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 September 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 27,649,295 shares of common stock, par value $5 per share, of the
registrant outstanding as of October 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 September 30, 1995,
December 31, 1994 and September 30, 1994
Consolidated Statements of Income for the three-month and nine-
month periods ended September 30, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for
the nine-month periods ended September 30, 1995 and 1994
Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
September 30, December 31, September 30,
1995 1994 1994
------------ ------------ ------------
(Dollars in thousands)
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . $ 397,464 $ 438,930 $ 341,542
Interest-bearing deposits in other financial institutions . . . . . 1,090 499 1,591
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . 3,310 8,470 4,900
Securities:
Held-to-maturity (market value-$1,756,550, $1,847,767,
and $1,954,267, respectively). . . . . . . . . . . . . . . . . . 1,774,381 1,958,190 2,027,656
Available-for-sale (at market value). . . . . . . . . . . . . . . 418,927 943,970 992,065
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,979 53,677 53,659
Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,295 719 1,898
Loans and leases:
Total loans and leases. . . . . . . . . . . . . . . . . . . . . . 4,403,973 4,062,051 3,873,831
Allowance for credit losses . . . . . . . . . . . . . . . . . . . (71,008) (72,867) (73,414)
---------- ---------- ----------
Net loans and leases. . . . . . . . . . . . . . . . . . . . . . 4,332,965 3,989,184 3,800,417
Bank premises and equipment, net. . . . . . . . . . . . . . . . . . 161,637 158,885 159,731
Income receivable and other assets. . . . . . . . . . . . . . . . . 108,018 166,309 150,184
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . 92,754 95,606 94,963
---------- ---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $7,341,820 $7,814,439 $7,628,606
========== ========== ==========
Liabilities And Stockholders' Equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . $ 968,015 $1,049,118 $ 987,597
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . 4,977,977 4,675,478 4,743,583
---------- ---------- ----------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . 5,945,992 5,724,596 5,731,180
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . . . . . . 477,974 933,706 670,462
Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . 168,422 441,097 491,044
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 22,211 43,001 63,001
Accrued interest, taxes, and other liabilities. . . . . . . . . . . 65,228 58,976 63,361
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 164 7,762 8,176
---------- ---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 6,679,991 7,209,138 7,027,224
---------- ---------- ----------
Stockholders' Equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . 99,362 100,000 100,000
Common stock, par value $5 per share
Authorized: 50,000,000 shares
Issued: 27,638,179, 27,566,225, and 27,546,106 shares. . . . . 138,191 137,831 137,731
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . 108,421 107,576 107,324
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 312,609 294,532 281,797
Treasury stock at cost (355,466 shares at December 31 and
September 30, 1994). . . . . . . . . . . . . . . . . . . . . . . -- (10,018) (10,018)
Stock option loans. . . . . . . . . . . . . . . . . . . . . . . . (1,741) (1,894) (2,030)
---------- ---------- ----------
Stockholders' equity before net unrealized
gains (losses) on available-for-sale securities. . . . . . . . . 656,842 628,027 614,804
Net unrealized gains (losses) on available-for-sale securities. . 4,987 (22,726) (13,422)
---------- ---------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . 661,829 605,301 601,382
---------- ---------- ----------
Total liabilities and stockholders' equity. . . . . . . . . . $7,341,820 $7,814,439 $7,628,606
========== ========== ==========
<FN>
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
September 30, September 30, Percent September 30, September 30, Percent
1995 1994 Change 1995 1994 Change
------------ ------------ ------- ------------ ------------ -------
(Dollars in thousands, except per share amounts)
Interest Income:
Interest and fees on loans and leases . $101,062 $ 82,121 23.1 % $292,972 $222,466 31.7 %
Interest on short-term investments . . . 1,637 179 8.1 x 4,539 862 4.3 x
Interest and dividends on investment
securities:
Taxable . . . . . . . . . . . . . . . 33,676 42,413 (20.6) 107,362 120,050 (10.6)
Tax-preferred . . . . . . . . . . . . 2,703 4,085 (33.8) 9,383 12,915 (27.3)
Interest and dividends on trading
account securities. . . . . . . . . . . 25 18 38.9 63 72 (12.5)
-------- -------- -------- --------
Total interest income. . . . . . . . 139,103 128,816 8.0 414,319 356,365 16.3
-------- -------- -------- --------
Interest Expense:
Interest on deposits . . . . . . . . . . 58,336 41,508 40.5 170,766 114,829 48.7
Interest on borrowings . . . . . . . . . 10,651 13,674 (22.1) 37,763 31,329 20.5
Interest on long-term debt . . . . . . . 4 251 (98.4) 132 1,034 (87.2)
-------- -------- -------- --------
Total interest expense . . . . . . . 68,991 55,433 24.5 208,661 147,192 41.8
-------- -------- -------- --------
Net Interest Income. . . . . . . . . . . . 70,112 73,383 (4.5) 205,658 209,173 (1.7)
Provision for credit losses. . . . . . . 1,261 9 139.1 x 3,294 340 8.7 x
-------- -------- -------- --------
Net Interest Income After Provision For
Credit Losses. . . . . . . . . . . . . . 68,851 73,374 (6.2) 202,364 208,833 (3.1)
-------- -------- -------- --------
Noninterest Income:
Trust fees . . . . . . . . . . . . . . . 5,820 5,435 7.1 16,627 15,242 9.1
Service charges on deposit accounts. . . 10,681 9,955 7.3 30,448 28,579 6.5
Bank card fees . . . . . . . . . . . . . 4,889 3,572 36.9 13,396 9,733 37.6
Investment securities gains (losses) . . 95 56 69.6 (21,778) 3,682
Other. . . . . . . . . . . . . . . . . . 6,335 5,314 19.2 17,897 16,265 10.0
-------- -------- -------- --------
Total noninterest income . . . . . . 27,820 24,332 14.3 56,590 73,501 (23.0)
-------- -------- -------- --------
Noninterest Expense:
Salaries and employee benefits . . . . . 31,913 33,406 (4.5) 93,853 95,103 (1.3)
Furniture and equipment. . . . . . . . . 5,468 5,811 (5.9) 16,389 16,983 (3.5)
Net occupancy. . . . . . . . . . . . . . 4,793 4,943 (3.0) 13,991 13,370 4.6
FDIC insurance . . . . . . . . . . . . . 382 3,213 (88.1) 6,944 9,563 (27.4)
Advertising and public relations . . . . 1,634 2,088 (21.7) 6,843 6,523 4.9
Bank card . . . . . . . . . . . . . . . 1,082 501 1.2 x 3,228 2,159 49.5
Amortization of intangible assets. . . . 2,533 2,997 (15.5) 8,250 7,391 11.6
Merger and integration costs . . . . . . -- 53 28 2,821 (99.0)
Net costs of operation of other real
estate and nonperforming assets . . . . 120 (161) 101 (511)
Other. . . . . . . . . . . . . . . . . . 12,039 12,061 (.2) 36,743 35,865 2.4
-------- -------- -------- --------
Total noninterest expense. . . . . . 59,964 64,912 (7.6) 186,370 189,267 (1.5)
-------- -------- -------- --------
Income Before Income Taxes . . . . . . . . 36,707 32,794 11.9 72,584 93,067 (22.0)
Income tax expense . . . . . . . . . . . 13,663 10,810 26.4 25,978 31,417 (17.3)
-------- -------- -------- --------
Net Income . . . . . . . . . . . . . . . . $ 23,044 $ 21,984 4.8 $ 46,606 $ 61,650 (24.4)
======== ======== ======== ========
Net Income Applicable to Common Shares . . $ 21,304 $ 20,234 5.3 $ 41,276 $ 56,400 (26.8)
======== ======== ======== ========
Earnings Per Common Share:
Primary. . . . . . . . . . . . . . . . . $ .77 $ .74 4.1 % $ 1.50 $ 2.07 (27.5)%
Fully diluted. . . . . . . . . . . . . . .74 .72 2.8 1.50 2.01 (25.4)
Dividends Per Common Share . . . . . . . . .29 .26 11.5 .84 .78 7.7
<FN>
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. . . . . . . . -- -- -- -- -- 61,650 -- -- -- -- 61,650
Cash dividends:
Preferred stock . . . . -- -- -- -- -- (5,250) -- -- -- -- (5,250)
Common stock. . . . . . -- -- -- -- -- (20,671) -- -- -- -- (20,671)
Pooled companies. . . . -- -- -- -- -- (309) -- -- -- -- (309)
Purchase of common
stock for treasury . . . -- -- -- -- -- -- (355) (10,018) -- -- (10,018)
Issuance of common stock:
Acquisition . . . . . . -- -- -- -- 42 -- 70 2,041 -- -- 2,083
Stock option plans. . . -- -- 61 307 715 -- 40 1,169 -- -- 2,191
Directors deferred fee
plan. . . . . . . . . . -- -- 4 19 90 -- 2 35 -- -- 144
Net change in stock
option loans . . . . . . -- -- -- -- -- -- -- -- (235) -- (235)
Adoption of Financial
Accounting Standard
No. 115 by pooled
companies. . . . . . . . -- -- -- -- -- -- -- -- -- (364) (364)
Net change in unrealized
gains (losses) on avail-
able-for-sale securities -- -- -- -- -- -- -- -- -- (38,206) (38,206)
------ -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Balance, September 30, 1994 250 $100,000 27,546 $137,731 $107,324 $281,797 (355)$(10,018) $(2,030) $(13,422) $601,382
====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
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. . . . . . . . -- -- -- -- -- 46,606 -- -- -- -- 46,606
Cash dividends:
Preferred stock . . . . -- -- -- -- -- (5,232) -- -- -- -- (5,232)
Common stock. . . . . . -- -- -- -- -- (23,199) -- -- -- -- (23,199)
Purchase and retirement
of preferred stock . . . (1) (500) -- -- 15 (98) -- -- -- -- (583)
Conversion of preferred
stock into common. . . . (1) (138) 5 23 112 -- -- 3 -- -- --
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 . . -- -- 51 257 (283) -- 125 4,043 -- -- 4,017
