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, 1995
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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
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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On April 30, 1995, there were 271,404,569 shares of NationsBank Corporation
Common Stock outstanding.
1
NationsBank Corporation
March 31, 1995 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, 1995 and 1994..............................................3
Consolidated Balance Sheet on March 31, 1995, December 31, 1994
and March 31, 1994...................................................4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1995 and 1994..............................................5
Consolidated Statement of Changes in Shareholders' Equity for
the Three Months Ended March 31, 1995 and 1994.......................6
Notes to Consolidated Financial Statements...........................7
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.................................................12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K....................................36
Signature....................................................................37
Index to Exhibits............................................................38
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
------------------------
1995 1994
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Income from Earning Assets
Interest and fees on loans..................................... $ 2,176 $ 1,757
Lease financing income......................................... 50 30
Interest and dividends on securities
Held for investment.......................................... 234 151
Available for sale........................................... 106 179
Interest and fees on loans held for sale....................... 1 11
Time deposits placed and other short-term investments.......... 40 14
Federal funds sold............................................. 16 6
Securities purchased under agreements to resell................ 214 81
Trading account securities..................................... 233 169
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Total income from earning assets............................. 3,070 2,398
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Interest Expense
Deposits....................................................... 783 519
Borrowed funds................................................. 598 301
Trading account liabilities.................................... 222 153
Long-term debt and obligations under capital leases............ 160 137
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Total interest expense....................................... 1,763 1,110
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Net interest income.............................................. 1,307 1,288
Provision for credit losses...................................... 70 100
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Net credit income................................................ 1,237 1,188
Gains on sales of securities..................................... 1 14
Noninterest income............................................... 726 680
Other real estate owned expense.................................. 2 5
Noninterest expense.............................................. 1,288 1,219
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Income before income taxes....................................... 674 658
Income tax expense............................................... 231 241
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Net income....................................................... $ 443 $ 417
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Net income available to common shareholders...................... $ 441 $ 414
========================
Per-share information
Earnings per common share...................................... $ 1.60 $ 1.52
========================
Fully diluted earnings per common share........................ $ 1.58 $ 1.51
========================
Dividends per common share..................................... $ 0.50 $ 0.46
========================
Average common shares(in thousands).............................. 276,415 271,947
========================
See accompanying notes to consolidated financial statements.
3
NationsBank Corporation and Subsidiaries
Consolidated Balance Sheet
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(Dollars in Millions)
March 31 December 31 March 31
1995 1994 1994
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Assets
Cash and cash equivalents........................................................... $ 7,975 $ 9,582 $ 8,178
Time deposits placed and other short-term investments............................... 2,750 2,159 1,148
Securities
Held for investment, at cost (market value - $17,208; $17,101 and $14,244)........ 17,546 17,800 14,442
Available for sale................................................................ 8,962 8,025 15,927
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Total securities................................................................ 26,508 25,825 30,369
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Loans held for sale................................................................. 286 318 595
Trading account assets.............................................................. 16,613 9,941 12,285
Federal funds sold.................................................................. 2,086 960 1,084
Securities purchased under agreements to resell..................................... 11,602 10,152 10,895
Loans and leases, net of unearned income............................................ 105,704 102,367 92,130
Factored accounts receivable........................................................ 1,224 1,004 1,637
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Loans, leases and factored accounts receivable, net of unearned income............ 106,928 103,371 93,767
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Allowance for credit losses......................................................... (2,174) (2,186) (2,187)
Premises, equipment and lease rights, net........................................... 2,451 2,439 2,258
Customers' acceptance liability..................................................... 821 684 718
Interest receivable................................................................. 1,256 1,408 1,002
Purchased mortgage servicing rights................................................. 705 195 104
Goodwill............................................................................ 1,054 1,047 825
Core deposit and other intangibles.................................................. 453 470 460
Other assets........................................................................ 4,540 3,239 3,570
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$ 183,854 $ 169,604 $ 165,071
Liabilities ======================================
Deposits
Noninterest-bearing............................................................... $ 20,264 $ 21,380 $ 20,172
Savings........................................................................... 8,844 9,037 9,111
NOW and money market deposit accounts............................................. 28,124 29,752 30,155
Time.............................................................................. 28,214 27,698 26,785
Foreign time...................................................................... 15,297 12,603 4,533
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Total deposits.................................................................. 100,743 100,470 90,756
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Federal funds purchased............................................................. 5,084 3,993 6,934
Securities sold under agreements to repurchase...................................... 27,798 21,977 26,332
Commercial paper.................................................................... 2,786 2,519 2,046
Other short-term borrowings......................................................... 6,423 5,640 4,797
Trading account liabilities......................................................... 14,639 11,426 10,554
Liability to factoring clients...................................................... 682 586 824
Acceptances outstanding............................................................. 821 684 718
Accrued expenses and other liabilities.............................................. 3,716 2,810 3,763
Long-term debt and obligations under capital leases................................. 9,816 8,488 8,175
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Total liabilities............................................................... 172,508 158,593 154,899
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Shareholders' Equity
Preferred stock: authorized - 45,000,000 shares
ESOP Convertible, Series C: issued - 2,590,563; 2,606,657 and 2,673,406 shares.... 110 111 114
Common stock: authorized - 800,000,000; 800,000,000 and 500,000,000 shares;
issued - 275,418,276; 276,451,552 and 274,537,247 shares.......................... 4,684 4,740 4,655
Retained earnings................................................................... 6,753 6,451 5,575
Other, including loan to ESOP trust................................................. (201) (291) (172)
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Total shareholders' equity...................................................... 11,346 11,011 10,172
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$ 183,854 $ 169,604 $ 165,071
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See accompanying notes to consolidated financial statements
4
NationsBank Corporation and Subsidiaries
Consolidated Statement of Cash Flows
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(Dollars in Millions)
Three Months
Ended March 31
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1995 1994
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Operating Activities
Net income............................................................................ $ 443 $ 417
Reconciliation of net income to net cash (used) provided by operating activities
Provision for credit losses......................................................... 70 100
Gains on sales of securities........................................................ (1) (14)
Depreciation and premises improvements amortization................................. 68 64
Amortization of intangibles......................................................... 30 34
Deferred income tax expense......................................................... 60 52
Net change in trading instruments................................................... (3,459) 579
Net decrease in interest receivable................................................. 152 119
Net (increase) decrease in interest payable......................................... 81 (12)
Net decrease in loans held for sale................................................. 32 1,102
Net increase in liability to factoring clients...................................... 96 90
Other operating activities.......................................................... (507) 2,356
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Net cash (used) provided by operating activities................................... (2,935) 4,887
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Investing Activities
Proceeds from maturities of securities held for investment............................ 275 4,215
Purchases of securities held for investment........................................... (25) (5,082)
Proceeds from sales and maturities of securities available for sale................... 5,415 10,244
Purchases of securities available for sale............................................ (6,216) (10,751)
Net increase in federal funds sold and securities
purchased under agreements to resell................................................ (2,576) (4,712)
Net (increase) decrease in time deposits placed and other short-term investments...... (591) 334
Net originations of loans and leases.................................................. (2,873) (2,372)
Purchases of loans and leases......................................................... (793) (732)
Proceeds from sales and securitizations of loans...................................... 262 2,063
Purchases of mortgage servicing rights................................................ (517) (20)
Purchases of factored accounts receivable............................................. (1,963) (2,071)
Collections of factored accounts receivable........................................... 1,740 1,619
Net purchases of premises and equipment............................................... (80) (55)
Proceeds from sales of other real estate owned........................................ 56 86
Sales/(acquisitions) of subsidiaries, net of cash..................................... (155) 126
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Net cash used in investing activities.............................................. (8,041) (7,108)
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Financing Activities
Net increase (decrease) in deposits................................................... 273 (880)
Net increase in federal funds purchased and securities
sold under agreements to repurchase................................................. 6,912 4,793
Net increase (decrease) in other short-term borrowings and commercial paper........... 1,050 (809)
Proceeds from issuance of long-term debt.............................................. 1,503 -
Retirement of long-term debt.......................................................... (95) (163)
Preferred stock repurchased and redeemed.............................................. - (94)
Proceeds from issuance of common stock................................................ 28 43
Cash dividends paid................................................................... (140) (130)
Common stock repurchased.............................................................. (79) -
Other financing activities............................................................ (83) (10)
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Net cash provided by financing activities.......................................... 9,369 2,750
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Net increase (decrease) in cash and cash equivalents.................................... (1,607) 529
Cash and cash equivalents on January 1.................................................. 9,582 7,649
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Cash and cash equivalents on March 31................................................... $ 7,975 $ 8,178
====================
Loans transferred to other real estate owned amounted to $18 and $46 for the three months ended March 31,
1995 and 1994, respectively.
See accompanying notes to consolidated financial statements.
5
NationsBank Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
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(Dollars in Millions, Shares in Thousands)
Total
Common Stock Share-
Preferred ----------------- Retained Loan to holders'
Stock Shares Amount Earnings ESOP Trust Other Equity
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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
Common stock issued in acquisitions........ 2,629 21 41 62
Net change in valuation reserve for
securities available for sale and
marketable equity securities............. (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
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Balance on December 31, 1994................. $ 111 276,452 $ 4,740 $ 6,451 $ (76) $ (215) $ 11,011
Net income................................... 443 443
Cash dividends
Common..................................... (138) (138)
Preferred.................................. (2) (2)
Common stock issued under dividend
reinvestment and employee plans............ 517 23 5 28
Common stock repurchased..................... (1,551) (79) (79)
Net change in valuation reserve for
securities available for sale and
marketable equity securities............... 90 90
Other........................................ (1) (1) (5) (7)
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Balance on March 31, 1995.................... $ 110 275,418 $ 4,684 $ 6,753 $ (76) $ (125) $ 11,346
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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 normal recurring 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 1994 Annual Report to
Shareholders as updated by the following.
Allowance for Credit Losses
The allowance for credit losses is available to absorb losses inherent in
the credit extension process. The entire allowance is available to absorb
losses related to the loan and lease portfolio and other extensions of credit,
including off-balance sheet credit exposures. Credit exposures deemed to be
uncollectible are charged against the allowance for credit losses. Recoveries
of previously charged-off amounts are credited to the allowance for credit
losses.
On January 1, 1995, the Corporation adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (SFAS 114) and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosure" (SFAS 118), an amendment of SFAS 114.
These standards address the accounting for impairment of certain loans when it
is probable that all amounts due pursuant to the contractual terms of the loan
will not be collected. Adoption of these standards entailed the identification
of commercial, real estate commercial, real estate construction and foreign
loans which were considered impaired under the provisions of SFAS 114. Adoption
did not have a material impact on the Corporation's financial position or
results of operations.
Under the provisions of these standards, individually identified impaired
loans are measured based on the present value of payments expected to be
received, using the historical effective loan rate as the discount rate.
Alternatively, measurement may also be based on observable market prices or for
loans that are solely dependent on the collateral for repayment, measurement
may be based on the fair value of the collateral. Loans that are to be
foreclosed are measured based on the fair value of the collateral. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation allowance is required as a component of the allowance for credit
losses. Changes to the valuation allowance are recorded as a component of the
provision for credit losses.
