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, AS AMENDED
For the quarterly period ended March 31, 1994
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OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
For the transition period from to
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Commission file number 1-6523
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NationsBank Corporation
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(Exact name of registrant as specified in its charter)
North Carolina 56-0906609
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
NationsBank Corporate Center, Charlotte, North Carolina 28255
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(Address of principal executive offices and zip code)
(704) 386-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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At April 30, 1994, there were 274,715,504 shares of NationsBank Corporation
Common Stock outstanding.
1
NationsBank Corporation
March 31, 1994 Form 10-Q
Index
Page
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Income for the Three Months
Ended March 31, 1994 and 1993 . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet at March 31, 1994, December 31,
1993 and March 31, 1993 . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows for the Three
Months Ended March 31, 1994 and 1993. . . . . . . . . . . . . 5
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended March 31, 1994 and 1993 . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . . . . 9
Part II. Other Information
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 31
Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2
Part I. Financial Information
Item 1. Financial Statements
NationsBank Corporation and Subsidiaries
Consolidated Statement of Income
(Dollars in Millions Except Per-Share Information)
Three Months
Ended March 31
--------------------
1994 1993
--------------------
Income from Earning Assets
Interest and fees on loans............................................... $ 1,757 $ 1,432
Lease financing income................................................... 30 25
Interest and dividends on securities
Held for investment..................................................... 151 350
Held for sale........................................................... 179 6
Interest and fees on loans held for sale................................. 11 11
Time deposits placed and other short-term investments.................... 14 21
Federal funds sold....................................................... 6 3
Securities purchased under agreements to resell.......................... 81 27
Trading account assets................................................... 169 21
--------------------
Total income from earning assets........................................ 2,398 1,896
--------------------
Interest Expense
Deposits................................................................. 519 561
Borrowed funds and trading liabilities................................... 454 181
Capital leases and long-term debt........................................ 137 79
--------------------
Total interest expense.................................................. 1,110 821
--------------------
Net interest income....................................................... 1,288 1,075
Provision for credit losses............................................... 100 120
--------------------
Net credit income......................................................... 1,188 955
Gains on sales of securities.............................................. 14 12
Noninterest income........................................................ 680 481
Other real estate owned expense........................................... 5 24
Noninterest expense....................................................... 1,219 998
--------------------
Income before income taxes and effect of change in method of accounting
for income taxes......................................................... 658 426
Income tax expense........................................................ 241 145
--------------------
Income before effect of change in method of accounting for income taxes... 417 281
Effect of change in method of accounting for income taxes................. - 200
--------------------
Net income................................................................ $ 417 $ 481
====================
Net income available to common shareholders............................... $ 414 $ 479
====================
Per-share information
Earnings per common share before effect of change in method of
accounting for income taxes............................................. $ 1.52 $ 1.10
Effect of change in method of accounting for income taxes................ - 0.79
--------------------
Earnings per common share................................................ $ 1.52 $ 1.89
====================
Fully diluted earnings per common share before effect of change in
method of accounting for income taxes................................... $ 1.51 $ 1.09
Effect of change in method of accounting for income taxes................ - 0.78
--------------------
Fully diluted earnings per common share.................................. $ 1.51 $ 1.87
====================
Dividends per common share............................................... $ 0.46 $ 0.40
====================
Average common share(in thousands)........................................ 271,947 253,341
====================
See accompanying notes to consolidated financial statements.
3
NationsBank Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in Millions)
March 31 December 31 March 31
1994 1993 1993
----------------------------------
Assets
Cash and cash equivalents......................................................... $ 8,178 $ 7,649 $ 6,402
Time deposits placed and other short-term investments............................. 1,148 1,479 1,905
Securities
Held for investment, at cost (market value - $14,244; $13,604 and $25,244)....... 14,442 13,584 24,819
Held for sale, at market; March 31, 1993, at cost (market value - $128).......... 15,927 15,470 127
---------------------------------
Total securities................................................................ 30,369 29,054 24,946
---------------------------------
Loans held for sale............................................................... 595 1,697 552
Trading account assets............................................................ 12,285 10,610 1,790
Federal funds sold................................................................ 1,084 691 1,422
Securities purchased under agreements to resell................................... 10,895 6,353 2,717
Loans, net of unearned income of $496; $553 and $329.............................. 90,102 89,024 72,710
Leases, net of unearned income of $703; $702 and $500............................. 2,028 1,982 1,593
Factored accounts receivable...................................................... 1,637 1,001 1,041
---------------------------------
Loans, leases and factored accounts receivable, net of unearned income........... 93,767 92,007 75,344
Allowance for credit losses....................................................... (2,187) (2,169) (1,566)
Premises, equipment and lease rights, net......................................... 2,258 2,259 2,188
Customers' acceptance liability................................................... 718 708 812
Interest receivable............................................................... 1,002 1,117 783
Goodwill.......................................................................... 825 812 512
Core deposit and other intangibles................................................ 564 555 469
Other assets...................................................................... 3,570 4,864 3,165
---------------------------------
$165,071 $157,686 $121,441
=================================
Liabilities
Deposits
Noninterest-bearing.............................................................. $ 20,172 $ 20,723 $ 15,981
Savings.......................................................................... 9,111 8,784 6,080
NOW and money market deposit accounts............................................ 30,155 30,881 28,230
Time............................................................................. 26,785 26,691 28,389
Foreign time..................................................................... 4,533 4,034 2,628
---------------------------------
Total deposits.................................................................. 90,756 91,113 81,308
---------------------------------
Borrowed funds and trading liabilities
Federal funds purchased.......................................................... 6,934 7,135 6,480
Securities sold under agreements to repurchase................................... 26,332 21,236 14,252
Commercial paper................................................................. 2,046 2,056 1,172
Other short-term borrowings and trading liabilities.............................. 15,351 13,821 2,685
---------------------------------
Total borrowed funds and trading liabilities.................................... 50,663 44,248 24,589
---------------------------------
Liability to factoring clients.................................................... 824 534 578
Acceptances outstanding........................................................... 718 708 812
Accrued expenses and other liabilities............................................ 3,763 2,752 1,771
Capital leases and long-term debt................................................. 8,175 8,352 4,163
---------------------------------
Total liabilities............................................................... 154,899 147,707 113,221
---------------------------------
Shareholders' Equity
Preferred stock: authorized - 45,000,000 shares
ESOP Convertible, Series C: issued - 2,673,406; 2,703,440 and 2,790,977 shares... 114 115 118
Series CC: issued - none; 752,600 shares and none................................ - 38 -
Series DD: issued - none; 1,107,600 shares and none.............................. - 55 -
Common stock: authorized - 500,000,000 shares;
issued - 274,537,247; 270,904,656 and 253,912,701 shares......................... 4,655 4,594 3,742
Retained earnings................................................................. 5,575 5,247 4,557
Other............................................................................. (172) (70) (197)
---------------------------------
Total shareholders' equity...................................................... 10,172 9,979 8,220
---------------------------------
$165,071 $157,686 $121,441
=================================
See accompanying notes to consolidated financial statements.
4
NationsBank Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in Millions)
Three Months
Ended March 31
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1994 1993
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Operating Activities
Net income.................................................................. $ 417 $ 481
Reconciliation of net income to net cash provided by operating activities
Provision for credit losses................................................ 100 120
Gains on sales of securities............................................... (14) (12)
Depreciation and premise improvements amortization......................... 64 59
Amortization of intangibles................................................ 34 25
Deferred income tax expense................................................ 52 55
Effect of change in method of accounting for income taxes.................. - (200)
Net change in trading instruments.......................................... 2,152 (429)
Net decrease in interest receivable........................................ 119 101
Net increase (decrease) in interest payable................................ (12) 8
Net decrease in loans held for sale........................................ 1,102 684
Net increase in liability to factoring clients............................. 90 96
Other operating activities................................................. 676 (39)
------------------
Net cash provided by operating activities................................. 4,780 949
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Investing Activities
Proceeds from maturities of securities held for investment.................. 4,215 2,119
Purchases of securities held for investment................................. (5,082) (3,583)
Proceeds from sales and maturities of securities held for sale.............. 10,244 2,858
Purchases of securities held for sale....................................... (10,751) (1,599)
Net increase in federal funds sold and securities
purchased under agreements to resell....................................... (4,611) (1,541)
Net decrease in time deposits placed and other short-term investments....... 334 89
Net originations of loans and leases........................................ (2,372) (1,684)
Net purchases of premises and equipment..................................... (55) (33)
Purchases of loans and leases............................................... (732) (698)
Proceeds from sales and securitizations of loans............................ 2,063 1,590
Purchases of mortgage servicing rights...................................... (20) (2)
Purchases of factored accounts receivable................................... (2,071) (1,705)
Collections of factored accounts receivable................................. 1,619 1,577
Proceeds from sales of other real estate owned.............................. 86 44
Sale (acquisitions) of subsidiaries, net of cash............................ 126 (2,142)
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Net cash used by investing activities..................................... (7,007) (4,710)
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Financing Activities
Net decrease in deposits.................................................... (880) (1,419)
Net increase in federal funds purchased and securities
sold under agreements to repurchase........................................ 4,799 4,680
Net decrease in other borrowed funds........................................ (809) (1,891)
Proceeds from issuance of long-term debt.................................... - 1,196
Retirement of long-term debt................................................ (163) (100)
Preferred stock repurchased and redeemed.................................... (94) -
Proceeds from issuance of common stock...................................... 43 30
Cash dividends paid......................................................... (130) (103)
Other financing activities.................................................. (10) (1)
------------------
Net cash provided by financing activities................................. 2,756 2,392
------------------
Net increase (decrease) in cash and cash equivalents......................... 529 (1,369)
Cash and cash equivalents at January 1....................................... 7,649 7,771
------------------
Cash and cash equivalents at March 31........................................ $ 8,178 $ 6,402
==================
Loans transferred to other real estate owned amounted to $46 and $88 for the three months ended March 31, 1994 and
1993, respectively.
