1
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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FINANCIAL
COMMENTARY
The historical trends reflected in the restated financial information
presented below are not reflective of anticipated future results.
Table 1: Summary of Selected Financial Data
- ----------------------------------------------------------------------------------------------------------------
(IN MILLIONS EXCEPT PER SHARE DATA) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------
Earnings
Net interest income $1,023.9 $ 974.5 $871.3 $736.4 $650.2
Fully taxable equivalent (FTE) adjustment<F1> 34.2 35.6 35.9 38.6 41.8
Net interest income (FTE) basis 1,058.1 1,010.1 907.2 775.0 692.0
Provision for loan losses 24.3 60.2 136.6 114.7 119.5
Noninterest income 526.5 500.4 458.5 361.8 302.6
Noninterest expense 984.6 950.4 871.9 752.4 652.0
Net income 355.3 317.4 228.7 171.2 145.0
- ----------------------------------------------------------------------------------------------------------------
Financial Position (at year end)
Total assets $28,927.2 $26,654.0 $24,280.9 $23,002.7 $22,795.1
Securities 8,090.7 8,501.8 7,115.7 6,046.0 5,070.1
Loans 16,480.4 14,825.9 13,110.9 12,316.3 11,924.2
Reserve for loan losses 342.0 341.1 302.0 252.3 228.9
Deposits 22,189.6 20,909.0 19,684.8 18,060.1 18,119.0
Long-term debt 515.1 486.3 393.2 315.7 284.5
Equity 2,200.8 2,133.3 1,861.2 1,680.2 1,463.4
- ----------------------------------------------------------------------------------------------------------------
Share Data
Net income per share $3.40 $3.07 $2.29 $1.77 $1.58
Dividends paid 1.27 1.15 1.09 1.07 1.06
Book value (year end) 21.10 20.49 18.20 16.94 15.84
Tangible book value (year end) 18.69 17.84 16.19 15.09 14.02
Shares outstanding (year end) 104.3 104.1 102.3 99.2 92.4
Average shares outstanding 104.6 103.5 100.0 96.9 91.7
- ----------------------------------------------------------------------------------------------------------------
Selected Financial Ratios
Return on assets 1.29% 1.27% .99% .79% .73%
Return on equity 16.31 15.99 12.95 10.78 10.13
Net interest margin 4.32 4.53 4.37 4.01 3.93
Noninterest income/operating income 33.2 33.1 33.6 31.8 30.4
Efficiency ratio 62.1 62.9 63.8 66.2 65.5
Capital ratios:
Equity to assets 7.61 8.00 7.67 7.30 6.42
Risk-based capital:
Tier I capital 10.47 10.67 10.39 10.10
Total capital 13.83 14.42 13.75 13.17
Tier I leverage ratio 7.16 6.93 6.90 6.58
Nonperforming loans to total loans .76 1.17 1.96 2.54 3.18
Nonperforming assets to total loans and
foreclosed property 1.12 1.90 2.92 3.92 3.93
Loan reserve to nonperforming loans 273.25 195.03 116.72 79.91 59.87
Net charge-offs to average loans .15 .24 .80 .84 .76
================================================================================================================
<FN>
<F1>The fully taxable equivalent adjustments are calculated using the Federal statutory tax rate.
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17
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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Table 2: Acquisitions
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Accounting
Date State Assets Price Shares issued method
- ------------------------------------------------------------------------------------------------------------------------------------
Completed
Centerre Bancorporation 12/88 Missouri $ 5.0 billion $467 million stock 28.6 million Pooling
RTC assisted--Community Federal S&L 12/90 Missouri 2.3 billion 27 million cash -- Purchase
First Interstate Bank of Oklahoma, N.A. 8/91 Oklahoma .9 billion 86 million cash -- Purchase
Founders Bancorporation, Inc. 3/92 Oklahoma .3 billion 34 million cash -- Purchase
Superior Federal Bank 3/92 Arkansas .7 billion -- -- Purchase
RTC assisted--Home Federal S&L 3/92 Arkansas .1 billion 1 million cash -- Purchase
First Interstate of Iowa, Inc. 4/92 Iowa 1.2 billion 94 million stock 4.2 million Pooling
FDIC assisted--Jackson Exchange Bank 5/92 Missouri .1 billion 1 million cash -- Purchase
Sunwest Financial Services, Inc. 10/92 New Mexico/Texas 3.4 billion 325 million stock 14.8 million Pooling
Security Bank and
1st Bank of Catoosa in Tulsa 11/92 Oklahoma .2 billion 33 million cash -- Purchase
FDIC assisted--First City-El Paso 3/93 Texas .3 billion 14 million cash -- Purchase
FDIC assisted--Missouri Bridge Bank 4/93 Missouri 1.1 billion 16 million cash -- Purchase
RTC assisted--Cimarron Federal Savings 5/93 Oklahoma .4 billion 13 million cash -- Purchase
FCB Bancshares, Inc. 8/93 Kansas .2 billion 25 million cash -- Purchase
First Amarillo Bancorporation, Inc. 11/93 Texas .8 billion 192 million stock 5.9 million Pooling
Woodland Bancorporation, Inc. 3/94 Oklahoma .1 billion 12 million stock .4 million Pooling
Eagle Management and Trust Company 5/94 Texas -- 3 million cash -- Purchase
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets of completed transactions $17.1 billion
====================================================================================================================================
Pending at December 31, 1994
Dalhart Bancshares, Inc. Texas $ .1 billion $ 23 million stock .7 million Pooling
National Mortgage Company Tennessee .2 billion 153 million stock 5.0 million Pooling
Worthen Banking Corporation Arkansas 3.5 billion 595 million stock 17.3 million Pooling
Salem Community Bancorp, Inc. Illinois .1 billion 9 million stock .3 million Purchase
First National Bank in Pampa Texas .2 billion 39 million stock 1.4 million Pooling
West Side Bancshares, Inc. Texas .1 billion 18 million stock .6 million Purchase
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets of pending transactions $ 4.2 billion
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
ACQUISITION OVERVIEW
The Corporation's assets have increased from $9.9 billion at December
31, 1987 to $28.9 billion at December 31, 1994, an average annual growth
rate of 17%. During this period the Corporation has pursued a strategy of
expansion within its natural trade territory through a combination of
internal growth and acquisition activity. The acquisition program has
three objectives: geographic diversification, growth in retail market
share, and additional earnings generation capacity. The Corporation has
made several sizable acquisitions establishing dominant market positions
in Missouri and New Mexico, and significant presences in southern
Illinois, western Tennessee, Oklahoma, Arkansas and northern Texas. This
growth has basically occurred in two distinct phases. The first phase
concentrated on intramarket transactions to fully establish the Missouri
cornerstone of the franchise and culminated with the Resolution Trust
Corporation (RTC) assisted acquisition of Community Federal in 1990, a
$2.3 billion thrift institution located in St. Louis. This acquisition
provided the Corporation with a stable and low cost source of deposits and
the opportunity to cross-sell services to a large new customer base at a
low incremental cost. Deposits assumed totaled $2.3 billion and deposit
retention approximated 75%. The Corporation completed another regulatory
assisted transaction in Missouri in 1993 which added approximately $1.1
billion of assets to its Missouri franchise such that total assets in this
state now approximate $18 billion. A more complete description of this
acquisition is provided below.
The second phase of the acquisition program commenced in 1991 by
expanding into markets in nearby states, thereby achieving geographic
diversification on a reasonably synergistic basis. From 1991 through 1993,
acquisitions aggregating $8.5 billion in assets were consummated in
Oklahoma, Arkansas, Iowa, Kansas, New Mexico and Texas. These transactions
significantly changed the composition of the customer base whereby the
Missouri-based banking segment at year end 1994, represents 62% of the
Corporation's banking assets, down from 90% at year-end 1990.
The acquisition program continued into 1994 as eight acquisitions
aggregating $4.3 billion in assets were announced, two of which were
completed in 1994. The six acquisitions pending at year end summarized in
Table 2 are expected to be completed in early 1995 after obtaining all
regulatory and shareholder approvals. The Corporation's operations
currently span nine states, with services delivered from over 400 branch
locations and over 500 off-premise ATM's. A more complete description of
these acquisitions is provided in the commentary below.
The geographic diversification
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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Table 3: Asset Distribution
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December 31, 1994 % of
(in billions) Assets total Locations
- ----------------------------------------------------------
Missouri $17.9 61.9% 170
New Mexico 3.2 11.1 66
Oklahoma 2.0 6.9 39
Texas 1.6 5.5 20
Iowa 1.2 4.1 33
Illinois 1.0 3.5 20
Arkansas 1.0 3.5 40
Tennessee .8 2.8 19
Kansas .2 .7 3
- ----------------------------------------------------------
Total $28.9 100.0% 410
==========================================================
- ----------------------------------------------------------
Table 4: Economic Statistics
- ---------------------------------------------------------------------------------------------------------
Unemployment
Rates Growth in Building Permits
---------------- Personal Income 1994 Office % increase
1994 1993 1994 vs. 1993 Vacancy Rates<F1> 1994 vs. 1993
- ---------------------------------------------------------------------------------------------------------
Missouri 4.3% 6.5% 8.9% 12.4% 18.3%
New Mexico 5.9 7.4 7.3 10.1 30.3
Oklahoma 5.4 6.1 5.1 22.9 1.9
Texas 6.0 6.3 6.4 21.0
Iowa 3.2 3.7 11.1 15.1 23.9
Tennessee 3.8 5.3 6.3 15.0 21.6
Illinois 4.2 5.8 6.2 5.6
Arkansas 5.0 5.9 7.9 14.8
Kansas 5.0 5.0 7.4 7.2
- ---------------------------------------------------------------------------------------------------------
National average 5.4% 6.4% 6.3% 15.9% 13.7%
=========================================================================================================
<FN>
<F1> Office vacancy rates in major metropolitan areas where Boatmen's has a presence.
- ---------------------------------------------------------------------------------------------------------
achieved through the Corporation's acquisition program is summarized in
Table 3. The Corporation's geographic profile provides significant credit
and economic risk diversification in that the Corporation is not
significantly dependent on any major market. All of the Corporation's major
markets are currently experiencing good economic conditions. Certain
economic statistics, such as unemployment rates, growth in real personal
income, office vacancy rates and building permits, are widely used to
determine the economic stability within a given state or region. Table 4 is
provided to illustrate the current economic trend and relative stability
within the Corporation's nine-state operating region.
Ten acquisitions recorded under the purchase method of accounting were
consummated during the last three years; therefore, the results of
operations of these companies are included in the consolidated financial
statements subsequent to the dates of acquisition and must be considered
when reviewing the trended financial information. Pooling acquisitions are
reflected in the financial statements as if the companies had always been
combined. Additionally, because some of the acquisitions were of an
intramarket nature, numerous nonrecurring merger costs were recognized in
such transactions reflecting the geographical market overlap of customer
bases, the conforming of methodologies for determining loan loss reserves,
and the elimination of duplicate functions, facilities, equipment and
systems. Much of the Corporation's emphasis during this period of
expansion has focused primarily on realizing expense economies inherent in
these intramarket acquisitions and improving the loan portfolios of the
acquired companies.
Upon consummation of the pending acquisitions, the Corporation will
recognize nonrecurring merger-related expenses aggregating approximately
$20 million on a pre-tax basis, or $.12 per share on an after-tax basis.
These nonrecurring charges will reflect direct expenses of the mergers
consisting of investment banking fees, other professional fees, severance
and change of control compensation payments, and estimated costs of
closing duplicate branches. In 1993 and 1992, the Corporation recognized
pre-tax merger-related expenses totaling $4.7 million and $51.5 million,
respectively.
Oklahoma Acquisitions
During the period August 1, 1991 through March 31, 1994, the
Corporation completed five acquisitions in Oklahoma, such that total
assets of the Corporation's Oklahoma bank now approximate $1.7 billion
with services provided from 21 locations.
The most recent was the 1994 acquisition of Woodland Bancorp, Inc., a
retail banking organization with assets of approximately $65 million, in a
pooling transaction resulting in the issuance of .4 million shares of
common stock.
Arkansas Acquisitions
On March 20, 1992, the Corporation established a meaningful presence in
Arkansas with the acquisition of Superior Federal Bank (Superior), the
third largest financial institution in the state. Superior, with total
assets now approximating $1.3 billion, was acquired in a transaction
structured as a voluntary supervisory conversion, wherein the Corporation
contributed $29 million in equity capital in exchange for 100% stock
ownership. Superior is heavily oriented to consumer business, and operates
from 58 locations in two states, 40 of which are located in central and
northwestern Arkansas, which includes Little Rock, Fort Smith, and
Fayetteville, and 18 locations in eastern Oklahoma.
On August 18, 1994, the Corporation announced an agreement to acquire
Worthen Banking Corporation (Worthen), headquartered in Little Rock,
Arkansas, in a transaction to be accounted for as a pooling of interests.
Under terms of the agreement the Corporation will exchange one share of
its common stock for each Worthen share, resulting in the issuance of
approximately 17.3 million shares. Worthen is the second largest banking
organization in Arkansas, with approximately $3.5 billion in assets,
operating 112 retail banking offices throughout Arkansas and six offices
in the Austin, Texas area. The acquisition of Worthen will increase the
Corporation's asset base in Arkansas to approximately $4.4 billion, making
the Corporation the market share leader in Arkansas.
Iowa Acquisition
On April 1, 1992, the Corporation consummated the acquisition of First
Interstate of Iowa, Inc. in exchange for
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4
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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4.2 million shares of common stock. The Corporation's subsidiary, Boatmen's
Bancshares of Iowa, Inc. with approximately $1.2 billion in assets, is
headquartered in Des Moines, Iowa and operates 4 banks with 33 offices
throughout the state. Approximately 58% of the banking assets are located
in Des Moines, ranking Boatmen's second in market share in that city.
New Mexico Acquisition
The Corporation established a leading position in New Mexico with the
acquisition of Sunwest Financial Services, Inc. (Sunwest) on October 1,
1992 for approximately 14.8 million shares of common stock. Sunwest, with
approximately $3.7 billion in assets, is headquartered in Albuquerque, New
Mexico and is the largest banking organization in the state, operating 12
banks with 75 offices and 131 off-premise ATMs, including its El Paso,
Texas subsidiary.
Texas Acquisitions
On March 5, 1993, the Corporation, through its subsidiary bank, Sunwest
Bank of El Paso, acquired First City's former bank in El Paso under an
FDIC assisted transaction for $14 million in cash. As a result of this
transaction, the Corporation's El Paso bank has total assets of
approximately $510 million, representing a significant market share in the
El Paso metropolitan area.
On November 30, 1993, the Corporation acquired First Amarillo
Bancorporation, Inc. (Amarillo), in a transaction accounted for as a
pooling of interests. The Corporation exchanged .912 shares of its common
stock for each share of Amarillo, resulting in the issuance of
approximately 5.9 million shares of common stock. Amarillo, with assets at
December 31, 1994, of approximately $1.1 billion, has the leading market
share in the Texas Panhandle.
During 1994, the Corporation entered into agreements to acquire Dalhart
Bancshares, Inc., First National Bank in Pampa, and West Side Bancshares,
Inc. in San Angelo, Texas, with aggregate assets of approximately $450
million. These Texas locations bring significant increased capacity to the
Texas franchise and require the issuance of 2.7 million shares of common
stock.
Also in 1994, the Corporation completed the acquisition of Eagle
Management and Trust Company (Eagle), an investment advisory firm located
in Houston, Texas. Eagle, with $1.4 billion in trust assets, is managed by
the Corporation's trust subsidiary.
Mortgage Banking Acquisition--Tennessee
On May 6, 1994, the Corporation announced an agreement to acquire
National Mortgage Company and certain affiliates (National Mortgage),
headquartered in Memphis, Tennessee, in a transaction to be accounted for
as a pooling of interests. The agreement called for the Corporation to
exchange not more than 5.0 million shares of its common stock for all of
the stock of National Mortgage. At the date of announcement, the
transaction had a value of approximately $153 million, which represented
1.2% of National Mortgage's mortgage servicing portfolio. National
Mortgage is a privately-owned, full-service mortgage banking company which
originates home loans through 10 company-operated offices as well as
through a network of over 300 correspondents located in the southern and
midwestern United States, and presently services mortgage loans totaling
approximately $13.8 billion. When the National Mortgage portfolio is
combined with the Corporation's existing servicing portfolio, Boatmen's
will rank among the 30 largest mortgage servicers in the country.
Missouri Acquisition
On April 23, 1993, the Corporation, through its Kansas City bank,
acquired Missouri Bridge Bank, N.A., under an assisted transaction with
the FDIC. Boatmen's First National Bank of Kansas City acquired $1.1
billion of certain assets and assumed the same amount of deposit
liabilities for a premium of $15.8 million. As a result of this
transaction, the Corporation increased its assets in the Kansas City
metropolitan area to $3.9 billion, further solidifying its leading
position in this market.
Illinois Acquisition
On September 27, 1994, the Corporation announced an agreement to
acquire Salem Community Bancorp, Inc. (Salem) in a stock and cash
transaction. Salem has two locations in South Central Illinois with
approximately $80 million in assets.
[ASSET GROWTH - ASSETS AS ORIGINALLY REPORTED GRAPH]
[EQUITY GROWTH - EQUITY AS ORIGINALLY REPORTED GRAPH]
20
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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EARNINGS OVERVIEW
Net income increased 11.9% in 1994, totaling $355.3 million, compared
to an increase of 38.8% in 1993 when net income totaled $317.4 million. On
a per share basis, net income increased 10.7% to $3.40 per share compared
to an increase of 34.1% in 1993. The earnings increase in both 1994 and
1993 was primarily due to higher net interest income and noninterest
income, as well as a lower provision for loan losses. Net income in 1993
and 1992 was also impacted by after-tax acquisition-related charges
totaling $3.8 million in 1993 and $19.7 million in 1992. These charges
consisted primarily of nonrecurring expenses for investment banking fees,
severance and other compensation-related benefits, abandonment of
equipment and software, and in 1992 also included charges to conform loan
reserve, loan accrual and investment securities policies at Sunwest.
The record earnings in 1994 were reflected in other key performance
ratios such as the return on assets and return on equity. The return on
assets was 1.29% in 1994 compared to 1.27% in 1993 and .99% in 1992. The
return on equity was 16.31%, compared to 15.99% in 1993 and 12.95% in
1992. Net interest income on a fully taxable equivalent basis increased
4.8% in 1994 and 11.3% in 1993. Average earning asset growth of 9.8% led
to the net interest income increase in 1994 and was partially offset by an
anticipated contraction in interest rate spreads. In 1993, the net
interest income increase was primarily due to an improved net interest
margin coupled with moderate earning asset growth. The net interest margin
was 4.32% in 1994 compared to 4.53% in 1993 and 4.37% in 1992.
Noninterest income increased 5.2% in 1994 and 9.1% in 1993. The
increase in 1994 was primarily due to increases in trust fees, service
charges and credit card income, partially offset by declines in investment
banking and mortgage banking revenues. The 1993 increase reflected gains
in all core noninterest income categories. Excluding the impact of
purchase acquisitions, noninterest income increased 2.4% in 1994 and 4.4%
in 1993.
Table 5: Earnings Per Share Analysis
- -------------------------------------------------
Per share '94 vs '93 '93 vs '92
- -------------------------------------------------
Net income
prior period $3.07 $2.29
- -------------------------------------------------
Net interest income .48 1.04
Provision for loan losses .34 .76
Noninterest income .25 .41
Noninterest expense (.33) (.79)
Income tax expense (.38) (.54)
Impact of additional
shares of common stock (.03) (.10)
- -------------------------------------------------
Net increase .33 .78
- -------------------------------------------------
Net income current
period $3.40 $3.07
=================================================
- -------------------------------------------------
Table 6: Earnings by Business Component
- -------------------------------------------------
Per share 1994 1993
- -------------------------------------------------
Commercial and
retail banking
operations
(including
credit card) $3.46 $3.07
Trust services .37 .35
Unallocated
debt service,
administrative
overhead and
nonbank services (.43) (.35)
- -------------------------------------------------
Consolidated
earnings per share $3.40 $3.07
=================================================
- -------------------------------------------------
Noninterest expense increased 3.6% in 1994 and 9.0% in 1993. Excluding
purchase acquisitions, noninterest expense was held to an increase of 1.6%
in 1994, reflective of initiatives to control costs, compared to a 4.3%
increase in 1993.
Asset quality trends continued to strengthen in 1994. The Corporation
experienced unusually low loan losses in 1994 and 1993, decreases in
nonperforming loans and a decline in criticized loans identified through
the Corporation's internal risk rating system. As a result, the provision
for loan losses decreased 59.6% in 1994 and totaled $24.3 million compared
to $60.2 million in 1993 and $136.6 million in 1992. Net charge-offs as a
percentage of average loans declined to .15% compared to .24% in 1993 and
.80% in 1992. The provision for loan losses and net charge-offs in 1992
were adversely impacted by a special provision of $33.3 million and
charge-offs totaling approximately $28 million to conform Sunwest's loan
reserve methods to the Corporation's policies.
Presented in Table 5 is an income statement analysis expressed on a per
share basis summarizing the changes in earnings per share in 1994 and 1993.
The Corporation has two major business components: commercial and
retail banking (including a credit card operation), and trust services.
The earnings contribution from each component for 1994 and 1993 is
summarized in Tables 6 and 7.
Table 7: Summary of Business Component Earnings
- -----------------------------------------------------------------------------------------------------------------------------
Banking Trust Other<F1> Consolidated
--------------------------------------------------------------------------------------------------
(in millions) 1994 1993 % change 1994 1993 % change 1994 1993 1994 1993 % change
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income (FTE) $1,075 $1,026 4.8% $ 7 $ 7 --% $(24) $(23) $1,058 $1,010 4.8%
Provision for loan losses 24 60 (59.6) 24 60 (59.6)
Noninterest income 363 336 8.0 163 157 3.8 1 7 527 500 5.2
Noninterest expense 834 812 2.7 108 100 8.0 43 38 985 950 3.6
Net income $ 362 $ 318 13.8% $ 38 $ 36 5.6% $(45) $(37) $ 355 $ 317 11.9%
=============================================================================================================================
<FN>
<F1>Includes mortgage banking and costs of unallocated overhead, debt service, and intangible amortization.
- -----------------------------------------------------------------------------------------------------------------------------
21
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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NET INTEREST INCOME AND INTEREST RATE RISK MANAGEMENT
Table 8: Summary of Net Interest Income
- ----------------------------------------------------------------------------------------------------------------------------
Quarter
--------------------------------------------------------- % change from
(in millions) First Second Third Fourth Year prior year
- ----------------------------------------------------------------------------------------------------------------------------
1994
Average loans $14,956.3 $15,506.7 $15,911.9 $16,270.9 $15,665.7 11.6%
Average earning assets 23,690.3 24,502.1 24,715.1 25,080.3 24,501.3 9.8
Average core deposits 18,074.3 17,985.0 17,881.4 17,971.7 17,977.5 2.3
Average purchased funds 3,832.1 4,774.0 5,038.6 5,274.1 4,734.5 52.1
Net interest income (FTE) 257.0 265.0 267.3 268.8 1,058.1 4.8
Interest rate spread 3.79% 3.77% 3.72% 3.63% 3.72%
Net interest margin 4.34 4.33 4.33 4.29 4.32
- ----------------------------------------------------------------------------------------------------------------------------
1993
Average loans $13,127.9 $13,958.8 $14,373.7 $14,666.2 $14,036.8 10.1%
Average earning assets 21,306.9 22,080.5 22,680.5 23,190.7 22,320.8 7.6
Average core deposits 16,681.9 17,551.9 17,965.0 18,094.8 17,578.3 8.7
Average purchased funds 2,955.7 2,866.2 3,159.8 3,465.1 3,113.3 (.7)
Net interest income (FTE) 243.1 253.7 257.6 255.7 1,010.1 11.3
Interest rate spread 3.97% 4.02% 3.99% 3.85% 3.96%
Net interest margin 4.56 4.60 4.54 4.41 4.53
- ----------------------------------------------------------------------------------------------------------------------------
1992
Average loans $12,352.0 $12,824.6 $12,819.3 $12,992.9 $12,748.0 7.2%
Average earning assets 20,160.3 20,750.5 20,903.0 21,194.2 20,753.6 7.5
Average core deposits 15,386.4 16,271.4 16,346.3 16,653.1 16,167.8 11.9
Average purchased funds 3,410.9 3,113.6 3,103.4 2,925.0 3,135.7 (12.7)
Net interest income (FTE) 212.6 227.2 231.2 236.2 907.2 17.1
Interest rate spread 3.52% 3.71% 3.78% 3.82% 3.70%
Net interest margin 4.22 4.38 4.42 4.46 4.37
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
Measured on a fully-taxable equivalent basis, net interest income
increased 4.8% in 1994 and 11.3% in 1993. The increase in 1994 was
primarily due to growth in average earning assets, partially offset by an
anticipated contraction in interest rate spreads. The 1993 increase was
primarily due to wider interest spreads, coupled with a moderate increase
in average earning assets. Average earning assets increased 9.8% in 1994
and 7.6% in 1993 primarily due to internal loan growth and expansion of
the securities portfolio, supplemented by purchase acquisitions.
Loans, the highest yielding earning asset, increased 11.6% in 1994 and
as a percentage of average earning assets were 63.9% in 1994 compared to
62.9% in 1993 and 61.4% in 1992. Held to maturity and available for sale
securities increased 8.8% in 1994, representing 34.4% of average earning
assets, compared to 34.7% in 1993. Much of the increase in the securities
portfolio reflects the redeployment of short-term money market instruments
and funds received from regulatory assisted transactions in 1993, coupled
with a planned expansion of selected components of the portfolio.
As illustrated in Table 8, the contraction in the net interest margin
began in the second half of 1993 and continued into the first quarter of
1994 as historically high prepayment levels impacted yields on the
Corporation's mortgage-related portfolios. The margin stabilized at 4.33%
in the second and third quarters of 1994 and in the fourth quarter was
4.29%. For the full year, the net interest margin was 4.32% compared to
[NET INTEREST MARGIN GRAPH]
[QUARTERLY NET INTEREST MARGIN GRAPH]
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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Table 9: Rate/Volume Analysis
- -----------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
Change due to Change due to
- -----------------------------------------------------------------------------------------------------------------------------
Total change Volume<F1> Rate<F2> Total change Volume<F1> Rate<F2>
- -----------------------------------------------------------------------------------------------------------------------------
Interest income, fully taxable equivalent basis
Loans $146.5 $130.7 $15.8 $ 31.7 $110.6 $ (78.9)
Federal funds sold and securities
purchased under resale agreements .3 (4.3) 4.6 (36.0) (33.7) (2.3)
Held to maturity securities:
Taxable (202.4) (187.8) (14.6) (17.5) 58.5 (76.0)
Tax-exempt (5.4) (7.1) 1.7 (8.7) (9.0) .3
Available for sale securities 219.6 234.2 (14.6) 29.0 29.0
Trading securities (.1) (.3) .2 (.6) (.6)
Short-term investments 1.4 .6 .8 (.6) (.3) (.3)
------ ------
Total interest income 159.9 160.5 (.6) (2.7) 124.1 (126.8)
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense
Savings accounts (3.2) 1.4 (4.6) (.7) 12.8 (13.5)
Interest-bearing transaction accounts 17.4 9.7 7.7 (20.9) 21.9 (42.8)
Time deposits (8.8) (12.6) 3.8 (79.3) (8.2) (71.1)
Federal funds purchased and other
short-term borrowings 102.0 51.3 50.7 (11.0) 1.7 (12.7)
Long-term debt 4.5 4.8 (.3) 6.3 11.6 (5.3)
------ ------
Total interest expense 111.9 65.8 46.1 (105.6) 46.6 (152.2)
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income, fully taxable
equivalent basis $ 48.0 $ 94.7 $(46.7) $102.9 $ 77.5 $ 25.4
=============================================================================================================================
<FN>
<F1> Based on change in volume applied to prior year rate.
