1
BOATMEN'S BANCSHARES, INC. 1995 SUPPLEMENTAL FINANCIAL STATEMENTS
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Consolidated Balance Sheet
December 31 (dollars in thousands) 1995 1994
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Assets
Cash and due from banks $ 2,611,765 $ 2,558,509
Short-term investments 83,166 45,216
Securities:
Held to maturity (market value $973,801 and $6,813,697, respectively) 923,130 7,175,158
Available for sale (amortized cost $10,330,233, and $5,389,615, respectively) 10,347,172 5,170,611
Trading 58,361 32,393
Federal funds sold and securities purchased under resale agreements 1,225,671 1,120,190
Loans (net of unearned income of $86,981, and $84,409 respectively) 24,050,903 22,717,562
Less reserve for loan losses 452,560 449,485
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Loans, net 23,598,343 22,268,077
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Property and equipment 800,502 796,385
Other assets 1,475,379 1,525,930
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Total assets $41,123,489 $40,692,469
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Liabilities and Stockholders' Equity
Liabilities:
Demand deposits $ 6,894,649 $ 6,294,793
Retail savings deposits and interest-bearing transaction accounts 13,510,720 12,253,259
Time deposits 11,572,768 12,560,617
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Total deposits 31,978,137 31,108,669
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Federal funds purchased and securities sold under repurchase agreements 2,902,973 2,987,315
Short-term borrowings 1,474,991 2,387,280
Capital lease obligations 39,076 40,408
Long-term debt 615,129 599,493
Other liabilities 512,436 403,732
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Total liabilities 37,522,742 37,526,897
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Redeemable preferred stock 961 1,142
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Stockholders' Equity:
Preferred stock 99,324 100,000
Common stock ($1 par value; 200,000,000 shares authorized;
158,067,758 and 156,084,081 shares issued, respectively) 158,068 156,084
Surplus 1,212,838 1,171,184
Retained earnings 2,137,176 1,886,119
Treasury stock (476,519 and 508,698 shares at cost, respectively) (18,096) (14,516)
Unrealized net appreciation (depreciation), available for sale securities 10,476 (134,521)
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Total stockholders' equity 3,599,786 3,164,430
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Total liabilities and stockholders' equity $41,123,489 $40,692,469
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See accompanying notes to the consolidated financial statements.
2
Consolidated Statement of Income
Year ended December 31 (in thousands) 1995 1994 1993
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Interest income
Interest and fees on loans $2,107,749 $1,748,732 $1,549,786
Interest on short-term investments 4,787 3,569 2,334
Interest on Federal funds sold and securities purchased
under resale agreements 40,028 18,047 20,747
Interest on held to maturity securities
Taxable 357,753 348,264 623,173
Tax-exempt 56,108 60,488 81,844
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Total interest on held to maturity securities 413,861 408,752 705,017
Interest on available for sale securities 304,816 329,391 29,057
Interest on trading securities 2,049 2,629 2,705
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Total interest income 2,873,290 2,511,120 2,309,646
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Interest expense
Interest on deposits 1,025,459 768,995 767,151
Interest on Federal funds purchased and other short-term borrowings 304,509 202,506 95,086
Interest on capital lease obligations 3,896 4,016 4,105
Interest on long-term debt 47,454 66,660 49,611
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Total interest expense 1,381,318 1,042,177 915,953
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Net interest income 1,491,972 1,468,943 1,393,693
Provision for loan losses 59,756 26,176 70,922
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Net interest income after provision for loan losses 1,432,216 1,442,767 1,322,771
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Noninterest income
Trust fees 200,242 186,081 178,055
Service charges 231,648 225,479 210,833
Mortgage banking revenues 80,702 63,349 71,022
Credit card 61,483 55,499 41,090
Investment banking revenues 42,158 42,318 48,073
Securities gains (losses), net (7,040) 9,832 9,903
Other 150,437 131,100 121,591
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Total noninterest income 759,630 713,658 680,567
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Noninterest expense
Staff 726,472 718,592 687,318
Net occupancy 98,777 100,909 105,138
Equipment 116,704 116,187 113,447
FDIC insurance 39,288 65,723 65,302
Intangible amortization 43,755 45,306 48,814
Advertising 42,866 43,005 40,334
Other 382,963 321,359 340,196
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Total noninterest expense 1,450,825 1,411,081 1,400,549
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Income before income tax expense 741,021 745,344 602,789
Income tax expense 261,010 254,418 174,315
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Net income $ 480,011 $ 490,926 $ 428,474
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Net income per share $3.02 $3.10 $2.74
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Dividends declared per share $1.42 $1.30 $1.18
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See accompanying notes to the consolidated financial statements.
3
Consolidated Statement of Changes in Stockholders' Equity
Unrealized Net
Appreciation,
Preferred Stock Common Stock Treasury Stock (Depreciation)
----------------- ---------------- Retained --------------- Available for
(in thousands) Shares Amount Shares Amount Surplus Earnings Shares Amount Sale Securities Total
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December 31, 1992 1,222 $103,641 100,959 $100,959 $1,177,740 $1,306,679 -- -- -- $2,689,019
Net income -- -- -- -- -- 428,474 -- -- -- 428,474
Cash dividends declared:
Common ($1.18 per share) -- -- -- -- -- (117,334) -- -- -- (117,334)
Redeemable preferred -- -- -- -- -- (85) -- -- -- (85)
By pooled companies prior
to merger--common -- -- -- -- -- (32,227) -- -- -- (32,227)
By pooled companies prior
to merger--preferred -- -- -- -- -- (7,000) -- -- -- (7,000)
Acquisition of treasury
stock -- -- -- -- -- -- (52) (3,102) -- (3,102)
Common stock issued
pursuant to employee
and shareholder stock
issuance plans -- -- 893 893 19,791 -- 52 3,102 -- 23,786
Common stock issued upon
acquisition of subsidiary -- -- 359 359 8,939 -- -- -- -- 9,298
Adjustment for purchase of
treasury stock--pooled
companies -- -- (118) (118) (3,290) -- -- -- -- (3,408)
Capital transactions--
pooled companies (972) (3,641) 1,049 1,049 3,418 -- -- -- -- 826
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 -- -- -- -- -- -- -- -- 67,400 67,400
Other, net -- -- -- -- (751) (130) -- -- -- (881)
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December 31, 1993 250 100,000 155,496 155,496 1,166,797 1,578,377 -- -- 67,400 3,068,070
Net income -- -- -- -- -- 490,926 -- -- -- 490,926
Cash dividends declared:
Common ($1.30 per share) -- -- -- -- -- (135,920) -- -- -- (135,920)
Redeemable preferred -- -- -- -- -- (80) -- -- -- (80)
By pooled companies prior
to merger--common -- -- -- -- -- (40,187) -- -- -- (40,187)
By pooled companies prior
to merger--preferred -- -- -- -- -- (7,000) -- -- -- (7,000)
Acquisition of treasury
stock -- -- -- -- -- -- (538) (15,406) -- (15,406)
Common stock issued
pursuant to employee
and shareholder stock
issuance plans -- -- 446 446 6,364 -- 29 890 -- 7,700
Common stock issued
upon acquisition
of subsidiaries -- -- 481 481 7,712 -- -- -- -- 8,193
Adjustment for purchase of
treasury stock--pooled
companies -- -- (358) (358) (9,758) -- -- -- -- (10,116)
Common stock issued upon
conversion of convertible
subordinated debentures -- -- 19 19 280 -- -- -- -- 299
Adjustment of available for
sale securities to market
value -- -- -- -- -- -- -- -- (201,921) (201,921)
Other, net -- -- -- -- (211) 83 -- -- -- (128)
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December 31, 1994 250 100,000 156,084 156,084 1,171,184 1,886,199 (509) (14,516) (134,521) 3,164,430
Net income -- -- -- -- -- 480,011 -- -- -- 480,011
Cash dividends declared:
Common ($1.42 per share) -- -- -- -- -- (183,063) -- -- -- (183,063)
Redeemable preferred -- -- -- -- -- (75) -- -- -- (75)
By pooled companies prior
to merger--common -- -- -- -- -- (38,808) -- -- -- (38,808)
By pooled companies prior
to merger--preferred -- -- -- -- -- (6,970) -- -- -- (6,970)
Acquisition of treasury
stock -- -- -- -- -- -- (2,152) (76,479) -- (76,479)
Common stock issued
pursuant to employee
and shareholder stock
issuance plans -- -- 1,150 1,150 22,315 -- 769 24,270 -- 47,735
Common stock issued
upon acquisition of
of subsidiaries -- -- 947 947 24,579 -- 1,413 48,574 -- 74,100
Adjustment for purchase of
treasury stock--pooled
companies -- -- (125) (125) (3,921) -- -- -- -- (4,046)
Retirement of preferred
stock (1) (500) -- -- 15 (98) -- -- -- (583)
Common stock issued
upon conversion of
preferred stock (1) (176) 6 6 170 -- -- -- -- --
Common stock issued upon
conversion of convertible
subordinated debentures -- -- 6 6 52 -- 2 55 -- 113
Adjustment of available
for sale securities
to market value -- -- -- -- -- -- -- -- 144,997 144,997
Other, net -- -- -- -- (1,556) (20) -- -- -- (1,576)
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December 31, 1995 248 $ 99,324 158,068 $158,068 $1,212,838 $2,137,176 (477) $(18,096) $ 10,476 $3,599,786
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See accompanying notes to the consolidated financial statements.