Directors deferred fee
plan. . . . . . . . . . -- -- 2 12 64 -- -- -- -- -- 76
Net change in stock
option loans . . . . . . -- -- -- -- -- -- -- -- 153 -- 153
Net change in unrealized
gains (losses) on avail-
able-for-sale securities -- -- -- -- -- -- -- -- -- 27,713 27,713
------ -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Balance, September 30, 1995 248 $ 99,362 27,638 $138,191 $108,421 $312,609 -- $ -- $(1,741) $ 4,987 $661,829
====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
<FN>
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
--------------------------
September 30, September 30,
1995 1994
------------ ------------
Increase (Decrease) in Cash and Due from Banks (In thousands)
Cash Flows From Operating Activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46,606 $ 61,650
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 84
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,294 340
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,516 21,232
Accretion of discounts on investment securities, net of amortization of premiums. . . . . 4,525 11,187
Write-down of other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . 222 277
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,763 4,753
Investment securities loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,778 (3,682)
Gain on sales of premises and equipment, other real estate owned, and other assets. . . . (442) (1,916)
Write-down of goodwill, core deposit intangibles, and premises and equipment
associated with pooling transactions and other asset write-downs . . . . . . . . . . . . -- 1,148
Change in assets and liabilities, net of effects from purchases of acquired
entities and branch sales:
Trading account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,566) (1,157)
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,068) 110,132
Receivables . . . . . 27,984 85,240
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,192) (4,747)
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,102 (5,219)
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,415 4,735
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . 136,937 284,057
--------- ---------
Cash Flows From Investing Activities:
Purchases of banks, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . (4,091) (87,766)
Branch sales, including cash and cash equivalents sold . . . . . . . . . . . . . . . . . . . (15,232) --
Activity in available-for-sale investment securities:
Sales proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445,891 603,452
Maturities, prepayments, and calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,176 190,553
Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,082) (551,303)
Activity in held-to-maturity investment securities:
Maturities, prepayments, and calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,275 464,257
Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,907) (597,472)
Proceeds from sales of premises and equipment, other real estate owned, and other assets . . 4,645 10,090
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,755) (14,701)
Purchases of mortgage and credit card loans. . . . . . . . . . . . . . . . . . . . . . . . . (53,329) --
Change in assets, net of effects from purchases of acquired entities and branch sales:
Interest-bearing deposits in other financial institutions. . . . . . . . . . . . . . . . . 381 1,443
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . 11,341 22,178
Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (202,974) (286,476)
--------- ---------
Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . . . . 493,339 (245,745)
--------- ---------
Cash Flows From Financing Activities:
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,598) (15,184)
Purchase and retirement of preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . (583) --
Acquisition of common stock for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . (4,046) (10,018)
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,199) (20,671)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,235) (5,250)
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,017 2,191
Net change in stock option loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 (235)
Purchase of minority stockholder interest. . . . . . . . . . . . . . . . . . . . . . . . . . -- (36)
Capital transactions of pooled companies . . . . . . . . . . . . . . . . . . . . . . . . . . -- (365)
Change in liabilities, net of effects from purchases of acquired entities and branch sales:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,171 (325,347)
Federal funds purchased and securities sold under agreements to repurchase . . . . . . . . (455,732) 131,851
Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (272,900) 182,801
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,790) 39,827
--------- ---------
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . . . . . . . (671,742) (20,436)
--------- ---------
Increase (decrease) in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . (41,466) 17,876
Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . 438,930 323,666
--------- ---------
Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 397,464 $ 341,542
========= =========
Supplemental Disclosures:
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 197,247 $ 142,380
========= =========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,117 $ 26,734
========= =========
<FN>
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. 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 these branch sales.
On September 7, 1995, the Company completed the sale of its branch located
in Meade, Kansas. As the result of this sale, the Company recognized a gain of
$705,000. In the sale transactions, the Company transferred deposit liabilities
and sold loans and bank premises. The following table presents information
regarding the branches sold in 1995.
1995
--------------
(In thousands)
Fair value of assets sold . . . . . . . . . . . . . . . . . . . . . . . $(5,577)
Fair value of liabilities transferred . . . . . . . . . . . . . . . . . 21,646
Reduction of cost in excess of net assets acquired. . . . . . . . . . . (132)
Gain on sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (705)
-------
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,232
=======
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. There were no sales of investment
securities for the three months ended September 30, 1995 and 1994.
Nine Months Ended
September 30,
--------------------
1995 1994
-------- --------
(In thousands)
Sales price of available-for-sale investment securities . . . . . . . . . $445,891 $603,452
======== ========
Gross realized gains. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,322 $ 8,485
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . 23,328 4,923
-------- --------
Net gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . $(22,006) $ 3,562
======== ========
During the nine months ended September 30, 1995, "Other noninterest income"
included a net unrealized holding loss on trading securities of $600. For the
nine months ended September 30, 1994, a net unrealized holding gain of $45,000
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:
Nine Months Ended
September 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 . . . . . . . . . . . . . . . . . . . 3,294 340
Recoveries on loans and leases previously charged off . . . . . . . . . . . . 9,134 9,275
Loans and leases charged off. . . . . . . . . . . . . . . . . . . . . . . . . (15,920) (9,877)
-------- --------
Balance at September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,008 $ 73,414
======== ========
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 September 30, 1995, the recorded investment in loans that are considered
to be impaired under FAS No. 114 was $15,744,000 (all of which were being
accounted for on a nonaccrual basis). The related allowance for credit losses
was $5,130,000. The average recorded investment in impaired loans during the
nine-month period ended September 30, 1995 was approximately $17,388,000. For
the nine-month period ended September 30, 1995 the Company recognized interest
income on these impaired loans of $91,000, using the cash basis method of income
recognition.
Note 5 - Preferred Stock
September 30, December 31, September 30,
1995 1994 1994
------------- ------------- -------------
(Dollars in thousands)
Class A cumulative convertible preferred stock,
par value $100 per share
Authorized: 250,000 shares
Issued: 248,404, 250,000 and 250,000
shares (at liquidation preference) . . . . . . . . . . . . $ 99,362 $100,000 $100,000
Class B preferred stock, no par value
Authorized: 5,000,000 shares . . . . . . . . . . . . . . . -- -- --
-------- -------- --------
$ 99,362 $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 Nine Months Ended
September 30, September 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. . . . . . . . . . -- 53 28 280
Conform intangible asset amortization policies. . . . . . . . . . -- -- -- 1,124
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 150
------ ------ ------ ------
$ -- $ 53 $ 28 $2,821
====== ====== ====== ======
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 Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Primary . . . . . . . . . . . . . . . . . . . . . . . 27,624,797 27,177,486 27,592,729 27,240,519
Fully diluted . . . . . . . . . . . . . . . . . . . . 31,054,122 30,625,761 31,031,093 30,688,794
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 nine months ended
September 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.
