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
For quarter ended June 30, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File number 0-4170
Fourth Financial Corporation
(Exact name of Registrant as specified in its charter)
Kansas 48-0761683
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 North Broadway
Wichita, Kansas 67202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (316) 261-4444
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 27,624,484 shares of common stock, par value $5 per share,
of the registrant outstanding as of July 31, 1995.
FOURTH FINANCIAL CORPORATION
TABLE OF CONTENTS
PART I
Item in
Form 10-Q Page
--------- ----
1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . .
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . .
PART II
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .
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, 1995, December 31,
1994 and June 30, 1994
Consolidated Statements of Income for the three-month and six-month
periods ended June 30, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for the six-
month periods ended June 30, 1995 and 1994
Consolidated Statements of Cash Flows for the six-month periods ended
June 30, 1995 and 1994
Notes to Consolidated Financial Statements
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
June 30, December 31, June 30,
1995 1994 1994
------------ ------------ ------------
(Dollars in thousands)
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . $ 407,145 $ 438,930 $ 394,513
Interest-bearing deposits in other financial institutions . . . . . 1,280 499 1,829
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . 51,715 8,470 18,405
Securities:
Held-to-maturity (market value-$1,825,668, $1,847,767,
and $2,159,304, respectively). . . . . . . . . . . . . . . . . . 1,846 091 1,958,190 2,217,151
Available-for-sale (at market value). . . . . . . . . . . . . . . 458,492 943,970 1,028,977
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,234 53,677 52,800
Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 690 719 1,833
Loans and leases:
Total loans and leases. . . . . . . . . . . . . . . . . . . . . . 4,386,184 4,062,051 3,669,815
Allowance for credit losses . . . . . . . . . . . . . . . . . . . (72,117) (72,867) (74,176)
---------- ---------- ---------
Net loans and leases. . . . . . . . . . . . . . . . . . . . . . 4,314,067 3,989,184 3,595,639
Bank premises and equipment, net. . . . . . . . . . . . . . . . . . 160,475 158,885 158,068
Income receivable and other assets. . . . . . . . . . . . . . . . . 120,117 166,309 147,423
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . 95,288 95,606 109,537
---------- ---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $7,504,594 $7,814,439 $7,726,175
========== ========== ==========
Liabilities And Stockholders' Equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . $ 977,268 $1,049,118 $1,006,201
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . 5,064,340 4,675,478 4,789,934
---------- ---------- ----------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . 6,041,608 5,724,596 5,796,135
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . . . . . . 452,245 933,706 639,369
Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . 268,347 441,097 490,990
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 32,978 43,001 82,715
Accrued interest, taxes, and other liabilities. . . . . . . . . . . 59,529 58,976 107,666
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 176 7,762 12,609
---------- ---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 6,854,883 7,209,138 7,129,484
---------- ---------- ----------
Stockholders' Equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . 99,469 100,000 100,000
Common stock, par value $5 per share
Authorized: 50,000,000 shares
Issued: 27,626,660, 27,566,225, and 27,516,925 shares. . . . . 138,133 137,831 137,585
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . 108,402 107,576 106,915
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 299,316 294,532 268,549
Treasury stock at cost (14,969, 355,466 and 356,684 shares) . . . (480) (10,018) (10,054)
Stock option loans. . . . . . . . . . . . . . . . . . . . . . . . (1,679) (1,894) (1,793)
---------- ---------- ----------
Stockholders' equity before net unrealized
gains (losses) on available-for-sale securities. . . . . . . . . 643,161 628,027 601,202
Net unrealized gains (losses) on available-for-sale securities. . 6,550 (22,726) (4,511)
---------- ---------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . 649,711 605,301 596,691
---------- ---------- ----------
Total liabilities and stockholders' equity. . . . . . . . . . $7,504,594 $7,814,439 $7,726,175
========== ========== ==========
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
1995 1994 Change 1995 1994 Change
---------- ---------- ------- ---------- ---------- -------
(Dollars in thousands, except per share amounts)
Interest Income:
Interest and fees on loans and leases . . . . . $ 99,318 $ 72,862 36.3 % $191,911 $140,345 36.7 %
Interest on short-term investments . . . . . . . 1,928 432 3.5 x 2,902 683 3.2 x
Interest and dividends on investment securities:
Taxable. . . . . . . . . . . . . . . . . . . . 34,430 41,659 (17.4) 73,686 77,637 (5.1)
Tax-preferred. . . . . . . . . . . . . . . . . 3,179 4,272 (25.6) 6,680 8,830 (24.3)
Interest and dividends on trading account
securities. . . . . . . . . . . . . . . . . . . 23 16 43.8 38 53 (28.3)
-------- -------- -------- --------
Total interest income. . . . . . . . . . . . 138,878 119,241 16.5 275,217 227,548 20.9
-------- -------- -------- --------
Interest Expense:
Interest on deposits . . . . . . . . . . . . . . 59,056 37,633 56.9 112,430 73,321 53.3
Interest on borrowings . . . . . . . . . . . . . 11,619 10,700 8.6 27,112 17,655 53.6
Interest on long-term debt . . . . . . . . . . . 6 354 (98.3) 128 783 (83.7)
-------- -------- -------- --------
Total interest expense . . . . . . . . . . . 70,681 48,687 45.2 139,670 91,759 52.2
-------- -------- -------- --------
Net Interest Income. . . . . . . . . . . . . . . . 68,197 70,554 (3.3) 135,547 135,789 (.2)
Provision for credit losses. . . . . . . . . . . 1,000 19 51.6 x 2,033 331 5.1 x
-------- -------- -------- --------
Net Interest Income After Provision For Credit
Losses . . . . . . . . . . . . . . . . . . . . . 67,197 70,535 (4.7) 133,514 135,458 (1.4)
-------- -------- -------- --------
Noninterest Income:
Trust fees . . . . . . . . . . . . . . . . . . . 5,557 4,339 28.1 10,807 9,807 10.2
Service charges on deposit accounts. . . . . . . 10,232 9,467 8.1 19,767 18,624 6.1
Bank card fees . . . . . . . . . . . . . . . . . 4,282 3,583 19.5 8,507 6,161 38.1
Investment securities gains (losses) . . . . . . 190 62 2.1 x (21,873) 3,626
Other. . . . . . . . . . . . . . . . . . . . . . 5,478 5,317 3.0 11,561 10,952 5.6
-------- -------- -------- --------
Total noninterest income . . . . . . . . . . 25,739 22,768 13.0 28,769 49,170 (41.5)
-------- -------- -------- --------
Noninterest Expense:
Salaries and employee benefits . . . . . . . . . 31,112 31,151 (.1) 61,940 61,697 .4
Furniture and equipment. . . . . . . . . . . . . 5,299 5,489 (3.5) 10,921 11,173 (2.3)
Net occupancy. . . . . . . . . . . . . . . . . . 4,384 4,154 5.5 9,198 8,427 9.1
FDIC insurance . . . . . . . . . . . . . . . . . 3,284 3,243 1.3 6,562 6,350 3.3
Advertising and public relations . . . . . . . . 2,795 2,307 21.2 5,209 4,436 17.4
Bank card . . . . . . . . . . . . . . . . . . . 1,072 868 23.5 2,145 1,658 29.4
Amortization of intangible assets. . . . . . . . 2,837 2,355 20.5 5,717 4,394 30.1
Merger and integration costs . . . . . . . . . . -- 117 -- 28 2,768 (99.0)
Net costs of operation of other real estate and
nonperforming assets. . . . . . . . . . . . . . (17) (217) (92.2) (19) (350) (94.6)
Other. . . . . . . . . . . . . . . . . . . . . . 12,237 12,011 1.9 24,705 23,802 3.8
-------- -------- -------- --------
Total noninterest expense. . . . . . . . . . 63,003 61,478 2.5 126,406 124,355 1.6
-------- -------- -------- --------
Income Before Income Taxes . . . . . . . . . . . . 29,933 31,825 (5.9) 35,877 60,273 (40.5)
Income tax expense . . . . . . . . . . . . . . . 10,826 10,853 (.2) 12,315 20,607 (40.2)
-------- -------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . $ 19,107 $ 20,972 (8.9) $ 23,562 $ 39,666 (40.6)
======== ======== ======== ========
Net Income Applicable to Common Shares . . . . . . $ 17,266 $ 19,222 (10.2) $ 19,972 $ 36,166 (44.8)
======== ======== ======== ========
Earnings Per Common Share:
Primary. . . . . . . . . . . . . . . . . . . . . $ .63 $ .71 (11.3)% $ .72 $1.33 (45.9)%
Fully diluted. . . . . . . . . . . . . . . . . . .62 .68 (8.8) .72 1.29 (44.2)
Dividends Per Common Share . . . . . . . . . . . . .29 .26 11.5 .55 .52 5.8
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
Net
Preferred Stock Common Stock Treasury Stock Unrealized
--------------- --------------- -------------- Stock Gains
Capital Retained Option (Losses) on
Shares Amount Shares Amount Surplus Earnings Shares Amount Loans Securities Total
------ -------- ------ -------- -------- -------- ------ ------- ------ ---------- -------
(In thousands)
Balance, January 1, 1994
As previously reported 250 $100,000 27,166 $135,830 $106,102 $244,810 (112) $(3,245) $(1,795) $25,148 $606,850
Adjustment for pooling
of interests. . . . . -- -- 315 1,575 375 1,567 -- -- -- -- 3,517
----- -------- ------ -------- -------- -------- --- -------- ------- ------- --------
Adjusted balance . . 250 100,000 27,481 137,405 106,477 246,377 (112) (3,245) (1,795) 25,148 610,367
Net income . . . . . . -- -- -- -- -- 39,666 -- -- -- -- 39,666
Cash dividends:
Preferred stock. . . -- -- -- -- -- (3,500) -- -- -- -- (3,500)
Common stock . . . . -- -- -- -- -- (13,686) -- -- -- -- (13,686)
Pooled companies . . -- -- -- -- -- (308) -- -- -- -- (308)
Purchase of common
stock for treasury. . -- -- -- -- -- -- (355) (10,018) -- -- (10,018)
Issuance of common
stock:
Acquisition. . . . . -- -- -- -- 42 -- 70 2,040 -- -- 2,082
Stock option plans . -- -- 36 180 396 -- 40 1,169 -- -- 1,745
Net change in stock
option loans. . . . . -- -- -- -- -- -- -- -- 2 -- 2
Adoption of Financial
Accounting Standard
No. 115 by pooled
companies . . . . . . -- -- -- -- -- -- -- -- -- (344) (344)
Net change in unreal-
ized gains (losses)
on available-for-sale
securities. . . . . . -- -- -- -- -- -- -- -- -- (29,315) (29,315)
------ -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Balance, June 30, 1994 . 250 $100,000 27,517 $137,585 $106,915 $268,549 (357)$(10,054) $(1,793) $ (4,511) $596,691
====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
Balance, January 1, 1995
As previously reported 250 $100,000 27,251 $136,256 $107,201 $292,962 (355)$(10,018) $(1,894) $(22,440) $602,067
Adjustment for pooling
of interests. . . . . -- -- 315 1,575 375 1,570 -- -- -- (286) 3,234
----- -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Adjusted balance . . 250 100,000 27,566 137,831 107,576 294,532 (355) (10,018) (1,894) (22,726) 605,301
Net income . . . . . . -- -- -- -- -- 23,562 -- -- -- -- 23,562
Cash dividends:
Preferred stock. . . -- -- -- -- -- (3,492) -- -- -- -- (3,492)
Common stock . . . . -- -- -- -- -- (15,188) -- -- -- -- (15,188)
Purchase and retire-
ment of preferred
stock . . . . . . . . (1) (500) -- -- 15 (98) -- -- -- -- (583)
Conversion of pre-
ferred stock into
common. . . . . . . . -- (31) 1 5 26 -- -- -- -- -- --
Purchase of common
stock for treasury. . -- -- -- -- -- -- (125) (4,046) -- -- (4,046)
Issuance of common
stock:
Acquisition. . . . . -- -- 14 68 937 -- 355 10,018 -- -- 11,023
Stock option plans . -- -- 44 217 (216) -- 110 3,566 -- -- 3,567
Directors deferred
fee plan . . . . . . -- -- 2 12 64 -- -- -- -- -- 76
