STATEMENTS OF FINANCIAL CONDITION
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
December 31--Dollars in Thousands 1996 1995
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ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,781,146 $2,658,661
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . . . . 2,500 110,484
Investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,031,123 5,133,041
Investment securities held to maturity (fair value $139,999 in 1996 and $216,066 in 1995). . . . 129,595 200,960
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,297,954 30,514,418
Less: Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (476,709) (505,148)
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45,430) (28,419)
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Net loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,775,815 29,980,851
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,135,644 1,078,057
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592,142 758,297
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,783,410 1,633,194
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Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,231,375 $41,553,545
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LIABILITIES
Demand deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,528,006 $ 5,938,694
NOW and money market accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,163,289 12,816,304
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,938,243 3,292,157
Certificates of deposit under $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,708,311 9,853,010
Other time deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,482,409 2,333,403
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Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,820,258 34,233,568
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . 1,265,837 899,667
Commercial paper. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,297 669,766
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,233 509,516
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004,890 778,028
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,226,529 1,190,814
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Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,361,044 38,281,359
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MINORITY INTEREST
Company obligated mandatorily redeemable securities of trusts holding solely parent debentures . 500,000 --
SHAREHOLDERS' EQUITY
Preferred stock, $.10 par value: 20,000,000 shares authorized; 8,489 and 1,960,371 outstanding . 212 97,753
Common stock, $2 par value: 400,000,000 shares authorized; 189,668,922 and 189,730,736
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395,338 379,461
Contributed capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,041 385,734
Net unrealized gain on investment securities available for sale. . . . . . . . . . . . . . . . . 8,187 38,242
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,808,749 2,445,810
Less: Employee stock ownership plan obligation, collateralized by 3,852,556 and 4,634,134 shares (62,196) (74,814)
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Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,370,331 3,272,186
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Total liabilities, minority interest and shareholders' equity. . . . . . . . . . . . . $41,231,375 $41,553,545
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THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
STATEMENTS OF INCOME
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
For the Years Ended December 31--Dollars in Thousands Except Share Data 1996 1995 1994
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INTEREST INCOME
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,656,886 $2,580,408 $2,164,320
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,206 375,692 387,465
Federal funds sold and securities purchased under agreements to resell . . . . . . . . 23,698 4,887 3,108
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Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,005,790 2,960,987 2,554,893
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INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924,331 993,046 761,511
Federal funds purchased and securities sold under agreements to repurchase . . . . . . 77,049 90,730 93,714
Other short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,449 57,154 5,719
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,941 78,323 60,464
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Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136,770 1,219,253 921,408
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Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,869,020 1,741,734 1,633,485
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,572 122,531 74,049
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Net interest income after provision for loan losses. . . . . . . . . . . . . 1,714,448 1,619,203 1,559,436
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NON-INTEREST INCOME
Service charges on deposit accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 237,779 225,966 227,573
Consumer finance income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,866 83,477 --
Trust income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,394 78,036 77,357
Credit card discounts and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,015 60,999 54,377
Mortgage banking income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,111 62,640 33,112
Brokerage income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,990 31,694 30,010
Other service charges and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,331 118,616 104,845
Securities transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,197 4,994 (13,086)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,811 52,601 28,412
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Total non-interest income. . . . . . . . . . . . . . . . . . . . . . . . . . 810,494 719,023 542,600
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NON-INTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829,939 758,930 648,658
Net occupancy expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,933 126,480 118,251
Furniture and equipment expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,696 144,461 138,546
SAIF assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,524 -- --
Other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472,896 488,761 458,776
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Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 1,616,988 1,518,632 1,364,231
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Net non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . 806,494 799,609 821,631
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EARNINGS
Income before income taxes and minority interest . . . . . . . . . . . . . . . . . . . 907,954 819,594 737,805
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341,082 286,293 249,834
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Net income before minority interest. . . . . . . . . . . . . . . . . . . . . 566,872 533,301 487,971
Minority interest, net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . (2,381) -- --
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Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 564,491 $ 533,301 $ 487,971
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EARNINGS PER COMMON SHARE
Restated for 2-for-1 stock split in September 1996
Primary: Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . $2.89 $2.65 $2.39
Average number of shares . . . . . . . . . . . . . . . . . . . . . . . 194,297,705 195,094,816 196,162,382
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . $2,168 $15,861 $18,200
Fully diluted: Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . $2.86 $2.56 $2.33
Average number of shares. . . . . . . . . . . . . . . . . . . . . . . 197,354,540 207,959,474 209,532,262
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THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
Contri- Net
For the Years Ended December 31-- Preferred Common buted Unrealized Retained ESOP
Dollars in Thousands Stock Stock Capital Gain (Loss) Earnings Obligation Total
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1994
Balance at January 1 . . . . . . . . . . . . . . . $215,351 $194,809 $775,719 $ 3,772 $1,786,561 $(102,121) $2,874,091
Adjustment for the effect of a 2-for-1 stock split 194,808 (194,808)
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Balance at January 1 restated. . . . . . . . . . . 215,351 389,617 580,911 3,772 1,786,561 (102,121) 2,874,091
Net income . . . . . . . . . . . . . . . . . . . . 487,971 487,971
Change in net unrealized gain (loss) on
investment securities available for sale. . . (30,770) (30,770)
Cash dividends declared:
Common ($.80 per share) . . . . . . . . . . . (157,321) (157,321)
Preferred . . . . . . . . . . . . . . . . . . (18,234) (18,234)
Issuances of common stock:
Stock purchase, option and
employee benefit plans. . . . . . . . . . . 4,996 42,625 13,898 61,519
Preferred stock conversions . . . . . . . . . (44) 18 26 --
Repurchases of common stock. . . . . . . . . . . . (7,700) (75,373) (83,073)
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1995
Balance at January 1 . . . . . . . . . . . . . . . 215,307 386,931 548,189 (26,998) 2,098,977 (88,223) 3,134,183
Net income . . . . . . . . . . . . . . . . . . . . 533,301 533,301
Change in net unrealized gain (loss) on
investment securities available for sale. . . 65,240 65,240
Cash dividends declared:
Common ($.91 per share) . . . . . . . . . . . (175,196) (175,196)
Preferred . . . . . . . . . . . . . . . . . . (15,890) (15,890)
Issuances of common stock:
Stock purchase, option and
employee benefit plans. . . . . . . . . . . 5,536 69,046 13,409 87,991
Preferred stock conversions . . . . . . . . . (117,554) 11,990 105,006 (558)
Acquisition . . . . . . . . . . . . . . . . . 1,328 2,398 4,618 8,344
Repurchases of common stock. . . . . . . . . . . . (26,324) (338,905) (365,229)
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1996
Balance at January 1 . . . . . . . . . . . . . . . 97,753 379,461 385,734 38,242 2,445,810 (74,814) 3,272,186
Net income . . . . . . . . . . . . . . . . . . . . 564,491 564,491
Change in net unrealized gain (loss) on
investment securities available for sale. . . (30,055) (30,055)
Cash dividends declared:
Common ($1.05 per share) . . . . . . . . . . (199,360) (199,360)
Preferred . . . . . . . . . . . . . . . . . . (2,192) (2,192)
Issuances of common stock:
Stock purchase, option and
employee benefit plans. . . . . . . . . . . 13,281 77,965 12,618 103,864
Preferred stock conversions . . . . . . . . . (97,541) 7,341 89,637 (563)
Employee benefit trust. . . . . . . . . . . . 16,000 (16,000) --
Repurchases of common stock. . . . . . . . . . . . (20,745) (317,295) (338,040)
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Balance at December 31, 1996 . . . . . . . . . . . $ 212 $395,338 $220,041 $ 8,187 $2,808,749 $ (62,196) $3,370,331
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THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
STATEMENTS OF CASH FLOWS
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
For the Years Ended December 31--Dollars in Thousands 1996 1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 564,491 $ 533,301 $ 487,971
Reconcilement of net income to net cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . 154,572 122,531 74,049
Losses (gains) from securities transactions . . . . . . . . . . . . . . . . (19,197) (4,994) 13,086
Gain on securitization and sale of loans. . . . . . . . . . . . . . . . . . (114,847) (64,670) --
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 251,057 234,667 131,813
