<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period Commission file number 1-7901.
ended March 31, 1996
BARNETT BANKS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-0560515
- ----------------------------------- -----------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
50 North Laura Street
Jacksonville, Florida 32202
--------------------------------------
(Address of Principal Executive Offices)
(904) 791-7720
-------------------------------------------------
(Registrants telephone number, Including area code)
Indicate by check mark whether the registrant (1) 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
requirement for the past 90 days.
Yes X No
----- -----
Barnett Banks, Inc. Common Stock - March 31, 1996:
94,164,537 shares outstanding
<PAGE>
BARNETT BANKS, INC.
FINANCIAL REVIEW AND FORM 10-Q
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Consolidated Financial Highlights. . . . . . . . . . . . . . . . . . 3
Management Discussion (Item 2) . . . . . . . . . . . . . . . . . . . 4
Quarterly Average Balances, Yields and Rates . . . . . . . . . . . 12
Financial Statements (Item 1):
Statements of Financial Condition. . . . . . . . . . . . . . . . . 14
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . 15
Statements of Changes in Shareholders' Equity. . . . . . . . . . . 16
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . 17
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . 18
PART II--OTHER INFORMATION
- --------------------------------------------------------------------------------
EXHIBITS AND REPORTS ON FORM 8-K (ITEM 6)
Exhibit 11, "Statement re: computation of per share earnings," is included
in the Notes to Financial Statements on page 19 of this report.
A report on Form 8-K, dated February 5, 1996, filed a press release
announcing changes in the company's organizational structure.
A report on Form 8-K, dated March 4, 1996, filed a press release announcing
the company's agreement to form a mortgage servicing company joint venture
with another financial institution and two other investors.
Reports on Form 8-K, dated February 29, 1996 and March 22, 1996 filed
exhibits related to a Regsitration Statement on Form S-3.
BARNETT BANKS, INC. AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 1996
SIGNATURES
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.
BARNETT BANKS, INC.
Dated: May 14, 1996 /s/ Charles W. Newman
------------------------
Charles W. Newman
Chief Financial Officer
Dated: May 14, 1996
/s/ Patrick J. McCann
------------------------
Patrick J. McCann
Controller
2
- -------------------
BARNETT BANKS, INC.
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS
For the Periods Ended March 31-- --------------------------------
Dollars in Millions Except Per Share Data 1996 1995 Change
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE PERIOD
Net interest income (taxable-equivalent) . . . . . . . . . . . . . . . . . $ 475.2 $ 430.5 10%
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . 41.6 24.3 71
Non-interest income (excluding securities transactions). . . . . . . . . . 196.6 162.8 21
Securities transactions. . . . . . . . . . . . . . . . . . . . . . . . . . 19.0 -- --
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 407.6 363.5 12
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148.2 128.7 15
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net income:
Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.52 $ 1.27 20%
Fully diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.49 1.23 21
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 .41 15
Book value(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.71 32.29 7
Stock price:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.75 45.75 39
Low. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55.50 38.75 43
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.25 45.50 37
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.44% 1.26% 14%
Return on common equity . . . . . . . . . . . . . . . . . . . . . . . . . 18.16 16.51 10
Return on total equity . . . . . . . . . . . . . . . . . . . . . . . . . . 17.89 15.97 12
Net yield on earning assets. . . . . . . . . . . . . . . . . . . . . . . . 5.27 4.77 10
Overhead ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.67 61.28 (1)
Shareholders' equity to total assets(1). . . . . . . . . . . . . . . . . . 8.09 8.03 1
Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.31 6.25 1
Total risk-based capital ratio . . . . . . . . . . . . . . . . . . . . . . 11.62 11.39 2
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,136 $40,858 1%
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,845 33,939 --
Loans, net of unearned income. . . . . . . . . . . . . . . . . . . . . . . 30,347 28,899 5
Earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,161 36,286 --
Common equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,216 3,008 7
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,313 3,223 3
Fully diluted shares (thousands) . . . . . . . . . . . . . . . . . . . . . 99,498 104,571 (5)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD-END
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,519 $41,735 (1)%
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,930 34,337 (1)
Loans, net of unearned income. . . . . . . . . . . . . . . . . . . . . . . 30,378 29,263 4
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,388 898 55
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 215 (58)
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,287 3,268 1
Common shares (thousands) . . . . . . . . . . . . . . . . . . . . . . . . 94,165 97,127 (3)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) COMPUTED ON EQUITY BEFORE DEDUCTION OF THE EMPLOYEE STOCK OWNERSHIP PLAN
OBLIGATION.
3
-------------------
BARNETT BANKS, INC.
<PAGE>
MANAGEMENT DISCUSSION
TABLE 1 SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1996 1995
----- ------------------------------------
Dollars in Millions Except Per Share Data--Taxable-Equivalent FIRST Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income. . . . . . . . . . . . . . . . . . . . . . $475.2 $459.2 $446.9 $435.6 $430.5
Provision for loan losses . . . . . . . . . . . . . . . . . . 41.6 37.2 34.2 26.8 24.3
- ------------------------------------------------------------------------------------------------------------------
Net interest income after loan loss provision. . . . . . . . . 433.6 422.0 412.7 408.8 406.2
Non-interest income (excluding securities transactions). . . . 196.6 185.5 182.6 183.1 162.8
Securities transactions. . . . . . . . . . . . . . . . . . . . 19.0 4.9 .1 -- --
Non-interest expense . . . . . . . . . . . . . . . . . . . . . 407.6 393.9 379.3 381.9 363.5
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . . 241.6 218.5 216.1 210.0 205.5
Income tax provision . . . . . . . . . . . . . . . . . . . . . 88.6 75.0 75.4 69.4 66.5
Taxable-equivalent adjustment . . . . . . . . . . . . . . . . 4.8 5.2 6.6 8.4 10.3
- ------------------------------------------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . $148.2 $138.3 $134.1 $132.2 $128.7
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Primary net income per common share. . . . . . . . . . . . . . $1.52 $1.39 $1.34 $1.30 $1.27
Fully diluted net income per common share . . . . . . . . . . 1.49 1.35 1.29 1.26 1.23
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SUMMARY
Barnett earned $148.2 million, or $1.49 per fully diluted share, in the
first quarter of 1996, 15% above the same period last year and up from $138.3
million, or $1.35 per share, reported in the fourth quarter of 1995.
Return on assets increased to 1.44% from 1.26% a year earlier and 1.34% in
the fourth quarter of 1995. Return on average common shareholders' equity
increased to 18.16% from 16.51% a year earlier and 16.76% in the fourth
quarter of 1995.
First quarter results included a $19.0 million gain on the company's equity
holding in Bank South Corporation which was acquired by another institution.
That gain contributed $.12 to quarterly earnings per share.
Revenue, excluding securities transactions, increased for the eighth
consecutive quarter, rising 13% over the first quarter of 1995 and 4% over the
fourth quarter to $671.8 million. First quarter taxable-equivalent net
interest income rose $44.7 million from the same period last year and $16.0
million from last quarter to $475.2 million, primarily because of an increase
in the net yield on earning assets of 50 basis points from the first quarter
of 1995 and 22 basis points from the fourth quarter.
Non-interest income, excluding securities transactions, rose $33.8 million
from the first quarter and $11.1 million from the fourth quarter to $196.6
million, primarily due to higher consumer finance, mortgage banking and
brokerage income. Non-interest expense increased $44.1 million from last
year's first quarter to $407.6 million, primarily reflecting acquisitions
completed during the first quarter of 1995, and $13.7 million from the fourth
quarter, due to strategic initiatives and increased salaries and benefits.
The provision for loan losses was $41.6 million in the first quarter
compared to $24.3 million last year and $37.2 million in the fourth quarter of
1995. Net charge-offs of $41.4 million in the first quarter were $17.0 million
higher than the same period last year and $5.2 million higher than the fourth
quarter. First quarter net charge-offs represented an annualized .55% of
average loans, within the company's anticipated long-term operating range of
50 to 60 basis points. Non-performing assets of $245 million on March 31
represented .80% of gross loans plus real estate held for sale.
In February, the company announced it will consolidate 26 of its 32 bank
charters into a single national bank. This move will free local market
managers from regulatory burdens in order to increase their focus on revenue
generating opportunities. This consolidation is expected to be effective in
the second quarter. The company does not expect to incur material costs to
complete this consolidation.
In March, the company announced that it had entered into a definitive
agreement with Bank Boston Corporation and two equity investors to form a
joint venture creating the seventh largest mortgage servicing company in the
United States. The venture will receive Barnett's $33 billion servicing
portfolio and Barnett will receive one-third ownership in the venture. The
transaction is expected to close in the second quarter. The transaction is
expected to benefit net earnings, reduce asset levels and improve overhead
and capital ratios.
