1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------- to ---------
Commission File number: 1-3750
BOATMEN'S BANCSHARES, INC.
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(Exact name of Registrant as specified in its charter)
Missouri 43-0672260
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63101
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(Address of principal executive offices) (Zip Code)
3l4-466-6000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X
Yes ----- No -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class of Common Stock as of July 31, 1996
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$1 Par Value 156,741,130
2
INDEX
PART I - FINANCIAL INFORMATION
------------------------------
PAGE NO.
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Item 1 - Financial Statements 3
Consolidated Balance Sheet
June 30, 1996 and 1995 and December 31, 1995 4
Consolidated Statement of Income
Three months and six months ended June 30, 1996 and 1995 5
Consolidated Statement of Changes in Stockholders' Equity
Six months ended June 30, 1996 and 1995 6
Consolidated Statement of Cash Flows
Six months ended June 30, 1996 and 1995 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-30
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings None
Item 2 - Changes in Securities None
Item 3 - Defaults Upon Senior Securities None
Item 4 - Submission of Matters to a Vote of Security Holders 31
Item 5 - Other Information None
Item 6 - Exhibits and Reports on Form 8-K 32
SIGNATURE 32
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements for the three months and six
months ended June 30, 1996 and 1995 include the accounts of the Corporation
and its subsidiaries after elimination of all material intercompany
transactions. In the opinion of management, all necessary adjustments,
consisting of normal recurring adjustments, have been included to present
fairly the results of operations for the interim periods presented herein.
The results of operations for the three months and six months ended June 30,
1996 are not necessarily indicative of the results which may be expected for
any other interim period or for the entire year.
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4
Boatmen's Bancshares, Inc.
CONSOLIDATED BALANCE SHEET
(dollars in thousands) June 30, 1996 June 30, 1995 December 31, 1995
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Assets
Cash and due from banks $ 2,139,433 $ 2,307,342 $ 2,611,765
Short-term investments 36,843 52,750 83,166
Securities:
Held to maturity 1,018,357 7,014,108 923,130
Available for sale 10,705,084 4,492,629 10,347,172
Trading 44,886 28,256 58,361
Federal funds sold and securities purchased
under resale agreements 489,410 784,254 1,225,671
Loans, net of unearned income 24,416,546 24,307,358 24,050,903
Less reserve for loan losses 472,006 457,221 452,560
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Loans, net 23,944,540 23,850,137 23,598,343
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Property and equipment 787,306 801,398 800,502
Other assets 1,516,699 1,562,989 1,475,379
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Total assets $40,682,558 $40,893,863 $41,123,489
==================================================================================================================
Liabilities and Stockholders' Equity
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Liabilities:
Demand deposits $ 6,560,696 $ 6,222,491 $ 6,894,649
Retail savings deposits and interest-bearing
transaction accounts 13,050,523 12,456,252 13,510,720
Time deposits 11,017,751 11,779,801 11,572,768
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Total deposits 30,628,970 30,458,544 31,978,137
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Federal funds purchased and securities sold
under repurchase agreements 3,753,895 2,708,270 2,902,973
Short-term borrowings 1,454,719 3,123,883 1,474,991
Capital lease obligations 38,352 39,699 39,076
Long-term debt 616,538 522,216 615,129
Other liabilities 597,456 610,321 512,436
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Total liabilities 37,089,930 37,462,933 37,522,742
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Redeemable preferred stock 957 1,132 961
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Stockholders' Equity:
Preferred stock 99,091 99,469 99,324
Common stock ($1 par value; 250,000,000 shares authorized) 158,400 157,442 158,068
Surplus 1,212,482 1,204,437 1,212,838
Retained earnings 2,274,298 1,995,542 2,137,176
Treasury stock, at cost (58,894) (23,194) (18,096)
Unrealized net appreciation (depreciation),
available for sale securities (93,706) (3,898) 10,476
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Total stockholders' equity 3,591,671 3,429,798 3,599,786
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Total liabilities and stockholders' equity $40,682,558 $40,893,863 $41,123,489
==================================================================================================================
Held to maturity securities, market value $ 1,046,349 $ 6,995,237 $ 973,801
Available for sale securities, amortized cost 10,863,440 4,499,111 10,330,233
Common stock, shares outstanding 156,886,657 156,726,993 157,591,239
Treasury shares 1,513,699 714,980 476,519
==================================================================================================================
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Boatmen's Bancshares, Inc.
CONSOLIDATED STATEMENT OF INCOME
Second quarter ended June 30 Six months ended June 30
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(in thousands except share data) 1996 1995 1996 1995
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Interest income
Interest and fees on loans $530,210 $530,404 $1,058,794 $1,029,155
Interest on short-term investments 1,311 1,137 3,224 2,101
Interest on Federal funds sold and securities purchased
under resale agreements 6,308 9,364 17,939 18,165
Interest on held to maturity securities
Taxable 96,093 192,150
Tax-exempt 16,723 13,903 32,204 27,868
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Total interest on held to maturity securities 16,723 109,996 32,204 220,018
Interest on available for sale securities 165,460 72,439 325,648 148,737
Interest on trading securities 719 361 1,483 796
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Total interest income 720,731 723,701 1,439,292 1,418,972
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Interest expense
Interest on deposits 247,650 259,633 504,932 497,757
Interest on Federal funds purchased and other
short-term borrowings 61,728 81,880 120,437 162,726
Interest on capital lease obligations 944 975 1,890 1,953
Interest on long-term debt 12,168 11,493 24,618 23,622
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Total interest expense 322,490 353,981 651,877 686,058
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Net interest income 398,241 369,720 787,415 732,914
Provision for loan losses 19,365 10,171 45,582 20,914
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Net interest income after provision for loan losses 378,876 359,549 741,833 712,000
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Noninterest income
Trust fees 53,835 51,902 106,642 97,572
Service charges 63,647 57,832 123,998 113,066
Mortgage banking revenues 22,241 16,689 43,880 39,937
Credit card 10,861 14,404 26,414 29,099
Investment banking revenues 12,110 10,490 24,579 20,738
Securities gains (losses), net 871 3,005 1,348 (19,012)
Other 44,802 36,434 94,086 74,015
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Total noninterest income 208,367 190,756 420,947 355,415
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Noninterest expense
Staff 190,361 177,915 381,721 357,150
Net occupancy 25,089 23,665 50,507 48,792
Equipment 30,365 28,520 60,597 57,246
FDIC insurance 2,743 16,593 5,478 33,187
Intangible amortization 10,071 10,756 20,343 21,366
Advertising 12,427 11,495 22,321 21,409
Merger expense 711 42,414 25,978
Other 87,039 86,405 174,205 165,431
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Total noninterest expense 358,095 356,060 757,586 730,559
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Income before income tax expense 229,148 194,245 405,194 336,856
Income tax expense 83,080 66,440 148,002 118,787
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Net income $146,068 $127,805 $ 257,192 $ 218,069
====================================================================================================================
Net income available to common shareholders $144,318 $126,043 $ 253,692 $ 214,538
====================================================================================================================
Net income per share $.92 $.80 $1.61 $1.37
====================================================================================================================
Dividends declared per share $.37 $.34 $ .74 $ .68
====================================================================================================================
Earnings per share amounts are based on weighted average shares outstanding
after adjusting net income for dividends on preferred stock. For the six
months, average shares outstanding were 157,411,237 in 1996 and 156,541,623 in
1995. Preferred dividends declared totaled $3.5 million in both 1996 and 1995.
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Boatmen's Bancshares, Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized Net
Appreciation,
(Depreciation)
Preferred Stock Common Stock Treasury Stock Available
--------------- --------------- Retained --------------- for Sale
(in thousands) Shares Amount Shares Amount Surplus Earnings Shares Amount Securities Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 250 $100,000 156,084 $156,084 $1,171,184 $1,886,199 (509) $(14,516) $(134,521) $3,164,430
Net income -- -- -- -- -- 218,069 -- -- -- 218,069
Cash dividends declared:
Common ($.68 per share) -- -- -- -- -- (87,343) -- -- -- (87,343)
Redeemable preferred -- -- -- -- -- (40) -- -- -- (40)
By pooled company prior
to merger--common -- -- -- -- -- (17,753) -- -- -- (17,753)
By pooled company prior
to merger--preferred -- -- -- -- -- (3,492) -- -- (3,492)
Acquisition of treasury stock -- -- -- -- -- -- (800) (25,827) -- (25,827)
Common stock issued pursuant
to dividend reinvestment
and employee plans -- -- 530 530 9,296 -- 305 9,141 -- 18,967
Common stock issued upon
acquisition of subsidiaries -- -- 947 947 27,543 -- 289 8,008 -- 36,498
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 -- (31) 1 1 30 -- -- -- -- --
Common stock issued upon
conversion of convertible
subordinated debentures -- -- 5 5 81 -- -- -- -- 86
Adjustment of available for sale
securities to market value -- -- -- -- -- -- -- -- 130,623 130,623
Other, net -- -- -- -- 209 -- -- -- -- 209
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Balance, June 30, 1995 249 $ 99,469 157,442 $157,442 $1,204,437 $1,995,542 (715) $(23,194) $(3,898) $3,429,798
===================================================================================================================================
Balance, January 1, 1996 248 $ 99,324 158,068 $158,068 $1,212,838 $2,137,176 (477) $(18,096) $10,476 $3,599,786
Net income -- -- -- -- -- 257,192 -- -- -- 257,192
Cash dividends declared:
Common ($.74 per share) -- -- -- -- -- (116,516) -- -- -- (116,516)
Preferred -- -- -- -- -- (3,467) -- -- -- (3,467)
Redeemable preferred -- -- -- -- -- (33) -- -- -- (33)
Acquisition of treasury stock -- -- -- -- -- (2,136) (83,658) -- (83,658)
Common stock issued pursuant
to dividend reinvestment
and employee plans -- -- 325 325 (177) -- 866 33,284 -- 33,432
Common stock issued upon
acquisition of subsidiaries -- -- -- -- (839) -- 240 9,739 -- 8,900
Common stock issued upon
conversion of preferred
stock -- (233) 8 8 225 -- -- -- -- --
Common stock issued upon
conversion of convertible
subordinated debentures -- -- -- -- (110) -- 5 189 -- 79
Adjustment of available for sale
securities to market value -- -- -- -- -- -- -- -- (104,182) (104,182)
Other, net -- -- (1) (1) 545 (54) (12) (352) -- 138
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Balance, June 30, 1996 248 $ 99,091 158,400 $158,400 $1,212,482 $2,274,298 (1,514) $(58,894) $(93,706) $3,591,671
===================================================================================================================================
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Boatmen's Bancshares, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended June 30 (in thousands) 1996 1995
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Net cash provided by operating activities $ 487,691 $ 422,362
Investing Activities:
Net decrease in Federal funds sold and securities
purchased under resale agreements 740,786 337,611
Net increase in loans (363,452) (1,446,880)
Proceeds from the sales of foreclosed property 15,173 13,488
Proceeds from the maturity of held to maturity securities 87,948 457,630
Purchases of held to maturity securities (66,507) (279,108)
Proceeds from the maturity of available for sale securities 1,371,304 537,460
Proceeds from the sales of available for sale securities 240,759 560,475
Purchases of available for sale securities (2,254,546) (163,766)
Net (increase) decrease in short-term investments 46,323 (7,534)
Net increase in property and equipment (34,041) (50,422)
Net cash received from purchase acquisitions 3,096 1,636
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Net cash provided (used) by investing activities (213,157) (39,410)
===============================================================================================
Financing Activities:
Net increase (decrease) in Federal funds purchased and
securities sold under repurchase agreements 850,922 (279,045)
Net decrease in deposits (1,418,063) (908,458)
Net increase (decrease) in short-term borrowings (20,272) 736,378
Payments on long-term debt (1,174) (77,187)
Proceeds from the issuance of long-term debt 2,583
Payments on capital lease obligations (724) (709)
Cash dividends paid (109,908) (97,645)
Acquisition of treasury stock (83,658) (25,827)
Purchase and retirement of preferred stock (583)
Common stock issued pursuant to dividend
reinvestment and employee plans 33,432 18,967
Decrease in redeemable preferred stock (4) (10)
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Net cash used by financing activities (746,866) (634,119)
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Decrease in cash and due from banks (472,332) (251,167)
Cash and due from banks at beginning of year 2,611,765 2,558,509
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Cash and due from banks at June 30 $ 2,139,433 $ 2,307,342
===============================================================================================
For the six months ended June 30, 1996 and 1995, interest paid totaled $668
million and $395 million, respectively, and income taxes paid totaled $140
million and $95 million. Loans transferred to foreclosed property totaled $12
million in 1996, and $7 million in 1995. Available for sale securities
transferred to held to maturity totaled $95 million for the six months ended
June 30, 1996. In 1995, assets and liabilities of purchased subsidiaries at
dates of acquisition included investment securities of $93 million, loans of
$168 million, other assets of $37 million, deposits of $258 million and other
liabilities of $3 million.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Table 1: Summary of Selected Financial Information
Second quarter ended June 30 Six months ended June 30
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(in millions except per share data) 1996 1995 % change 1996 1995 % change
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Common Share Data
Net income $.92 $.80 15.0% $ 1.61 $ 1.37 17.5%
Net income before merger expenses and
securities restructuring charge .92 .80 15.0 1.80 1.58 13.9
Dividends declared .37 .34 8.8 .74 .68 8.8
Book value at period end 22.26 21.25 4.8
Tangible book value at period end 19.57 18.66 4.9
Shares outstanding at period end 156.9 156.7 .1
Average shares outstanding 157.4 156.5 .6
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For the Period
Net interest income $398.2 $369.7 7.7% $787.4 $732.9 7.4%
Provision for loan losses 19.4 10.2 90.4 45.6 20.9 117.9
Noninterest income 208.4 190.8 9.2 420.9 355.4<F1> 18.4
Noninterest expense 358.1 356.1 .6 757.6<F2> 730.6<F2> 3.7
Net income 146.1 127.8 14.3 257.2 218.1 17.9
Net income before merger expenses and
securities restructuring charge 146.1 128.3 13.8 286.6 251.5 14.0
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Financial Position at Period End
Total assets $40,682.6 $40,893.9 (.5)%
Loans 24,416.5 24,307.4 .4
Securities 11,723.4 11,506.7 1.9
Deposits 30,629.0 30,458.5 .6
Long-term debt 616.5 522.2 18.1
Stockholders' equity 3,591.7 3,429.8 4.7
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Selected Financial Ratios
Before merger expenses and securities
restructuring charge:
Return on assets 1.44% 1.27% 1.42% 1.25%
Return on total equity 16.23 15.21 15.79 15.20
Return on common equity 16.49 15.46 16.04 15.45
Noninterest income/operating income 33.8 33.4 34.3 33.3
Efficiency ratio 58.1 62.2 58.3 62.2
After merger expenses and securities
restructuring charge:
Return on assets 1.44 1.27 1.27 1.09
Return on total equity 16.23 15.14 14.18 13.18
Return on common equity 16.49 15.39 14.38 13.37
Net interest margin 4.48 4.19 4.44 4.20
Noninterest income/operating income 33.8 33.4 34.3 32.0
Efficiency ratio 58.1 62.4 61.7 65.8
Capital ratios:
Equity to assets 8.83 8.39
Risk-based capital:
Tier I capital 11.44 10.84
Total capital 14.09 13.56
Tier I leverage ratio 8.29 7.61
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Asset Quality
Annualized net charge-offs to average loans .18% .15% .22% .14%
Loan reserve to net loans 1.93 1.88
Loan reserve to nonperforming loans 214.27 269.28
Nonperforming loans to total loans .90 .70
Nonperforming assets to total loans and
foreclosed property 1.04 .95
======================================================================================================================
<FN>
<F1>Includes a securities restructuring charge of $22.0 million.