The adequacy of the allowance for credit losses is reviewed regularly by
management. Additions to the allowance for credit losses are made by charges to
the provision for credit losses. On a quarterly basis, a comprehensive review
of the adequacy of the allowance for credit losses is performed. This
7
assessment is made in the context of historical losses, as well as existing
economic conditions.
Nonperforming Loans
Commercial loans and leases that are past due 90 days or more as to
principal or interest, or where reasonable doubt exists as to timely
collection, including loans that are individually identified as being impaired
under SFAS 114, are generally classified as nonperforming loans unless well
secured and in the process of collection. Generally, loans which are past due
180 days or more as to principal or interest are classified as nonperforming
regardless of collateral or collection status.
Interest collections on nonperforming loans and leases, including impaired
loans, for which the ultimate collectibility of principal and interest is
uncertain are applied as reductions in book value. Otherwise, such collections
are credited to income when received.
Consumer loans, including credit card loans, that are past due 90 days or
more are not generally classified as nonperforming assets. Generally, consumer
loans are liquidated or charged off soon after becoming 90 days past due or 180
days past due for credit card loans. Income is generally recognized on past-due
consumer and credit card loans until the loan is charged off.
Other Real Estate Owned
Other real estate owned includes foreclosed property and premises no
longer used for business operations.
Under SFAS 114, loans are classified as other real estate owned when the
Corporation forecloses on a property or when physical possession of the
collateral is taken regardless of whether foreclosure proceedings have taken
place. Prior to adoption of SFAS 114, other real estate owned included
in-substance foreclosed loans including certain loans for which the Corporation
had not taken physical possession of the collateral.
Other real estate owned is carried at the lower of (1) the recorded amount
of the loan or lease for which the property previously served as collateral, or
(2) the fair value of the property minus estimated costs to sell. Prior to
foreclosure, the recorded amount of the loan or lease is reduced, if necessary,
to the fair value, minus estimated costs to sell, of the real estate to be
acquired by charging the allowance for credit losses.
Subsequent to foreclosure, gains or losses on the sale of and losses on
the periodic revaluation of other real estate owned are credited or charged to
expense. Net costs of maintaining and operating foreclosed properties are
expensed as incurred.
Note 2 - Acquisition Activity
On March 31, 1995, the Corporation's mortgage banking subsidiary completed
the acquisition of KeyCorp Mortgage Inc. from KeyCorp and Key Bank of New York.
The acquisition included a $25-billion residential mortgage servicing
portfolio, for which the Corporation's subsidiary paid approximately $339
million, a mortgage servicing operation employing approximately 430 associates
and other servicing-related assets.
8
On March 31, 1995, the Corporation's mortgage banking subsidiary acquired
from Source One Mortgage Services Corporation a $10-billion residential
mortgage servicing portfolio at a purchase price of approximately $178 million.
As a result of the above transactions, the Corporation's mortgage
servicing portfolio totaled $75.4 billion on March 31, 1995, compared to $39.0
billion on December 31, 1994. Purchased mortgage servicing rights amounted to
$705 million on March 31, 1995, compared to $195 million on December 31, 1994.
Note 3 - Trading Account Assets and Liabilities
The market values on March 31, 1995 and on December 31, 1994 and the
average market values for the quarter ended March 31, 1995, of the components
of trading account assets and liabilities were (dollars in millions):
First
March December Quarter
31 31 1995
1995 1994 Average
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Securities owned
U.S. Treasury securities............. $ 10,530 $ 5,968 $ 8,938
Securities of other U.S. Government
agencies and corporations.......... 1,173 1,185 1,289
Certificates of deposit, bankers'
acceptances and commercial paper... 431 371 418
Corporate debt....................... 728 581 679
Other securities..................... 286 259 250
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Total securities owned............ 13,148 8,364 11,574
Derivatives-dealer positions........ 3,465 1,577 1,242
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Total trading account assets...... $ 16,613 $ 9,941 $ 12,816
====================================
Short sales
U.S. Treasury securities............ $ 11,017 $ 9,352 $ 10,973
Securities of other U.S. Government
agencies and corporations......... 189 182 221
Corporate debt...................... 213 278 228
Other securities.................... 2 - 5
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Total short sales 11,421 9,812 11,427
Derivatives-dealer positions........ 3,218 1,614 1,205
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Total trading account liabilities. $ 14,639 $ 11,426 $ 12,632
====================================
Derivatives-dealer positions represent the market values of interest rate,
foreign exchange and commodity products including swap, futures, forward and
option contracts associated with the Corporation's derivatives trading
activities.
9
Note 4 - Debt
During the first quarter of 1995, the Corporation issued $1.1 billion of
senior notes. The Corporation issued $550 million of medium-term notes at par,
which mature between January 1997 and February 2000. Of these notes, $500
million bear interest at a spread over the London interbank offered rate and
$50 million bear interest at a spread over the U.S. Treasury rate. The
Corporation also issued $250 million of 7 1/2-percent senior notes, due
February 1997, and $300 million of floating rate senior notes, due March 1998.
The floating rate notes bear interest at a spread over the London interbank
offered rate.
The Corporation filed a new shelf registration on February 1, 1995, for $3
billion, of which $2 billion has been designated as series D medium-term notes,
which may be senior debt securities, subordinated debt or any combination
thereof.
The short-term bank note program jointly maintained by the Carolinas,
Georgia, and Texas banking subsidiaries had short-term bank notes outstanding
of $5.4 billion as of March 31, 1995. On April 10, 1995, these banking
subsidiaries modified the terms of this program to increase the maximum amount
that may be offered from time to time to $9 billion with fixed or floating
rates and maturities from 30 days to 15 years from date of issue.
During the first quarter of 1995, the Corporation's Texas banking
subsidiary issued $400 million of 7.7 percent REMIC bonds. The source of
repayment of this obligation is a collateral pool of residential mortgage
loans. Based on estimated prepayments of this pool of loans, this obligation
will be paid in full by April 1996.
Subsequent to March 31, 1995 and through May 2, 1995, the Corporation
issued $150 million of senior medium-term notes, $50 million of which bear
interest at a spread over the London interbank offered rate and are due April
2000 and $100 million of 7.23 percent notes due May 1999. The Corporation also
issued $300 million of 7 5/8-percent subordinated notes, due April 2005. As of
May 2, 1995, approximately $2.5 billion of capacity remained available under
various shelf registrations.
Note 5 - Commitments and Contingencies
The Corporation's commitments to extend credit on March 31, 1995, were
$78.7 billion compared to $74.7 billion on December 31, 1994. Standby letters
of credit (SBLCs) and financial guarantees represent commitments by the
Corporation to meet the obligations of the account party if called upon.
Outstanding SBLCs and guarantees on March 31, 1995, were $7.3 billion compared
to $6.9 billion on December 31, 1994. Commercial letters of credit, issued
primarily to facilitate customer trade finance activities, were $1.3 billion on
March 31, 1995 and December 31, 1994. The above amounts have been reduced by
amounts collateralized by cash and amounts participated to other financial
institutions.
See Tables 4 and 5 and the accompanying discussion in Item 2 regarding the
Corporation's derivatives used for risk management purposes.
On March 31, 1995 and December 31, 1994, indemnified securities lending
transactions totaled $5.0 billion and $5.7 billion, respectively. Collateral
with a market value of $5.1 billion and $5.9 billion, for the respective
periods, was obtained by the Corporation in support of these transactions.
On March 31, 1995, the Corporation had commitments to purchase and sell
10
when-issued securities of $3.3 billion and $2.6 billion, respectively. This
compares to commitments to purchase and sell when-issued securities of $2.2
billion and $2.5 billion, respectively, on December 31, 1994.
In the ordinary course of business, the Corporation and its subsidiaries
are routinely defendants in or parties to a number of pending and threatened
legal actions and proceedings, including several actions brought on behalf of
various classes of claimants. In certain of these actions and proceedings,
substantial money damages are asserted against the Corporation and its
subsidiaries and certain of these actions and proceedings are based on alleged
violations of consumer protection, securities, banking and other laws.
Management believes, based upon the advice of counsel, that these actions and
proceedings and losses, if any, resulting from the final outcome thereof, will
not be material in the aggregate to the Corporation's financial position or
results of operations.
11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Earnings Review
A comparison of selected operating results for the three-month periods
ended March 31, 1995 and 1994, is presented in Table 1.
Net income for the first quarter of 1995 was $443 million, an increase of
$26 million, or six percent, over the first quarter of 1994. Earnings per
common share were $1.60 and $1.52 for the first quarters of 1995 and 1994,
respectively. The return on average common shareholders' equity was 16.03
percent for the first quarter of 1995, compared to 16.82 percent for the first
quarter of 1994.
Key performance highlights for the first quarter of 1995 were:
o Taxable-equivalent net interest income increased $25 million quarter
over quarter to $1.3 billion, primarily as a result of average loan
growth of 13 percent, partially offset by a narrowing of the spread
between investment securities and market-based funds.
o Improvement in credit quality led to provision expense of $70
million in the first quarter of 1995, consistent with the level of
provision expense in the previous three quarters and down from a
level of $100 million in the first quarter of 1994.
o Noninterest income rose $46 million, or 7 percent, to $726 million
primarily due to increased deposit service fee income, investment
banking income, acquisition-related mortgage servicing income and
the impact of reflecting the full ownership of NationsSecurities
throughout the Corporation's income statement, rather than the
netting of income and expense under the equity method of accounting
for the prior joint venture. These increases were partially offset
by a decline of $12 million in trading account profits and fees from
quarter to quarter, resulting from the difficult trading environment
that developed during the latter part of 1994 and continued into
1995. Trading account profits and fees of $83 million for the first
quarter of 1995 were $39 million higher than fourth quarter of 1994
levels.
o Noninterest expense increased $69 million, primarily related to 1994
acquisitions of several smaller banking organizations and mortgage
banking operations, the impact of the full ownership of
NationsSecurities, increased investment in personnel in selected
areas and expanded marketing efforts, primarily credit card
solicitations. The efficiency ratio, which measures the relationship
of noninterest expense to total revenue, was 62.49 percent in the
first three months of 1995, compared to 61.26 percent in the same
period in 1994.
Customer Group Review
The Corporation manages its business activities through three major
internal management units, or Customer Groups. These units, shown in Table 2,
are 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 a funds transfer pricing
system which 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 Banking Group, which contains the retail
banking network and is the service provider for the consumer sector as well as
small and medium size companies; Financial Products, which provides specialized
services such as credit cards, residential mortgages, indirect lending, dealer
finance and retail, full service and discount brokerage on a national basis;
Trust and Private Banking.
The General Bank earned $249 million in the first quarter of 1995, a 14-
percent increase over the same period in 1994 with the Banking Group and the
Financial Products' Card Services units primarily accounting for the increased
earnings over last year. Return on equity remained unchanged at 17 percent.
Taxable-equivalent net interest income in the General Bank declined $9 million
reflecting the rise in interest rates as more fully discussed in the net
interest income section. The negative impact of the rise in interest rates was
largely offset by broad-based loan growth and deposit cost containment efforts.