Selected quarterly data is provided in TABLE 1.
EARNING ASSETS
LOANS. Average loans rose 5%, or $1.4 billion, from a year earlier to $30.3
billion, but fell slightly from the fourth quarter. The increase in loans from
the first quarter of 1995 reflects growth in commercial, installment and bank
card balances. The decline from last quarter reflects management's decision to
sell substantially all new residential mortgage production into the secondary
market and to utilize this liquidity to fund growth in higher yielding loans.
Residential loans fell slightly from last year and declined $451 million
from the fourth quarter to $10.7 billion. On March 31, 74% of the residential
loan portfolio consisted of adjustable-rate mortgages. Most of these mortgages
reprice annually based on a spread over
4
- -------------------
BARNETT BANKS, INC.
<PAGE>
MANAGEMENT DISCUSSION
TABLE 2 INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
Non-Rate
Sensitive
0-30 31-90 91-180 181-365 and Over
March 31, 1996--Dollars in Millions Days Days Days Days One Year Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural . . . . . . . . . . $ 3,508 $ 138 $ 105 $ 174 $ 895 $ 4,820
Real estate construction . . . . . . . . . . . . . . . . . 744 4 3 10 27 788
Commercial mortgages . . . . . . . . . . . . . . . . . . . 1,004 110 113 281 630 2,138
Residential mortgages. . . . . . . . . . . . . . . . . . . 1,574 1,689 2,018 2,929 2,327 10,537
Installment. . . . . . . . . . . . . . . . . . . . . . . . 2,342 705 950 1,603 4,001 9,601
Other loans . . . . . . . . . . . . . . . . . . . . . . . 1,937 557 2,494
- ----------------------------------------------------------------------------------------------------------------------
Total loans(1). . . . . . . . . . . . . . . . . . . . 11,109 2,646 3,189 4,997 8,437 30,378
Securities(1). . . . . . . . . . . . . . . . . . . . . . . 335 339 614 1,186 2,737 5,211
Federal funds sold and other earning assets . . . . . . . 588 588
- ----------------------------------------------------------------------------------------------------------------------
Total earning assets. . . . . . . . . . . . . . . . . $ 12,032 $ 2,985 $3,803 $6,183 $11,174 $36,177
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
NOW and money market accounts(1) . . . . . . . . . . . . . $ 7,472 $ 5,116 $12,588
Savings deposits(1). . . . . . . . . . . . . . . . . . . . 1,096 2,195 3,291
Time deposits . . . . . . . . . . . . . . . . . . . . . . 1,812 $ 2,095 $2,560 $2,940 2,850 12,257
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits . . . . . . . . . . . 10,380 2,095 2,560 2,940 10,161 28,136
Short-term borrowings. . . . . . . . . . . . . . . . . . . 1,946 100 2,046
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 4 618 766 1,388
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities . . . . . . . . . $ 12,330 $ 2,713 $2,660 $2,940 $10,927 $31,570
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Gap before interest rate swaps . . . . . . . . . . . . . . $ (298) $ 272 $1,143 $3,243 $ 247
Interest rate swaps . . . . . . . . . . . . . . . . . . . (1,514) (1,770) (150) 30 3,404
- ----------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap adjusted for interest rate
swaps . . . . . . . . . . . . . . . . . . . . . . . . . (1,812) (1,498) 993 3,273 3,651
Cumulative adjusted interest rate sensitivity gap. . . . . (1,812) (3,310) (2,317) 956
Cumulative adjusted gap as a percentage of earning assets:
March 31, 1996. . . . . . . . . . . . . . . . . . . . (5.01)% (9.15)% (6.40)% 2.64%
March 31, 1995. . . . . . . . . . . . . . . . . . . . (12.94) (12.34) (7.81) 10.86
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) REFLECTS MANAGEMENT'S ADJUSTMENTS FOR THE COMPANY'S ESTIMATES OF THE
EFFECTS OF EARLY PRINCIPAL REPAYMENTS ON RESIDENTIAL AND OTHER AMORTIZING
LOANS AND SECURITIES AND THE ANTICIPATED REPRICING SENSITIVITY OF
NON-MATURITY DEPOSIT PRODUCTS. HISTORICALLY, BALANCES ON NON-MATURITY
DEPOSIT ACCOUNTS HAVE REMAINED RELATIVELY STABLE DESPITE CHANGES IN MARKET
INTEREST RATES. MANAGEMENT HAS CLASSIFIED CERTAIN OF THESE ACCOUNTS AS
NON-RATE SENSITIVE BASED ON MANAGEMENT'S HISTORICAL PRICING PRACTICES AND
RUNOFF EXPERIENCE. TWO-THIRDS OF THE NOW AND SAVINGS ACCOUNT BALANCE AND
APPROXIMATELY 20% OF THE MONEY MARKET ACCOUNT BALANCES, ARE CLASSIFIED AS
NON-RATE SENSITIVE.
the one-year constant maturity Treasury index. This repricing is limited by
annual and lifetime caps.
Installment loans rose 12%, or $1.0 billion, from the same period last year,
reflecting increases in auto, home equity and student loans. Installment loans
grew $301 million from the fourth quarter to $9.3 billion. The company's
market expansion in automobile lending and new leasing product contributed
incremental growth, along with seasonal student loan funding. The volume of
automobile loans, the most significant component of installment loans, is
dependent upon new and used automobile sales, which can vary depending on
economic conditions and other factors.
Bank card outstandings of $1.8 billion were 28% higher than a year earlier.
The growth from last year reflects expanded marketing of the credit card both
within Florida and within neighboring markets. Bank card balances expanded at
an annualized rate of 19%, or $79 million, during the quarter, though the
balances at March 31 were down slightly from December 31 due to repayments of
holiday borrowing. The rate of growth in the bank card portfolio may slow due
to reduced solicitations.
Commercial loans grew 9% from last year and at an annualized rate of 14%
from the fourth quarter of 1995 to $4.8 billion. Commercial real estate
loans decreased 10% from last year and $169 million from last quarter to $3.0
billion and represent 10% of the loan portfolio.
INVESTMENT SECURITIES AND OTHER EARNING ASSETS. The company's $5.2 billion
securities portfolio has an average life of 1.2 years and consists primarily
of AAA or equivalent-rated securities. U.S. Treasury securities comprise 39%
of the portfolio. Average securities fell $2.1 billion, or 29%, below the same
period last year and $502 million from the fourth quarter. The decline in
securities from last year reflects the deployment of liquidity from maturing
securities into higher yielding loans. The decrease from last quarter reflects
the temporary investment of the proceeds from maturing securities into federal
funds sold. Federal funds sold and securities purchased under agreements to
resell rose $521 million from a year earlier and $465 million from the fourth
quarter.
At March 31, the available-for-sale securities portfolio had a $16 million
unrealized gain compared to a $1 million unrealized gain at March 31, 1995 and
a $60 million unrealized gain at December
5
-------------------
BARNETT BANKS, INC.
<PAGE>
MANAGEMENT DISCUSSION
TABLE 3 DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION> Weighted Average Interest Rate
--------------------------------------- Average
Notional Replacement Receive Pay Maturity
March 31--Dollars in Millions Amount Value Rate(1) Index Rate(1) Index In Years
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
Interest rate swaps:
Basis swap . . . . . . . . . . . . . . . . $ 50 $ .78 5.41% LIBOR 5.39% CMT 1.83
Generic swaps:
Receive fixed . . . . . . . . . . . . . . 3,550 (21.77) 5.42 FIXED 5.40 LIBOR 1.67
Pay fixed . . . . . . . . . . . . . . . . 266 (.22) 5.39 LIBOR 6.38 FIXED 1.47
Interest rate floors . . . . . . . . . . . . 250 2.19 6.00(2) LIBOR -- -- 1.75
- -------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . $4,116 $(19.02) 5.45% 5.47% 1.66
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
1995
Interest rate swaps:
Basis swap . . . . . . . . . . . . . . . . $ 50 $ .81 6.13% LIBOR 6.14% CMT 2.83
Generic swaps:
Receive fixed . . . . . . . . . . . . . . 1,040 (20.65) 4.38 Fixed 6.42 LIBOR .90
Pay fixed . . . . . . . . . . . . . . . . 167 1.62 6.24 LIBOR 6.71 Fixed 2.65
Index-principal swaps. . . . . . . . . . . 1,010 (40.80) 4.64 Fixed 6.31 LIBOR 2.06
Interest rate floors . . . . . . . . . . . . 2,000 10.00 6.00(2) LIBOR -- -- 2.76
- -------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . $4,267 $(49.02) 5.29% 6.39% 2.14
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) BASED UPON CONTRACTUAL RATES AT MARCH 31.
