-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CuYTYDZ1JPjP2dsYaXR1/BpsOX0fI8EuSMr6qFBtGy8fQTVwTblmGLZ1YJ0o9jFF r21cfcI6ncnX/65S1Ivnlg== 0000950114-95-000157.txt : 19950814 0000950114-95-000157.hdr.sgml : 19950814 ACCESSION NUMBER: 0000950114-95-000157 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03750 FILM NUMBER: 95561797 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 10-Q 1 BOATMEN'S BANCSHARES, INC. FORM 10-Q 1 Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ---------- to--------- Commission File number: 1-3750 BOATMEN'S BANCSHARES, INC. - ------------------------------------------------------------------------------ (Exact name of Registrant as specified in its charter) Missouri 43-0672260 - ------------------------------------------------------------------------------ (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63101 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) 3l4-466-6000 - ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding Class of Common Stock as of July 31, 1995 - ------------------------------------------------------------------------------ $1 Par Value 129,268,997 - 1 - 2 INDEX
PART I - FINANCIAL INFORMATION ------------------------------ PAGE NO. Item 1 - Financial Statements 3 Consolidated Balance Sheet June 30, 1995 and 1994 and December 31, 1994 4 Consolidated Statement of Income Three months and six months ended June 30, 1995 and 1994 5 Consolidated Statement of Changes in Stockholders' Equity Six months ended June 30, 1995 and 1994 6 Consolidated Statement of Cash Flows Six months ended June 30, 1995 and 1994 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8-26 PART II - OTHER INFORMATION --------------------------- Item 1 - Legal Proceedings None Item 2 - Changes in Securities None Item 3 - Defaults Upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders 27 Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K 27 SIGNATURE 27
- 2 - 3 PART I. FINANCIAL INFORMATION ----------------------------- ITEM 1. - FINANCIAL STATEMENTS The consolidated financial statements for the three months and six months ended June 30, 1995 and 1994 include the accounts of the Corporation and its subsidiaries after elimination of all material intercompany transactions. In the opinion of management, all necessary adjustments, consisting of normal recurring adjustments, have been included to present fairly the results of operations for the interim periods presented herein. The results of operations for the three months and six months ended June 30, 1995 are not necessarily indicative of the results which may be expected for any other interim period or for the entire year. - 3 - 4 BOATMEN'S BANCSHARES, INC. CONSOLIDATED BALANCE SHEET
(dollars in thousands) June 30, 1995 June 30, 1994 December 31, 1994 - -------------------------------------------------------------------------------------------------------------- Assets Cash and due from banks $ 1,903,375 $ 1,822,906 $ 2,119,579 Short-term investments 51,470 79,809 44,717 Securities: Held to maturity 5,164,908 5,262,955 5,216,968 Available for sale 3,984,903 4,749,979 4,172,964 Trading 27,565 25,026 31,674 Federal funds sold and securities purchased under resale agreements 732,539 442,815 1,111,720 Loans, net of unearned income 19,921,345 17,736,523 18,655,511 Less reserve for loan losses 385,104 379,849 376,618 - -------------------------------------------------------------------------------------------------------------- Loans, net 19,536,241 17,356,674 18,278,893 - -------------------------------------------------------------------------------------------------------------- Property and equipment 640,924 629,769 637,500 Other assets 1,366,015 1,202,410 1,264,015 - -------------------------------------------------------------------------------------------------------------- Total assets $33,407,940 $31,572,343 $32,878,030 ============================================================================================================== Liabilities and Stockholders' Equity - -------------------------------------------------------------------------------------------------------------- Liabilities: Demand deposits $ 5,256,042 $ 4,966,635 $ 5,256,494 Retail savings deposits and interest-bearing transaction accounts 10,113,608 9,974,491 10,142,719 Time deposits 9,047,287 8,530,532 9,984,860 - -------------------------------------------------------------------------------------------------------------- Total deposits 24,416,937 23,471,658 25,384,073 - -------------------------------------------------------------------------------------------------------------- Federal funds purchased and securities sold under repurchase agreements 2,256,025 3,406,471 2,053,609 Short-term borrowings 2,822,558 1,245,329 1,903,182 Capital lease obligations 39,523 40,641 40,098 Long-term debt 522,215 585,757 592,041 Other liabilities 567,220 302,394 342,512 - -------------------------------------------------------------------------------------------------------------- Total liabilities 30,624,478 29,052,250 30,315,515 - -------------------------------------------------------------------------------------------------------------- Redeemable preferred stock 1,132 1,142 1,142 - -------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Common stock ($1 par value; 200,000,000 shares authorized) 129,830 128,752 128,873 Surplus 987,673 963,686 964,900 Retained earnings 1,698,469 1,465,539 1,593,911 Treasury stock (714,980 and 508,698 shares at cost, respectively) (23,194) (14,516) Unrealized net appreciation (depreciation), available for sale securities (10,448) (39,026) (111,795) - -------------------------------------------------------------------------------------------------------------- Total stockholders' equity 2,782,330 2,518,951 2,561,373 - -------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $33,407,940 $31,572,343 $32,878,030 ============================================================================================================== Held to maturity securities, market value $ 5,166,460 $ 5,163,862 $ 4,965,930 Available for sale securities, amortized cost 4,002,123 4,813,173 4,354,715 Common stock, shares outstanding 129,115,302 128,751,665 128,364,624 ==============================================================================================================
- 4 - 5 BOATMEN'S BANCSHARES, INC. CONSOLIDATED STATEMENT OF INCOME
Second quarter ended June 30 Six months ended June 30 - -------------------------------------------------------------------------------------------------------------------- (in thousands) 1995 1994 1995 1994 - -------------------------------------------------------------------------------------------------------------------- Interest income Interest and fees on loans $430,829 $353,870 $836,791 $684,068 Interest on short-term investments 983 1,082 1,882 1,654 Interest on Federal funds sold and securities purchased under resale agreements 7,539 2,760 15,385 5,340 Interest on held to maturity securities Taxable 66,317 58,900 131,109 107,534 Tax-exempt 13,903 14,903 27,868 30,101 - -------------------------------------------------------------------------------------------------------------------- Total interest on held to maturity securities 80,220 73,803 158,977 137,635 Interest on available for sale securities 64,731 66,335 129,584 136,182 Interest on trading securities 338 926 759 1,766 - -------------------------------------------------------------------------------------------------------------------- Total interest income 584,640 498,776 1,143,378 966,645 - -------------------------------------------------------------------------------------------------------------------- Interest expense Interest on deposits 200,577 145,692 385,328 287,356 Interest on Federal funds purchased and other short-term borrowings 70,335 40,522 135,689 65,999 Interest on capital lease obligations 970 997 1,940 1,990 Interest on long-term debt 11,492 11,468 23,507 22,476 - -------------------------------------------------------------------------------------------------------------------- Total interest expense 283,374 198,679 546,464 377,821 - -------------------------------------------------------------------------------------------------------------------- Net interest income 301,266 300,097 596,914 588,824 Provision for loan losses 9,171 7,740 18,881 13,586 - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 292,095 292,357 578,033 575,238 - -------------------------------------------------------------------------------------------------------------------- Noninterest income Trust fees 46,345 40,930 86,765 82,413 Service charges 47,595 46,811 93,294 92,651 Credit card 11,728 9,841 23,584 19,507 Investment banking revenues 8,880 10,584 17,670 20,313 Mortgage banking operations 16,291 12,723 39,195 31,768 Securities gains, net 2,815 702 2,861 3,256 Other 31,887 31,863 64,284 57,655 - -------------------------------------------------------------------------------------------------------------------- Total noninterest income 165,541 153,454 327,653 307,563 - -------------------------------------------------------------------------------------------------------------------- Noninterest expense Staff 146,654 149,092 294,913 297,584 Net occupancy 19,277 20,580 39,587 41,225 Equipment 23,483 23,579 46,855 45,597 FDIC insurance 13,310 13,271 26,626 26,719 Intangible amortization 8,052 8,808 15,935 17,594 Advertising 8,674 7,849 16,170 14,670 Other 73,876 64,407 164,623 130,754 - -------------------------------------------------------------------------------------------------------------------- Total noninterest expense 293,326 287,586 604,709 574,143 - -------------------------------------------------------------------------------------------------------------------- Income before income tax expense 164,310 158,225 300,977 308,658 Income tax expense 55,613 55,244 106,471 107,054 - -------------------------------------------------------------------------------------------------------------------- Net income $108,697 $102,981 $194,506 $201,604 ==================================================================================================================== Net income per share $.84 $.80 $1.51 $1.57 ==================================================================================================================== Dividends declared per share $.34 $.31 $ .68 $ .62 ==================================================================================================================== Earnings per share amounts are based on weighted average shares outstanding after adjusting net income for dividends on preferred stock. For the six months, average shares outstanding were 128,965,194 in 1995 and 128,641,529 in 1994. Preferred dividends declared totaled $40 in both 1995 and 1994.
