UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(Mark One)
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For quarter ended September 30, 1994
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ____________________ to ____________________
Commission File number 0-4170
Fourth Financial Corporation
(Exact name of Registrant as specified in its charter)
Kansas 48-0761683
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 North Broadway
Wichita, Kansas 67202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (316) 292-5339
Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes __x__ No ____
There were 26,876,690 shares of common stock, par value $5 per share, of the
registrant outstanding as of October 31, 1994.
TABLE OF CONTENTS
PART I
Item in
Form 10-Q Page
- --------- ----
1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . .
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . .
PART II
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .
5. Other Information . . . . . . . . . . . . . . . . . . . . . . . .
6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . .
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I
Item 1. Financial Statements.
Set forth below are the consolidated financial statements of
Fourth Financial Corporation.
Consolidated Statements of Condition as of September 30, 1994,
December 31, 1993 and September 30, 1993
Consolidated Statements of Income for the three-month and nine-
month periods ended September 30, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for
the nine-month periods ended September 30, 1994 and 1993
Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 1994 and 1993
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
September 30, December 31, September 30,
1994 1993 1993
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . $ 339,595 $ 320,660 $ 355,268
Interest-bearing deposits in other financial institutions . . . . . 1,591 3,025 4,477
Investment securities (Market value-$2,978,845, $2,964,525,
and $3,243,645) . . . . . . . . . . . . . . . . . . . . . . . . . 3,051,791 2,962,702 3,171,511
Trading account securities. . . . . . . . . . . . . . . . . . . . . 1,898 474 1,283
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . 4,900 6,063 55,034
Loans and leases:
Total loans and leases. . . . . . . . . . . . . . . . . . . . . . 3,819,895 3,351,912 3,111,941
Allowance for credit losses . . . . . . . . . . . . . . . . . . . (72,815) (67,617) (70,810)
---------- ---------- ----------
Net loans and leases. . . . . . . . . . . . . . . . . . . . . . 3,747,080 3,284,295 3,041,131
Bank premises and equipment . . . . . . . . . . . . . . . . . . . . 157,121 145,719 143,297
Income receivable and other assets. . . . . . . . . . . . . . . . . 148,964 96,165 128,479
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . 94,963 66,960 67,422
---------- ---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $7,547,903 $6,886,063 $6,967,902
========== ========== ==========
Liabilities And Stockholders' Equity:
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . $ 973,154 $ 977,944 $ 955,129
Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . . 4,684,954 4,458,619 4,536,738
---------- ---------- ----------
Total deposits. . . . . . . . . . . . . . . . . . . . . . . . . 5,658,108 5,436,563 5,491,867
Federal funds purchased and securities sold under
agreements to repurchase . . . . . . . . . . . . . . . . . . . . . 670,462 491,627 542,393
Federal Home Loan Bank borrowings . . . . . . . . . . . . . . . . . 491,044 250,000 250,000
Other borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 63,001 23,002 22,593
Accrued interest, taxes, and other liabilities. . . . . . . . . . . 62,743 56,603 68,154
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,099 20,283 21,136
---------- ---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 6,950,457 6,278,078 6,396,143
---------- ---------- ----------
Minority interest in subsidiaries . . . . . . . . . . . . . . . . . -- 1,135 2,502
Stockholders' Equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 100,000 102,511
Common stock, par value $5 per share
Authorized: 50,000,000 shares
Issued: 27,231,106, 27,165,962, and 26,189,021 shares. . . . . 136,156 135,830 130,945
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . 106,949 106,102 104,075
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 279,646 244,810 232,851
Treasury stock at cost (355,466 and 111,518 shares) . . . . . . . (10,019) (3,245) --
Stock option loans. . . . . . . . . . . . . . . . . . . . . . . . (2,030) (1,795) (1,125)
---------- ---------- ----------
Stockholders' equity before net unrealized
gains (losses) on available-for-sale securities. . . . . . . . 610,702 581,702 569,257
Net unrealized gains (losses) on available-for-sale securities. . (13,256) 25,148 --
---------- ---------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . 597,446 606,850 569,257
---------- ---------- ----------
Total liabilities and stockholders' equity. . . . . . . . . . . $7,547,903 $6,886,063 $6,967,902
========== ========== ==========
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
September 30, September 30, Percent September 30, September 30, Percent
1994 1993 Change 1994 1993 Change
------------ ------------ ------- ------------ ------------ -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans and leases. . . $ 80,911 $ 66,337 22.0% $219,171 $194,687 12.6%
Interest on short-term investments . . . . 169 415 (59.3) 792 1,894 (58.2)
Interest and dividends on
investment securities:
Taxable. . . . . . . . . . . . . . . . . 42,215 42,286 (.2) 119,391 120,035 (.5)
Tax-preferred. . . . . . . . . . . . . . 4,023 4,985 (19.3) 12,732 14,588 (12.7)
Interest and dividends on trading
account securities. . . . . . . . . . . . 18 27 (33.3) 72 95 (24.2)
-------- -------- -------- --------
Total interest income. . . . . . . . . 127,336 114,050 11.6 352,158 331,299 6.3
-------- -------- -------- --------
Interest Expense:
Interest on deposits . . . . . . . . . . . 41,049 40,262 2.0 113,479 120,252 (5.6)
Interest on borrowings . . . . . . . . . . 13,674 5,999 1.3X 31,329 12,731 1.5X
Interest on long-term debt . . . . . . . . 200 574 (65.2) 893 1,857 (51.9)
-------- -------- -------- --------
Total interest expense . . . . . . . . 54,923 46,835 17.3 145,701 134,840 8.1
-------- -------- -------- --------
Net Interest Income. . . . . . . . . . . . . 72,413 67,215 7.7 206,457 196,459 5.1
Provision for credit losses. . . . . . . . -- 205 275 6,326 (95.7)
-------- -------- -------- --------
Net Interest Income After Provision
For Credit Losses . . . . . . . . . . . . . 72,413 67,010 8.1 206,182 190,133 8.4
-------- -------- -------- --------
Noninterest Income:
Trust fees . . . . . . . . . . . . . . . . 5,409 4,728 14.4 15,164 13,331 13.7
Service charges on deposit accounts. . . . 9,856 8,599 14.6 28,283 24,362 16.1
Bank card fees . . . . . . . . . . . . . . 5,407 3,770 43.4 13,712 10,684 28.3
Investment securities gains. . . . . . . . 56 168 (66.7) 3,682 1,131 2.3X
Other. . . . . . . . . . . . . . . . . . . 5,276 5,113 3.2 16,125 17,055 (5.5)
-------- -------- -------- --------
Total noninterest income . . . . . . . 26,004 22,378 16.2 76,966 66,563 15.6
-------- -------- -------- --------
Noninterest Expense:
Salaries and employee benefits . . . . . . 32,996 30,423 8.5 93,890 86,577 8.4
Furniture and equipment. . . . . . . . . . 5,746 5,503 4.4 16,770 17,305 (3.1)
Net occupancy. . . . . . . . . . . . . . . 4,898 4,496 8.9 13,221 12,753 3.7
FDIC insurance . . . . . . . . . . . . . . 3,168 3,218 (1.6) 9,430 9,903 (4.8)
Bank card. . . . . . . . . . . . . . . . . 2,342 2,107 11.2 6,151 5,632 9.2
Amortization of intangible assets. . . . . 2,997 2,711 10.5 7,391 10,449 (29.3)
Merger and integration costs . . . . . . . 53 4,036 (98.7) 2,821 7,251 (61.1)
Net costs of operation of other real
estate and nonperforming assets . . . . . (168) 414 (571) 2,862
Other. . . . . . . . . . . . . . . . . . . 13,972 14,781 (5.5) 41,792 43,372 (3.6)
-------- -------- -------- --------
Total noninterest expense. . . . . . . 66,004 67,689 (2.5) 190,895 196,104 (2.7)
-------- -------- -------- --------
Income Before Income Taxes and Cumulative
Effect of a Change in Accounting Principle. 32,413 21,699 49.4 92,253 60,592 52.3
Income tax expense . . . . . . . . . . . . 10,691 4,997 1.1X 31,188 14,511 1.1X
-------- -------- -------- --------
Income Before Cumulative Effect of a
Change in Accounting Principle. . . . . . . 21,722 16,702 30.1 61,065 46,081 32.5
Cumulative effect of a change in
accounting for income taxes . . . . . . . -- -- -- 10,582
-------- -------- -------- --------
Net Income . . . . . . . . . . . . . . . . . $ 21,722 $ 16,702 30.1 $ 61,065 $ 56,663 7.8
======== ======== ======== ========
Net Income Applicable To Common and
Common-Equivalent Shares . . . . . . . . . $ 19,972 $ 14,952 33.6 $ 55,815 $ 51,413 8.6
======== ======== ======== ========
Primary Earnings Per Common Share:
Income applicable to common and common-
equivalent shares before cumulative effect
of a change in accounting principle . . . $ .74 $ .57 29.8% $ 2.07 $ 1.56 32.7%
Cumulative effect of a change in
accounting for income taxes . . . . . . . -- -- -- .40
-------- -------- -------- --------
Net income applicable to common and
common-equivalent shares. . . . . . . . . $ .74 $ .57 29.8 $ 2.07 $ 1.96 5.6
======== ======== ======== ========
Fully Diluted Earnings Per Common Share:
Income before cumulative effect of a
change in accounting principle. . . . . . $ .72 $ .55 30.9 $ 2.01 $ 1.52 32.2
Cumulative effect of a change in
accounting for income taxes . . . . . . . -- -- -- .35
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . $ .72 $ .55 30.9 $ 2.01 $ 1.87 7.5
======== ======== ======== ========
Dividends Per Common Share . . . . . . . . . $ .26 $ .24 8.3 $ .78 $ .72 8.3
======== ======== ======== ========
</TABLE>
See accompanying notes.
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Preferred Stock Common Stock Treasury Stock Stock Gains
--------------- --------------- --------------
Capital Retained Option (Losses) on
Shares Amount Shares Amount Surplus Earnings Shares Amount Loans Securities Total
------ -------- ------ -------- -------- -------- ------ ------- ------ ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1993
As previously
reported . . . . . . 1,222 $103,641 25,218 $126,091 $101,717 $195,433 -- $ -- $(1,069) $ -- $525,813
Adjustment for pool-
ing of interests . . -- -- 591 2,954 197 4,447 -- -- -- -- 7,598
----- -------- ------ -------- -------- -------- --- -------- ------- ------- --------
Adjusted balance. . 1,222 103,641 25,809 129,045 101,914 199,880 -- -- (1,069) -- 533,411
Net income. . . . . . -- -- -- -- -- 56,663 -- -- -- -- 56,663
Issuance of common
stock under stock
option plans . . . . -- -- 128 641 1,524 -- -- -- -- -- 2,165
Cash dividends:
Preferred stock . . -- -- -- -- -- (5,250) -- -- -- -- (5,250)
Common stock. . . . -- -- -- -- -- (16,245) -- -- -- -- (16,245)
Pooled companies. . -- -- -- -- -- (2,197) -- -- -- -- (2,197)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- (56) -- (56)
Capital transactions
of pooled companies. (182) (1,130) 252 1,259 637 -- -- -- -- -- 766
------ -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Balance, September 30,
1993 . . . . . . . . . 1,040 $102,511 26,189 $130,945 $104,075 $232,851 -- $ -- $(1,125) $ -- $569,257
====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
Balance, January 1,
1994
As previously
reported . . . . . . 250 $100,000 26,575 $132,876 $105,905 $239,456 (112)$ (3,245) $(1,795) $ 25,148 $598,345
Adjustment for pool-
ing of interests . . -- -- 591 2,954 197 5,354 -- -- -- -- 8,505
----- -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Adjusted balance. . 250 100,000 27,166 135,830 106,102 244,810 (112) (3,245) (1,795) 25,148 606,850
Net income. . . . . . -- -- -- -- -- 61,065 -- -- -- -- 61,065
Purchase of stock
for treasury . . . . -- -- -- -- -- -- (355) (10,019) -- -- (10,019)
Issuance of common
stock:
Stock option plans. -- -- 61 307 715 -- 40 1,169 -- -- 2,191
Directors deferred
compensation plan. -- -- 4 19 90 -- 2 35 -- -- 144
Acquisition . . . . -- -- -- -- 42 -- 70 2,041 -- -- 2,083
Cash dividends:
Preferred stock . . -- -- -- -- -- (5,250) -- -- -- -- (5,250)
Common stock. . . . -- -- -- -- -- (20,671) -- -- -- -- (20,671)
Pooled company. . . -- -- -- -- -- (308) -- -- -- -- (308)
Net change in stock
option loans . . . . -- -- -- -- -- -- -- -- (235) -- (235)
Capital transactions
of pooled company. . -- -- -- -- -- -- -- -- -- (198) (198)
Net change in
unrealized gains on
available-for-sale
securities . . . . . -- -- -- -- -- -- -- -- -- (38,206) (38,206)
------ -------- ------ -------- -------- -------- ---- -------- ------- -------- --------
Balance, September 30,
1994 . . . . . . . . . 250 $100,000 27,231 $136,156 $106,949 $279,646 (355)$(10,019) $(2,030) $(13,256) $597,446
====== ======== ====== ======== ======== ======== ==== ======== ======= ======== ========
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
FOURTH FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
--------------------------
September 30, September 30,
1994 1993
------------ ------------
Increase (Decrease) in Cash and Due from Banks (In thousands)
Cash Flows From Operating Activities:
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,065 $ 56,663
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 251
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 6,326
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,036 22,974
Accretion of discounts on investment securities, net of amortization of premiums . . . . 11,121 10,654
Write-down of other real estate owned. . . . . . . . . . . . . . . . . . . . . . . . . . 277 3,546
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,753 (1,442)
Investment securities gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,682) (1,131)
Write-down of goodwill, core deposit intangibles, and premises and equipment
associated with pooling transactions, and other asset write-downs . . . . . . . . . . . 1,148 2,228
Gain on sales of premises and equipment, other real estate owned, and other assets . . . (1,916) (2,148)
Change in assets and liabilities, net of effects from purchases of acquired entities:
Trading account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,157) 2,251
Loans held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,132 (369)
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,463 306,291
Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,828) (6,384)
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,193) (1,125)
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,811 3,821
---------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . 283,389 402,406
---------- ----------
Cash Flows From Investing Activities:
Purchase of banks, net of cash acquired. . . . . . . . . . . . . . . . . . . . . . . . . . (87,766) (2,468)
Proceeds from settlement of sales of available-for-sale investment securities. . . . . . . 603,452 --
Proceeds from maturities and prepayments of available-for-sale investment securities . . . 180,641 --
Purchases of available-for-sale investment securities. . . . . . . . . . . . . . . . . . . (543,439) --
Proceeds from settlement of sales of held-to-maturity investment securities. . . . . . . . -- 12,822
Proceeds from maturities and prepayments of held-to-maturity investment securities . . . . 459,857 782,804
Purchases of held-to-maturity investment securities. . . . . . . . . . . . . . . . . . . . (593,079) (1,471,786)
Proceeds from sales of premises and equipment, other real estate owned, and other assets . 9,904 13,936
Purchases of premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,610) (28,174)
Change in assets and liabilities, net of effects from purchases of acquired entities:
Interest-bearing deposits in other financial institutions. . . . . . . . . . . . . . . . 1,443 2,865
Federal funds sold and securities purchased under agreements to resell . . . . . . . . . 18,078 151,745
Loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (278,340) (79,266)
---------- ----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . (243,859) (617,522)
---------- ----------
Cash Flows From Financing Activities:
Transfer associated with the assumption of deposits and
other liabilities, net of premium paid. . . . . . . . . . . . . . . . . . . . . . . . . . -- 91,832
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,184) (14,633)
Purchase of minority stockholder interest. . . . . . . . . . . . . . . . . . . . . . . . . (36) --
Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,019) --
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,671) (16,245)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,250) (5,250)
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . 2,191 2,165
Net change in stock option loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (235) (56)
Capital transactions of pooled companies . . . . . . . . . . . . . . . . . . . . . . . . . (562) (1,902)
Change in liabilities, net of effects from purchases of acquired entities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (325,308) (359,652)
Federal funds purchased and securities sold under agreements to repurchase . . . . . . . 131,851 216,799
Federal Home Loan Bank borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,801 250,000
Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,827 (5,969)
---------- ----------
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . (20,595) 157,089
---------- ----------
Increase (decrease) in cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . 18,935 (58,027)
Cash and due from banks at beginning of period . . . . . . . . . . . . . . . . . . . . . . . 320,660 413,295
---------- ----------
Cash and due from banks at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $ 339,595 $ 355,268
========== ==========
Supplemental Disclosures:
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 140,890 $ 131,018
========== ==========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,049 $ 25,627
========== ==========
</TABLE>
See accompanying notes.