Average loans increased $8.3 billion, or 15 percent, with growth concentrated
in the Banking Group, primarily in residential mortgages, commercial loans and
other consumer loans and Financial Products, primarily credit cards. Improved
credit quality led to a $37-million reduction in the provision for credit
losses between the two quarters.
12
Noninterest income rose 13 percent to $479 million led by increases in
deposit service fee income, acquisition-related mortgage servicing income and
the impact of reflecting the full ownership of NationsSecurities. Noninterest
expense increased $50 million, reflecting the acquisition of smaller banking
organizations in Florida and South Carolina and several mortgage banking
acquisitions, the full ownership of NationsSecurities and expanded marketing
efforts, primarily credit card solicitations.
The Global Finance Group (previously named the Institutional Group)
includes Corporate Finance, Specialized Finance and the Capital Markets Group.
Included under Specialized Finance are Real Estate, Specialized Lending
(includes Business Credit, Factoring and Leasing), Structured Finance (asset-
backed and project financing), Real Estate Finance, Leveraged Capital, and
International. The Capital Markets Group includes customer-related derivatives,
foreign exchange, securities trading and debt underwriting activities. Housed
in this group are NationsBanc-CRT and NationsBanc Capital Markets Inc., which
with its Section 20/Tier II powers, underwrites and deals in various types of
corporate debt and has the power to underwrite and deal in equity securities.
The Global Finance Group earned $163 million in the first quarter 1995, a
one-percent increase over the same period in 1994. Return on equity remained
unchanged at 17 percent. Taxable-equivalent net interest income for the first
quarter of 1995 increased $8 million over the same period a year ago. The
benefit to net interest income of the $2.6-billion increase in average loans
was offset by a narrowing of the spread between investment securities and
market-based funds. The loan growth was concentrated in the Corporate Finance
and Specialized Lending units, while the Real Estate unit reduced average
outstandings by $571 million, compared to last year. The increase in average
deposits consisted primarily of foreign time deposits which resulted from the
wholesale funding initiatives in the latter half of 1994 and the first quarter
in 1995. Continued improvement in asset quality of the Global Finance Group
contributed to the $7-million reduction in provision for credit losses in the
first quarter of 1995 compared to the same period in 1994.
Noninterest income declined three percent, primarily due to lower trading
account profits and fees and was offset by higher investment banking fees.
Investments to expand capital markets activities, primarily personnel-
related expenses, contributed to the $13-million increase in noninterest
expense and the change in the efficiency ratio.
Financial Services consists of NationsCredit and Greyrock Capital Group.
Financial Services contributed $26 million of net income in the first quarter
of 1995, a four-percent increase over the first quarter of 1994. The
favorable impact on net interest income of a $1.5-billion increase in average
loans was mostly offset by an increased level of provision expense to support
such growth. Higher funding costs also impacted results. Average loan growth
of 29 percent was fueled by demand in the consumer lending, commercial real
estate and inventory finance businesses. The net interest yield fell to 7.16
percent, down 15 basis points from the prior year's first quarter, due
primarily to higher funding costs. Noninterest expense increased nine
percent as new offices were opened to support additional consumer loan
originations. Refinement of consumer credit and collection operations, combined
with increased productivity of commercial portfolio administration and
increases in total revenues, led to a decline in the efficiency ratio to 44.05
percent for the first quarter of 1995, down from 47.67 percent for the same
period in 1994. Return on equity decreased from the prior year level of 14
percent due to the increased provision for credit losses supporting loan
growth. The return on equity in this unit is impacted by a higher equity to
asset ratio of 13 percent, necessary to posture this unit for raising funds in
the financial markets.
Net Interest Income
As presented in Table 3, taxable-equivalent net interest income increased
$25 million to $1.3 billion in the first quarter of 1995 compared to the same
period of 1994. The major factors contributing to the increase in taxable-
equivalent net interest income were 13-percent growth in average loans and
leases and deposit cost containment efforts. Average loans and leases rose
$12.2 billion to $103.8 billion in the first quarter of 1995 compared to the
same period of 1994. The factors which caused increases in net interest income
were largely offset by the impact of a narrowing of the spread between
investment securities and market-based funds.
13
The net interest yield declined 28 basis points to 3.41 percent in the
first quarter of 1995, compared to 3.69 percent in the same period of 1994.
Excluding the impact of the Corporation's government securities dealer, for
which trading account revenues are recorded in noninterest income, the net
interest yield in the first quarter of 1995 declined 25 basis points to 3.91
percent, compared to 4.16 percent in the first quarter of 1994. The decline in
the net interest yield primarily reflected spread compression between fixed-
rate investment securities and market-based funds. The mix of funding sources
also contributed to the decline in the net interest yield. While average
customer-based funds were relatively flat between quarters, average market-
based funds between quarters increased 23 percent. A large portion of this
increase was in longer maturity liabilities, primarily foreign time deposits
and bank notes, consistent with interest rate risk management initiatives
undertaken in the latter half of 1994.
Taxable-equivalent interest income increased $678 million to $3.1 billion
in the first three months of 1995, compared to the same period of 1994. Growth
in average earning assets drove $258 million of the increase, while $420
million was related to a 112 basis point rise in the yield. Average earning
assets increased by $14.4 billion, or 10 percent, in the first quarter of 1995,
compared to the same period of 1994. As discussed earlier, this growth was led
by a 13-percent increase in average loans and leases which was broad-based
across loan categories and customer groups. In addition, the aggregate of
securities purchased under agreements to resell and trading account securities
increased $3.4 billion, primarily due to higher trading activity levels of the
Corporation's government securities dealer. The combined securities portfolio
declined $1.9 billion between the two quarters reflecting the timing of
reinvestment of proceeds from maturities and sales.
The yield on average earning assets increased 112 basis points to 7.93
percent from 6.81 percent between the two periods. The yield on total loans and
leases increased 79 basis points to 8.75 percent in the first quarter of 1995,
reflecting loan growth in a rising interest rate environment, the variable rate
nature of a significant portion of the loan portfolio and loan pricing which
has enabled the Corporation to maintain loan spreads. The Corporation's prime
interest rate rose from an average of 6.02 percent in the first quarter of 1994
to 8.83 percent in the first quarter of 1995. The yield on total securities
increased 58 basis points to 5.56 percent for the first quarter of 1995
compared to 4.98 percent for the same period of 1994. This increase resulted
from maturities and sales of lower-yielding securities coupled with
reinvestments at higher rates during the first quarter of 1995.
Interest expense increased $653 million period-over-period with growth in
average interest-bearing liabilities accounting for $125 million of the
increase and $528 million attributable to a 156 basis point rise in rates paid.
Average interest-bearing liabilities increased $13.2 billion, or 10 percent, in
the first quarter of 1995 compared to the first quarter of 1994. Interest-
bearing deposits grew $8.9 billion to $79.3 billion in the first quarter of
1995, compared to the same period of 1994. An increase in average foreign time
deposits of $9.5 billion as well as an increase of $3.4 billion in deposits
resulting from smaller banking organization acquisitions were the primary
factors in this growth. These increases were partially offset by declines in
consumer CDs and money market savings accounts, reflecting industry-wide trends
of customers seeking higher-yielding investment alternatives as well as
disciplined deposit pricing. Borrowed funds and trading account liabilities
increased $3.7 billion, to $51.0 billion, primarily to fund increased trading
activities.
The rate on average interest-bearing liabilities increased 156 basis
points to 5.13 percent in the first quarter of 1995, from 3.57 percent in the
first quarter of 1994, primarily due to a greater use of market-based funds and
the higher level of interest rates in general.
The Corporation's asset and liability management process is utilized to
manage the Corporation's interest rate risk through structuring 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. In
implementing strategies to manage interest rate risk, the primary tools used by
the Corporation are the discretionary portfolio, which is comprised of the
securities portfolio and interest rate swaps, and management of the mix, rates
and maturities of the wholesale and retail funding sources of the Corporation.
During the rising interest rate environment of 1994, the Corporation
shifted its interest rate risk position from one postured to benefit modestly
from stable to declining interest rates to a more neutral position. The actions
taken by the Corporation to shift its position included reduction of the net
receive fixed swap position, reduction of investment securities, and extension
of maturities of fixed-rate deposits and borrowings.
Swaps allow the Corporation to adjust its interest rate risk position
without exposure to principal risk and funding requirements as swaps do not
involve the exchange of notional amounts, only net interest payments. The
Corporation uses non-leveraged generic, index amortizing and collateralized
mortgage obligation (CMO) swaps. Generic swaps involve the exchange of fixed
and variable interest rates based on the contractual underlying notional
amounts. Index amortizing and CMO swaps also involve the exchange of fixed and
variable interest rates, however, their notional amounts decline and their
maturities vary based on certain interest rate indices in the case of index
amortizing swaps, or mortgage prepayment rates in the case of CMO swaps.
14
In early 1995, the Corporation entered into pay fixed interest rate swap
transactions with gross notional amounts totaling $1.6 billion. In addition,
$325 million of receive fixed interest rate swaps matured in the first quarter
of 1995. As reflected in Table 4, the gross notional amount of the
Corporation's asset and liability management interest rate swap position on
March 31, 1995, was $27.3 billion with the Corporation receiving fixed on $17.2
billion, converting variable-rate commercial loans to fixed rate and receiving
variable on $10.1 billion, fixing the cost of certain variable-rate
liabilities, primarily market-based borrowed funds. On March 31, 1995, the net
receive fixed position was $7.1 billion, representing a reduction from the net
receive fixed position of $8.9 billion on December 31, 1994, and $17.7 billion
on March 31, 1994.
Net interest income is impacted by the Corporation's asset and liability
management interest rate swap program. As reflected in Table 5, on March 31,
1995, the portfolio had a weighted average receive rate of 5.45 percent and a
pay rate of 6.40 percent. Net interest receipts and payments have been included
in interest income and expense on the underlying instruments. Asset and
liability management interest rate swaps resulted in a reduction of net
interest income of $74 million in the first quarter of 1995 compared to an
increase of $52 million in the first quarter of 1994. Deferred gains and losses
related to any terminated contracts are insignificant.
The net unrealized depreciation on March 31, 1995, was $486 million
compared to $726 million on December 31, 1994, primarily reflecting the
reduction in short-term interest rates. The net unrealized depreciation on
March 31, 1994, approximated $375 million.
Average securities for the quarter ended March 31, 1995, totaled $25.4
billion, a decrease of $1.2 billion from the fourth quarter of 1994 and a
decrease of $1.9 billion from the first quarter of 1994. Beginning in the
second quarter of 1994, the Corporation did not fully replace maturities and
sales of securities. During the first quarter of 1995, the Corporation added
slightly to securities levels in light of expected market conditions.
Approximately $6.2 billion of securities were purchased, with the Corporation
ending the first quarter of 1995 with a total securities portfolio of $26.5
billion, compared to a level of $25.8 billion on December 31, 1994. During the
remainder of 1995, approximately $5.2 billion of securities with an average
yield of approximately four percent will mature. See the Analysis of Financial
Condition - Securities for further details on the securities portfolio.
