<PAGE>
BARNETT BANKS, INC.
FINANCIAL REVIEW AND FORM 10-Q
TABLE OF CONTENTS
<TABLE>
PART I--FINANCIAL INFORMATION
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<S> <C>
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
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</TABLE>
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 September 12, 1997, filed a press release
announcing that the company had signed a definitive merger agreement with
NationsBank Corporation.
A report on Form 8-K, dated September 24, 1997, filed a press release
announcing that the company anticipates taking an after-tax charge to its third
quarter earnings to cover the increased value of outstanding stock options and
certain other benefits.
BARNETT BANKS, INC. AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1997
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: November 14, 1997 /s/ Charles W. Newman
----------------------
Charles W. Newman
Chief Financial Officer
Dated: November 14, 1997 /s/ Gregory M. Delaney
-----------------------
Gregory M. Delaney
Controller
2
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CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
----------------------------------- ----------------------------
FOR THE PERIODS ENDED SEPTEMBER 30--
DOLLARS IN MILLIONS EXCEPT PER SHARE DATA 1997 1996 CHANGE 1997 1996 CHANGE
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<S> <C> <C> <C> <C> <C> <C>
For the Period
Net interest income (taxable-equivalent)................ $ 460.9 $ 469.0 (2)% $ 1,393.8 $ 1,424.6 (2)%
Provision for loan losses............................... 38.4 44.9 (14) 106.3 126.0 (16)
Non-interest income (excluding securities
transactions)......................................... 285.6 194.8 47 771.9 585.3 32
Securities transactions(1).............................. 1.9 -- -- 1.9 19.3 (90)
Non-interest expense.................................... 509.0 384.4 32 1,357.9 1,192.7 14
SAIF assessment......................................... -- 24.5 -- -- 24.5 --
Net income (excluding SAIF assessment).................. 122.6 142.3 (14) 425.3 430.0 (1)
Net income.............................................. 122.6 127.0 (3) 425.3 414.7 3
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Per Share Data
Fully diluted net income (excluding SAIF assessment).... $ .62 $ .73 (15)% $ 2.20 $ 2.18 1%
Fully diluted net income(4)............................. .62 .65 (5) 2.20 2.10 5
Dividends declared...................................... .31 .27 15 .89 .78 14
Book value(2)........................................... 19.16 17.72 8 19.16 17.72 8
Stock price:
High.................................................. 72.94 34.06 -- 72.94 34.06 --
Low................................................... 52.25 29.25 79 40.00 27.75 44
Close................................................. 70.75 33.75 -- 70.75 33.75 --
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Key Ratios
Return on assets(3,4)................................... 1.12% 1.40% (20)% 1.32% 1.40% (6)%
Return on equity(3,4)................................... 13.85 17.19 (19) 16.96 17.33 (2)
Net yield on earning assets............................. 5.09 5.22 (2) 5.14 5.27 (2)
Overhead ratio(3,4)..................................... 68.19 57.91 18 62.70 59.34 6
Shareholders' equity to total assets(2)................. 8.55 8.21 4 8.55 8.21 4
Leverage ratio.......................................... 7.82 6.84 14 7.82 6.84 14
Total risk-based capital ratio.......................... 12.68 11.98 6 12.68 11.98 6
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Average Balances
Assets.................................................. $ 43,675 $ 40,651 7% $ 42,892 $ 40,967 5%
Deposits................................................ 32,797 32,673 -- 33,005 33,332 (1)
Loans, net of unearned income........................... 31,447 30,547 3 31,046 30,419 2
Earning assets.......................................... 36,078 35,843 1 36,230 36,111 --
Shareholders' equity.................................... 3,540 3,311 7 3,344 3,308 1
Fully diluted shares (thousands)........................ 196,903 194,892 1 193,700 197,355 (2)
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Period End
Assets.................................................. $ 43,219 $ 41,271 5%
Deposits................................................ 32,920 33,238 (1)
Loans, net of unearned income........................... 30,835 30,638 1
Long-term debt.......................................... 1,819 1,227 48
Shareholders' equity.................................... 3,641 3,323 10
Common shares (thousands)............................... 192,871 191,125 1
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</TABLE>
(1) Includes the sale of Bank South stock in the first quarter of 1996.
(2) Computed based on equity before deduction of the employee stock ownership
plan obligation.
(3) Excluding $24.5 million pre-tax SAIF assessment during the third quarter of
1996.
(4) During the third quarter of 1997, the company recorded a $72.2 million
charge to reflect the expense associated with certain stock options issued
under its stock option plan. Excluding this charge, earnings were $.86 per
share; return on assets 1.56%; return on equity 19.20%; and overhead ratio
58.5%.
3
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MANAGEMENT DISCUSSION
TABLE 1 SELECTED QUARTERLY DATA
<TABLE>
<CAPTION>
1997 1996
------------------------------- ------------------------------------------------
DOLLARS IN MILLIONS EXCEPT PER SHARE DATA THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
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<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income (taxable-equivalent)........ $ 460.9 $ 458.9 $ 474.0 $ 461.9 $469.0 $ 480.3 $ 475.3
Provision for loan losses....................... 38.3 36.2 31.8 28.6 44.9 39.5 41.6
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses........................................ 422.6 422.7 442.2 433.3 424.1 440.8 433.7
Non-interest income (excluding securities
transactions)................................. 285.7 270.5 215.7 206.0 194.8 193.9 196.6
Securities transactions......................... 1.8 .1 -- (.1) -- .3 19.0
Non-interest expense (excluding SAIF
assessment)................................... 509.0 433.0 415.9 399.7 384.4 400.8 407.6
SAIF assessment................................. -- -- -- -- 24.5 -- --
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Income before income taxes and minority
interest...................................... 201.1 260.3 242.0 239.5 210.0 234.2 241.7
Income tax provision............................ 66.4 91.9 84.5 83.4 78.8 90.3 88.6
Taxable-equivalent adjustment................... 3.4 3.1 3.5 3.9 4.2 4.4 4.9
Minority interest expense, net of income
taxes......................................... 8.7 8.3 8.3 2.4 -- -- --
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Net income.................................. $ 122.6 $ 157.0 $ 145.7 $ 149.8 $127.0 $ 139.5 $ 148.2
- -----------------------------------------------------------------------------------------------------------------------------------
Primary earnings per common share............... $ .64 $ .80 $ .79 $ .77 $ .65 $ .71 $ .76
Fully diluted earnings per common share......... .62 .80 .78 .76 .65 .71 .74
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</TABLE>
SUMMARY
On August 29, 1997, Barnett announced a definitive agreement to merge with
NationsBank Corporation. Details can be found in the "Pending Merger" section on
page 5.
Barnett reported third quarter earnings of $122.6 million, or $.62 per fully
diluted share. These results included a $72.2 million pre-tax charge to cover
the expense associated with certain stock options as a result of the sharp
increase during the quarter in Barnett's common stock price. The company earned
$157.0 million, or $.80 per fully diluted share, in the second quarter of 1997
and $127.0 million, or $.65 per share, a year earlier. For the first nine months
of 1997, Barnett earned $425.3 million, or $2.20 per fully diluted share,
compared to $414.7 million, or $2.10 per share, a year earlier.
Third quarter revenue rose 13% from a year earlier and 3% from the second
quarter to $748.4 million, driven by strong growth in Barnett's consumer credit
businesses. Taxable-equivalent net interest income was $460.9 million compared
to $469.0 million a year earlier and $458.9 million in the second quarter. The
decrease from last year reflects the added interest expense associated with
Barnett's automobile leasing subsidiary, Oxford Resources Corp. ("Oxford") and
the sale of non-core credit card receivables to Household Credit Services, Inc.
("Household"), partially offset by growth in commercial and installment loans.
Non-interest income rose 48% from a year earlier and 6% from the second quarter
to $287.5 million. The increase from last year reflects the addition of Oxford's
net rental income and significant growth in consumer finance income. The
increase from the second quarter reflects continued growth in consumer finance
income. Non-interest income comprised 38% of the company's revenue, up from 29%
a year ago, consistent with the company's continuing objective to diversify its
earnings stream.
Non-interest expense increased 24% from last year and 18% over the second
quarter to $509.0 million, primarily reflecting the charge to cover the
increased value of stock options as a result of the sharp appreciation during
the quarter in Barnett's stock price. The increase from last year is also
attributed to the addition of expenses associated with Oxford and the company's
investment in strategic initiatives designed to increase future revenue.
The provision for loan losses fell 15% from last year, but increased 6% from
the second quarter, to $38.4 million. At September 30, the reserve for loan
losses stood at $483 million and represented 1.57% of period-end loans and 263%
of non-performing loans. Net charge-offs of $38.2 million were 15% below a year
earlier, but $2.1 million above the second quarter. Third quarter net
charge-offs represented an annualized .49% of average loans compared to .59% a
year earlier and .46% in the second quarter. Non-performing assets of $229
million on September 30 represented .74% of gross loans plus real estate held
for sale.
On October 1, the company completed its acquisition of First of America
Bank Corporation's Florida franchise, which had $1.1 billion in assets, $931
million in deposits, and 58 branches. Its operations will be included in
Barnett's financial results in the fourth quarter. However, in light of the
pending merger with NationsBank and deposit market share in excess of
regulatory maximums, the company agreed on October 15 to sell the franchise
to SouthTrust Corporation. Barnett does not expect to record a material gain
or loss as a result of the sale.