FOURTH FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - Basis of Presentation
The consolidated financial statements include the accounts of
Fourth Financial Corporation and its wholly-owned subsidiaries (the
"Company"). They have been prepared in accordance with the
instructions to Form 10-Q and do not include all information and
footnotes required by generally accepted accounting principles for
complete financial statements. All significant intercompany balances
and transactions have been eliminated. In the opinion of management,
the consolidated financial statements contain the adjustments (all of
which are normal and recurring in nature) necessary to present fairly
the financial position and results of operations for the periods
presented. Results of operations for the interim periods presented are
not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole. These statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-K for the year ended
December 31, 1993.
The consolidated financial statements for prior periods have been
restated to reflect the pooling-of-interests transactions. Certain
reclassifications of previously reported amounts also have been made to
conform with current year presentation format.
Note 2 - Acquisitions
Purchase Transactions
The following table presents information regarding the two
purchase transactions completed during 1994.
<TABLE>
<CAPTION>
Assets
Acquisition Date Company Acquired Acquired Cash Paid
- ------------------ ----------------------------------------------------- ------------ -------------
<S> <C> <C> <C>
May 26, 1994 Equity Bank for Savings, F.A. ("Equity")
Oklahoma City, OK . . . . . . . . . . . . . . . . . $496,355 $ 90,688
May 31, 1994 Emprise Bank, National Association ("Emprise")
Hutchinson, KS. . . . . . . . . . . . . . . . . . . 258,525 31,186
-------- --------
$754,880 $121,874
======== ========
</TABLE>
Additional information regarding the cash paid in these purchase
transactions is summarized in the following table.
1994
--------------
(In thousands)
Fair value of assets acquired . . . . . . . . . . . $754,880
Fair value of liabilities assumed . . . . . . . . . (661,098)
Cost in excess of net assets acquired . . . . . . . 28,092
--------
Cash paid . . . . . . . . . . . . . . . . . . . . 121,874
Cash acquired . . . . . . . . . . . . . . . . . . 34,108
--------
Net cash paid . . . . . . . . . . . . . . . . . . $ 87,766
========
For each of these transactions, the consolidated statements of
income include only the income and expenses of the acquired company
since acquisition. The purchase price was allocated to the net assets
acquired based on their fair values with the excess allocated to cost
in excess of net assets acquired. The effect on results of operations
for 1994, had the purchase transactions occurred at the beginning of
the year, was not material.
Pooling Of Interests
On June 30, 1994, the Company issued 590,710 shares to acquire
First Dodge City Bancshares, Inc. ("First Dodge") in a business
combination accounted for as a pooling of interests. The consolidated
statements for the prior periods have been restated as if the entities
had been combined at the beginning of the periods presented. Included
in Merger and Integration expenses for the nine months ended September
30, 1994 is a charge of $1,124,000 to conform the amortization of
intangible assets of First Dodge to the Company's accounting policies.
Other adjustments to conform the accounting policies of First Dodge to
the accounting policies of the Company are immaterial.
On June 30, 1994 the Company also issued 70,300 shares and paid
$36,000 in cash to acquire the minority interests of two of First
Dodge's subsidiaries. As prescribed by Accounting Principles Board
Opinion No. 16, the acquisition of the minority interests was accounted
for as a purchase. The fair market value of shares issued and cash
paid totaled $2,118,000, which exceeded the net assets acquired by
$951,000.
The effect of pooling-of-interests accounting treatment on
previously reported selected operating results is as follows:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
----------------------
1994 1993 1992
------------------ -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income:
Company. . . . . . . . . . . . . . . . . . . . . . $104,424 $433,467 $427,119
Pooled company . . . . . . . . . . . . . . . . . . 2,532 10,446 11,769
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $106,956 $443,913 $438,888
======== ======== ========
Net interest income:
Company. . . . . . . . . . . . . . . . . . . . . . $ 62,797 $257,966 $234,722
Pooled company . . . . . . . . . . . . . . . . . . 1,577 6,445 6,635
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 64,374 $264,411 $241,357
======== ======== ========
Net income:
Company. . . . . . . . . . . . . . . . . . . . . . $ 20,201 $ 75,691 $ 63,306
Pooled company . . . . . . . . . . . . . . . . . . (1,673) 1,601 1,894
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 18,528 $ 77,292 $ 65,200
======== ======== ========
Net income applicable to common and
common equivalent shares:
Company. . . . . . . . . . . . . . . . . . . . . . $ 18,451 $ 68,691 $ 57,355
Pooled company . . . . . . . . . . . . . . . . . . (1,673) 1,601 1,894
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ 16,778 $ 70,292 $ 59,249
======== ======== ========
Primary earnings per common share:
Company. . . . . . . . . . . . . . . . . . . . . . $ .70 $ 2.67 $ 2.27
Pooled company . . . . . . . . . . . . . . . . . . (.08) -- .02
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ .62 $ 2.67 $ 2.29
======== ======== ========
Fully diluted earnings per common share:
Company. . . . . . . . . . . . . . . . . . . . . . $ .68 $ 2.54 $ 2.19
Pooled company . . . . . . . . . . . . . . . . . . (.08) .01 .02
-------- -------- --------
Combined . . . . . . . . . . . . . . . . . . . . $ .60 $ 2.55 $ 2.21
======== ======== ========
</TABLE>
Pending Acquisitions
Pending acquisitions as of September 30, 1994 are listed in the
table below. The proposed transactions are subject to approval by
regulators and other contractual conditions.
<TABLE>
<CAPTION>
Number of
Assets Cash Expected Shares Expected Accounting
Bank September 30, 1994 To Be Paid To Be Issued Method
------ ------------------ ------------- --------------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Security Bank and Trust Company
Blackwell, OK ("Security") . . . . . . . . . . $ 47,374 $ 8,171 -- Purchase
Stillwater Federal Savings Bank
Stillwater, OK ("Stillwater") . . . . . . . . . 95,857 -- 372,262 Purchase
Standard Bank and Trust
Independence, MO ("Standard") . . . . . . . . . 80,660 -- 315,000 Pooling
-------- -------- ----------
$223,891 $ 8,171 687,262
======== ======== ==========
</TABLE>
3 - Investment and Trading Securities
The following table presents the book values of investment
and trading securities at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Held-to-maturity (at amortized cost) . . . . . . . . . . . . $2,012,397 $1,805,819 $3,140,026
Available-for-sale (at estimated fair value) . . . . . . . . 985,976 1,117,776 --
Equity securities with no readily
determinable market value (at cost) . . . . . . . . . . . . 53,418 39,107 31,485
---------- ---------- ----------
$3,051,791 $2,962,702 $3,171,511
========== ========== ==========
Trading account securities . . . . . . . . . . . . . . . . . $ 1,898 $ 474 $ 1,283
========== ========== ==========
</TABLE>
The sales price, gains, and losses realized from the sale of
available-for-sale investment securities are detailed in the following
table. This table does not include proceeds from nor realized gains
and losses attributable to prepayments of investment securities.
<TABLE>
<CAPTION>
Nine Months Ended
-------------------
September 30, 1994
-------------------
(In thousands)
<S> <C>
Sales price of available-for-sale investment securities . . . . . . . . . . . . $603,452
========
Gross realized gains. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,485
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,923
--------
Net gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,562
========
</TABLE>
The change in net unrealized holding gain or loss on trading
securities that was included in earnings for the nine months ended
September 30, 1994 is a gain of $45,000.
4 - Other borrowings
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993 September 30, 1993
--------------------- -------------------- ---------------------
Amount Rate Amount Rate Amount Rate
--------- -------- -------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Treasury tax and loan . . . . . . . . . $23,001 4.33% $23,002 2.75% $22,593 2.84%
Notes payable . . . . . . . . . . . . . 40,000 5.44 -- -- -- --
------- ------- -------
Total book value. . . . . . . . . . . $63,001 5.03 $23,002 2.75 $22,593 2.84
======= ======= =======
</TABLE>
Treasury tax and loan borrowings generally mature daily or on
demand.
The Company's committed line of credit from an unaffiliated bank
was increased to $75,000,000, and $60,000,000 was borrowed against the
line during the second quarter of 1994 in connection with the Equity
acquisition. On July 1, 1994, this line of credit was converted to a
Credit Agreement under which the Company may borrow up to $50,000,000
on a revolving basis at anytime prior to September 30, 1996. The
amount borrowed under the agreement was reduced to $40,000,000 also at
July 1, 1994.
Amounts borrowed under the Credit Agreement may have maturities
not to exceed ninety days. Interest rates based on, at the Company's
option, the lender's published "reference rate" or rates tied to the
London interbank offered rate exist. A commitment fee is charged on
the unused portion of this commitment. The Company is required to
maintain capital ratios above the regulatory "Well Capitalized"
standard and the ratio of nonperforming assets to total loans plus
other real estate owned may not exceed 4.0%. In the event of a default
on either of these covenants, the lender would have the right to impose
additional covenants, and increase fees and margins as it may deem
prudent, or the lender could deny any future advances, as well as cause
the obligations then outstanding to become immediately due and payable.
At September 30, 1994, the Company was in compliance with all the terms
of this agreement.
5 - Preferred Stock
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Class A cumulative convertible preferred stock,
par value $100 per share
Authorized: 250,000 shares
Issued: 250,000 shares (at liquidation preference) . . . . $100,000 $100,000 $100,000
Class B preferred stock, no par value
Authorized: 5,000,000 shares . . . . . . . . . . . . . . . -- -- --
WNB's 1987 convertible preferred stock
Issued: 117,487 shares at September 30, 1993 . . . . . . . -- -- 769
WNB's 1989 convertible preferred stock
Issued: 672,464 shares at September 30, 1993 . . . . . . . -- -- 1,742
-------- -------- --------
$100,000 $100,000 $102,511
======== ======== ========
</TABLE>
The table includes the preferred stock of Western National
Bancorporation, Inc. ("WNB") which was acquired in a 1993 pooling-of-
interests transaction. All of WNB's preferred stock was exchanged for
Company common stock in the business combination. The shares issued in
the previous table have been adjusted by the merger exchange ratios to
reflect equivalent Company common shares.
6 - Merger and Integration Costs
The components of merger and integration costs related to the 1994
and 1993 pooling-of-interests transactions are detailed in the
following schedule.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Premises and equipment writedowns . . . . . . . . . . . $ -- $ 383 $ 177 $1,252
Severance and other compensation. . . . . . . . . . . . -- 1,553 821 2,970
Systems conversion costs. . . . . . . . . . . . . . . . -- 903 269 1,579
Legal, accounting, and other transaction costs. . . . . 53 194 280 447
Conform intangible asset amortization policies. . . . . -- -- 1,124 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,003 150 1,003
----- ------ ------ ------
$ 53 $4,036 $2,821 $7,251
===== ====== ====== ======
</TABLE>
7 - Earnings and Dividends Per Common Share
Earnings per common share are based on the following weighted
average numbers of shares outstanding.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------
1994 1993 1994 1993
---------- ----------
<S> <C> <C> <C> <C>
Primary . . . . . . . . . . . . . . . . . . . 26,862,486 26,298,251 26,925,519 26,240,208
Fully diluted . . . . . . . . . . . . . . . . 30,310,761 30,384,576 30,373,794 30,314,095
</TABLE>
Primary earnings per common share were computed by dividing net
income applicable to common and common-equivalent shares by the
weighted average common and common-equivalent shares outstanding during
the period (common share equivalents include certain preferred stock of
1993 pooled companies). Fully diluted earnings per common share were
computed by adjusting net income for interest expense (net of income
taxes) associated with the convertible debt of a pooled company. The
adjusted net income was then divided by the weighted average of common
and common-equivalent shares outstanding plus the number of shares
which would have been outstanding during the year had the Class A
convertible preferred stock and the convertible notes, debentures, and
preferred stock of the pooled companies been converted in accordance
with their respective governing instruments. Stock options outstanding
have been excluded from the computations as they were not materially
dilutive.