<F2> Based on change in rate applied to current year volume; therefore, effect of change in rate on change in volume has been
attributed to change in rate.
- -----------------------------------------------------------------------------------------------------------------------------
4.53% in 1993 and 4.37% in 1992. Rising interest rates in 1994 restricted
the net interest margin to some extent due to the Corporation's modest
liability sensitive position; however, this has been partially mitigated
by the retail deposit pricing discipline prevalent throughout the industry
in 1994. In addition, interest rate spreads were adversely affected in
1994 as industry-wide competition resulted in narrower spreads in certain
lending areas. The average yield on earning assets in 1994 was 7.35%, a
decrease of 1 basis point from 1993. During this same period, the average
rate paid on total deposits was unchanged at 3.31%, however, the rate paid
on total interest-bearing liabilities increased by 23 basis points. The
higher funding costs in 1994 reflected an increased use of purchased funds
as loan growth outpaced deposit growth. Purchased funds, which represented
the principal funding source for the loan growth in 1994, increased $1.6
billion or 52.1% compared to a decrease of .7% in 1993. The issuance of
$1.6 billion in bank notes accounted for this increase. These notes were
issued by several of the Corporation's banking subsidiaries, with up to
one year maturities and mainly paying interest indexed to the Federal
funds rate. The rate paid on Federal funds purchased and other short-term
borrowings averaged 4.31% in 1994 compared to 2.98% in 1993.
Interest rate risk is the extent to which net interest income may be
affected by changes in market driven interest rates, and the Corporation
assumes varying degrees of interest rate risk as part of its normal
banking operations. It is the role of the asset/liability management
committee to manage and control the level of interest rate risk contained
in the balance sheet as well as off-balance sheet financial instruments.
The Corporation has made a commitment to maintaining the appropriate
technology and expertise to monitor and analyze its interest rate
sensitivity position on an ongoing basis. The Corporation's interest rate
risk policy is to maintain a stable level of net interest income while
also enhancing earnings potential through limited risk positioning based
on the forecast of future interest rates. Interest rate risk exposure
(earnings at risk exposure)is currently limited, by policy, to 5% of
projected annual net income. Adherence to these risk limits is controlled
and monitored through simulation modeling techniques that consider the
impact that alternative interest rate scenarios will have on the
Corporation's financial results. In its simulations, the Corporation
estimates the impact on net interest income and net income resulting from
a gradual, as well as significant immediate, change in market interest
rates. Utilization of the simulation modeling results enables management
to develop strategies to control the Corporation's overall interest rate
risk exposure and to monitor specific risks associated with on-balance
sheet financial instruments, along with interest rate swaps.
The assumptions used in the model are intentionally designed to be con-
23
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Table 10: Rate Sensitivity At December 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------
Interest sensitive within
---------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 Total One to Over
(in millions) days days days days one year five years five years Total
- -----------------------------------------------------------------------------------------------------------------------------
Earning assets
Loans $ 6,911 $ 850 $ 939 $ 1,580 $ 10,280 $ 4,626 $ 1,574 $16,480
Securities<F1> 1,105 621 918 978 3,622 3,021 1,448 8,091
Other earning assets 1,158 1,158 1,158
- -----------------------------------------------------------------------------------------------------------------------------
Total earning assets 9,174 1,471 1,857 2,558 15,060 7,647 3,022 25,729
Nonearning assets 3,198 3,198
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $ 9,174 $ 1,471 $ 1,857 $ 2,558 $ 15,060 $ 7,647 $ 6,220 $28,927
=============================================================================================================================
Sources of funds
Noninterest bearing deposits $ 4,590 $ 4,590 $ 4,590
Retail savings and interest
bearing transaction accounts 8,818 8,818 8,818
Time deposits 2,481 1,097 1,306 1,437 6,321 2,440 21 8,782
Federal funds purchased and
other short-term borrowings 3,601 50 3,651 3,651
Long-term debt and capital
lease obligation 35 3 38 31 484 553
Other noninterest bearing sources 2,533 2,533
Effect of interest rate swaps 535 1,435 (39) (48) 1,883 (1,883)
- -----------------------------------------------------------------------------------------------------------------------------
Total sources of funds 20,025 2,582 1,302 1,392 25,301 588 3,038 $28,927
- -----------------------------------------------------------------------------------------------------------------------------
Period gap before adjustments (10,851) (1,111) 555 1,166 (10,241) 7,059 3,182
- -----------------------------------------------------------------------------------------------------------------------------
Adjustments<F2> 9,562 (674) (198) 31 8,721 (6,133) (2,588)
- -----------------------------------------------------------------------------------------------------------------------------
Period gap after adjustments (1,289) (1,785) 357 1,197 (1,520) 926 594
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative gap after adjustments $ (1,289) $(3,074) $(2,717) $(1,520) $ (1,520) $ (594)
=============================================================================================================================
Cumulative gap as a percent
of earning assets (5.0)% (11.9)% (10.6)% (5.9)% (5.9)% (2.3)%
=============================================================================================================================
<FN>
<F1> Includes held to maturity and available for sale securities.
<F2> For internal management purposes, the Corporation's gap position is adjusted to reflect anticipated prepayments on
mortgage-related assets, a shift of a large percentage of the Corporation's administered-rate retail deposit accounts
to the one-to-five year time period to reflect the insensitive nature of these accounts based on the Corporation's
experience, a shift of a large percentage of the Corporation's noninterest bearing demand deposit accounts to the
one-to-five year period to reflect the stable nature of these accounts based on the Corporation's experience
and the elimination of material fluctuations in daily deposit levels and short-term borrowings.
- -----------------------------------------------------------------------------------------------------------------------------
servative in that the balance sheet is held static for the entire 12
month simulation horizon and, accordingly, the model is not intended to
represent an income forecast. Based on the 1994 year-end interest rate
sensitivity position, the simulation model indicates that the earnings at
risk exposure over the next 12 months would approximate 4%, assuming a
gradual 200 basis point increase in interest rates, and no active
management of the balance sheet components.
Another means of monitoring interest rate risk is the interest rate
sensitivity analysis appearing in Table 10. This analysis identifies the
repricing characteristics of the balance sheet and resulting gap or
difference between assets and liabilities repricing within and over given
time periods. It should be noted, however, that the traditional gap
analysis can provide an incomplete picture of a financial institution's
interest rate risk position due to its inability to capture the
sensitivity associated with prepayment risk, asymmetric pricing patterns
for administered and retail deposit accounts and noninterest bearing funds
volume.
An effective asset/liability management function is required to address
the interest rate risk inherent in the Corporation's core banking
activities. If no other action is taken, the behavior of the core banking
activities, which includes lending and deposit activities, results in an
asset-sensitive position. Accordingly, to prudently manage the overall
interest rate sensitivity position, the Corporation utilizes a combination
of on-and off-balance sheet financial instruments to balance the interest
rate sensitivity of the core balance sheet. Interest rate swaps are an
effective mechanism to manage this interest rate risk due to the inherent
advantages related to flexibility in product structure, size, liquidity,
capital and market timing. The use of off-balance sheet instruments as
part of the interest rate management process can achieve the same desired
result as on-balance sheet instruments, but also results in reduced
funding/capital requirements, and an improved net interest margin and
return on assets. The contribution of the
24
9
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
swap portfolio over time will expand or contract with movements in market
rates; however, this risk cannot be viewed in isolation and is controlled
and monitored within the overall context of the aforementioned
asset/liability management policies.
The interest rate swap portfolio is presently used to modify the
interest rate sensitivity of subordinated debt and alter the interest rate
sensitivity of the Corporation's prime-based loan portfolio. The
Corporation accessed the capital markets twice in recent years, resulting
in the issuance of $200 million of fixed rate subordinated debt. The
impact of adding long-term debt to the balance sheet resulted in increased
asset sensitivity as proceeds were initially used to replace short-term
borrowings. Accordingly, to reduce the impact on the Corporation's gap
position, $200 million of interest rate swaps were executed to convert
fixed rate debt to a floating rate instrument. The Corporation's prime
based loan portfolio (approximately $5.4 billion) is the primary cause of
the large asset sensitivity position of the core banking activity as it is
primarily funded by deposit liabilities that are less sensitive to
movements in market interest rates. As a means to alter the interest rate
sensitivity of the prime based portfolio, the Corporation has used
interest rate swaps to convert approximately $1.8 billion of prime based
loans to fixed rate instruments. Additionally, the Corporation used $250
million of interest rate swaps to alter the pricing basis on a small
portion of the prime-based loan and bank note portfolios. Periodic
correlation assessments are performed to ensure that the swap instruments
are effectively modifying the interest rate characteristics of the
respective balance sheet items. The interest rate swaps are not leveraged
in that they reset in step with rate movements in the underlying index.
The interest rate swap programs were consistent with management's
objective of balancing the interest rate sensitivity of the core bank.
In 1994, the Corporation added new swap transactions with a notional
amount of $1.1 billion and $.6 billion of swaps matured, such that at
December 31, 1994, interest rate swaps totaled $2.3 billion. As summarized
in Table 11, the swap portfolio is primarily comprised of contracts
wherein the Corporation receives a fixed rate of interest while paying a
variable rate. The average rate received at December 31, 1994 was 5.53%
compared to an average rate paid of 6.06%, and the average remaining
maturity of the total portfolio was two years. The variable rate component
of the interest rate swaps is based on LIBOR at December 31, 1994, and
will adjust with future movements in this index. Table 12 provides
information related to weighted average rates paid and received, maturity
profile, and fair values of the major swap programs in place at December
31, 1994 and December 31, 1993. The estimated fair value of the swap
portfolio was a negative $168.5 million at December 31, 1994, based on
discounted cash flow models. In that these swaps are valued using
anticipated forward interest rates at year end, the estimated fair value
is not necessarily indicative of the future net interest potential of the
portfolio over its remaining life.
Table 11: Interest Rate Swap Portfolio Activity
- -------------------------------------------------------------------------------------------------
Receive Pay Basis
(in millions) Fixed Fixed Swaps Total
- -------------------------------------------------------------------------------------------------
Notional amount, December 31, 1993 $1,450 $ 31 $300 $1,781
Additions 1,000 50 1,050
Maturities (450) (100) (550)
- -------------------------------------------------------------------------------------------------
Notional amount, December 31, 1994 $2,000 $ 31 $250 $2,281
=================================================================================================
Average remaining maturity (years) 2.2 1.3 1.1 2.0
Weighted average rate received 5.52% 6.09% 5.55% 5.53%
Weighted average rate paid 6.06 8.86 5.72 6.06
=================================================================================================
- -------------------------------------------------------------------------------------------------
Table 12: Interest Rate Swap Portfolio
- --------------------------------------------------------------------------------------
Weighted Estimated
Average Rate -------------------
December 31, 1994 Notional ------------------ Maturity Fair
(in millions) Amount Receive Pay (years) Value
- --------------------------------------------------------------------------------------
Prime loan swaps:
Receive fixed $1,800 5.59% 6.07% 2.2 $(155.6)
Basis swaps 200 5.46 5.59 1.3 (3.8)
- --------------------------------------------------------------------------------------
Total 2,000 5.58 6.02 2.1 (159.4)
Long-term debt swaps 200 4.87 5.96 1.5 (8.6)
Other 81 5.97 7.24 .9 (.5)
- --------------------------------------------------------------------------------------
Total $2,281 5.53% 6.06% 2.0 $(168.5)
======================================================================================
Weighted Estimated
Average Rate -------------------
December 31, 1993 Notional ------------------ Maturity Fair
(in millions) Amount Receive Pay (years) Value
- --------------------------------------------------------------------------------------
Prime loan swaps:
Receive fixed $1,100 5.55% 3.44% 1.6 $ 6.0
Basis swaps 300 4.35 3.42 .7 1.9
- --------------------------------------------------------------------------------------
Total 1,400 5.29 3.44 1.4 7.9
Long-term debt swaps 200 4.87 3.39 2.5 2.0
Retail CD 150 7.75 3.04 .1 4.6
Other 31 3.48 8.86 2.3 (3.3)
- --------------------------------------------------------------------------------------
Total $1,781 5.42% 3.49% 1.4 $ 11.2
======================================================================================
- --------------------------------------------------------------------------------------
The swap portfolio increased net interest income by approximately $15
million for 1994, adding 6 basis points to the net interest margin,
compared to approximately $20 million or 10 basis points in 1993. The
results from the simulation model indicate that in a rising
25
10
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
rate environment the net interest contribution from the swap portfolio will
lessen as the variable component resets upward. Based on interest rates at
December 31, 1994, the swap portfolio will have a negative impact on net
interest income in 1995; however, it is anticipated that this will be
offset by a higher contribution from core banking activities. The
increased contribution from core banking activities will occur as variable
rate assets, such as the hedged prime-based loans, reprice upward, coupled
with an increased contribution from administered rate liabilities, which
are less sensitive to rate movements. Based on interest rates at December
31, 1994, it is anticipated that the swap portfolio will reduce net
interest income by approximately $19 million in 1995.
Approximately 90% of the portfolio is comprised of indexed amortizing
swaps, whereby the maturity distribution could lengthen if interest rates
were to increase from current levels. Assuming interest rates were to
increase 200 basis points from their current levels, the average maturity
distribution of the swap portfolio would increase from 2 years to
approximately 4 years.
Any future utilization of off-balance sheet financial instruments will
be determined based upon the Corporation's overall interest rate
sensitivity position and asset/liability management strategies.
While the Corporation is primarily an end-user of derivative
instruments, it also acts as an intermediary to meet the financial needs
of its customers. The notional amount of the customer swap portfolio at
December 31, 1994 totaled approximately $325 million. Interest rate risk
associated with this portfolio is controlled by entering into offsetting
positions with third parties.
LIQUIDITY
Table 13: Earning Assets and Sources of Funds
- ----------------------------------------------------------------------------------------------------------------
(average balances in millions) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
Earning Assets Amount % of total Amount % of total Amount % of total
- ----------------------------------------------------------------------------------------------------------------
Securities<F1> $ 8,417.8 34.4% $ 7,740.5 34.7% $ 6,527.0 31.5%
Money market investments 417.8 1.7 543.5 2.4 1,478.6 7.1
Loans:
Commercial 8,505.9 34.7 7,771.9 34.8 6,871.4 33.1
Retail 7,159.8 29.2 6,264.9 28.1 5,876.6 28.3
- ----------------------------------------------------------------------------------------------------------------
Total earning assets $24,501.3 100.0% $22,320.8 100.0% $20,753.6 100.0%
================================================================================================================
Sources of Funds
- ----------------------------------------------------------------------------------------------------------------
Net investable demand deposits $ 2,754.7 11.3% $ 2,607.6 11.7% $ 2,201.2 10.6%
Retail core deposits:
Savings 2,065.0 8.4 2,014.6 9.0 1,628.2 7.8
Transaction accounts 6,663.9 27.2 6,264.5 28.1 5,556.3 26.8
Time 6,493.9 26.5 6,691.6 30.0 6,782.1 32.7
- ----------------------------------------------------------------------------------------------------------------
Total retail core deposits 15,222.8 62.1 14,970.7 67.1 13,966.6 67.3
- ----------------------------------------------------------------------------------------------------------------
Total core deposits 17,977.5 73.4 17,578.3 78.8 16,167.8 77.9
- ----------------------------------------------------------------------------------------------------------------
Negotiable CD's 917.2 3.7 1,018.6 4.5 1,089.0 5.2
Federal funds purchased and
other short-term borrowings 3,817.3 15.6 2,094.7 9.4 2,046.7 9.9
Capital, net 1,789.3 7.3 1,629.2 7.3 1,450.1 7.0
- ----------------------------------------------------------------------------------------------------------------
Total sources of funds $24,501.3 100.0% $22,320.8 100.0% $20,753.6 100.0%
================================================================================================================
<FN>
<F1>Includes held to maturity and available for sale securities.
- ----------------------------------------------------------------------------------------------------------------
Liquidity represents the availability of funding to meet the
obligations to depositors, borrowers, and creditors at a reasonable cost
without adverse consequences. Accordingly, the Corporation's liquidity
position is influenced by its funding base and asset mix. Core deposits,
which consist of investable checking account deposits and certain
interest-bearing accounts, represent the Corporation's largest and most
important funding source, as these deposits represent a more stable, lower
cost source of funds.
The core deposit base is supplemented by the Corporation's wholesale
and correspondent banking activities which provide a natural access to
short-term purchased funds, such as negotiable certificates of deposit,
bank notes and overnight surplus funds. These funds are acquired when
needed, principally from existing customers within the Corporation's
natural trade territory and access to national money markets.
As shown in Table 13, average core deposits increased approximately
$400 million or 2.3% in 1994 to $18.0 billion, up from $17.6 billion in
1993 when core deposits increased 8.7%. In 1994, average earning asset
growth exceeded core deposit growth by approximately $1.8 billion;
accordingly, the additional earning asset volume has been funded to a
large extent by higher levels of short-term purchased funds. This is in
contrast to 1993 and 1992 when earning asset growth was
26
11
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
largely funded by the inflow of deposits assumed from regulatory assisted
transactions consummated in those years. In addition, core deposit growth
in 1994 has been impacted, to some extent, by a shift in customer
preference to other investment alternatives. Average core deposits
supported 73.4% of earning assets in 1994, compared to 78.8% in 1993 and
77.9% in 1992. Purchased funds, which increased approximately $1.6 billion
in 1994, supported 19.3% of average earning assets compared to 13.9% in
1993 and 15.1% in 1992. Purchased funds at December 31, 1994, included $1.6
billion of short-term bank notes which were issued by the Corporation's
banking subsidiaries during the second and third quarters of 1994. The
maturity distribution of time deposits $100,000 and over at December 31,
1994 and 1993 is summarized in Table 14.
The Corporation's liquidity position is also managed by maintaining
adequate levels of liquid assets such as money market investments and
available for sale securities. At December 31, 1994, the available for
sale portfolio totaled $3.9 billion compared to $5.2 billion at December
31, 1993. These securities may be sold to meet liquidity needs or in
response to significant changes in interest rates or prepayment risks. A
more detailed discussion of the available for sale portfolio is provided
in the Securities Portfolio section of this report.
Parent Company liquidity is maintained through cash flows generated by
dividends and fees collected from subsidiaries, complemented by an active
commercial paper program and availability of credit totaling $100 million
under a revolving credit agreement. Commercial paper borrowings averaged
$50 million in 1994 and $61 million in 1993. Commercial paper proceeds are
generally used to fund the Corporation's mortgage banking operations, with
excess funds invested in short-term instruments. The variety of funding
options and strong cash flow provide the Corporation flexibility in
selecting funding alternatives most appropriate in the circumstances,
thereby avoiding the necessity to access capital markets at inopportune
times. Maintaining favorable debt ratings is important to liquidity
because it can affect the availability and cost of funds to the
Corporation. The Parent Company's ability to access the capital markets on
a cost effective basis is indicated by its debt ratings, summarized in
Table 15.
[AVERAGE EARNING ASSET MIX GRAPH]
Table 14: Time Deposits $100,000 and Over
- --------------------------------------------------------------------------------------
December 31 (in millions) 1994 1993
- --------------------------------------------------------------------------------------
Maturing within three months $ 476.9 $415.9
Maturing after three months but within six months 205.5 166.6
Maturing after six months but within one year 169.1 180.5
Maturing after one year 189.2 193.0
- --------------------------------------------------------------------------------------
Total $1,040.7 $956.0
======================================================================================
- --------------------------------------------------------------------------------------
Table 15: Debt Ratings
- --------------------------------------------------------------------------------------------------
Standard Thomson
Agency Ratings Moody's & Poor's Bankwatch
- --------------------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc.: B
6-3/4% Subordinated notes due 2003 A3 A- A
7-5/8% Subordinated notes due 2004 A3 A- A
8-5/8% Subordinated notes due 2003 A3 A- A
9-1/4% Subordinated notes due 2001 A3 A- A
6-1/4% Convertible subordinated debentures due 2011 A3 A- A
Commercial paper P1 A-1 TBW-1
The Boatmen's National Bank of St. Louis: B
Long-term/short-term deposits and bank notes Aa3/P1 A+/A-1 TBW-1
Boatmen's First National Bank of Kansas City: B
Long-term/short-term deposits and bank notes A1/P1 A+/A-1 TBW-1
Multi-bank note program (6 Boatmen's subsidiary banks) A1/P1 A+/A-1
==================================================================================================
- --------------------------------------------------------------------------------------------------
The Corporation has accessed the capital markets on two occasions over
the last three years resulting in the issuance of $200 million of
subordinated debt. In the fourth quarter of 1992, the Corporation issued
$100 million of 7-5/8% subordinated notes maturing in 2004, and in the
first quarter of 1993, $100 million of 6-3/4% subordinated notes maturing
in 2003 were issued, representing the final tranche under a $200 million
shelf registration. On April 14, 1994, the Corporation filed a shelf
registration statement with the Securities and Exchange Commission
providing for the issuance of up to $500 million of debt, preferred stock
or common stock. This represents the only outstanding shelf filing and
there are no plans to issue securities pursuant to this filing in the near
term.
The Corporation's existing debt position is relatively moderate, and
projected cash flows are adequate to service this debt without additional
financing, given continued profitable operations by the Corporation's
banking subsidiaries. Approximately $38 million of
[FUNDING MIX, 1994 GRAPH]
27
12
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
debt is scheduled to mature in 1995, most of which consists of senior notes
payable at the Corporation's New Mexico subsidiary. In 1994, Parent Company
net cash provided from operations totaled $218 million which was available
to pay dividends to shareholders and support other financing and investing
activities.
SECURITIES PORTFOLIO
On December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires entities
to classify debt and equity securities as either held to maturity,
available for sale, or trading securities. Under SFAS No. 115, held to
maturity securities are recorded at amortized cost; whereas available for
sale securities and trading securities are carried at market value. SFAS
No. 115 further requires that unrealized gains and losses on available for
sale securities be reported, net of tax, as a separate component of
stockholders' equity. Upon adoption of SFAS No. 115 in 1993, the
Corporation transferred approximately $5.2 billion of securities to the
available for sale portfolio, resulting in an increase to stockholders'
equity of $42.3 million due to the market value adjustment.
At December 31, 1994, held to maturity securities totaled $4.2 billion
compared to $3.3 billion at December 31, 1993 and consisted of securities
the Corporation has the intent and ability to hold to maturity. These
securities consisted primarily of tax-exempt municipal bonds, seasoned and
intermediate-term pass through mortgage-backed securities, intermediate-
term corporate bonds and collateralized mortgage obligations (CMOs)
possessing stable repayment tranches. The increase of $.9 billion from
year end 1993 was primarily due to purchases of $1.4 billion which were
partially offset by maturities totaling $.5 billion. Purchases of held to
maturity securities in 1994 primarily consisted of Treasury and Agency
notes totaling $.4 billion and mortgage-backed securities aggregating $.9
billion. There were no sales of held to maturity securities in 1994, nor
were there any transfers to or from the available for sale portfolio
during 1994. The Corporation's portfolio of structured agency notes
totaled only $260 million, and none of the securities met the high-risk
definition established by regulatory agencies at December 31, 1994.
The held to maturity securities net market value depreciation at
December 31, 1994 was $226.5 million and included gross unrealized gains
of $28.7 million and gross unrealized losses of $255.2 million. Market
value appreciation at December 31, 1993, totaled $83.3 million, including
gross unrealized gains of $93.9 million and gross unrealized losses of
$10.6 million. The fixed rate component of the held to maturity portfolio
totaled $3.5 billion at December 31, 1994 with an average remaining life
of 3.9 years and an estimated yield to maturity of 6.97%. Adjustable rate
securities totaled approximately $650 million and had an average life of
6.3 years with an expected yield to maturity of 7.07%. Under an
instantaneous parallel yield curve increase of 200 basis points, it is
estimated that the average lives of the fixed and adjustable rate
portfolios would extend to 4.2 years and 7.1 years, respectively, and that
the aggregate unrealized depreciation would increase by $240 million.
Table 16: Held to Maturity Securities
- --------------------------------------------------------------------------------------
Amortized Cost
December 31 (in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------
U.S. treasury $ 437.2 $ 231.1 $1,264.0
Federal agencies:
Mortgage-backed securities:
Collateralized mortgage obligations 1,274.5 691.9 1,994.5
Adjustable rate mortgages 537.2 606.8 1,510.5
Fixed rate pass-through 280.2 367.6 399.9
- --------------------------------------------------------------------------------------
Total agency mortgage-backed 2,091.9 1,666.3 3,904.9
Other agencies 471.8 320.5 98.8
- --------------------------------------------------------------------------------------
Total U.S. treasury and agencies 3,000.9 2,217.9 5,267.7
State and municipal 763.3 819.2 891.6
Other securities 439.3 287.7 492.8
- --------------------------------------------------------------------------------------
Total $4,203.5 $3,324.8 $6,652.1
======================================================================================
Market Value
December 31 (in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------
U.S. treasury $ 415.9 $ 232.4 $1,302.8
Federal agencies:
Mortgage-backed securities:
Collateralized mortgage obligations 1,170.2 687.6 2,014.1
Adjustable rate mortgages 511.3 608.2 1,509.7
Fixed rate pass-through 263.7 376.5 417.7
- --------------------------------------------------------------------------------------
Total agency mortgage-backed 1,945.2 1,672.3 3,941.5
Other agencies 438.0 321.8 111.1
- --------------------------------------------------------------------------------------
Total U.S. treasury and agencies 2,799.1 2,226.5 5,355.4
State and municipal 784.2 893.2 947.6
Other securities 393.7 288.4 496.6
- --------------------------------------------------------------------------------------
Total $3,977.0 $3,408.1 $6,799.6
======================================================================================
- --------------------------------------------------------------------------------------
Available for sale securities at December 31, 1994, totaled $3.9
billion, a decline of $1.3 billion from year end 1993, primarily due to
scheduled maturities and prepayments, coupled with a net change in
unrealized depreciation of $240 million, which exceeded purchases totaling
$385 million. These securities may be sold to meet liquidity needs or in
response to significant changes in interest rates or prepayment risks and
consisted primarily of adjustable rate mortgages, U.S. Treasury
securities, pass through mortgage-backed securities and short-term CMOs.
Proceeds from the sales of available for sale securities totaled
28
13
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
$76.9 million in 1994 and included gross realized gains of $6.1 million.
The available for sale securities net depreciation at December 31,
1994, was $171.1 million including gross unrealized gains of $5.6 million
and gross unrealized losses of $176.7 million. At December 31, 1993, the
available for sale portfolio had net unrealized appreciation of $68.7
million, including gross unrealized gains of $85.5 million and gross
unrealized losses of $16.8 million. The depreciation in market value
experienced in 1994 was the result of a rapid increase in interest rates
as exemplified by the yield on two-year Treasury notes which increased 346
basis points, from 4.23% at December 31, 1993, to 7.69% at December 31,
1994. Approximately 55% of the available for sale portfolio is comprised
of adjustable-rate mortgage-backed securities, including floating rate
CMOs, whose coupons are still adjusting up to current market levels due to
the impact of periodic caps. The short-term impact of these caps combined
with a general widening of spreads in the adjustable-rate mortgage sector
have depressed the market value of these adjustable-rate securities and
their unrealized depreciation totaled $108 million, or 63% of the total
$171 million unrealized depreciation in the available for sale portfolio.
The remainder of the portfolio is comprised of relatively short term
Treasuries and CMOtranches. The average lives of the fixed rate and
adjustable-rate available for sale securities approximate 2.6 years and
6.3 years, respectively. Under an instantaneous parallel yield curve
increase of 200 basis points, it is estimated that the average lives of
the fixed and adjustable rate portfolios would extend to 2.9 years and 6.6
years, respectively, and that the aggregate unrealized depreciation would
increase by $193 million.
The amortized cost and market value of the held to maturity and
available for sale securities are presented in Tables 16 and 17, and the
maturity distribution, together with weighted average yields to maturity,
is provided in Table 19.
