-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MxOlVigavax1+bTdAC/5m7x7l+Y2pxiG7vvCT/eFR0f9XBvK0zQdsAWJ/gg0ySTJ FiN37jpiRxSHtPdYZw5QeQ== 0000950114-96-000069.txt : 19960401 0000950114-96-000069.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950114-96-000069 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960131 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOATMENS BANCSHARES INC /MO CENTRAL INDEX KEY: 0000040454 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 430672260 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03750 FILM NUMBER: 96541643 BUSINESS ADDRESS: STREET 1: 800 MARKET ST STREET 2: 1 BOATMENS PLZ CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3144666000 MAIL ADDRESS: STREET 1: 800 MARKET ST STREET 2: 1 BOATMENS PLAZA CITY: ST LOUIS STATE: MO ZIP: 63101 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL BANCSHARES CORP DATE OF NAME CHANGE: 19860414 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL CONTRACT CORP DATE OF NAME CHANGE: 19691215 8-K 1 BOATMEN'S BANCSHARES, INC. FORM 8-K 1 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported) March 29, 1996 (January 31, 1996) BOATMEN'S BANCSHARES, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Missouri 1-3750 43-0672260 - ---------------------------- ---------------- ------------------- (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) Identification No.) One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63101 - ----------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 314-466-6000 -------------- - ------------------------------------------------------------------------------- 2 ITEM 5. OTHER EVENTS - -------------------- As previously reported by Boatmens Bancshares, Inc. ("The Registrant") on its Current Report on Form 8-K, dated February 2, 1996, the Registrant completed its acquisition of Fourth Financial Corporation, a Kansas corporation ("Fourth Financial") on January 31, 1996, by means of the merger (the "Merger") of Fourth Financial with and into a wholly-owned subsidiary of the Registrant. Under terms of the Merger, (i) each issued and outstanding share of common stock, par value $5 per share, of Fourth Financial was converted into one share of common stock, par value $1 per share, of the Registrant (approximately 28.5 million shares in the aggregate), and (ii) each issued and outstanding Depositary Share of Fourth Financial, representing 1/16 interest in a share of Class A 7% Cumulative Convertible Preferred Stock of Fourth Financial, was converted into one Depositary Share of the Registrant, representing a 1/16 interest in a share of 7% Cumulative Convertible Preferred Stock, Series A, of the Registrant (approximately 3.96 million Depositary Shares in the aggregate). No shares of Fourth Financial common stock were owned by the Corporation prior to the Merger. The Merger was accounted for as a "pooling of interests" for accounting and financial reporting purposes. In accordance with Item 7. of Form 8-K, the Registrant has submitted herewith audited financial statements of Fourth Financial. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - ----------------------------------------- (a) Financial Statements of Business Acquired ----------------------------------------- The following financial statements of Fourth Financial are submitted herewith: 1. Report of Independent Auditors. 2. Consolidated Statements of Condition as of December 31, 1995 and 1994. 3. Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993. 4. Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993. 5. Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993. 6. Notes to Consolidated Financial Statements. (b) Pro Forma Financial Information ------------------------------- The following unaudited pro forma financial statements are submitted herewith: 1. Pro Forma Combined Balance Sheet as of December 31, 1995. 2. Pro Forma Combined Statements of Income for the years ended December 31, 1995, 1994, and 1993, and notes thereto. 3. Pro Forma Consolidated Quarterly Earnings Trend for the year ended December 31, 1995. 4. Pro Forma Consolidated Quarterly Balance Sheets for each 1995 quarter ended period. 3 (c) Exhibits -------- The following exhibits are included with this Report: Exhibit 99 (a) Audited Financial Statements of Fourth Financial Corporation and Report of Independent Auditors. Exhibit 99 (b) Pro Forma Financial Data SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. BOATMEN'S BANCSHARES, INC. -------------------------- (Registrant) By /s/ JAMES W. KIENKER --------------------------- James W. Kienker Executive Vice President and Chief Financial Officer Dated: March 29, 1996 EX-99.(A) 2 AUDITED FINANCIAL STATEMENTS 1 FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION
December 31, ------------------------- 1995 1994 ---------- ---------- (DOLLARS IN THOUSANDS) Assets: Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 436,104 $ 438,930 Interest-bearing deposits in other financial institutions . . . . . . . . . . . . 926 499 Federal funds sold and securities purchased under agreements to resell . . . . . 125,975 8,470 Securities: Held-to-maturity (market value-$8,387 and $1,847,767, respectively) . . . . . . 8,383 1,958,190 Available-for-sale (at market value). . . . . . . . . . . . . . . . . . . . . . 2,233,836 943,970 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,521 53,677 Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 920 719 Loans and leases: Total loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,287,831 4,062,051 Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . (69,576) (72,867) ---------- ---------- Net loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,218,255 3,989,184 Bank premises and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . 162,557 158,885 Income receivable and other assets . . . . . . . . . . . . . . . . . . . . . . . 111,431 166,309 Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,093 95,606 ---------- ---------- Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,438,001 $7,814,439 ========== ========== Liabilities And Stockholders' Equity: Deposits: Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,033,024 $1,049,118 Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,013,070 4,675,478 ---------- ---------- Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,046,094 5,724,596 Federal funds purchased and securities sold under agreements to repurchase . . . 541,768 933,706 Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . 93,498 441,097 Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,500 43,001 Accrued interest, taxes, and other liabilities . . . . . . . . . . . . . . . . . 61,004 58,976 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 7,762 ---------- ---------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,764,030 7,209,138 ---------- ---------- Stockholders' Equity: Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,324 100,000 Common stock, par value $5 per share Authorized: 50,000,000 shares Issued: 28,144,251 and 27,566,225 shares . . . . . . . . . . . . . . . . . . 140,721 137,831 Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,148 107,576 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,397 294,532 Treasury stock at cost (355,466 shares at December 31, 1994). . . . . . . . . . -- (10,018) Stock option loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,444) (1,894) ---------- ---------- Stockholders' equity before net unrealized gains (losses) on available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . 668,146 628,027 Net unrealized gains (losses) on available-for-sale securities. . . . . . . . . 5,825 (22,726) ---------- ---------- Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . 673,971 605,301 ---------- ---------- Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . . $7,438,001 $7,814,439 ========== ========== The accompanying notes are an integral part of the financial statements.
1 2 FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Interest Income: Interest and fees on loans and leases . . . . . . . . . . . . . . . . . $395,223 $309,224 $266,984 Interest on short-term investments . . . . . . . . . . . . . . . . . . . 6,441 1,008 2,181 Interest and dividends on investment securities: Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,259 162,216 160,631 Tax-preferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,525 16,712 19,534 Interest and dividends on trading securities . . . . . . . . . . . . . . 93 104 135 -------- -------- -------- Total interest income. . . . . . . . . . . . . . . . . . . . . . . . 552,541 489,264 449,465 -------- -------- -------- Interest Expense: Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 228,202 159,379 159,802 Interest on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 47,270 48,036 19,151 Interest on long-term debt . . . . . . . . . . . . . . . . . . . . . . . 137 1,194 2,451 -------- -------- -------- Total interest expense . . . . . . . . . . . . . . . . . . . . . . . 275,609 208,609 181,404 -------- -------- -------- Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,932 280,655 268,061 Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . 13,068 836 7,037 -------- -------- -------- Net Interest Income After Provision For Credit Losses. . . . . . . . . . . 263,864 279,819 261,024 -------- -------- -------- Noninterest Income: Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,057 21,145 18,690 Service charges on deposit accounts. . . . . . . . . . . . . . . . . . . 40,761 38,693 33,983 Bank card fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,460 14,190 10,409 Investment securities gains (losses) . . . . . . . . . . . . . . . . . . (21,759) 3,632 1,555 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,269 20,854 22,398 -------- -------- -------- Total noninterest income . . . . . . . . . . . . . . . . . . . . . . 84,788 98,514 87,035 -------- -------- -------- Noninterest Expense: Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . 128,618 127,894 118,828 Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 22,260 22,815 23,804 Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,592 17,924 16,940 FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,091 12,776 13,295 Advertising and public relations . . . . . . . . . . . . . . . . . . . . 8,711 9,514 8,598 Bank card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,349 3,273 3,294 Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . 10,737 10,154 12,549 Merger and integration costs . . . . . . . . . . . . . . . . . . . . . . 28 3,587 7,634 Net costs of operation of other real estate and nonperforming assets . . 1,129 (956) 3,461 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,868 47,362 49,149 -------- -------- -------- Total noninterest expense. . . . . . . . . . . . . . . . . . . . . . 252,383 254,343 257,552 -------- -------- -------- Income Before Income Taxes and Cumulative Effect of a Change in Accounting Principle . . . . . . . . . . . . . . . 96,269 123,990 90,507 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,093 40,866 22,980 -------- -------- -------- Income Before Cumulative Effect of a Change in Accounting Principle. . . . 61,176 83,124 67,527 Cumulative effect of a change in accounting for income taxes . . . . . . -- -- 10,582 -------- -------- -------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,176 $ 83,124 $ 78,109 ======== ======== ======== Net Income Applicable to Common and Common-Equivalent Shares . . . . . . . $ 54,108 $ 76,124 $ 71,109 ======== ======== ======== Primary Earnings Per Common Share: Income applicable to common and common-equivalent shares before cumulative effect of a change in accounting principle. . . . . . . . . $1.96 $2.80 $2.27 Cumulative effect of a change in accounting for income taxes . . . . . . -- -- .40 ----- ----- ----- Net income applicable to common and common-equivalent shares . . . . . . $1.96 $2.80 $2.67 ===== ===== ===== Fully Diluted Earnings Per Common Share: Income before cumulative effect of a change in accounting principle. . . . . . . . . . . . . . . . . . $1.96 $2.71 $2.20 Cumulative effect of a change in accounting for income taxes . . . . . . -- -- .35 ----- ----- ----- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.96 $2.71 $2.55 ===== ===== ===== Dividends Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . $1.31 $1.04 $ .98 ===== ===== ===== The accompanying notes are an integral part of the financial statements.
2 3 FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PREFERRED STOCK COMMON STOCK TREASURY STOCK --------------- -------------- -------------- STOCK NET UNREALIZED CAPITAL RETAINED OPTION GAINS (LOSSES) SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS SHARES AMOUNT LOANS ON SECURITIES Total ------ ------ ------ ------ ------- -------- ------ ------ ----- ------------- ------- (IN THOUSANDS) Balance, December 31, 1992 As previously reported. . 1,222 $103,641 25,809 $129,045 $101,914 $199,880 -- $ -- $(1,069) $ -- $533,411 Adjustment for pooling of interests . . . . . . -- -- 315 1,575 375 750 -- -- -- -- 2,700 ----- -------- ------ -------- -------- -------- ---- ------- ------- ------- -------- Adjusted balance. . . . 1,222 103,641 26,124 130,620 102,289 200,630 -- -- (1,069) -- 536,111 Net income. . . . . . . . -- -- -- -- -- 78,109 -- -- -- -- 78,109 Cash dividends: Preferred stock . . . . -- -- -- -- -- (7,000) -- -- -- -- (7,000) Common stock. . . . . . -- -- -- -- -- (22,705) -- -- -- -- (22,705) Pooled companies. . . . -- -- -- -- -- (2,657) -- -- -- -- (2,657) Purchase of common stock for treasury . . . . . . -- -- -- -- -- -- (112) (3,245) -- -- (3,245) Issuance of common stock: Stock option plans . . . -- -- 199 993 2,414 -- -- -- -- -- 3,407 Acquisition. . . . . . . -- -- 109 544 2,555 -- -- -- -- -- 3,099 Net change in stock option loans . . . . . . -- -- -- -- -- -- -- -- (726) -- (726) Capital transactions of pooled companies . . . . (972) (3,641) 1,049 5,248 (781) -- -- -- -- -- 826 Adjustment for unrealized gains on available-for- sale securities. . . . . -- -- -- -- -- -- -- -- -- 25,148 25,148 ----- -------- ------ -------- -------- -------- ---- ------- ------- ------- -------- Balance, December 31, 1993 . . . . . . . . . . . 250 100,000 27,481 137,405 106,477 246,377 (112) (3,245) (1,795) 25,148 610,367 Net income. . . . . . . . -- -- -- -- -- 83,124 -- -- -- -- 83,124 Cash dividends: Preferred stock . . . . -- -- -- -- -- (7,000) -- -- -- -- (7,000) Common stock . . . . . -- -- -- -- -- (27,662) -- -- -- -- (27,662) Pooled company. . . . . -- -- -- -- -- (307) -- -- -- -- (307) Purchase of common stock for treasury . . . . . . -- -- -- -- -- -- (355) (10,018) -- -- (10,018) Issuance of common stock: Stock option plans. . . -- -- 81 407 968 -- 40 1,169 -- -- 2,544 Acquisition . . . . . . -- -- -- -- 41 -- 70 2,041 -- -- 2,082 Directors deferred fee plan . . . . . . . -- -- 4 19 90 -- 2 35 -- -- 144 Net change in stock option loans . . . . . . -- -- -- -- -- -- -- -- (99) -- (99) Adoption of Financial Accounting Standard No. 115 by pooled companies. . . . . . . . -- -- -- -- -- -- -- -- -- (484) (484) Net change in unrealized gains (losses) on available-for-sale securities . . . . . . . -- -- -- -- -- -- -- -- -- (47,390) (47,390) ----- -------- ------ -------- -------- -------- ---- ------- ------- ------- -------- Balance, December 31, 1994 . . . . . . . . . . . 250 100,000 27,566 137,831 107,576 294,532 (355) (10,018) (1,894) (22,726) 605,301 Net income. . . . . . . . -- -- -- -- -- 61,176 -- -- -- -- 61,176 Cash dividends: Preferred stock . . . . -- -- -- -- -- (6,970) -- -- -- -- (6,970) Common stock . . . . . -- -- -- -- -- (36,243) -- -- -- -- (36,243) Purchase and retirement of preferred stock . . . (1) (500) -- -- 15 (98) -- -- -- -- (583) Conversion of preferred stock into common. . . . (1) (176) 6 29 144 -- -- 3 -- -- -- Purchase of common stock for treasury . . . . . . -- -- -- -- -- -- (125) (4,046) -- -- (4,046) Issuance of common stock: Stock option plans. . . -- -- 556 2,781 10,412 -- 125 4,043 -- -- 17,236 Acquisition . . . . . . -- -- 14 68 937 -- 355 10,018 -- -- 11,023 Directors deferred fee plan . . . . . . . -- -- 2 12 64 -- -- -- -- -- 76 Net change in stock option loans . . . . . . -- -- -- -- -- -- -- -- (1,550) -- (1,550) Net change in unrealized gains (losses) on available-for-sale securities . . . . . . . -- -- -- -- -- -- -- -- -- 28,551 28,551 ----- -------- ------ -------- -------- -------- ---- ------- ------- ------- -------- Balance, December 31, 1995 248 $ 99,324 28,144 $140,721 $119,148 $312,397 -- $ -- $(3,444) $ 5,825 $673,971 ===== ======== ====== ======== ======== ======== ==== ======= ======= ======= ======== The accompanying notes are an integral part of the financial statements.