4
Consolidated Statement of Cash Flows
Year ended December 31 (in thousands) 1995 1994 1993
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Operating Activities:
Net income $ 480,011 $ 490,926 $ 428,474
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 59,756 26,176 70,922
Depreciation, amortization and accretion 174,616 193,533 176,297
Decrease in deferred loan fees (6,256) (1,080) (767)
Realized securities (gains) losses 7,040 (9,832) (9,903)
Net (increase) decrease in trading securities (25,968) 16,162 (6,517)
(Increase) decrease in interest receivable (16,432) (24,528) 8,572
Increase (decrease) in interest payable 23,199 15,889 (15,817)
Increase (decrease) in tax liability 57,802 (66,746) 27,023
Net gain on sales and writedowns of foreclosed property (2,629) (9,093) (3,782)
Other, net (34,070) 85,969 45,458
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Net cash provided by operating activities 717,069 717,376 719,960
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Investing Activities:
Net (increase) decrease in Federal funds sold and
securities purchased under resale agreements (76,381) (607,147) 1,180,084
Net increase in loans (1,301,371) (2,058,258) (1,353,592)
Proceeds from the maturity of held to maturity securities 1,101,936 1,569,503 4,454,389
Proceeds from the sales of held to maturity securities 143,717
Purchases of held to maturity securities (556,268) (2,265,283) (6,012,696)
Proceeds from the maturity of available for sale securities 1,233,862 1,716,558 23,020
Proceeds from the sales of available for sale securities 706,693 680,318
Purchases of available for sale securities (876,761) (1,006,994) (61,199)
Net increase (decrease) in short-term investments (37,718) (15,821) 124,707
Increase in property and equipment (95,530) (140,214) (151,319)
Proceeds from the sale of foreclosed property 48,439 87,697 93,947
Net cash received from (paid for)purchase acquisitions 12,720 (87,818) 441,454
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Net cash provided (used) by investing activities 159,621 (2,127,459) (1,117,488)
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Financing Activities:
Net increase (decrease) in Federal funds purchased and
securities sold under repurchase agreements (88,707) 370,569 504,769
Net increase (decrease) in deposits 409,105 762,453 (1,165,973)
Net increase (decrease) in short-term borrowings (912,514) 877,102 814,364
Payments on long-term debt (78,024) (20,964) (53,852)
Proceeds from the issuance of long-term debt 91,287 30,350 167,313
Payments on capital lease obligations (1,332) (1,101) (649)
Decrease in redeemable preferred stock (181) (13) (93)
Decrease in preferred stock (583)
Cash dividends paid (213,741) (179,877) (151,442)
Common stock issued pursuant to various employee and
shareholder stock issuance plans 47,735 7,700 23,786
Acquisition of treasury stock (76,479) (15,406) (3,102)
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Net cash provided (used) by financing activities (823,434) 1,830,813 135,121
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Increase (decrease) in cash and due from banks 53,256 420,730 (262,407)
Cash and due from banks at beginning of year 2,558,509 2,137,779 2,400,186
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Cash and due from banks at end of year $2,611,765 $2,558,509 $2,137,779
===========================================================================================================================
See accompanying notes to the consolidated financial statements.
For the years ended December 31, 1995, 1994 and 1993, interest
paid totaled $1,359,404, $1,020,492, and $917,133, respectively.
Income taxes paid totaled $222,849 in 1995, $250,456 in 1994, and
$205,360 in 1993. Additional common stock was issued upon the
conversion of $118 of the Corporation's convertible subordinated
debt for the year ended December 31, 1995, $311 for the year ended
December 31, 1994, and $13,748 for the year ended December 31,
1993. Securities transferred to available for sale securities
totaled approximately $5.7 billion in 1995 and $5.7 billion in
1993. Loans transferred to foreclosed property totaled $14 million
in 1995, $23 million in 1994, and $36 million in 1993. In 1995,
assets and liabilities of purchased subsidiaries at dates of
acquisition included investment securities of $185 million, loans
of $262 million, other assets of $86 million, deposits of $460
million and other liabilities of $9 million. In 1994,
assets and liabilities of purchased subsidiaries at dates of
acquisition included investment securities of $269 million, loans
of $291 million, other assets of $102 million, deposits of $548
million and other liabilities of $113 million. In 1993, assets and
liabilities of purchased subsidiaries at dates of acquisition
included investment securities of $298 million, loans of $1.1
billion, cash of $485 million, other assets of $502 million,
deposits of $2.3 billion and other liabilities of $41 million.
5
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(amounts in thousands except per share data and when otherwise indicated)
1 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
Business Boatmen's Bancshares Inc. ("Corporation"), is a multi-bank holding
company, headquartered in St. Louis, Missouri. At December 31, 1995, the
Corporation owned substantially all of the capital stock of 57 subsidiary
banks, including a federal savings bank, and provided commercial, retail and
correspondent banking services from over 650 banking offices and over 1,300
ATM's in Missouri, Arkansas, Illinois, Iowa, Kansas, New Mexico, Oklahoma,
Tennessee and Texas. At December 31, 1995, the Corporation had consolidated
assets of $41.1 billion, making it one of the 25 largest bank holding
companies in the United States. The Corporation's largest banking subsidiary,
The Boatmen's National Bank of St. Louis, had total assets of $11.2 billion
at December 31, 1995. The Corporation's other businesses include a trust
company, a mortgage banking company, a credit life insurance company, a
credit card bank and an insurance agency. The Corporation, through its
subsidiary, Boatmen's Trust Company, is among the twenty largest providers of
personal trust services in the nation, providing personal trust services
within its banks' market areas and institutional and pension related trust
services on a national scale. The Corporation's mortgage banking activities
are conducted through Boatmen's National Mortgage, Inc., a full service
mortgage banking company which originates home loans through company operated
offices as well as through a network of over 300 correspondents located in
the southern and mid-western United States. Boatmen's National Mortgage, Inc.
presently services mortgage loans totaling approximately $23 billion. The
traditional banking line of business represents the primary source of
earnings for the Corporation, followed by the trust and mortgage banking
activities.
Basis of Presentation The accounting and reporting policies of the
Corporation and its subsidiaries conform to generally accepted accounting
principles. The preparation of financial statements requires management of
the Corporation to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. While the
financial statements reflect management's best estimates and judgment, actual
results could differ from estimates. The following is a description of the
Corporation's more significant policies.
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 1994 and 1993 were
reclassified to conform with statement presentation for 1995. 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 Fourth
Financial Corporation (Fourth Financial) on January 31, 1996, using the
pooling of interests method of accounting. The supplemental financial
statements included herein have been restated for all periods as if Fourth
Financial and the Corporation had always been combined. These supplemental
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
6
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.
Specific reserves are established for any impaired commercial, commercial
real estate, and real estate construction loan for which the recorded
investment in the loan exceeds the measured value of the loan. Loans subject
to impairment valuation are defined as nonaccrual loans, exclusive of smaller
balance homogenous loans such as home equity, credit card, installment and
1-4 family loans. The values of loans subject to impairment valuation are
determined based on the present value of expected future cash flows, the
market price of the loans, or the fair values of the underlying collateral
if the loan is collateral dependent.
The charge-off policy of the Corporation 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.
Mortgage Banking Revenues Mortgage loans held for sale are valued at the
lower of cost or aggregate market value. Gains and losses on sales of
mortgage loans are recognized at settlement dates and are determined by the
difference between sales proceeds and the carrying value of the loans. The
Corporation generally sells mortgage loans without recourse.
Income from the servicing of mortgage loans is recognized in mortgage
banking revenues, a component of noninterest income, concurrent with the
receipt of the related mortgage payments on the loans serviced. Prior to 1995,
capitalization of mortgage servicing rights was limited to servicing purchased
from third parties. Effective with the Corporation's adoption of Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" in 1995, the value of purchased and originated mortgage servicing
rights is capitalized and amortized in proportion to, and over the period of
estimated net servicing income as a reduction of mortgage banking revenues.
