1
BOATMEN'S BANCSHARES, INC. 1994 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Consolidated Balance Sheet
- --------------------------------------------------------------------------------------------------------------
December 31 (dollars in thousands) 1994 1993
- --------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 2,114,215 $ 1,795,365
Short-term investments 44,561 25,980
Securities:
Held to maturity (market value $4,953,669 and $4,867,883, respectively) 5,204,606 4,771,106
Available for sale (amortized cost $4,193,778 and $5,108,291, respectively) 4,016,760 5,176,966
Trading 31,674 48,081
Federal funds sold and securities purchased under resale agreements 1,107,410 489,735
Loans (net of unearned income of $66,243, and $68,324, respectively) 18,455,014 16,538,265
Less reserve for loan losses 374,725 374,399
- --------------------------------------------------------------------------------------------------------------
Loans, net 18,080,289 16,163,866
- --------------------------------------------------------------------------------------------------------------
Property and equipment 620,428 581,933
Other assets 1,205,495 1,180,099
- --------------------------------------------------------------------------------------------------------------
Total assets $32,425,438 $30,233,131
==============================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits $ 5,204,000 $ 5,366,461
Retail savings deposits and interest-bearing transaction accounts 10,034,770 10,083,479
Time deposits 9,886,760 8,501,681
- --------------------------------------------------------------------------------------------------------------
Total deposits 25,125,530 23,951,621
- --------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under repurchase agreements 2,051,208 2,124,002
Short-term borrowings 1,784,478 873,809
Capital lease obligations 40,098 41,175
Long-term debt 558,088 529,861
Other liabilities 353,263 301,606
- --------------------------------------------------------------------------------------------------------------
Total liabilities 29,912,665 27,822,074
- --------------------------------------------------------------------------------------------------------------
Redeemable preferred stock 1,142 1,155
- --------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock ($1 par value; 150,000,000 shares authorized;
121,876,150 and 121,129,223 shares issued, respectively) 121,876 121,130
Surplus 960,719 951,058
Retained earnings 1,552,224 1,295,462
Treasury stock (508,698 shares at cost) (14,516)
Unrealized net appreciation (depreciation), available for sale securities (108,672) 42,252
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,511,631 2,409,902
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $32,425,438 $30,233,131
==============================================================================================================
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to the supplemental consolidated financial statements.
2
Consolidated Statement of Income
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31 (in thousands) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $1,413,818 $1,253,338 $1,228,629
Interest on short-term investments 3,448 2,015 3,245
Interest on Federal funds sold and securities purchased
under resale agreements 16,660 18,376 58,396
Interest on held to maturity securities
Taxable 233,418 451,757 477,864
Tax-exempt 58,719 61,415 67,322
- ---------------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 292,137 513,172 545,186
Interest on available for sale securities 257,538 29,057
Interest on trading securities 2,524 2,570 3,312
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 1,986,125 1,818,528 1,838,768
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 603,112 600,469 722,433
Interest on Federal funds purchased and other short-term borrowings 168,935 65,920 76,624
Interest on capital lease obligations 3,983 4,082 4,165
Interest on long-term debt 44,885 40,767 34,091
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 820,915 711,238 837,313
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 1,165,210 1,107,290 1,001,455
Provision for loan losses 25,705 64,812 139,475
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,139,505 1,042,478 861,980
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest income
Trust fees 166,366 159,352 147,308
Service charges 186,102 176,116 156,325
Credit card 71,696 56,403 45,921
Investment banking revenues 36,246 41,934 37,052
Securities gains, net 6,198 8,253 32,231
Other 124,815 126,130 97,942
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 591,423 568,188 516,779
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest expense
Staff 550,736 533,314 483,187
Net occupancy 79,367 83,212 77,866
Equipment 90,172 84,384 75,405
FDIC insurance 52,351 51,413 48,574
Credit card 43,595 36,350 26,158
Intangible amortization 37,151 36,171 20,720
Advertising 33,180 30,491 23,454
Other 230,203 243,523 261,504
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 1,116,755 1,098,858 1,016,868
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 614,173 511,808 361,891
Income tax expense 211,198 162,139 99,228
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 402,975 $ 349,669 $ 262,663
===========================================================================================================================
Net income per share $3.31 $2.91 $2.25
===========================================================================================================================
Dividends declared per share $1.30 $1.18 $1.10
===========================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to the supplemental consolidated financial statements.