(2) THE COMPANY RECEIVES INTEREST EQUAL TO THE AMOUNT BY WHICH LIBOR IS LESS
THAN 6.00%
31, 1995.
DEPOSITS AND OTHER FUNDING SOURCES
DEPOSITS. Average deposits fell $94 million from a year ago, but rose $191
million during the quarter to $33.8 billion. Transaction, money market and
savings account balances dropped $688 million from a year ago, while CD
balances rose $594 million. CD balances increased $131 million and
non-interest bearing demand deposits grew $63 million.
OTHER FUNDING SOURCES. Average federal funds purchased, securities sold under
agreements to repurchase and other short-term borrowings decreased 14%, or
$325 million, from the same period last year and decreased $347 million during
the quarter to $2.0 billion.
The company utilizes a commercial paper facility to fund its mortgage
banking and consumer finance loan origination activities. Borrowings under
this facility, which were $907 million at March 31, are expected to decline
once the mortgage servicing joint venture is consummated.
ASSET-LIABILITY MANAGEMENT
Net interest income, which represented 71% of Barnett's first quarter
revenues, excluding securities transactions, is affected by changes in
interest rates as well as fluctuations in levels and duration of earning
assets and interest-bearing liabilities. The impact of changes in interest
rates on the company's net interest income represents Barnett's level of
interest rate risk.
Interest rate sensitivity is primarily a function of the repricing structure
of the company's balance sheet. TABLE 2 on page 5 shows this structure as of
March 31, with each maturity interval referring to the earliest repricing
opportunity (i.e., the earlier of scheduled contractual maturity or next rate
reset date) for each asset and liability category. The resultant gaps are a
measure of the sensitivity of earnings to changes in interest rates.
In order to more appropriately reflect the repricing structure of the
company's balance sheet, management has made certain adjustments to the
balances shown in the table. Based on historical and industry data, an
estimate of the expected prepayments of amortizing loans and investment
securities is reflected in the balances in the table. Changes in the economic
and interest rate environments may impact these expected prepayments.
Similarly, an adjustment to deposits is made to reflect the behavioral
characteristics of certain core deposits without contractual maturity (i.e.,
interest-bearing checking, savings and money market deposit accounts). The
footnote accompanying the table more fully explains the specific adjustments
made to the analysis. This interest rate sensitivity analysis indicates that
the company was moderately liability sensitive on March 31, with a cumulative
six-month negative gap of 6.40%.
In addition to gap analysis, management uses rate-shock simulation and
duration of equity to measure the rate sensitivity of its balance sheet.
Rate-shock simulation is a modeling technique used to estimate the impact of
changes in rates on the company's net interest margin. Duration of equity
measures the change in the market value of the company's equity resulting from
a change in interest rates. It is designed to evaluate the economic impact of
rate changes for periods that extend beyond the time horizons targeted by
static gap and rate shock simulation analysis. These analyses, which analyze
longer term
6
- -------------------
BARNETT BANKS, INC.
<PAGE>
MANAGEMENT DISCUSSION
TABLE 4 CHANGE IN NET INTEREST INCOME
<TABLE>
<CAPTION>
Change from
Previous
Year Due to:
For the Period Ended March 31, 1996-- ------------------ Total
Taxable-Equivalent Dollars in Millions Volume Rate(1) Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36.9 $ 26.3 $ 63.2
Taxable securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23.5) 7.1 (16.4)
Tax-free securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13.8) (1.7) (15.5)
Federal funds sold and securities purchased under agreements to resell . . . . . . . 7.5 (.5) 7.0
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 31.2 38.3
- ----------------------------------------------------------------------------------------------------------------------------
Interest expense:
NOW and money market accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.7) (15.4) (19.1)
Savings deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.7) (4.2) (5.9)
Certificates of deposit under $100,000. . . . . . . . . . . . . . . . . . . . . . . . 2.0 7.4 9.4
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 3.1 8.4
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . 1.9 (9.1) (7.2)
Federal funds purchased and securities sold under agreements to repurchase. . . . . . (10.0) (1.1) (11.1)
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 .1 5.5
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 (2.5) 6.4
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 (12.6) (6.4)
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .9 $ 43.8 $ 44.7
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES CHANGES IN INTEREST INCOME AND EXPENSE NOT DUE SOLELY TO
VOLUME OR RATE CHANGES.
impacts of rate changes, indicate Barnett is relatively rate neutral. Based
upon these analyses, management believes the company's asset-liability mix is
sufficiently balanced within a broad range of interest rate scenarios to
minimize the impact of significant rate movements. The company's rate shock
simulation indicates that an instantaneous 1% change in interest rates would
have less than a 2% impact on net interest income over a twelve-month period.
This simulation is based on the company's business mix,as well as interest
rate exposures at a point in time and includes a parallel shift of the yield
curve. It also makes certain assumptions about the future pricing of loans and
deposits in response to changes in interest rates. Although a useful measure
of the company's sensitivity to changing rates, this simulation is not a
forecast of future results and is based on many assumptions, which if changed,
could cause a different outcome from the simulation.
The primary objective of Barnett's asset-liability management is to maximize
net interest income while maintaining acceptable levels of interest-rate
sensitivity. The Asset-Liability Management Committee sets specific
rate-sensitivity limits for the company. The committee monitors and adjusts
the company's exposure to changes in interest rates to achieve predetermined
risk targets that it believes are consistent with current and expected market
conditions. Management strives to minimize the negative impact on net interest
income caused by changes in interest rates.
Barnett controls its interest rate risk by managing the level and duration
of certain balance sheet assets and liabilities. The company also uses
off-balance-sheet instruments (derivatives) to manage its interest rate
sensitivity position. Barnett ensures that both balance sheet and
off-balance-sheet instruments used for asset-liability management purposes are
consistent with safe and sound banking practices.
The company's derivative portfolio used for asset-liability management
purposes, summarized in TABLE 3, had a notional amount of $4.1 billion at
March 31. This portfolio consisted of $3.9 billion of interest rate swaps and
$250 million of interest rate floors. Most of the company's swaps involve
receipt of fixed cash flows in exchange for variable (primarily LIBOR-based)
cash flows. The swaps are linked to prime rate loans and create a net fixed
cash flow. These swaps and floors were executed to reduce the company's
exposure to flat or falling interest rates.
During the first quarter, the company entered into $1.0 billion of
non-amortizing fixed-term interest rate swaps and $250 million of interest
rate swaps matured. The interest rate swap portfolio consists of fixed-term,
non-amortizing interest rate swaps, $150 million of which mature in 1996 and
$3.7 billion of which mature beginning January 1997 through March 1998.
During 1995, the company terminated prior to maturity $1.75 billion of
interest rate floors.
The interest rate swap portfolio has performed as expected during the
quarter. The replacement value related to the company's derivatives portfolio
was a negative $19 million on March 31, 1996 compared to a negative $49
million on the same date last year and a positive $10 million on December 31,
1995.
The decline in replacement value from the fourth quarter was due to
increases in interest rates during the period. This decline was offset by
increases in the economic value of loans indexed to the prime rate.
The derivatives portfolio reduced net interest income in the first quarter
of 1996 by $1.6 million, representing a 2 basis point reduction in the net
yield on earning assets. The interest rate swap portfolio reduced first
quarter 1995 net
7
-------------------
BARNETT BANKS, INC.
<PAGE>
MANAGEMENT DISCUSSION
TABLE 5 OTHER NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
1996 1995
----- -------------------------------------
Dollars in Thousands FIRST Fourth Third Second First
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advertising and marketing. . . . . . . . . . . . . . . . . . . . . . . $ 13,905 $ 11,959 $ 8,407 $ 7,737 $ 5,416
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . 13,440 13,031 13,415 14,022 12,326
Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,970 10,349 10,852 10,464 9,321
Expenses and provision on real estate held for sale. . . . . . . . . . 2,409 2,280 2,901 3,418 3,513
FDIC assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,720 5,517 612 18,565 18,533
Franchise and credit card fees . . . . . . . . . . . . . . . . . . . . 4,531 5,235 5,184 5,613 4,398
Outside computer services. . . . . . . . . . . . . . . . . . . . . . . 12,962 11,490 11,081 10,214 10,404
Postage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,920 6,553 6,878 6,584 6,311
Stationery and supplies. . . . . . . . . . . . . . . . . . . . . . . . 5,762 6,169 4,750 4,770 4,708
Insurance, taxes and other . . . . . . . . . . . . . . . . . . . . . . 51,975 51,871 54,852 43,334 45,724
- -------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $125,594 $124,454 $118,932 $124,721 $120,654
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
interest income by $8.6 million, or 10 basis points, in the net yield.