On October 26, HomeSide, Inc. announced it had reached a definitive
agreement to be acquired for approximately $1.2 billion in cash. Barnett
holds approximately 26% of the outstanding share of HomeSide which was
created in March 1996 as a mortgage banking joint venture. Barnett expects to
record a pre-tax gain upon the closing of the transaction,
4 <PAGE>
expected to be in the first quarter of 1998.
Selected quarterly data is provided in Table 1.
PENDING MERGER
On August 29, Barnett announced a definitive agreement to merge with
NationsBank Corporation. Under the agreement, NationsBank will pay a fixed
exchange ratio of 1.1875 shares of its common stock for each outstanding share
of Barnett common stock. The transaction will be accounted for as a pooling of
interests, enabling Barnett shareholders to exchange their shares on a tax-free
basis. The merger has been approved by the boards of directors of both
companies, but is still subject to both shareholder and regulatory approval. The
transaction is expected to close in the first quarter of 1998.
Due to a sharp increase in Barnett's stock price during the quarter, the
company recorded a $72.2 million pre-tax charge related to expense associated
with certain stock options previously issued under the company's stock option
plan. These options are subject to variable accounting treatment, and an expense
is recognized for any stock price appreciation.
The company will also experience an increase in weighted average common
shares outstanding because of a higher level of common stock equivalents
outstanding and the halting of its share repurchase program in anticipation
of the pending merger.
Shareholder approval of the merger would result in a "change in control" as
defined in certain of Barnett's compensation and benefit plans. As a result,
upon shareholder approval of the merger, Barnett will recognize expense
associated with the accelerated vesting of benefits under several benefit
Plans, including stock options and restricted stock granted under Barnett's
Long Term Incentive Plan and payments under Barnett's Supplemental Executive
Retirement Plan. Barnett presently estimates that the pre-tax expense to be
recorded in the fourth quarter of 1997 upon shareholder approval of the merger
TABLE 2 INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
NON-RATE
SENSITIVE
0-30 31-90 91-180 181-365 1-5 AND OVER
SEPTEMBER 30, 1997--DOLLARS IN MILLIONS DAYS DAYS DAYS DAYS YEARS FIVE YEARS TOTAL
- -------------------------------------------------- --------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural............ $ 4,075 $ 194 $ 136 $ 214 $ 828 $ 231 $ 5,678
Real estate construction.......................... 854 7 3 6 9 1 880
Commercial mortgages.............................. 791 86 85 168 444 55 1,629
Residential mortgages............................. 1,017 1,199 1,495 2,594 2,216 931 9,452
Installment....................................... 2,031 1,242 1,091 1,820 4,657 131 10,972
Other loans....................................... 1,747 -- -- -- 470 7 2,224
--------- --------- --------- --------- --------- ----------- ---------
Total loans(1)................................ 10,515 2,728 2,810 4,802 8,624 1,356 30,835
Securities(1)..................................... 285 397 851 693 1,587 298 4,111
Federal funds sold and securities purchased under
agreements to resell............................ 164 -- -- -- -- -- 164
--------- --------- --------- --------- --------- ----------- ---------
Total earning assets.......................... $ 10,964 $ 3,125 $ 3,661 $ 5,495 $ 10,211 $ 1,654 $ 35,110
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
NOW and money market accounts(1).................. $ 4,603 $ 76 $ 474 $ 6,742 $ 11,895
Savings deposits(1)............................... 572 54 102 2,092 2,820
Time deposits..................................... 1,609 $ 2,023 $ 2,588 2,479 3,149 67 11,915
--------- --------- --------- --------- --------- ----------- ---------
Total interest-bearing deposits............... 6,784 2,023 2,588 2,609 3,725 8,901 26,630
Short-term borrowings............................. 2,826 -- -- -- -- -- 2,826
Long-term debt.................................... 27 277 127 77 562 749 1,819
--------- --------- --------- --------- --------- ----------- ---------
Total interest-bearing liabilities............ $ 9,637 $ 2,300 $ 2,715 $ 2,686 $ 4,287 $ 9,650 $ 31,275
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
Gap before interest rate swaps.................... $ 1,327 $ 825 $ 946 $ 2,809 $ 5,924 $ (7,996)
Interest rate swaps............................... (1,210) (2,175) 850 150 2,400 (15)
--------- --------- --------- --------- --------- ----------- ---------
Interest rate sensitivity gap adjusted for
interest rate swaps............................. 117 (1,350) 1,796 2,959 8,324 (8,011)
Cumulative adjusted interest rate sensitivity
gap............................................. 117 (1,233) 563 3,522 11,846
Cumulative adjusted gap as a percentage of earning
assets:
September 30, 1997.............................. .33% (3.51)% 1.60% 10.03% 33.74%
September 30, 1996(2)........................... (5.96) (8.74) (8.09) 2.50 51.55
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
</TABLE>
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(1) Management adjustments reflect the company's estimate 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.
Approximately 57% of the NOW and money market account balances, and
approximately 74% of the savings account balances, are classified as
non-rate sensitive.
(2) In 1997, management changed certain assumptions used to estimate the
anticipated repricing sensitivity of non-maturity deposit products
considered to be non-rate sensitive. Prior year amounts have been restated
to give effect to the change.
2
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TABLE 3 DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE INTEREST RATE
---------------------------------------------- AVERAGE
NOTIONAL REPLACEMENT RECEIVE PAY MATURITY
SEPTEMBER 30--DOLLARS IN MILLIONS AMOUNT VALUE RATE(1) INDEX RATE(1) INDEX IN YEARS
- --------------------------------------------- ----------- ------------ ----------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Interest rate swaps:
Basis swap................................. $ 50 $ .21 5.65% LIBOR 5.17% CMT .33
Generic swaps:
Receive fixed............................ 3,650 12.82 6.09 Fixed 5.68 LIBOR 2.49
Pay fixed................................ 15 .41 5.66 LIBOR 5.90 Fixed 10.92
Interest rate floors......................... 250 .23 6.00(2) LIBOR -- -- .26
Options to purchase securities............... 3 -- -- -- -- -- .36
----------- ------------ --- --------- --- --------- -----
Total........................................ $ 3,968 $ 13.67 6.07% 5.68% -- 2.35
----------- ------------ --- --------- --- --------- -----
----------- ------------ --- --------- --- --------- -----
1996
Interest rate swaps:
Basis swap................................. $ 50 $ .61 5.44% LIBOR 5.85% CMT 1.33
Generic swaps:
Receive fixed............................ 4,025 (23.12) 5.53 Fixed 5.59 LIBOR 1.32
Pay fixed................................ 116 .93 5.73 LIBOR 5.84 Fixed 2.28
Interest rate floors......................... 250 1.03 6.00(2) LIBOR -- -- 1.25
----------- ------------ --- --------- --- --------- -----
Total........................................ $ 4,441 $ (20.55) 5.56% 5.60% 1.34
----------- ------------ --- --------- --- --------- -----
----------- ------------ --- --------- --- --------- -----
</TABLE>
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(1) Based upon contractual rates at September 30.
(2) The company receives interest equal to the amount by which LIBOR is less
than 6.00%.
will be approximately $250 million. The actual amount of expense will vary
based on a number of factors including changes in Barnett's stock price.
Because of the factors involved, actual expense recorded may differ from
estimated amounts.
EARNING ASSETS
LOANS. Average loans grew 3%, or $900 million, from a year earlier and $292
million from the second quarter to $31.4 billion. These increases reflect growth
in commercial and installment loan balances, partially offset by declines in
residential and commercial mortgage outstandings. The increase from a year ago
was reduced by the sale of $776 million in non-core credit card accounts to
Household in the fourth quarter of 1996.
Installment loans rose $1.4 billion, or 14%, from the same period last year
and $173 million, or an annualized growth rate of 6%, from the second quarter to
$11.6 billion. The expansion of indirect automobile lending (loans originated
through dealers to consumers purchasing cars) to new markets and increased home
equity loan originations through EquiCredit Corporation ("EquiCredit") were the
principal factors driving installment loan growth. The volume of automobile
loans, the largest component of installment loans, is dependent upon new and
used automobile sales, which can vary depending on economic conditions and other
factors.
Residential mortgage loans fell 4%, or $406 million, from last year and
$73 million from the second quarter to $9.6 billion. These reductions reflect
management's decision to utilize the liquidity from amortizing residential
mortgages to fund growth in loan categories with higher risk-adjusted rates
of return. At the end of the third quarter, 77% of the residential loan
portfolio consisted of adjustable-rate mortgages which reprice annually based
on a spread over the one-year Constant Maturity Treasury index. This
repricing is limited by annual and lifetime caps.
Commercial loans grew 12% from last year and at an annualized rate of 7%
from the second quarter to $5.6 billion. Commercial real estate loans decreased
11% from a year earlier and $24 million from the second quarter to $2.5 billion.
Bank card outstandings fell 29%, or $526 million, from last year, but
increased $69 million from the second quarter to $1.3 billion. The reduction
from last year reflects the sale of non-core credit card outstandings during the
fourth quarter of 1996. The growth from the second quarter primarily reflects
purchases of certain Florida/Georgia receivables from Household.
INVESTMENT SECURITIES AND OTHER EARNING ASSETS. The company's $4.5 billion
securities portfolio, with an average life of 2.23 years, consists primarily of
AAA or equivalently rated securities. U.S. Treasury securities comprised 41% of
the portfolio at September 30. Average securities fell $642 million, or 12%,
from the same period last year and $434 million from last quarter, reflecting
the use of proceeds from maturing securities to fund growth in higher yielding
earning assets.
