -- $(1,069) $ -- $525,813
Adjustment for pool-
ing of interests . . -- -- 591 2,954 197 4,447 -- -- -- -- 7,598
----- -------- ------ -------- -------- -------- --- -------- ------- ------- --------
Adjusted balance. . 1,222 103,641 25,809 129,045 101,914 199,880 -- -- (1,069) -- 533,411
Net income. . . . . . -- -- -- -- -- 39,961 -- -- -- -- 39,961
Issuance of common
stock under stock
option plans . . . . -- -- 100 498 1,442 -- -- -- -- -- 1,940
Cash dividends:
Preferred stock . . -- -- -- -- -- (3,500) -- -- -- -- (3,500)
Common stock. . . . -- -- -- -- -- (10,742) -- -- -- -- (10,742)
Pooled companies. . -- -- -- -- -- (630) -- -- -- -- (630)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- (104) -- (104)
Capital transactions
of pooled companies. -- -- 70 352 421 -- -- -- -- -- 773
------ -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Balance, June 30, 1993. 1,222 $103,641 25,979 $129,895 $103,777 $224,969 -- $ -- $(1,173) $ -- $561,109
====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
Balance, January 1,
1994
As previously
reported . . . . . . 250 $100,000 26,575 $132,876 $105,905 $239,456 (112)$ (3,245) $(1,795) $ 25,148 $598,345
Adjustment for pool-
ing of interests . . -- -- 591 2,954 197 5,354 -- -- -- -- 8,505
----- -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Adjusted balance. . 250 100,000 27,166 135,830 106,102 244,810 (112) (3,245) (1,795) 25,148 606,850
Net income. . . . . . -- -- -- -- -- 39,343 -- -- -- -- 39,343
Purchase of stock
for treasury . . . . -- -- -- -- -- -- (355) (10,019) -- -- (10,019)
Issuance of common
stock under stock
option plans . . . . -- -- 36 180 396 -- 40 1,169 -- -- 1,745
Issuance of common
stock for
acquisition. . . . . -- -- -- -- 42 -- 70 2,041 -- -- 2,083
Cash dividends:
Preferred stock . . -- -- -- -- -- (3,500) -- -- -- -- (3,500)
Common stock. . . . -- -- -- -- -- (13,686) -- -- -- -- (13,686)
Pooled company. . . -- -- -- -- -- (308) -- -- -- -- (308)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- 2 -- 2
Capital transactions
of pooled company. . -- -- -- -- -- -- -- -- -- (198) (198)
Net change in
unrealized gains
(losses) on
available-for-sale
securities . . . . . -- -- -- -- -- -- -- -- -- (29,315) (29,315)
------ -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Balance, June 30, 1994. 250 $100,000 27,202 $136,010 $106,540 $266,659 (357)$(10,054) $(1,793) $ (4,365) $592,997
====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
<FN>
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
-----------------------
June 30, June 30,
1994 1993
----------- -----------
Increase (Decrease) in Cash and Due from Banks (In thousands)
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,343 $ 39,961
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 225
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 6,121
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,879 12,716
Accretion of discounts on investment securities, net of amortization of premiums . . . . 8,458 6,439
Write-down of other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . 185 2,841
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,537 (938)
Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,626) (963)
Write-down of goodwill, core deposit intangibles, purchased mortgage
servicing rights, premises and equipment, and other assets. . . . . . . . . . . . . . . 1,085 5,444
Gain on sales of premises and equipment, other real estate owned, and other assets . . . (1,471) (1,445)
Change in assets and liabilities, net of effects from purchases of acquired entities:
Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,096) 2,022
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,129 (2,183)
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,337 281,013
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620 14,083
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,751) (1,298)
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,951 3,681
---------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . 243,939 367,719
---------- ----------
Cash Flows From Investing Activities:
Purchase of banks, net of cash acquired. . . . . . . . . . . . . . . . . . . . . . . . . . (88,699) (2,468)
Proceeds from settlement of sales of available-for-sale investment securities. . . . . . . 603,570 --
Proceeds from maturities and prepayments of available-for-sale investment securities . . . 126,059 --
Purchases of available-for-sale investment securities. . . . . . . . . . . . . . . . . . . (543,439) --
Proceeds from settlement of sales of held-to-maturity investment securities. . . . . . . . -- 10,093
Proceeds from maturities and prepayments of held-to-maturity investment securities . . . . 273,680 530,888
Purchases of held-to-maturity investment securities. . . . . . . . . . . . . . . . . . . . (517,784) (1,248,481)
Proceeds from sales of premises and equipment, other real estate owned, and other assets . 6,606 9,384
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,606) (16,556)
Change in assets and liabilities, net of effects from purchases of acquired entities:
Interest-bearing deposits in other financial institutions. . . . . . . . . . . . . . . . 1,202 1,967
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . 6,273 180,299
Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76,819) (27,526)
---------- ----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . (220,957) (562,400)
---------- ----------
Cash Flows From Financing Activities:
Transfers associated with the assumptions of savings and loan
association net liabilities, less premiums paid . . . . . . . . . . . . . . . . . . . . . -- 91,832
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,751) (5,158)
Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,019) --
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,686) (10,742)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,500) (3,500)
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . 1,745 1,940
Net change in stock option loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (104)
Capital transactions of pooled companies . . . . . . . . . . . . . . . . . . . . . . . . . (562) (275)
Change in liabilities, net of effects from purchases of acquired entities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (258,070) (354,059)
Federal funds purchased and securities sold under agreements to repurchase . . . . . . . 100,758 120,019
Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,818 250,000
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,541 (695)
---------- ----------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . 48,276 89,258
---------- ----------
Increase (decrease) in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . 71,258 (105,423)
Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . . . . . . . 320,660 413,295
---------- ----------
Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $ 391,918 $ 307,872
========== ==========
Supplemental Disclosures:
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,827 $ 84,323
========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,712 $ 16,596
========== ==========
<FN>
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"), Ponca Bancshares, Inc. ("PBI"), and First
Dodge City Bancshares, Inc. ("First Dodge"). Certain reclassifications
of previously reported amounts also have been made to conform with
current year presentation format.
Note 2 - Acquisitions
Purchase Transactions
The following table presents information regarding the two
purchase transactions completed during 1994.
Assets
Acquisition Date Company Acquired Acquired Cash Paid
- ------------------- ----------------------------------------------------- ------------- --------------
May 26, 1994 Equity Bank for Savings, F.A. ("Equity")
Oklahoma City, OK . . . . . . . . . . . . . . . . . $488,513 $ 91,622
May 31, 1994 Emprise Bank, National Association ("Emprise")
Hutchinson, KS. . . . . . . . . . . . . . . . . . . 256,733 31,185
-------- --------
$745,246 $122,807
======== ========
Additional information regarding the cash paid in these purchase
transactions is summarized in the following table.
1994
--------------
(In thousands)
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . $745,246
Fair value of liabilities assumed . . . . . . . . . . . . . . . . . . . (658,442)
Cost in excess of net assets acquired . . . . . . . . . . . . . . . . . 36,003
--------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,807
Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,108
--------
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 88,699
========
For each of these transactions, the consolidated statements of
income include only the income and expenses of the acquired company
since acquisition. At June 30, 1994, the purchase price was allocated
to the net assets acquired based on an estimate of their fair values
with the excess allocated to cost in excess of net assets acquired.
The effect on results of operations for 1994, had the purchase
transactions occurred at the beginning of the year, was not material.
Pooling Of Interests
On June 30, 1994, the Company issued 590,710 shares to acquire
First Dodge in a business combination accounted for as a pooling of
interests. The consolidated statements for the prior periods have been
restated as if the entities had been combined at the beginning of the
periods presented. Included in Merger and Integration expenses for the
six months ended June 30, 1994 is a charge of $1,124,000 to conform the
amortization of intangible assets of First Dodge to the Company's
accounting policies. Other adjustments to conform the accounting
policies of First Dodge to the accounting policies of the Company are
immaterial.
At the same time, the Company issued 70,300 shares and paid
$36,000 in cash to acquire the minority interests of two of First
Dodge's subsidiaries. As prescribed by Accounting Principles Board
Opinion No. 16, the acquisition of the minority interests was accounted
for as a purchase. The fair market value of shares issued and cash
paid totaled $2,118,000, which exceeded the net assets acquired by
$951,000.