- 5 - 6 BOATMEN'S BANCSHARES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized Net Appreciation, Common Stock Treasury Stock (Depreciation) -------------------- Retained ----------------- Available for (in thousands) Shares Amount Surplus Earnings Shares Amount Sale Securities Total - ------------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1994 128,127 $128,127 $955,324 $1,334,244 -- -- $ 42,252 $2,459,947 Net income -- -- -- 201,604 -- -- -- 201,604 Cash dividends declared: Common ($.62 per share) -- -- -- (64,760) -- -- -- (64,760) Redeemable preferred -- -- -- (40) -- -- -- (40) By pooled company prior to merger--common -- -- -- (5,509) -- -- -- (5,509) Common stock issued pursuant to various employee and shareholder stock issuance plans 203 203 2,581 -- -- -- -- 2,784 Common stock issued upon acquisition of subsidiary 411 411 5,700 -- -- -- -- 6,111 Adjustment for treasury stock activity--pooled company (3) (3) (98) -- -- -- -- (101) Common stock issued upon conversion of convertible subordinated debentures 14 14 205 -- -- -- -- 219 Adjustment of available for sale securities to market value -- -- -- -- -- -- (81,278) (81,278) Other, net -- -- (26) -- -- -- -- (26) - ------------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1994 128,752 128,752 963,686 1,465,539 -- -- (39,026) 2,518,951 =============================================================================================================================== BALANCE, JANUARY 1, 1995 128,873 128,873 964,900 1,593,911 (509) (14,516) (111,795) 2,561,373 Net income -- -- -- 194,506 -- -- -- 194,506 Cash dividends declared: Common ($.68 per share) -- -- -- (87,342) -- -- -- (87,342) Redeemable preferred -- -- -- (40) -- -- -- (40) By pooled company prior to merger--common -- -- -- (2,565) -- -- -- (2,565) Acquisition of Treasury stock -- - -- -- (800) (25,827) -- (25,827) Common stock issued pursuant to various employee and shareholder stock issuance plans 374 374 5,809 -- 305 9,141 -- 15,324 Common stock issued upon purchase acquisition of subsidiaries 578 578 16,889 -- 289 8,008 -- 25,475 Common stock issued upon conversion of convertible subordinated debentures 5 5 81 -- -- -- -- 86 Adjustment of available for sale securities to market value -- -- -- -- -- -- 101,347 101,347 Other, net -- -- (6) (1) -- -- -- (7) - ------------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1995 129,830 $129,830 $987,673 $1,698,469 (715) $(23,194) $(10,448) $2,782,330 ===============================================================================================================================
- 6 - 7 BOATMEN'S BANCSHARES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended June 30 (in thousands) 1995 1994 - ------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities $ 329,604 $ 375,993 Investing Activities: Net decrease in Federal funds sold and securities purchased under resale agreements 380,856 56,040 Net increase in loans (1,210,918) (740,829) Proceeds from the sales of foreclosed property 11,151 24,190 Proceeds from the maturity of held to maturity securities 349,175 617,202 Purchases of held to maturity securities (277,653) (1,292,701) Proceeds from the maturity of available for sale securities 428,689 948,067 Proceeds from the sales of available for sale securities 114,584 53,499 Purchases of available for sale securities (160,863) (338,007) Net increase in short-term investments (6,753) (53,798) Net increase in property and equipment (39,886) (65,271) - ------------------------------------------------------------------------------------------------------------------ Net cash provided (used) by investing activities (411,618) (791,608) ================================================================================================================== Financing Activities: Net increase in Federal funds purchased and securities sold under repurchase agreements 202,416 1,282,469 Net decrease in deposits (1,095,971) (823,605) Net increase in short-term borrowings 919,151 76,458 Payments on long-term debt (69,736) (6,021) Proceeds from the issuance of long-term debt 28,850 Payments on capital lease obligations (575) (534) Cash dividends paid (78,962) (70,073) Acquisition of treasury stock (25,827) Common stock issued pursuant to various employee and shareholder stock issuance plans 15,324 2,784 Decrease in redeemable preferred stock (10) (13) - ------------------------------------------------------------------------------------------------------------------ Net cash provided (used) by financing activities (134,190) 490,315 - ------------------------------------------------------------------------------------------------------------------ Increase (decrease) in cash and due from banks (216,204) 74,700 Cash and due from banks at beginning of year 2,119,579 1,748,206 - ------------------------------------------------------------------------------------------------------------------ Cash and due from banks at June 30 $1,903,375 $1,822,906 ==================================================================================================================
For the six months ended June 30, 1995 and 1994, interest paid totaled $266 million and $371 million, respectively, and income taxes paid totaled $94 million and $112 million. Additional common stock was issued upon the conversion of $90 thousand of the Corporation's convertible debt for the six months ended June 30, 1995, and $228 thousand for the same period a year ago. Loans transferred to foreclosed property totaled $5.4 million in 1995, and $12.6 million in 1994. In 1995, assets and liabilities of purchased subsidiaries at dates of acquisition included investment securities of $57 million, loans of $74 million, other assets of $36 million, deposits of $129 million and other liabilities of $1 million. - 7 - 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Table 1: Summary of Selected Financial Information
Quarter ended June 30 Six months ended June 30 - ------------------------------------------------------------------------------------------------------------------ (in millions except per share data) 1995 1994 % change 1995 1994 % change ================================================================================================================== Share Data Net income $.84 $.80 5.0% $ 1.51 $ 1.57 (3.8)% Net income before nonrecurring merger expenses 1.67 1.57 6.4 Dividends declared .34 .31 9.7 .68 .62 9.7 Book value 21.55 19.56 10.1 Tangible book value 19.05 17.08 11.5 Common shares: Average outstanding for the period 129.0 128.6 .3 Outstanding at period end 129.1 128.8 .3 - ------------------------------------------------------------------------------------------------------------------ For the Period Net interest income $301.3 $300.1 .4% $596.9 $588.8 1.4% Provision for loan losses 9.2 7.7 18.5 18.9 13.6 39.0 Noninterest income 165.5 153.5 7.9 327.7 307.6 6.5 Noninterest expense 293.3 287.6 2.0 604.7 574.1 5.3 Net income 108.7 103.0 5.6 194.5 201.6 (3.5) Net income before nonrecurring merger expenses 214.5 201.6 6.4 - ------------------------------------------------------------------------------------------------------------------ Financial Position at Period End Total assets $33,407.9 $31,572.3 5.8% Loans 19,921.3 17,736.5 12.3 Securities 9,149.8 10,012.9 (8.6) Deposits 24,416.9 23,471.7 4.0 Long-term debt 522.2 585.8 (10.8) Stockholders' equity 2,782.3 2,519.0 10.5 - ------------------------------------------------------------------------------------------------------------------ Selected Financial Ratios Return on assets 1.33% 1.31% 1.20% 1.29% Return on assets before nonrecurring merger expenses 1.32 1.29 Return on equity 15.85 16.45 14.48 16.15 Return on equity before nonrecurring merger expenses 15.98 16.15 Net interest margin 4.22 4.40 4.25 4.40 Noninterest income/operating income 34.8 33.2 34.8 33.6 Efficiency ratio 61.7 62.2 64.2 62.8 Efficiency ratio before nonrecurring merger expenses 61.4 62.8 Capital ratios: Equity to assets 8.33 7.98 Risk-based capital: Tier I capital 10.87 10.94 Total capital 13.90 14.23 Tier I leverage ratio 7.63 7.28 - ------------------------------------------------------------------------------------------------------------------ Asset Quality Nonperforming loans $ 132.2 $ 159.3 (17.0)% Nonperforming assets 190.8 269.0 (29.1) Nonperforming loans to total loans .66% .90% Nonperforming assets to total loans and foreclosed property .95 1.50 Loan reserve to nonperforming loans 291.36 238.41 Loan reserve to net loans 1.93 2.14 Net charge-offs to average loans .13 .13 ================================================================================================================== Includes nonrecurring merger expenses of $26 million.
- 8 - 9 ACQUISITION OVERVIEW Over the last several years the Corporation has made numerous acquisitions establishing significant market positions in Missouri, Arkansas and New Mexico, and significant presences in southern Illinois, western Tennessee, Oklahoma and northern Texas. The acquisition program has three objectives: geographic diversification, growth in retail market share, and additional earnings generation capacity. The Corporation's geographic profile provides significant credit and economic risk diversification in that the Corporation is not significantly dependent on any major market. All of the Corporation's major markets are currently experiencing favorable economic conditions. In 1994 and through the six months of 1995, the Corporation completed eight acquisitions in five states aggregating $4.3 billion in total assets. The Corporation's operations currently span nine states, with services delivered from over 500 branch locations and approximately 540 off-premise ATM's. A summary of the acquisitions consummated in 1994 and 1995 follows. Table 2: Acquisitions--1995 and 1994
Accounting Date State Assets Price Shares issued method - ------------------------------------------------------------------------------------------------------------------------------- Completed Woodland Bancorporation, Inc. 3/94 Oklahoma $ .1 billion $ 12 million stock .4 million Pooling Eagle Management and Trust Company 5/94 Texas -- 3 million cash -- Purchase Dalhart Bancshares, Inc. 1/95 Texas .1 billion 23 million stock .7 million Pooling National Mortgage Company 1/95 Tennessee .2 billion 153 million stock 5.0 million Pooling Worthen Banking Corporation 2/95 Arkansas 3.5 billion 595 million stock 17.1 million Pooling Salem Community Bancorp, Inc. 2/95 Illinois .1 billion 8 million stock .3 million Purchase West Side Bancshares, Inc. 4/95 Texas .1 billion 18 million stock .6 million Purchase First National Bank in Pampa 5/95 Texas .2 billion 42 million stock 1.4 million Pooling - ------------------------------------------------------------------------------------------------------------------------------- Total assets of completed transactions $4.3 billion =============================================================================================================================== Pending at June 30, 1995 Citizens Bancshares Corporation Arkansas $ .2 billion $ 37 million stock 1.1 million Purchase ===============================================================================================================================
Table 3: Asset Distribution
June 30, 1995 (dollars in billions) Assets % of total Locations - ------------------------------------------------------------------------------ Missouri $18.3 54.8% 170 Arkansas 4.4 13.2 143 New Mexico 3.2 9.6 66 Texas 2.2 6.5 34 Oklahoma 1.9 5.7 37 Iowa 1.2 3.6 33 Illinois 1.1 3.3 21 Tennessee .9 2.7 15 Kansas .2 .6 3 - ------------------------------------------------------------------------------ Total $33.4 100.0% 522 ==============================================================================
Arkansas Acquisitions On February 28, 1995, the Corporation acquired Worthen Banking Corporation (Worthen), headquartered in Little Rock, Arkansas, in a transaction accounted for as a pooling of interests. Under terms of the agreement the Corporation exchanged one share of its common stock for each Worthen share, resulting in the issuance of approximately 17.1 million shares. Worthen was the second largest banking organization in Arkansas, with approximately $3.5 billion in assets, operating 103 retail banking offices throughout Arkansas and six offices in the Austin, Texas area. The acquisition of Worthen increased the Corporation's asset base in Arkansas to approximately $4.4 billion, making the Corporation the market leader in Arkansas. On June 6, 1995, the Corporation announced a definitive agreement to acquire Citizens Bancshares Corporation (Citizens), located in Jonesboro, Arkansas, in a stock transaction to be accounted for as a purchase. The acquisition of Citizens, with assets of approximately $225 million, will result in the issuance of approximately 1.1 million shares of common stock through treasury stock acquired in the open market. This transaction, which is subject to regulatory approval, is expected to be completed in the fourth quarter of 1995. - 9 - 10 Mortgage Banking Acquisition On January 31, 1995, the Corporation acquired National Mortgage Company and certain affiliates (National Mortgage), headquartered in Memphis, Tennessee, in a transaction accounted for as a pooling of interests. Under terms of the agreement, the Corporation exchanged approximately 5.0 million shares of its common stock for all of the stock of National Mortgage. At the date of announcement, the transaction had a value of approximately $153 million, which represented 1.2% of National Mortgage's mortgage servicing portfolio. National Mortgage is a full-service mortgage banking company which originates home loans through company-operated offices as well as through a network of over 300 correspondents located in the southern and midwestern United States, and presently services mortgage loans totaling approximately $20.7 billion. Texas Acquisitions On January 31, 1995, the Corporation acquired Dalhart Bancshares, Inc. (Dalhart), with assets of approximately $140 million, in a pooling transaction involving the issuance of approximately .7 million shares of Boatmen's common stock for all of the shares of Dalhart. On April 1, 1995, the Corporation acquired West Side Bancshares, Inc. (West Side), a one bank holding company located in San Angelo, Texas, in a stock transaction accounted for as a purchase. The acquisition of West Side, with assets of approximately $142 million, resulted in the issuance of approximately 600,000 shares of common stock with a transaction value of $18 million. Goodwill arising from this acquisition totaled $6 million. On May 31, 1995, the Corporation acquired First National Bank in Pampa (Pampa), with assets of approximately $166 million, in a pooling transaction involving the issuance of approximately 1.35 million shares of Boatmen's common stock for all of the shares of Pampa. The three acquired banks were merged into the Corporation's Amarillo subsidiary. On May 6, 1994, the Corporation completed the acquisition of Eagle Management and Trust Company (Eagle), an investment advisory firm located in Houston, Texas. Eagle, with $1.4 billion in trust assets, is managed by the Corporation's trust subsidiary. Illinois Acquisition On February 28, 1995, the Corporation acquired Salem Community Bancorp, Inc. (Salem) in a stock transaction accounted for as a purchase, valued at approximately $8 million. Salem has two locations and approximately $80 million in assets. Oklahoma Acquisition On March 31, 1994, the Corporation acquired Woodland Bancorp, Inc. (Woodland), a retail banking organization with assets of approximately $65 million, in a pooling transaction resulting in the issuance of .4 million shares of common stock. Nonrecurring Merger Expenses The acquisitions of Worthen, National Mortgage, Dalhart and Pampa necessitated recognition of pre-tax nonrecurring merger expenses totalling $26.0 million, consisting primarily of investment banking, legal and other professional fees, severance and retention costs, obsolete equipment write-offs and estimated costs to close duplicate branches. The major components of the merger expenses are quantified in Table 4. Table 4: Nonrecurring Merger Expenses