3
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 65,068 $ 65,068 $907,392 $ 898,421 -- -- -- $1,870,881
Net income -- -- -- 262,663 -- -- -- 262,663
Cash dividends declared:
Common ($1.10 per share)<F1> -- -- -- (92,032) -- -- -- (92,032)
Redeemable preferred -- -- -- (88) -- -- -- (88)
By pooled company
prior to merger--common -- -- -- (2,489) -- -- -- (2,489)
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 412 412 14,645 -- -- -- -- 15,097
Common stock issued upon acquisition
of subsidiary 1,200 1,200 15,720 -- -- -- -- 16,920
Common stock issued upon conversion
of convertible subordinated
debentures 532 532 14,338 -- -- -- -- 14,870
Other, net (5) (5) 530 2 -- -- -- 527
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1992 67,836 67,836 967,758 1,066,477 -- -- -- 2,102,071
Net income -- -- -- 349,669 -- -- -- 349,669
Cash dividends declared:
Common ($1.18 per share)<F1> -- -- -- (117,334) -- -- -- (117,334)
Redeemable preferred -- -- -- (85) -- -- -- (85)
By pooled company
prior to merger--common -- -- -- (3,135) -- -- -- (3,135)
Acquisition of treasury stock -- -- -- -- (52) (3,102) -- (3,102)
Common stock issued pursuant to
various employee and shareholder
stock issuance plans 696 696 16,583 -- 52 3,102 -- 20,381
Common stock issued upon acquisition
of subsidiary 250 250 5,949 -- -- -- -- 6,199
Adjustment for treasury stock
activity - pooled company (6) (6) (157) -- -- -- -- (163)
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 121,130 121,130 951,058 1,295,462 -- -- 42,252 2,409,902
Net income -- -- -- 402,975 -- -- -- 402,975
Cash dividends declared:
Common ($1.30 per share) -- -- -- (135,920) -- -- -- (135,920)
Redeemable preferred -- -- -- (80) -- -- -- (80)
By pooled company
prior to merger--common -- -- -- (10,212) -- -- -- (10,212)
Acquisition of treasury stock -- -- -- -- (538) (15,406) -- (15,406)
Common stock issued pursuant to
various employee and shareholder
stock issuance plans 319 319 3,803 -- 29 890 -- 5,012
Common stock issued upon acquisition
of subsidiary 411 411 5,700 -- -- -- -- 6,111
Adjustment for treasury stock
activity - pooled company (3) (3) (95) -- -- -- -- (98)
Common stock issued upon conversion
of convertible subordinated debt 19 19 280 -- -- -- -- 299
Adjustment of available for sale
securities to market value -- -- -- -- -- -- (150,924) (150,924)
Other, net -- -- (27) (1) -- -- -- (28)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 121,876 $121,876 $960,719 $1,552,224 (509) $(14,516) $(108,672) $2,511,631
===================================================================================================================================
<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 supplemental consolidated financial statements.
- -----------------------------------------------------------------------------------------------------------------------------------
4
Consolidated Statement of Cash Flows
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Year ended December 31 (in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 402,975 $ 349,669 $ 262,663
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 25,705 64,812 139,475
Depreciation, amortization and accretion 154,316 132,463 104,126
Increase (decrease) in deferred loan fees (1,080) (767) 2,954
Realized securities gains (6,198) (8,253) (32,231)
Net (increase) decrease in trading securities 16,407 (9,567) 94,073
(Increase) decrease in interest receivable (18,135) 4,306 37,549
Increase (decrease) in interest payable 15,490 (12,701) (31,548)
Increase (decrease) in tax liability (23,352) 25,690 (28,627)
Net (gain) loss on sales and writedowns of foreclosed property (7,601) (6,894) 31,447
Other, net 53,833 (58,960) (2,841)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 612,360 479,798 577,040
- --------------------------------------------------------------------------------------------------------------
Investing Activities:
Net (increase) decrease in Federal funds sold and
securities purchased under resale agreements (613,230) 983,141 630,870
Net increase in loans (1,931,987) (865,093) (300,631)
Proceeds from the maturity of held to maturity securities 1,033,823 3,106,752 2,701,176
Proceeds from the sales of held to maturity securities 48 123,234 803,098
Purchases of held to maturity securities (1,667,496) (4,445,996) (4,403,641)
Proceeds from the maturity of available for sale securities 1,427,782 23,020
Proceeds from the sales of available for sale securities 76,860 154,869
Purchases of available for sale securities (397,679) (61,199)
Net increase (decrease) in short-term investments (18,581) 119,927 40,377
Increase in property and equipment (111,017) (110,396) (71,350)
Proceeds from the sale of foreclosed property 78,455 85,823 93,993
Net cash received from purchase acquisitions 443,922 121,059
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (2,123,022) (596,865) (230,180)
- --------------------------------------------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in Federal funds purchased and
securities sold under repurchase agreements (72,794) 349,188 (89,066)
Net increase (decrease) in deposits 1,117,485 (857,216) 280,687
Net increase (decrease) in short-term borrowings 910,669 443,282 (558,260)
Payments on long-term debt (1,812) (56,796) (15,893)
Proceeds from the issuance of long-term debt 30,350 167,281 114,148