Barnett manages the credit exposure of its derivatives in a manner
consistent with the granting of credit. Any exposure is generally measured by
the market replacement value at any point in time. Barnett utilizes collateral
exchange agreements with derivatives counterparties in order to control the
level of credit exposure to these entities.
NET INTEREST INCOME
Barnett's taxable-equivalent net interest income in the first quarter was
$475.2 million, up $16.0 million from last quarter and $44.7 million from the
first quarter of 1995. These increases primarily reflect a higher net yield
on earning assets. TABLE 4 on page 7 shows the changes in net interest income by
category due to shifts in volume and rate.
The net yield on earning assets rose to 5.27% from 4.77% a year earlier and
from 5.05% last quarter. The expansion of the net interest margin from last
year was primarily caused by the increase in loans as a percentage of earning
assets, continued upward repricing of adjustable-rate mortgages and a decrease
in funding costs.
Loans grew from 80% of earning assets in the first quarter of 1995 to 84% in
the first quarter of 1996, while repricing of adjustable-rate mortgages fueled
a 48 basis point increase in the residential loan yield. Despite a change in
deposit mix reflecting consumer preference for higher yielding time deposits,
the rate paid on interest bearing liabilities fell 9 basis points from last
year due to lower rates paid on transaction accounts.
The higher net yield on earning assets compared to last quarter was driven
by lower funding costs, continued upward repricing of adjustable-rate
mortgages and the securities portfolio and a favorable change in loan mix.
The rate paid on NOW and money market accounts fell 20 basis points while
the rate on savings deposits fell 24 basis points from last quarter. As of
March 31, 1996, NOW, money market and savings accounts represented 47% of
total deposits.
Primarily reflecting upward repricing, the yield on the residential
portfolio climbed 9 basis points from the fourth quarter. The reinvestment of
proceeds from maturing investment securities at higher rates contributed to a
15 basis point increase in the yield on the securities portfolio. As
discussed in the EARNING ASSETS section, proceeds from amortizing
residential mortgages were reinvested in higher yielding loan categories.
NON-INTEREST INCOME
Non-interest income, excluding securities transactions, rose 21% to $196.6
million from $162.8 million a year ago and was up 6% from $185.5 million last
quarter, largely as the result of growth in consumer finance, mortgage banking
and brokerage income.
Consumer finance income of $31.4 million represents revenue generated
through the company's quarterly securitization program and related loan
servicing. Consumer finance income rose 79%, or $13.9 million, from the same
period a year ago and 31%, or $7.4 million, from the fourth quarter of 1995.
These increases reflect increased securitization volumes and the first
quarter adoption of Statement of Financial Accounting Standards (SFAS) No.
122, "Accounting for Mortgage Servicing Rights," which increased consumer
finance income by $2.6 million.
Mortgage banking income rose $12.4 million over the same period last year
and $8.7 million from the fourth quarter to $21.4 million. The increase over
last year was primarily due to increased loan origination fees and the
adoption of SFAS No. 122. Mortgage loan originations were $1.5 billion during
the first quarter, 89% higher than the same period last year, but 9% lower
than the fourth quarter. The adoption of SFAS No. 122 resulted in an
additional $11.1 million in first quarter mortgage banking revenue. The
company had a $3.7 million gain on the sale of mortgage servicing rights in
the fourth quarter. See the IMPACT OF ACCOUNTING STANDARDS section for more
information.
Brokerage income rose to $11.2 million from $6.6 million a year ago and $9.9
million last quarter. These increases primarily reflect significant
improvement in mutual fund sales.
Credit card fees fell $2.6 million from
8
- -------------------
BARNETT BANKS, INC.
<PAGE>
MANAGEMENT DISCUSSION
TABLE 6 NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
PERCENTAGE Percentage
OF TOTAL of Total
March 31--Dollars in Thousands AMOUNT OUTSTANDING(1) Amount Outstanding(1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-accruing loans:
Less than 90 days past due . . . . . $ 25,375 .08% $ 80,887 .27%
90 days past due . . . . . . . . . . 151,204 .50 132,367 .45
- --------------------------------------------------------------------------------------------
Total non-accruing loans . . . . 176,579 .58 213,254 .72
Reduced-rate loans . . . . . . . . . . 4,803 .01 8,689 .03
- --------------------------------------------------------------------------------------------
Total non-performing loans . . . 181,382 .59 221,943 .75
Real estate held for sale . . . . . . . 63,256 .21 75,280 .26
- --------------------------------------------------------------------------------------------
Total non-performing assets. . . $244,638 .80% $297,223 1.01%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Non-performing loans by category:
Commercial, financial and
agricultural . . . . . . . . . . . $ 38,713 .13% $ 45,852 .15%
Real estate construction . . . . . . 12,663 .04 20,943 .07
Commercial mortgages . . . . . . . . 40,895 .13 100,402 .34
Residential mortgages . . . . . . . 89,111 .29 54,746 .19
- --------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . $181,382 .59% $221,943 .75%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
90 days past due accruals . . . . . . . $60,981 .20% $ 36,217 .12%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(1) BEFORE DEDUCTION FOR UNEARNED INCOME.
last year's first quarter and $5.5 million from last quarter as the company
entered into a joint venture to perform bank card merchant processing. As a
result of this new structure, the company now records its share of net income
from the venture under the equity method of accounting rather than gross
revenues and expenses of this business.
The company recognized a $19.0 million gain on its equity ownership in Bank
South Corporation, which was acquired by another institution during the first
quarter.
NON-INTEREST EXPENSE
Non-interest expense rose 12%, or $44.1 million, from a year ago, primarily
reflecting the full quarter impact of acquisitions and strategic initiatives.
Non-interest expense increased $13.7 million from last quarter primarily due
to increased salaries and employee benefits. The overhead ratio was 60.7% in
the first quarter, below last year's 61.3% and the prior quarter's 61.1%.
Salaries and benefits increased 19%, or $34.3 million, from the same period
last year primarily due to full-quarter impact of the additonal employees
from acquisitions, annual salary increases and higher production and stock
price-related incentives. The $11.5 million increase from last quarter
primarily represents payroll taxes and benefits expense. Full-time equivalent
employees were 20,426 at March 31, compared to 20,175 at December 31, 1995 and
20,183 a year ago.
Including the impact of acquisitions and the expense associated with the
expansion of the EquiCredit franchise, net occupancy and furniture and
equipment expenses rose 7%, or $4.8 million, from the first quarter of 1995
and $1.0 million from the fourth quarter of 1995.
Other expense increased 4%, or $4.9 million, from last year's level, as
increased marketing and technology expenses for strategic initiatives and
expenses primarily related to acquisitions more than offset the $15.8 million
reduction in FDIC premiums. Other expense for the past five quarters are shown
in TABLE 5.
ASSET QUALITY
RISK ELEMENTS. As shown in Table 6, non-performing assets were $245 million
on March 31, representing .80% of gross loans plus real estate held for sale.
By comparison, non-performing assets stood at $297 million, or 1.01% of
outstandings, on the same date last year, and $238 million, or .78% of
outstandings, on December 31, 1995. The decrease from last year's first
quarter is attributable to the success of Barnett's centralized workout unit
in resolving and selling problem assets, the improved economy, the improved
market for commercial real estate and a slowdown in the inflow of new problem
loans. In addition, consumer loans have grown to 74% of total loans and,
except for residential
9
-------------------
BARNETT BANKS, INC.
<PAGE>
MANAGEMENT DISCUSSION
real estate, tend to be charged off rather than placed on non-accrual status.
Borrower experience and financial capacity are critical factors in
underwriting and approving all loan requests. Barnett's commercial real estate
loan policies generally require a maximum loan-to-value ratio of 75%.
Barnett has reduced its exposure to commercial real estate from a high of
28% of loans in 1988 to 10% on March 31 and anticipates maintaining this
portfolio at or below 15% of loans. The commercial loan portfolio,
representing 16% of total loans, is not concentrated in any single industry,
but reflects the broad-based economies in Florida and southern Georgia.
Barnett's residential loans generally are secured by 1-4 family homes,
conform to federal agency underwriting standards and have a maximum
loan-to-value ratio of 80% unless they are protected by mortgage insurance.
Installment loans were 30 days or more past due were .96% compared to .74%
a year earlier and 1.20% at December 31, 1995. Barnett's installment loan
portfolio consists primarily of loans secured by new and used automobiles
(61%), home equity loans (19%), government-guaranteed student loans (13%)
and other secured loans (4%). Excluding government guaranteed student loans,
less than 3% of installment loans are unsecured.