Employee benefits funded by equity. . . . . . . . . . . . . . . . . . . . . 26,820 24,237 28,682
Deferred income tax provision . . . . . . . . . . . . . . . . . . . . . . . 13,976 6,571 50,975
Decrease (increase) in interest receivable. . . . . . . . . . . . . . . . . 3,763 (11,060) (66,633)
Increase (decrease) in interest payable . . . . . . . . . . . . . . . . . . (1,795) 45,953 37,245
Increase in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . (453,449) (189,870) (131,624)
Increase (decrease) in other liabilities. . . . . . . . . . . . . . . . . . 389,120 (43,179) 45,243
Originations of loans held for sale . . . . . . . . . . . . . . . . . . . . (5,511,965) (5,187,852) (862,817)
Proceeds from sales of loans held for sale. . . . . . . . . . . . . . . . . 5,382,378 4,593,009 555,905
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34,524) (77,652) (24,302)
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Net cash provided by (used for) operating activities . . . . . . . . . 650,400 (19,008) 339,593
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale. . . . . . . . . . . . . . (3,777,464) (1,866,067) (2,532,901)
Proceeds from sales of investment securities available for sale. . . . . . . . . 440,328 339,694 475,102
Proceeds from maturities of investment securities available for sale . . . . . . 3,464,204 2,042,733 1,308,423
Purchases of investment securities held to maturity. . . . . . . . . . . . . . . (2,932) (298,423) (3,569,914)
Proceeds from maturities of investment securities held to maturity . . . . . . . 74,954 2,267,517 4,419,600
Net increase in loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (576,078) (1,054,365) (2,230,534)
Proceeds from sale of bank card loans. . . . . . . . . . . . . . . . . . . . . . 760,804 -- --
Proceeds from sales of premises and equipment. . . . . . . . . . . . . . . . . . 28,778 39,831 42,422
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . (199,085) (186,825) (77,909)
Receipts (payments) related to dispositions and acquisitions, net of cash
disposed and acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,249 (452,200) 2,939,875
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Net cash provided by investing activities. . . . . . . . . . . . . . . 591,758 831,895 774,164
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CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand, NOW, savings and money market accounts . . . . . . . . . (442,254) (1,574,792) (731,521)
Net (decrease) increase in other time deposits . . . . . . . . . . . . . . . . . (88,425) 623,326 (97,642)
Net increase (decrease) in federal funds purchased and securities sold
under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . 366,170 (350,839) (471,327)
Issuances (repayments) of short-term notes . . . . . . . . . . . . . . . . . . . (425,000) 425,000 --
Net (decrease) increase in other short-term borrowings . . . . . . . . . . . . . (710,752) 106,376 187,942
Principal repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . (214,285) (187,589) (2,375)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . 250,000 500,000 96,927
Proceeds from issuance of company obligated mandatorily redeemable
securities of trusts holding solely parent debentures. . . . . . . . . . . 500,000 -- --
Issuances of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,481 63,196 32,837
Repurchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . (338,040) (365,229) (83,073)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (201,552) (191,086) (175,555)
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Net cash used for financing activities . . . . . . . . . . . . . . . . (1,227,657) (951,637) (1,243,787)
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Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . 14,501 (138,750) (130,030)
Cash and cash equivalents, January 1 . . . . . . . . . . . . . . . . . . . . . . 2,769,145 2,907,895 3,037,925
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Cash and cash equivalents, December 31 . . . . . . . . . . . . . . . . . . . . . $ 2,783,646 $ 2,769,145 $ 2,907,895
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FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994, INCOME TAXES OF $346
MILLION, $286 MILLION AND $193 MILLION AND INTEREST OF $1.1 BILLION, $1.2
BILLION AND $880 MILLION WERE PAID, RESPECTIVELY.
DURING 1996, THE COMPANY DISPOSED OF $559 MILLION OF NON-CASH ASSETS AND $55
MILLION OF LIABILITIES. DURING 1995, THE COMPANY ACQUIRED $1.1 BILLION OF NON-
CASH ASSETS AND $602 MILLION OF LIABILITIES. DURING 1994, THE COMPANY ACQUIRED
$513 MILLION IN NON-CASH ASSETS AND $3.5 BILLION OF LIABILITIES.
DURING 1996, 1995 AND 1994, $49 MILLION, $83 MILLION AND $64 MILLION OF LOANS
WERE TRANSFERRED TO REAL ESTATE HELD FOR SALE, RESPECTIVELY.
DURING 1995, $2.8 BILLION OF INVESTMENT SECURITIES HELD TO MATURITY WERE
TRANSFERRED TO INVESTMENT SECURITIES AVAILABLE FOR SALE (SEE NOTE C OF NOTES TO
FINANCIAL STATEMENTS).
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
IN SEPTEMBER, BARNETT COMPLETED A 2-FOR-1 STOCK SPLIT. ALL HISTORICAL DATA
USED IN THIS REPORT HAS BEEN RESTATED TO REFLECT THE SPLIT.
Barnett Banks, Inc. is a multi-bank holding company headquartered in
Jacksonville, Florida, providing financial services to consumers and businesses
through bank and non-bank subsidiaries. The principal bank, Barnett Bank, N.A.,
and its subsidiaries engage in retail financial services, commercial banking,
trust and investment management services. Indirect auto lending is carried out
in several southern states. Mortgage lending is done through retail and
wholesale offices nationwide. Other banking activities are concentrated in
Florida and southern Georgia. The principal non-bank subsidiary of the company
is EquiCredit Corporation, which engages in consumer finance nationwide.
A. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the
accounts of the company and its majority-owned subsidiaries, after eliminating
material intercompany balances and transactions. Equity investments in less than
majority-owned companies (20%-50% ownership interest) are generally accounted
for in accordance with the equity method of accounting and are reported in other
assets. The company's pro-rata share of earnings (losses) of these companies is
included in the related line item within non-interest income.
Assets held in an agency or fiduciary capacity by trust and investment
advisory subsidiaries are not assets of the company and, accordingly, are not
included in the consolidated balance sheet.
The accounting policies of Barnett and its subsidiaries conform with
generally accepted accounting principles and prevailing practices within the
financial services industry. Certain previously reported amounts have been
reclassified to conform to current presentation standards.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosed amount of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS Cash and cash equivalents includes cash and due
from banks, securities purchased under agreements to resell and federal funds
sold. Generally, federal funds are purchased and sold for one-day periods.
SECURITIES Securities are classified based on management's intent on the
date of purchase. The company has the positive intent and ability to hold
certain investment securities to maturity. These held-to-maturity securities are
reported at amortized cost. Other securities are classified as available for
sale and carried at fair value with net unrealized gains and losses included in
shareholders' equity on a net of tax basis. Realized gains and losses from
security sales or impairment are recognized using the specific identification
method. Interest and dividends on securities, including amortization of premiums
and accretion of discounts, are included in interest income.
LOANS Loans and direct financing leases are generally reported at the
principal amount outstanding (including lease residuals), net of unearned
income. Loans held for sale are valued at the lower of cost or fair value. Non-
refundable loan fees and certain direct loan origination costs are capitalized
and recognized as a yield adjustment over the lives of the loans.
Commercial and commercial real estate loans are generally placed on
non-accrual status when the collectibility of interest or principal is
uncertain. Residential mortgages four payments in arrears are classified as
non-accrual in conformance with predominant mortgage industry practice. When a
loan is placed on non-accrual status, interest accruals cease and uncollected
interest is reversed and charged against current income. Income recognized on
installment loans and credit card advances is discontinued and the loans are
charged-off generally after a delinquency period of 120 and 180 days,
respectively.
ALLOWANCE FOR LOAN LOSSES The financial statements include an allowance for
estimated losses on loans based on past loss experience and an evaluation of
potential losses in the current loan portfolio.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs, net of recoveries. Management's periodic evaluation of
the adequacy of the allowance is based on the company's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current economic conditions.
The company defines impaired loans as all non-performing loans except
residential mortgages and small business loans. The allowance for loan losses
related to impaired loans is determined by comparing the recorded investment in
the loan to the present value of expected future cash flows from the loan or to
the fair value of the underlying collateral.
PREMISES AND EQUIPMENT Premises and equipment, including leases meeting
criteria for capitalization, are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed primarily on a
straight-line basis over the estimated useful life or lease term of each type of
asset.
Long-lived assets are evaluated regularly for other-than-temporary
impairment. If circumstances suggest that their value may be impaired and the
writedown would be material, an assessment of recoverability is performed prior
to any writedown of the asset.
INTANGIBLE ASSETS Intangible assets consist primarily of goodwill and core
deposit intangibles. These intangible assets are generally being amortized on a
straight-line basis over 10 to 25 years.
Periodically, the company reviews its intangible assets for events or
changes in circumstances that may indicate that the carrying amounts of the
assets are not recoverable.
REAL ESTATE HELD FOR SALE Real estate held for sale includes properties
acquired through, or in lieu of, loan foreclosure and operating premises no
longer intended for business operations. Valuations are performed periodically
and the real estate is carried at the lower of cost or appraised value minus
estimated costs to sell. Credit losses arising at the time of foreclosure are
charged against the allowance for loan losses. Any additional declines are
charged to other expense and recorded in a valuation reserve on an asset by
asset basis. No depreciation is recorded on real estate held for sale.
INCOME TAXES The income tax provision consists of two components: current
and deferred. Current income tax provision is the amount of income taxes payable
for the current year. Deferred income tax provision or benefit is the change
during the year in the company's deferred tax assets and liabilities. Deferred
income tax assets and liabilities reflect the differences between the financial
statement and tax values of assets and liabilities.
The company and its subsidiaries, where eligible, file consolidated federal
and state income tax returns. Under a tax-sharing arrangement, income tax
charges or credits are generally allocated to the company and each subsidiary on
the basis of their respective taxable income or loss included in the
consolidated income tax returns.