Net change in stock
option loans. . . . . -- -- -- -- -- -- -- -- 215 -- 215
Net change in unreal-
ized gains (losses)
on available-for-sale
securities. . . . . . -- -- -- -- -- -- -- -- -- 29,276 29,276
------ -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Balance, June 30, 1995 . 249 $ 99,469 27,627 $138,133 $108,402 $299,316 (15)$ (480) $(1,679) $ 6,550 $649,711
====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
----------------------
June 30, June 30,
1995 1994
---------- ----------
Increase (Decrease) in Cash and Due from Banks (In thousands)
Cash Flows From Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,562 $ 39,666
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 84
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,033 331
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,600 13,359
Accretion of discounts on investment securities, net of amortization of premiums . . . . . 3,597 8,506
Write-down of other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . . 88 185
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,130 2,537
Investment securities loss (gain). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,873 (3,626)
Loss (gain) on sales of premises and equipment, other real estate owned, and other assets. 430 (1,471)
Write-down of goodwill, core deposit intangibles, and premises and equipment
associated with pooling transactions and other asset write-downs . . . . . . . . . . . . -- 1,085
Change in assets and liabilities, net of effects from purchases of acquired
entities and branch sales:
Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 (1,096)
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (523) 109,129
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,549 78,785
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,269) 646
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,928 (5,824)
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,738 1,829
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . 90,772 244,125
--------- ---------
Cash Flows From Investing Activities:
Purchases of banks, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . (4,091) (88,699)
Branch sales, including cash and cash equivalents sold . . . . . . . . . . . . . . . . . . . (6,428) --
Activity in available-for-sale investment securities:
Sales proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445,891 603,570
Maturities, prepayments, and calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,731 134,228
Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,082) (551,303)
Activity in held-to-maturity investment securities:
Maturities, prepayments, and calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,134 277,641
Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,455) (522,124)
Proceeds from sales of premises and equipment, other real estate owned, and other assets . . 3,558 6,805
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,387) (11,673)
Purchases of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,236) --
Change in assets, net of effects from purchases of acquired
entities and branch sales:
Interest-bearing deposits in other financial institutions. . . . . . . . . . . . . . . . . 180 1,202
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . (37,064) 8,673
Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (198,421) (80,318)
--------- ---------
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . 374,330 (221,998)
--------- ---------
Cash Flows From Financing Activities:
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,586) (10,751)
Purchase and retirement of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . (583) --
Acquisition of common stock for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . (4,046) (10,018)
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,188) (13,686)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,495) (3,500)
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,567 1,745
Net change in stock option loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 2
Capital transactions of pooled companies . . . . . . . . . . . . . . . . . . . . . . . . . . -- (364)
Change in liabilities, net of effects from purchases of acquired entities and branch sales:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,613 (257,825)
Federal funds purchased and securities sold under agreements to repurchase . . . . . . . . (481,461) 100,758
Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (172,900) 182,818
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,023) 59,541
--------- ---------
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . (496,887) 48,720
--------- ---------
Increase (decrease) in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . (31,785) 70,847
Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . 438,930 323,666
--------- ---------
Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 407,145 $ 394,513
========= =========
Supplemental Disclosures:
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 128,933 $ 89,852
========= =========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,128 $ 21,348
========= =========
See accompanying notes.
FOURTH FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 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, 1994.
The consolidated financial statements for prior periods have been
restated to reflect the pooling of interests detailed in Note 2 - Acquisitions
and Branch Sales. Certain reclassifications of previously reported amounts
also have been made to conform with current year presentation format.
Note 2 - Acquisitions and Branch Sales
Purchase Transactions
The following table presents information regarding the two purchase
transactions completed in the first quarter of 1995.
Acquisition Company Acquired/ Company Assets Cash Number of
Date Location Abbreviation Acquired Paid Shares Issued
----------- ----------------------------------- ------------ ------------ ---------- -------------
(In thousands)
1995
----
January 6 Oklahoma Savings, Inc.
Stillwater, OK . . . . . . . . . . "OSI" $ 95,082 $ 97 368,981
February 3 Blackwell Security Bancshares, Inc.
Blackwell, OK. . . . . . . . . . . "BSB" 50,254 8,256 --
-------- ------ -------
$145,336 $8,353 368,981
======== ====== =======
Additional information regarding the cash paid in these
purchase transactions is summarized in the following table.
1995
--------------
(In thousands)
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . $145,336
Fair value of liabilities assumed . . . . . . . . . . . . . . . . . . . (131,676)
Cost in excess of net assets acquired . . . . . . . . . . . . . . . . . 5,716
--------
Consideration given . . . . . . . . . . . . . . . . . . . . . . . . . 19,376
Less: Fair market value of stock issued. . . . . . . . . . . . . . . 11,023
--------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,353
Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,262
--------
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,091
========
For each of these transactions, the consolidated statements of income
include only the income and expenses of the acquired company since
acquisition. The purchase price was allocated to the net assets acquired
based on their fair values with the excess allocated to cost in excess of net
assets acquired. The effect on results of operations for 1995, had the
purchase transactions occurred at the beginning of the year, was not material.
Pooling Of Interests
On January 27, 1995, the Company issued 315,000 shares to acquire
Standard Bancorporation, Inc. ("SBI") in a business combination accounted for
as a pooling of interests. Total assets acquired amounted to $89,548,000.
The consolidated statements for the prior periods have been restated as if the
entities had been combined at the beginning of the periods presented.
Adjustments to conform the accounting policies of SBI to the accounting
policies of the Company were immaterial.
Branch Sales
At the time Equity Bank for Savings, F.A. ("Equity") was acquired in May
1994 four branches were identified for sale. Three of the branches were sold
in 1994. On January 6, 1995, the Company completed the final sale. In the
sale transactions, the Company transferred deposit liabilities and sold loans
and bank premises. The combined sales price of these branches was equal to
the fair value of assets and liabilities acquired in the Equity business
combination. Accordingly, no gain or loss was recognized on the branch sales.
The following table presents information regarding the branch sold in 1995.
1995
--------------
(In thousands)
Fair value of assets sold . . . . . . . . . . . . . . . . . . . . . . . $ (69)
Fair value of liabilities transferred . . . . . . . . . . . . . . . . . 6,629
Reduction of cost in excess of net assets acquired. . . . . . . . . . . (132)
-------
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,428
=======
On April 14, 1995, the Company entered into an agreement to sell its
branch located in Meade, Kansas. This sale is expected to be completed in the
third quarter and will involve the transfer of approximately $15,584,000 in
deposit liabilities and the sale of loans with a carrying value of
approximately $5,347,000 and bank premises.
Note 3 - Securities
The sales price, gains, and losses realized from the sale of available-
for-sale investment securities are detailed in the following table. This
table does not include proceeds from nor realized gains and losses
attributable to prepayments of investment securities.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
(In thousands)
Sales price of available-for-sale investment securities . . . . $ 14,424 $151,419 $445,891 $603,570
======== ======== ======== ========
Gross realized gains. . . . . . . . . . . . . . . . . . . . . . $ 245 $ 18 $ 1,322 $ 4,872
Gross realized losses . . . . . . . . . . . . . . . . . . . . . 145 126 23,328 1,392
-------- -------- -------- --------
Net gains (losses). . . . . . . . . . . . . . . . . . . . . $ 100 $ (108) $(22,006) $ 3,480
======== ======== ======== ========
During the six months ended June 30, 1995, "Other noninterest income"
included a net unrealized holding loss on trading securities of $1,000. For
the six months ended June 30, 1994, a net unrealized holding gain of $25,000
associated with trading account securities was included in income.
Note 4 - Allowance for Credit Losses
Changes in the allowance for credit losses were as follows:
Six Months Ended
June 30,
----------------------
1995 1994
-------- --------
(In thousands)
Balance at January 1, as previously reported. . . . . . . . . . . . . . . . . . $ 71,874 $ 67,617
Adjustment for pooling of interests . . . . . . . . . . . . . . . . . . . . . 993 610
-------- --------
Balance at January 1, as restated . . . . . . . . . . . . . . . . . . . . . . . 72,867 68,227
Allowance for credit losses of purchased banks. . . . . . . . . . . . . . . . 1,633 5,449
-------- --------
74,500 73,676
Provisions charged to operating expense . . . . . . . . . . . . . . . . . . . 2,033 331
Recoveries on loans and leases previously charged off . . . . . . . . . . . . 5,476 6,707
Loans and leases charged off. . . . . . . . . . . . . . . . . . . . . . . . . (9,892) (6,538)
-------- --------
Balance at June 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,117 $ 74,176
======== ========
Effective January 1, 1995, the Company adopted Financial Accounting
Standard ("FAS") No. 114, "Accounting by Creditors for Impairment of a Loan."
Under the new standard, the amount of the allowance for credit losses related
to individual loans that are identified for evaluation in accordance with FAS
No. 114 is determined based on estimates of expected cash flows on each such
loan which are then discounted using that loan's effective interest rate.