Bank card outstandings 30 days or more past due rose to 3.58% from 2.74%
last year and 3.31% at the end of 1995.
NET CHARGE-OFFS. As shown in TABLE 7, net charge-offs were $41.4 million, up
from $24.4 million a year earlier and $36.2 million in the fourth quarter. The
increases from last year and the fourth quarter were primarily as a result of
increased bank card charge-offs. Bank card net charge-offs rose $14.1 million
over the same period last year and $5.4 million over last quarter, reflecting
an increased rate of personal bankruptcies. Net charge-offs in the first
quarter represented an annualized .55% of average outstandings, compared to
.48% in the fourth quarter and .34% for the same period last year. Net
charge-offs remain within the company's expected long-term operating range of
50 to 60 basis points.
PROVISION/ALLOWANCE FOR LOAN LOSSES. Barnett's provision expense in the
first quarter was $41.6 million, compared to $24.3 million in last year's
first quarter and $37.2 million in the fourth quarter.
On March 31, the allowance for loan losses stood at $506 million, or 1.67%
of outstandings, $4 million higher than a year ago and up slightly from
December 31, 1995. Management considers the allowance appropriate and
adequate to cover potential losses inherent in the loan portfolio based on
the current economic environment.
The ratio of the allowance for loan losses to non-performing loans remained
strong as of quarter-end at 279%, compared to 227% a year earlier and 297%
last quarter.
TAXES
Barnett's income tax expense in interim reporting periods is determined by
estimating the combined federal and state effective tax rate for the year and
applying this rate to taxable income. The company's estimated effective
taxable equivalent tax rate for 1996 is 39% compared to 37% last year.
LIQUIDITY
For banks, liquidity represents the ability to meet both loan commitments
and deposit withdrawals. Funds to meet these needs can be obtained by
converting liquid assets to cash or by attracting new deposits or other
sources of funding. Many factors affect a bank's ability to meet liquidity
needs, including variations in the markets served, its asset-liability mix,
its reputation and credit standing in the market and general economic
conditions.
TABLE 7 LOAN QUALITY INFORMATION
<TABLE>
<CAPTION>
1996 1995
----- --------------------------------------------
Dollars in Thousands FIRST Fourth Third Second First
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net charge-offs (recoveries):
Commercial, financial and agricultural . . . . . . . . . . . . $ (334) $ (1,484) $ 2,049 $ (1,863) $ (2,781)
Real estate construction . . . . . . . . . . . . . . . . . . . (175) (1) 428 147 190
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . (1,850) (2,828) 515 2,392 499
Residential mortgages. . . . . . . . . . . . . . . . . . . . . 508 1,140 543 261 739
Installment. . . . . . . . . . . . . . . . . . . . . . . . . . 15,428 17,212 12,318 12,229 12,381
Bank card. . . . . . . . . . . . . . . . . . . . . . . . . . . 26,797 21,443 17,384 13,510 12,683
Credit lines . . . . . . . . . . . . . . . . . . . . . . . . . 1,031 718 810 629 727
- -------------------------------------------------------------------------------------------------------------------------
Total net charge-offs . . . . . . . . . . . . . . . . . $ 41,405 $ 36,200 $ 34,047 $ 27,305 $ 24,438
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Gross charge-offs. . . . . . . . . . . . . . . . . . . . . . . . $ 51,500 $ 50,163 $ 44,062 $ 42,529 $ 36,125
Allowance for loan losses. . . . . . . . . . . . . . . . . . . . 506,315 505,148 503,032 502,521 502,800
Non-performing loans . . . . . . . . . . . . . . . . . . . . . . 181,382 170,268 207,902 208,142 221,943
Non-performing assets. . . . . . . . . . . . . . . . . . . . . . 244,638 237,898 282,194 280,869 297,223
Non-performing asset ratio . . . . . . . . . . . . . . . . . . . .80% .78% .92% .93% 1.01%
Net charge-offs to average loans (annualized). . . . . . . . . . .55 .48 .45 .37 .34
Allowance to non-performing loans. . . . . . . . . . . . . . . . 279 297 242 241 227
Allowance to period-end loans . . . . . . . . . . . . . . . . . 1.67 1.66 1.65 1.68 1.72
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
- -------------------
BARNETT BANKS, INC.
<PAGE>
TABLE 8 CAPITAL RATIOS
<TABLE>
<CAPTION>
March 31--Dollars in Millions 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Tier I capital . . . . . . . . . . . . . . . . . . . . . $ 2,551 $ 2,506
Total risk-based capital . . . . . . . . . . . . . . . . 3,538 3,283
Total risk-adjusted assets . . . . . . . . . . . . . . . 30,444 28,836
- -------------------------------------------------------------------------------
Tier I capital ratio . . . . . . . . . . . . . . . . . . 8.38% 8.69%
Total risk-based capital ratio . . . . . . . . . . . . . 11.62 11.39
Tier I leverage ratio . . . . . . . . . . . . . . . . . 6.31 6.25
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
In addition to its traditional in-market deposit sources, Barnett has many
other sources of liquidity, including proceeds from maturing securities and
loans, the sale of securities, asset securitization and other non-relationship
funding sources, such as senior or subordinated debt, bank notes, commercial
paper and wholesale purchased funds.
The high proportion of residential and installment loans on Barnett's
balance sheet provides it with an exceptional amount of contingent liquidity
through the conventional securitization programs that exist today. Management
believes that the level of liquidity is sufficient to meet current and future
funding requirements.
The company's commercial paper program provides the primary funding for its
mortgage banking and consumer finance operations. On March 31, the company had
$907 million of commercial paper outstanding. This facility is supported by
$760 million in back-up lines of credit, none of which had been drawn
against. Commercial paper balances will decline upon consummation of the
mortgage joint venture in the second quarter.
During the quarter, the company issued $50 million in variable-rate
medium-term notes with a maturity of two years and $200 million of
variable-rate senior debt due in 1998. As of March 31, the company had $1.4
billion in debt available under existing shelf registrations with the
Securities and Exchange Commission.
CAPITAL
On March 31, shareholders' equity totaled $3.3 billion, up $20 million from
a year earlier and $15 million from last quarter, reflecting the continued use
of internally generated capital to fund the company's common stock repurchase
program. The company repurchased 1.4 million shares during the quarter. Fully
diluted average shares outstanding fell to 99.5 million from 104.6 million a
year ago and 101.9 million last quarter.
On April 15, management redeemed the Series A $4.50 Cumulative Convertible
preferred stock, which converted into 3.4 million common shares. The company
had previously repurchased an equivalent amount of common shares in
anticipation of this conversion and to provide shares for benefit plans and
stock purchase plans.
Shareholders' equity, before deducting the Employee Stock Ownership Plan
obligation, was 8.09% of assets at the end of the first quarter, compared to
8.03% a year earlier and 8.05% on December 31.
Barnett declared a dividend of $.47 for the first quarter, representing a
common dividend payout ratio of 34%, excluding securities gains.
The company is subject to risk-based capital guidelines that measure capital
relative to risk-weighted assets and off-balance-sheet financial instruments.
Capital guidelines issued by the Federal Reserve Board require bank holding
companies to have a minimum total risk-based capital ratio of 8%, with at
least half of total capital in the form of Tier I capital.
As TABLE 8 shows, Barnett exceeded these capital guidelines on March 31,
with a Tier I capital ratio of 8.38% and a total risk-based capital ratio of
11.62%.
In addition, a leverage ratio is used in connection with the risk-based
capital standards and is defined as Tier I capital divided by average assets
for the most recent quarter. The minimum leverage ratio under this standard is
3% for the highest-rated bank holding companies which are not undertaking
significant expansion programs. An additional 1% to 2% may be required for
other companies, depending upon their regulatory ratings and expansion plans.
On March 31, 1996, Barnett's leverage ratio was 6.31%.
IMPACT OF ACCOUNTING STANDARDS
Effective January 1, 1996, Barnett adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The adoption of this standard had no
impact on the financial condition or results of operations of the company.
Effective January 1, 1996, Barnett adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights." The statement requires that an enterprise
recognize as separate assets the rights to service mortgage loans for others,
however those servicing rights are acquired. The adoption of this standard
increased mortgage banking income by $11.1 million and consumer finance income
by $2.6 million during the first quarter of 1996. See the NON-INTEREST INCOME
section on page 8. After the mortgage company joint venture is consummated,
the $218 million of capitalized mortgage servicing rights related to the
mortgage banking operation will be eliminated from Barnett's balance sheet.
11
-------------------
BARNETT BANKS, INC.