DERIVATIVE FINANCIAL INSTRUMENTS The company uses interest rate swaps and
floors to manage its interest rate sensitivity. The company accounts for these
instruments on an accrual basis if the instrument can be demonstrated to
effectively change the cash flows of a designated asset or liability and the
designated asset or liability exposes the company to interest rate risk.
Amounts to be paid or received under interest rate swaps and floors are
recognized as interest income or expense of the related asset or liability.
Gains and losses on early terminations of interest rate swaps and floors are
deferred and amortized as an adjustment to the yield of the related asset or
liability over the shorter of the remaining contract life or the maturity of the
related asset or liability. If the related asset or liability is sold, the
derivative financial instrument is marked to market and the resulting gain or
loss is recognized in income in the same period.
Interest rate swaps and floors that do not meet this criteria would be
carried at market value, and changes in market value would be recognized in
income.
The company acts as an intermediary in arranging interest rate swap
transactions for customers. These are separate agreements that have offsetting
payment streams and the same maturity, repricing dates and notional amounts. Net
revenue related to these agreements is included in other income.
CONSUMER FINANCE INCOME Consumer finance income includes gains on the
securitization and sale of home equity secured installment loans and servicing
income on loans securitized. The gains on sales of such loans include the
present value of servicing revenues in excess of a normal servicing fee over the
expected average life of the loans, discounted at a market rate at the time of
sale and adjusted for projected prepayments and expected foreclosure expenses. A
corresponding asset, capitalized excess servicing income, is recorded at the
time of sale and is included in other assets.
EARNINGS PER COMMON SHARE Primary earnings per common share is computed
from net income after preferred stock dividends and is based on the
weighted-average number of shares of common stock outstanding and common stock
equivalents assumed outstanding during the year.
Fully diluted shares outstanding includes the maximum dilutive effect of
stock issuable upon conversion of convertible preferred stock and exercise of
common stock options.
B. ALLIANCES AND ACQUISITIONS
ALLIANCES In October 1996, the company entered into an agreement with
Household Credit Services, Inc. to form a strategic alliance to manage and build
Barnett's credit card business. The company sold $776 million of non-core credit
card outstandings, less related reserves of $31 million, to Household. In May
1996, the company completed the sale of its mortgage servicing operation and
other assets to HomeSide, Inc., a mortgage servicing venture in which the
company has an approximate one-third interest. The sale included $136 million in
goodwill and $211 million in purchased mortgage servicing rights. The company
invested $118 million into the venture. No significant gains or losses were
incurred related to these transactions.
COMPLETED ACQUISITIONS In October 1995, the company acquired Community Bank
of the Islands for 663,988 shares of Barnett common stock. This acquisition was
accounted for as a pooling of interests. Prior periods have not been restated as
the acquisition was not material.
In February 1995, the company acquired BancPLUS Financial Corporation, a
national full service mortgage banking company, for $162 million. The primary
assets of BancPLUS were mortgage loans held for sale and purchased mortgage
servicing rights of $187 million. The purchase price exceeded net assets
acquired by $113 million.
In January 1995, the company acquired EquiCredit Corporation, a national
consumer finance company, for $332 million. EquiCredit specializes in
originating, securitizing and servicing consumer loans secured by first or
second mortgages. The purchase price exceeded net assets acquired by $201
million.
Unless otherwise noted, all of the above acquisitions were accounted for as
purchases. Results are included from the date acquired.
PENDING ACQUISITION In January 1997, the company entered into a definitive
agreement to purchase Oxford Resources Corp., the nation's largest independent
automobile leasing company for approximately 14 million shares of Barnett stock.
The merger is expected to be accounted for as a purchase and close in the second
quarter of 1997. Prior to this transaction, Barnett purchased a significant
amount of its own shares.
NOTES TO FINANCIAL STATEMENTS
C. INVESTMENT SECURITIES
Available For Sale
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------- --------------------------------------------------------
December 31-- AMORTIZED UNREALIZED UNREALIZED FAIR Amortized Unrealized Unrealized Fair Fair
Dollars in Thousands COST GROSS GAIN GROSS LOSS VALUE Cost Gross Gain Gross Loss Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities . . $2,113,246 $12,352 $1,991 $2,123,607 $2,219,790 $35,283 $ 1,007 $2,254,066 $1,870,007
Obligations of states and
political subdivisions. . 26,275 876 53 27,098 11,998 634 24 12,608 10,956
Other U.S. Government
agencies and corporations 243,659 1,328 1,295 243,692 398,351 3,149 3,881 397,619 168,616
Mortgage-backed securities(1). 1,841,235 3,380 3,961 1,840,654 1,562,746 9,916 6,417 1,566,245 231,870
Other securities . . . . . . 793,889 2,844 661 796,072 880,294 23,261 1,052 902,503 457,151
- ------------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . $5,018,304 $20,780 $7,961 $5,031,123 $5,073,179 $72,243 $12,381 $5,133,041 $2,738,600
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Held To Maturity
-----------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------- --------------------------------------------------------
December 31-- AMORTIZED UNREALIZED UNREALIZED Fair Amortized Unrealized Unrealized Fair Amortized
Dollars in Thousands COST GROSS GAIN GROSS LOSS Value Cost Gross Gain Gross Loss Value Cost
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities . . $ 997 $ 10 -- $ 1,007 -- -- -- -- $1,269,110
Obligations of states and
political subdivisions. . 128,598 10,410 $16 138,992 $200,960 $15,122 $16 $216,066 639,265
Other U.S. Government
agencies and corporations -- -- -- -- -- -- -- -- 254,637
Mortgage-backed securities(1) -- -- -- -- -- -- -- -- -- 2,164,292
Other securities . . . . . . -- -- -- -- -- -- -- -- 617,504
- ------------------------------------------------------------------------------------------------------------------------------------
Total. . . . . . . . . . $129,595 $10,420 $16 $139,999 $200,960 $15,122 $16 $216,066 $4,944,808
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(1) BALANCE IS COMPRISED SUBSTANTIALLY OF GOVERNMENT-GUARANTEED MORTGAGE
SECURITIES.
Total Investment Securities
-----------------------------------
Taxable Non-taxable
Dollars in Thousands Interest Income Interest Income
- --------------------------------------------------------------------------------
1996 . . . . . . . . . . . . . . . $311,253 $13,953
1995 . . . . . . . . . . . . . . . 339,966 35,726
1994 . . . . . . . . . . . . . . . 326,026 61,439
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On December 7, 1995, the company transferred $2.8 billion of investment
securities held to maturity to available for sale. The fair value of these
instruments exceeded cost by $7.5 million. TABLE 3, "Maturity of Investment
Securities," on page 23 of the MANAGEMENT DISCUSSION shows investment securities
by maturity.
Gross gains on sales of investment securities available for sale in 1996,
1995 and 1994 were $19.4 million, $6.3 million and $.7 million, respectively,
and gross losses were $.2 million, $1.3 million and $12.8 million, respectively.
Securities with an amortized cost of approximately $3.1 billion on December
31, 1996 were pledged to secure public deposits and for other purposes.
D. LOANS
December 31--Dollars in Thousands
Net of Unearned Income 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural . . . . . . . . . . . . $ 5,310,849 $ 4,693,010 $ 4,445,841 $ 4,086,754 $ 4,230,765
Real estate construction . . . . . . . 818,337 912,359 929,229 853,602 1,265,999
Commercial mortgages . . . . . . . . . 1,849,496 2,181,327 2,379,309 2,624,555 3,201,363
Residential mortgages. . . . . . . . . 9,785,585 10,891,412 10,555,563 9,449,457 8,946,836
Installment. . . . . . . . . . . . . . 10,590,067 9,264,037 8,116,982 7,107,845 6,636,917
Bank card. . . . . . . . . . . . . . . 1,100,614 1,783,420 1,375,292 1,127,784 1,057,599
Credit lines . . . . . . . . . . . . . 797,576 760,434 718,937 679,789 711,362
- ----------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $ 30,252,524 $ 30,485,999 $ 28,521,153 $ 25,929,786 $ 26,050,841
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
E. ALLOWANCES FOR LOSSES
Dollars in Thousands 1996 1995 1994
- -----------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
Beginning balance. . . . . $ 505,148 $ 501,447 $ 521,827
Loans charged off. . . . . (209,099) (172,879) (148,450)
Recoveries . . . . . . . . 54,721 50,889 56,135
- -----------------------------------------------------------------------------
Net charge-offs. . . . . . (154,378) (121,990) (92,315)
Provision expense. . . . . 154,572 122,531 74,049
Sales and other, net . . . (28,633) 3,160 (2,114)
- -----------------------------------------------------------------------------
Ending balance . . . $ 476,709 $ 505,148 $ 501,447
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
The company recognizes income on impaired loans primarily on the cash
basis. Any change in the present value of expected cash flows is recognized
through the allowance for loan losses.