The adjustment of net income for the pooled companies' convertible
debt interest expense (net of income taxes) was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Interest expense adjustment . . . . . . . . . $ -- $ -- $ -- $ 4
</TABLE>
Dividends per common share represent the Company's historical
dividends declared without adjustment for the poolings of interests.
FOURTH FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
September 30, September 30, Percent
1994 1993(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
<S> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127,336 $ 114,050 11.6%
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 72,413 67,215 7.7
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 74,543 69,782 6.8
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . -- 205
Income before cumulative effect of a change in accounting principle . . 21,722 16,702 30.1
Cumulative effect of a change in accounting for income taxes. . . . . . -- --
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,722 16,702 30.1
Net income applicable to common and common-equivalent shares. . . . . . 19,972 14,952 33.6
Per Common Share Data:
Primary earnings per common share:
Net income applicable to common and common-equivalent shares
before cumulative effect of a change in accounting principle . . . . $ .74 $ .57 29.8%
Cumulative effect of a change in accounting for income taxes . . . . -- --
Net income applicable to common and common-equivalent shares . . . . .74 .57 29.8
Fully diluted earnings per common share:
Income before cumulative effect of a change in accounting principle . .72 .55 30.9
Cumulative effect of a change in accounting for income taxes. . . . . -- --
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 .55 30.9
Fully diluted earnings per common share as originally reported(1) . . . .72 .67 7.5
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .26 .24 8.3
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 18.51 17.82 3.9
Book value exclusive of net unrealized gains (losses)
on available-for-sale securities at period-end . . . . . . . . . . . . 19.00 17.82 6.6
Tangible book value . . . . . . . . . . . . . . . . . . . . . . . . . . 15.40 15.31 .6
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-27 3/4 31-28 1/2
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 26,862 26,298 2.1
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 26,876 26,189 2.6
Period-end common shares outstanding assuming full dilution (000s). . . 30,324 30,393 (.2)
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,547,903 $6,967,902 8.3%
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 5,099 21,136 (75.9)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 497,446 466,746 6.6
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 597,446 569,257 5.0
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,584,883 6,904,296 9.9
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 490,673 467,010 5.1
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 590,673 569,521 3.7
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.14% .96%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 14.59 11.63
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 16.15 12.70
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.33 4.45
Asset Quality Ratios:
Net charge-offs (annualized)/average loans and leases . . . . . . . . . .08% .48%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . .90 1.59
Allowance for credit losses/period-end nonperforming loans. . . . . . . 272.59 193.74
Allowance for credit losses/period-end loans and leases . . . . . . . . 1.91 2.28
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 7.92% 8.17%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 97.85 95.56
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.02 7.36
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 11.30 12.93
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 12.55 14.18
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 35.14 42.11
__________
<FN>
(1)Prior year financial statements have been restated to reflect poolings of interests. Fully diluted earnings
per share as originally reported represent historical earnings per share as reported in the quarterly report
for the period indicated. Dividends per common share represent historical dividends declared without
adjustment for the poolings of interests.
(2)Stated on a tax-equivalent basis assuming a marginal tax rate of 35%.
(3)Range of the high and low bid prices for the period.
(4)Financial ratios are based on daily averages for all statement of condition items. Earnings have been
annualized where appropriate.
(5)Investments in subsidiaries divided by period-end stockholders' equity.
(6)Tier I capital divided by third quarter average assets less certain intangibles.
(7)Tier I capital is composed of common plus preferred stockholders' equity less certain intangibles. Total
capital is Tier I capital plus the allowance for credit losses (limited to 1.25% of risk-weighted assets).
Both capital amounts are divided by risk-weighted assets.
(8)Common dividend per share divided by primary earnings per share.
</TABLE>
FOURTH FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
September 30, September 30, Percent
1994 1993(1) Change
------------ ------------ -------
(Dollars in thousands
Summary Income Statement Information: except per share data)
<S> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 352,158 $ 331,299 6.3%
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 206,457 196,459 5.1
Net interest income (fully tax-equivalent)(2) . . . . . . . . . . . . . 213,199 204,143 4.4
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 275 6,326 (95.7)
Income before cumulative effect of a change in accounting principle . . 61,065 46,081 32.5
Cumulative effect of a change in accounting for income taxes. . . . . . -- 10,582
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,065 56,663 7.8
Net income applicable to common and common-equivalent shares. . . . . . 55,815 51,413 8.6
Per Common Share Data:
Primary earnings per common share:
Net income applicable to common and common-equivalent shares
before cumulative effect of a change in accounting principle . . . . $ 2.07 $ 1.56 32.7%
Cumulative effect of a change in accounting for income taxes . . . . -- .40
Net income applicable to common and common-equivalent shares . . . . 2.07 1.96 5.6
Fully diluted earnings per common share:
Income before cumulative effect of a change in accounting principle . 2.01 1.52 32.2
Cumulative effect of a change in accounting for income taxes. . . . . -- .35
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.01 1.87 7.5
Fully diluted earnings per common share as originally reported(1) . . . 2.01 1.99 1.0
Common dividends(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .78 .72 8.3
Book value at period-end . . . . . . . . . . . . . . . . . . . . . . . 18.51 17.82 3.9
Book value exclusive of net unrealized gains (losses)
on available-for-sale securities at period-end . . . . . . . . . . . . 19.00 17.82 6.6
Tangible book value . . . . . . . . . . . . . . . . . . . . . . . . . . 15.40 15.31 .6
Market value(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1/4-25 1/4 31-26 3/4
Average common shares outstanding (000s) . . . . . . . . . . . . . . . 26,926 26,240 2.6
Period-end common shares outstanding (000s) . . . . . . . . . . . . . . 26,876 26,189 2.6
Period-end common shares outstanding assuming full dilution (000s). . . 30,324 30,393 (.2)
Summary Statement of Condition Information:
Period-end assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,547,903 $6,967,902 8.3%
Period-end long-term debt . . . . . . . . . . . . . . . . . . . . . . . 5,099 21,136 (75.9)
Period-end common stockholders' equity . . . . . . . . . . . . . . . . 497,446 466,746 6.6
Period-end stockholders' equity . . . . . . . . . . . . . . . . . . . . 597,446 569,257 5.0
Average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,238,962 6,598,947 9.7
Average common stockholders' equity . . . . . . . . . . . . . . . . . . 497,371 455,907 9.1
Average stockholders' equity . . . . . . . . . . . . . . . . . . . . . 597,371 558,418 7.0
Earnings Performance Ratios(4):
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.13% 1.15%
Return on total stockholders' equity . . . . . . . . . . . . . . . . . 13.67 13.57
Return on common stockholders' equity . . . . . . . . . . . . . . . . . 15.00 15.08
Net yield on earning assets (fully tax-equivalent)(2) . . . . . . . . . 4.34 4.57
Asset Quality Ratios:
Net charge-offs (annualized)/average loans and leases . . . . . . . . . .02% .59%
Nonperforming assets/period-end loans plus other
real estate and nonperforming assets . . . . . . . . . . . . . . . . . .90 1.59
Allowance for credit losses/period-end nonperforming loans. . . . . . . 272.59 193.74
Allowance for credit losses/period-end loans and leases . . . . . . . . 1.91 2.28
Capital Ratios:
Stockholders' equity/assets . . . . . . . . . . . . . . . . . . . . . . 7.92% 8.17%
Double leverage ratio(5). . . . . . . . . . . . . . . . . . . . . . . . 97.85 95.56
Leverage ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.02 7.36
Tier I risk-based capital(7). . . . . . . . . . . . . . . . . . . . . . 11.30 12.93
Total risk-based capital(7) . . . . . . . . . . . . . . . . . . . . . . 12.55 14.18
Common dividend payout ratio(8) . . . . . . . . . . . . . . . . . . . . 37.68 36.73
__________
<FN>
(1)Prior year financial statements have been restated to reflect poolings of interests. Fully diluted earnings
per share as originally reported represent historical earnings per share as reported in the quarterly report
for the period indicated. Dividends per common share represent historical dividends declared without
adjustment for the poolings of interests.
(2)Stated on a tax-equivalent basis assuming a marginal tax rate of 35%.
(3)Range of the high and low bid prices for the period.
(4)Financial ratios are based on daily averages for all statement of condition items. Earnings have been
annualized where appropriate.
(5)Investments in subsidiaries divided by period-end stockholders' equity.
(6)Tier I capital divided by third quarter average assets less certain intangibles.
(7)Tier I capital is composed of common plus preferred stockholders' equity less certain intangibles. Total
capital is Tier I capital plus the allowance for credit losses (limited to 1.25% of risk-weighted assets).
Both capital amounts are divided by risk-weighted assets.
(8)Common dividend per share divided by primary earnings per share.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Performance Summary
Net income for the first nine months of 1994 was $61.1 million
compared to $56.7 million for the first nine months of 1993 when the
cumulative effect of the change in accounting for income taxes added
$10.6 million to net income. Income before the cumulative effect of
the change in accounting for income taxes for the first nine months of
1994 was $61.1 million, 32.5% higher than the $46.1 million recorded in
the same period of 1993. Fully diluted earnings per share on income
before the cumulative effect of a change in accounting principle were
$2.01 and $1.52 for the first nine month periods of 1994 and 1993,
respectively. Fully diluted earnings per share on net income were
$2.01 and $1.87 for the comparable periods. For the first nine months
of 1994, return on assets and return on common equity were 1.13% and
15.00%, respectively. Return on assets was 1.15% and return on common
equity was 15.08% for the first nine months of 1993.
These financial results reflect acquisitions accounted for as
poolings of interests for both years, as the prior period was restated.
However, acquisitions accounted for using the purchase method of
accounting are only included in the results of operations for the
periods subsequent to acquisition. The following schedule details the
acquisitions completed during 1994 and 1993.
<TABLE>
<CAPTION>
Number of
Acquisition Company Accounting Assets Cash Shares
Date Company Acquired/Location Abbreviation Method Acquired Paid Issued
- ------------- ------------------------------------ ------------ ---------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
1993 -
February 12 Southgate Banking Corporation, "SBC" Pooling $ 62,628 $ -- 451,310
Prairie Village, KS
May 14 Guaranty Bancorporation, "GB" Purchase 82,606 4,386 --
Tulsa, OK
May 28 Bancshares of Woodward, Inc., "BOW" Purchase 130,192 17,859 --
Woodward and Waukomis, OK
May 28 F&M Bank Services, Inc., "FBS" Purchase 61,565 8,068 --
Derby, KS
May 28 Nichols Hills Bancorporation, Inc., "NHB" Pooling 97,869 -- 469,906
Nichols Hills, OK
September 17 Commercial Landmark Corporation, "CLC" Pooling 465,060 -- 1,874,812
Muskogee, OK
December 3 Western National Bancorporation, Inc., "WNB" Pooling 206,288 -- 1,110,695(1)
Tulsa, OK
December 10 Ponca Bancshares, Inc., "PBI" Pooling 117,275 -- 478,395
Ponca City, OK
1994 -
May 26 Equity Bank for Savings, F.A. "Equity" Purchase 496,355 90,688 --
Oklahoma City, OK
May 31 Emprise Bank, National Association "Emprise" Purchase 258,525 31,186 --
Hutchinson, KS
June 30 First Dodge City Bancshares, Inc., "First Dodge" Pooling 144,999 -- 590,710(2)
Dodge City, KS
---------- -------- ---------
$2,123,362 $152,187 4,975,828
========== ======== =========
<FN>
- ---------
(1) An additional 108,748 shares were issued on December 3, 1993 to acquire the minority interest of WNB's bank
subsidiary.
(2) An additional 70,300 shares were issued and $36,000 cash paid on June 30, 1994 to acquire the minority interest
of two of First Dodge's subsidiaries.
</TABLE>
One deposit assumption transaction also was completed during 1993.
On April 2, 1993, $99,399,000 of liabilities were assumed by the Kansas
bank subsidiary from a failed bank in Mission, Kansas. A premium of
$1,141,000 was paid to the Federal Deposit Insurance Corporation to
assume these liabilities.
Net interest income increased by $10.0 million to total $206.5
million for the first nine months of 1994 as compared to $196.5 million
for the first nine months of last year. The increase in net interest
income was principally related to the increased volume of interest-
earning assets from acquisitions and internal loan growth. Total
average interest-earning assets were $6.6 billion for the first nine
months of 1994, a $593.6 million, or 10.0%, increase over the
comparable period of 1993. For the same comparative periods, average
loans and leases increased $499.0 million. The increase in net
interest income attributable to the increased volume of interest-
earning assets was partially offset by a decrease in the net yield on
earning assets to 4.34% in the first nine months of 1994 from 4.57% in
the comparable period of 1993.
The provisions for credit losses totaled $275,000 and $6.3 million
for the first nine months of 1994 and 1993, respectively. Pooled
companies accounted for $4.4 million of the provision for the first
nine months of 1993. The lower 1994 provision reflects continued
improvement in credit quality as demonstrated by a lower level of
nonperforming assets, less net charge-offs, and the strong allowance
for credit losses.
Noninterest income was $77.0 million in the first nine months of
1994, a $10.4 million increase over the 1993 noninterest income of
$66.6 million. Investment securities gains recognized during the first
nine months of 1994 totaled $3.7 million compared to $1.1 million in
the first nine months of 1993. In anticipation of rising interest
rates, the Company elected to sell $448.7 million of its available-for-
sale securities during the first quarter 1994, resulting in the
current-year gains. Fees collected in the normal course of business
increased $7.5 million or 11.5% to total $72.8 million for the first
nine months of 1994 from $65.3 million in the same period of 1993.