3 4 FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- (IN THOUSANDS) INCREASE (DECREASE) IN CASH AND DUE FROM BANKS Cash Flows From Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,176 $ 83,124 $ 78,109 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 84 355 Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . 13,068 836 7,037 Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 28,524 27,814 29,264 Accretion of discounts on investment securities, net of amortization of premiums . . . . . . . . . . . . . . . . . . . 5,899 12,657 16,097 Write-down of other real estate owned. . . . . . . . . . . . . . . . . 1,371 409 4,392 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 1,432 6,473 (5,637) Investment securities loss (gain). . . . . . . . . . . . . . . . . . . 21,759 (3,632) (1,555) Gain on sales of premises and equipment, other real estate owned, and other assets . . . . . . . . . . . . . . . . . . . . . . . (350) (2,861) (2,525) Write-down of goodwill, core deposit intangibles, and premises and equipment associated with pooling transactions, and other asset write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . 389 1,148 2,228 Change in assets and liabilities, net of effects from purchases of acquired entities and branch sales: Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . (183) 28 3,062 Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . (6,828) 117,017 (116,537) Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,400 67,425 317,228 Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,180) (4,686) (11,073) Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . 5,160 (6,765) 3,873 Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . 6,556 311 (3,032) ---------- ---------- ---------- Net cash provided by operating activities . . . . . . . . . . . . 155,193 299,382 321,286 ---------- ---------- ---------- Cash Flows From Investing Activities: Purchase of banks, net of cash acquired . . . . . . . . . . . . . . . . (4,091) (87,818) (2,468) Branch sales, including cash and cash equivalents sold . . . . . . . . . (15,232) (36,271) -- Activity in available-for-sale investment securities: Sales proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445,891 603,458 -- Maturities, prepayments, and calls. . . . . . . . . . . . . . . . . . . 222,633 223,223 -- Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,801) (554,315) -- Activity in held-to-maturity investment securities: Sales proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 20,483 Maturities, prepayments, and calls. . . . . . . . . . . . . . . . . . . 224,208 535,632 1,073,088 Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,550) (597,787) (1,519,700) Proceeds from sales of premises and equipment, other real estate owned, and other assets. . . . . . . . . . . . . . . . . . . . . 6,320 14,558 17,246 Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . (23,705) (19,271) (35,087) Purchases of mortgage and credit card loans. . . . . . . . . . . . . . . (83,835) -- -- Purchases of mortgage servicing rights . . . . . . . . . . . . . . . . . -- (355) -- Change in assets, net of effects from purchases of acquired entities and branch sales: Interest-bearing deposits in other financial institutions. . . . . . . 575 2,538 4,321 Federal funds sold and securities purchased under agreements to resell. . . . . . . . . . . . . . . . . . . . . . . . . (111,324) 18,608 199,115 Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . (215,249) (482,906) (209,861) ---------- ---------- ---------- Net cash provided by (used in) investing activities. . . . . . . . 425,840 (380,706) (452,863) ---------- ---------- ----------
4 5 FOURTH FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year Ended December 31, ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- (IN THOUSANDS) Cash Flows From Financing Activities: Transfer associated with the assumption of deposits and other liabilities, net of premium paid. . . . . . . . . . . . . . . . . $ -- $ -- $ 91,832 Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . (7,596) (15,598) (15,405) Purchase and retirement of preferred stock . . . . . . . . . . . . . . . (583) -- -- Acquisition of common stock for treasury . . . . . . . . . . . . . . . . (4,046) (10,018) (3,245) Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . (33,445) (27,662) (22,705) Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . (6,974) (7,000) (7,000) Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . 17,236 2,544 3,407 Net change in stock option loans . . . . . . . . . . . . . . . . . . . . (1,550) (99) (726) Purchase of minority stockholder interest. . . . . . . . . . . . . . . . -- (36) -- Capital transactions of pooled companies . . . . . . . . . . . . . . . . -- (363) (2,405) Change in liabilities, net of effects from purchase of acquired entities and branch sales: Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214,437 (292,902) (415,914) Federal funds purchased and securities sold under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . (391,938) 395,095 166,033 Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . (347,899) 132,800 250,000 Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,501) 19,827 (5,457) ---------- ---------- ---------- Net cash provided by (used in) financing activities. . . . . . . . (583,859) 196,588 38,415 ---------- ---------- ---------- Increase (decrease) in cash and due from banks . . . . . . . . . . . . . . (2,826) 115,264 (93,162) Cash and due from banks at beginning of period . . . . . . . . . . . . . . 438,930 323,666 416,828 ---------- ---------- ---------- Cash and due from banks at end of period . . . . . . . . . . . . . . . . . $ 436,104 $ 438,930 $ 323,666 ========== ========== ========== Supplemental Disclosures: Cash payments for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 269,054 $ 208,220 $ 184,083 ========== ========== ========== Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,249 $ 35,758 $ 32,613 ========== ========== ========== The accompanying notes are an integral part of the financial statements.
5 6 FOURTH FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Fourth Financial Corporation (the "Company") is a bank holding company headquartered in Wichita, Kansas. Through its banking subsidiaries, the Company operates 87 retail banking offices in Kansas, 56 offices in Oklahoma, and 3 offices in Independence, Missouri. The Company provides a wide range of commercial and retail banking services to a diverse customer base. Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements for prior years have been restated to reflect the poolings of interests detailed in Footnote 3 - Acquisitions and Branch Sales. Certain reclassifications of previously reported amounts have been made to conform with current year presentation format. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Securities The Company adopted Financial Accounting Standard ("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" on December 31, 1993. Management reviewed the December 31, 1993 debt securities portfolio and classified the debt securities as either held-to-maturity or available-for-sale. Debt securities acquired subsequent to December 31, 1993 were similarly classified. Debt securities are classified as "Held-to-maturity" when management has the positive intent and the Company has the ability to hold the debt securities to maturity. Held-to-maturity securities are stated at cost, adjusted for amortization of premiums and accretion of discounts, both computed on the constant yield method. The prepayment history of each mortgage-backed security pool is used to recalculate the yield for amortizing and accreting the premium and discount on these securities. Amortization, accretion, and interest on held-to-maturity securities are included in "Interest and dividends on investment securities." Marketable equity securities and debt securities that are deemed to be available-for-sale for the implementation of asset and liability management strategies, possible liquidity needs, and other purposes are classified as "Available-for-sale." Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Amortization, accretion, and interest and dividends on securities classified as available-for-sale are included in "Interest and dividends on investment securities." Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in "Investment securities gains (losses)." The cost of securities sold is based on the specific identification method. Securities held for sale to customers and in anticipation of short-term market 6 7 FOURTH FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) movements are classified as "Trading securities." Securities held for trading are stated at market value. Gains and losses, both realized and unrealized, are reflected in "Other noninterest income." The specific identification method is used to determine the cost of securities sold. "Other securities" include equity securities for which there is no readily determinable fair value, and are carried at cost. Dividends on these equity securities are included in "Interest and dividends on investment securities." Loans and Leases Loans are reported at the principal amount outstanding, net of unearned discount. Interest income on loans is accrued based on the unpaid principal and the applicable rate. The net investment in direct financing leases consists of the sum of all minimum lease payments and estimated residual values, less unearned income. Unearned income on discounted loans and leases is accreted and included in "Interest and fees on loans and leases" on a basis approximating a level yield on the net investment in the loans or leases. Residential mortgage loans and educational loans held for sale are stated at the lower of cost or market value. These loans are analyzed on an aggregate basis to determine the lower of cost or market value. Net gains or losses on the sale of these loans, including adjustments to market value, are part of normal operations and are reflected in "Other noninterest income." The specific identification method is used to determine the cost of loans sold. A loan is placed on nonaccrual status when principal or interest is due and has remained unpaid for 90 days or more unless the loan is both well secured and in the process of collection. A loan is also placed on nonaccrual status when there is reasonable doubt as to the ability of the borrower to continue to pay principal or interest. At the time a loan is classified as nonaccrual, interest previously recorded but not collected is reversed. Interest payments received on such loans are generally recorded as a reduction in carrying value unless such carrying value is deemed to be collectible. A loan is not reclassified as accruing until all principal and interest payments are brought current and the borrower has demonstrated the ability to service the loan in accordance with its contractual terms. Other Real Estate and Nonperforming Assets Other real estate and nonperforming assets include assets acquired from loan settlements and foreclosures. These assets are carried at the lower of the loan carrying amount or fair value minus estimated selling costs and are included in "Income receivable and other assets" in the consolidated statements of condition. At the time of acquisition or repossession, any write-down necessary to record an asset at its fair value is charged to the allowance for credit losses. A valuation allowance for estimated selling costs is recorded through a charge to "Net costs of operation of other real estate and nonperforming assets." Losses and gains as well as net costs associated with these properties are also included in "Net costs of operation of other real estate and nonperforming assets" in the consolidated statements of income. Allowance for Credit Losses The allowance for credit losses is the amount deemed by management to be reasonably necessary to provide for possible losses on loans or leases that may become uncollectible. Additions to the allowance are charged to expense as the provision for credit losses. Loan and lease losses and recoveries are charged or credited directly to the allowance. It is the Company's policy to charge off any loan or portion of that loan when it is deemed to be uncollectible in the ordinary course of business. An evaluation of the overall quality of the portfolio is performed to determine the necessary level of the allowance for credit losses. Effective January 1, 1995, the Company adopted Financial Accounting Standard ("FAS") No. 114, 7 8 FOURTH FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) "Accounting by Creditors for Impairment of a Loan." Under the new standard, the amount of the allowance for credit losses related to individual loans that are identified for evaluation in accordance with FAS No. 114 is determined based on estimates of expected cash flows on each such loan which are then discounted using that loan's effective interest rate. Alternatively, the fair value of the collateral is used to determine the allowance for credit losses related to identified collateral dependent loans. For the remainder of the loan portfolio, the determination of the allowance for credit losses takes into consideration the risk classification of loans and the application of loss estimates to these classifications. It is the responsibility of management in each of the Company's markets to classify its loans as pass, special mention, substandard, doubtful, or loss. The classification criteria are established by the credit administration function of the Company, which is independent of all lending functions, and are intended to be consistent with the criteria applied by federal banking system examiners. These classifications take into consideration all sources of repayment, underlying collateral, the value of such collateral, and current and anticipated economic conditions, trends, and uncertainties. The Company has an independent loan review function which periodically reviews the loans and the classifications. The Company's bank subsidiaries also are subjected to periodic examinations by the Office of the Comptroller of the Currency. Loss factors are developed by loan type and risk classification using historical loss data, statistical modeling techniques, and analyses of general economic conditions, trends in portfolio volume, maturity, and composition. The application of these loss factors to the portfolio classifications combined with estimates of potential future losses on specific large loans (based on either the discounted present value of the expected cash flows or collateral values), provide management with data essential to identify and estimate the credit risk inherent in the loan portfolio. The allowance for credit losses reflects the result of these estimates and is deemed to be adequate at each balance sheet date. Loan and Loan Commitment Fees The Company generally recognizes loan and loan commitment fees as revenue when received and related costs as expenses when incurred. FAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating Loans," provides for the deferral of such fees and direct loan origination costs and the amortization of such fees and costs over the lives of the related loans as an adjustment of yield. However, the adoption of FAS No. 91 would not have a material effect on operating results. Bank Premises and Equipment Land is stated at cost, and buildings and equipment are stated at cost less accumulated depreciation. For financial reporting purposes, depreciation is included in operating expenses and is computed principally on the straight-line method over the estimated useful lives of the related assets. Accelerated methods are generally used for income tax purposes with deferred income taxes provided for timing differences. Additions, major replacements, and improvements to buildings and equipment are added to the asset accounts at cost. Maintenance, repairs, and minor replacements are charged directly to operating expense. The costs incidental to the operation and maintenance of buildings, net of income received from tenants, are reflected as "Net occupancy" expense in the accompanying consolidated statements of income. 8 9 FOURTH FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for the stock option grants. Income Taxes Effective January 1, 1993, the Company adopted FAS No. 109, "Accounting for Income Taxes." There are two components of the income tax provision, current and deferred. The current income tax provisions approximate taxes to be paid or refunded for the applicable period. Deferred tax expense or benefit is recognized for the change in deferred tax liabilities or assets between periods. Deferred tax liabilities or assets are recognized on the temporary differences between the bases of assets and liabilities as measured by the tax laws and their bases as reported in the financial statements. Recognition of deferred tax assets is based on management's belief that it is more likely than not that the tax benefit associated with certain temporary differences, operating loss carryforwards, and tax credits will be realized. A valuation allowance is recorded for those deferred tax items for which it is more likely than not that realization will not occur. Interest, Currency, and Financial Futures Contracts In the normal course of business in meeting the investment and financing needs of its customers and managing its own exposure to fluctuations in interest rates, the Company is a party to various interest rate, foreign currency, and financial futures contracts. From time to time, interest rate swaps are used to modify the interest sensitivity position inherent in the repricing characteristics of specific assets or liabilities. The net interest received or paid on the interest rate swaps is accounted for as an adjustment to the interest income or interest expense on the assets or liabilities, respectively, that the swap was intended to modify. The Company enters into forward foreign currency contracts to assist customers with their foreign currency needs related to foreign manufacturing operations, exporting, or importing. These customer-driven contracts are generally hedged with offsetting contracts. The market value gains and losses relating to currency exchange contracts are recorded at settlement in "Other noninterest income." Gains and losses associated with futures contracts, entered into as trading positions, are marked to market and recognized currently in "Other noninterest income." 9 10 FOURTH FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2 - SUBSEQUENT EVENT On January 31, 1996, the Company merged into a subsidiary of Boatmen's Bancshares, Inc. ("Boatmen's"). Under the terms of the merger, each outstanding share of the Company's common stock was converted into the right to receive one share of Boatmen's common stock, and each outstanding share of the Company's Class A Cumulative Convertible Preferred Stock was converted into the right to receive one share of Boatmen's 7% Cumulative Convertible Preferred Stock, Series A, having substantially the same rights and preferences as the Company's preferred. 3 - ACQUISITIONS AND BRANCH SALES Purchase Transactions During 1995 and 1994, a total of four business combinations accounted for as purchases were completed. The following table presents information regarding these purchase transactions.
ACQUISITION COMPANY ACQUIRED COMPANY ASSETS CASH NUMBER OF DATE LOCATION ABBREVIATION ACQUIRED PAID SHARES ISSUED - ----------- ---------------------------------------- ------------ ---------- --------- ------------- (IN THOUSANDS) 1995 - ---- January 6 Oklahoma Savings, Inc. Stillwater, OK. . . . . . . . . . . . "OSI" $ 95,082 $ 97 368,981 February 3 Blackwell Security Bancshares, Inc. Blackwell, OK . . . . . . . . . . . . "BSB" 50,254 8,256 -- --------- -------- ------- $ 145,336 8,353 368,981 --------- -------- ------- 1994 - ---- May 26 Equity Bank for Savings, F.A. Oklahoma City, OK . . . . . . . . . . "Equity" $ 491,506 $ 90,720 -- May 31 Emprise Bank, National Association Hutchinson, KS. . . . . . . . . . . . "Emprise" 258,731 31,206 -- --------- -------- ------- $ 750,237 $121,926 -- --------- -------- ------- $ 895,573 $130,279 368,981 ========= ======== =======
10 11 Additional information regarding the cash paid in these purchase transactions is summarized in the following table.