On March 31, 1995, the interest rate risk position of the Corporation
continued to be relatively neutral as the impact of a gradual 100-basis-point
rise in interest rates over the next 12 months was estimated to have an
insignificant impact on net income when compared to stable rates.
The unrealized depreciation in the estimated value of the ALM swap
portfolio and securities 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. For example,
the value of core deposits and other fixed-rate longer-term liabilities
increase as interest rates rise, offsetting the decline in value of swaps and
other fixed-rate assets. The overall impact of a 100-basis point parallel
increase in interest rates from March 31, 1995 levels is estimated to have an
insignificant impact on the market value of equity.
Table 6 represents the Corporation's interest rate gap position on March
31, 1995. Based on contractual maturities or repricing dates, or anticipated
dates where no contractual maturity or repricing date exists, interest-
sensitive assets and liabilities are placed in maturity categories. The
Corporation's negative cumulative interest rate gap position in the near term
reflects the 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.
A gap analysis is limited in its usefulness as it represents a one-day position
which is continually changing and not necessarily indicative of the
Corporation's position at any other time. Additionally, the gap analysis does
not consider the many factors accompanying interest rate movements.
Provision for Credit Losses
The provision for credit losses was $70 million in the first quarter of
1995 consistent with the provision levels in the previous three quarters. The
provision for credit losses was $100 million in the first quarter of 1994. The
lower provision level in the first quarter of 1995, compared to the first
quarter of 1994, reflects continued improvement in credit quality as evidenced
by decreases in net charge-offs and lower nonperforming asset levels.
Securities Gains
Gains from the sales of securities were $1 million in the first three
months of 1995 compared to $14 million in the same period of 1994.
15
Noninterest Income
Table 7 compares the major categories of noninterest income for the first
quarters of 1995 and 1994. Noninterest income totaled $726 million in the first
quarter of 1995, an increase of $46 million, or 7 percent, from $680 million in
the same quarter of 1994.
Deposit account service charges totaled $207 million in the first quarter
of 1995, an $11-million increase compared to the first quarter of 1994. The
acquisition of several smaller banking organizations accounted for $3 million
of this increase. The remaining increase was the result of higher fees from
increased consumer account volumes and emphasis on fee collections, offset by
lower commercial account service charge fees.
Mortgage servicing and related fees totaled $21 million in the first
quarter of 1995, an increase of $5 million, or 31 percent, from $16 million in
the same quarter of 1994. The increase was primarily attributable to the
acquisition of mortgage servicing portfolios in 1994. As discussed more fully
in Note 2, on March 31, 1995, the Corporation acquired mortgage servicing
portfolios totaling $35.0 billion, bringing the total servicing portfolio to
$75.4 billion, compared to $39.0 billion on December 31, 1994 and $29.4 billion
on March 31, 1994. Mortgage loan originations through the Corporation's
mortgage subsidiary totaled $1.5 billion for the first quarter of 1995 compared
to $2.1 billion for the first quarter of 1994, primarily reflecting the rising
interest rate environment. First quarter 1995 origination volume consisted of
approximately $900 million of retail loan volume and $600 million of
correspondent loan volume.
The 53-percent increase in investment banking income was the result of
higher syndication fees and venture capital income. The Capital Markets
syndication group was agent or co-agent on 64 deals totaling $56.5 billion
during the first quarter of 1995, compared to 47 deals totaling $28.0 billion
during the same period in 1994.
First quarter 1995 General Bank trust fees were relatively flat compared
to first quarter of 1994. On March 31, 1995, discretionary assets under
management and total assets under administration by the Trust Group were $59.1
billion and $171.2 billion, respectively, compared to $57.4 billion and $163.6
billion, respectively, on December 31, 1994.
During the first quarter of 1995, the Corporation announced its decision
to sell a portion of its trust business that deals with bond servicing and
administration, known as Corporate Trust. This decision was based on
management's desire to focus on investment management, retirement and fiduciary
services. Historically, the Corporate Trust business has generated
approximately 10 percent of the Corporation's trust fees. Management does not
expect the sale of the Corporate Trust business to have a significant ongoing
impact on future net income.
Brokerage income increased $11 million, or 85 percent, to $24 million in
the first quarter of 1995 compared to $13 million in the same period of 1994.
This increase was due to the full ownership of NationsSecurities in the first
quarter of 1995. NationsSecurities was a joint venture arrangement prior to
November 15, 1994 and was accounted for under the equity method.
The Corporation maintains trading positions in a variety of cash and
derivative financial instruments. The Corporation offers a number of products
to customers, as well as enters into transactions for its own account. In
setting trading strategies, the Corporation manages these activities to
maximize trading revenues while at the same time taking controlled risks.
Trading revenues are dependent on a number of factors including interest
rate and currency movements, market liquidity and volatility, transaction
volume and diversity and outside political and industry forces. Trading account
profits and fees declined $12 million to $83 million in the first quarter of
1995 compared to the first quarter of 1994. Difficult market conditions, which
persisted throughout the latter part of 1994 as interest rates rose, continued
into 1995. Trading profits and fees of $83 million for the first quarter of
1995, were $39 million higher than the fourth quarter of 1994 levels. An
analysis of trading account profits and fees by major business activity for the
three months ended March 31 is as follows (dollars in millions):
Three Months Ended
March 31
------------------
1995 1994
------------------
Securities trading..................... $ 35 $ 54
Interest rate contracts................ 24 14
Foreign exchange contracts............. 9 8
Other.................................. 15 19
------------------
$ 83 $ 95
==================
16
Miscellaneous other income totaled $77 million in the first quarter of
1995 compared to $72 million in the first quarter of 1994. This category of
miscellaneous income includes certain prepayment and other fees as well as net
gains on sales of miscellaneous investments, business units, premises, venture
capital investments, mortgage servicing and other similar items.
On April 3, 1995, the Corporation and First Financial Management
Corporation (FFMC) announced that FFMC's subsidiary NaBANCO and the Card
Services unit agreed to form a joint venture to market merchant credit card
authorization, processing and settlement services to regional and local
merchants throughout the Corporation's service area of the Southeast and
Southwest. The Corporation contributed its merchant discount unit in exchange
for consideration including an equity investment position in the newly formed
joint venture. The venture will be called Unified Merchant Services, a NaBANCO
- - NationsBank Venture and will begin operations in the second quarter of 1995.
Accordingly, merchant discount fee income and the related expense of the
contributed unit will be reduced in future periods. However, the Corporation
will receive equity earnings from the operations of the venture.
Other Real Estate Owned Expense
OREO expense was $2 million in the first quarter of 1995, a decline from
$5 million in the same period of 1994, primarily resulting from lower levels of
OREO and improvement in asset quality. Improved real estate markets resulted in
lower OREO write-downs offset by declines in operating income.
Noninterest Expense
The Corporation's noninterest expense as shown in Table 8 increased $69
million, or six percent, in the current quarter compared to the same quarter in
1994, to a total of $1.29 billion. Approximately 60 percent of this increase
from quarter to quarter results from several smaller banking organization and
mortgage banking acquisitions during the latter portion of 1994 and the full
ownership of NationsSecurities.
Personnel expense, which accounts for 49 percent of noninterest expense,
increased $61 million in the first quarter of 1995 compared to the first
quarter of 1994. This increase was primarily due to acquisitions. Continued
investment in personnel for the Capital Markets and Financial Products groups
also contributed to the increase in personnel expense.
Marketing expense increased $21 million, or 57 percent, from $37 million
in the first quarter of 1994 to $58 million in the first quarter of 1995. This
increase was driven primarily by increased credit card solicitations in the
Financial Products group.
Other general operating expense decreased 17 percent in the first quarter
of 1995 compared to the first quarter of 1994. This $18-million decrease was
primarily due to lower loan and collection expenses.
Income Taxes
The Corporation's income tax expense was $231 million in the first quarter
of 1995. The effective tax rate was 34.3 percent of pretax income in the first
quarter of 1995, compared to 33.9 percent for the full year 1994 and 36.6
percent in the first quarter of 1994.
Analysis of Financial Condition
- -------------------------------
Liquidity, a measure of the Corporation's ability to fulfill its cash
requirements, is managed by the Corporation through its asset and liability
management process. This entails measuring and managing the relative balance
between asset, liability and off-balance sheet positions. The Corporation's
continuation of this process, coupled with its ability to raise capital and
debt financing and to securitize certain assets, ensures the maintenance of
sufficient funds to meet the liquidity needs of the Corporation.
Period-end assets were $183.9 billion, $169.6 billion and $165.1 billion
on March 31, 1995, December 31, 1994 and March 31, 1994, respectively. Average
total assets were $177.5 billion for the first three months of 1995 compared to
$161.3 billion for the first three months of 1994. The following discussion
analyzes the major components of the period-end and average balance sheets.
Cash and cash equivalents decreased $1.6 billion from December 31, 1994,
to March 31, 1995, due to $2.9 billion in cash used by operating activities and
$8.1 billion in cash used in investing activities, offset by $9.4 billion in
cash provided by financing activities.
Net cash used in investing activities totaled $8.1 billion primarily
reflecting a $2.6-billion increase in federal funds sold and securities
purchased under agreements to resell, $2.9 billion in net originations of loans
and leases, $6.2 billion in purchases of securities, $793 million in purchases
of loans and leases, partially offset by $5.7 billion in proceeds from sales
and maturities of securities.
17
Net cash provided by financing activities totaled $9.4 billion due to
increases of $6.9 billion in federal funds purchased and securities sold under
agreements to repurchase, $1.1 billion in other short-term borrowings and
commercial paper, and $1.5 billion in proceeds from issuances of long-term
debt.
Table 9 presents an analysis of the major sources and uses of funds for
the two three-month periods based on average levels.
Market-based funds increased 23 percent to an average of $66.5 billion in
the first quarter of 1995 from $54.0 billion in the same period of 1994 due to
increases in foreign deposits and increased use of market-based funds related
to trading account activities primarily associated with the Corporation's
government securities dealer. Customer-based funds, which represent 47.2
percent of total sources of funds, averaged $83.8 billion in the first quarter
of 1995 compared to $83.6 billion, or 51.9 percent of total sources of funds,
in the same period of 1994.
The composition of uses of funds reflected a 13-percent increase in
average loans and leases to $103.8 billion in the first quarter of 1995
compared to the same period one year ago. Average other earning assets rose
$3.8 billion to $26.6 billion in the first three months of 1995 compared to the
same period in 1994 principally due to higher levels of securities purchased
under agreements to resell reflecting increased trading activities primarily of
the Corporation's government securities dealer and higher levels of federal
funds sold.
The Corporation's ratio of average loans to customer-based funds was 124
percent for the first three months of 1995 compared to 110 percent for the
first three months of 1994. The higher loan to deposit ratio was driven by a
high level of loan growth, a decline in customer-based deposit levels resulting
from disciplined deposit pricing and increased use of market-based funds
consistent with interest rate risk management initiatives.