Approximately 46% of the increase in fee income was attributable to
business combinations accounted for as purchases. Increases in trust
fees, service charges on deposit accounts, and bank card fees were also
due to business development, the larger customer base, and price
changes.
Noninterest expense totaled $190.9 million in the first nine months
of 1994, down $5.2 million as compared to the same period of 1993. Net
costs of operation of other real estate and nonperforming assets in
1993 were $2.9 million compared to a net gain of $571,000 in the
current-year nine-month period. The 1993 cost was primarily
attributable to a pooled company. Merger and integration costs
associated with poolings of interests totaled $2.8 million and $7.3
million for the first nine months of 1994 and 1993, respectively.
Operating expense (noninterest expense less merger and integration
costs and net costs of operations of other real estate and
nonperforming assets) increased 1.7% to total $188.6 million in the
first nine months of 1994. The Company's efficiency ratio (operating
expense/fee income plus tax-equivalent net interest income) was 65.93%
for the current-year nine-month period compared to 68.81% for the first
nine months of the prior year. Operating expense in 1993 includes
$6.0 million of accelerated core deposit and purchased mortgage
servicing amortization, data processing hardware depreciation, software
amortization, and other unusual items.
Net income for the third quarter of 1994 was $21.7 million, an
increase of 30.1% over the $16.7 million earned in the third quarter of
1993. Fully diluted earnings per share were $.72 and $.55 for the
third quarters of 1994 and 1993, respectively. Like the year-to-date
period, the increased third quarter 1994 net income was principally
attributable to increased loan growth, strong credit quality, and
earnings contributions of acquisitions.
Net Interest Income
For the first nine months of 1994, net interest income amounted to
$206.5 million, representing an increase of $10.0 million over the
$196.5 million earned during the comparable period of 1993. On a fully
tax-equivalent basis, net interest income increased $9.1 million to
total $213.2 million in the first nine months of 1994 from $204.1
million in the same period of 1993. The increase in net interest
income was attributable to an increased level of interest-earning
assets, principally due to loan growth and acquisitions. Total average
interest-earning assets were $6.6 billion for the first nine months of
1994, a $593.6 million increase over the comparable period of 1993.
Comparing the first nine-month periods of 1994 and 1993, average loans
and leases increased $499.0 million, while average investment
securities increased $145.8 million. The increased average assets were
principally funded by increases in federal funds purchased and
securities sold under agreements to repurchase of $238.4 million and
Federal Home Loan Bank borrowings of $257.3 million.
The increase in net interest income attributable to the increased
volume of interest-earning assets was partially offset by a decrease in
the net yield on earning assets to 4.34% in the first nine-month period
of 1994 compared to 4.57% for the same period of 1993. The average
cost of funds (interest expense/earning assets) declined only 5 basis
points while the earning asset yield declined 28 basis points. As
interest rates declined during prior periods, rates paid on deposit
liabilities with relatively short maturities repriced more rapidly than
the longer term investment securities resulting in higher net yields
during those periods. As the proceeds from investment security
maturities and prepayments subsequently were reinvested at the lower
rates which prevailed through 1993, the net yield declined. During
1994, rate increases on short-term liabilities are also contributing to
the lower net yields.
Loan fees included in net interest income amounted to $8.8 million
and $8.2 million for the first nine months of 1994 and 1993,
respectively. The increase in loan fees in the first nine-month period
of 1994 as compared to the same period of 1993 was attributable to
increases in the volume of commercial, consumer, and residential
mortgage loan originations.
The dollar volume of residential mortgage loan originations and
refinancings increased $22.5 million or 7.7% between the first nine
months of 1994 and 1993. However, the current year increase in
mortgage rates has slowed originations and the refinancing of existing
mortgages. Also included in the 1994 dollar volume and number of
residential mortgage loan originations are $40.8 million and 1,118
loans originated under the Company's program for low-to-moderate income
borrowers on which the origination fees are waived.
The following table provides the dollar volume and the number of
residential mortgage loan originations and refinancings during the
first nine months of 1994 and 1993.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1994 1993
-------- --------
(Dollars in thousands)
<S> <C> <C>
Residential mortgage loan originations and refinancings:
Dollar volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $313,197 $290,675
Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,862 4,348
</TABLE>
On a nominal basis, net interest income increased 7.7% to total
$72.4 million for the third quarter of 1994 as compared to $67.2
million in the third quarter of 1993. On a fully tax-equivalent basis,
net interest income was $74.5 million and $69.8 million for the third
quarters of 1994 and 1993, respectively. The improvement in net
interest income between the third quarters of 1994 and 1993 was also
attributable to an increased volume of interest-earning assets from
acquisitions and loan growth. The net yield declined to 4.33% for the
current quarter from 4.45% for the third quarter of 1993.
The following table summarizes the changes in net interest income
on a fully tax-equivalent basis, by major category of interest-earning
assets and interest-bearing liabilities, identifying changes related to
volumes, rates, and changes related to both volumes and rates.
Nonaccrual loans are included in the loan volumes used to calculate the
following analysis of net interest income; however, interest collected
on such loans is usually recorded as a reduction in loans outstanding
and is excluded from interest income.
<TABLE>
<CAPTION>
Comparison of Three-Month Periods Ended
September 30, 1994 to 1993
---------------------------------------------
Total Change Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $14,560 $13,894 $ 382 $ 284
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (32) (37) 12 (7)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . (214) (277) 301 (238)
Taxable investment securities . . . . . . . . . . . . (71) 384 (437) (18)
Tax-preferred investment securities(1). . . . . . . . (1,378) (1,014) (423) 59
Trading account securities(1) . . . . . . . . . . . . (16) (15) (2) 1
------- ------- -------- --------
Total interest income change. . . . . . . . . . . . 12,849 12,935 (167) 81
------- ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . (102) 373 (484) 9
Time deposits . . . . . . . . . . . . . . . . . . . . 889 937 (46) (2)
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 3,916 1,580 1,550 786
Federal Home Loan Bank borrowings . . . . . . . . . . 3,223 2,386 405 432
Other borrowings. . . . . . . . . . . . . . . . . . . 536 281 105 150
Long-term debt. . . . . . . . . . . . . . . . . . . . (374) (279) (182) 87
------- ------- -------- --------
Total interest expense change . . . . . . . . . . . 8,088 5,278 1,348 1,462
------- ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . 4,761 $ 7,657 $ (1,515) $ (1,381)
------- ======= ======== ========
Decrease in taxable equivalent adjustment. . . . . . . 437
-------
Net interest income change on a nominal basis. . . . . $ 5,198
=======
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
</TABLE>
<TABLE>
<CAPTION>
Comparison of Nine-Month Periods Ended
September 30, 1994 to 1993
---------------------------------------------
Total Change Attributable to
---------------------------------
Change Volume Yield/Rate Combination
-------- -------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans and leases(1) . . . . . . . . . . . . . . . . . $24,449 $32,623 $ (7,136) $ (1,038)
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . . . . (103) (119) 44 (28)
Federal funds sold and securities
purchased under agreements to resell . . . . . . . . (999) (1,126) 367 (240)
Taxable investment securities . . . . . . . . . . . . (644) 7,063 (7,436) (271)
Tax-preferred investment securities(1). . . . . . . . (2,745) (1,142) (1,683) 80
Trading account securities(1) . . . . . . . . . . . . (41) (31) (13) 3
------- ------- -------- --------
Total interest income change. . . . . . . . . . . . 19,917 37,268 (15,857) (1,494)
------- ------- -------- --------
Interest expense:
Savings and interest checking . . . . . . . . . . . . (2,831) 1,755 (4,394) (192)
Time deposits . . . . . . . . . . . . . . . . . . . . (3,942) (1,305) (2,681) 44
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . . . . 9,201 5,420 2,274 1,507
Federal Home Loan Bank borrowings . . . . . . . . . . 8,692 7,543 388 761
Other borrowings. . . . . . . . . . . . . . . . . . . 705 545 89 71
Long-term debt. . . . . . . . . . . . . . . . . . . . (964) (820) (254) 110
------- ------- -------- --------
Total interest expense change . . . . . . . . . . . 10,861 13,138 (4,578) 2,301
------- ------- -------- --------
Increase (decrease) in net interest
income on a taxable equivalent basis(1) . . . . . . . 9,056 $24,130 $(11,279) $ (3,795)
------- ======= ======== ========
Decrease in taxable equivalent adjustment. . . . . . . 942
-------
Net interest income change on a nominal basis. . . . . $ 9,998
=======
<FN>
__________
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
</TABLE>
The following table presents average balances, interest income and
expense, and yields and rates on a fully tax-equivalent basis for the
three-month periods ended September 30, 1994 and 1993.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
September 30, 1994 September 30, 1993
---------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-Earning Assets:
Loans and leases(1)(2) . . . . . . . . . . . . $3,714,982 $ 80,979 8.66% $3,067,705 $ 66,419 8.61%
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . 1,683 24 5.53 4,932 56 4.59
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . 9,285 145 6.21 42,297 359 3.36
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . 2,938,961 42,215 5.74 2,912,473 42,286 5.80
Tax-preferred(1) . . . . . . . . . . . . . . 203,126 6,083 11.98 235,064 7,461 12.70
Trading account securities(1) . . . . . . . . . 1,503 20 5.31 2,575 36 5.63
---------- -------- ---------- --------
Total interest-earning assets(1). . . . . . 6,869,540 129,466 7.50 6,265,046 116,617 7.42
Cash and due from banks . . . . . . . . . . . . . 386,391 346,623
Bank premises and equipment . . . . . . . . . . . 155,611 138,145
Income receivable and other assets . . . . . . . 140,466 164,185
Intangible assets, net . . . . . . . . . . . . . 106,139 65,149
Allowance for credit losses . . . . . . . . . . . (73,264) (74,852)
---------- ----------
Total assets . . . . . . . . . . . . . . . $7,584,883 $6,904,296
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Savings and interest checking . . . . . . . . $2,214,968 $ 13,675 2.45% $2,156,025 $ 13,777 2.54%
Time under $100,000 . . . . . . . . . . . . . 2,114,758 22,782 4.27 2,019,884 22,861 4.49
Time of $100,000 or more. . . . . . . . . . . 403,087 4,592 4.52 411,945 3,624 3.49
---------- -------- ---------- --------
Total interest-bearing deposits . . . . . . 4,732,813 41,049 3.44 4,587,854 40,262 3.48
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . 636,430 7,211 4.50 428,659 3,295 3.05
Federal Home Loan Bank borrowings . . . . . . . 491,017 5,722 4.62 250,000 2,499 3.97
Other borrowings. . . . . . . . . . . . . . . . 58,984 741 4.99 24,720 205 3.29
Long-term debt . . . . . . . . . . . . . . . . 9,441 200 8.49 18,434 574 12.46
---------- -------- ---------- --------
Total interest-bearing liabilities . . . . 5,928,685 54,923 3.68 5,309,667 46,835 3.50
-------- --------
Noninterest-bearing deposits. . . . . . . . . . . 998,361 948,662
Other liabilities and minority interest in
subsidiaries . . . . . . . . . . . . . . . . . . 67,164 76,446
---------- ----------
Total liabilities . . . . . . . . . . . . . 6,994,210 6,334,775
Preferred stockholders' equity . . . . . . . . . 100,000 102,511
Common stockholders' equity . . . . . . . . . . . 490,673 467,010
---------- ----------
Total stockholders' equity . . . . . . . . 590,673 569,521
---------- ----------
Total liabilities and stockholders' equity. $7,584,883 $6,904,296
========== ==========
Net interest income(1). . . . . . . . . . . . . . . $ 74,543 $ 69,782
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . . . 7.50% 7.42%
Interest expense/interest-earning assets. . . . . 3.17 2.97
----- -----
Net yield on earning assets(1). . . . . . . 4.33% 4.45%
===== =====
<FN>
_________
(1) Income and rates are stated on a tax-equivalent basis assuming a marginal tax rate of 35%.
(2) Nonaccrual loans are included in loans and leases.
</TABLE>
The following table presents average balances, interest income and
expense, and yields and rates on a fully tax-equivalent basis for the
nine-month periods ended September 30, 1994 and 1993.