See accompanying notes to consolidated financial statements.
5
NationsBank Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in Millions, Shares in Thousands)
Total
Common Stock Share-
Preferred ---------------- Retained Loan to holders'
Stock Shares Amount Earnings ESOP Trust Other Equity
-----------------------------------------------------------------------
Balance on December 31, 1992................... $119 252,990 $3,702 $4,179 $(98) $ (88) $ 7,814
Net income.................................... 481 481
Cash dividends
Common....................................... (101) (101)
Preferred.................................... (2) (2)
Common stock issued under dividend
reinvestment and employee plans.............. 905 39 (9) 30
Other......................................... (1) 18 1 (2) (2)
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Balance on March 31, 1993...................... $118 253,913 $3,742 $4,557 $(98) $ (99) $ 8,220
====================================================================
Balance on December 31, 1993................... $208 270,905 $4,594 $5,247 $(88) $ 18 $ 9,979
Net income.................................... 417 417
Cash dividends
Common....................................... (127) (127)
Preferred.................................... (3) (3)
Preferred stock repurchased and redeemed...... (93) (1) (94)
Common stock issued under dividend
reinvestment and employee plans.............. 978 40 3 43
Acquisition of Corpus Christi National Bank... 2,629 21 41 62
Valuation reserve for securities held
for sale and marketable equity
securities, net of tax....................... (109) (109)
Other......................................... (1) 25 1 4 4
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Balance on March 31, 1994...................... $114 274,537 $4,655 $5,575 $(88) $ (84) $10,172
====================================================================
See accompanying notes to consolidated financial statements.
6
NationsBank Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Accounting Policies
The consolidated financial statements include the accounts of NationsBank
Corporation and its subsidiaries (the Corporation). Significant intercompany
accounts and transactions have been eliminated in consolidation.
The information contained in the financial statements is unaudited. In
the opinion of management, all adjustments necessary for a fair presentation of
the results of interim periods have been made. Certain prior period amounts
have been reclassified to conform to current period classifications.
Accounting policies followed in the presentation of interim financial
results are presented on pages 62 and 63 of the 1993 Annual Report to
Shareholders.
Note 2 - Acquisition Activity
On February 28, 1994, the Corporation merged with Corpus Christi National
Bank (CCNB) of Corpus Christi, Texas, which had assets at the closing date of
$687 million. The Corporation acquired all the outstanding capital stock of
CCNB by exchanging 2.5 shares of its common stock for each share of CCNB common
stock outstanding. As a result, the Corporation issued 2.6 million shares of
common stock, for a total consideration valued at approximately $62 million.
This acquisition was accounted for as a pooling of interests. Financial data
prior to January 1994 has not been restated for the results of CCNB operations
because the impact is not material.
On February 18, 1994, the Corporation entered into an agreement with
California Federal Savings Bank to acquire for cash 43 banking centers in
Florida, including deposits, and one banking center in Georgia, including
deposits, at a purchase price of approximately $160 million. The Corporation
expects to complete the acquisition during the second half of 1994.
Note 3 - Repurchase and Redemption of Preferred Stock
During the quarter ended March 31, 1994, the Corporation repurchased and
redeemed all 753 thousand shares of its Series CC Preferred Stock at a weighted
average price of $51.32 per share and all 1.108 million shares of its Series DD
Preferred Stock at a weighted average price of $49.86 per share. The aggregate
redemption price was $94 million.
7
Note 4 - Securities
The book and market values of securities held for investment at March 31,
1994, were (dollars in millions):
Gross Gross
Unreal- Unreal-
Book ized ized Market
Value Gains Losses Value
-----------------------------------
U.S. Treasury securities and securities of other
U.S. government agencies and corporations............. $13,989 $ 6 $219 $13,776
Other taxable securities............................... 429 18 4 443
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Total taxable securities.............................. 14,418 24 223 14,219
Tax-exempt securities.................................. 24 1 - 25
-----------------------------------
$14,442 $25 $223 $14,244
===================================
Securities held for sale at March 31, 1994, were (dollars in millions):
Gross Gross
Unreal- Unreal-
ized ized Market
Cost Gains Losses Value
-----------------------------------
U.S. Treasury securities and securities of other
U.S. government agencies and corporations............. $15,596 $37 $ 88 $15,545
Other taxable securities............................... 7 - - 7
-----------------------------------
Total taxable securities.............................. 15,603 37 88 15,552
Tax-exempt securities.................................. 353 22 - 375
-----------------------------------
$15,956 $59 $ 88 $15,927
===================================
Note 5 - Commitments and Contingencies
The Corporation's commitments to extend credit at March 31, 1994, were
$63.7 billion as compared to $45.9 billion at March 31, 1993. Standby letters
of credit (SBLCs) represent commitments by the Corporation to meet the
obligations of the account party if called upon. Outstanding SBLCs and
guarantees as of March 31, 1994, were $6.6 billion as compared to $4.9 billion
at March 31, 1993. These amounts have been reduced for SBLCs collateralized by
cash and SBLCs participated to other financial institutions.
See Tables 7 and 16 and the discussion accompanying Table 16 in Item 2.
regarding the Corporation's derivatives activities.
8
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Analysis of the results of operations and financial condition of
NationsBank Corporation (the Corporation) for the first quarter of 1994 is
impacted by certain acquisitions completed in 1993 and 1994.
In the third quarter of 1993, the Corporation acquired substantially all
of the assets and certain of the liabilities of Chicago Research & Trading
Group Ltd. (CRT). The options market-making and trading portion became known as
NationsBanc-CRT and the primary government securities dealer portion became a
part of the Corporation's Capital Markets group. Effective October 1, 1993, the
Corporation completed its acquisition of MNC Financial Inc. (MNC). Also in the
fourth quarter of 1993, the Corporation acquired a substantial amount of the
assets and the ongoing business of U S WEST Financial Services Inc. and formed
the corporate finance unit known as Nations Financial Capital Corporation.
These acquisitions are reflected in the Corporation's financial data from their
dates of acquisition.
During the first quarter of 1994, the Corporation acquired Corpus Christi
National Bank (CCNB) of Corpus Christi, Texas. This acquisition is reflected in
the Corporation's financial data beginning January 1, 1994.
Analysis of Results of Operations
Earnings Review
A comparison of selected operating results for the first three months of
1994 and 1993 is presented in Table 1.
Net income of $417 million for the first quarter of 1994 represented an
increase of $136 million, or 48 percent, over earnings of $281 million during
the same period in 1993 excluding the impact of adopting a new income tax
accounting standard. Earnings per common share were $1.52 and $1.10 for the
first quarters of 1994 and 1993, respectively. Including the $200-million, or
$.79-per share, tax benefit of the new accounting standard, first quarter 1993
net income was $481 million, or $1.89 per common share.
Several factors contributed to the increase in net income in the first
quarter of 1994. Taxable-equivalent net interest income of $1.3 billion
increased by 19 percent compared to the first quarter of 1993. Reflecting the
continued positive trends in credit quality, provision expense declined $20
million and OREO expense declined $19 million. Noninterest income rose 41
percent to $680 million due to acquisitions and strong fee income. Partially
offsetting these improvements to net income was an increase of $221 million in
noninterest expense primarily due to acquisitions.
The return on average common shareholders' equity was 16.82 percent and
14.29 percent for the first quarters of 1994 and 1993, respectively, excluding
the tax benefit in the first quarter of 1993. The return was 24.56 percent in
the 1993 quarter including the benefit.
Customer Group Review
As shown on Table 2, the Corporation is segregated into three major
internal management units, or Customer Groups, managed with a focus on numerous
performance objectives including return on equity, operating efficiency and net
income.
The net income of the customer groups reflects funds transfer pricing.
This transfer pricing system derives net interest income by matching assets and
liabilities with similar interest rate sensitivity and maturity
characteristics. Equity capital is allocated to each customer group based on an
assessment of its inherent risk.
The General Bank includes the Corporation's retail banking network known
as the Banking Group; Financial Products, which provides specialized services
such as bank card, residential mortgages and indirect lending on a national
basis; and Trust and Private Banking.