At September 30, the available-for-sale securities portfolio had a $21.8
million pre-tax unrealized gain compared to a $1.8 million pre-tax unrealized
gain at September 30, 1996 and a $10.0 million pre-tax unrealized loss at June
30, 1997. These unrealized gains/losses do not impact net income or regulatory
capital but are recorded as adjustments to shareholders' equity on an after-tax
basis. The adjustments to
3
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TABLE 4 CHANGE IN NET INTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
----------------------------------- ----------------------
CHANGE FROM CHANGE FROM
PREVIOUS YEAR PREVIOUS YEAR
DUE TO: DUE TO:
FOR THE PERIODS ENDED SEPTEMBER 30, 1997-- ---------------------- TOTAL ---------------------- TOTAL
DOLLARS IN MILLIONS--TAXABLE-EQUIVALENT VOLUME RATE(1) CHANGE VOLUME RATE(1) CHANGE
- ----------------------------------------------------------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans..................................................... $ 12.2 $ 21.0 $ 33.2 $ 16.3 $ 25.2 $ 41.5
Taxable securities........................................ (9.5) 1.2 (8.3) (14.7) 4.9 (9.8)
Tax-free securities....................................... (.9) (.9) (1.8) (3.8) (1.3) (5.1)
Federal funds sold and securities purchased under
agreements to resell..................................... (.4) .1 (.3) (5.9) .1 (5.8)
--------- ----- ----- --------- ----- ---------
Total interest income................................... 1.4 21.4 22.8 (8.1) 28.9 20.8
--------- ----- ----- --------- ----- ---------
Interest expense:
NOW and money market accounts............................. 1.2 4.2 5.4 (2.6) 12.9 10.3
Savings deposits.......................................... (1.0) (1.0) (2.0) (3.9) (1.2) (5.1)
Certificates of deposit under $100,000.................... (4.4) 2.3 (2.1) (9.7) (.3) (10.0)
Other time deposits....................................... (.1) .6 .5 1.6 (.5) 1.1
--------- ----- ----- --------- ----- ---------
Total interest-bearing deposits......................... (4.3) 6.1 1.8 (14.6) 10.9 (3.7)
Federal funds purchased and securities sold under
agreements to repurchase................................ 14.9 2.6 17.5 45.5 4.0 49.5
Other short-term borrowings............................... .8 .1 .9 (17.2) .6 (16.6)
Long-term debt............................................ 10.8 (.1) 10.7 23.5 (1.1) 22.4
--------- ----- ----- --------- ----- ---------
Total interest expense.................................. 22.2 8.7 30.9 37.2 14.4 51.6
--------- ----- ----- --------- ----- ---------
Net interest income.................................... $ (20.8) $ 12.7 $ (8.1) $ (45.3) $ 14.5 $ (30.8)
--------- ----- ----- --------- ----- ---------
--------- ----- ----- --------- ----- ---------
</TABLE>
- ------------------------
(1) Includes changes in interest income and expense not due solely to volume
or rate changes.
shareholders' equity at September 30, 1997 also include an unrealized loss on
certain servicing assets associated with the company's consumer finance
franchise which resulted from the adoption of Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" on January 1, 1997.
Adjustments to shareholders' equity at June 30, 1997 for SFAS No. 125
included a $12.0 million pre-tax unrealized loss.
Federal funds sold and securities purchased under agreements to resell
fell $23 million from the same period last year and $195 million from the
second quarter, as proceeds from maturities were used to fund growth in
higher yielding earning assets.
DEPOSITS AND OTHER FUNDING SOURCES
DEPOSITS. Average deposits of $32.8 billion were $124 million higher than a
year ago but $286 million below the second quarter. Transaction, money market
and savings account balances increased $480 million from a year ago but
decreased $226 million from the second quarter. Certificates of deposit and
other time deposit balances fell $356 million from a year ago and slightly
during the quarter.
OTHER FUNDING SOURCES. Average federal funds purchased, securities sold
under agreements to repurchase and other short-term borrowings increased $1.2
billion from the same period last year and $486 million during the quarter to
$3.7 billion, primarily reflecting increased funding requirements associated
with Oxford and the company's consumer lending businesses. Long-term debt
increased $573 million from the same period last year, but fell $232 million
from the second quarter. The increase from last year reflects the addition of
Oxford's long-term debt.
The company issues commercial paper to fund certain consumer lending
activities. As of September 30, Barnett's commercial paper outstandings totaled
$312 million compared to $416 million as of September 30, 1996 and $265 million
as of June 30, 1997.
ASSET-LIABILITY MANAGEMENT
Net interest income, the company's primary source of revenue, is affected by
changes in interest rates as well as fluctuations in the level and duration of
assets and liabilities contained on the company's balance sheet. 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 September 30, with each maturity interval referring to the
earliest repricing opportunity (i.e., the earlier of scheduled contractual
maturity or repricing date) for each asset and liability category. The
resulting gap is one measure of the sensitivity of earnings to changes in
interest rates.
In order to reflect more appropriately 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
<PAGE>
TABLE 5 OTHER NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------------------
DOLLARS IN THOUSANDS THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Advertising and marketing............. $ 18,333 $ 16,484 $ 18,175 $ 10,256 $ 11,098 $ 12,693 $ 13,905
Amortization of intangibles........... 16,610 16,706 11,638 11,731 11,970 13,043 13,440
Communications........................ 13,843 12,398 13,663 12,388 11,554 11,416 10,970
Expenses and provision on real estate
held for sale....................... 2,453 2,375 2,034 3,233 3,696 3,384 2,409
FDIC assessments...................... 1,068 1,170 1,628 -- 2,545 2,514 2,720
Outside computer services............. 12,473 10,947 13,316 10,737 8,637 8,973 9,739
Postage............................... 6,647 7,162 5,866 6,345 6,147 7,390 6,920
Stationery and supplies............... 8,494 8,985 7,787 7,545 5,936 5,634 5,762
Insurance, taxes and other............ 53,689 55,000 51,413 53,895 48,060 56,482 59,729
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total............................. $ 133,610 $ 131,227 $ 125,520 $ 116,130 $ 109,643 $ 121,529 $ 125,594
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
interest rate environments may impact these expected prepayments.
Similarly, an adjustment to deposits is made to reflect the behavioral
characteristics of certain core deposits that do not have specified
maturities (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 asset sensitive on September 30, with
a cumulative six-month positive gap of 1.60%.
In addition to gap analysis, management uses rate-shock simulation and
duration of equity analysis 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 gap and rate-shock simulation analyses. These analyses,
which consider longer term impacts of rate changes, suggest that Barnett is
relatively rate neutral. The company's rate-shock simulation indicates that
an instantaneous 100 basis point 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 requires certain assumptions about the future pricing of loans
and deposits in response to changes in interest rates. While this simulation
is a useful measure of the company's sensitivity to changing rates, it is not
a forecast of future results and is based on many assumptions, which are
impacted by risks and uncertainties that, if changed, could cause a different
outcome.
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. At this time, 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.
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 derivatives
portfolio used for asset-liability management purposes, summarized in Table 3 on
page 6, had a notional amount of $4.0 billion at September 30. This portfolio
consisted of $3.7 billion of interest rate swaps and $250 million of interest
rate floors. The swap portfolio consisted of fixed-term, non-amortizing interest
rate swaps, which mature through August 2008. Most of the company's swaps
involve receipt of fixed cash flows in exchange for variable (primarily
LIBOR-based) cash flows. The purpose of the swaps is to convert cash flows from
floating-rate loans to fixed cash flows. These derivatives reduce the
sensitivity of the net interest margin to flat or falling interest rates.
The derivatives portfolio performed as expected during the quarter, as
the value of instruments designed to protect the company in a declining rate
environment rose in value due to a modest decline in interest rates during
the period. The replacement value of the company's derivatives portfolio was
a positive $13.7 million at September 30, 1997 compared to a negative $20.6
million on the same date last year and a negative $6.3 million on June 30,
1997.
The derivatives portfolio, including the amortization of deferred gains
on interest rate floors, increased net interest income in the third quarter
of 1997 by $8.7 million, representing a 10 basis point increase in the net
yield on earning assets. The swap portfolio increased third quarter 1996 net
interest income by $1.0 million, representing a 1 basis point increase in the
net yield on earning assets.
4
<PAGE>
Barnett manages the counterparty 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, which represented 62%
of third quarter revenues, was $460.9 million, 2% below last year and
slightly above the second quarter. The decrease from last year was primarily
due to incremental interest expense associated with funding Oxford's
automobiles under operating leases and the net impact of the Household
transactions, partially offset by the positive impact of capital securities
issued during the fourth quarter of 1996 and the first quarter of 1997. 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 of 5.09% was down
from 5.22% a year earlier, but up from 5.05% in the second quarter. The
decrease from last year was partially offset by a change in loan mix from
residential mortgages to higher yielding commercial and installment loans.
The increase from the second quarter was due to a 10 basis point improvement
in the yield on earning assets offset by a 6 basis point increase in the cost
of funds supporting earning assets.
NON-INTEREST INCOME
Non-interest income rose 48% from a year ago and 6% from the second
quarter to $287.5 million. The increase from last year reflects the addition
of Oxford's net rental income and significant growth in consumer finance
income. The increase from the second quarter reflects continued growth in
consumer finance income.
Net rental income rose 4%, or $2.0 million, from the second quarter to
$47.5 million, reflecting increased automobile leasing production.
Consumer finance income of $58.8 million represents revenue generated
through the company's consumer loan securitizations and related loan servicing.