Six months ended June 30, 1995 (in millions) - -------------------------------------------------------------------------------------- Investment banking, legal, and other professional fees $ 9.7 Equipment and software write-offs, and branch closings 6.4 Compensation costs 4.6 Other 5.3 - -------------------------------------------------------------------------------------- Total $26.0 ======================================================================================
EARNINGS OVERVIEW Net income for the second quarter of 1995 increased to $108.7 million, up 5.6% from the same period of last year, and net income per share was $.84, an increase of 5.0%. For the six months, net income before the impact of nonrecurring merger expenses, increased 6.4% to $214.5 million, and net income per share was $1.67 compared to $1.57 a year ago. The earnings growth reflected higher net interest income and noninterest income, offset in part by a higher provision for loan losses and higher noninterest expense. Net income in 1995 was reduced by after-tax merger expenses totaling $26.0 million or $.16 per share. Including merger expenses, net income for the six months of 1995 was $194.5 million or $1.51 per share. Previously reported financial statements of prior periods have been restated to reflect the pooling- of-interests acquisitions which were completed in the first half of 1995. Purchase acquisitions completed during the period had no material impact on results of - 10 - 11 operations. For the second quarter, the return on average assets was 1.33% and the return on equity was 15.85%, compared to 1.31% and 16.45%, respectively for the same period last year. For the six months, the return on average assets before nonrecurring merger expenses was 1.32% and the return on equity was 15.98%, compared to 1.29% and 16.15%, respectively, in 1994. Including merger expenses, the return on assets for the six months of 1995 was 1.20% and the return on equity was 14.48%. Net interest income, on a fully-taxable equivalent basis, increased .2% over the second quarter of 1994 and 1.2% for the six months due to moderate average earning asset growth, which was partially offset by the impact of a lower net interest margin. The net interest margin was 4.22% for the second quarter of 1995 and 4.25% for the six months, decreases of 18 and 15 basis points from the prior year periods, respectively. Noninterest income increased 7.9% over the second quarter of 1994 and 6.5% for the six months primarily due to growth in trust fees, mortgage banking revenues and credit card income. Noninterest expense, excluding nonrecurring merger expenses, increased 1.6% from the second quarter of 1994 and was held to an increase of .8% for the six months. These increases are reflective of ongoing initiatives to control operating costs. Including nonrecurring merger expenses, noninterest expense for the six months was $604.7 million. The provision for loan losses for the second quarter of 1995 was $9.2 million, up from $7.7 million for the same period of last year. For the six months, the provision for loan losses totaled $18.9 million, compared to $13.6 million in 1994. For the six months, net loan charge-offs were $12.6 million, compared to $10.9 million in 1994, and annualized net charge-offs as a percentage of average loans were .13% in both years. Presented in Table 5 is an income statement analysis expressed on a per share basis for the quarter ended June 30, 1995, compared to the same period last year and the three months ended December 31, 1994. A more detailed discussion and analysis of the major factors impacting the comparability between periods is provided throughout this report. Table 5: Earnings Per Share Analysis
2nd Qtr. '95 2nd Qtr. '95 YTD '95 Per share vs. 2nd Qtr. '94 vs. 1st Qtr. '95 vs. YTD '94 - --------------------------------------------------------------------------------------------------------------------------- Net income per share prior quarter $.80 $.67 $1.57 - --------------------------------------------------------------------------------------------------------------------------- Net interest income .01 .04 .06 Provision for loan losses (.01) (.04) Noninterest income .09 .03 .16 Noninterest expense (including nonrecurring merger expenses) (.05) .14 (.24) Income tax expense (.04) - --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) .04 .17 (.06) - --------------------------------------------------------------------------------------------------------------------------- Net income current period $.84 $.84 $1.51 ===========================================================================================================================
NET INTEREST INCOME AND INTEREST RATE RISK MANAGEMENT Table 6: Summary of Net Interest Income
Second quarter ended June 30 Six months ended June 30 - ----------------------------------------------------------------------------------------------------------------------- (in millions) 1995 1994 % change 1995 1994 % change - ----------------------------------------------------------------------------------------------------------------------- Average loans $19,528.4 $17,596.5 11.0% $19,228.0 $17,334.1 10.9% Average earning assets 29,442.8 28,215.5 4.3 29,154.9 27,854.2 4.7 Average core deposits 21,269.1 20,855.5 2.0 21,034.7 20,915.9 .6 Average purchased funds 5,999.5 5,401.0 11.1 5,990.6 4,965.2 20.7 Net interest income (FTE) 309.9 309.3 .2 614.6 607.3 1.2 Net interest margin 4.22% 4.40% 4.25% 4.40% =======================================================================================================================
Net interest income, on a fully-taxable equivalent basis, increased .2% over the second quarter of 1994 and 1.2% for the six months as growth in average earning assets more than offset an anticipated contraction in the net interest margin. Average earning assets increased 4.3% over the second quarter and 4.7% for the six months primarily due to strong loan growth. Loans, the highest yielding earning asset, increased 11.0% over the second quarter of 1994 and 10.9% for the six months. Loans represented 66.0% of average earning assets for the six months of 1995 compared to 62.2% for the same period last year. Held to maturity and available for sale securities decreased 7.6% for the six months, and represented 32.0% of average earning assets, down from 36.2% for the six months of 1994. The decline in the securities portfolio reflects redeployment of proceeds from maturing securities to the loan portfolio. The net interest margin for the second quarter of 1995 was 4.22% compared to 4.40% for the same period last year. A - 11 - 12 similar decline occurred for the six-month period, primarily due to rising interest rates which restricted the net interest margin to some extent due to the Corporation's modest liability sensitive position. The average yield on earning assets for the six months of 1995 increased 90 basis points from the same period last year; however, during this same period the average rate paid on interest-bearing liabilities increased 124 basis points as the average rate paid on interest-bearing deposits increased 98 basis points. The higher funding costs in 1995 also reflect an increased use of purchased funds as loan growth exceeded deposit growth. Purchased funds, which represented the principal funding source for the loan growth, increased $1.0 billion or 20.7%. This increase reflects the issuance of medium-term bank notes by several of the Corporation's banking subsidiaries, which pay interest on a floating rate basis. Interest rate risk is the extent to which net interest income may be affected by changes in market driven interest rates, and the Corporation assumes varying degrees of interest rate risk as part of its normal banking operations. It is the role of the asset/liability management committee to manage and control the level of interest rate risk contained in the balance sheet as well as off-balance sheet financial instruments. The Corporation's interest rate risk policy is to maintain a stable level of net interest income while also enhancing earnings potential through limited risk positioning based on the forecast of future interest rates. Interest rate risk exposure (earnings at risk exposure) is currently limited, by policy, to 5% of projected annual net income. Adherence to these risk limits is controlled and monitored through simulation modeling techniques that consider the impact that alternative interest rate scenarios will have on the Corporation's financial results. In its simulations, the Corporation estimates the impact on net interest income and net income resulting from various changes in market interest rates. Utilization of the simulation modeling results enables management to develop strategies to control the Corporation's overall interest rate risk exposure and to monitor specific risks associated with on-balance sheet financial instruments, along with interest rate swaps. The assumptions used in the model are intentionally designed to be conservative in that the balance sheet is held static for the entire 12 month simulation horizon and, accordingly, the model is not intended to represent an income forecast. Based on the current interest rate sensitivity position, the simulation model indicates that the earnings at risk exposure over the next 12 months is less than 2%, assuming a gradual 150 basis point increase in interest rates, and no active management of the balance sheet components. An effective asset/liability management function is required to address the interest rate risk inherent in the Corporation's core banking activities. If no other action is taken, matching of the core banking activities, which includes lending and deposit activities, results in an asset-sensitive position. Accordingly, to prudently manage the overall interest rate sensitivity position, the Corporation utilizes a combination of on- and off-balance sheet financial instruments to balance the interest rate sensitivity of the core balance sheet. Interest rate swaps are an effective mechanism to manage this interest rate risk due to the inherent advantages related to flexibility in product structure, size, liquidity, capital and market timing. The contribution of the swap portfolio over time will expand or contract with movements in market rates; however, this risk cannot be viewed in isolation and is controlled and monitored within the overall context of the aforementioned asset/liability management policies. In 1995, $850 million of new swaps were added and $95 million matured such that at June 30, 1995, interest rate swaps totaled $3.0 billion. The most recent swaps were executed as a means to convert a portion of the Corporation's variable rate bank notes to fixed rate instruments to extend the repricing sensitivity of these instruments. Interest rate swaps executed in prior years were undertaken to modify the interest rate sensitivity of subordinated debt as well as alter the interest rate sensitivity of the Corporation's prime-based loan portfolio. The Corporation's prime-based loan portfolio (approximately $6.0 billion) is the primary cause of the large asset sensitivity position of the core banking activity as it is primarily funded by deposit liabilities that are less sensitive to movements in market interest rates. As a means to alter the interest rate sensitivity of the prime-based portfolio, the Corporation has used interest rate swaps to convert approximately $1.8 billion of prime-based loans to fixed rate instruments. Additionally, the Corporation used $250 million of interest rate swaps to alter the pricing basis on a small portion of the prime-based loan and bank note portfolios. The Corporation accessed the capital markets twice in recent years, resulting in the issuance of $200 million of fixed rate subordinated debt. The impact of adding long-term debt to the balance sheet resulted in increased asset sensitivity as proceeds were initially used to replace short-term borrowings. Accordingly, to reduce the impact on the Corporation's gap position, $200 million of interest rate swaps were executed to convert fixed rate debt to a floating rate instrument. Periodic correlation assessments are performed to ensure that the swap instruments are effec- tively modifying the interest rate characteristics of the respective balance sheet items. The interest rate swaps are not leveraged in that they reset in step with rate movements in the underlying index. The interest rate swap programs are consistent with management's objective of balancing the interest rate sensitivity of the core bank. As summarized in Table 7, the swap portfolio is primarily comprised of contracts wherein the Corporation receives a fixed rate of interest while paying a variable rate. The average rate received at June 30, 1995 was 5.74% compared to an average rate paid of 6.31%, and the average remaining maturity of the total portfolio was approximately one year. The variable rate component of the interest rate swaps is based on LIBOR as of the most recent re-set date and will adjust with future movements in this index. Table 8 provides information related to weighted average rates paid and received, maturity profile, and fair values of the major swap programs in place at June 30, 1995 and June 30, 1994. The estimated fair value of the swap portfolio was a negative $40.4 million at June 30, 1995, based on discounted cash flow models. In that these swaps are valued using anticipated forward interest rates at quarter end, the estimated fair value is not necessarily indicative of the future net interest potential of the portfolio over its remaining life. - 12 - 13 Table 7: Interest Rate Swap Portfolio Activity