Alternatively, the fair value of the collateral is used to determine the
allowance for credit losses related to identified collateral dependent loans.
The determination of the allowance for credit losses for the remainder of the
loan portfolio takes into consideration the risk classification of loans and
the application of loss estimates to these classifications.
At June 30, 1995, the recorded investment in loans that are considered
to be impaired under FAS No. 114 was $15,848,000 (all of which were being
accounted for on a nonaccrual basis). Included in this amount was $14,703,000
of impaired loans for which the related allowance for credit losses was
$5,629,000. The remaining $1,145,000 of impaired loans did not have a related
allowance for credit losses as prior charge-offs or interest payments applied
to the recorded investment resulted in the recorded investment in these loans
being less than the current estimate of discounted future cash flows. The
average recorded investment in impaired loans during the six-month period
ended June 30, 1995 was approximately $17,789,000. For the six-month period
ended June 30, 1995 the Company recognized interest income on these impaired
loans of $129,000, using the cash basis method of income recognition.
Note 5 - Preferred Stock
June 30, December 31, June 30,
1995 1994 1994
------------- ------------- -------------
(Dollars in thousands)
Class A cumulative convertible preferred stock,
par value $100 per share
Authorized: 250,000 shares
Issued: 248,672, 250,000 and 250,000
shares (at liquidation preference) . . . . . . . . . . . . $ 99,469 $100,000 $100,000
Class B preferred stock, no par value
Authorized: 5,000,000 shares . . . . . . . . . . . . . . . -- -- --
-------- -------- --------
$ 99,469 $100,000 $100,000
======== ======== ========
Note 6 - Merger and Integration Costs
The components of merger and integration costs related to the 1995 and
1994 pooling-of-interests transactions are detailed in the following schedule.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
------- ------- ------- -------
(In thousands)
Premises and equipment writedowns . . . . . . . . . . . . . . . . $ -- $ -- $ -- $ 177
Severance and other compensation. . . . . . . . . . . . . . . . . -- -- -- 821
Systems conversion costs. . . . . . . . . . . . . . . . . . . . . -- -- -- 269
Legal, accounting, and other transaction costs. . . . . . . . . . -- 117 28 227
Conform intangible asset amortization policies. . . . . . . . . . -- -- -- 1,124
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 150
------ ------ ------ ------
$ -- $ 117 $ 28 $2,768
====== ====== ====== ======
Note 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,
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Primary . . . . . . . . . . . . . . . . . . . . . . . 27,595,106 27,176,736 27,576,429 27,272,557
Fully diluted . . . . . . . . . . . . . . . . . . . . 31,033,873 30,625,011 31,019,388 30,720,832
Primary earnings per common share were computed by dividing net income
applicable to common shares by the weighted average common shares outstanding
during the period. Net income applicable to common shares was computed by
subtracting the dividends declared on the Class A preferred stock and the
excess of the purchase price over the carrying amount on the purchase and
retirement of preferred stock from net income. Fully diluted earnings per
common share were computed by dividing net income by the weighted average
number of shares which would have been outstanding during the period if the
Class A convertible preferred stock had been converted into common stock. For
the six months ended June 30, 1995, fully diluted earnings per common share
were the same as primary earnings per common share since the effect of the
convertible preferred stock was antidilutive. Stock options outstanding have
been excluded from the computations as they were not materially dilutive.
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
1995 1994(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,878 $ 119,241 16.5 %
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 68,197 70,554 (3.3)
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 70,202 72,947 (3.8)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 1,000 19 51.6 x
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,107 20,972 (8.9)
Net income applicable to common shares. . . . . . . . . . . . . . . . . 17,266 19,222 (10.2)
Per Common Share Data:
Earnings per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .63 $ .71 (11.3)%
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62 .68 (8.8)
Fully diluted as originally reported(1) . . . . . . . . . . . . . . . .62 .69 (10.1)
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .29 .26 11.5
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 19.93 18.29 9.0
Book value exclusive of net unrealized gains (losses)
on available-for-sale securities at period-end . . . . . . . . . . . . 19.69 18.45 6.7
Tangible book value . . . . . . . . . . . . . . . . . . . . . . . . . . 16.81 14.70 14.4
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-30 3/4 31 1/4 -26
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 27,595 27,177 1.5
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 27,612 27,160 1.7
Period-end common shares outstanding assuming full dilution (000s). . . 31,041 30,609 1.4
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,504,594 $7,726,175 (2.9)%
Period-end loans and leases . . . . . . . . . . . . . . . . . . . . . . 4,386,184 3,669,815 19.5
Period-end allowance for credit losses. . . . . . . . . . . . . . . . . 72,117 74,176 (2.8)
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 176 12,609 (98.6)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 550,242 496,691 10.8
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 649,711 596,691 8.9
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,576,344 7,317,919 3.5
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 535,478 499,557 7.2
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 635,202 599,557 5.9
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01% 1.15%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 12.07 14.03
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 12.93 15.43
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.07 4.41
Asset Quality Ratios:
Net charge-offs (recoveries) (annualized)/average loans and leases. . . .23% (.01)%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . .76 .89
Allowance for credit losses/period-end nonperforming loans. . . . . . . 256.02 305.62
Allowance for credit losses/period-end loans and leases . . . . . . . . 1.64 2.02
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 8.66% 7.72%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 93.74 101.02
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.40 6.98
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 10.74 10.92
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 11.99 12.17
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 46.03 36.62
<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 and any
unrealized gain or loss on available-for-sale securities. 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
1995 1994(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,217 $ 227,548 20.9 %
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 135,547 135,789 (.2)
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 139,626 140,726 (.8)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 2,033 331 5.1 x
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,562 39,666 (40.6)
Net income applicable to common shares. . . . . . . . . . . . . . . . . 19,972 36,166 (44.8)
Per Common Share Data:
Earnings per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .72 $ 1.33 (45.9)%
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 1.29 (44.2)
Fully diluted as originally reported(1) . . . . . . . . . . . . . . . .72 1.29 (44.2)
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .55 .52 5.8
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 19.93 18.29 9.0
Book value exclusive of net unrealized gains (losses)
on available-for-sale securities at period-end . . . . . . . . . . . . 19.69 18.45 6.7
Tangible book value . . . . . . . . . . . . . . . . . . . . . . . . . . 16.81 14.70 14.4
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33-29 1/2 31 1/4-25 1/4
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 27,576 27,273 1.1
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 27,612 27,160 1.7
Period-end common shares outstanding assuming full dilution (000s). . . 31,041 30,609 1.4
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,504,594 $7,726,175 (2.9)%
Period-end loans and leases . . . . . . . . . . . . . . . . . . . . . . 4,386,184 3,669,815 19.5
Period-end allowance for credit losses. . . . . . . . . . . . . . . . . 72,117 74,176 (2.8)
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 176 12,609 (98.6)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 550,242 496,691 10.8
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 649,711 596,691 8.9
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,666,665 7,145,585 7.3
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 526,851 507,448 3.8
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 626,698 607,448 3.2
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .62% 1.12%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 7.58 13.17
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 7.64 14.37
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.02 4.35
Asset Quality Ratios:
Net charge-offs (recoveries) (annualized)/average loans and leases. . . .21% (.01)%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . .76 .89
Allowance for credit losses/period-end nonperforming loans. . . . . . . 256.02 305.62
Allowance for credit losses/period-end loans and leases . . . . . . . . 1.64 2.02
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 8.66% 7.72%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 93.74 101.02
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.40 6.98
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 10.74 10.92
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 11.99 12.17
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 76.39 39.10
<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 and any
unrealized gain or loss on available-for-sale securities. 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 1995 was $23.6 million compared to
$39.7 million for the first six months of 1994. Fully diluted earnings per share
were $.72 and $1.29 for the comparable periods. Net income for the first six
months of 1995 included securities losses from the company's first quarter
balance sheet repositioning which amounted to $22.1 million before tax and $13.4
million after tax. Exclusive of the first quarter securities losses, 1995
operating earnings were $37.0 million, or $1.19 per share. For the first six
months of 1995, return on assets and return on common
equity were .62% and 7.64%, respectively. Exclusive of the
first quarter securities losses, 1995 return on
assets and return on common equity were .97% and 12.78%, respectively. Return
on assets was 1.12% and return on common equity was 14.37% for the first six
months of 1994.
The financial statements for both periods reflect the effect of current and
prior year acquisitions which were accounted for as poolings of interests.
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 acquisitions completed during
1995 and 1994.
Number of
Acquisition Company Accounting Assets Cash Shares
Date Company Acquired/Location Abbreviation Method Acquired Paid Issued
------------ --------------------------------- ------------ ---------- --------- -------- ---------
(In thousands)
1994 -
------
May 26 Equity Bank for Savings, F.A. "Equity" Purchase $ 491,506 $ 90,720 --
Oklahoma City, OK
May 31 Emprise Bank, National Association "Emprise" Purchase 258,731 31,206 --
Hutchinson, KS
June 30 First Dodge City Bancshares, Inc., "First Dodge" Pooling 144,999 -- 590,710(1)
Dodge City, KS
1995 -
------
January 6 Oklahoma Savings, Inc. "OSI" Purchase 95,082 97(2) 368,981
Stillwater, OK
January 27 Standard Bancorporation, Inc. "SBI" Pooling 89,548 -- 315,000
Independence, MO
February 3 Blackwell Security Bancshares, Inc. "BSB" Purchase 50,254 8,256 --
Blackwell, OK
---------- -------- ---------
$1,130,120 $130,279 1,274,691
========== ======== =========
<FN>
----------
(1)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.
(2)Represents additional capitalized costs and fractional shares.
Net interest income decreased by $242,000 to total $135.5 million for the
first six months of 1995 as compared to $135.8 million for the first six months
of last year. The decrease in net interest income was principally related to the
cyclical increase in interest rates and aggressive loan and deposit competition.
Total average interest-earning assets were $7.0 billion for the first six months
of 1995, a $478.6 million, or 7.4%, increase over the comparable period of 1994.
For the same comparative periods, average loans and leases increased $847.1
million or 24.9%. The increase in net interest income attributable to the
increased volume of interest-earning assets was offset by a decrease in the net
yield on earning assets to 4.02% in the first six months of 1995 from 4.35% in
the comparable period of 1994.
The provisions for credit losses totaled $2.0 million and $331,000 for the
first six months of 1995 and 1994, respectively. Although the allowance for
credit losses continues to be strong, the increased provision reflects the
significant loan growth. Net charge-offs totaled $4.4 million or .21% (computed
on an annualized basis) of average loans and leases for the current period. The
comparable period of the prior year resulted in $169,000 of net recoveries.