Consumer finance income nearly doubled from the same period a year ago and rose
21% from the second quarter, reflecting continued growth in loan production at
the company's home equity and vehicle finance subsidiaries. In the third
quarter, the company executed its first automobile loan securitization in
addition to its existing home equity loan securitization program.
Mortgage banking income rose 23%, or $2.7 million, from the second quarter
to $14.4 million, primarily reflecting increased production of saleable loans.
Other service charges and fees rose 20%, or $7.2 million, from last year to
$42.6 million, reflecting greater retail fees.
Brokerage income grew 45% from a year ago and 11% from the second quarter to
$15.0 million, primarily reflecting increased sales.
Credit card discounts and fees fell $1.9 million, or 15%, from last year's
third quarter, reflecting the sale of non-core credit card outstandings to
Household. Credit card fees rose 17% from the second quarter, reflecting
increased transaction volume and the addition of certain Florida/Georgia
accounts purchased from Household in the third quarter.
NON-INTEREST EXPENSE
Non-interest expense rose 24%, or $100.1 million, from a year ago and 18%,
or $76.1 million, from the second quarter, primarily reflecting the expense
associated with certain stock options as a result of the recent sharp
appreciation in Barnett's stock price. The increase from last year is also due
to the addition of expenses associated with Oxford. Barnett continued to make
significant investments in initiatives such as supermarket banking, enhanced
electronic delivery, and sales forces and tools aimed at enhancing the company's
customer relationships and future revenue.
Salaries and employee benefits expense of $294.5 million increased $71.6
million from the second quarter and $93.2 million from the same period last
year. Excluding the impact of stock options subject to variable accounting
treatment, the increase from the second quarter was $9.2 million and $29.4
million from the prior year. The increases reflect continued investment in
business expansion initiatives, including the purchase of Oxford. The company
had an average of 21,783 full-time equivalent employees in the third quarter,
compared to 21,339 during the second quarter and 19,045 a year ago.
TABLE 6 NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
SEPTEMBER 30--DOLLARS IN THOUSANDS AMOUNT OUTSTANDING(1) AMOUNT OUTSTANDING(1)
- --------------------------------------------------------- ---------- ------------------- ---------- -------------------
<S> <C> <C> <C> <C>
Non-accruing loans:
Less than 90 days past due............................. $ 25,985 .08% $ 21,111 .07%
90 days past due....................................... 152,886 .50 163,559 .53
---------- -- ---------- --
Total non-accruing loans............................. 178,871 .58 184,670 .60
Reduced-rate loans....................................... 4,774 .01 7,546 .03
---------- -- ---------- --
Total non-performing loans........................... 183,645 .59 192,216 .63
Real estate held for sale................................ 45,591 .15 58,921 .19
---------- -- ---------- --
Total non-performing assets.......................... $ 229,236 .74% $ 251,137 .82%
---------- -- ---------- --
---------- -- ---------- --
Non-performing loans by category:
Commercial, financial and agricultural................. $ 28,290 .09% $ 35,662 .12%
Real estate construction............................... 5,854 .02 8,024 .03
Commercial mortgages................................... 27,660 .09 36,548 .12
Residential mortgages.................................. 121,841 .39 111,982 .36
---------- -- ---------- --
Total................................................ $ 183,645 .59% $ 192,216 .63%
---------- -- ---------- --
---------- -- ---------- --
90 days past due accruals............................... $ 55,078 .18% $ 60,819 .20%
---------- -- ---------- --
---------- -- ---------- --
</TABLE>
- ------------------------
(1) Before deduction for unearned income.
<PAGE>
TABLE 7 LOAN QUALITY INFORMATION
<TABLE>
<CAPTION>
1997 1996
------------------------------- ------------------------------------------
DOLLARS IN THOUSANDS THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
- ----------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net charge-offs (recoveries):
Commercial, financial and agricultural....... $ 4,649 $ 6,072 $ 3,300 $ 667 $ 3,271 $ (740) $ (334)
Real estate construction..................... -- (23) (20) 28 (13) -- (175)
Commercial mortgages......................... (377) (1,060) 162 (572) (2,931) (2,184) (1,850)
Residential mortgages........................ 2,071 1,764 793 1,129 781 608 508
Installment.................................. 17,784 14,690 19,769 19,672 11,666 12,795 15,428
Bank card.................................... 12,659 13,053 6,756 6,260 31,186 28,254 26,797
Credit lines................................. 1,396 1,552 1,015 1,252 1,133 711 1,031
--------- --------- --------- --------- --------- --------- ---------
Total net charge-offs...................... $ 38,182 $ 36,048 $ 31,775 $ 28,436 $ 45,093 $ 39,444 $ 41,405
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Gross charge-offs.............................. $ 49,129 $ 44,119 $ 39,850 $ 43,278 $ 61,037 $ 53,284 $ 51,500
Allowance for loan losses...................... 483,249 481,965 477,188 476,709 507,109 506,892 506,315
Non-performing loans........................... 183,645 175,192 184,071 190,425 192,216 192,711 181,382
Non-performing assets.......................... 229,236 226,881 233,400 233,980 251,137 251,969 244,638
Non-performing asset ratio..................... .74% .73% .76% .77% .82% .82% .80%
Net charge-offs to average loans
(annualized)................................. .49 .46 .42 .38 .59 .52 .55
Allowance to non-performing loans.............. 263 275 259 250 264 263 279
Allowance to period-end loans.................. 1.57 1.56 1.55 1.58 1.66 1.66 1.67
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
Net occupancy expense increased $4.2 million from last year and slightly
from the second quarter. Furniture and equipment expense increased $3.3 million
from last year and $1.5 million from the second quarter. Excluding the SAIF
assessment, other expense increased 22%, or $24.0 million, from last year and
$2.4 million from the second quarter. The increase from last year was primarily
due to the addition of expenses associated with Oxford and the company's
continued investment in strategic initiatives designed to increase future
revenue. Other expense for the past seven quarters is shown in Table 5.
Barnett has established a company-wide task force to review all
computer-based systems and applications and to develop a company-wide
preparation and action plan for the century date change for the year 2000.
Barnett's goal is to have all systems and applications compliant with the
century change by December 31, 1998. Preliminary cost estimates have not been
finalized, but remediation efforts will be expensed. Barnett could possibly
be affected by the century change to the extent other entities not affiliated
with the company are unsuccessful in addressing this issue.
ASSET QUALITY
RISK ELEMENTS. As shown in Table 6 on page 9, non-performing assets were
$229 million on September 30, or .74% of outstandings. By comparison,
non-performing assets stood at $251 million, or .82% of outstandings, on the
same date last year, and $227 million, or .73% of outstandings, on June 30,
1997.
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 8% at September 30. The commercial loan portfolio, representing 18%
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.
At September 30, 4.72% of residential loans were 30 days or more past due
compared to 4.57% a year earlier and 4.55% at June 30, 1997. At the end of
the third quarter, 1.29% of residential loans were non-performing compared to
1.15% a year earlier and 1.21% on June 30, 1997. The loss ratio in this
portfolio was 9 basis points in the third quarter. At September 30, the
percentage of installment loans 30 days or more past due was 1.51% compared
to 1.35% a year earlier and 1.28% at June 30.
Barnett's installment loan portfolio consists primarily of loans secured by
new and used automobiles (61%), home equity loans (20%), government-guaranteed
student loans (15%) and other secured loans (2%). The remaining 2% of
installment loans are unsecured.
At September 30, the percentage of bank card outstandings 30 days or more
past due was 3.44%, up from 3.35% in the second quarter, but down from 4.04% a
year earlier.
Net Charge-Offs. As shown in Table 7, net charge-offs declined 15% from a
year earlier to $38.2 million due to reduced losses on credit card loans. Net
charge-offs rose $2.1 million from the second quarter, reflecting increased
installment losses partially offset by reduced commercial loan losses. Bank card
net charge-offs were $18.5 million lower than the same period last year, as a
result of the sale of $776 million of non-core credit card receivables, and were
slightly lower than the second quarter. Credit card charge-offs represented 4.0%
of outstandings. Installment loan net charge-offs were up by $3.1 million from
the second quarter while commercial loan net charge-offs were down $1.4 million.
Total net charge-offs in the third quarter represented an annualized .49% of
average outstandings, compared to .46% in the second quarter and .59% for the
same period last year.
Provision/Allowance for Loan Losses. Barnett's provision expense in the
third quarter was $38.4 million,
5
<PAGE>
TABLE 8 CAPITAL RATIOS
<TABLE>
<CAPTION>
SEPTEMBER 30--DOLLARS IN MILLIONS 1997 1996
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Tier I capital.............................................................................. $ 3,333 $ 2,740
Total risk-based capital.................................................................... 4,326 3,713
Total risk-adjusted assets.................................................................. 34,110 30,995
- -------------------------------------------------------------------------------------------- --------- ---------
Tier I capital ratio........................................................................ 9.77% 8.84%
Total risk-based capital ratio.............................................................. 12.68 11.98
Tier I leverage ratio....................................................................... 7.82 6.84
- -------------------------------------------------------------------------------------------- --------- ---------
</TABLE>
compared to $44.9 million in last year's third quarter and $36.2 million in
the second quarter. At September 30, the allowance for loan losses stood at
$483 million, or 1.57% of period-end loans. The ratio of the allowance for
loan losses to non-performing loans was 263% at September 30, compared to
264% a year earlier and 275% in the second quarter. The allowance for loan
losses is based on such factors as the company's mix of loans, historical and
expected loss experience and the overall economic environment. Management
considers the allowance appropriate and adequate to cover potential losses
inherent in the loan portfolio based, in part, on the current composition of
the loan portfolio, credit quality trends and the economic environment.