Payments on capital lease obligations (1,077) (983) (890)
Decrease in redeemable preferred stock (13) (93) (19)
Cash dividends paid (142,902) (115,350) (88,091)
Issuance of common stock from public stock offerings 15,057
Common stock issued pursuant to various employee and
shareholder stock issuance plans 5,012 20,381 15,762
Acquisition of treasury stock (15,406) (3,102)
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 1,829,512 (53,408) (326,565)
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and due from banks 318,850 (170,475) 20,295
Cash and due from banks at beginning of year 1,795,365 1,965,840 1,945,545
- --------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $2,114,215 $1,795,365 $1,965,840
==============================================================================================================
See accompanying notes to the supplemental consolidated financial statements.
For the years ended December 31, 1994, 1993 and 1992, interest paid
totaled $805,414, $725,960 and $870,326, respectively. Income taxes paid
totaled $212,995 in 1994, $170,442 in 1993 and $128,937 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 $19
million in 1994, $23 million in 1993, and $68 million in 1992. In 1993,
assets and liabilities of purchased subsidiaries at dates of acquisition
included investment securities of $186 million, loans of $1.0 billion,
cash of $487 million, other assets of $477 million, deposits of $2.1
billion and other liabilities of $37 million. In 1992, assets and
liabilities of purchased subsidiaries at dates of acquisition included
investment securities of $515.5 million, loans of $807.1 million, cash of
$239.6 million, other assets of $228.5 million, deposits of $1.6 billion
and other liabilities of $26.0 million.
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5
BOATMEN'S BANCSHARES, INC. 1994 SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
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NOTES TO SUPPLEMENTAL
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. The Corporation consummated the
acquisition of Worthen Banking Corporation (Worthen) on February 28, 1995,
using the pooling of interests method of accounting. The supplemental
financial statements included herein have been restated for all periods
as if Worthen and the Corporation had always been combined. These
supplemental consolidated financial statements, in all material respects,
will become the historical financial statements of the Corporation.
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 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 $402,975 $349,669 $262,663
Less preferred dividends declared 80 85 88
- --------------------------------------------------------------------------------------------------------------
Net income available to
common shareholders $402,895 $349,584 $262,575
==============================================================================================================
Average shares outstanding 121,654,686 120,306,938 116,606,165
- --------------------------------------------------------------------------------------------------------------
Net income per share $3.31 $2.91 $2.25
==============================================================================================================
6
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.
7
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.
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 February 28, 1995, the Corporation consummated its acquisition of
Worthen Banking Corporation (Worthen), headquartered in Little Rock,
Arkansas, resulting in the issuance of approximately 17.1 million shares
of the Corporation's common stock. Worthen, subsequently renamed Boatmen's
Arkansas, Inc., 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.
Nonrecurring after-tax merger expenses related to this acquisition totaled
$19.7 million, comprised primarily of investment banking and other
professional fees, severance costs, obsolete equipment write-offs and
estimated costs to close duplicate branches, and were recognized in the
first quarter of 1995. The accompanying financial statements reflect the
results of operations of the Corporation and Worthen on a combined basis
from the earliest period presented.
Net interest income and net income of the Corporation and Worthen as
originally reported for the three years ended December 31, 1994 are
summarized as follows:
=========================================================================================
Year ended December 31 (in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------
Net interest income:
Boatmen's Bancshares, Inc. $1,023,929 $ 974,472 $ 871,267
Worthen Banking Corporation 141,281 132,818 130,188
- -----------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc., restated $1,165,210 $1,107,290 $1,001,455
=========================================================================================
Net income:
Boatmen's Bancshares, Inc. $ 355,332 $ 317,419 $ 228,726
Worthen Banking Corporation 47,643 32,250 33,937
- -----------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc., restated $ 402,975 $ 349,669 $ 262,663
=========================================================================================
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.