1995 1994 -------- -------- (IN THOUSANDS) Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . $145,336 $750,237 Fair value of liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . (131,676) (660,742) Cost in excess of net assets acquired . . . . . . . . . . . . . . . . . . . . . 5,716 32,431 -------- -------- Consideration given . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,376 121,926 Less: Fair market value of stock issued. . . . . . . . . . . . . . . . . . . 11,023 -- -------- -------- Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,353 121,926 Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,262 34,108 -------- -------- Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,091 $ 87,818 ======== ========
For each of these transactions, the consolidated statements of income include only the income and expenses of the acquired company since acquisition. The purchase price was allocated to the net assets acquired based on their fair values with the excess allocated to cost in excess of net assets acquired. The effect on results of operations for 1995 and 1994, had the purchase transactions occurred at the beginning of these years, was not material. Poolings of Interests On January 27, 1995, the Company issued 315,000 shares to acquire Standard Bancorporation, Inc. ("SBI") in a business combination accounted for as a pooling of interests. Total assets acquired amounted to $89,548,000. The consolidated statements for the prior periods have been restated as if the entities had been combined at the beginning of the periods presented. Adjustments to conform the accounting policies of SBI to the accounting policies of the Company were immaterial. 11 12 The effect of the 1995 pooling of interests on previously reported selected operating results is as follows:
YEAR ENDED DECEMBER 31, ---------------------------- 1994 1993 -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Interest income: Company. . . . . . . . . . . . . . . . . . . . . . . . . . $483,474 $443,913 SBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,790 5,552 -------- -------- Combined . . . . . . . . . . . . . . . . . . . . . . . . $489,264 $449,465 ======== ======== Net interest income: Company. . . . . . . . . . . . . . . . . . . . . . . . . . $276,920 $264,411 SBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,735 3,650 -------- -------- Combined . . . . . . . . . . . . . . . . . . . . . . . . $280,655 $268,061 ======== ======== Net income: Company. . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,122 $ 77,292 SBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 817 -------- -------- Combined . . . . . . . . . . . . . . . . . . . . . . . . $ 83,124 $ 78,109 ======== ======== Net income applicable to common and common-equivalent shares: Company. . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,122 $ 70,292 SBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 817 -------- -------- Combined . . . . . . . . . . . . . . . . . . . . . . . . $ 76,124 $ 71,109 ======== ======== Primary earnings per common share: Company. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.83 $ 2.67 SBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . (.03) -- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . . . . . $ 2.80 $ 2.67 ======== ======== Fully diluted earnings per common share: Company. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.74 $ 2.55 SBI. . . . . . . . . . . . . . . . . . . . . . . . . . . . (.03) -- -------- -------- Combined . . . . . . . . . . . . . . . . . . . . . . . . $ 2.71 $ 2.55 ======== ========
On June 30, 1994, the Company issued 590,710 shares to acquire First Dodge City Bancshares, Inc. ("First Dodge") in a business combination accounted for as a pooling of interests. Total assets acquired amounted to $144,999,000. The consolidated statements for the prior periods have been restated as if the entities had been combined at the beginning of the periods presented. Included in "Merger and integration costs" for 1994 is a charge of $1,124,000 to conform the amortization of intangible assets of First Dodge to the Company's accounting policies. Other adjustments to conform the accounting policies of First Dodge to the accounting policies of the Company were immaterial. Also on June 30, 1994, the Company issued 70,300 shares and paid $36,000 in cash to acquire the minority interests of two of First Dodge's subsidiaries. As prescribed by Accounting Principles Board ("APB") Opinion 16, the acquisitions of the minority interests were accounted for as purchases. The fair market value of shares issued and cash paid totaled $2,118,000, which exceeded the net assets acquired by $951,000. Branch Sales At the time Equity Bank for Savings, F.A. ("Equity") was acquired in May 1994, four branches were identified for sale. Three of the branches were sold in 1994. On January 6, 1995, the Company completed the final sale. The combined sales price of these branches was equal to the fair value of assets and liabilities of such branches acquired in the Equity business combination. Accordingly, no gain or loss was recognized on these branch sales. On September 7, 1995, the Company completed the sale of its branch located in Meade, Kansas. As the result of this sale, the Company recognized a gain of $705,000. In the sale transactions, the Company transferred deposit liabilities and sold loans and bank premises. The following table presents information regarding the branches sold in 1995 and 1994. 12 13
1995 1994 ---------- ---------- (In thousands) Fair value of assets sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,577) $ (485) Fair value of liabilities transferred . . . . . . . . . . . . . . . . . . . . . . 21,646 38,048 Reduction of cost in excess of net assets acquired. . . . . . . . . . . . . . . . (132) (1,292) Gain on sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (705) -- -------- -------- Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,232 $ 36,271 ======== ========
On December 19, 1995, the Company entered into an agreement to sell its 3 branches located in Independence, Missouri. The sale of these Missouri branches was required by the merger of the Company and Boatmen's, a Missouri based bank holding company. Missouri law prevents Boatmen's from acquiring Missouri banks and branches of banks because Boatmen's already holds more than the 13% limit of the state's total deposits. This sale is expected to be completed in the second quarter of 1996 and will involve the transfer of approximately $76,000,000 in deposit liabilities and the sale of loans with a carrying value of approximately $45,000,000 and bank premises. 4 - CASH AND DUE FROM BANKS The subsidiary banks are required by federal law to maintain reserves against their deposit liabilities. These reserves can be maintained in the form of vault cash or balances at a Federal Reserve Bank. The average cash and Federal Reserve balances maintained as reserves were $143,303,000 for 1995 and $146,040,000 for 1994. Cash and due from banks also includes checks in process of collection and balances maintained at correspondent banks for services rendered. 5 - SECURITIES Debt securities classified as held-to-maturity are those securities management has the positive intent and the Company has the ability to hold until maturity. The available-for-sale securities include marketable equity securities and those debt securities deemed to be available-for-sale for the implementation of asset and liability management strategies, possible liquidity needs, and other purposes. The following table presents the amortized cost and estimated fair value of debt securities classified as held-to-maturity and carried at amortized cost. Held-to-maturity
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------------------------------------ --------------------------------------------- GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE --------- ---------- ---------- --------- --------- ---------- ---------- --------- (IN THOUSANDS) (IN THOUSANDS) U.S. Treasury obligations. $ 2,505 $ 21 $ (5) $ 2,521 $ 98,971 $ 2 $ (5,996) $ 92,977 Obligations of U.S. government agencies and corporations: Mortgage-backed. . . . . -- -- -- -- 1,582,938 339 (89,978) 1,493,299 Other. . . . . . . . . . 250 -- (2) 248 265,170 33 (14,456) 250,747 Obligations of states and political subdivisions. . 3,292 22 (32) 3,282 8,866 -- (365) 8,501 Other securities: Foreign debt securities. 2,050 -- -- 2,050 2,050 -- (2) 2,048 Money market mutual funds . . . . . . . . . 286 -- -- 286 195 -- -- 195 ---------- ------- ------- -------- ---------- ------- --------- ---------- Total. . . . . . . . . $ 8,383 $ 43 $ (39) $ 8,387 $1,958,190 $ 374 $(110,797) $1,847,767 ========== ======= ======= ======== ========== ======= ========= ==========
13 14 The amortized cost and estimated fair value of the held-to-maturity debt securities at December 31, 1995 are shown below by contractual maturity.
DECEMBER 31, 1995 ------------------------------ ESTIMATED AMORTIZED FAIR COST VALUE --------- --------- (IN THOUSANDS) Due in one year or less . . . . . . . . . . . . . . $ 2,766 $ 2,768 Due after one year through five years . . . . . . . 3,117 3,098 Due after five years through ten years. . . . . . . 2,500 2,521 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . $ 8,383 $ 8,387 ======== ========
The following table presents the amortized cost and estimated fair value of securities classified as available-for-sale and carried at estimated fair value. Available-for-sale
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------------------------------------ --------------------------------------------- GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE --------- ---------- ---------- --------- --------- ---------- ---------- --------- (IN THOUSANDS) (IN THOUSANDS) U.S. Treasury obligations. $ 135,044 $ 2,355 $ -- $ 137,399 $ 286,260 $ 102 $(16,920) $ 269,442 Obligations of U.S. government agencies and corporations: Mortgage-backed. . . . . 1,602,374 7,975 (12,696) 1,597,653 138,838 1,190 (8,049) 131,979 Other. . . . . . . . . . 299,937 4,557 (5) 304,489 283,237 25 (13,891) 269,371 Obligations of states and political subdivisions. . 98,472 6,224 (97) 104,599 167,811 7,883 (888) 174,806 Collateralized credit card receivables. . . . . 53,125 591 -- 53,716 62,579 -- (4,061) 58,518 Corporate notes and bonds. . . . . . . . . . 34,994 539 -- 35,533 41,208 19 (2,567) 38,660 ---------- ------- -------- ---------- ---------- ------- -------- --------- Total debt securities. . 2,223,946 22,241 (12,798) 2,233,389 979,933 9,219 (46,376) 942,776 Equity securities. . . . . 368 79 -- 447 1,290 68 (164) 1,194 ---------- ------- -------- ---------- ---------- ------- -------- --------- Total. . . . . . . . . $2,224,314 $22,320 $(12,798) $2,233,836 $ 981,223 $ 9,287 $(46,540) $ 943,970 ========== ======= ======== ========== ========== ======= ======== =========
The amortized cost and estimated fair value of the available-for-sale debt securities at December 31, 1995 are shown below by contractual maturity.
DECEMBER 31, 1995 ------------------------------ ESTIMATED AMORTIZED FAIR COST VALUE --------- --------- (IN THOUSANDS) Due in one year or less . . . . . . . . . . . . . . $ 35,244 $ 35,765 Due after one year through five years . . . . . . . 538,323 548,875 Due after five years through ten years. . . . . . . 42,674 45,452 Due after ten years . . . . . . . . . . . . . . . . 5,331 5,644 -------- -------- 621,572 635,736 Mortgage-backed securities. . . . . . . . . . . . . 1,602,374 1,597,653 ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . $2,223,946 $2,233,389 ========== ==========
The fair values of securities are based upon available market data and estimates which often reflect transactions of relatively small size and which are not necessarily indicative of prices at which larger amounts of particular issues could be readily sold. Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. 14 15 The following table presents equity securities which do not have a readily determinable fair value and are carried at cost. Other securities
DECEMBER 31, ---------------------------- 1995 1994 -------- -------- (IN THOUSANDS) Federal Home Loan Bank stock. . . . . . . . . . . . $ 33,660 $ 37,886 Federal Reserve Bank stock. . . . . . . . . . . . . 14,311 14,242 Other equity securities . . . . . . . . . . . . . . 1,550 1,549 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . $ 49,521 $ 53,677 ======== ========
The book value of securities pledged to secure public deposits and for other purposes, as required or permitted by law, aggregated $1,219,584,000 at December 31, 1995. In December 1995, the Company securitized variable-rate one-to-four family real estate mortgage loans of $152,501,000 and are holding them in the available-for-sale securities portfolio. Also, concurrent with the adoption of the Financial Accounting Standard Board's November 1995 guidance on FAS 115, "Accounting for Certain Investments in Debt and Equity Securities", securities previously classified as held-to-maturity with an amortized cost of $1,719,412,000 were transferred to the available-for-sale category. At the date of transfer, the unrealized loss on these securities was $7,537,000. The sales price, gains, and losses realized from the sale of available-for-sale investment securities are detailed in the following table. This table does not include proceeds from nor realized gains and losses attributable to prepayments of available-for-sale securities.
1995 1994 -------- -------- (IN THOUSANDS) Sales price of available-for-sale securities. . . . . . . . . . . . . . . $445,891 $603,458 ======== ======== Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,322 $ 8,485 Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . 23,328 4,931 -------- -------- Net gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . $(22,006) $ 3,554 ======== ========
The following table presents the sales price, gains, and losses realized from the sale of securities, prior to the adoption of FAS 115 on December 31, 1993. This table does not include proceeds from nor realized gains and losses attributable to prepayments of securities.