<F2>Includes merger expenses of $42.4 million in 1996 and $26.0 million in
1995.
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Acquisition Overview
Over the last several years the Corporation has made numerous
acquisitions, thereby establishing leading market positions in Missouri,
Arkansas, Kansas, New Mexico and Oklahoma, and sizable presences in southern
Illinois, Iowa, western Tennessee and west Texas. The Corporation's
geographic profile provides credit and economic risk diversification in that
the operation is not significantly dependent on any major market, and
currently the Corporation's major markets are experiencing satisfactory
economic conditions. In 1995 and through the first half of 1996, the
Corporation completed nine acquisitions in five states aggregating $12.0
billion in total assets. The Corporation's operations currently span nine
states, with services delivered from over 650 branch locations and over 1,450
ATM's. A summary of the acquisitions consummated in 1996 and 1995 is provided
in Table 2.
Table 2: Acquisitions--1996 and 1995
Common Accounting
Date State Assets Price shares issued method
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Completed
Dalhart Bancshares, Inc. 1/95 Texas $ .1 billion $ 23 million stock .7 million Pooling
National Mortgage Company 1/95 Tennessee .2 billion 153 million stock 5.0 million Pooling
Worthen Banking Corporation 2/95 Arkansas 3.5 billion 595 million stock 17.1 million Pooling
Salem Community Bancorp, Inc. 2/95 Illinois .1 billion 8 million stock .3 million Purchase
West Side Bancshares, Inc. 4/95 Texas .1 billion 18 million stock .6 million Purchase
First National Bank in Pampa 5/95 Texas .2 billion 42 million stock 1.4 million Pooling
Citizens Bancshares Corporation 10/95 Arkansas .2 billion 41 million stock 1.1 million Purchase
Fourth Financial Corporation 1/96 Kansas 7.5 billion 1.2 billion stock 28.5 million Pooling
Tom Green National Bank 3/96 Texas .1 billion 9 million stock .2 million Purchase
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Total assets of completed transactions $12.0 billion
========================================================================================================================
Pending at June 30, 1996
Canadian Bancshares, Inc.<F1> Texas $ .1 billion $ 8 million stock .2 million Purchase
========================================================================================================================
<FN>
<F1> Completed on July 1, 1996.
Table 3: Asset Distribution
June 30, 1996 (dollars in billions) Assets % of total Locations
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Missouri $17.9 44.0% 170
Kansas 4.6 11.3 88
Arkansas 4.6 11.3 145
Oklahoma 4.2 10.3 95
New Mexico 3.4 8.3 71
Texas 2.3 5.6 42
Iowa 1.1 2.7 26
Illinois 1.0 2.5 23
Tennessee 1.0 2.5 18
Credit card .6 1.5
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Total $40.7 100.0% 678
========================================================================
Kansas Acquisition
On January 31, 1996, the Corporation acquired Fourth Financial
Corporation (Fourth Financial), headquartered in Wichita, Kansas, in a
transaction accounted for as a pooling of interests. Under terms of the
agreement, the Corporation exchanged one share of its common stock for each
Fourth Financial common share, resulting in the issuance of approximately
28.5 million shares of common stock. In addition, the Corporation effectively
replaced Fourth Financial's $100 million convertible preferred stock by
issuance of an identical new security. Fourth Financial had $7.5 billion in
assets, operating 87 retail banking offices in Kansas and 56 in Oklahoma. The
acquisition of Fourth Financial gave the Corporation the leading deposit
market share in Kansas and Oklahoma.
Arkansas Acquisition
On February 28, 1995, the Corporation acquired Worthen Banking
Corporation (Worthen), headquartered in Little Rock, Arkansas, in a
transaction accounted for as a pooling of interests. Under terms of the
agreement the Corporation exchanged one share of its common stock for each
Worthen share, resulting in the issuance of approximately 17.1 million
shares. Worthen was the second largest banking organization in Arkansas, with
approximately $3.5 billion in assets, operating 101 retail banking offices
throughout Arkansas and six such offices in the Austin, Texas area. The
acquisition of Worthen increased the Corporation's assets in
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Arkansas to over $4 billion, making the Corporation the market leader in
Arkansas.
Mortgage Banking Acquisition
On January 31, 1995, the Corporation acquired National Mortgage Company
and certain affiliates (National Mortgage), headquartered in Memphis,
Tennessee, in a transaction accounted for as a pooling of interests. Under
terms of the agreement, the Corporation exchanged approximately 5.0 million
shares of its common stock for all of the stock of National Mortgage. At the
date of announcement, the transaction had a value of approximately $153
million, which represented 1.2% of National Mortgage's mortgage servicing
portfolio. National Mortgage is a full-service mortgage banking company which
originates home loans through company-operated offices as well as through a
network of approximately 300 correspondents located in the southern and
midwestern United States.
Other Acquisitions
In 1995, the Corporation completed acquisitions of five other financial
institutions aggregating $.7 billion in assets to strengthen its retail
presence within existing markets in Texas, Arkansas and Illinois. More
specific information regarding these acquisitions is provided in Table 2.
On March 1, 1996, the Corporation acquired Tom Green National Bank,
located in San Angelo, Texas, in a stock transaction accounted for as a
purchase. The acquisition of Tom Green National Bank, with assets of
approximately $80 million, resulted in the issuance of approximately .2 million
shares of common stock from treasury stock acquired in the open market.
On July 1, 1996, the Corporation completed the acquisition of Canadian
Bancshares, Inc. (Canadian), located in Canadian, Texas, in a stock
transaction accounted for as a purchase. The acquisition of Canadian, with
assets of approximately $40 million, resulted in the issuance of
approximately .2 million shares of common stock from treasury stock acquired
in the open market.
The acquisitions of Fourth Financial in the first quarter of 1996, and
Worthen, National Mortgage and Pampa in the first and second quarters of
1995, resulted in recognition of pre-tax merger expenses, consisting
primarily of obsolete equipment write-offs and estimated costs to close
duplicate branches, severance and retention costs, and investment banking,
legal and other professional fees. The major components of the merger
expenses are quantified in Table 4. At June 30, 1996, the remaining accrued
liability for the merger-related expenses recognized in the first quarter of
this year totaled approximately $15 million.
Table 4: Merger Expense
- ------------------------------------------------------------------------------------------------------------------
Six months ended June 30 (in millions) 1996 1995
- ------------------------------------------------------------------------------------------------------------------
Equipment and software write-offs, and branch closings $17.9 $ 6.4
Compensation costs 11.1 4.6
Investment banking, legal, and other professional fees 5.9 9.7
Other 7.5 5.3
- ------------------------------------------------------------------------------------------------------------------
Total $42.4 $26.0
==================================================================================================================
Earnings Overview
Net income for the second quarter of 1996 increased to $146.1 million,
up 14.3% from the same period last year, and net income per common share was
$.92, an increase of 15.0%. For the year-to-date period, net income was
impacted by merger expenses stemming from the aforementioned pooling
acquisitions completed in 1996 and 1995, and the securities restructuring
charge recognized by Fourth Financial in the first quarter of last year. Net
income for the six months of 1996 was reduced by after-tax merger expenses
totaling $29.4 million or $.19 per share. Net income in 1995 was reduced by
after-tax merger expenses totaling $20.0 million or $.13 per share and an
after-tax securities restructuring charge of $13.4 million or $.08 per share.
Net income before the impact of the merger expenses and the securities
restructuring charge (nonoperating items) increased to $286.6 million for the
six months of 1996, up 14.0% from the same period of last year, and net
income per common share was $1.80, an increase of 13.9%. The earnings growth
in the second quarter and six months reflected higher net interest income and
noninterest income, partially offset by a higher provision for loan losses
and slightly higher noninterest expense levels. Including nonoperating items,
net income for the six months increased 17.9% to $257.2 million, and net
income per common share increased 17.5% to $1.61. The purchase acquisitions
completed in 1995 and 1996 had no material impact on results of operations.
For the second quarter, the return on average assets was 1.44% and the
return on common equity was 16.49%, compared to 1.27% and 15.39%,
respectively, for the same period last year. For the six months, the return
on average assets was 1.42% and the return on common equity was 16.04%,
compared to 1.25% and 15.45%, respectively, in 1995. Including nonoperating
items, the return on assets and return on common equity were 1.27% and
14.38%, respectively, in 1996, and 1.09% and 13.37%, respectively, in 1995.
Net interest income, on a fully-taxable equivalent basis, increased
7.2% over the second quarter of 1995 and 6.9% for the six months, primarily
due to an improvement in the net interest margin. The net interest margin was
4.48% for the second quarter of
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1996 and 4.44% for the six months, increases of 29 and 24 basis points from
the prior year periods, respectively.
Noninterest income before securities gains and losses increased 10.5%
over the second quarter of 1995 and 12.1% for the six months, primarily due
to growth in trust fees, service charges, mortgage banking revenues and
investment banking revenues, offset in part by lower credit card revenues.