Table 17: Available for Sale Securities<F1>
- --------------------------------------------------------------------------------------
Amortized Cost
December 31 (in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------
U.S. treasury $ 768.2 $1,152.6 $259.3
Federal agencies:
Mortgage-backed securities:
Collateralized mortgage obligations 789.1 1,220.7
Adjustable rate mortgages 2,004.7 2,096.2 190.6
Fixed rate pass-through 169.6 265.3 3.7
- --------------------------------------------------------------------------------------
Total agency mortgage-backed 2,963.4 3,582.2 194.3
Other agencies 42.4 33.8 2.5
- --------------------------------------------------------------------------------------
Total U.S. treasury and agencies 3,774.0 4,768.6 456.1
Equity securities 55.6 22.4
Other securities 228.7 317.3 7.5
- --------------------------------------------------------------------------------------
Total $4,058.3 $5,108.3 $463.6
======================================================================================
Market Value
December 31 (in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------
U.S. treasury $ 754.9 $1,195.8 $273.7
Federal agencies:
Mortgage-backed securities:
Collateralized mortgage obligations 741.3 1,219.1
Adjustable rate mortgages 1,910.1 2,112.7 190.8
Fixed rate pass-through 168.2 276.5 3.8
- --------------------------------------------------------------------------------------
Total agency mortgage-backed 2,819.6 3,608.3 194.6
Other agencies 41.5 33.8 2.5
- --------------------------------------------------------------------------------------
Total U.S. treasury and agencies 3,616.0 4,837.9 470.8
Equity securities 56.8 25.7
Other securities 214.4 313.4 7.6
- --------------------------------------------------------------------------------------
Total $3,887.2 $5,177.0 $478.4
======================================================================================
<FN>
<F1> Amounts at December 31, 1992 represented debt securities designated as held for
sale prior to adoption of SFAS No. 115.
- --------------------------------------------------------------------------------------
Table 18: Mortgage-Backed Securities
- ---------------------------------------------------------------------------------------------------
Held to Available % of
December 31, 1994 (in millions) Maturity for Sale Total Total
- ---------------------------------------------------------------------------------------------------
Federal agency
mortgage-backed securities:
Fixed rate pass through $ 280.2 $ 168.2 $ 448.4 8.2%
Adjustable rate mortgages 537.2 1,910.1 2,447.3 44.7
Agency-backed collateralized
mortgage obligations 1,274.5 741.3 2,015.8 36.8
- ---------------------------------------------------------------------------------------------------
Total Federal agency
mortgage-backed securities: 2,091.9 2,819.6 4,911.5 89.7
Private issue mortgage-backed securities:
Private issue collateralized
mortgage obligations 383.4 118.6 502.0 9.2
Private issue adjustable rate mortgages 62.3 62.3 1.1
- ---------------------------------------------------------------------------------------------------
Total private issue
mortgage-backed securities 383.4 180.9 564.3 10.3
- ---------------------------------------------------------------------------------------------------
Total mortgage-backed securities $2,475.3 $3,000.5 $5,475.8 100.0%
===================================================================================================
- ---------------------------------------------------------------------------------------------------
For comparison purposes, much of the following discussion will refer to
the held to maturity and available for sale securities in the aggregate,
as the securities portfolio. At December 31, 1994, the securities
portfolio totaled $8.1 bil-
29
14
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Table 19: Maturity Distribution
- ---------------------------------------------------------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 (in millions) Amount Yield Amount Yield Amount Yield Amount Yield
- ---------------------------------------------------------------------------------------------------------------------------------
Held to maturity securities:
U.S. treasury $ 2.9 4.74% $ 399.8 5.29% $ 34.5 5.91%
Federal agencies:
Mortgage-backed securities:
Collateralized mortgage obligations 6.0 6.36 708.4 5.75 443.2 6.03 $ 116.9 5.81%
Adjustable rate mortgages 537.2 7.36
Fixed rate pass-through 31.4 6.50 46.5 8.02 202.3 7.18
- ---------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed 6.0 6.36 739.8 5.78 489.7 6.22 856.4 7.11
Other agencies 15.6 6.10 441.7 6.14 14.5 7.17
- ---------------------------------------------------------------------------------------------------------------------------------
Total U.S. treasury and agencies 24.5 6.00 1,581.3 5.76 538.7 6.22 856.4 7.11
State and municipal<F1> 49.2 10.67 119.4 10.60 346.6 10.34 248.1 9.67
Other securities 22.4 7.40 283.1 6.58 133.8 6.43
=================================================================================================================================
Available for sale securities:
U.S. treasury $297.2 7.54% $457.7 5.85%
Federal agencies:
Mortgage-backed securities:
Collateralized mortgage obligations 471.4 5.15 $122.7 6.27% $ 147.2 7.19%
Adjustable rate mortgages .6 5.84 1,909.5 7.71
Fixed rate pass-through 15.8 6.66 25.9 7.79 126.5 8.61
- ---------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed 487.8 5.20 148.6 6.53 2,183.2 7.73
Other agencies 3.7 6.20 37.8 5.05
- ---------------------------------------------------------------------------------------------------------------------------------
Total U.S. treasury and agencies 300.9 7.52 983.3 5.50 148.6 6.53 2,183.2 7.73
Other securities<F2> 3.6 9.04 126.7 6.30 17.8 7.68 66.3 5.90
=================================================================================================================================
<FN>
<F1>Yields on tax-exempt obligations are computed on a tax equivalent basis, using a tax rate of 35%.
<F2>Excludes marketable equity securities, Federal Reserve Bank and Federal Home Loan Bank stock, which have no stated maturities.
- ---------------------------------------------------------------------------------------------------------------------------------
lion compared to $8.5 billion at year end 1993. This decline largely
reflects maturities and prepayments in excess of new purchases, coupled
with a net change in unrealized depreciation on the available for sale
portfolio of approximately $240 million. Based on average balances, the
securities portfolio increased 8.8% in 1994 and 18.6% in 1993. Average
securities represented 34.4% of earning assets in 1994 compared to 34.7% in
1993 and 31.5% in 1992. A predominant share of the securities purchased in
1994 and 1993 consisted of mortgage-backed securities. Purchases of
mortgage-backed securities, including CMOs, totaled $1.3 billion in 1994
and $2.6 billion in 1993. This compared to total purchases for the entire
securities portfolio of $1.8 billion in 1994 and $3.5 billion in 1993. At
December 31, 1994, the mortgage-backed securities portfolio totaled $5.5
billion compared to $5.8 billion at December 31, 1993. Approximately 90% of
this portfolio at December 31, 1994, was comprised of government
agency-backed securities, and the remainder of the portfolio was private
issue mortgage-backed securities with a credit rating of AA or better. The
composition of the mortgage-backed securities portfolio at December 31,
1994 is summarized in Table 18.
The Corporation utilizes mortgage-backed securities (including CMOs) in
conjunction with other fixed income securities, to reduce the natural
asset sensitivity of the balance sheet and as a tool for yield
enhancement. The wide range of structures, maturities and alternative cash
flows available provides the Corporation with a high degree of flexibility
in matching the rate sensitivity of liabilities and managing its overall
interest rate sensitivity position. Prepayment risk represents the degree
to which a security pays down at a faster or slower pace than anticipated,
and is a critical element to consider when purchasing mortgage-backed
securities and CMOs due to uncertainties related to the prepayment of the
underlying mortgages. As a means to manage prepayment risk, each mortgage-
backed security undergoes a thorough analysis prior to purchase and
periodically thereafter to examine the level of potential volatility in
investment performance using a wide range of interest rate scenarios and
prepayment speeds. This ongoing analysis ensures that the mortgage-backed
securities portfolio meets the Corporation's investment strategies and
internal risk guidelines. The Corporation typically purchases CMO
structures that have reasonably predictable cash flow streams. Bank
regulatory agencies also require financial institutions to perform stress
tests on mortgage-backed securities when purchased and during the life of
the security to determine if the security is deemed "high risk" as defined
by the regulatory agencies. By policy, the Corporation does not purchase
"high risk" mortgage-backed securities; however,
30
15
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
subsequent to purchase, securities may fail the high-risk test due to
movements in interest rates. At December 31, 1994, two securities totaling
$34 million marginally failed the high-risk test. There is no present plan
to sell these securities as they are performing as expected.
The Corporation's banking subsidiaries did not hold obligations of any
individual state or political subdivision for which the aggregate book
value exceeded 10% of stockholders' equity. At December 31, 1994, state
and municipal securities totaled $763.3 million, of which 93.3% were rated
A or better. The Corporation's portfolio at December 31, 1994, is
summarized by quality rating in Table 20.
Table 20: Ratings of State and Municipal Securities
- ------------------------------------------------------------
December 31, 1994 (in millions)
Ratings Book Value Percent of Total
- ------------------------------------------------------------
Aaa $438.7 57.5%
Aa 115.0 15.1
A 157.8 20.7
Below A rated 7.8 1.0
Not rated 44.0 5.7
- ------------------------------------------------------------
Total $763.3 100.0%
============================================================
- ------------------------------------------------------------
NONINTEREST INCOME
Table 21: Summary of Noninterest Income
- -----------------------------------------------------------------------------------------------------------------------------
% change
--------------------
(in millions) 1994 1993 1992 '94-'93 '93-'92
- -----------------------------------------------------------------------------------------------------------------------------
Trust fees $156.5 $149.6 $138.0 4.6% 8.4%
Service charges 163.0 153.2 133.6 6.4 14.7
Credit card 69.3 54.4 44.9 27.4 21.2
Investment banking revenues 30.7 35.6 31.8 (13.7) 12.1
Mortgage banking operations 7.7 16.4 10.9 (53.0) 50.5
- -----------------------------------------------------------------------------------------------------------------------------
Core business revenues 427.2 409.2 359.2 4.4 13.9
- -----------------------------------------------------------------------------------------------------------------------------
Securities gains, net 6.2 2.8 31.9 120.9 (91.2)
Other 93.1 88.4 67.4 5.3 31.2
- -----------------------------------------------------------------------------------------------------------------------------
Other revenues 99.3 91.2 99.3 8.9 (8.3)
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest income $526.5 $500.4 $458.5 5.2% 9.1%
=============================================================================================================================
As % of operating income
(net interest income [FTE] plus noninterest income) 33.2% 33.1% 33.6%
Revenue per full-time equivalent employee (in thousands) $110.6 $108.1 $104.2
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Noninterest income increased 5.2% in 1994 and 9.1% in 1993. The
increase in 1994 was primarily due to growth in trust fees, service
charges and credit card fees, partially offset by declines in investment
banking revenues and mortgage banking operations. The increase in 1993
reflected growth in all core noninterest income categories. Excluding
purchase acquisitions, noninterest income increased 2.4% in 1994 and 4.4%
in 1993. The decline in investment banking revenues and mortgage banking
operations in 1994 was due, in part, to stock market volatility and a
rising interest rate environment. Noninterest income as a percentage of
operating revenues was 33.2% in 1994 compared to 33.1% in 1993 and 33.6%
in 1992 (32.0% in 1992 excluding securities gains at Sunwest). Revenue per
full-time employee increased 2.3% in 1994 and 3.7% in 1993. It is
anticipated that future growth in fee-based business will be enhanced in
1995 with the acquisition of National Mortgage Company, a Tennessee-based
full-service mortgage banking company that presently services mortgage
loans totaling approximately $13.8 billion.
[NONINTEREST INCOME GRAPH]
Table 22: Trust Fees by Component
- --------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------
Personal trust $ 94.7 $ 84.7 $ 80.1
Pension and
institutional 50.7 53.5 48.0
Corporate trust 11.1 11.4 9.9
- --------------------------------------------------------------------------------------
Total $156.5 $149.6 $138.0
======================================================================================
- --------------------------------------------------------------------------------------
Trust fees increased 4.6% in 1994 and 8.4% in 1993. Excluding
acquisitions, trust fees increased 2.3% in 1994 and 6.5% in 1993,
reflective of growth experienced within the personal and
pension/institutional lines of business, the latter of which was partially
offset in 1994 by narrower spreads on securities lending activity. In
1994, the Corpora-
31
16
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
tion's trust subsidiary waived a portion of its investment
management fees on its short-term money market investment fund
to ensure the fund provided a competitive yield for investors. If short-
term interest rates rise rapidly in 1995, additional yield maintenance and
fund support may be undertaken. Table 22 summarizes the major components
of trust revenues. Trust assets under management totaled $36.4 billion at
December 31, 1994, including the second quarter acquisition of Eagle
Management and Trust Company, compared to $34.1 billion at December 31,
1993 and $32.8 billion at December 31, 1992.
Service charge income increased 6.4% in 1994 and 14.7% in 1993
reflecting growth through increased penetration of the retail market which
was enhanced by acquisitions. Excluding acquisitions, service charge
income increased 4.5% in 1994 and 9.0% in 1993. Investment banking
revenues decreased 13.7% in 1994 following an increase of 12.1% in 1993 as
recent market conditions have had a negative impact on bond trading and
retail brokerage business.
Credit card income increased 27.4% in 1994 and 21.2% in 1993. This
increase reflects growth in cardholder revenues, as well as increases in
merchant-related fees due to new merchant business and higher retail sales
volume, which is also reflected in the increase in credit card expense.
Income from mortgage banking operations declined $8.7 million in 1994
after increasing $5.5 million in 1993, reflecting the impact of rising
interest rates which decreased market gains on mortgage loans sold as well
as mortgage loan originations and refinancings.
Securities gains in 1994 totaled $6.2 million compared to $2.8 million
in 1993 and $31.9 million in 1992. Much of the gains recognized in 1994
reflected sales of $13 million of equity securities at the Corporation's
trust subsidiary. Gains recognized in 1992 were primarily attributable to
the sale of $670 million of securities at Sunwest to conform to the
Corporation's investment philosophy. Other noninterest income increased
$4.7 million in 1994 and $21.0 million in 1993, and included income from
segregated assets of $13.0 million and $7.4 million in 1994 and 1993,
respectively. Noninterest income in 1993 also included gains of $3.3
million from the sale of two private label credit card portfolios and
increases in commitment and letter of credit fees.
NONINTEREST EXPENSE
Table 23: Summary of Noninterest Expense
- -----------------------------------------------------------------------------------------------------------------------------
% change
--------------------
(in millions) 1994 1993 1992 '94-'93 '93-'92
- -----------------------------------------------------------------------------------------------------------------------------
Staff expense $489.5 $466.5 $416.3 4.9% 12.1%
Occupancy 67.2 69.4 64.5 (3.2) 7.7
Equipment 83.1 77.5 68.8 7.2 12.8
FDIC insurance 45.4 44.4 41.6 2.3 6.6
Credit card 42.2 35.2 25.6 19.9 37.8
Printing, postage, paper 38.0 38.0 35.5 -- 7.0
Intangible amortization 33.2 30.6 16.1 8.7 90.2
Professional fees 19.2 20.5 19.4 (6.3) 5.7
Federal Reserve processing charges 9.0 10.0 9.5 (10.0) 5.3
Advertising 30.5 27.8 20.4 9.6 36.2
Communications 20.2 18.2 14.4 11.0 26.4
Foreclosed property costs, net (4.0) (4.8) 26.3 16.3 (118.2)
Other 111.1 117.1 113.5 (5.1) 3.2
- -----------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $984.6 $950.4 $871.9 3.6% 9.0%
=============================================================================================================================
Efficiency ratio (noninterest expense as % of noninterest
income and net interest income [FTE]) 62.1% 62.9% 63.8%
Number of full-time equivalent employees at year end 14,169 14,370 13,409
Staff expense as % of total noninterest expense 49.7% 49.1% 47.7%
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Noninterest expense increased 3.6% in 1994 and 9.0% in 1993. Excluding
the effect of acquisitions, noninterest expense increased 1.6% in 1994 and
4.3% in 1993. These increases were primarily due to increased staff
expense, higher depreciation expense on equipment enhancements, growth in
credit card merchant volume, increased advertising expenditures and
intangible amortization. The expense trend in 1994 reflects successful
efforts to contain noninterest expense growth as evidenced by the
improvement in the efficiency ratio. In 1994, the efficiency ratio
improved to 62.1% compared to 62.9% in 1993 and 63.8% in 1992 as the rate
of revenue growth outpaced the rate of expense increase. Noninterest
expense in 1993 and 1992 included merger-related expenses of $4.7 million
and $18.2 million, respectively, from pooling acquisitions consummated in
those years. Excluding the aforementioned merger-related expenses, the
efficiency ratios were 62.6% in 1993 and 62.5% in 1992.
Staff expense, the largest component of noninterest expense increased
4.9% in 1994 and 12.1% in 1993. Excluding the effect of acquisitions,
staff expense increased 3.4% in 1994 and 8.8% in 1993, reflective of
efforts to control staffing levels in 1994. At December 31,
32
17
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
1994, the number of full-time equivalent employees declined to 14,169,
compared to 14,370 in 1993 and 13,409 in 1992. The increase in 1993 was
principally due to purchase acquisitions.
Equipment expense increased 7.2% in 1994 and 12.8% in 1993 primarily
due to higher depreciation expense associated with capital expenditures
for upgraded computer systems and software to support trust and retail
business expansion. Occupancy expense decreased 3.2% in 1994 following an
increase of 7.7% in 1993, reflecting higher occupancy charges in 1993
related to accelerated amortization on certain leased facilities.
Advertising expense increased 9.6% in 1994 and 36.2% in 1993 due to
increased promotional activities associated with retail initiatives.
Foreclosed property costs reflected gains on sales of foreclosed
property of approximately $9 million in 1994 and $11 million in 1993,
which more than offset operating expenses and write-downs to other parcels
of foreclosed property. Operating expenses and writedowns to foreclosed
property were below 1993 levels due to improved real estate markets.
Foreclosed property costs in 1992 included writedowns at Sunwest
aggregating $7.0 million to conform to the Corporation's valuation
methods.
Goodwill and core deposit amortization increased 8.7% in 1994 and 90.2%
in 1993, primarily due to the four purchase acquisitions consummated in
1993.
In the first quarter of 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 112 (SFAS No. 112), "Employers'
Accounting for Postemployment Benefits," which requires recognition of the
cost to provide postemployment benefits on an accrual basis. The
Corporation's existing accounting policies were in general compliance with
the requirements of SFAS No. 112. Accordingly, adoption of this standard
had no material impact on the level of postemployment expense.
[NONINTEREST EXPENSE GRAPH]
TAXES
The Corporation's effective tax rate was 34.4% in 1994, 31.6% in 1993
and 28.8% in 1992. The increase in the Corporation's effective tax rate in
1994 resulted from increased state income tax expense and a continued
decline in the amount of tax-exempt income as a percentage of operating
income. The effective tax rate in 1993 reflects the effect of the 1%
Federal tax increase mandated by the Omnibus Budget Reconciliation Act of
1993 which was more than offset by a corresponding increase in the
Corporation's deferred tax asset, including recognition of deferred tax
assets at the Corporation's New Mexico and Amarillo subsidiaries. On a
prospective basis, the effective tax rate should approximate the 1994
effective rate which represented the statutory rate, adjusted for normal
operating items such as tax-exempt interest, goodwill amortization and
other nondeductible expenses.
LOAN PORTFOLIO
Table 24: Summary of Loan Portfolio
- ----------------------------------------------------------------------------------------------------------------
December 31 (in millions) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------
Commercial $ 7,839.8 $ 7,508.6 $ 6,900.0 $ 6,278.0 $ 5,668.0
Real estate mortgage 3,173.5 2,970.6 2,656.6 2,852.3 3,096.0
Real estate construction 684.6 558.0 416.5 455.5 597.0
Consumer 4,693.3 3,742.8 3,111.6 2,711.3 2,568.3
Lease financing 135.9 95.2 86.8 95.3 97.1
- ----------------------------------------------------------------------------------------------------------------
Total domestic loans 16,527.1 14,875.2 13,171.5 12,392.4 12,026.4
Foreign loans 19.1 18.0 11.9 12.7 10.6
- ----------------------------------------------------------------------------------------------------------------
Total loans, before deduction of
unearned income 16,546.2 14,893.2 13,183.4 12,405.1 12,037.0
Less unearned income 65.8 67.3 72.5 88.8 112.8
- ----------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $16,480.4 $14,825.9 $13,110.9 $12,316.3 $11,924.2
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
The majority of the Corporation's loans are made within its natural
trade territory. The portfolio is highly diversified in that the
Corporation's banking operations span a nine state area with over 400
branch locations. The Corporation's objective is to control credit risk
through geographic diversification and adherence to stringent credit
administration policies that limit industry concentrations and establish
lending authority and borrower limits. The Corporation's geographic profile
provides significant credit and economic risk diversification in that the
Corporation is not solely dependent on any major market. The Corporation's
acquisition strategy has placed a major emphasis on geographic
33
18
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
diversification, and the success of this strategy is evidenced by
the change in the proportion of loans in the Corporation's Missouri-
based operations. At December 31, 1994, Missouri comprised 60% of the loan
portfolio base compared to over 90% at December 31, 1990. All of the
Corporation's major markets are currently experiencing good economic
conditions and unemployment rates within these markets are in line with
national averages. Table 25 summarizes the diversification of the loan
portfolio by banking location. In addition, Table 30 summarizes the broad
based improvement in asset quality trends experienced throughout the
Corporation's regions over the last three years. There are no
concentrations of credit to any borrower or industry in excess of 5% of
total loans, and the portfolio is well balanced between wholesale and
consumer lending.
At December 3l, 1994, loans totaled $16.5 billion, an increase of 11.2%
over December 31, 1993. Based on average balances, loans increased 11.6%
in 1994 and 10.1% in 1993, primarily due to loan growth within the
consumer and commercial loan portfolios. The growth experienced in 1994
and 1993 was led by increases in consumer loans of 24.9% and 18.8%,
respectively, coupled with increases in commercial loans of 7.4% and 6.5%,
respectively. Consumer loan growth stepped up over the second half of
1993, largely the result of increased indirect auto loans and credit
cards. The increase in commercial loans reflected middle-market loan
growth, as well as increases in loans to Fortune 1,000 companies. The
portfolio mix has undergone a shift in recent years in that growth in the
consumer portfolio continues to outpace other lending sectors. At December
3l, 1994, consumer loans represented 28.4% of the loan portfolio, compared
to 25.1% at December 31, 1993 and 23.6% at December 31, 1992. At December
31, 1994, the Corporation had unfunded commercial real estate and
construction commitments totaling $339 million. Commercial real estate and
real estate construction loans represented 20.3% of total loans at
December 31, 1994, compared to 20.8% at December 31, 1993 and 19.3% at
December 31, 1992. The balance of the real estate portfolio
[LOAN PORTFOLIO GRAPH]
Table 25: Loan Portfolio Distribution
- ----------------------------------------------------------------------------------------------------------------
December 31, 1994 December 31, 1993 December 31, 1992
- ----------------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount<F1> Loans Amount<F1> Loans Amount<F1> Loans
- ----------------------------------------------------------------------------------------------------------------
Missouri $ 9,811.2 59.5% $ 8,935.4 60.3% $ 7,986.2 60.9%
New Mexico 1,430.2 8.7 1,375.9 9.3 1,414.8 10.8
Oklahoma 1,062.3 6.5 946.9 6.4 841.7 6.4
Texas 804.9 4.9 772.9 5.2 573.9 4.4
Iowa 729.3 4.4 639.8 4.3 597.9 4.6
Tennessee 754.8 4.6 611.8 4.1 528.8 4.0
Illinois 715.4 4.3 613.9 4.1 563.0 4.3
Arkansas 530.5 3.2 396.4 2.7 226.3 1.7
Kansas 114.4 .7 75.6 .5
Credit card 527.4 3.2 457.3 3.1 378.3 2.9
- ----------------------------------------------------------------------------------------------------------------
Total $16,480.4 100.0% $14,825.9 100.0% $13,110.9 100.0%
================================================================================================================
<FN>
<F1>Net of unearned income.
- ----------------------------------------------------------------------------------------------------------------
Table 26: Composition of Loan Portfolio
- ----------------------------------------------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount Loans Amount Loans Amount Loans
- ----------------------------------------------------------------------------------------------------------------
Real estate:
1-4 family residential $ 3,173.5 19.2% $ 2,970.6 20.0% $ 2,656.6 20.2%
Land acquisition 175.0 1.0 168.8 1.1 108.3 .8
Residential construction 234.6 1.4 181.2 1.2 117.9 .9
Commercial construction 275.0 1.7 208.0 1.4 190.3 1.4
Commercial real estate 2,611.0 15.8 2,446.6 16.4 1,984.1 15.1
Mini-perms 75.5 .4 107.2 .7 148.9 1.1
- ----------------------------------------------------------------------------------------------------------------
Total real estate 6,544.6 39.5 6,082.4 40.8 5,206.1 39.5
Commercial loans to
Fortune 1,000 companies
and other large
corporate borrowers 783.4 4.8 683.4 4.6 705.7 5.3
Middle market commercial 3,570.7 21.6 3,430.0 23.1 3,244.1 24.6
Bank stock loans 215.3 1.3 226.4 1.5 238.6 1.8
Agriculture 583.9 3.5 615.0 4.1 578.6 4.4
Consumer:
Home equity 424.6 2.6 363.1 2.4 353.7 2.7
Credit card 527.4 3.2 457.3 3.1 378.3 2.9
Indirect installment 2,446.1 14.8 1,793.4 12.0 1,311.8 9.9
Installment 1,295.2 7.8 1,129.0 7.6 1,067.8 8.1
- ----------------------------------------------------------------------------------------------------------------
Total consumer 4,693.3 28.4 3,742.8 25.1 3,111.6 23.6
Lease financing 135.9 .8 95.2 .7 86.8 .7
Foreign 19.1 .1 18.0 .1 11.9 .1
- ----------------------------------------------------------------------------------------------------------------
Total loans $16,546.2 100.0% $14,893.2 100.0% $13,183.4 100.0%
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
34
19
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
is comprised of 1-4 family residential loans which increased 6.8% in 1994,
but as a percentage of the total portfolio, were 19.2% at December 31,
1994, compared to 20.0% at December 31, 1993. The Corporation closely
monitors the composition and quality of the commercial real estate
portfolio through established credit review procedures to ensure that
significant credit concentrations do not exist within this portfolio. The
portfolio is geographically dispersed, primarily in areas where the
Corporation has a direct banking presence, and is widely diversified
between residential construction, office and retail properties, and land
acquisition and development loans. Real estate loans are generally secured
by the underlying property at a 75% to 80% loan to value ratio and are
generally supported by guarantees from project developers. Additional
collateral is required on a project-by-project basis depending on
management's evaluation of the borrower. Approximately 30% of the
commercial real estate portfolio is comprised of owner occupied properties
for which the primary source of repayment is not entirely dependent on the
real estate market. The amount of collateral, if any, obtained for other
loans is based on general industry practice and the creditworthiness of the
borrower.
Table 27: Commercial and Real Estate Construction Maturity Distribution
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1994 Over 1 Year
(in millions) One Year or Less Through 5 Years Over 5 Years Total
- -----------------------------------------------------------------------------------------------------------------------------
Commercial $4,073.6 $2,991.4 $774.8 $7,839.8
Real estate construction 468.7 175.2 40.7 684.6
- -----------------------------------------------------------------------------------------------------------------------------
Total $4,542.3 $3,166.6 $815.5 $8,524.4
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Table 24 displays the components of the loan portfolio under standard
financial reporting definitions. Management also reviews the
diversification of the portfolio using internally developed standards and
definitions as summarized in Table 26.
The commercial and real estate construction loan portfolio maturity
distribution at December 31, 1994, under standard financial reporting
definitions, is summarized in Table 27. Commercial and real estate
construction loans due after one year totaled $4.0 billion of which $1.9
billion have floating or adjustable rates.