1993 ------------- (IN THOUSANDS) Sales price of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,483 ======== Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 307 Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 -------- Net gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 256 ========
15 16 6 - LOANS AND LEASES The composition of the loan and lease portfolio was as follows:
DECEMBER 31, 1995 DECEMBER 31, 1994 --------------------- --------------------- AMOUNT PERCENT AMOUNT PERCENT ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Commercial: Commercial and industrial . . . . . . . . . . . . . . . . . . $1,046,048 24.4% $1,028,034 25.3% Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . 207,377 4.8 227,367 5.6 Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,591 3.9 129,742 3.2 Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 17,768 .4 25,173 .6 Real estate: Construction. . . . . . . . . . . . . . . . . . . . . . . . 186,091 4.3 135,558 3.3 Permanent commercial real estate and other. . . . . . . . . 773,907 18.1 705,625 17.4 Lease financing . . . . . . . . . . . . . . . . . . . . . . . 68,423 1.6 43,380 1.1 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,441 .3 27,557 .7 ---------- ------ ---------- ------ Total commercial loans. . . . . . . . . . . . . . . . . . . 2,477,946 57.8 2,322,436 57.2 ---------- ------ ---------- ------ Consumer: Secured by 1-4 family residences, less unearned discount. . . 1,020,718 23.8 990,126 24.4 Residential mortgage loans held for sale. . . . . . . . . . . 8,354 .2 1,526 -- Consumer, less unearned discount. . . . . . . . . . . . . . . 488,133 11.4 491,898 12.1 Credit card . . . . . . . . . . . . . . . . . . . . . . . . . 132,931 3.1 130,098 3.2 Educational . . . . . . . . . . . . . . . . . . . . . . . . . 93,752 2.2 82,238 2.0 Auto lease financing. . . . . . . . . . . . . . . . . . . . . 65,997 1.5 43,729 1.1 ---------- ------ ---------- ------ Total consumer loans. . . . . . . . . . . . . . . . . . . . 1,809,885 42.2 1,739,615 42.8 ---------- ------ ---------- ------ Total loans and leases. . . . . . . . . . . . . . . . . . $4,287,831 100.0% $4,062,051 100.0% ========== ====== ========== ======
The Company manages exposure to credit risk through loan portfolio diversification by customer and market, as well as by type. Although the aggregate legal lending limits of the Company's bank subsidiaries totaled $88,054,000 at December 31, 1995, the Company had no single lending relationship with an aggregate loan amount outstanding in excess of $20,000,000. The Company principally lends to businesses and individuals in Kansas, Oklahoma, Missouri, and the contiguous states and to Kansas, Oklahoma, and Missouri based customers that do business in other states. In the ordinary course of business, the Company has made loans to directors and executive officers of the Company and its significant subsidiaries. Loans to these customers were transacted on the same terms, including similar interest rates and collateral terms, as those prevailing at the time for comparable transactions with unrelated persons and, in management's opinion, did not involve more than a normal risk of collectibility or present other unfavorable features at the time they were made. An analysis of aggregate loan activity with this group, including their immediate families, companies in which they are principal owners, and trusts in which they are involved, follows:
1995 -------------- (IN THOUSANDS) Loans outstanding at December 31, 1994. . . . . . . . . . . . . . . . . . . $ 76,552 New loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,518 Repayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,230) Other changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,903) -------- Loans outstanding at December 31, 1995. . . . . . . . . . . . . . . . . . . $ 64,937 ========
Other changes include loans outstanding at December 31, 1994 to directors elected or retired in 1995, loans purchased or sold during the current year, and any other loans outstanding at December 31, 1994 to related individuals or entities not considered to be related parties at December 31, 1995. 16 17 Nonaccrual loans and troubled debt restructurings are summarized below:
DECEMBER 31, --------------------- 1995 1994 -------- -------- (IN THOUSANDS) Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . $31,624 $29,301 Troubled debt restructurings . . . . . . . . . . . . . . . . . . . . 557 503 ------- ------- $32,181 $29,804 ======= =======
The effect of nonaccrual loans and troubled debt restructurings on interest income was:
YEAR ENDED DECEMBER 31, ------------------------------ 1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Interest income which would have been recorded pursuant to the original terms . . . . . . . . . . $5,986 $5,098 $4,060 ====== ====== ====== Interest income recorded . . . . . . . . . . . . . . . . . . $1,868 $1,384 $1,504 ====== ====== ======
7 - ALLOWANCE FOR CREDIT LOSSES Changes in the allowance for credit losses are as follows:
1995 1994 1993 ------- ------- ------- (IN THOUSANDS) Balance at January 1, as previously reported . . . . . . . . . . . . . . . . $71,874 $67,617 $74,395 Adjustment for pooling of interests. . . . . . . . . . . . . . . . . . . . 993 610 674 ------- ------- ------- Balance at January 1, as restated. . . . . . . . . . . . . . . . . . . . . . 72,867 68,227 75,069 Allowance for credit losses of purchased banks . . . . . . . . . . . . . . 1,633 5,449 3,266 ------- ------- ------- 74,500 73,676 78,335 Provisions charged to operating expense. . . . . . . . . . . . . . . . . . 13,068 836 7,037 Recoveries on loans and leases previously charged off. . . . . . . . . . . 12,516 12,562 9,869 Loans and leases charged off . . . . . . . . . . . . . . . . . . . . . . . (30,508) (14,207) (27,014) ------- ------- ------- Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . $69,576 $72,867 $68,227 ======= ======= =======
Effective January 1, 1995, the Company adopted FAS No. 114, "Accounting by Creditors for Impairment of a Loan." Under the new standard, the amount of the allowance for credit losses related to individual loans that are identified for evaluation in accordance with FAS No. 114 is determined based on estimates of expected cash flows on each such loan which are then discounted using that loan's effective interest rate. Alternatively, the fair value of the collateral is used to determine the allowance for credit losses related to identified collateral dependent loans. The determination of the allowance for credit losses for the remainder of the loan portfolio takes into consideration the risk classification of loans and the application of loss estimates to these classifications. At December 31, 1995, the recorded investment in loans that are considered to be impaired under FAS No. 114 was $12,281,000 (all of which were being accounted for on a nonaccrual basis). The related allowance for credit losses was $5,322,000. The average recorded investment in impaired loans for the year ended December 31, 1995 was approximately $16,166,000. For the year ended December 31, 1995 the Company recognized interest income on these impaired loans of $881,000, using the cash basis method of income recognition. 17 18 8 - BANK PREMISES AND EQUIPMENT A summary of land, buildings, and equipment appears below:
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------------------- -------------------------------- ACCUMULATED BOOK ACCUMULATED BOOK COST DEPRECIATION VALUE COST DEPRECIATION VALUE -------- ------------ ------- -------- ------------ -------- (IN THOUSANDS) Land . . . . . . . . . . . . . . . . . . $ 27,211 $ -- $ 27,211 $ 26,367 $ -- $ 26,367 Buildings and leasehold improvements . . 181,817 83,176 98,641 172,821 77,715 95,106 Furniture and equipment. . . . . . . . . 126,470 89,765 36,705 121,348 83,936 37,412 -------- -------- -------- -------- -------- -------- Total. . . . . . . . . . . . . . . . $335,498 $172,941 $162,557 $320,536 $161,651 $158,885 ======== ======== ======== ======== ======== ========
Depreciation expense amounted to $17,894,000 in 1995, $17,896,000 in 1994, and $16,285,000 in 1993. 9 - INTANGIBLE ASSETS Included in intangible assets are the following items:
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------------------- -------------------------------- ACCUMULATED BOOK ACCUMULATED BOOK COST AMORTIZATION VALUE COST AMORTIZATION VALUE -------- ------------ ------- -------- ------------ -------- (IN THOUSANDS) Cost in excess of net assets acquired . . $102,208 $30,125 $72,083 $ 96,795 $24,813 $71,982 Value of core deposits assumed. . . . . . 29,179 19,651 9,528 29,180 16,453 12,727 Purchased credit card relationships . . . 9,381 2,712 6,669 9,300 1,049 8,251 Purchased mortgage servicing rights . . . 7,612 5,799 1,813 7,886 5,240 2,646 -------- ------- ------- -------- ------- ------- $148,380 $58,287 $90,093 $143,161 $47,555 $95,606 ======== ======= ======= ======== ======= =======
The cost of purchased entities in excess of the fair value of net assets acquired is being amortized on a straight-line basis over a period of twenty years. The value of core deposits assumed, purchased credit card relationships, and the purchased mortgage servicing rights are being amortized using accelerated methods over the estimated periods benefitted, not exceeding ten years. 10 - DEPOSITS The book values of deposits are presented below:
DECEMBER 31, --------------------------- 1995 1994 ---------- ---------- (IN THOUSANDS) Noninterest-bearing deposits . . . . . . . . . . . . . . . . . . . . . $1,033,024 $1,049,118 Interest-bearing deposits: Regular savings and interest checking . . . . . . . . . . . . . . . . 1,105,143 1,197,577 Money market savings. . . . . . . . . . . . . . . . . . . . . . . . . 1,378,194 912,965 Time deposits under $100,000. . . . . . . . . . . . . . . . . . . . . 2,182,020 2,159,435 Time deposits of $100,000 or more . . . . . . . . . . . . . . . . . . 347,713 405,501 ---------- ---------- Total interest-bearing deposits . . . . . . . . . . . . . . . . . . 5,013,070 4,675,478 ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,046,094 $5,724,596 ========== ==========
18 19 11 - PURCHASED FUNDS, BORROWINGS, AND LONG-TERM DEBT The following schedules summarize, by category, purchased funds, borrowings, and long-term debt. Federal funds purchased and securities sold under agreements to repurchase
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------- ------------------- AMOUNT RATE AMOUNT RATE -------- ------ -------- ------ (DOLLARS IN THOUSANDS) Federal funds purchased . . . . . . . . . . . . . . . . . . . . $ 98,700 5.60% $391,970 5.85% Securities sold under agreements to repurchase. . . . . . . . . 443,068 5.16 541,736 5.66 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $541,768 5.24 $933,706 5.74 ======== ========
Federal funds purchased and securities sold under agreements to repurchase generally mature daily or on demand. Federal Home Loan Bank borrowings
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------- ------------------- AMOUNT RATE AMOUNT RATE -------- ------ -------- ------ (DOLLARS IN THOUSANDS) Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . $ 93,498 5.24% $441,097 5.72% ======== ========
At December 31, 1995, Federal Home Loan Bank ("FHLB") borrowings included $43,900,000 with an average rate of 5.12% that matures in 1996. The remaining balance matures in 1997 ($24,685,000), and 1998 ($24,913,000). Other borrowings
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------- ------------------- AMOUNT RATE AMOUNT RATE -------- ------ -------- ------ (DOLLARS IN THOUSANDS) Treasury tax and loan . . . . . . . . . . . . . . . . . . . . . $21,500 5.32% $23,001 5.20% Note payable. . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 20,000 6.19 ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,500 5.32 $43,001 5.66 ======= =======
Treasury tax and loan borrowings generally mature daily or on demand. The $20,000,000 note payable at December 31, 1994 was borrowed under the Company's committed line of credit from a correspondent bank. This committed line of credit was replaced by two new credit agreements, entered into on January 3, 1995. This borrowing was subsequently repaid during 1995. The January 3, 1995 credit agreements provided that the Company could borrow up to $100,000,000 on a revolving basis at any time prior to January 3, 1996. Amounts borrowed under the credit agreements could have maturities not to exceed 90 days. Interest rates based on, at the Company's option, the lenders' published "reference rate" or rates tied to the London Interbank Offered Rate existed. A facility fee was charged on these commitments. The Company was required to maintain consolidated stockholders' equity at a certain level and maintain specific ratios related to leverage, risk-based capital, and nonperforming assets. The Company was in compliance with these covenants at December 31, 1995. When these credit agreements expired on January 3, 1996, they were not renewed by the Company. 19 20 Long-term debt
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------- ------------------- AMOUNT RATE AMOUNT RATE -------- ------ -------- ------ (DOLLARS IN THOUSANDS) Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- --% $4,375 8.60% Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 3,077 7.41 Mortgage indebtedness and other notes payable . . . . . . . . . . 166 9.97 310 10.85 ------ ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166 9.97 $7,762 8.22 ====== ======
The parent company's term loan with an unaffiliated bank required semiannual installments of $4,375,000, the last of which was paid in March 1995. The $3,077,000 of notes payable in 1994 is the result of the current year pooling of interests acquisition. The acquired balance was paid off at the acquisition date. Certain buildings and real estate have been pledged as collateral on mortgage indebtedness and other notes payable. Maturities of this long-term debt for years subsequent to December 31, 1995, are as follows:
Years ended December 31, (IN THOUSANDS) ------------------------- -------------- 1996 . . . . . . . . . . . . . $ 2 1997 . . . . . . . . . . . . . 2 1998 . . . . . . . . . . . . . 2 1999 . . . . . . . . . . . . . 2 2000 . . . . . . . . . . . . . 2 Thereafter . . . . . . . . . . 156 ---- Total . . . . . . . . . . . . $166 ====
12 - PREFERRED STOCK
DECEMBER 31, ------------------------ 1995 1994 -------- -------- (DOLLARS IN THOUSANDS) Class A cumulative convertible preferred stock, par value $100 per share Authorized: 250,000 shares Issued: 248,310 and 250,000 shares (at liquidation preference) . $ 99,324 $100,000 Class B preferred stock, no par value Authorized: 5,000,000 shares . . . . . . . . . . . . . . . . . . -- -- -------- -------- $ 99,324 $100,000 ======== ========
On February 24, 1992, the Company issued 250,000 shares of nonvoting Class A Cumulative Convertible Preferred Stock. This preferred stock was issued in the form of 4,000,000 depositary shares each representing a 1/16 interest in a share of preferred stock and each having a liquidation preference of $25.00. Dividends are payable quarterly (beginning June 1, 1992) at an annual rate of $1.75 per depositary share. The depositary shares are not redeemable by the Company prior to March 1, 1997. However, they may be converted at the election of shareholders into shares of the Company's common stock at a conversion price of $29.00 per common share. At December 31, 1995, there were 3,972,960 depositary shares outstanding which could be converted into 3,424,972 shares of the Company's common stock. At the Company's annual meeting in April 1992, the stockholders authorized 5,000,000 shares of a new class of preferred stock, designated Class B Preferred Stock. The Board of Directors has been authorized to set the dividend, voting, conversion, redemption, and other rights of this stock when and if issued. 20 21 13 - MERGER AND INTEGRATION COSTS The components of merger and integration costs related to the 1995, 1994, and 1993 pooling-of-interests transactions are detailed in the following schedule.
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Premises and equipment writedowns . . . . . . . . . . . . . . . $ -- $ 389 $1,252 Severance and other compensation. . . . . . . . . . . . . . . . -- 948 2,970 Systems conversion costs. . . . . . . . . . . . . . . . . . . . -- 402 1,579 Legal, accounting, and other transaction costs. . . . . . . . . 28 386 829 Conform intangible asset amortization policies. . . . . . . . . -- 1,124 -- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 338 1,004 ------ ------ ------ $ 28 $3,587 $7,634 ====== ====== ======
14 - INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FAS No. 109, "Accounting for Income Taxes." Shown separately in the 1993 Statement of Income is the cumulative effect on adopting FAS No. 109 as of January 1, 1993 which increased net income by $10,582,000. At December 31, 1995, the Company had net operating loss and general business credit carryforwards of $48,798,000 and $172,000, respectively, which can be carried forward to reduce future federal income taxes payable. These carryforwards are principally related to previous losses of banks acquired from 1992 through 1995. Utilization of the carryforwards is limited by tax law to the future earnings of and other limits on the use of tax attributes of acquired companies. Net operating loss carryforwards expire in years 2000 through 2008 and general business credit carryforwards expire in years 1996 through 2001 if not utilized. For financial reporting purposes, a valuation allowance of $10,552,000 has been recognized to offset the deferred tax assets related to these carryforwards and other deferred tax assets whose realization is uncertain. If realized, the tax benefit of $11,794,000 of net operating loss carryforwards will be applied to reduce "cost in excess of net assets acquired" recorded in connection with acquisitions accounted for as purchases. The net change in the valuation allowance for deferred tax assets for 1995 was a decrease of $2,015,000. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of 21 22 the Company's deferred tax liabilities and assets as of December 31, 1995 and December 31, 1994 are as follows:
December 31, --------------------------- 1995 1994 ---------- ---------- (IN THOUSANDS) Deferred tax assets: Provision for credit losses . . . . . . . . . . . . . . . . . . . . . $26,644 $22,829 Net operating loss carryforwards. . . . . . . . . . . . . . . . . . . 22,937 29,575 Securities fair value adjustment. . . . . . . . . . . . . . . . . . . -- 14,347 Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . 3,494 2,584 Core deposit amortization . . . . . . . . . . . . . . . . . . . . . . 2,072 2,163 Write-down of other real estate owned . . . . . . . . . . . . . . . . 1,763 1,808 Pension contribution. . . . . . . . . . . . . . . . . . . . . . . . . 999 1,093 Merger and integration costs accrual. . . . . . . . . . . . . . . . . 920 1,399 Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,259 -- ------- ------- Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . 60,088 75,798 Valuation allowance for deferred tax assets . . . . . . . . . . . . . (10,552) (12,567) ------- ------- Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . 49,536 63,231 ------- ------- Deferred tax liabilities: Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,503) (3,798) Purchase accounting adjustment. . . . . . . . . . . . . . . . . . . . (5,338) (6,492) Depreciation expense. . . . . . . . . . . . . . . . . . . . . . . . . (4,042) (2,657) Discount accretion. . . . . . . . . . . . . . . . . . . . . . . . . . (3,873) (4,519) Securities fair value adjustment. . . . . . . . . . . . . . . . . . . (3,724) -- Loan origination fees . . . . . . . . . . . . . . . . . . . . . . . . (2,006) (1,226) State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (981) (3,184) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (730) ------- ------- Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . (28,467) (22,606) ------- ------- Net deferred tax asset (liability). . . . . . . . . . . . . . . . . $21,069 $40,625 ======= =======
Significant components of the provision for income taxes are as follows:
Year Ended December 31, ----------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- (In thousands) Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . $24,509 $29,467 $24,580 State . . . . . . . . . . . . . . . . . . . . . . . . . . 9,152 4,928 4,037 ------- ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . 33,661 34,395 28,617 ------- ------- ------- Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . 2,764 7,121 (5,862) State . . . . . . . . . . . . . . . . . . . . . . . . . . (1,332) (650) 225 ------- ------- ------- Total . . . . . . . . . . . . . . . . . . . . . . . . . 1,432 6,471 (5,637) ------- ------- ------- Total income tax expense. . . . . . . . . . . . . . . $35,093 $40,866 $22,980 ======= ======= =======
Tax effects of investment securities transactions included in the above amounts are a tax benefit of $7,616,000 in 1995 and tax expenses of $1,271,000 and $544,000 in 1994 and 1993, respectively. The effective income tax rates differ from the federal statutory rates for the reasons shown in the following table.