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------------------------------
September 30, 1994 September 30, 1993
---------------------------- ----------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------- -------- ------ ---------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-Earning Assets:
Loans and leases(1)(2) . . . . . . . . . . . . $3,480,479 $219,376 8.42% $2,981,435 $194,927 8.74%
Interest-bearing deposits in other
financial institutions . . . . . . . . . . . . 2,103 84 5.33 5,797 187 4.32
Federal funds sold and securities purchased
under agreements to resell . . . . . . . . . . 24,263 708 3.90 71,167 1,707 3.21
Investment securities:
Taxable . . . . . . . . . . . . . . . . . . . 2,837,034 119,391 5.61 2,679,556 120,035 5.98
Tax-preferred(1) . . . . . . . . . . . . . . 212,807 19,257 12.07 224,453 22,002 13.07
Trading account securities(1) . . . . . . . . . 2,078 84 5.36 2,768 125 6.01
---------- -------- ---------- --------
Total interest-earning assets(1). . . . . . 6,558,764 358,900 7.31 5,965,176 338,983 7.59
Cash and due from banks . . . . . . . . . . . . . 380,935 343,954
Bank premises and equipment . . . . . . . . . . . 151,893 130,981
Income receivable and other assets . . . . . . . 135,585 171,883
Intangible assets, net . . . . . . . . . . . . . 82,232 62,673
Allowance for credit losses . . . . . . . . . . . (70,447) (75,720)
---------- ----------
Total assets . . . . . . . . . . . . . . . $7,238,962 $6,598,947
========== ==========
Liabilities And Stockholders' Equity:
Interest-Bearing Liabilities:
Interest-bearing deposits:
Savings and interest checking . . . . . . . . $2,187,354 $ 38,409 2.35% $2,098,154 $ 41,240 2.63%
Time under $100,000 . . . . . . . . . . . . . 1,978,054 63,022 4.26 2,003,469 68,932 4.60
Time of $100,000 or more. . . . . . . . . . . 382,429 12,048 4.21 396,664 10,080 3.40
---------- -------- ---------- --------
Total interest-bearing deposits . . . . . . 4,547,837 113,479 3.34 4,498,287 120,252 3.57
Federal funds purchased and securities
sold under agreements to repurchase. . . . . . 596,069 17,340 3.89 357,697 8,139 3.04
Federal Home Loan Bank borrowings . . . . . . . 390,417 12,594 4.31 133,150 3,902 3.92
Other borrowings. . . . . . . . . . . . . . . . 41,625 1,395 4.48 23,256 690 3.97
Long-term debt . . . . . . . . . . . . . . . . 10,891 893 10.93 19,540 1,857 12.67
---------- -------- ---------- --------
Total interest-bearing liabilities . . . . 5,586,839 145,701 3.49 5,031,930 134,840 3.58
-------- --------
Noninterest-bearing deposits. . . . . . . . . . . 986,768 932,631
Other liabilities and minority interest in
subsidiaries . . . . . . . . . . . . . . . . . . 67,984 75,968
---------- ----------
Total liabilities . . . . . . . . . . . . . 6,641,591 6,040,529
Preferred stockholders' equity . . . . . . . . . 100,000 102,511
Common stockholders' equity . . . . . . . . . . . 497,371 455,907
---------- ----------
Total stockholders' equity . . . . . . . . 597,371 558,418
---------- ----------
Total liabilities and stockholders' equity. $7,238,962 $6,598,947
========== ==========
Net interest income(1). . . . . . . . . . . . . . . $213,199 $204,143
======== ========
Rate Analysis:
Interest income/interest-earning assets(1). . . . 7.31% 7.59%
Interest expense/interest-earning assets. . . . . 2.97 3.02
----- -----
Net yield on earning assets(1). . . . . . . 4.34% 4.57%
===== =====
<FN>
_________
(1) Income and rates are stated on a tax-equivalent basis assuming a marginal tax rate of 35%.
(2) Nonaccrual loans are included in loans and leases.
</TABLE>
Provision for Credit Losses
The provisions for credit losses were $275,000 and $6.3 million for
the first nine months of 1994 and 1993, respectively. There was no
provision for credit losses in the third quarter of 1994. The
provision for the third quarter of 1993 was $205,000. Pooled companies
accounted for $4.4 million of the 1993 nine month provision for credit
losses and all of the provision for the 1993 third quarter. The lower
provision for credit losses in 1994 reflects continued improvement in
credit quality as demonstrated by less net charge-offs, a lower level
of nonperforming assets, and the strong allowance for credit losses.
Net charge-offs for the first nine months of 1994 totaled $526,000
($758,000 in the third quarter) or .02% of average loans as compared to
$13.2 million ($3.7 million in the third quarter) or .59% of average
loans for the first nine months of 1993. Charge-offs recorded by
pooled companies totaled $9.6 million for the first nine months of 1993
and $2.5 million for the third quarter of 1993. Nonperforming loans at
September 30, 1994 were $26.7 million, a 26.9% decrease from $36.5
million at September 30, 1993. The September 30, 1994 allowance for
credit losses was 272.59% of nonperforming loans at that date, compared
to a September 30, 1993 ratio of 193.74%.
Noninterest Income
Total noninterest income was $77.0 million for the first nine months
of 1994, representing an increase of $10.4 million or 15.6% over the
$66.6 million recorded in the comparative period of 1993. Investment
securities gains and other unusual revenues increased $2.9 million, and
fees collected in the normal course of business increased $7.5 million
or 11.5% to total $72.8 million for the first nine months of 1994 from
$65.3 million in the same period of 1993. Approximately 46% of the
increase in fees collected in the normal course of business was
attributable to business combinations accounted for as purchases.
Investment securities gains realized during the first nine months
of 1994 totaled $3.7 million compared to $1.1 million in the first nine
months of 1993. Substantially all of the securities gains recognized
in the first nine months of 1994 were recorded in the first quarter
when, in anticipation of rising interest rates, the Company elected to
sell $448.7 million of its available-for-sale securities. In addition
$151.2 million of investment securities principally acquired in the
Equity acquisition were sold with no gain or loss recognized. The $1.1
million of investment securities gains recognized in the first nine
months of 1993 were due principally to called bonds. During the second
quarter of 1994 a gain of $471,000 was realized on the sale of the
Company's investment in a data processing company which had been
accumulated through various bank acquisitions.
The most significant changes in fee income between the first nine
months of 1994 and 1993 occurred in trust fees, service charges on
deposit accounts, and bank card fees. The $1.8 million or 13.7%
increase in trust fees was the result of increased sales efforts and
the introduction of Funds IV, a family of seven publicly traded no-load
mutual funds managed by the trust division. The $3.9 million or 16.1%
increase in service charges was attributable to both consumer and
commercial customers. These increased revenues were due to commercial
and retail account pricing changes, a reduction in waived fees, and a
larger volume of fee-based transactions. Bank card fees increased $3.0
million which reflects internal growth plus the acquisition of Equity,
including its credit card division that services approximately 77,000
customer accounts.
Brokerage and annuity sales commissions were $3.0 million for the
first nine months of 1994 compared to $4.2 million for the same period
of 1993. The lower brokerage and annuity sales commissions were
principally attributable to a reduced volume of brokerage transactions
associated with uncertain market conditions. Foreign currency trading
profits and foreign transaction fees increased 62.1% or $345,000 to
total $901,000 for the first nine months of 1994. The Company enters
into foreign currency contracts primarily to assist customers with
their foreign currency needs related to foreign operations, exporting,
or importing.
Included in other fee income for the first nine months of 1994 was
a $120,000 loss on the sale of residential mortgage loans held for sale
caused by increasing interest rates. For the first nine months of
1993, sales of residential mortgage loans held for sale resulted in
gains of $504,000, accounting for $624,000 of the decrease in other fee
income. Also included in other fee income were fees for providing data
processing services to unaffiliated banks of $90,000 and $632,000 for
the nine-month periods ended September 30, 1994 and 1993, respectively.
These services have been substantially discontinued.
For the third quarter of 1994 noninterest income totaled $26.0
million, a $3.6 million or 16.2% increase over the 1993 third quarter
noninterest income of $22.4 million. Third quarter fees collected in
the normal course of business totaled $25.9 million and $22.2 million
in 1994 and 1993, respectively. The increased fees between the third
quarters of 1994 and 1993 were principally the result of the same
factors that caused the year-to-date increases. The 76.6% or $131,000
third quarter 1994 increase in trading account profits and commissions
was the result of increased customer interest in investing in
government debt securities. The 42.4% or $244,000 increase in real
estate loan service fees, reflects the acquisition of Equity and its
$211.3 million servicing portfolio.
The following table provides an analysis of noninterest income
segregated between fees collected in the normal course of business and
other revenues for the three-month and nine-month periods ended
September 30, 1994 and 1993.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 30, Percent September 30, Percent
-------------------- --------------------
1994 1993 Change 1994 1993 Change
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fee income:
Trust fees . . . . . . . . . . . . . . . . . $ 5,409 $ 4,728 14.4% $15,164 $13,331 13.7%
Service charges on deposit accounts. . . . . 9,856 8,599 14.6 28,283 24,362 16.1
Bank card fees . . . . . . . . . . . . . . . 5,407 3,770 43.4 13,712 10,684 28.3
Brokerage and annuity sales commissions. . . 797 1,311 (39.2) 2,952 4,226 (30.1)
Trading account profits and commissions. . . 302 171 76.6 683 593 15.2
Real estate loan service fees. . . . . . . . 819 575 42.4 1,958 1,874 4.5
Safe deposit rent. . . . . . . . . . . . . . 366 317 15.5 1,228 1,088 12.9
Travelers and official check fees
and item handling charges . . . . . . . . . 645 516 25.0 1,879 1,686 11.4
Foreign currency trading profits and
foreign transaction fees. . . . . . . . . . 348 182 91.2 901 556 62.1
Insurance premiums . . . . . . . . . . . . . 515 402 28.1 1,411 1,136 24.2
Other. . . . . . . . . . . . . . . . . . . . 1,484 1,601 (7.3) 4,642 5,795 (19.9)
------- ------- ------- -------
Total fee income . . . . . . . . . . . . . 25,948 22,172 17.0 72,813 65,331 11.5
Other revenues:
Investment securities gains. . . . . . . . . 56 168 (66.7) 3,682 1,131 2.3X
Gain on sale of acquired stock . . . . . . . -- -- 471 --
RTC reimbursements . . . . . . . . . . . . . -- 38 -- 101
------- ------- ------- -------
Total noninterest income . . . . . . . . . $26,004 $22,378 16.2 $76,966 $66,563 15.6
======= ======= ======= =======
Fee income (annualized)/average assets . . . 1.36% 1.27% 1.34% 1.32%
Noninterest income (annualized)/
average assets. . . . . . . . . . . . . . . 1.36% 1.29% 1.42% 1.35%
</TABLE>
Noninterest Expense
Noninterest expense decreased $5.2 million or 2.7% to total $190.9
million for the first nine months of 1994 as compared to $196.1 million
for the comparable period of 1993. Noninterest expense for both
periods includes certain nonoperating items such as net costs of
operation of other real estate and nonperforming assets, merger and
integration costs, and other unusual items.
In the first nine months of 1994, the gains from sales of other real
estate and nonperforming assets exceeded the costs of operation of such
assets, resulting in a net gain of $571,000, as compared to the net
costs of operation of other real estate and nonperforming assets in the
first nine months of 1993 of $2.9 million. The 1993 cost was
principally attributable to a pooled company. Merger and integration
costs associated with poolings of interests totaled $2.8 million and
$7.3 million for the first nine months of 1994 and 1993, respectively.
SBC, a prior-year business combination accounted for as a pooling of
interests, settled a lawsuit during the first nine months of 1993
resulting in $313,000 of lawsuit settlement cost.
Operating expense amounted to $188.6 million and $185.4 million for
the first nine months of 1994 and 1993, respectively. Although the
operating expense increase includes purchase acquisitions and other
expense increases, the increase is relatively modest because 1993
operating expense included several unusual items: $1.2 million
accelerated data processing hardware depreciation and software
amortization related to the Company's commitment to improve its
technology and systems; $2.8 million of additional core deposit
intangibles amortization and $768,000 of FDIC exit/entrance fee
amortization both associated with disintermediation of acquired
deposits; and an acceleration of purchased mortgage servicing rights
amortization associated with a more rapid pay-off of mortgage loans
serviced for other investors. Amortization of purchased mortgage
servicing rights was $703,000 in the first nine months of 1994 as
compared to $1.9 million for the same period of 1993. Exclusive of
these unusual items, operating expense increased $9.1 million, of which
approximately $8.5 million was associated with business combinations
accounted for as purchases. The Company's efficiency ratio (operating
expense/fee income plus tax-equivalent net interest income) was 65.93%
for the first nine months of 1994 as compared to 68.81% for the same
period of 1993.
Noninterest expense for the third quarter decreased $1.7 million to
total $66.0 million in 1994 as compared to $67.7 million in the third
quarter of 1993. Net costs of operations of other real estate and
nonperforming assets were $414,000 in the third quarter of 1993. By
comparison, the third quarter of 1994 reflects a small gain. Merger
and integration costs were $4.0 million lower in the third quarter of
1994 as compared to the third quarter of 1993. The decreases in these
two expense categories were partially offset by the $2.9 million
increase in operating expense. Operating expense totaled $66.1 million
and $63.2 million for the third quarters of 1994 and 1993,
respectively. The operating expenses of the 1994 and 1993 purchase
acquisitions accounted for substantially all of the increase in
operating expense between the third quarters.
The following table presents an analysis of noninterest expense for
the three-month and nine-month periods ended September 30, 1994 and
1993, respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 30, Percent September 30, Percent
-------------------- --------------------
1994 1993 Change 1994 1993 Change
-------- -------- ------- -------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits . . . . . . . . . $ 32,996 $ 30,423 8.5% $ 93,890 $ 86,577 8.4%
Furniture and equipment . . . . . . . . . . . . 5,746 5,503 4.4 16,770 17,305 (3.1)
Net occupancy . . . . . . . . . . . . . . . . . 4,898 4,496 8.9 13,221 12,753 3.7
FDIC insurance . . . . . . . . . . . . . . . . . 3,168 3,218 (1.6) 9,430 9,903 (4.8)
Bank card . . . . . . . . . . . . . . . . . . . 2,342 2,107 11.2 6,151 5,632 9.2
Advertising and public relations . . . . . . . . 2,073 1,891 9.6 6,462 5,659 14.2
Communication . . . . . . . . . . . . . . . . . 1,109 969 14.4 2,993 2,701 10.8
Postage and freight . . . . . . . . . . . . . . 1,746 1,523 14.6 5,084 4,416 15.1
Supplies, printed materials and forms. . . . . . 1,479 1,274 16.1 3,897 4,091 (4.7)
Federal Reserve service fees . . . . . . . . . . 452 401 12.7 1,294 1,104 17.2
Loan acquisition and maintenance . . . . . . . . 804 612 31.4 2,241 1,718 30.4
Outside service fees . . . . . . . . . . . . . . 673 1,389 (51.5) 2,378 4,013 (40.7)
Consulting fees . . . . . . . . . . . . . . . . 302 355 (14.9) 1,208 997 21.2
Other professional fees and examinations . . . . 1,444 1,319 9.5 3,985 4,380 (9.0)
Amortization of intangible assets . . . . . . . 2,997 2,711 10.5 7,391 10,449 (29.3)
Other . . . . . . . . . . . . . . . . . . . . . 3,890 5,022 (22.5) 12,166 13,729 (11.4)
-------- -------- -------- --------
Total operating expense . . . . . . . . . . . 66,119 63,213 4.6 188,561 185,427 1.7
Net costs of operation of other real
estate and nonperforming assets . . . . . . . . (168) 414 (571) 2,862
Merger and integration costs . . . . . . . . . . 53 4,036 (98.7) 2,821 7,251 (61.1)
Minority interest. . . . . . . . . . . . . . . . -- 26 -- 84 251 (66.5)
Lawsuit settlement . . . . . . . . . . . . . . . -- -- -- 313
-------- -------- -------- --------
Total noninterest expense. . . . . . . . . . . $ 66,004 $ 67,689 (2.5) $190,895 $196,104 (2.7)
======== ======== ======== ========
Noninterest expense (annualized)/average assets. 3.45% 3.89% 3.53% 3.97%
Noninterest expense less noninterest
income (annualized)/average assets . . . . . . 2.09% 2.60% 2.10% 2.62%
Operating expense less fee income
(annualized)/average assets . . . . . . . . . . 2.10% 2.36% 2.14% 2.43%
Operating expense/fee income plus
tax-equivalent net interest income. . . . . . . 65.80% 68.74% 65.93% 68.81%
</TABLE>
Income Taxes
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the liability
method required by Financial Accounting Standard ("FAS") No. 109,
"Accounting for Income Taxes." Shown separately in the 1993 Statement
of Income is the cumulative effect of adopting FAS No. 109 as of
January 1, 1993 which increased net income by $10.6 million.