LOAN QUALITY
Table 28: Loan Reserve Allocation
- -----------------------------------------------------------------------------------------------------------------------------
December 31
----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------
Loans Loans Loans Loans Loans
as % of as % of as % of as % of as % of
Loan Total Loan Total Loan Total Loan Total Loan Total
(in millions) Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
- -----------------------------------------------------------------------------------------------------------------------------
Domestic:
Commercial $195.6 47.7% $194.7 50.3% $172.0 49.4% $142.8 50.6% $129.2 47.1%
Real estate mortgage 40.0 18.8 39.2 20.1 37.9 23.1 30.6 23.0 29.0 25.7
Real estate construction 32.8 4.2 32.1 3.8 29.2 3.2 22.5 3.7 18.0 5.0
Consumer 43.5 28.4 40.6 25.1 35.0 23.6 29.8 21.8 27.7 21.3
Lease financing 1.0 .8 1.0 .6 .6 .6 .5 .8 .6 .8
Not allocated 29.1 33.5 27.3 26.1 24.4
- -----------------------------------------------------------------------------------------------------------------------------
Total domestic 342.0 99.9 341.1 99.9 302.0 99.9 252.3 99.9 228.9 99.9
Foreign .1 .1 .1 .1 .1
- -----------------------------------------------------------------------------------------------------------------------------
Total reserve for loan losses $342.0 100.0% $341.1 100.0% $302.0 100.0% $252.3 100.0% $228.9 100.0%
=============================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
The provision for loan losses totaled $24.3 million in 1994,
a decrease of 59.6% from 1993, following a 55.9% decrease in 1993 when the
provision totaled $60.2 million. The provision for loan losses in 1992
totaled $136.6 million and included a special provision of $33.3 million
in that year to conform Sunwest's loan reserve policies to the
Corporation's methods. The decline in the provision for loan losses in
1994 and 1993 reflects continued improvement in asset quality as evidenced
by lower levels of actual loan losses, further declines in nonperforming
assets and a continued downward trend in criticized loans identified
through the Corporation's internal risk rating system.
At December 31, 1994, the reserve for loan losses represented 273.25%
of nonperforming loans compared to 195.03% at December 31, 1993 and
116.72% at December 31, 1992. The loan reserve as a percentage of net
loans was 2.08% at December 31, 1994 compared to 2.30% at the end of 1993
and 1992. Net loan charge-offs declined to $24.3 million, a decrease of
$9.7 million or 28.5% from 1993, reflecting lower losses throughout all
sectors of the portfolio. Net loan charge-offs over the last two years
were at levels well below historical trends and as a percentage of average
net loans dropped to .15% in 1994, compared to .24% in 1993 and .80% in
1992. Net charge-offs in 1992 included charge-offs at Sunwest of
approximately $28 million to conform to the Corporation's loan reserve
methodology. Exclusive of the action taken at Sunwest, the 1992 net loan
35
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
[LOAN LOSS EXPERIENCE GRAPH]
charge-off ratio would have been .59%.
The reserve for loan losses represents the aggregate reserves of the
Corporation's banking subsidiaries. Loans which are determined to be
uncollectible are charged against the reserve and recoveries of loans
which were previously charged off are credited to the reserve. The charge-
off policy of the Corporation's banking subsidiaries varies with respect
to the category of and specific circumstances surrounding each loan under
consideration. The Corporation's general policy with respect to consumer
loans is to charge off all such loans when deemed to be uncollectible or
120 days past due, whichever comes first. With respect to commercial, real
estate, and other loans, charge-offs are made on the basis of management's
ongoing evaluation of nonperforming and criticized loans. In addition,
loans which are classified as "loss" in regulatory examinations are
charged off.
The provision for loan losses is sufficient to provide for current loan
losses and maintain the reserve at an adequate level commensurate with
management's evaluation of the risk inherent in the loan portfolio. In
order to identify potential risks in the loan portfolios of the subsidiary
banks, detailed information is obtained from the following sources:
* All individual loans (other than 1-4 family residential and consumer
loans) have a designated internal risk rating. For those which contain
other than the normal risk of collectibility, the ratings correspond to
the classifications utilized by the regulatory agencies for criticized
loans (Special Mention, Substandard, Doubtful, Loss). Criticized loan
totals and the trend thereof are reviewed monthly for all banking
subsidiaries;
Table 29: Summary of Reserve for Loan Losses
- ---------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------
Balance, beginning of year $341.1 $302.0 $252.3 $228.9 $198.6
Loans charged off:
Domestic:
Commercial (25.3) (32.7) (50.2) (40.4) (46.3)
Real Estate:
Commercial real estate (3.2) (7.5) (35.7) (23.8) (24.3)
Construction (.3) (1.3) (9.8) (15.8) (5.8)
1-4 family residential (3.2) (3.8) (6.7) (5.4) (4.3)
Consumer (34.0) (28.9) (34.6) (42.2) (37.8)
- ---------------------------------------------------------------------------------------------------
Total charge-offs (66.0) (74.2) (137.0) (127.6) (118.5)
- ---------------------------------------------------------------------------------------------------
Recoveries on loans
previously charged off:
Domestic:
Commercial 23.3 20.0 16.8 9.7 11.7
Real estate:
Commercial real estate 4.2 5.8 3.1 2.3 1.1
Construction 1.0 1.6 .7 1.7 .2
1-4 family residential 1.4 1.1 1.0 .7 .7
Consumer 11.8 11.7 12.8 13.2 13.9
Foreign 1.7
- ---------------------------------------------------------------------------------------------------
Total recoveries 41.7 40.2 34.4 27.6 29.3
- ---------------------------------------------------------------------------------------------------
Net charge-offs (24.3) (34.0) (102.6) (100.0) (89.2)
- ---------------------------------------------------------------------------------------------------
Provision for loan losses 24.3 60.2 136.6 114.7 119.5
Reserves of purchased subsidiaries .9 12.9 15.7 8.7
- ---------------------------------------------------------------------------------------------------
Balance, end of year $342.0 $341.1 $302.0 $252.3 $228.9
===================================================================================================
Loan reserve at end of year:
% of net loans at year end 2.08% 2.30% 2.30% 2.05% 1.92%
% of nonperforming loans 273.25 195.03 116.72 79.91 59.87
Multiple of net charge-offs 14.11x 10.04x 2.94x 2.52x 2.57x
Net charge-offs during year:
% of net loans at year end .15% .23% .78% .81% .75%
% of net loans (average) .15 .24 .80 .84 .76
% of reserve at year end 7.09 9.96 33.97 39.62 38.96
===================================================================================================
- ---------------------------------------------------------------------------------------------------
* Monthly reports prepared by each subsidiary bank's senior management
personnel which contain information on the overall characteristics of the
subsidiary's loan portfolio and analyses of specific loans requiring
special attention, including nonperforming and certain criticized loans;
* Quarterly reviews of selected individual loans and loan concentrations
of the larger banking subsidiaries by senior credit administration
personnel of the Corporation;
* Examination of the loan portfolio by Federal and State regulatory
agencies; and
* Examinations and reviews by the Corporation's independent auditors and
internal loan review personnel.
The data collected from these sources are evaluated with regard to
current national and local economic trends, prior loss history, underlying
collateral values, credit concentrations, industry risk, degree of off-
balance sheet risk, and the opinion of the subsidiary bank and corporate
management. An estimate of potential future loss on specific loans is
developed in conjunction with an overall risk evaluation of the total loan
portfolio. In addition, another key statistical measure used by management
in establishing loan reserves is the reserve coverage of nonperforming
loans. As a matter of gen-
36
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
eral policy, the Corporation's objective is to maintain the loan reserve at
levels above 100% of nonperforming loans, although temporary deviations
from this standard may occur as situations warrant.
Pursuant to this process, it is management's opinion that the aggregate
reserves of the Corporation's banking subsidiaries are currently
sufficient to provide for potential losses in the Corporation's loan
portfolio.
The loan reserve allocation provided in Table 28 is based primarily on
analysis of prior loss experience and present and anticipated volume
levels by individual categories, and on management's evaluation of
prevailing economic conditions as they may affect segments of the
portfolio. Accordingly, since each of these criteria is subject to change,
the allocation of the reserve is not necessarily indicative of the trend
of future loan losses in any particular loan category.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" and in October 1994, the FASB issued
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures." These statements become effective with the
issuance of first quarter 1995 financial statements and will require that
certain impaired loans be measured based on either the present value of
expected future cash flows discounted at the loan's effective rate, the
market price of the loan, or the fair value of the underlying collateral
if the loan is collateral dependent. Adoption of these pronouncements in
1995 is not expected to have a material effect on the Corporation's
reported financial results or asset quality statistics.
NONPERFORMING ASSETS
Management has followed a policy of discontinuing the accrual of
interest on loans when full collectibility of principal or interest on any
loan is doubtful. Nonaccrual loans are reduced by the direct application
of interest receipts to loan principal, for accounting purposes only. If
the principal amount of the loan is well collateralized, interest income
on such loans may be recognized in periods in which payments are received.
Gross interest income that would have been recorded in 1994, if all
nonaccrual and restructured loans at December 31, 1994 had been current in
accordance with original terms, amounted to $9.5 million. Actual interest
recorded was $2.4 million.
[LOAN RESERVE COVERAGE GRAPH]
As illustrated in Table 33, nonperforming assets, which include
nonperforming loans and foreclosed property, declined steadily over the
last three years, such that at December 31, 1994, they were at their
lowest levels in more than 10 years. At December 31, 1994, nonperforming
assets totaled $185.6 million, a decrease of $99.9 million or 35.0% from
December 31, 1993. The steady decline in nonperforming assets reflects
improved economic conditions and the effectiveness of the Corporation's
comprehensive loan administration and workout procedures. As a percent of
total loans and foreclosed property, nonperforming assets declined to
1.12% at December 31, 1994, compared to 1.90% at December 31, 1993, and
2.92% at December 31, 1992. Nonperforming assets as a percentage of total
assets dropped below the 1% level to .64% at December 31, 1994, compared
to 1.07% at December 31, 1993 and 1.60% at December 31, 1992. Table 30
summarizes nonperforming assets by major banking unit/geographic location
and illustrates the broad-based improvement achieved.
Table 30: Nonperforming Assets by State
- -------------------------------------------------------------------------
December 31 (in millions)
Location 1994 1993 1992
- -------------------------------------------------------------------------
Missouri $103.2 $171.4 $229.9
New Mexico 34.9 53.4 90.0
Oklahoma 11.1 14.3 16.3
Texas 8.2 13.7 22.3
Iowa 5.5 7.2 10.2
Illinois 5.0 7.1 9.8
Arkansas 6.6 4.0 5.9
Tennessee 5.0 6.8 4.1
Kansas 6.1 7.6
- -------------------------------------------------------------------------
Total $185.6 $285.5 $388.5
=========================================================================
- -------------------------------------------------------------------------
Table 31: Foreclosed Property
- -------------------------------------------------------------------------
December 31 (in millions)
Property Type 1994 1993 1992
- -------------------------------------------------------------------------
Land $ 19.2 $ 26.4 $ 31.5
Lodging 2.7 37.1 40.6
Office 27.5 26.2 18.3
Warehouse .4 1.7 2.8
Multifamily 2.4 1.0 11.4
Retail .4 1.6 6.8
Residential 2.5 5.0 5.8
Agriculture related 2.4 8.0 5.3
Other 2.9 3.6 7.2
- -------------------------------------------------------------------------
Total $ 60.4 $110.6 $129.7
=========================================================================
- -------------------------------------------------------------------------
Nonperforming loans represented .76% of total loans at December 31,1994
compared to 1.17% at December 31, 1993 and 1.96% at December 31, 1992. The
decline in nonperforming loans in 1994 was primarily attributable to a
$40.4 million decrease in nonaccrual loans, largely the result of loan
payments and loans returned to accrual status, together with a reduction
in loans migrating to nonaccrual status. Foreclosed property declined
$50.2 million from 1993 which was primarily attributable to the sale of a
luxury hotel in the fourth quarter of 1994.
As part of management's overall portfolio analysis, ongoing credit
quality reviews are performed to evaluate risk
[NONPERFORMING ASSETS GRAPH]
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Table 32: Loans Designated as Criticized Loans by Internal Risk Rating System
- ---------------------------------------------------------------------------------------------------
Criticized Loans
- ---------------------------------------------------------------------------------------------------
(in millions) Nonperforming Performing Total
- ---------------------------------------------------------------------------------------------------
1992
March 31 $314.3 $743.1 $1,057.4
June 30 285.6 772.1 1,057.7
September 30 285.0 761.0 1,046.0
December 31 258.8 676.5 935.3
- ---------------------------------------------------------------------------------------------------
As % of loans at December 31, 1992 1.96% 5.13% 7.09%
===================================================================================================
1993
March 31 $226.5 $653.6 $880.1
June 30 190.6 610.2 800.8
September 30 187.2 608.2 795.4
December 31 174.9 587.7 762.6
- ---------------------------------------------------------------------------------------------------
As % of loans at December 31, 1993 1.17% 3.95% 5.12%
===================================================================================================
1994
March 31 $143.9 $534.4 $678.3
June 30 143.4 506.1 649.5
September 30 154.9 439.4 594.3
December 31 125.2 441.8 567.0
- ---------------------------------------------------------------------------------------------------
As % of loans at December 31, 1994 .76% 2.67% 3.43%
===================================================================================================
- ---------------------------------------------------------------------------------------------------
Table 33: Nonperforming Assets
- ----------------------------------------------------------------------------------------------------------------
December 31 (in millions) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------
Nonperforming loans:
Nonaccrual $102.5 $142.9 $218.8 $269.8 $312.7
Restructured 7.1 14.8 22.1 25.6 42.2
Past due 90 days or more 15.6 17.2 17.9 20.3 27.4
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming loans 125.2 174.9 258.8 315.7 382.3
- ----------------------------------------------------------------------------------------------------------------
Foreclosed property 60.4 110.6 129.7 177.7 94.6
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming assets $185.6 $285.5 $388.5 $493.4 $476.9
================================================================================================================
Ratios
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming loans as % of total loans .76% 1.17% 1.96% 2.54% 3.18%
Nonperforming assets as % of total loans
and foreclosed property 1.12 1.90 2.92 3.92 3.93
Nonperforming assets as % of total assets .64 1.07 1.60 2.14 2.09
Loan reserve as % of nonperforming loans 273.25 195.03 116.72 79.91 59.87
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
inherent in the portfolio and potential risk that may develop in the
future. A critical element in assessing portfolio risk is the level of
criticized loans. The Corporation's internal risk rating system designates
specific credits as criticized loans, which include all nonperforming loans
and other loans which contain features presenting more than the normal risk
of collectibility. Criticized and classified assets from regulatory
examinations are an integral component of the Corporation's internal risk
rating system. As displayed in Table 32, criticized loans declined to $567
million or 3.43% of loans at December 31, 1994 compared to 5.12% of loans
at December 31, 1993 and 7.09% at December 31, 1992. Management carefully
analyzes changes and trends in both nonperforming and other criticized
loans in assessing the risk characteristics of the loan portfolio. Given
the current risk characteristics of the loan portfolio, the Corporation
does not expect any significant change in criticized loans in the near
term.
38
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
SEGREGATED ASSETS
As part of the regulatory assisted acquisition of Missouri Bridge Bank,
N.A., on April 23, 1993, the Corporation entered into a five year loss-
sharing arrangement with the FDICwith respect to approximately $950
million in multi-family residential, commercial real estate, construction
and commercial loans. During the five year period, the FDIC will reimburse
the Corporation for 80 percent of the first $92.0 million of net charge-
offs on these loans, after which the FDICwill increase its reimbursement
coverage to 95 percent of additional charge-offs. During this period and
for two years thereafter, the Corporation is obligated to pay the FDIC80
percent of all recoveries on charged-off loans.
Table 34: Segregated Assets
- ----------------------------------------------------------------------------------------
Principal Allowance Principal
(in millions) balance for losses balance, net
- ----------------------------------------------------------------------------------------
Segregated assets identified
upon acquisition $312.0 $27.0 $285.0
Charge-offs (52.1) (10.4)
Recoveries 1.8
Transfers to segregated assets 36.5
Payments on segregated assets (29.8)
- ----------------------------------------------------------------------------------------
Balance at December 31, 1993 266.6 18.4 248.2
Charge-offs (14.9) (3.0)
Recoveries 1.3
Transfers to segregated assets 40.9
Payments on segregated assets (98.7)
- ----------------------------------------------------------------------------------------
Balance at December 31, 1994 $193.9 $16.7 $177.2
========================================================================================
- ----------------------------------------------------------------------------------------
The Corporation has designated certain loans covered under the loss
sharing arrangement which possess more than the normal risk of
collectibility as segregated assets. These loans have the same risk
characteristics as nonaccrual loans and foreclosed properties. At December
31, 1994, segregated assets, which are classified as other assets for
reporting purposes, totaled $177.2 million, net of a $16.7 million credit
valuation allowance, compared to $248.2 million at December 31, 1993. At
December 31, 1994, segregated assets consisted primarily of $56.3 million
of commercial loans, $17.5 million of industrial revenue bond loans and
$115.5 million of commercial real estate-related loans. All other loans
covered under the loss-sharing arrangement are included in the loan
portfolio and totaled $273.3 million at December 31, 1994, compared to
$450.7 million at December 31, 1993. The decline from December 31, 1993,
was primarily due to scheduled paydowns and maturities. Net charge-offs of
$1.7 million, representing the Corporation's share of losses on the
segregated asset pool, were recognized in 1994. The valuation allowance
represents the Corporation's share of estimated losses upon ultimate
liquidation of the portfolio. The Corporation's primary purpose in
managing a portfolio of this nature is to provide ongoing collection and
control activities on behalf of the FDIC. Accordingly, these assets do not
represent loans made in the ordinary course of business and, due to the
underlying nature of this liquidating asset pool, are excluded from the
Corporation's nonperforming asset statistics. At December 31, 1994, $174.4
million of segregated assets were accorded classification treatment
consistent with nonaccrual reporting, $4.6 million represented foreclosed
property, and the remaining $14.9 million were past due 90 days or more.
The Corporation's operating results and cash flow position are not
expected to be materially affected by the ongoing collection activities
associated with managing the loans subject to the loss-sharing
arrangement. Income from segregated assets totaled $13.0 million in 1994
compared to $7.4 million in 1993.
A summary of activity regarding segregated assets is provided in
Table 34.
CAPITAL RESOURCES
Table 35: Capital Structure
- ----------------------------------------------------------------------------------------------------------------
December 31 (in millions) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------
Long-term debt $ 515.1 $ 486.3 $ 393.2 $ 315.7 $ 284.5
Stockholders' equity 2,200.8 2,133.3 1,861.2 1,680.2 1,463.4
- ----------------------------------------------------------------------------------------------------------------
Total capitalization $2,715.9 $2,619.6 $2,254.4 $1,995.9 $1,747.9
================================================================================================================
Tangible equity $1,949.3 $1,858.0 $1,655.3 $1,496.9 $1,295.5
================================================================================================================
Ratios
- ----------------------------------------------------------------------------------------------------------------
Equity/assets 7.61% 8.00% 7.67% 7.30% 6.42%
Tangible equity/assets 6.80 7.04 6.88 6.56 5.73
Long-term debt as % of total capitalization 18.97 18.56 17.44 15.82 16.28
Double leverage 108.43 110.37 110.84 108.78 113.32
Dividends paid for the year (in thousands):
Preferred $ 80 $ 86 $ 88 $ 91 $ 100
Common 132,610 112,129 86,130 80,996 84,976
Total dividends as % of net income 37.3% 35.4% 37.7% 47.4% 58.7%
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
39
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
[RISK-BASED CAPITAL GRAPH]
The Corporation continues to rank among the most strongly capitalized
bank holding companies in the country. This strong capital position and
overall financial strength provide a good base for future expansion when
profitable opportunities arise. The cornerstone of the Corporation's
capital structure is its common equity, totaling $2.2 billion or
approximately 81% of total capitalization at December 31, 1994, an
increase of 3.2% from December 31, 1993. The equity base has been
strengthened in recent years through earnings retention, the conversion of
debt to equity and the issuance of common stock through various employee
and stockholder investment plans.
An important measure of capital adequacy of a banking institution is
its risk-based capital ratios, which represent the primary capital
standard for regulatory purposes. The Corporation's risk-based capital
ratios at December 31, 1994 of 10.47% for Tier I and 13.83% for Total
capital substantially exceed the regulatory required minimums. At December
31, 1994, the Corporation's Tier I leverage ratio was 7.16%, well in
excess of the required minimum.
Table 36: Intangible Assets
- ---------------------------------------------------------------------------------------
December 31 (in millions) 1994 1993 1992
- ---------------------------------------------------------------------------------------
Goodwill--Parent Company $ 89.9 $ 95.3 $100.8
- ---------------------------------------------------------------------------------------
Subsidiaries:
Goodwill 80.6 86.3 65.2
Core deposit premium 73.9 85.3 34.6
Credit card premium 3.0 3.5 1.5
Purchased mortgage servicing rights 4.1 4.9 3.8
- ---------------------------------------------------------------------------------------
Total subsidiaries 161.6 180.0 105.1
- ---------------------------------------------------------------------------------------
Total intangible assets $251.5 $275.3 $205.9
=======================================================================================
- ---------------------------------------------------------------------------------------
Table 37: Risk-Based Capital
- --------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------
Tier I capital:
Stockholders' equity $ 2,200.8 $ 2,133.3 $ 1,861.2
Unrealized net (appreciation) depreciation,
available for sale securities 105.0 (42.3)
- --------------------------------------------------------------------------------------
Stockholders' equity, net 2,305.8 2,091.0 1,861.2
Minority interest .7 .7 1.0
Intangible assets:
Goodwill (170.5) (181.6) (166.0)
Core deposit premium (73.9) (85.3) (34.6)
- --------------------------------------------------------------------------------------
Total Tier I 2,062.1 1,824.8 1,661.6
- --------------------------------------------------------------------------------------
Tier II capital:
Allowable reserve for loan losses 247.5 215.3 199.9
Qualifying long-term debt 415.0 425.2 337.0
- --------------------------------------------------------------------------------------
Total Tier II 662.5 640.5 536.9
- --------------------------------------------------------------------------------------
Total capital $ 2,724.6 $ 2,465.3 $ 2,198.5
======================================================================================
Risk-adjusted assets $19,703.4 $17,098.0 $15,988.4
======================================================================================
Risk-based capital ratios:
Tier I 10.47% 10.67% 10.39%
======================================================================================
Total 13.83% 14.42% 13.75%
======================================================================================
Tier I leverage ratio 7.16% 6.93% 6.90%
======================================================================================
- --------------------------------------------------------------------------------------
At December 31, 1994, all of the Corporation's banking subsidiaries
were considered well capitalized based on the regulatory defined minimums
of a Tier I leverage ratio of 5%, a Tier l capital ratio of 6% and a Total
capital ratio of 10%.
40
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
FOURTH QUARTER DATA
Table 38: Summary of Fourth Quarter Earnings
- --------------------------------------------------------------------------------------
Fourth Quarter
- --------------------------------------------------------------------------------------
(in millions) 1994 1993 % change
- --------------------------------------------------------------------------------------
Net interest income $260.2 $246.6 5.5%
Provision for loan losses 4.4 11.9 (62.9)
- --------------------------------------------------------------------------------------
Net interest income after provision for loan losses 255.8 234.7 8.9
Noninterest income 136.0 134.0 1.5
Noninterest expense 252.4 253.8 (.6)
- --------------------------------------------------------------------------------------
Income before income taxes 139.4 114.9 21.3
Income tax expense 47.4 37.8 25.3
- --------------------------------------------------------------------------------------
Net income $ 92.0 $ 77.1 19.3%
======================================================================================
Net income per share $.88 $.75 17.3%
======================================================================================
Dividends declared per share $.34 $.31 9.7%
======================================================================================
- --------------------------------------------------------------------------------------
Net income for the fourth quarter totaled $92.0 million, an increase of
19.3% over the fourth quarter of 1993. Net income per share was $.88, an
increase of 17.3%. Net income in the fourth quarter of 1993 was impacted
by one-time merger-related charges from the Amarillo pooling acquisition
which totaled $3.8 million (after-tax). Excluding these charges, net
income in the fourth quarter of 1994 increased 13.7% which was consistent
with full year results and reflected higher net interest income and
noninterest income as well as a lower provision for loan losses.
Net interest income increased 5.5% over the fourth quarter of 1993
principally due to an increase in average earning assets, which was
partially offset by an anticipated contraction in interest rate spreads.
Average earning assets increased 8.1%, led by a 10.9% increase in average
loans. The net interest margin was 4.29%, down from 4.41% in the fourth
quarter of 1993.
The provision for loan losses declined to $4.4 million in the fourth
quarter of 1994, compared to $11.9 million a year ago, reflecting
continued improvement in asset quality. Net charge-offs in the fourth
quarter of 1994 totaled $9.4 million, down from $12.5 million in the
fourth quarter of 1993, and as a percentage of average loans dropped to
.23%, from .34% a year ago.
Noninterest income increased $2.0 million, or 1.5%, over the fourth
quarter of 1993, reflecting growth in trust fees and credit card fees,
however, this growth was partially offset by declines in investment
banking and mortgage banking revenues, mainly due to stock market
volatility and a rising interest rate environment.
Noninterest expense totaled $252.4 million, compared to $253.8 million
in the fourth quarter of 1993. Noninterest expense in 1993 included $4.7
million in nonrecurring merger-related expenses from the Amarillo
acquisition. Excluding these expenses, noninterest expense increased 1.3%
in the fourth quarter of 1994.