The General Bank's return on equity of 18 percent for the first quarter of
1994 exceeded the 16 percent earned for 1993 due to improvements in both credit
quality and the efficiency ratio. Reflecting the effect of acquisitions and
internal growth, total loans for the first quarter of 1994 were 12 percent
above the annual average for 1993.
In the first quarter, the Banking Group contributed 60 percent of the
General Bank's earnings with a return on equity of 16 percent. The Financial
Products group contributed 32 percent of the General Bank's earnings with a
return on equity of 29 percent.
The Institutional Group includes Corporate and Investment Banking
activities, Real Estate Finance, Specialized Lending and the Capital Markets
group, which includes customer-related derivatives, foreign exchange,
securities trading and debt underwriting activities. Housed in this unit are
NationsBanc-CRT and NationsBanc Capital Markets Inc.
The Institutional Group's return on equity of 17 percent improved upon the
16 percent earned in 1993. Improvements in credit quality as well as a strong
quarter in Capital Markets led to the higher return on equity.
9
The Corporate Bank contributed 39 percent of the Institutional Group's
earnings with a return on equity of 18 percent. The Real Estate group
contributed 32 percent of the Institutional Group's earnings with a return on
equity of 15 percent. Capital Markets contributed 13 percent of the
Institutional Group's earnings with a return on equity of 20 percent.
Financial Services, comprising NationsCredit and Nations Financial Capital
Corporation, contributed $25 million in earnings with a return on equity of 14
percent.
The Other category in Table 2 includes gains on the sales of securities
and earnings on unallocated equity.
Net Interest Income
Tables 3 and 4 present an analysis of the Corporation's taxable-equivalent
net interest income and average balance sheet levels for the last five
quarters. Table 5 analyzes the changes in net interest income between the first
quarter of 1994 and the fourth and first quarters of 1993.
Taxable-equivalent net interest income increased $212 million to $1.310
billion in the first quarter of 1994, compared to $1.098 billion in the first
quarter of 1993. The increase was primarily due to higher earning asset levels,
particularly average loan and lease levels which increased $18.1 billion, and
reflected solid internal growth as well as acquisitions.
The net interest yield declined 47 basis points to 3.69 percent in the
first quarter of 1994, compared to 4.16 percent in the same quarter in 1993.
The decline was due to the addition of CRT which contributed $16.3 billion to
average earning assets yet added minimally to net interest income. While CRT
assets, which include the Corporation's primary government securities dealer,
are earning assets, dealer trading revenues are recorded as noninterest income.
Excluding the impact of CRT, the first-quarter 1994 net interest yield totaled
4.16 percent, unchanged from the first quarter of 1993.
While the cost of interest-bearing liabilities remained stable at 3.57
percent, the yield on average earning assets declined 47 basis points, to 6.81
percent from 7.28 percent, between the periods. Excluding the impact of CRT,
the yield on average earning assets declined 23 basis points, reflecting an
overall decline in market rates.
Acquisitions contributed approximately $10 billion to average loans in the
first quarter of 1994 compared to the first quarter of 1993. Excluding the
impact of acquisitions and the fourth-quarter 1993 $1.3-billion bank card
securitization, average loan levels increased $9.0 billion, or 12 percent,
compared to the first quarter of 1993.
Average interest-bearing liabilities increased $32.9 billion in the first
quarter of 1994 compared to the first quarter of 1993. Borrowed funds and
trading liabilities, which include federal funds purchased, securities sold
under agreements to repurchase and short sales, increased $23.4 billion
resulting, in a large part, from the financing of CRT's dealer inventory and
trading activities. Long-term debt increased $4.5 billion principally due to
debt acquired in the MNC acquisition and debt securities issued in connection
with financing Financial Services. Interest-bearing deposits increased $5.0
billion, again principally due to the MNC acquisition. Excluding MNC, average
interest-bearing deposits declined $1.9 billion in the first quarter of 1994
compared to the same quarter in 1993 primarily in consumer CDs and money market
savings accounts, partially offset by increases in consumer savings and foreign
time deposits. The decline in interest-bearing deposits was reflective of
industry trends and customers seeking higher yielding investment alternatives.
Taxable-equivalent net interest income declined slightly in the first
quarter of 1994 compared to the fourth quarter of 1993 despite a $4.1-billion
increase in average earning assets. The favorable influence of higher earning
assets was offset by the impact of two fewer days in the first quarter of 1994
than in the previous quarter and the full-quarter impact of the $1.3-billion
bank card securitization in December 1993.
The reported net interest yield declined eight basis points to 3.69
percent in the first quarter of 1994, compared to 3.77 percent in the fourth
quarter of 1993. Excluding the impact of CRT and bank card securitizations in
both quarters, the first-quarter 1994 net interest yield increased four basis
points.
The Corporation periodically securitizes bank card receivables which
changes the involvement of the Corporation from that of a lender to that of a
loan servicer. For the portion of the bank card portfolio securitized, net
interest income net of credit losses is instead reported as noninterest income.
The Corporation had an average of $1.3 billion, $.2 billion and $.3
billion in securitized bank card receivables in the first quarter of 1994, the
fourth quarter of 1993 and the first quarter of 1993, respectively. In
addition, the Corporation, primarily as the result of acquisitions, has other
types of loan receivables which have previously been securitized. Table 6 shows
the net impact of the securitized bank card receivables portfolio on the income
statement, average balance sheet and bank card credit losses.
10
The Corporation's asset and liability management process manages the
structure of the balance sheet and off-balance sheet portfolios to maximize net
interest income while maintaining acceptable levels of risk to changes in
market interest rates.
Interest rate swaps are one of the tools used for interest rate risk
management. Utilizing these instruments, the Corporation can adjust its
interest rate risk position without exposing itself to principal risk and
funding requirements as swaps do not involve the exchange of notional amounts,
just net interest payments. Net interest receipts of $56 million and $42
million for the three months ended March 31, 1994 and 1993, respectively, have
been included with interest income on the underlying commercial loans. As
reflected in Table 7,the notional amount of the interest rate swap program at
March 31, 1994, was $18.6 billion with the Corporation receiving fixed on $18.2
billion of notional amount and receiving variable on $.4 billion. On a combined
basis, the average interest rate received was 4.81 percent and paid was 3.74
percent as of March 31, 1994. Deferred gains and losses relating to terminated
contracts are not significant.
The estimated unrealized market value at March 31, 1994, was a negative
$375 million compared to approximately zero at December 31, 1993. This decline
is reflective of the recent rise in interest rates. The unrealized depreciation
in estimated value of the swap portfolio should be viewed in the context of the
overall balance sheet. The value of any single component of the balance sheet
or off-balance sheet position should not be viewed in isolation. As interest
rates rose, the value of core deposits and other fixed rate longer-term
liabilities increased to offset the decline in swaps and other fixed rate
assets. Management routinely measures the impact of interest rate changes on
the estimated value of its assets, liabilities and off-balance sheet
instruments. The overall impact of interest rate changes during the first
quarter of 1994 on these estimated values is estimated to be less than 1.5
percent of shareholders' equity.
Management also routinely measures the impact of actual and potential
interest rate changes on the earnings of the Corporation. At December 31, 1993,
before the recent Federal Reserve tightening, the impact of a gradual 100-
basis-point rise in rates was estimated to be three percent of net income when
compared to stable rates assuming no discretionary management action. As a
result of the recent increases in interest rates, management took pricing
actions which, when combined with the position of the yield curve and increase
in the prime rate, largely offset the impact of such interest rate increases.
At March 31, 1994, the impact of a gradual 100-basis-point rise in interest
rates is estimated at three to four percent of net income when compared to
stable rates, again assuming no discretionary management action.
Table 8 represents the Corporation's interest-rate gap position at March
31, 1994. This is a one-day position which is continually changing and is not
necessarily indicative of the Corporation's position at any other time.
Additionally, this table indicates only the contractual or anticipated
repricing of assets and liabilities and does not consider the many factors that
accompany interest rate movements. The Corporation's negative cumulative
interest rate gap position in the near term reflects its strong customer-
deposit gathering franchise which provides a relatively stable core deposit
base. These available funds have been deployed in longer-term interest-earning
assets including certain loans and securities.
Provision for Credit Losses
The provision for credit losses was $100 million in the first three months
of 1994 compared to $120 million in the same period of 1993. Excluding the
impact of acquisitions, nonperforming assets and net charge-offs have declined
since the first quarter of 1993, indicating continued improvement in credit
quality.
Nonperforming Assets
At March 31, 1994, nonperforming assets, presented in Table 9, were $1.6
billion, or 1.73 percent of net loans, leases, factored accounts receivable and
other real estate owned, compared to $1.8 billion, or 1.92 percent, at December
31, 1993, and $1.9 billion, or 2.53 percent, at March 31, 1993. Excluding the
impact of late 1993 acquisitions, nonperforming assets totaled $1.2 billion at
March 31, 1994, a decline of $763 million from the same quarter of 1993. At
March 31, 1993, prior to its acquisition by the Corporation, MNC nonperforming
assets totaled $898 million, compared to $411 million at March 31, 1994.