Noninterest income in 1996 also included a $12.0 million gain from the
consummation of a merchant processing credit card joint venture during the
first quarter and gains of approximately $9 million in the second quarter
resulting from the sale of six branch locations, five of which were required
to be sold under regulatory conditions of the Fourth Financial acquisition
agreement. Noninterest income in 1995 included gains of $7.9 million from the
sale of mortgage loan servicing, a $4.9 million gain from the sale of an
ownership interest in a regional electronic funds transfer network, and a
gain of $1.2 million on a branch divestiture.
Noninterest expense, excluding merger expenses, increased .8% from the
second quarter of 1995 and 1.5% for the six months. Including merger
expenses, noninterest expense for the six months increased 3.7%. The
efficiency ratio, before nonoperating items, improved to 58.3% for the six
months of 1996, compared to 62.2% for the prior year period.
The provision for loan losses for the second quarter of 1996 totaled
$19.4 million, up from $10.2 million for the same period of last year. For
the six months, the provision for loan losses totaled $45.6 million, compared
to $20.9 million in 1995. The year-to-date provision for loan losses exceeded
net charge-offs by $18.5 million, and included an additional provision in the
first quarter of approximately $9 million to conform Fourth Financial to the
Corporation's loan reserve policies. For the six months of 1996, net loan
charge-offs were $27.1 million, compared to $17.0 million in the same period
last year; and annualized net charge-offs as a percentage of average loans
were .22% in 1996, compared to .14% in the same period last year and .27% for
the full year 1995.
Presented in Table 5 is an income statement analysis expressed on a per
share basis for the three months and six months ended June 30, 1996, compared
to the same periods last year and the three months ended March 31, 1996. A
more detailed discussion and analysis of the major factors impacting the
comparability between periods is provided throughout this report.
Table 5: Earnings Per Share Analysis
2nd Qtr. '96 2nd Qtr. '96 YTD '96
Per share vs. 2nd Qtr. '95 vs. 1st Qtr. '96 vs. YTD '95
- -----------------------------------------------------------------------------------------------------
Net income per share prior period $.80 $.69 $1.37
- -----------------------------------------------------------------------------------------------------
Net interest income .18 .06 .35
Provision for loan losses (.06) .05 (.16)
Noninterest income .11 (.03) .42
Noninterest expense (.01) (.01) (.06)
Merger expense .27 (.11)
Income tax expense (.10) (.11) (.19)
Impact of additional shares of common stock (.01)
- -----------------------------------------------------------------------------------------------------
Net increase .12 .23 .24
- -----------------------------------------------------------------------------------------------------
Net income per share current period $.92 $.92 $1.61
=====================================================================================================
Net Interest Income and Interest Rate Risk Management
Table 6: Summary of Net Interest Income
Second quarter ended June 30 Six months ended June 30
- -------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- -------------------------------------------------------------------------------------------------------------------
Average loans $24,355.1 $23,859.1 2.1% $24,242.8 $23,482.8 3.2%
Average earning assets 36,626.7 36,373.5 .7 36,512.8 36,210.9 .8
Average core deposits 27,361.6 26,472.4 3.4 27,442.1 26,192.6 4.8
Average purchased funds 6,188.5 7,284.5 (15.0) 6,028.4 7,414.3 (18.7)
Net interest income (FTE) 407.6 380.3 7.2 806.5 754.6 6.9
Net interest margin 4.48% 4.19% 4.44% 4.20%
===================================================================================================================
Net interest income, on a fully-taxable equivalent basis, increased
7.2% over the second quarter of 1995 and 6.9% for the six months, primarily
due to an improvement in the net interest margin and a modest increase in
average earning assets.
The net interest margin for the second quarter of 1996 was 4.48%,
compared to 4.19% for the same period last year and 4.41% for the first
quarter of 1996. For the six months, the net interest margin was 4.44%,
compared to 4.20% in 1995. The increase in the net interest margin was
primarily due to a decline in funding costs, coupled with a higher
contribution from noninterest-bearing fund sources and interest recoveries on
nonaccrual loans. The average yield on earning assets for the six months was
- 11 -
12
essentially unchanged from the same period last year; while the average rate
paid on interest-bearing liabilities decreased 14 basis points. The increased
contribution from noninterest-bearing fund sources reflects growth in escrow
balances related to the mortgage servicing portfolio and lower deposit
reserve positions maintained on certain classes of deposit liabilities.
The net interest margin improvement also reflects a favorable shift in
earning asset mix. Average earning assets increased .7% over the second
quarter and .8% for the six months, as loan growth was offset to a large
extent by a decline in the securities portfolio. Loans, the highest yielding
earning asset, increased 2.1% over the second quarter of 1995 and 3.2% for
the six months. As a percentage of average earning assets, loans were 66.4%
for the six months of 1996, compared to 64.9% for the same period last year.
Held to maturity and available for sale securities decreased 4.7% for the six
months, and represented 31.4% of average earning assets, down from 33.2% in
1995. The decline in the securities portfolio reflects redeployment of
proceeds from maturing securities to the loan portfolio and the sale of
approximately $425 million of fixed-rate securities by Fourth Financial in
the first quarter of last year as a means to realign its balance sheet to
reduce interest rate sensitivity.
Interest rate risk is the extent to which net interest income may be
affected by changes in market driven interest rates, and the Corporation
assumes varying degrees of interest rate risk as part of its normal banking
operations. It is the role of the asset/liability management committee to
manage and control the level of interest rate risk contained in the balance
sheet as well as off-balance sheet financial instruments. The Corporation's
interest rate risk policy is to maintain a stable level of net interest
income while also enhancing earnings potential through limited risk
positioning based on the forecast of future interest rates. Interest rate
risk exposure (earnings at risk exposure) is currently limited, by policy, to
5% of projected annual net income. Adherence to these risk limits is
controlled and monitored through simulation modeling techniques that consider
the impact that alternative interest rate scenarios will have on the
Corporation's financial results. In its simulations, the Corporation
estimates the impact on net interest income and net income resulting from
various changes in market interest rates. Utilization of the simulation
modeling results enables management to develop strategies to control the
Corporation's overall interest rate risk exposure and to monitor specific
risks associated with on-balance sheet financial instruments and off-balance
sheet interest rate derivative contracts such as interest rate swaps and
floors. Based on the current interest rate sensitivity position, the
simulation model indicates that the earnings at risk exposure over the next
12 months is less than 2%, assuming a gradual 200 basis point increase in
interest rates, and no active management of the balance sheet components in
response to the interest rate increase.
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 manage the overall interest rate sensitivity
position. Asset securitizations and interest rate derivative contracts are
effective mechanisms to manage interest rate risk due to the inherent
advantages related to flexibility in product structure, size, liquidity,
capital and market timing. The contribution of derivatives over time will
expand or contract with movements in market rates; however, this risk cannot
be viewed in isolation and it is controlled and monitored within the overall
context of the aforementioned asset/liability management policies.
In 1996, $1.5 billion of interest rate floors were added and $1.5
billion of interest rate swaps matured such that at June 30, 1996, interest
rate derivative contracts totaled $2.8 billion. The interest rate floors
added in 1996 were purchased as a means to offset the potential impact of an
implicit floor in the Corporation's administered-rate retail deposits in a
low rate environment. The Corporation will receive interest payments on the
floor contracts if the 3 year U.S. Treasury rate falls below 5.40%. The
contracts are effective from April 1997 until April 1999. Interest rate swaps
added in 1995 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 years prior to 1995 were undertaken to modify 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 derivative instruments are effectively
modifying the interest rate characteristics of the respective balance sheet
items.
As summarized in Table 7, 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 contribution from the swap portfolio
will decrease in a rising rate environment and increase in a falling rate
environment. The average rate received at June 30, 1996, was 5.53% on a
notional amount of $1.3 billion, compared to an average rate paid of 5.62%,
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.
The derivative portfolio had minimal impact on the Corporation's
operating results in 1996, reducing net interest income by approximately $1.5
million in the second quarter and $2.8 million for the six months, resulting
in reductions in the net interest margin of approximately 2 basis points in
each period. In 1995, the derivative portfolio decreased net interest income
by $4.2 million for the second quarter and $7.2 million for the six months,
reducing the margin by approximately 4 basis points. Based on interest rates
at June 30, 1996, it is anticipated that the existing derivative portfolio
will reduce net interest income by approximately $5 million in 1996.
Table 8 provides information related to weighted average rates received
and paid, unrealized gains(losses) and maturity profile of the major
derivative programs in place at June 30, 1996, and June 30, 1995. The
derivative portfolio's estimated unrealized loss, based on dealer quotes, was
$12.8 million at June 30, 1996, compared to an unrealized loss of $41.4
million at June 30, 1995. The Corporation's operating and liquidity position
is not expected to be materially impacted by the unrealized loss inherent in
the derivative portfolio.
- 12 -
13
Table 7: Derivative Portfolio Activity
Interest Rate Swaps
---------------------------------------------------
(in millions) Receive Fixed Pay Fixed Basis Swaps Total Floors Total
- ---------------------------------------------------------------------------------------------------------------------
Notional amount, December 31, 1995 $1,828 $879 $97 $2,804 -- $2,804
Additions -- 1,500 1,500
Maturities (622) (776) (81) (1,479) (1,479)
- ---------------------------------------------------------------------------------------------------------------------
Notional amount, June 30, 1996 $1,206 $103 $16 $1,325 $1,500 $2,825
=====================================================================================================================
Average remaining maturity (years) .6 -- .4 .6 2.8 1.8
Weighted average rate received 5.52% 5.53% 6.15% 5.53%
Weighted average rate paid 5.59 5.93 5.59 5.62
=====================================================================================================================
Table 8: Derivative Portfolio
Weighted Estimated
Average Rate --------------------
June 30, 1996 Notional ------------------- Maturity Unrealized
(in millions) Amount Receive Pay (years) Gain (Loss)
- ------------------------------------------------------------------------------------------------------
Interest rate swaps:
Prime loan swaps:
Receive fixed $1,106 5.55% 5.59% .7 $(10.4)
Basis swaps 16 6.15 5.59 .4
- ------------------------------------------------------------------------------------------------------
Total 1,122 5.55 5.59 .7 (10.4)
Long-term debt swaps 100 5.18 5.56 .3 (.2)
Bank note liability swaps 100 5.53 5.86 -- (.1)
Other 3 6.86 7.85 .5
- ------------------------------------------------------------------------------------------------------
Total interest rate swaps 1,325 5.53% 5.62% .6 (10.7)
Interest rate floors 1,500 2.8 (2.1)
- ------------------------------------------------------------------------------------------------------
Total $2,825 1.8 $(12.8)
======================================================================================================
Weighted Estimated
Average Rate --------------------
June 30, 1995 Notional ------------------- Maturity Unrealized
(in millions) Amount Receive Pay (years) Gain (Loss)
- ------------------------------------------------------------------------------------------------------
Interest rate swaps:
Prime loan swaps:
Receive fixed $1,884 5.63% 6.33% 1.4 $(36.1)
Basis swaps 159 6.22 6.35 .6 .2
- ------------------------------------------------------------------------------------------------------
Total 2,043 5.67 6.33 1.3 (35.9)
Long-term debt swaps 200 4.87 6.21 1.0 (2.1)
Bank note liability swaps 850 6.12 6.21 1.0 (3.0)
Other 80 6.35 7.13 .4 (.4)
- ------------------------------------------------------------------------------------------------------
Total $3,173 5.76% 6.31% 1.2 $(41.4)
======================================================================================================
Approximately 82% of the interest rate swap 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 two years,
but in no event would any component of the swap portfolio extend beyond four
years. 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.
While the Corporation is primarily an end-user of derivative
instruments, it also acts as an intermediary to meet the financial needs of
its customers. Interest rate risk associated with this portfolio is
controlled by entering into offsetting positions with third parties.
Including these offsetting positions, the notional amount of the customer
interest rate derivative portfolio at June 30, 1996, totaled approximately
$1.0 billion.