<PAGE>
QUARTERLY AVERAGE BALANCES, YIELDS AND RATES
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
<TABLE>
<CAPTION>
1996
---------------------------
FIRST
---------------------------
AVERAGE
AVERAGE YIELD
Dollars in Millions--Taxable-Equivalent BALANCE INTEREST OR RATE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Loans(1):
Commercial, financial and agricultural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,821 $ 99.5 8.30%
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826 20.9 10.15
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,155 47.8 8.92
Residential mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,729 211.4 7.88
Installment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,301 206.0 8.91
Bank card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,756 68.0 15.56
Credit lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 759 19.0 10.08
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,347 671.2 8.88
- ---------------------------------------------------------------------------------------------------------------------------------
Securities(2):
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,992 75.8 6.09
Tax-free . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 5.8 11.18
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,201 81.6 6.29
- ---------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . . . . . . . 613 8.3 5.44
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,161 $761.1 8.45%
- ---------------------------------------------------------------------------------------------------------------------------------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,980
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,501
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (506)
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,136
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
NOW and money market accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,599 $ 61.9 1.97%
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,310 14.4 1.75
Certificates of deposit under $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,867 125.7 5.12
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,408 33.0 5.52
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,184 235.0 3.35
Federal funds purchased and securities sold under agreements to repurchase . . . . . . . . . . . . . 1,046 13.3 5.14
Other short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 942 14.1 6.00
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,242 23.5 7.56
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,414 $285.9 3.66%
Demand deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,661
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748
Preferred equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,216
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,136
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
SPREAD AND NET YIELD
Interest rate spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.79%
Cost of funds supporting earning assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18
Net yield on earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $475.2 5.27
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCOME ON NON-ACCRUING LOANS IS RECOGNIZED ON A CASH BASIS. INTEREST INCOME
ON INDIVIDUAL LOAN CATEGORIES IS AT CONTRACTUAL RATES, WHILE TOTAL LOAN
INTEREST INCOME IS NET OF REVERSALS OF INTEREST ON NON-ACCRUING LOANS.
(2) AVERAGE YIELDS ON INVESTMENT SECURITIES AVAILABLE FOR SALE HAVE BEEN
CALCULATED ON AMORTIZED COST.
12
- -------------------
BARNETT BANKS, INC.
<PAGE>
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
Fourth Third
-------------------------- --------------------------
Average Average
Average Yield Average Yield
Dollars in Millions--Taxable-Equivalent Balance Interest or Rate Balance Interest or Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans(1):
Commercial, financial and agricultural . . . . . . . . . . . . . . $ 4,661 $ 99.3 8.46% $ 4,556 $ 97.2 8.47%
Real estate construction . . . . . . . . . . . . . . . . . . . . . 904 23.9 10.51 946 25.0 10.48
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . 2,246 50.0 8.81 2,304 50.7 8.73
Residential mortgages. . . . . . . . . . . . . . . . . . . . . . . 11,180 217.7 7.79 11,417 219.4 7.69
Installment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 202.4 8.92 8,667 195.5 8.95
Bank card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,677 63.6 15.05 1,566 62.0 15.69
Credit lines . . . . . . . . . . . . . . . . . . . . . . . . . . . 746 18.9 10.06 735 19.5 10.50
- --------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income . . . . . . . . . . . . 30,414 674.5 8.82 30,191 665.8 8.77
- --------------------------------------------------------------------------------------------------------------------------------
Securities(2):
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,471 81.4 5.93 5,771 81.0 5.59
Tax-free . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 6.4 11.10 356 10.5 11.82
- --------------------------------------------------------------------------------------------------------------------------------
Total securities . . . . . . . . . . . . . . . . . . . . . 5,703 87.8 6.14 6,127 91.5 5.95
- --------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . 148 2.1 5.78 46 .7 5.84
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets . . . . . . . . . . . . . . . . . . . 36,265 $764.4 8.39% 36,364 $758.0 8.29%
- --------------------------------------------------------------------------------------------------------------------------------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,033 1,943
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,396 3,332
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . (504) (503)
- --------------------------------------------------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $41,190 $41,136
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
NOW and money market accounts. . . . . . . . . . . . . . . . . . . . $12,598 $ 69.0 2.17% $12,576 $ 69.6 2.19%
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 3,314 16.7 1.99 3,362 16.9 2.00
Certificates of deposit under $100,000 . . . . . . . . . . . . . . . 9,863 130.5 5.25 9,990 133.1 5.29
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . 2,281 32.3 5.61 2,209 31.2 5.61
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits . . . . . . . . . . . . . . 28,056 248.5 3.51 28,137 250.8 3.54
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . . . . . . . . . . . . 1,228 17.2 5.55 1,491 21.2 5.65
Other short-term borrowings. . . . . . . . . . . . . . . . . . . . . 1,107 17.0 6.11 1,159 18.2 6.24
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,131 22.5 7.98 1,028 20.9 8.11
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities. . . . . . . . . . . . . 31,522 $305.2 3.84% 31,815 $311.1 3.88%
Demand deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,598 5,340
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 717 634
Preferred equity . . . . . . . . . . . . . . . . . . . . . . . . . . 104 214
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,249 3,133
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity . . . . . . . . . . . . . . . $41,190 $41,136
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
SPREAD AND NET YIELD
Interest rate spread . . . . . . . . . . . . . . . . . . . . . . . . 4.55% 4.41%
Cost of funds supporting earning assets. . . . . . . . . . . . . . . 3.34 3.39
Net yield on earning assets . . . . . . . . . . . . . . . . . . . . $459.2 5.05 $446.9 4.90
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995
-----------------------------------------------------------
Second First
---------------------------- --------------------------
Average Average
Average Yield Average Yield
Dollars in Millions--Taxable-Equivalent Balance Interest or Rate Balance Interest or Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans(1):
Commercial, financial and agricultural . . . . . . . . . . . . . . 4,555 $ 95.8 8.43% $ 4,442 $ 91.9 8.39%
Real estate construction . . . . . . . . . . . . . . . . . . . . . 948 25.3 10.69 925 24.2 10.62
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . 2,345 51.0 8.72 2,383 50.5 8.60
Residential mortgages. . . . . . . . . . . . . . . . . . . . . . . 11,110 210.2 7.57 10,755 198.9 7.40
Installment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,435 185.9 8.84 8,301 176.6 8.63
Bank card. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,439 59.1 16.47 1,375 53.0 15.64
Credit lines . . . . . . . . . . . . . . . . . . . . . . . . . . . 730 19.2 10.55 718 16.9 9.53
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income . . . . . . . . . . . . 29,562 643.7 8.73 28,899 608.0 8.49
- ---------------------------------------------------------------------------------------------------------------------------------
Securities(2):
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,194 86.3 5.58 6,702 92.2 5.57
Tax-free . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514 15.5 12.02 593 21.3 14.34
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities . . . . . . . . . . . . . . . . . . . . . 6,708 101.8 6.07 7,295 113.5 6.29
- ---------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . 47 .7 6.14 92 1.3 5.92
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets . . . . . . . . . . . . . . . . . . . 36,317 $746.2 8.23% 36,286 $722.8 8.04%
- ---------------------------------------------------------------------------------------------------------------------------------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,012 2,064
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,401 3,007
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . (498) (499)
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $41,232 $40,858
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
NOW and money market accounts. . . . . . . . . . . . . . . . . . . . $12,665 $ 73.5 2.33% $13,198 $ 81.0 2.49%
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 3,451 17.2 2.00 3,619 20.3 2.27
Certificates of deposit under $100,000 . . . . . . . . . . . . . . . 10,071 131.5 5.24 9,698 116.3 4.86
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . 2,133 29.4 5.52 1,983 24.6 5.02
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits . . . . . . . . . . . . . . 28,320 251.6 3.56 28,498 242.2 3.45
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . . . . . 1,892 27.9 5.91 1,734 24.4 5.71
Other short-term borrowings. . . . . . . . . . . . . . . . . . . . . 838 13.3 6.37 579 8.6 6.02
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 842 17.8 8.48 815 17.1 8.40
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities. . . . . . . . . . . . . 31,892 $310.6 3.91% 31,626 $292.3 3.75%
Demand deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,382 5,441
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 618 568
Preferred equity . . . . . . . . . . . . . . . . . . . . . . . . . . 215 215
Common equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,125 3,008
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity . . . . . . . . . . . . . . . $41,232 $40,858
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
SPREAD AND NET YIELD
Interest rate spread . . . . . . . . . . . . . . . . . . . . . . . . 4.32% 4.29%
Cost of funds supporting earning assets. . . . . . . . . . . . . . . 3.43 3.27
Net yield on earning assets . . . . . . . . . . . . . . . . . . . . $435.6 4.80 $430.5 4.77
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
-------------------
BARNETT BANKS, INC.