Income tax expense amounted to $31.2 million and $14.5 million for
the first nine months of 1994 and 1993, respectively. For the third
quarters of 1994 and 1993 income tax expense was $10.7 million and $5.0
million respectively. The higher tax expense in the current-year
periods was attributable to a higher level of income before taxes and
a higher effective tax rate when compared to 1993. The lower effective
tax rate in 1993 reflects changes in the valuation allowance for
deferred tax assets associated with pooled entities which reduced
income tax expense in that year, as well as a higher level of tax-
preferred income on obligations of states and political subdivisions.
Statements of Condition
Total assets amounted to $7.5 billion and $7.0 billion at September
30, 1994 and 1993, respectively. Between September 30, 1994 and 1993,
the Company completed two bank acquisitions accounted for as purchases.
Assets acquired in these two transactions totaled $754.9 million. The
statements of condition for all the periods presented include the three
business combinations accounted for as poolings of interests completed
since September 30, 1993. In aggregate these pooled companies had
assets of $468.6 million. The following sections describe the changes
in the major Statement of Condition categories.
Loans and Leases
Between September 30, 1994 and 1993, loans and leases increased
$708.0 million or 22.7% to total $3.8 billion at September 30, 1994.
Increases were realized in various commercial and retail categories.
Loans added through bank purchase transactions totaled $296.5 million
and net internal loan growth was $411.5 million.
The commercial loan categories increased an aggregate of $483.0
million or 28.0% to total $2.2 billion at September 30, 1994. Retail
loan categories totaling $1.6 billion increased $225.0 million or
16.2%. These increases are attributable to a continued emphasis on
business development efforts and increasing credit demands associated
with the strengthening of the economy in Kansas and Oklahoma.
The $107.0 million increase in the 1-4 family mortgage portfolio
between September 30, 1994 and September 30, 1993 reflects bank
purchase transactions and the originations and refinancing activity
which was stimulated by relatively low mortgage interest rates in the
fourth quarter of 1993. In connection with the Company's asset and
liability management strategies, $110.1 million of fixed rate
residential mortgage loans were classified as held for sale at December
31, 1993. These loans were sold during the first quarter of 1994.
The Company makes most of its loans within Kansas, Oklahoma, and the
contiguous states or to Kansas and Oklahoma based customers that do
business in other states. The Company's commercial and industrial
loans generally are made to middle market and small businesses. At
September 30, 1994, the Company had 21 lending relationships in which
the aggregate loan amount exceeded $7 million; of these, eight were $10
million or more. The Company had no single lending relationship with
an aggregate loan amount outstanding in excess of $20 million. The
Company had no industry concentrations greater than 10.0% of total
loans outstanding and no foreign loans at September 30, 1994. The
following table shows the composition of loans and leases at the dates
indicated.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Commercial:
Commercial and industrial . . . . . . . . . . . . . . . . . . $1,012,907 $ 889,024 $ 797,117
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . 216,391 196,029 167,351
Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,325 77,962 56,725
Bank stock. . . . . . . . . . . . . . . . . . . . . . . . . . 16,587 34,576 36,685
Real estate:
Construction. . . . . . . . . . . . . . . . . . . . . . . . 133,789 92,636 92,521
Permanent commercial real estate and other. . . . . . . . . 603,550 513,270 490,093
Lease financing . . . . . . . . . . . . . . . . . . . . . . . 74,200 40,195 36,557
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,268 42,505 48,002
---------- ---------- ----------
Total commercial loans. . . . . . . . . . . . . . . . . . 2,208,017 1,886,197 1,725,051
---------- ---------- ----------
Consumer:
Secured by 1-4 family residences, less unearned discount. . . 945,920 786,637 838,946
Residential mortgage loans held for sale. . . . . . . . . . . -- 110,132 867
Consumer, less unearned discount. . . . . . . . . . . . . . . 480,156 419,971 426,744
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . 128,095 93,007 82,337
Educational . . . . . . . . . . . . . . . . . . . . . . . . . 57,707 55,968 37,996
---------- ---------- ----------
Total consumer loans. . . . . . . . . . . . . . . . . . . 1,611,878 1,465,715 1,386,890
---------- ---------- ----------
Total loans and leases. . . . . . . . . . . . . . . . . $3,819,895 $3,351,912 $3,111,941
========== ========== ==========
</TABLE>
Commercial and Industrial: The portfolio includes loans to
businesses engaged in services, manufacturing, wholesaling, retailing,
financial services, public utilities, construction, mining, and
agribusiness. The largest industry concentration is service businesses
at approximately 6% of total loans. Manufacturing is the second
largest concentration representing approximately 5% of total loans.
Agriculture: Loans secured by feeder cattle and other livestock
accounted for approximately 60% of the agriculture portfolio at
September 30, 1994. The remainder of the agriculture portfolio is
secured by equipment, farm assets and accounts receivable and
inventory, none of which represent a significant concentration.
Energy: Loans secured by proven oil and gas reserves constitute
substantially all of the energy loan portfolio. Generally, the Company
will loan no more than 60% of the discounted value of such proven
reserves. Annual engineering reports are required on all production
loans of $250,000 or more. These reports include cash flow analyses on
all properties and provide estimates of remaining recoverable reserves,
rates of recovery, operating expenses, and taxes. There are no oil rig
acquisition loans, and loans to well-servicing companies and suppliers
are not material.
Bank Stock: Loans for the purpose of purchasing a material interest
in a bank make up this portfolio.
Commercial Real Estate: Most of the construction loans are for 1-4
family residential construction and development. At September 30,
1994, approximately 52% of the portfolio was in the Kansas markets of
Wichita, Topeka and Kansas City. The Tulsa and Oklahoma City markets
represented an additional 34% of this portfolio.
Permanent commercial real estate loans include loans in the
Company's market for small office buildings/parks; neighborhood strip
shopping centers; small manufacturing machine shop buildings; office
warehouse properties; medical offices; and loans for purposes other
than funding the acquisition of the collateral properties and in which
cash flows from the properties are not the principal source of
repayment. Also included in this portfolio are loans for the financing
of apartment buildings in the Company's five metropolitan markets.
Most of these loans are "mini-perms" with five-year maturities. The
remaining commercial real estate loans are secured by farmland.
Secured by 1-4 Family Residences: The 1-4 family residence
portfolio consists of loans secured by residences located primarily in
Kansas and Oklahoma and is principally permanent first mortgage loans
with the remainder consisting of home equity loans.
Residential Mortgage Loans Held For Sale: Residential mortgage
loans held for sale are carried at the lower of cost or market value
determined on an aggregate basis.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, troubled debt
restructurings, and other real estate and nonperforming assets. A loan
is placed on nonaccrual status when principal or interest is due and
has remained unpaid for 90 days or more unless the loan is both well
secured and in the process of collection. A currently performing loan
also may be placed on nonaccrual status when there is reasonable doubt
as to the ability of the borrower to continue to pay principal or
interest. Nonaccrual loans at September 30, 1994 included $7.0 million
of these "performing/nonperforming" loans. Troubled debt
restructurings are those loans for which the original contractual terms
have been modified to provide a concession because of a deterioration
in the borrower's financial condition. Other real estate and
nonperforming assets include assets acquired from loan settlements and
foreclosures.
Generally, principal and interest payments received on nonaccrual
loans are applied as reductions of principal. For this reason and
because of charge-offs, the book value of such loans understates the
remaining contractual obligation of the borrowers. As of September 30,
1994, the carrying value of nonaccrual loans had been charged down to
73.0% of the customers' contractual principal obligations. Also, the
carrying values of other real estate and nonperforming assets have been
written down to current estimates of their fair values less a reserve
for the estimated costs to sell the properties.
The following table presents nonperforming assets and those loans
which are contractually past due 90 days or more as to principal or
interest payments.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . $26,081 $34,040 $35,964
Troubled debt restructurings . . . . . . . . . . . . . . . . . . . 631 290 585
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . . . . . 26,712 34,330 36,549
Other real estate and nonperforming assets . . . . . . . . . . . . 7,553 9,787 13,139
------- ------- -------
Total nonperforming assets . . . . . . . . . . . . . . . . . . . $34,265 $44,117 $49,688
======= ======= =======
Past due loans (90 days or more) . . . . . . . . . . . . . . . . . $12,982 $ 9,108 $ 7,726
======= ======= =======
Nonperforming assets/period-end loans plus
other real estate and nonperforming assets. . . . . . . . . . . . .90% 1.31% 1.59%
==== ==== ======
Nonperforming assets/period-end assets . . . . . . . . . . . . . . .45% .64% .71%
==== ==== ======
</TABLE>
Nonperforming assets decreased $15.4 million or 31.0% from September
30, 1993 to total $34.3 million at September 30, 1994. At September
30, 1994, total nonperforming assets represented .90% of total loans
plus other real estate owned and nonperforming assets and .45% of total
assets as compared to 1.59% of total loans plus other real estate owned
and nonperforming assets and .71% of total assets at September 30,
1993. Current and prior-year pooled companies represent $10.9 million
of the September 30, 1994 total nonperforming assets compared to $17.4
million for those same companies at September 30, 1993. Banks
purchased subsequent to September 30, 1993 added $238,000 to
nonperforming assets.
Management continues to focus on asset quality. An emphasis is
placed on pro-active management of problem credits, early detection of
potential problems, and timely charge-offs. A due diligence team is
responsible for assessing potential problem loans in banks to be
acquired prior to the execution of a definitive agreement. A separate
work-out department is responsible for the resolution and collection of
problem assets. An analysis of nonperforming loans by type is provided
in the following table. There are no significant concentrations of
nonperforming loans in any one market or industry.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial and industrial . . . . . . . . . . . . . . . . . . . . $10,507 $14,789 $16,567
Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447 1,526 1,417
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,373 510 551
Real Estate:
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 1,276 1,343 1,555
Secured by 1-4 family residences . . . . . . . . . . . . . . . . 1,118 2,457 2,773
Permanent commercial real estate and other . . . . . . . . . . . 9,175 11,668 11,580
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,627 1,930 1,965
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . 189 107 141
------- ------- -------
Total nonperforming loans. . . . . . . . . . . . . . . . . . . . $26,712 $34,330 $36,549
======= ======= =======
Nonaccrual loans/nonaccrual loans and prior charge-offs. . . . . . 73.00%
=====
</TABLE>
Potential Problem Loans
Certain loans classified for regulatory purposes as doubtful,
substandard, or special mention are included in the nonperforming loan
table. Also included in the classified loans are certain other loans
which are deemed to be potential problems.
Potential problem loans are those loans which are currently
performing but where known information about trends or uncertainties or
possible credit problems of the borrowers causes management to have
concerns as to the ability of such borrowers to comply with present
repayment terms, possibly resulting in the transfer of such loans to
nonperforming status. These loans totaled $10.1 million at September
30, 1994.
Allowance for Credit Losses
The allowance for credit losses is the amount deemed by management
to be reasonably necessary to provide for possible losses on loans that
may become uncollectible. Additions to the allowance are charged to
expense as the provision for credit losses. Loan losses and recoveries
are charged or credited directly to the allowance. It is the Company's
policy to charge off any loan or portion of that loan when it is deemed
to be uncollectible in the ordinary course of business.
An evaluation of the overall quality of the portfolio is performed
to determine the necessary level of the allowance for credit losses.
This evaluation takes into consideration the classification of loans
and the application of loss estimates to these classifications. It is
the responsibility of management in each of the Company's markets to
classify its loans as pass, special mention, substandard, doubtful, or
loss. The classification criteria are established by the credit
administration function of the Company, which is independent of all
lending functions, and are intended to be consistent with the criteria
applied by federal banking system examiners. These classifications
take into consideration all sources of repayment, underlying
collateral, the value of such collateral, and current and anticipated
economic conditions, trends, and uncertainties. The Company has an
independent loan review function which periodically reviews the loans
and the classifications. The Company's bank subsidiaries also are
subjected to periodic examinations by the Office of the Comptroller of
the Currency.
Loss factors are developed by loan type and classification using
historical loss data and statistical modeling techniques. The
application of these loss factors to the portfolio classifications
combined with analyses of general economic conditions, trends in
portfolio volume, maturity, and composition, and estimates of potential
future losses on specific large loans and those loans requiring special
attention provide management with data essential to identify and
estimate the credit risk inherent in the portfolio. The allowance for
credit losses reflects the result of these estimates, and is deemed to
be adequate at each balance sheet date.
As of September 30, 1994, the allowance for credit losses equaled
$72.8 million or 272.59% of nonperforming loans. Comparatively, the
allowance for credit losses at September 30, 1993 amounted to $70.8
million or 193.74% of nonperforming loans. The strong coverage ratio
of the allowance for credit losses to nonperforming loans at September
30, 1994 reflected the continuing emphasis management is placing on
resolving problem loans, managing the risk profile of the Company, and
prudently reserving for identifiable risks.