(in millions) Receive Fixed Pay Fixed Basis Swaps Total - -------------------------------------------------------------------------------------------------- Notional amount, December 31, 1994 $2,000 $ 31 $250 $2,281 Additions 850 850 Maturities (52) (2) (41) (95) - -------------------------------------------------------------------------------------------------- Notional amount, June 30, 1995 $1,948 $879 $209 $3,036 ================================================================================================== Average remaining maturity (years) 1.2 1.0 .5 1.1 Weighted average rate received 5.51% 6.13% 6.23% 5.74% Weighted average rate paid 6.32 6.29 6.31 6.31 ==================================================================================================
Table 8: Interest Rate Swap Portfolio
Weighted Estimated Average Rate -------------------- June 30, 1995 Notional --------------------- Maturity Fair (in millions) Amount Receive Pay (years) Value - ------------------------------------------------------------------------------------------------ Prime loan swaps: Receive fixed $1,748 5.59% 6.34% 1.3 $(35.0) Basis swaps 159 6.22 6.35 .6 .2 - ------------------------------------------------------------------------------------------------ Total 1,907 5.64 6.34 1.2 (34.8) Long-term debt swaps 200 4.87 6.21 1.0 (2.1) Bank note liability swaps 850 6.12 6.21 1.0 (3.0) Other 79 6.30 7.14 .4 (.5) - ------------------------------------------------------------------------------------------------ Total $3,036 5.74% 6.31% 1.1 $(40.4) ================================================================================================ Weighted Estimated Average Rate -------------------- June 30, 1994 Notional --------------------- Maturity Fair (in millions) Amount Receive Pay (years) Value - ------------------------------------------------------------------------------------------------ Prime loan swaps: Receive fixed $1,800 5.59% 4.66% 2.0 $(102.0) Basis swaps 200 4.70 4.02 .5 (1.6) - ------------------------------------------------------------------------------------------------ Total 2,000 5.50 4.60 1.9 (103.6) Long-term debt swaps 200 4.87 4.37 2.0 (4.5) Other 31 4.61 8.86 1.8 (1.4) - ------------------------------------------------------------------------------------------------ Total $2,231 5.43% 4.64% 1.9 $(109.5) ================================================================================================
The swap portfolio decreased net interest income by approximately $4.4 million in the second quarter of 1995 and $7.9 million for the six months, resulting in a reduction in the net interest margin of approximately 6 basis points in each period. In 1994, the swap portfolio increased net interest income by $6.7 million for the second quarter and $13.9 million for the six months adding approximately 10 basis points to the margin. The results from the simulation model indicate that in a rising rate environment the net interest contribution from the swap portfolio will lessen as the variable component resets upward. Based on interest rates at June 30, 1995, it is anticipated that the swap portfolio will reduce net interest income by approximately $15 million in 1995. However, it is anticipated that this will be offset by a higher contribution from core banking activities. Approximately 63% of the portfolio is comprised of indexed amortizing swaps, whereby the maturity distribution could lengthen if interest rates increase from current levels. Assuming interest rates were to increase 200 basis points from their current levels, the average maturity distribution of the swap portfolio would extend by approximately 1.3 years. Any future utilization of off-balance sheet financial instruments will be determined based upon the Corporation's overall interest rate sensitivity position and asset/liability management strategies. While the Corporation is primarily an end-user of derivative instruments, it also acts as an intermediary to meet the financial needs of its customers. The notional amount of the customer swap portfolio at June 30, 1995 totaled approximately $464 million. Interest rate risk associated with this portfolio is controlled by entering into offsetting positions with third parties. - 13 - 14 NONINTEREST INCOME Table 9: Summary of Noninterest Income
Second quarter ended June 30 Six months ended June 30 - ------------------------------------------------------------------------------------------------------------------ (in millions) 1995 1994 % change 1995 1994 % change - ------------------------------------------------------------------------------------------------------------------ Trust fees $ 46.3 $ 40.9 13.2% $ 86.8 $ 82.4 5.3% Service charges 47.6 46.8 1.7 93.3 92.7 .7 Credit card 11.7 9.9 19.2 23.6 19.5 20.9 Investment banking revenues 8.9 10.6 (16.1) 17.7 20.3 (13.0) Mortgage banking operations 16.3 12.7 28.0 39.2 31.8 23.4 Securities gains, net 2.8 .7 301.0 2.9 3.3 (12.1) Other 31.9 31.9 64.2 57.6 11.5 - ------------------------------------------------------------------------------------------------------------------ Total noninterest income $165.5 $153.5 7.9% $327.7 $307.6 6.5% ================================================================================================================== As % of operating income 34.8% 33.2% 34.8% 33.6% - ------------------------------------------------------------------------------------------------------------------ Revenue per full-time equivalent employee (in thousands) $112.9 $104.8 $111.5 $103.8 ==================================================================================================================
Noninterest income increased 7.9% over the second quarter of 1994 and 6.5% for the six months, primarily due to growth in trust fees, mortgage banking revenues and credit card income. Noninterest income as a percentage of operating revenues improved to 34.8% for the six months of 1995 from 33.6% for the same period of 1994. Trust fees increased 13.2% over the second quarter of 1994 and 5.3% for the six months, primarily due to growth in pension/institutional and personal trust business, which was partially offset by narrower spreads on securities lending activity. The decline in securities lending revenues reflects narrower spreads primarily resulting from higher short-term market interest rates. Trust assets under management totaled $45.2 billion at June 30, 1995, compared to $35.8 billion at June 30, 1994, and $37.4 billion at December 31, 1994. Service charge income totaled $47.6 million in the second quarter of 1995 and $93.3 million for the six months, increases of 1.7% and .7% over the prior year periods, respectively. Service charges in 1995 included growth in retail fees which were offset by lower analysis fees on corporate customer accounts. The lower level of corporate analysis fees is primarily a function of corporate customers paying for services in the form of deposit balance maintenance in lieu of fees. Credit card income totaled $11.7 million in the second quarter of 1995, and $23.6 million for the six months, increases of 19.2% and 20.9%, respectively over the prior year periods. This increase reflects growth in cardholder revenues, as well as increases in merchant-related fees due to new merchant business and higher retail sales volume. Investment banking revenues decreased 16.1% from the second quarter of 1994 and 13.0% for the six months primarily due to a reduction in the sales volume of various retail brokerage products. Foreign exchange income, another component of investment banking revenues, increased $1.2 million or 49.6% over the six months of 1994. Income from mortgage banking operations totaled $16.3 million in the second quarter of 1995, and $39.2 million for the six months, increases of 28.0% and 23.4%, respectively over the prior year periods. Mortgage banking revenues in 1995 include a $7.9 million gain recognized in the first quarter on the sale of approximately $700 million of mortgage servicing. In the second quarter of 1995, the Corporation adopted Statement of Financial Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage Servicing Rights." SFAS 122 requires capitalization of purchased mortgage servicing rights as well as internally originated mortgage servicing rights. Upon adoption of SFAS 122, the Corporation capitalized approximately $1 million of internally generated mortgage servicing rights which will be amortized over the estimated servicing period of the related loans. At June 30, 1995, purchased mortgage servicing rights totaled $44.8 million. Mortgage servicing rights are stratified and evaluated for impairment measurement based on product type. Through the first six months of 1995, no impairment valuation writedowns were required. Other noninterest income increased $6.6 million or 11.5% over the six months of 1994 primarily due to a $4.9 million gain on the sale of an ownership interest in a regional electronic funds transfer network and a $1.2 million divestiture gain on the sale of an Arkansas branch which was required to be sold under regulatory conditions of the Worthen acquisition agreement. Other noninterest income in the first half of 1995 was also supplemented by higher gains on sales of student loans, investment appreciation in bank-owned life insurance, and increased revenue from debit cards and syndication fees. Other noninterest income in the second quarter of 1994 included a $4 million gain from the sale of the former Union of Arkansas Corporation's headquarters building. - 14 - 15 NONINTEREST EXPENSE Table 10: Summary of Noninterest Expense
Second quarter ended June 30 Six months ended June 30 - --------------------------------------------------------------------------------------------------------------- (in millions) 1995 1994 % change 1995 1994 % change - --------------------------------------------------------------------------------------------------------------- Staff expense $146.7 $149.1 (1.6)% $294.9 $297.6 (.9)% Occupancy 19.3 20.6 (6.3) 39.6 41.2 (4.0) Equipment 23.5 23.6 (.4) 46.9 45.6 2.8 FDIC insurance 13.3 13.3 26.6 26.7 (.3) Credit card 3.0 3.9 (23.1) 6.4 7.3 (12.3) Printing, postage, paper 12.1 11.9 1.7 23.9 23.8 .4 Intangible amortization 8.1 8.8 (8.6) 15.9 17.6 (9.4) Professional fees 5.2 5.8 (10.3) 10.1 13.1 (22.9) Federal Reserve processing charges 2.3 2.8 (17.9) 4.9 5.4 (9.3) Advertising 8.7 7.8 10.5 16.2 14.7 10.2 Communications 7.0 6.4 9.4 13.1 12.4 5.6 Other 44.1 33.6 31.3 106.2 68.7 54.6 - --------------------------------------------------------------------------------------------------------------- Total noninterest expense $293.3 $287.6 2.0% $604.7 $574.1 5.3% =============================================================================================================== Efficiency ratio 61.7% 62.2% 64.2% 62.8% Efficiency ratio excluding nonrecurring merger expenses 61.4 62.8 Number of full-time equivalent employees 16,923 17,743 ===============================================================================================================
Noninterest expense totaled $293.3 million for the second quarter of 1995 and $604.7 million for the six months, increases of 2.0% and 5.3% from the prior year periods, respectively. Noninterest expense levels in 1995 included nonrecurring merger expenses totaling approximately $26 million consisting of investment banking and other professional fees, severance costs, obsolete equipment write-offs and estimated costs to close duplicate branches. Excluding merger expenses, noninterest expense was held to an increase of 1.6% for the quarter and .8% for the six months, reflective of ongoing initiatives to control operating expenses. The efficiency ratio improved to 61.7% for the second quarter of 1995 compared to 62.2% for the same period of last year. For the six months, the efficiency ratio before merger expenses improved to 61.4% from 62.8% in 1994. Including merger expenses, the efficiency ratio for the six months of 1995 was 64.2%. Staff expense, which represents approximately 50% of total noninterest expense, decreased 1.6% from the second quarter of 1994 and .9% for the six months as the number of full-time equivalent employees (FTE's) decreased from 17,743 at June 30, 1994 to 16,923 at June 30, 1995. Other noninterest expense increased $37.5 million for the six months, which is primarily attributable to the aforementioned nonrecurring merger expenses, higher levels of uninsured losses and yield maintenance support provided to the trust subsidiary's short-term money market fund. In 1994 and through the first six months of 1995, the Corporation's trust subsidiary waived a portion of its investment management fees on its short-term money market mutual fund and provided yield maintenance support to ensure the fund provided a competitive yield to investors. Yield maintenance may be increased if short-term interest rates were to rise rapidly from existing levels. TAXES The Corporation's effective tax rate was 35.4% for the six months of 1995 compared to 34.7% for the same period of last year. The increase in the Corporation's effective tax rate resulted from nondeductible merger expenses associated with the pooling-of-interests acquisitions completed in the first half of 1995, and a continued decline in the amount of tax-exempt income as a percentage of operating income. Excluding the impact of the nondeductible merger expenses, the effective tax rate was 34.4%. On a prospective basis, the effective tax rate should approximate the statutory rate, adjusted for normal operating items such as tax-exempt interest, goodwill amortization and other nondeductible expenses. - 15 - 16 PROVISION FOR LOAN LOSSES AND ASSET QUALITY Table 11: Summary of Reserve for Loan Losses
June 30 (in millions) 1995 1994 - -------------------------------------------------------------------------------------------------- Balance, beginning of year $376.6 $376.3 ================================================================================================== Loans charged off (32.6) (37.8) Recoveries on loans previously charged off 20.0 26.9 - -------------------------------------------------------------------------------------------------- Net charge-offs (12.6) (10.9) Provision charged to expense 18.9 13.6 Reserves of acquired subsidiaries 2.2 .9 - -------------------------------------------------------------------------------------------------- Balance, end of period $385.1 $379.9 ================================================================================================== At end of period: Loan reserve as % of net loans 1.93% 2.14% Loan reserve as % of nonperforming loans 291.36 238.41 Net charge-offs as % of average loans .13 .13 ==================================================================================================
Table 12: Summary of Nonperforming Assets