<PAGE>
STATEMENTS OF FINANCIAL CONDITION
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
<TABLE>
<CAPTION>
March 31 December 31
------------------ ------------
Dollars in Thousands (Unaudited) 1996 1995 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,197,380 $ 2,604,363 $ 2,658,661
Federal funds sold and securities purchased under agreements to resell . . . 588,318 99,750 110,484
Investment securities available for sale . . . . . . . . . . . . . . . . . . 5,017,973 2,501,869 5,133,041
Investment securities held to maturity (fair value $205,847;
$4,418,050 and $216,066). . . . . . . . . . . . . . . . . . . . . . . . . 192,498 4,445,366 200,960
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,405,326 29,321,614 30,514,418
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . (506,315) (502,800) (505,148)
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,355) (58,511) (28,419)
- ----------------------------------------------------------------------------------------------------------------------
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,871,656 28,760,303 29,980,851
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,084,667 1,022,592 1,078,057
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 753,416 774,600 758,297
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,813,133 1,526,372 1,633,194
- ----------------------------------------------------------------------------------------------------------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,519,041 $41,735,215 $41,553,545
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Demand deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,794,210 $ 5,599,784 $ 5,938,694
NOW and money market accounts. . . . . . . . . . . . . . . . . . . . . . . . 12,588,266 13,040,281 12,816,304
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,291,344 3,540,981 3,292,157
Certificates of deposit under $100,000 . . . . . . . . . . . . . . . . . . . 9,796,571 10,075,511 9,853,010
Other time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,459,986 2,080,864 2,333,403
- ----------------------------------------------------------------------------------------------------------------------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,930,377 34,337,421 34,233,568
Short-term borrowings:
Federal funds purchased and securities sold under agreements
to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 974,757 1,823,018 899,667
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907,306 11,220 669,766
Other short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . 163,848 705,509 509,516
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867,391 692,105 778,028
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,387,988 898,381 1,190,814
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 38,231,667 38,467,654 38,281,359
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $.10 par value, 20,000,000 shares authorized;
issued 1,817,530, 4,312,289 and 1,960,371. . . . . . . . . . . . . . . . . 90,622 215,307 97,753
Common stock, $2 par value, 200,000,000 shares authorized;
issued 94,164,537, 97,127,142 and 94,865,368 shares. . . . . . . . . . . . 188,329 194,254 189,731
Contributed capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521,965 758,206 575,464
Net unrealized gain on investment securities available for sale. . . . . . . 10,493 716 38,242
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,547,350 2,183,318 2,445,810
Less: Employee stock ownership plan obligation,
collateralized by 2,210,875; 2,609,003 and 2,317,067 shares . . . . . . . (71,385) (84,240) (74,814)
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 3,287,374 3,267,561 3,272,186
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . $41,519,041 $41,735,215 $41,553,545
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
14
- -------------------
BARNETT BANKS, INC.
<PAGE>
STATEMENTS OF INCOME
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
<TABLE>
<CAPTION>
Three Months
-------------------
For the Periods Ended March 31--Dollars in Thousands (Unaudited) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $668,557 $605,166
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,431 105,422
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . 8,290 1,935
- ----------------------------------------------------------------------------------------------------------------------
Total interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 756,278 712,523
- ----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,950 242,222
Federal funds purchased and securities sold under agreements to repurchase . . . . . . . 13,357 24,422
Other short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,076 8,585
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,471 17,110
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,854 292,339
- ----------------------------------------------------------------------------------------------------------------------
Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470,424 420,184
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,598 24,277
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses. . . . . . . . . . . . . . . . 428,826 395,907
- ----------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 57,910 55,436
Consumer finance income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,447 17,559
Trust income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,190 19,357
Credit card discounts and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,535 14,155
Mortgage banking income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,363 8,994
Brokerage income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,219 6,637
Other service charges and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,773 27,644
Securities transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,962 17
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,160 13,027
- ----------------------------------------------------------------------------------------------------------------------
Total non-interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,559 162,826
- ----------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,250 176,935
Net occupancy expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,420 30,626
Furniture and equipment expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,329 35,319
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,594 120,654
- ----------------------------------------------------------------------------------------------------------------------
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407,593 363,534
- ----------------------------------------------------------------------------------------------------------------------
Net non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,034 200,708
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,792 195,199
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,593 66,500
- ----------------------------------------------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $148,199 $128,699
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Primary: Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.52 $1.27
Average number of shares. . . . . . . . . . . . . . . . . . . . . . . . . 95,810,801 97,693,415
Dividends on preferred stock. . . . . . . . . . . . . . . . . . . . . . . $2,167 $4,550
Fully Diluted: Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.49 $1.23
Average number of shares. . . . . . . . . . . . . . . . . . . . . . . . . 99,498,351 104,571,029
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
15
-------------------
BARNETT BANKS, INC.
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
<TABLE>
<CAPTION>
Contri- Net
Preferred Common buted Unrealized Retained ESOP
Dollars in Thousands (Unaudited) Stock Stock Capital Gain (Loss) Earnings Obligation Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
Balance at January 1, 1995 . . . . . . . . . $215,307 $193,466 $741,654 $(26,998) $2,098,977 $(88,223) $3,134,183
Net income . . . . . . . . . . . . . . . . . 128,699 128,699
Change in net unrealized gain (loss) on
investment securities available for sale . 27,714 27,714
Cash dividends declared:
Common ($.41 per share). . . . . . . . . . (39,800) (39,800)
Preferred. . . . . . . . . . . . . . . . . (4,558) (4,558)
Issuances of common stock:
Stock purchase, option and
employee benefit plans . . . . . . . . . 788 16,552 3,983 21,323
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 . . . . . . . . . $215,307 $194,254 $758,206 $ 716 $2,183,318 $(84,240) $3,267,561
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
Balance at January 1, 1996 . . . . . . . . . $97,753 $189,731 $575,464 $ 38,242 $2,445,810 $(74,814) $3,272,186
Net income . . . . . . . . . . . . . . . . . 148,199 148,199
Change in net unrealized gain on
investment securities available for sale . (27,749) (27,749)
Cash dividends declared:
Common ($.47 per share). . . . . . . . . . (44,482) (44,482)
Preferred. . . . . . . . . . . . . . . . . (2,177) (2,177)
Issuances of common stock:
Stock purchase, option and
employee benefit plans. . . . . . . . . . 904 23,778 3,429 28,111
Preferred stock conversions. . . . . . . . (7,131) 534 6,529 (68)
Repurchases of common stock . . . . . . . . (2,840) (83,806) (86,646)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 . . . . . . . . . $90,622 $188,329 $521,965 $10,493 $2,547,350 $(71,385) $3,287,374
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
16
- -------------------
BARNETT BANKS, INC.