41
26
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Quarterly Earnings Trend
- ---------------------------------------------------------------------------------------------------------------------------
1994
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) Fourth Quarter Third Quarter Second Quarter First Quarter
- ---------------------------------------------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $343,025 $324,218 $308,872 $289,634
Interest on short-term investments 874 919 1,071 560
Interest on Federal funds sold and
securities purchased
under resale agreements 6,790 3,245 1,995 1,593
Interest on held to maturity securities
Taxable 50,025 49,051 45,674 34,125
Tax-exempt 13,338 14,242 13,447 13,744
- ---------------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 63,363 63,293 59,121 47,869
Interest on available for sale securities 61,129 60,438 61,149 65,991
Interest on trading securities 377 381 926 840
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 475,558 452,494 433,134 406,487
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 148,070 134,442 127,611 124,050
Interest on Federal funds purchased and
other short-term borrowings 55,497 47,841 37,908 23,135
Interest on capital lease obligation 944 945 945 945
Interest on long-term debt 10,870 10,651 10,176 9,714
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 215,381 193,879 176,640 157,844
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 260,177 258,615 256,494 248,643
Provision for loan losses 4,400 6,900 7,366 5,640
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 255,777 251,715 249,128 243,003
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest income
Trust fees 40,622 37,974 38,690 39,190
Service charges 41,001 41,286 40,715 40,047
Credit card 20,685 17,690 15,890 15,045
Investment banking revenues 7,135 6,847 8,799 7,926
Securities gains, net 1,409 1,533 705 2,554
Other 25,140 25,348 25,335 24,961
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 135,992 130,678 130,134 129,723
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Staff 120,229 122,365 123,853 123,097
Net occupancy 16,748 17,071 16,763 16,608
Equipment 20,960 21,274 20,809 20,038
FDIC insurance 11,249 11,246 11,448 11,462
Credit card 12,050 11,016 10,121 9,031
Intangible amortization 8,234 8,359 8,323 8,300
Advertising 9,705 7,610 7,124 6,053
Foreclosed property costs, net (46) (1,233) (1,618) (1,114)
Other 53,231 47,457 47,769 49,050
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 252,360 245,165 244,592 242,525
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 139,409 137,228 134,670 130,201
Income tax expense 47,401 47,530 46,628 44,617
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 92,008 $ 89,698 $ 88,042 $ 85,584
===========================================================================================================================
Net income per share $.88 $.86 $.84 $.82
===========================================================================================================================
Dividends declared per share $.34 $.34 $.31 $.31
===========================================================================================================================
Returns
Return on assets 1.31% 1.30% 1.28% 1.29%
Return on total equity 16.67 16.35 16.30 15.92
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
42
27
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Quarterly Earnings Trend
- ---------------------------------------------------------------------------------------------------------------------------
1993
- -----------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
- -----------------------------------------------------------------------
$287,592 $287,251 $279,297 $265,662
257 405 509 826
2,380 1,936 3,161 5,884
92,383 96,537 97,569 94,789
13,907 14,366 14,745 15,363
- -----------------------------------------------------------------------
106,290 110,903 112,314 110,152
7,169 7,258 7,360 7,270
1,063 429 493 585
- -----------------------------------------------------------------------
404,751 408,182 403,134 390,379
- -----------------------------------------------------------------------
128,331 133,406 135,096 132,011
19,126 16,014 12,688 14,539
965 964 965 964
9,704 9,542 9,391 8,268
- -----------------------------------------------------------------------
158,126 159,926 158,140 155,782
- -----------------------------------------------------------------------
246,625 248,256 244,994 234,597
11,853 13,040 15,918 19,373
- -----------------------------------------------------------------------
234,772 235,216 229,076 215,224
- -----------------------------------------------------------------------
37,895 38,723 37,952 35,010
41,250 39,173 37,770 35,008
14,934 14,561 13,276 11,618
8,657 9,546 8,895 8,502
1,753 250 736 68
29,481 29,540 25,416 20,345
- -----------------------------------------------------------------------
133,970 131,793 124,045 110,551
- -----------------------------------------------------------------------
119,147 120,336 115,763 111,234
17,140 19,072 16,913 16,304
21,132 19,704 18,589 18,102
11,381 11,232 10,803 10,969
9,981 9,400 8,700 7,124
9,578 8,576 7,366 5,051
8,567 7,862 6,739 4,649
(1,235) 83 (2,048) (1,590)
58,110 52,037 50,080 43,570
- -----------------------------------------------------------------------
253,801 248,302 232,905 215,413
- -----------------------------------------------------------------------
114,941 118,707 120,216 110,362
37,819 37,379 40,493 31,116
- -----------------------------------------------------------------------
$ 77,122 $ 81,328 $ 79,723 $ 79,246
=======================================================================
$.75 $.78 $.77 $.77
=======================================================================
$.31 $.31 $.28 $.28
=======================================================================
1.18% 1.28% 1.29% 1.34%
14.91 16.15 16.26 16.75
=======================================================================
- ---------------------------------------------------------------------------------------------------------------------------
43
28
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Quarterly Average Balance Sheet and Net Interest Margin
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions) 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income $16,270.9 $345.1 8.48% $15,911.9 $325.6 8.19% $15,506.7 $310.4 8.01%
Short-term investments 67.5 .9 5.18 82.7 1.0 4.45 109.0 1.1 3.93
Federal funds sold and securities
purchased under resale agreements 504.1 6.8 5.39 270.2 3.2 4.80 193.7 2.0 4.12
Held to maturity securities:
Taxable 3,424.6 50.0 5.84 3,379.0 49.1 5.81 3,280.0 45.7 5.57
Tax-exempt 788.3 19.9 10.07 777.6 21.5 11.06 790.2 20.4 10.35
- ------------------------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 4,212.9 69.9 6.63 4,156.6 70.6 6.79 4,070.2 66.1 6.50
Available for sale securities 3,998.8 61.1 6.11 4,265.3 60.4 5.67 4,558.3 61.1 5.37
Trading securities 26.1 .4 6.33 28.4 .4 5.61 64.2 1.0 6.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 25,080.3 484.2 7.72 24,715.1 461.2 7.46 24,502.1 441.7 7.21
Less reserve for loan losses (348.1) (348.0) (348.6)
Cash and due from banks 1,719.4 1,691.7 1,690.1
All other assets 1,624.4 1,596.7 1,596.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $28,076.0 $27,655.5 $27,440.2
====================================================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $ 8,703.4 $ 60.4 2.78% $ 8,667.4 $ 55.2 2.55% $ 8,743.5 $ 52.5 2.40%
Time deposits 7,595.1 87.7 4.62 7,366.6 79.2 4.30 7,350.3 75.1 4.09
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 16,298.5 148.1 3.63 16,034.0 134.4 3.35 16,093.8 127.6 3.17
Federal funds purchased and
other short-term borrowings 4,217.5 55.5 5.26 4,159.5 47.8 4.60 3,866.5 37.9 3.92
Capital lease obligation 38.4 .9 9.72 38.7 1.0 9.72 38.9 1.0 9.72
Long-term debt 520.8 10.9 8.35 514.5 10.7 8.28 514.6 10.2 7.91
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 21,075.2 215.4 4.09 20,746.7 193.9 3.74 20,513.8 176.7 3.44
Demand deposits 4,449.2 4,418.3 4,488.8
All other liabilities 343.0 295.2 276.4
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 25,867.4 25,460.2 25,279.0
Redeemable preferred stock 1.1 1.1 1.2
Total stockholders' equity 2,207.5 2,194.2 2,160.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $28,076.0 $27,655.5 $27,440.2
====================================================================================================================================
Interest rate spread 3.63% 3.72% 3.77%
Effect of noninterest-bearing funds .66 .61 .56
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin $268.8 4.29% $267.3 4.33% $265.0 4.33%
====================================================================================================================================
Nonaccrual loans are included in
average balances and interest payments
on such loans are recognized as income
on a cash basis when appropriate.
Interest income and yields are
presented on a fully-taxable equivalent
basis using the Federal statutory income
tax rate, net of nondeductible interest
expense. Such adjustments by earning
asset category are as follows:
Loans $2.1 $1.4 $1.5
Tax-exempt held to maturity securities 6.5 7.3 7.0
Trading securities .1
- ------------------------------------------------------------------------------------------------------------------------------------
Total $8.6 $8.7 $8.6
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
44
29
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/ Income/ Yields/ Income/ Yields/ Income/ Yields/
Balance Expense Rates Balance Expense Rates Balance Expense Rates Balance Expense Rates Balance Expense Rates
- -----------------------------------------------------------------------------------------------------------------------------------
$14,956.3 $291.0 7.78% $14,666.2 $289.5 7.90% $14,373.7 $288.6 8.03% $13,958.8 $280.8 8.05% $13,127.9 $266.8 8.13%
60.0 .6 3.73 31.2 .2 3.29 48.7 .4 3.33 60.7 .5 3.36 100.4 .8 3.29
193.2 1.6 3.30 297.9 2.4 3.20 245.3 1.9 3.16 407.6 3.2 3.10 776.1 5.9 3.03
2,890.3 34.1 4.72 6,799.5 92.4 5.43 6,652.5 96.5 5.80 6,256.2 97.6 6.24 5,865.4 94.8 6.46
808.4 20.7 10.22 841.0 21.0 10.00 844.5 22.3 10.55 865.0 21.8 10.10 890.7 22.7 10.20
- ----------------------------------------------------------------------------------------------------------------------------------
3,698.7 54.8 5.92 7,640.5 113.4 5.94 7,497.0 118.8 6.34 7,121.2 119.4 6.71 6,756.1 117.5 6.96
4,712.6 66.0 5.60 469.2 7.2 6.11 479.9 7.3 6.05 489.3 7.3 6.02 497.0 7.3 5.85
69.5 .8 4.94 85.7 1.1 5.13 35.9 .5 5.30 42.9 .6 5.03 49.4 .6 5.09
- ----------------------------------------------------------------------------------------------------------------------------------
23,690.3 414.8 7.00 23,190.7 413.8 7.14 22,680.5 417.5 7.36 22,080.5 411.8 7.46 21,306.9 398.9 7.49
(346.0) (344.9) (339.3) (329.2) (310.0)
1,661.2 1,720.4 1,619.6 1,613.5 1,547.3
1,587.0 1,554.5 1,587.5 1,416.6 1,167.4
- ----------------------------------------------------------------------------------------------------------------------------------
$26,592.5 $26,120.7 $25,548.3 $24,781.4 $23,711.6
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
$ 8,803.2 $ 50.1 2.28% $ 8,601.0 $ 51.3 2.38% $ 8,470.3 $ 52.3 2.47% $ 8,226.1 $ 50.9 2.48% $ 7,808.2 $ 49.7 2.55%
7,330.2 74.0 4.04 7,538.8 77.0 4.09 7,827.3 81.1 4.15 7,922.8 84.2 4.25 7,550.9 82.3 4.36
- ----------------------------------------------------------------------------------------------------------------------------------
16,133.4 124.1 3.08 16,139.8 128.3 3.18 16,297.6 133.4 3.27 16,148.9 135.1 3.35 15,359.1 132.0 3.44
3,008.5 23.1 3.08 2,579.6 19.1 2.97 2,148.3 16.0 2.98 1,740.7 12.7 2.92 1,902.0 14.5 3.06
39.1 .9 9.72 39.3 1.0 9.72 39.5 1.0 9.72 39.7 .9 9.72 39.9 1.0 9.72
514.0 9.7 7.56 487.8 9.7 7.96 471.4 9.5 8.10 475.2 9.4 7.90 389.9 8.3 8.48
- ----------------------------------------------------------------------------------------------------------------------------------
19,695.0 157.8 3.21 19,246.5 158.1 3.29 18,956.8 159.9 3.37 18,404.5 158.1 3.44 17,690.9 155.8 3.52
4,425.8 4,560.9 4,298.5 4,142.0 3,923.7
320.7 242.5 277.9 272.1 203.5
- ----------------------------------------------------------------------------------------------------------------------------------
24,441.5 24,049.9 23,533.2 22,818.6 21,818.1
1.2 1.2 1.2 1.2 1.2
2,149.8 2,069.6 2,013.9 1,961.6 1,892.3
- ----------------------------------------------------------------------------------------------------------------------------------
$26,592.5 $26,120.7 $25,548.3 $24,781.4 $23,711.6
==================================================================================================================================
3.79% 3.85% 3.99% 4.02% 3.97%
.55 .56 .55 .58 .59
- ----------------------------------------------------------------------------------------------------------------------------------
$257.0 4.34% $255.7 4.41% $257.6 4.54% $253.7 4.60% $243.1 4.56%
==================================================================================================================================
$1.4 $1.9 $1.4 $1.5 $1.1
6.9 7.1 7.9 7.1 7.4
.1 .1
- ----------------------------------------------------------------------------------------------------------------------------------
$8.3 $9.1 $9.3 $8.7 $8.5
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
45
30
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Earnings Trend
- ------------------------------------------------------------------------------------------------------------------------
(in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $1,265,749 $1,119,802 $1,089,004
Interest on short-term investments 3,424 1,997 2,648
Interest on Federal funds sold and securities purchased
under resale agreements 13,623 13,361 49,359
Interest on held to maturity securities
Taxable 178,875 381,278 398,782
Tax-exempt 54,771 58,381 65,695
- ------------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 233,646 439,659 464,477
Interest on available for sale securities 248,707 29,057
Interest on trading securities 2,524 2,570 3,312
Interest on receivable due from Resolution Trust Corporation
- ------------------------------------------------------------------------------------------------------------------------
Total interest income 1,767,673 1,606,446 1,608,800
- ------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on savings deposits 50,164 53,431 54,062
Interest on interest-bearing transaction accounts 168,083 150,729 171,582
Interest on time deposits 315,926 324,684 404,011
Interest on Federal funds purchased and other short-term borrowings 164,381 62,367 73,348
Interest on capital lease obligation 3,779 3,858 3,929
Interest on long-term debt 41,411 36,905 30,601
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense 743,744 631,974 737,533
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 1,023,929 974,472 871,267
Provision for loan losses 24,306 60,184 136,626
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 999,623 914,288 734,641
- ------------------------------------------------------------------------------------------------------------------------
Noninterest income
Trust fees 156,476 149,580 137,983
Service charges 163,049 153,201 133,568
Credit card 69,310 54,389 44,866
Investment banking revenues 30,707 35,600 31,753
Securities gains, net 6,201 2,807 31,948
Other 100,784 104,782 78,413
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest income 526,527 500,359 458,531
- ------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Staff 489,544 466,480 416,278
Net occupancy 67,190 69,429 64,477
Equipment 83,081 77,527 68,755
FDIC insurance 45,405 44,385 41,619
Credit card 42,218 35,205 25,552
Other 257,204 257,395 255,247
- ------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 984,642 950,421 871,928
- ------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 541,508 464,226 321,244
Income tax expense 186,176 146,807 92,518
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 355,332 $ 317,419 $ 228,726
========================================================================================================================
Net income per share $3.40 $3.07 $2.29
========================================================================================================================
Dividends declared per share $1.30 $1.18 $1.10
========================================================================================================================
Returns
Return on assets 1.29% 1.27% .99%
Return on equity 16.31 15.99 12.95
Return on common equity 16.31 15.99 12.95
========================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------
46
31
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Earnings Trend
- ------------------------------------------------------------------------------------------------------------------------------------
1991 1990 1989 % change 1994 % change 1993 5-year annual compound change 1990-1994
- ------------------------------------------------------------------------------------------------------------------------------------
$1,172,752 $1,254,815 $1,259,463 13.0% 2.8% 0.1%
7,736 6,249 6,496 71.5 (24.6) (12.0)
78,400 80,311 111,730 2.0 (72.9) (34.4)
372,218 312,369 247,023 (53.1) (4.4) (6.3)
69,677 74,245 70,359 (6.2) (11.1) (4.9)
- ------------------------------------------------------------------------------------------------------------------------------------
441,895 386,614 317,382 (46.9) (5.3) (5.9)
7,812 4,029 3,854 (1.8) (22.4) (8.1)
28,955 5,359
- ------------------------------------------------------------------------------------------------------------------------------------
1,737,550 1,737,377 1,698,925 10.0 (.1) .8
- ------------------------------------------------------------------------------------------------------------------------------------
62,335 48,330 48,325 (6.1) (1.2) .7
214,641 208,649 214,972 11.5 (12.2) (4.8)
573,110 603,598 582,781 (2.7) (19.6) (11.5)
119,787 194,418 195,436 163.6 (15.0) (3.4)
3,994 4,042 4,106 (2.0) (1.8) (1.6)
27,248 28,113 29,421 12.2 20.6 7.1
- ------------------------------------------------------------------------------------------------------------------------------------
1,001,115 1,087,150 1,075,041 17.7 (14.3) (7.1)
- ------------------------------------------------------------------------------------------------------------------------------------
736,435 650,227 623,884 5.1 11.8 10.4
114,658 119,448 93,248 (59.6) (55.9) (23.6)
- ------------------------------------------------------------------------------------------------------------------------------------
621,777 530,779 530,636 9.3 24.5 13.5
- ------------------------------------------------------------------------------------------------------------------------------------
120,806 107,469 106,792 4.6 8.4 7.9
105,816 85,430 76,872 6.4 14.7 16.2
35,945 34,364 32,783 27.4 21.2 16.2
20,892 11,925 9,722 (13.7) 12.1 25.9
3,852 3,221 250 120.9 (91.2) 90.1
74,490 60,167 56,199 (3.8) 33.6 12.4
- ------------------------------------------------------------------------------------------------------------------------------------
361,801 302,576 282,618 5.2 9.1 13.3
- ------------------------------------------------------------------------------------------------------------------------------------
361,628 329,906 315,834 4.9 12.1 9.2
55,041 46,827 45,042 (3.2) 7.7 8.3
59,454 57,487 56,729 7.2 12.8 7.9
35,640 17,371 11,218 2.3 6.6 32.3
17,129 16,412 16,385 19.9 37.8 20.8
223,475 183,959 160,218 (.1) .8 9.9
- ------------------------------------------------------------------------------------------------------------------------------------
752,367 651,962 605,426 3.6 9.0 10.2
- ------------------------------------------------------------------------------------------------------------------------------------
231,211 181,393 207,828 16.6 44.5 21.1
60,013 36,363 43,695 26.8 58.7 33.6
- ------------------------------------------------------------------------------------------------------------------------------------
$ 171,198 $ 145,030 $ 164,133 11.9% 38.8% 16.7%
====================================================================================================================================
$1.77 $1.58 $1.81 10.7% 34.1% 13.4%
====================================================================================================================================
$1.07 $1.06 $1.03 10.2% 7.3% 4.8%
====================================================================================================================================
.79% .73% .86%
10.78 10.13 11.98
10.78 10.13 12.06
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
47
32
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Average Balance Sheet and Net Interest Margin
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates Balance Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income $15,665.7 $1,272.2 8.12% $14,036.8 $1,125.7 8.02% $12,748.0 $1,094.0 8.58%
Short-term investments 79.8 3.4 4.29 60.0 2.0 3.33 69.5 2.6 3.81
Federal funds sold and securities
purchased under resale agreements 291.1 13.6 4.68 429.9 13.4 3.11 1,354.7 49.4 3.64
Held to maturity securities:
Taxable 3,245.3 178.9 5.51 6,396.7 381.3 5.96 5,579.1 398.8 7.15
Tax-exempt 791.1 82.5 10.42 860.1 87.8 10.21 947.9 96.5 10.18
- ------------------------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 4,036.4 261.4 6.47 7,256.8 469.1 6.46 6,527.0 495.3 7.59
Available for sale securities 4,381.4 248.7 5.68 483.7 29.0 6.01
Trading securities 46.9 2.6 5.63 53.6 2.8 5.12 54.4 3.4 6.27
Receivable due from
Resolution Trust Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 24,501.3 1,801.9 7.35 22,320.8 1,642.0 7.36 20,753.6 1,644.7 7.92
Less reserve for loan losses (347.7) (331.0) (281.6)
Cash and due from banks 1,690.8 1,625.7 1,497.7
Property and equipment 517.8 443.2 417.9
All other assets 1,083.5 910.1 738.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $27,445.7 $24,968.8 $23,125.7
====================================================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Savings deposits $ 2,065.0 $ 50.2 2.43% $ 2,014.6 $ 53.4 2.65% $ 1,628.2 $ 54.1 3.32%
Interest-bearing transaction accounts 6,663.9 168.1 2.52 6,264.5 150.7 2.41 5,556.3 171.6 3.09
Time deposits 7,411.1 315.9 4.26 7,710.2 324.7 4.21 7,871.1 404.0 5.13
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 16,140.0 534.2 3.31 15,989.3 528.8 3.31 15,055.6 629.7 4.18
Federal funds purchased and
other short-term borrowings 3,817.3 164.4 4.31 2,094.7 62.3 2.98 2,046.7 73.3 3.58
Capital lease obligation 38.8 3.8 9.72 39.6 3.9 9.72 40.4 3.9 9.72
Long-term debt 516.0 41.4 8.03 456.4 36.9 8.09 331.3 30.6 9.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 20,512.1 743.8 3.63 18,580.0 631.9 3.40 17,474.0 737.5 4.22
Demand deposits 4,445.5 4,233.2 3,698.9
All other liabilities 308.9 169.5 185.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 25,266.5 22,982.7 21,358.4
Redeemable preferred stock 1.1 1.2 1.3
Total stockholders' equity 2,178.1 1,984.9 1,766.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $27,445.7 $24,968.8 $23,125.7
====================================================================================================================================
Interest rate spread 3.72% 3.96% 3.70%
Effect of noninterest-bearing funds .60 .57 .67
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/margin $1,058.1 4.32% $1,010.1 4.53% $ 907.2 4.37%
====================================================================================================================================
Nonaccrual loans are included in average
balances and interest payments on such
loans are recognized as income on a cash
basis when appropriate. Interest income
and yields are presented on a fully-
taxable equivalent basis using the
Federal statutory income tax rate, net
of nondeductible interest expense. Such
adjustments by earning asset category
are as follows:
Loans $ 6.4 $ 5.9 $ 5.0
Tax-exempt held to maturity securities 27.7 29.5 30.8
Trading securities .1 .2 .1
- ------------------------------------------------------------------------------------------------------------------------------------
Total $34.2 $35.6 $35.9
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
48
33
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Average Balance Sheet and Net Interest Margin
- ------------------------------------------------------------------------------------------------------------------------------------
1991 1990 1989 % change in average balances
- ------------------------------------------------------------------------------------------------------------------------------------
Five-year annual
Income/ Yields/ Income/ Yields/ Income/ Yields/ compound
Balance Expense Rates Balance Expense Rates Balance Expense Rates 1994 1993 1990-1994
- ------------------------------------------------------------------------------------------------------------------------------------
$11,888.2 $1,179.5 9.92% $11,706.4 $1,263.8 10.80% $11,462.6 $1,273.0 11.11% 11.6% 10.1% 6.4%
109.1 7.7 7.09 72.9 6.3 8.57 70.9 6.5 9.16 33.0 (13.7) 2.4
1,359.2 78.4 5.77 982.8 80.3 8.17 1,212.8 111.7 9.21 (32.3) (68.3) (24.8)
4,492.3 372.2 8.29 3,669.6 312.4 8.51 3,012.4 247.0 8.20 (49.3) 14.7 1.5
992.4 101.3 10.21 1,055.0 106.9 10.14 1,002.8 103.7 10.34 (8.0) (9.3) (4.6)
- ------------------------------------------------------------------------------------------------------------------------------------
5,484.7 473.5 8.63 4,724.6 419.3 8.88 4,015.2 350.7 8.73 (44.4) 11.2 .1
110.5 8.0 7.25 46.4 4.1 8.90 43.7 4.0 9.28 (12.5) (1.5) 1.4
357.9 29.0 8.09 67.1 5.4 7.99
- ------------------------------------------------------------------------------------------------------------------------------------
19,309.6 1,776.1 9.20 17,600.2 1,779.2 10.11 16,805.2 1,745.9 10.39 9.8 7.6 7.8
(243.9) (221.8) (227.2) 5.0 17.5 8.9
1,412.9 1,401.8 1,522.0 4.0 8.5 2.1
386.1 369.2 362.6 16.8 6.1 7.4
702.7 582.9 587.6 19.1 23.3 13.0
- ------------------------------------------------------------------------------------------------------------------------------------
$21,567.4 $19,732.3 $19,050.2 9.9% 8.0% 7.6%
====================================================================================================================================
$ 1,283.0 $ 62.3 4.86% $ 967.9 $ 48.3 4.99% $ 969.9 $ 48.3 4.98% 2.5% 23.7% 16.3%
4,455.4 214.6 4.82 3,752.7 208.7 5.56 3,716.6 215.0 5.78 6.4 12.7 17.4
8,444.8 573.2 6.79 7,581.1 603.6 7.96 7,057.2 582.8 8.26 (3.9) (2.0) 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
14,183.2 850.1 5.99 12,301.7 860.6 7.00 11,743.7 846.1 7.20 .9 6.2 6.6
2,125.0 119.8 5.64 2,469.9 194.4 7.87 2,211.4 195.4 8.84 82.2 2.3 11.5
41.0 4.0 9.72 41.7 4.1 9.72 42.2 4.1 9.72 (2.0) (2.0) (1.7)
280.7 27.2 9.71 288.1 28.1 9.76 292.9 29.4 10.04 13.1 37.8 12.0
- ------------------------------------------------------------------------------------------------------------------------------------
16,629.9 1,001.1 6.02 15,101.4 1,087.2 7.20 14,290.2 1,075.0 7.52 10.4 6.3 7.5
3,150.9 2,985.1 3,159.7 5.0 14.4 7.1
197.6 213.0 228.4 82.2 (8.6) 6.2
- ------------------------------------------------------------------------------------------------------------------------------------
19,978.4 18,299.5 17,678.3 9.9 7.6 7.4
1.3 1.4 1.7 (8.3) (7.7) (8.3)
1,587.7 1,431.4 1,370.2 9.7 12.4 9.7
- ------------------------------------------------------------------------------------------------------------------------------------
$21,567.4 $19,732.3 $19,050.2 9.9% 8.0% 7.6%
====================================================================================================================================
3.18% 2.91% 2.87%
.83 1.02 1.12
- ------------------------------------------------------------------------------------------------------------------------------------
$ 775.0 4.01% $ 692.0 3.93% $ 670.9 3.99%
====================================================================================================================================
$ 6.8 $ 9.0 $13.5
31.6 32.7 33.3
.2 .1 .2
- ------------------------------------------------------------------------------------------------------------------------------------
$38.6 $41.8 $47.0
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
49
34
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Balance Sheet
- --------------------------------------------------------------------------------------------------------------
December 31 (dollars in thousands) 1994 1993
- --------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 1,885,484 $ 1,608,051
Short-term investments 43,704 24,748
Securities:
Held to maturity (market value $3,977,018 and $3,408,119, respectively) 4,203,507 3,324,847
Available for sale (amortized cost $4,058,269 and $5,108,291, respectively) 3,887,217 5,176,966
Trading 31,674 48,081
Federal funds sold and securities purchased under resale agreements 1,082,110 407,672
Loans (net of unearned income of $65,751, and $67,338, respectively) 16,480,437 14,825,922
Less reserve for loan losses 342,030 341,099
- --------------------------------------------------------------------------------------------------------------
Loans, net 16,138,407 14,484,823
- --------------------------------------------------------------------------------------------------------------
Property and equipment 524,812 480,586
Other assets 1,130,303 1,098,275
- --------------------------------------------------------------------------------------------------------------
Total assets $28,927,218 $26,654,049
==============================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits $ 4,589,782 $ 4,769,947
Retail savings deposits and interest-bearing transaction accounts 8,818,248 8,773,058
Time deposits 8,781,532 7,365,997
- --------------------------------------------------------------------------------------------------------------
Total deposits 22,189,562 20,909,002
- --------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under repurchase agreements 1,888,970 1,996,022
Short-term borrowings 1,761,701 815,971
Capital lease obligation 38,359 39,224
Long-term debt 515,083 486,253
Other liabilities 331,570 273,168
- --------------------------------------------------------------------------------------------------------------
Total liabilities 26,725,245 24,519,640
- --------------------------------------------------------------------------------------------------------------
Redeemable preferred stock 1,142 1,155
- --------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock ($1 par value; 150,000,000 shares authorized;
104,830,742 and 104,125,546 shares issued, respectively) 104,831 104,126
Surplus 796,158 786,840
Retained earnings 1,419,367 1,200,036
Treasury stock (508,698 shares at cost) (14,516)
Unrealized net appreciation (depreciation), available for sale securities (105,009) 42,252
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,200,831 2,133,254
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $28,927,218 $26,654,049
==============================================================================================================
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
50
35
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Statement of Income
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31 (in thousands) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $1,265,749 $1,119,802 $1,089,004
Interest on short-term investments 3,424 1,997 2,648
Interest on Federal funds sold and securities purchased
under resale agreements 13,623 13,361 49,359
Interest on held to maturity securities
Taxable 178,875 381,278 398,782
Tax-exempt 54,771 58,381 65,695
- ---------------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 233,646 439,659 464,477
Interest on available for sale securities 248,707 29,057
Interest on trading securities 2,524 2,570 3,312
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 1,767,673 1,606,446 1,608,800
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 534,173 528,844 629,655
Interest on Federal funds purchased and other short-term borrowings 164,381 62,367 73,348
Interest on capital lease obligation 3,779 3,858 3,929
Interest on long-term debt 41,411 36,905 30,601
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 743,744 631,974 737,533
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 1,023,929 974,472 871,267
Provision for loan losses 24,306 60,184 136,626
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 999,623 914,288 734,641
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest income
Trust fees 156,476 149,580 137,983
Service charges 163,049 153,201 133,568
Credit card 69,310 54,389 44,866
Investment banking revenues 30,707 35,600 31,753
Securities gains, net 6,201 2,807 31,948
Other 100,784 104,782 78,413
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 526,527 500,359 458,531
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Staff 489,544 466,480 416,278
Net occupancy 67,190 69,429 64,477
Equipment 83,081 77,527 68,755
FDIC insurance 45,405 44,385 41,619
Credit card 42,218 35,205 25,552
Intangible amortization 33,216 30,571 16,076
Advertising 30,492 27,817 20,424
Foreclosed property costs, net (4,011) (4,790) 26,338
Other 197,507 203,797 192,409
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 984,642 950,421 871,928
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 541,508 464,226 321,244
Income tax expense 186,176 146,807 92,518
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 355,332 $ 317,419 $ 228,726
===========================================================================================================================
Net income per share $3.40 $3.07 $2.29
===========================================================================================================================
Dividends declared per share $1.30 $1.18 $1.10
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
51
36
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized Net
Appreciation,
Common Stock Treasury Stock (Depreciation)
----------------- Retained ------------------ Available for
(in thousands) Shares Amount Surplus Earnings Shares Amount Sale Securities Total
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1991 49,585 $ 49,585 $766,417 $ 864,174 -- -- -- $1,680,176
Net income -- -- -- 228,726 -- -- -- 228,726
Cash dividends declared:
Common ($1.10 per share)<F1> -- -- -- (92,032) -- -- -- (92,032)
Redeemable preferred -- -- -- (88) -- -- -- (88)
By pooled company
prior to merger--common -- -- -- (616) -- -- -- (616)
Issuance of common stock from
public offering--pooled company 629 629 15,133 -- -- -- -- 15,762
Common stock issued pursuant to
various employee and shareholder
stock issuance plans 390 390 14,403 -- -- -- -- 14,793
Common stock issued upon conversion
of convertible subordinated
debentures 532 532 14,338 -- -- -- -- 14,870
Other, net (5) (5) (368) 2 -- -- -- (371)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1992 51,131 51,131 809,923 1,000,166 -- -- -- 1,861,220
Net income -- -- -- 317,419 -- -- -- 317,419
Cash dividends declared:
Common ($1.18 per share)<F1> -- -- -- (117,334) -- -- -- (117,334)
Redeemable preferred -- -- -- (85) -- -- -- (85)
Acquisition of treasury stock -- -- -- -- (52) (3,102) -- (3,102)
Common stock issued pursuant to
various employee and shareholder
stock issuance plans 641 641 15,992 -- 52 3,102 -- 19,735
Common stock issued upon conversion
of convertible subordinated
debentures 487 487 12,817 -- -- -- -- 13,304
Common stock issued upon
2-for-1 stock split 51,867 51,867 (51,867) -- -- -- -- --
Adjustment of available for sale
securities to market value -- -- -- -- -- -- 42,252 42,252
Other, net -- -- (25) (130) -- -- -- (155)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 104,126 104,126 786,840 1,200,036 -- -- 42,252 2,133,254
Net income -- -- -- 355,332 -- -- -- 355,332
Cash dividends declared:
Common ($1.30 per share) -- -- -- (135,920) -- -- -- (135,920)
Redeemable preferred -- -- -- (80) -- -- -- (80)
Acquisition of treasury stock -- -- -- -- (538) (15,406) -- (15,406)
Common stock issued pursuant to
various employee and shareholder
stock issuance plans 275 275 3,365 -- 29 890 -- 4,530
Common stock issued upon acquisition
of subsidiary 411 411 5,700 -- -- -- -- 6,111
Common stock issued upon conversion
of convertible subordinated debt 19 19 280 -- -- -- -- 299
Adjustment of available for sale
securities to market value -- -- -- -- -- -- (147,261) (147,261)
Other, net -- -- (27) (1) -- -- -- (28)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 104,831 $104,831 $796,158 $1,419,367 (509) $(14,516) $(105,009) $2,200,831
===================================================================================================================================
<FN>
<F1> Amounts adjusted for the two-for-one stock split which was declared on August 10, 1993 and paid on October 1, 1993.