The effect of pooling-of-interests accounting treatment on
previously reported selected operating results is as follows:
Three Months Ended Year Ended
March 31, December 31,
----------------------
1994 1993 1992
------------------ -------- --------
(Dollars in thousands, except per share data)
Interest income:
Company. . . . . . . . . . . . . . . . . . . . . . $104,424 $433,467 $427,119
Pooled company . . . . . . . . . . . . . . . . . . 2,532 10,446 11,769
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $106,956 $443,913 $438,888
======== ======== ========
Net interest income:
Company. . . . . . . . . . . . . . . . . . . . . . $ 62,797 $257,966 $234,722
Pooled company . . . . . . . . . . . . . . . . . . 1,577 6,445 6,635
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 64,374 $264,411 $241,357
======== ======== ========
Net income:
Company. . . . . . . . . . . . . . . . . . . . . . $ 20,201 $ 75,691 $ 63,306
Pooled company . . . . . . . . . . . . . . . . . . (1,673) 1,601 1,894
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 18,528 $ 77,292 $ 65,200
======== ======== ========
Net income applicable to common and
common equivalent shares:
Company. . . . . . . . . . . . . . . . . . . . . . $ 18,451 $ 68,691 $ 57,355
Pooled company . . . . . . . . . . . . . . . . . . (1,673) 1,601 1,894
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 16,778 $ 70,292 $ 59,249
======== ======== ========
Primary earnings per common share:
Company. . . . . . . . . . . . . . . . . . . . . . $ .70 $ 2.67 $ 2.27
Pooled company . . . . . . . . . . . . . . . . . . (.08) -- .02
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ .62 $ 2.67 $ 2.29
======== ======== ========
Fully diluted earnings per common share:
Company. . . . . . . . . . . . . . . . . . . . . . $ .68 $ 2.54 $ 2.19
Pooled company . . . . . . . . . . . . . . . . . . (.08) .01 .02
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ .60 $ 2.55 $ 2.21
======== ======== ========
Pending Acquisitions
Pending acquisitions as of June 30, 1994 are listed in the table
below. The proposed transactions are subject to approval by regulators
and other contractual conditions.
Number of
Assets Cash Expected Shares Expected Accounting
Bank June 30, 1994 To Be Paid To Be Issued Method
------ ------------- ------------- --------------- ----------
(In thousands)
Security Bank & Trust Company
Blackwell, OK ("Security") . . . . . . . . . . $ 49,307 $ 7,900 -- Purchase
The Stillwater Savings and Loan Association
Stillwater, OK ("Stillwater") . . . . . . . . . 96,676 -- 371,573 Purchase
-------- -------- ----------
$145,983 $ 7,900 371,573
======== ======== ==========
3 - Investment and Trading Securities
The following table presents the book values of investment
securities.
June 30, December 31, June 30,
1994 1993 1993
------------- ------------- --------------
(In thousands)
Held-to-maturity (at amortized cost) . . . . . . . . . . . . $2,254,054 $1,844,926 $3,315,469
Available-for-sale (at estimated fair value) . . . . . . . . 1,021,106 1,117,776 --
---------- ---------- ----------
$3,275,160 $2,962,702 $3,315,469
========== ========== ==========
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.
Six Months Ended
------------------
June 30, 1994
------------------
(In thousands)
Sales price of available-for-sale investment securities . . . . . . . . . . . . $603,570
========
Gross realized gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,872
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,392
--------
Net gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,480
========
The change in net unrealized holding gain or loss on trading
securities that has been included in earnings for the period ended June
30, 1994 is a gain of $25,000.
4 - Other borrowings
June 30, 1994 December 31, 1993 June 30, 1993
--------------------- -------------------- ---------------------
Amount Rate Amount Rate Amount Rate
--------- -------- -------- -------- --------- --------
(Dollars in thousands)
Treasury tax and loan . . . . . . . . . $22,715 4.00% $23,002 2.75% $22,915 2.79%
Notes payable . . . . . . . . . . . . . 60,000 4.94 -- -- 4,952 6.52
------- ------- -------
Total book value. . . . . . . . . . . $82,715 4.68 $23,002 2.75 $27,867 3.45
======= ======= =======
Treasury tax and loan borrowings generally mature daily or on
demand. The $4,952,000 of notes payable at June 30, 1993 were debts of
pooled companies. These notes were paid in full at the acquisition
dates.
The Company's committed line of credit from an unaffiliated bank
was increased to $75,000,000, and $60,000,000 was borrowed against the
line during the second quarter of 1994 in connection with the Equity
acquisition. On July 1, 1994, this line of credit was converted to a
Credit Agreement under which the Company may borrow up to $50,000,000
on a revolving basis at anytime prior to June 30, 1996. The amount
borrowed under the agreement was reduced to $40,000,000 also at July 1,
1994.
Amounts borrowed under the Credit Agreement may have maturities
not to exceed ninety days and alternative fluctuating interest rates
based on, at the Company's option, the lender's published "reference
rate" or the London interbank offered rate plus .5625%. A commitment
fee of 1/8 of 1% is charged on the unused portion of this commitment.
The Company is required to maintain capital ratios above the regulatory
"Well Capitalized" standard and the ratio of nonperforming assets to
total loans plus other real estate owned may not exceed 4.0%. In the
event of a default on either of these covenants, the lender would have
the right to impose additional covenants, and increase fees and margins
as it may deem prudent, or the lender could deny any future advances,
as well as cause the obligations then outstanding to become immediately
due and payable. At June 30, 1994, the Company was in compliance with
all the terms of this agreement.
5 - Preferred Stock
June 30, December 31, June 30,
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 June 30, 1993. . . . . . . . . . -- -- 1,130
WNB's 1987 convertible preferred stock
Issued: 117,487 shares at June 30, 1993. . . . . . . . . . -- -- 769
WNB's 1989 convertible preferred stock
Issued: 672,464 shares at June 30, 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 pooling-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.
6 - Merger and Integration Costs
The components of merger and integration costs related to the 1994
and 1993 pooling-of-interests transactions are detailed in the
following schedule.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands)
Premises and equipment writedowns . . . . . . . . . . . $ -- $ 868 $ 177 $ 868
Severance and other compensation. . . . . . . . . . . . -- 1,042 821 1,417
Systems conversion costs. . . . . . . . . . . . . . . . -- 176 269 676
Legal, accounting, and other transaction costs. . . . . 117 228 227 254
Conform intangible asset amortization policies. . . . . -- -- 1,124 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 150 --
----- ------ ------ ------
$ 117 $2,314 $2,768 $3,215
===== ====== ====== ======
7 - Earnings and Dividends Per Common Share
Earnings per common share are based on the following weighted
average numbers of shares outstanding.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
Primary . . . . . . . . . . . . . . . . . . . 26,861,736 26,261,660 26,957,557 26,210,705
Fully diluted . . . . . . . . . . . . . . . . 30,310,011 30,330,431 30,405,832 30,278,314
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 Six Months Ended
June 30, June 30,
------------------------- -------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
(In thousands)
Interest expense adjustment . . . . . . . . . $ -- $ 1 $ -- $ 4
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
-----------------------------------
June 30, June 30, Percent
1994 1993(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117,866 $ 110,678 6.5%
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 69,670 65,456 6.4
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 71,897 68,021 5.7
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . -- 2,895
Income before cumulative effect of a change in accounting principle . . 20,815 15,408 35.1
Cumulative effect of a change in accounting for income taxes. . . . . . -- (5)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,815 15,403 35.1
Net income applicable to common and common-equivalent shares. . . . . . 19,065 13,653 39.6
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 . . . . $ .71 $ .52 36.5%
Cumulative effect of a change in accounting for income taxes . . . . -- --
Net income applicable to common and common-equivalent shares . . . . .71 .52 36.5
Fully diluted earnings per common share:
Income before cumulative effect of a change in accounting principle . .69 .51 35.3
Cumulative effect of a change in accounting for income taxes. . . . . -- --
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 .51 35.3
Fully diluted earnings per common share as originally reported(1) . . . .69 .65 6.2
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .26 .24 8.3
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 18.36 17.61 4.3
Book value exclusive of net unrealized gains (losses)
on available-for-sale securities at period-end . . . . . . . . . . . . 18.53 17.61 5.2
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1/4 - 26 30 3/4 - 26 3/4
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 26,862 26,262 2.3
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 26,845 25,979 3.3
Period-end common shares outstanding assuming full dilution (000s). . . 30,294 30,347 (.2)
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,645,532 $7,010,967 9.1%
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 9,532 30,610 (68.9)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 492,997 457,468 7.8
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 592,997 561,109 5.7
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,237,753 6,617,251 9.4
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 492,889 458,194 7.6
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 592,889 560,705 5.7
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15% .93%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 14.08 11.02
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 15.51 11.95
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.39 4.54
Asset Quality Ratios:
Net (recoveries) charge-offs (annualized)/average loans and leases. . . (.01)% 1.09%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . .90 1.72
Allowance for credit losses/period-end nonperforming loans. . . . . . . 305.70 206.09
Allowance for credit losses/period-end loans and leases . . . . . . . . 2.03 2.42
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 7.76% 8.00%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 100.50 92.47
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.00 7.54
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 10.97 12.83
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 12.22 14.08
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 36.62 46.15
<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 second 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.