(in millions) June 30, 1995 December 31, 1994 June 30, 1994 - --------------------------------------------------------------------------------------------------------------------- Nonaccrual $101.7 $111.9 $131.9 Restructured 6.7 7.1 7.2 Past due 90 days or more 23.8 17.0 20.2 - --------------------------------------------------------------------------------------------------------------------- Total nonperforming loans 132.2 136.0 159.3 - --------------------------------------------------------------------------------------------------------------------- Foreclosed property 58.6 62.4 109.7 - --------------------------------------------------------------------------------------------------------------------- Total nonperforming assets $190.8 $198.4 $269.0 ===================================================================================================================== Nonperforming loans as % of total loans .66% .73% .90% Nonperforming assets as % of total loans and foreclosed property .95 1.06 1.50 Nonperforming assets as % of total assets .57 .60 .85 Loan reserve as % of nonperforming loans 291.36 277.06 238.41 =====================================================================================================================
The provision for loan losses totaled $9.2 million in the second quarter of 1995, an increase of 18.5% from the second quarter of last year when the provision totaled $7.7 million. For the six months, the provision for loan losses totaled $18.9 million, compared to $13.6 million in 1994. The provision for loan losses was increased to maintain loan reserve coverage at acceptable levels during a period of strong loan growth. The reserve for loan losses represented 291% of nonperforming loans at June 30, 1995 compared to 277% at December 31, 1994, and 238% at June 30, 1994. The reserve for loan losses as a percentage of net loans was 1.93% compared to 2.14% at June 30, 1994, and 2.02% at year- end 1994. Net loan charge-offs for the six months of 1995 totaled $12.6 million, compared to $10.9 million for the same period of 1994. Annualized net charge-offs as a percentage of average loans were .13% for the six months of 1995 and 1994, compared to .15% for all of 1994. Nonperforming assets, which include nonperforming loans and foreclosed property, declined $78.2 million or 29.1% from June 30, 1994, and $7.6 million or 3.8% from year-end 1994. As a percent of total loans and foreclosed property, nonperforming assets declined to .95% compared to 1.50% at June 30, 1994, and 1.06% at December 31, 1994. The decline in nonperforming asset levels largely resulted from a stronger economy and the effectiveness of the Corporation's comprehensive loan administration and workout procedures. As a percentage of total assets, nonperforming assets were .57% at June 30, 1995, compared to .85% at June 30, 1994 and .60% at December 31, 1994. Nonperforming loans at June 30, 1995, declined to $132.2 million or .66% of total loans, compared to .73% at December 31, 1994, and .90% at June 30, 1994. Table 14 summarizes the trends in nonperforming assets by major banking unit/geographic location. - 16 - 17 As part of management's overall portfolio analysis, ongoing credit quality reviews are performed to evaluate risk inherent in the portfolio and potential risk that may develop in the future. A critical element in assessing portfolio risk is the level of criticized loans. The Corporation's internal risk rating system designates specific credits as criticized loans, which include all nonperforming loans and other loans which contain features presenting more than the normal risk of collectibility. Criticized and classified assets from regulatory examinations are an integral component of the risk rating system. As displayed in Table 13, criticized loans totaled $644.2 million or 3.22% of loans at June 30, 1995. Management carefully analyzes changes and trends in both nonperforming and criticized loans in assessing the risk characteristics of the loan portfolio. Table 13: Loans Designated as Criticized Loans by Internal Risk Rating System
Criticized Loans - ------------------------------------------------------------------------------------------------------------ (in millions) Nonperforming Performing Total - ------------------------------------------------------------------------------------------------------------ 1994 March 31 $162.0 $601.2 $763.2 June 30 159.3 565.3 724.6 September 30 167.0 492.8 659.8 December 31 136.0 498.4 634.4 ============================================================================================================ 1995 March 31 $128.6 $486.2 $614.8 June 30 132.2 512.0 644.2 ============================================================================================================ As % of loans at June 30, 1995 .66% 2.56% 3.22% ============================================================================================================
Table 14: Nonperforming Assets by Banking Unit
(in millions) June 30, 1995 December 31, 1994 June 30, 1994 - ------------------------------------------------------------------------------------------------------------ Missouri $ 97.9 $103.2 $152.9 New Mexico 30.6 34.9 43.0 Arkansas 19.5 18.1 22.2 Oklahoma 13.1 11.1 15.3 Texas 10.0 9.5 9.9 Iowa 5.1 5.5 5.9 Illinois 5.5 5.0 7.1 Tennessee 3.6 5.0 5.0 Kansas 5.5 6.1 7.7 - ------------------------------------------------------------------------------------------------------------ Total $190.8 $198.4 $269.0 ============================================================================================================
On January 1, 1995, the Corporation adopted Financial Accounting Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan" and No. 118 (SFAS 118), "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." These statements require that certain impaired loans be measured based on either the present value of expected future cash flows discounted at the loan's effective rate, the market price of the loan, or the fair value of the underlying collateral if the loan is collateral dependent. The statements further require that specific reserves be established for any impaired loan for which the recorded investment exceeds the measured value of the loan. At June 30, 1995, the recorded investment in loans that are considered to be impaired under SFAS 114 and SFAS 118 totaled $108.4 million and consisted of nonaccrual loans and restructured loans. Specific loan reserve allocations assigned to impaired loans were immaterial. Table 11 summarizes the activity in the reserve for loan losses. The Corporation's policy for income recognition was not impacted by adoption of SFAS 114 and SFAS 118 and such interest recognized during the period was immaterial. Interest income on nonaccrual loans is recognized only in the period in which payments are received, and such payments are applied to reduce principal when loans are unsecured or collateral values are deficient. SEGREGATED ASSETS As part of the regulatory-assisted acquisition of Missouri Bridge Bank, N.A. on April 23, 1993, the Corporation entered into a five-year loss-sharing arrangement with the FDIC with respect to approximately $950 million in multi-family residential, commercial real estate, construction, and commercial and industrial loans. During the five-year period, the FDIC will reimburse the Corporation for 80 percent of the first $92.0 million of net charge-offs on these loans, after which the FDIC will increase its reimbursement coverage to 95 percent of additional charge-offs. During this period, and for two years thereafter, the Corporation is obligated to pay the FDIC 80 percent of all recoveries on charged-off loans. - 17 - 18 The Corporation has designated certain loans covered under the loss-sharing arrangement which possess more than the normal risk of collectibility as segregated assets. These loans have the same characteristics as nonaccrual loans and foreclosed properties. At June 30, 1995, segregated assets totaled $136.9 million, net of a $14.0 million credit valuation allowance, and are classified as other assets for reporting purposes. At June 30, 1995, segregated assets consisted of $39.5 million of commercial loans, $15.2 million of industrial revenue bond loans, $91.9 million of commercial real estate related loans and $4.3 million of foreclosed property. All other loans covered under the loss-sharing arrangement are included in the loan portfolio and totaled $263.0 million at June 30, 1995. Net charge-offs of $2.7 million, representing the Corporation's share of losses on the segregated asset pool, were recognized in the six months of 1995. The valuation allowance represents the Corporation's share of estimated losses upon ultimate liquidation of the portfolio. The Corporation's primary purpose in managing a portfolio of this nature is to provide ongoing collection and control activities on behalf of the FDIC. Accordingly, these assets do not represent loans made in the ordinary course of business and, due to the underlying nature of this liquidating asset pool, are excluded from the Corporation's nonperforming asset statistics. At June 30, 1995, $138.1 million of segregated assets were accorded classification treatment consistent with nonaccrual reporting, $4.3 million represented foreclosed property, and the balance of $8.5 million were past due 90 days or more. The Corporation's operating results and cash flow position are not expected to be materially affected by the ongoing collection activities associated with managing the loans subject to the loss- sharing arrangement. Segregated assets income totaled $6.3 million for the six months of 1995 and $6.7 million in the same period of 1994. A summary of activity regarding segregated assets is provided in Table 15. Table 15: Segregated Assets
June 30, 1995 (in millions) Principal balance Allowance for losses Principal balance, net - ------------------------------------------------------------------------------------------------------------------------ Balance, beginning of year $193.9 $16.7 $177.2 Charge-offs (19.2) (3.9) Recoveries 1.2 Net transfers (13.4) Payments on segregated assets (10.4) - ------------------------------------------------------------------------------------------------------------------------ Balance, June 30, 1995 $150.9 $14.0 $136.9 ========================================================================================================================
LOAN PORTFOLIO Table 16: Summary of Loan Portfolio
(in millions) June 30, 1995 December 31, 1994 June 30, 1994 - ------------------------------------------------------------------------------------------------------------ Commercial $ 9,853.7 $ 8,767.1 $ 8,798.5 Real estate mortgage 3,756.4 3,629.0 3,414.3 Real estate construction 876.7 868.3 747.4 Consumer 5,328.6 5,302.1 4,722.7 Lease financing 147.7 136.8 91.4 - ------------------------------------------------------------------------------------------------------------ Total domestic loans 19,963.1 18,703.3 17,774.3 Foreign loans 24.7 19.1 17.6 - ------------------------------------------------------------------------------------------------------------ Total loans, before deduction of unearned income 19,987.8 18,722.4 17,791.9 Less unearned income 66.5 66.9 55.4 - ------------------------------------------------------------------------------------------------------------ Total loans, net of unearned income $19,921.3 $18,655.5 $17,736.5 ============================================================================================================
- 18 - 19 Table 17: Composition of Loan Portfolio
June 30, 1995 December 31, 1994 June 30, 1994 - ---------------------------------------------------------------------------------------------------------------------- % Of % Of % Of Total Total Total (in millions) Amount Loans Amount Loans Amount Loans - ---------------------------------------------------------------------------------------------------------------------- Real estate: 1-4 family residential $ 3,756.4 18.8% $ 3,629.0 19.4% $ 3,414.3 19.2% Land acquisition 223.6 1.1 246.8 1.3 210.8 1.2 Residential construction 307.1 1.6 274.9 1.5 241.9 1.4 Commercial construction 346.0 1.7 346.6 1.8 294.7 1.6 Commercial real estate 3,064.6 15.3 2,996.9 16.0 2,964.6 16.7 Mini-perms 104.1 .5 75.5 .4 112.4 .6 - ---------------------------------------------------------------------------------------------------------------------- Total real estate 7,801.8 39.0 7,569.7 40.4 7,238.7 40.7 Commercial loans to Fortune 1,000 companies and other large corporate borrowers 1,217.0 6.1 816.3 4.4 834.2 4.7 Middle market commercial 4,491.9 22.5 4,003.0 21.4 3,980.0 22.4 Bank stock loans 221.6 1.1 218.4 1.2 219.7 1.2 Agriculture 754.5 3.8 657.0 3.5 687.6 3.9 Consumer: Home equity 461.7 2.3 423.2 2.3 387.9 2.2 Credit card 492.1 2.5 546.1 2.9 503.1 2.8 Indirect installment 2,830.0 14.2 2,711.5 14.5 2,370.8 13.3 Installment 1,544.8 7.7 1,621.3 8.6 1,460.9 8.2 - ---------------------------------------------------------------------------------------------------------------------- Total consumer 5,328.6 26.7 5,302.1 28.3 4,722.7 26.5 Lease financing 147.7 .7 136.8 .7 91.4 .5 Foreign 24.7 .1 19.1 .1 17.6 .1 - ---------------------------------------------------------------------------------------------------------------------- Total loans $19,987.8 100.0% $18,722.4 100.0% $17,791.9 100.0% ======================================================================================================================
The majority of the Corporation's loans are made within its natural trade territory. The portfolio is highly diversified in that the Corporation's banking operations span a nine state area with over 500 branch locations. The Corporation's objective is to control credit risk through geographic diversification and adherence to stringent credit administration policies that limit industry concentrations and establish lending authority and borrower limits. The Corporation's geographic profile provides significant credit and economic risk diversification in that the Corporation is not solely dependent on any major market. All of the Corporation's major markets are currently experiencing good economic conditions and unemployment rates within these markets are in line with national averages. There are no concentrations of credit to any borrower or industry in excess of 5% of total loans, and the portfolio is well balanced between wholesale and consumer lending. Table 18: Loan Portfolio Distribution
June 30, 1995 December 31, 1994 June 30, 1994 - ----------------------------------------------------------------------------------------------------------------------- % Of % Of % Of Total Total Total (in millions) Amount Loans Amount Loans Amount Loans - ----------------------------------------------------------------------------------------------------------------------- Missouri $10,914.1 54.8% $ 9,908.4 53.1% $ 9,518.2 53.7% Arkansas 2,543.4 12.8 2,430.2 13.0 2,206.7 12.4 New Mexico 1,479.5 7.4 1,430.2 7.7 1,412.0 8.0 Texas 1,057.5 5.3 964.4 5.2 942.3 5.3 Oklahoma 1,039.2 5.2 1,062.3 5.7 1,028.3 5.8 Illinois 779.2 3.9 715.4 3.8 669.5 3.8 Tennessee 763.1 3.8 754.8 4.1 692.7 3.9 Iowa 761.8 3.8 729.3 3.9 663.8 3.7 Kansas 91.4 .5 114.4 .6 99.9 .6 Credit card 492.1 2.5 546.1 2.9 503.1 2.8 - ----------------------------------------------------------------------------------------------------------------------- Total $19,921.3 100.0% $18,655.5 100.0% $17,736.5 100.0% ======================================================================================================================= Net of unearned income.