Note 8 - Pending Merger
On August 25, 1995, the Company and Boatmen's Bancshares, Inc.
("Boatmen's"), entered into an Agreement and Plan of Merger. The merger
agreement contemplates the merger of the Company with and into a subsidiary of
Boatmen's, subject to affirmative votes by a majority of the outstanding voting
shares of the Company and of Boatmen's outstanding voting shares. Pursuant to
the merger agreement, each outstanding share of the Company's common stock, will
be converted into the right to receive one share of Boatmen's common stock, and
each outstanding share of the Company's Class A Cumulative Convertible Preferred
Stock, will be converted into the right to receive one share of Boatmen's 7%
Cumulative Convertible Preferred Stock, Series A, having substantially the same
rights and preferences as the Company's preferred.
On August 26, 1995, the Company and Boatmen's entered into a stock option
agreement providing Boatmen's with the right to purchase 5,500,000 shares of the
Company's common stock (subject to adjustment in certain circumstances but in no
event to exceed 19.9% of the then outstanding common shares) at a price of
$33.50 per share. Boatmen's may exercise this option only under certain
limited and specifically defined circumstances. At the request of Boatmen's,
the Company will repurchase for a formula price any shares acquired by exercise
of this option.
FOURTH FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
Three Months Ended
-----------------------------------
September 30, September 30, Percent
1995 1994(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 139,103 $ 128,816 8.0 %
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 70,112 73,383 (4.5)
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 71,860 75,686 (5.1)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 1,261 9 139.1 x
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,044 21,984 4.8
Net income applicable to common shares. . . . . . . . . . . . . . . . . 21,304 20,234 5.3
Per Common Share Data:
Earnings per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .77 $ .74 4.1 %
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74 .72 2.8
Fully diluted as originally reported(1) . . . . . . . . . . . . . . . .74 .72 2.8
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .29 .26 11.5
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 20.35 18.44 10.4
Book value exclusive of net unrealized gains (losses)
on available-for-sale securities at period-end . . . . . . . . . . . . 20.17 18.93 6.6
Tangible book value . . . . . . . . . . . . . . . . . . . . . . . . . . 17.32 15.36 12.8
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 7/8-32 3/4 30-27 3/4
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 27,625 27,177 1.6
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 27,638 27,191 1.6
Period-end common shares outstanding assuming full dilution (000s). . . 31,064 30,639 1.4
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,341,820 $7,628,606 (3.8)%
Period-end loans and leases . . . . . . . . . . . . . . . . . . . . . . 4,403,973 3,873,831 13.7
Period-end allowance for credit losses. . . . . . . . . . . . . . . . . 71,008 73,414 (3.3)
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 164 8,176 (98.0)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 562,467 501,382 12.2
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 661,829 601,382 10.1
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,492,663 7,666,045 (2.3)
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 548,829 497,524 10.3
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 648,280 597,524 8.5
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.22% 1.14%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 14.10 14.60
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 15.40 16.14
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.21 4.35
Asset Quality Ratios:
Net charge-offs (annualized)/average loans and leases . . . . . . . . . .21% .08%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . .75 .89
Allowance for credit losses/period-end nonperforming loans. . . . . . . 260.97 272.04
Allowance for credit losses/period-end loans and leases . . . . . . . . 1.61 1.90
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 9.01% 7.88%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 92.52 98.38
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.70 7.00
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 10.97 11.26
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 12.22 12.51
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 37.66 35.14
<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 third 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
Nine Months Ended
-----------------------------------
September 30, September 30, Percent
1995 1994(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 414,319 $ 356,365 16.3 %
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 205,658 209,173 (1.7)
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 211,485 216,412 (2.3)
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 3,294 340 8.7 x
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,606 61,650 (24.4)
Net income applicable to common shares. . . . . . . . . . . . . . . . . 41,276 56,400 (26.8)
Per Common Share Data:
Earnings per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.50 $ 2.07 (27.5)%
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50 2.01 (25.4)
Fully diluted as originally reported(1) . . . . . . . . . . . . . . . 1.50 2.01 (25.4)
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .84 .78 7.7
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 20.35 18.44 10.4
Book value exclusive of net unrealized gains (losses)
on available-for-sale securities at period-end . . . . . . . . . . . . 20.17 18.93 6.6
Tangible book value . . . . . . . . . . . . . . . . . . . . . . . . . . 17.32 15.36 12.8
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 7/8-29 1/2 31 1/4-25 1/4
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 27,593 27,241 1.3
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 27,638 27,191 1.6
Period-end common shares outstanding assuming full dilution (000s). . . 31,064 30,639 1.4
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,341,820 $7,628,606 (3.8)%
Period-end loans and leases . . . . . . . . . . . . . . . . . . . . . . 4,403,973 3,873,831 13.7
Period-end allowance for credit losses. . . . . . . . . . . . . . . . . 71,008 73,414 (3.3)
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 164 8,176 (98.0)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 562,467 501,382 12.2
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 661,829 601,382 10.1
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,608,027 7,320,978 3.9
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 534,257 504,103 6.0
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 633,971 604,103 4.9
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .82% 1.13%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 9.83 13.64
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 10.33 14.96
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.08 4.35
Asset Quality Ratios:
Net charge-offs (annualized)/average loans and leases . . . . . . . . . .21% .02%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . .75 .89
Allowance for credit losses/period-end nonperforming loans. . . . . . . 260.97 272.04
Allowance for credit losses/period-end loans and leases . . . . . . . . 1.61 1.90
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 9.01% 7.88%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 92.52 98.38
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.70 7.00
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 10.97 11.26
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 12.22 12.51
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 56.00 37.68
<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 third 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 nine months of 1995 was $46.6 million compared to
$61.7 million for the first nine months of 1994. Fully diluted earnings per
share were $1.50 and $2.01 for the comparable periods. Net income for the first
nine 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 $60.0 million, or $1.93 per share. For the first nine
months of 1995, return on assets and return on common equity were .82% and
10.33%, respectively. Exclusive of the first quarter securities losses, 1995
return on assets and return on common equity were 1.05% and 13.69%,
respectively. Return on assets was 1.13% and return on common equity was
14.96% for the first nine 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 $3.5 million to total $205.7 million for the
first nine months of 1995 as compared to $209.2 million for the
first nine months of last year. On a tax-equivalent
basis, net interest income decreased $4.9
million. The decrease in net interest income was principally related to the
decrease in the net yield on earning assets caused by the cyclical increase in
interest rates and aggressive loan and deposit competition. The net yield on
earning assets decreased to 4.08% in the first nine months of 1995 from 4.35% in
the comparable period of 1994. The effect of the lower net yield on net interest
income was partially offset by an increased level of interest-earning assets and
loan growth. Total average interest-earning assets were $6.9 billion for the
first nine months of 1995, a $273.6 million, or 4.1%, increase over the
comparable period of 1994. For the same comparative periods, average loans and
leases increased $771.8 million or 21.9%, averaging $4.3 billion for the nine
months ended September 30, 1995.
The provisions for credit losses totaled $3.3 million and $340,000 for the
first nine months of 1995 and 1994, respectively. The increased provision
reflects the significant loan growth, a higher level of charge-offs, and a
desire to maintain a strong allowance for credit losses.
Net charge-offs totaled $6.8 million or .21% (computed on
an annualized basis) of average loans and leases for
the current period. Net charge-offs for the comparable period of the prior year
were minimal. As of September 30, 1995, the allowance for credit losses was
1.61% of loans and leases.
Noninterest income was $56.6 million in the first nine months of 1995
compared to $73.5 million in the same period of 1994. The first nine 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
nine months of 1994 included $3.7 million of securities gains. Fees collected
in the normal course of business increased $8.4 million or 12.0% to total $77.7
million for the first nine months of 1995 from $69.3 million in the same period
of 1994.
Noninterest expense totaled $186.4 million in the first nine months of 1995
compared to $189.3 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 nine 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) decreased
$632,000 to total $186.2 million in the first nine months of 1995. This decrease
in operating expense reflects the third-quarter reduction in the FDIC premium of
$3.0 million, partially offset by increased costs associated with business
combinations accounted for as purchases. The Company's efficiency ratio
(operating expense/fee income plus tax-equivalent net interest income)was 64.41%
for the current-year nine-month period compared to 65.40% for the first nine
months of the prior year.