IMPAIRED LOANS
December 31 -Dollars in Thousands 1996 1995
- ------------------------------------------------------------------------
Impaired loans with an allowance . . . . . $ 42,987 $ 50,021
Impaired loans without an allowance(1) . . 15,647 28,959
- ------------------------------------------------------------------------
Total impaired loans. . . . . . . . . $ 58,634 $ 78,980
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Allowance for impaired loans . . . . . . . $ 7,463 $ 10,089
Average balance of impaired loans
during the year ended December 31. . . . 72,519 117,277
Interest income recognized on impaired
loans during the year ended December 31 5,876 7,083
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(1) IMPAIRED LOANS DETERMINED TO BE CARRIED AT OR BELOW FAIR VALUE OF THE
UNDERLYING COLLATERAL, AND AS SUCH, DO NOT REQUIRE AN ALLOWANCE.
The company recognizes any estimated potential decline in the value of real
estate held for sale between appraisal dates on an asset-by-asset basis through
periodic additions to the allowance for losses on real estate held for sale.
Writedowns are taken and charged against this reserve when the related real
estate is sold at a loss.
Dollars in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
ALLOWANCE FOR LOSSES ON
REAL ESTATE HELD FOR SALE
Beginning balance. . . . . . . $ 25,957 $ 40,778 $ 65,165
Provision expense. . . . . . . 3,616 2,145 5,149
Dispositions, net. . . . . . . (10,942) (16,966) (29,536)
- ------------------------------------------------------------------------------
Ending balance. . . . . . $ 18,631 $ 25,957 $ 40,778
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
F. NON-PERFORMING ASSETS
Real
Non- Reduced- Estate
December 31-- Accrual Rate Held
Dollars in Thousands Loans Loans for Sale Total
- --------------------------------------------------------------------------------
1996
Recorded investment. . . . . . . $185,106 $5,319 $43,555 $233,980
Interest at contracted rates(1). 18,537 517 -- 19,054
Interest recorded as income. . . 6,523 387 -- 6,910
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1995
Recorded investment. . . . . . . $167,821 $2,447 $67,630 $237,898
Interest at contracted rates(1). 16,612 200 -- 16,812
Interest recorded as income. . . 5,817 220 -- 6,037
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) INTEREST INCOME THAT WOULD HAVE BEEN RECORDED IF THE LOANS HAD BEEN CURRENT
AND IN ACCORDANCE WITH THEIR ORIGINAL TERMS.
G. PREMISES AND EQUIPMENT
December 31--Dollars in Thousands 1996 1995
- ----------------------------------------------------------------------------
Land . . . . . . . . . . . . . . . . . . . . $ 212,265 $ 205,597
Buildings and leasehold improvements . . . . 1,023,062 1,003,044
Furniture and equipment. . . . . . . . . . . 562,211 494,152
Capitalized leases . . . . . . . . . . . . . 27,320 28,274
Construction in progress and real estate
for future expansion . . . . . . . . . . . 74,577 67,563
- ----------------------------------------------------------------------------
Total cost. . . . . . . . . . . . . . . 1,899,435 1,798,630
Less: Accumulated depreciation and
amortization . . . . . . . . . . . . . . . (763,791) (720,573)
- ----------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . $ 1,135,644 $1,078,057
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
The company has operating leases for equipment and facilities. Future
minimum rental payments required under operating leases having initial or
remaining non-cancelable lease terms in excess of one year at December 31, 1996
were:
Dollars in Thousands Amount
- ------------------------------------------------------------------------------
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,481
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,175
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,323
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,438
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,789
Later years. . . . . . . . . . . . . . . . . . . . . . . . 43,782
- ------------------------------------------------------------------------------
Total minimum payments required . . . . . . . . . . . $217,988
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
H. SHORT-TERM BORROWINGS
Securities
Federal Sold Under Other
Funds Agreements Commercial Short-term
December 31--Dollars in Thousands Purchased to Repurchase Paper Borrowings
- ------------------------------------------------------------------------------------------------------------
1996
Balance. . . . . . . . . . . . . . . . . . . . $474,563 $ 791,274 $ 42,297 $ 1,233
Maximum indebtedness at any month end. . . . . 939,830 1,550,351 1,029,753 316,317
Daily average indebtedness outstanding . . . . 473,667 1,034,877 613,370 110,320
Average rate paid for the year . . . . . . . . 5.39% 4.98% 5.62% 6.35%
Average rate on period-end borrowings. . . . . 6.10 5.38 5.22 4.50
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
1995
Balance. . . . . . . . . . . . . . . . . . . . $ 148,711 $ 750,956 $669,766 $509,516
Maximum indebtedness at any month end. . . . . 1,422,988 1,118,335 775,591 882,567
Daily average indebtedness outstanding . . . . 759,580 824,984 418,455 504,327
Average rate paid for the year . . . . . . . . 5.99% 5.49% 6.12% 6.26%
Average rate on period-end borrowings. . . . . 5.79 5.20 5.87 5.82
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
1994
Balance. . . . . . . . . . . . . . . . . . . . $ 119,854 $1,130,652 $ 6,199 $397,199
Maximum indebtedness at any month end. . . . . 1,469,131 2,191,536 18,551 397,199
Daily average indebtedness outstanding . . . . 782,577 1,409,128 8,295 116,395
Average rate paid for the year . . . . . . . . 4.53% 4.13% 3.81% 4.64%
Average rate on period-end borrowings. . . . . 5.82 5.41 5.80 5.62
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
The company's commercial paper is backed by a $760 million revolving credit
agreement with several financial institutions. At December 31, 1996, no
borrowings were made under this agreement, which expires in April, 1999.
I. LONG-TERM DEBT
December 31--Dollars in Thousands 1996 1995
- ------------------------------------------------------------------------------
PARENT COMPANY:
7.75% Sinking Fund Debentures, due 1997. . . . $ 9,500 $ 10,200
Less: Face value of debentures repurchased and
held for future retirements. . . . . . . . . (72) (772)
- ------------------------------------------------------------------------------
Total outstanding. . . . . . . . . . . . . . 9,428 9,428
8.50% Subordinated Capital Notes, due 1999 . . 200,000 200,000
Medium-term notes, due in varying maturities
through 2003, with interest from a
floating 5.55% to a fixed 9.83%. . . . . . . 401,500 551,150
9.875% Subordinated Capital Notes, due 2001. . 100,000 100,000
10.875% Subordinated Capital Notes, due 2003 . 55,000 55,000
6.90% Subordinated Capital Notes, due 2005 . . 150,000 150,000
8.50% Subordinated Capital Notes, due 2007 . . 100,000 100,000
Senior Notes, with interest from a floating
5.54%, due 1998. . . . . . . . . . . . . . . 200,000 --
SUBSIDIARIES:
Mortgage Collateralized Bonds, due 1996, with
interest from a floating 6.348%. . . . . . . -- 12,886
Capitalized lease obligations. . . . . . . . . 10,601 12,350
- ------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . $1,226,529 $1,190,814
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The contractual maturities of long-term debt for the next five years are
$159.4 million for 1997, $451.0 million for 1998, $200.0 million for 1999 and
$100.0 million for 2001. There are no payments due in 2000.
J. MINORITY INTEREST
On November 27, 1996 and December 2, 1996, the company issued $300 million
and $200 million, respectively, of mandatorily redeemable company-obligated
securities out of two grantor trusts. The two trusts hold debt instruments of
the parent company purchased with the proceeds of the securities issuance.
Interest from the debt securities of the parent, at the terms outlined below, is
used to fund the preferred dividends of the trusts.
December 31--Dollars in Thousands 1996
- -----------------------------------------------------------------------------
8.06% Junior Subordinated Debentures, due 2026 . . . . . . $300,000
7.95% Junior Subordinated Debentures, due 2026 . . . . . . 200,000
- -----------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $500,000
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Distributions on the securities are cumulative and are payable at the same
rate as the debt instruments above. These debentures are redeemable beginning
December 1, 2006 at 104% and at decreasing prices thereafter to 100% on or after
December 1, 2016. The preferred securities are subject to mandatory redemption,
in whole or in part, upon the repayment of the debentures. The securities are
considered to be Tier 1 capital for regulatory purposes.
K. SHAREHOLDERS' EQUITY
In April 1996, the company called for redemption its Series A $4.50
Cumulative Convertible Preferred Stock. All of those shares were converted into
common shares or redeemed.
On December 31, 1996, the company had 8,489 shares of Series B $2.50
Cumulative Convertible Preferred Stock outstanding, each convertible into 5.1976
shares of common stock. The stock's earliest redemption date was December 7,
1991 and can be redeemed at the holder's option.
On December 31, 1996, a total of 27,172,388 shares of common stock were
reserved for future issuance in connection with the shareholder investment,
employee benefit and long-term incentive plans and conversions of preferred
stock.
During 1996, 8,000,000 common shares were issued to an employee benefit
trust. These shares are not considered to be outstanding for accounting
purposes.