- 19 - 20 At June 30, 1995, loans totaled $19.9 billion, an increase of 12.3% over the same period of last year, and were up 6.8% from December 31, 1994. Loan growth from December 31, 1994 was primarily due to a 12.4% increase in commercial loans and reflected middle-market loan growth, as well as increases in loans to Fortune 1,000 companies. Loan growth from June 30, 1994 was primarily due to increases in both the commercial and consumer loan portfolios. At June 30, 1995, consumer loans represented approximately 26.7% of the total portfolio compared to 26.5% at June 30, 1994 and 28.3% at December 31, 1994. As a percentage of total loans, middle market commercial loans were 22.5%, compared to 22.4% at June 30, 1994 and 21.4% at December 31, 1994. Commercial real estate and real estate construction loans represented 20.2% of total loans at June 30, 1995, compared to 21.5% at June 30, 1994. The Corporation closely monitors the composition and quality of the real estate portfolio through established credit review procedures to ensure that significant credit concentrations do not exist within this portfolio. The portfolio is geographically dispersed, primarily in areas where the Corporation has a direct banking presence, and is widely diversified between residential construction, office and retail properties, and land acquisition and development loans. Real estate loans are generally secured by the underlying property at a 75% to 80% loan to value ratio and are generally supported by guarantees from project developers. Additional collateral is required on a project-by-project basis depending on management's evaluation of the borrower. Approximately 30% of the commercial real estate portfolio is comprised of owner occupied properties for which the primary source of repayment is not entirely dependent on the real estate market. At June 30, 1995, the Corporation had unfunded commercial real estate and construction commitments totaling $411 million. The amount of collateral, if any, obtained for other loans is based on general industry practice and the creditworthiness of the borrower. Table 16 displays the components of the loan portfolio under standard financial reporting definitions. Management also reviews the diversification of the portfolio using internally developed standards and definitions as summarized in Table 17. FINANCIAL POSITION AND LIQUIDITY The basic financial structure of the Corporation's average and period-end balance sheet changed moderately from the fourth quarter and second quarter of last year primarily due to loan growth and higher levels of purchased funds. At June 30, 1995, assets totaled $33.4 billion compared to $31.6 billion at June 30, 1994, and $32.9 billion at December 31, 1994. Liquidity represents the availability of funding to meet the obligations to depositors, borrowers, and creditors at a reasonable cost without adverse consequences. Accordingly, the Corporation's liquidity position is greatly influenced by its funding base and asset mix. Core deposits, which consist of investable checking account deposits and certain interest-bearing accounts, represent the Corporation's largest and most important funding source as these deposits represent a more stable, lower cost source of funds. The core deposit base is supplemented by the Corporation's wholesale and correspondent banking activities which provide a natural access to short-term purchased funds, such as negotiable certificates of deposit and overnight surplus funds. These funds can be acquired when needed, principally from existing customers within the Corporation's natural trade territory and through access to national money markets. Average core deposits totaled $21.3 billion for the second quarter of 1995, an increase of $.4 billion or 2.0% from the same period last year. Core deposit growth in recent periods has been restricted, to some extent, by a shift in customer preference to other investment alternatives. In addition, the deposit base has been altered somewhat as customers have redirected balances from traditional lower- cost savings deposits to higher-rate money market deposit accounts. This is a reversal of the trend from recent years when the spreads between savings rates and rates on other retail deposits were at historical lows. Average earning assets increased approximately $1.2 billion or 4.3% from the second quarter of last year; accordingly, the increased earning asset volume has been primarily funded by higher levels of short-term purchased funds. Average core deposits supported 72.2% of earning assets for the second quarter of 1995 compared to 73.9% during the same period last year. Purchased funds, which increased approximately $.6 billion from the prior year, supported 20.4% of average earning assets compared to 19.1% for the second quarter of last year. Purchased funds at June 30, 1995, included $2.0 billion of medium-term bank notes which were issued by several of the Corporation's banking subsidiaries in 1994 and 1995. The Corporation expects earning asset growth will continue to exceed core deposit growth in the near term resulting in a continued use of purchased funds at or slightly above the present levels. The Corporation's liquidity position is also managed by maintaining adequate levels of liquid assets such as money market investments and available for sale securities. At June 30, 1995, the available for sale portfolio totaled $4.0 billion compared to $4.7 billion at June 30, 1994. The decline from the year ago period was primarily due to redeployment of proceeds from maturing securities to the loan portfolio. Given the current outlook for continued loan growth, the securities portfolio balances are expected to show year-to- year declines throughout 1995. These securities, comprised mainly of adjustable-rate mortgage-backed securities, U.S. Treasury securities, pass-through mortgage-backed securities, and short-term CMO's, may be sold to meet liquidity needs or in response to significant changes in interest rates or prepayment risks. At June 30, 1995, unrealized depreciation in the available for sale portfolio was approximately $17.2 million compared to $181.8 million at December 31, 1994. The increase in market value from year end was primarily due to the decline in Treasury yields mainly within the 2 to 4 year maturity range. The Corporation's mortgage-backed securities portfolio totaled approximately $5.8 billion at June 30, 1995, of which approximately 88% represented government agency-backed issues and the remainder of the portfolio was comprised of private-issue mortgaged-backed securities with credit ratings of AA or better. As a means to control interest - 20 - 21 rate and prepayment risk, each security undergoes a thorough analysis prior to purchase and periodically thereafter to examine the investment performance using a wide range of interest rate scenarios and prepayment speeds. This ongoing process insures that the mortgage- backed securities portfolio meets the Corporation's investment strategies and internal risk guidelines. The variety of funding options available and strong cash flow provide the Corporation flexibility in selecting funding alternatives most appropriate in the circumstances, thereby avoiding the necessity to access capital markets at inopportune times. Maintaining favorable debt ratings is also critical to liquidity because it can affect the availability and cost of funds to the Corporation. The Corporation's ability to access the capital markets on a cost-effective basis is reflected by its debt ratings, summarized in Table 19. The Corporation currently has a shelf registration statement filed with the Securities and Exchange Commission providing for the issuance of up to $500 million of debt, preferred stock or common stock. There are no plans to issue securities pursuant to this filing in the near term. There were also no commitments for capital expenditures, at June 30, 1995, which would materially impact the Corporation's liquidity position. Table 19: Agency Ratings
Agency Ratings Moody's Standard & Poor's Thomson Bankwatch - ------------------------------------------------------------------------------------------------------------- Boatmen's Bancshares, Inc.: B 6-3/4% Subordinated notes due 2003 A3 A- A 7-5/8% Subordinated notes due 2004 A3 A- A 8-5/8% Subordinated notes due 2003 A3 A- A 9-1/4% Subordinated notes due 2001 A3 A- A 6-1/4% Convertible subordinated debentures due 2011 A3 A- A Commercial paper P1 A-1 TBW-1 The Boatmen's National Bank of St. Louis: B Long-term/short-term deposits and bank notes Aa3/P1 A+/A-1 TBW-1 Boatmen's First National Bank of Kansas City: B Long-term/short-term deposits and bank notes A1/P1 A+/A-1 TBW-1 Multi-bank note program (8 Boatmen's subsidiary banks) A1/P1 A+/A-1 =============================================================================================================
CAPITAL STRUCTURE Table 20: Capital Structure
(in millions) June 30, 1995 December 31, 1994 June 30, 1994 - --------------------------------------------------------------------------------------------------------- Long-term debt $ 522.2 $ 592.0 $ 585.7 Stockholders' equity 2,782.3 2,561.4 2,519.0 - --------------------------------------------------------------------------------------------------------- Total capitalization $3,304.5 $3,153.4 $3,104.7 ========================================================================================================= Tangible equity $2,471.4 $2,252.3 $2,198.6 ========================================================================================================= Ratios - --------------------------------------------------------------------------------------------------------- Equity/assets 8.33% 7.79% 7.98% Tangible equity/assets 7.47 6.92 7.03 Long-term debt as % of total capitalization 15.80 18.77 18.87 Double leverage 108.28 107.24 107.65 Dividends paid (for the period, in thousands): Preferred $ 40 $ 80 $ 40 Common 78,922 142,822 69,626 Total dividends as % of net income 40.6% 35.0% 34.6% =========================================================================================================
- 21 - 22 Table 21: Intangible Assets
(in millions) June 30, 1995 December 31, 1994 June 30, 1994 - --------------------------------------------------------------------------------------------------------- Goodwill--Parent Company $ 87.1 $ 89.9 $ 92.6 - --------------------------------------------------------------------------------------------------------- Subsidiaries: Goodwill 108.1 103.1 121.1 Core deposit premium 67.2 74.7 63.9 Credit card premium 2.7 3.0 3.3 Purchased mortgage servicing rights 45.8 38.4 39.5 - --------------------------------------------------------------------------------------------------------- Total subsidiaries 223.8 219.2 227.8 - --------------------------------------------------------------------------------------------------------- Total intangible assets $310.9 $309.1 $320.4 =========================================================================================================