Noninterest income was $28.8 million in the first six months of 1995 compared
to $49.2 million in the second quarter of 1994. The first six months of 1995
noninterest income includes $22.1 million of securities losses
from the Company's first quarter balance sheet repositioning.
By comparison, the first six months of 1994 included
$3.6 million of securities gains. Fees collected in the normal
course of business increased $5.5 million or 12.4% to total $50.6 million for
the first six months of 1995 from $45.1 million in the same period of 1994.
Noninterest expense totaled $126.4 million in the first six months of 1995
compared to $124.4 million for the same period of 1994. Merger and integration
costs associated with poolings of interests totaled $28,000 and $2.8 million for
the first six months of 1995 and 1994, respectively.
Operating expense (noninterest expense less merger and integration costs and
net costs of operations of other real estate and nonperforming assets) increased
3.7% to total $126.4 million in the first six months of 1995. This increase in
operating expense was principally attributable to business
combinations accounted for as purchases. The Company's efficiency
ratio (operating expense/fee income plus tax-equivalent net
interest income) was 66.43% for the current-year six-month period
compared to 65.58% for the first six months of the prior year. The
increased efficiency ratio principally reflects the compression of the net yield
on earning assets.
Net income for the second quarter of 1995 was $19.1 million, and fully
diluted earnings per share were $.62. The second quarter results were improved
from net income of $4.5 million, and fully diluted earnings per share of $.10,
for the first quarter of 1995. Exclusive of the securities losses recognized
during the first quarter of 1995, operating earnings were $17.9 million, or $.58
per share. Comparatively, second quarter 1994 results were $21.0 million, or
$.68 per share.
The following table presents average balances, income and expense, and yields
and rates on a fully tax-equivalent basis for the three-month periods ended June
30, 1995 and 1994.
Three Months Ended
-----------------------------------------------------------
June 30, 1995 June 30, 1994
---------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------
(Dollars in thousands)
Assets:
Interest-Earning Assets:
Loans and leases(1)(2) . . . . . . . . . . $4,330,923 $ 99,690 9.23% $3,474,020 $ 73,064 8.43%
Interest-bearing deposits in other
financial institutions . . . . . . . . . . 1,275 27 8.60 1,937 27 5.61
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . 118,760 1,901 6.42 41,037 405 3.95
Investment securities:
Taxable . . . . . . . . . . . . . . . . . 2,272,801 34,430 6.06 2,902,474 41,659 5.74
Tax-preferred(1) . . . . . . . . . . . . 163,304 4,808 11.78 210,503 6,460 12.27
Trading account securities(1) . . . . . . . 1,605 27 6.61 1,613 19 4.87
---------- -------- ---------- --------
Total interest-earning assets(1). . . . 6,888,668 140,883 8.19 6,631,584 121,634 7.35
Cash and due from banks . . . . . . . . . . . 388,538 393,907
Bank premises and equipment, net. . . . . . . 158,991 154,736
Income receivable and other assets . . . . . 117,158 131,593
Intangible assets, net . . . . . . . . . . . 96,839 76,629
Allowance for credit losses . . . . . . . . . (73,850) (70,530)
---------- ----------
Total assets . . . . . . . . . . . . . $7,576,344 $7,317,919
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Regular savings and interest checking . . $1,145,304 $ 6,886 2.41% $1,207,345 $ 6,564 2.18%
Money market savings. . . . . . . . . . . 1,182,324 12,965 4.40 998,962 6,171 2.48
Time under $100,000 . . . . . . . . . . . 2,298,521 31,870 5.56 1,980,169 21,075 4.27
Time of $100,000 or more. . . . . . . . . 497,378 7,335 5.92 374,863 3,823 4.09
---------- -------- ---------- --------
Total interest-bearing deposits . . . . 5,123,527 59,056 4.62 4,561,339 37,633 3.31
Federal funds purchased and securities
sold under agreements to repurchase. . . . 430,023 6,219 5.80 599,649 5,847 3.91
Federal Home Loan Bank borrowings . . . . . 342,970 4,955 5.80 421,266 4,362 4.15
Other borrowings. . . . . . . . . . . . . . 28,536 445 6.25 44,979 491 4.38
Long-term debt . . . . . . . . . . . . . . 353 6 6.97 9,427 354 15.05
---------- -------- ---------- --------
Total interest-bearing liabilities . . 5,925,409 70,681 4.78 5,636,660 48,687 3.46
-------- --------
Noninterest-bearing deposits. . . . . . . . . 951,400 1,011,774
Other liabilities and minority interest in
subsidiaries . . . . . . . . . . . . . . . . 64,333 69,928
---------- ----------
Total liabilities . . . . . . . . . . . 6,941,142 6,718,362
Preferred stockholders' equity . . . . . . . 99,724 100,000
Common stockholders' equity . . . . . . . . . 535,478 499,557
---------- ----------
Total stockholders' equity . . . . . . 635,202 599,557
---------- ----------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . . $7,576,344 $7,317,919
========== ==========
Net interest income(1). . . . . . . . . . . . . $ 70,202 $ 72,947
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . 8.19% 7.35%
Interest expense/interest-earning assets. . . 4.12 2.94
----- -----
Net yield on earning assets(1). . . . . 4.07% 4.41%
===== =====
<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, income and expense, and yields
and rates on a fully tax-equivalent basis for the six-month periods ended June
30, 1995 and 1994.
Six Months Ended
-----------------------------------------------------------
June 30, 1995 June 30, 1994
---------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------
(Dollars in thousands)
Assets:
Interest-Earning Assets:
Loans and leases(1)(2) . . . . . . . . . . $4,254,898 $192,573 9.11% $3,407,794 $140,742 8.31%
Interest-bearing deposits in other
financial institutions . . . . . . . . . . 1,287 46 7.15 2,317 61 5.30
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . 91,457 2,856 6.30 35,447 622 3.54
Investment securities:
Taxable . . . . . . . . . . . . . . . . . 2,437,142 73,686 6.05 2,806,700 77,637 5.54
Tax-preferred(1) . . . . . . . . . . . . 169,722 10,092 11.89 222,695 13,360 12.00
Trading account securities(1) . . . . . . . 1,449 43 5.74 2,370 63 5.38
---------- -------- ---------- --------
Total interest-earning assets(1). . . . 6,955,955 279,296 8.07 6,477,323 232,485 7.21
Cash and due from banks . . . . . . . . . . . 384,180 380,894
Bank premises and equipment, net. . . . . . . 159,505 152,687
Income receivable and other assets . . . . . 143,105 134,233
Intangible assets, net . . . . . . . . . . . 97,661 70,080
Allowance for credit losses . . . . . . . . . (73,741) (69,632)
---------- ----------
Total assets . . . . . . . . . . . . . $7,666,665 $7,145,585
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Regular savings and interest checking . . $1,167,240 $ 14,084 2.43% $1,197,077 $ 12,839 2.16%
Money market savings. . . . . . . . . . . 1,108,571 22,904 4.17 1,009,195 12,270 2.45
Time under $100,000 . . . . . . . . . . . 2,304,695 61,289 5.36 1,935,661 40,724 4.24
Time of $100,000 or more. . . . . . . . . 492,760 14,153 5.79 373,332 7,488 4.04
---------- -------- ---------- --------
Total interest-bearing deposits . . . . 5,073,266 112,430 4.47 4,515,265 73,321 3.27
Federal funds purchased and securities
sold under agreements to repurchase. . . . 517,452 14,786 5.76 575,554 10,129 3.55
Federal Home Loan Bank borrowings . . . . . 391,919 11,258 5.79 339,283 6,872 4.08
Other borrowings. . . . . . . . . . . . . . 34,567 1,068 6.23 32,801 654 4.02
Long-term debt . . . . . . . . . . . . . . 2,523 128 10.16 11,627 783 13.47
---------- -------- ---------- --------
Total interest-bearing liabilities . . 6,019,727 139,670 4.68 5,474,530 91,759 3.38
-------- --------
Noninterest-bearing deposits. . . . . . . . . 948,212 994,666
Other liabilities and minority interest in
subsidiaries . . . . . . . . . . . . . . . . 72,028 68,941
---------- ----------
Total liabilities . . . . . . . . . . . 7,039,967 6,538,137
Preferred stockholders' equity . . . . . . . 99,847 100,000
Common stockholders' equity . . . . . . . . . 526,851 507,448
---------- ----------
Total stockholders' equity . . . . . . 626,698 607,448
---------- ----------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . . $7,666,665 $7,145,585
========== ==========
Net interest income(1). . . . . . . . . . . . . $139,626 $140,726
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . 8.07% 7.21%
Interest expense/interest-earning assets. . . 4.05 2.86
----- -----
Net yield on earning assets(1). . . . . 4.02% 4.35%
===== =====
<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.
Net Interest Income
For the first six months of 1995, net interest income amounted to $135.5
million, representing a decrease of $242,000 from the $135.8 million earned
during the comparable period of 1994. On a fully tax-equivalent basis, net
interest income decreased $1.1 million to total $139.6 million for the first six
months of 1995 from $140.7 million for the same period of 1994. The decrease in
net interest income was attributable to the cyclical increase in interest rates
and aggressive loan and deposit competition.
The net yield on earning assets decreased to 4.02% for the first six-month
period of 1995 from 4.35% for the same period of 1994. The declining net yield
reflects the difference in repricing characteristics of the Company's assets and
liabilities. Its deposits and borrowed funds have a shorter duration than its
loans and securities. Consequently, the rising market interest rates during 1994
and the first quarter 1995, triggered by the 225-basis-point increase in the
discount rate implemented by the Board of Governors of the Federal Reserve
System, were reflected in the increasing cost of
interest bearing liabilities and a lower net yield.
In addition, vigorous competition for loans and deposits in
1995 and 1994 significantly affected the spread between interest-earning asset
yields and interest-bearing liability rates. On an annualized basis, the spread
between interest-bearing asset yields and liability rates decreased to 3.39% for
1995 compared to 3.83% for 1994.
An increased level of interest-earning assets and loan growth, partially
offset the negative impact of rising rates and competition on net interest
income. Total average interest-earning assets were $7.0 billion for the first
six months of 1995, a $478.6 million increase over the
comparable period of 1994. Comparing the first six-month
periods of 1995 and 1994, average loans and leases
increased $847.1 million or 24.9%. Approximately 61% of the increase in loans
was attributable to internal loan growth with the remainder due to purchase
acquisitions. Average investment securities decreased $422.5 million. The
proceeds of the first-quarter-1995 securities sale along with maturities and
prepayments, were used to fund loan growth. Average deposits increased $511.5
million, principally all attributable to acquisitions.