Net income for the third quarter of 1995 was $23.0 million, and fully diluted
earnings per share were $.74. Comparatively, third quarter 1994 results were
$22.0 million, or $.72 per share. Between the quarters, a decrease in net
interest income of $3.3 million and an increase in the provision for credit
losses of $1.3 million were offset by an increase in noninterest income of $3.5
million and noninterest expense reductions of $4.9 million. With the exception
of the securities losses from the first-quarter 1995 balance sheet
repositioning, the changes in income and expense were principally the result
of the same factors that caused the year-to-date changes.
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
September 30, 1995 and 1994.
Three Months Ended
-----------------------------------------------------------
September 30, 1995 September 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) . . . . . . . . . . $4,390,213 $101,414 9.18% $3,766,616 $ 82,328 8.69%
Interest-bearing deposits in other
financial institutions . . . . . . . . . . 1,190 22 7.45 1,683 24 5.55
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . 124,189 1,615 5.16 10,202 155 6.06
Investment securities:
Taxable . . . . . . . . . . . . . . . . . 2,155,877 33,676 6.24 2,956,422 42,413 5.73
Tax-preferred(1) . . . . . . . . . . . . 141,345 4,093 11.58 208,276 6,179 11.87
Trading account securities(1) . . . . . . . 2,005 31 6.14 1,503 20 5.31
---------- -------- ---------- --------
Total interest-earning assets(1). . . . 6,814,819 140,851 8.23 6,944,702 131,119 7.52
Cash and due from banks . . . . . . . . . . . 389,511 389,153
Bank premises and equipment, net. . . . . . . 162,270 158,243
Income receivable and other assets . . . . . 104,690 141,688
Intangible assets, net . . . . . . . . . . . 94,115 106,139
Allowance for credit losses . . . . . . . . . (72,742) (73,880)
---------- ----------
Total assets . . . . . . . . . . . . . $7,492,663 $7,666,045
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Regular savings and interest checking . . $1,111,744 $ 6,371 2.27% $1,247,843 $ 7,008 2.23%
Money market savings. . . . . . . . . . . 1,291,663 13,985 4.30 997,217 6,847 2.72
Time under $100,000 . . . . . . . . . . . 2,257,160 32,108 5.64 2,142,317 23,040 4.27
Time of $100,000 or more. . . . . . . . . 389,254 5,872 5.99 404,461 4,613 4.53
---------- -------- ---------- --------
Total interest-bearing deposits . . . . 5,049,821 58,336 4.58 4,791,838 41,508 3.44
Federal funds purchased and securities
sold under agreements to repurchase. . . . 498,558 6,808 5.42 636,448 7,211 4.50
Federal Home Loan Bank borrowings . . . . . 242,297 3,572 5.85 491,017 5,722 4.62
Other borrowings. . . . . . . . . . . . . . 20,035 271 5.36 58,984 741 4.99
Long-term debt . . . . . . . . . . . . . . 163 4 10.74 9,441 251 10.63
---------- -------- ---------- --------
Total interest-bearing liabilities . . 5,810,874 68,991 4.71 5,987,728 55,433 3.67
-------- --------
Noninterest-bearing deposits. . . . . . . . . 963,678 1,013,078
Other liabilities and minority interest in
subsidiaries . . . . . . . . . . . . . . . . 69,831 67,715
---------- ----------
Total liabilities . . . . . . . . . . . 6,844,383 7,068,521
Preferred stockholders' equity . . . . . . . 99,451 100,000
Common stockholders' equity . . . . . . . . . 548,829 497,524
---------- ----------
Total stockholders' equity . . . . . . 648,280 597,524
---------- ----------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . . $7,492,663 $7,666,045
========== ==========
Net interest income(1). . . . . . . . . . . . . $ 71,860 $ 75,686
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . 8.23% 7.52%
Interest expense/interest-earning assets. . . 4.02 3.17
----- -----
Net yield on earning assets(1). . . . . 4.21% 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.
The following table presents average balances, income and expense, and yields
and rates on a fully tax-equivalent basis for the nine-month periods ended
September 30, 1995 and 1994.
Nine Months Ended
-----------------------------------------------------------
September 30, 1995 September 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) . . . . . . . . . . $4,300,499 $293,987 9.13% $3,528,716 $223,070 8.45%
Interest-bearing deposits in other
financial institutions . . . . . . . . . . 1,254 68 7.25 2,103 85 5.37
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . 102,488 4,471 5.83 26,939 777 3.86
Investment securities:
Taxable . . . . . . . . . . . . . . . . . 2,342,357 107,362 6.11 2,857,155 120,050 5.60
Tax-preferred(1) . . . . . . . . . . . . 160,159 14,186 11.81 217,836 19,539 11.96
Trading account securities(1) . . . . . . . 1,636 72 5.89 2,078 83 5.36
---------- -------- ---------- --------
Total interest-earning assets(1). . . . 6,908,393 420,146 8.12 6,634,827 363,604 7.32
Cash and due from banks . . . . . . . . . . . 385,977 383,677
Bank premises and equipment, net. . . . . . . 160,436 154,559
Income receivable and other assets . . . . . 130,160 136,746
Intangible assets, net . . . . . . . . . . . 96,465 82,232
Allowance for credit losses . . . . . . . . . (73,404) (71,063)
---------- ----------
Total assets . . . . . . . . . . . . . $7,608,027 $7,320,978
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Regular savings and interest checking . . $1,148,539 $ 20,455 2.38% $1,214,185 $ 19,847 2.19%
Money market savings. . . . . . . . . . . 1,170,272 36,889 4.21 1,005,158 19,117 2.54
Time under $100,000 . . . . . . . . . . . 2,288,676 93,396 5.46 2,005,303 63,764 4.25
Time of $100,000 or more. . . . . . . . . 457,879 20,025 5.85 383,822 12,101 4.22
---------- -------- ---------- --------
Total interest-bearing deposits . . . . 5,065,366 170,765 4.51 4,608,468 114,829 3.33
Federal funds purchased and securities
sold under agreements to repurchase. . . . 511,085 21,594 5.65 596,075 17,340 3.89
Federal Home Loan Bank borrowings . . . . . 341,497 14,831 5.81 390,417 12,594 4.31
Other borrowings. . . . . . . . . . . . . . 29,669 1,338 6.03 41,625 1,395 4.48
Long-term debt . . . . . . . . . . . . . . 1,728 133 10.23 10,891 1,034 12.66
---------- -------- ---------- --------
Total interest-bearing liabilities . . 5,949,345 208,661 4.69 5,647,476 147,192 3.48
-------- --------
Noninterest-bearing deposits. . . . . . . . . 953,424 1,000,871
Other liabilities and minority interest in
subsidiaries . . . . . . . . . . . . . . . . 71,287 68,528
---------- ----------
Total liabilities . . . . . . . . . . . 6,974,056 6,716,875
Preferred stockholders' equity . . . . . . . 99,714 100,000
Common stockholders' equity . . . . . . . . . 534,257 504,103
---------- ----------
Total stockholders' equity . . . . . . 633,971 604,103
---------- ----------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . . $7,608,027 $7,320,978
========== ==========
Net interest income(1). . . . . . . . . . . . . $211,485 $216,412
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . 8.12% 7.32%
Interest expense/interest-earning assets. . . 4.04 2.97
----- -----
Net yield on earning assets(1). . . . . 4.08% 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 nine months of 1995, net interest income amounted to $205.7
million, representing a decrease of $3.5 million from the $209.2 million earned
during the comparable period of 1994. On a fully tax-equivalent basis, net
interest income decreased $4.9 million to total $211.5 million for the first
nine months of 1995 from $216.4 million for the same period of 1994. The
decrease in net interest income was attributable to the decrease in the net
yield on earning assets caused by the cyclical increase in interest rates and
aggressive loan and deposit competition.
The net yield on earning assets decreased to 4.08% for the first nine-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 3.43% for 1995 compared to 3.84% for 1994.
Growth in total interest-earning assets and loans partially offset the
negative impact of rising rates and competition on net interest income. Total
average interest-earning assets were $6.9 billion for the first nine months of
1995, a $273.6 million increase over the comparable period of 1994. For the same
comparative periods, average loans and leases increased $771.8 million or 21.9%.