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 ------------------- ------------------- ------------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE ---------- -------- ---------- -------- ---------- -------- (DOLLARS IN THOUSANDS) Income tax expense at federal statutory rate . . . $33,694 35.0% $43,398 35.0% $31,707 35.0% Tax-preferred income on obligations of states, political subdivisions, and U.S. possessions. . . (4,449) (4.6) (5,776) (4.7) (6,627) (7.3) Goodwill and purchase accounting amortization. . . 1,925 2.0 1,027 .8 1,271 1.4 State taxes, net of federal income tax benefit . . 3,806 4.0 2,695 2.2 2,752 3.0 Benefit of net operating losses and alternative minimum tax credits . . . . . . . . . -- -- (927) (.7) (4,090) (4.5) Other, net . . . . . . . . . . . . . . . . . . . . 117 .1 449 .4 (2,033) (2.2) ------- ---- ------- ---- ------- ----- Actual income tax expense. . . . . . . . . . . $35,093 36.5% $40,866 33.0% $22,980 25.4% ======= ==== ======= ==== ======= ====
22 23 15 - EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have two types of pension plans. The Company's defined benefit plan covers substantially all employees. The supplemental executive retirement plan provides for payments equal to the benefit which would have been paid under the pension plan and the savings and investment plan if certain Internal Revenue Code limitations had not been imposed including Section 415, Section 401(a)(17), and the Section 401(a)(4) prohibition on deferred compensation as eligible compensation under the pension plan. The plans' funded status and amounts included in the consolidated financial statements are presented below:
DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------------- ------------------------- SUPPLEMENTAL SUPPLEMENTAL DEFINED EXECUTIVE DEFINED EXECUTIVE BENEFIT RETIREMENT BENEFIT RETIREMENT PLAN PLAN PLAN PLAN ---------- ------------ ---------- ------------ (IN THOUSANDS) Actuarial present value of benefit obligations: Vested benefit obligation . . . . . . . . . . . . . . . . $(24,218) $(1,180) $(19,360) $ (838) ======== ======= ======== ======= Accumulated benefit obligation. . . . . . . . . . . . . . $(25,914) $(1,387) $(20,765) $ (915) ======== ======= ======== ======= Projected benefit obligation. . . . . . . . . . . . . . . $(36,864) $(2,080) $(27,223) $(1,120) Plan assets, at fair value. . . . . . . . . . . . . . . . . 25,756 -- 20,375 -- -------- ------- -------- ------- Funded status . . . . . . . . . . . . . . . . . . . . . . . (11,108) (2,080) (6,848) (1,120) Prior service benefit not yet recognized in periodic pension cost, being amortized over 10 years. . . . . . . . (2,272) (80) (1,311) (7) Unrecognized net (asset) obligation from date of initial application, being amortized over 15 years . . . . (1,821) 74 (2,181) 89 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions. . 13,959 1,035 8,525 201 -------- ------- -------- ------- Accrued pension cost included in consolidated statements of condition . . . . . . . . . . $ (1,242) $(1,051) $ (1,815) $ (837) ======== ======= ======== =======
The assets of the defined benefit plan are administered by the trust division of a subsidiary bank and consist of a wide variety of diversified securities including common stocks, corporate bonds, and U.S. Treasury obligations. During 1994, the trust's investments in commingled funds for qualified employee benefit accounts were converted to the Funds IV equity and bond mutual funds. Contributions to the plan are based upon the Projected Unit Credit Actuarial Funding method and are limited to amounts that are currently deductible for tax reporting purposes. 23 24 Net pension cost includes the following components:
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Service cost-benefits earned during the year. . . . . . . . . . $3,384 $2,968 $2,329 Interest cost on the projected benefit obligation . . . . . . . 2,212 1,891 1,579 Actual (return) loss on plan assets . . . . . . . . . . . . . . (3,861) 419 (2,119) Net amortization and deferrals. . . . . . . . . . . . . . . . . 2,174 (2,167) 691 ------ ------ ------ Net periodic pension cost . . . . . . . . . . . . . . . . . . $3,909 $3,111 $2,480 ====== ====== ======
Assumptions used in the accounting include:
AS OF DECEMBER 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- Discount rates. . . . . . . . . . . . . . . . . . . . . . . . . 7.25% 8.00% 7.00% Average rates of increase in compensation levels. . . . . . . . 4.70% 4.70% 4.70% Expected long-term rate of return on assets . . . . . . . . . . 8.75% 8.75% 8.75%
The Company and its subsidiaries also maintain a contributory savings and investment plan for substantially all employees. The savings and investment plan and related trust qualify under Section 401 of the Internal Revenue Code as a qualified profit-sharing plan and trust. According to the plan, an employee may contribute from 2% to 4% of base salary, which the employer then supplements with a contribution of 50% of the employee's contributed amount. Employees may contribute up to an additional 11% of base salary in pre-tax dollars, but without further employer contributions. The plan also provides for an additional matching contribution of up to an additional 2% of the employee's eligible compensation based on the Company's achievement of established earnings-per-share targets. Vesting in the employer contributions ranges from 20% with three years to 100% with seven years of service. During 1995, employees could elect to invest in one or more of five investment funds, in 10% increments. These funds included a Fourth Financial Corporation common stock fund, a fixed-income fund, an equity fund, an international equity fund, and a money market fund. Forfeitures are used to reduce the Company's contributions. The expense for this plan plus similar plans of pooled companies which were merged with this plan was $1,176,000 in 1995, $2,438,000 in 1994, and $2,046,000 in 1993. Additional matching contributions of $633,000 and $933,000, which were attributable to the achievement of performance goals, were paid for 1994 and 1993, respectively. The Company does not provide medical coverage for employees subsequent to retirement. Approximately 53 employees who retired prior to January 1, 1995, who were between age 55 and age 65 ("Early retirees") at retirement and who had at least ten years' service have continued participation in the Company's health plan until age 65, but the plan requires that the full cost of providing coverage under the plan be paid by the covered retirees. FAS No. 106, which establishes accounting standards for "Employers' Accounting for Postretirement Benefits Other Than Pensions," was not adopted as it would not have a material effect on the Company's statement of condition and operating results. 16 - STOCK OPTION AND STOCK PURCHASE PLANS The Company grants options to key employees under incentive stock option plans at prices equal to the market value on the date of grant. Terms of the plans generally provide for the exercise of the options for periods of up to ten years, as determined by the Board of Directors. Each plan provides for accelerated exercise rights for holders of options in case of a change in control, which occured on December 12, 1995 upon the approval by the Company's shareholders of the acquisition of the Company by Boatmen's. The following schedule details the shares reserved for issuance at December 31, 1995 under each of the plans, as well as the number of shares under option and exercisable at the end of the year. Options may no longer be granted under the plans. 24 25
DECEMBER 31, 1995 ------------------------------------------------------ SHARES SHARES RESERVED FOR UNDER SHARES ISSUANCE OPTION EXERCISABLE ------------ ---------- ----------- 1993 Stock Option Plan . . . . . . . . . . . . . . . . 910,838 424,088 424,088 1986 Stock Option Plan . . . . . . . . . . . . . . . . 443,723 392,394 392,394 1981 Stock Option Plan . . . . . . . . . . . . . . . . 108,514 41,348 41,348 --------- ------- ------- 1,463,075 857,830 857,830 ========= ======= =======
The 1993 Plan provides that any unvested options vest fully and are immediately exercisable upon a change in control. Boatmen's agreed to assume the outstanding options following the merger, with the options continuing to be fully vested and constituting options to acquire Boatmen's common stock until they expire or otherwise become unexercisable in accordance with their terms. Unvested options under the 1986 Plan do not become vested upon a change in control. Holders of options under this plan have the right to exercise all options, including unvested options, during the 30-day period commencing on the date of a merger approval. Following this 30-day period, vested options remain vested and unvested options continue to vest according to the original vesting schedule. Under the agreement with Boatmen's, following the merger the options would continue to vest on their original vesting schedule and constitute options to acquire Boatmen's common stock. All incentive stock options under the 1981 Plan are vested and constitute options to acquire Boatmen's common stock following the merger. The following table presents information regarding stock option transactions and prices:
SHARES UNDER OPTION ------------------------------------------------------------------------- 1995 1994 1993 ----------------------- ----------------------- ----------------------- PRICE PRICE PRICE NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE ---------- ------------ ---------- ------------ ---------- ------------ Balance at January 1 . . . . . . . 1,370,894 $17.00-31.06 798,038 $17.00-30.38 684,339 $14.80-29.88 Granted. . . . . . . . . . . . . . 7,500 30.75-33.00 685,000 26.75-31.06 299,100 27.50-30.38 Exercised. . . . . . . . . . . . . (481,414) 17.00-31.06 (85,305) 17.00-28.75 (172,747) 14.80-23.20 Terminated or canceled . . . . . . (39,150) -- (26,839) -- (12,654) -- --------- --------- -------- Balance at December 31 . . . . . . 857,830 17.00-33.00 1,370,894 17.00-31.06 798,038 17.00-30.38 ========= ========= ========
An optionee may pay the option exercise price by tendering stock of the Company having a market value equal to the exercise price. The optionee must have held the tendered stock for at least six months before it can be used to exercise an option. Transactions under this program are accounted for as the purchase and reissuance of treasury stock. The following is a summary of activity:
1995 1994 1993 ---------- ---------- ---------- Shares tendered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,011 17,899 45,399 Shares issued under the stock option plans (including reissued treasury stock). . . . . . . . . . . . . . . . . . . . . . . . 71,986 22,785 75,720
An optionee also may borrow the amount of the option exercise price from the Company. The loans under this program bear interest at the prime rate of an unaffiliated bank, adjusted quarterly. All loans outstanding at December 31, 1995 under this program mature on December 5, 1996. At a minimum, Company stock valued at 125% of the loan amount must collateralize the loan. Such loans, which amounted to $3,444,000 and $1,894,000 at December 31, 1995 and 1994, respectively, are reported as a reduction of stockholders' equity. The Fourth Financial Corporation 1993 Non-Employee Directors Stock Option Plan (the "Directors Option Plan") was approved by stockholders and adopted in 1993. The Directors Option Plan provides that each year, on the first Monday following the 25 26 Company's annual meeting of stockholders, each non-employee director of the Company will automatically receive an option to acquire 2,000 shares of the Company's common stock and each non-employee director of the Company's subsidiaries will automatically receive an option to acquire 1,000 shares of the Company's common stock. Options issued under the plan are immediately exercisable and will expire ten years from the date of grant. Following the merger, Boatmen's will assume sponsorship of the plan; however, no new options will be granted under the plan. At December 31, 1995, there were 483,400 shares reserved for issuance under the plan of which 103,400 were under option. The following table presents information regarding stock option transactions and prices under the Directors Option Plan:
SHARES UNDER OPTION ------------------------------------------------------------------------- 1995 1994 1993 ----------------------- ----------------------- ----------------------- PRICE PRICE PRICE NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE ---------- ------------ ---------- ------------ ---------- ------------ Balance at January 1. . . . . . . . . 81,700 $27.50-29.50 43,000 $29.50 -- -- Granted . . . . . . . . . . . . . . . 38,000 31.50 44,000 27.50 44,000 29.50 Exercised . . . . . . . . . . . . . . (16,300) 27.50-31.50 (300) 27.50 -- -- Terminated or canceled. . . . . . . . (3,000) -- (5,000) -- (1,000) -- ------- ------- ------- Balance at December 31. . . . . . . . 100,400 27.50-31.50 81,700 27.50-29.50 43,000 29.50 ======= ======= =======
Under the 1988 Employee Stock Purchase Plan, which expired in April, 1993, and the 1993 Employee Stock Purchase Plan which replaced it, employees are offered the option to purchase shares of the Company's common stock at 85% of the lower of the fair market value of such shares on the date granted or one year thereafter. Options issued under the plan are exercisable one year from the date of grant. With the shareholders' approval of the acquisition of the Company by Boatmen's, stock options granted on May 1, 1995 in Offering Three under the 1993 Plan became fully vested and immediately exercisable on December 12, 1995. After the merger, the options will constitute options to purchase Boatmen's common stock. At December 31, 1995, 468,776 shares were reserved for issuance, including 157,050 shares under option which are exercisable through April 30, 1996. Additional data regarding the Employee Stock Purchase Plan are as follows:
SHARES UNDER OPTION ------------------------------------------------------------------------- 1995 1994 1993 ----------------------- ----------------------- ----------------------- PRICE PRICE PRICE NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE ---------- ------------ ---------- ------------ ---------- ------------ Balance at January 1. . . . . . . 242,694 $23.74 180,597 $24.81 165,078 $23.06 Granted . . . . . . . . . . . . . 296,075 26.56 268,384 23.74 192,109 24.81 Exercised . . . . . . . . . . . . (227,471) 23.74-26.56 (53,753) 23.74 (71,259) 23.06 Terminated or canceled. . . . . . (154,248) -- (152,534) -- (105,331) -- -------- -------- -------- Balance at December 31. . . . . . 157,050 26.56 242,694 23.74 180,597 24.81 ======== ======== ========
17 - EARNINGS PER COMMON SHARE Earnings per common share are based on the following weighted average numbers of shares outstanding.