Securities
The securities portfolio on March 31, 1995, consisted of securities held
for investment totaling $17.5 billion and securities available for sale
totaling $9.0 billion compared to $17.8 billion and $8.0 billion, respectively,
on December 31, 1994. On March 31, 1994, securities held for investment were
$14.4 billion and securities available for sale were $15.9 billion.
Due to uncertainty of interest rate movements, during the latter half of
1994 and early 1995, the Corporation did not fully replace maturities and sales
of securities resulting in a decline in the average securities portfolio to
$25.4 billion for the first three months in 1995 compared to $26.5 billion for
the last three months of 1994. During the first quarter the Corporation added
slightly to securities levels in light of expected market conditions by
purchasing approximately $6.2 billion of securities, bringing the ending
portfolio balance to $26.5 billion on March 31, 1995.
The Corporation's portfolio of securities held for investment reflected
unrealized net depreciation of $338 million, $699 million and $198 million on
March 31, 1995, December 31, 1994, and March 31, 1994, respectively. The
valuation reserve for securities available for sale and marketable equity
securities decreased shareholders' equity by $47 million on March 31, 1995,
reflecting $132 million of pretax depreciation on securities available for
sale, offset by $57 million of pretax appreciation on marketable equity
securities. The valuation amount reduced shareholders' equity by $136 million
and $5 million on December 31, 1994 and March 31, 1994, respectively. The
changes in the unrealized net depreciation of securities held for investment
and the valuation reserve for securities available for sale are primarily due
to changes in the levels of market interest rates and the maturity of lower-
yielding securities in these portfolios.
The estimated average maturity of the combined securities portfolios was
2.53 years, 2.56 years and 2.02 years on March 31, 1995, December 31, 1994, and
March 31, 1994, respectively. Approximately $5.2 billion of the total
securities portfolio, with an average yield of approximately four percent, will
mature over the remainder of 1995. No significant liquidations other than
scheduled maturities are currently anticipated. As such, no significant
securities losses are currently expected to result from the net unrealized
depreciation in the securities portfolios on March 31, 1995.
Loans
Loans and leases, net of unearned income on March 31, 1995, December 31,
1994 and March 31, 1994 were $105.7 billion, $102.4 billion and $92.1 billion,
respectively.
Average loans and leases increased 13 percent to $103.8 billion in the
first quarter of 1995, compared to $91.6 billion in the same period of 1994.
18
Commercial loans increased $4.8 billion, or 12 percent, to an average of
$45.2 billion in the first quarter of 1995. The General Bank contributed $3.1
billion, or 65 percent of the increase, Global Finance accounted for $1.3
billion, or 27 percent of the increase, and Financial Services produced $395
million, or 8 percent of the increase.
Total nonresidential real estate commercial and construction average loans
outstanding declined $942 million, or eight percent, during the first quarter
of 1995 compared to the same period in 1994. The Corporation's geographic and
property-type distribution on March 31, 1995, for these loans was comparable to
distributions on December 31, 1994.
Residential mortgage loans for the first quarter of 1995 averaged $17.8
billion, a $4.4-billion, or 33-percent, increase in average levels from the
first quarter of 1994. The growth was primarily due to increased origination of
residential mortgages through the Corporation's vast banking center network
coupled with retention of a portion of the loans originated in the
Corporation's mortgage subsidiary.
Average credit card portfolio levels for the first quarter of 1995
increased $870 million, or 24 percent, over 1994 same period levels. Of the
$870-million increase, 77 percent, or approximately $670 million was
attributable to new accounts and 23 percent, or approximately $200 million was
attributable to increases in average outstanding balances of existing accounts.
Other average consumer loans increased $1.1 billion to $17.9 billion in the
first quarter of 1995, compared to $16.8 billion in the first quarter of 1994.
Nonperforming Assets
On March 31, 1995, nonperforming assets, presented in Table 10, were $1.08
billion, or 1.00 percent of net loans, leases, factored accounts receivable and
other real estate owned, compared to $1.14 billion, or 1.10 percent, on
December 31, 1994, and $1.64 billion, or 1.73 percent, on March 31, 1994.
Nonperforming loans totaled $854 million at the end of the first quarter
of 1995, compared to $801 million on December 31, 1994 and $1.07 billion on
March 31, 1994. The net increase in nonperforming loans from December 31, 1994
primarily reflects $80 million of in-substance foreclosed loans previously
reported as other real estate owned. The decrease from March 31, 1994 to March
31, 1995 was centered in real estate commercial and construction loans which
declined $163 million, or 37 percent, and in commercial loans which declined
$26 million, or six percent. This reduction in nonperforming loans primarily
reflected increased payments, the improved financial condition of borrowers and
the results of the Corporation's continuing loan workout activities.
Other real estate owned, which represents real estate acquired through
foreclosure totaled $221 million on March 31, 1995, a net decline of $348
million, or 61 percent, from March 31, 1994 and a net decline of $116 million,
or 34 percent, from December 31, 1994.
As discussed in Note 1 to the consolidated financial statements, on
January 1, 1995, the Corporation adopted SFAS 114. See Table 10 and Allowance
for Credit Losses.
Allowance for Credit Losses
On March 31, 1995, December 31, 1994 and March 31, 1994, the allowance for
credit losses was $2.2 billion and represented 2.03 percent, 2.11 percent and
2.33 percent, respectively, of loans, leases and factored accounts receivable.
The allowance for credit losses as a percentage of nonperforming loans was
254 percent on March 31, 1995, compared to 273 percent at year-end 1994 and 205
percent on March 31, 1994.
Table 11 provides an analysis of the changes in the allowance for credit
losses for the quarter ended March 31, 1995 and 1994. Total net charge-offs for
the first quarter of 1995 were $83 million, or .32 percent of average loans,
leases and factored accounts receivable, versus $90 million, or .39 percent, in
the comparable three-month period in 1994. The decline in net charge-offs was
primarily centered in commercial loans. The reduction in charge-offs is due to
the strengthened financial condition of borrowers.
The ratio of net charge-offs to average loans outstanding for commercial
and commercial real estate loans for the first quarter of 1995 decreased as
compared to the first quarter of 1994 from .15 and .43 percent, respectively,
to .06 and .21 percent, respectively. real estate construction loans
experienced net recoveries quarter to quarter. Offsetting these positive trends
were slight increases in the net charge-off ratios for credit card and other
consumer loans which were 2.94 and .81 percent, respectively, for the first
quarter of 1995 compared to 2.87 and .77 percent, respectively, for same period
in 1994.
19
As previously discussed, on March 31, 1995, the recorded investment in
certain loans that are considered to be impaired under SFAS 114 was $692
million, all of which was classified as nonperforming. Of these impaired loans,
$441 million has a related valuation allowance of $62 million and $251 million
does not have a related valuation allowance primarily due to application of
interest payments against book balances or write-downs previously taken on
these loans. Provision expense associated with impaired loans for the first
quarter of 1995 approximated $9 million. The average recorded investment in
certain impaired loans during the quarter ended March 31, 1995, was
approximately $702 million. During the quarter ended March 31, 1995, interest
income recognized on impaired loans totaled $6.3 million, all of which was
recognized on a cash basis.
Other Earning Assets
As presented in Table 3, average other earning assets, including loans
held for sale, federal funds sold, securities purchased under agreements to
resell, trading account securities and time deposits placed and other short-
term investments increased $4.0 billion to $28.9 billion in the first quarter
of 1995, compared to $24.9 billion in the first quarter of 1994. Higher trading
related assets of the Corporation's government securities dealer was the major
factor in this increase.
Deposits
Average deposits were $99.3 billion during the first quarter of 1995,
compared to $90.3 billion during the same period of 1994. An increase in
average foreign time deposits of $9.5 billion as well as an increase of $3.4
billion in deposits resulting from smaller banking organization acquisitions
were the primary factors in this growth. The increase in foreign time deposits
is due to the extension of liability maturities consistent with interest rate
risk management initiatives. These increases were offset by a decrease of $1.8
billion in money market savings from $16.4 billion in the first quarter of 1994
to $14.6 billion in the first quarter of 1995, and a decrease of $1.1 billion
in consumer CDs from $17.7 billion in the first quarter of 1994 to $16.6
billion in the first quarter of 1995. These decreases reflect industry-wide
trends as customers continued to seek higher-yielding investment alternatives
and the Corporation's disciplined deposit pricing.
Short-Term Borrowings
Average short-term borrowings were $39.6 billion during the first quarter
of 1995, compared to $36.5 billion during the same period in 1994. This
increase in average outstandings is primarily due to an increase in securities
sold under agreements to repurchase of $3.1 billion to fund trading account
activities and increased short-term bank notes of $2.1 billion. These increases
were partially offset by a decrease in average levels of federal funds
purchased of $2.5 billion between the quarters. Commercial paper average
outstandings also increased $376 million. Commercial paper is used to partially
fund loan growth of the Financial Services Group as well as for other general
corporate purposes.
Capital
Shareholders' equity totaled $11.3 billion on March 31, 1995, compared to
$11.0 billion on December 31, 1994, and $10.2 billion on March 31, 1994. Under
previously announced common stock repurchase programs, the Corporation
repurchased and retired 1.6 million common shares at a cost of $79 million,
including approximately 500 thousand shares to offset shares issued through
dividend reinvestment and stock option and grant programs. The Corporation
plans to continue share repurchases under these programs.
The Corporation's Tier 1 ratios were 7.25 percent, 7.43 percent and 7.50
percent on March 31, 1995, December 31, 1994, and March 31, 1994, respectively.
The total risk-based capital ratios were 11.06 percent, 11.47 percent and 11.66
percent on March 31, 1995, December 31, 1994, and March 31, 1994, respectively.
Both of these measures compare favorably with the regulatory minimums.
Decreases in these ratios result primarily from increases in the level of the
Corporation's risk weighted assets, primarily loans. The Corporation's leverage
ratios were 6.15 percent, 6.18 percent and 6.11 percent on March 31, 1995,
December 31, 1994 and March 31, 1994, respectively.
Derivatives - Dealer Positions
Within the Corporation's Credit Policy organization, a group is dedicated
to managing credit risks associated with trading activities. The Corporation
maintains trading positions in a number of markets and with a variety of
counterparties or obligors ("counterparties"). To limit credit exposure arising
from such transactions, the Corporation evaluates the credit standing of
counterparties, establishes limits for the total exposure to any one
counterparty, monitors exposure against the established limits and monitors
trading portfolio composition to manage concentrations.
20
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 is also
reduced through the use of legally enforceable master netting arrangements
which allow the Corporation to settle positions with the same counterparty on a
net basis. The contract or notional amounts associated with the Corporation's
derivative-dealer positions are reflected in Table 12. The notional or contract
amounts indicate the total volume of transactions and significantly exceed the
amount of the Corporation's credit or market risk associated with these
instruments. The Corporation's exposure to credit risk from derivative
financial instruments is represented by the fair value of the instruments.
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 proves to be of no value to the Corporation. Such
aggregate amounts measured by the Corporation as the gross positive replacement
cost on March 31, 1995 and December 31, 1994, were $3.7 billion and $1.8
billion, respectively. Of these credit risk amounts, $858 million and $354
million relates to exchange-traded instruments for 1995 and 1994, respectively.