The value of mortgage servicing rights is determined based on the present
value of estimated expected future cash flows, using assumptions as to current
market discount rate, prepayment speeds and servicing costs per loan. Mortgage
servicing rights are stratified by loan type and interest rate for purposes of
impairment measurement. Loan types include government, conventional, private,
and adjustable-rate mortgage loans. Impairment losses are recognized to the
extent the unamortized mortgage servicing right for each stratum exceeds the
current market value, as reductions in the carrying value of the asset,
through the use of a valuation allowance, with a corresponding reduction to
mortgage banking revenues. The Corporation recognizes gains or losses on the
sales of mortgage servicing rights when all risks and rewards have been
irrevocably passed to the purchaser.
Trust Assets and Fees The Corporation's trust function manages assets in a
fiduciary or agent capacity; accordingly, such assets are not included in the
consolidated balance sheet of the Corporation. Fee income derived from
managing trust assets is recognized on an accrual basis.
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.
7
Interest Rate Swaps Interest rate swap transactions are utilized as part of
the Corporation's overall asset/liability management strategy to alter the
rate sensitivity characteristics of various assets and liabilities. 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. To qualify for accrual
accounting, the swaps must be designated to interest-bearing assets or
liabilities and alter their interest rate characteristics over the term of
the agreements. If an interest rate swap is terminated prior to maturity, any
realized gains and losses are deferred and amortized over the remaining life
of the contract. In the event the designated asset or liability is sold or
extinguished prior to maturity, fair value recognition is required and any
gains or losses are recognized in income.
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 and 3 to
25 years for fixtures and equipment. Leasehold improvements are generally
amortized over the lease term, not to exceed 10 years.
Intangible Assets Goodwill arising from acquisitions consummated subsequent
to 1985 is being amortized on a straight-line basis over the periods
benefitted, ranging from 4-20 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.
Income Taxes The Corporation accounts for income taxes under the asset and
liability method. 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 credit 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 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 1995, 1994 and 1993 is
summarized as follows:
=============================================================================================================
(in thousands except share data) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Net income $480,011 $490,926 $428,474
Less preferred dividends declared 7,143 7,080 7,085
- ------------------------------------------------------------------------------------------------------------
Net income available to
common shareholders $472,868 $483,846 $421,389
=============================================================================================================
Average shares outstanding 156,663,791 155,881,515 153,943,841
- ------------------------------------------------------------------------------------------------------------
Net income per share $3.02 $3.10 $2.74
=============================================================================================================
2 CHANGES IN ACCOUNTING POLICIES
On January 1, 1995, The Corporation adopted Financial Accounting Standards
No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment of a Loan"
and No. 118 (SFAS No. 118), "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures." These statements require that
certain impaired loans be measured based on either the present value of
expected future cash flows discounted at the loan's effective rate, the
market price of the loan, or the fair value of the underlying collateral if
the loan is collateral dependent. The statements further require that
8
specific reserves be established for any impaired loan for which the recorded
investment exceeds the measured value of the loan. SFAS No. 114 and SFAS No.
118 do not apply to smaller balance, homogenous loans, which the Corporation
has identified as consumer loans, such as home equity, credit card,
installment and 1-4 family residential loans. Adoption of these standards had
no material impact on the Corporation's loan quality statistics or reserve
levels and had no effect on 1995 earnings.
In the second quarter of 1995, the Corporation adopted Statement of
Financial Accounting Standards No. 122 (SFAS No. 122), "Accounting for
Mortgage Servicing Rights." SFAS No. 122 requires capitalization of purchased
mortgage servicing rights as well as internally originated mortgage servicing
rights. These mortgage servicing rights are amortized in proportion to, and
over the period of estimated net servicing income. Adoption of SFAS No. 122
increased mortgage banking revenues in 1995 by approximately $5.8 million, net
of amortization, and increased net income by approximately $3.6 million.
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.
3 ACQUISITIONS
Purchase Acquisitions Results of operations of companies which are acquired
and subject to purchase accounting treatment are included from dates of
acquisition. Three purchase acquisitions were consummated in 1995. Disclosure
of pro forma condensed results of operations as if these acquisitions were
consummated as of the beginning of the period have been omitted due to the
immaterial effect on operations.
Other information regarding purchase acquisitions is summarized as
follows:
============================================================================================================
Core
Acquired Company Acquisition Purchase Deposit
(amounts in millions) Date Price Assets Goodwill Intangible
- ------------------------------------------------------------------------------------------------------------
1995
Salem Community
Bancorp, Inc. 2/28/95 $ 8.4 $ 79.2 $ 4.0 $ .8
West Side Bancshares,
Inc. 4/1/95 17.5 142.4 4.5 1.3
Citizens Bancshares
Corporation 10/27/95 41.0 224.1 19.5
- ------------------------------------------------------------------------------------------------------------
Total $ 66.9 $ 445.7 $28.0 $ 2.1
============================================================================================================
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, N.A.
(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
============================================================================================================
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 January 31, 1996, the Corporation consummated the acquisition
of Fourth Financial Corporation (Fourth Financial), headquartered in
Wichita, Kansas, resulting in the issuance of approximately 28.5
million shares of common stock. In addition, the Corporation exchanged
one share of new preferred stock for each Fourth Financial preferred
share, resulting in the issuance of approximately 248,000 shares of
preferred stock. The preferred stock is convertible into approximately
3.4 million shares of common stock. Fourth Financial, subsequently renamed
BBI Kansas, Inc., was the largest banking company in Kansas, with approximately
$7.5 billion in assets, operating 87 retail banking offices in Kansas and 56 in
Oklahoma. Nonrecurring after-tax merger expenses related to this acquisition
totaled $29.3 million or $.19 per share, 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 1996. The
accompanying financial statements reflect the results of operations of
the Corporation and Fourth Financial on a combined basis from the
earliest period presented.
On January 31, 1995, the Corporation consummated the acquisition of
National Mortgage Company and certain affiliates (National Mortgage),
resulting in the issuance of approximately 5.0 million shares of common
stock. National Mortgage, subsequently renamed Boatmen's National Mortgage,
Inc., headquartered in Memphis, Tennessee, is a full-service mortgage
banking
9
company and presently services mortgage loans totaling approximately $23
billion. Nonrecurring after-tax merger expenses related to this acquisition
totaled $7.0 million or $.04 per share, comprised primarily of investment
banking and other professional fees, severance costs and abandonment of
equipment and software, and were recognized in the first quarter of 1995.
On January 31, 1995, the Corporation consummated the acquisition of
Dalhart Bancshares, Inc. (Dalhart), resulting in the issuance of
approximately .7 million shares of common stock. Dalhart, with assets of
approximately $140 million, is located in north Texas and was merged into
the Corporation's Amarillo subsidiary.
On February 28, 1995, the Corporation consummated the acquisition of
Worthen Banking Corporation (Worthen), headquartered in Little Rock,
Arkansas, resulting in the issuance of approximately 17.1 million shares of
common stock. Worthen, subsequently renamed Boatmen's Arkansas, Inc., was
the second largest banking organization in Arkansas, with approximately
$3.5 billion in assets. Nonrecurring after-tax merger expenses related to
this acquisition totaled $12.3 million or $.08 per share, 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.
On May 31, 1995, the Corporation consummated the acquisition of First
National Bank in Pampa (Pampa), resulting in the issuance of approximately
1.35 million shares of common stock. At acquisition, Pampa had
approximately $166 million in assets and was merged into the Corporation's
Amarillo subsidiary.
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., had approximately $.8 billion in assets at
acquisition, and is headquartered in Amarillo, Texas. Nonrecurring after-
tax merger expenses related to this acquisition totaled $3.8 million,
comprised primarily of investment banking fees, compensation-related
expense and abandonment of equipment and software.
Net interest income and net income as previously reported for the
Corporation and the five pooling-of-interests acquisitions completed in
1995 and 1996 are summarized as follows:
=====================================================================================
(in millions) 1994 1993
- -------------------------------------------------------------------------------------
Net interest income:
Boatmen's Bancshares, Inc. $1,024.4 $ 974.5
Fourth Financial Corporation 280.6 268.1
Worthen Banking Corporation 141.3 132.8
Other pooling acquisitions 22.6 18.3
- -------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc. restated $1,468.9 $1,393.7
- -------------------------------------------------------------------------------------
Net income:
Boatmen's Bancshares, Inc. $ 355.3 $ 317.4
Fourth Financial Corporation 83.1 78.1
Worthen Banking Corporation 47.6 32.3
Other pooling acquisitions 4.9 .7
- -------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc. restated $ 490.9 $ 428.5
=====================================================================================
Pending Acquisition On August 30, 1995, the Corporation announced a
definitive agreement to acquire Tom Green National Bank, located in San
Angelo, Texas, in a stock transaction to be accounted for as a purchase.
The acquisition of Tom Green National Bank, with assets of approximately
$80 million, will result in the issuance of approximately .2 million shares
of common stock from treasury stock acquired in the open market. This
transaction is expected to be completed in the first quarter of 1996.