See accompanying notes to the consolidated financial statements.
- -----------------------------------------------------------------------------------------------------------------------------------
52
37
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------------------------------------
Year ended December 31 (in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 355,332 $ 317,419 $ 228,726
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 24,306 60,184 136,626
Depreciation, amortization and accretion 131,824 106,298 77,062
Increase (decrease) in deferred loan fees (1,080) (767) 2,954
Realized securities gains (6,201) (2,807) (31,948)
Net (increase) decrease in trading securities 16,407 (9,567) 94,073
(Increase) decrease in interest receivable (16,636) 3,795 37,747
Increase (decrease) in interest payable 14,289 (11,863) (29,586)
Increase (decrease) in tax liability (1,626) 11,955 (27,029)
Net (gain) loss on sales and writedowns of foreclosed property (5,860) (5,656) 32,237
Other, net 38,972 (30,882) (5,386)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 549,727 438,109 515,476
- --------------------------------------------------------------------------------------------------------------
Investing Activities:
Net (increase) decrease in Federal funds sold and
securities purchased under resale agreements (669,993) 874,246 622,785
Net increase in loans (1,666,043) (816,616) (293,695)
Proceeds from the maturity of held to maturity securities 517,501 2,278,249 1,747,629
Proceeds from the sales of held to maturity securities 43,417 755,394
Purchases of held to maturity securities (1,377,993) (3,455,044) (3,267,629)
Proceeds from the maturity of available for sale securities 1,340,805 23,020
Proceeds from the sales of available for sale securities 76,860 154,869
Purchases of available for sale securities (385,372) (61,199)
Net increase (decrease) in short-term investments (18,956) 119,916 14,472
Increase in property and equipment (108,606) (101,932) (59,487)
Proceeds from the sale of foreclosed property 71,992 80,275 88,910
Net cash received from purchase acquisitions 444,540 120,198
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (2,219,805) (571,128) (116,554)
- --------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in Federal funds purchased and
securities sold under repurchase agreements (107,052) 323,464 (89,420)
Net increase (decrease) in deposits 1,224,136 (780,182) 228,169
Net increase (decrease) in short-term borrowings 945,730 417,140 (552,503)
Payments on long-term debt (1,209) (18,190) (10,221)
Proceeds from the issuance of long-term debt 30,350 124,281 99,148
Payments on capital lease obligation (865) (788) (716)
Decrease in redeemable preferred stock (13) (93) (19)
Cash dividends paid (132,690) (112,216) (86,218)
Issuance of common stock from public stock offerings 15,762
Common stock issued pursuant to various employee and
shareholder stock issuance plans 4,530 19,735 14,793
Acquisition of treasury stock (15,406) (3,102)
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,947,511 (29,951) (381,225)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and due from banks 277,433 (162,970) 17,697
Cash and due from banks at beginning of year 1,608,051 1,771,021 1,753,324
- --------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $1,885,484 $1,608,051 $1,771,021
==============================================================================================================
See accompanying notes to the consolidated financial statements.
For the years ended December 31, 1994, 1993 and 1992, interest paid
totaled $729,455, $643,837 and $766,739, respectively. Income taxes paid
totaled $189,342 in 1994, $152,579 in 1993 and $118,075 in 1992.
Additional common stock was issued upon the conversion of $311 of the
Corporation's convertible subordinated debt for the year ended December
31, 1994, $13,748 for the year ended December 31, 1993, and $15,425 for
the year ended December 31, 1992. Investment securities and debt
securities held for sale transferred to available for sale securities
totaled approximately $5.2 billion in 1993. Investment securities
transferred to debt securities held for sale totaled approximately $515
million in 1992. Loans transferred to foreclosed property totaled $17
million in 1994, $22 million in 1993, and $67 million in 1992. In 1993,
assets and liabilities of purchased subsidiaries at dates of acquisition
included investment securities of $160 million, loans of $954 million,
cash of $483 million, other assets of $465 million, deposits of $2.0
billion and other liabilities of $20 million. In 1992, assets and
liabilities of purchased subsidiaries at dates of acquisition included
investment securities of $439.5 million, loans of $670.7 million, cash of
$223.0 million, other assets of $201.5 million, deposits of $1.4 billion
and other liabilities of $22.5 million.
- --------------------------------------------------------------------------------------------------------------
53
38
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(amounts in thousands except per share data and when otherwise indicated)
1 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation and its
subsidiaries conform to generally accepted accounting principles. The
following is a description of the more significant of those policies.
Basis of Presentation The consolidated financial statements include the
accounts of the Corporation and its subsidiaries after elimination of all
material intercompany balances and transactions. Certain amounts for 1993
and 1992 were reclassified to conform with statement presentation for
1994. The reclassifications have no effect on stockholders' equity or net
income as previously reported. Prior period financial statements are also
restated to include the accounts of companies which are acquired and
accounted for as poolings of interests. Results of operations of companies
which are acquired and subject to purchase accounting are included from
the dates of acquisition. In accordance with the purchase method of
accounting, the assets and liabilities of purchased companies are stated
at estimated fair values at the date of acquisition, and the excess of
cost over fair value of net assets acquired is being amortized on a
straight-line basis over periods benefitted.
Held to Maturity Securities These securities are purchased with the
original intent to hold to maturity and events which may be reasonably
anticipated are considered when determining the Corporation's intent and
ability to hold to maturity. Securities meeting such criteria at date of
purchase and as of the balance sheet date are carried at cost, adjusted
for amortization of premiums and accretion of discounts. Gains or losses
on the disposition of held to maturity securities, if any, are based on
the adjusted book value of the specific security.
Available for Sale Securities Debt and equity securities to be held for
indefinite periods of time and not intended to be held to maturity are
classified as available for sale and carried at market value with net
unrealized gains and losses, net of tax, reflected as a component of
stockholders' equity until realized. Securities held for indefinite
periods of time include securities that may be sold to meet liquidity
needs or in response to significant changes in interest rates or
prepayment risks as part of the Corporation's overall asset/liability
management strategy.
Trading Securities Trading securities, which primarily consist of debt
securities, are held for resale within a short period of time and are
stated at market value. These securities are held in inventory for sale to
institutional and retail customers. Investment banking revenues, a
component of noninterest income, include the net realized gain or loss and
market value adjustments of the trading securities and commissions on bond
dealer and retail brokerage operations.
Interest and Fees on Loans Interest on loans is accrued based upon the
principal amount outstanding. It is the Corporation's policy to
discontinue the accrual of interest when full collectibility of principal
or interest on any loan is doubtful. Interest income on such loans is
subsequently recognized only in the period in which payments are received,
and such payments are applied to reduce principal when loans are unsecured
or collateral values are deficient. Nonrefundable loan fees are deferred
and recognized as income over the life of the loan as an adjustment of the
yield. Direct costs associated with originating loans are deferred and
amortized as a yield adjustment over the life of the loan. Commitment fees
are deferred and recognized as noninterest income over the commitment
period.
Reserve for Loan Losses The reserve represents provisions charged to
expense less net loan charge-offs. The provision is based upon economic
conditions, historical loss and collection experience, risk
characteristics of the portfolio, underlying collateral values, credit
concentrations, industry risk, degree of off-balance sheet risk and other
factors which, in management's judgment, deserve current recognition.
The charge-off policy of the Corporation's banking subsidiaries varies
with respect to the category of, and specific circumstances surrounding,
each loan under consideration. The Corporation's policy with respect to
consumer loans is generally to charge off all such loans when deemed to be
uncollectible or 120 days past due, whichever comes first. With respect to
commercial, real estate, and other loans, charge-offs are made on the
basis of management's ongoing evaluation of nonperforming and criticized
loans.
Foreclosed Property The maximum carrying value for real estate acquired
through foreclosure is the lower of the recorded investment in the loan
for which the property previously served as collateral or the current
appraised value of the foreclosed property, net of the estimated selling
costs. Any writedowns required prior to actual foreclosure are charged to
the reserve for loan losses. Subsequent to foreclosure, losses on the
periodic revaluation of the property are charged to current period
earnings as noninterest expense. Gains and losses resulting from the sale
of foreclosed property are recognized in current period earnings. Costs of
maintaining and operating foreclosed property are expensed as incurred and
revenues related to foreclosed property are recorded as an offset to
operating expense. Expenditures to complete or improve foreclosed
properties are capitalized if the expenditures are expected to be
recovered upon ultimate sale of the property.
Segregated Assets Segregated assets represent loans acquired in an
FDIC assisted transaction that are covered under a loss sharing arrangement
with the FDIC and possess more than the normal risk of collectibility.
These assets consist of loans that at acquisition were or have since
become classified as nonperforming loans or foreclosed property and are
segregated from other performing assets covered under the loss sharing
arrangement.
The Corporation's primary purpose in managing a portfolio of this
nature is to provide ongoing collection and control activities on behalf
of the FDIC. Accordingly, these assets do not represent loans made in the
ordinary course of business and, due to the underlying nature of this
liquidating asset pool, are excluded from the Corporation's nonperforming
asset statistics. Income from the segregated asset pool is generally
recognized on a cash basis as a component of noninterest income. If
collection of the unguaranteed portion of the segregated asset is
doubtful, income
54
39
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
payments are applied to reduce the principal balance to the extent of the
government guarantee.
Interest Rate Swaps Interest rate swap transactions are utilized as
hedges as part of the Corporation's overall asset/liability management
strategy. Although the notional amounts of these transactions are not
reflected in the financial statements, the interest differentials are
recognized on an accrual basis over the terms of the agreements as an
adjustment to interest income or interest expense of the related asset or
liability. Interest rate swaps entered into for trading purposes on the
behalf of customers are accounted for on a mark to market basis.
Accordingly, realized and unrealized gains and losses associated with this
activity are reflected as investment banking revenues, a component of
noninterest income.
Foreign Exchange Contracts The Corporation's banking subsidiaries trade
foreign currencies on behalf of their customers and for their own account
and, by policy, do not maintain significant open positions. Foreign
exchange contracts are valued at the current prevailing rates of exchange
and any profit or loss resulting from such valuation is included in
current operations as a component of investment banking revenues.
Property and Equipment Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization
are recognized principally by the straight-line method applied over the
estimated useful lives of the assets, which are 10 to 50 years for
buildings, 2 to 50 years for leasehold improvements, and 3 to 25 years for
fixtures and equipment.
Intangible Assets Goodwill arising from acquisitions consummated
subsequent to 1985 is being amortized on a straight-line basis over the
periods benefitted, ranging from 4-15 years. For acquisitions consummated
in 1983 and 1985, goodwill is being amortized on a straight-line basis
over 25 years, and goodwill related to acquisitions prior to 1983 is being
amortized on a straight-line basis over 40 years. Core deposit intangibles
and credit card premiums are amortized over their useful economic lives on
an accelerated basis, not to exceed 10 years. Mortgage servicing rights
are amortized over the estimated life of the related loan servicing pool.
Income Taxes The Corporation accounts for income taxes under the asset
and liability method as required by Financial Accounting Standards No.
109, "Accounting for Income Taxes".
Income tax expense is reported as the total of current income taxes
payable and the net change in deferred income taxes provided for temporary
differences. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying values of assets and
liabilities for financial reporting purposes and the values used for
income tax purposes. Deferred income taxes are recorded at the statutory
Federal and state tax rates in effect at the time that the temporary
differences are expected to reverse.
The Corporation files a consolidated Federal income tax return which
includes all its subsidiaries except for the life insurance company.
Income tax expense is allocated among the parent company and its
subsidiaries as if each had filed a separate tax return.
Net Income Per Share Net income per share is calculated by dividing net
income (after deducting dividends on redeemable preferred stock) by the
weighted average number of common shares outstanding. Common stock
equivalents have no material dilutive effect.
The net income per share calculation for 1994, 1993 and 1992 is
summarized as follows:
==============================================================================================================
(in thousands except share data) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Net income $355,332 $317,419 $228,726
Less preferred dividends declared 80 85 88
- --------------------------------------------------------------------------------------------------------------
Net income available to
common shareholders $355,252 $317,334 $228,638
==============================================================================================================
Average shares outstanding 104,630,542 103,489,599 100,017,099
- --------------------------------------------------------------------------------------------------------------
Net income per share $3.40 $3.07 $2.29
==============================================================================================================
2 CHANGES IN ACCOUNTING POLICIES
In 1994, the Corporation adopted Financial Accounting Standards No. 112
(SFAS No. 112), "Employers' Accounting for Postemployment Benefits." SFAS
No. 112 requires recognition of the cost to provide postemployment
benefits on an accrual basis. The Corporation's existing accounting
policies were in general compliance with the requirements of SFAS No. 112.
Accordingly, adoption of this standard had no material impact on the level
of postemployment expense.
On December 31, 1993, the Corporation adopted Financial Accounting
Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in
Debt and Equity Securities." SFAS No. 115 requires entities to classify
debt and equity securities as either held to maturity, available for sale
or trading securities. Under SFAS No. 115, held to maturity securities are
recorded at amortized cost; whereas available for sale securities and
trading securities are carried at market value. SFAS No. 115 further
requires that unrealized gains and losses on available for sale securities
be reported, net of tax, as a separate component of stockholders' equity.
Upon adoption of SFAS No. 115, the Corporation transferred approximately
$5.2 billion of debt and equity securities to the available for sale
portfolio, resulting in an increase to stockholders' equity of $42.3
million. Adoption of SFAS No. 115 had no effect on 1993 earnings.
3 ACQUISITIONS
Purchase Acquisitions Results of operations of companies which are
acquired and subject to purchase accounting treatment are included from
dates of acquisition. Pro forma condensed results of operations as if the
purchase acquisitions were consummated as of the beginning of the period
have been omitted due to the immaterial effect on operations. Goodwill
arising from the 1994 acquisition totaled $2.3 million. Goodwill and core
deposit intangibles arising from 1993 acquisitions totaled $43.6 million
and $49.1 million, respectively. Goodwill and core deposit intangibles
arising from 1992 acquisitions totaled $24.6 million and $9.2 million,
respectively. Core deposit intangibles in each of the purchase
acquisitions summarized below are being amortized on an accelerated basis,
not to exceed 10 years. Goodwill is being amortized on a straight-line
basis over periods ranging from 4-15 years.
55
40
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Other information regarding purchase acquisitions is summarized as
follows:
===================================================================================================
Core
Acquired Company Acquisition Purchase Deposit
(amounts in millions) Date Price Assets Goodwill Intangible
- ---------------------------------------------------------------------------------------------------
1994
Eagle Management and
Trust Company 5/6/94 $ 3.4 $ 3.8 $ 2.3
===================================================================================================
1993
First City-El Paso
(FDIC assisted) 3/5/93 $ 14.0 $ 340.0 $ 9.6 $13.7
Missouri Bridge Bank
(FDIC assisted) 4/23/93 15.8 1,100.0 18.9 20.0
Cimarron Federal Savings
(RTC assisted) 5/26/93 13.1 430.0 13.1
FCB Bancshares, Inc. 8/2/93 25.0 185.0 15.1 2.3
- ---------------------------------------------------------------------------------------------------
Total $ 67.9 $2,055.0 $43.6 $49.1
===================================================================================================
1992
Founders
Bancorporation, Inc. 3/2/92 $ 34.0 $ 330.0 $15.3 $ 3.5
Superior Federal Bank
(RTC assisted) 3/20/92 700.0
Home Federal S&L
(RTC assisted) 3/27/92 1.3 120.0 1.3
Jackson Exchange Bank
(FDIC assisted) 5/7/92 1.4 120.0 1.4
Security Bank and
First Bank of
Catoosa in Tulsa 11/2/92 33.0 240.0 9.3 3.0
- ---------------------------------------------------------------------------------------------------
Total $ 69.7 $1,510.0 $24.6 $ 9.2
===================================================================================================
Pooling Acquisitions When material, results of operations of companies
which are acquired and subject to pooling of interests accounting are
reflected on a combined basis from the earliest period presented.
On March 31, 1994, the Corporation consummated the acquisition of
Woodland Bancorp, Inc. (Woodland), resulting in the issuance of
approximately .4 million shares of common stock. Woodland, a retail
banking organization with assets of approximately $65 million, is located
in Tulsa, Oklahoma and was merged into the Corporation's Oklahoma bank.
The results of operations of Woodland, which qualified as a pooling of
interests, are not included in the consolidated financial statements prior
to January 1, 1994, due to the immaterial effect on the Corporation's
financial results.
On November 30, 1993, the Corporation consummated the acquisition of
First Amarillo Bancorporation, Inc. (Amarillo), resulting in the issuance
of approximately 5.9 million shares of common stock. Amarillo,
subsequently renamed Boatmen's Texas, Inc., with approximately $1.1
billion in assets, is headquartered in Amarillo, Texas. Nonrecurring
merger expenses related to this acquisition totaled $4.7 million and were
comprised primarily of investment banking fees, compensation-related
expense and abandonment of equipment and software. On an after-tax basis,
merger-related expenses from this acquisition totaled $3.8 million or $.04
per share and were recognized in the fourth quarter of 1993.
On April 1, 1992, the Corporation consummated the acquisition of First
Interstate of Iowa, Inc., (Iowa), resulting in the issuance of
approximately 4.2 million shares of common stock. First Interstate of
Iowa, Inc., subsequently renamed Boatmen's Bancshares of Iowa, Inc., with
approximately $1.2 billion in assets, is headquartered in Des Moines,
Iowa. Nonrecurring merger expenses related to the acquisition totaled $7.1
million and were recorded in the fourth quarter of 1991.
On October 1, 1992, the Corporation consummated the acquisition of
Sunwest Financial Services, Inc. (Sunwest), resulting in the issuance of
approximately 14.8 million shares of common stock. Sunwest, subsequently
renamed Boatmen's Sunwest, Inc., with approximately $3.7 billion in
assets, is headquartered in Albuquerque, New Mexico and is the largest
banking organization in that state. In the fourth quarter of 1992, the
Corporation recorded nonrecurring charges to conform Sunwest's loan,
accrual and reserve policies to the Corporation's policies which required
additions to the reserve for loan losses and write-downs of foreclosed
property. In addition, nonrecurring merger-related expenses were
recognized, such as investment banking fees, severance benefits, and
abandonment of equipment and software. Also in 1992, Sunwest realigned its
investment portfolio to conform to the Corporation's investment philosophy
by selling approximately $670 million of U.S. government securities and
reinvesting the proceeds in mortgage-backed securities. Gains of
approximately $24.3 million were recognized from this realignment.
Pending Acquisitions The Corporation currently is in the process of
completing six acquisitions aggregating $4.2 billion in assets.
Information related to these acquisitions is summarized below.
On May 6, 1994, the Corporation announced an agreement to acquire
National Mortgage Company and certain affiliates (National Mortgage), in a
transaction to be accounted for as a pooling of interests. Under terms of
the agreement, the Corporation will exchange not more than 5.0 million
shares of common stock for all of the stock of National Mortgage. National
Mortgage, headquartered in Memphis, Tennessee, is a full-service mortgage
banking company and presently services mortgage loans totaling
approximately $13.8 billion. This acquisition is expected to be completed
early in the first quarter of 1995.
On May 19, 1994, the Corporation announced a definitive agreement to
acquire Dalhart Bancshares, Inc. (Dalhart) in a transaction to be
accounted for as a pooling of interests. Each share of Dalhart will be
exchanged for 6.36 shares of the Corporation's common stock resulting in
the issuance of approximately .7 million shares. Dalhart, with assets of
approximately $140 million, is located in north Texas and will be merged
into the Corporation's Amarillo subsidiary. This acquisition is expected
to be completed early in the first quarter of 1995.
On August 18, 1994, the Corporation announced an agreement to acquire
Worthen Banking Corporation (Worthen), headquartered in Little Rock,
Arkansas, in a transaction to be accounted for as a pooling of interests.
Under terms of the agreement, the Corporation will exchange one share of
its common stock for each Worthen share, resulting in the issuance of
approximately 17.3 million shares. Worthen is the second largest banking
organization in Arkansas, with approximately $3.5 billion in assets,
operating 112 retail banking offices throughout Arkansas and six offices
in the Austin, Texas area. This acquisition is subject to approval by
Worthen shareholders and is expected to be completed in the first quarter
of 1995.
56
41
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
On September 27, 1994, the Corporation announced an agreement to
acquire Salem Community Bancorp, Inc. (Salem), in a stock and cash
transaction which will be accounted for as a purchase. Salem has two
locations with approximately $80 million in assets. This transaction,
which is subject to regulatory approval, is expected to be completed in
the first quarter of 1995.
On November 15, 1994, the Corporation announced a definitive agreement
to acquire First National Bank in Pampa (Pampa) in a transaction to be
accounted for as a pooling of interests. Under terms of the agreement, the
Corporation will exchange approximately 1.35 million shares of common
stock for all of the outstanding shares of Pampa, which has approximately
$168 million in assets and will be merged into the Corporation's Amarillo
subsidiary. This transaction, which is subject to regulatory approval, is
expected to be completed in the second quarter of 1995.
On November 15, 1994, the Corporation announced a definitive agreement
to acquire West Side Bancshares, Inc. (West Side), a one bank holding
company located in San Angelo, Texas, in a stock transaction to be
accounted for as a purchase. The acquisition of West Side, with assets of
approximately $142 million, will result in the issuance of approximately
600,000 shares of common stock through treasury stock acquired in the open
market. This transaction, which is subject to regulatory approval, is
expected to be completed in the first quarter of 1995. Upon consummation,
West Side will be merged into the Corporation's Amarillo subsidiary.
4 HELD TO MATURITY SECURITIES
The amortized cost and approximate market value of held to maturity
securities are summarized as follows:
==========================================================================================================
Unrealized
December 31, 1994 Amortized ----------------------- Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
U.S. treasury $ 437,253 $ 22 $ (21,399) $ 415,876
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 1,274,516 (104,317) 1,170,199
Adjustable rate mortgages 537,225 54 (25,987) 511,292
Fixed rate pass-through 280,191 507 (17,007) 263,691
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed 2,091,932 561 (147,311) 1,945,182
Other agencies 471,751 4 (33,752) 438,003
- ----------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 3,000,936 587 (202,462) 2,799,061
State and municipal 763,286 28,064 (7,113) 784,237
Other debt securities 439,285 19 (45,584) 393,720
- ----------------------------------------------------------------------------------------------------------
Total held to maturity
securities $4,203,507 $28,670 $(255,159) $3,977,018
==========================================================================================================
==========================================================================================================
Unrealized
December 31, 1993 Amortized ----------------------- Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
U.S. treasury $ 231,064 $ 1,791 $ (434) $ 232,421
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 691,918 1,631 (5,953) 687,596
Adjustable rate mortgages 606,831 3,590 (2,183) 608,238
Fixed rate pass-through 367,548 9,037 (84) 376,501
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed 1,666,297 14,258 (8,220) 1,672,335
Other agencies 320,501 1,602 (293) 321,810
- ----------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 2,217,862 17,651 (8,947) 2,226,566
State and municipal 819,206 74,210 (200) 893,216
Other debt securities 258,407 1,998 (1,440) 258,965
- ----------------------------------------------------------------------------------------------------------
Total debt securities 3,295,475 93,859 (10,587) 3,378,747
Other securities 29,372 29,372
- ----------------------------------------------------------------------------------------------------------
Total held to maturity
securities $3,324,847 $93,859 $(10,587) $3,408,119
==========================================================================================================
The maturity distribution of held to maturity securities at December
31, 1994 is summarized as follows:
=========================================================================
(in thousands) Amortized Cost Market Value
- -------------------------------------------------------------------------
Due in one year or less $ 80,412 $ 79,984
Due after one year through five years 984,172 933,557
Due after five years through ten years 415,386 429,980
Due after ten years 248,127 249,321
Mortgage-backed securities 2,475,410 2,284,176
- -------------------------------------------------------------------------
Total held to maturity securities $4,203,507 $3,977,018
=========================================================================
Held to maturity securities at December 31, 1994 include mortgage-
backed government guaranteed agency securities of $2.1 billion and private
issue mortgage-backed securities totalling $.4 billion.
Sales and redemptions of held to maturity securities resulted in
realized gains and losses as follows:
=========================================================================================
Year ended December 31 (in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------
Debt securities:
Realized gains $122 $ 629 $25,081
Realized losses (3) (140)
- -----------------------------------------------------------------------------------------
Net realized gains $122 $ 626 $24,941
=========================================================================================
Equity securities:
Realized gains $3,483 $ 800
Realized losses (1,302) (200)
- -----------------------------------------------------------------------------------------
Net realized gains (losses) $ -- $2,181 $ 600
=========================================================================================
There were no sales of held to maturity securities in 1994. The gains
in 1994 represent premiums received on called securities.