- 13 -
14
Noninterest Income
Table 9: Summary of Noninterest Income
Second quarter ended June 30 Six months ended June 30
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ------------------------------------------------------------------------------------------------------------------
Trust fees $ 53.8 $ 51.9 3.7% $106.6 $ 97.6 9.3%
Service charges 63.7 57.8 10.1 124.0 113.1 9.7
Mortgage banking revenues 22.2 16.7 33.3 43.9 39.9 9.9
Credit card 10.9 14.4 (24.6) 26.4 29.1 (9.2)
Investment banking revenues 12.1 10.5 15.4 24.6 20.7 18.5
Other 44.8 36.5 23.0 94.1 74.0 27.1
- ------------------------------------------------------------------------------------------------------------------
Noninterest income before
securities gains (losses) 207.5 187.8 10.5 419.6 374.4 12.1
Securities gains (losses), net .9 3.0 (71.0) 1.3 (19.0) (107.1)
- ------------------------------------------------------------------------------------------------------------------
Total noninterest income $208.4 $190.8 9.2% $420.9 $355.4 18.4%
==================================================================================================================
As % of operating income 33.8% 33.4% 34.3% 32.0%
As % of operating income before securities
restructuring charge 33.8 33.4 34.3 33.3
Revenue per full-time equivalent employee
(in thousands) $120.0 $112.1 $119.3 $108.6
==================================================================================================================
Noninterest income before securities gains and losses increased 10.5%
over the second quarter of 1995 and 12.1% for the six months, primarily due
to growth in trust fees, service charges, mortgage banking revenues and
investment banking revenues, offset in part by lower credit card revenues.
Noninterest income in 1996 also included a $12.0 million gain from the sale
of credit card merchant contracts upon formation of a joint venture with a
third party processor during the first quarter and gains on branch
dispositions of approximately $9 million in the second quarter resulting from
the sale of six branch locations, five of which were required to be sold
under regulatory conditions of the Fourth Financial acquisition agreement.
Noninterest income in 1995 included a gain of $7.9 million from the sale of
mortgage loan servicing, a $4.9 million gain from the sale of an ownership
interest in a regional electronic funds transfer network, and a gain of $1.2
million on a branch divestiture. Noninterest income as a percentage of
operating revenues improved to 34.3% for the six months of 1996, from 33.3%
for the same period of last year, before the impact of the aforementioned
securities restructuring charge.
Trust fees increased 3.7% over the second quarter of 1995 and 9.3% for
the six months. Excluding a large personal trust estate distribution fee
recognized in the second quarter of last year, trust fees increased 8.5% for
the quarter and 11.9% for the six months, primarily due to increases in
pension/institutional fees and in the personal trust line of business. This
growth was due to new customer accounts and favorable bond and equity
financial markets resulting in an increase in market values of trust assets
on which some fees are based. Trust assets under management totaled $41.6
billion at June 30, 1996.
Table 10: Trust Fees by Component
Second quarter ended June 30 Six months ended June 30
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ------------------------------------------------------------------------------------------------------------------
Personal trust $32.5 $32.9 (1.2)% $ 64.1 $61.5 4.2%
Pension and institutional 15.7 14.5 8.3 31.2 27.4 13.9
Corporate trust 3.1 3.2 (3.1) 6.5 6.2 4.8
Mutual funds 2.5 1.3 92.3 4.8 2.5 92.0
- ------------------------------------------------------------------------------------------------------------------
Total $53.8 $51.9 3.7% $106.6 $97.6 9.3%
==================================================================================================================
Service charge income totaled $63.7 million in the second quarter of
1996 and $124.0 million for the six months, increases of 10.1% and 9.7% over
the prior year periods, respectively. This growth reflected increases in
fees from both retail and corporate customers. Credit card income decreased
24.6% from the second quarter of last year and 9.2% for the six months due to
the sharing of merchant processing income upon the formation of a joint
venture with a third party processor late in the first quarter of 1996.
Investment banking revenues increased $1.6 million over the second quarter of
1995 and $3.9 million for the six months, primarily due to increased sales
volume within the retail and institutional sectors.
Mortgage banking revenues totaled $22.2 million in the second quarter
of 1996 and $43.9 million for the six months, increases of 33.3% and 9.9%
from the prior year periods, respectively. Mortgage banking revenues in the
first quarter of 1995 included a $7.9 million gain on the sale of
approximately $700 million of mortgage servicing. Excluding this gain,
mortgage banking
- 14 -
15
revenues increased 37.0% for the six months, primarily due to higher
production volume resulting in increased origination fees and gains
on sales of loans. The servicing portfolio increased to $19.9 billion at June
30, 1996, from $18.9 billion at June 30, 1995, primarily due to acquisitions
of no-cost contract servicing agreements, supplemented by internal growth.
Retail and correspondent loan originations totaled approximately $1.0 billion
in the six months of 1996, compared to $.5 billion in the prior year. At June
30, 1996, mortgage servicing rights totaled $73.4 million, with a fair value
of approximately $102.9 million. Mortgage servicing rights are stratified by
loan type and interest rate for purposes of impairment measurement. An
impairment loss is recognized to the extent the unamortized mortgage
servicing rights for each stratum exceed the current market value. During
1995 and through the first six months of 1996, no impairment valuation
writedowns were required. Table 11 summarizes the components of mortgage
banking revenues.
Table 11: Summary of Mortgage Banking Revenues
Second quarter ended June 30 Six months ended June 30
- ----------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
Servicing fees <F1> $12.7 $13.6 $26.3 $27.1
Late fees 2.8 2.5 6.0 5.0
Gains (losses) on sales of loans 2.9 (1.0) 5.0 (2.0)
Origination fees 3.8 1.6 6.6 1.9
Gain on sale of mortgage servicing rights 7.9
- ----------------------------------------------------------------------------------------------------------
Total mortgage banking revenues $22.2 $16.7 $43.9 $39.9
==========================================================================================================
<FN>
<F1> Net of mortgage servicing rights amortization.
For the six months of 1996, securities gains totaled $1.3 million,
compared to securities losses of $19.0 million last year when Fourth
Financial sold approximately $425 million of fixed rate securities as a
means to realign its balance sheet to reduce interest rate sensitivity.
Other noninterest income increased $20.1 million or 27.1% over the six
months of 1995 primarily due to the aforementioned gains from the sale of
credit card merchant contracts and branch locations. Other noninterest
income in 1996 also reflected increases in revenues from debit cards,
investment appreciation in bank owned life insurance, higher syndication
fees and servicing income from securitized loans. Other noninterest income
in 1995 included the aforementioned $4.9 million gain from the sale of an
ownership interest in a regional electronic funds transfer network and a
branch divestiture gain of $1.2 million.
- 15 -
16
Noninterest Expense
Table 12: Summary of Noninterest Expense
Second quarter ended June 30 Six months ended June 30
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ------------------------------------------------------------------------------------------------------------------
Staff expense $190.4 $177.9 7.0% $381.7 $357.2 6.9%
Occupancy 25.1 23.7 6.0 50.5 48.8 3.5
Equipment 30.4 28.5 6.5 60.6 57.2 5.9
FDIC insurance 2.7 16.6 (83.5) 5.5 33.2 (83.5)
Credit card 2.9 3.6 (19.4) 7.5 7.5
Printing, postage, paper 14.8 14.8 31.0 29.3 5.8
Intangible amortization 10.1 10.8 (6.4) 20.3 21.4 (4.8)
Professional fees 7.8 6.6 18.2 15.0 12.7 18.1
Federal Reserve processing charges 3.1 2.9 6.9 5.8 5.9 (1.7)
Advertising 12.4 11.5 8.1 22.3 21.4 4.3
Communications 8.8 8.2 7.3 17.9 15.5 15.5
Merger expense .7 (100.0) 42.4 26.0 63.3
Other 49.6 50.3 (1.4) 97.1 94.5 2.8
- ------------------------------------------------------------------------------------------------------------------
Total noninterest expense $358.1 $356.1 .6% $757.6 $730.6 3.7%
==================================================================================================================
Efficiency ratio excluding merger expenses
and securities restructuring charge 58.1% 62.2% 58.3% 62.2%
Number of full-time equivalent employees 20,629 20,460
==================================================================================================================
Noninterest expense, excluding merger expenses, increased .8% from the
second quarter of 1995, and 1.5% for the six months. Noninterest expense in
1996 includes merger expenses totaling approximately $42.4 million resulting
from the first quarter acquisition of Fourth Financial, and in 1995 included
$26.0 million of such expenses related to the acquisitions of Worthen,
National Mortgage and Pampa. Including merger expenses, noninterest expense
was $757.6 million for the six months of 1996 and $730.6 million in 1995, an
increase of 3.7%. The efficiency ratio before merger expenses and the
securities restructuring charge in 1995 improved to 58.3% for the six months
of 1996, compared to 62.2% for the prior year period.
Staff expense, which represents approximately 50% of total noninterest
expense, increased 7.0% from the second quarter of 1995 and 6.9% for the six
months, primarily due to higher costs associated with employee benefit and
incentive compensation plans, normal merit increases and additional staff
from purchase acquisitions. The number of full-time equivalent employees
(FTE's) was 20,629 at June 30, 1996, 20,644 at March 31, 1996 and 20,460 at
June 30, 1995. Staffing levels are expected to decline from existing levels
through consolidation and integration of duplicate functions at Fourth
Financial over the balance of the year and into the first half of 1997.
FDIC insurance expense totaled $2.7 million for the second quarter of
1996 and $5.5 million for the six months, decreases of $13.9 million and $27.7
million from the prior year periods, respectively. These declines reflect
action taken by the FDIC which reduced the rate paid by most financial
institutions from 23 cents per $100 of insured deposits to a $2,000 minimum
per bank. Thrift deposits continue to be assessed at 23 cents per $100 of
insured deposits.
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed Of," became effective January 1, 1996.
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 writedown would be recognized. Adoption of this
pronouncement had no material effect on the Corporation's financial results.
Taxes
The Corporation's effective tax rate was 36.5% for the six months of
1996, compared to 35.3% for the same period of last year. The Corporation's
effective tax rate reflects nondeductible merger expenses associated with
pooling-of-interests acquisitions, a continued decline in the amount of
tax-exempt income as a percentage of operating income and increased state
income taxes. Excluding the impact of the nondeductible merger expenses, the
effective tax rate was 36.0% in 1996 and 34.4% in 1995.
- 16 -
17
Provision For Loan Losses And Asset Quality
Table 13: Summary of Reserve for Loan Losses
Second quarter ended June 30 Six months ended June 30
- ----------------------------------------------------------------------------------------------------------
June 30 (in millions) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
Balance, beginning of period $463.7 $454.7 $452.6 $449.5
Loans charged off:
Commercial (7.3) (7.2) (14.9) (10.9)
Real estate:
Commercial real estate (1.1) (1.0) (2.2) (1.7)
Construction (.2) (.2) (.6) (.3)
1-4 family residential (.8) (.5) (1.4) (1.0)
Consumer:
Credit card (6.7) (6.4) (14.5) (12.9)
Other (11.7) (7.5) (25.4) (15.7)
- ----------------------------------------------------------------------------------------------------------
Total charge-offs (27.8) (22.8) (59.0) (42.5)
- ----------------------------------------------------------------------------------------------------------
Recoveries on loans previously charged off:
Commercial 8.8 4.7 14.8 9.7
Real estate:
Commercial real estate 2.4 3.5 5.0 4.5
Construction .1 .7 .3 1.0
1-4 family residential .5 .5 1.2 1.1
Consumer:
Credit card 1.0 1.1 1.8 2.1
Other 3.9 3.4 8.8 7.1
- ----------------------------------------------------------------------------------------------------------
Total recoveries 16.7 13.9 31.9 25.5
- ----------------------------------------------------------------------------------------------------------
Net charge-offs (11.1) (8.9) (27.1) (17.0)
- ----------------------------------------------------------------------------------------------------------
Provision for loan losses 19.4 10.2 45.6 20.9
Loan reserve from acquisitions 1.2 .9 3.8
- ----------------------------------------------------------------------------------------------------------
Balance, end of period $472.0 $457.2 $472.0 $457.2
==========================================================================================================
Annualized net charge-offs as %
of average loans .18% .15% .22% .14%
At end of period:
Loan reserve as % of net loans 1.93 1.88
Loan reserve as % of nonperforming loans 214.27 269.28
==========================================================================================================
Table 14: Summary of Nonperforming Assets
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------
Nonaccrual $169.6 $165.4 $129.4
Restructured 2.8 8.0 7.2
Past due 90 days or more 47.9 37.4 33.2
- ---------------------------------------------------------------------------------------------------------------
Total nonperforming loans 220.3 210.8 169.8
- ---------------------------------------------------------------------------------------------------------------
Foreclosed property 35.9 35.1 62.4
===============================================================================================================
Total nonperforming assets $256.2 $245.9 $232.2
===============================================================================================================
Nonperforming loans as % of total loans .90% .87% .70%
Nonperforming assets as % of total loans and foreclosed property 1.04 1.02 .95
Nonperforming assets as % of total assets .63 .60 .57
Loan reserve as % of nonperforming loans 214.27 214.70 269.28
===============================================================================================================
The provision for loan losses totaled $19.4 million in the second
quarter of 1996, compared to $10.2 million in the same period last year. Net
charge-offs in the second quarter totaled $11.1 million, compared to $8.9
million in the same period last year. For the six months, the provision for
loan losses totaled $45.6 million, compared to $20.9 million in 1995. The
year-to-date provision for loan losses exceeded net charge-offs by $18.5
million, due to recognition of an additional provision in the first quarter
totaling approximately $9 million to conform Fourth Financial to the
Corporation's loan reserve policies, coupled with management's intent to
maintain the loan reserve coverage at targeted levels as the loan portfolio
expands.