Loan fees included in net interest income amounted to $4.3 million and $5.7
million for the first six months of 1995 and 1994, respectively. The decrease
in loan fees was principally attributable to decreases in the volume of
residential mortgage loan originations.
The dollar volume of residential mortgage loan originations and refinancings
decreased $96.5 million or 45.8% between the first six months of 1995 and 1994.
Also included in the 1995 dollar volume and number of residential mortgage loan
originations are $10.7 million of loans (311 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 1995
and 1994.
Six Months Ended
June 30,
--------------------
1995 1994
-------- --------
(Dollars in thousands)
Residential mortgage loan originations and refinancings:
Dollar volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $114,008 $210,499
Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,528 3,394
On a nominal basis, net interest income decreased $2.4 million, or 3.3%, to
total $68.2 million for the second quarter of 1995 as compared to $70.6 million
for the second quarter of 1994. On a fully tax-equivalent basis, net interest
income was $70.2 million and $72.9 million for the second quarters of 1995 and
1994, respectively. The decrease in net interest income between the second
quarters was also attributable to the increase in interest rates and aggressive
loan and deposit competition. The net yield on earning assets decreased to 4.07%
for the second quarter of 1995 from 4.41% for the second quarter of 1994.
However, the Company experienced an increase in its net yield between the first
and second quarters of 1995 due to contractual repricing of adjustable rate
mortgages, renewal of fixed rate loans at current rates, loan growth, and the
first quarter balance sheet repositioning.
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, to rates, and 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, 1995 to 1994
---------------------------------------------
Total Change Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $26,626 $18,010 $ 6,929 $ 1,687
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . -- (9) 14 (5)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . 1,496 765 253 478
Taxable investment securities . . . . . . . . . . . . (7,229) (9,036) 2,322 (515)
Tax-preferred investment securities(1). . . . . . . . (1,652) (1,448) (258) 54
Trading account securities(1) . . . . . . . . . . . . 8 -- 7 1
------- ------- -------- --------
Total interest income change. . . . . . . . . . . . 19,249 8,282 9,267 1,700
------- ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . 7,116 702 6,051 363
Time deposits . . . . . . . . . . . . . . . . . . . . 14,307 4,661 8,125 1,521
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 372 (1,654) 2,826 (800)
Federal Home Loan Bank borrowings . . . . . . . . . . 593 (810) 1,733 (330)
Other borrowings. . . . . . . . . . . . . . . . . . . (46) (180) 210 (76)
Long-term debt. . . . . . . . . . . . . . . . . . . . (348) (340) (190) 182
------- ------- -------- --------
Total interest expense change . . . . . . . . . . . 21,994 2,379 18,755 860
------- ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . $(2,745) $ 5,903 $ (9,488) $ 840
======= ======= ======== ========
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
Comparison of Six-Month Periods Ended
June 30, 1995 to 1994
---------------------------------------------
Total Change Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $51,831 $34,908 $ 13,519 $ 3,404
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (15) (27) 21 (9)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . 2,234 983 485 766
Taxable investment securities . . . . . . . . . . . . (3,951) (10,237) 7,157 (871)
Tax-preferred investment securities(1). . . . . . . . (3,268) (3,178) (122) 32
Trading account securities(1) . . . . . . . . . . . . (20) (25) 4 1
------- ------- -------- --------
Total interest income change. . . . . . . . . . . . 46,811 22,424 21,064 3,323
------- ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . 11,879 793 10,722 364
Time deposits . . . . . . . . . . . . . . . . . . . . 27,230 10,199 14,056 2,975
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 4,657 (1,023) 6,308 (628)
Federal Home Loan Bank borrowings . . . . . . . . . . 4,386 1,065 2,877 444
Other borrowings. . . . . . . . . . . . . . . . . . . 414 35 359 20
Long-term debt. . . . . . . . . . . . . . . . . . . . (655) (608) (191) 144
------- ------- -------- --------
Total interest expense change . . . . . . . . . . . 47,911 10,461 34,131 3,319
------- ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . $(1,100) $11,963 $(13,067) $ 4
======= ======= ======== ========
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
Provision for Credit Losses
The provisions for credit losses were $2.0 million and $331,000 for the first
six months of 1995 and 1994, respectively. The provision for the second quarter
of 1995 was $1.0 million. There was a minimal provision of $19,000 in the second
quarter of 1994. Although the allowance for credit losses continues to be
strong, as evidenced by the 256.02% ratio of the allowance
to nonperforming loans at June 30, 1995, the increased
provision reflects the significant loan growth.
Net charge-offs totaled $4.4 million or .21% (computed on an annualized basis)
of average loans and leases for the current six-month period. The comparable
period of the prior year resulted in $169,000 of net recoveries. Net charge-offs
for the second quarter of 1995 were $2.5 million compared to net recoveries of
$91,000 for the second quarter of 1994.
Noninterest Income
Total noninterest income was $28.8 million for the first six months of 1995
compared to $49.2 million for the same period of the previous year. Included in
1995 noninterest income were $21.9 million of net investment securities losses,
$22.1 million from the Company's first quarter balance sheet repositioning.
Securities gains of $190,000 were recognized in the second quarter of 1995. In
1994, $3.6 million of securities gains were realized. Fees collected in the
normal course of business increased $5.5 million or 12.4% to total $50.6 million
for the first six months of 1995 from $45.1 million in the same period of 1994.
Approximately 53% of the increase in fees collected in the normal course of
business was attributable to business combinations accounted for as purchases.
The most significant changes in fee income between 1995 and 1994 occurred in
trust fees, service charges on deposit accounts, and bank card fees. Trust fees
increased $1.0 million or 10.2%; service charges on deposit accounts increased
$1.1 million or 6.1%; and bank card fees increased $2.3 million or 38.1%.
Exclusive of purchase acquisitions, 1995 trust fees increased approximately 7.6%
over the amounts earned in 1994. The increase in trust fees was the result of
increased sales efforts and the third-quarter-1994 introduction of Funds IV, a
family of seven publicly traded no-load mutual funds managed by the trust
division. The increase in service charges was principally attributable to
purchase acquisitions. The increased bank card fees reflect internal growth plus
the acquisition of Equity, including its credit card division.
For the second quarter of 1995 noninterest income totaled $25.7 million, a
$2.9 million or 13.0% increase over the 1994 second quarter noninterest income
of $22.8 million. Investment securities gains totaled $190,000 and $62,000 for
the second quarters of 1995 and 1994, respectively. 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 fees collected in the normal course of business
totaled $25.5 million and $22.2 million in 1995 and 1994, respectively. The
increased fees between the second quarters of 1995 and 1994 were principally 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, 1995 and 1994.
Three Months Ended Six Months Ended
--------------------------- ---------------------------
June 30, Percent June 30, Percent
------------------ ------------------
1995 1994 Change 1995 1994 Change
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Fee income:
Trust fees . . . . . . . . . . . . . . . . . . . $ 5,557 $ 4,339 28.1% $10,807 $ 9,807 10.2 %
Service charges on deposit accounts. . . . . . . 10,232 9,467 8.1 19,767 18,624 6.1
Bank card fees . . . . . . . . . . . . . . . . . 4,282 3,583 19.5 8,507 6,161 38.1
Brokerage and annuity sales commissions. . . . . 1,190 1,040 14.4 2,183 2,161 1.0
Trading account profits and commissions. . . . . 224 254 (11.8) 498 380 31.1
Real estate loan service fees. . . . . . . . . . 676 549 23.1 1,321 1,139 16.0
Safe deposit rent. . . . . . . . . . . . . . . . 418 391 6.9 951 884 7.6
Travelers and official check fees and item
handling charges. . . . . . . . . . . . . . . . 547 632 (13.4) 1,062 1,240 (14.4)
Foreign currency trading profits and foreign
transaction fees. . . . . . . . . . . . . . . . 298 263 13.3 590 553 6.7
Insurance premiums . . . . . . . . . . . . . . . 571 469 21.7 1,131 896 26.2
Other. . . . . . . . . . . . . . . . . . . . . . 1,554 1,248 24.5 3,825 3,228 18.5
------- ------- ------- -------
Total fee income . . . . . . . . . . . . . . . 25,549 22,235 14.9 50,642 45,073 12.4
Other revenues:
Investment securities (losses) gains . . . . . . 190 62 2.1 x (21,873) 3,626
Gain on sale of acquired stock . . . . . . . . . -- 471 -- -- 471 --
------- ------- ------- -------
Total noninterest income . . . . . . . . . . . $25,739 $22,768 13.0 $28,769 $49,170 (41.5)
======= ======= ======= =======
Fee income (annualized)/average assets . . . . . 1.35% 1.22% 1.33% 1.27%
Noninterest income (annualized)/average assets . 1.36% 1.25% .76% 1.39%
Noninterest Expense
Noninterest expense amounted to $126.4 million and $124.4 million for the
first six months of 1995 and 1994, respectively. Although 1995 and 1994 purchase
acquisitions increased assets by $895.6 million, noninterest expense did not
change materially between years. Noninterest expense (annualized) as a percent
of average assets were 3.32% and 3.51% for 1995 and 1994, respectively.
Noninterest expense for both periods includes certain nonoperating items.
Merger and integration costs associated with poolings of interests totaled
$28,000 and $2.8 million for the first six months of
1995 and 1994, respectively. Net costs of operation of other
real estate and nonperforming assets were not material for either period.
Operating expense amounted to $126.4 million and $121.9 million for the first
six months of 1995 and 1994, respectively. Operating expense increased $4.5
million, primarily due to business combinations accounted for as purchases. The
Company's efficiency ratio (operating expense/fee income plus tax-equivalent net
interest income) was 66.43% for the first six months of 1995 as compared to
65.58% for the same period of 1994. The increased efficiency ratio principally
reflects the compression of the net yield on earning assets. Operating expense
less fee income (annualized) as a percent of average assets were 1.99% and 2.17%
for 1995 and 1994,
respectively.
Noninterest expense for the second quarter increased $1.5 million to total
$63.0 million in 1995 as compared to $61.5 million in the
second quarter of 1994. Operating expense totaled $63.0
million and $61.5 million for the second quarters
of 1995 and 1994, respectively. The operating expenses of the 1995 and 1994
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, 1995 and 1994, respectively.