Nonperforming loans were $1.067 billion at the end of the first quarter of
1994, compared to $1.340 billion at the end of the same quarter in the previous
year. The decline was centered in commercial nonperforming loans which declined
$175 million, or 29 percent, and in real estate commercial and construction
nonperforming loans which declined $113 million, or 20 percent. These declines
were partially offset by a $36-million increase in other consumer nonperforming
loans principally due to acquisitions. The reduction in nonperforming loans
primarily reflected payments and the improved financial condition of borrowers,
partially offset by acquisitions.
11
Other real estate owned, which represents real estate acquired through
foreclosure and in-substance foreclosures, totaled $569 million on March 31,
1994, a decline of $92 million, or 14 percent, from December 31, 1993, and $15
million, or three percent, from March 31, 1993. Excluding late 1993
acquisitions, other real estate owned declined $39 million compared to December
31, 1993, and $206 million compared to March 31, 1993.
The Corporation continues efforts to expedite disposition, collection and
renegotiation of nonperforming and other lower quality assets. As a part of
this process, the Corporation routinely evaluates all reasonable alternatives
including the sale of assets individually or in groups. The final decision to
proceed with any alternative is evaluated in the context of the overall credit-
risk profile of the Corporation.
The amount of loans past due 90 days or more that were not classified as
nonperforming loans totaled $154 million on March 31, 1994, compared to $167
million on December 31, 1993, and $188 million on March 31, 1993.
Allowance for Credit Losses
At March 31, 1994, the allowance for credit losses was $2.187 billion, or
2.33 percent of loans, leases and factored accounts receivables, compared to
$1.566 billion, or 2.08 percent, at March 31, 1993. Table 10 provides an
analysis of the changes in the allowance for credit losses for the first three
months of 1994 and 1993.
Net charge-offs for the first quarter of 1994 were $90 million, or .39
percent of average loans, leases and factored accounts receivables, versus $84
million, or .46 percent, in the first quarter of 1993. Excluding acquisitions,
net charge-offs declined when comparing the two quarters, in part due to the
previously mentioned bank card securitizations. In the first quarter of 1993,
prior to its acquisition by the Corporation, MNC had net charge-offs of $69
million, compared to $5 million in the first quarter of 1994.
Securities Gains
Gains from the sales of securities were $14 million in the first quarter
of 1994 compared to $12 million in the same period of 1993.
Noninterest Income
Table 11 compares the major categories of noninterest income for the first
quarters of 1994 and 1993.
Noninterest income totaled $680 million in the first quarter of 1994, an
increase of $199 million, or 41 percent, from $481 million in the same quarter
of 1993. After adjusting for acquisitions, noninterest income increased $59
million, or 13 percent, in the first quarter of 1994.
The improvement in noninterest income was primarily due to increases in
trust fees, service charges on deposit accounts, investment banking income,
bank card income and trading account profits and fees. General Bank trust fees
and deposit account fees both benefited from the acquisition of MNC. Investment
banking income reflected the Institutional Group's continued strong syndication
activity. The increase in bank card income was principally due to the effect of
the fourth-quarter 1993 securitization as presented in Table 6, while the
increase in trading account profits and fees was largely attributable to the
impact of the CRT acquisition and related capital markets trading activities
resulting from positive market conditions.
Other Real Estate Owned Expense
OREO expense declined $19 million to $5 million in the first quarter of
1994 from $24 million in the same period in 1993, consistent with the
improvement in asset quality as previously discussed. The decline in the first
quarter of 1994 was largely due to lower write-downs and increased net gains on
sales of OREO properties, compared to the same quarter of the previous year.
Noninterest Expense
The Corporation's noninterest expense as shown in Table 12 increased $221
million, or 22 percent, in the current quarter compared to the same quarter in
1993, to a total of $1.2 billion. Noninterest expense in the first quarter of
1994 increased less than three percent excluding the impact of acquisitions.
Personnel expense, which accounts for 46 percent of noninterest expense,
increased $120 million in the first quarter of 1994 compared to the same
quarter in 1993. Excluding acquisitions, personnel expense increased only $28
million, or six percent, between the two quarters, largely due to revenue-
related incentives. Full-time equivalent personnel at March 31, 1994, included
over 6,500 attributable to acquisitions; however, excluding acquisitions, the
total number of full-time equivalent personnel declined nearly 900 since March
31, 1993.
Occupancy expense increased $22 million in the first quarter of 1994
compared to the first quarter of 1993. Excluding acquisitions, occupancy
expense increased $5 million, or five percent.
12
Processing expense increased $18 million, or 45 percent, between the first
quarter of 1993 and the first quarter of 1994 primarily due to increased fees
resulting from additional outsourcing and acquisitions.
Other general operating expense totaled $107 million for the first
quarter of 1994, a $15-million increase from the $92 million recorded in the
same period of 1993. Excluding $13 million attributable to acquisitions, other
general operating expense increased three percent.
Income Taxes
The Corporation's income tax expense was $241 million, for an effective
rate of 36.6 percent of pretax income, in the first quarter of 1994, compared
to $145 million, for an effective tax rate of 34.0 percent, in the first
quarter of 1993. The increase in the effective tax rate resulted from higher
tax costs associated with the new businesses acquired in late 1993.
Analysis of Financial Condition
Period-end assets were $165.1 billion and $121.4 billion at March 31, 1994
and 1993, respectively. Average total assets were $161.3 billion for the first
quarter of 1994 compared to $120.4 billion for the first quarter of 1993. The
following discussion analyzes the major components of the period-end and
average balance sheets.
Cash and cash equivalents increased $529 million from December 31, 1993,
to March 31, 1994, due to increases of $4.8 billion in cash provided by
operating activities and $2.8 billion in cash provided by financing activities,
nearly offset by a $7 billion decrease in cash used by investing activities.
Net cash provided by financing activities totaled $2.8 billion primarily
as a result of a $4.8-billion increase in federal funds purchased and
securities sold under agreements to repurchase partially offset by decreases in
deposits and other borrowed funds of $880 million and $809 million,
respectively.
Net cash used by investing activities represented a $4.6 billion increase
in federal funds sold and securities purchased under agreements to resale and
net originations of loans and leases of $2.4 billion.
Table 13 presents an analysis of the major sources and uses of funds for
the two quarterly periods based on average levels. Customer-based funds
increased 10 percent to an average of $83.6 billion for the first three months
of 1994 from $76.3 billion in the same period of 1993. Customer-based funds
represented 51.9 percent of total sources of funds in 1994 down from 63.4
percent in 1993, reflecting the Corporation's reduced reliance on certificates
of deposit. The Corporation's ratio of average loans to customer-based funds
was 110 percent for the first quarter of 1994 compared to 96 percent for the
first quarter of 1993. Market-based funds increased 83 percent to $54.0 billion
in the first quarter of 1994 from $29.5 billion in the same quarter of 1993,
mainly reflecting funding of the primary securities dealer inventories and
Financial Services.
Securities
The securities portfolio at March 31, 1994, consisted of securities held
for investment totaling $14.4 billion and securities held for sale totaling
$15.9 billion.
The estimated average maturity of the combined securities portfolios was
2.02 years, 1.63 years and 1.89 years at March 31, 1994, December 31, 1993, and
March 31, 1993, respectively.
The securities portfolio serves a primary role in the overall context of
balance sheet management by the Corporation. The portfolio generates
substantial interest income and serves as a necessary reservoir of liquidity.
The decision to purchase securities is based upon the current assessment
of economic and financial conditions, including the interest rate environment
and other on- and off-balance sheet positions.
At March 31, 1994, the Corporation's portfolio of securities held for
investment reflected unrealized net depreciation of $198 million compared to
unrealized net appreciation of $20 million at December 31, 1993, and $425
million at March 31, 1993.
The valuation reserve for securities held for sale and marketable equity
securities reduced shareholders' equity $5 million at March 31, 1994, compared
to an addition to shareholders' equity of $104 million at December 31, 1993.
Loans
The Corporation's average loan and lease portfolio increased 25 percent to
$91.6 billion in the first quarter of 1994 compared to $73.5 billion in the
same quarter of 1993. Commercial loans increased $7.5 billion, or 23 percent,
to $40.4 billion in the first quarter of 1994, reflecting improved quality-loan
demand and acquisitions which contributed $3.8 billion. Acquisitions added $2.7
billion to average real estate commercial and construction loans in the first
quarter of 1994. Excluding acquisitions, average levels of such loans declined
$385 million between the first quarter of 1993 and the same quarter of 1994.
13
Residential mortgage loans averaged $13.3 billion, a $3.9-billion increase
from the first quarter in 1993. The increase reflected more originations and a
higher retention of such originations plus a slight impact from acquisitions.
Other consumer loans increased $3.7 billion to $16.8 billion in the first
quarter of 1994 compared to $13.1 billion in the year-ago quarter. Acquisitions
contributed $2.3 billion, or 62 percent, of the increase in other consumer
loans.