10
4 HELD TO MATURITY SECURITIES
The amortized cost and approximate market value of held to maturity
securities are summarized as follows:
==============================================================================================================
Unrealized
December 31, 1995 Amortized ----------------------------- Market
(in thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
U.S. treasury $ 2,505 $ 21 $ (5) $ 2,521
Federal agencies 250 (2) 248
- --------------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 2,755 21 (7) 2,769
State and municipal 912,348 51,606 (949) 963,005
Other debt securities 8,027 8,027
- --------------------------------------------------------------------------------------------------------------
Total held to maturity
securities $923,130 $51,627 $(956) $973,801
==============================================================================================================
Unrealized
December 31, 1994 Amortized ----------------------------- Market
(in thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
U.S. treasury $ 974,982 $ 507 $ (37,678) $ 937,811
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 1,938,899 207 (145,182) 1,793,924
Adjustable-rate mortgages 1,273,577 429 (61,182) 1,212,824
Fixed rate pass-through 742,943 698 (39,778) 703,863
- --------------------------------------------------------------------------------------------------------------
Total mortgage-backed 3,955,419 1,334 (246,142) 3,710,611
Other agencies 919,074 118 (52,096) 867,096
- --------------------------------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 5,849,475 1,959 (335,916) 5,515,518
State and municipal 870,251 28,535 (10,281) 888,505
Other debt securities 455,432 19 (45,777) 409,674
- --------------------------------------------------------------------------------------------------------------
Total held to maturity
securities $7,175,158 $30,513 $(391,974) $6,813,697
==============================================================================================================
Effective December 15, 1995, the Corporation transferred approximately
$5.7 billion of held to maturity securities to available for sale as
permitted under the Statement of Financial Accounting Standards Board
Special Report, "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities," issued in November
1995. The amortized cost of such securities exceeded fair value by
approximately $16.8 million, resulting in an after-tax decrease to
stockholders' equity of $10.4 million. The transfer had no effect on 1995
earnings.
The maturity distribution of held to maturity securities at December
31, 1995 is summarized as follows:
=================================================================================
(in thousands) Amortized Cost Market Value
- ---------------------------------------------------------------------------------
Due in one year or less $ 46,114 $ 46,481
Due after one year through five years 168,940 174,857
Due after five years through ten years 417,471 447,179
Due after ten years 290,605 305,284
- ---------------------------------------------------------------------------------
Total held to maturity securities $923,130 $973,801
=================================================================================
There were no sales of held to maturity securities in 1995 or 1994. Gross
realized gains in 1993 totaled $9.9 million and gross realized losses were
$1.3 million.
11
5 AVAILABLE FOR SALE SECURITIES
The amortized cost and approximate market value of available for sale
securities are summarized as follows:
=======================================================================================
Unrealized
December 31, 1995 Amortized ----------------------- Market
(in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
U.S. treasury $ 1,504,451 $16,640 $ (2,688) $ 1,518,403
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 2,533,134 8,684 (31,971) 2,509,847
Adjustable-rate mortgages 3,101,001 14,498 (17,287) 3,098,212
Fixed rate pass-through 822,447 12,748 (2,715) 832,480
- ---------------------------------------------------------------------------------------
Total mortgage-backed 6,456,582 35,930 (51,973) 6,440,539
Other agencies 1,282,320 10,889 (1,707) 1,291,502
- ---------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 9,243,353 63,459 (56,368) 9,250,444
State and municipal 98,472 6,224 (97) 104,599
Other debt securities 841,497 7,162 (6,143) 842,516
- ---------------------------------------------------------------------------------------
Total debt securities 10,183,322 76,845 (62,608) 10,197,559
Equity securities 146,911 3,314 (612) 149,613
- ---------------------------------------------------------------------------------------
Total available for sale
securities $10,330,233 $80,159 $(63,220) $10,347,172
=======================================================================================
Unrealized
December 31, 1994 Amortized ---------------------- Market
(in thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
U.S. treasury $1,178,465 $ 1,805 $ (35,278) $1,144,992
Federal agencies:
Mortgage-backed:
Collateralized mortgage
obligations 835,012 87 (51,762) 783,337
Adjustable-rate mortgages 2,106,221 280 (98,053) 2,008,448
Fixed rate pass-through 278,672 3,587 (8,602) 273,657
- ---------------------------------------------------------------------------------------
Total mortgage-backed 3,219,905 3,954 (158,417) 3,065,442
Other agencies 362,906 25 (18,096) 344,835
- ---------------------------------------------------------------------------------------
Total U.S. treasury
and agencies 4,761,276 5,784 (211,791) 4,555,269
State and municipal 167,811 7,883 (888) 174,806
Other debt securities 341,110 90 (21,195) 320,005
- ---------------------------------------------------------------------------------------
Total debt securities 5,270,197 13,757 (233,874) 5,050,080
Equity securities 119,418 1,277 (164) 120,531
- ---------------------------------------------------------------------------------------
Total available for sale
securities $5,389,615 $15,034 $(234,038) $5,170,611
=======================================================================================
The maturity distribution of available for sale securities at December 31,
1995 is summarized as follows:
======================================================================================
(in thousands) Amortized Cost Market Value
- --------------------------------------------------------------------------------------
Due in one year or less $ 797,797 $ 799,842
Due after one year through five years 1,956,601 1,979,844
Due after five years through ten years 157,932 161,257
Due after ten years 76,411 78,146
Mortgage-backed securities 7,194,581 7,178,470
- --------------------------------------------------------------------------------------
Total debt securities 10,183,322 10,197,559
Equity securities 146,911 149,613
- --------------------------------------------------------------------------------------
Total available for sale securities $10,330,233 $10,347,172
======================================================================================
Available for sale securities at December 31, 1995 include mortgage-backed
government guaranteed agency securities of $6.5 billion and private issue
mortgage-backed securities totaling $.7 billion.
12
Sales and redemptions of available for sale securities resulted in
realized gains and losses as follows:
==========================================================================
Year ended December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------
Debt securities:
Realized gains $ 7,968 $11,158
Realized losses (23,338) (4,931)
- --------------------------------------------------------------------------
Net realized gains (losses) $(15,370) $ 6,227
==========================================================================
Equity securities:
Realized gains $ 8,052 $ 3,527
Realized losses (10)
- --------------------------------------------------------------------------
Net realized gains $ 8,042 $ 3,527
==========================================================================
Held to maturity and available for sale securities with book values
totaling $5,699,399 and $6,279,181 at December 31, 1995 and 1994,
respectively, were pledged to secure public deposits, trust deposits, and
for other purposes required by law.
6 LOANS
A summary of loan categories is as follows:
==========================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------
Domestic:
Commercial $11,834,507 $10,883,440
Real estate-mortgage 4,565,326 4,519,791
Real estate-construction 1,107,692 1,003,837
Consumer 6,284,103 6,137,128
Lease financing 325,380 238,641
- --------------------------------------------------------------------------
Total domestic 24,117,008 22,782,837
Foreign loans 20,876 19,134
- --------------------------------------------------------------------------
Total loans 24,137,884 22,801,971
Less unearned income 86,981 84,409
- --------------------------------------------------------------------------
Total loans, net $24,050,903 $22,717,562
==========================================================================
Nonperforming assets, consisting of nonperforming loans and foreclosed
property, are summarized as follows:
==========================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------
Nonaccrual $165,440 $141,147
Restructured 7,996 7,593
Past due 90 days or more 37,349 30,194
- --------------------------------------------------------------------------
Total nonperforming loans 210,785 178,934
Foreclosed property 35,149 67,224
- --------------------------------------------------------------------------
Total nonperforming assets $245,934 $246,158
==========================================================================
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 $14.6 million in 1995 and $15.3 million in 1994.
Actual interest recorded amounted to $5.7 million in 1995 and $4.0 million in
1994.
At December 31, 1995, the recorded investment in loans that are considered
to be impaired under SFAS No. 114 and SFAS No. 118 totaled approximately $138.2
million, and the reserve for loan losses included approximately $7.1 million
allocated to $20.9 million of impaired loans. In 1995, impaired loans averaged
$109.7 million and cash basis interest recognition on these loans, during the
time that they were impaired, totaled less than $1 million.
Following is a summary of activity for 1995 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
13
those prevailing at the same time for comparable transactions with other
persons.