Approximately 68% of the increase in loans was attributable to internal loan
growth with the remainder due to purchase acquisitions. Average investment
securities decreased $572.5 million. The proceeds of the first-quarter-1995
securities sale, maturities, and prepayments were used to fund loan growth and
to reduce borrowed funds. Average deposits increased $409.5 million, principally
attributable to acquisitions.
Loan fees included in net interest income amounted to $7.0 million and $8.9
million for the first nine 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 $129.6 million or 41.4% between the first nine months of 1995 and
1994. Included in the 1995 dollar volume and number of residential mortgage loan
originations are $15.1 million of loans (435 loans) originated under the
Company's program for low-to-moderate income borrowers on which the origination
fees are waived. By comparison, $40.8 million (1,118 loans) were originated
under this program for low-to-moderate income borrowers during the first nine
months of 1994.
The following table provides the dollar volume and the number of residential
mortgage loan originations and refinancings during the first nine months of 1995
and 1994.
Nine Months Ended
September 30,
--------------------
1995 1994
-------- --------
(Dollars in thousands)
Residential mortgage loan originations and refinancings:
Dollar volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $183,565 $313,197
Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,511 4,862
On a nominal basis, net interest income decreased $3.3 million, or 4.5%, to
total $70.1 million for the third quarter of 1995 as compared to $73.4 million
for the third quarter of 1994. On a fully tax-equivalent basis, net interest
income was $71.9 million and $75.7 million for the third quarters of 1995 and
1994, respectively. The decrease in net interest income between the comparative
quarters also was attributable to the decrease in net yield of earning assets
caused by the increase in interest rates and aggressive loan and deposit
competition. The net yield on earning assets decreased to 4.21% for the third
quarter of 1995 from 4.35% for the third quarter of 1994. However, the net yield
increased from 3.97% to 4.21% from the first quarter to the third quarter of
1995 due to contractual repricing of adjustable rate mortgages, renewal of fixed
rate loans at current rates, loan growth, stabilized funding costs, and the
first quarter balance sheet repositioning, which reduced the Company's exposure
to interest rate changes.
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
September 30, 1995 to 1994
---------------------------------------------
Total Change Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $19,086 $13,659 $ 4,652 $ 775
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (2) (7) 8 (3)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . 1,460 1,741 (23) (258)
Taxable investment securities . . . . . . . . . . . . (8,737) (11,468) 3,769 (1,038)
Tax-preferred investment securities(1). . . . . . . . (2,086) (1,986) (151) 51
Trading account securities(1) . . . . . . . . . . . . 11 7 3 1
------- ------- -------- --------
Total interest income change. . . . . . . . . . . . 9,732 1,946 8,258 (472)
------- ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . 6,501 977 4,983 541
Time deposits . . . . . . . . . . . . . . . . . . . . 10,327 1,082 8,897 348
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . (403) (1,564) 1,476 (315)
Federal Home Loan Bank borrowings . . . . . . . . . . (2,150) (2,896) 1,522 (776)
Other borrowings. . . . . . . . . . . . . . . . . . . (470) (490) 55 (35)
Long-term debt. . . . . . . . . . . . . . . . . . . . (247) (249) 3 (1)
------- ------- -------- --------
Total interest expense change . . . . . . . . . . . 13,558 (3,140) 16,936 (238)
------- ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . $(3,826) $ 5,086 $ (8,678) $ (234)
======= ======= ======== ========
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
Comparison of Nine-Month Periods Ended
September 30, 1995 to 1994
---------------------------------------------
Total Change Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $70,917 $48,778 $ 17,947 $ 4,192
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (17) (34) 30 (13)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . 3,694 2,181 397 1,116
Taxable investment securities . . . . . . . . . . . . (12,688) (21,622) 10,929 (1,995)
Tax-preferred investment securities(1). . . . . . . . (5,353) (5,174) (245) 66
Trading account securities(1) . . . . . . . . . . . . (11) (18) 8 (1)
------- ------- -------- --------
Total interest income change. . . . . . . . . . . . 56,542 24,111 29,066 3,365
------- ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . 18,380 1,746 15,735 899
Time deposits . . . . . . . . . . . . . . . . . . . . 37,556 11,350 22,796 3,410
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 4,254 (2,473) 7,847 (1,120)
Federal Home Loan Bank borrowings . . . . . . . . . . 2,237 (1,577) 4,380 (566)
Other borrowings. . . . . . . . . . . . . . . . . . . (57) (401) 483 (139)
Long-term debt. . . . . . . . . . . . . . . . . . . . (901) (868) (198) 165
------- ------- -------- --------
Total interest expense change . . . . . . . . . . . 61,469 7,777 51,043 2,649
------- ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . $(4,927) $16,334 $(21,977) $ 716
======= ======= ======== ========
<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 $3.3 million and $340,000 for the first
nine months of 1995 and 1994, respectively. The provision for the third quarter
of 1995 was $1.3 million. There was a minimal provision of $9,000 in the third
quarter of 1994. The increased provision reflects the significant loan growth,
a higher level of charge-offs, and a desire to maintain a strong allowance for
credit losses. Net charge-offs totaled $6.8 million or .21% (computed on an
annualized basis) of average loans and leases for the current nine-month period.
Net charge-offs for the comparable period of the prior year were minimal. Net
charge-offs for the third quarter of 1995 were $2.4 million, .21% of average
loans and leases compared to $771,000, .08% of average loans and leases, for the
third quarter of 1994. At September 30, 1995, the allowance for credit losses
was 260.97% of nonperforming loans and 1.61% of total loans.
Noninterest Income
Total noninterest income was $56.6 million for the first nine months of 1995
compared to $73.5 million for the same period of the previous year. Included in
1995 noninterest income were $21.8 million of net investment securities losses,
$22.1 million from the Company's first quarter balance sheet repositioning. In
1994, $3.7 million of securities gains were realized. Fees collected in the
normal course of business increased $8.4 million or 12.0% to total $77.7 million
for the first nine months of 1995 from $69.3 million in the same period of 1994.
Approximately 45% 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 $1.4 million or 9.1%; service charges on deposit accounts increased
$1.9 million or 6.5%; and bank card fees increased $3.7 million or 37.6%.
Exclusive of purchase acquisitions, 1995 trust fees increased approximately 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 no-load mutual funds managed by the trust division and marketed
to retirement plan sponsors. 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 third quarter of 1995 noninterest income totaled $27.8 million, a
$3.5 million or 14.3% increase over the 1994 third quarter noninterest income of
$24.3 million. Investment securities gains totaled $95,000 and $56,000 for the
third quarters of 1995 and 1994, respectively. During the third quarter of 1995
a gain of $705,000 was realized on the sale of a branch. Third quarter fees
collected in the normal course of business totaled $27.0 million and $24.3
million in 1995 and 1994, respectively. The increased fees between the third
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 nine-month periods ended September 30, 1995 and 1994.
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, Percent September 30, Percent
------------------ ------------------
1995 1994 Change 1995 1994 Change
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Fee income:
Trust fees . . . . . . . . . . . . . . . . . . . $ 5,820 $ 5,435 7.1% $16,627 $15,242 9.1 %
Service charges on deposit accounts. . . . . . . 10,681 9,955 7.3 30,448 28,579 6.5
Bank card fees . . . . . . . . . . . . . . . . . 4,889 3,572 36.9 13,396 9,733 37.6
Brokerage and annuity sales commissions. . . . . 1,407 800 75.9 3,591 2,961 21.3
Trading account profits and commissions. . . . . 166 301 (44.9) 664 681 (2.5)
Real estate loan service fees. . . . . . . . . . 742 819 (9.4) 2,063 1,958 5.4
Safe deposit rent. . . . . . . . . . . . . . . . 388 375 3.5 1,339 1,258 6.4
Travelers and official check fees and item
handling charges. . . . . . . . . . . . . . . . 517 648 (20.2) 1,579 1,889 (16.4)
Foreign currency trading profits and foreign
transaction fees. . . . . . . . . . . . . . . . 245 348 (29.6) 834 901 (7.4)
Insurance premiums . . . . . . . . . . . . . . . 551 515 7.0 1,681 1,411 19.1
Other. . . . . . . . . . . . . . . . . . . . . . 1,614 1,508 7.0 5,441 4,735 14.9
------- ------- ------- -------
Total fee income . . . . . . . . . . . . . . . 27,020 24,276 11.3 77,663 69,348 12.0
Other revenues:
Investment securities (losses) gains . . . . . . 95 56 69.6 (21,778) 3,682 (6.9)
Gain on sale of branch . . . . . . . . . . . . . 705 -- -- 705 -- --
Gain on sale of acquired stock . . . . . . . . . -- -- -- -- 471 --
------- ------- ------- -------
Total noninterest income . . . . . . . . . . . $27,820 $24,332 14.3 $56,590 $73,501 (23.0)
======= ======= ======= =======
Fee income (annualized)/average assets . . . . . 1.43% 1.26% 1.36% 1.27%
Noninterest income (annualized)/average assets . 1.47% 1.26% .99% 1.34%
Noninterest Expense
Noninterest expense amounted to $186.4 million and $189.3 million for the
first nine 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 3.28% and 3.46% 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 nine 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 $186.2 million and $186.9 million for the first
nine months of 1995 and 1994, respectively. Operating expense increases
attributable to business combinations accounted for as purchases were offset by
lower expenses associated with the Company's cost containment efforts and a
reduction of Federal Deposit Insurance Corporation ("FDIC") insurance premiums.