Tables 14 and 15 summarize the geographic and property-type distribution
of real estate commercial and construction loans as of March 31, 1994. These
real estate loans totaled $11.5 billion, or 12 percent of total loans, leases
and factored accounts receivable on that date. Of these loans, $443 million
were nonperforming. During the first quarter of 1994, the Corporation recorded
real estate commercial and construction net charge-offs of $5 million. In
addition, Tables 14 and 15 summarize the distribution of real estate commercial
and construction OREO by geographic region and property type.
Capital
Shareholders' equity on March 31, 1994, was $10.172 billion compared to
$9.979 billion on December 31, 1993, and $8.220 billion on March 31, 1993.
During the first quarter of 1994, the Corporation repurchased and redeemed its
Series CC and Series DD preferred stock, reducing shareholders' equity
approximately $94 million. The acquisition of CCNB included the issuance of 2.6
million shares of common stock and an increase of $62 million in shareholders'
equity in the first quarter of 1994. As previously mentioned, the valuation
reserve for securities held for sale and marketable equity securities reduced
shareholders' equity $109 million between December 31, 1993, and March 31,
1994.
The Corporation's Tier 1 ratio was 7.50 percent at March 31, 1994,
compared to 7.61 percent at March 31, 1993. The total risk-based capital ratio
was 11.66 percent compared to 11.80 percent in 1993. Both of these measures
compare favorably with the regulatory minimums of four percent for Tier 1 and
eight percent for total risk-based capital. The Tier 1 leverage ratio standard
states a minimum ratio of three percent, although most banking organizations
are expected to maintain ratios of at least 100 to 200 basis points above the
three-percent minimum. The Corporation's leverage ratio was 6.11 percent at
March 31, 1994, compared to 6.26 percent at March 31, 1993.
Derivatives - Dealer Positions
The Corporation offers a number of products to its customers to help them
manage the interest rate, currency and price-risk sensitivity of assets and
liabilities. The Corporation also enters into similar transactions for its own
account as part of its trading activity. Table 16 summarizes the notional
principal amounts of such customer and corporate derivative dealer positions at
March 31, 1994 and December 31, 1993.
The contract amounts reflected in Table 16 indicate the notional principal
amount of such transactions. These figures do not reflect the actual dollar
amount of the Corporation's market or credit risk associated with these
instruments, which is significantly lower than the notional principal amount.
Market risk arises due to fluctuations in interest rates and market prices that
may result in changes in the value of derivatives instruments. The Corporation
manages its exposure to market risk by imposing limits on the specific and
aggregate risk positions traders may take. Position limits are set by senior
management and positions are monitored on a daily basis. Additionally, the
Corporation manages market risk by entering into offsetting positions.
Credit risk represents the replacement cost the Corporation could incur
should counterparties with contracts in a gain position to the Corporation
completely fail to perform under the terms of those contracts and any
collateral underlying the contracts prove to be of no value to the Corporation.
Such aggregate amounts measured by the Corporation as the gross positive
replacement cost at March 31, 1994, and December 31, 1993, were $1.3 billion
and $956 million, respectively. Included in such aggregate amounts were $477
million and $343 million at March 31, 1994, and December 31, 1993,
respectively, related to exchange traded instruments for which the credit risk
to the Corporation is minimal. To reduce credit risk, counterparties are
subject to the credit approval and credit monitoring policies and procedures of
the Corporation. Certain instruments require the Corporation or the
counterparty to maintain collateral for all or part of the exposure. Generally,
such collateral is in the form of cash or other highly liquid instruments.
Limits for exposure to any particular counterparty are established and
monitored. In certain jurisdictions, counterparty risk may also be reduced
through the use of master netting arrangements which allow the Corporation to
close out and settle positions with the same counterparty on a net basis.
14
Table 1
Selected Operating Results
(Dollars in Millions Except Per-Share Information)
Three Months
Ended March 31
----------------
1994 1993
----------------
Income from earning assets.......................................................... $2,398 $1,896
Interest expense.................................................................... 1,110 821
Net interest income (taxable-equivalent)............................................ 1,310 1,098
Net interest income................................................................. 1,288 1,075
Provision for credit losses......................................................... 100 120
Gains on sales of securities........................................................ 14 12
Noninterest income.................................................................. 680 481
Other real estate owned expense..................................................... 5 24
Noninterest expense................................................................. 1,219 998
Income before income taxes and effect of change in method of
accounting for income taxes........................................................ 658 426
Income tax expense.................................................................. 241 145
Income before effect of change in method of accounting for income taxes............. 417 281
Effect of change in method of accounting for income taxes........................... - 200
Net income.......................................................................... 417 481
Earnings per common share before effect of change in method of
accounting for income taxes........................................................ 1.52 1.10
Earnings per common share........................................................... 1.52 1.89
Yield on average earning assets..................................................... 6.81 % 7.28 %
Rate on average interest-bearing liabilities........................................ 3.57 3.57
Net interest spread................................................................. 3.24 3.71
Net interest yield.................................................................. 3.69 4.16
Return on average common shareholders' equity before effect of change in method of
accounting for income taxes........................................................ 16.82 14.29
Return on average common shareholders' equity....................................... 16.82 24.56
Market price per share of common stock
High for the period................................................................ $50 7/8 $58
Low for the period................................................................. 44 3/8 49 1/2
Closing price...................................................................... 45 3/4 54 5/8
Risk-based capital ratios
Tier 1............................................................................. 7.50 % 7.61 %
Total.............................................................................. 11.66 11.80
15
Table 2
Customer Group Summary
For the Three Months Ended March 31, 1994
(Dollars in Millions)
General Institutional Financial
Bank Group Services Other
---------------------------------------------
Net interest income (taxable-equivalent)............ $ 916 $ 298 $ 92 $ 4
Noninterest income.................................. 422 239 19 -
--------------------------------------------
Total revenue....................................... 1,338 537 111 4
Provision for credit losses......................... 78 7 15 -
Gains on sales of securities........................ - - - 14
Other real estate owned expense..................... 4 - 1 -
Noninterest expense................................. 901 265 53 -
--------------------------------------------
Income before taxes................................. 355 265 42 18
Income tax expense.................................. 137 102 17 7
--------------------------------------------
Net income.......................................... $ 218 $ 163 $ 25 $11
============================================
Net interest yield.................................. 4.77 % 2.84 % <F1> 7.31 %
Efficiency ratio.................................... 67 % 49 % 48 %
Return on equity.................................... 18 17 14
Average <F2>
Total loans and leases, net of unearned income..... $55,857 $30,839 $5,131
Total deposits..................................... 77,007 9,706 -
Total assets....................................... 82,774 65,783 5,728
Period end <F2>
Total loans and leases, net of unearned income..... 56,532 30,587 5,283
Total deposits..................................... 77,809 9,078 -
<FN>
<F1> Excludes CRT. Including CRT, the net interest yield was 2.06 percent.
<F2> The sums of balance sheet amounts will differ from consolidated amounts due to intercompany balances.