FOURTH FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
Six Months Ended
-----------------------------------
June 30, June 30, Percent
1994 1993(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 224,822 $ 217,248 3.5%
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 134,044 129,243 3.7
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 138,656 134,361 3.2
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 275 6,121 (95.5)
Income before cumulative effect of a change in accounting principle . . 39,343 29,379 33.9
Cumulative effect of a change in accounting for income taxes. . . . . . -- 10,582
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,343 39,961 (1.5)
Net income applicable to common and common-equivalent shares. . . . . . 35,843 36,461 (1.7)
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 . . . . $ 1.33 $ .99 34.3%
Cumulative effect of a change in accounting for income taxes . . . . -- .40
Net income applicable to common and common-equivalent shares . . . . 1.33 1.39 (4.3)
Fully diluted earnings per common share:
Income before cumulative effect of a change in accounting principle . 1.29 .97 33.0
Cumulative effect of a change in accounting for income taxes. . . . . -- .35
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.29 1.32 (2.3)
Fully diluted earnings per common share as originally reported(1) . . . 1.29 1.49 (13.4)
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .52 .48 8.3
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 18.36 17.61 4.3
Book value exclusive of net unrealized gains (losses)
on available-for-sale securities at period-end . . . . . . . . . . . . 18.53 17.61 5.2
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1/4 -25 1/4 31 - 26 3/4
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 26,958 26,211 2.8
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 26,845 25,979 3.3
Period-end common shares outstanding assuming full dilution (000s). . . 30,294 30,347 (.2)
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,645,532 $7,010,967 9.1%
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 9,532 30,610 (68.9)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 492,997 457,468 7.8
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 592,997 561,109 5.7
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,063,135 6,443,742 9.6
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 500,775 450,264 11.2
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 600,775 552,775 8.7
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.12% 1.25%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 13.21 14.58
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 14.43 16.33
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.34 4.63
Asset Quality Ratios:
Net (recoveries) charge-offs (annualized)/average loans and leases. . . (.01)% 1.09%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . .90 1.72
Allowance for credit losses/period-end nonperforming loans. . . . . . . 305.70 206.09
Allowance for credit losses/period-end loans and leases . . . . . . . . 2.03 2.42
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 7.76% 8.00%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 100.50 92.47
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.00 7.54
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 10.97 12.83
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 12.22 14.08
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 39.10 34.53
<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 second 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 six months of 1994 was $39.3 million
compared to $40.0 million for the first six months of 1993 when the
cumulative effect of the change in accounting for income taxes added
$10.6 million to net income. Income before the cumulative effect of
the change in accounting for income taxes for the first six months of
1994 was $39.3 million, 33.9% higher than the $29.4 million recorded in
the same period of 1993. Fully diluted earnings per share on income
before the cumulative effect of a change in accounting principle were
$1.29 and $.97 for the first six month periods of 1994 and 1993,
respectively. Fully diluted earnings per share on net income were
$1.29 and $1.32 for the comparable periods. For the first six months
of 1994, return on assets and return on common equity were 1.12% and
14.43%, respectively. Return on assets was 1.25% and return on common
equity was 16.33% for the first six months 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. The following schedule details the
three acquisitions completed during the first six months of 1994 and
the eight business combinations completed during 1993.
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
1994 -
- ------
May 26 Equity Bank for Savings, F.A. "Equity" Purchase 488,513 91,622 --
Oklahoma City, OK
May 31 Emprise Bank, National Association "Emprise" Purchase 256,733 31,185 --
Hutchinson, KS
June 30 First Dodge City Bancshares, Inc. "First Dodge" Pooling 144,999 -- 661,010(2)
---------- -------- ---------
Dodge City, KS
$2,113,728 $153,120 5,046,128
========== ======== =========
<FN>
- ---------
(1) An additional 108,748 shares were issued on December 3, 1993 to acquire the minority interest of WNB's bank subsidiary.
(2) An additional 70,300 shares were issued and $36,000 cash paid on June 30, 1994 to acquire the minority interest of two of
First Dodge's subsidiaries.
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.
Net interest income increased by $4.8 million to total $134.0
million for the first six months of 1994 as compared to $129.2 million
for the first six 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 $6.4
billion for the first six months of 1994, a $588.0 million, or 10.1%,
increase over the comparable period of 1993. Comparing the first six-
month periods of 1994 and 1993, average loans and leases increased
$423.7 million, while average investment securities increased $222.7
million. The increased average assets were principally funded by
increases in federal funds purchased and securities sold under
agreements to repurchase of $253.9 million and Federal Home Loan Bank
borrowings of $265.5 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
4.34% in the first six months of 1994 from 4.63% in the comparable
period of 1993.
The provisions for credit losses totaled $275,000 and $6.1 million
for the first six months of 1994 and 1993, respectively. Pooled
companies accounted for $3.7 million of the provision for the first six
months of 1993. The lower 1994 provision also reflects continued
improvement in credit quality as demonstrated by a lower level of
nonperforming assets as well as net recoveries in 1994 as compared to
1993, and the strong allowance for credit losses. At June 30, 1994,
nonperforming assets were $32.6 million or .43% of assets, down from
$53.0 million or .76% of assets at June 30, 1993. Net recoveries in
the first six months of 1994 were $232,000 compared to net charge-offs
of $9.5 million in the same period of 1993. The allowance for credit
losses was $73.6 million or 305.70% of nonperforming loans at June 30,
1994, compared to a ratio of 206.09% at June 30, 1993.
Noninterest income was $51.0 million in the first six months of
1994, a $6.8 million increase over the 1993 noninterest income of $44.2
million. Investment securities gains recognized during the first six
months of 1994 totaled $3.6 million compared to $963,000 in the first
six months of 1993. Substantially all of the securities gains
recognized in the first six months of 1994 were recorded in the first
quarter. In anticipation of rising interest rates, the Company elected
to sell $448.7 million of its available-for-sale securities, accounting
for the first quarter 1994 investment securities gains. Investment
securities sold in the second quarter of $151.4 million were
principally acquired in the Equity acquisition and no gain or loss was
recognized. Service charges on deposit accounts increased $2.7 million
and trust fees increased $1.2 million. The larger customer base plus
aggressive sales efforts resulted in a larger volume of service charge
transactions and additional trust business. Bank card fees increased
$1.4 million which reflects internal growth plus the acquisition of
Equity, including its credit card division that services approximately
77,000 customer accounts.
Noninterest expense totaled $124.9 million in the first six months
of 1994, down $3.5 million when compared to the same period of 1993.
Noninterest expense in 1993 was affected by $4.4 million accelerated
core deposit and purchased mortgage servicing amortization, data
processing hardware depreciation, and software amortization. Net costs
of operation of other real estate and nonperforming assets in 1993 were
$2.4 million compared to a net gain of $403,000 in the current-year
six-month period. The 1993 cost was primarily attributable to a pooled
company. Merger and integration costs associated with poolings of
interests totaled $2.8 million and $3.2 million for the first six
months of 1994 and 1993, respectively.
Operating expenses (noninterest expense less merger and integration
costs and net costs of operations of other real estate and
nonperforming assets) increased .2% to total $122.4 million in the
first six months of 1994. The Company's efficiency ratio (operating
expense/fee income plus tax-equivalent net interest income) was 66.00%
for the current-year period compared to 68.84% for the first six months
of the prior year.
Net income for the second quarter of 1994 was $20.8 million, an
increase of 35.1% over the $15.4 million earned in the second quarter
of 1993. Fully diluted earnings per share were $.69 and $.51 for the
second quarters of 1994 and 1993, respectively. Like the year-to-date
period, the increased second quarter 1994 net income was principally
attributable to increased net interest income, excellent credit
quality, and earnings contributions of acquisitions.
Net Interest Income
For the first six months of 1994, net interest income amounted to
$134.0 million, representing an increase of $4.8 million over the
$129.2 million earned during the comparable period of 1993. On a fully
tax-equivalent basis, net interest income increased $4.3 million to
total $138.7 million in the first half of 1994 from $134.4 million in
the first half of 1993. The increase in net interest income was
attributable to an increased level of interest-earning assets due to
loan growth, acquisitions, 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
4.34% in the first six month period of 1994 compared to 4.63% 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 19
basis points while the earning asset yield declined 48 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.
Loan fees included in net interest income amounted to $5.7 million
and $4.9 million for the first six months of 1994 and 1993,
respectively. The increase in loan fees in the first six month period
of 1994 as compared to the same period of 1993 was attributable to
increases in the volume of commercial, consumer, and residential
mortgage loan originations and the refinancing of existing mortgages.
The dollar volume of residential mortgage loan originations and
refinancings increased $39.4 million or 23.0% between the first six
months of 1994 and 1993. However, the recent increase in mortgage
rates has slowed the originations and refinancing of existing
mortgages. The dollar volume of residential mortgage loan originations
and refinancings during the first six months of 1994, when compared
with the last six months of 1993, reflects a $41.3 million decrease.
Also included in the 1994 dollar volume and number of residential
mortgage loan originations are $27.0 million and 731 loans originated
under the Company's program for low-to-moderate income borrowers on
which the origination fees are waived.
The following table provides the dollar volume and the number of
residential mortgage loan originations and refinancings during the
first six months of 1994 and 1993.
Six Months Ended
June 30,
--------------------
1994 1993
-------- --------
(Dollars in thousands)
Residential mortgage loan originations and refinancings:
Dollar volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $210,499 $171,090
Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,394 2,612
On a nominal basis, net interest income increased 6.4% to total
$69.7 million for the second quarter of 1994 as compared to $65.5
million in the second quarter of 1993. On a fully tax-equivalent
basis, net interest income was $71.9 million and $68.0 million for the
second quarters of 1994 and 1993, respectively. The improvement in net
interest income between the second quarters of 1994 and 1993 was also
attributable to an increased volume of interest-earning assets. The
net yield declined to 4.39% for the current quarter from 4.54% for the
second quarter of 1993.