Other Pending Acquisitions at December 31, 1994
On January 31, 1995, the Corporation consummated the acquisition of
National Mortgage Company and certain affiliates (National Mortgage), in a
transaction which was accounted for as a pooling of interests. Under terms
of the agreement, the Corporation exchanged approximately 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. The accompanying financial statements do not
reflect the results of operations of National Mortgage due to the
immaterial effect on the Corporation's financial results.
On January 31, 1995, the Corporation consummated the acquisition of
Dalhart Bancshares, Inc. (Dalhart) in a transaction which was accounted
for as a pooling of interests. Each share of Dalhart was 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 was merged into the
Corporation's Amarillo subsidiary. The accompanying financial statements
do not reflect the results of operations of Dalhart due to the
immaterial effect on the Corporation's financial results.
On February 28, 1995, the Corporation consummated the acquisition of
Salem Community Bancorp, Inc. (Salem), in a stock and cash transaction
which was accounted for as a purchase. Salem has two locations with
approximately $80 million in assets.
On April 1, 1995, the Corporation consummated the acquisition of
West Side Bancshares, Inc. (West Side), a one bank holding company
located in San Angelo, Texas, in a stock transaction which was accounted
for as a purchase. The acquisition of West Side, with assets of
approximately $142 million, resulted in the issuance of approximately
.6 million shares of common stock through treasury stock acquired in the
open market. Upon consummation, West Side was merged into the
Corporation's Amarillo subsidiary.
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 is expected to be completed in the second
quarter of 1995.
8
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 $ 875,261 $ 494 $ (31,682) $ 844,073
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 1,274,516 (104,317) 1,170,199
Adjustable rate mortgages 636,028 429 (25,987) 610,470
Fixed rate pass-through 459,879 566 (25,787) 434,658
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed 2,370,423 995 (156,091) 2,215,327
Other agencies 652,903 85 (37,607) 615,381
- ----------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 3,898,587 1,574 (225,380) 3,674,781
State and municipal 852,832 28,535 (9,910) 871,457
Other debt securities 453,187 19 (45,775) 407,431
- ----------------------------------------------------------------------------------------------------------
Total held to maturity
securities $5,204,606 $30,128 $(281,065) $4,953,669
==========================================================================================================
==========================================================================================================
Unrealized
December 31, 1993 Amortized ----------------------- Market
(in thousands) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------
U.S. treasury $ 751,336 $ 12,500 $ (1,024) $ 762,812
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 695,576 1,691 (5,954) 691,313
Adjustable rate mortgages 850,110 5,972 (2,423) 853,659
Fixed rate pass-through 599,100 9,331 (859) 607,572
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed 2,144,786 16,994 (9,236) 2,152,544
Other agencies 616,989 1,669 (1,567) 617,091
- ----------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 3,513,111 31,163 (11,827) 3,532,447
State and municipal 916,283 77,646 (754) 993,175
Other debt securities 306,454 1,999 (1,450) 307,003
- ----------------------------------------------------------------------------------------------------------
Total debt securities 4,735,848 110,808 (14,031) 4,832,625
Other securities 35,258 35,258
- ----------------------------------------------------------------------------------------------------------
Total held to maturity
securities $4,771,106 $110,808 $(14,031) $4,867,883
==========================================================================================================
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 $ 272,601 $ 270,332
Due after one year through five years 1,421,373 1,356,664
Due after five years through ten years 504,407 516,637
Due after ten years 252,324 255,715
Mortgage-backed securities 2,753,901 2,554,321
- -------------------------------------------------------------------------
Total held to maturity securities $5,204,606 $4,953,669
=========================================================================
Held to maturity securities at December 31, 1994 include mortgage-
backed government guaranteed agency securities of $2.4 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 $6,075 $25,422
Realized losses (3) (198)
- -----------------------------------------------------------------------------------------
Net realized gains $122 $6,072 $25,224
=========================================================================================
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.