16
Table 3
Quarterly Taxable-Equivalent Data
(Dollars in Millions)
First Quarter 1994 Fourth Quarter 1993 Third Quarter 1993
--------------------------------------------------------------------------------
Average Average Average
Balance Income Balance Income Balance Income
Sheet or Yields/ Sheet or Yields/ Sheet or Yields/
Amounts Expense Rates Amounts Expense Rates Amounts Expense Rates
--------------------------------------------------------------------------------
Earning assets
Loans and leases, net of unearned income <F1>
Commercial <F2>................................ $ 40,421 $ 722 7.24 % $ 39,233 $ 702 7.10 % $ 34,674 $ 613 7.02 %
Real estate commercial......................... 8,419 158 7.61 7,915 150 7.51 6,065 115 7.54
Real estate construction....................... 3,253 62 7.73 3,260 64 7.77 2,663 53 7.86
------------------------------------------------------------------------------
Total commercial.............................. 52,093 942 7.33 50,408 916 7.21 43,402 781 7.14
------------------------------------------------------------------------------
Residential mortgage........................... 13,340 254 7.63 12,663 249 7.85 11,054 226 8.17
Home equity.................................... 2,547 45 7.11 2,586 47 7.24 2,004 36 7.20
Bank card...................................... 3,673 121 13.32 4,593 150 12.97 4,435 153 13.65
Other consumer................................. 16,806 390 9.41 16,072 378 9.33 14,237 337 9.41
------------------------------------------------------------------------------
Total consumer................................ 36,366 810 8.99 35,914 824 9.12 31,730 752 9.43
------------------------------------------------------------------------------
Foreign........................................ 1,157 15 5.15 931 13 5.82 1,015 13 5.07
Lease financing................................ 1,992 36 7.29 1,894 35 7.41 1,656 38 8.95
------------------------------------------------------------------------------
Total loans and leases, net................... 91,608 1,803 7.96 89,147 1,788 7.97 77,803 1,584 8.09
------------------------------------------------------------------------------
Securities
Held for investment............................ 12,714 152 4.82 27,273 354 5.16 23,167 313 5.36
Held for sale.................................. 14,545 184 5.12 2,211 26 4.69 1,308 16 4.93
------------------------------------------------------------------------------
Total securities.............................. 27,259 336 4.98 29,484 380 5.13 24,475 329 5.34
------------------------------------------------------------------------------
Loans held for sale............................. 681 11 6.46 961 16 6.54 905 15 6.94
Federal funds sold and securities purchased
under agreements to resell..................... 12,073 87 2.95 8,237 64 3.08 7,513 66 3.46
Time deposits placed and other
short-term investments......................... 1,375 14 4.12 2,238 20 3.71 1,888 18 3.74
Trading account assets.......................... 10,738 169 6.39 9,590 150 6.19 8,563 112 5.22
------------------------------------------------------------------------------
Total earning assets.......................... 143,734 2,420 6.81 139,657 2,418 6.88 121,147 2,124 6.96
Cash and cash equivalents........................ 7,976 8,318 7,008
Factored accounts receivable..................... 1,016 1,207 1,115
Other assets, less allowance for credit losses... 8,568 8,608 6,925
------------------------------------------------------------------------------
Total assets.................................. $161,294 $157,790 $136,195
==============================================================================
Interest-bearing liabilities
Savings......................................... $ 8,879 51 2.33 $ 8,542 52 2.45 $ 6,411 39 2.37
NOW and money market deposit accounts........... 30,140 161 2.17 30,383 168 2.20 27,873 156 2.22
Consumer CDs and IRAs........................... 23,152 233 4.09 23,670 245 4.11 22,369 251 4.44
Negotiated CDs, public funds and other
time deposits.................................. 3,807 32 3.44 3,860 33 3.37 4,006 38 3.84
Foreign time deposits........................... 4,385 42 3.86 4,031 39 3.80 2,994 30 4.05
Borrowed funds and trading liabilities.......... 47,336 454 3.89 44,188 421 3.74 38,662 347 3.57
Capital leases and long-term debt............... 8,308 137 6.61 8,233 134 6.52 4,850 95 7.81
------------------------------------------------------------------------------
Total interest-bearing liabilities............ 126,007 1,110 3.57 122,907 1,092 3.53 107,165 956 3.54
Noninterest-bearing sources
Noninterest-bearing deposits.................... 19,897 19,852 16,751
Other liabilities............................... 5,310 5,362 3,637
Shareholders' equity............................ 10,080 9,669 8,642
------------------------------------------------------------------------------
Total liabilities and shareholders' equity.... $161,294 $157,790 $136,195
==============================================================================
Net interest spread.............................. 3.24 3.35 3.42
Impact of noninterest-bearing sources............ 0.45 0.42 0.41
------------------------------------------------------------------------------
Net interest income/yield on earning assets...... $1,310 3.69 % $1,326 3.77 % $1,168 3.83 %
==============================================================================
<FN>
<F1> Nonperforming loans are included in the respective average loan balances. Income on such nonperforming loans is recognized
on a cash basis.
<F2> Commercial loan interest income includes net interest rate swap revenues related to the asset and liability management
interest rate swap program. Such amounts were $56 in the first quarter of 1994 and $42, $37, $27 and $14 in the fourth,
third, second and first quarters of 1993, respectively.
17
Table 3 - Continued
Quarterly Taxable-Equivalent Data
(Dollars in Millions)
Second Quarter 1993 First Quarter 1993
-----------------------------------------------------
Average Average
Balance Income Balance Income
Sheet or Yields/ Sheet or Yields/
Amounts Expense Rates Amounts Expense Rates
-----------------------------------------------------
Earning assets
Loans and leases, net of unearned income <F1>
Commercial <F2>................................ $ 33,320 $ 570 6.86 % $ 32,906 $ 553 6.82 %
Real estate commercial......................... 6,278 122 7.74 6,398 119 7.57
Real estate construction....................... 2,729 50 7.38 2,922 50 6.97
---------------------------------------------------
Total commercial.............................. 42,327 742 7.02 42,226 722 6.94
---------------------------------------------------
Residential mortgage........................... 10,391 220 8.47 9,471 207 8.75
Home equity.................................... 2,045 36 7.17 2,052 36 6.96
Bank card...................................... 4,309 148 13.82 4,165 145 14.05
Other consumer................................. 13,691 333 9.75 13,125 318 9.81
---------------------------------------------------
Total consumer................................ 30,436 737 9.72 28,813 706 9.88
---------------------------------------------------
Foreign........................................ 972 13 5.34 926 13 5.80
Lease financing................................ 1,586 30 7.64 1,539 30 7.91
---------------------------------------------------
Total loans and leases, net................... 75,321 1,522 8.10 73,504 1,471 8.10
---------------------------------------------------
Securities
Held for investment............................ 24,848 351 5.66 23,987 357 6.03
Held for sale.................................. 52 1 5.57 475 6 5.06
---------------------------------------------------
Total securities.............................. 24,900 352 5.65 24,462 363 6.00
---------------------------------------------------
Loans held for sale............................. 642 11 6.68 648 11 6.82
Federal funds sold and securities purchased
under agreements to resell..................... 4,559 33 2.96 3,825 31 3.24
Time deposits placed and other
short-term investments......................... 2,029 20 3.91 1,992 21 4.28
Trading account assets.......................... 1,430 14 4.01 2,231 22 3.92
---------------------------------------------------
Total earning assets.......................... 108,881 1,952 7.19 106,662 1,919 7.28
Cash and cash equivalents........................ 6,886 6,873
Factored accounts receivable..................... 1,035 934
Other assets, less allowance for credit losses... 6,008 5,905
---------------------------------------------------
Total assets.................................. $122,810 $120,374
===================================================
Interest-bearing liabilities
Savings......................................... $ 6,180 36 2.34 $ 5,940 34 2.35
NOW and money market deposit accounts........... 28,137 157 2.24 28,155 160 2.30
Consumer CDs and IRAs........................... 23,214 271 4.69 23,748 285 4.87
Negotiated CDs, public funds and other
time deposits.................................. 4,619 46 3.99 4,931 55 4.49
Foreign time deposits........................... 2,531 27 4.20 2,560 27 4.31
Borrowed funds and trading liabilities.......... 26,069 200 3.07 23,975 181 3.08
Capital leases and long-term debt............... 4,154 84 8.10 3,790 79 8.32
---------------------------------------------------
Total interest-bearing liabilities............ 94,904 821 3.47 93,099 821 3.57
Noninterest-bearing sources
Noninterest-bearing deposits.................... 16,583 16,485
Other liabilities............................... 2,979 2,861
Shareholders' equity............................ 8,344 7,929
---------------------------------------------------
Total liabilities and shareholders' equity.... $122,810 $120,374
===================================================
Net interest spread.............................. 3.72 3.71
Impact of noninterest-bearing sources............ 0.45 0.45
---------------------------------------------------
Net interest income/yield on earning assets...... $1,131 4.17 % $1,098 4.16 %
===================================================
<FN>
<F1> Nonperforming loans are included in the respective average loan balances. Income on such nonperforming loans is recognized
on a cash basis.
<F2> Commercial loan interest income includes net interest rate swap revenues related to the asset and liability management
interest rate swap program. Such amounts were $56 in the first quarter of 1994 and $42, $37, $27 and $14 in the fourth,
third, second and first quarters of 1993, respectively.