The reserve for loan losses represented 214% of nonperforming loans at
June 30, 1996, compared to 215% at December 31,
- 17 -
18
1995, and 269% at June 30, 1995. The reserve for loan losses as a percentage
of net loans was 1.93%, compared to 1.88% at June 30, 1995, and 1.88% at
year-end 1995. Net loan charge-offs for the six months of 1996 totaled $27.1
million, compared to $17.0 million for the same period of 1995. Annualized net
charge-offs as a percentage of average loans were .22% for the six months of
1996, compared to .14% for the same period last year, and .27% for all of
1995.
Nonperforming assets, which include nonperforming loans and foreclosed
property, declined $4.3 million from March 31, 1996, but were up $24.0
million or 10.3% from June 30, 1995, and $10.3 million or 4.2% from year-end
1995. The increase from December 31, 1995 reflects an adjustment to conform
Fourth Financial to the Corporation's nonaccrual policies and increases in
past due loans, partially offset by decreases in nonaccrual and restructured
loans at other banking units. The increase from June 30, 1995, reflects the
conforming adjustment and a large corporate borrower who filed for bankruptcy
in the fourth quarter of 1995, partially offset by declines at most other
banking units as illustrated in Table 15. As a percent of total loans and
foreclosed property, nonperforming assets were 1.04%, compared to .95% at
June 30, 1995, and 1.02% at December 31, 1995. As a percentage of total
assets, nonperforming assets were .63% at June 30, 1996, compared to .57% at
June 30, 1995, and .60% at December 31, 1995. Nonperforming loans at June
30, 1996, were $220.3 million or .90% of total loans, compared to .87% at
December 31, 1995, and .70% at June 30, 1995.
Table 15: Nonperforming Assets by Banking Unit
June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount Assets Amount Assets Amount Assets
- ------------------------------------------------------------------------------------------------------
Missouri $100.7 .56% $ 99.7 .57% $ 97.7 .55%
Oklahoma 53.3 1.27 41.7 .95 38.1 .87
New Mexico 23.6 .69 25.9 .78 30.6 .96
Kansas 22.3 .48 17.4 .34 16.4 .32
Arkansas 21.0 .46 22.9 .48 19.5 .44
Iowa 13.3 1.21 12.9 1.08 5.1 .43
Texas 6.7 .29 8.6 .37 10.0 .45
Illinois 4.2 .42 4.9 .45 5.5 .50
Tennessee 4.6 .46 4.9 .54 3.6 .40
Credit Card 6.5 1.08 7.0 1.40 5.7 1.14
- ------------------------------------------------------------------------------------------------------
Total $256.2 .63% $245.9 .60% $232.2 .57%
======================================================================================================
As part of management's overall portfolio analysis, ongoing credit
quality reviews are performed to evaluate risk inherent in the portfolio and
potential risk that may develop in the future. A critical element in
assessing portfolio risk is the level of criticized loans. The Corporation's
internal risk rating system designates specific credits as criticized loans,
which include all nonperforming loans and other loans which contain features
presenting more than the normal risk of collectibility. Criticized and
classified assets from regulatory examinations are an integral component of
the risk rating system. As displayed in Table 16, criticized loans totaled
$951.4 million or 3.88% of loans at June 30, 1996, compared to $868.9 million
at December 31, 1995. The increase from year end primarily reflects
application of the Corporation's credit administration classification
criteria to Fourth Financial's loan portfolio. Management carefully analyzes
changes and trends in both nonperforming and criticized loans in assessing
the risk characteristics of the loan portfolio. Delinquency trends are
another tracking mechanism used by management to assess portfolio risk. As
illustrated in Table 17, consumer loan delinquencies gradually trended upward
through 1995 as the industry experienced some moderate deterioration in
consumer credit. Credit risk associated with the consumer loan portfolio,
which is primarily comprised of credit card, home equity and direct/indirect
installment loans, is controlled through the use of standardized credit
scoring techniques and consistent adherence to standard underwriting policies
throughout the Corporation's nine state region. Annualized net loan losses
from the consumer loan portfolio expressed as a percentage of the related
average loan balances were .92% for the six months of 1996 and .63% in the
same period of last year, and included credit card losses of 4.16% and 3.43%,
respectively. Credit card loan losses totaled $5.7 million in the second
quarter of 1996, down $1.3 million from the first quarter level and expressed
as a percentage of the related average loan balance declined to 3.82%. This
decline and the lower level of credit card delinquencies at June 30, 1996
reflect the sale of a private label credit card portfolio and general
improvement in loan performance.
- 18 -
19
Table 16: Loans Designated as Criticized Loans by Internal Risk Rating System
Criticized Loans
- ------------------------------------------------------------------------------------------
(in millions) Nonperforming Performing Total
- ------------------------------------------------------------------------------------------
1995
March 31 $170.7 $598.7 $769.4
June 30 169.8 646.2 816.0
September 30 170.0 693.9 863.9
December 31 210.8 658.1 868.9
==========================================================================================
1996
March 31 $226.9 $741.5 $968.4
June 30 220.3 731.1 951.4
==========================================================================================
As % of loans at June 30, 1996 .90% 2.98% 3.88%
==========================================================================================
Table 17: Consumer Loan Delinquency Trend
Past Due 30 Days or More Past Due 90 Days or More
- ---------------------------------------------------------------------------------------------------------
As a % of outstandings Credit Card Loans Installment Loans Residential Loans
- ---------------------------------------------------------------------------------------------------------
1995
March 31 3.08% .92% .36%
June 30 3.45 1.12 .41
September 30 3.72 1.42 .44
December 31 3.75 1.68 .44
1996
March 31 3.34% 1.21% .50%
June 30 3.16 1.38 .56
=========================================================================================================
At June 30, 1996, the recorded investment in loans that are considered
to be impaired under Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for the Impairment of a Loan," totaled approximately
$152.5 million and consisted of nonaccrual and restructured commercial,
commercial real estate, and real estate construction loans. At June 30, 1996,
the reserve for loan losses included approximately $3.3 million allocated to
$19.6 million of impaired loans. It is the Corporation's policy to
discontinue the accrual of interest on loans when the full collectibility of
principal or interest is doubtful. Nonaccrual loans are reduced by the direct
application of interest receipts to loan principal, for accounting purposes
only. If the principal amount of the loan is well collateralized, interest
income on such loans may be recognized in the periods in which payments are
received. Interest income recognized on impaired loans for the six months of
1996 was less than $1 million.
Segregated Assets
As part of the regulatory-assisted acquisition of Missouri Bridge Bank,
N.A. on April 23, 1993, the Corporation entered into a loss-sharing
arrangement with the FDIC with respect to approximately $950 million in
multi-family residential, commercial real estate, construction, and
commercial and industrial loans. During the first five years, 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.
The Corporation has designated certain loans covered under the
loss-sharing arrangement which possess more than the normal risk of
collectibility as segregated assets. These loans have the same characteristics
as nonaccrual loans and foreclosed properties. At June 30, 1996, segregated
assets totaled $71.6 million, net of a $12.8 million credit valuation
allowance, and are classified as other assets for reporting purposes. At June
30, 1996, segregated assets consisted of $15.1 million of commercial loans,
$12.3 million of industrial revenue bond loans, $52.3 million of commercial
real estate related loans and $4.7 million of foreclosed property. All other
loans covered under the loss-sharing arrangement are included in the loan
portfolio and totaled $161.9 million at June 30, 1996. Net charge-offs of $.5
million, representing the Corporation's share of losses on the segregated
asset pool, were recognized in the first six months of 1996. The valuation
allowance represents the Corporation's share of estimated losses upon ultimate
liquidation of the portfolio. The Corporation's primary purpose in managing a
portfolio of this nature is to provide ongoing collection and control
activities on behalf of the FDIC. Accordingly, these assets do not represent
loans made in the ordinary course of business and, due to the underlying
nature of this liquidating asset pool, are excluded from the Corporation's
nonperforming asset statistics. At June 30, 1996, $77.9 million of segregated
assets were accorded classification treatment consistent with nonaccrual
reporting, $4.7 million represented foreclosed property, and the balance of
$1.8 million were past due 90 days or more. The Corpo-
- 19 -
20
ration's operating results and cash flow position are not expected to be
materially affected by the ongoing collection activities associated with
managing the loans subject to the loss-sharing arrangement. Segregated assets
income totaled $3.2 million in the six months of 1996 and $6.3 million in the
same period of 1995.
A summary of activity regarding segregated assets is provided in
Table 18.
Table 18: Segregated Assets
June 30, 1996 (in millions) Principal balance Allowance for losses Principal balance, net
- ------------------------------------------------------------------------------------------------------
Balance, beginning of year $116.6 $13.3 $103.3
Charge-offs (4.7) (.8)
Recoveries 1.7 .3
Net transfers (10.5)
Payments on segregated assets (18.7)
- ------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 $ 84.4 $12.8 $ 71.6
======================================================================================================
Loan Portfolio
At June 30, 1996, loans totaled $24.4 billion, an increase of .4% over
the same period of last year, and were up 1.5% from December 31, 1995. Based
on average balances, loans increased 2.1% over the second quarter of 1995,
and 3.2% for the six months. Loan growth from June 30, 1995, was primarily
due to increases in consumer and commercial loans, partially offset by
decreases in both residential and commercial real estate loans. The increase
in consumer loans was due primarily to indirect installment loan growth, as
well as increases in home equity loans, partially offset by a decline in
credit card outstandings and the sale of approximately $300 million in
consumer loans through an auto-loan securitization sale completed in the
third quarter of 1995. Excluding the impact of the aforementioned auto-loan
securitization, consumer loans increased approximately 10.7% from June 30,
1995. The decline in the credit card portfolio from December 31, 1995,
reflects the sale of a small private label credit card portfolio and
seasonal fluctuations. The increase in commercial loans was primarily due to
growth in the middle-market sector as well as increases in loans to Fortune
1,000 companies. The decline in 1-4 family residential loans primarily
reflects sales of current loan production through secondary markets.
The majority of the Corporation's loans are made within its natural
trade territory. The portfolio is highly diversified with originations
stemming from the Corporation's nine state area, and the portfolio is well
balanced between wholesale and consumer lending. The Corporation's
geographic profile provides credit and economic risk diversification in that
the Corporation is not solely dependent on any major market. All of the
Corporation's major markets are currently experiencing satisfactory economic
conditions and unemployment rates. Table 19 summarizes the loan portfolio by
banking location and Table 21 presents the major loan classifications based
upon Management's internal classification criteria. In addition, Table 15
summarizes the nonperforming asset trends experienced throughout the
Corporation's regions.
Table 19: Loan Portfolio Distribution
June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount<F1> Loans Amount<F1> Loans Amount<F1> Loans
- ------------------------------------------------------------------------------------------------------------------
Missouri $11,253.4 46.1% $10,524.2 43.7% $10,914.1 44.9%
Arkansas 2,745.2 11.2 2,745.8 11.4 2,543.4 10.5
Kansas 2,418.8 9.9 2,683.2 11.2 2,736.7 11.3
Oklahoma 2,461.6 10.1 2,597.6 10.8 2,653.7 10.9
New Mexico 1,422.8 5.8 1,447.3 6.0 1,479.5 6.1
Texas 1,105.8 4.5 1,087.6 4.5 1,057.5 4.4
Tennessee 929.1 3.8 784.1 3.3 763.1 3.1
Illinois 771.1 3.2 788.4 3.3 779.2 3.2
Iowa 708.0 2.9 718.1 3.0 761.8 3.1
Credit card 600.7 2.5 674.6 2.8 618.4 2.5
- ------------------------------------------------------------------------------------------------------------------
Total $24,416.5 100.0% $24,050.9 100.0% $24,307.4 100.0%
==================================================================================================================
<FN>
<F1>Net of unearned income.