9
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 791,918 87 (47,817) 744,188
Adjustable rate mortgages 2,094,665 280 (97,517) 1,997,428
Fixed rate pass-through 169,657 2,397 (3,888) 168,166
- ----------------------------------------------------------------------------------------------------------
Total mortgage-backed 3,056,240 2,764 (149,222) 2,909,782
Other agencies 76,144 (4,136) 72,008
- ----------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 3,900,594 4,467 (168,340) 3,736,721
Other debt securities 230,579 71 (14,425) 216,225
- ----------------------------------------------------------------------------------------------------------
Total debt securities 4,131,173 4,538 (182,765) 3,952,946
Equity securities 62,605 1,209 63,814
- ----------------------------------------------------------------------------------------------------------
Total available for sale
securities $4,193,778 $5,747 $(182,765) $4,016,760
==========================================================================================================
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 $ 308,271 $ 308,719
Due after one year through five years 528,893 514,616
Due after five years through ten years 23,940 20,748
Due after ten years 18,605 18,230
Mortgage-backed securities 3,251,464 3,090,633
- -------------------------------------------------------------------------
Total debt securities 4,131,173 3,952,946
Equity securities 62,605 63,814
- -------------------------------------------------------------------------
Total available for sale securities $4,193,778 $4,016,760
=========================================================================
Available for sale securities at December 31, 1994 include mortgage-
backed government guaranteed agency securities of $2.9 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 $4,656,576 and $4,183,962 at December 31, 1994 and 1993,
respectively, were pledged to secure public deposits, trust deposits, and
for other purposes required by law.
10
6 LOANS
A summary of loan categories is as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Domestic:
Commercial $ 8,754,833 $ 8,401,649
Real estate-mortgage 3,522,973 3,290,923
Real estate-construction 794,036 631,218
Consumer 5,293,517 4,168,120
Lease financing 136,814 96,592
- ------------------------------------------------------------------------------------
Total domestic 18,502,173 16,588,502
Foreign loans 19,084 18,087
- ------------------------------------------------------------------------------------
Total loans 18,521,257 16,606,589
Less unearned income 66,243 68,324
- ------------------------------------------------------------------------------------
Total loans, net $18,455,014 $16,538,265
====================================================================================
Nonperforming assets, consisting of nonperforming loans and foreclosed
property, are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Nonaccrual $110,684 $159,521
Restructured 7,090 14,807
Past due 90 days or more 16,997 18,601
- ------------------------------------------------------------------------------------
Total nonperforming loans 134,771 192,929
Foreclosed property 62,359 115,481
- ------------------------------------------------------------------------------------
Total nonperforming assets $197,130 $308,410
====================================================================================
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 $10.2 million in 1994 and $13.8 million in
1993. Actual interest recorded amounted to $2.6 million in 1994 and $3.3
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 $374,399 $332,166 $283,075
Loans charged off (72,153) (80,206) (145,463)
Recoveries on loans
previously charged off 45,901 43,878 37,682
- ---------------------------------------------------------------------------------
Net charge-offs (26,252) (36,328) (107,781)
Provision for loan losses 25,705 64,812 139,475
Reserves of purchased subsidiaries 873 13,749 17,397
- ---------------------------------------------------------------------------------
Balance, end of year $374,725 $374,399 $332,166
=================================================================================
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 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.
11
7 PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Land $ 83,875 $ 82,242
Buildings 416,393 381,521
Building under capital lease 48,666 48,666
Furniture, fixtures and equipment 496,334 468,679
Leasehold improvements 90,530 90,459
Construction in progress 28,333 14,539
- ------------------------------------------------------------------------------------
Total 1,164,131 1,086,106
Less accumulated depreciation/amortization 543,703 504,173
- ------------------------------------------------------------------------------------
Net property and equipment $ 620,428 $ 581,933
====================================================================================
Depreciation and amortization charged to expense in 1994, 1993 and 1992
amounted to $74,116, $66,346, and $61,814, 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 $ 4,972 $ 22,296
1996 4,972 20,247
1997 4,972 14,469
1998 4,952 12,090
1999 4,893 11,132
After 1999 55,096 57,200
- ------------------------------------------------------------------------------------
Total minimum lease payments 79,857 $137,434
========
Less amount representing interest 39,759
- ----------------------------------------------------------
Present value of minimum lease payments $40,098
==========================================================
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 $30,398, $36,734
and $36,495 in 1994, 1993, and 1992, respectively.