=========================================================================================================================
(in thousands)
- -------------------------------------------------------------------------------------------------------------------------
Outstanding Net change from changes Outstanding
at 12/31/94 Additions Repayments in director status at 12/31/95
- -------------------------------------------------------------------------------------------------------------------------
$267,288 $125,849 $(96,054) $(62,253) $234,830
=========================================================================================================================
The following summarizes activity in the reserve for loan losses:
==========================================================================================================================
December 31 (in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
Balance, beginning of year $ 449,485 $ 444,492 $ 409,775
Loans charged off (118,639) (86,899) (107,415)
Recoveries on loans
previously charged off 54,152 59,394 54,195
- --------------------------------------------------------------------------------------------------------------------------
Net charge-offs (64,487) (27,505) (53,220)
Provision for loan losses 59,756 26,176 70,922
Loan reserve from acquisitions 7,806 6,322 17,015
- --------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 452,560 $ 449,485 $ 444,492
==========================================================================================================================
7 PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
Land $ 114,935 $ 111,341
Buildings 625,534 584,693
Buildings under capital leases 48,666 48,666
Furniture, fixtures and equipment 683,545 633,043
Leasehold improvements 103,768 104,299
Construction in progress 13,903 31,676
- --------------------------------------------------------------------------------------
Total 1,590,351 1,513,718
Less accumulated depreciation/amortization 789,849 717,333
- --------------------------------------------------------------------------------------
Net property and equipment $ 800,502 $ 796,385
======================================================================================
Depreciation and amortization charged to expense in 1995, 1994 and 1993
amounted to $97,340, $92,481, and $82,955, respectively.
At December 31, 1995, 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 leases Operating leases
- --------------------------------------------------------------------------------------
1996 $ 4,974 $ 29,498
1997 4,974 25,767
1998 4,954 21,250
1999 4,895 18,793
2000 4,959 15,318
After 2000 50,295 73,072
- --------------------------------------------------------------------------------------
Total minimum lease payments 75,051 $183,698
========
Less amount representing interest 35,975
- -------------------------------------------------------------
Present value of minimum lease payments $39,076
=============================================================
14
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 $33,610, $35,616, and
$42,515 in 1995, 1994, and 1993, respectively.
In March, 1995, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of." This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by a company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If such conditions exist,
companies must estimate the future cash flows from use of the asset and, if
the sum of the undiscounted estimated future cash flows is less than the
carrying amount of the asset, an impairment loss would be recognized. This
pronouncement becomes effective in 1996 and is not expected to have a
material effect on the Corporation's financial results.
8 INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization are summarized as
follows:
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
Goodwill $277,983 $264,997
Core deposit premium 69,552 87,431
Mortgage servicing rights 67,461 41,043
Credit card premium 20,601 11,231
- --------------------------------------------------------------------------------------
Total intangible assets, net $435,597 $404,702
======================================================================================
Intangible assets amortization charged to noninterest expense in 1995,
1994, and 1993 amounted to $44,313, $45,306, and $46,654, respectively.
Amortization of mortgage servicing rights charged to mortgage banking
revenues in 1995, 1994, and 1993 totaled $9,839, $17,166, and $19,244,
respectively. In 1995, the Corporation capitalized approximately $40 million
of mortgage servicing rights, and sold mortgage servicing rights with a net
book value of approximately $4 million. The fair value of mortgage
servicing rights at December 31, 1995 was approximately $87.1 million. At
December 31, 1995, no impairment writedown was required as the fair value of
the mortgage servicing rights exceeded carrying value.
9 SEGREGATED ASSETS
Included in other assets at December 31, 1995 are segregated assets
totaling $103.3 million net of a valuation allowance of $13.3 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, 1995 and 1994, is provided below.
15
=============================================================================================================
Principal Allowance Principal
(in millions) balance for losses balance, net
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $266.6 $18.4 $248.2
Charge-offs (14.9) (3.0)
Recoveries 1.3
Net transfers 40.9
Payments on segregated assets (98.7)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 193.9 16.7 177.2
Charge-offs (27.7) (5.5)
Recoveries 2.1
Net transfers (17.2)
Payments on segregated assets (32.4)
- -------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $116.6 $13.3 $103.3
=============================================================================================================
10 DEPOSITS
Deposits are summarized as follows:
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
Demand deposits $ 6,894,649 $ 6,294,793
Savings deposits 1,906,996 2,275,440
Interest-bearing transaction accounts 11,603,724 9,977,819
Time deposits $100,000 and over 1,819,633 3,072,574
Retail time deposits 9,753,135 9,488,043
- --------------------------------------------------------------------------------------
Total deposits $31,978,137 $31,108,669
======================================================================================
11 RESERVES ON DEPOSITS
Required reserves on deposits, included in the caption "Cash and due from
banks," were $487,835 and $754,741 at December 31, 1995 and 1994,
respectively.
12 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) 1995 1994 1993
- --------------------------------------------------------------------------------------------------
Balance:
Average $2,912,944 $3,497,345 $2,267,945
Year end 2,902,973 2,987,315 2,616,746
Maximum month-end
balance during year 3,315,915 4,427,373 3,181,996
==================================================================================================
Interest rate:
Average 5.58% 4.32% 2.84%
==================================================================================================
Year end 5.31% 5.44% 2.66%
==================================================================================================
13 SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
Short-term bank notes $1,265,000 $1,550,000
Commercial paper 49,497 43,531
Other 160,494 793,749
- --------------------------------------------------------------------------------------
Total $1,474,991 $2,387,280
======================================================================================
16
Information relating to short-term bank notes is summarized as follows:
======================================================================================
(in thousands) 1995 1994
- --------------------------------------------------------------------------------------
Average balance $1,648,178 $ 921,878
Maximum month-end
balance during year 2,015,000 1,650,000
======================================================================================
Interest rate:
Average 6.29% 4.19%
======================================================================================
Year end 6.10% 5.80%
======================================================================================
In 1995, approximately $.9 million of the short-term bank notes were
converted to fixed rate debt through the use of interest rate swaps.
Commercial paper is issued by the parent company in maturities not to
exceed nine months. The short-term bank notes are issued by the Corporation's
banking subsidiaries generally with maturities of less than one year. Other
short-term funds consisted principally of treasury, tax and loan accounts. At
December 31, 1995, 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.
14 LONG-TERM DEBT
Long-term debt is summarized as follows:
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
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 772 904
12% note due 1998 25,000 25,000
- --------------------------------------------------------------------------------------
Total Parent Company 425,772 425,904
- --------------------------------------------------------------------------------------
Subsidiaries:
Senior notes due 1998-2000 43,000 43,000
9-7/8% senior notes due April 15, 1995 35,000
Federal Home Loan Bank notes:
6.28%-6.39% notes due 1999-2001 90,000
4.9%-5.2% notes due 1997-1998 25,000 25,000
Other notes due 1999-2016 4,867 1,500
Other notes due through 1997 33,953
6.55% mortgage note due through 2009 26,430 27,679
8.60% term loan due 1995 4,375
7.41% notes payable 3,077
Other 60 5
- --------------------------------------------------------------------------------------
Total subsidiaries 189,357 173,589
- --------------------------------------------------------------------------------------
Total long-term debt $615,129 $599,493
======================================================================================
The 7-5/8% subordinated notes and the 6-3/4% subordinated notes have been
effectively converted to variable rate debt for a portion of the term through
the use of interest rate swaps. The average interest rates paid on these notes
in 1995 and 1994 were 8.53% and 6.77%, respectively. These notes, and the
8-5/8% and 9-1/4% subordinated 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, subject to adjustments under certain
circumstances. During 1995, 1994 and 1993, $.1 million, $.3 million and $.2
million of the debentures, respectively, were converted into common stock.
The 12% note due in 1998 may not be prepaid at the option of the
Corporation.
The senior notes due 1998-2000 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 Federal Home Loan Bank notes may be prepaid at the option of the
Corporation with payment of premium.
The other notes due through 1997 were prepaid in full in 1995 and
represented long-term debt obligations of the Corporation's mortgage banking
subsidiary acquired in 1995.
17
The 6.55% mortgage note requires monthly principal and interest payments
of $252 thousand. The Corporation may prepay the note without payment of
premium.
The 8.60% term note and 7.41% notes payable were paid in full in 1995
and represented long-term debt obligations of Fourth Financial Corporation,
acquired in 1996.
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, 1995.
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, 1995 are as follows:
=================================================
(in thousands)
- -------------------------------------------------
Year Parent Company Consolidated
- -------------------------------------------------
1996 $ 772 $ 2,652
1997 11,986
1998 25,000 52,099
1999 42,220
2000 55,318
=================================================
15 PREFERRED STOCK
At December 31, 1995, there were outstanding 9,609 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.
At December 31, 1995, there were outstanding 248,310 shares of
nonvoting Class A Cumulative Convertible Preferred Stock. This
preferred stock was issued in the form of 4,000,000 depositary shares,
each representing a 1/16 interest in a share of preferred stock and each
having a liquidation preference of $25. Dividends are payable quarterly
at an annual rate of $1.75 per depositary share. The depositary shares
are not redeemable by the Corporation prior to March 1, 1997. However,
they may be converted at the election of shareholders into shares of the
Corporation's common stock at a conversion price of $29 per common
share. At December 31, 1995, there were 3,972,960 depositary shares
outstanding which could be converted into 3,424,972 shares of the
Corporation's common stock.