The following table summarizes the changes in the allowance for
credit losses for the nine-month periods ended September 30 and
presents selected related ratios. Prior period amounts have been
restated for the poolings of interests.
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Balance at January 1, as previously reported . . . . . . . . . . . . . . $ 66,368 $ 73,055
Adjustments for poolings of interests. . . . . . . . . . . . . . . . . 1,249 1,340
---------- ----------
Balance at January 1, as restated. . . . . . . . . . . . . . . . . . . 67,617 74,395
Allowance for credit losses of purchased bank. . . . . . . . . . . . . 5,449 3,266
---------- ----------
73,066 77,661
Charge-offs:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 3,381 13,177
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 47
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 337
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . 60 179
Permanent commercial real estate and other . . . . . . . . . . . . . . 305 2,187
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 170
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 68
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . . 564 621
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,723 2,938
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,201 1,167
---------- ----------
Total charge-offs . . . . . . . . . . . . . . . . . . . . . . . . 9,791 20,891
---------- ----------
Recoveries:
Commercial and industrial . . . . . . . . . . . . . . . . . . . . . . 4,016 3,775
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420 260
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 178
Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 121
Real estate construction . . . . . . . . . . . . . . . . . . . . . . . 136 173
Permanent commercial real estate and other . . . . . . . . . . . . . . 1,878 1,144
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 63
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 201
Secured by 1-4 family residences . . . . . . . . . . . . . . . . . . . 454 115
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,445 1,270
Credit card . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 551 414
---------- ----------
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . . 9,265 7,714
---------- ----------
Net loans and leases charged off . . . . . . . . . . . . . . . . . . . . 526 13,177
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . 275 6,326
---------- ----------
Balance at September 30. . . . . . . . . . . . . . . . . . . . . . . . . $ 72,815 $ 70,810
========== ==========
Loans and leases at period-end . . . . . . . . . . . . . . . . . . . . . $3,819,895 $3,111,941
Average loans and leases . . . . . . . . . . . . . . . . . . . . . . . . $3,480,479 $2,981,435
Net charge-offs (annualized)/average loans and leases. . . . . . . . . . .02% .59%
Allowance for credit losses/period-end nonperforming loans . . . . . . . 272.59% 193.74%
Allowance for credit losses/period-end nonperforming assets. . . . . . . 212.51% 142.51%
Allowance for credit losses/period-end loans and leases. . . . . . . . . 1.91% 2.28%
</TABLE>
Investment Portfolio
The following table presents the book values of investment
securities at the dates indicated.
Held-to-maturity
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
---------- ------------ ----------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 98,698 $ 16,329 $ 321,907
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 1,644,612 1,753,662 2,192,251
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,601 4,259 325,554
Obligations of states and political subdivisions. . . . . . . . . . 4,312 16,838 242,442
Other securities:
Collateralized auto receivables . . . . . . . . . . . . . . . . . -- 12,364 15,801
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . -- -- 39,695
Foreign debt securities . . . . . . . . . . . . . . . . . . . . . 2,050 2,155 2,155
Money market mutual funds . . . . . . . . . . . . . . . . . . . . 124 212 221
---------- ---------- ----------
Total debt securities, at amortized cost. . . . . . . . . . . . $2,012,397 $1,805,819 $3,140,026
========== ========== ==========
Market value in excess of (less than) book value. . . . . . . . . . $ (72,946) $ 1,823 $ 72,134
========== ========== ==========
</TABLE>
Available-for-sale
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(In thousands)
<S> <C> <C>
U.S. Treasury obligations . . . . . . . . . . . . . . . . . . . . . $ 277,845 $ 308,331
Obligations of U.S. government agencies and corporations:
Mortgage-backed . . . . . . . . . . . . . . . . . . . . . . . . . 139,117 218,848
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278,277 306,276
Obligations of states and political subdivisions . . . . . . . . . 190,560 242,933
Other securities:
Collateralized credit card receivables. . . . . . . . . . . . . . 59,666 --
Corporate notes and bonds . . . . . . . . . . . . . . . . . . . . 39,508 40,237
---------- ----------
Total debt securities . . . . . . . . . . . . . . . . . . . . . 984,973 1,116,625
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . 1,003 1,151
---------- ----------
Total debt and equity securities, at estimated fair value . . $ 985,976 $1,117,776
========== ==========
</TABLE>
Other securities(1)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
---------- ------------ ----------
(In thousands)
<S> <C> <C> <C>
Federal Home Loan Bank stock. . . . . . . . . . . . . . . . . . . . $37,645 $24,911 $21,294
Federal Reserve Bank stock. . . . . . . . . . . . . . . . . . . . . 14,242 12,637 8,608
Other equity securities . . . . . . . . . . . . . . . . . . . . . . 1,531 1,559 1,583
------- ------- -------
Total other equity securities, at cost. . . . . . . . . . . . . . $53,418 $39,107 $31,485
======= ======= =======
<FN>
___________
(1) Equity Securities that do not have a readily determinable fair value.
</TABLE>
At December 31, 1993, the Company elected to adopt Financial
Accounting Standard ("FAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with FAS No.
115, prior period financial statements were not restated to reflect the
change in accounting principle. Pursuant to FAS No. 115 the securities
classified as available-for-sale are carried at fair value. The total
carrying value of the available-for-sale securities portfolio included
unrealized losses of $21.7 million at September 30, 1994 and unrealized
gains of $41.2 million at December 31, 1993.
Exclusive of the adjustment to fair value for the available-for-sale
portfolio, total investment securities decreased $98.0 million between
September 30, 1994 and 1993. The decrease in the investment securities
portfolio reflects the use of proceeds of maturities and prepayments
for loan growth. Acquisition transactions accounted for as purchases
added $269.3 million of investment securities.
Excluding U.S. Treasury obligations and obligations of U.S.
government agencies and corporations, there were no security holdings
of any one issuer at September 30, 1994 that exceeded 10% of
consolidated stockholders' equity.
At September 30, 1994 the held-to-maturity portfolio included $659.8
million of floating-rate mortgage-backed securities guaranteed by U.S.
government agencies or corporations. The yields on these securities
float with various indices, which reduces the interest rate risk
associated with these investments as the changes in these indices have
historically correlated with the changes in the Company's cost of
funds. Also included in the held-to-maturity portfolio at September
30, 1994 were $700.5 million of collateralized mortgage obligations
("CMO"). These investments are secured by mortgage-backed securities
guaranteed by agencies of the U.S. government. Of this CMO portfolio,
$144.0 million also float on a monthly basis, most with the FHLB 11th
District average cost of funds. The remaining $556.5 million of fixed-
rate CMOs in the held-to-maturity portfolio are comprised of classes
with an anticipated average duration of two to three years. The
September 30, 1994 available-for-sale mortgage-backed securities
portfolio is comprised principally of securities issued by U.S.
government agencies and corporations with an estimated average duration
of up to three years.
Deposits
Total deposits increased $166.2 million or 3.0% between September
30, 1994 and 1993. During the second quarter of 1994, the Company
acquired $548.5 million of deposits through acquisitions accounted for
as purchases. The increased deposits from acquisitions were partially
offset by attrition of time deposits associated with the relatively low
interest rate environment through 1993 and the availability of
alternative investment products which offer potentially higher returns.
In response to perceived customer needs for a higher yield, time
deposit products were offered which provided the customer with the
opportunity to reprice the instruments during their term. At September
30, 1994, $234.2 million of these adjustable-rate time deposits were
outstanding. It is anticipated that as interest rates increase, time
deposits will become more attractive to depositors. Core deposits
(demand, interest checking, savings, and time deposits under $100,000)
represented 92.0% of total deposits at September 30, 1994 compared to
91.8% at September 30, 1993.
Asset and Liability Management
Interest Rate Risk: The Company manages its assets and liabilities
to control the exposure of its net interest income and capital to risks
associated with interest rate changes and to achieve consistent growth
in net interest income. Interest rate risk is evaluated using various
tools, including interest sensitivity gap and simulation analysis.
From time to time, interest rate swaps are used to modify the interest
sensitivity position inherent in the repricing characteristics of
specific assets or liabilities. The net interest received or paid on
the interest rate swaps is accounted for as an adjustment to the
interest income or interest expense on the assets or liabilities,
respectively, that the swap was intended to modify. Net interest
income for the nine months ended September 30, 1994 includes $1.0
million attributable to interest rate swaps. The effect of interest
rate swaps on the first nine months of 1993 was to reduce net interest
income by $15,000.
At September 30, 1994 and 1993 interest rate swaps were as follows:
<TABLE>
<CAPTION>
September 30, 1994
-----------------------------------------------------------------
Weighted
Notional Average Weighted Average Rate
--------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Receive fixed rate . . . . . . . . . . . . $151,000 21 months (1) 6.05% 4.96%
Pay fixed rate . . . . . . . . . . . . . . 100,000 7 months 4.94% 4.25%
</TABLE>
<TABLE>
<CAPTION>
September 30, 1993
-----------------------------------------------------------------
Weighted
Notional Average Weighted Average Rate
--------------------------
Amount Term Received Paid
---------- -------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Receive fixed rate . . . . . . . . . . . . $ 51,000 32 months (1) 5.89% 3.28%
Pay fixed rate . . . . . . . . . . . . . . 200,000 13 months 3.94% 3.25%
<FN>
- ---------
(1) The term of $50.0 million of these swaps may extend up to an additional 48 months after the initial term depending
on the variable rate index at the end of the initial term and each quarter thereafter as compared to that same
index when the swaps were initiated.
</TABLE>
Activity in interest rate swaps is summarized below:
<TABLE>
<CAPTION>
Receive Pay
Fixed Rate Fixed Rate
---------- ----------
(Notional amounts, in thousands)
<S> <C> <C>
Balance, January 1, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000 $ --
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 200,000
-------- --------
Balance, September 30, 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,000 $200,000
======== ========
Balance, January 1, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,000 $200,000
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 --
Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (100,000)
-------- --------
Balance, September 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . $151,000 $100,000
======== ========
</TABLE>
The following table presents the Company's interest sensitivity gap
position as of September 30, 1994. Most assets and liabilities have
been included in the table based on the timing of their contractual
maturities or repricing characteristics. Fixed-rate mortgage-backed
securities are included in repricing-maturity categories based upon
estimates of prepayments provided by a third-party market information
service. These estimates may vary depending upon both the volatility
and the level of market interest rates in relationship to the coupon
rates of the underlying mortgages. Interest-bearing checking and
savings deposits are included in the under-three-month category. This
table does not indicate the effect the repricing of assets and
liabilities would have on net interest income. Also, it does not
reflect interest rate exposures, such as basis risk, prepayment risk,
intra-period sensitivity, and the effect of interest rate floors and
ceilings associated with certain financial instruments.
<TABLE>
<CAPTION>
Repricing Maturity
--------------------------------------------------------------------------------
Over Three Over Six Over One
Under Through Through Through Over
Three Six Twelve Five Five Noninterest-
Months Months Months Years Years bearing Total
---------- --------- --------- --------- ---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans and leases. . . . . . $1,881,718 $ 189,041 $ 336,267 $ 895,480 $486,783 $ 30,606 $3,819,895
Investments and trading
account securities . . . . 752,785 133,666 294,596 1,667,663 226,710 (21,731) 3,053,689
Other earning assets . . . 6,083 -- 100 308 -- -- 6,491
Nonearning assets . . . . . -- -- -- -- -- 667,828 667,828
---------- --------- --------- ---------- -------- ---------- ----------
Total assets . . . . . . $2,640,586 $ 322,707 $ 630,963 $2,563,451 $713,493 $ 676,703 $7,547,903
========== ========= ========= ========== ======== ========== ==========
Liabilities and
stockholders' equity:
Deposits. . . . . . . . . . $2,842,913 $ 398,078 $ 433,400 $1,004,851 $ 5,712 $ 973,154 $5,658,108
Federal funds purchased
and securities sold under
agreements to repurchase . 670,462 -- -- -- -- -- 670,462
Federal Home Loan Bank
borrowings . . . . . . . . 374,244 -- 91,800 25,000 -- -- 491,044
Other borrowings. . . . . . 63,001 -- -- -- -- -- 63,001
Long-term debt . . . . . . 413 4,412 24 200 50 -- 5,099
Other liabilities . . . . . -- -- -- -- -- 62,743 62,743
Stockholders' equity . . . -- -- -- -- -- 597,446 597,446
---------- --------- --------- ---------- -------- ---------- ----------
Total liabilities and
stockholders' equity . . $3,951,033 $ 402,490 $ 525,224 $1,030,051 $ 5,762 $1,633,343 $7,547,903
========== ========= ========= ========== ======== ========== ==========
Interest rate swaps . . . . . $ (51,000) $ -- $ (86,000) $ 137,000 $ -- $ -- $ --
Repricing gap adjusted
for interest rate swaps. . . (1,361,447) (79,783) 19,739 1,670,400 707,731 (956,640) --
Cumulative adjusted
repricing gap. . . . . . . . (1,361,447)(1,441,230)(1,421,491) 248,909 956,640 -- --
Cumulative adjusted rate-
sensitive assets/
rate-sensitive liabilities . .67 .68 .74 (*) (*) (*)
- ------------
(*) Not meaningful.
</TABLE>
The Company has a negative cumulative repricing gap in the one-year
horizon. Consequently, given the current balance sheet mix, a rising
rate environment would adversely impact the net interest margin.
Simulation modeling has demonstrated that a sudden and large increase
in rates or a dramatic narrowing in the spread between asset yields and
liability costs could result in a significant adverse impact on the net
interest margin; however, the adverse impact is more moderate if
interest rates increase gradually. The adverse impact of rising rates
could also be mitigated by loan growth stimulated by a strong economy.
Liquidity: The Company's consolidated statements of cash flows are
presented elsewhere in this report. These statements distinguish cash
flows as operating, investing, and financing. They provide a
historical accounting of the Company's ability to generate cash
required to meet its customers' and creditors' demands. Certain
statement-of-condition items and ratios are indicative of the Company's
liquidity position at September 30, 1994. The loans-to-deposits and
loans-to-assets ratios averaged 62.9% and 48.1%, respectively, during
the first nine months of 1994. Average core deposits (demand, interest
checking, savings, and time deposits under $100,000) represented 92.1%
of total deposits and 70.4% of average assets during the nine-month
period.