<PAGE>
STATEMENTS OF CASH FLOWS
CONSOLIDATED--BARNETT BANKS, INC. AND AFFILIATES
<TABLE>
<CAPTION>
For the Periods Ended March 31--Dollars in Thousands (Unaudited) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 148,199 $ 128,699
Reconcilement of net income to net cash provided by operating activities:
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,598 24,277
Gains from securities transactions . . . . . . . . . . . . . . . . . . . . . . . . . (18,962) (17)
Gain on securitization and sale of loans . . . . . . . . . . . . . . . . . . . . . . (26,247) (12,923)
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,364 47,877
Employee benefits funded by equity . . . . . . . . . . . . . . . . . . . . . . . . . 6,086 7,163
Deferred income tax provision (benefit). . . . . . . . . . . . . . . . . . . . . . . (17,287) 7,305
Decrease (increase) in interest receivable . . . . . . . . . . . . . . . . . . . . . 20,268 3,185
Increase (decrease) in interest payable. . . . . . . . . . . . . . . . . . . . . . . (23,048) 2,806
Decrease (increase) in other assets. . . . . . . . . . . . . . . . . . . . . . . . . (194,287) 12,437
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . . 111,718 (96,164)
Originations of loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . (1,620,624) (353,881)
Proceeds from sales of loans held for sale . . . . . . . . . . . . . . . . . . . . . 1,602,891 358,327
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,785) (12,752)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 43,884 116,339
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale. . . . . . . . . . . . . . . . . (1,348,629) (194,028)
Proceeds from sales of investment securities available for sale. . . . . . . . . . . . 178,198 173,525
Proceeds from maturities of investment securities available for sale . . . . . . . . . 1,308,181 313,568
Purchases of investment securities held to maturity. . . . . . . . . . . . . . . . . . (2,932) (30,158)
Proceeds from maturities of investment securities held to maturity . . . . . . . . . . 11,520 532,225
Net decrease (increase) in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,748 (495,715)
Proceeds from sales of premises and equipment. . . . . . . . . . . . . . . . . . . . . 9,056 14,063
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . (40,375) (28,727)
Payments related to dispositions and acquisitions, net of cash acquired. . . . . . . . (9,326) (465,563)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities . . . . . . . . . . . . . . 340,441 (180,810)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, NOW, savings and money market accounts. . . . . . . (397,972) (1,394,414)
Net increase (decrease) in other time deposits . . . . . . . . . . . . . . . . . . . . (22,588) 623,204
Net increase in federal funds purchased and securities sold under
agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,090 572,512
Net increase (decrease) in other short-term borrowings . . . . . . . . . . . . . . . . (108,128) (256,177)
Principal repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (52,826) (29,238)
Proceeds from issuance of medium-term notes. . . . . . . . . . . . . . . . . . . . . . 50,000 375,000
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . 200,000 --
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,957 14,160
Repurchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86,646) --
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,659) (44,358)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities . . . . . . . . . . . . . . . . . . . . (367,772) (139,311)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . 16,553 (203,782)
Cash and cash equivalents, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . 2,769,145 2,907,895
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, March 31 . . . . . . . . . . . . . . . . . . . . . . . . . $2,785,698 $2,704,113
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
FOR THE PERIODS ENDED MARCH 31, 1996 AND 1995, INCOME TAX PAYMENTS OF $.2
MILLION AND $11 MILLION WERE PAID AND INTEREST OF $309 MILLION AND $291
MILLION WAS PAID, RESPECTIVELY. CASH AND CASH EQUIVALENTS INCLUDES CASH AND
DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN OTHER BANKS, SECURITIES PURCHASED
UNDER AGREEMENTS TO RESELL AND FEDERAL FUNDS SOLD.
FOR EACH OF THE PERIODS ENDED MARCH 31, 1996 AND 1995, $13 MILLION OF LOANS
WERE TRANSFERRED TO REAL ESTATE HELD FOR SALE.
DURING THE PERIOD ENDED MARCH 31, 1996, THE COMPANY ACQUIRED $120 MILLION OF
NON-CASH ASSETS AND $118 MILLION OF LIABILITIES. DURING THE PERIOD ENDED MARCH
31, 1995, THE COMPANY ACQUIRED $990 MILLION OF NON-CASH ASSETS AND $525
MILLION OF LIABILITIES.
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
17
-------------------
BARNETT BANKS, INC.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A. GENERAL
The accounting and reporting policies of Barnett Banks, Inc. and its
affiliates conform to generally accepted accounting principles and to
predominant practices within the banking industry. The company has not
changed its accounting and reporting policies from those disclosed in its 1995
Annual Report on Form 10-K.
In the opinion of the company's management, all adjustments necessary to
fairly present the financial position as of March 31, 1996 and 1995, and the
results of operations and cash flows for the periods then ended, all of which
are of a normal and recurring nature, have been included.
The results of operations for the three-month period ended March 31, 1996
may not be indicative of operating results for the year ending December 31,
1996. Certain prior year and prior quarter amounts have been reclassified to
conform to current classifications.
In February 1996, the company announced plans to simplify its legal
structure. Under the new structure, which is expected to occur in the second
quarter of 1996, all but six of the company's 32 banks and several of its
non-bank affiliates will become part of a newly created subsidiary.
In March 1996, the company announced that it had entered into a definitive
agreement with Bank Boston Corporation and two other investors to form a joint
venture mortgage servicing company. The company will contribute its $33
billion servicing portfolio to the venture and will have a one-third ownership
interest in the venture. Barnett is expected to enter into this new venture in
the second quarter of 1996.
B. LOANS
<TABLE>
<CAPTION>
March 31--Dollars in Thousands
Net of Unearned Income 1996 1995
- ----------------------------------------------------------
<S> <C> <C>
Commercial, financial and
agricultural . . . . . . . . $ 4,820,260 $ 4,499,729
Real estate construction . . . 788,076 934,728
Commercial mortgages . . . . . 2,138,545 2,363,142
Residential mortgages. . . . . 10,536,548 11,001,532
Installment. . . . . . . . . . 9,600,777 8,357,907
Bank card. . . . . . . . . . . 1,740,745 1,387,851
Credit lines . . . . . . . . . 753,020 718,214
- ----------------------------------------------------------
Total . . . . . . . . . . . $ 30,377,971 $ 29,263,103
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
C. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
For the Three Months Ended March 31--
Dollars in Thousands 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Beginning balance. . . . . . . . . . $505,148 $501,447
Recoveries . . . . . . . . . . . . . 10,095 11,687
Provision expense. . . . . . . . . . 41,598 24,277
Loans charged off. . . . . . . . . . (51,500) (36,125)
Other, net . . . . . . . . . . . . . 974 1,514
- ---------------------------------------------------------------
Ending balance . . . . . . . . . . . $506,315 $502,800
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
18
- -------------------
BARNETT BANKS, INC.
<PAGE>
D. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31 - DOLLARS IN THOUSANDS 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
7.75% Sinking Fund Debentures, due 1997 . . $ 10,200 $ 10,200
Less: Face value of debentures repurchased
and held for future retirements . . . . . (772) (772)
- -----------------------------------------------------------------------------
Total outstanding . . . . . . . . . . . . 9,428 9,428
8.50% Subordinated Capital Notes, due 1999. 200,000 200,000
Medium-term notes, due in varying
maturities through 2003, with interest
from a floating 4.275% to a fixed 10.00% . 561,500 276,150
9.875% Subordinated Capital Notes,
due 2001 . . . . . . . . . . . . . . . . . 100,000 100,000
10.875% Subordinated Capital Notes,
due 2003 . . . . . . . . . . . . . . . . . 55,000 55,000
8.50% Subordinated Capital Notes,
due 2007 . . . . . . . . . . . . . . . . . 100,000 100,000
6.90% Subordinated Capital Notes,
due 2005 . . . . . . . . . . . . . . . . . 150,000 -
5.29% Senior Notes, due 1998 . . . . . . . 200,000 -
Term notes . . . . . . . . . . . . . . . . - 72,736
Mortgage Collateralized Bonds . . . . . . . - 71,927
Capitalized lease obligations . . . . . . . 12,060 13,140
- -----------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . $1,387,988 $898,381
- -----------------------------------------------------------------------------
E. EARNINGS PER COMMON SHARE
The weighted-average number of shares used in the computation of earnings
per share is as follows:
FOR THE THREE MONTHS ENDED MARCH 31 -
DOLLARS IN THOUSANDS 1996 1995
- -----------------------------------------------------------------------------
PRIMARY SHARES
Average common shares outstanding . . . . 94,536,976 96,980,567
Common shares assumed outstanding
to reflect dilutive effect of:
Convertible preferred stock . . . . . . 28,448 31,936
Common stock options . . . . . . . . . . 1,245,377 680,912
- -----------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . 95,810,801 97,693,415
- -----------------------------------------------------------------------------
Adjustments for preferred dividends . . . $2,167 $4,550
- -----------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31 - 1996 1995
- -----------------------------------------------------------------------------
FULLY DILUTED SHARES
Average common shares outstanding . . . . 94,536,976 96,980,567
Common shares assumed outstanding
to reflect dilutive effect of:
Convertible preferred stock . . . . . . 3,608,652 6,716,876
Common stock options . . . . . . . . . . 1,352,723 873,586
- -----------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . 99,498,351 104,571,029
- -----------------------------------------------------------------------------
</TABLE>
19
-------------------
BARNETT BANKS, INC.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,197
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 588
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,018
<INVESTMENTS-CARRYING> 192
<INVESTMENTS-MARKET> 206
<LOANS> 30,378
<ALLOWANCE> 506
<TOTAL-ASSETS> 41,519
<DEPOSITS> 33,930
<SHORT-TERM> 2,046
<LIABILITIES-OTHER> 867
<LONG-TERM> 1,388
0
91
<COMMON> 188
<OTHER-SE> 3,008
<TOTAL-LIABILITIES-AND-EQUITY> 41,519
<INTEREST-LOAN> 669
<INTEREST-INVEST> 79
<INTEREST-OTHER> 8
<INTEREST-TOTAL> 756
<INTEREST-DEPOSIT> 235
<INTEREST-EXPENSE> 286
<INTEREST-INCOME-NET> 470
<LOAN-LOSSES> 42
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 408
<INCOME-PRETAX> 237
<INCOME-PRE-EXTRAORDINARY> 237
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.49
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