12
8 INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Goodwill $191,681 $204,718
Core deposit premium 73,948 85,300
Credit card premium 2,980 3,542
Purchased mortgage servicing rights 9,374 9,620
- ------------------------------------------------------------------------------------
Total intangible assets, net $277,983 $303,180
====================================================================================
Goodwill and core deposit premium amortization charged to expense in 1994,
1993, and 1992 amounted to $37,151, $36,171, and $20,720, respectively.
13
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
================================================================================================================
14
10 DEPOSITS
Deposits are summarized as follows:
====================================================================================
December 31 (in thousands) 1994 1993
- ------------------------------------------------------------------------------------
Demand deposits $ 5,204,000 $ 5,366,461
Savings deposits 2,049,470 2,371,316
Interest-bearing transaction accounts 7,985,300 7,712,163
Time deposits $100,000 and over 1,261,655 1,181,766
Retail time deposits 8,625,105 7,319,915
- ------------------------------------------------------------------------------------
Total deposits $25,125,530 $23,951,621
====================================================================================
15
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 $2,859,123 $1,871,536 $1,775,689
Year end 2,051,208 2,124,002 1,765,149
Maximum month-end
balance during year 3,880,343 2,689,252 2,613,282
==============================================================================================================
Interest rate:
Average 4.03% 2.80% 3.38%
==============================================================================================================
Year end 5.31% 2.59% 2.62%
==============================================================================================================
16
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 190,947 824,174
- ------------------------------------------------------------------------------------
Total $1,784,478 $873,809
====================================================================================
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.
17
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:
Promissory notes 43,000 43,000
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 5 646
- ------------------------------------------------------------------------------------
Total subsidiaries 132,184 103,646
- ------------------------------------------------------------------------------------
Total long-term debt $558,088 $529,861
====================================================================================
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 promissory notes are unsecured and provide for payment of interest
semi-annually with principal payable at maturity. Maturities are $10 million
due in 1998 priced to yield 7.21%, $10 million due in 1999 priced to yield
7.56%, and $23 million due in 2000 priced to yield 7.81%.
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 51,820
1999 11,922
==========================================================
18
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.
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 706,450 $27.75 to $31.63 842,850 $27.00
Options
exercised 376,267 5.76 to 27.75 488,688 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 58,457 5.76 to 27.75 59,544 9.39 to 27.00
Options
outstanding 3,908,716 5.76 to 27.75 3,666,020 5.76 to 27.63
Options
exercisable 2,198,492 5.76 to 28.31 1,554,779 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.
19
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
=================================================================================
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.
Prior to the acquisition of Worthen, the former Worthen employees
participated in a defined contribution savings and profit sharing plan in
lieu of a noncontributory, defined benefit pension plan. Effective
April 1, 1995, former Worthen employees will become eligible for
participation in the Corporation's retirement plan and contributions to
the former savings and profit sharing plan will cease.
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.
20
17 INCOME TAXES
Income tax expense is summarized as follows:
=========================================================================================
Year ended December 31 (in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------
Current:
Federal $179,044 $163,570 $116,065
State 29,877 26,938 14,563
- -----------------------------------------------------------------------------------------
Total current 208,921 190,508 130,628
- -----------------------------------------------------------------------------------------
Deferred:
Federal 4,712 (19,105) (24,564)
State (2,435) (9,264) (6,836)
- -----------------------------------------------------------------------------------------
Total deferred 2,277 (28,369) (31,400)
- -----------------------------------------------------------------------------------------
Income tax expense $211,198 $162,139 $ 99,228
=========================================================================================
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 (4.0) (4.9) (6.9)
Deferred taxes at applicable rates (.8) (1.5)
State taxes, net of Federal benefit 2.9 2.3 2.5
Other, net .5 .1 (.7)
- -----------------------------------------------------------------------------------------
Effective rate 34.4% 31.7% 27.4%
=========================================================================================
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 (30,310) (28,024)
Other (33,847) (29,765)
- -------------------------------------------------------------------------
Total deferred tax liabilities (90,016) (100,727)
- -------------------------------------------------------------------------
Deferred tax assets:
Net unrealized loss on
securities available for sale 68,370
Provision for loan loss 152,712 142,788
Other real estate owned losses 13,524 15,898
Other 39,913 33,926
- -------------------------------------------------------------------------
Total deferred tax assets 274,519 192,612
- -------------------------------------------------------------------------
Net deferred tax asset $184,503 $ 91,885
=========================================================================
18 RESERVES ON DEPOSITS
Required reserves on deposits, included in the caption "Cash and due
from banks," were $591,073 and $593,681 at December 31, 1994 and 1993,
respectively.