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, Percent June 30, Percent
------------------- -------------------
1995 1994 Change 1995 1994 Change
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
Salaries and employee benefits . . . . . . . . . . $ 31,112 $ 31,151 (.1)% $ 61,940 $ 61,697 .4%
Furniture and equipment . . . . . . . . . . . . . 5,299 5,489 (3.5) 10,921 11,173 (2.3)
Net occupancy . . . . . . . . . . . . . . . . . . 4,384 4,154 5.5 9,198 8,427 9.1
FDIC insurance . . . . . . . . . . . . . . . . . . 3,284 3,243 1.3 6,562 6,350 3.3
Bank card . . . . . . . . . . . . . . . . . . . . 1,072 868 23.5 2,145 1,658 29.4
Advertising and public relations . . . . . . . . . 2,795 2,307 21.2 5,209 4,436 17.4
Communication . . . . . . . . . . . . . . . . . . 1,198 915 30.9 2,447 1,898 28.9
Postage and freight . . . . . . . . . . . . . . . 1,849 1,737 6.4 3,878 3,386 14.5
Supplies, printed materials and forms. . . . . . . 1,283 1,243 3.2 2,525 2,456 2.8
Federal Reserve service fees . . . . . . . . . . . 369 436 (15.4) 774 843 (8.2)
Loan acquisition and maintenance . . . . . . . . . 891 765 16.5 1,595 1,468 8.7
Outside service fees . . . . . . . . . . . . . . . 876 871 .6 1,567 1,715 (8.6)
Consulting fees . . . . . . . . . . . . . . . . . 237 305 (22.3) 486 906 (46.4)
Other professional fees and examinations . . . . . 1,505 1,448 3.9 2,763 2,596 6.4
Amortization of intangible assets . . . . . . . . 2,837 2,355 20.5 5,717 4,394 30.1
Other . . . . . . . . . . . . . . . . . . . . . . 4,029 4,230 (4.8) 8,670 8,450 2.6
-------- -------- -------- --------
Total operating expense. . . . . . . . . . . . . 63,020 61,517 2.4 126,397 121,853 3.7
Net costs of operation of other real estate and
nonperforming assets. . . . . . . . . . . . . . . (17) (217) (92.2) (19) (350) (94.6)
Merger and integration costs . . . . . . . . . . . -- 117 -- 28 2,768 (99.0)
Minority interest. . . . . . . . . . . . . . . . . -- 61 -- -- 84 --
-------- -------- -------- --------
Total noninterest expense. . . . . . . . . . . . $ 63,003 $ 61,478 2.5 $126,406 $124,355 1.6
======== ======== ======== ========
Noninterest expense (annualized)/average assets. . 3.34% 3.37% 3.32% 3.51%
Noninterest expense less noninterest income
(annualized)/average assets . . . . . . . . . . . 1.97% 2.12% 2.57% 2.12%
Operating expense less fee income
(annualized)/average assets . . . . . . . . . . . 1.98% 2.15% 1.99% 2.17%
Operating expense/fee income plus tax-equivalent
net interest income . . . . . . . . . . . . . . . 65.82% 64.63% 66.43% 65.58%
Income Taxes
Income tax expense amounted to $12.3 million and $20.6 million for the first
six months of 1995 and 1994, respectively. The lower income tax expense is
principally attributable to the lower level of income before taxes. For the
second quarters of 1995 and 1994 income tax expense was $10.8 million and $10.9
million, respectively.
Statements of Condition
Total assets amounted to $7.5 billion, $7.8 billion, and $7.7 billion at June
30, 1995, December 31, 1994, and June 30, 1994, respectively. Between June 30,
1995 and 1994, the Company completed two bank acquisitions accounted for as
purchases and one pooling-of-interests transaction. Assets acquired in the two
purchase transactions totaled $145.3 million. The statements of condition for
all the periods presented include the one business combination accounted for as
a pooling of interests. This pooled company had assets of $89.5 million. The
decrease in total assets between June 30, 1995 and December 31, 1994 reflects
the sale of $423.9 million of securities. The following sections describe the
changes in the major Statement of Condition categories.
Loans and Leases
Between June 30, 1995 and 1994, loans and leases increased $716.4 million or
19.5% to total $4.4 billion at June 30, 1995. Loans added through bank purchase
transactions totaled $95.2 million and net internal loan growth was $621.2
million. Increases were realized in various commercial and retail categories.
The commercial loan categories increased an aggregate of $428.0 million or
20.1% to total $2.6 billion at June 30, 1995. Retail loan categories totaling
$1.8 billion increased $288.4 million or 18.7%. In addition to the effect of
acquisitions, these increases were attributable to a continued emphasis on
business development and increasing credit demands associated with the
strengthening of the economy in Kansas and Oklahoma.
The Company makes most of its loans within Kansas, Oklahoma, Missouri and the
contiguous states and to Kansas-, Oklahoma-, and Missouri-based customers that
do business in other states. The Company's commercial and industrial loans
principally are made to middle market and small businesses. At June 30, 1995,
the Company had 10 lending relationships in which the aggregate loan amount was
$10 million or more. The Company had no lending relationship with an aggregate
loan amount outstanding in excess of $20 million. The Company had no industry
concentrations greater than 10% of total loans outstanding and no foreign loans
at June 30, 1995. The following table shows the composition of loans and leases
at the dates indicated.
June 30, December 31, June 30,
1995 1994 1994
------------ ------------ ------------
(In thousands)
Commercial:
Commercial and industrial . . . . . . . . . . . . . . . . . . $1,091,998 $1,028,034 $ 952,695
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . 220,936 227,367 231,514
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,555 129,742 95,126
Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 23,832 25,173 29,589
Real estate:
Construction. . . . . . . . . . . . . . . . . . . . . . . . 160,810 135,558 123,317
Permanent commercial real estate and other. . . . . . . . . 764,094 705,625 597,554
Lease financing . . . . . . . . . . . . . . . . . . . . . . . 112,569 87,109 69,896
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,451 27,557 24,563
---------- ---------- ----------
Total commercial loans. . . . . . . . . . . . . . . . . . 2,552,245 2,366,165 2,124,254
---------- ---------- ----------
Consumer:
Secured by 1-4 family residences, less unearned discount. . . 1,138,498 991,446 889,115
Residential mortgage loans held for sale. . . . . . . . . . . 729 206 3,595
Consumer, less unearned discount. . . . . . . . . . . . . . . 491,739 491,898 484,258
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . 126,316 130,098 125,408
Educational . . . . . . . . . . . . . . . . . . . . . . . . . 76,657 82,238 43,185
---------- ---------- ----------
Total consumer loans. . . . . . . . . . . . . . . . . . . 1,833,939 1,695,886 1,545,561
---------- ---------- ----------
Total loans and leases. . . . . . . . . . . . . . . . . $4,386,184 $4,062,051 $3,669,815
========== ========== ==========
Commercial and Industrial: The Company's commercial and industrial portfolio
includes loans to businesses engaged in services, manufacturing, wholesaling,
retailing, financial services, public utilities, construction, mining, and
agribusiness. The largest industry concentrations are service businesses and
manufacturing, each representing approximately 5% of total loans.
Agriculture: Loans secured by feeder cattle and other livestock accounted
for approximately 63% of the agriculture portfolio at June 30, 1995. 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 or holding a material
interest in a bank make up this portfolio.
Commercial Real Estate: At June 30, 1995, approximately 51% of the
construction loan portfolio was in the Wichita, Topeka and Kansas City markets.
The Tulsa and Oklahoma City markets represented an additional 32% 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; apartment buildings; and loans secured by farmland. Also included in
this portfolio are 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. Approximately 72% of the loans in the permanent
commercial real estate portfolio are floating rate loans.
Secured by 1-4 Family Residences: The 1-4 family residence portfolio
consists of loans secured by residences located primarily in Kansas, Oklahoma,
and Missouri. The majority of the loans are permanent first mortgage loans with
the remainder consisting of home equity credit lines and other loans secured by
second mortgages.
Residential Mortgage Loans Held For Sale: Residential mortgage loans held
for sale are carried at the lower of cost or market value determined on an
aggregate basis.
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, 1995 included $6.4
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, 1995, the carrying value of nonaccrual loans had
been charged down to 78.29% 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,
1995 1994 1994
------------ ------------ ------------
(Dollars in thousands)
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . $27,705 $29,301 $23,991
Troubled debt restructurings . . . . . . . . . . . . . . . . . . . 464 503 280
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . . . . . 28,169 29,804 24,271
Other real estate and nonperforming assets . . . . . . . . . . . . 5,292 5,757 8,640
------- ------- -------
Total nonperforming assets . . . . . . . . . . . . . . . . . . . $33,461 $35,561 $32,911
======= ======= =======
Past due loans (90 days or more) . . . . . . . . . . . . . . . . . $ 9,452 $13,250 $13,231
======= ======= =======
Nonperforming assets/period-end loans plus
other real estate and nonperforming assets. . . . . . . . . . . . .76% .87% .89%
==== ==== ======
Nonperforming assets/period-end assets . . . . . . . . . . . . . . .45% .46% .43%
==== ==== ======
Nonperforming assets totaled $33.5 million and $32.9 million at June 30, 1995
and and 1994, respectively. At June 30, 1995, total nonperforming assets
represented .76% of total loans plus other real estate owned and nonperforming
assets as compared to .89% of total loans plus other real estate owned and
nonperforming assets at June 30, 1994. Between December 31, 1994 and June 30,
1995 nonperforming assets decreased $2.1 million.
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 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,
1995 1994 1994
------------ ------------ ------------
(Dollars in thousands)
Commercial:
Commercial and industrial. . . . . . . . . . . . . . . . . . . . $15,993 $14,862 $11,099
Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . 824 1,283 1,198
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 1,221 421
Real Estate:
Real estate construction . . . . . . . . . . . . . . . . . . . 603 905 363
Permanent commercial real estate and other . . . . . . . . . . 8,806 8,422 8,239
Lease financing. . . . . . . . . . . . . . . . . . . . . . . . . 232 208 111
------- ------- -------
Total commercial loans . . . . . . . . . . . . . . . . . . . 26,612 26,901 21,431
------- ------- -------
Consumer:
Secured by 1-4 family residences . . . . . . . . . . . . . . . . 426 1,350 1,380
Consumer, less unearned discount . . . . . . . . . . . . . . . . 1,131 1,553 1,460
------- ------- -------
Total consumer loans . . . . . . . . . . . . . . . . . . . . 1,557 2,903 2,840
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . $28,169 $29,804 $24,271
======= ======= =======
Nonaccrual loans/nonaccrual loans and prior charge-offs. . . . . . 78.29%
=====
Potential Problem Loans
Certain loans that are risk classified as doubtful, substandard, or special
mention are included in the nonperforming loan table. Also included in the
classified loans are certain other loans which are deemed to be potential
problems.
Potential problem loans are those loans which are currently performing but
where known information about trends or uncertainties or possible credit
problems of the borrowers causes management to have concerns as to the ability
of such borrowers to comply with present repayment terms, possibly resulting
in the transfer of such loans to nonperforming status. These loans totaled
$6.8 million at June 30, 1995.