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
June 30, 1994 to 1993
---------------------------------------------
Total Change Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $7,069 $ 9,865 $ (2,372) $ (424)
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (37) (43) 20 (14)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . (56) (132) 108 (32)
Taxable investment securities . . . . . . . . . . . . 809 2,135 (1,301) (25)
Tax-preferred investment securities(1). . . . . . . . (909) (537) (405) 33
Trading account securities(1) . . . . . . . . . . . . (26) (20) (12) 6
------ ------- -------- --------
Total interest income change. . . . . . . . . . . . 6,850 11,268 (3,962) (456)
------ ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . (1,190) 557 (1,721) (26)
Time deposits . . . . . . . . . . . . . . . . . . . . (2,051) (1,237) (853) 39
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 3,170 1,797 823 550
Federal Home Loan Bank borrowings . . . . . . . . . . 3,066 2,746 101 219
Other borrowings. . . . . . . . . . . . . . . . . . . 258 250 4 4
Long-term debt. . . . . . . . . . . . . . . . . . . . (279) (276) (5) 2
------ ------- -------- --------
Total interest expense change . . . . . . . . . . . 2,974 3,837 (1,651) 788
------ ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . 3,876 $ 7,431 $ (2,311) $ (1,244)
------ ======= ======== ========
Decrease in taxable equivalent adjustment. . . . . . . 338
------
Net interest income change . . . . . . . . . . . . . . $4,214
======
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
Comparison of Six-Month Periods Ended
June 30, 1994 to 1993
---------------------------------------------
Total Change Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $9,890 $18,489 $ (7,429) $ (1,170)
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (71) (82) 32 (21)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . (785) (848) 166 (103)
Taxable investment securities . . . . . . . . . . . . (574) 6,811 (6,787) (598)
Tax-preferred investment securities(1). . . . . . . . (1,368) (88) (1,292) 12
Trading account securities(1) . . . . . . . . . . . . (24) (15) (11) 2
------ ------- -------- --------
Total interest income change. . . . . . . . . . . . 7,068 24,267 (15,321) (1,878)
------ ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . (2,728) 1,390 (3,898) (220)
Time deposits . . . . . . . . . . . . . . . . . . . . (4,831) (2,281) (2,666) 116
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 5,285 3,828 813 644
Federal Home Loan Bank borrowings . . . . . . . . . . 5,469 5,056 88 325
Other borrowings. . . . . . . . . . . . . . . . . . . 169 221 (36) (16)
Long-term debt. . . . . . . . . . . . . . . . . . . . (591) (536) (85) 30
------ ------- -------- --------
Total interest expense change . . . . . . . . . . . 2,773 7,678 (5,784) 879
------ ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . 4,295 $16,589 $ (9,537) $ (2,757)
------ ======= ======== ========
Decrease in taxable equivalent adjustment. . . . . . . 506
------
Net interest income change . . . . . . . . . . . . . . $4,801
======
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
The following table presents average balances, interest income and
expense, and yields and rates on a fully tax-equivalent basis for the
three-month periods ended June 30, 1994 and 1993.
Three Months Ended
-----------------------------------------------------------
June 30, 1994 June 30, 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) . . . . . . . . . . . . $3,426,357 $ 71,853 8.41% $2,973,114 $ 64,784 8.73%
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . 1,937 27 5.52 6,068 64 4.19
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . 38,821 384 3.97 55,364 440 3.19
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . 2,883,090 41,445 5.75 2,739,295 40,636 5.94
Tax-preferred(1) . . . . . . . . . . . . . . 205,386 6,364 12.39 221,769 7,273 13.12
Trading account securities(1) . . . . . . . . . 1,615 20 4.87 2,802 46 6.59
---------- -------- ---------- --------
Total interest-earning assets(1). . . . . . 6,557,206 120,093 7.34 5,998,412 113,243 7.56
Cash and due from banks . . . . . . . . . . . . . 391,323 350,432
Bank premises and equipment . . . . . . . . . . . 152,070 129,591
Income receivable and other assets . . . . . . . 130,436 153,847
Intangible assets, net . . . . . . . . . . . . . 76,629 61,443
Allowance for credit losses . . . . . . . . . . . (69,911) (76,474)
---------- ----------
Total assets . . . . . . . . . . . . . . . $7,237,753 $6,617,251
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Savings and interest checking . . . . . . . . $2,175,935 $ 12,556 2.31% $2,091,269 $ 13,746 2.64%
Time under $100,000 . . . . . . . . . . . . . 1,952,877 20,829 4.28 2,047,562 23,409 4.59
Time of $100,000 or more. . . . . . . . . . . 373,425 3,804 4.09 391,831 3,275 3.35
---------- -------- ---------- --------
Total interest-bearing deposits . . . . . . 4,502,237 37,189 3.31 4,530,662 40,430 3.58
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . 599,649 5,847 3.91 358,622 2,677 2.99
Federal Home Loan Bank borrowings . . . . . . . 421,266 4,362 4.15 135,165 1,296 3.85
Other borrowings. . . . . . . . . . . . . . . . 44,979 491 4.38 21,659 233 4.30
Long-term debt . . . . . . . . . . . . . . . . 9,427 307 13.04 17,827 586 13.16
---------- -------- ---------- --------
Total interest-bearing liabilities . . . . 5,577,558 48,196 3.47 5,063,935 45,222 3.58
-------- --------
Noninterest-bearing deposits. . . . . . . . . . . 997,885 934,215
Other liabilities and minority interest in
subsidiaries . . . . . . . . . . . . . . . . . . 69,421 58,396
---------- ----------
Total liabilities . . . . . . . . . . . . . 6,644,864 6,056,546
Preferred stockholders' equity . . . . . . . . . 100,000 102,511
Common stockholders' equity . . . . . . . . . . . 492,889 458,194
---------- ----------
Total stockholders' equity . . . . . . . . 592,889 560,705
---------- ----------
Total liabilities and stockholders' equity. $7,237,753 $6,617,251
========== ==========
Net interest income(1). . . . . . . . . . . . . . . $ 71,897 $ 68,021
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . . . 7.34% 7.56%
Interest expense/interest-earning assets. . . . . 2.95 3.02
----- -----
Net yield on earning assets(1). . . . . . . 4.39% 4.54%
===== =====
<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.
The following table presents average balances, interest income and
expense, and yields and rates on a fully tax-equivalent basis for the
six-month periods ended June 30, 1994 and 1993.
Six Months Ended
-----------------------------------------------------------
June 30, 1994 June 30, 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) . . . . . . . . . . . . $3,361,284 $138,397 8.29% $2,937,586 $128,507 8.80%
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . 2,317 60 5.25 6,236 131 4.22
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . 31,877 563 3.56 85,842 1,348 3.17
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . 2,785,226 77,176 5.55 2,561,168 77,750 6.08
Tax-preferred(1) . . . . . . . . . . . . . . 217,727 13,174 12.10 219,059 14,542 13.28
Trading account securities(1) . . . . . . . . . 2,370 64 5.38 2,866 88 6.18
---------- -------- ---------- --------
Total interest-earning assets(1). . . . . . 6,400,801 229,434 7.20 5,812,757 222,366 7.68
Cash and due from banks . . . . . . . . . . . . . 378,161 342,597
Bank premises and equipment . . . . . . . . . . . 150,003 127,339
Income receivable and other assets . . . . . . . 133,104 175,796
Intangible assets, net . . . . . . . . . . . . . 70,080 61,414
Allowance for credit losses . . . . . . . . . . . (69,014) (76,161)
---------- ----------
Total assets . . . . . . . . . . . . . . . $7,063,135 $6,443,742
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Savings and interest checking . . . . . . . . $2,173,319 $ 24,735 2.30% $2,068,739 $ 27,463 2.68%
Time under $100,000 . . . . . . . . . . . . . 1,908,570 40,240 4.25 1,995,125 46,071 4.66
Time of $100,000 or more. . . . . . . . . . . 371,928 7,456 4.04 388,896 6,456 3.35
---------- -------- ---------- --------
Total interest-bearing deposits . . . . . . 4,453,817 72,431 3.28 4,452,760 79,990 3.62
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . 575,554 10,129 3.55 321,629 4,844 3.04
Federal Home Loan Bank borrowings . . . . . . . 339,283 6,872 4.08 73,757 1,403 3.84
Other borrowings. . . . . . . . . . . . . . . . 32,801 654 4.02 22,512 485 4.34
Long-term debt . . . . . . . . . . . . . . . . 11,627 692 11.91 20,103 1,283 12.76
---------- -------- ---------- --------
Total interest-bearing liabilities . . . . 5,413,082 90,778 3.38 4,890,761 88,005 3.63
-------- --------
Noninterest-bearing deposits. . . . . . . . . . . 980,876 924,482
Other liabilities and minority interest in
subsidiaries . . . . . . . . . . . . . . . . . . 68,402 75,724
---------- ----------
Total liabilities . . . . . . . . . . . . . 6,462,360 5,890,967
Preferred stockholders' equity . . . . . . . . . 100,000 102,511
Common stockholders' equity . . . . . . . . . . . 500,775 450,264
---------- ----------
Total stockholders' equity . . . . . . . . 600,775 552,775
---------- ----------
Total liabilities and stockholders' equity. $7,063,135 $6,443,742
========== ==========
Net interest income(1). . . . . . . . . . . . . . . $138,656 $134,361
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . . . 7.20% 7.68%
Interest expense/interest-earning assets. . . . . 2.86 3.05
----- -----
Net yield on earning assets(1). . . . . . . 4.34% 4.63%
===== =====
<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 $275,000 and $6.1 million for
the first six months of 1994 and 1993, respectively. There was no
provision for credit losses in the second quarter of 1994. The
provision for the second quarter of 1993 was $2.9 million. Pooled
companies accounted for $3.7 million and $2.5 million of the 1993 six
month and second quarter provisions for credit losses, respectively.