Because exchange-traded instruments conform to standard terms and are subject
to policies set by the exchange involved, including counterparty approval,
margin requirements and security deposit requirements, the credit risk to the
Corporation is minimal. The $1.9-billion increase in the credit risk amount
from December 31, 1994 is driven primarily by an increase in foreign exchange
trading volume coupled with the continued decline in the value of the U.S.
dollar against major currencies in which the Corporation trades.
21
Table 1
Selected Operating Results
(Dollars in Millions Except Per-Share Information)
Three Months
Ended March 31
----------------------
1995 1994
----------------------
Income from earning assets................................................. $ 3,070 $ 2,398
Interest expense........................................................... 1,763 1,110
Net interest income (taxable-equivalent)................................... 1,335 1,310
Net interest income........................................................ 1,307 1,288
Provision for credit losses................................................ 70 100
Gains on sales of securities............................................... 1 14
Noninterest income......................................................... 726 680
Other real estate owned expense............................................ 2 5
Noninterest expense........................................................ 1,288 1,219
Income before income taxes................................................. 674 658
Income tax expense......................................................... 231 241
Net income................................................................. 443 417
Earnings per common share.................................................. 1.60 1.52
Yield on average earning assets............................................ 7.93 % 6.81 %
Rate on average interest-bearing liabilities............................... 5.13 3.57
Net interest spread........................................................ 2.80 3.24
Net interest yield......................................................... 3.41 3.69
Return on average common shareholders' equity (1).......................... 16.03 16.82
Market price per share of common stock
High for the period...................................................... $ 51 3/4 $ 50 7/8
Low for the period....................................................... 44 5/8 44 3/8
Closing price............................................................ 50 3/4 45 3/4
Risk-based capital ratios
Tier 1................................................................... 7.25 % 7.50 %
Total.................................................................... 11.06 11.66
(1) Average common shareholders' equity does not include the effect of fair value adjustments
to securities available for sale and marketable equity securities.
22
Table 2
Customer Group Summary
For the Three Months Ended March 31
(Dollars in Millions)
General Bank Global Finance Financial Services
1995 1994 1995 1994 1995 1994
-------------------------------------------------------------------
Net interest income
(taxable-equivalent)...................... $ 907 $ 916 $ 304 $ 296 $ 117 $ 93
Noninterest income.......................... 479 423 231 239 16 18
------------------------------------------------------------------
Total revenue............................... 1,386 1,339 535 535 133 111
Provision for credit losses................. 41 78 - 7 29 15
Other real estate owned
expense (income).......................... 1 4 (2) - 3 1
Noninterest expense......................... 951 901 279 266 58 53
------------------------------------------------------------------
Income before taxes......................... 393 356 258 262 43 42
Income tax expense.......................... 144 137 95 101 17 17
------------------------------------------------------------------
Net income (1).............................. $ 249 $ 219 $ 163 $ 161 $ 26 $ 25
==================================================================
Net interest yield.......................... 4.43 % 4.77 % 2.55 %(2) 2.83 %(2) 7.16 % 7.31 %
Return on equity............................ 17 % 17 % 17 % 17 % 12 % 14 %
Efficiency ratio............................ 68.63 67.30 52.05 49.63 44.05 47.67
Average (3)
Total loans and leases,
net of unearned income.................. $ 64,123 $ 55,857 $ 33,478 $ 30,839 $ 6,617 $ 5,131
Total deposits............................ 77,541 77,017 15,000 9,697 - -
Total assets.............................. 88,353 82,859 76,795 65,393 7,111 5,728
Period end (3)
Total loans and leases,
net of unearned income.................. 65,319 56,532 34,113 30,587 6,988 5,283
Total deposits............................ 77,914 77,819 15,017 9,069 - -
(1) Customer Group results are presented on a fully allocated basis but do not include $5 million and $12
million of net income for 1995 and 1994, respectively, which represents earnings associated with
unassigned capital, gains on securities and other corporate activities.
(2) Global Finance's net interest yield excludes the impact of the primary government securities dealer.
Including the primary government securities dealer, the net interest yield was 1.80 percent in 1995 and
and 2.04 percent in 1994.
(3) The sums of balance sheet and income statement amounts differ from consolidated amounts due to activities
between the Customer Groups.
23
Table 3
Quarterly Taxable-Equivalent Data
(Dollars in Millions)
First Quarter 1995 Fourth Quarter 1994
-------------------------------------------------------
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 (1)
Commercial (2)........................................ $ 45,238 $ 919 8.24 % $ 43,587 $ 855 7.78 %
Real estate commercial................................ 7,630 173 9.16 7,289 162 8.86
Real estate construction.............................. 3,100 77 10.07 3,038 72 9.33
----------------- -----------------
Total commercial.................................... 55,968 1,169 8.47 53,914 1,089 8.01
----------------- -----------------
Residential mortgage.................................. 17,780 343 7.76 16,680 321 7.68
Home equity........................................... 2,675 62 9.33 2,580 56 8.71
Credit card........................................... 4,543 139 12.36 4,357 141 12.80
Other consumer........................................ 17,949 439 9.91 17,714 430 9.63
----------------- -----------------
Total consumer...................................... 42,947 983 9.24 41,331 948 9.12
----------------- -----------------
Foreign............................................... 1,961 36 7.50 1,764 30 6.79
Lease financing....................................... 2,951 58 7.86 2,755 53 7.71
----------------- -----------------
Total loans and leases, net......................... 103,827 2,246 8.75 99,764 2,120 8.44
----------------- -----------------
Securities
Held for investment................................... 17,648 238 5.45 17,966 245 5.40
Available for sale (3)................................ 7,728 110 5.80 8,560 117 5.44
----------------- -----------------
Total securities.................................... 25,376 348 5.56 26,526 362 5.42
----------------- -----------------
Loans held for sale..................................... 61 1 9.10 109 3 7.65
Federal funds sold and securities purchased
under agreements to resell............................ 15,014 230 6.22 16,159 203 5.00
Time deposits placed and other short-term investments... 2,297 40 7.01 2,231 32 5.75
Trading account securities (4).......................... 11,574 233 8.16 10,318 224 8.64
----------------- -----------------
Total earning assets (5)............................ 158,149 3,098 7.93 155,107 2,944 7.54
Cash and cash equivalents................................. 8,321 8,674
Factored accounts receivable.............................. 1,048 1,235
Other assets, less allowance for credit losses............ 9,997 9,538
-------- --------
Total assets........................................ $177,515 $174,554
======== ========
Interest-bearing liabilities
Savings................................................. $ 8,911 53 2.39 $ 9,143 54 2.37
NOW and money market deposit accounts................... 28,577 187 2.66 29,442 190 2.53
Consumer CDs and IRAs................................... 24,818 291 4.76 25,136 277 4.40
Negotiated CDs, public funds and other time deposits.... 3,151 41 5.30 2,825 35 4.80
Foreign time deposits................................... 13,844 211 6.18 11,576 162 5.57
Borrowed funds and trading account liabilities (4)(6)... 50,993 820 6.52 50,110 756 5.99
Long-term debt and obligations under capital leases..... 8,888 160 7.22 8,147 144 7.08
----------------- -----------------
Total interest-bearing liabilities.................. 139,182 1,763 5.13 136,379 1,618 4.71
Noninterest-bearing sources
Noninterest-bearing deposits............................ 19,984 20,452
Other liabilities....................................... 7,157 6,817
Shareholders' equity.................................... 11,192 10,906
-------- --------
Total liabilities and shareholders' equity.......... $177,515 $174,554
======== ========
Net interest spread....................................... 2.80 2.83
Impact of noninterest-bearing sources..................... .61 .57
Net interest income/yield on earning assets............... $ 1,335 3.41 % $ 1,326 3.40 %
======= =======
(1) Nonperforming loans are included in the respective average loan balances. Income on such nonperforming loans
is recognized on a cash basis.
(2) Commercial loan interest income includes net interest rate swap revenues related to swaps converting
variable-rate commercial loans to fixed rate. Such increases (decreases) in interest income were $(61) in
the first quarter of 1995 and $(32), $0, $38 and $56 in the fourth, third, second and first quarters of 1994,
respectively.
(3) The average balance sheet amounts and yields on securities available for sale are based on the average of
historical amortized cost balances.
(4) Gross unrealized gains and losses on off-balance sheet trading positions are reported in other assets and
liabilities, respectively.
(5) Interest income includes taxable-equivalent adjustments of $28 in the first quarter of 1995 and $26, $24, $22
and $22 in the fourth, third, second and first quarters of 1994, respectively.
(6) Borrowed funds and trading account liabilities interest expense includes net interest rate swap expense related
to swaps fixing the cost of certain variable-rate liabilities, primarily market-based funds. Such increases
(decreases) in interest expense were $12 in the first quarter of 1995 and $20, $9, $(1) and $3 in the fourth,
third, second and first quarters of 1994, respectively.