16 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 Corporation accounts for its stock options in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees."
Prior to the merger, Fourth Financial had stock option plans
under which options were granted. Options may no longer be granted under
these plans. Such options outstanding upon consummation were generally
converted into options to purchase the Corporation's common stock under
conversion terms stipulated in the merger agreement.
The following table summarizes the status of the various plans.
=======================================================================================================================
1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Shares Price Per Share Shares Price Per Share
- -----------------------------------------------------------------------------------------------------------------------
Options granted 1,849,932 $26.56 to $33.00 1,703,834 $23.74 to $31.63
Options
exercised 1,314,635 5.76 to 31.50 515,625 5.76 to 28.75
Stock
appreciation
rights
exercised 24,726 15.86 to 27.00 29,030 15.63 to 27.75
Options lapsed 313,598 5.76 to 30.88 242,830 5.76 to 27.75
Options
outstanding 5,800,977 5.76 to 33.00 5,604,004 5.76 to 31.63
Options
exercisable 3,795,653 5.76 to 33.00 2,506,179 5.76 to 30.38
=======================================================================================================================
18
A summary of the Corporation's common stock related plans is provided
below. Compensation expense related to the common stock plans totaled $18.2
million in 1995, $15.0 million in 1994, and $13.8 million in 1993.
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, 1995, approximately 6,390
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 the contribution made by
the employee, in full, up to 3%, 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.
17 REGULATORY CAPITAL
The Corporation's regulatory capital is summarized as follows:
==============================================================================================================
December 31 (in millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------
Tier I capital $ 3,242.5 $ 2,949.5
Tier II capital 770.1 752.9
- ------------------------------------------------------------------------------------------------------------
Total capital $ 4,012.6 $ 3,702.4
============================================================================================================
Risk-adjusted assets $28,721.2 $27,020.2
============================================================================================================
Regulatory Minimums
-----------------------------
Adequately Well
December 31 Capitalized Capitalized 1995 1994
- --------------------------------------------------------------------------------------------------------------
Risk-based capital ratios:
Tier I 4% 6% 11.29% 10.92%
Total 8 10 13.97 13.70
Tier I leverage ratio 4 5 7.95 7.29
==============================================================================================================
The Corporation's risk-based capital and Tier I leverage ratios
substantially exceed the regulatory required minimums and, at December 31,
1995, all of the Corporation's subsidiaries were considered "well capitalized"
based on regulatory defined minimums.
18 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, or in the case of Fourth Financial
employees, the Fourth Financial Plan, which is in the process of being
merged with the Boatmen's Retirement 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.
An amendment was made to the Plan as of December 31, 1995 to standardize
credited service, which had the effect of increasing the projected benefit
obligation by approximately $22.8 million.
Contributions to the Plan totaled $7.9 million in 1995, $8.0 million in
1994, and $13.8 million in 1993.
19
Net pension expense for 1995, 1994 and 1993 was comprised of the
following:
=================================================================================================
Year ended December 31 (in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------
Service cost $17,219 $16,413 $14,129
Interest cost on projected
benefit obligation 20,787 19,656 17,661
(Return) loss on plan assets (61,712) 1,022 (31,961)
Net amortization and deferral 37,376 (24,319) 11,395
- -------------------------------------------------------------------------------------------------
Net pension expense $13,670 $12,772 $11,224
=================================================================================================
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) 1995 1994
- -------------------------------------------------------------------------------------
Plan assets at fair value, primarily listed
stocks and bonds $314,798 $259,914
- -------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefits 240,504 182,596
Non-vested benefits 16,499 10,762
- -------------------------------------------------------------------------------------
Accumulated benefit obligation 257,003 193,358
Effect of projected future salary increases 78,589 52,300
- -------------------------------------------------------------------------------------
Projected benefit obligation 335,592 245,658
- -------------------------------------------------------------------------------------
Plan assets in excess of (lower than)
projected benefit obligation $(20,794) $ 14,256
=====================================================================================
Comprised of:
Unrecognized net asset being amortized
over 17 years $ 13,684 $ 16,018
Unrecognized net gain (loss) from past
experience different from that assumed
and effects of changes in assumptions (4,835) 238
Unrecognized prior service benefit (loss) (20,626) 1,176
Prepaid pension cost (liability) (9,017) (3,176)
- -------------------------------------------------------------------------------------
$(20,794) $ 14,256
=====================================================================================
Assumptions used in computing pension expense were:
===============================================================================================================
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
Weighted average discount rate 8-8-1/2% 7-7-1/2% 7-8%
Rate of increase in future
compensation levels 4-3/4-5-1/2% 4-3/4-5% 4-3/4-5-1/2%
Expected long-term rate of
return on assets 8-3/4% 8-3/4% 8-9-1/4%
===============================================================================================================
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 7.25% and 4.70%-5.00%, respectively, at
December 31, 1995 and 8.50%-8.75% and 4.70%-5.50% respectively, at December
31, 1994.
The Corporation provides postemployment life and contributory medical
benefits to retired employees. The liability for such benefits is unfunded and
costs of such benefits are accrued in a manner similar to actual pension
costs.
20
The following table presents the status of the plans:
======================================================================================
December 31 (in thousands) 1995 1994
- --------------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $52,371 $39,300
Fully eligible active plan participants 13,962 12,326
Other active plan participants 19,492 17,272
- --------------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 85,825 68,898
- --------------------------------------------------------------------------------------
Unrecognized net gain 21,867 10,913
Unrecognized transition obligation 38,289 40,560
- --------------------------------------------------------------------------------------
Accrued postretirement
benefit cost $25,669 $17,425
======================================================================================
Net postretirement benefit cost included the following components:
Year ended December 31 (in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
Service cost $ 1,230 $ 1,460 $1,238
Interest cost 6,049 4,924 4,586
Amortization of transition
obligation over 20 years 2,906 4,338 2,396
- -------------------------------------------------------------------------------------------------------
Net postretirement benefit cost $10,185 $10,722 $8,220
=======================================================================================================
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits for the medical plan is 9.00% for 1996 (compared to
10.00% assumed for 1995) 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, 1995 by $6.7 million, and the aggregate of the
service and interest cost components of net periodic postretirement benefit
cost for 1995 by $.7 million. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.25% at
December 31, 1995 and 8.50% at December 31, 1994.
19 INCOME TAXES
Income tax expense is summarized as follows:
=====================================================================================================
Year ended December 31 (in thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
Current:
Federal $221,860 $211,920 $182,897
State 36,299 34,806 30,803
- -----------------------------------------------------------------------------------------------------
Total current 258,159 246,726 213,700
- -----------------------------------------------------------------------------------------------------
Deferred:
Federal 3,970 10,778 (30,176)
State (1,119) (3,086) (9,209)
- -----------------------------------------------------------------------------------------------------
Total deferred 2,851 7,692 (39,385)
- -----------------------------------------------------------------------------------------------------
Income tax expense $261,010 $254,418 $174,315
=====================================================================================================
21
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 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
Statutory rate 35.0% 35.0% 35.0%
Tax-exempt securities interest
and other income (4.0) (4.1) (5.3)
State taxes, net of Federal benefit 2.9 2.8 2.3
Deferred taxes at applicable rates (2.8)
Other, net 1.3 .4 (.3)
- ------------------------------------------------------------------------------------------------------
Effective rate 35.2% 34.1% 28.9%
======================================================================================================
The Corporation's deferred tax asset account was comprised of the
following:
===================================================================================
Year ended December 31 (in thousands) 1995 1994
- -----------------------------------------------------------------------------------
Deferred tax liabilities:
Lease financing $ (49,793) $ (29,657)
Net unrealized gain on
available for sale securities (6,463)
Depreciation (36,767) (33,168)
Purchase accounting adjustment (15,111) (20,412)
Other (36,083) (40,481)
- -----------------------------------------------------------------------------------
Total deferred tax liabilities (144,217) (123,718)
- -----------------------------------------------------------------------------------
Deferred tax assets:
Net unrealized loss on
available for sale securities 84,483
Provision for loan loss 182,620 174,809
Other real estate owned losses 11,496 17,800
Intangibles 18,697 14,790
Net operating loss carryforwards 22,976 29,926
Other 50,024 37,304
- -----------------------------------------------------------------------------------
Total deferred tax assets 285,813 359,112
- -----------------------------------------------------------------------------------
Net deferred tax asset $141,596 $235,394
===================================================================================
At December 31, 1995, the Corporation had net operating loss carryforwards
of $48,798, all of which relate to net operating losses of acquired companies.
Net operating loss carryforwards expire in years 1999 through 2007.