In addition, the lower provision for credit losses in 1994 reflects the
continued improvement in credit quality as demonstrated by a lower
level of nonperforming assets and net recoveries in the current half
year as compared to the same period of 1993, and the strong allowance
for credit losses. Net recoveries for the first six months of 1994
totaled $232,000 ($127,000 in the second quarter) as compared to net
charge-offs of $9.5 million ($8.1 million in the second quarter) or
.65% of average loans for the first six months of 1993. Charge-offs
recorded by pooled companies totaled $7.1 million for the first six
months of 1993 and $6.6 million for the second quarter of 1993.
Nonperforming loans at June 30, 1994 were $24.1 million, down from
$36.1 million at June 30, 1993. The June 30, 1994 allowance for credit
losses of $73.6 million was 305.70% of nonperforming loans at that
date, compared to the June 30, 1993 ratio of allowance for credit
losses to nonperforming loans of 206.09%.
Noninterest Income
Total noninterest income was $51.0 million for the first six months
of 1994, representing an increase of $6.8 million or 15.3% over the
$44.2 million recorded in the comparative period of 1993. Investment
securities gains realized during the first six months of 1994 totaled
$3.6 million compared to $963,000 in the first six months of 1993.
Substantially all of the securities gains recognized in the first six
months of 1994 were recorded in the first quarter. In anticipation of
rising interest rates, the Company elected to sell $448.7 million of
its available-for-sale securities, accounting for the first quarter
1994 investment securities gains. Investment securities sold in the
second quarter of $151.4 million were principally acquired in the
Equity acquisition and no gain or loss was recognized. Fees collected
in the normal course of business increased $3.7 million or 8.6% to
total $46.9 million for the first six months of 1994 from $43.2 million
in the same period of 1993. Approximately 47% of the increase in fee
income was attributable to business combinations accounted for as
purchases.
The most significant changes in fee income between the first six
months of 1994 and 1993 occurred in trust fees, service charges on
deposit accounts, and bank card fees. The $1.2 million or 13.4%
increase in trust fees was the result of increased sales efforts which
generated new trust business. The $2.7 million or 16.9% 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. Bank card fees
increased $1.4 million which reflects internal growth plus the
acquisition of Equity, including its credit card division that services
approximately 77,000 customer accounts.
Brokerage and annuity sales commissions were $2.2 million for the
first six months of 1994 compared to $2.9 million for the same period
of 1993. The lower brokerage and annuity sales commissions were
attributable to a reduced volume of brokerage transactions associated
with uncertain market conditions. Included in other fee income for the
first six months of 1994 was a $143,000 loss on the sale of residential
mortgage loans held for sale. For the first six months of 1993, sales
of residential mortgage loans held for sale resulted in gains of
$346,000, accounting for $489,000 of the decrease in other fee income.
Also included in other fee income were fees for providing data
processing services to unaffiliated banks of $62,000 and $542,000 for
the six-month periods ended June 30, 1994 and 1993, respectively.
These services have been substantially discontinued.
For the second quarter of 1994 noninterest income totaled $23.7
million, a $2.3 million or 10.6% increase over the 1993 second quarter
noninterest income of $21.4 million. Realized investment securities
gains of $62,000 in the 1994 second quarter were comparable to
historical results. During the second quarter of 1994 a gain of
$471,000 was realized on the sale of the Company's investment in a data
processing company which had been accumulated through various bank
acquisitions. Second quarter fee income totaled $23.2 million and
$21.2 million in 1994 and 1993, respectively. The increased fees
between the second quarters of 1994 and 1993 were the result of the
same factors that caused the year-to-date increases.
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 and six-month periods ended June 30,
1994 and 1993.
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, Percent June 30, Percent
-------------------- --------------------
1994 1993 Change 1994 1993 Change
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
Fee income:
Trust fees . . . . . . . . . . . . . . . . . $ 4,313 $ 4,107 5.0% $ 9,755 $ 8,603 13.4%
Service charges on deposit accounts. . . . . 9,366 8,300 12.8 18,428 15,763 16.9
Bank card fees . . . . . . . . . . . . . . . 4,700 3,315 41.8 8,305 6,915 20.1
Brokerage and annuity sales commissions. . . 1,036 1,342 (22.8) 2,155 2,915 (26.1)
Trading account profits and commissions. . . 254 232 9.5 381 422 (9.7)
Real estate loan service fees. . . . . . . . 549 598 (8.2) 1,139 1,299 (12.3)
Safe deposit rent. . . . . . . . . . . . . . 381 356 7.0 863 771 11.9
Travelers and official check fees
and item handling charges . . . . . . . . . 629 640 (1.7) 1,234 1,169 5.6
Insurance premiums . . . . . . . . . . . . . 469 386 21.5 896 734 22.1
Other. . . . . . . . . . . . . . . . . . . . 1,461 1,879 (22.2) 3,709 4,569 (18.8)
------- ------- ------- -------
Total fee income . . . . . . . . . . . . . 23,158 21,155 9.5 46,865 43,160 8.6
Other revenues:
Investment securities gains. . . . . . . . . 62 208 (.7) 3,626 963 2.8X
Gain on sale of acquired stock . . . . . . . 471 -- 471 --
RTC reimbursements . . . . . . . . . . . . . -- 63 -- 63
------- ------- ------- -------
Total noninterest income . . . . . . . . . $23,691 $21,426 10.6 $50,962 $44,186 15.3
======= ======= ======= =======
Fee income (annualized)/average assets . . . 1.28% 1.28% 1.34% 1.35%
Noninterest income (annualized)/
average assets. . . . . . . . . . . . . . . 1.31% 1.30% 1.46% 1.38%
Noninterest Expense
Noninterest expense decreased $3.5 million or 2.7% to total $124.9
million for the first six months of 1994 as compared to $128.4 million
for the comparable period of 1993. Noninterest expense for both
periods includes certain nonoperating items such as net costs of
operation of other real estate and nonperforming assets, merger and
integration costs, and other unusual items.
In the first six months 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 $403,000, as compared to the net
costs of operation of other real estate and nonperforming assets in the
first six months of 1993 of $2.4 million. The 1993 cost was
principally attributable to a pooled company. Merger and integration
costs associated with poolings of interests totaled $2.8 million and
$3.2 million for the first six months of 1994 and 1993, respectively.
SBC, a prior-year business combination accounted for as a pooling of
interests, settled a lawsuit during the first six months of 1993
resulting in $313,000 of lawsuit settlement cost.
Operating expense amounted to $122.4 million and $122.2 million for
the first six months of 1994 and 1993, respectively. Operating expense
for the first six months of 1994 was approximately $3.8 million greater
than operating expense for the same period of 1993 because of business
combinations accounted for as purchases. On the other hand, the 1993
operating expense includes: $1.2 million accelerated data processing
hardware depreciation and software amortization related to the
Company's commitment to improve its technology and systems; and $2.8
million of additional core deposit intangibles amortization and
$768,000 of FDIC exit/entrance fee amortization both associated with
disintermediation of acquired deposits. Also reflected in the higher
1993 intangible asset amortization was an acceleration of purchased
mortgage servicing rights amortization. The increased amortization was
associated with a more rapid pay-off of mortgage loans serviced for
other investors. Amortization of purchased mortgage servicing rights
was $425,000 in the first six months of 1994 as compared to $1.2
million for the same period of 1993.
The Company's efficiency ratio (operating expense/fee income plus
tax-equivalent net interest income) was 66.00% for the first six months
of 1994 as compared to 68.84% for the same period of 1993. Operating
expenses in both six-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.
Noninterest expense for the second quarter decreased $2.3 million
to total $61.7 million in 1994 as compared to $64.0 million in the
second quarter of 1993. Net costs of operations of other real estate
and nonperforming assets were $2.2 million in the second quarter of
1993, principally associated with a pooled company. By comparison, the
second quarter of 1994 reflects a small gain. Merger and integration
costs were $2.2 million lower in the second quarter of 1994 when
compared to the second quarter of 1993. The decreases in these two
expense categories were partially offset by the $2.5 million increase
in operating expense. Operating expense totaled $61.8 million and
$59.3 million for the second quarters of 1994 and 1993, respectively.