1995 1994 1993 ---------- ---------- ---------- Primary . . . . . . . . . . . . . . . . . . . . . . . . . . 27,629,855 27,229,657 26,639,549 Fully diluted . . . . . . . . . . . . . . . . . . . . . . . 31,065,028 30,677,932 30,670,263
Primary earnings per common share were computed by dividing net income applicable to common and common-equivalent shares by the weighted average common and common-equivalent shares outstanding during the period (common share equivalents include the preferred stock of pooled companies). Fully diluted earnings per common share were computed by adjusting net income for interest expense (net of income taxes) associated with pooled companies' convertible debt. The adjusted net income was then divided by the weighted average of common and common-equivalent shares outstanding plus the number of shares which would have been outstanding during the year had the Class A convertible preferred stock and the pooled companies' convertible debt and preferred stock been converted in accordance with their respective governing instruments. For the year ended December 31, 1995, fully diluted earnings per common share were the same as primary earnings per common share since the effect of the convertible preferred stock was anti-dilutive. Stock options outstanding have been excluded from the computations as they were not materially dilutive. 26 27 18 - DIVIDENDS PER COMMON SHARE Dividends per common share represent the Company's historical dividends declared without adjustment for the poolings of interests. The following table presents dividends declared by entities pooled during 1995, 1994, and 1993 prior to their combinations with the Company.
1995 1994 1993 --------------------- --------------------- --------------------- PER PER PER EQUIVALENT EQUIVALENT EQUIVALENT POOLED ENTITY HISTORICAL SHARE HISTORICAL SHARE HISTORICAL SHARE - --------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Standard Bancorporation, Inc. . . . . . $ .-- $ .-- $ .-- $ .-- $ .-- $ .-- First Dodge City Bancshares, Inc. . . . n/a n/a 58.46 .52 132.00 1.17 Southgate Banking Corporation . . . . . n/a n/a n/a n/a -- -- Nichols Hills Bancorporation, Inc. . . n/a n/a n/a n/a .43 .48 Commercial Landmark Corporation . . . . n/a n/a n/a n/a .93 .72 Western National Bancorporation, Inc. . n/a n/a n/a n/a -- -- Ponca Bancshares, Inc. . . . . . . . . n/a n/a n/a n/a .99 .81
19 - RESTRICTIONS ON INTERCOMPANY FUNDS TRANSFERS Restrictions imposed by federal law limit the transfer of funds to the Company and certain other affiliates from a subsidiary bank in the form of loans or other extensions of credit, investments, and purchases of assets. Transfers by a subsidiary bank to the Company or any such single affiliate may not exceed 10% and transfers in the aggregate may not exceed 20% of the bank's capital, surplus, and undivided profits, after adding back the allowance for credit losses and subtracting certain intangibles. Based on these limitations, approximately $58,319,000 was available for transfer to the Company at December 31, 1995. In addition, the approval of the Comptroller of the Currency is required if dividends declared by any of the Company's national bank subsidiaries in 1996 exceed the bank's net profits for that year combined with its retained net profits for 1994 and 1995. In 1996, the subsidiary banks may distribute to the Company (in addition to their 1996 net profits) an aggregate of approximately $17,041,905 in dividends without approval from regulatory agencies. 20 - DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business in meeting the investment and financing needs of its customers and managing its own exposure to fluctuations in interest rates, the Company is a party to various financial instruments. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Statements of Condition. Derivative financial instruments held for trading purposes: The Company enters into forward foreign currency contracts primarily to assist customers with their foreign currency needs related to foreign manufacturing operations, exporting, or importing. These customer-driven contracts are generally hedged with offsetting contracts. The Company's net position in forward foreign currency contracts plus due from bank accounts denominated in foreign currencies cannot exceed $2,500,000 on a daily basis. The market value gains and losses relating to forward foreign currency contracts are recorded at settlement in "Other noninterest income." The contracts held at December 31, 1994 all matured by March 1995. The contracts outstanding at December 31, 1995 will all mature by February 15, 1996. The Company maintains a trading account in which it takes positions in the interest-rate futures markets based on expectations of future market conditions. Interest rate futures contracts are commitments to either purchase or sell designated financial instruments at a future date for a specified price and may be settled in cash or through delivery of the financial instrument. Initial margin requirements are met in cash or other instruments and changes in the contract value are settled daily and the gains or losses recorded in "Other noninterest income." The interest rate futures generally have contractual terms of up to six months, 27 28 although the instruments are rarely held that long. It is the Company's policy to limit the contracts outstanding to $5,000,000. The contract amounts of derivative financial instruments held for trading purposes at December 31, 1995 and 1994 were as follows:
CONTRACT AMOUNT ----------------------- DECEMBER 31, ----------------------- 1995 1994 -------- -------- (IN THOUSANDS) Forward foreign currency contracts Commitments to purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $363 $390 Commitments to sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505 461 Interest rate futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
The following table presents the fair value of derivatives held for trading purposes at December 31, 1995 and 1994 and on average for the years ended December 31, 1995 and 1994.
1995 1994 -------------------- -------------------- FAIR VALUE FAIR VALUE -------------------- -------------------- AVERAGE AVERAGE YEAR-END FOR YEAR YEAR-END FOR YEAR -------- -------- -------- -------- (IN THOUSANDS) (IN THOUSANDS) Forward foreign currency contracts Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 504 $ 612 $ 464 $ 1,989 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 365 581 394 1,991 Interest rate futures contracts Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- -- $ -- $ -- Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . -- -- - ------------ Less than $1,000.
The fair values of forward foreign currency and interest rate futures contracts represent an estimate of the accounting loss the Company would incur if any party to the financial instrument failed completely to perform and any collateral proved to be of no value to the Company. The net trading revenues arising from the Company's derivative trading activities for 1995 totalled $67,000. Derivative financial instruments held for purposes other than trading: From time to time, interest rate swaps are used to modify the interest sensitivity position inherent in the repricing characteristics of specific assets or liabilities. Interest rate swaps involve the contractual exchange of fixed and floating rate interest payments based on established notional amounts. The notional amounts do not represent direct credit exposure. Credit exposure is limited to the net difference between the calculated pay and receive amounts on each transaction which is accrued as interest receivable or payable and generally netted and settled quarterly. The net interest accrued and received or paid on the interest rate swaps is accounted for as an adjustment to the interest income or interest expense on the assets or liabilities, respectively, that the swap was intended to modify. Net interest income for 1995 and 1994 includes $580,000 and $1,544,000, respectively, attributable to interest rate swaps. 28 29 At December 31, 1995 and 1994 interest rate swaps were as follows:
DECEMBER 31, 1995 -------------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE RATE NOTIONAL AVERAGE ------------------------ AMOUNT TERM RECEIVED PAID ---------- -------- ---------- ------ (IN THOUSANDS) Receive fixed rate . . . . . . . . . . . . $123,000 8 months 6.14% 5.93% DECEMBER 31, 1994 -------------------------------------------------------------- WEIGHTED WEIGHTED AVERAGE RATE NOTIONAL AVERAGE ------------------------ AMOUNT TERM RECEIVED PAID ---------- -------- ---------- ------ (IN THOUSANDS) Receive fixed rate . . . . . . . . . . . . $151,000 18 months 6.05% 5.90% Pay fixed rate . . . . . . . . . . . . . . 100,000 4 months 5.79% 4.25% - ------------ The term of $50.0 million of these swaps may extend up to an additional 48 months after the initial term depending on the level of the 3-month LIBOR rate at the end of the initial term (May 1996) and each quarter thereafter as compared to the 3-month LIBOR rate when the swaps were initiated. If the 3-month LIBOR rate is less than approximately 4.2% in May 1996 none of the $50.0 million swap will continue. A 3-month Libor rate in excess of approximately 7.2% will result in an extention of the entire $50.0 million swap. At LIBOR rates between 4.2% and 7.2% the amount of the swap continuing is linearly interpolated. At December 31, 1995, the 3-month LIBOR rate was 5.66%.
Activity in interest rate swaps is summarized below:
RECEIVE PAY Fixed Rate FIXED RATE ---------- ---------- (NOTIONAL AMOUNTS, IN THOUSANDS) Balance, January 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,000 $200,000 Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 -- Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (100,000) -------- -------- Balance, December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,000 100,000 -------- -------- Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000) (100,000) -------- -------- Balance, December 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . $123,000 $ -- ======== ========
At December 31, 1995, the Company was committed under a $10,000,000 Master Agreement with the Federal National Mortgage Association (the "FNMA Agreement") and a $5,000,000 Master Agreement with the Federal Home Loan Mortgage Corporation (the "FHLMC Agreement") to sell $8,088,000 and $1,908,000, respectively, of 10- to 30-year fixed-rate residential mortgage loans. The FNMA Agreement requires delivery by September 30, 1996 and the FHLMC Agreement requires delivery by April 30, 1996. Other financial instruments with off-balance-sheet risk: Single-family mortgage loans which the Company's subsidiaries originate for sale are sold without recourse. However, the Company is obligated under recourse provisions related to $19,755,000 of loans associated with its purchased mortgage servicing. The Company assesses the credit risk of these and other loan commitments when evaluating the adequacy of the allowance for credit losses. Commitments to extend credit are agreements to lend to a customer as long as the customer is in compliance with the conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company uses the same credit policies in making 29 30 commitments as it does for direct extensions of credit. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, real estate, equipment, and income-producing commercial properties. Standby letters of credit irrevocably obligate the issuing bank to pay a third-party beneficiary when a customer fails to repay an outstanding debt instrument or fails to perform some contractual non-financial obligation. Standby letters of credit are primarily issued to secure bonds from insurance companies, provide security for self-insured portions of workers compensation insurance, and collateralize guaranties or secure loans to other financial institutions. A commercial letter of credit is issued to facilitate trade or commerce. Under the terms of a commercial letter of credit, drafts will be drawn when the underlying transaction is consummated as intended. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Substantially all letters of credit mature within two years. The following table summarizes the contract amount of the Company's commitments to extend credit.
CONTRACT AMOUNT ------------------------ DECEMBER 31, ------------------------ 1995 1994 ---------- ---------- (IN THOUSANDS) Commitments to extend credit: Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 134,778 $101,771 Commercial letters of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . 19,100 24,181 Credit card lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 497,497 480,809 Funding of 1-4 family residential mortgage loans. . . . . . . . . . . . . . . . . 49,976 54,281 Other loan commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,493,716 1,332,383
21 - FAIR VALUES OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and fair values of the Company's financial instruments at December 31, 1995 and 1994.
1995 1994 ------------------------ ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- (IN THOUSANDS) Trading instruments: Debt securities . . . . . . . . . . . . . . . . . . $ 920 $ 920 $ 463 $ 463 Equity securities . . . . . . . . . . . . . . . . . -- -- 256 256 Foreign exchange contracts Assets. . . . . . . . . . . . . . . . . . . . . . -- 504 -- 464 Liabilities . . . . . . . . . . . . . . . . . . . -- (365) -- (394) Nontrading instruments: Cash and due from banks . . . . . . . . . . . . . . 436,104 436,104 438,930 438,930 Interest-bearing deposits in other financial institutions . . . . . . . . . . . . . . 926 957 499 501 Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . . . 125,975 125,975 8,470 8,470 Securities. . . . . . . . . . . . . . . . . . . . . 2,291,740 2,291,744 2,955,837 2,845,414 Loans and leases. . . . . . . . . . . . . . . . . . 4,287,831 4,296,270 4,062,051 4,000,405 Deposits. . . . . . . . . . . . . . . . . . . . . . (6,046,094) (6,062,502) (5,724,596) (5,720,471) Federal funds purchased, securities sold under agreements to repurchase, and other borrowings . . (563,268) (563,268) (976,707) (976,707) Federal Home Loan Bank borrowings . . . . . . . . . (93,498) (93,827) (441,097) (440,268) Long-term debt. . . . . . . . . . . . . . . . . . . (166) (169) (7,762) (7,806) Interest-rate swaps relating to: Securities Liabilities . . . . . . . . . . . . . . . . . . -- (294) -- (5,045) Loans Assets. . . . . . . . . . . . . . . . . . . . . -- 680 -- -- Liabilities . . . . . . . . . . . . . . . . . . -- -- -- (1,571) Deposits Assets. . . . . . . . . . . . . . . . . . . . . -- 56 -- 824
The carrying amounts in the table are included in the Statements of Condition under the indicated captions. 30 31 The following methods and assumptions were used by the Company in estimating its fair value disclosures in accordance with FAS No. 107, "Disclosures About Fair Value of Financial Instruments." Because there is no market for many of these financial instruments, the Company has no basis to determine whether these estimated fair values would be indicative of the value that could be obtained in an arm's-length sale. Cash and due from banks: The carrying amounts reported in the ------------------------- consolidated statements of condition for cash and due from banks approximate those assets' fair values. Interest-bearing deposits in other financial institutions: Fair ----------------------------------------------------------- values of these fixed-rate certificates of deposit were estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates with similar maturities. Federal funds sold and securities purchased under agreements to resell: ----------------------------------------------------------------------- The carrying amounts of federal funds sold and securities purchased under agreements to resell approximate their fair values. Securities: Fair values for debt and equity securities were based on ----------- quoted market prices, where available. If quoted market prices were not available, fair values were based on quoted market prices of comparable instruments. Loans and leases: Except for variable-rate 1-4 family mortgage ----------------- loans, the fair values of variable-rate loans that reprice in accordance with indices were estimated to be equal to carrying values. A significant portion of a credit card portfolio's value results from the ongoing cardholder relationship that generates receivables and fees over time. This relationship value is not defined as a financial instrument and therefore not disclosed under FAS No. 107. The carrying values of the credit card receivables approximate their fair values. The fair values for 1-4 family variable-rate and fixed-rate mortgage loans were based on quoted market prices of similar loans, adjusted for differences in loan characteristics. The fair values of other fixed-rate loans were estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms. Because the allowance for credit losses provides for the credit risk inherent in the loan and lease portfolio, neither the cash flows nor discount rates were adjusted to reflect changes in credit risk subsequent to when loans were originated. Nonperforming loans have not been discounted. Deposits: For deposits with no defined maturities, demand deposits, ---------- interest-bearing checking deposits, and savings deposits, FAS No. 107 defines fair value as the amount payable on demand at the reporting date (i.e., their carrying amounts). Included in "Intangible assets" at December 31, 1995 was $9,528,000 (net of accumulated amortization) representing the value of core deposits assumed in deposit assumption transactions. The value of the core deposit relationships built by the Company over time was neither considered in the fair value amounts nor recorded as an intangible asset in the statements of condition. The carrying amounts for variable-rate certificates of deposit approximated their fair values at the reporting date. Fair values for fixed-rate certificates of deposit were estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates with similar maturities. Federal funds purchased, securities sold under agreements to ------------------------------------------------------------ repurchase, and other borrowings: The carrying amounts of federal funds --------------------------------- purchased, borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. Federal Home Loan Bank borrowings: The carrying amounts of the ---------------------------------- variable-rate FHLB borrowings approximate their fair values. A discounted cash flow analysis, using the current rates on FHLB borrowings of similar maturities, was used to estimate the fair values of the fixed-rate borrowings. Long-term debt: The fair value of the Company's long-term debt was --------------- estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Off-balance-sheet instruments: No premium or discount was ascribed to ------------------------------ loan commitments because virtually all funding will be at current market rates. The estimated fair values of the interest rate swaps generally represent an estimate of the amount the Company would receive or pay to terminate the agreement at the reporting date. These values were based on dealer quotes with respect to the amortizing swaps. For swaps with fixed maturities, the estimated values represent the present value of the cash flow stream discounted at current interest rate spreads. Fair values of forward foreign currency and interest rate futures contracts were based on quoted market prices. 22 - COMMITMENTS AND CONTINGENCIES At December 31, 1995, the Company was committed to make future rental payments under several long-term lease agreements for land, buildings, and equipment. There were no material capital leases. Future minimum rental 31 32 payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 1995 are as follows:
Years ending December 31, (IN THOUSANDS) -------------------------- 1996 . . . . . . . . . . . . . $ 3,981 1997 . . . . . . . . . . . . . 3,879 1998 . . . . . . . . . . . . . 3,472 1999 . . . . . . . . . . . . . 2,658 2000 . . . . . . . . . . . . . 2,401 Later years . . . . . . . . . 8,488 ------- Total . . . . . . . . . . . $24,879 =======
Total rental expense (net of sublease income, which is not material) amounted to $4,612,000, $5,215,000, and $5,676,000 for 1995, 1994, and 1993, respectively. The Company and its subsidiaries are defendants in various legal proceedings that arise in the ordinary course of business. Claims in various amounts of up to approximately $20,000,000 have been asserted in some of these proceedings. However, after consultation with legal counsel, management believes that potential liabilities, if any, arising from these claims would not have a material adverse effect on the Company's business or financial condition. 23 - CONDENSED FINANCIAL INFORMATION OF PARENT CORPORATION In the following condensed financial information of Fourth Financial Corporation (parent only), investments in subsidiaries are recorded using the equity method of accounting. 32 33 Fourth Financial Corporation (Parent Only) Condensed Statements Of Condition
DECEMBER 31, ------------------------ 1995 1994 ------------------------ (IN THOUSANDS) Assets: Cash in subsidiary banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 2,018 Interest-bearing deposits in subsidiary banks. . . . . . . . . . . . . . . . . . . 8,276 12,543 Securities repurchase agreement with subsidiary bank . . . . . . . . . . . . . . . 31,000 16,600 Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446 1,111 Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 256 Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,099 19,983 Investments in bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 527,799 497,006 Investments in other subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 33,824 31,544 Other assets (including receivables from subsidiaries of $7,755 in 1995 and $4,964 in 1994) . . . . . . . . . . . . . . . . . . . . . . 15,430 11,795 Cost in excess of net assets acquired. . . . . . . . . . . . . . . . . . . . . . . 49,868 48,240 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $684,842 $641,096 ======== ======== Liabilities And Stockholders' Equity: Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 20,000 Other liabilities (including amounts owed to subsidiaries of $237 in 1995 and $46 in 1994). . . . . . . . . . . . . . . . . . . . . . . . . 10,871 8,343 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 7,452 -------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,871 35,795 Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673,971 605,301 -------- -------- Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . $684,842 $641,096 ======== ========
Fourth Financial Corporation (Parent Only) Condensed Statements of Income
YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN THOUSANDS) Dividends from subsidiaries: Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,000 $126,445 $ 76,891 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 18,000 470 Fee income (principally from subsidiaries) . . . . . . . . . . . . . . . . 64,136 59,636 57,382 Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,943 1,587 1,775 Securities gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . 51 (5) 161 Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 -- 315 -------- -------- -------- Total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,258 205,663 136,994 -------- -------- -------- Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . 39,846 36,987 33,023 Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . 9,446 9,699 11,532 Net occupancy (includes rent paid to bank subsidiaries of $2,719 in 1995, $2,515 in 1994, and $2,371 in 1993). . . . . . . . . . 3,342 3,399 3,039 Professional fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,247 3,248 2,518 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 639 2,407 2,459 Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,515 2,187 2,180 Fees paid to bank subsidiaries . . . . . . . . . . . . . . . . . . . . . . 376 404 42 Amortization of cost in excess of net assets acquired. . . . . . . . . . . 3,790 3,300 2,765 Merger and integration costs . . . . . . . . . . . . . . . . . . . . . . . 28 1,964 1,936 Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,529 13,272 12,701 -------- -------- -------- Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,758 76,867 72,195 -------- -------- -------- Income before income taxes, cumulative effect of a change in accounting principle, and undistributed net income of subsidiaries. . . . 68,500 128,796 64,799 Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,761 5,127 4,117 Cumulative effect of a change in accounting for income taxes . . . . . . . -- -- 681 Net income of subsidiaries in excess of (less than) dividends received . . (9,085) (50,799) 8,512 -------- -------- -------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,176 $ 83,124 $ 78,109 ======== ======== ========
33 34 Fourth Financial Corporation (Parent Only) Condensed Statements of Cash Flows
YEAR ENDED DECEMBER 31, -------------------------------- 1995 1994 1993 -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS) Cash Flows From Operating Activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,176 $ 83,124 $ 78,109 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 8,417 8,454 7,744 Write-down of goodwill associated with a pooling transaction and other asset write-downs . . . . . . . . . . -- 1,061 1,250 Net income of subsidiaries (in excess of) less than dividends received. . . . . . . . . . . . . . . . . . . . . . . . . 9,085 50,799 (8,512) Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . 762 (108) (889) Investment securities (gains) losses . . . . . . . . . . . . . . . . 2 5 (161) (Gain) loss on sale of equipment . . . . . . . . . . . . . . . . . . (39) 25 (8) Change in assets and liabilities, net of effects from purchases of acquired entities: Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,305) (1,266) (4,561) Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . (190) (1,239) 1,401 -------- -------- -------- Net cash provided by operating activities. . . . . . . . . . . . 75,908 140,855 74,373 -------- -------- -------- Cash Flows From Investing Activities: Purchase of banks, net of cash acquired. . . . . . . . . . . . . . . . (7,916) (90,720) (30,043) Purchases of premises and equipment. . . . . . . . . . . . . . . . . . (3,247) (6,971) (11,001) Proceeds from sales of premises and equipment. . . . . . . . . . . . . 535 10 25 Purchase of available-for-sale securities. . . . . . . . . . . . . . . -- (368) (901) Proceeds from sales of available-for-sale securities . . . . . . . . . 899 5 -- Investments in subsidiaries. . . . . . . . . . . . . . . . . . . . . . (1,150) (500) (15,290) Liquidation of subsidiaries. . . . . . . . . . . . . . . . . . . . . . -- 637 -- -------- -------- -------- Net cash used in investing activities. . . . . . . . . . . . . . (10,879) (97,907) (57,210) -------- -------- -------- Cash Flows From Financing Activities: Net change in commercial paper . . . . . . . . . . . . . . . . . . . . -- -- (425) Net change in other borrowings . . . . . . . . . . . . . . . . . . . . (20,000) 20,000 (5,850) Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . (7,452) (15,045) (14,345) Purchase and retirement of preferred stock . . . . . . . . . . . . . . (583) -- -- Acquisition of common stock for treasury . . . . . . . . . . . . . . . (4,046) (10,018) (3,245) Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . (33,445) (27,662) (22,705) Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . (6,974) (7,000) (7,000) Proceeds from exercise of stock options. . . . . . . . . . . . . . . . 17,236 2,544 3,407 Purchase of minority stockholder interest. . . . . . . . . . . . . . . -- (36) -- Net change in stock option loans . . . . . . . . . . . . . . . . . . . (1,550) (99) (726) Capital transactions of pooled companies . . . . . . . . . . . . . . . -- (307) (1,670) -------- -------- -------- Net cash used in financing activities. . . . . . . . . . . . . . (56,814) (37,623) (52,559) -------- -------- -------- Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . 8,215 5,325 (35,396) Cash and cash equivalents at beginning of year . . . . . . . . . . . . . 31,161 25,836 61,232 -------- -------- -------- Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . $ 39,376 $ 31,161 $ 25,836 ======== ======== ======== Supplemental Disclosures: Cash and cash equivalents: Cash in subsidiary banks . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 2,018 $ 880 Interest-bearing deposits in subsidiary banks. . . . . . . . . . . . 8,276 12,543 1,856 Securities repurchase agreements with subsidiary bank. . . . . . . . 31,000 16,600 23,100 -------- -------- -------- Total cash and cash equivalents. . . . . . . . . . . . . . . . . $ 39,376 $ 31,161 $ 25,836 ======== ======== ======== Cash payments for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 878 $ 2,347 $ 2,497 ======== ======== ======== Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,897 $ 29,771 $ 21,985 ======== ======== ======== Detail of entities acquired: Fair value of bank stock and other assets acquired . . . . . . . . . $ 13,660 $ 77,629 $ 20,986 Cost in excess of net assets acquired. . . . . . . . . . . . . . . . 5,716 13,091 9,328 -------- -------- -------- Consideration given. . . . . . . . . . . . . . . . . . . . . . . . 19,376 90,720 30,314 Less fair market value of stock issued . . . . . . . . . . . . . . (11,023) -- -- -------- -------- -------- Cash paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,353 $ 90,720 $ 30,314 ======== ======== ========
34 35 FOURTH FINANCIAL CORPORATION REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Fourth Financial Corporation We have audited the accompanying consolidated statements of condition of Fourth Financial Corporation as of December 31, 1995 and 1994 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 consolidated financial position of Fourth Financial Corporation at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Notes 1, 5 and 14 to the consolidated financial statements, in 1993 the Company changed its method of accounting for income taxes and investment securities. /s/ Ernst & Young LLP Ernst & Young LLP Wichita, Kansas January 19, 1996, except for Note 2, as to which the date is January 31, 1996 35 EX-99.(B) 3 PRO FORMA FINANCIAL DATA 1 PRO FORMA FINANCIAL DATA BOATMEN'S BANCSHARES, INC. AND FOURTH FINANCIAL CORPORATION The pro forma combined balance sheet assumes that the Merger was consummated on December 31, 1995, and the pro forma combined statements of income assume that the Merger was consummated on January 1 of each period presented. The pro forma combined balance sheet as of December 31, 1995, and the pro forma combined statements of income for each of the years in the three-year period ended December 31, 1995, give effect to the Merger based on the historical consolidated financial statements of the Registrant and Fourth Financial and their subsidiaries, and do not give effect to any restatements that may be necessary to conform accounting policies. Such adjustments, if any, are not expected to have a material impact on the Registrant's restated historical consolidated financial statements. Other supplementary financial information provided herein includes consolidated balance sheets and income statements for each quarter ended period of 1995 as if the Registrant and Fourth Financial had always been combined. The pro forma financial information previously filed on Form 8-K dated February 2, 1996, included unaudited financial statements of Fourth Financial. The pro forma financial information provided herein reflects audited financial statements of Fourth Financial and includes additional net charge-offs of $6.8 million, a corresponding increase in the provision for loan losses of $6.8 million and foreclosed property writedowns of $.6 million. On an after-tax basis, the aforementioned adjustments decreased net income for the year ended December 31, 1995 as reported in the Form 8-K dated February 2, 1996, by approximately $4.5 million. 2 PRO FORMA COMBINED BALANCE SHEET December 31, 1995 (In Thousands)
Boatmen's Fourth Financial Boatmen's Bancshares, Inc. Corporation Adjustments Pro Forma ---------------- ---------------- ----------- ------------ ASSETS: Cash and due from banks $2,175,804 $436,104 $2,611,908 Short-term investments 82,240 926 83,166 Securities: Held to maturity 914,747 8,383 923,130 Available for sale 8,063,815 2,283,357 10,347,172 Trading 57,442 920 58,362 Federal funds sold and securities purchased under resale agreements 1,099,696 125,975 1,225,671 Loans, net of unearned income 19,763,244 4,287,831 24,051,075 Less reserve for loan losses 382,984 69,576 452,560 ------------- ----------- ------------- Loans, net 19,380,260 4,218,255 23,598,515 ------------- ----------- ------------- Property and equipment 637,945 162,557 800,502 Other assets 1,291,881 201,524 1,493,405 ------------- ----------- ------------- Total assets $33,703,830 $7,438,001 $41,141,831 ============= =========== ============= LIABILITIES AND EQUITY: Liabilities: Demand deposits $5,862,531 $1,033,024 $6,895,555 Retail savings deposits and interest- bearing transaction accounts 11,027,383 2,483,337 13,510,720 Time deposits 9,042,216 2,529,733 11,571,949 ------------- ----------- ------------- Total deposits 25,932,130 6,046,094 31,978,224 ------------- ----------- ------------- Federal funds purchased and securities sold repurchase agreements 2,361,204 541,768 2,902,972 Short-term borrowings 1,359,993 21,500 1,381,493 Capital lease obligations 38,910 166 39,076 Long-term debt 615,129 93,498 708,627 Other liabilities 467,444 61,004 528,448 ------------- ----------- ------------- Total liabilities 30,774,810 6,764,030 37,538,840 ------------- ----------- ------------- Redeemable preferred stock 961 961 ------------- ----------- ------------- Stockholders' Equity: Preferred stock 99,324 99,324 Common stock 129,924 140,721 (112,577) 158,068 Surplus 984,557 115,704 112,577 1,212,838 Retained earnings 1,827,023 312,397 2,139,420 Treasury stock (18,096) (18,096) Unrealized net appreciation (depreciation), available for sale securities 4,651 5,825 10,476 ------------- ----------- ------------- ------------- Total stockholders' equity 2,928,059 673,971 0 3,602,030 ------------- ----------- ------------- ------------- Total liabilities and stockholders' equity $33,703,830 $7,438,001 $41,141,831 ============= =========== ============= Common stockholders' equity per share $22.62 $20.42 $22.23 ============= =========== ============= Period end shares outstanding 129,446,988 28,144,251 157,591,239 ============= =========== ============= Based on the exchange ratio of 1.0 share of Boatmen's Common for each share of Fourth common stock.