24
Table 3
Quarterly Taxable-Equivalent Data
(Dollars in Millions)
Third Quarter 1994 Second Quarter 1994
-------------------------------------------------------
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 (1)
Commercial (2)........................................ $ 42,037 $ 805 7.60 % $ 40,339 $ 765 7.61 %
Real estate commercial................................ 7,473 159 8.43 7,955 157 7.92
Real estate construction.............................. 3,106 66 8.50 3,226 68 8.42
----------------- -----------------
Total commercial.................................... 52,616 1,030 7.77 51,520 990 7.71
----------------- -----------------
Residential mortgage.................................. 15,528 296 7.60 14,329 270 7.54
Home equity........................................... 2,516 55 8.72 2,480 46 7.41
Credit card........................................... 4,003 131 12.96 3,783 115 12.27
Other consumer........................................ 17,357 412 9.42 17,060 397 9.33
----------------- -----------------
Total consumer...................................... 39,404 894 9.02 37,652 828 8.82
----------------- -----------------
Foreign............................................... 1,453 23 6.34 1,287 18 5.73
Lease financing....................................... 2,474 49 7.90 2,146 38 7.08
----------------- -----------------
Total loans and leases, net......................... 95,947 1,996 8.27 92,605 1,874 8.12
----------------- -----------------
Securities
Held for investment................................... 15,443 197 5.08 14,009 167 4.79
Available for sale (3)................................ 11,683 152 5.17 14,829 191 5.16
----------------- -----------------
Total securities.................................... 27,126 349 5.12 28,838 358 4.98
----------------- -----------------
Loans held for sale..................................... 183 3 6.69 392 6 6.49
Federal funds sold and securities purchased
under agreements to resell............................ 13,495 149 4.38 11,780 108 3.64
Time deposits placed and other short-term investments... 2,216 29 5.16 1,211 15 4.96
Trading account securities (4).......................... 10,488 199 7.52 10,265 173 6.75
----------------- -----------------
Total earning assets (5)............................ 149,455 2,725 7.24 145,091 2,534 7.00
----------------- -----------------
Cash and cash equivalents................................. 8,372 8,051
Factored accounts receivable.............................. 1,156 1,599
Other assets, less allowance for credit losses............ 8,300 7,248
-------- --------
Total assets........................................ $167,283 $161,989
======== ========
Interest-bearing liabilities
Savings................................................. $ 9,255 54 2.31 $ 9,181 53 2.30
NOW and money market deposit accounts................... 29,507 179 2.41 29,816 166 2.24
Consumer CDs and IRAs................................... 24,439 257 4.17 22,855 231 4.02
Negotiated CDs, public funds and other time deposits.... 3,223 34 4.23 3,574 33 3.80
Foreign time deposits................................... 8,436 108 5.06 5,691 63 4.49
Borrowed funds and trading account liabilities (4)(6)... 48,688 629 5.13 47,122 514 4.38
Long-term debt and obligations under capital leases..... 7,731 134 6.95 7,952 135 6.75
----------------- -----------------
Total interest-bearing liabilities.................. 131,279 1,395 4.22 126,191 1,195 3.80
Noninterest-bearing sources ----------------- -----------------
Noninterest-bearing deposits............................ 19,796 20,241
Other liabilities....................................... 5,543 5,285
Shareholders' equity.................................... 10,665 10,272
-------- --------
Total liabilities and shareholders' equity.......... $167,283 $161,989
======== ========
Net interest spread....................................... 3.02 3.20
Impact of noninterest-bearing sources..................... .52 .50
Net interest income/yield on earning assets............... $ 1,330 3.54 % $ 1,339 3.70 %
======= =======
25
Table 3
Quarterly Taxable-Equivalent Data
(Dollars in Millions)
First Quarter 1994
---------------------------
Average
Balance Income
Sheet or Yields/
Amounts Expense Rates
---------------------------
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2)........................................ $ 40,421 $ 722 7.24 %
Real estate commercial................................ 8,419 158 7.61
Real estate construction.............................. 3,253 62 7.73
-----------------
Total commercial.................................... 52,093 942 7.33
-----------------
Residential mortgage.................................. 13,340 254 7.67
Home equity........................................... 2,547 45 7.11
Credit card........................................... 3,673 121 13.32
Other consumer........................................ 16,806 390 9.41
-----------------
Total consumer...................................... 36,366 810 9.00
-----------------
Foreign............................................... 1,157 15 5.15
Lease financing....................................... 1,992 36 7.19
-----------------
Total loans and leases, net......................... 91,608 1,803 7.96
-----------------
Securities
Held for investment................................... 12,714 152 4.82
Available for sale (3)................................ 14,545 184 5.12
-----------------
Total securities.................................... 27,259 336 4.98
-----------------
Loans held for sale..................................... 681 11 6.46
Federal funds sold and securities purchased
under agreements to resell............................ 12,073 87 2.95
Time deposits placed and other short-term investments... 1,375 14 4.12
Trading account securities (4).......................... 10,738 169 6.39
-----------------
Total earning assets (5)............................ 143,734 2,420 6.81
Cash and cash equivalents................................. 7,976
Factored accounts receivable.............................. 1,016
Other assets, less allowance for credit losses............ 8,568
--------
Total assets........................................ $161,294
========
Interest-bearing liabilities
Savings................................................. $ 8,879 51 2.33
NOW and money market deposit accounts................... 30,140 161 2.17
Consumer CDs and IRAs................................... 23,295 234 4.09
Negotiated CDs, public funds and other time deposits.... 3,664 31 3.44
Foreign time deposits................................... 4,385 42 3.86
Borrowed funds and trading account liabilities (4)(6)... 47,336 454 3.89
Long-term debt and obligations under capital leases..... 8,308 137 6.61
-----------------
Total interest-bearing liabilities.................. 126,007 1,110 3.57
Noninterest-bearing sources
Noninterest-bearing deposits............................ 19,897
Other liabilities....................................... 5,310
Shareholders' equity.................................... 10,080
--------
Total liabilities and shareholders' equity.......... $161,294
========
Net interest spread....................................... 3.24
Impact of noninterest-bearing sources..................... .45
Net interest income/yield on earning assets............... $ 1,310 3.69 %
=======
26
Table 4
Asset and Liability Management Interest Rate Swaps
Notional Contracts
(Dollars in Millions)
Index
Generic Amortizing CMO Total
----------------------------------------------------------------------------
Receive Pay Receive Receive Pay Receive Pay
Fixed Fixed Fixed Fixed Fixed Fixed Fixed Total
---------------------------------------------------------------------------------------
Balance on December 31, 1994... $ 6,528 $ 8,446 $ 8,450 $ 2,504 $ 97 $ 17,482 $ 8,543 $ 26,025
Additions.................... - 1,561 - - - - 1,561 1,561
Maturities................... (205) - (87) (33) (2) (325) (2) (327)
---------------------------------------------------------------------------------------
Balance on March 31, 1995...... $ 6,323 $ 10,007 $ 8,363 $ 2,471 $ 95 $ 17,157 $ 10,102 $ 27,259
=======================================================================================
27
Table 5
Asset and Liability Management Interest Rate Swaps
March 31, 1995
(Dollars in Millions, Average Maturity in Years)
Maturities
-----------------------------------------------------------------
Market After Average
Value Total 1995 1996 1997 1998 1999 1999 Maturity
----------------------------------------------------------------------------------
Asset Conversion Swaps
- ----------------------
Receive fixed generic.............. $(101) .91
Notional value.................... $ 6,323 $2,932 $ 2,705 $ 575 $ 3 - $ 108
Weighted average receive rate..... 4.53 % 4.30 % 4.63 % 4.45 % 6.58 % - 8.55 %
Weighted average pay rate......... 6.39
Receive fixed amortizing........... (362) 2.17
Notional value.................... $ 8,363 $ 590 $ 460 $ 5,649 $1,664 - -
Weighted average receive rate..... 4.91 % 5.20 % 5.11 % 4.84 % 4.99 % - -
Weighted average pay rate......... 6.29
Receive fixed CMO.................. (94) 1.98
------
Notional value.................... $ 2,471 $ 659 $ 559 $ 369 $ 451 $ 433 -
Weighted average receive rate..... 5.12 % 5.10 % 5.10 % 5.11 % 5.08 % 5.21 % -
Weighted average pay rate......... 6.13
Total asset conversion swaps....... $(557) 1.68
======
Notional value.................... $17,157 $4,181 $ 3,724 $ 6,593 $2,118 $ 433 $ 108
Weighted average receive rate..... 4.80 % 4.56 % 4.76 % 4.82 % 5.01 % 5.21 % 8.55 %
Weighted average pay rate......... 6.30
Liability Conversion Swaps
- --------------------------
Pay fixed generic.................. $ 67 1.46
Notional value.................... $10,007 $ 110 $ 8,787 $ 925 $ 100 - $ 85
Weighted average pay rate......... 6.58 % 6.64 % 6.52 % 7.34 % 5.02 % - 5.82 %
Weighted average receive rate..... 6.55
Pay fixed CMO...................... 4 1.87
------
Notional value.................... $ 95 $ 21 $ 21 $ 15 $ 38 - -
Weighted average pay rate......... 4.44 % 4.44 % 4.44 % 4.44 % 4.44 % - -
Weighted average receive rate..... 6.13
Total liability conversion swaps... $ 71 1.47
======
Notional value.................... $10,102 $ 131 $ 8,808 $ 940 $ 138 - $ 85
Weighted average pay rate......... 6.56 % 6.29 % 6.52 % 7.29 % 4.86 % - 5.82 %
Weighted average receive rate..... 6.55
Total.............................. $(486)
======
Notional value.................... $27,259 $4,312 $12,532 $ 7,533 $2,256 $ 433 $ 193
Weighted average receive rate..... 5.45 %
Weighted average pay rate......... 6.40
Floating rates represent the last repricing and will change in the future based on movements in one, three or six
month LIBOR rates.
Maturities are based on interest rates implied by the forward curve on March 31, 1995, and may differ from actual
maturities, depending on future interest rate movements and resultant prepayment patterns.
In addition to the above asset and liability management interest rate swaps, on March 31, 1995, the Corporation had
approximately $1.2 billion notional of net receive fixed generic interest rate swaps associated primarily with a
credit card securitization. On March 31, 1995, these positions had an unrealized market value of negative $77
million. On March 31, 1995, the weighted average receive rate was 5.19 percent and the pay rate was 6.94 percent.