During September 1995, the FDIC reduced the insurance premium rates for
deposits insured by the Bank Insurance Fund from $0.23 to $0.04 per $100 of
deposits. The Company's third quarter FDIC insurance expense was reduced by the
$3.0 million refund associated with this rate reduction. Approximately $1.1
billion of the Company's deposits are insured by the Savings Association
Insurance Fund("SAIF") on which it continues to pay $0.23 per $100 of deposits.
Congress is currently considering a special one-time assessment that could apply
to these SAIF insured deposits. If enacted, this one-time assessment is
estimated to range from $7.5 million to $8.7 million.
The Company's efficiency ratio (operating expense/fee income plus tax-
equivalent net interest income) was 64.41% for the first nine months of 1995 as
compared to 65.40% for the same period of 1994. Exclusive of the FDIC expense
reduction, the Company's efficiency ratio would have been 65.46%. The higher
efficiency ratio, exclusive of the FDIC expense reduction, principally reflects
the compression of the net yield on earning assets. Operating expense less fee
income (annualized) as a percent of average assets were 1.91% and 2.15% for 1995
and 1994, respectively.
Noninterest expense for the third quarter decreased $4.9 million to total
$60.0 million in 1995 as compared to $64.9 million in the third quarter of 1994.
Operating expense totaled $59.8 million and $65.0 million for the third quarters
of 1995 and 1994, respectively. The decrease in noninterest expense between the
third quarters of 1995 and 1994 were principally the result of the same factors
that caused the year-to-date decreases.
The following table presents an analysis of noninterest expense for the
three-month and nine-month periods ended September 30, 1995 and 1994,
respectively.
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, Percent September 30, Percent
------------------- -------------------
1995 1994 Change 1995 1994 Change
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
Salaries and employee benefits . . . . . . . . . . $ 31,913 $ 33,406 (4.5)% $ 93,853 $ 95,103 (1.3)%
Furniture and equipment . . . . . . . . . . . . . 5,468 5,811 (5.9) 16,389 16,983 (3.5)
Net occupancy . . . . . . . . . . . . . . . . . . 4,793 4,943 (3.0) 13,991 13,370 4.6
FDIC insurance . . . . . . . . . . . . . . . . . . 382 3,213 (88.1) 6,944 9,563 (27.4)
Bank card . . . . . . . . . . . . . . . . . . . . 1,082 501 1.2 x 3,228 2,159 49.5
Advertising and public relations . . . . . . . . . 1,634 2,088 (21.7) 6,843 6,523 4.9
Communication . . . . . . . . . . . . . . . . . . 1,262 1,125 12.2 3,710 3,023 22.7
Postage and freight . . . . . . . . . . . . . . . 1,824 1,769 3.1 5,702 5,155 10.6
Supplies, printed materials and forms. . . . . . . 1,111 1,499 (25.9) 3,636 3,955 (8.1)
Federal Reserve service fees . . . . . . . . . . . 314 452 (30.5) 1,088 1,294 (15.9)
Loan acquisition and maintenance . . . . . . . . . 833 815 2.2 2,428 2,283 6.4
Outside service fees . . . . . . . . . . . . . . . 781 675 15.7 2,348 2,391 (1.8)
Consulting fees . . . . . . . . . . . . . . . . . 370 302 22.5 856 1,208 (29.1)
Other professional fees and examinations . . . . . 1,306 1,455 (10.2) 4,069 4,051 .4
Amortization of intangible assets . . . . . . . . 2,533 2,997 (15.5) 8,250 7,391 11.6
Other . . . . . . . . . . . . . . . . . . . . . . 4,238 3,969 6.8 12,906 12,421 3.9
-------- -------- -------- --------
Total operating expense. . . . . . . . . . . . . 59,844 65,020 (8.0) 186,241 186,873 (.3)
Net costs of operation of other real estate and
nonperforming assets. . . . . . . . . . . . . . . 120 (161) 101 (511)
Merger and integration costs . . . . . . . . . . . -- 53 -- 28 2,821 (99.0)
Minority interest. . . . . . . . . . . . . . . . . -- -- -- -- 84 --
-------- -------- -------- --------
Total noninterest expense. . . . . . . . . . . . $ 59,964 $ 64,912 (7.6) $186,370 $189,267 (1.5)
======== ======== ======== ========
Noninterest expense (annualized)/average assets. . 3.18% 3.36% 3.28% 3.46%
Noninterest expense less noninterest income
(annualized)/average assets . . . . . . . . . . . 1.70% 2.10% 2.28% 2.11%
Operating expense less fee income
(annualized)/average assets . . . . . . . . . . . 1.74% 2.11% 1.91% 2.15%
Operating expense/fee income plus tax-equivalent
net interest income . . . . . . . . . . . . . . . 60.52% 65.04% 64.41% 65.40%
Income Taxes
Income tax expense amounted to $26.0 million and $31.4 million for the first
nine months of 1995 and 1994, respectively. The lower income tax expense is
principally attributable to the lower level of income before taxes. For the
third quarters of 1995 and 1994 income tax expense was $13.7 million and $10.8
million, respectively.
Statements of Condition
Total assets amounted to $7.3 billion, $7.8 billion, and $7.6 billion at
September 30, 1995, December 31, 1994, and September 30, 1994, respectively.
Between September 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 September 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 September 30, 1995 and 1994, loans and leases increased $530.1
million or 13.7% to total $4.4 billion at September 30, 1995. Loans added
through bank purchase transactions totaled $95.2 million and net internal loan
growth was $434.9 million.
Increases were realized in various commercial and retail categories.
The commercial loan categories increased an aggregate of $297.1 million or
13.5% to total $2.5 billion at September 30, 1995. Retail loan categories
totaling $1.9 billion increased $233.1 million or 13.9%. 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 strengthened economy in Kansas and Oklahoma. The one-to-four family
portfolio growth included $76.4 million in loans generated from a home equity
line of credit product, introduced in late 1994.
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 September 30,
1995, the Company had 19 lending relationships in which the aggregate loan
amount was $10 million or more. The Company had one 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 September 30, 1995. The following table shows the composition
of loans and leases at the dates indicated.
September 30, December 31, September 30,
1995 1994 1994
------------ ------------ ------------
(In thousands)
Commercial:
Commercial and industrial . . . . . . . . . . . . . . . . . . $1,083,636 $1,028,034 $1,028,179
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . 208,289 227,367 216,474
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,367 129,742 120,325
Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 21,635 25,173 26,809
Real estate:
Construction. . . . . . . . . . . . . . . . . . . . . . . . 183,122 135,558 135,403
Permanent commercial real estate and other. . . . . . . . . 752,150 705,625 610,682
Lease financing . . . . . . . . . . . . . . . . . . . . . . . 62,850 43,380 37,724
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,680 27,557 20,069
---------- ---------- ----------
Total commercial loans. . . . . . . . . . . . . . . . . . 2,492,729 2,322,436 2,195,665
---------- ---------- ----------
Consumer:
Secured by 1-4 family residences, less unearned discount. . . 1,152,237 991,446 957,638
Residential mortgage loans held for sale. . . . . . . . . . . 2,274 206 --
Consumer, less unearned discount. . . . . . . . . . . . . . . 483,842 491,898 497,517
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . 130,690 130,098 128,095
Educational . . . . . . . . . . . . . . . . . . . . . . . . . 81,806 82,238 57,707
Auto lease financing. . . . . . . . . . . . . . . . . . . . . 60,395 43,729 37,209
---------- ---------- ----------
Total consumer loans. . . . . . . . . . . . . . . . . . . 1,911,244 1,739,615 1,678,166
---------- ---------- ----------
Total loans and leases. . . . . . . . . . . . . . . . . $4,403,973 $4,062,051 $3,873,831
========== ========== ==========
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 concentration is manufacturing at
approximately 5% of total loans. Service businesses are the second largest
concentration representing approximately 4% of total loans.