The Corporation continues to rank among the most strongly capitalized bank holding companies in the country. This strong capital position and overall financial strength provide a good base for future expansion when profitable investment opportunities arise. The cornerstone of the Corporation's capital structure is its common equity, totaling $2.8 billion or approximately 84.2% of total capitalization at June 30, 1995, an increase of 10.5% from June 30, 1994. The equity to asset ratio was 8.33% at June 30, 1995, compared to 7.98% at June 30, 1994, and 7.79% at December 31, 1994. The equity base has been strengthened in recent years through earnings retention, the conversion of debt to equity and the issuance of common stock through various employee and stockholder investment plans. In the first quarter of 1995, the Corporation announced a common stock repurchase program authorizing the repurchase of up to 5 million shares, or approximately 4% of the Corporation's shares outstanding. At June 30, 1995, the Corporation held approximately 715,000 common shares in Treasury at a cost of $23.2 million. The repurchased shares will be used to meet periodic stock requirements of benefit plans and for other corporate purposes. An important measure of capital adequacy of a banking institution is its risk-based capital ratios, which represent the primary capital standard for regulatory purposes. The Corporation's risk-based capital ratios of 10.87% for Tier I and 13.90% for total capital substantially exceed the regulatory required minimums. At June 30, 1995, the Corporation's Tier I leverage ratio was 7.63%, well in excess of required minimums. At June 30, 1995, all of the Corporation's banking subsidiaries were considered "well capitalized" based on the regulatory defined minimums of a Tier I leverage ratio of 5%, a Tier I capital ratio of 6% and a total capital ratio of 10%. The Corporation announced a common stock dividend increase on August 8, 1995, effective with the dividend payable on October 1, 1995, to $.37 per share per quarter. This is an increase of 8.8% over the previous quarterly rate of $.34 per share. Table 22: Risk-Based Capital
(in millions) June 30, 1995 December 31, 1994 June 30, 1994 - --------------------------------------------------------------------------------------------------------- Tier I capital: Stockholders' equity $ 2,782.3 $ 2,561.4 $ 2,519.0 Unrealized net (appreciation) depreciation, available for sale securities 10.5 111.8 39.0 - --------------------------------------------------------------------------------------------------------- Stockholders' equity, net 2,792.8 2,673.2 2,558.0 Minority interest .7 .7 .7 Intangible assets: Goodwill (195.2) (193.0) (213.7) Core deposit premium (67.2) (74.7) (63.9) - --------------------------------------------------------------------------------------------------------- Total Tier I 2,531.1 2,406.2 2,281.1 - --------------------------------------------------------------------------------------------------------- Tier II capital: Allowable reserve for loan losses 292.3 276.0 261.5 Qualifying long-term debt 415.0 415.0 425.0 - --------------------------------------------------------------------------------------------------------- Total Tier II 707.3 691.0 686.5 - --------------------------------------------------------------------------------------------------------- Total capital $ 3,238.4 $ 3,097.2 $ 2,967.6 - --------------------------------------------------------------------------------------------------------- Risk-adjusted assets $23,292.9 $22,070.4 $20,848.4 - --------------------------------------------------------------------------------------------------------- Risk-based capital ratios: Tier I 10.87% 10.90% 10.94% - --------------------------------------------------------------------------------------------------------- Total 13.90% 14.03% 14.23% - --------------------------------------------------------------------------------------------------------- Tier I leverage ratio 7.63% 7.35% 7.28% =========================================================================================================
- 22 - 23 BOATMEN'S BANCSHARES, INC. CONSOLIDATED QUARTERLY EARNINGS TREND
1995 1994 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Second First Fourth Third Second First - ------------------------------------------------------------------------------------------------------------------------ Interest income: Interest and fees on loans $430,829 $405,962 $387,749 $367,691 $353,870 $330,198 Interest on short-term investments 983 899 886 932 1,082 572 Interest on Federal funds sold and securities purchased under resale agreements 7,539 7,846 7,802 3,994 2,760 2,580 Interest on held to maturity securities Taxable 66,317 64,792 62,509 62,323 58,900 48,634 Tax-exempt 13,903 13,965 14,709 15,678 14,903 15,198 - ------------------------------------------------------------------------------------------------------------------------ Total interest on held to maturity securities 80,220 78,757 77,218 78,001 73,803 63,832 Interest on available for sale securities 64,731 64,853 65,324 64,855 66,335 69,847 Interest on trading securities 338 421 378 381 926 840 - ------------------------------------------------------------------------------------------------------------------------ Total interest income 584,640 558,738 539,357 515,854 498,776 467,869 Interest expense: Interest on deposits 200,577 184,751 168,601 153,659 145,692 141,664 Interest on Federal funds purchased and other short-term borrowings 70,335 65,354 57,361 49,884 40,522 25,477 Interest on capital lease obligations 970 970 993 1,000 997 993 Interest on long-term debt 11,492 12,015 12,197 12,052 11,468 11,008 - ------------------------------------------------------------------------------------------------------------------------ Total interest expense 283,374 263,090 239,152 216,595 198,679 179,142 - ------------------------------------------------------------------------------------------------------------------------ Net interest income 301,266 295,648 300,205 299,259 300,097 288,727 Provision for loan losses 9,171 9,710 4,899 6,855 7,740 5,846 - ------------------------------------------------------------------------------------------------------------------------ Net interest income after provision for loan losses 292,095 285,938 295,306 292,404 292,357 282,881 - ------------------------------------------------------------------------------------------------------------------------ Noninterest income: Trust fees 46,345 40,420 42,746 39,777 40,930 41,483 Service charges 47,595 45,699 46,947 47,188 46,811 45,840 Credit card 11,728 11,856 14,047 11,074 9,841 9,666 Investment banking revenues 8,880 8,790 8,795 8,660 10,584 9,729 Mortgage banking operations 16,291 22,904 15,418 13,509 12,723 19,045 Securities gains, net 2,815 46 1,411 1,533 702 2,554 Other 31,887 32,397 28,716 27,760 31,863 25,792 - ------------------------------------------------------------------------------------------------------------------------ Total noninterest income 165,541 162,112 158,080 149,501 153,454 154,109 - ------------------------------------------------------------------------------------------------------------------------ Noninterest expense: Staff 146,654 148,259 146,382 146,732 149,092 148,492 Net occupancy 19,277 20,310 20,588 21,172 20,580 20,645 Equipment 23,483 23,372 23,662 24,113 23,579 22,018 FDIC insurance 13,310 13,316 13,033 13,195 13,271 13,448 Intangible amortization 8,052 7,883 8,716 8,842 8,808 8,786 Advertising 8,674 7,496 10,369 8,452 7,849 6,821 Other 73,876 90,747 73,561 63,778 64,407 66,347 - ------------------------------------------------------------------------------------------------------------------------ Total noninterest expense 293,326 311,383 296,311 286,284 287,586 286,557 - ------------------------------------------------------------------------------------------------------------------------ Income before income tax expense 164,310 136,667 157,075 155,621 158,225 150,433 Income tax expense 55,613 50,858 52,866 53,632 55,244 51,810 - ------------------------------------------------------------------------------------------------------------------------ Net income $108,697 $ 85,809 $104,209 $101,989 $102,981 $ 98,623 ======================================================================================================================== Net income per share $.84 $.67 $.81 $.79 $.80 $.77 ======================================================================================================================== Dividends declared per share $.34 $.34 $.34 $.34 $.31 $.31 ======================================================================================================================== Returns: Return on assets 1.33% 1.06% 1.30% 1.29% 1.31% 1.28% Return on equity 15.85 13.06 16.25 16.03 16.45 15.84 ========================================================================================================================
- 23 - 24 BOATMEN'S BANCSHARES, INC. CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Average balances (in millions) Second Quarter First Quarter Fourth Quarter - ---------------------------------------------------------------------------------------------------------------------------- Income/ Yields/ Income/ Yields/ Income/ Yields/ Assets Balance Expense Rates Balance Expense Rates Balance Expense Rates - ---------------------------------------------------------------------------------------------------------------------------- Loans, net of unearned income $19,528.4 $432.4 8.88% $18,924.4 $407.8 8.74% $18,402.5 $390.0 8.41% Short-term investments 67.6 1.0 5.83 65.4 .9 5.57 68.6 .9 5.13 Federal funds sold and securities purchased under resale agreements 492.8 7.5 6.14 531.5 7.9 5.99 579.4 7.8 5.34 Held to maturity securities: Taxable 4,403.6 66.3 6.04 4,351.8 64.8 6.04 4,353.1 62.5 5.70 Tax-exempt 856.3 20.9 9.78 846.2 21.0 10.06 897.5 21.8 9.62 - ---------------------------------------------------------------------------------------------------------------------------- Total held to maturity securities 5,259.9 87.2 6.65 5,198.0 85.8 6.69 5,250.6 84.3 6.37 Available for sale securities 4,073.5 64.8 6.38 4,116.5 65.0 6.40 4,291.3 65.4 6.05 Trading securities 20.6 .4 6.96 27.9 .4 6.40 26.1 .4 6.29 - ---------------------------------------------------------------------------------------------------------------------------- Total earning assets 29,442.8 593.3 8.08 28,863.7 567.8 7.98 28,618.5 548.8 7.61 Less reserve for loan losses (386.3) (380.0) (383.3) Cash and due from banks 1,825.5 1,871.9 1,903.3 All other assets 1,905.9 1,923.4 1,874.4 - ---------------------------------------------------------------------------------------------------------------------------- Total assets $32,787.9 $32,279.0 $32,012.9 ============================================================================================================================ Liabilities and Stockholders' Equity - ---------------------------------------------------------------------------------------------------------------------------- Retail savings deposits and interest- bearing transaction accounts $10,103.8 $ 79.2 3.14% $10,108.4 $ 74.8 3.00% $10,078.2 $ 68.2 2.68% Time deposits 9,109.5 121.4 5.34 8,999.1 110.0 4.96 8,809.6 100.4 4.52 - ---------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 19,213.3 200.6 4.19 19,107.5 184.8 3.92 18,887.8 168.6 3.54 Federal funds purchased and other short-term borrowings 4,682.4 70.3 6.03 4,544.7 65.3 5.83 4,475.3 57.4 5.09 Capital lease obligations 39.6 1.0 9.81 40.0 1.0 9.85 40.2 1.0 9.79 Long-term debt 528.9 11.5 8.71 568.2 12.0 8.58 598.2 12.2 8.09 - ---------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 24,464.2 283.4 4.65 24,260.4 263.1 4.40 24,001.5 239.2 3.95 Demand deposits 5,198.5 4,999.0 5,081.2 All other liabilities 381.0 391.0 363.3 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 30,043.7 29,650.4 29,446.0 Redeemable preferred stock 1.1 1.1 1.1 Total stockholders' equity 2,743.1 2,627.5 2,565.8 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $32,787.9 $32,279.0 $32,012.9 ============================================================================================================================ Interest rate spread 3.43% 3.58% 3.66% Effect of noninterest-bearing funds .79 .70 .63 - ---------------------------------------------------------------------------------------------------------------------------- Net interest margin $309.9 4.22% $304.7 4.28% $309.6 4.29% ============================================================================================================================ Nonaccrual loans are included in average balances and interest payments on such loans are recognized as income on a cash basis when appropriate. Interest income and yields are presented on a fully-taxable equivalent basis using the Federal statutory income tax rate, net of nondeductible interest expense. Such adjustments by earning asset category are as follows: Loans $1.6 $1.9 $2.2 Held to maturity securities 7.0 7.0 7.1 Available for sale securities .1 .1 .1 Trading securities - ---------------------------------------------------------------------------------------------------------------------------- Total $8.7 $9.0 $9.4 ============================================================================================================================