- 20 -
21
Table 20: Summary of Loan Portfolio
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------
Commercial $12,091.8 $11,834.5 $12,109.4
Real estate mortgage 4,383.0 4,565.3 4,739.3
Real estate construction 1,101.6 1,107.7 1,037.6
Consumer 6,534.0 6,284.1 6,204.7
Lease financing 370.1 325.4 278.9
- ------------------------------------------------------------------------------------------------------------------
Total domestic loans 24,480.5 24,117.0 24,369.9
Foreign loans 20.1 20.9 24.7
- ------------------------------------------------------------------------------------------------------------------
Total loans, before deduction of unearned income 24,500.6 24,137.9 24,394.6
Less unearned income 84.1 87.0 87.2
- ------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $24,416.5 $24,050.9 $24,307.4
==================================================================================================================
Table 21: Composition of Loan Portfolio
June 30, 1996 December 31, 1995 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount Loans Amount Loans Amount Loans
- ---------------------------------------------------------------------------------------------------------------------
Real estate:
1-4 family residential $ 4,383.0 17.9% $ 4,565.3 18.9% $ 4,739.3 19.4%
Land acquisition 262.0 1.1 215.4 .9 223.6 .9
Residential construction 316.3 1.3 380.2 1.6 387.6 1.6
Commercial construction 523.3 2.1 512.1 2.1 426.4 1.8
Commercial real estate 3,751.4 15.3 3,822.5 15.8 3,932.7 16.1
- ---------------------------------------------------------------------------------------------------------------------
Total real estate 9,236.0 37.7 9,495.5 39.3 9,709.6 39.8
Commercial loans to Fortune 1,000 companies
and other large corporate borrowers 1,297.9 5.3 1,127.0 4.7 1,217.0 5.0
Middle market commercial 5,790.7 23.6 5,675.5 23.5 5,738.9 23.5
Bank stock loans 226.9 .9 204.8 .9 245.4 1.0
Agriculture 1,024.9 4.2 1,004.7 4.2 975.4 4.0
Consumer:
Home equity 699.2 2.9 642.8 2.7 561.6 2.3
Credit card 600.7 2.5 674.6 2.8 618.4 2.5
Indirect installment 3,263.6 13.3 2,929.3 12.1 3,042.7 12.5
Installment 1,970.5 8.0 2,037.4 8.4 1,982.0 8.1
- ---------------------------------------------------------------------------------------------------------------------
Total consumer 6,534.0 26.7 6,284.1 26.0 6,204.7 25.4
Lease financing 370.1 1.5 325.4 1.3 278.9 1.2
Foreign 20.1 .1 20.9 .1 24.7 .1
- ---------------------------------------------------------------------------------------------------------------------
Total loans $24,500.6 100.0% $24,137.9 100.0% $24,394.6 100.0%
=====================================================================================================================
The section that follows addresses specific risk elements and credit
administration practices related to the major components of the loan
portfolio.
Commercial Loans
The Corporation's commercial loan portfolio, excluding commercial real
estate, totaled $8.3 billion at June 30, 1996, representing approximately
34.0% of the total portfolio, compared to 33.5% at June 30, 1995. The
Corporation's objective is to control credit risk within the commercial loan
portfolio through geographic diversification and adherence to credit
administration policies that limit industry concentrations and establish
lending authority and borrower limits. Within the commercial loan portfolio
there are no concentrations of credits to any borrower or industry in excess
of 5% of total loans, and the portfolio is primarily comprised of
middle-market loans to customers within the Corporation's nine state
operating region. At June 30, 1996, middle-market commercial loans represented
23.6% of the total loan portfolio and loans to Fortune 1,000 companies
comprised 5.3% of total loans. Loans to middle-market companies, as a general
rule, are made on a secured basis, with personal guarantees and loan covenants
appropriate to the individual credit. These loans are to a diversified group
of borrowers conducting business in the Corporation's immediate market area,
predominately in the manufacturing, wholesale distribution and services
industries. Loans to Fortune 1,000 companies and other large corporate
borrowers are made on a secured and unsecured basis depending on the risk
assessment of the specific
- 21 -
22
borrowers. The composition of the commercial loan portfolio and level of
industry concentrations is reflected in Table 22. The Corporation's legal
lending limit to any individual borrower is in excess of $500 million.
However, at June 30, 1996, of the Corporation's eight largest borrowers,
there were only five relationships with aggregate outstandings in the $50-$80
million range and three borrowers with aggregate outstandings in the $40-$49
million range.
Credit risk associated with the commercial portfolio is primarily
influenced by economic conditions and the level of under-writing risk the
Corporation is willing to assume. A primary focus in managing risk when
extending credit is to adequately assess the borrower's capacity to repay and
to follow proper collateral protection policies.
Table 22: Commercial Industry Concentration
% of Total % of
June 30, 1996 Commercial Loans<F1> Total Loans
- --------------------------------------------------------------------------------
Manufacturing:
Metal, machinery and fabrication 5.1% 1.8%
Food products 2.5 .9
Chemical, rubber and petroleum 1.9 .6
Printing and paper 1.9 .7
All other manufacturing 5.5 1.9
Services:
Health care 3.5 1.2
Amusement/recreation 1.3 .4
All other services 11.1 3.8
Finance, insurance, real estate 12.2 4.1
Retail trade:
Retail (non-auto) 8.3 2.8
Retail (auto) 1.5 .5
Agriculture, forestry and fishing 12.3 4.2
Wholesale trade--durable goods 6.6 2.2
Wholesale trade--non-durable goods 4.2 1.4
Individual personal loans 8.0 2.7
Transportation 3.5 1.2
Construction 3.3 1.1
Communication 1.8 .6
Other 5.5 1.9
- --------------------------------------------------------------------------------
Total 100.0% 34.0%
================================================================================
<FN>
<F1> Excluding commercial real estate
Commercial Real Estate
This lending category consists primarily of commercial real estate,
residential construction, commercial construction and land acquisition loans.
At June 30, 1996, commercial real estate loans totaled $4.9 billion,
representing approximately 19.8% of total loans, compared to 20.4% at June
30, 1995. Table 23 displays the composition of the real estate portfolio by
property type and carrying status. The Corporation closely monitors the
composition and quality of the commercial real estate portfolio through
established credit review procedures to ensure that significant credit
concentrations do not exist within this portfolio. The portfolio is
geographically dispersed, primarily in areas where the Corporation has a
direct banking presence, and is widely diversified among residential
construction, office and retail properties, and land acquisition and
development loans. Real estate loans are generally secured by the underlying
property at a 75% to 80% loan to value ratio, and are generally supported by
guarantees from project developers. Additional collateral is required on a
project-by-project basis depending on management's evaluation of the
borrower. Approximately one third of the commercial real estate portfolio is
comprised of owner occupied properties--such as manufacturing facilities for
middle market borrowers--for which the primary source of repayment is not
entirely dependent on the real estate market.
- 22 -
23
Table 23: Construction and Mortgage Loans
Nonperforming
June 30, 1996 (in millions) Performing Nonperforming Total as % of Total
- ---------------------------------------------------------------------------------------------------------
Commercial real estate:
Multi-family $ 489.8 $ 2.2 $ 492.0 .45%
Office/showroom 966.5 8.9 975.4 .91
Industrial/warehouse 510.3 5.6 515.9 1.09
Retail strip 327.8 2.3 330.1 .68
Retail, other 482.4 8.9 491.3 1.82
Lodging 634.3 6.1 640.4 .95
Land 279.8 8.4 288.2 2.91
Residential construction 312.1 4.2 316.3 1.32
Other 793.4 10.0 803.4 1.25
- ---------------------------------------------------------------------------------------------------------
Total commercial real estate 4,796.4 56.6 4,853.0 1.17
1-4 family residential 4,348.0 35.0 4,383.0 .80
- ---------------------------------------------------------------------------------------------------------
Total real estate $9,144.4 $91.6 $9,236.0 .99%
=========================================================================================================
Consumer Loans
The consumer loan category consists primarily of direct and indirect
installment, credit card, and home equity lending. At June 30, 1996, consumer
loans totaled $6.5 billion, representing approximately 26.7% of total loans,
compared to 25.4% at June 30, 1995. Credit risk in each of these lending
categories is controlled through automated credit scoring techniques and
consistent adherence to conservative underwriting standards that consider
debt to income levels and, where applicable, loan to value ratios. In the
home equity category, loan to value ratios generally are limited to 80% of
collateral value. In certain markets, higher loan to value ratios are
permitted; however, in these situations the Corporation obtains additional
credit protection from third party insurance providers. Installment loans,
both indirect and direct, are subject to similar underwriting standards.
Approximately 62% of the installment category is comprised of indirect paper
of which over 90% are automobile loans. The remainder of the indirect
installment category is primarily limited to marine and home improvement
paper.
Growth in installment lending has occurred through direct originations
made available through the Corporation's extensive branch banking network and
through expansion of the indirect lending program. A primary source for the
indirect automobile loan production is a referral program negotiated with a
major insurance carrier whose customer base has a good credit scoring
profile, resulting in lower delinquencies and charge-offs than that typically
experienced from traditional indirect sources.
Credit card outstandings totaled $600.7 million at June 30, 1996,
representing approximately 2.5% of total loans. The Corporation is not a
participant in pre-approved nationwide mass marketing programs; rather,
marketing efforts target further penetration of its existing customer base.
1-4 Family Residential Loans
The 1-4 family residential loan portfolio totaled $4.4 billion at June
30, 1996, and represented 17.9% of total loans compared to 19.4% at June 30,
1995. Risk exposure in this area is minimized through underwriting policies
that specify conservative loan to value ratios, coupled with a diversified
geographic base that naturally protects the Corporation from excessive
concentrations in any given market. In addition, the majority of the
fixed-rate, long-term production is sold in the secondary market through the
Corporation's mortgage banking subsidiary.
Financial Position and Liquidity
The basic financial structure of the Corporation's average and
period-end balance sheet changed only moderately from the second quarter and
fourth quarter of 1995. At June 30, 1996, assets totaled $40.7 billion
compared to $40.9 billion at June 30, 1995, and $41.1 billion at December 31,
1995.
Liquidity represents the availability of funding to meet the
obligations to depositors, borrowers, and creditors at a reasonable cost
without adverse consequences. Accordingly, the Corporation's liquidity
position is greatly influenced by its funding base and asset mix. Core
deposits, which consist of investable checking account deposits and certain
interest-bearing accounts, represent the Corporation's largest and most
important funding source as these deposits represent a more stable, lower
cost source of funds.
The core deposit base is supplemented by the Corporation's wholesale
and correspondent banking activities which provide a natural access to
short-term purchased funds, such as negotiable certificates of deposit and
overnight surplus funds. These funds can be acquired when needed, principally
from existing customers within the Corporation's natural trade territory and
through access to national money markets. The Corporation's auto-loan
securitization and bank note programs represent additional sources of
liquidity.
Average core deposits totaled $27.4 billion for the second quarter of
1996, an increase of $.9 billion or 3.4% from the same period last year. Much
of the core deposit growth has occurred within the retail money market
deposit accounts through increased
- 23 -
24
penetration of the retail customer base. In addition, the core deposit base mix
has been altered somewhat in recent periods as customers have redirected
balances from traditionally lower-cost savings deposits to the higher-rate
retail money market accounts. The deposit growth during this period has exceeded
earning asset growth; accordingly, the excess liquidity has been used to reduce
purchased funds. Average core deposits supported 74.7% of earning assets for the
second quarter of 1996, compared to 72.8% during the same period last year.
Purchased funds supported 16.9% of average earning assets, compared to 20.0% for
the second quarter of last year. Purchased funds at June 30, 1996, and June 30,
1995, included short-term bank notes which were issued by several of the
Corporation's banking subsidiaries totaling $.7 billion and $2.0 billion,
respectively. The Corporation's need for purchased funds was also reduced due to
proceeds received from the $300 million auto-loan securitization completed in
the third quarter of last year.