In November 1989, the company incorporated employee stock ownership plan
(ESOP) provisions into its existing 401(k) employee benefit plan. The ESOP
acquired $141 million of the company's common stock using the proceeds of a loan
from the company. The terms of the loan include equal monthly payments of
principal and interest from September 1990 through September 2015. Interest is
at 9.75% and pre-payments of principal are allowed. The loan is generally being
repaid from contributions to the plan by the company and dividends on company
stock held by the ESOP. The loan to the ESOP is classified as a reduction in
shareholders' equity.
Shares held by the ESOP are allocated to plan participants as the loan is
repaid. The company recognizes expense based on the number of shares allocated
to participants (the shares allocated method).
The ESOP shares as of December 31 were as follows:
1996 1995
- --------------------------------------------------------------------------
Released and allocated . . . . . . . . 4,904,644 4,123,066
Unallocated. . . . . . . . . . . . . . 3,852,556 4,634,134
- --------------------------------------------------------------------------
Total ESOP shares. . . . . . . . . . . 8,757,200 8,757,200
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
L. STOCK-BASED COMPENSATION PLANS
The company has long-term incentive plans that provide stock-based awards,
including stock options and restricted stock, to certain officers. The current
terms of the plans allow for a maximum grant of 15,000,000 shares. All options
are granted at current market value for a term of 10 years and, subject to
limited exceptions, are not exercisable before the third anniversary of the date
of grant. At December 31, 1996, there were 4,550,780 shares available for future
option grants.
Options outstanding and the activity for 1996 and 1995 are presented below:
Number Option
1996 of Shares Price
- -----------------------------------------------------------------------------
Beginning balance. . . . . . . . . . 8,686,244 $ 9.19 - $29.13
Granted . . . . . . . . . . . . . . 2,324,942 29.69 - 33.00
Exercised . . . . . . . . . . . . . (1,664,395) 9.19 - 30.69
Cancelled . . . . . . . . . . . . . (280,648) 11.88 - 30.69
- -----------------------------------------------------------------------------
Ending balance . . . . . . . . 9,066,143 $ 9.19 - $33.00
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Options which became exercisable
during the year. . . . . . . . . . 1,315,010 $ 11.88 - $30.69
Options exercisable at December 31 . 3,187,095 9.19 - 30.69
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Number Option
1995 of Shares Price
- -----------------------------------------------------------------------------
Beginning balance. . . . . . . . . . 8,404,544 $ 6.65 - $23.06
Granted . . . . . . . . . . . . . . 1,723,972 21.91 - 29.13
Exercised . . . . . . . . . . . . . (1,271,748) 6.65 - 21.38
Cancelled . . . . . . . . . . . . . (170,524) 9.19 - 23.06
- -----------------------------------------------------------------------------
Ending balance . . . . . . . . 8,686,244 $ 9.19 - $29.13
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Options which became exercisable
during the year. . . . . . . . . . . 1,038,342 $17.00 - $21.31
Options exercisable at December 31 . 3,538,234 9.19 - 21.31
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
The company has granted both time-based and performance-based restricted
stock shares to certain key employees. Time-based awards provide that
restrictions lapse beginning on the third anniversary of the date of the grant.
Performance-based awards require that specific performance criteria be met in
order for restrictions to lapse. As of December 31, 1996, 335,000 grants (of
which 171,500 were time-based and 163,500 were performance-based) were
outstanding with an average grant price of $21. During January 1997,
restrictions will lapse on all currently outstanding performance-based awards
and approximately one-third of the outstanding time-based awards.
NOTES TO FINANCIAL STATEMENTS
The company adopted the disclosure-only option under Statements of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-based
Compensation," as of December 31, 1995. If the accounting provisions of the new
Statement had been adopted as of the beginning of 1995, the effect on 1995 and
1996 net earnings would have been immaterial. Further, based on current and
anticipated use of stock options, it is not envisioned that the impact of the
Statement's accounting provisions would be material in any future period.
The following table summarizes information about stock options outstanding
at December 31, 1996:
Outstanding Exercisable
------------------------------- ---------------------
Average Average
Exercise Average Exercise Exercise
Price Range Shares Life(1) Price Shares Price
- ------------------------------------------------------------------------------
$ 0 - $19.19 2,789,481 3.48 $15.63 2,572,319 $15.52
20.44 - 29.69 4,268,082 7.40 21.76 607,276 21.44
30.69 - 33.00 2,008,580 9.15 30.74 7,500 30.69
- ------------------------------------------------------------------------------
Total 9,066,143 6.58 $21.87 3,187,095 $16.68
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) AVERAGE CONTRACTUAL LIFE REMAINING IN YEARS.
M. RETIREMENT AND BENEFIT PLANS
The company and its subsidiaries participate in a non-contributory pension
plan covering substantially all employees who meet certain age and length of
service requirements. Benefits under the plan are based on an employee's years
of service and compensation. The company's funding policy is to contribute an
amount between the minimum required under the Employee Retirement Income
Security Act of 1974 and the maximum amount deductible for federal income tax
purposes.
The components of 1996, 1995 and 1994 net periodic pension cost for the
plan are shown below:
Dollars in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Service cost for benefits earned
during the year . . . . . . . . . . $ 15,910 $ 11,740 $ 13,398
Interest cost on projected benefit
obligations . . . . . . . . . . . . 27,599 24,700 20,539
Actual return on plan assets . . . . . (54,497) (71,806) 8,971
Net amortization and deferral. . . . . 19,402 39,527 (38,181)
- ------------------------------------------------------------------------------
Net periodic pension cost
and pension expense . . . . . . $ 8,414 $ 4,161 $ 4,727
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The following table sets forth the funded status of the pension plan and
amounts recognized in the STATEMENTS OF FINANCIAL CONDITION:
December 31--Dollars in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Actuarial present value:
Accumulated
benefit obligation(1) . . . . . . $(290,819) $(305,296) $(226,145)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Projected benefit obligation. . . . $(350,103) $(369,419) $(272,309)
Plan assets at fair value. . . . . . . 428,908 362,143 276,003
- ------------------------------------------------------------------------------
Plan assets in excess
of (less than) projected benefit
obligation. . . . . . . . . . . . . 78,805 (7,276) 3,694
Unrecognized net loss. . . . . . . . . 9,534 74,850 41,168
Unrecognized prior service cost. . . . 2,032 2,165 2,297
Unrecognized net asset at adoption
of SFAS No. 87, net of
amortization. . . . . . . . . . . . (18,834) (22,646) (26,458)
- ------------------------------------------------------------------------------
Prepaid pension cost. . . . . . . $ 71,537 $ 47,093 $ 20,701
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) Includes vested amounts of $276,035, $287,975, and $213,237 in 1996, 1995
and 1994, respectively.
At December 31, 1996, the plan's assets consisted primarily of investments
in pooled-equity, fixed-income and real estate funds.
The company also maintains a non-qualified supplemental retirement plan for
certain officers of the company. The plan, which is unfunded, provides benefits
in excess of that permitted to be paid by the company's pension plan under the
provisions of the tax law. Supplemental retirement benefits are based on the
participant's compensation during the last two years of employment. Plan cost
was $4.6 million for 1996, $4.2 million for 1995 and $3.8 million for 1994. At
December 31, 1996, 1995 and 1994, the projected benefit obligation was $29.7
million, $31.2 million and $25.7 million, respectively. The accrued liability
for the plan at December 31, 1996, 1995 and 1994 was $22.4 million, $19.2
million and $16.2 million, respectively. Assumptions used to determine the
actuarial present value of benefit obligations were as follows:
December 31 1996 1995 1994
- -------------------------------------------------------------------------------
Weighted-average discount rate . . . . 7.75% 7.25% 8.88%
Increase in compensation levels. . . . 4.00 4.00 4.50
Expected long-term return on assets. . 9.50 9.50 9.00
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The company also has a multi-employer 401(k) defined contribution plan in
which substantially all employees are eligible to participate. The company makes
matching contributions to the plan, up to a maximum of 6% of employees'
compensation. The company contributed $24.7 million, $20.2 million and $16.3
million in 1996, 1995 and 1994, respectively.
The company also provides health care and life insurance benefits to
employees who retire from the company at age 55 or later and meet certain
minimum service requirements. The post-retirement health care plan is
contributory, with retirees' contributions adjusted annually to reflect certain
cost-sharing provisions of the plan. The post-retirement life insurance plan is
non-contributory.