- 24 - 25 BOATMEN'S BANCSHARES, INC. CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
1994 - ---------------------------------------------------------------------------------------------------------------------------- Average balances (in millions) Third Quarter Second Quarter First Quarter - ---------------------------------------------------------------------------------------------------------------------------- Income/ Yields/ Income/ Yields/ Income/ Yields/ Assets Balance Expense Rates Balance Expense Rates Balance Expense Rates - ---------------------------------------------------------------------------------------------------------------------------- Loans, net of unearned income $17,993.9 $369.2 8.14% $17,596.5 $355.5 8.10% $17,068.8 $331.8 7.88% Short-term investments 83.8 .9 4.41 110.0 1.1 3.95 61.0 .6 3.80 Federal funds sold and securities purchased under resale agreements 333.5 4.0 4.75 262.7 2.8 4.21 295.8 2.6 3.54 Held to maturity securities: Taxable 4,385.0 62.3 5.64 4,385.4 58.9 5.39 4,056.7 48.6 4.86 Tax-exempt 891.7 23.5 10.44 904.8 22.3 9.88 923.9 22.8 10.01 - ---------------------------------------------------------------------------------------------------------------------------- Total held to maturity securities 5,276.7 85.8 6.45 5,290.2 81.2 6.16 4,980.6 71.4 5.82 Available for sale securities 4,578.1 64.9 5.63 4,891.9 66.4 5.45 5,013.5 69.9 5.66 Trading securities 28.4 .4 5.56 64.2 1.0 6.04 69.5 .8 5.01 - ---------------------------------------------------------------------------------------------------------------------------- Total earning assets 28,294.4 525.2 7.37 28,215.5 508.0 7.22 27,489.2 477.1 7.04 Less reserve for loan losses (384.0) (384.4) (381.5) Cash and due from banks 1,873.6 1,851.2 1,816.5 All other assets 1,845.9 1,855.3 1,856.2 - ---------------------------------------------------------------------------------------------------------------------------- Total assets $31,629.9 $31,537.6 $30,780.4 ============================================================================================================================ Liabilities and Stockholders' Equity - ---------------------------------------------------------------------------------------------------------------------------- Retail savings deposits and interest- bearing transaction accounts $10,068.7 $ 62.8 2.48% $10,175.8 $ 59.8 2.36% $10,232.4 $ 56.9 2.26% Time deposits 8,576.7 90.8 4.20 8,582.4 85.9 4.01 8,581.3 84.7 4.00 - ---------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 18,645.4 153.6 3.27 18,758.2 145.7 3.12 18,813.7 141.6 3.05 Federal funds purchased and other short-term borrowings 4,445.3 49.9 4.45 4,239.3 40.5 3.83 3,446.8 25.5 3.00 Capital lease obligations 40.5 1.0 9.80 40.8 1.0 9.81 41.0 1.0 9.81 Long-term debt 592.0 12.0 8.08 587.9 11.5 7.82 588.2 11.0 7.59 - ---------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 23,723.2 216.5 3.62 23,626.2 198.7 3.37 22,889.7 179.1 3.17 Demand deposits 5,041.3 5,110.3 5,057.4 All other liabilities 319.0 296.4 341.3 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 29,083.5 29,032.9 28,288.4 Redeemable preferred stock 1.1 1.1 1.2 Total stockholders' equity 2,545.3 2,503.6 2,490.8 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $31,629.9 $31,537.6 $30,780.4 ============================================================================================================================ Interest rate spread 3.75% 3.85% 3.87% Effect of noninterest-bearing funds .58 .55 .53 - ---------------------------------------------------------------------------------------------------------------------------- Net interest margin $308.7 4.33% $309.3 4.40% $298.0 4.40% ============================================================================================================================ Nonaccrual loans are included in average balances and interest payments on such loans are recognized as income on a cash basis when appropriate. Interest income and yields are presented on a fully-taxable equivalent basis using the Federal statutory income tax rate, net of nondeductible interest expense. Such adjustments by earning asset category are as follows: Loans $1.5 $1.6 $1.6 Held to maturity securities 7.8 7.4 7.6 Available for sale securities .1 .1 .1 Trading securities .1 - ---------------------------------------------------------------------------------------------------------------------------- Total $9.4 $9.2 $9.3 ============================================================================================================================
- 25 - 26 BOATMEN'S BANCSHARES, INC. CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
Six Months Ended June 30 - ------------------------------------------------------------------------------------------------ Average balances (in millions) 1995 1994 - ------------------------------------------------------------------------------------------------ Income/ Yields/ Income/ Yields/ Assets Balance Expense Rates Balance Expense Rates - ------------------------------------------------------------------------------------------------ Loans, net of unearned income $19,228.0 $840.2 8.81% $17,334.1 $687.3 8.00% Short-term investments 66.6 1.9 5.70 85.6 1.7 3.89 Federal funds sold and securities purchased under resale agreements 512.0 15.4 6.06 279.1 5.4 3.86 Held to maturity securities: Taxable 4,377.9 131.1 6.04 4,222.0 107.5 5.14 Tax-exempt 851.3 41.9 9.92 914.3 45.1 9.95 - ------------------------------------------------------------------------------------------------ Total held to maturity securities 5,229.2 173.0 6.67 5,136.3 152.6 5.99 Available for sale securities 4,094.9 129.8 6.39 4,952.3 136.3 5.55 Trading securities 24.2 .8 6.64 66.8 1.8 5.51 - ------------------------------------------------------------------------------------------------ Total earning assets 29,154.9 1,161.1 8.03 27,854.2 985.1 7.13 Less reserve for loan losses (383.2) (382.9) Cash and due from banks 1,848.6 1,834.0 All other assets 1,914.6 1,855.8 - ------------------------------------------------------------------------------------------------ Total assets $32,534.9 $31,161.1 ================================================================================================ Liabilities and Stockholders' Equity - ------------------------------------------------------------------------------------------------ Retail savings deposits and interest- bearing transaction accounts $10,106.1 $154.0 3.07% $10,203.9 $116.7 2.31% Time deposits 9,054.6 231.3 5.15 8,581.8 170.6 4.01 - ------------------------------------------------------------------------------------------------ Total interest-bearing deposits 19,160.7 385.3 4.06 18,785.7 287.3 3.08 Federal funds purchased and other short-term borrowings 4,613.9 135.7 5.93 3,845.3 66.0 3.46 Capital lease obligations 39.8 2.0 9.83 40.9 2.0 9.81 Long-term debt 548.4 23.5 8.64 588.1 22.5 7.71 - ------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 24,362.8 546.5 4.52 23,260.0 377.8 3.28 Demand deposits 5,099.3 5,084.0 All other liabilities 386.1 318.7 - ------------------------------------------------------------------------------------------------ Total liabilities 29,848.2 28,662.7 Redeemable preferred stock 1.1 1.1 Total stockholders' equity 2,685.6 2,497.3 - ------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $32,534.9 $31,161.1 ================================================================================================ Interest rate spread 3.51% 3.85% Effect of noninterest-bearing funds .74 .55 - ------------------------------------------------------------------------------------------------ Net interest margin $614.6 4.25% $607.3 4.40% ================================================================================================ Nonaccrual loans are included in average balances and interest payments on such loans are recognized as income on a cash basis when appropriate. Interest income and yields are presented on a fully-taxable equivalent basis using the Federal statutory income tax rate, net of nondeductible interest expense. Such adjustments by earning asset category are as follows: Loans $ 3.5 $ 3.2 Held to maturity securities 14.0 15.0 Available for sale securities .2 .2 Trading securities .1 - ------------------------------------------------------------------------------------------------ Total $17.7 $18.5 ================================================================================================
- 26 - 27 PART II. OTHER INFORMATION -------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Registrant's Annual Meeting of Shareholders was held on April 25, 1995. Proxies for the meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended. At this annual meeting, the shareholders (1) elected management's five director nominees, (2) approved an amendment to the Registrant's Restated Articles of Incorporation increasing the authorized shares of Common Stock from 150,000,000 to 200,000,000, (3) approved an amendment to the Registrant's 1987 Non-Qualified Stock Option Plan increasing the number of authorized shares of Common Stock issuable under the Plan and (4) approved an amendment to the Registrant's 1991 Incentive Stock Option Plan increasing the number of authorized shares of Common Stock issuable under the Plan. The amendment increasing the authorized shares has no effect on the rights of the holders of Common Stock. There was no solicitation in opposition to management's director nominees. Following is a tabulation of the voting for directors:
Voting Cast --------------------- Nominee For Withheld - ------- --- -------- Richard L. Battram 101,830,157 1,757,412 William E. Cornelius 101,899,189 1,752,455 C. Ray Holman 101,832,407 1,757,096 William E. Maritz 93,373,746 9,166,913 Richard E. Peck 101,317,703 1,915,829
With respect to the amendment to the Restated Articles of Incorporation, there were 95,479,875 shares voted "For" and 4,618,564 shares voted "Against", with 1,698,556 shares abstaining and 0 broker non-votes. With respect to the amendment to the 1987 Non-Qualified Stock Option Plan, there were 94,476,877 shares voted "For" and 5,608,877 shares voted "Against", with 1,484,488 shares abstaining and 226,869 broker non-votes. With respect to the amendment to the 1991 Incentive Stock Option Plan, there were 95,188,520 shares voted "For" and 4,852,379 shares voted "Against", with 1,529,227 shares abstaining and 226,869 broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 27. Boatmen's Bancshares, Inc. Financial Data Schedule for the Period Ended June 30, 1995. (b) Registrant filed a current report on Form 8-K dated April 28, 1995, covering Item 5 - Other Events and Item 7 - Financial Statements and Exhibits. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOATMEN'S BANCSHARES, INC. -------------------------------------------- (Registrant) Date: August 11, 1995 --------------- /s/ JAMES W. KIENKER -------------------------------------------- James W. Kienker, Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as Principal Financial and Accounting Officer) - 27 - EX-27 2 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 1,903,375 51,470 732,539 27,565 3,984,903 5,164,908 5,166,460 19,921,345 385,104 33,407,940 24,416,937 5,078,583 606,743 522,215 1,132 0 129,830 2,652,500 33,407,940 836,791 288,561 18,026 1,143,378 385,328 546,464 596,914 18,881 2,861 604,709 300,977 194,506 0 0 194,506 1.51 1.51 4.25 101,700 23,800 6,700 512,000 376,600 32,600 20,000 385,100 385,100 0 0
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