The Corporation's liquidity position is also managed by maintaining
adequate levels of liquid assets such as money market investments and
available for sale securities. At June 30, 1996, the available for sale
portfolio totaled $10.7 billion, compared to $4.5 billion at June 30, 1995.
In the fourth quarter of 1995, the Corporation reclassified approximately
$5.7 billion of securities from held to maturity to available for sale in
accordance with the one-time reclassification permitted under Financial
Accounting Standards Board Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." These securities, representing approximately 91% of the total
securities portfolio, may be sold to meet liquidity needs or in response to
significant changes in interest rates or prepayment risks. At June 30, 1996,
unrealized depreciation in the available for sale portfolio was approximately
$158.4 million, compared to appreciation of $16.9 million at December 31,
1995. The decrease in market value from year end was primarily due to the
increase in interest rates, particularly as measured by the U.S. Treasury
yield curve. Approximately 30% of the available for sale portfolio is
comprised of adjustable-rate mortgage-backed securities, including floating
rate CMOs. The remainder of the portfolio is comprised of Treasury notes,
Agency notes, fixed rate mortgage pass throughs and CMO tranches. The
Corporation's mortgage-backed securities portfolio totaled approximately $7.6
billion at June 30, 1996, of which approximately 86% represented government
agency-backed issues and the remainder of the portfolio was comprised of
private-issue mortgage-backed securities with credit ratings of AA or better.
As a means to control interest rate and prepayment risk, each security
undergoes a thorough analysis prior to purchase and periodically thereafter
to examine the investment performance using a wide range of interest rate
scenarios and prepayment speeds. This ongoing process insures that the
mortgage-backed securities portfolio meets the Corporation's investment
strategies and internal risk guidelines.
The variety of funding options available and strong cash flow provide
the Corporation flexibility in selecting funding alternatives most
appropriate in the circumstances, thereby generally avoiding the necessity to
access capital markets at inopportune times. Maintaining favorable debt
ratings is also critical to liquidity because it can affect the availability
and cost of funds to the Corporation. The Corporation's ability to access the
capital markets on a cost-effective basis is reflected by its debt ratings,
summarized in Table 24. The Corporation currently has a shelf registration
statement filed with the Securities and Exchange Commission providing for the
issuance of up to $500 million of debt, preferred stock or common stock.
There were no commitments for capital expenditures, at June 30, 1996, which
would materially impact the Corporation's liquidity position.
In June, 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 (SFAS No. 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on consistent
application of a financial-components approach that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS No. 125 is effective for
transactions occurring after December 31, 1996, and is to be applied
prospectively. The Corporation is in the process of reviewing this statement
to determine the impact, if any, its adoption will have on the Corporation's
financial results.
Table 24: Agency Ratings
Agency Ratings Moody's Standard & Poor's Thomson Bankwatch
- -----------------------------------------------------------------------------------------------------------
Boatmen's Bancshares, Inc.: A/B
6-3/4% Subordinated notes due 2003 A3 A- A
7-5/8% Subordinated notes due 2004 A3 A- A
8-5/8% Subordinated notes due 2003 A3 A- A
9-1/4% Subordinated notes due 2001 A3 A- A
6-1/4% Convertible subordinated debentures due 2011 A3 A- A
Commercial paper P1 A-1 TBW-1
The Boatmen's National Bank of St. Louis: A/B
Long-term/short-term deposits and bank notes Aa3/P1 A+/A-1 TBW-1
Boatmen's First National Bank of Kansas City: A/B
Long-term/short-term deposits and bank notes A1/P1 A+/A-1 TBW-1
Multi-bank note program
(8 Boatmen's subsidiary banks) A1/P1 A+/A-1
===========================================================================================================
- 24 -
25
Capital Structure
Table 25: Capital Structure
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------
Long-term debt $ 616.5 $ 615.1 $ 522.2
Stockholders' equity:
Preferred equity 99.1 99.3 99.5
Common equity 3,492.6 3,500.5 3,330.3
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,591.7 3,599.8 3,429.8
- ------------------------------------------------------------------------------------------------------------------
Total capitalization $4,208.2 $4,214.9 $3,952.0
==================================================================================================================
Tangible equity $3,168.9 $3,164.2 $3,023.5
==================================================================================================================
Ratios
- ------------------------------------------------------------------------------------------------------------------
Equity/assets 8.83% 8.75% 8.39%
Tangible equity/assets 7.87 7.78 7.47
Long-term debt as % of total capitalization 14.65 14.59 13.21
Double leverage 107.55 106.35 106.71
Dividends paid (for the period, in thousands):
Preferred<F1> $ 3,500 $ 7,049 $ 3,535
Common<F1> 106,408 206,692 94,110
Total dividends as % of net income 42.7% 44.5% 44.8%
==================================================================================================================
<FN>
<F1> Includes dividends of pooled companies.
Table 26: Intangible Assets
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------
Goodwill--Parent Company $ 81.7 $ 84.4 $ 87.1
- ------------------------------------------------------------------------------------------------------------------
Subsidiaries:
Goodwill 189.8 193.6 183.1
Core deposit premium 60.3 69.5 78.3
Mortgage servicing rights 73.4 67.5 47.6
Credit card premium 17.6 20.6 10.2
- ------------------------------------------------------------------------------------------------------------------
Total subsidiaries 341.1 351.2 319.2
- ------------------------------------------------------------------------------------------------------------------
Total intangible assets $422.8 $435.6 $406.3
==================================================================================================================
The Corporation continues to rank among the most strongly capitalized
bank holding companies in the country. This strong capital position and
overall financial strength provide a good base for future expansion when
profitable investment opportunities arise. The cornerstone of the
Corporation's capital structure is its common equity, totaling $3.5 billion
or approximately 83.0% of total capitalization at June 30, 1996, an increase
of 4.9% from June 30, 1995. The equity to asset ratio was 8.83% at June 30,
1996, compared to 8.39% at June 30, 1995, and 8.75% at December 31, 1995. At
June 30, 1996, the Corporation held 1,513,699 common shares in Treasury at a
cost of $58.9 million. The repurchased shares will be used to meet periodic
stock requirements of benefit plans and for the pending purchase acquisition.
The preferred stock (Series A) pays a 7% dividend and is callable by the
Corporation, at par, on March 1, 1997. Assuming full conversion, the issuance
of 3.4 million common shares would be required.
An important measure of capital adequacy of a banking institution is
its risk-based capital ratios, which represent the primary capital standard
for regulatory purposes. The Corporation's risk-based capital ratios of
11.44% for Tier I and 14.09% for total capital substantially exceed the
regulatory required minimums. At June 30, 1996, the Corporation's Tier I
leverage ratio was 8.29%, well in excess of required minimums. At June 30,
1996, all of the Corporation's banking subsidiaries were considered "well
capitalized" based on the regulatory defined minimums of a Tier I leverage
ratio of 5%, a Tier I capital ratio of 6% and a total capital ratio of 10%.
- 25 -
26
Table 27: Risk-Based Capital
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- --------------------------------------------------------------------------------------------------------
Tier I capital:
Stockholders' equity $ 3,591.7 $ 3,599.8 $ 3,429.8
Unrealized net (appreciation) depreciation,
available for sale securities 93.7 (10.5) 3.9
- --------------------------------------------------------------------------------------------------------
Stockholders' equity, net 3,685.4 3,589.3 3,433.7
Minority interest .7 .7 .7
Intangible assets:
Goodwill (271.5) (278.0) (270.2)
Core deposit premium (60.3) (69.5) (78.3)
- --------------------------------------------------------------------------------------------------------
Total Tier I 3,354.3 3,242.5 3,085.9
- --------------------------------------------------------------------------------------------------------
Tier II capital:
Allowable reserve for loan losses 367.9 360.1 356.8
Qualifying long-term debt 410.0 410.0 415.0
- --------------------------------------------------------------------------------------------------------
Total Tier II 777.9 770.1 771.8
- --------------------------------------------------------------------------------------------------------
Total capital $ 4,132.2 $ 4,012.6 $ 3,857.7
========================================================================================================
Risk-adjusted assets $29,325.9 $28,721.2 $28,454.6
========================================================================================================
Risk-based capital ratios:
Tier I 11.44% 11.29% 10.84%
========================================================================================================
Total 14.09% 13.97% 13.56%
========================================================================================================
Tier I leverage ratio 8.29% 7.95% 7.61%
========================================================================================================
- 26 -
27
Boatmen's Bancshares, Inc.
CONSOLIDATED QUARTERLY EARNINGS TREND
1996 1995
- --------------------------------------------------------------------------------------------------------------------------
(in thousands) Second First Fourth Third Second First
- --------------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $530,210 $528,584 $538,382 $540,212 $530,404 $498,751
Interest on short-term investments 1,311 1,913 1,540 1,146 1,137 964
Interest on Federal funds sold and securities
purchased under resale agreements 6,308 11,631 11,645 10,218 9,364 8,801
Interest on held to maturity securities
Taxable 404 72,064 93,539 96,093 96,057
Tax-exempt 16,723 15,077 14,325 13,915 13,903 13,965
- --------------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 16,723 15,481 86,389 107,454 109,996 110,022
Interest on available for sale securities 165,460 160,188 87,712 68,367 72,439 76,298
Interest on trading securities 719 764 706 547 361 435
- --------------------------------------------------------------------------------------------------------------------------
Total interest income 720,731 718,561 726,374 727,944 723,701 695,271
Interest expense:
Interest on deposits 247,650 257,282 265,050 262,652 259,633 238,124
Interest on Federal funds purchased
and other short-term borrowings 61,728 58,709 63,921 77,862 81,880 80,846
Interest on capital lease obligations 944 946 971 972 975 978
Interest on long-term debt 12,168 12,450 12,498 11,334 11,493 12,129
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 322,490 329,387 342,440 352,820 353,981 332,077
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 398,241 389,174 383,934 375,124 369,720 363,194
Provision for loan losses 19,365 26,217 26,451 12,391 10,171 10,743
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 378,876 362,957 357,483 362,733 359,549 352,451
Noninterest income:
Trust fees 53,835 52,807 52,226 50,444 51,902 45,670
Service charges 63,647 60,351 59,760 58,822 57,832 55,234
Mortgage banking revenues 22,241 21,639 20,421 20,344 16,689 23,248
Credit card 10,861 15,553 16,184 16,200 14,404 14,695
Investment banking revenues 12,110 12,469 10,832 10,588 10,490 10,248
Securities gains (losses), net 871 477 11,034 938 3,005 (22,017)
Other 44,802 49,284 38,331 38,091 36,434 37,581
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest income 208,367 212,580 208,788 195,427 190,756 164,659
- --------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Staff 190,361 191,360 186,596 182,726 177,915 179,235
Net occupancy 25,089 25,418 24,368 25,617 23,665 25,127
Equipment 30,365 30,232 31,123 28,335 28,520 28,726
FDIC insurance 2,743 2,735 4,945 1,156 16,593 16,594
Intangible amortization 10,071 10,272 11,268 11,121 10,756 10,610
Advertising 12,427 9,894 11,705 9,752 11,495 9,914
Merger expense 42,414 711 25,267
Other 87,039 87,166 98,776 92,778 86,405 79,026
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 358,095 399,491 368,781 351,485 356,060 374,499
- --------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 229,148 176,046 197,490 206,675 194,245 142,611
Income tax expense 83,080 64,922 69,229 72,994 66,440 52,347
- --------------------------------------------------------------------------------------------------------------------------
Net income $146,068 $111,124 $128,261 $133,681 $127,805 $ 90,264
==========================================================================================================================
Net income available to common shareholders $144,318 $109,374 $126,407 $131,923 $126,043 $ 88,495
==========================================================================================================================
Net income per share $.92 $.69 $.81 $.84 $.80 $.57
==========================================================================================================================