57
42
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
5 AVAILABLE FOR SALE SECURITIES
The amortized cost and approximate market value of available for sale
securities are summarized as follows:
==========================================================================================================
Unrealized
December 31, 1994 Amortized ----------------------- Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
U.S. treasury $ 768,210 $1,703 $ (14,982) $754,931
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 789,079 75 (47,807) 741,347
Adjustable rate mortgages 2,004,680 177 (94,798) 1,910,059
Fixed rate pass-through 169,657 2,397 (3,888) 168,166
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed 2,963,416 2,649 (146,493) 2,819,572
Other agencies 42,356 (816) 41,540
- ----------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 3,773,982 4,352 (162,291) 3,616,043
Other debt securities 228,678 71 (14,393) 214,356
- ----------------------------------------------------------------------------------------------------------
Total debt securities 4,002,660 4,423 (176,684) 3,830,399
Equity securities 55,609 1,209 56,818
- ----------------------------------------------------------------------------------------------------------
Total available for sale
securities $4,058,269 $5,632 $(176,684) $3,887,217
==========================================================================================================
Unrealized
December 31, 1993 Amortized ----------------------- Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
U.S. treasury $1,152,605 $43,310 $ (62) $1,195,853
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 1,220,691 5,520 (7,137) 1,219,074
Adjustable rate mortgages 2,096,227 19,865 (3,459) 2,112,633
Fixed rate pass-through 265,293 11,455 (209) 276,539
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed 3,582,211 36,840 (10,805) 3,608,246
Other agencies 33,829 1 (45) 33,785
- ----------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 4,768,645 80,151 (10,912) 4,837,884
Other debt securities 317,258 668 (4,557) 313,369
- ----------------------------------------------------------------------------------------------------------
Total debt securities 5,085,903 80,819 (15,469) 5,151,253
Equity securities 22,388 4,716 (1,391) 25,713
- ----------------------------------------------------------------------------------------------------------
Total available for sale
securities $5,108,291 $85,535 $(16,860) $5,176,966
==========================================================================================================
The maturity distribution of available for sale securities at December
31, 1994 is summarized as follows:
=========================================================================
(in thousands) Amortized Cost Market Value
- -------------------------------------------------------------------------
Due in one year or less $ 303,426 $ 304,515
Due after one year through five years 523,794 508,635
Due after five years through ten years 12,776 12,797
Due after ten years 4,024 4,029
Mortgage-backed securities 3,158,640 3,000,423
- -------------------------------------------------------------------------
Total debt securities 4,002,660 3,830,399
Equity securities 55,609 56,818
- -------------------------------------------------------------------------
Total available for sale securities $4,058,269 $3,887,217
=========================================================================
Available for sale securities at December 31, 1994 include mortgage-
backed government guaranteed agency securities of $2.8 billion and private
issue mortgage-backed securities totalling $.2 billion.
Sales and redemptions of available for sale securities in 1994 resulted
in gross realized gains of $6.1 million, including $3.5 million from the
sales of equity securities. There were no sales of available for sale
securities in 1993.
Held to maturity and available for sale securities with book values
totaling $4,103,658 and $3,678,510 at December 31, 1994 and 1993,
respectively, were pledged to secure public deposits, trust deposits, and
for other purposes required by law.
6 LOANS
A summary of loan categories is as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Domestic:
Commercial $ 7,839,658 $ 7,508,671
Real estate-mortgage 3,173,553 2,970,550
Real estate-construction 684,632 557,977
Consumer 4,693,340 3,742,766
Lease financing 135,921 95,209
- ------------------------------------------------------------------------------------
Total domestic 16,527,104 14,875,173
Foreign loans 19,084 18,087
- ------------------------------------------------------------------------------------
Total loans 16,546,188 14,893,260
Less unearned income 65,751 67,338
- ------------------------------------------------------------------------------------
Total loans, net $16,480,437 $14,825,922
====================================================================================
Nonperforming assets, consisting of nonperforming loans and foreclosed
property, are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Nonaccrual $102,521 $142,853
Restructured 7,090 14,807
Past due 90 days or more 15,559 17,238
- ------------------------------------------------------------------------------------
Total nonperforming loans 125,170 174,898
Foreclosed property 60,393 110,639
- ------------------------------------------------------------------------------------
Total nonperforming assets $185,563 $285,537
====================================================================================
Gross interest income which would have been recorded, if all nonaccrual
and restructured loans at year end had been current in accordance with
original terms, amounted to $9.5 million in 1994 and $12.4 million in
1993. Actual interest recorded amounted to $2.4 million in 1994 and $2.9
million in 1993.
Following is a summary of activity for 1994 regarding loans extended to
directors and executive officers of the Corporation and its largest
subsidiaries or to enterprises in which said individuals had beneficial
interests. Such loans were made in the normal course of business on
substantially the same terms, including interest rates and collateral, as
those prevailing at the same time for comparable transactions with other
persons.
=================================================================================
(in thousands)
- ---------------------------------------------------------------------------------
Outstanding Net change from changes Outstanding
at 12/31/93 Additions Repayments in director status at 12/31/94
- ---------------------------------------------------------------------------------
$200,187 $98,951 $(108,675) $273 $190,736
=================================================================================
The following summarizes activity in the reserve for loan losses:
=================================================================================
December 31 (in thousands) 1994 1993 1992
- ---------------------------------------------------------------------------------
Balance, beginning of year $341,099 $302,021 $252,283
Loans charged off (65,941) (74,202) (137,041)
Recoveries on loans
previously charged off 41,693 40,239 34,446
- ---------------------------------------------------------------------------------
Net charge-offs (24,248) (33,963) (102,595)
Provision for loan losses 24,306 60,184 136,626
Reserves of purchased subsidiaries 873 12,857 15,707
- ---------------------------------------------------------------------------------
Balance, end of year $342,030 $341,099 $302,021
=================================================================================
In May, 1993, the Financial Accounting Standards Board (FASB)issued
Statement of Financial Accounting Standards No. 114 (SFAS No. 114),
"Accounting by Creditors for Impairment of a
58
43
Loan" and in October 1994, the FASB issued SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures."
These statements will require that certain impaired loans be measured based
on either the present value of expected future cash flows discounted at the
loan's effective rate, the market price of the loan, or fair value of the
underlying collateral if the loan is collateral dependent. Adoption of
these pronouncements in 1995 is not expected to have a material effect on
the Corporation's financial results or asset quality statistics.
7 PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Land $ 68,644 $ 66,307
Buildings 328,505 284,028
Building under capital lease 45,053 45,053
Furniture, fixtures and equipment 441,899 417,438
Leasehold improvements 83,215 82,773
Construction in progress 26,082 12,071
- ------------------------------------------------------------------------------------
Total 993,398 907,670
Less accumulated depreciation/amortization 468,586 427,084
- ------------------------------------------------------------------------------------
Net property and equipment $524,812 $480,586
====================================================================================
Depreciation and amortization charged to expense in 1994, 1993 and 1992
amounted to $65,974, $58,268, and $50,612, respectively.
At December 31, 1994, the Corporation was obligated under long-term
leases, principally related to the use of land, buildings, and equipment
in banking operations. The following table summarizes future minimum
rental payments required under leases which have initial or remaining
noncancellable lease terms in excess of one year.
====================================================================================
(in thousands)
- ------------------------------------------------------------------------------------
Period Capital lease Operating leases
- ------------------------------------------------------------------------------------
1995 $ 4,559 $ 20,710
1996 4,559 18,709
1997 4,559 13,144
1998 4,559 10,828
1999 4,559 9,906
After 1999 54,698 54,115
- ------------------------------------------------------------------------------------
Total minimum lease payments 77,493 $127,412
========
Less amount representing interest 39,134
- ----------------------------------------------------------
Present value of minimum lease payments $38,359
==========================================================
Lease provisions that would cause rentals to vary from those reflected
above are not material. Property taxes, insurance, and maintenance expense
related to property under lease are principally paid by the Corporation.
Total rental expense for all operating leases amounted to $27,825, $33,899
and $33,275 in 1994, 1993, and 1992, respectively.
8 INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Goodwill $170,503 $181,638
Core deposit premium 73,948 85,300
Credit card premium 2,980 3,542
Purchased mortgage servicing rights 4,067 4,858
- ------------------------------------------------------------------------------------
Total intangible assets, net $251,498 $275,338
====================================================================================
Goodwill and core deposit premium amortization charged to expense in 1994,
1993, and 1992 amounted to $33,216, $30,571, and $16,076, respectively.
9 SEGREGATED ASSETS
Included in other assets at December 31, 1994 are segregated assets
totaling $177.2 million net of a valuation allowance of $16.7 million. As
part of the regulatory assisted acquisition of Missouri Bridge Bank, N.A.
(Bridge Bank), on April 23, 1993, the Corporation entered into a five-year
loss-sharing arrangement with the FDIC with respect to approximately $950
million in multi-family residential, commercial real estate, construction
and commercial loans. During the five-year period, the FDIC will reimburse
the Corporation for 80 percent of the first $92.0 million of net charge-
offs on these loans, after which the FDIC will increase its reimbursement
coverage to 95 percent of additional charge-offs. During this period and
for two years thereafter, the Corporation is obligated to pay the FDIC 80
percent of all recoveries on charged off loans.
Segregated assets are those loans acquired from the Bridge Bank and
covered under the loss sharing arrangement with the FDIC that possess more
than the normal risk of collectibility. These assets consist of loans that
at acquisition were or have since become classified as nonperforming loans
or foreclosed property.
The Corporation's primary purpose in managing a portfolio of this
nature is to provide ongoing collection and control activities on behalf
of the FDIC. Accordingly, these assets do not represent loans made in the
ordinary course of business and, due to the underlying nature of this
liquidating asset pool, are excluded from the Corporation's nonperforming
asset statistics.
A summary of activity regarding the segregated asset pool for the years
ended December 31, 1994 and 1993 is provided below.
================================================================================================================
Principal Allowance Principal
(in millions) balance for losses balance, net
- ----------------------------------------------------------------------------------------------------------------
Segregated assets identified
upon acquisition $312.0 $27.0 $285.0
Charge-offs (52.1) (10.4)
Recoveries 1.8
Transfers to segregated assets 36.5
Payments on segregated assets (29.8)
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 266.6 18.4 248.2
Charge-offs (14.9) (3.0)
Recoveries 1.3
Transfers to segregated assets 40.9
Payments on segregated assets (98.7)
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $193.9 $16.7 $177.2
================================================================================================================
10 DEPOSITS
Deposits are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Demand deposits $ 4,589,782 $ 4,769,947
Savings deposits 1,807,804 2,118,390
Interest-bearing transaction accounts 7,010,444 6,654,668
Time deposits $100,000 and over 1,040,688 955,988
Retail time deposits 7,740,844 6,410,009
- ------------------------------------------------------------------------------------
Total deposits $22,189,562 $20,909,002
====================================================================================
59
44
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
11 FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS
Federal funds purchased and securities sold under repurchase agreements
generally represent borrowings with overnight maturities. Information
relating to these borrowings is summarized as follows:
==============================================================================================================
(in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Balance:
Average $2,737,607 $1,759,173 $1,681,938
Year end 1,888,970 1,996,022 1,664,025
Maximum month-end
balance during year 3,718,105 2,560,448 2,493,120
==============================================================================================================
Interest rate:
Average 4.09% 2.83% 3.41%
==============================================================================================================
Year end 5.54% 2.61% 2.62%
==============================================================================================================
12 SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Short-term bank notes $1,550,000 $ --
Commercial paper 43,531 49,635
Other 168,170 766,336
- ------------------------------------------------------------------------------------
Total $1,761,701 $815,971
====================================================================================
Commercial paper is issued by the parent company in maturities not to
exceed nine months. The short-term bank notes are floating-rate
instruments issued by the Corporation's banking subsidiaries with
maturities of less than one year. Other short-term funds consisted
principally of treasury, tax and loan accounts. At December 31, 1994, the
parent company had available additional credit totaling $100 million under
a revolving credit agreement, all of which was unused. The revolving
credit agreement is a three year facility extending to September, 1997.
13 LONG-TERM DEBT
Long-term debt is summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Parent Company:
7-5/8% notes due 2004 $100,000 $100,000
6-3/4% notes due 2003 100,000 100,000
8-5/8% notes due 2003 50,000 50,000
9-1/4% notes due 2001 150,000 150,000
6-1/4% convertible subordinated
debentures due 2011 904 1,215
12% note due 1998 25,000 25,000
- ------------------------------------------------------------------------------------
Total Parent Company 425,904 426,215
- ------------------------------------------------------------------------------------
Subsidiaries:
9-7/8% senior notes payable April 15, 1995 35,000 35,000
Federal Home Loan Bank notes
due through 1999 26,500 25,000
6.55% mortgage note due through 2009 27,679
Other 38
- ------------------------------------------------------------------------------------
Total subsidiaries 89,179 60,038
- ------------------------------------------------------------------------------------
Total long-term debt $515,083 $486,253
====================================================================================
The 7-5/8% subordinated notes mature on October 1, 2004, the 6-3/4%
subordinated notes mature on March 15, 2003, the 8-5/8% subordinated notes
mature on November 15, 2003, and the 9-1/4% subordinated notes mature on
November 1, 2001. These notes are not redeemable by the holders or the
Corporation prior to maturity.
The 6-1/4% convertible subordinated debentures are redeemable at the
option of the holder without payment of premium by the Corporation.
Redemption rights are subject to an annual noncumulative principal
limitation of $25 thousand per holder and $1.2 million in the aggregate.
Prepayments in whole or in part may be made at the option of the
Corporation with payment of premium. The debentures are convertible into
common stock of the Corporation at a conversion price of $16.71 per share
adjusted for the two-for-one stock split on August 10, 1993, subject to
adjustments under certain circumstances. During 1994, 1993 and 1992, $.3
million, $.2 million and $2.5 million of the debentures were converted
into 18,598, 7,650 and 74,270 shares of common stock, respectively.
The 12% note is due in 1998 and may not be prepaid at the option of the
Corporation.
The 9-7/8% senior notes are due April 15, 1995.
Federal Home Loan Bank notes totaling $25 million mature in 1997 and
1998 with interest rates ranging from 4.9% to 5.2%. The notes may be
prepaid at the option of the Corporation with payment of premium. A $1.5
million Federal Home Loan bank advance at a rate of 6.987% matures in 1999
with semi-annual principal payments of $150 thousand.
The 6.55% mortgage note payable matures in 2009. Monthly principal and
interest payments of $252 thousand are required on the note until paid.
The Corporation may prepay the note without payment of premium. Proceeds
from this note were used to purchase the building occupied by the
Corporation's trust subsidiary.
Several of the note agreements contain various financial covenants
pertaining to minimum levels of net worth, limitations on additional
indebtedness, and limitations on repurchases of common stock and dividend
payments. The Corporation was in compliance with all such covenants at
December 31, 1994.
Obligations of the parent company included above are unsecured, and to
a large extent are subordinated in right of payment to any other
indebtedness of the Corporation. The indebtedness of the banking
subsidiaries is subordinated to rights of depositors.
Scheduled principal payments on total long-term debt in each of the
five years subsequent to December 31, 1994 are as follows:
==========================================================
(in thousands)
- ----------------------------------------------------------
Year Parent Company Consolidated
- ----------------------------------------------------------
1995 $ 904 $37,453
1996 1,634
1997 11,724
1998 25,000 41,820
1999 1,922
==========================================================
14 PREFERRED STOCK
At December 31, 1994, there were outstanding 11,421 shares of 7%
Cumulative Redeemable Preferred Stock, Series B, $100 per share stated
value. Dividends are payable quarterly. The stock is redeemable at the
stated value at the option of the holders and has equal voting rights with
each share of common stock.
60
45
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
15 COMMON STOCK
On August 10, 1993, the Corporation declared a two-for-one stock split,
which was effected as a 100% stock dividend to stockholders of record on
August 31, 1993 and paid on October 1, 1993. The Corporation maintains
various stock option plans which provide for the issuance of stock to
certain key employees of the Corporation. Under certain plans, stock
appreciation rights may be granted. The option price under these plans is
equivalent to the fair market value of the common stock at the date of
grant.
The following table summarizes the status of the various plans.
=========================================================================================================
1994 1993
- ---------------------------------------------------------------------------------------------------------
Shares Price Per Share Shares Price Per Share
- ---------------------------------------------------------------------------------------------------------
Options granted 696,450 $27.75 to $31.63 632,000 $27.00
Options
exercised 318,983 5.76 to 27.75 434,377 3.29 to 22.81
Stock
appreciation
rights
exercised 29,030 15.63 to 27.75 99,966 15.63 to 22.81
Options lapsed 29,707 5.76 to 27.75 58,544 9.39 to 27.00
Options
outstanding 3,299,536 5.76 to 27.75 2,980,806 5.76 to 27.63
Options
exercisable 1,844,956 5.76 to 27.63 1,280,034 5.76 to 27.63
=========================================================================================================
The Corporation has other common stock related plans which are
summarized below.
1990 Stock Purchase Plan for Employees This Plan provides eligible
employees of the Corporation and its subsidiaries with the opportunity
to purchase, at market value, with the Corporation providing a one-third
matching contribution, common stock of the Corporation through regular
payroll deductions. The aggregate number of shares issuable under this
Plan is limited to 2,000,000 shares, and as of December 31, 1994,
approximately 5,800 employees were participating in the Plan.
Dividend Reinvestment and Stock Purchase Plan 1,600,000 shares of the
Corporation's common stock have been reserved for sale, at market value,
pursuant to this plan, to holders of record of shares of common stock
who elect to use quarterly dividends or optional cash contributions to
purchase additional shares.
Thrift Incentive 401(k) Plan This is a savings plan for the benefit of
employees of the Corporation and its subsidiaries. Participation by
eligible employees is voluntary, and participants may contribute at
least 2% and up to 12% of their salary, up to certain limits, by regular
payroll deductions. All participants' contributions are invested by the
trustee, as directed by the participant, in various investment funds,
one of which consists solely of the Corporation's common stock. The
Corporation matches, in full, up to 3% of the contribution made by the
employee which is invested in a separate fund consisting solely of the
Corporation's common stock.
Shareholder Rights Plan In 1990, the Board of Directors of the
Corporation declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of common stock. The Rights trade
automatically with shares of common stock and become exercisable only
under certain circumstances. The Rights are designed to protect the
interests of the Corporation and its shareholders against coercive
takeover tactics. The purpose of the Rights is to encourage potential
acquirers to negotiate with the Corporation's Board of Directors prior
to attempting a takeover and to give the Board leverage in negotiating
on behalf of all shareholders the terms of any proposed takeover.
16 RETIREMENT BENEFITS
Substantially all employees of the Corporation and its subsidiaries are
covered by the Boatmen's Bancshares, Inc. Retirement Plan for Employees,
a noncontributory defined benefit plan. Pension benefits are based upon
the employee's length of service and compensation during the final years
of employment. Normal service costs are funded currently using the
projected unit credit method.
Contributions to the Plan totaled $5.1 million in 1994, $11.8 million
in 1993, and $12.3 million in 1992.
Net pension expense for 1994, 1993 and 1992 was comprised of the
following:
=================================================================================================
Year ended December 31 (in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------
Service cost $13,445 $11,800 $11,177
Interest cost on projected
benefit obligation 17,765 16,082 14,510
(Return) loss on plan assets 603 (29,842) (16,072)
Net amortization and deferral (22,152) 10,704 (725)
- -------------------------------------------------------------------------------------------------
Net pension expense $ 9,661 $ 8,744 $ 8,890
=================================================================================================
The following table sets forth the retirement plan's funded status and
amounts recognized in the Corporation's consolidated financial statements:
=================================================================================
December 31 (in thousands) 1994 1993
- ---------------------------------------------------------------------------------
Plan assets at fair value, primarily listed
stocks and bonds $239,539 $245,389
- ---------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefits 162,398 169,278
Non-vested benefits 9,280 10,263
- ---------------------------------------------------------------------------------
Accumulated benefit obligation 171,678 179,541
Effect of projected future salary increases 45,637 45,748
- ---------------------------------------------------------------------------------
Projected benefit obligation 217,315 225,289
- ---------------------------------------------------------------------------------
Plan assets in excess of projected benefit
obligation $ 22,224 $ 20,100
=================================================================================
Comprised of:
Unrecognized net asset being amortized
over 17 years $ 13,926 $ 15,916
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions 8,964 1,924
Unrecognized prior service loss (142) (1,773)
Prepaid pension cost (liability) (524) 4,033
- ---------------------------------------------------------------------------------
$ 22,224 $ 20,100
=================================================================================
61
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Assumptions used in computing pension expense were:
==============================================================================
1994 1993 1992
- ------------------------------------------------------------------------------
Weighted average discount rate 7 1/2% 7 3/4-8% 7-9 %
Rate of increase in future
compensation levels 5 % 4-5 1/2% 4-6 1/2%
Expected long-term rate of
return on assets 8 3/4% 8-8 3/4% 7-9 %
==============================================================================
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.50% and 5.50%, respectively, at
December 31, 1994 and 7.50% and 5.00% respectively, at December 31, 1993.
The Corporation provides postemployment life and contributory medical
benefits to retired employees. The liability for such benefits is unfunded
and accounted for in accordance with Statement of Financial Accounting
Standards No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions". Under this standard, costs of retiree benefits other
than pensions are accrued in a manner similar to actual pension costs.
The following table presents the status of the plans:
=========================================================================
December 31 (in thousands) 1994 1993
- -------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $38,443 $32,540
Fully eligible active plan participants 12,072 10,557
Other active plan participants 17,046 16,529
- -------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 67,561 59,626
- -------------------------------------------------------------------------
Unrecognized net gain 10,831 6,575
Unrecognized transition obligation 40,724 43,120
- -------------------------------------------------------------------------
Accrued postretirement
benefit cost $16,006 $ 9,931
=========================================================================
Net postretirement benefit cost included the following components:
=========================================================================================
Year ended December 31 (in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------
Service cost $1,448 $1,238 $1,195
Interest cost 4,823 4,586 4,063
Amortization of transition
obligation over 20 years 2,966 2,396 2,395
- -----------------------------------------------------------------------------------------
Net postretirement benefit cost $9,237 $8,220 $7,653
=========================================================================================
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits for the medical plan is 9.50% for 1995 (compared
to 10.50% assumed for 1994) and is assumed to decrease gradually to 5.00%
in 2003 and remain at that level thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported. For
example, increasing the assumed health care trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation for the medical plan as of December 31, 1994 by $5.8 million,
and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1994 by $.7 million. The
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.50% at December 31, 1994 and 7.50%
at December 31, 1993.
17 INCOME TAXES
Income tax expense is summarized as follows:
=========================================================================================
Year ended December 31 (in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------
Current:
Federal $158,896 $149,270 $105,822
State 26,925 25,156 14,563
- -----------------------------------------------------------------------------------------
Total current 185,821 174,426 120,385
- -----------------------------------------------------------------------------------------
Deferred:
Federal 2,275 (19,157) (21,031)
State (1,920) (8,462) (6,836)
- -----------------------------------------------------------------------------------------
Total deferred 355 (27,619) (27,867)
- -----------------------------------------------------------------------------------------
Income tax expense $186,176 $146,807 $ 92,518
=========================================================================================
A reconciliation of the statutory Federal income tax rate with the
effective tax rate is as follows:
=========================================================================================
Percent of pre-tax income
Year ended December 31 (in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 34.0%
Tax-exempt securities interest
and other income (4.3) (5.1) (7.5)
Deferred taxes at applicable rates (1.1) (1.7)
State taxes, net of Federal benefit 3.0 2.3 2.7
Other, net .7 .5 1.3
- -----------------------------------------------------------------------------------------
Effective rate 34.4% 31.6% 28.8%
=========================================================================================
The Corporation's deferred tax asset account was comprised of the
following:
=========================================================================
Year ended December 31 (in thousands) 1994 1993
- -------------------------------------------------------------------------
Deferred tax liabilities:
Lease financing $(25,859) $(16,413)
Net unrealized gain on
securities available for sale (26,525)
Depreciation (22,018) (20,108)
Other (30,149) (27,847)
- -------------------------------------------------------------------------
Total deferred tax liabilities (78,026) (90,893)
- -------------------------------------------------------------------------
Deferred tax assets:
Net unrealized loss on
securities available for sale 66,067
Provision for loan loss 139,947 130,509
Other real estate owned losses 13,404 15,622
Other 39,063 32,980
- -------------------------------------------------------------------------
Total deferred tax assets 258,481 179,111
- -------------------------------------------------------------------------
Net deferred tax asset $180,455 $ 88,218
=========================================================================
18 RESERVES ON DEPOSITS
Required reserves on deposits, included in the caption "Cash and due
from banks," were $516,528 and $546,420 at December 31, 1994 and 1993,
respectively.
19 FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based on a
variety of factors. Where possible, fair values represent quoted market
prices for identical or comparable instruments. In other
62
47
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
cases, fair values have been estimated based on assumptions concerning the
amount and timing of estimated future cash flows and assumed discount rates
reflecting varying degrees of risk. Intangible values assigned to customer
relationships are not reflected in the reported fair values. Accordingly,
the fair values may not represent actual values of the financial
instruments that could have been realized as of year end or that will be
realized in the future.
The carrying amounts reported in the balance sheet for cash and due
from banks, short-term investments, Federal funds sold and securities
purchased under resale agreements approximate fair value.
Fair values for held to maturity securities, available for sale
securities, and trading securities are based on quoted market prices or
dealer quotes. If quoted prices are not available for the specific
security, fair values are based on quoted market prices of comparable
instruments.
The fair values of 1-4 family residential loans, home equity and other
homogeneous categories of consumer loans are estimated using quoted market
prices for similar traded loans or securities backed by such loans,
adjusted for differences between the quoted instruments and the instrument
being valued. The fair values for other loans are estimated using a
discounted cash flow analysis, based on interest rates currently offered
for loans with similar terms to borrowers of similar credit quality or in
some situations, due to the variable rate nature of the instrument,
carrying value and fair value are considered one and the same.
Fair values for nonperforming loans are estimated using assumptions
regarding current assessments of collectibility and historical loss
experience.
By definition fair values of deposits with no stated maturities, such
as demand deposits, savings and NOW accounts and money market deposit
accounts, are equal to the amounts payable on demand at the reporting
date. The fair values of all other fixed rate deposits are based on
discounted cash flows using rates currently offered for deposits of
similar remaining maturities. The carrying amounts of variable rate
deposits approximate fair value at the reporting date.
The carrying amounts of Federal funds purchased and other short-term
borrowings approximate their fair values as of the reporting date.
The fair value of long-term debt is based on quoted market prices for
similar issues, or current rates offered to the Corporation for debt of
the same remaining maturity.
The fair values of interest rate swaps and foreign exchange contracts
are estimated using dealer quotes. These values represent the costs to
replace all outstanding contracts at current market rates, taking into
consideration the current credit worthiness of the counterparties. The
fair values of loan commitments, commercial letters of credit and standby
letters of credit are determined using estimated fees currently charged to
enter into similar agreements. The fair value of loan commitments totaled
approximately $1.1 million and $.8 million at December 31, 1994 and 1993,
respectively. The fair value of commercial and standby letters of credit
totaled approximately $1.3 million and $1.7 million at December 31, 1994
and 1993, respectively.