The Corporation has determined that it is not required to establish a
valuation allowance for the deferred tax asset since it is more likely than
not that the deferred asset of $141,596 will be realized through either
carryback to taxable income in prior years, future reversals of existing
taxable temporary differences and, to a lesser extent, future taxable income.
20 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
22
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 $1.9
million and $1.1 million at December 31, 1995 and 1994, respectively. The fair
value of commercial and standby letters of credit totaled approximately $1.5
million and $1.3 million at December 31, 1995 and 1994, respectively.
The estimated fair values of the Corporation's financial instruments were
as follows:
======================================================================================
December 31, 1995 (in millions) Carrying amount Fair value
- --------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks and
short-term investments $ 3,920.6 $ 3,920.6
Held to maturity securities 923.1 973.8
Available for sale securities 10,347.2 10,347.2
Trading securities 58.4 58.4
Loans 23,598.3 23,939.7
Financial liabilities:
Deposits 31,978.1 32,065.2
Short-term borrowings 4,378.0 4,378.0
Long-term debt 615.1 660.5
Off-balance sheet financial instruments:
Interest rate swaps:
Asset/liability management (1.1) (5.2)
Customer swaps held in trading portfolio 1.6 1.6
Foreign exchange contracts held in
trading portfolio .5 .5
======================================================================================
December 31, 1994 (in millions) Carrying amount Fair value
- --------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks and
short-term investments $ 3,723.9 $ 3,723.9
Held to maturity securities 7,175.2 6,813.7
Available for sale securities 5,170.6 5,170.6
Trading securities 32.4 32.4
Loans 22,268.1 22,079.6
Financial liabilities:
Deposits 31,108.7 31,096.4
Short-term borrowings 5,374.6 5,374.6
Long-term debt 599.5 585.3
Off-balance sheet financial instruments:
Interest rate swaps:
Asset/liability management (.5) (174.3)
Customer swaps held in trading portfolio .4 .4
Foreign exchange contracts held in
trading portfolio 2.3 2.3
======================================================================================
21 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.
23
A summary of the Corporation's off-balance sheet financial instruments at
December 31, 1995 and 1994 is presented as follows.
======================================================================================
Financial instruments held for other than trading purposes
whose credit risk is represented by contract amounts
- --------------------------------------------------------------------------------------
December 31 (in millions) 1995 1994
- --------------------------------------------------------------------------------------
Commitments to extend credit $10,742.6 $10,186.7
Standby letters of credit 1,162.1 1,003.4
Commercial letters of credit 111.1 167.9
Forward commitments 86.6 155.9
Securities lent 2,719.4 2,968.2
- --------------------------------------------------------------------------------------
Total $14,821.8 $14,482.1
======================================================================================
Financial instruments whose credit risk is represented by
other than notional or contract amounts
- --------------------------------------------------------------------------------------
December 31 (in millions) 1995 1994
- --------------------------------------------------------------------------------------
Foreign exchange contracts held
in trading portfolio:
Commitments to purchase $ 344.3 $ 549.1
Commitments to sell 426.9 595.8
Interest rate swaps:
Asset/liability management 2,803.6 2,531.6
Customer swaps held in trading portfolio 852.2 649.2
- --------------------------------------------------------------------------------------
Total $4,427.0 $4,325.7
======================================================================================
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 mortgage banking subsidiary, obtains mandatory
forward commitments of up to 120 days to sell mortgage backed securities to
hedge the market risk associated with a substantial portion of the mortgage
loan commitments that are expected to close (mortgage loan pipeline), and all
mortgage loans held for sale. The Company's risk management function closely
monitors the mortgage loan pipeline to determine appropriate forward
commitment coverage on a daily basis in order to manage the risk inherent in
these off-balance-sheet financial instruments.
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 equal to or
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 his 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
24
approved by senior management and positions are monitored to ensure compliance
with such limits. The credit risk exposure at December 31, 1995 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 management action is taken, these core banking activities, which
include lending and deposit products, result in an asset-sensitive position.
Accordingly, the Corporation utilizes a variety of discretionary on- and
off-balance sheet strategies to prudently manage the overall interest rate
sensitivity position. The Corporation's interest rate risk exposure is
currently limited, by policy, to 5% of projected annual net income. Adherence
to these risk limits is controlled and monitored through simulation modeling
techniques that consider the impact alternative interest rate scenarios will
have on the Corporation's financial results.
In 1995, $850 million of new swaps were added and $578 million matured
such that at December 31, 1995, interest rate swaps totaled $2.8 billion. The
most recent swaps were executed as a means to convert a portion of the
Corporation's variable rate bank notes to fixed rate instruments. Interest
rate swaps executed in prior years were undertaken to modify the interest rate
sensitivity of subordinated debt as well as alter the interest rate
sensitivity of the Corporation's prime-based loan portfolio, converting a
portion of these loans to fixed rate instruments. Additionally, the
Corporation has utilized swaps to convert a portion of its long-term fixed
rate debt to a floating rate basis. Periodic correlation assessments are
performed to ensure that the swap instruments are effectively modifying the
interest rate characteristics of the respective balance sheet items.
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. As such, the income contribution from
the swap portfolio will decrease in a rising rate environment and increase in
a falling rate environment. The average rate received at December 31, 1995,
was 5.71% compared to an average rate paid of 6.09%, and the average remaining
maturity of the total portfolio was less than one year. The variable rate
component of the interest rate swaps is based on LIBOR as of the most recent
reset date. The interest rate swaps are not leveraged in that they reset in
step with rate movements in the underlying index.
A summary of the interest rate swap activity for the years ended December
31, 1995 and December 31, 1994 is provided below.
========================================================================================================================
Asset/Liability Management Swaps Receive Pay Basis
(in millions) Fixed Fixed Swaps Total
- ------------------------------------------------------------------------------------------------------------------------
Notional amount,
December 31, 1993 $1,501 $231 $300 $2,032
Additions 1,100 50 1,150
Maturities (450) (100) (100) (650)
- ------------------------------------------------------------------------------------------------------------------------
Notional amount,
December 31, 1994 2,151 131 250 2,532
Additions 850 850
Maturities (323) (102) (153) (578)
- ------------------------------------------------------------------------------------------------------------------------
Notional amount,
December 31, 1995 $1,828 $879 $ 97 $2,804
========================================================================================================================
At December 31, 1995:
Average remaining
maturity (years) .9 .5 .2 .7
Weighted average rate received 5.58% 5.88% 6.76% 5.71%
Weighted average rate paid 5.99 6.29 6.06 6.09
========================================================================================================================
At December 31, 1994:
Average remaining
maturity (years) 2.2 .6 1.1 2.0
Weighted average rate received 5.56% 5.92% 5.55% 5.57%
Weighted average rate paid 6.05 5.33 5.72 5.98
========================================================================================================================
25
Summarized below is the unrealized gain (loss) of the swap portfolio at
December 31, 1995 and 1994.
========================================================================================================================
December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
Asset/Liability Management Swaps Notional Unrealized Notional Unrealized
(in millions) Amount Gain (loss) Amount Gain (loss)
- ------------------------------------------------------------------------------------------------------------------------
Prime Loan Swaps:
Receive fixed $1,505 $(2.0) $1,800 $(155.6)
Basis swaps 97 .2 200 (3.8)
- ------------------------------------------------------------------------------------------------------------------------
Total prime loan swaps 1,602 (1.8) 2,000 (159.4)
Long-term debt swaps 200 (.7) 200 (8.6)
Bank note liability swaps 850 (2.5)
Other 152 (.2) 332 (6.3)
- ------------------------------------------------------------------------------------------------------------------------
Total $2,804 $(5.2) $2,532 $(174.3)
========================================================================================================================
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 of the yield of the related asset or liability
over the periods covered by the contracts.
The swap portfolio decreased net interest income by approximately $13
million in 1995, resulting in a reduction in the net interest margin of
approximately 4 basis points. In 1994, the swap portfolio increased net
interest income by $16 million adding approximately 5 basis points to the
margin. Based on interest rates at December 31, 1995, it is anticipated that
the swap portfolio will reduce net interest income by approximately $5 million
in 1996 and approximately $1 million in 1997; however, it is anticipated that
these declines will be offset by a higher contribution from core banking
activities. The estimated fair value of the swap portfolio, based on dealer
quotes, was an unrealized loss of $5.2 million at December 31, 1995, compared
to an unrealized loss of $174.3 million at December 31, 1994. The
Corporation's operating and liquidity position is not expected to be
materially impacted by the unrealized loss inherent in the swap portfolio.