18
Table 4
Quarterly Taxable-Equivalent Adjustment
(Dollars in Millions)
1994 1993
-----------------------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------
Interest income--book basis........................ $2,398 $2,395 $2,104 $1,932 $1,896
Add taxable-equivalent adjustment.................. 22 23 20 20 23
----------------------------------------------
Interest income--taxable-equivalent basis.......... 2,420 2,418 2,124 1,952 1,919
Interest expense................................... 1,110 1,092 956 821 821
----------------------------------------------
Net interest income--taxable-equivalent basis...... $1,310 $1,326 $1,168 $1,131 $1,098
==============================================
19
Table 5
Changes in Taxable-Equivalent Net Interest Income
(Dollars in Millions)
From Fourth Quarter 1993 From First Quarter 1993
to First Quarter 1994 to First Quarter 1994
-----------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
in Income/Expense in Income/Expense
Due to Change in Due to Change in
-----------------------------------------------------------------------------------
Percentage Percentage
Average Yields/ Increase Average Yields/ Increase
Levels Rates Total (Decrease) Levels Rates Total (Decrease)
-----------------------------------------------------------------------------------
Income from earning assets
Loans and leases, net of unearned income
Commercial................................. $ 21 $ (1) $ 20 2.8 % $ 133 $ 36 $ 169 30.6 %
Real estate commercial..................... 9 (1) 8 5.3 38 1 39 32.8
Real estate construction................... - (2) (2) (3.1) 6 6 12 24.0
----- -----
Total commercial.......................... 30 (4) 26 2.8 177 43 220 30.5
----- -----
Residential mortgage....................... 13 (8) 5 2.0 76 (29) 47 22.7
Home equity................................ (1) (1) (2) (4.3) 8 1 9 25.0
Bank card.................................. (30) 1 (29) (19.3) (16) (8) (24) (16.6)
Other consumer............................. 17 (5) 12 3.2 86 (14) 72 22.6
----- -----
Total consumer............................ 10 (24) (14) (1.7) 173 (69) 104 14.7
----- -----
Foreign.................................... 3 (1) 2 15.4 3 (1) 2 15.4
Lease financing............................ 2 (1) 1 2.9 8 (2) 6 20.0
----- -----
Total loans and leases, net............... 49 (34) 15 0.8 357 (25) 332 22.6
----- -----
Securities
Held for investment........................ (176) (26) (202) (57.1) (145) (60) (205) (57.4)
Held for sale.............................. 156 2 158 n/m 178 - 178 n/m
----- -----
Total securities.......................... (28) (16) (44) (11.6) 39 (66) (27) (7.4)
----- -----
Loans held for sale......................... (5) - (5) (31.3) 1 (1) - -
Federal funds sold and securities purchased
under agreements to resell................. 28 (5) 23 35.9 60 (4) 56 180.6
Time deposits placed and other short-term
investments................................ (9) 3 (6) (30.0) (6) (1) (7) (33.3)
Trading account assets...................... 18 1 19 12.7 127 20 147 n/m
----- -----
Total interest income..................... 70 (68) 2 0.1 631 (130) 501 26.1
----- -----
Interest expense
Savings..................................... 2 (3) (1) (1.9) 17 - 17 50.0
NOW and money market deposit accounts....... (1) (6) (7) (4.2) 11 (10) 1 0.6
Consumer CDs and IRAs....................... (5) (7) (12) (4.9) (7) (45) (52) (18.2)
Negotiated CDs, public funds and other
time deposits.............................. (1) - (1) (3.0) (11) (12) (23) (41.8)
Foreign time deposits....................... 3 - 3 7.7 18 (3) 15 55.6
Borrowed funds and trading liabilities...... 30 3 33 7.8 214 59 273 150.8
Capital leases and long-term debt........... 1 2 3 2.2 77 (19) 58 73.4
----- -----
Total interest expense.................... 18 - 18 1.6 289 - 289 35.2
----- -----
Net interest income.......................... 38 (54) $ (16) (1.2) 349 (137) $ 212 19.3
===== =====
n/m - not meaningful.
20
Table 6
Impact of Bank Card Securitizations
(Dollars in Millions)
Three Months
Ended March 31
--------------------
1994 1993
--------------------
Income Statement - Increase (Decrease)
Net interest income.......................................... $ (34) $ (10)
Noninterest income........................................... 15 7
Provision for credit losses.................................. (19) (3)
-------------------
Net income................................................... $ - $ -
===================
Average Balance Sheet - Decrease
Total assets................................................. $(1,330) $ (323)
===================
Managed Bank Card Portfolio
Average bank card loans...................................... $ 5,003 $4,488
Net charge-offs.............................................. 178 184
Net charge-offs as a percentage of average bank card loans... 3.56 % 4.10 %
21
Table 7
Asset and Liability Management Interest Rate Swaps
(Dollars in Millions)
Notional contracts
Beginning balance on January 1, 1994.................................................................. $13,908
Additions............................................................................................. 4,943
Maturities............................................................................................ (205)
-------
Ending balance on March 31, 1994...................................................................... $18,646
=======
Maturities at March 31, 1994
1994.................................................................................................. $ 1,299
1995.................................................................................................. 9,010
1996.................................................................................................. 5,532
1997.................................................................................................. 1,745
After 1997............................................................................................ 1,060
-------
$18,646
=======
The above maturities will differ from actual maturities since they were based on current interest rates and resultant
prepayment patterns. The average maturity of 1.73 years reflected above assumes interest rates remain constant
at current levels.
The implied average maturity based on the forward yield curve at March 31, 1994, would be 2.15 years.
22
Table 8
Interest Rate Gap Analysis
March 31, 1994
(Dollars in Millions)
Over 12
Interest-Sensitive Months and
---------------------------------------------------- Noninterest-
30-Day 3-Month 6-Month 12-Month Total Sensitive Total
----------------------------------------------------------------------------
Earning assets
Loans and leases, net of
unearned income......................... $ 42,371 $ 8,557 $ 3,590 $ 6,347 $ 60,865 $31,265 $ 92,130
Securities held for investment........... 100 552 25 697 1,374 13,068 14,442
Securities held for sale................. - 2,263 5,109 2,285 9,657 6,270 15,927
Loans held for sale...................... 595 - - - 595 - 595
Time deposits placed and other
short-term investments.................. 684 301 162 1 1,148 - 1,148
Other earning assets..................... 24,264 - - - 24,264 - 24,264
----------------------------------------------------------------------------
Total................................... 68,014 11,673 8,886 9,330 97,903 50,603 $148,506
----------------------------------------------------------------------------
Interest-bearing liabilities
Savings.................................. - - - - - 9,111 $ 9,111
NOW and money market deposit
accounts................................ 22,615 - - - 22,615 7,540 30,155
Consumer CDs and IRAs.................... 3,615 3,387 4,161 4,611 15,774 7,143 22,917
Negotiated CDs, public funds and
other time deposits..................... 1,132 1,086 705 491 3,414 454 3,868
Foreign time deposits.................... 2,779 1,021 444 289 4,533 - 4,533
Borrowed funds and trading
liabilities............................. 44,302 2,963 2,821 577 50,663 - 50,663
Capital leases and long-term debt........ 1,175 689 84 99 2,047 6,128 8,175
----------------------------------------------------------------------------
Total................................... 75,618 9,146 8,215 6,067 99,046 30,376 129,422
Noninterest-bearing, net.................. - - - - - 19,084 19,084
----------------------------------------------------------------------------
Total................................... 75,618 9,146 8,215 6,067 99,046 49,460 $148,506
----------------------------------------------------------------------------
Interest rate gap......................... (7,604) 2,527 671 3,263 (1,143) 1,143
Effect of asset and liability
management interest rate swaps,
futures and other off-balance
sheet items.............................. (7,869) (7,839) (2,330) 664 (17,374) 17,374
---------------------------------------------------------------
Adjusted interest rate gap................ $(15,473) $ (5,312) $ (1,659) $ 3,927 $(18,517) $18,517
===============================================================
Cumulative adjusted interest rate gap..... $(15,473) $(20,785) $(22,444) $(18,517)
=========================================
23
Table 9
Nonperforming Assets
(Dollars in Millions)
March 31 December 31 September 30 June 30 March 31
1994 1993 1993 1993 1993
----------------------------------------------------------
Nonperforming loans
Commercial.......................................... $ 432 $ 474 $ 434 $ 555 $ 607
Real estate commercial.............................. 282 318 244 270 370
Real estate construction............................ 161 142 117 136 186
Residential mortgage................................ 71 77 78 82 83
Home equity......................................... 8 7 6 6 6
Other consumer...................................... 99 86 75 77 63
Lease financing..................................... 9 10 9 11 16
Foreign............................................. 5 8 1 1 9
--------------------------------------------------------
Total nonperforming loans.......................... 1,067 1,122 964 1,138 1,340
Other real estate owned.............................. 569 661 476 544 584
--------------------------------------------------------
Total nonperforming assets......................... $1,636 $1,783 $1,440 $1,682 $1,924
========================================================
Nonperforming assets as a percentage of
Total assets........................................ 0.99 % 1.13 % 1.03 % 1.36 % 1.58 %
Loans, leases and factored accounts
receivable, net of unearned income,
and other real estate owned........................ 1.73 1.92 1.78 2.15 2.53
Loans past due 90 days or more and not
classified as nonperforming......................... $ 154 $ 167 $ 189 $ 164 $ 188
24
Table 10
Allowance for Credit Losses
(Dollars in Millions)
Three Months
Ended March 31
-------------------
1994 1993
-------------------
Beginning balance................................................................................. $ 2,169 $ 1,454
-----------------
Loans, leases and factored accounts receivable charged off
Commercial....................................................................................... (29) (17)
Real estate commercial........................................................................... (12) (18)
Real estate construction......................................................................... (7) (3)
-----------------
Total commercial................................................................................ (48) (38)
-----------------
Residential mortgage............................................................................. (2) (1)
Home equity...................................................................................... - (1)
Bank card........................................................................................ (32) (47)
Other consumer................................................................................... (48) (41)
-----------------
Total consumer.................................................................................. (82) (90)
-----------------
Lease financing.................................................................................. - (1)
Factored accounts receivable..................................................................... (16) (4)
-----------------
Total loans, leases and factored accounts receivable charged off................................ (146) (133)
-----------------
Recoveries of loans, leases and factored accounts receivable previously charged off
Commercial....................................................................................... 14 19
Real estate commercial........................................................................... 3 7
Real estate construction......................................................................... 11 1
-----------------
Total commercial................................................................................ 28 27
-----------------
Residential mortgage............................................................................. 1 1
Bank card........................................................................................ 6 4
Other consumer................................................................................... 16 15
-----------------
Total consumer.................................................................................. 23 20
-----------------
Lease financing.................................................................................. 1 -
Factored accounts receivable..................................................................... 4 2
-----------------
Total recoveries of loans, leases and factored accounts receivable previously charged off....... 56 49
-----------------
Net charge-offs................................................................................. (90) (84)
-----------------
Provision for credit losses....................................................................... 100 120
Allowance applicable to acquired loans............................................................ 8 76
-----------------
Ending balance.................................................................................... $ 2,187 $ 1,566
=================
Loans, leases and factored accounts receivable, net of unearned income, outstanding on March 31... $93,767 $75,344
Allowance for credit losses as a percentage of loans, leases and factored accounts receivable,
net of unearned income........................................................................... 2.33 % 2.08 %
Daily average loans, leases and factored accounts receivable, net of unearned income,
outstanding during the period.................................................................... $92,624 $74,438
Net charge-offs as a percentage of daily average loans, leases and factored accounts receivable,
net of unearned income........................................................................... .39 % .46 %
Allowance for credit losses as a percentage of nonperforming loans................................ 205.04 116.86
25
Table 11
Noninterest Income
(Dollars in Millions)
Three Months
Ended March 31 Change
--------------------------------
1994 1993 Amount Percent
--------------------------------
Trust fees.................................... $109 $ 86 $ 23 26.7 %
------------------------------
Service charges on deposit accounts........... 196 158 38 24.1
------------------------------
Nondeposit-related service fees
Safe deposit rent............................ 8 8 - -
Mortgage servicing and related fees.......... 16 20 (4) (20.0)
Fees on factored accounts receivable......... 18 17 1 5.9
Investment banking income.................... 32 18 14 77.8
Other service fees........................... 27 22 5 22.7
------------------------------
Total nondeposit-related service fees....... 101 85 16 18.8
------------------------------
Bank card income
Merchant discount fees....................... 7 8 (1) (12.5)
Annual bank card fees........................ 6 4 2 50.0
Other bank card fees......................... 52 36 16 44.4
------------------------------
Total bank card income...................... 65 48 17 35.4
------------------------------
Other income
Brokerage income............................. 13 10 3 30.0
Trading account profits and fees............. 89 8 81 n/m
Foreign exchange income...................... 8 7 1 14.3
Bankers' acceptances and letters of credit... 17 16 1 6.3
Insurance commissions and earnings........... 12 10 2 20.0
Miscellaneous................................ 70 53 17 32.1
------------------------------
Total other income.......................... 209 104 105 101.0
------------------------------
$680 $481 $199 41.4
==============================
n/m - not meaningful.