Agriculture: Loans secured by feeder cattle and other livestock accounted
for approximately 56% of the agriculture portfolio at September 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 September 30, 1995, approximately 56% of the
construction loan portfolio was in the Wichita, Topeka and Kansas City markets.
The Tulsa and Oklahoma City markets represented an additional 28% 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 74% 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.
Home equity credit lines and other loans secured by second mortgages represent
approximately 15% of this portfolio.
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 September 30, 1995 included $7.4
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 September 30, 1995, the carrying value of nonaccrual loans
had been charged down to 80.29% 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.
September 30, December 31, September 30,
1995 1994 1994
------------ ------------ ------------
(Dollars in thousands)
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . $26,664 $29,301 $26,355
Troubled debt restructurings . . . . . . . . . . . . . . . . . . . 545 503 631
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . . . . . 27,209 29,804 26,986
Other real estate and nonperforming assets . . . . . . . . . . . . 5,935 5,757 7,660
------- ------- -------
Total nonperforming assets . . . . . . . . . . . . . . . . . . . $33,144 $35,561 $34,646
======= ======= =======
Past due loans (90 days or more) . . . . . . . . . . . . . . . . . $11,785 $13,250 $13,161
======= ======= =======
Nonperforming assets/period-end loans plus
other real estate and nonperforming assets. . . . . . . . . . . . .75% .87% .89%
==== ==== ======
Nonperforming assets/period-end assets . . . . . . . . . . . . . . .45% .46% .45%
==== ==== ======
Nonperforming assets totaled $33.1 million and $34.6 million at September 30,
1995 and 1994, respectively. At September 30, 1995, total nonperforming assets
represented .75% 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 September 30, 1994. Between December 31, 1994 and
September 30, 1995 nonperforming assets decreased $2.4 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.
September 30, December 31, September 30,
1995 1994 1994
------------ ------------ ------------
(Dollars in thousands)
Commercial:
Commercial and industrial. . . . . . . . . . . . . . . . . . . . $16,416 $14,862 $10,743
Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . 757 1,283 1,447
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463 1,221 1,373
Real Estate:
Real estate construction . . . . . . . . . . . . . . . . . . . 1,094 905 1,276
Permanent commercial real estate and other . . . . . . . . . . 6,558 8,422 9,175
Lease financing. . . . . . . . . . . . . . . . . . . . . . . . . 23 160 170
------- ------- -------
Total commercial loans . . . . . . . . . . . . . . . . . . . 25,311 26,853 24,184
------- ------- -------
Consumer:
Secured by 1-4 family residences . . . . . . . . . . . . . . . . 327 1,350 1,135
Consumer, less unearned discount . . . . . . . . . . . . . . . . 1,386 1,553 1,648
Auto lease financing . . . . . . . . . . . . . . . . . . . . . . 185 48 19
------- ------- -------
Total consumer loans . . . . . . . . . . . . . . . . . . . . 1,898 2,951 2,802
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . $27,209 $29,804 $26,986
======= ======= =======
Nonaccrual loans/nonaccrual loans and prior charge-offs. . . . . . 80.29%
=====
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. Potential nonperforming
loans totaled $22.3 million at September 30, 1995, compared to $12.2 million and
$10.1 million at December 31, 1994 and September 30, 1994, respectively.
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 September 30, 1995, the allowance for credit losses equaled $71.0
million or 260.97% of nonperforming loans. Comparatively, the allowance for
credit losses at September 30, 1994 amounted to $73.4 million or 272.04% of
nonperforming loans. The strong coverage ratio of the allowance for credit
losses to nonperforming loans at September 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 nine-month periods ended September 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 . . . . . . . . . . . . . . . . . . . . . . 5,394 3,395
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,576 63
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 254
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . 262 60
Permanent commercial real estate and other . . . . . . . . . . . . . . 647 305
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 186
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 54
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . . 428 564
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,365 2,795
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,870 2,201
---------- ----------
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . 15,920 9,877
---------- ----------
Recoveries:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 2,412 4,016
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 420
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 70
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 77
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . 105 136
Permanent commercial real estate and other . . . . . . . . . . . . . . 2,602 1,878
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 54
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 164
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . . 695 454
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,742 1,455
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,011 551
---------- ----------
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . 9,134 9,275
---------- ----------
Net loans and leases charged off . . . . . . . . . . . . . . . . . . . . 6,786 602
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 3,294 340
---------- ----------
Balance at September 30. . . . . . . . . . . . . . . . . . . . . . . . . $ 71,008 $ 73,414
========== ==========
Loans and leases at period-end . . . . . . . . . . . . . . . . . . . . . $4,403,973 $3,873,831
Average loans and leases . . . . . . . . . . . . . . . . . . . . . . . . $4,300,499 $3,528,716
Net charge-offs (recoveries) (annualized)/average loans and leases . . . .21% .02%
Allowance for credit losses/period-end nonperforming loans . . . . . . . 260.97% 272.04%
Allowance for credit losses/period-end nonperforming assets. . . . . . . 214.24% 211.90%
Allowance for credit losses/period-end loans and leases. . . . . . . . . 1.61% 1.90%
Investment Securities Portfolio
The following table presents the book values of investment securities at
the dates indicated.
Held-to-maturity
September 30, December 31, September 30,
1995 1994 1994
------------ ------------ ------------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 99,786 $ 98,971 $ 98,698
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 1,405,883 1,582,938 1,650,625
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,583 265,170 266,803
Obligations of states and political subdivisions. . . . . . . . . . 3,782 8,866 9,356
Other securities:
Foreign debt securities . . . . . . . . . . . . . . . . . . . . . 2,050 2,050 2,050
Money market mutual funds . . . . . . . . . . . . . . . . . . . . 297 195 124
---------- ---------- ----------
Total debt securities, at amortized cost. . . . . . . . . . . . $1,774,381 $1,958,190 $2,027,656
========== ========== ==========
Market value in excess of (less than) book value. . . . . . . . . . $ (17,831) $ (110,423) $ (73,389)
========== ========== ==========
Available-for-sale
September 30, December 31, September 30,
1995 1994 1994
------------ ------------ ------------
(In thousands)
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 43,360 $ 269,442 $ 281,307
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 120,209 131,979 141,247
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,001 269,371 278,774
Obligations of states and political subdivisions. . . . . . . . . . 127,731 174,806 190,560
Other securities:
Collateralized credit card receivables. . . . . . . . . . . . . . 52,780 58,518 59,666
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . 35,436 38,660 39,508
---------- ---------- ----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 418,517 942,776 991,062
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . 410 1,194 1,003
---------- ---------- ----------
Total debt and equity securities, at estimated fair value . . $ 418,927 $ 943,970 $ 992,065
========== ========== ==========
Other Securities(1)
September 30, December 31, September 30,
1995 1994 1994
------------ ------------ ------------
(In thousands)
Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . . $33,118 $37,886 $37,886
Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . . 14,311 14,242 14,242
Other equity securities . . . . . . . . . . . . . . . . . . . . . . 1,550 1,549 1,531
------- ------- -------
Total other equity securities, at cost. . . . . . . . . . . . . . $48,979 $53,677 $53,659
======= ======= =======
<FN>
___________
(1) Equity securities that do not have a readily determinable fair value.
Total investment securities were $2.2 billion, $3.0 billion, and $3.1 billion
at September 30, 1995, December 31, 1994, and September 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,
prepayments 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 September 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
September 30, 1995 that exceeded 10% of consolidated stockholders' equity.