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. Effective
January 1, 1995, the Company adopted Financial Accounting Standard ("FAS") No.
114, "Accounting by Creditors for Impairment of a Loan."
Under the new standard, the amount of the allowance
for credit losses related to individual loans that
are identified for evaluation in accordance with FAS No. 114 is determined based
on estimates of expected cash flows on each such loan which are then discounted
using that loan's effective interest rate. Alternatively, the fair value of the
collateral is used to determine the allowance for credit losses related to
identified collateral dependent loans. For the remainder of the loan portfolio,
the determination of the allowance for credit losses takes into consideration
the risk 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
risk 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 risk classification using
historical loss data, statistical modeling techniques, and analyses of general
economic conditions, trends in portfolio volume, maturity, and composition. The
application of these loss factors to the portfolio classifications combined with
estimates of potential future losses on specific large loans (based on either
the discounted present value of the expected cash flows or
collateral values) provide management with data essential
to identify and estimate the credit risk inherent
in the loan 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, 1995, the allowance for credit losses equaled $72.1 million
or 256.02% of nonperforming loans. Comparatively, the allowance for credit
losses at June 30, 1994 amounted to $74.2 million or 305.62% of nonperforming
loans. The strong coverage ratio of the allowance for credit losses to
nonperforming loans at June 30, 1995 reflected the continuing emphasis
management is placing on resolving problem loans, managing 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.
1995 1994
---------- ----------
(Dollars in thousands)
Balance at January 1, as previously reported . . . . . . . . . . . . . . $ 71,874 $ 67,617
Adjustment for pooling of interests. . . . . . . . . . . . . . . . . . 993 610
---------- ----------
Balance at January 1, as restated. . . . . . . . . . . . . . . . . . . 72,867 68,227
Allowance for credit losses of purchased banks . . . . . . . . . . . . 1,633 5,449
---------- ----------
74,500 73,676
Charge-offs:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 2,644 2,633
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,550 23
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 255
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . 262 58
Permanent commercial real estate and other . . . . . . . . . . . . . . 413 255
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 77
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 16
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . . 167 493
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,298 1,666
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,282 1,062
---------- ----------
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . 9,892 6,538
---------- ----------
Recoveries:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 1,144 3,330
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 376
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 58
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 60
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . 84 104
Permanent commercial real estate and other . . . . . . . . . . . . . . 1,639 1,177
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 32
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 132
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . . 367 189
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,233 1,072
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 612 177
---------- ----------
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . 5,476 6,707
---------- ----------
Net loans and leases charged off . . . . . . . . . . . . . . . . . . . . 4,416 (169)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 2,033 331
---------- ----------
Balance at June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72,117 $ 74,176
========== ==========
Loans and leases at period-end . . . . . . . . . . . . . . . . . . . . . $4,386,184 $3,669,815
Average loans and leases . . . . . . . . . . . . . . . . . . . . . . . . $4,254,898 $3,407,794
Net charge-offs (recoveries) (annualized)/average loans and leases . . . .21% (.01)%
Allowance for credit losses/period-end nonperforming loans . . . . . . . 256.02% 305.62 %
Allowance for credit losses/period-end nonperforming assets. . . . . . . 215.53% 225.38 %
Allowance for credit losses/period-end loans and leases. . . . . . . . . 1.64% 2.02 %
Investment Securities Portfolio
The following table presents the book values of investment securities at the
dates indicated.
Held-to-maturity
June 30, December 31, June 30,
1995 1994 1994
---------- ------------ ----------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 99,601 $ 98,971 $ 98,084
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 1,477,981 1,582,938 1,739,717
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,582 265,170 266,783
Obligations of states and political subdivisions. . . . . . . . . . 3,782 8,866 21,930
Other securities:
Commercial paper. . . . . . . . . . . . . . . . . . . . . . . . . -- -- 69,000
Bankers acceptances . . . . . . . . . . . . . . . . . . . . . . . -- -- 16,943
Collateralized auto receivables . . . . . . . . . . . . . . . . . -- -- 2,283
Foreign debt securities . . . . . . . . . . . . . . . . . . . . . 2,050 2,050 2,050
Money market mutual funds . . . . . . . . . . . . . . . . . . . . 95 195 361
---------- ---------- ----------
Total debt securities, at amortized cost. . . . . . . . . . . . $1,846,091 $1,958,190 $2,217,151
========== ========== ==========
Market value in excess of (less than) book value. . . . . . . . . . $ (20,423) $ (110,423) $ (57,847)
========== ========== ==========
Available-for-sale
June 30, December 31, June 30,
1995 1994 1994
---------- ------------ ----------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 48,072 $ 269,442 $ 293,486
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 126,806 131,979 151,967
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,372 269,371 289,463
Obligations of states and political subdivisions. . . . . . . . . . 152,028 174,806 192,566
Other securities:
Collateralized credit card receivables. . . . . . . . . . . . . . 53,109 58,518 60,050
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . 35,752 38,660 40,486
---------- ---------- ----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 458,139 942,776 1,028,018
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . 353 1,194 959
---------- ---------- ----------
Total debt and equity securities, at estimated fair value . . $ 458,492 $ 943,970 $1,028,977
========== ========== ==========
Other Securities(1)
June 30, December 31, June 30,
1995 1994 1994
---------- ------------ ----------
(In thousands)
Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . . $33,373 $37,886 $37,886
Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . . 14,311 14,242 13,347
Other equity securities . . . . . . . . . . . . . . . . . . . . . . 1,550 1,549 1,567
------- ------- -------
Total other equity securities, at cost. . . . . . . . . . . . . . $49,234 $53,677 $52,800
======= ======= =======
<FN>
___________
(1) Equity securities that do not have a readily determinable fair value.
Total investment securities were $2.4 billion, $3.0 billion, and $3.3 billion
at June 30, 1995, December 31, 1994, and June 30, 1994, respectively. The
decrease in the investment securities portfolio reflects maturities and
prepayments and the February 1995 sale of $423.9 million of fixed-rate debt
securities classified as available-for-sale. The proceeds of maturities,
prepayment and the sale were used to fund loan growth and to reduce borrowed
funds. The debt securities sold consisted primarily of U.S. treasury
obligations and obligations of U.S. government agencies.
Acquisition transactions accounted for as purchases added $36.6 million of
investment securities since June 30, 1994.
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, 1995 that exceeded 10% of consolidated stockholders' equity.
At June 30, 1995 the held-to-maturity portfolio included $609.2 million of
floating-rate mortgage-backed securities guaranteed by U.S. government agencies
or corporations. The yields on these securities float with various indices,
principally the Federal Home Loan Bank ("FHLB") Board 11th District average cost
of funds index. Also included in the held-to-maturity portfolio at June 30, 1995
were $604.7 million of collateralized mortgage obligations ("CMO"). These
investments are secured by mortgage-backed securities guaranteed by agencies or
corporations of the U.S. government. Of this CMO portfolio, $138.5 million also
float on a monthly basis, most with the FHLB 11th District
average cost of funds. The remaining $466.2 million of
fixed-rate CMOs in the held-to-maturity portfolio
are comprised of classes with an anticipated average duration of two to three
years.
The June 30, 1995 available-for-sale mortgage-backed securities portfolio was
comprised principally of securities issued by U.S. government agencies and
corporations with an estimated average duration of up to three years.
Deposits
Total deposits increased $245.5 million or 4.2% between June 30, 1995 and
1994. Since June 30, 1994, the Company acquired $129.5 million of deposits
through acquisitions accounted for as purchases. In response to increased bank
and nonbank competition, time deposit products have been offered which provide
the customer with the opportunity to reprice the instruments during their term.
At June 30, 1995, $110.6 million of these adjustable-rate time deposits were
outstanding. In late December 1994, the Company initiated a special time
deposit promotion for deposits with 7-month and 13-month maturities,
and in January 1995, the Company introduced a new money market
savings product which has a rate that is tied to a money
market fund index. Core deposits (non-public demand, interest
checking, savings, and time deposits under $100,000) represented 91.7% of total
deposits at June 30, 1995 compared to 92.3% at June 30, 1994. Brokered deposits
were immaterial at June 30, 1995, December 31, 1994, and June 30, 1994.
Asset and Liability Management
Interest Rate Risk: The Company evaluates its interest rate risk using
various tools, including interest sensitivity gap and simulation analysis. The
following table presents the Company's estimated asset and liability repricing
or maturity intervals and repricing gap position as of June 30, 1995. Most
assets and liabilities have been included in the table based on the timing of
their contractual maturities or repricing characteristics. Fixed-rate mortgage-
backed securities are included in repricing-maturity categories based upon
prepayments estimates as provided by a third-party market information service.
These estimates may vary from period to period 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-months
category.
Repricing or Maturity Interval
---------------------------------------------------------------------------------
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. . . . . . $2,387,998 $ 186,636 $ 384,462 $ 934,248 $460,398 $ 32,442 $4,386,184
Investments and trading
account securities . . . . 689,028 123,942 189,942 1,141,786 209,809 -- 2,354,507
Other earning assets . . . 51,911 193 193 698 -- -- 52,995
Nonearning assets . . . . . -- -- -- -- -- 710,908 710,908
---------- --------- --------- ---------- -------- ---------- ----------
Total assets . . . . . . $3,128,937 $ 310,771 $ 574,597 $2,076,732 $670,207 $ 743,350 $7,504,594
========== ========= ========= ========== ======== ========== ==========
Liabilities and
stockholders' equity:
Deposits. . . . . . . . . . $3,077,918 $ 355,354 $ 864,230 $ 762,435 $ 4,403 $ 977,268 $6,041,608
Federal funds purchased
and securities sold under
agreements to repurchase . 452,245 -- -- -- -- -- 452,245
Federal Home Loan Bank
borrowings . . . . . . . . 243,347 -- 25,000 -- -- -- 268,347
Other borrowings. . . . . . 32,978 -- -- -- -- -- 32,978
Long-term debt . . . . . . 12 12 26 126 -- -- 176
Other liabilities . . . . . -- -- -- -- -- 59,529 59,529
Stockholders' equity . . . -- -- -- -- -- 649,711 649,711
---------- --------- --------- ---------- -------- ---------- ----------
Total liabilities and
stockholders' equity . . $3,806,500 $ 355,366 $ 889,256 $ 762,561 $ 4,403 $1,686,508 $7,504,594
========== ========= ========= ========== ======== ========== ==========
Interest rate swaps . . . . . $ (136,000) $ 13,000 $ 36,000 $ 87,000 $ -- $ -- $ --
Repricing gap adjusted
for interest rate swaps. . . (813,563) (31,595) (278,659) 1,401,171 665,804 (943,158) --
Cumulative adjusted
repricing gap. . . . . . . . (813,563) (845,158)(1,123,817) 277,354 943,158 -- --
Cumulative adjusted repricing
gap as a percentage of total
assets . . . . . . . . . . . (10.84)% (11.26)% (14.98)% (*) (*) (*)
<FN>
---------
(*) Not meaningful.