The operating expenses of the 1994 and 1993 purchase acquisitions
accounted for substantially all of the increase in operating expense
between the second quarters.
The following table presents an analysis of noninterest expense for
the three-month and six-month periods ended June 30, 1994 and 1993,
respectively.
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, Percent June 30, Percent
-------------------- --------------------
1994 1993 Change 1994 1993 Change
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
Salaries and employee benefits . . . . . . . . . $ 30,732 $ 29,369 4.6% $ 60,894 $ 56,154 8.4%
Furniture and equipment . . . . . . . . . . . . 5,413 5,130 5.5 11,023 11,802 (6.6)
Net occupancy . . . . . . . . . . . . . . . . . 4,105 4,131 (.6) 8,323 8,257 .8
FDIC insurance . . . . . . . . . . . . . . . . . 3,199 2,682 19.3 6,262 6,684 (6.3)
Bank card . . . . . . . . . . . . . . . . . . . 1,989 1,659 19.9 3,809 3,525 8.1
Advertising and public relations . . . . . . . . 2,285 1,515 50.8 4,389 3,768 16.5
Communication . . . . . . . . . . . . . . . . . 909 927 (1.9) 1,884 1,732 8.8
Postage and freight . . . . . . . . . . . . . . 1,713 1,366 25.4 3,339 2,894 15.4
Supplies, printed materials and forms. . . . . . 1,222 1,240 (1.5) 2,417 2,817 (14.2)
Federal Reserve service fees . . . . . . . . . . 436 366 19.1 843 703 19.9
Loan acquisition and maintenance . . . . . . . . 750 617 21.6 1,437 1,106 29.9
Outside service fees . . . . . . . . . . . . . . 867 1,165 (25.6) 1,706 2,625 (35.0)
Consulting fees . . . . . . . . . . . . . . . . 305 296 3.0 906 641 41.3
Other professional fees and examinations . . . . 1,416 1,851 (23.5) 2,541 3,062 (17.0)
Amortization of intangible assets . . . . . . . 2,355 2,307 2.1 4,394 7,738 (43.2)
Other . . . . . . . . . . . . . . . . . . . . . 4,116 4,708 (12.6) 8,275 8,706 (5.0)
-------- -------- -------- --------
Total operating expense . . . . . . . . . . . 61,812 59,329 4.2 122,442 122,214 .2
Net costs of operation of other real
estate and nonperforming assets . . . . . . . . (263) 2,208 (403) 2,448
Merger and integration costs . . . . . . . . . . 117 2,314 (94.9) 2,768 3,215 (13.9)
Minority interest. . . . . . . . . . . . . . . . 61 113 (46.0) 84 225 (62.7)
Lawsuit settlement . . . . . . . . . . . . . . . -- -- -- -- 313 --
-------- -------- -------- --------
Total noninterest expense. . . . . . . . . . . $ 61,727 $ 63,964 (3.5) $124,891 $128,415 (2.7)
======== ======== ======== ========
Noninterest expense (annualized)/average assets. 3.42% 3.88% 3.57% 4.02%
Noninterest expense less noninterest
income (annualized)/average assets . . . . . . 2.11% 2.58% 2.11% 2.64%
Operating expense less fee income
(annualized)/average assets . . . . . . . . . . 2.14% 2.31% 2.16% 2.47%
Operating expense/fee income plus
tax-equivalent net interest income. . . . . . . 65.03% 66.53% 66.00% 68.84%
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 $10.6
million.
Income tax expense amounted to $20.5 million and $9.5 million for
the first six months of 1994 and 1993, respectively. For the second
quarters of 1994 and 1993 income tax expense was $10.8 million and $4.6
million respectively. The higher tax expense in the current-year
periods was principally attributable to a higher level of income before
taxes. The lower effective tax rate in 1993 reflects changes in the
valuation allowance for deferred tax assets associated with pooled
entities which reduced income tax expense in that year, as well as a
higher level of tax-preferred income on obligations of states and
political subdivisions.
Statements of Condition
Total assets amounted to $7.6 billion and $7.0 billion at June 30,
1994 and 1993, respectively. Between June 30, 1993 and June 30, 1994,
the Company completed two bank acquisitions accounted for as purchases.
Assets acquired in these two transactions totaled $745.2 million. The
statements of condition for all the periods presented include four
business combinations accounted for as poolings of interests. In
aggregate these pooled companies had assets of $933.6 million. The
following sections describe the changes in the major Statement of
Condition categories.
Loans and Leases
Between June 30, 1994 and 1993, loans and leases increased $554.7
million or 18.1% to total $3.6 billion at June 30, 1994. Increases
were realized in various commercial and retail categories. Loans added
through bank purchase transactions totaled $297.3 million and internal
loan growth was $367.5 million, exclusive of the sale of $110.1
million of 1-4 family mortgages.
The commercial loan categories increased an aggregate of $374.1
million or 21.6% to total $2.1 billion at June 30, 1994. These
increases are attributable to a continued emphasis on business
development efforts and increasing credit demands associated with the
strengthening of the economy in Kansas and Oklahoma.
The $101.1 million increase in the 1-4 family mortgage portfolio
between June 30, 1994 and June 30, 1993 primarily reflects originations
and the refinancing activity which was stimulated by relatively low
mortgage interest rates prior to early 1994. 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 following table shows the composition of loans and leases at
June 30, 1994, December 31, 1993, and June 30, 1993.
June 30, December 31, June 30,
1994 1993 1993
------------ ------------ ------------
(In thousands)
Commercial:
Commercial and industrial . . . . . . . . . . . . . . . . . . $ 939,958 $ 889,024 $ 841,060
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . 231,431 196,029 168,097
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,126 77,962 51,769
Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 19,557 34,576 33,890
Real estate:
Construction. . . . . . . . . . . . . . . . . . . . . . . . 121,921 92,636 75,115
Permanent commercial real estate and other. . . . . . . . . 591,409 513,270 482,478
Lease financing . . . . . . . . . . . . . . . . . . . . . . . 69,506 40,195 32,525
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,569 42,505 44,468
---------- ---------- ----------
Total commercial loans. . . . . . . . . . . . . . . . . . 2,103,477 1,886,197 1,729,402
---------- ---------- ----------
Consumer:
Secured by 1-4 family residences, less unearned discount. . . 878,094 786,637 776,929
Residential mortgage loans held for sale. . . . . . . . . . . 3,595 110,132 2,687
Consumer, less unearned discount. . . . . . . . . . . . . . . 466,750 419,971 452,044
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . 125,408 93,007 78,457
Educational . . . . . . . . . . . . . . . . . . . . . . . . . 43,185 55,968 26,263
---------- ---------- ----------
Total consumer loans. . . . . . . . . . . . . . . . . . . 1,517,032 1,465,715 1,336,380
---------- ---------- ----------
Total loans and leases. . . . . . . . . . . . . . . . . $3,620,509 $3,351,912 $3,065,782
========== ========== ==========
Commercial and Industrial: The Company's commercial and industrial
loans generally are made to middle market and small businesses.
Agriculture: Loans secured by feeder cattle and other livestock
accounted for approximately 65% of the agriculture portfolio at June
30, 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 $250,000 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.
Commercial Real Estate: Most of the construction loans are for 1-4
family residential construction and development. At June 30, 1994,
approximately 53% of the portfolio was in the Kansas metropolitan
markets of Wichita, Topeka and Kansas City. The Tulsa and Oklahoma
City markets represented an additional 30% of this portfolio.
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.
Secured by 1-4 Family Residences: 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 June 30, 1994,
this portfolio included $87.5 million of seasoned, performing loans
acquired in 1990 and 1991 as part of the S&L deposit assumptions.
Residential Mortgage Loans Held For Sale: At June 30, 1994, $3.6
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.
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 June 30, 1994, the
Company had 21 lending relationships in which the aggregate loan amount
exceeded $7 million; of these, 9 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 June 30, 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 June 30, 1994 included $6.9 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 June 30,
1994, the carrying value of nonaccrual loans had been charged down to
64.4% of the customers' contractual principal obligations. Also, the
carrying values of other real estate and nonperforming assets have been
written down to current estimates of their fair values less a reserve
for the estimated costs to sell the properties.
The following table presents nonperforming assets and those loans
which are contractually past due 90 days or more as to principal or
interest payments.
June 30, December 31, June 30,
1994 1993 1993
------------ ------------ ------------
(Dollars in thousands)
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . $23,787 $34,040 $30,976
Troubled debt restructurings . . . . . . . . . . . . . . . . . . . 280 290 5,082
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . . . . . 24,067 34,330 36,058
Other real estate and nonperforming assets . . . . . . . . . . . . 8,553 9,787 16,987
------- ------- -------
Total nonperforming assets . . . . . . . . . . . . . . . . . . . $32,620 $44,117 $53,045
======= ======= =======
Past due loans (90 days or more) . . . . . . . . . . . . . . . . . $13,044 $ 9,108 $16,565
======= ======= =======
Nonperforming assets/period-end loans plus
other real estate and nonperforming assets. . . . . . . . . . . . .90% 1.31% 1.72%
==== ==== ======
Nonperforming assets/period-end assets . . . . . . . . . . . . . . .43% .64% .76%
==== ==== ======
Nonperforming assets decreased $20.4 million or 38.5% from June 30,
1993 to total $32.6 million at June 30, 1994. At June 30, 1994, total
nonperforming assets represented .90% of total loans plus other real
estate owned and nonperforming assets and .43% of total assets as
compared to 1.72% of total loans plus other real estate owned and
nonperforming assets and .76% of total assets at June 30, 1993.