3 PRO FORMA COMBINED STATEMENT OF INCOME Year ended December 31, 1995 (In Thousands, except per share data)
Boatmen's Fourth Financial Boatmen's Bancshares, Inc. Corporation Pro Forma --------------------- --------------------- ---------------- Interest income: Interest and fees on loans $1,711,549 $395,223 $2,106,772 Interest on short-term investments 4,527 87 4,614 Interest on federal funds sold and securities purchased under resale agreements 33,673 6,354 40,027 Interest on securities: Taxable 511,958 139,259 651,217 Tax-exempt 56,108 11,525 67,633 --------------------- --------------------- ---------------- Total interest on securities 568,066 150,784 718,850 Interest on trading securities 1,956 93 2,049 --------------------- --------------------- ---------------- Total interest income 2,319,771 552,541 2,872,312 -------------------- --------------------- ---------------- Interest expense: Interest on deposits 797,256 228,202 1,025,458 Interest on Federal funds purchased and other short-term borrowings 257,239 30,851 288,090 Interest on capital lease obligations 3,875 21 3,896 Interest on long-term debt 47,338 16,535 63,873 --------------------- --------------------- ---------------- Total interest expense 1,105,708 275,609 1,381,317 --------------------- --------------------- ---------------- Net interest income 1,214,063 276,932 1,490,995 Provision for loan losses 46,688 13,068 59,756 --------------------- --------------------- ---------------- Net interest income after provision for loan losses 1,167,375 263,864 1,431,239 --------------------- --------------------- ---------------- Noninterest income: Trust fees 177,185 23,057 200,242 Service charges 190,823 40,761 231,584 Mortgage banking revenues 78,638 2,745 81,383 Credit card 49,753 13,779 63,532 Investment banking revenues 35,281 6,171 41,452 Securities gains (losses), net 14,719 (21,759) (7,040) Other 129,979 20,034 150,013 --------------------- --------------------- ---------------- Total noninterest income 676,378 84,788 761,166 --------------------- --------------------- ---------------- Noninterest expense: Staff 597,212 128,618 725,830 Net occupancy 80,170 18,592 98,762 Equipment 95,657 22,260 117,917 FDIC insurance 31,197 8,091 39,288 Intangible amortization 33,576 10,737 44,313 Advertising 34,032 8,711 42,743 Other 327,157 55,374 382,531 --------------------- --------------------- ---------------- Total noninterest expense 1,199,001 252,383 1,451,384 --------------------- --------------------- ---------------- Income before income tax expense 644,752 96,269 741,021 Income tax expense 225,917 35,093 261,010 --------------------- --------------------- ---------------- Net income $418,835 $61,176 $480,011 ===================== ===================== ================ Net income available to common shareholders $418,760 $54,108 $472,868 ===================== ===================== ================ Net income per share $3.25 $1.96 $3.02 ===================== ===================== ================ Average shares (YTD) 129,034 27,630 156,664 ===================== ===================== ================ Returns: Return on assets 1.28% 0.81% 1.19% Return on total equity 15.15% 9.53% 14.09% Return on common equity 15.15% 9.98% 14.30%
4 PRO FORMA COMBINED STATEMENT OF INCOME Year ended December 31, 1994 (In Thousands, except per share data)
Boatmen's Fourth Financial Boatmen's Bancshares, Inc. Corporation Pro Forma --------------------- --------------------- ---------------- Interest income: Interest and fees on loans $1,439,508 $309,224 $1,748,732 Interest on short-term investments 3,472 97 3,569 Interest on federal funds sold and securities purchased under resale agreements 17,136 911 18,047 Interest on securities: Taxable 498,727 162,216 660,943 Tax-exempt 60,488 16,712 77,200 --------------------- --------------------- ---------------- Total interest on securities 559,215 178,928 738,143 Interest on trading securities 2,525 104 2,629 --------------------- --------------------- ---------------- Total interest income 2,021,856 489,264 2,511,120 --------------------- --------------------- ---------------- Interest expense: Interest on deposits 609,616 159,379 768,995 Interest on Federal funds purchased and other short-term borrowings 173,244 29,262 202,506 Interest on capital lease obligations 3,983 33 4,016 Interest on long-term debt 46,725 19,935 66,660 --------------------- --------------------- ---------------- Total interest expense 833,568 208,609 1,042,177 --------------------- --------------------- ---------------- Net interest income 1,188,288 280,655 1,468,943 Provision for loan losses 25,340 836 26,176 --------------------- --------------------- ---------------- Net interest income after provision for loan losses 1,162,948 279,819 1,442,767 --------------------- --------------------- ---------------- Noninterest income: Trust fees 164,936 21,145 186,081 Service charges 186,786 38,693 225,479 Mortgage banking revenues 60,695 2,654 63,349 Credit card 44,628 10,871 55,499 Investment banking revenues 37,768 4,550 42,318 Securities gains, net 6,200 3,632 9,832 Other 114,131 16,969 131,100 --------------------- --------------------- ---------------- Total noninterest income 615,144 98,514 713,658 --------------------- --------------------- ---------------- Noninterest expense: Staff 590,698 127,894 718,592 Net occupancy 82,985 17,924 100,909 Equipment 93,372 22,815 116,187 FDIC insurance 52,947 12,776 65,723 Intangible amortization 35,152 10,154 45,306 Advertising 33,491 9,514 43,005 Other 268,093 53,266 321,359 --------------------- --------------------- ---------------- Total noninterest expense 1,156,738 254,343 1,411,081 --------------------- --------------------- ---------------- Income before income tax expense 621,354 123,990 745,344 Income tax expense 213,552 40,866 254,418 --------------------- --------------------- ---------------- Net income $407,802 $83,124 $490,926 ===================== ===================== ================ Net income available to common shareholders $407,722 $76,124 $483,846 ===================== ===================== ================ Net income per share $3.17 $2.80 $3.10 ===================== ===================== ================ Average shares (YTD) 128,652 27,230 155,882 ===================== ===================== ================ Returns: Return on assets 1.29% 1.12% 1.26% Return on total equity 16.14% 13.79% 15.69% Return on common equity 16.14% 15.13% 15.97%
5 PRO FORMA COMBINED STATEMENT OF INCOME Year ended December 31, 1993 (In Thousands, except per share data)
Boatmen's Fourth Financial Boatmen's Bancshares, Inc. Corporation Pro Forma --------------------- --------------------- ---------------- Interest income: Interest and fees on loans $1,282,802 $266,984 $1,549,786 Interest on short-term investments 2,101 233 2,334 Interest on federal funds sold and securities purchased under resale agreements 18,799 1,948 20,747 Interest on securities: Taxable 491,599 160,631 652,230 Tax-exempt 62,310 19,534 81,844 --------------------- --------------------- ---------------- Total interest on securities 553,909 180,165 734,074 Interest on trading securities 2,570 135 2,705 --------------------- --------------------- ---------------- Total interest income 1,860,181 449,465 2,309,646 --------------------- --------------------- ---------------- Interest expense: Interest on deposits 607,349 159,802 767,151 Interest on Federal funds purchased and other short-term borrowings 82,351 12,735 95,086 Interest on capital lease obligations 4,082 23 4,105 Interest on long-term debt 40,767 8,844 49,611 --------------------- --------------------- ---------------- Total interest expense 734,549 181,404 915,953 --------------------- --------------------- ---------------- Net interest income 1,125,632 268,061 1,393,693 Provision for loan losses 63,885 7,037 70,922 --------------------- --------------------- ---------------- Net interest income after provision for loan losses 1,061,747 261,024 1,322,771 --------------------- --------------------- ---------------- Noninterest income: Trust fees 159,365 18,690 178,055 Service charges 176,850 33,983 210,833 Mortgage banking operations 68,623 2,399 71,022 Credit card 33,433 7,657 41,090 Investment banking revenues 41,934 6,139 48,073 Securities gains, net 8,348 1,555 9,903 Other 104,979 16,612 121,591 --------------------- --------------------- ---------------- Total noninterest income 593,532 87,035 680,567 --------------------- --------------------- ---------------- Noninterest expense: Staff 568,490 118,828 687,318 Net occupancy 88,198 16,940 105,138 Equipment 89,643 23,804 113,447 FDIC insurance 52,007 13,295 65,302 Intangible amortization 36,265 12,549 48,814 Advertising 31,736 8,598 40,334 Other 276,658 63,538 340,196 --------------------- --------------------- ---------------- Total noninterest expense 1,142,997 257,552 1,400,549 --------------------- --------------------- ---------------- Income before income tax expense 512,282 90,507 602,789 Income tax expense 161,917 12,398 174,315 --------------------- --------------------- ---------------- Net income $350,365 $78,109 $428,474 ===================== ===================== ================ Net income available to common shareholders $350,280 $71,109 $421,389 ===================== ===================== ================ Net income per share $2.75 $2.67 $2.74 ===================== ===================== ================ Average shares (YTD) 127,304 26,640 153,944 ===================== ===================== ================ Returns: Return on assets 1.20% 1.16% 1.19% Return on total equity 15.25% 13.71% 14.94% Return on common equity 15.25% 15.21% 15.24% Net income includes $10,582 for the year ended December 31, 1993, for the cumulative effect of SFAS No. 109 adoption by Fourth Financial.
6 PRO FORMA CONSOLIDATED QUARTERLY EARNINGS TREND (In Thousands, except per share data)
1995 -------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter Full Year --------------- -------------- ------------- -------------- -------------- Interest income: Interest and fees on loans $498,555 $530,147 $540,089 $537,981 $2,106,772 Interest on short-term investments 918 1,010 1,146 1,540 4,614 Interest on federal funds sold and securities purchased under resale agreements 8,801 9,440 10,025 11,761 40,027 Interest on securities: Taxable 168,901 165,478 159,204 157,634 651,217 Tax-exempt 17,466 17,082 16,618 16,467 67,633 --------------- -------------- ------------- -------------- -------------- Total interest on securities 186,367 182,560 175,822 174,101 718,850 Interest on trading securities 435 361 546 707 2,049 --------------- -------------- ------------- -------------- -------------- Total interest income 695,076 723,518 727,628 726,090 2,872,312 --------------- -------------- ------------- -------------- -------------- Interest expense: Interest on deposits 238,125 259,633 262,651 265,049 1,025,458 Interest on Federal funds purchased and other short-term borrowings 74,544 76,998 74,099 62,449 288,090 Interest on capital lease obligations 977 976 972 971 3,896 Interest on long-term debt 18,433 16,448 14,906 14,086 63,873 --------------- -------------- ------------- -------------- -------------- Total interest expense 332,079 354,055 352,628 342,555 1,381,317 --------------- -------------- ------------- -------------- -------------- Net interest income 362,997 369,463 375,000 383,535 1,490,995 Provision for loan losses 10,743 10,171 12,391 26,451 59,756 --------------- -------------- ------------- -------------- -------------- Net interest income after provision for loan losses 352,254 359,292 362,609 357,084 1,431,239 --------------- -------------- ------------- -------------- -------------- Noninterest income: Trust fees 45,670 51,902 50,444 52,226 200,242 Service charges 55,234 57,827 58,802 59,721 231,584 Mortgage banking revenues 23,549 16,967 20,422 20,445 81,383 Credit card 15,164 14,864 16,763 16,741 63,532 Investment banking revenues 10,057 10,294 10,422 10,679 41,452 Securities gains (losses), net (22,017) 3,005 938 11,034 (7,040) Other 37,485 36,421 37,765 38,342 150,013 --------------- -------------- ------------- -------------- -------------- Total noninterest income 165,142 191,280 195,556 209,188 761,166 --------------- -------------- ------------- -------------- -------------- Noninterest expense: Staff 179,088 177,766 182,575 186,401 725,830 Net occupancy 25,124 23,661 25,613 24,364 98,762 Equipment 28,994 28,782 28,596 31,545 117,917 FDIC insurance 16,594 16,594 1,155 4,945 39,288 Intangible amortization 10,897 11,024 11,125 11,267 44,313 Advertising 9,909 11,469 9,689 11,676 42,743 Other 104,180 87,033 92,735 98,583 382,531 --------------- -------------- ------------- -------------- -------------- Total noninterest expense 374,786 356,329 351,488 368,781 1,451,384 --------------- -------------- ------------- -------------- -------------- Income before income tax expense 142,610 194,243 206,677 197,491 741,021 Income tax expense 52,347 66,439 72,995 69,229 261,010 --------------- -------------- ------------- -------------- -------------- Net income $90,263 $127,804 $133,682 $128,262 $480,011 =============== ============== ============= ============== ============== Net income available to common shareholders $88,494 $126,042 $131,924 $126,408 $472,868 =============== ============== ============= ============== ============== Net income per share $0.57 $0.80 $0.84 $0.81 $3.02 =============== ============== ============= ============== ============== Average shares (YTD) 156,232 156,541 156,578 156,664 156,664 =============== ============== ============= ============== ============== Returns: Return on assets 0.90% 1.27% 1.32% 1.27% 1.19% Return on total equity 11.12% 15.13% 15.48% 14.48% 14.09% Return on common equity 11.25% 15.38% 15.73% 14.68% 14.30% Includes Boatmen's Bancshares, Inc. and Fourth Financial Corporation on a combined basis.
7 PRO FORMA CONSOLIDATED BALANCE SHEET TREND (In Thousands)
3/31/95 6/30/95 9/30/95 12/31/95 ---------------- --------------- --------------- --------------- ASSETS: Cash and due from banks $2,239,319 $2,310,520 $2,205,926 $2,611,908 Short-term investments 44,830 52,750 61,249 83,166 Securities: Held to maturity 7,195,695 7,010,999 6,802,763 923,130 Available for sale 4,752,262 4,492,629 4,456,289 10,347,172 Trading 19,795 28,255 29,272 58,362 Federal funds sold and securities purchased under resale agreements 419,839 784,254 690,132 1,225,671 Loans, net of unearned income 23,554,838 24,307,529 24,184,508 24,051,075 Less reserve for loan losses 454,731 457,221 461,352 452,560 ---------------- --------------- --------------- --------------- Loans, net 23,100,107 23,850,308 23,723,156 23,598,515 ---------------- --------------- --------------- --------------- Property and equipment 802,124 801,399 802,170 800,502 Other assets 1,513,706 1,581,420 1,512,482 1,493,405 ---------------- --------------- --------------- --------------- Total assets $40,087,677 $40,912,534 $40,283,439 $41,141,831 ================ =============== =============== =============== LIABILITIES AND EQUITY: Liabilities: Demand deposits $5,891,811 $6,233,310 $6,439,391 $6,895,555 Retail savings deposits and interest- bearing transaction accounts 12,306,852 12,456,252 12,558,121 13,510,720 Time deposits 11,645,044 11,768,983 11,542,671 11,571,949 ---------------- --------------- --------------- --------------- Total deposits 29,843,707 30,458,545 30,540,183 31,978,224 ---------------- --------------- --------------- --------------- Federal funds purchased and securities sold repurchase agreements 3,216,314 2,708,270 3,022,423 2,902,972 Short-term borrowings 2,244,209 2,855,536 1,993,157 1,381,493 Capital lease obligations 40,075 39,699 39,373 39,076 Long-term debt 917,775 790,562 692,705 708,627 Other liabilities 506,020 626,749 523,717 528,448 ---------------- --------------- --------------- --------------- Total liabilities 36,768,100 37,479,361 36,811,558 37,538,840 ---------------- --------------- --------------- --------------- Redeemable preferred stock 1,142 1,132 1,007 961 ---------------- --------------- --------------- --------------- Stockholders' Equity: Preferred stock 99,969 99,469 99,362 99,324 Common stock 156,559 158,442 157,562 158,068 Surplus 1,181,482 1,203,437 1,205,870 1,212,838 Retained earnings 1,923,809 1,997,785 2,073,895 2,139,420 Treasury stock (2,151) (23,194) (59,205) (18,096) Unrealized net appreciation (depreciation), available for sale securities (41,233) (3,898) (6,610) 10,476 ---------------- --------------- --------------- --------------- Total stockholders' equity 3,318,435 3,432,041 3,470,874 3,602,030 ---------------- --------------- --------------- --------------- Total liabilities and stockholders' equity $40,087,677 $40,912,534 $40,283,439 $41,141,831 ================ =============== =============== =============== Common stockholders' equity per share $20.57 $21.26 $21.62 $22.23 ================ =============== =============== =============== Period end shares outstanding 156,481,540 156,726,993 155,912,820 157,591,239 ================ =============== =============== =============== Includes Boatmen's Bancshares, Inc. and Fourth Financial Corporation on a combined basis.
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