The estimated fair values of the Corporation's financial instruments were
as follows:
======================================================================================
December 31, 1994 (in millions) Carrying amount Fair value
- --------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks and
short-term investments $ 3,011.3 $ 3,011.3
Held to maturity securities 4,203.5 3,977.0
Available for sale securities 3,887.2 3,887.2
Trading securities 31.7 31.7
Loans 16,138.4 16,017.6
Financial liabilities:
Deposits 22,189.6 22,186.3
Short-term borrowings 3,650.7 3,650.7
Long-term debt 515.1 498.5
Off-balance sheet financial instruments:
Interest rate swaps:
Asset/liability management (.5) (168.5)
Customer swaps held in trading portfolio .4 .4
Foreign exchange contracts held in
trading portfolio 2.2 2.2
======================================================================================
December 31, 1993 (in millions) Carrying amount Fair value
- --------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks and
short-term investments $ 2,040.5 $ 2,040.5
Held to maturity securities 3,324.8 3,408.1
Available for sale securities 5,177.0 5,177.0
Trading securities 48.1 48.1
Loans 14,484.8 14,755.1
Financial liabilities:
Deposits 20,909.0 20,974.2
Short-term borrowings 2,812.0 2,812.0
Long-term debt 486.3 542.8
Off-balance sheet financial instruments:
Interest rate swaps:
Asset/liability management 9.1 11.2
Customer swaps held in trading portfolio .7 .7
Foreign exchange contracts held in
trading portfolio 1.9 1.9
======================================================================================
20 FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Corporation utilizes a variety of
off-balance sheet financial instruments to service the financial needs of
customers and to manage the Corporation's overall asset/liability
position. This activity includes commitments to extend credit, standby and
commercial letters of credit, securities lending, interest rate swaps and
foreign exchange contracts. Each of these instruments involve varying
degrees of risk. As such, the contract or notional amounts of these
instruments may or may not be an appropriate indicator of the credit or
market risk associated with these instruments.
Generally accepted accounting principles recognize these instruments as
contingent obligations or off-balance sheet items and accordingly, the
contract or notional amounts are not reflected in the consolidated
financial statements.
A summary of the Corporation's off-balance sheet financial instruments
at December 31, 1994 and 1993 is presented as follows.
63
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
===================================================================================================
Financial instruments held for other than trading purposes
whose credit risk is represented by contract amounts
- ---------------------------------------------------------------------------------------------------
December 31 (in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------
Commitments to extend credit $ 7,667.8 $ 6,004.1
Standby letters of credit 876.8 776.0
Commercial letters of credit 143.7 130.1
Securities lent 2,968.2 3,439.8
- ---------------------------------------------------------------------------------------------------
Total $11,656.5 $10,350.0
===================================================================================================
Financial instruments whose credit risk is represented by
other than notional or contract amounts
- ---------------------------------------------------------------------------------------------------
December 31 (in millions) 1994 1993
- ---------------------------------------------------------------------------------------------------
Foreign exchange contracts held in trading portfolio:
Commitments to purchase $ 548.7 $ 574.7
Commitments to sell 595.3 544.5
Interest rate swaps:
Asset/liability management 2,280.6 1,780.6
Customer swaps held in trading portfolio 324.6 323.6
- ---------------------------------------------------------------------------------------------------
Total $3,749.2 $3,223.4
===================================================================================================
A loan commitment represents a contractual agreement to lend up to a
specified amount, over a stated period of time as long as there is no
violation of any condition established in the contract, and generally
requires the payment of a fee. Standby letters of credit are issued to
improve a customer's credit standing with third parties, whereby the
Corporation agrees to honor a financial commitment by issuing a guarantee
to third parties in the event the Corporation's customer fails to perform.
Since loan commitment amounts generally exceed actual funding requirements
and virtually all of the standby letters of credit are expected to expire
unfunded, the total commitment amounts do not represent future cash
requirements. The Corporation's exposure to credit loss from loan
commitments, standby letters of credit and commercial letters of credit is
measured by the contract amount of these instruments. This credit risk is
minimized by subjecting these off-balance sheet instruments to the same
credit policies and underwriting standards used when making loans. The
Corporation evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary, is based on
such evaluations. Acceptable collateral includes cash or cash equivalents,
marketable securities, deeds of trust, receivables, inventory, fixed
assets and financial guarantees. Interest rates, in the event funding of
the aforementioned commitments are required, are predominantly based on
floating rates or prevailing market rates at the time such commitments are
funded. Substantially all of these commitments expire in 1-2 years unless
renewed by the Corporation. Commercial letters of credit are short-term
commitments issued for trade purposes, primarily to finance the movement
of goods between a buyer and seller dealing in international markets.
The Corporation, through its trust subsidiary, is involved in off-
balance sheet securities lending. In this capacity, the Corporation,
acting as agent, lends securities on behalf of its customers to third
party borrowers. The Corporation indemnifies its customers against losses
in the event of counterparty default, and minimizes this risk through
collateral requirements and limiting transactions to pre-approved
borrowers. Collateral policies require each borrower to initially deliver
cash or securities exceeding 102% of the market value of the securities
lent. Additional collateral is required through the term of the lending
agreement to ensure that the value of collateral exceeds the market value
of the securities lent. Interest rate risk associated with securities
lending activities arises from rate movements affecting the spread between
the rebate rate paid to the borrower on the collateral and the rate earned
on that collateral. This risk is controlled through policies that limit
the level of interest rate risk which can be undertaken.
The Corporation enters into interest rate swap transactions primarily
as part of its asset/liability management strategy to manage interest-rate
risk. These transactions involve the exchange of interest payments based
on a notional amount. The notional amounts of interest rate swaps express
the volume of transactions and are not an appropriate indicator of the
off-balance sheet market risk or credit risk. The credit risk associated
with interest rate swaps arises from the counterparties' failure to meet
the terms of the agreements and is limited to the fair value of contracts
in a gain (favorable) position. The Corporation manages this risk by
maintaining a well-diversified portfolio of highly-rated counterparties in
addition to imposing limits as to types, amounts and degree of risk the
portfolio can undertake. The limits are approved by senior management and
positions are monitored to ensure compliance with such limits. The credit
risk exposure at December 31, 1994 is minimal as virtually all contracts
were in an unfavorable position.
An effective asset/liability management function is required to address
the interest rate risk inherent in the Corporation's core banking
activities. If no other action is taken, the behavior of the core banking
activities, which includes lending and deposit activities, results in an
asset-sensitive position. Accordingly, to prudently manage the overall
interest rate sensitivity position, the Corporation utilizes a combination
of on- and off-balance sheet financial instruments to balance the interest
rate sensitivity of the core banking activities. The Corporation's
interest rate risk exposure is limited, by policy, to 5% of projected
annual net income. Adherence to these risk limits is controlled and
monitored through simulation modeling techniques that consider the impact
that alternative interest rate scenarios will have on the Corporation's
financial results. The interest rate swap portfolio is presently used to
modify the interest rate sensitivity of subordinated debt and alter the
interest rate sensitivity of the Corporation's prime-based loan portfolio.
The Corporation accessed the capital markets twice in recent years,
resulting in the issuance of $200 million of fixed rate subordinated debt.
The impact of adding long-term debt to the balance sheet resulted in
increased asset sensitivity as proceeds were initially used to replace
short-term borrowings. Accordingly, to reduce the impact on the
Corporation's gap position, $200 million of interest rate swaps were
executed to convert fixed rate debt to a floating rate instrument. The
Corporation's prime based loan portfolio (approximately $5.4 billion) is
the primary cause of the large asset sensitivity position of the core
banking activity as it is primarily funded by deposit liabilities that are
less sensitive to movements in market interest rates. As a means to alter
the interest rate sensitivity of the prime based portfolio, the
Corporation has used off-balance sheet instruments to convert
approximately $1.8 billion of prime based loans to fixed rate instruments.
Additionally, the Corporation used $250 million of interest rate swaps to
alter the pricing basis of the prime-based loan and bank note portfolios.
The interest rate swap programs were consistent with management's
objective of balancing the interest rate sensitivity of the core bank.
64
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BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Interest income and expense on interest rate swaps used to manage the
Corporation's overall interest rate sensitivity position is recorded on an
accrual basis as an adjustment to the yield of the related asset or
liability over the periods covered by the contracts. In 1994, the swap
portfolio increased net interest income by approximately $15 million,
adding 6 basis points to the net interest margin, compared to
approximately $20 million or 10 basis points in 1993. As summarized in the
following table, the swap portfolio is primarily comprised of contracts
wherein the Corporation receives a fixed rate of interest while paying a
variable rate. The average rate received at December 31, 1994 was 5.53%
compared to an average rate paid of 6.06%, and the average remaining
maturity of the portfolio was 2 years. The variable rate component of the
interest rate swaps is based on LIBOR at December 31, 1994, and will
adjust with future movements in this index. Approximately 90% of the
portfolio is comprised of indexed amortizing swaps that reset in step with
movements in LIBOR; whereby, the maturity distribution could modestly
lengthen if interest rates were to increase from year end levels. The
average maturity distribution of the portfolio would increase from two
years to approximately four years if interest rates were to increase 200
basis points from year end 1994, and under no situation will the maturity
of any contract extend beyond 2001.
A summary of the interest rate swap activity for the years ended
December 31, 1994 and December 31, 1993 is provided below.
==========================================================================================================================
Asset/Liability Management Swaps Receive Pay Basis
(in millions) Fixed Fixed Swaps Total
- --------------------------------------------------------------------------------------------------------------------------
Notional amount,
December 31, 1992 $ 650 $46 $350 $1,046
Additions 1,000 150 1,150
Maturities (200) (15) (200) (415)
- --------------------------------------------------------------------------------------------------------------------------
Notional amount,
December 31, 1993 1,450 31 300 1,781
Additions 1,000 50 1,050
Maturities (450) (100) (550)
- --------------------------------------------------------------------------------------------------------------------------
Notional amount,
December 31, 1994 $2,000 $31 $250 $2,281
==========================================================================================================================
At December 31, 1994:
Average remaining
maturity (years) 2.2 1.3 1.1 2.0
Weighted average rate received 5.52% 6.09% 5.55% 5.53%
Weighted average rate paid 6.06 8.86 5.72 6.06
==========================================================================================================================
Summarized below is the unrealized gain (loss) of the swap portfolio at
December 31, 1994 and 1993.
==========================================================================================================================
December 31, 1994 December 31, 1993
- --------------------------------------------------------------------------------------------------------------------------
Asset/Liability Management Swaps Notional Unrealized Notional Unrealized
(in millions) Amount Gain (loss) Amount Gain (loss)
- --------------------------------------------------------------------------------------------------------------------------
Prime Loan Swaps:
Receive fixed $1,800 $(155.6) $1,100 $ 6.0
Basis swaps 200 (3.8) 300 1.9
- --------------------------------------------------------------------------------------------------------------------------
Total prime loan swaps 2,000 (159.4) 1,400 7.9
Long-term debt swaps 200 (8.6) 200 2.0
Retail CD 150 4.6
Other 81 (.5) 31 (3.3)
- --------------------------------------------------------------------------------------------------------------------------
Total $2,281 $(168.5) $1,781 $11.2
==========================================================================================================================
The Corporation has not terminated any of its interest rate swap
positions. Accordingly, there have been no deferred gains/losses
associated with this activity.
While the Corporation is primarily an end-user of derivative
instruments, it does act as an intermediary to meet the financial needs of
its customers. In this capacity, the Corporation executes foreign exchange
transactions and interest rate swaps to provide customers with capital
markets products to meet their financial objectives. All positions are
reported at fair value and changes in fair values are reflected in
investment banking revenues as they occur. The notional amount of the
customer swap portfolio at December 31, 1994 totaled approximately $325
million. Interest rate risk associated with these portfolios is controlled
by entering into offsetting positions with third parties. Credit risk
associated with this activity is minimized by limiting transactions to
highly rated counterparties and through collateral agreements. Collateral
is required to be delivered when the credit risk exceeds acceptable
thresholds, for certain counterparties. Collateral thresholds are
established based on the creditworthiness of the counterparty and are
bilateral. Acceptable collateral includes U.S. Treasury and Federal agency
securities. Foreign exchange activity, which is marked to market based on
prevailing rates of exchange, can expose the Corporation to market risk,
particularly when open positions exist, and, to a lesser extent, credit
risk associated with counterparties and their ability to meet the terms of
the foreign exchange contracts. The Corporation minimizes market risk
associated with foreign exchange activity by establishing limits which
prohibit traders from maintaining significant open positions on a daily
basis. The Corporation's exposure to credit risk on foreign exchange
contracts and customer swap contracts is measured as the cost of replacing
the contract in the event of default by the counterparty which is limited
to the market value of all contracts in a gain position. The Corporation
controls this credit risk by maintaining a well diversified portfolio of
highly rated counterparties and imposing counterparty limits and
collateral protection which is monitored by a credit committee for
compliance. In addition, counterparty credit risk for all derivative
activity is managed by subjecting these transactions to credit policies
and underwriting standards consistent with that used when making
commitments to extend credit. At December 31, 1994, the Corporation's
credit exposure from customer interest rate and foreign exchange contracts
totaled $4.7 million and $18.6 million, respectively. The following
summarizes the fair value at December 31, 1994 and the average fair value
for the year for derivatives held or issued for trading purposes.
======================================================================================
Derivatives Held or Issued for Trading Purposes
(in millions) Fair Value Average Fair Value
- --------------------------------------------------------------------------------------
Interest-rate swap contracts:
Assets $ 4.7 $ 4.1
Liabilities (4.3) (3.6)
Foreign exchange contracts:
Assets 18.6 19.0
Liabilities (16.4) (16.9)
======================================================================================
Net trading gains recognized in earnings on interest rate contracts
outstanding totaled $.2 million in 1994, $.8 million in 1993 and $.4
million in 1992. Net trading gains from foreign exchange contracts totaled
$5.9 million in 1994, $5.4 million in 1993 and $4.9 million in 1992.
21 PARENT COMPANY CONDENSED
FINANCIAL STATEMENTS
Following are the condensed financial statements of Boatmen's
Bancshares, Inc. (Parent Company only) for the periods indicated:
65
50
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
Balance Sheet
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Assets:
Cash $ 33 $ 386
Short-term investments 4,063 16,403
Investment in subsidiaries:
Banks and bank holding companies 2,080,644 2,066,584
Nonbanks 215,851 192,540
- ------------------------------------------------------------------------------------
Total investment in subsidiaries 2,296,495 2,259,124
- ------------------------------------------------------------------------------------
Advances to subsidiaries:
Bank 286,239 159,807
Nonbanks 38,466 109,995
- ------------------------------------------------------------------------------------
Total advances to subsidiaries 324,705 269,802
- ------------------------------------------------------------------------------------
Goodwill 89,874 95,334
Other assets 47,819 48,410
- ------------------------------------------------------------------------------------
Total assets $2,762,989 $2,689,459
====================================================================================
Liabilities:
Accounts payable and accrued liabilities $ 56,025 $ 46,955
Dividends payable 35,556 32,245
Short-term borrowings 43,531 49,635
Long-term debt 425,904 426,215
- ------------------------------------------------------------------------------------
Total liabilities 561,016 555,050
- ------------------------------------------------------------------------------------
Redeemable preferred stock 1,142 1,155
- ------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 104,831 104,126
Surplus 796,158 786,840
Unrealized net appreciation (depreciation),
available for sale securities (105,009) 42,252
Retained earnings 1,419,367 1,200,036
Treasury stock (14,516)
- ------------------------------------------------------------------------------------
Total stockholders' equity 2,200,831 2,133,254
- ------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,762,989 $2,689,459
====================================================================================
Statement of Income
==============================================================================================================
Year ended December 31 (in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Income:
Dividends from subsidiaries:
Banks and bank holding companies $219,676 $216,425 $142,525
Nonbanks 26,019 23,855 16,132
- --------------------------------------------------------------------------------------------------------------
Total dividends from subsidiaries 245,695 240,280 158,657
- --------------------------------------------------------------------------------------------------------------
Fees from subsidiaries 15,177 33,316 26,199
Interest on short-term investments 829 988 1,263
Interest on advances to subsidiaries 11,545 6,713 3,436
Other 760 791 397
- --------------------------------------------------------------------------------------------------------------
Total income 274,006 282,088 189,952
- --------------------------------------------------------------------------------------------------------------
Expense:
Interest expense 35,924 32,062 23,853
Staff expense 29,691 31,120 20,172
Other 23,971 30,139 26,073
- --------------------------------------------------------------------------------------------------------------
Total expense 89,586 93,321 70,098
- --------------------------------------------------------------------------------------------------------------
Income before income tax benefit
and equity in undistributed
income of subsidiaries 184,420 188,767 119,854
Income tax benefit 18,465 14,932 10,290
- --------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 202,885 203,699 130,144
Equity in undistributed income
of subsidiaries 152,447 113,720 98,582
- --------------------------------------------------------------------------------------------------------------
Net income $355,332 $317,419 $228,726
==============================================================================================================
Retained earnings include $1,225,438 and $1,072,991 of equity in
undistributed income of subsidiaries at year-end 1994 and 1993,
respectively.
Annual dividend distributions to the Corporation from its banking
subsidiaries are subject to certain limitations by applicable banking
regulatory authorities. In the aggregate, the statutory maximum available
dividends which may be paid to the Corporation without prior regulatory
approval is $536,229, resulting in $1,754,923 or 76.6% of the total equity
of the subsidiaries being potentially restricted as of December 31, 1994.
Statement of Cash Flows
==============================================================================================================
Year ended December 31 (in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $355,332 $317,419 $228,726
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 4,435 4,127 4,235
Equity in undistributed income
of subsidiaries (152,447) (113,720) (98,582)
Loss on sale of assets 30 237 174
Increase (decrease) in taxes
payable (3,435) 105 (3,332)
Other, net 14,452 (6,796) 17,426
- --------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 218,367 201,372 148,647
- --------------------------------------------------------------------------------------------------------------
Cash flows from investment activities:
Proceeds from sales of equity securities 5,905
Purchase of net assets and increase in
investment in subsidiaries (26,524) (125,364) (112,102)
Net change in advances to subsidiaries (54,903) (141,054) (82,127)
Net change in short-term investments 12,340 78,597 (5,500)
Net change in property and equipment 50 (3,595) (305)
- --------------------------------------------------------------------------------------------------------------
Net cash used for
investing activities (69,037) (191,416) (194,129)
- --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term borrowings (6,103) (6,390) 24,571
Repayments of long-term debt (1) (5,003) (4,140)
Proceeds from issuance of
long-term debt 99,281 99,148
Cash dividends paid (132,690) (112,216) (85,602)
Common stock issued pursuant to
various employee and shareholder
stock issuance plans 4,530 16,993 12,030
Acquisition of treasury stock (15,406) (3,102)
Decrease in redeemable preferred stock (13) (93) (19)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing activities (149,683) (10,530) 45,988
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (353) (574) 506
Cash at beginning of year 386 960 454
- --------------------------------------------------------------------------------------------------------------
Cash at end of year $ 33 $ 386 $ 960
==============================================================================================================
22 LEGAL PROCEEDINGS
Various claims and lawsuits, incidental to the ordinary course of
business, are pending against the Corporation and its subsidiaries. In the
opinion of management, after consultation with legal counsel, resolution
of these matters is not expected to have a material effect on the
consolidated financial statements.
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51
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
- -------------------------------------------------------------------------------
STATEMENT BY MANAGEMENT
Boatmen's Bancshares, Inc.
The accompanying financial statements and the related financial
information in this Annual Report were prepared by the management of
Boatmen's Bancshares, Inc. in accordance with generally accepted
accounting principles and where appropriate reflect management's best
estimates and judgment. Management is responsible for the integrity,
objectivity, consistency and fair presentation of the financial statements
and all financial information contained in this Annual Report.
The independent auditors, whose report is contained herein, are
responsible for auditing the Corporation's financial statements in
accordance with generally accepted auditing standards.
In order to fulfill its responsibility, management relies in part on a
system of internal accounting control which has been designed to safeguard
the Corporation's assets from material loss or misuse and ensure that
transactions are properly authorized and recorded in its financial
records. An extensive internal auditing program monitors compliance with
established procedures and controls to provide assurance that the system
of internal accounting control is functioning in a proper manner. There
are limits inherent in all systems of internal control based on the
recognition that the cost of such systems should not exceed the benefits
to be derived. Management believes the Corporation's system of internal
accounting control provides reasonable assurance that the Corporation's
assets are safeguarded and that its financial records are reliable.
The Corporation's internal auditor and independent auditors have direct
access to the Audit Committee of the Board of Directors. This committee,
which is composed entirely of outside directors, meets periodically with
management, the internal auditor, and the independent auditors to ensure
the financial accounting and audit process is properly conducted.
Andrew B. Craig, III
Chairman of the Board
and Chief Executive Officer
James W. Kienker
Executive Vice President
and Chief Financial Officer
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Boatmen's Bancshares, Inc.
We have audited the accompanying consolidated balance sheet of Boatmen's
Bancshares, Inc. as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the management
of Boatmen's Bancshares, Inc. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Boatmen's Bancshares, Inc. at December 31, 1994 and 1993, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in
1993, Boatmen's Bancshares, Inc. changed its method of accounting for debt
and equity securities.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 19, 1995
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52
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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DIRECTORS
Richard L. Battram
Vice Chairman
The May Department Stores Company
B. A. Bridgewater, Jr.
Chairman, President
and Chief Executive Officer
Brown Group, Inc.
William E. Cornelius
Retired Chairman and
Chief Executive Officer
Union Electric Company
Andrew B. Craig, III
Chairman of the Board
and Chief Executive Officer
Boatmen's Bancshares, Inc.
Ilus W. Davis
Chairman of
Kansas City Office
Armstrong, Teasdale, Schlafly & Davis
John E. Hayes, Jr.
Chairman of the Board,
President and
Chief Executive Officer
Western Resources, Inc.
Samuel B. Hayes, III
President
Boatmen's Bancshares, Inc.
Lee M. Liberman
Chairman Emeritus
Laclede Gas Company
John Peters MacCarthy
Vice Chairman
Boatmen's Bancshares, Inc.
William E. Maritz
Chairman of the Board and
Chief Executive Officer
Maritz Inc.
Andrew E. Newman
Chairman of the Board
Edison Brothers Stores, Inc.
Jerry E. Ritter
Executive Vice President,
Chief Financial and
Administrative Officer
Anheuser-Busch
Companies, Inc.
William P. Stiritz
Chairman and
Chief Executive Officer
Ralston Purina Company
A. E. Suter
Senior Vice Chairman and
Chief Operating Officer
Emerson Electric Co.
Dwight D. Sutherland
Partner
Sutherland Lumber Company
Theodore C. Wetterau
Retired Chairman and
Chief Executive Officer
Wetterau Incorporated
PRINCIPAL OFFICERS
Andrew B. Craig, III
Chairman of the Board
and Chief Executive Officer
Samuel B. Hayes, III
President
Gregory L. Curl
Vice Chairman
John Peters MacCarthy
Vice Chairman
John M. Brennan
Executive Vice President
Loan Administration
J. Robert Brubaker
Executive Vice President and
Senior Operations Officer
Alfred S. Dominick, Jr.
Executive Vice President
Retail Banking
James W. Kienker
Executive Vice President
and Chief Financial Officer
Phillip E. Peters
Executive Vice President and
Chief Investment Officer
David L. Ahner
Senior Vice President
Corporate Real Estate
Larry D. Bayliss
Senior Vice President
Advertising and
Public Relations
William K. Carson
Senior Vice President
and Chairman, Boatmen's
National Mortgage, Inc.
Jacquelyn L. Dezort
Senior Vice President
and Auditor
Forrest S. FitzRoy
Senior Vice President
and General Counsel
Arthur J. Fleischer
Senior Vice President
Human Resources
John W. Fricke
Senior Vice President
Community Banks
Robert W. Godwin
Senior Vice President
Taxation
Leo G. Haas
Senior Vice President
A. Laverne Howard
Senior Vice President
Director--Operations
Michael E. Jennings
Senior Vice President
W. Bruce Phelps
Senior Vice President
and Controller
Gary S. Pratte
Senior Vice President
Loan Administration
Raymond E. Senuk
Senior Vice President
Chief Information Officer
R. Patrick Shannon
Senior Vice President
Loan Review
Marvin W. Smith
Senior Vice President
Operations Administration
H. Chandler Taylor
Senior Vice President
Loan Administration
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53
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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Market Information
The Corporation's common stock is traded on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") National Market
("NM") under the symbol "BOAT." Options on the Corporation's common stock
are traded on the Chicago Board Options Exchange ("CBOE") under the symbol
"BTQ." The following table sets forth the high, low and closing trade
prices of the common stock for each quarterly period during 1994 and 1993
as reported by the National Association of Securities Dealers, Inc.
("NASD"):
Common Stock Share Data
- -----------------------------------------------------------------------------------------------------------------------------
High Low Close Book Value Market/Book Dividends Declared
- -----------------------------------------------------------------------------------------------------------------------------
1994
Fourth $31.50 $26.13 $27.13 $21.10 129% $.34
Third 34.88 30.13 31.06 21.06 147 .34
Second 35.00 28.88 31.50 20.75 152 .31
First 30.50 26.75 29.63 20.59 144 .31
- -----------------------------------------------------------------------------------------------------------------------------
1993
Fourth $33.50 $27.50 $29.88 $20.49 146% $.31
Third 32.38 29.19 32.19 19.66 164 .31
Second 32.50 27.25 30.19 19.18 157 .28
First 30.50 26.88 30.50 18.67 163 .28
- -----------------------------------------------------------------------------------------------------------------------------
At February 14, 1995, there were approximately 29,695 holders of record
of the Corporation's common stock and the closing price on that day was
$30.38.
Trading Volume
The number of shares of the Corporation's common stock traded during
the fourth quarter of 1994 and full year 1994 as reported
by NASD were 19,343,106 and 81,773,625, respectively.
- --------------------------------------------------------------------------------------------------------------
Standard Thomson
Agency Ratings Moody's & Poor's Bankwatch
- --------------------------------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc.: B
6-3/4% Subordinated notes due 2003 A3 A- A
7-5/8% Subordinated notes due 2004 A3 A- A
8-5/8% Subordinated notes due 2003 A3 A- A
9-1/4% Subordinated notes due 2001 A3 A- A
6-1/4% Convertible subordinated
debentures due 2011 A3 A- A
Commercial paper P1 A-1 TBW-1
The Boatmen's National Bank of St. Louis: B
Long-term/short-term deposits and bank notes Aa3/P1 A+/A-1 TBW-1
Boatmen's First National Bank of Kansas City: B
Long-term/short-term deposits and bank notes A1/P1 A+/A-1 TBW-1
Multi-bank note program
(6 Boatmen's subsidiary banks) A1/P1 A+/A-1
- --------------------------------------------------------------------------------------------------------------
Corporate Headquarters
One Boatmen's Plaza
800 Market Street
St. Louis, MO 63101
Transfer Agent
Boatmen's Trust Company
510 Locust Street
St. Louis, MO 63101
(314) 466-1357 or (800) 456-9852
Investor Relations Contact
Kevin R. Stitt
Director of Investor Relations
(314) 466-7662
(314) 466-7333 (FAX)
A Dividend Reinvestment and Stock Purchase Plan is
available to shareholders of the Corporation. The key features of this
Plan are:
* Dividends on common stock may be automatically reinvested;
* Option to invest up to $10,000 cash per quarter;
* No brokerage commissions or service charges on
reinvested dividends or cash investments.
A Direct Deposit of Dividends program is also available to shareholders
of the Corporation. This program, which is offered at no charge, provides
for the deposit of quarterly dividends directly to a checking or savings
account.
Please direct inquiries regarding these programs and requests for the
Reinvestment Plan Prospectus and Direct Deposit Authorization Form to:
Boatmen's Trust Company
P.O. Box 14768
St. Louis, MO 63178
(314) 466-1357 or (800) 456-9852
The Corporation's Bylaws require that notice of shareholder nominations
for directors and proposals of business to be transacted at the
Corporation's Annual Meeting of Shareholders must be received by the
Secretary of the Corporation not less than 75 days prior to the date of
the meeting.
The Corporation's annual meeting will be held on April 25, 1995 at
10:00 a.m. at the Corporate Headquarters, One Boatmen's Plaza, St. Louis,
Missouri.
69