At September 30, 1995 the held-to-maturity portfolio included $589.1 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
September 30, 1995 were $564.0 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,
$136.8 million also float on a monthly basis, most with the FHLB 11th District
average cost of funds. The remaining $427.2 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 September 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 $214.8 million or 3.7% between September 30, 1995
and 1994. Since September 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 September 30, 1995, $100.9 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 competitive with
money market funds. Core deposits (non-public demand,
interest checking, savings, and time deposits under $100,000)
represented 93.0% of total deposits at September 30 1995 compared to 92.0% at
September 30, 1994. Brokered deposits were immaterial for all periods
presented.
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 September 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
prepayment 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. . . . . . $2,388,389 $ 211,024 $ 421,524 $ 899,308 $451,576 $ 32,152 $4,403,973
Investments and trading
account securities . . . . 692,956 117,454 207,529 1,112,549 114,094 -- 2,244,582
Other earning assets . . . 3,503 -- 193 704 -- -- 4,400
Nonearning assets . . . . . -- -- -- -- -- 688,865 688,865
---------- --------- --------- ---------- -------- ---------- ----------
Total assets . . . . . . $3,084,848 $ 328,478 $ 629,246 $2,012,561 $565,670 $ 721,017 $7,341,820
========== ========= ========= ========== ======== ========== ==========
Liabilities and
stockholders' equity:
Deposits. . . . . . . . . . $2,975,191 $ 674,961 $ 755,045 $ 568,256 $ 4,524 $ 968,015 $5,945,992
Federal funds purchased
and securities sold under
agreements to repurchase . 477,974 -- -- -- -- -- 477,974
Federal Home Loan Bank
borrowings . . . . . . . . 143,422 -- 25,000 -- -- -- 168,422
Other borrowings. . . . . . 22,211 -- -- -- -- -- 22,211
Long-term debt . . . . . . 9 9 16 120 10 -- 164
Other liabilities . . . . . -- -- -- -- -- 65,228 65,228
Stockholders' equity . . . -- -- -- -- -- 661,829 661,829
---------- --------- --------- ---------- -------- ---------- ----------
Total liabilities and
stockholders' equity . . $3,618,807 $ 674,970 $ 780,061 $ 568,376 $ 4,534 $1,695,072 $7,341,820
========== ========= ========= ========== ======== ========== ==========
Interest rate swaps . . . . . $ (122,000) $ (1,000) $ 36,000 $ 87,000 $ -- $ -- $ --
Repricing gap adjusted
for interest rate swaps. . . (655,959) (347,492) (114,815) 1,531,185 561,136 (974,055) --
Cumulative adjusted
repricing gap. . . . . . . . (655,959)(1,003,451)(1,118,266) 412,919 974,055 -- --
Cumulative adjusted repricing
gap as a percentage of total
assets . . . . . . . . . . . (8.93)% (13.67)% (15.23)% (*) (*) (*)
<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 September 30, 1995, the
Company's interest rate risk position was within the policy guideline.
Comparing the first nine 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.
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 $554,000
and $1.0 million, for the nine months ended September 30, 1995 and 1994,
respectively.
At September 30, 1995 and 1994 interest rate swaps were as follows:
September 30, 1995
-----------------------------------------------------------------
Weighted
Notional Average Weighted Average Rate
--------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $137,000 10 months (1) 6.10% 5.93%
September 30, 1994
-----------------------------------------------------------------
Weighted
Notional Average Weighted Average Rate
--------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
Receive fixed rate . . . . . . . . . . . . $151,000 21 months (1) 6.05% 4.96%
Pay fixed rate . . . . . . . . . . . . . . 100,000 7 months 4.94% 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, September 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . $151,000 $100,000
======== ========
Balance, January 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $151,000 $100,000
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,000) (100,000)
-------- --------
Balance, September 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 September 30, 1995. The loans-to-deposits and loans-to-
assets ratios averaged 71.5% and 56.5%, respectively, during the first nine
months of 1995. Average core deposits (non-public demand, interest checking,
savings, and time deposits under $100,000) represented 91.5% of average total
deposits and 72.4% of average assets during the nine-month period.
At September 30, 1995, federal funds purchased, securities sold under
agreements to repurchase, Federal Home Loan Bank borrowings,
and other borrowings totaled $668.6 million. At that
same date, additional borrowing liquidity was
available in the form of $400.5 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 $76.9 million during the third quarter
of 1995.
The Company had commitments to extend credit at September 30, 1995, including
standby letters of credit of $129.5 million, commercial letters of credit of
$26.8 million, unused credit card lines of $490.4 million, commitments to fund
1-4 family residential mortgage loans of $57.8 million, and other loan
commitments of $1.6 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 September 30, 1995, total stockholders' equity was $661.8 million or 9.01%
of total assets compared to $601.4 million or 7.88% of total assets at September
30, 1994. Exclusive of the net unrealized gains or losses on available-for-sale
securities, stockholders' equity was $656.8 million and $614.8 million at
September 30, 1995 and 1994, respectively. For the first nine months of 1995,
total stockholders' equity averaged $634.0 million or 8.33% of average assets.
The prior year-to-date average equity was $604.1 million or 8.25% 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.
September 30,
-------------------------------
1995 1994
------------ ------------
(Dollars in thousands)
Tier I capital:
Common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 565,528 $ 504,462
Preferred stockholders' equity. . . . . . . . . . . . . . . . . . . . . 96,301 96,920
Less: Intangible assets (1). . . . . . . . . . . . . . . . . . . . . . (83,872) (83,689)
Net unrealized (gain) loss on available-for-sale debt securities (4,987) 13,422
Limitation on deferred tax assets (2). . . . . . . . . . . . . . (2,995) --
Net unrealized loss on equity securities . . . . . . . . . . . . -- --
---------- ----------
Total Tier I capital . . . . . . . . . . . . . . . . . . . . . 569,975 531,115
---------- ----------
Tier II capital:
Allowance for credit losses (3) . . . . . . . . . . . . . . . . . . . . 64,925 58,968
---------- ----------
Total regulatory capital . . . . . . . . . . . . . . . . . . . $ 634,900 $ 590,083
========== ==========
Risk-weighted assets and off-balance-sheet commitments and contingencies. $5,193,940 $4,717,380
========== ==========
Adjusted average assets (4) . . . . . . . . . . . . . . . . . . . . . . . $7,403,306 $7,589,350
========== ==========
Regulatory
Minimums
----------
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 10.97% 11.26%
Total . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 12.22 12.51
Leverage ratio . . . . . . . . . . . . . . . . . . . . . 3.00 7.70 7.00
<FN>
___________
(1) All intangible assets except purchased mortgage servicing rights of $1.8 million and $2.6 million,
respectively and purchased credit card relationships of $7.1 million and $8.7 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 September 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
were 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 September 30, 1995,
125,058 common shares and 20,000 depositary shares had been acquired pursuant to
this authorization. The common shares have been reissued in connection with
stock option plans.
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 $59.0 million and
$117.2 million for the nine-month periods ended September 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 September 30, 1995, the subsidiary
banks could distribute approximately $20.0 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 September 30, 1995, the parent company had approximately $26.0 million of
cash and short-term investments. The parent company has two credit agreements
that were unused at September 30, 1995. These credit agreements provide the
Company with a combined $100.0-million line of credit for a one-year period,
which expires January 2, 1995. 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.
In October 1995, FAS No. 123, Accounting for Stock-Based Compensation, was
issued. This Statement establishes financial accounting and reporting standards
for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. FAS No. 123 defines a fair
value based method of accounting for employee stock options or similar equity
instruments and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows
companies to continue to measure compensation cost for those plans using the
intrinsic value based method currently prescribed by generally accepted
accounting principles. Companies which do not adopt the fair value based
accounting of FAS No. 123 must make pro forma disclosures of net income and
earnings per share, as if the fair value based method had been applied.
FAS No. 123 also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from nonemployees. Those transactions
must be accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable. The requirements of this Statement are effective for financial
statements 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:
27 Article 9 of Regulation S-X Financial Data Schedule
for the September 30, 1995 Form 10-Q.
(b) Reports on Form 8-K
Form 8-K, dated August 25, 1995, reported under Item 5 the
Registrant's Agreement and Plan of Merger.
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 November 14, 1995 /s/ Darrell G. Knudson
------------------------- ---------------------------------------
Darrell G. Knudson
Chairman of the Board
(Chief Executive Officer)
Date November 14, 1995 /s/ Michael J. Shonka
------------------------- ---------------------------------------
Michael J. Shonka
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)