Dividends declared per share $.37 $.37 $.37 $.37 $.34 $.34
==========================================================================================================================
Returns:
Return on assets 1.44% 1.10% 1.27% 1.32% 1.27% .90%
Return on total equity 16.23 12.15 14.49 15.49 15.14 11.13
Return on common equity 16.49 12.30 14.69 15.74 15.39 11.26
==========================================================================================================================
- 27 -
28
Boatmen's Bancshares, Inc.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Average balances (in millions) Second Quarter First Quarter Fourth Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates Balance Expense Rates
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income $24,355.1 $531.5 8.78% $24,130.6 $530.3 8.84% $24,184.4 $540.1 8.86%
Short-term investments 81.3 1.3 6.48 121.1 1.9 6.36 92.4 1.5 6.61
Federal funds sold and securities
purchased under resale agreements 476.3 6.3 5.33 845.2 11.7 5.53 796.9 11.6 5.80
Held to maturity securities:
Taxable 4,584.8 72.1 6.24
Tax-exempt 994.6 24.5 9.89 917.4 22.3 9.79 891.4 21.4 9.52
- ----------------------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 994.6 24.5 9.89 917.4 22.3 9.79 5,476.2 93.5 6.77
Available for sale securities 10,671.2 165.7 6.24 10,333.1 161.3 6.28 5,696.6 89.0 6.19
Trading securities 48.2 .8 6.60 51.5 .8 6.55 49.2 .7 6.01
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 36,626.7 730.1 8.02 36,398.9 728.3 8.05 36,295.7 736.4 8.05
Less reserve for loan losses (468.4) (454.0) (463.9)
Cash and due from banks 2,076.7 2,093.5 2,142.2
All other assets 2,249.1 2,313.8 2,324.3
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $40,484.1 $40,352.2 $40,298.3
==================================================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $13,262.8 $ 98.7 2.99% $13,247.8 $100.9 3.06% $12,995.1 $103.5 3.16%
Time deposits 11,156.5 148.9 5.37 11,486.5 156.4 5.47 11,574.1 161.5 5.54
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,419.3 247.6 4.08 24,734.3 257.3 4.18 24,569.2 265.0 4.28
Federal funds purchased and
other short-term borrowings 4,674.6 61.7 5.31 4,354.2 58.7 5.42 4,449.4 63.9 5.70
Capital lease obligations 38.6 1.0 9.84 38.9 1.0 9.77 39.2 1.0 9.82
Long-term debt 616.6 12.2 7.94 616.2 12.4 8.13 599.4 12.5 8.27
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 29,749.1 322.5 4.36 29,743.6 329.4 4.45 29,657.2 342.4 4.58
Demand deposits 6,532.8 6,395.8 6,544.7
All other liabilities 601.7 554.9 555.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 36,883.6 36,694.3 36,756.9
Redeemable preferred stock 1.0 1.0 1.0
Total stockholders' equity 3,599.5 3,656.9 3,540.4
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,484.1 $40,352.2 $40,298.3
==================================================================================================================================
Interest rate spread 3.66% 3.60% 3.47%
Effect of noninterest-bearing funds .82 .81 .84
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest margin $407.6 4.48% $398.9 4.41% $394.0 4.31%
==================================================================================================================================
Nonaccrual loans are included in
average balances and interest
payments on such loans are
recognized as income on a cash
basis when appropriate. Interest
income and yields are presented on
a fully-taxable equivalent basis
using the Federal statutory income
tax rate, net of nondeductible
interest expense. Such
adjustments by earning asset
category are as follows:
Loans $1.3 $1.7 $ 1.7
Held to maturity securities 7.8 6.8 7.1
Available for sale securities .2 1.1 1.2
Trading securities .1 .1
- ----------------------------------------------------------------------------------------------------------------------------------
Total $9.4 $9.7 $10.0
==================================================================================================================================
- 28 -
29
Boatmen's Bancshares, Inc.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
1995
- ----------------------------------------------------------------------------------------------------------------------------
Average balances (in millions) Third Quarter Second Quarter First Quarter
- ----------------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates Balance Expense Rates
- ----------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income $24,207.4 $541.8 8.88% $23,859.1 $532.2 8.95% $23,102.3 $500.8 8.79%
Short-term investments 76.1 1.1 5.97 77.5 1.1 5.88 69.9 1.0 5.60
Federal funds sold and securities
purchased under resale agreements 695.2 10.2 5.83 611.6 9.4 6.14 595.3 8.8 6.00
Held to maturity securities:
Taxable 6,040.5 93.5 6.14 6,297.8 96.1 6.12 6,396.5 96.1 6.09
Tax-exempt 862.5 20.8 9.58 856.3 20.9 9.78 846.2 21.0 10.06
- ----------------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 6,903.0 114.3 6.57 7,154.1 117.0 6.56 7,242.7 117.1 6.55
Available for sale securities 4,430.6 70.0 6.26 4,649.0 74.2 6.41 5,007.2 78.3 6.34
Trading securities 32.8 .6 7.08 22.2 .4 6.87 29.2 .4 6.31
- ----------------------------------------------------------------------------------------------------------------------------
Total earning assets 36,345.1 738.0 8.06 36,373.5 734.3 8.10 36,046.6 706.4 7.95
Less reserve for loan losses (461.9) (460.1) (453.6)
Cash and due from banks 2,274.4 2,213.9 2,251.6
All other assets 2,365.7 2,208.6 2,149.7
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $40,523.3 $40,335.9 $39,994.3
============================================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $12,636.3 $100.4 3.15% $12,431.4 $ 99.0 3.20% $12,331.8 $ 91.9 3.02%
Time deposits 11,641.1 162.2 5.53 11,916.2 160.6 5.40 11,809.0 146.2 5.02
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,277.4 262.6 4.29 24,347.6 259.6 4.28 24,140.8 238.1 4.00
Federal funds purchased and
other short-term borrowings 5,353.3 77.9 5.77 5,483.9 81.9 5.99 5,632.7 80.9 5.82
Capital lease obligations 39.3 1.0 9.81 39.9 1.0 9.81 40.2 1.0 9.86
Long-term debt 522.5 11.3 8.61 529.0 11.5 8.71 572.6 12.1 8.59
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 30,192.5 352.8 4.64 30,400.4 354.0 4.67 30,386.3 332.1 4.43
Demand deposits 6,365.0 6,139.3 5,933.4
All other liabilities 512.5 419.0 430.1
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 37,070.0 36,958.7 36,749.8
Redeemable preferred stock 1.1 1.1 1.1
Total stockholders' equity 3,452.2 3,376.1 3,243.4
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,523.3 $40,335.9 $39,994.3
============================================================================================================================
Interest rate spread 3.42% 3.43% 3.52%
Effect of noninterest-bearing funds .78 .76 .69
- ----------------------------------------------------------------------------------------------------------------------------
Net interest margin $385.2 4.20% $380.3 4.19% $374.3 4.21%
============================================================================================================================
Nonaccrual loans are included in
average balances and interest
payments on such loans are
recognized as income on a cash
basis when appropriate. Interest
income and yields are presented on
a fully-taxable equivalent basis
using the Federal statutory income
tax rate, net of nondeductible
interest expense. Such adjustments
by earning asset category are as
follows:
Loans $ 1.5 $ 1.8 $ 2.1
Held to maturity securities 6.9 7.0 7.0
Available for sale securities 1.6 1.8 2.0
Trading securities .1
- ----------------------------------------------------------------------------------------------------------------------------
Total $10.1 $10.6 $11.1
============================================================================================================================
- 29 -
30
Boatmen's Bancshares, Inc.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
Six Months Ended June 30
- ----------------------------------------------------------------------------------------------------------------------
Average balances (in millions) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
- ----------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income $24,242.8 $1,061.9 8.81% $23,482.8 $1,033.0 8.87%
Short-term investments 101.2 3.2 6.41 73.7 2.1 5.75
Federal funds sold and securities
purchased under resale agreements 660.7 17.9 5.46 603.5 18.2 6.07
Held to maturity securities:
Taxable 6,346.9 192.1 6.11
Tax-exempt 956.0 46.8 9.84 851.3 41.9 9.92
- ----------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 956.0 46.8 9.84 7,198.2 234.0 6.56
Available for sale securities 10,502.2 327.0 6.26 4,827.1 152.5 6.37
Trading securities 49.9 1.6 6.58 25.6 .8 6.55
- ----------------------------------------------------------------------------------------------------------------------
Total earning assets 36,512.8 1,458.4 8.03 36,210.9 1,440.6 8.02
Less reserve for loan losses (461.2) (456.9)
Cash and due from banks 2,085.1 2,232.7
All other assets 2,281.4 2,179.3
- ----------------------------------------------------------------------------------------------------------------------
Total assets $40,418.1 $40,166.0
======================================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $13,255.3 $ 199.6 3.03% $12,381.9 $ 191.0 3.11%
Time deposits 11,321.5 305.3 5.42 11,862.9 306.8 5.21
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,576.8 504.9 4.13 24,244.8 497.8 4.14
Federal funds purchased and
other short-term borrowings 4,514.4 120.5 5.36 5,557.8 162.7 5.90
Capital lease obligations 38.8 1.9 9.81 40.1 1.9 9.83
Long-term debt 616.4 24.6 8.03 550.7 23.6 8.65
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 29,746.4 651.9 4.41 30,393.4 686.0 4.55
Demand deposits 6,464.3 6,036.9
All other liabilities 578.2 424.5
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 36,788.9 36,854.8
Redeemable preferred stock 1.0 1.1
Total stockholders' equity 3,628.2 3,310.1
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,418.1 $40,166.0
======================================================================================================================
Interest rate spread 3.62% 3.47%
Effect of noninterest-bearing funds .82 .73
- ----------------------------------------------------------------------------------------------------------------------
Net interest margin $ 806.5 4.44% $ 754.6 4.20%
======================================================================================================================
Nonaccrual loans are included in
average balances and interest
payments on such loans are
recognized as income on a cash
basis when appropriate. Interest
income and yields are presented on
a fully-taxable equivalent basis
using the Federal statutory income
tax rate, net of nondeductible
interest expense. Such adjustments
by earning asset category are as
follows:
Loans $ 3.0 $ 3.9
Held to maturity securities 14.6 14.0
Available for sale securities 1.3 3.8
Trading securities .2
- ----------------------------------------------------------------------------------------------------------------------
Total $19.1 $21.7
======================================================================================================================
- 30 -
31
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
Registrant's Annual Meeting of Shareholders was held on April 23, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
At this annual meeting, the shareholders (1) elected management's five
director nominees, (2) approved an amendment to the Registrant's Restated
Articles of Incorporation increasing the authorized shares of Common Stock
from 200,000,000 to 250,000,000, (3) approved an amendment to the
Registrant's 1990 Stock Purchase Plan for Employees increasing the number of
authorized shares of Common Stock issuable under the Plan and (4) approved
the Registrant's 1996 Stock Incentive Plan. The amendment increasing the
authorized shares has no effect on the rights of the holders of Common Stock.
There was no solicitation in opposition to management's director nominees.
Following is a tabulation of the voting for directors:
Voting Cast
------------------------------
Nominee For Withheld
------- --- --------
Andrew B. Craig, III 125,996,260 1,457,162
Russell W. Meyer, Jr. 126,016,870 1,457,162
Albert E. Suter 125,997,880 1,457,162
Dwight D. Sutherland 125,679,326 1,457,162
Theodore C. Wetterau 125,907,414 1,457,162
With respect to the amendment to the Restated Articles of
Incorporation, there were 119,535,738 shares voted "For" and 5,346,744
shares voted "Against", with 1,713,242 shares abstaining and 780,988 broker
non-votes.
With respect to the amendment to the 1990 Stock Purchase Plan for
Employees, there were 114,101,123 shares voted "For" and 9,608,798 shares
voted "Against", with 2,428,052 shares abstaining and 1,238,740 broker
non-votes.
With respect to the approval of the 1996 Stock Incentive Plan, there
were 103,228,028 shares voted "For" and 20,352,444 shares voted "Against",
with 2,587,501 shares abstaining and 1,208,740 broker non-votes.
- 31 -
32
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(a) Restated Articles of Incorporation of the Corporation
3(c) Amended Bylaws of the Corporation
10(p) Letter Agreement, dated May 17, 1996, supplementing Employment
Agreement between the Corporation and Andrew B. Craig, III
10(q) Boatmen's Deferred Compensation Plan for Directors
27 Boatmen's Bancshares, Inc. Financial Data
Schedule for the Period Ended June 30, 1996.
(b) Registrant filed a current report on Form 8-K dated May 3, 1996,
covering Item 5 - Other Events and Item 7 - Financial Statements and
Exhibits.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOATMEN'S BANCSHARES, INC.
-------------------------------------------
(Registrant)
Date: August 9, 1996
--------------
/s/ JAMES W. KIENKER
-------------------------------------------
James W. Kienker, Executive Vice President
and Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial and Accounting Officer)
- 32 -