28
Table 6
Interest Rate Gap Analysis
March 31, 1995
(Dollars in Millions)
Over 12
Months and
Interest-Sensitive Noninterest-
30-Day 3-Month 6-Month 12-Month Total Sensitive Total
------------------------------------------------------------------------------
Earning assets
Loans and leases, net of
unearned income........................ $ 46,257 $ 10,955 $ 3,883 $ 6,731 $ 67,826 $ 37,878 $ 105,704
Securities held for investment........... 34 79 3,805 2,991 6,909 10,637 17,546
Securities available for sale............ 8 408 46 1,278 1,740 7,222 8,962
Loans held for sale...................... 286 - - - 286 - 286
Time deposits placed and other
short-term investments................. 1,314 744 438 252 2,748 2 2,750
Trading account securities............... 13,148 - - - 13,148 - 13,148
Other earning assets..................... 13,688 - - - 13,688 - 13,688
------------------------------------------------------------------------------
Total.................................. 74,735 12,186 8,172 11,252 106,345 55,739 $ 162,084
------------------------------------------------------------------------------
Interest-bearing liabilities
Savings.................................. 8,844 - - - 8,844 - $ 8,844
NOW and money market deposit
accounts............................... 20,573 - - - 20,573 7,551 28,124
Consumer CDs and IRAs.................... 3,150 3,738 4,535 4,958 16,381 8,559 24,940
Negotiated CDs, public funds and
other time deposits.................... 955 981 715 320 2,971 303 3,274
Foreign time deposits.................... 6,496 3,198 2,410 3,193 15,297 - 15,297
Borrowed funds........................... 34,276 2,754 3,302 1,759 42,091 - 42,091
Short sales.............................. 11,422 - - - 11,422 - 11,422
Long-term debt and obligations under
capital leases......................... 432 1,956 260 599 3,247 6,569 9,816
------------------------------------------------------------------------------
Total.................................. 86,148 12,627 11,222 10,829 120,826 22,982 143,808
Noninterest-bearing, net................... - - - - - 18,276 18,276
------------------------------------------------------------------------------
Total.................................. 86,148 12,627 11,222 10,829 120,826 41,258 $ 162,084
------------------------------------------------------------------------------
Interest rate gap.......................... (11,413) (441) (3,050) 423 (14,481) 14,481
Effect of asset and liability management
interest rate swaps, futures and
other off-balance sheet items............ (7,347) (6,809) 8,651 2,515 (2,990) 2,990
-------------------------------------------------------------------
Adjusted interest rate gap................. $ (18,760) $ (7,250) $ 5,601 $ 2,938 $ (17,471) $ 17,471
===================================================================
Cumulative adjusted interest rate gap...... $ (18,760) $ (26,010) $ (20,409) $ (17,471)
===========================================
29
Table 7
Noninterest Income
(Dollars in Millions)
Three Months
Ended March 31 Change
-----------------------------------
1995 1994 Amount Percent
-----------------------------------
Service charges on deposit accounts............ $ 207 $ 196 $ 11 5.6 %
----------------------------------
Nondeposit-related service fees
Safe deposit rent............................ 9 8 1 12.5
Mortgage servicing and related fees.......... 21 16 5 31.3
Fees on factored accounts receivable......... 17 18 (1) (5.6)
Investment banking income.................... 49 32 17 53.1
Other service fees........................... 29 27 2 7.4
----------------------------------
Total nondeposit-related service fees...... 125 101 24 23.8
----------------------------------
Trust fees..................................... 110 109 1 0.9
----------------------------------
Credit card income
Merchant discount fees....................... 7 7 - -
Annual credit card fees...................... 6 6 - -
Other credit card fees....................... 54 52 2 3.8
----------------------------------
Total credit card income................... 67 65 2 3.1
----------------------------------
Other income
Brokerage income............................. 24 13 11 84.6
Trading account profits and fees............. 83 95 (12) (12.6)
Bankers' acceptances and letters of credit... 18 17 1 5.9
Insurance commissions and earnings........... 15 12 3 25.0
Miscellaneous................................ 77 72 5 6.9
----------------------------------
Total other income......................... 217 209 8 3.8
----------------------------------
$ 726 $ 680 $ 46 6.8
==================================
30
Table 8
Noninterest Expense
(Dollars in Millions)
Three Months
Ended March 31 Change
-------------------------------------------
1995 1994 Amount Percent
-------------------------------------------
Personnel.................................. $ 625 $ 564 $ 61 10.8 %
Occupancy, net............................. 121 120 1 0.8
Equipment.................................. 93 86 7 8.1
Marketing.................................. 58 37 21 56.8
Professional fees.......................... 37 43 (6) (14.0)
Amortization of intangibles................ 30 34 (4) (11.8)
Credit card................................ 14 19 (5) (26.3)
FDIC insurance............................. 51 53 (2) (3.8)
Processing................................. 63 58 5 8.6
Telecommunications......................... 36 32 4 12.5
Postage and courier........................ 34 33 1 3.0
Other general operating.................... 89 107 (18) (16.8)
General administrative and miscellaneous... 37 33 4 12.1
------------------------------------------
$ 1,288 $ 1,219 $ 69 5.7
==========================================
31
Table 9
Sources and Uses of Funds
(Average Dollars in Millions)
Three Months Ended March 31
-------------------------------------------
1995 1994
-------------------------------------------
Amount Percent Amount Percent
-------------------------------------------
Composition of sources
Savings, NOW, money market deposit accounts,
and consumer CDs and IRAs............................. $ 62,306 35.1 % $ 62,314 38.7 %
Noninterest-bearing funds................................. 19,984 11.3 19,897 12.3
Customer-based portion of negotiated CDs.................. 1,502 0.8 1,435 0.9
------------------------------------------
Customer-based funds.................................. 83,792 47.2 83,646 51.9
Market-based funds........................................ 66,486 37.5 53,950 33.4
Long-term debt and obligations under capital leases....... 8,888 5.0 8,308 5.2
Other liabilities......................................... 7,157 4.0 5,310 3.3
Shareholders' equity...................................... 11,192 6.3 10,080 6.2
------------------------------------------
Total sources......................................... $ 177,515 100.0 % $ 161,294 100.0 %
==========================================
Composition of uses
Loans and leases, net of unearned income.................. $ 103,827 58.5 % $ 91,608 56.8 %
Securities held for investment............................ 17,648 9.9 12,714 7.9
Securities available for sale............................. 7,728 4.4 14,545 9.0
Loans held for sale....................................... 61 - 681 0.4
Time deposits placed and other short-term investments..... 2,297 1.3 1,375 0.9
Other earning assets...................................... 26,588 15.0 22,811 14.1
------------------------------------------
Total earning assets.................................. 158,149 89.1 143,734 89.1
Factored accounts receivable.............................. 1,048 0.6 1,016 0.6
Other assets.............................................. 18,318 10.3 16,544 10.3
------------------------------------------
Total uses............................................ $ 177,515 100.0 % $ 161,294 100.0 %
==========================================
32
Table 10
Nonperforming Assets
(Dollars in Millions)
March 31 December 31 September 30 June 30 March 31
1995 1994 1994 1994 1994
--------------------------------------------------------------------------
Nonperforming loans
Commercial........................................... $ 406 $ 362 $ 411 $ 425 $ 432
Real estate commercial............................... 209 201 198 248 282
Real estate construction............................. 71 66 82 90 161
-------------------------------------------------------------------------
Total commercial................................... 686 629 691 763 875
-------------------------------------------------------------------------
Residential mortgage................................. 66 66 71 69 71
Home equity.......................................... 9 10 8 9 8
Other consumer....................................... 79 84 82 82 99
-------------------------------------------------------------------------
Total consumer..................................... 154 160 161 160 178
-------------------------------------------------------------------------
Foreign.............................................. 6 3 4 5 5
Lease financing...................................... 8 9 6 8 9
-------------------------------------------------------------------------
Total nonperforming loans.......................... 854 801 862 936 1,067
Other real estate owned................................ 221 337 414 485 569
-------------------------------------------------------------------------
Total nonperforming assets......................... $ 1,075 $ 1,138 $ 1,276 $ 1,421 $ 1,636
=========================================================================
Nonperforming assets as a percentage of
Total assets......................................... .58 % .67 % .75 % .86 % .99 %
Loans, leases and factored accounts
receivable, net of unearned income,
and other real estate owned........................ 1.00 1.10 1.29 1.48 1.73
Loans past due 90 days or more and not
classified as nonperforming........................ $ 129 $ 146 $ 124 $ 90 $ 154
On January 1, 1995, the date of adoption of SFAS 114, the recorded investments in certain loans that are considered impaired
totaled $712 million (including $80 million of in-substance foreclosed loans previously reported as other real estate owned) and
included $390 million for commercial, $229 million for real estate commercial, $90 million for real estate construction and $3
million for foreign. On March 31, 1995 the recorded investments in certain loans that are considered impaired under SFAS 114
totaled $692 million and included $406 million for commercial, $209 million for real estate commercial, $71 million for real
estate construction and $6 million for foreign.
33
Table 11
Allowance For Credit Losses
(Dollars in Millions)
Three Months
Ended March 31
-----------------------
1995 1994
-----------------------
Beginning balance (1)................................................ $ 2,186 $ 2,169
----------------------
Loans, leases and factored accounts receivable charged off
Commercial......................................................... (25) (29)
Real estate commercial............................................. (7) (12)
Real estate construction........................................... (3) (7)
----------------------
Total commercial................................................. (35) (48)
----------------------
Residential mortgage............................................... (2) (2)
Home equity........................................................ (1) -
Credit card........................................................ (39) (32)
Other consumer..................................................... (53) (48)
----------------------
Total consumer................................................... (95) (82)
----------------------
Factored accounts receivable....................................... (4) (16)
----------------------
Total loans, leases and factored accounts
receivable charged off......................................... (134) (146)
----------------------
Recoveries of loans, leases and factored accounts
receivable previously charged off
Commercial......................................................... 18 14
Real estate commercial............................................. 3 3
Real estate construction........................................... 4 11
----------------------
Total commercial................................................. 25 28
----------------------
Residential mortgage............................................... - 1
Credit card........................................................ 6 6
Other consumer..................................................... 17 16
----------------------
Total consumer................................................... 23 23
----------------------
Lease financing.................................................... 1 1
Factored accounts receivable....................................... 2 4
Total recoveries of loans, leases and ----------------------
factored accounts receivable previously charged off............ 51 56
----------------------
Net charge-offs.................................................. (83) (90)
----------------------
Provision for credit losses.......................................... 70 100
Allowance applicable to loans of purchased companies................. 1 8
----------------------
Ending balance (1)................................................... $ 2,174 $ 2,187
======================
Loans, leases and factored accounts receivable,
net of unearned income, outstanding on March 31.................... $ 106,928 $ 93,767
Allowance for credit losses as a percentage of
loans, leases and factored accounts receivable,
net of unearned income, outstanding on March 31.................... 2.03 % 2.33 %
Average loans, leases and factored accounts receivable,
net of unearned income, outstanding during the period.............. $ 104,875 $ 92,624
Net charge-offs as a percentage of average loans,
leases and factored accounts receivable,
net of unearned income, outstanding during the period.............. 0.32 % 0.39 %
Allowance for credit losses as a percentage of nonperforming loans... 254.49 205.04
(1) Reserves associated with loans that are considered to be impaired under SFAS 114
totaled approximately $64 million on January 1, 1995 and $62 million on March 31, 1995.
34
Table 12
Derivatives - Dealer Positions
(Dollars in Millions)
March 31 December 31
1995 1994
Contract/ Contract/
Notional Notional
--------------------------
Interest Rate Contracts
Swaps.......................... $ 63,794 $ 45,179
Futures and forwards........... 204,573 124,620
Written options................ 113,830 114,928
Purchased options.............. 103,465 118,839
Foreign Exchange Contracts
Swaps.......................... 570 470
Spot, futures and forwards..... 43,269 26,987
Written options................ 20,152 13,398
Purchased options.............. 19,541 13,507
Commodity Contracts
Swaps.......................... 781 570
Futures and forwards........... 1,275 1,984
Written options................ 18,095 12,608
Purchased options.............. 20,549 11,591
35
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 10 - NationsBank Corporation Key Employee Stock Plan
Exhibit 11 - Earnings Per Share Computation
Exhibit 12(a) - Ratio of Earnings to Fixed Charges
Exhibit 12(b) - Ratio of Earnings to Fixed Charges and Preferred
Dividends
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
The following reports on Form 8-K were filed by the Corporation
during the quarter ended March 31, 1995:
Current Report on Form 8-K dated January 17, 1995, and filed
January 26, 1995, Items 5 and 7.
Current Report on Form 8-K dated February 16, 1995, and filed
February 21, 1995, Items 5 and 7.
Current Report on Form 8-K dated February 22, 1995, and filed
March 2, 1995, Items 5 and 7.
Current Report on Form 8-K dated February 28, 1995, and filed
March 2, 1995, Items 5 and 7.
Current Report on Form 8-K, as amended, dated March 20, 1995, and
filed March 21, 1995, Items 5 and 7.
Current Report on Form 8-K dated March 20, 1995, and filed March
27, 1995, Items 5 and 7.
36
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 15, 1995 /s/ Marc D. Oken
------------------ -------------------------------------
Marc D. Oken
Executive Vice President
and Chief Accounting Officer
(Duly Authorized Officer and
Principal Accounting Officer)
37
NationsBank Corporation
Form 10-Q
Index to Exhibits
Exhibit Description Page
- ------- ----------- ----
10 NationsBank Corporation Key Employee Stock Plan................. 39
11 Earnings Per Share Computation.................................. 60
12(a) Ratio of Earnings to Fixed Charges.............................. 61
12(b) Ratio of Earnings to Fixed Charges and Preferred Dividends...... 62
27 Financial Data Schedule......................................... 63
38