21
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 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 $ 3,266.2 $ 3,266.2
Held to maturity securities 5,204.6 4,953.7
Available for sale securities 4,016.8 4,016.8
Trading securities 31.7 31.7
Loans 18,080.3 17,951.6
Financial liabilities:
Deposits 25,125.5 25,117.4
Short-term borrowings 3,835.7 3,835.7
Long-term debt 558.1 541.8
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 $ 2,311.1 $ 2,311.1
Held to maturity securities 4,771.1 4,867.9
Available for sale securities 5,177.0 5,177.0
Trading securities 48.1 48.1
Loans 16,163.9 16,447.8
Financial liabilities:
Deposits 23,951.6 24,019.4
Short-term borrowings 2,997.8 2,997.8
Long-term debt 529.9 589.4
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
======================================================================================
22
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.
===================================================================================================
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 $ 8,284.4 $ 6,556.7
Standby letters of credit 901.4 802.8
Commercial letters of credit 143.7 130.1
Securities lent 2,968.2 3,439.8
- ---------------------------------------------------------------------------------------------------
Total $12,297.7 $10,929.4
===================================================================================================
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.
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.
23
21 PARENT COMPANY SUPPLEMENTAL CONDENSED
FINANCIAL STATEMENTS
Following are the supplemental condensed financial statements of Boatmen's
Bancshares, Inc. (Parent Company only) for the periods indicated:
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 2,391,444 2,343,232
Nonbanks 215,851 192,540
- ------------------------------------------------------------------------------------
Total investment in subsidiaries 2,607,295 2,535,722
- ------------------------------------------------------------------------------------
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 $3,073,789 $2,966,107
====================================================================================
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 121,876 121,130
Surplus 960,719 951,058
Unrealized net appreciation (depreciation),
available for sale securities (108,672) 42,252
Retained earnings 1,552,224 1,295,462
Treasury stock (14,516)
- ------------------------------------------------------------------------------------
Total stockholders' equity 2,511,631 2,409,902
- ------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,073,789 $2,966,107
====================================================================================
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 200,090 145,970 132,519
- --------------------------------------------------------------------------------------------------------------
Net income $402,975 $349,669 $262,663
==============================================================================================================
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 $583,539, resulting in $2,065,723 or 79.4% 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 $402,975 $349,669 $262,663
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 (200,090) (145,970) (132,519)
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)
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Net cash used for
investing activities (69,037) (191,416) (194,129)
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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.
24
BOATMEN'S BANCSHARES, INC. 1994 ANNUAL REPORT
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
Boatmen's Bancshares, Inc.
We have audited the accompanying supplemental consolidated balance sheets of
Boatmen's Bancshares, Inc. as of December 31, 1994 and 1993, and the related
supplemental consolidated statements of income, shareholder's equity and
cash flows for each of the three years in the period ended December 31,
1994. The supplemental consolidated statements give retroactive effect to
the merger with Worthen Banking Corporation (Worthen) on February 28, 1995,
which has been accounted for as a pooling of interests as described in Note 3.
These supplemental financial statements are the responsibility of the
management of Boatmen's Bancshares, Inc. Our responsibility is to express an
opinion on these supplemental financial statements based on our audits. We
did not audit the financial statements of Worthen, a wholly-owned subsidiary
(as of February 28, 1995), which statements reflect total assets of $3.5
billion and $3.6 billion as of December 31, 1994 and 1993, respectively, and
total interest income of $218 million, $212 million, and $230 million,
respectively, for each of the three years in the period ended December 31,
1994. These statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it related to the amounts
included for Worthen, is based solely on the report of the other auditors.
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 supplemental financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
supplemental financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall supplemental financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the supplemental consolidated 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 results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, after giving retroactive
effect to the merger with Worthen as described in Note 3, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the supplemental consolidated financial
statements, in 1993, Boatmen's Bancshares, Inc. changed its method of
accounting for debt and equity securities.
St. Louis, Missouri /s/ Ernst & Young LLP
January 19, 1995 (except for the pooling of
interests with Worthen as of February 28,
1995, and Note 3, for which the date is
April 1, 1995)