Approximately 60% of the portfolio is comprised of indexed amortizing
swaps, whereby the maturity distribution could lengthen if interest rates
increase from current levels. Assuming interest rates were to increase 200
basis points from their current levels, the average maturity distribution of
the swap portfolio would extend by approximately 1.2 years, but in no event
would any component of the swap portfolio extend beyond 4.4 years. The
decision to use indexed amortizing swaps rather than some other financial
instrument is analogous to choices made between using on-balance sheet
instruments such as mortgage-backed securities and Treasury securities. While
both instruments can be effective at reducing the risk associated with the
asset sensitive profile of the core banking activities, the Corporation
frequently chooses to assume some modest extension/contraction characteristics
associated with investing in a mortgage-backed security. Indexed amortizing
swaps and mortgage-backed securities are similar in nature in that the
notional or principal values decline over time and changes in market rates
impact the degree to which the underlying instrument amortizes. The specific
indexed amortizing swaps used by the Corporation have a minimum term which can
potentially lengthen to a specified final maturity depending on the level of
movement in interest rates. While the underlying characteristics of the
specific indexed amortizing swaps used by the Corporation are similar to
on-balance sheet mortgage-backed securities, prepayment and other risk factors
are more predictable due to the structural features inherent in the swaps. Any
future utilization of off-balance sheet financial instruments will be
determined based upon the Corporation's overall interest rate sensitivity
position and asset/liability management strategies.
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. Interest rate risk associated with the customer swap portfolio is
controlled by entering into offsetting positions with third parties. Including
these offsetting positions, the notional amount of the customer swap portfolio
at December 31, 1995 totaled approximately $852.2 million. 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
26
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, 1995, the Corporation's credit exposure from interest rate and
foreign exchange contracts totaled $8.4 million and $10.7 million,
respectively. The following summarizes the fair value at period end and the
average fair value for the years ended December 31, 1995 and 1994 for
derivatives held or issued for trading purposes.
======================================================================================================================
Derivatives Held or Issued for Trading Purposes--Fair Value
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(in millions) Period end Average Period end Average
- ----------------------------------------------------------------------------------------------------------------------
Interest-rate swap contracts:
Assets $ 8.4 $ 4.9 $ 4.7 $ 4.1
Liabilities (6.8) (3.9) (4.3) (3.6)
Foreign exchange contracts:
Assets 10.7 19.4 19.1 21.0
Liabilities (10.2) (18.2) (16.8) (18.9)
======================================================================================================================
Net trading gains recognized in earnings on interest rate contracts
outstanding totaled $1.3 million in 1995, $.2 million in 1994 and $.8 million
in 1993. Net trading gains from foreign exchange contracts totaled $6.9
million in 1995, $5.9 million in 1994 and $5.4 million in 1993.
22 PARENT COMPANY CONDENSED
FINANCIAL STATEMENTS
Following are the condensed financial statements of Boatmen's Bancshares,
Inc. (Parent Company only) for the periods indicated:
Balance Sheet
=======================================================================================
December 31 (in thousands) 1995 1994
- ---------------------------------------------------------------------------------------
Assets:
Cash $ 834 $ 33
Short-term investments 2,398 4,063
Investment in subsidiaries:
Banks and bank holding companies 3,504,291 3,044,242
Nonbanks 239,750 215,851
- ---------------------------------------------------------------------------------------
Total investment in subsidiaries 3,744,041 3,260,093
- ---------------------------------------------------------------------------------------
Advances to subsidiaries:
Bank 257,901 286,239
Nonbanks 57,163 38,466
- ---------------------------------------------------------------------------------------
Total advances to subsidiaries 315,064 324,705
- ---------------------------------------------------------------------------------------
Goodwill 84,413 89,874
Other assets 55,544 46,070
- ---------------------------------------------------------------------------------------
Total assets $4,202,294 $3,724,838
=======================================================================================
Liabilities:
Accounts payable and accrued liabilities $ 78,342 $ 54,275
Dividends payable 47,936 35,556
Short-term borrowings 49,497 43,531
Long-term debt 425,772 425,904
- ---------------------------------------------------------------------------------------
Total liabilities 601,547 559,266
- ---------------------------------------------------------------------------------------
Redeemable preferred stock 961 1,142
- ---------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 99,324 100,000
Common stock 158,068 156,084
Surplus 1,212,838 1,171,184
Unrealized net appreciation (depreciation),
available for sale securities 10,476 (134,521)
Retained earnings 2,137,176 1,886,199
Treasury stock (18,096) (14,516)
- ---------------------------------------------------------------------------------------
Total stockholders' equity 3,599,786 3,164,430
- ---------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $4,202,294 $3,724,838
=======================================================================================
27
Statement of Income
=========================================================================================================
Year ended December 31 (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Income:
Dividends from subsidiaries:
Banks and bank holding companies $276,654 $219,676 $216,425
Nonbanks 18,118 26,019 23,855
- ---------------------------------------------------------------------------------------------------------
Total dividends from subsidiaries 294,772 245,695 240,280
- ---------------------------------------------------------------------------------------------------------
Fees from subsidiaries 14,436 15,177 33,316
Interest on short-term investments 146 829 988
Interest on advances to subsidiaries 16,114 11,545 6,713
Other 5,912 760 791
- ---------------------------------------------------------------------------------------------------------
Total income 331,380 274,006 282,088
- ---------------------------------------------------------------------------------------------------------
Expense:
Interest expense 41,116 35,924 32,062
Staff expense 40,523 29,691 31,120
Other 34,143 23,971 30,139
- ---------------------------------------------------------------------------------------------------------
Total expense 115,782 89,586 93,321
- ---------------------------------------------------------------------------------------------------------
Income before income tax benefit
and equity in undistributed
income of subsidiaries 215,598 184,420 188,767
Income tax benefit 23,499 18,465 14,932
- ---------------------------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 239,097 202,885 203,699
Equity in undistributed income
of subsidiaries 240,914 288,041 224,775
- ---------------------------------------------------------------------------------------------------------
Net income $480,011 $490,926 $428,474
=========================================================================================================
Retained earnings include $1,887,309 and $1,692,270 of equity in
undistributed income of subsidiaries at year-end 1995 and 1994, respectively.
Annual dividend distributions to the Corporation from its banking
subsidiaries are subject to certain limitations by applicable banking
regulatory authorities. In the aggregate, the statutory maximum available
dividends which may be paid to the Corporation without prior regulatory
approval is $725,319, resulting in $2,991,210 or 80.0% of the total equity of
the subsidiaries being potentially restricted as of December 31, 1995.
28
Statement of Cash Flows
=========================================================================================================
Year ended December 31 (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 480,011 $ 490,926 $ 428,474
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 4,458 4,435 4,127
Equity in undistributed income
of subsidiaries (240,914) (288,041) (224,775)
(Gain) loss on sale of assets (5,049) 30 237
Increase (decrease) in taxes
payable (5,311) (3,435) 105
Other, net 26,374 14,452 (6,796)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 259,569 218,367 201,372
- ---------------------------------------------------------------------------------------------------------
Cash flows from investment activities:
Purchase of net assets and increase in
investment in subsidiaries (57,985) (26,524) (125,364)
Net change in advances to subsidiaries 9,641 (54,903) (141,054)
Net change in short-term investments 1,665 12,340 78,597
Net change in property and equipment (183) 50 (3,595)
- ---------------------------------------------------------------------------------------------------------
Net cash used for
investing activities (46,862) (69,037) (191,416)
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term borrowings 5,966 (6,103) (6,390)
Repayments of long-term debt (14) (1) (5,003)
Proceeds from issuance of
long-term debt 99,281
Cash dividends paid (170,757) (132,690) (112,216)
Common stock issued pursuant to
various employee and shareholder
stock issuance plans 29,561 4,530 16,993
Acquisition of treasury stock (76,479) (15,406) (3,102)
Decrease in redeemable preferred stock (183) (13) (93)
- ---------------------------------------------------------------------------------------------------------
Net cash used for
financing activities (211,906) (149,683) (10,530)
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 801 (353) (574)
Cash at beginning of year 33 386 960
- ---------------------------------------------------------------------------------------------------------
Cash at end of year $ 834 $ 33 $ 386
=========================================================================================================
23 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.
29
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Boatmen's Bancshares, Inc.
We have audited the accompanying supplemental consolidated balance
sheets of Boatmen's Bancshares, Inc. (formed as a result of the
consolidation of Boatmen's Bancshares, Inc. and Fourth Financial
Corporation) as of December 31, 1995 and 1994, and the related
supplemental consolidated statements of income, changes in stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. The supplemental consolidated financial statements
give retroactive effect to the merger of Boatmen's Bancshares, Inc. and
Fourth Financial Corporation on January 31, 1996, which has been
accounted for using the pooling of interests method as described in the
notes to the supplemental consolidated financial statements. 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 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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1995, after giving retroactive effect to the merger
with Fourth Financial Corporation, as described in the notes to the
supplemental consolidated financial statements, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 18, 1996 (except for the pooling of
interests with Fourth Financial Corporation
as of January 31, 1996, and Note 3, for
which the date is January 31, 1996)