Current and prior-year pooled companies represent $8.8 million of the
June 30, 1994 total nonperforming assets compared to $18.8 million for
those same companies at June 30, 1993. Banks purchased subsequent to
June 30, 1993 added $662,000 to nonperforming assets.
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.
June 30, December 31, June 30,
1994 1993 1993
------------ ------------ ------------
(Dollars in thousands)
Commercial and industrial . . . . . . . . . . . . . . . . . . . . $10,922 $14,789 $13,452
Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,198 1,526 1,191
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 510 93
Real Estate:
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 363 1,343 1,513
Secured by 1-4 family residences . . . . . . . . . . . . . . . . 1,375 2,457 3,768
Permanent commercial real estate and other . . . . . . . . . . . 8,239 11,668 14,333
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,438 1,930 1,570
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . 111 107 138
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . . . . $24,067 $34,330 $36,058
======= ======= =======
Nonaccrual loans/nonaccrual loans and prior charge-offs. . . . . . 64.38%
=====
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 $14.7 million at June 30,
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 June 30, 1994, the allowance for credit losses equaled $73.6
million or 2.03% of total loans and leases and 305.70% of nonperforming
loans. Comparatively, the allowance for credit losses at June 30, 1993
amounted to $74.3 million or 2.42% of total loans and leases and
206.09% of nonperforming loans. The strong coverage ratio of the
allowance for credit losses to nonperforming loans at June 30, 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 six-month periods ended June 30 and presents
selected related ratios. Prior period amounts have been restated for
the poolings of interests.
1994 1993
---------- ----------
(Dollars in thousands)
Balance at January 1, as previously reported . . . . . . . . . . . . . . $ 66,368 $ 73,055
Adjustments for pooling of interests . . . . . . . . . . . . . . . . . 1,249 1,340
---------- ----------
Balance at January 1, as restated. . . . . . . . . . . . . . . . . . . 67,617 74,395
Allowance for credit losses of purchased bank. . . . . . . . . . . . . 5,449 3,266
---------- ----------
73,066 77,661
Charge-offs:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 2,619 8,851
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 6
Real estate:
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 112
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . 493 438
Permanent commercial real estate and other . . . . . . . . . . . . . 255 1,604
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,608 2,038
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,062 738
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 18
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 112
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 58
---------- ----------
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . 6,466 13,975
---------- ----------
Recoveries:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 3,330 1,716
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 173
Real estate:
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 168
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . 189 46
Permanent commercial real estate and other . . . . . . . . . . . . . 1,177 949
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,063 809
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 260
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 99
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 182
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 49
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 55
---------- ----------
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . 6,698 4,506
---------- ----------
Net loans and leases charged off (recovered) . . . . . . . . . . . . . . (232) 9,469
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 275 6,121
---------- ----------
Balance at June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,573 $ 74,313
========== ==========
Loans and leases at period-end . . . . . . . . . . . . . . . . . . . . . $3,620,509 $3,065,782
Average loans and leases . . . . . . . . . . . . . . . . . . . . . . . . $3,361,284 $2,937,586
Net (recoveries) charge-offs (annualized)/average loans and leases . . . (.01)% .65%
Allowance for credit losses/period-end nonperforming loans . . . . . . . 305.70% 206.09%
Allowance for credit losses/period-end nonperforming assets. . . . . . . 225.55% 140.09%
Allowance for credit losses/period-end loans and leases. . . . . . . . . 2.03% 2.42%
Investment Portfolio
The book values of investment securities at June 30, 1994, December
31, 1993, and June 30, 1993 are presented in the tables below.
Held-to-maturity
June 30, December 31, June 30,
1994 1993 1993
---------- ------------ ----------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 98,084 $ 16,329 $ 343,712
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 1,733,417 1,753,662 2,368,781
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,581 4,259 266,538
Obligations of states and political subdivisions . . . . . . . . . 16,776 16,838 245,842
Other securities:
Commercial paper. . . . . . . . . . . . . . . . . . . . . . . . . 69,000 -- --
Bankers' acceptances. . . . . . . . . . . . . . . . . . . . . . . 16,943 -- --
Collateralized auto receivables . . . . . . . . . . . . . . . . . 2,283 12,364 19,856
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . -- -- 36,942
Foreign debt securities . . . . . . . . . . . . . . . . . . . . . 2,050 2,155 2,256
Money market mutual funds . . . . . . . . . . . . . . . . . . . . 361 212 117
---------- ---------- ----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 2,201,495 1,805,819 3,284,044
Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . 37,645 24,911 21,233
Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . 13,347 12,637 8,608
Other equity securities . . . . . . . . . . . . . . . . . . . . . 1,567 1,559 1,584
---------- ---------- ----------
Total, at amortized cost. . . . . . . . . . . . . . . . . . . . $2,254,054 $1,844,926 $3,315,469
========== ========== ==========
Market value in excess of (less than) book value. . . . . . . . . . $ (57,456) $ 1,823 $ 70,846
========== ========== ==========
Available-for-sale
June 30, December 31,
1994 1993
---------- ------------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 289,521 $ 308,331
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 149,800 218,848
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,723 306,276
Obligations of states and political subdivisions . . . . . . . . . 192,567 242,933
Other securities:
Collateralized credit card receivables. . . . . . . . . . . . . . 60,050 --
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . 40,486 40,237
---------- ----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 1,020,147 1,116,625
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . 959 1,151
---------- ----------
Total, at estimated fair value. . . . . . . . . . . . . . . . $1,021,106 $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 losses of $7.1 million at June 30, 1994 and unrealized gains
of $41.2 million at December 31, 1993.
Exclusive of the adjustment to fair value for the available-for-sale
portfolio, total investment securities decreased $33.2 million between
June 30, 1994 and 1993. During the first quarter of 1994, in
anticipation of rising interest rates, the Company elected to sell
$448.7 million of its available-for-sale securities, accounting for the
first quarter 1994 investment securities gains. Investment securities
sold in the second quarter of $151.4 million were principally acquired
in the Equity acquisition and no gain or loss was recognized. This
reduction in the investment securities portfolio was offset by
acquisition transactions accounted for as purchases which added $269.3
million of investment securities.
Excluding U.S. Treasury obligations and obligations of U.S.
government agencies and corporations, there were no security holdings
of any one issuer at June 30, 1994 that exceeded 10% of consolidated
stockholders' equity.
At June 30, 1994 the held-to-maturity portfolio included $468.5
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 June 30, 1994 were $745.4 million of collateralized
mortgage obligations ("CMO"). These investments are secured by
mortgage-backed securities guaranteed by agencies of the U.S.
government. Of this CMO portfolio, $149.1 million also float on a
monthly basis, most with the FHLB 11th District average cost of funds.
The remaining $596.3 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 June 30, 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.
Scheduled principal reductions and prepayments of mortgage-backed
securities were approximately $321.4 million during the first six
months 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 increased $224.7 million or 4.1% between June 30,
1994 and 1993. During the second quarter of 1994, the Company acquired
$545.0 million of deposits through acquisitions accounted for as
purchases. The increased deposits from the 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, time deposit products were offered
which provided the customer with the opportunity to reprice the
instruments during their term. At June 30, 1994, $248.1 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 92.19% of total
deposits at June 30, 1994 compared to 92.40% at June 30, 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. Net interest
income for the six months ended June 30, 1994 includes $407,000
attributable to interest rate swaps. The effect of interest rate swaps
on the first half of 1993 was to reduce net interest income by $3,000.
At June 30, 1994 and 1993 interest rate swaps were as follows:
June 30, 1994
-----------------------------------------------------------------
Weighted
Notional Average Weighted Average Rate
--------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $151,000 24 months (1) 6.05% 4.60%
Pay fixed rate . . . . . . . . . . . . . . 100,000 10 months 4.35% 4.25%
June 30, 1993
-----------------------------------------------------------------
Weighted
Notional Average Weighted Average Rate
--------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $ 51,000 35 months (1) 5.89% 3.22%
Pay fixed rate . . . . . . . . . . . . . . 200,000 16 months 3.28% 3.94%
<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.