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 effective tax rate for 1997
is expected to be 35% compared with 38% for 1996, primarily due to increased
income exempt from tax and a reduction of the effective state income tax rate.
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.
In addition to deposits, 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.
The company has a commercial paper program to provide funding for certain
consumer lending operations. This facility is supported by $760 million in
back-up lines of credit. At September 30, there was $260 million in borrowings
under these lines.
As of September 30, the company had $1.4 billion in debt and preferred stock
available under existing shelf registrations with the Securities and Exchange
Commission. Management believes that the level of liquidity is sufficient to
meet current and future funding requirements.
CAPITAL
At September 30, shareholders' equity totaled $3.5 billion. The company had
196.9 million fully diluted shares outstanding compared to 194.9 million last
year and 196.5 million in the second quarter. Barnett declared a $.31 per share
dividend for the third quarter.
In the fourth quarter of 1996 and the first quarter of 1997, the company
established statutory business trusts for the sole purpose of issuing capital
securities and investing the proceeds in the company's junior subordinated
debentures. The parent company issued two fixed-rate junior subordinated
debentures totaling $500 million to the trusts and one floating-rate junior
subordinated debenture totaling $250 million. The trust preferred securities are
reflected in the consolidated financial statements as minority interest and
included in Tier I capital for the risk-based capital ratio and leverage ratio
calculations.
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 September 30,
with a Tier I capital ratio of 9.77% and a total risk-based capital ratio of
12.68%.
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
September 30, Barnett's leverage ratio was 7.82%, up 98 basis points from a year
earlier.
- --------------------------------------------------------------------------------
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
This report contains forward-looking statements within the meaning of the
federal securities laws such as interest rate sensitivity projections, revenue
and expense trends, and long-term objectives. The forward-looking statements in
this report are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in or implied by the
statements.
6
<PAGE>
QUARTERLY AVERAGE BALANCES, YIELDS AND RATES
CONSOLIDATED--BARNETT BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------
THIRD SECOND
----------------------------- -----------------------------
AVERAGE AVERAGE
DOLLARS IN AVERAGE YIELD AVERAGE YIELD
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.............. $ 5,555 $120.7 8.62% $ 5,459 $115.3 8.47%
Real estate construction.... 857 20.7 9.55 807 19.4 9.62
Commercial mortgages........ 1,671 39.1 9.29 1,745 40.3 9.26
Residential mortgages....... 9,600 189.2 7.88 9,673 189.7 7.85
Installment................. 11,613 265.1 9.06 11,440 258.1 9.05
Bank card................... 1,267 46.7 14.64 1,198 44.7 14.97
Credit lines................ 884 21.4 9.61 833 20.3 9.78
-------- -------- ------- -------- -------- -------
Total loans, net of
unearned income.......... 31,447 705.1 8.92 31,155 687.2 8.84
-------- -------- ------- -------- -------- -------
Securities:(2)
Taxable..................... 4,379 69.6 6.33 4,805 76.0 6.33
Tax-free.................... 140 3.2 9.05 148 3.8 10.36
-------- -------- ------- -------- -------- -------
Total securities.......... 4,519 72.8 6.42 4,953 79.8 6.45
-------- -------- ------- -------- -------- -------
Federal funds sold and
securities purchased under
agreements to resell........ 112 1.5 5.54 307 4.3 5.56
-------- -------- ------- -------- -------- -------
Total earning assets...... 36,078 $779.4 8.59% 36,415 $771.3 8.49%
-------- -------- ------- -------- -------- -------
Cash.......................... 1,876 2,000
Other assets.................. 6,205 5,709
Allowance for loan losses..... (484) (485)
-------- -------- ------- -------- -------- -------
Total assets.............. $43,675 $43,639
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
LIABILITIES, MINORITY INTEREST
AND EQUITY
NOW and money market
accounts.................... $11,921 $ 64.8 2.16% $12,047 $ 63.8 2.12%
Savings deposits.............. 2,840 11.4 1.58 2,894 12.5 1.73
Certificates of deposit under
$100,000.................... 9,447 120.4 5.06 9,557 120.0 5.04
Other time deposits........... 2,639 36.2 5.44 2,589 34.9 5.40
-------- -------- ------- -------- -------- -------
Total interest-bearing
deposits................. 26,847 232.8 3.44 27,087 231.2 3.42
Federal funds purchased and
securities sold under
agreements to repurchase.... 3,206 44.5 5.50 2,774 37.3 5.39
Other short-term borrowings... 496 7.5 6.04 442 6.5 5.87
Long-term debt................ 1,801 33.7 7.49 2,033 37.4 7.36
-------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities.............. 32,350 $318.5 3.91% 32,336 $312.4 3.87%
Demand deposits............... 5,950 5,996
Other liabilities............. 1,085 1,083
Minority interest............. 750 750
Preferred equity.............. -- --
Common equity................. 3,540 3,474
-------- -------- ------- -------- -------- -------
Total liabilities, minority
interest and equity...... $43,675 $43,639
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
SPREAD AND NET YIELD
Interest rate spread.......... 4.68% 4.62%
Cost of funds supporting
earning assets.............. 3.50 3.44
Net yield on earning assets... $460.9 5.09 $458.9 5.05
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
<CAPTION>
1997 1996
----------------------------- -----------------------------
FIRST FOURTH
----------------------------- -----------------------------
AVERAGE AVERAGE
DOLLARS IN AVERAGE YIELD AVERAGE YIELD
MILLIONS--TAXABLE-EQUIVALENT BALANCE INTEREST OR RATE BALANCE INTEREST OR RATE
- ------------------------------ -------- -------- ------- -------- -------- -------
<S> <C> <C> <C>
ASSETS
Loans:(1)
Commercial, financial and
agricultural.............. $ 5,347 $110.8 8.41% $ 5,158 $107.6 8.29%
Real estate construction.... 817 19.4 9.63 817 19.9 9.69
Commercial mortgages........ 1,816 40.2 8.97 1,943 43.2 8.83
Residential mortgages....... 9,726 189.0 7.77 9,865 190.0 7.70
Installment................. 10,936 242.7 9.00 10,596 240.3 9.02
Bank card................... 1,081 41.0 15.38 1,046 39.0 14.85
Credit lines................ 803 19.3 9.72 781 18.8 9.62
-------- -------- ------- -------- -------- -------
Total loans, net of
unearned income.......... 30,526 659.6 8.73 30,206 656.3 8.66
-------- -------- ------- -------- -------- -------
Securities:(2)
Taxable..................... 4,937 78.0 6.36 4,863 78.4 6.44
Tax-free.................... 156 4.3 11.17 160 4.7 11.53
-------- -------- ------- -------- -------- -------
Total securities.......... 5,093 82.3 6.50 5,023 83.1 6.60
-------- -------- ------- -------- -------- -------
Federal funds sold and
securities purchased under
agreements to resell........ 581 7.7 5.38 322 4.4 5.48
-------- -------- ------- -------- -------- -------
Total earning assets...... 36,200 $749.6 8.36% 35,551 $743.8 8.34%
-------- -------- ------- -------- -------- -------
Cash.......................... 2,132 2,172
Other assets.................. 3,482 3,411
Allowance for loan losses..... (477) (480)
-------- -------- ------- -------- -------- -------
Total assets.............. $41,337 $40,654
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
LIABILITIES, MINORITY INTEREST
AND EQUITY
NOW and money market
accounts.................... $12,040 $ 61.7 2.08% $11,806 $ 60.8 2.05%
Savings deposits.............. 2,947 12.6 1.73 2,970 12.9 1.73
Certificates of deposit under
$100,000.................... 9,639 118.6 4.99 9,812 123.3 5.00
Other time deposits........... 2,511 33.0 5.34 2,508 33.7 5.34
-------- -------- ------- -------- -------- -------
Total interest-bearing
deposits................. 27,137 225.9 3.38 27,096 230.7 3.39
Federal funds purchased and
securities sold under
agreements to repurchase.... 1,860 23.0 5.01 1,690 21.8 5.12
Other short-term borrowings... 289 4.2 5.94 471 6.7 5.69
Long-term debt................ 1,221 22.5 7.35 1,227 22.7 7.40
-------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities.............. 30,507 $275.6 3.66% 30,484 $281.9 3.68%
Demand deposits............... 6,001 5,626
Other liabilities............. 1,120 993
Minority interest............. 697 179
Preferred equity.............. -- --
Common equity................. 3,012 3,372
-------- -------- ------- -------- -------- -------
Total liabilities,
minority interest
and equity............. $41,337 $40,654
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
SPREAD AND NET YIELD
Interest rate spread.......... 4.70% 4.66%
Cost of funds supporting
earning assets.............. 3.08 3.16
Net yield on earning assets... $474.0 5.28 $461.9 5.18
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
<CAPTION>
1996
-------------------------------------------------------------
THIRD SECOND
----------------------------- -----------------------------
AVERAGE AVERAGE
DOLLARS IN AVERAGE YIELD AVERAGE YIELD
MILLIONS--TAXABLE-EQUIVALENT BALANCE INTEREST OR RATE BALANCE INTEREST OR RATE
- ------------------------------ -------- -------- ------- -------- -------- -------
ASSETS
Loans:(1)
Commercial, financial and
agricultural.............. $ 4,963 $103.3 8.28% $ 4,873 $100.8 8.32%
Real estate construction.... 805 19.9 9.84 795 19.8 10.02
Commercial mortgages........ 2,028 44.8 8.79 2,078 46.1 8.92
Residential mortgages....... 10,006 191.4 7.65 10,303 200.5 7.79
Installment................. 10,188 226.3 8.84 9,813 216.3 8.86
Bank card................... 1,793 69.4 15.40 1,746 68.0 15.67
Credit lines................ 764 18.8 9.78 756 18.6 9.87
-------- -------- ------- -------- -------- -------
Total loans, net of
unearned income.......... 30,547 671.9 8.76 30,364 667.3 8.83
-------- -------- ------- -------- -------- -------
Securities:(2)
Taxable..................... 4,986 77.9 6.23 5,084 79.6 6.28
Tax-free.................... 175 5.0 11.60 196 5.6 11.36
-------- -------- ------- -------- -------- -------
Total securities.......... 5,161 82.9 6.41 5,280 85.2 6.47
-------- -------- ------- -------- -------- -------
Federal funds sold and
securities purchased under
agreements to resell........ 135 1.8 5.33 689 9.2 5.35
-------- -------- ------- -------- -------- -------
Total earning assets...... 35,843 $756.6 8.41% 36,333 $761.7 8.42%
-------- -------- ------- -------- -------- -------
Cash.......................... 1,979 1,926
Other assets.................. 3,336 3,365
Allowance for loan losses..... (507) (507)
-------- -------- ------- -------- -------- -------
Total assets.............. $40,651 $41,117
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
LIABILITIES, MINORITY INTEREST
AND EQUITY
NOW and money market
accounts.................... $11,683 $ 59.4 2.02% $12,268 $ 58.7 1.93%
Savings deposits.............. 3,075 13.4 1.73 3,213 13.8 1.73
Certificates of deposit under
$100,000.................... 9,799 122.5 4.98 9,747 120.8 4.98
Other time deposits........... 2,643 35.7 5.38 2,570 34.3 5.36
-------- -------- ------- -------- -------- -------
Total interest-bearing
deposits................. 27,200 231.0 3.38 27,798 227.6 3.29
Federal funds purchased and
securities sold under
agreements to repurchase.... 2,075 27.0 5.17 1,215 15.0 4.96
Other short-term borrowings... 443 6.6 5.90 1,045 14.1 5.42
Long-term debt................ 1,228 23.0 7.51 1,337 24.7 7.40
-------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities.............. 30,946 $287.6 3.70% 31,395 $281.4 3.60%
Demand deposits............... 5,473 5,688
Other liabilities............. 921 735