The table indicates that the Company has a negative repricing gap for
intervals of less than one year, which means that it is liability sensitive
since the interest-bearing liabilities would typically reprice faster
than interest- earning assets. Consequently, rising interest rates would
adversely impact net interest income. Conversely, declining interest
rates would improve net interest income. This table, however, does
not indicate the magnitude of the effect that the repricing of assets
and liabilities would have on net interest income. Also, it does not reflect
interest rate exposures, such as basis risk (the changing relationships
between asset rates and liability rates of similiar maturity), loan
prepayment risk, intra-period sensitivity, the effect of interest rate floors
and ceilings, and the effect of competition on loan and deposit pricing.
Also, this analysis is static and does not reflect loan growth or other
subsequent asset and liability changes. While this interest sensitivity
gap analysis is a widely used measure of interest rate risk,
it provides an incomplete picture.
Simulation modeling also is used to manage the Company's interest rate
risk. Simulation modeling can incorporate changes in asset and liability
volumes and changes in interest rates, as well as the associated timing of the
rate of change in interest rates of various categories of assets and
liabilities. On a regular basis, the Company simulates
the potential effect on net interest income of a
gradual change in rates of 200 basis points up or down over a 12-month period.
Also, the potential effect of an instantaneous change in rates of 200 basis
points up or down is modeled. It is the Company's policy to limit the maximum
adverse impact on net interest income from a gradual change in interest rates of
200 basis points over 12 months to 5.0%. As of June 30, 1995, the Company's
interest rate risk position was well within the policy guideline.
Comparing the first six months of 1995 and 1994, net interest income was
adversely affected by the increase in interest rates reflecting both the
Company's liability sensitive position and vigorous loan and deposit pricing
competition. In February 1995, the Company sold $423.9 million of
low-yielding, fixed-rate securities to reposition its balance sheet
to reduce the Company's liability sensitive position.
In addition, the adverse effect from a potential
rise in rates would also be mitigated by future loan growth.
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 attributable to interest rate swaps was $585,000 and $407,000,
for the six months ended June 30, 1995 and 1994, respectively.
At June 30, 1995 and 1994 interest rate swaps were as follows:
June 30, 1995
-----------------------------------------------------------------
Weighted
Notional Average Weighted Average Rate
--------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $137,000 13 months (1) 6.10% 6.10%
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%
<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, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,000 $200,000
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 --
Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (100,000)
-------- --------
Balance, June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $151,000 $100,000
======== ========
Balance, January 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $151,000 $100,000
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,000) (100,000)
-------- --------
Balance, June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $137,000 $ --
======== ========
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, 1995. The loans-to-deposits and loans-to-assets
ratios averaged 70.7% and 55.5%, respectively, during the first six months of
1995. Average core deposits (non-public demand, interest checking, savings, and
time deposits under $100,000) represented 90.9% of average total deposits and
71.4% of average assets during the six-month period.
At June 30, 1995, federal funds purchased, securities sold under agreements
to repurchase, Federal Home Loan Bank borrowings, and other borrowings totaled
$753.6 million. At that same date, additional borrowing liquidity was available
in the form of $459.7 million of unpledged investment securities classified as
either held-to-maturity or available-for-sale which could secure short-term
borrowing requirements. In addition, the available-for-sale securities could 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 $52.1 million during the second quarter of 1995.
The Company had commitments to extend credit at June 30, 1995, including
standby letters of credit of $118.3 million, commercial letters of credit of
$14.0 million, unused credit card lines of $434.7 million, commitments to fund
1-4 family residential mortgage loans of $58.0 million, and other loan
commitments of $1.5 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, 1995, total stockholders' equity was $649.7 million or 8.66% of
total assets compared to $596.7 million or 7.72% of total assets at June 30,
1994. Exclusive of the net unrealized gains or losses on available-for-sale
securities, stockholders' equity was $643.2 million and $601.2 million at June
30, 1995 and 1994, respectively. For the first six months of 1995, total
stockholders' equity averaged $626.7 million or 8.17% of average assets. The
prior year-to-date average equity was $607.4 million or 8.50% 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 ratios exclude the net
unrealized gains or losses on available-for-sale debt securities as prescribed
by the regulators.
June 30,
-------------------------------
1995 1994
------------ ------------
(Dollars in thousands)
Tier I capital:
Common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 553,306 $ 499,771
Preferred stockholders' equity. . . . . . . . . . . . . . . . . . . . . 96,405 96,920
Less: Intangible assets (1). . . . . . . . . . . . . . . . . . . . . . (85,992) (97,531)
Net unrealized (gain) loss on available-for-sale debt securities (6,550) 4,511
Limitation on deferred tax assets (2). . . . . . . . . . . . . . (2,995) --
Net unrealized loss on equity securities . . . . . . . . . . . . (9) --
---------- ----------
Total Tier I capital . . . . . . . . . . . . . . . . . . . . . 554,165 503,671
---------- ----------
Tier II capital:
Allowance for credit losses (3) . . . . . . . . . . . . . . . . . . . . 64,522 57,640
---------- ----------
Total regulatory capital . . . . . . . . . . . . . . . . . . . $ 618,687 $ 561,311
========== ==========
Risk-weighted assets and off-balance-sheet commitments and contingencies. $5,161,684 $4,611,076
========== ==========
Adjusted average assets (4) . . . . . . . . . . . . . . . . . . . . . . . $7,488,028 $7,218,901
========== ==========
Regulatory
Minimums
----------
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 10.74% 10.92%
Total . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 11.99 12.17
Leverage ratio . . . . . . . . . . . . . . . . . . . . . 3.00 7.40 6.98
<FN>
___________
(1) All intangible assets except purchased mortgage servicing rights of $1.8 million and $2.9 million,
respectively and purchased credit card relationships of $7.5 million and $9.1 million, respectively are
subtracted from capital.
(2) During the first quarter of 1995, the banking system regulators amended the regulatory capital rules to limit
the amount of deferred tax assets that are allowable in computing the regulatory capital ratios.
(3) The allowance for credit losses is limited to 1.25% of risk-weighted assets.
(4) Quarter-to-date average assets excluding the net unrealized gain or loss on available-for-sale securities and
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.
Under regulations adopted by the Federal Deposit Insurance Corporation, 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 each of the
Company's subsidiary banks exceeded the "well capitalized" regulatory capital
requirements at June 30, 1995.
For 1994, the Company's board of directors authorized 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. A board of directors action in April 1994 specifically reserved a
portion of this previous authorization to be used for the acquisition of
Oklahoma Savings, Inc. ("OSI"). During 1994,
355,466 shares of the Company's common stock
was purchased to be used in the OSI acquisition, which was
consummated on January 6, 1995 and the shares were
reissued. For 1995, the Company's board of directors
again authorized the purchase of up to 500,000 common shares, or the equivalent
in depositary shares, or a combination of the two. At June 30, 1995, 125,058
common shares and 20,000 depositary shares had been acquired pursuant to this
authorization.
Acquisitions
The Company has no binding commitments, agreements, or understandings to
acquire any additional financial institutions. Though the Company would
consider strategic and fill-in acquisitions that could be made on favorable
terms, its principal focus has shifted from growth by acquisition to internal
growth, enhancement of revenues, and greater efficiency.
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 obtain funds from
its bank subsidiaries. Historically, these funds have been primarily provided
by intercompany dividends. Intercompany dividends amounted to $40.0 million and
$96.6 million for the six-month periods ended June 30, 1995, and 1994,
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. At June 30, 1995, the subsidiary banks could distribute
approximately $20.5 million in dividends to the parent company without approval
from regulatory agencies.
Because of the financial strength of the parent company and the anticipated
earnings capacity of the BANK IV banks, it is anticipated that the banks will be
able to obtain permission from the Comptroller to pay additional dividends in
1995 to the extent justified by their respective financial condition.
At June 30, 1995, the parent company had approximately $29.0 million of cash
and short-term investments. The parent company's borrowings under its two
credit agreements at the same date totaled $10.0 million.
These credit agreements provide the Company with a
combined $100.0-million line of credit for a one-year
period. The credit agreements subject the Company to certain restrictions and
covenants related to, among others, consolidated stockholders' equity and the
maintenance of specific ratios related to leverage, risked-based capital, and
nonperforming assets. The parent company is currently in compliance with all
restrictions and covenants under these agreements.
Recently Issued Accounting Standards
The Financial Accounting Standards Board recently issued statements of
accounting standards which could have an effect on the Company in 1996 and
after. The Company is currently analyzing the impact of these statements.
In March 1995, the Financial Accounting Standards Board issued FAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. FAS No. 121 establishes accounting standards for the impairment
of long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement requires that long-
lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use
should be based on the fair value of the asset. Long-
lived assets and certain identifiable intangibles to be disposed of generally
should be reported at the lower of carrying amount or fair value less cost to
sell. FAS No. 121 is effective for financial statements issued for fiscal years
beginning after December 15, 1995.
In May 1995, FAS No. 122, Accounting for Mortgage Servicing Rights, was
issued. FAS No. 122 amends FAS No. 65, Accounting for Certain Mortgage Banking
Activities, to require that mortgage banking enterprises recognize as separate
assets rights to service mortgage loans for others, however those mortgage
servicing rights are acquired. This statement also requires that mortgage
banking enterprises assess capitalized mortgage servicing rights for impairment
based on the fair value of those rights. FAS No. 122 is effective for fiscal
years beginning after December 15, 1995.
PART II
Item 1. Legal Proceedings.
The Registrant and its subsidiaries are defendants in various legal
proceedings that arise in the ordinary course of business. Claims in various
amounts of up to approximately $20,000,000 have been asserted in some of these
proceedings. However, after consultation with legal counsel, management
believes that potential liabilities, if any, arising from these claims would
not have a material adverse effect on the Registrant's business or financial
condition.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed herewith:
3 Bylaws
27 Article 9 of Regulation S-X Financial Data Schedule for the June
30, 1995 Form 10-Q.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended June 30,
1995.
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 14, 1995 /s/ Darrell G. Knudson
------------------------- ---------------------------------------
Darrell G. Knudson
Chairman of the Board
(Chief Executive Officer)
Date August 14, 1995 /s/ Michael J. Shonka
------------------------- ---------------------------------------
Michael J. Shonka
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)