Activity in interest rate swaps is summarized below:
Receive Pay
Fixed Rate Fixed Rate
---------- ----------
(Notional amounts, in thousands)
Balance, January 1, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000 $ --
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 200,000
-------- --------
Balance, June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,000 $200,000
======== ========
Balance, January 1, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,000 $200,000
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 --
Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (100,000)
-------- --------
Balance, June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $151,000 $100,000
======== ========
The following table presents the Company's interest sensitivity gap
position as of June 30, 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. . . . . . $1,836,702 $ 161,312 $ 297,724 $ 842,388 $453,572 $ 28,811 $3,620,509
Investments and trading
account securities . . . . 927,844 152,274 311,340 1,692,285 200,281 (7,031) 3,276,993
Other earning assets . . . 16,961 1,169 -- 336 68 -- 18,534
Nonearning assets . . . . . -- -- -- -- -- 729,496 729,496
---------- --------- --------- ---------- -------- ---------- ----------
Total assets . . . . . . $2,781,507 $ 314,755 $ 609,064 $2,535,009 $653,921 $ 751,276 $7,645,532
========== ========= ========= ========== ======== ========== ==========
Liabilities and
stockholders' equity:
Deposits. . . . . . . . . . $3,036,385 $ 386,238 $ 435,581 $ 865,793 $ 7,263 $ 991,521 $5,722,781
Federal funds purchased
and securities sold under
agreements to repurchase . 639,369 -- -- -- -- -- 639,369
Federal Home Loan Bank
borrowings . . . . . . . . 324,190 50,000 91,800 25,000 -- -- 490,990
Other borrowings. . . . . . 82,715 -- -- -- -- -- 82,715
Long-term debt . . . . . . 4,432 413 4,425 195 67 -- 9,532
Other liabilities . . . . . -- -- -- -- -- 107,148 107,148
Stockholders' equity . . . -- -- -- -- -- 592,997 592,997
---------- --------- --------- ---------- -------- ---------- -----------
Total liabilities and
stockholders' equity . . $4,087,091 $ 436,651 $ 531,806 $ 890,988 $ 7,330 $1,691,666 $7,645,532
========== ========= ========= ========== ======== ========== ==========
Interest rate swaps . . . . . $ (51,000) $ -- $ (86,000) $ 137,000 $ -- $ -- $ --
Repricing gap adjusted
for interest rate swaps. . . (1,356,584) (121,896) (8,742) 1,781,021 646,591 (940,390) --
Cumulative adjusted
repricing gap. . . . . . . . (1,356,584)(1,478,480)(1,487,222) 293,799 940,390 -- --
Cumulative adjusted rate-
sensitive assets/
rate-sensitive liabilities . .68 .68 .73 (*) (*) (*)
<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 June 30, 1994. The loans-to-deposits and loans-
to-assets ratios averaged 61.85% and 47.59%, respectively, during the
first six months of 1994. Average core deposits (demand, interest
checking, savings, and time deposits under $100,000) represented 92.15%
of total deposits and 70.90% of average assets during the six-month
period.
At June 30, 1994, federal funds purchased, securities sold under
agreements to repurchase, Federal Home Loan Bank borrowings, and other
borrowings totaled $1.2 billion. At that same date, additional
borrowing liquidity was also available in the form of $602.6 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 $321.4 million during the
second quarter of 1994.
The Company had commitments to extend credit at June 30, 1994,
including standby letters of credit of $101.0 million, commercial
letters of credit of $19.1 million, unused credit card lines of $477.6
million, $79.0 million of commitments to fund 1-4 family residential
mortgage loans, and other loan commitments of $1.2 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 June 30, 1994, total stockholders' equity was $593.0 million or
7.76% of total assets compared to $561.1 million or 8.00% of total
assets at June 30, 1993. Reducing total stockholders' equity at June
30, 1994 were $4.4 million in unrealized losses on available-for-sale
securities pursuant to FAS No. 115. For the first six months of 1994,
total stockholders' equity averaged $600.8 million or 8.51% of average
assets. The prior year-to-date average equity was $552.8 million or
8.58% 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. The banking
system regulators have 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 June 30, 1994, the proposed
change had not been finalized. Accordingly, the ratios in the
following table exclude the $4.4 million net unrealized loss on
available-for-sale securities.
June 30,
-------------------------------
1994 1993
------------ ------------
(Dollars in thousands)
Tier I capital:
Common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 500,442 $ 460,548
Preferred stockholders' equity. . . . . . . . . . . . . . . . . . . . . 96,920 100,561
Less intangible assets (1) . . . . . . . . . . . . . . . . . . . . . . (97,532) (67,543)
---------- ----------
Total Tier I capital . . . . . . . . . . . . . . . . . . . . . . . . 499,830 493,566
---------- ----------
Tier II capital:
Allowance for credit losses (2) . . . . . . . . . . . . . . . . . . . . 56,977 48,078
---------- ----------
Total regulatory capital. . . . . . . . . . . . . . . . . . . . . . $ 556,807 $ 541,644
========== ==========
Risk-weighted assets and off-balance-sheet commitments and contingencies. $4,558,032 $3,845,959
========== ==========
Adjusted average assets (3) . . . . . . . . . . . . . . . . . . . . . . . $7,138,633 $6,549,708
========== ==========
Regulatory
Minimums
----------
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 10.97% 12.83%
Total . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 12.22 14.08
Leverage ratio . . . . . . . . . . . . . . . . . . . . . 3.00 7.00 7.54
<FN>
___________
(1) All intangible assets except purchased mortgage servicing rights of $2.8 million and purchased credit card
relationships of $9.1 million 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 and purchased
credit card relationships.
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 loss on available-for-sale
securities in Tier I capital, the Company's risk-based and leverage
ratios at June 30, 1994 would have been as follows:
June 30, 1994
----------------
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . 10.87%
Total. . . . . . . . . . . . . . . . 11.92
Leverage ratio . . . . . . . . . . . . 6.94
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%. 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 June 30, 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 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 June 30, 1994, 356,684 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.
Shares of the Company's common stock to be used in the OSI
acquisition have been purchased. Funding for the currently pending
cash purchase acquisition will be derived from available 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 $92.6 million and $58.1 million for the six-month periods
ended June 30, 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 and 1993 dividends. At June 30, 1994, BANK IV
Kansas could distribute $18.0 million in dividends without the approval
of the Comptroller. BANK IV Oklahoma could distribute $1.1 million in
dividends without the approval of the Comptroller.
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 June 30, 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 $23.5
million.
The parent company had approximately $43.3 million of cash and
short-term investments at June 30, 1994. In addition, the parent
company had available a $75.0 million committed line of credit from an
unaffiliated bank to be used for general corporate purposes. During
the second quarter of 1994, $60.0 million was borrowed against the
line. On July 1, 1994, this line of credit was converted to a Credit
Agreement under which the Company may borrow up to $50,000,000 on a
revolving basis at anytime prior to June 30, 1996. The amount borrowed
under the agreement was reduced to $40,000,000 also at July 1, 1994.
The parent company also has a term loan outstanding from an
unaffiliated bank in the amount of $8.8 million at June 30, 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
settled 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 originated from the demolition by the bank of an
apartment building in Independence, Kansas, which allegedly contained
asbestos-containing building materials. A consent decree entered into
on June 13, 1994, provided for the payment of $127,500. The settlement
has been paid.
Item 5. Other Information.
PENDING ACQUISITIONS
The Company has entered into definitive agreements with two holding
companies to acquire the financial institutions shown in the following
table.
Assets Number of
June 30, 1994 Cash Expected Shares Expected Accounting
Bank (Unaudited) To Be Paid To Be Issued Method
----- -------------- ------------- --------------- ----------
(Dollars in thousands)
Security Bank & Trust Company
Blackwell, OK ("Security") . . . . . . . . . . . $ 49,307 $ 7,900 -- Purchase
The Stillwater Savings and Loan Association
Stillwater, OK ("Stillwater"). . . . . . . . . . 96,676 -- 371,573 Purchase
---------- -------- ---------
Total. . . . . . . . . . . . . . . . . . . . . $ 145,983 $ 7,900 371,573
========== ======== =========
Both agreements are subject to various conditions, including
obtaining regulatory approvals and the banks or holding companies
meeting specified net worth requirements and in the case of Stillwater,
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 for the Security and Stillwater acquisitions are
in the process of being obtained. The Company anticipates consummating
these transactions in the fourth quarter of 1994.
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 August 10, 1994, the Company has no binding
commitments or agreements, 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
The following exhibits are filed herewith:
2.01 Stock Purchase and Merger Agreement, dated as of June 23,
1994, among Fourth Financial Corporation, and BANK IV
Oklahoma, National Association as Purchasers, Security
Bank and Trust Company, and The Stockholders of Blackwell
Security Bancshares, Inc., as Sellers and exhibits
thereto.
2.02 Agreement and Plan of Reorganization, dated as of July 21,
1994, between Fourth Financial Corporation and Oklahoma
Savings, Inc. and exhibits thereto.
10.01 Credit Agreement dated as of July 1, 1994 between Registrant
and Continental Bank.
(b) Reports on Form 8-K
During the quarter ended June 30, 1994, Registrant filed a report
on Form 8-K dated June 17, 1994, in which Registrant reported under
Item 5 its Termination Agreement between Registrant and Great
Southern Bancorp, Inc. Item 7 included the News Release dated June
15, 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 August 10, 1994 /s/ Darrell G. Knudson
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Darrell G. Knudson
Chairman of the Board
(Chief Executive Officer)
Date August 10, 1994 /s/ Michael J. Shonka
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Michael J. Shonka
Sr. Vice President and
Chief Financial Officer
(Principal Financial Officer)