Minority interest............. -- --
Preferred equity.............. -- 1
Common equity................. 3,311 3,298
-------- -------- ------- -------- -------- -------
Total liabilities,
minority interest
and equity............. $40,651 $41,117
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
SPREAD AND NET YIELD
Interest rate spread.......... 4.71% 4.82%
Cost of funds supporting
earning assets.............. 3.19 3.12
Net yield on earning assets... $469.0 5.22 $480.3 5.30
-------- -------- ------- -------- -------- -------
-------- -------- ------- -------- -------- -------
<CAPTION>
1996
-----------------------------
FIRST
-----------------------------
AVERAGE
DOLLARS IN AVERAGE YIELD
MILLIONS--TAXABLE-EQUIVALENT BALANCE INTEREST OR RATE
- ------------------------------ -------- -------- -------
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 75.9 6.09
Tax-free.................... 209 5.8 11.18
-------- -------- -------
Total securities.......... 5,201 81.7 6.29
-------- -------- -------
Federal funds sold and
securities purchased under
agreements to resell........ 613 8.3 5.44
-------- -------- -------
Total earning assets...... 36,161 $761.2 8.45%
-------- -------- -------
Cash.......................... 1,980
Other assets.................. 3,501
Allowance for loan losses..... (506)
-------- -------- -------
Total assets.............. $41,136
-------- -------- -------
-------- -------- -------
LIABILITIES, MINORITY INTEREST
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
Minority interest............. --
Preferred equity.............. 97
Common equity................. 3,216
-------- -------- -------
Total liabilities,
minority interest
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... $475.3 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.
<PAGE>
STATEMENTS OF FINANCIAL CONDITION
CONSOLIDATED--BARNETT BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
(UNAUDITED) (AUDITED)
---------------------------- -------------
DOLLARS IN THOUSANDS 1997 1996 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks............................................. $ 2,297,164 $ 2,506,182 $ 2,781,146
Federal funds sold and securities purchased under agreements to
resell............................................................ 1,500 5,400 2,500
Investment securities available for sale............................ 4,003,178 4,965,286 5,031,123
Investment securities held to maturity (fair value $116,384,
$159,251 and $139,999)............................................ 107,428 148,840 129,595
Loans............................................................... 30,915,583 30,674,212 30,297,954
Less: Allowance for loan losses..................................... (483,249) (507,109) (476,709)
Unearned income............................................... (80,883) (36,252) (45,430)
- -----------------------------------------------------------------------------------------------------------------
Net loans....................................................... 30,351,451 30,130,851 29,775,815
Assets under operating leases....................................... 1,949,465 -- --
Premises and equipment.............................................. 1,188,411 1,109,089 1,135,644
Intangible assets................................................... 1,102,293 603,996 592,142
Other assets........................................................ 2,218,439 1,801,227 1,783,410
- -----------------------------------------------------------------------------------------------------------------
Total assets................................................... $ 43,219,329 $ 41,270,871 $ 41,231,375
- -----------------------------------------------------------------------------------------------------------------
Liabilities
Demand deposits..................................................... $ 6,289,819 $ 5,788,432 $ 6,528,006
NOW and money market accounts....................................... 11,895,498 11,633,848 12,163,289
Savings deposits.................................................... 2,819,603 3,005,363 2,938,243
Certificates of deposit under $100,000.............................. 9,264,961 10,296,245 9,708,311
Other time deposits................................................. 2,649,776 2,514,234 2,482,409
- -----------------------------------------------------------------------------------------------------------------
Total deposits.................................................. 32,919,657 33,238,122 33,820,258
Short-term borrowings:
Federal funds purchased and securities sold under agreements to
repurchase...................................................... 2,513,235 2,037,646 1,265,837
Commercial paper.................................................. 311,769 416,440 42,297
Other short-term borrowings....................................... 1,297 1,541 1,233
Other liabilities................................................... 1,262,790 1,026,855 1,004,890
Long-term debt...................................................... 1,819,316 1,227,499 1,226,529
- -----------------------------------------------------------------------------------------------------------------
Total liabilities............................................... 38,828,064 37,948,103 37,361,044
- -----------------------------------------------------------------------------------------------------------------
Minority Interest
Company obligated mandatorily redeemable securities of trusts
holding solely parent debentures.................................. 750,000 -- 500,000
Shareholders' Equity
Preferred stock, $.10 par value, 20,000,000 shares authorized;
8,489, 10,587 and 8,489 shares outstanding........................ 212 265 212
Common stock, $2 par value, 400,000,000 shares authorized;
192,870,753, 191,124,776 and 189,668,922 shares outstanding....... 401,742 382,250 395,338
Contributed capital................................................. 539,638 293,423 220,041
Net unrealized gain (loss) on investment securities available for
sale and certain other financial assets........................... 13,196 1,149 8,187
Retained earnings................................................... 2,741,597 2,710,187 2,808,749
Less: Employee stock ownership plan obligation, collateralized by
3,414,227, 3,995,654 and 3,852,556 shares..................... (55,120) (64,506) (62,196)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity...................................... 3,641,265 3,322,768 3,370,331
- -----------------------------------------------------------------------------------------------------------------
Total liabilities, minority interest and shareholders' equity... $ 43,219,329 $ 41,270,871 $ 41,231,375
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
14
<PAGE>
STATEMENTS OF INCOME
CONSOLIDATED--BARNETT BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
FOR THE PERIODS ENDED SEPTEMBER 30--DOLLARS IN
THOUSANDS (UNAUDITED) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Interest Income
Loans............................................... $ 702,295 $ 669,455 $ 2,044,970 $ 2,002,884
Investment securities............................... 72,145 81,078 231,659 243,689
Federal funds sold and securities purchased under
agreements to resell.............................. 1,559 1,803 13,515 19,268
- ----------------------------------------------------------------------------------------------------------------
Total interest income........................... 775,999 752,336 2,290,144 2,265,841
- ----------------------------------------------------------------------------------------------------------------
Interest Expense
Deposits............................................ 232,763 231,007 689,897 693,566
Federal funds purchased and securities sold under
agreements to repurchase.......................... 44,464 26,951 104,685 55,298
Other short-term borrowings......................... 7,550 6,569 18,242 34,726
Long-term debt...................................... 33,715 23,052 93,548 71,241
- ----------------------------------------------------------------------------------------------------------------
Total interest expense.......................... 318,492 287,579 906,372 854,831
- ----------------------------------------------------------------------------------------------------------------
Net interest income............................. 457,507 464,757 1,383,772 1,411,010
Provision for loan losses........................... 38,382 44,913 106,327 125,955
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses............................................ 419,125 419,844 1,277,445 1,285,055
- ----------------------------------------------------------------------------------------------------------------
Non-Interest Income
Service charges on deposit accounts................. 59,893 59,559 185,936 175,492
Consumer finance income............................. 58,806 30,355 149,012 86,144
Net rental income................................... 47,539 -- 93,035 --
Trust income........................................ 21,330 19,665 62,694 61,441
Credit card discounts and fees...................... 10,721 12,616 28,504 37,288
Mortgage banking income............................. 14,375 14,485 42,327 54,620
Brokerage income.................................... 14,951 10,316 40,049 33,331
Other service charges and fees...................... 42,589 35,387 123,072 101,101
Securities transactions............................. 1,855 35 1,911 19,337
Other income........................................ 15,397 12,454 47,214 35,873
- ----------------------------------------------------------------------------------------------------------------
Total non-interest income....................... 287,456 194,872 773,754 604,627
- ----------------------------------------------------------------------------------------------------------------
Non-Interest Expense
Salaries and employee benefits...................... 294,466 201,274 734,915 619,961
Net occupancy expense............................... 38,746 34,583 109,978 101,936
Furniture and equipment expense..................... 42,222 38,946 122,601 114,080
SAIF assessment..................................... -- 24,524 -- 24,524
Other expense....................................... 133,610 109,643 390,357 356,766
- ----------------------------------------------------------------------------------------------------------------
Total non-interest expense...................... 509,044 408,970 1,357,851 1,217,267
- ----------------------------------------------------------------------------------------------------------------
Net non-interest expense........................ 221,588 214,098 584,097 612,640
- ----------------------------------------------------------------------------------------------------------------
Earnings
Income before income taxes and minority interest.... 197,537 205,746 693,348 672,415
Income tax provision................................ 66,208 78,796 242,722 257,735
- ----------------------------------------------------------------------------------------------------------------
Minority interest expense, net of income taxes...... 8,717 -- 25,336 --
- ----------------------------------------------------------------------------------------------------------------
Net income...................................... $ 122,612 $ 126,950 $ 425,290 $ 414,680
- ----------------------------------------------------------------------------------------------------------------
Earnings Per Common Share
Primary: Earnings per share................... $ .64 $ .65 $ 2.23 $ 2.12
Average number of shares............. 195,275,060 194,509,218 190,890,213 194,292,373
Dividends on preferred stock......... -- -- -- $ 2,168
Fully Diluted: Earnings per share................... $ .62 $ .65 $ 2.20 $ 2.10
Average number of shares............. 196,902,849 194,892,213 193,700,312 197,355,406
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of
these financial statements.