The components of net periodic post-retirement benefit cost are shown below:
Dollars in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Service cost . . . . . . . . . . . . . $ 942 $ 734 $1,026
Interest cost. . . . . . . . . . . . . 2,494 2,683 2,782
Actual return on plan assets . . . . . (1,843) (1,563) 52
Net amortization and deferral. . . . . 735 883 (253)
- ------------------------------------------------------------------------------
Net periodic post-retirement
benefit cost . . . . . . . . . . $ 2,328 $2,737 $3,607
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The following table sets forth the funded status of the post-retirement plans
and amounts recognized in the STATEMENTS OF FINANCIAL CONDITION:
Dollars in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation:
Retirees. . . . . . . . . . . . . . $(22,231) $(24,386) $(22,372)
Fully eligible active plan
participants. . . . . . . . . . . (411) (509) (306)
Other active plan participants. . . (10,489) (11,553) (7,608)
- ------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . (33,131) (36,448) (30,286)
Plan assets at fair value. . . . . . . 20,897 11,051 5,206
- ------------------------------------------------------------------------------
Accumulated post-retirement benefit
obligation in excess of plan assets (12,234) (25,397) (25,080)
Unrecognized prior service cost. . . . (567) (609) 359
Unrecognized net (gain) loss . . . . . (716) 3,536 (1,797)
- ------------------------------------------------------------------------------
Accrued post-retirement benefit cost . $(13,517) $(22,470) $(26,518)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
A 9.0% increase in health care costs was assumed for 1996, gradually
decreasing to 5.0% by the year 2003 and remaining constant thereafter.
Increasing the assumed health care costs by one percentage point would increase
the accumulated post-retirement benefit obligation at December 31, 1996 by $1.0
million and increase the aggregate of the service and interest cost components
of net periodic post-retirement benefit cost for 1996 by $100,000. The plan's
assets at December 31, 1996 consisted primarily of investments in pooled-equity
and fixed-income funds.
N. OTHER EXPENSE
Dollars in Thousands 1996 1995 1994
- ------------------------------------------------------------------------------
Advertising and marketing. . . . . . . $ 47,952 $ 33,519 $ 29,301
Amortization of intangibles. . . . . . 50,184 52,794 36,576
Communications . . . . . . . . . . . . 46,328 40,986 33,745
Expenses and provision
on real estate held for sale . . . . 12,722 12,112 16,072
FDIC assessments . . . . . . . . . . . 7,779 43,227 71,409
Outside computer services. . . . . . . 38,086 31,978 28,659
Postage. . . . . . . . . . . . . . . . 26,802 26,326 23,177
Stationery, printing, supplies . . . . 24,877 20,397 15,767
Insurance, taxes and other . . . . . . 218,166 227,422 204,070
- ------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $ 472,896 $ 488,761 $ 458,776
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
O. FEDERAL AND STATE INCOME TAXES
The provisions for income taxes reflected in the STATEMENTS OF INCOME are
detailed below:
Dollars in Thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Current tax provision:
Federal. . . . . . . . . . . . . . . . . . $285,982 $250,797 $178,562
State. . . . . . . . . . . . . . . . . . . 41,124 28,925 20,297
- --------------------------------------------------------------------------------
Total current. . . . . . . . . . . . . . 327,106 279,722 198,859
- --------------------------------------------------------------------------------
Deferred tax provision:
Federal. . . . . . . . . . . . . . . . . . 13,632 6,184 47,943
State. . . . . . . . . . . . . . . . . . . 344 387 3,032
- --------------------------------------------------------------------------------
Total deferred . . . . . . . . . . . . . 13,976 6,571 50,975
- --------------------------------------------------------------------------------
Total income tax provision . . . . . . . $341,082 $286,293 $249,834
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The difference between federal income tax computed at the statutory rate
and the actual tax provision is shown below:
Dollars in Thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Income before taxes. . . . . . . . . . . . . $907,954 $819,594 $737,805
- --------------------------------------------------------------------------------
Tax at the statutory rate. . . . . . . . . . 317,784 286,858 258,232
- --------------------------------------------------------------------------------
Increase (decrease) in taxes:
Tax-exempt interest and dividends. . . . . (14,623) (20,982) (28,778)
State income tax, net of federal benefit . 27,039 18,211 15,163
Disallowed interest expense. . . . . . . . 2,053 2,743 2,610
Non-deductible expenses. . . . . . . . . . 11,282 11,679 6,636
Other. . . . . . . . . . . . . . . . . . . (2,453) (12,216) (4,029)
- --------------------------------------------------------------------------------
Total increase (decrease) in taxes . . . 23,298 (565) (8,398)
- --------------------------------------------------------------------------------
Total income tax provision . . . . . . . $341,082 $286,293 $249,834
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective tax rate . . . . . . . . . . . 37.6% 34.9% 33.9%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Deferred income taxes reflect the impact of differences between the
financial statement and tax bases of assets and liabilities and available tax
carryforwards.
The tax effect of temporary differences and tax carryforwards which create
deferred tax assets and liabilities are detailed below:
December 31--Dollars in Thousands 1996 1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Loan loss reserve. . . . . . . . . . . . . $172,431 $177,345 $173,314
Writedown of real estate held for sale . . 28,052 28,737 22,654
Employee benefits. . . . . . . . . . . . . 28,985 23,206 16,142
Loan fees and expenses . . . . . . . . . . -- -- 7,433
Capital loss carryforward. . . . . . . . . -- -- 3,756
SFAS No. 115 equity adjustment . . . . . . -- -- 17,710
Other. . . . . . . . . . . . . . . . . . . 23,113 38,259 28,358
- --------------------------------------------------------------------------------
Gross deferred tax assets. . . . . . . . 252,581 267,547 269,367
Valuation allowance. . . . . . . . . . . . . -- (3,591) (4,087)
- --------------------------------------------------------------------------------
Gross deferred tax assets net
of valuation allowance. . . . . . . . . 252,581 263,956 265,280
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . 44,157 43,793 41,841
Leasing. . . . . . . . . . . . . . . . . . 20,408 9,055 7,355
Intangibles. . . . . . . . . . . . . . . . 7,411 6,919 17,205
Interest income. . . . . . . . . . . . . . 2,585 7,559 12,535
Loan servicing . . . . . . . . . . . . . . 14,428 52,581 13,938
Securitization . . . . . . . . . . . . . . 38,670 40,918 5,563
SFAS No. 115 equity adjustment . . . . . . 4,632 21,620 --
Other. . . . . . . . . . . . . . . . . . . 22,174 22,464 35,206
- --------------------------------------------------------------------------------
Gross deferred tax liabilities . . . . . 154,465 204,909 133,643
- --------------------------------------------------------------------------------
Net deferred tax asset . . . . . . . . . $ 98,116 $ 59,047 $131,637
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The net deferred tax asset increased $39.1 million during 1996. This
increase was due to fair value adjustments recorded in equity under SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities," of
$17.0 million and the sale of Barnett Mortgage Company, $36.1 million, partially
offset by provisions for deferred taxes of $14.0 million.
Prior to 1996, the Internal Revenue Code permitted qualifying savings and
loan institutions a bad debt deduction under the reserve method which was more
favorable than the bad debt deduction method allowed other taxpayers. The
subsidiaries formerly known as Barnett Bank of Pinellas County and Barnett Bank
of Southwest Florida were treated as qualified savings and loan institutions
until they merged into Barnett Bank, N.A. on September 28, 1996. Under
provisions of the Small Business Protection Act of 1996, the bad debt reserve
balances at these institutions on December 31, 1987, are not subject to federal
income taxes. Retained earnings contain approximately $53 million representing
such bad debt reserves for which no deferred income taxes have been recorded.
P. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the company utilizes a variety of off-
balance-sheet financial instruments to service the financial needs of customers
and to manage the company's overall asset-liability position. This includes
commitments to extend credit, standby and commercial letters of credit,
securities lending, interest rate swaps and foreign exchange contracts. Each of
these instruments involve varying degrees of risk. As such, the contract or
notional amounts of these instruments may not be an appropriate indicator of
their credit or market risk.
Generally accepted accounting principles recognize these instruments as
contingent obligations or off-balance-sheet items and accordingly, the contract
or notional amounts are not reflected in the consolidated financial statements.
A summary of the company's off-balance-sheet financial instruments at
December 31, 1996 and 1995 is presented as follows:
Contractual or Notional Amounts--
Dollars in Thousands 1996 1995
- --------------------------------------------------------------------------------
Commitments to extend credit:
Credit card commitments. . . . . . . . . . . . . . . $5,727,699 $7,051,870
Other loan commitments . . . . . . . . . . . . . . . 7,619,067 8,206,132
Standby letters of credit and financial guarantees . . 732,238 608,138
Commercial letters of credit . . . . . . . . . . . . . 118,308 64,938
Loans sold with recourse . . . . . . . . . . . . . . . 3,100,487 2,183,056
Forward commitments. . . . . . . . . . . . . . . . . . 355,000 1,063,812
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Commitments to extend credit are contractual agreements to lend up to a
specified amount, over a stated period of time. Commercial commitments generally
require the payment of a fee. Standby letters of credit are issued to improve a
customer's credit standing with third parties. The company agrees to honor a
financial commitment by issuing a guarantee to third parties in the event the
customer fails to perform. Since loan commitment amounts generally exceed actual
funding requirements and virtually all of the standby letters of credit are
expected to expire unfunded, the total commitment amounts do not represent
future cash requirements. The company's exposure to credit loss from loan
commitments, standby letters of credit and commercial letters of credit is
measured by the contract amount of these instruments. This credit risk is
minimized by subjecting these off-balance-sheet instruments to the same credit
policies and underwriting standards used when making loans. Substantially all of
these commitments expire in less than two years unless renewed by the company.