26
Table 12
Noninterest Expense
(Dollars in Millions)
Three Months
Ended March 31 Change
-------------------------------
1994 1993 Amount Percent
-------------------------------
Personnel.................................. $ 564 $444 $120 27.0 %
Occupancy, net............................. 120 98 22 22.4
Equipment.................................. 86 76 10 13.2
Marketing.................................. 37 27 10 37.0
Professional fees.......................... 43 36 7 19.4
Amortization of intangibles................ 34 25 9 36.0
Bank card.................................. 10 12 (2) (16.7)
Private label credit card.................. 9 9 - -
FDIC insurance............................. 53 50 3 6.0
Processing................................. 58 40 18 45.0
Telecommunications......................... 32 30 2 6.7
Postage and courier........................ 33 29 4 13.8
Other general operating.................... 107 92 15 16.3
General administrative and miscellaneous... 33 30 3 10.0
-----------------------------
$1,219 $998 $221 22.1
=============================
27
Table 13
Sources and Uses of Funds
(Average Dollars in Millions)
Three Months Ended March 31
-------------------------------------
1994 1993
-------------------------------------
Amount Percent Amount Percent
-------------------------------------
Composition of sources
Savings, NOW, money market deposit accounts,
and consumer CDs and IRAs................................. $ 62,171 38.6 % $ 57,843 48.1 %
Noninterest-bearing funds.................................. 19,897 12.3 16,485 13.7
Customer-based portion of negotiated CDs................... 1,578 1.0 1,974 1.6
-----------------------------------
Customer-based funds...................................... 83,646 51.9 76,302 63.4
Market-based funds......................................... 53,950 33.4 29,492 24.5
Capital leases and long-term debt.......................... 8,308 5.2 3,790 3.1
Other liabilities.......................................... 5,310 3.3 2,861 2.4
Shareholders' equity....................................... 10,080 6.2 7,929 6.6
-----------------------------------
Total sources............................................. $161,294 100.0 % $120,374 100.0 %
===================================
Composition of uses
Loans and leases, net of unearned income................... $ 91,608 56.8 % $ 73,504 61.1 %
Securities held for investment............................. 12,714 7.9 23,987 19.9
Securities held for sale................................... 14,545 9.0 475 0.4
Loans held for sale........................................ 681 0.4 648 0.5
Time deposits placed and other short-term investments...... 1,375 0.9 1,992 1.7
Other earning assets....................................... 22,811 14.1 6,056 5.0
-----------------------------------
Total earning assets...................................... 143,734 89.1 106,662 88.6
Factored accounts receivable............................... 1,016 0.6 934 0.8
Other assets............................................... 16,544 10.3 12,778 10.6
-----------------------------------
Total uses................................................ $161,294 100.0 % $120,374 100.0 %
===================================
28
Table 14
Real Estate Commercial and Construction Loans and
Other Real Estate Owned by Geographic Region
March 31, 1994
(Dollars in Millions)
Loans OREO
---------------------------------------------- ---------------
Outstanding Percent Nonperforming Percent Amount Percent
---------------------------------------------- ---------------
Maryland............................ $ 2,013 17.4 % $125 28.2 % $ 81 18.5 %
Florida............................. 1,999 17.3 57 12.9 109 24.9
Virginia............................ 1,370 11.9 80 18.1 157 35.9
North Carolina...................... 1,257 10.9 24 5.4 13 3.0
Georgia............................. 1,164 10.1 25 5.6 8 1.8
Texas............................... 1,148 9.9 11 2.5 5 1.1
South Carolina...................... 934 8.1 54 12.2 29 6.6
Tennessee/Kentucky.................. 413 3.6 8 1.8 7 1.6
District of Columbia................ 396 3.4 36 8.1 19 4.3
Other............................... 847 7.4 23 5.2 9 2.3
------------------------------------------ ------------
$11,541 100.0 % $443 100.0 % $437 100.0 %
========================================== ============
Distribution based on geographic location of collateral.
Table 15
Real Estate Commercial and Construction Loans and
Other Real Estate Owned by Property Type
March 31, 1994
(Dollars in Millions)
Loans OREO
---------------------------------------------- ---------------
Outstanding Percent Nonperforming Percent Amount Percent
---------------------------------------------- ---------------
Office buildings.................... $ 2,339 20.3 % $ 59 13.3 % $ 70 16.0 %
Shopping centers/retail............. 1,951 16.9 51 11.5 68 15.6
Apartments.......................... 1,476 12.8 17 3.8 8 1.8
Land and land development........... 1,075 9.3 92 20.8 176 40.3
Hotels.............................. 1,018 8.8 56 12.6 28 6.4
Residential......................... 888 7.7 44 9.9 28 6.4
Industrial/warehouse................ 826 7.2 51 11.5 27 6.2
Commercial-other.................... 572 5.0 26 5.9 19 4.3
Resorts/golf courses................ 231 2.0 3 0.7 3 0.7
Nursing homes/retirement housing.... 132 1.1 - - 2 0.5
Mobile home parks................... 130 1.1 1 0.2 - -
Other............................... 903 7.8 43 9.8 8 1.8
------------------------------------------ ------------
$11,541 100.0 % $443 100.0 % $437 100.0 %
========================================== ============
29
Table 16
Derivatives - Dealer Positions
(Dollars in Millions)
Notional Principal Amounts
--------------------------
March 31 December 31
1994 1993
--------------------------
Interest Rate Contracts
Swaps........................... $17,708 $15,758
Futures and forwards............ 56,241 32,503
Written options................. 91,674 58,499
Purchased options............... 79,568 55,616
Foreign Exchange Contracts
Swaps........................... 258 258
Spot, futures and forwards...... 19,829 12,516
Written options................. 12,636 8,058
Purchased options............... 12,719 8,051
Commodity Contracts
Swaps........................... 643 1,470
Futures and forwards............ 4,328 1,661
Written options................. 11,868 6,696
Purchased options............... 12,474 7,339
30
Part II. Other Information
Item 5. On February 4, 1994, American Security Bank merged into Maryland
National Bank (MNB). On April 29, 1994, NationsBank of D.C., N.A.
merged into MNB which then merged into NationsBank of Maryland, N.A.
On that same day, NationsBank of Maryland, N.A. changed its name to
NationsBank, N.A.
Item 6. Exhibits
Exhibit 11 - Earnings per share computation
31
NationsBank Corporation
Form 10-Q
Exhibit Index
Exhibit Description Page
- - ------- ----------- ----
11 Earnings per share computation. . . . . . . . . . . . . 34
32
Signature
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NationsBank Corporation
-------------------------------------------
Registrant
Date: May 13, 1994 /s/ Marc D. Oken
-------------------- -------------------------------------------
Marc D. Oken
Executive Vice President
and Chief Accounting Officer
(Duly Authorized Officer and
Principal Accounting Officer)
33