15
<PAGE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
CONSOLIDATED--BARNETT BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS NET
(UNAUDITED) PREFERRED COMMON CONTRIBUTED UNREALIZED RETAINED ESOP
STOCK STOCK CAPITAL GAIN (LOSS) EARNINGS OBLIGATION TOTAL
- ---------------------------------- --------- ----------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
Balance at January 1, 1996........ $ 97,753 $ 379,461 $ 385,734 $ 38,242 $ 2,445,810 $ (74,814) $ 3,272,186
Net income........................ 414,680 414,680
Change in net unrealized gain
(loss) on investment securities
available for sale.............. (37,093) (37,093)
Cash dividends declared:
Common ($.78 per share)....... (148,116) (148,116)
Preferred..................... (2,187) (2,187)
Issuances of common stock:
Stock purchase, option and
employee benefit plans...... 4,527 52,380 10,308 67,215
Preferred stock conversions... (97,488) 14,636 89,606 6,754
Repurchases of common stock....... (16,374) (234,297) (250,671)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996..... $ 265 $ 382,250 $ 293,423 $ 1,149 $ 2,710,187 $ (64,506) $ 3,322,768
- ------------------------------------------------------------------------------------------------------------------------------
For the Period
Balance at January 1, 1997........ $ 212 $ 395,338 $ 220,041 $ 8,187 $ 2,808,749 $ (62,196) $ 3,370,331
Net income........................ 425,290 425,290
Change in net unrealized gain
(loss) on investment securities
available for sale and certain
other financial assets.......... 5,009 5,009
Cash dividends declared:
Common ($.89 per share)....... (165,971) (165,971)
Preferred..................... (16) (16)
Issuances of common stock:
Stock purchase, option and
employee benefit plans........ 10,247 161,300 7,076 178,623
Acquisition of Oxford Resources
Corp.......................... 27,044 546,391 573,435
Repurchases of common stock....... (30,887) (388,094) (326,455) (745,436)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997..... $ 212 $ 401,742 $ 539,638 $ 13,196 $ 2,741,597 $ (55,120) $ 3,641,265
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
16
<PAGE>
STATEMENTS OF CASH FLOWS
CONSOLIDATED--BARNETT BANKS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED SEPTEMBER 30--DOLLARS IN THOUSANDS (UNAUDITED) 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income.......................................................................... $ 425,290 $ 414,680
Reconcilement of net income to net cash provided by operating activities:
Provision for loan losses......................................................... 106,327 125,955
Gains from securities transactions................................................ (1,911) (19,337)
Gain on securitization and sale of loans.......................................... (130,925) (76,672)
Depreciation on assets under operating leases..................................... 86,056 --
Depreciation and amortization, excluding depreciation on assets under operating
leases.......................................................................... 213,925 187,349
Employee benefits funded by equity................................................ 18,613 20,814
Deferred income tax provision (benefit)........................................... 70,465 6,033
Decrease (increase) in interest receivable........................................ 3,749 18,447
Increase (decrease) in interest payable........................................... (4,266) (20,609)
Increase in other assets.......................................................... (424,220) (453,369)
Increase (decrease) in other liabilities.......................................... 196,818 444,285
Originations of loans held for sale............................................... (4,685,496) (4,232,917)
Proceeds from sales of loans held for sale........................................ 4,929,725 4,119,417
Other............................................................................. (35,176) (18,286)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities....................................... 768,974 515,790
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of investment securities available for sale............................... (722,884) (2,900,385)
Proceeds from sales of investment securities available for sale..................... 527,018 397,076
Proceeds from maturities of investment securities available for sale................ 1,209,264 2,683,864
Purchases of investment securities held to maturity................................. -- (2,932)
Proceeds from maturities of investment securities held to maturity.................. 22,537 55,498
Net increase in loans............................................................... (890,862) (219,617)
Purchases of vehicles under operating leases........................................ (641,340) --
Proceeds from sales of vehicles under operating leases.............................. 256,207 --
Purchases of premises and equipment................................................. (180,693) (140,248)
Proceeds from sales of premises and equipment....................................... 35,236 22,413
Receipts related to dispositions and acquisitions, net of cash disposed
and acquired...................................................................... 40,102 378,249
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities............................ (345,415) 273,918
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net decrease in demand, NOW, savings and money market accounts...................... (571,377) (1,644,149)
Net increase (decrease) in time deposits............................................ (144,121) 531,334
Net increase in federal funds purchased and securities sold under agreements to
repurchase........................................................................ 1,247,398 1,137,979
Net increase (decrease) in other short-term borrowings.............................. 257,383 (761,301)
Principal repayments of long-term debt.............................................. (1,193,187) (213,315)
Proceeds from issuance of medium-term notes......................................... -- 50,000
Proceeds from issuance of long-term debt............................................ 1,032 200,000
Proceeds from issuance of company obligated mandatorily redeemable securities of
trusts holding solely parent debentures........................................... 250,000 --
Issuance of common stock............................................................ 108,196 53,155
Repurchases of common stock......................................................... (697,878) (250,671)
Cash dividends...................................................................... (165,987) (150,303)
- ------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities.......................................... (908,541) (1,047,271)
- ------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents........................................... (484,982) (257,563)
Cash and cash equivalents, January 1................................................ 2,783,646 2,769,145
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, September 30............................................. $ 2,298,664 $ 2,511,582
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
For the periods ended September 30, 1997 and 1996, income tax payments of $80
million and $256 million were paid and interest of $911 million and $876 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 September 30, 1997 and 1996, $49 million and $36
million of loans, respectively, were transferred to real estate held for sale.
During the period ended September 30, 1997, the company acquired $2.2 billion of
non-cash assets and $1.7 billion of liabilities. During the period ended
September 30, 1996, the company disposed of $559 million of non-cash assets and
$55 million of liabilities.
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
17
<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 1996 Annual
Report on Form 10-K.
On January 1, 1997, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." This statement establishes new
ground rules for determining whether a transfer of financial assets constitutes
a sale and, if so, the determination of any resulting gain or loss. This
Statement requires that an enterprise recognize only assets it controls and
liabilities it has incurred, to remove assets only when control has been
surrendered and to remove liabilities only when they have been extinguished. The
adoption of SFAS No. 125 did not have a material impact on the financial
position or results of operations of the company.
The results of operations for the three-and nine-month periods ended
September 30, 1997 may not be indicative of operating results for the year
ending December 31, 1997. Certain prior year and prior quarter amounts have
been reclassified to conform to current classifications.
On April 1, 1997, the company acquired all of the outstanding common
stock of Oxford Resources Corp., the nation's largest independent automobile
leasing company for 13.6 million shares of company common stock. The
acquisition was accounted for as a purchase transaction, and, accordingly,
the results of operations of Oxford are included from the date of purchase.
The primary asset of Oxford was automobiles under operating leases of $1.6
billion. The company enters into or purchases leases on new and used
automobiles. All of the leases which are entered into are accounted for as
operating leases. At the inception of the lease, no revenue is recognized and
the leased vehicle, together with the initial direct costs of originating the
lease, which are capitalized, appear on the statements of financial condition
as "assets under operating leases." The capitalized cost of each vehicle is
depreciated over the lease term on a straight line basis down to the
company's original estimate of the projected value of the vehicle at the end
of the scheduled lease term. Income from Oxford's automobile leasing program
is included in the statements of income as net rental income and is presented
net of related depreciation. The purchase price in excess of the fair value
of net assets acquired was $515 million and may change as certain estimates
are finalized.