Commercial letters of credit are short-term commitments issued to finance the
movement of goods between a buyer and seller dealing in international markets.
Loans sold with recourse generally result from the sale and securitization
of consumer finance loans. These first and second mortgage loans are securitized
and sold with recourse as asset-backed securities. In most cases, the recourse
to the company's consumer finance subsidiary, EquiCredit, is limited to amounts
on deposit with the trustee. Loans sold with recourse include $2.9 billion and
$1.9 billion of loans sold under EquiCredit's securitization program on which
the maximum contingent risk is limited to $92 million and $58 million as of
December 31, 1996 and 1995, respectively. At December 31, 1996 and 1995,
EquiCredit had estimated recourse reserves of $42 million and $28 million,
respectively, classified in other liabilities. The remainder of the loans sold
with recourse are residential mortgages sold to government agencies.
NOTES TO FINANCIAL STATEMENTS
The company enters into interest rate swap transactions primarily as part
of its asset-liability management strategy to manage interest rate risk. These
transactions involve the exchange of interest payments based on a notional
amount. The notional amounts of interest rate swaps express the volume of
transactions and are not an appropriate indicator of the off-balance-sheet
market or credit risk. The credit risk associated with interest rate swaps
arises from the counterparties' failure to meet the terms of the agreements and
is limited to the fair value of contracts with a positive replacement value.
Barnett utilizes bilateral collateral exchange agreements with swap
counterparties in order to minimize this credit exposure. Under these
agreements, swap counterparties are required to deliver collateral as the
replacement value at risk increases with changes in interest rates.
An effective asset-liability management function is required to address the
interest rate risk inherent in the company'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 company utilizes a variety of discretionary on- and off-
balance-sheet strategies to prudently manage the overall interest rate
sensitivity position.
As summarized in the table below describing Barnett's derivatives
positions, the swap portfolio is primarily comprised of generic contracts
wherein the company receives a fixed rate of interest while paying a variable
rate. As such, the income contribution from the swap portfolio will decrease in
a rising rate environment and increase in a falling rate environment. The
average rate received at December 31, 1996, was 5.56% compared to an average
rate paid of 5.54%, and the average remaining maturity of the total portfolio
was approximately one year. The variable rate component of the interest rate
swaps is based on LIBOR as of the most recent reset date.
The company acts as an intermediary in arranging interest rate swap
transactions for customers. Net trading revenue is included in other income and
is not significant to the company's results of operations. The notional amounts
of those contracts totaled $853 million and $421 million at December 31, 1996
and 1995, respectively. The nature of those instruments is the same as described
for derivative financial instruments.
Weighted Average Interest Rate
-------------------------------------- Average
Notional Replacement Receive Pay Maturity
December 31--Dollars in Millions Amount Value Rate (1) Index Rate (1) Index In Years
- ------------------------------------------------------------------------------------------------------------------------------
1996
Interest rate swaps:
Basis swap . . . . . . . . . . . . . . . . . . $ 50 $ .51 5.66% LIBOR 5.43% CMT 1.08
Generic swaps:
Receive fixed. . . . . . . . . . . . . . . . 4,050 (7.19) 5.53 FIXED 5.53 LIBOR 1.07
Pay fixed. . . . . . . . . . . . . . . . . . 116 .52 5.71 LIBOR 5.84 FIXED 2.00
Interest rate floors . . . . . . . . . . . . . . 250 1.51 6.00(2) LIBOR -- -- 1.00
- ------------------------------------------------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . $4,466 $(4.65) 5.56% 5.54% 1.09
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1995
Interest rate swaps:
Basis swap . . . . . . . . . . . . . . . . . . $ 50 $ .49 5.75% LIBOR 4.81% CMT 2.08
Generic swaps:
Receive fixed. . . . . . . . . . . . . . . . 2,540 12.19 5.21 Fixed 5.83 LIBOR 1.02
Pay fixed. . . . . . . . . . . . . . . . . . 267 (1.97) 5.84 LIBOR 6.38 Fixed 1.73
Index-principal swaps. . . . . . . . . . . . . 250 (.29) 4.47 Fixed 5.94 LIBOR .08
Interest rate floors . . . . . . . . . . . . . . 250 4.51 6.00 (2) LIBOR -- -- 2.00
Options to purchase securities . . . . . . . . . 500 9.74 -- -- .20
- ------------------------------------------------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . $3,857 $24.67 5.27% 5.87% .98
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
(1) BASED UPON CONTRACTUAL RATES AT DECEMBER 31.
(2) THE COMPANY RECEIVES INTEREST EQUAL TO THE AMOUNT BY WHICH LIBOR IS LESS
THAN 6.00%.
Q. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values are based upon quoted market prices, when available. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other techniques, all of which may be significantly
affected by the assumptions used. Therefore, these values may not be
substantiated by comparison to independent markets and are not intended to
reflect the proceeds that may be realizable from offering for sale at one time
the company's entire holdings of a particular financial instrument. Any
unrealized gains or losses should not be interpreted as a forecast of future
earnings and cash flows.
The value of certain non-financial items, which include trust and credit
card relationships and core deposit intangibles, is significantly in excess of
their aggregate carrying amounts. However, the company also believes their value
is often only reliably determined in arms-length transactions and may vary
significantly depending on specific circumstances. For these reasons, no fair
value estimates of these non-financial instruments are disclosed. As a result,
the following fair values are not comprehensive and therefore do not reflect the
underlying value of the company. Off-balance-sheet financial instruments,
including their fair values, are discussed in greater detail in NOTE P.
The estimated fair values of the company's financial instruments are as
follows:
1996 1995
----------------------- -----------------------
CARRYING FAIR Carrying Fair
December 31--Dollars in Thousands AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------------------------------------------------
Financial assets
Cash and cash equivalents(1) . . . . . . . . . . . . . . . . . $ 2,783,646 $ 2,783,646 $ 2,769,145 $ 2,769,145
Investment securities held to maturity(2). . . . . . . . . . . 129,595 139,999 200,960 216,066
Investment securities available for sale(2). . . . . . . . . . 5,031,123 5,031,123 5,133,041 5,133,041
Capitalized excess servicing income, net(3). . . . . . . . . . 220,615 233,404 149,662 169,581
Loans, net of allowance(4) . . . . . . . . . . . . . . . . . . 29,775,815 30,074,385 29,980,851 30,174,023
Financial liabilities
Deposits:
Without stated maturities(1) . . . . . . . . . . . . . . . . 21,629,538 21,629,538 22,047,155 22,047,155
With stated maturities(5). . . . . . . . . . . . . . . . . . 12,190,720 12,266,586 12,186,413 12,219,144
Short-term borrowings(1) . . . . . . . . . . . . . . . . . . . 1,309,367 1,309,367 2,078,949 2,078,949
Long-term debt (excluding capitalized leases)(6) . . . . . . . 1,215,928 1,253,307 1,178,464 1,251,001
Minority interest(6) . . . . . . . . . . . . . . . . . . . . . 500,000 498,653 -- --
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING METHODS AND ASSUMPTIONS WERE USED TO ESTIMATE FAIR VALUES:
(1) THE CARRYING AMOUNTS APPROXIMATE FAIR VALUE.
(2) FAIR VALUES ARE BASED ON QUOTED MARKET PRICES, IF AVAILABLE. IF A QUOTED
MARKET PRICE IS NOT AVAILABLE, FAIR VALUE IS ESTIMATED USING QUOTED MARKET
PRICES FOR SIMILAR SECURITIES.
(3) FAIR VALUE IS DETERMINED BY CALCULATING THE PRESENT VALUE OF EXPECTED CASH
FLOWS WHICH EXCEED NORMAL SERVICING FEES, USING PREPAYMENT, DEFAULT AND
INTEREST RATE ASSUMPTIONS THAT CURRENT MARKET PARTICIPANTS WOULD USE FOR
SIMILAR INSTRUMENTS.
(4) FOR RESIDENTIAL MORTGAGE LOANS, FAIR VALUE IS ESTIMATED USING QUOTED MARKET
PRICES FOR SALES OF WHOLE LOANS WITH SIMILAR CHARACTERISTICS. FOR OTHER
HOMOGENEOUS CATEGORIES OF LOANS, FAIR VALUE IS ESTIMATED USING QUOTED
MARKET PRICES FOR SECURITIES BACKED BY SIMILAR LOANS, ADJUSTED FOR
DIFFERENCES IN LOAN CHARACTERISTICS. THE FAIR VALUE OF OTHER TYPES OF LOANS
FOR WHICH QUOTED MARKET PRICES ARE NOT AVAILABLE IS ESTIMATED BY
DISCOUNTING EXPECTED FUTURE CASH FLOWS.
(5) THE FAIR VALUE OF FIXED-MATURITY CERTIFICATES OF DEPOSIT IS ESTIMATED USING
RATES CURRENTLY OFFERED FOR DEPOSITS OF SIMILAR REMAINING MATURITIES.