In the opinion of the company's management, all adjustments necessary to
fairly present the financial position as of September 30, 1997 and 1996, 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.
On October 1, the company completed its acquisition of First of America
Bank Corporation's Florida franchise, which had $1.1 billion in assets, $931
million in deposits, and 58 branches. Its operations will be included in
Barnett's financial results in the fourth quarter. However, in light of the
pending merger with NationsBank and deposit market share in excess of
regulatory maximums, the company agreed on October 15 to sell the franchise
to SouthTrust Corporation. Barnett does not expect to record a material
gain or loss as a result of the sale.
On October 26, HomeSide, Inc. announced it had reached a definitive
agreement to be acquired for approximately $1.2 billion in cash. Barnett
holds approximately 26% of the outstanding share of HomeSide, which was
created in March 1996 as a mortgage banking joint venture. Barnett expects to
record a pre-tax gain upon the closing of the transaction, expected to be in
the first quarter of 1998.
B. PENDING MERGER
On August 29, Barnett announced it had reached a definitive agreement to
merge with NationsBank Corporation. The agreement includes a fixed exchange
ratio of 1.1875 shares of NationsBank stock for each share of Barnett stock
and will be accounted for as a pooling of interests. The merger has been
approved by the boards of directors of both companies, but is still subject
to both shareholder and regulatory approval. The transaction is expected to
close in the first quarter of 1998.
In connection with the merger announcement there was a sharp increase in
the Barnett stock price. As a result, the company recorded a $72.2 million
pre-tax charge related to the increased value of certain options issued under
the company's stock option plan. These options are subject to variable
accounting and an expense is recognized for any stock price appreciation. The
shareholder approval of the merger would result in a "change in control" as
defined in certain of Barnett's compensation and benefit plans. As a result,
upon shareholder approval of the merger, Barnett will recognize expense
associated with the accelerated vesting of benefits under several benefit
plans, including stock options and restricted stock granted under Barnett's
Long Term Incentive Plan and payments under Barnett's Supplemental Executive
Retirement Plan. Barnett presently estimates that the pre-tax expense to be
recorded in the fourth quarter of 1997 upon shareholder approval of the
merger will be approximately $250 million. The actual amount of expense will
vary based on a number of factors including changes in Barnett's stock price.
Because of the factors involved, actual expense recorded may differ
from estimated amounts.
In addition to the third and fourth quarter charges, the company will
experience an increase in weighted average shares outstanding. Under the
computational guidelines for weighted average shares, a higher stock price
results in a higher level of common stock equivalents assumed to be outstanding.
Also the company has halted its share repurchase program in anticipation of
the pending merger.
The final amount of any fourth quarter charges and the actual weighted
average shares are subject to factors that are beyond the control of the
company, such as stock price and shareholder approval. Actual results may differ
from the estimated amounts.
18
<PAGE>
C. LOANS
<TABLE>
<CAPTION>
NET OF UNEARNED INCOME
SEPTEMBER 30--DOLLARS IN THOUSANDS 1997 1996
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural............................................. $ 5,678,104 $ 5,091,116
Real estate construction........................................................... 880,307 810,128
Commercial mortgages............................................................... 1,629,467 2,004,097
Residential mortgages.............................................................. 9,451,618 9,886,999
Installment........................................................................ 10,971,893 10,273,193
Bank card.......................................................................... 1,305,433 1,797,456
Credit lines....................................................................... 917,878 774,971
- -----------------------------------------------------------------------------------------------------------------
Total.......................................................................... $ 30,834,700 $ 30,637,960
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
D. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30--
DOLLARS IN THOUSANDS 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Beginning balance........................................................................ $ 476,709 $ 505,148
Recoveries............................................................................... 27,093 39,879
Provision expense........................................................................ 106,327 125,955
Loans charged off........................................................................ (133,098) (165,821)
Other, net............................................................................... 6,218 1,948
- ------------------------------------------------------------------------------------------------------------------
Ending balance........................................................................... $ 483,249 $ 507,109
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
E. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30--DOLLARS IN THOUSANDS 1997 1996
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Parent Company
7.75% Sinking Fund Debentures,due 1997................................................ -- $ 9,500
Less: Face value of debentures repurchased and held for future retirements............ -- (72)
- ------------------------------------------------------------------------------------------------------------------
Total outstanding................................................................ -- 9,428
Medium-term notes, due in varying maturities through 2003, with interest from a
floating 5.77% to a fixed 9.83%..................................................... $ 251,500 401,500
8.50% Subordinated Capital Notes, due 1999............................................ 200,000 200,000
9.875% Subordinated Capital Notes, due 2001........................................... 100,000 100,000
10.875% Subordinated Capital Notes, due 2003.......................................... 55,000 55,000
6.90% Subordinated Capital Notes, due 2005............................................ 150,000 150,000
8.50% Subordinated Capital Notes, due 2007............................................ 100,000 100,000
Senior Notes with interest from a floating 5.76%, due 1998............................ 200,000 200,000
Subsidiaries
Notes payable to finance the purchase of leased vehicles, fixed interest rates ranging
from 5.90% to 9.05%................................................................. 319,114 --
Capitalized lease obligations......................................................... 443,702 11,571
- ------------------------------------------------------------------------------------------------------------------
Total............................................................................. $ 1,819,316 $ 1,227,499
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes payable to finance the purchase of leased vehicles are due in
installments equal to the lease rentals receivable by the company from the
lease. The final payments on these borrowings are equal to the residual value of
the vehicle at lease termination.
F. EARNINGS PER SHARE
The weighted-average number of shares used in the computation of earnings
per share are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
---------------------- ----------------------
<S> <C> <C> <C> <C>
FOR THE PERIODS ENDED SEPTEMBER 30--
DOLLARS IN THOUSANDS 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------
Primary Shares
Average common shares outstanding......... 190,888,569 191,613,326 187,596,089 191,299,103
Common shares assumed outstanding to
reflect dilutive effect of:
Convertible preferred stock........... 44,122 55,252 44,122 55,898
Common stock options.................. 4,342,369 2,840,640 3,250,002 2,937,372
- -------------------------------------------------------------------------------------------
Total..................................... 195,275,060 194,509,218 190,890,213 194,292,373
- -------------------------------------------------------------------------------------------
Adjustments for preferred dividends....... -- -- -- $ 2,168
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED SEPTEMBER 30 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fully Diluted Shares
Average common shares outstanding......... 190,888,569 191,613,326 187,596,089 191,299,103
Common shares assumed outstanding to
reflect dilutive effect of:
Convertible preferred stock............. 44,122 55,252 44,122 2,600,572
Common stock options.................... 5,970,158 3,223,635 6,060,101 3,455,731
- ------------------------------------------------------------------------------------------
Total..................................... 196,902,849 194,892,213 193,700,312 197,355,406
- ------------------------------------------------------------------------------------------
</TABLE>
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" which, when adopted, will replace the current
methodology for calculating and presenting earnings per share. Under SFAS No.
128, primary and fully diluted earnings per share will be replaced with the
presentation of basic and diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share is computed similarly to fully diluted
earnings per share. The Statement will be effective for the company's December
31, 1997 consolidated financial statements.
19
<PAGE>
SHAREHOLDER ASSISTANCE
Shareholders requiring a change of address, records or information about
lost certificates, dividend checks or dividend reinvestment should contact:
First Chicago Trust, Agent
P. O. Box 2500
Jersey City, NJ 07303-2500
Telephone: 800/328-5822
INFORMATION
Analysts, investors and others seeking financial data should contact John C.
Glover, Director of Investor Relations, at 904/791-7254.
OTHERS SEEKING GENERAL INFORMATION SHOULD CONTACT Robert L. Stickler,
Manager of External Communications, or Jerri R. Franz, Manager of Media
Relations, at 904/791-7668.
PUBLICATIONS
For printed material (annual and quarterly reports, proxy statements, 10-K
and 10-Q reports), contact Corporate Communications at 904/791-5516. Barnett's
press releases are available through the company's web site at
http://www.barnett.com and by fax through Company News on Call at 800/758-5804,
ext. 089575.
HOW TO REACH US
If you need to contact Barnett's corporate headquarters, call or write:
50 North Laura Street
P. O. Box 40789
Jacksonville, FL
32203-0789
904/791-7720
Internet address
http://www.barnett.com
E-mail address
[email protected]
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2297
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,003
<INVESTMENTS-CARRYING> 107
<INVESTMENTS-MARKET> 116
<LOANS> 30,835
<ALLOWANCE> 483
<TOTAL-ASSETS> 43,219
<DEPOSITS> 32,920
<SHORT-TERM> 2,826
<LIABILITIES-OTHER> 1,263
<LONG-TERM> 1,819
750
0
<COMMON> 402
<OTHER-SE> 3,239
<TOTAL-LIABILITIES-AND-EQUITY> 43,219
<INTEREST-LOAN> 2,045
<INTEREST-INVEST> 232
<INTEREST-OTHER> 13
<INTEREST-TOTAL> 2,290
<INTEREST-DEPOSIT> 690
<INTEREST-EXPENSE> 906
<INTEREST-INCOME-NET> 1,384
<LOAN-LOSSES> 106
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 1,358
<INCOME-PRETAX> 693
<INCOME-PRE-EXTRAORDINARY> 425
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 425
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.20
<YIELD-ACTUAL> 5.14
<LOANS-NON> 184
<LOANS-PAST> 55
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 477
<CHARGE-OFFS> 133
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 483
<ALLOWANCE-DOMESTIC> 483
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