(6) RATES CURRENTLY AVAILABLE TO THE COMPANY FOR DEBT WITH SIMILAR TERMS AND
REMAINING MATURITIES ARE USED TO ESTIMATE THE FAIR VALUE OF EXISTING DEBT.
NOTES TO FINANCIAL STATEMENTS
R. REGULATORY RESTRICTIONS
The principal source of cash flows for the parent company is dividends from
Barnett Bank, N.A. Payment of dividends by banks is subject to certain
regulatory restrictions. The most common restriction limits dividends declared
to the banks' net profits for the current year, combined with net retained
profits for the preceding two years. Payment of dividends is also limited by
minimum capital requirements, which all banking subsidiaries exceed. On December
31, 1996, $315 million was available for payment of dividends. Loans from
subsidiary banks to the parent company are limited by law and are required to be
collateralized.
Banking subsidiaries are required by law to maintain non-interest bearing
deposits to meet reserve requirements. At December 31, 1996, these deposits
totaled $454 million.
The company is subject to regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by regulators that could have an effect on the company's
financial statements. Under the framework for prompt corrective action, the
company must meet capital guidelines that involve quantitative measures of the
company's assets, liabilities, and certain off-balance-sheet items. The
company's capital amounts and classification are also subject to qualitative
judgments by the regulators. Management believes, as of December 31, 1996, that
the company meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the Federal Reserve Bank of Atlanta and the
Comptroller of the Currency considered the company to be "well capitalized"
under the regulatory framework. To be categorized as well capitalized, the
company must maintain minimum ratios set forth in the table. There are no
conditions or events since that notification that management believes have
changed the company's category.
The company's actual capital amounts and ratios are presented below:
Capital Levels
------------------------------------------------------------------
Actual Adequately Capitalized Well Capitalized
---------------- ---------------- ----------------
As of December 31, 1996--Dollars in Millions Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------
Total risk-based capital (to risk weighted assets):(1)
Consolidated . . . . . . . . . . . . . . . . . . . . $4,249 14.17% $2,399 8.00% $2,998 10.00%
Barnett Bank N.A.. . . . . . . . . . . . . . . . . . 3,433 14.14 1,943 8.00 2,428 10.00
Tier I capital (to risk weighted assets):(1)
Consolidated . . . . . . . . . . . . . . . . . . . . 3,288 10.97 1,199 4.00 1,799 6.00
Barnett Bank N.A.. . . . . . . . . . . . . . . . . . 3,061 12.60 971 4.00 1,457 6.00
Tier 1 capital (to average assets):(1)
Consolidated . . . . . . . . . . . . . . . . . . . . 3,288 8.21 1,202 3.00 2,004 5.00
Barnett Bank N.A.. . . . . . . . . . . . . . . . . . 3,061 8.08 1,136 3.00 1,893 5.00
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
(1) AS DEFINED BY THE REGULATIONS.
S. CONTINGENCIES
The company and its subsidiaries are parties to various legal and
administrative proceedings and claims. While any litigation contains an element
of uncertainty, management believes that the outcome of such proceedings or
claims pending or known to be threatened will not have a material adverse effect
on the company's consolidated financial position, results of operations or
liquidity.
T. PARENT COMPANY FINANCIAL INFORMATION
CONDENSED FINANCIAL INFORMATION FOR BARNETT BANKS, INC. (PARENT COMPANY ONLY)
STATEMENTS OF FINANCIAL CONDITION
December 31--Dollars in Thousands 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,057 $ 9,336
Investment securities available for sale (amortized cost of $2,328 in 1996 and $18,644 in 1995). . . 2,745 37,426
Investments in and amounts due from subsidiaries:
Banks, at equity in net assets(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,446,383 3,248,343
Non-banking subsidiaries, at equity in net assets(1) . . . . . . . . . . . . . . . . . . . . . . . 429,744 609,190
Securities purchased under agreements to resell. . . . . . . . . . . . . . . . . . . . . . . . . . 242,000 135,007
Amounts due from subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,552 1,184,225
Cost in excess of fair value of net assets acquired. . . . . . . . . . . . . . . . . . . . . . . . 90,379 97,664
Value of core deposits purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,879 5,660
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,313 196,045
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,273 252,359
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Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,377,325 $5,775,255
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LIABILITIES
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,297 $ 669,766
Other short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 425,000
Amount due to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,465 --
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,304 242,725
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,215,928 1,165,578
Subordinated debentures supporting mandatorily redeemable trust securities . . . . . . . . . . . . . 500,000 --
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Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,006,994 2,503,069
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SHAREHOLDERS' EQUITY
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,370,331 3,272,186
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Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,377,325 $5,775,255
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(1) THE DOUBLE LEVERAGE RATIO, WHICH REPRESENTS THE PARENT'S TOTAL EQUITY
INVESTMENT IN SUBSIDIARIES PLUS INTANGIBLES DIVIDED BY ITS TOTAL
SHAREHOLDER'S EQUITY PLUS SUBORDINATED DEBENTURES SUPPORTING MANDATORILY
REDEEMABLE TRUST SECURITIES, WAS 1.03% AND 1.21% AT DECEMBER 31, 1996 AND
1995, RESPECTIVELY.
STATEMENTS OF INCOME
For the Years Ended December 31--Dollars in Thousands 1996 1995 1994
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INCOME
Income from subsidiaries:
Dividends ($456,009 in 1996, $446,009 in 1995 and $462,406 in 1994 from banks) . . . . $456,009 $451,906 $462,465
Management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,210 229,052 182,346
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,534 60,681 21,168
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,089 17,360 7,682
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Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833,842 758,999 673,661
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EXPENSES
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187,705 161,052 108,050
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,213 118,354 59,071
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,817 122,084 111,188
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Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492,735 401,490 278,309
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EARNINGS
Income before income taxes and equity in undistributed income of subsidiaries. . . . . . 341,107 357,509 395,352
Reduction of consolidated income taxes resulting from parent company operating loss. . . 32,996 34,763 22,429
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Income before equity in undistributed income of subsidiaries . . . . . . . . . . . . . . 374,103 392,272 417,781
Equity in undistributed income of subsidiaries . . . . . . . . . . . . . . . . . . . . . 190,388 141,029 70,190
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Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $564,491 $533,301 $487,971
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NOTES TO FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
For the Years Ended December 31--Dollars in Thousands 1996 1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 564,491 $ 533,301 $ 487,971
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income of subsidiaries . . . . . . . . . . . . . . . . . . . (190,388) (141,029) (70,190)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,086 13,469 12,152
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,955 9,451 11,945
Deferred income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . . . . 3,402 (37,776) (22,429)
Employee benefits funded by equity (parent company and subsidiaries) . . . . . . . . 26,820 24,237 28,682
Decrease (increase) in other assets. . . . . . . . . . . . . . . . . . . . . . . . . 28,745 (45,020) 17,763
Increase in other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,205 60,891 11,062
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,993) (985) 4,559
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Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . 450,323 416,539 481,515
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . (2,769) (40,959) (151,466)
Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . 37,285 -- 95,320
Proceeds from maturities of investment securities. . . . . . . . . . . . . . . . . . . 796 58,698 212,657
Net decrease (increase) in advances to subsidiaries. . . . . . . . . . . . . . . . . . 173,699 (999,042) (17,153)
Net capital contributions to subsidiaries. . . . . . . . . . . . . . . . . . . . . . . (61,134) (202,412) (212,195)
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . (54,052) (46,159) (13,240)
Proceeds from sales of premises and equipment. . . . . . . . . . . . . . . . . . . . . 9,097 150 2,877
Net business dispositions (acquisitions), net of cash acquired . . . . . . . . . . . . 496,234 (313,104) --
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Net cash provided by (used for) investing activities . . . . . . . . . . . . . . . 599,156 (1,542,828) (83,200)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in commercial paper and other short-term borrowings. . . . . . (1,052,469) 1,088,567 742
Proceeds (repayments) of advances from non-banking subsidiaries. . . . . . . . . . . . 15,465 -- (50,000)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . 250,000 500,000 25,000
Principal repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (199,650) (25,750) (400)
Proceeds from issuance of subordinated debentures supporting mandatorily
redeemable trust securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 -- --
Net repurchase of common and preferred stock . . . . . . . . . . . . . . . . . . . . . (261,559) (302,033) (50,236)
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (201,552) (191,086) (175,555)
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Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . (949,765) 1,069,698 (250,449)
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Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . 99,714 (56,591) 147,866
Cash and cash equivalents, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . 144,343 200,934 53,068
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Cash and cash equivalents, December 31 . . . . . . . . . . . . . . . . . . . . . . . . $ 244,057 $ 144,343 $ 200,934
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Barnett Banks, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Barnett Banks, Inc. (a Florida corporation) and affiliates as of
December 31, 1996 and 1995, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Barnett Banks, Inc. and
affiliates as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Jacksonville, Florida
January 13, 1997