At September 30, 1994, federal funds purchased, securities sold
under agreements to repurchase, Federal Home Loan Bank borrowings, and
other borrowings totaled $1.2 billion. At that same date, additional
borrowing liquidity was also available in the form of $751.0 million of
unpledged investment securities classified as either held-to-maturity
or available-for-sale which could secure short-term borrowing
requirements. In addition, the available-for-sale securities could be
sold. Regular maturities and prepayments of investment securities,
particularly the mortgage-backed securities, also generate significant
liquidity. Scheduled principal reductions and prepayments on the
mortgage-backed securities approximated $95.7 million during the third
quarter of 1994.
The Company had commitments to extend credit at September 30, 1994,
including standby letters of credit of $99.7 million, commercial
letters of credit of $13.5 million, unused credit card lines of $479.3
million, $62.5 million of commitments to fund 1-4 family residential
mortgage loans, and other loan commitments of $1.3 billion. Some of
these commitments will not be fully utilized, others will expire
without being drawn upon, and the commitments will not all be used at
the same time. Accordingly, management anticipates that the Company
has ample liquidity to meet these and other demands.
Capital Resources
At September 30, 1994, total stockholders' equity was $597.4 million
or 7.92% of total assets compared to $569.3 million or 8.17% of total
assets at September 30, 1993. Stockholders' equity at September 30,
1994 included $13.3 million in unrealized losses (net of deferred tax
effect) on available-for-sale securities pursuant to FAS No. 115. For
the first nine months of 1994, total stockholders' equity averaged
$597.4 million or 8.25% of average assets. The prior year-to-date
average equity was $558.4 million or 8.46% of average assets.
Banking system regulators apply two measures of capital adequacy to
banking companies: the risk-based capital and leverage ratios. The
risk-based capital rules provide for the weighting of assets and
off-balance-sheet commitments and contingencies according to prescribed
risk categories ranging from 0 to 100%. Regulatory capital is then
divided by risk-weighted assets to determine the risk-adjusted capital
ratios. The leverage ratio supplements the risk-based capital
guidelines by placing a constraint on the degree to which a banking
company can leverage its equity capital, regardless of the balance
sheet composition. The leverage ratio is computed by dividing Tier I
capital by quarter-to-date average assets less certain intangibles.
The following table presents the Company's risk-based capital and
leverage ratios together with the required minimums. The banking
system regulators have proposed to amend the regulatory capital rules
to limit the amount of deferred tax assets that are allowable in
computing the regulatory capital ratios and to include net unrealized
gains and losses on available-for-sale securities in Tier I capital;
however, at September 30, 1994, these proposed changes had not been
finalized. Accordingly, the ratios in the following table exclude any
limit on net deferred tax assets and the $13.3 million net unrealized
losses on available-for-sale securities.
<TABLE>
<CAPTION>
September 30,
-------------------------------
1994 1993
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Tier I capital:
Common stockholders' equity . . . . . . . . . . . . . . . . . . . . . . $ 513,782 $ 469,826
Preferred stockholders' equity. . . . . . . . . . . . . . . . . . . . . 96,920 99,431
Less intangible assets (1) . . . . . . . . . . . . . . . . . . . . . . (83,689) (65,695)
---------- ----------
Total Tier I capital . . . . . . . . . . . . . . . . . . . . . . . . 527,013 503,562
---------- ----------
Tier II capital:
Allowance for credit losses (2) . . . . . . . . . . . . . . . . . . . . 58,285 48,679
---------- ----------
Total regulatory capital. . . . . . . . . . . . . . . . . . . . . . $ 585,298 $ 552,241
========== ==========
Risk-weighted assets and off-balance-sheet commitments and contingencies. $4,662,706 $3,894,106
========== ==========
Adjusted average assets (3) . . . . . . . . . . . . . . . . . . . . . . . $7,508,030 $6,838,601
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Regulatory
Minimums
----------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . 4.00% 11.30% 12.93%
Total . . . . . . . . . . . . . . . . . . . . . . . . . 8.00 12.55 14.18
Leverage ratio . . . . . . . . . . . . . . . . . . . . . 3.00 7.02 7.36
<FN>
___________
(1) All intangible assets except purchased mortgage servicing rights of
$2.6 million and purchased credit card relationships of $8.7 million are
subtracted from capital.
(2) The allowance for credit losses is limited to 1.25% of risk-weighted
assets.
(3) Quarter-to-date average assets excluding the net unrealized loss on
available-for-sale securities and all intangibles except purchased
mortgage servicing rights and purchased credit card relationships.
</TABLE>
As indicated in the preceding table, the Company's risk-based and
leverage capital ratios substantially exceed the minimums required by
banking system regulators. If the regulatory capital rules had been
amended to include the limit on net deferred tax assets and the net
unrealized loss on available-for-sale securities in Tier I capital, the
Company's risk-based and leverage ratios at September 30, 1994 would
have been as follows:
<TABLE>
<CAPTION>
September 30, 1994
------------------
<S> <C>
Risk-based capital ratios:
Tier I . . . . . . . . . . . . . . . . . . . . . . . . . . 10.91%
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 12.16
Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . 6.78
</TABLE>
Under regulations adopted by the the Federal Deposit Insurance
Corporation, a bank is typically defined to be "well capitalized" if it
maintains a Tier I capital ratio of at least 6.0%, a total risk-based
capital ratio of at least 10.0% and a leverage ratio of at least 5.0%.
It is the Company's intention to maintain sufficient capital in each of
its bank subsidiaries to permit them to maintain a "well capitalized"
designation. The capital ratios for both of the Company's subsidiary
banks exceeded the "well capitalized" regulatory capital requirements
at September 30, 1994.
For 1993, the Company's board of directors had authorized the
purchase of up to 500,000 shares of the Company's common stock to be
used for general corporate purposes. A separate board of directors'
action in December 1993 authorized the purchase of an additional 71,518
shares to be used to acquire the minority interests in the subsidiaries
of First Dodge City Bancshares, Inc., a 1994 acquisition. A total of
111,518 shares were purchased in 1993, 40,000 shares for general
corporate purposes and 71,518 shares specifically for the pending
acquisition. The purchase of up to 500,000 common shares, or the
equivalent in depositary shares representing interests in the Company's
Class A Cumulative Preferred Stock, or a combination of the two has
been authorized for 1994. A Board of Directors action in April 1994
specifically reserved a portion of this previous authorization to be
used for the acquisition of Oklahoma Savings, Inc. ("OSI"). Through
September 30, 1994, 355,466 shares of the Company's common stock had
been purchased to be used in the OSI acquisition.
Acquisitions
A discussion of currently pending acquisitions is included in Part
II, Item 5 of this Form 10-Q. Shares of the Company's common stock to
be used in the OSI acquisition have been purchased. Funding for the
currently pending cash purchase acquisition will be derived from
available funds.
Parent Company Funding Sources and Dividends
The ability of the parent company to fund various operating expenses
and dividend requirements is dependent in part on its ability to derive
funds from its bank subsidiaries. Historically, these funds have been
primarily provided by intercompany dividends. Intercompany dividends
amounted to $117.0 million and $64.8 million for the nine-month periods
ended September 30, 1994, and 1993, respectively. The approval of the
Comptroller of the Currency ("Comptroller") is required if total
dividends declared by a national bank in any one year exceed the bank's
net profits for that year plus the profits for the two preceding years
retained by the bank. The Comptroller's approval was required and
received for the 1994 and 1993 dividends. At September 30, 1994, BANK
IV Kansas could distribute $36.9 million in dividends without the
approval of the Comptroller. BANK IV Oklahoma could distribute $5.0
million in dividends without the approval of the Comptroller.
Because of the financial strength of the parent company and the
anticipated earnings capacity of both the BANK IV banks, it is
anticipated that the banks will be able to obtain permission from the
Comptroller to pay additional dividends in 1994 to the extent justified
by their respective financial condition and subject to the capital
requirements described in the next paragraph.
Because of the Company's past record of making acquisitions, it is
anticipated that the Comptroller will expect the BANK IV banks to
maintain the greater of a 6.0% leverage ratio or a 10.0% total risk-
based capital ratio. These ratios exceed the otherwise applicable
minimum regulatory requirements of a 3.0% leverage ratio and an 8.0%
total risk-based capital ratio. At September 30, 1994, the BANK IV
banks' aggregate capital exceeded the amount required by the greater of
a 6.0% leverage or a 10.0% risk-based capital ratio by approximately
$36.0 million.
The parent company had approximately $34.3 million of cash and
short-term investments at September 30, 1994. In addition, the parent
company had available a Credit Agreement with an unaffiliated bank
under which the Company may borrow up to $50,000,000 on a revolving
basis at anytime prior to June 30, 1996. The amount borrowed under the
agreement was $40,000,000 at September 30, 1994. The parent company
also has a term loan outstanding from an unaffiliated bank in the
amount of $4.4 million at September 30, 1994, which is payable March
31, 1995. The borrowing agreements subject the Company to certain
restrictions and covenants related to, among others, tangible net worth
and the maintenance of specific ratios related to leverage, funded
debt, total indebtedness, nonperforming loans, and nonperforming
assets. The parent company is currently in compliance with all
restrictions and covenants under both of these agreements.
Recently Issued Accounting Standards
In May 1993, the Financial Accounting Standards Board issued
Financial Accounting Standard ("FAS") No. 114. FAS No. 114 addresses
the accounting by creditors for impairment of certain loans. It is
applicable to all creditors and to all loans, uncollateralized as well
as collateralized, except large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment, loans that are
measured at fair value or at the lower of cost or fair value, leases,
and debt securities. It applies to all loans that are restructured in
a troubled debt restructuring involving a modification of terms. The
Statement requires that, when evaluating the need for an allowance for
credit losses on impaired loans that are within the scope of this
Statement, the loss accrual be measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral-
dependent. This Statement is effective for fiscal years beginning
after December 15, 1994. The Company has not completed the analyses
required to estimate the impact of FAS 114; however, the Company does
not believe the adoption of the new rules will have an adverse effect
on its financial condition.
FAS No. 114 was amended by FAS No. 118 in October of 1994 to allow
a creditor to use existing methods for recognizing interest income on
an impaired loan. This statement does not change the provisions in FAS
No. 114 noted above but it does amend the disclosure requirements to
require information about the recorded investment in certain impaired
loans and about how a creditor recognizes interest income related to
those impaired loans. FAS No. 118 is effective concurrent with FAS No.
114, that is, for financial statements for fiscal years beginning after
December 15, 1994.
FAS No. 119 was also issued in October 1994. This statement
requires disclosures about financial instruments--futures, forward,
swap, and option contracts, and other financial instruments with
similar characteristics. It also amends existing requirements of FAS
No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of
Credit Risk, and FAS No. 107, Disclosures about Fair Value of Financial
instruments. FAS No. 119 requires disclosures about amounts, nature,
and terms of derivative financial instruments that were not previously
disclosed pursuant to FAS No. 105 because they do not result in off-
balance sheet risk of accounting loss. It requires that a distinction
be made between financial instruments held or issued for trading
purposes and financial instruments held or issued for purposes other
than trading. It also amends Statements 105 and 107 to require that
distinction in certain disclosures required by those Statements. This
Statement is effective for financial statements issued for fiscal years
ending after December 15, 1994.
PART II
Item 1. Legal Proceedings.
Neither Registrant nor any of its subsidiaries is a party to any
pending legal proceedings required to be disclosed in this Item.
Because of the nature of their businesses, the BANK IV banks are at all
times subject to legal actions, which are ordinary routine litigation
incidental to their normal business operations. Claims in various
amounts of up to approximately $20,000,000 have been asserted; however,
after consultation with its legal counsel, Registrant does not
anticipate that any potential liabilities arising from these claims
would have a material effect on the results of operations.
Item 5. Other Information.
Pending Acquisitions
The Company has entered into definitive agreements with three
holding companies to acquire the financial institutions shown in the
following table.
<TABLE>
<CAPTION>
Assets Number of
September 30, 1994 Cash Expected Shares Expected Accounting
Bank (Unaudited) To Be Paid To Be Issued Method
---- ------------------ ------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Security Bank and Trust Company
Blackwell, OK ("Security") . . . . . . . . . . $ 47,374 $8,171 -- Purchase
Stillwater Federal Savings Bank
Stillwater, OK ("Stillwater"). . . . . . . . . 95,857 -- 372,262 Purchase
Standard Bank and Trust
Independence, MO ("Standard"). . . . . . . . . 80,660 -- 315,000 Pooling
-------- ------ ---------
Total. . . . . . . . . . . . . . . . . . . . $223,891 $8,171 687,262
======== ====== =========
</TABLE>
The pending transactions are subject to various conditions,
including obtaining regulatory approvals and the banks or holding
companies meeting specified net worth requirements and in the case of
Stillwater, the receipt of a "fairness" opinion from the investment
banking firm that has been advising its parent's board of directors,
and obtaining the approval of Stillwater's shareholder group. The
Standard agreement is also conditioned upon the transaction being
eligible for treatment for accounting purposes as a "pooling-of-
interests".
The required regulatory approvals are in the process of being
obtained. However, a community coalition based in Wichita, Kansas has
filed protests with the Comptroller of the Currency and the Board of
Governors of the Federal Reserve System claiming that the applications
for approval should be denied because the record of community service
of BANK IV Kansas in its Wichita market is unsatisfactory. BANK IV
Kansas and the Company have filed responses to the protest denying the
coalition's assertions. The Company expects that the regulatory
approvals will be obtained, however they have been delayed because of
the pending protest. The Company anticipates consummating these
transactions in the first quarter of 1995.
The Company continues to consider or to participate in discussions
concerning additional acquisitions. However, except for the pending
transactions described in this section, as of November 14, 1994, the
Company has no binding commitments or agreements, to acquire any
additional financial institutions.
Recently Enacted Federal Legislation
The recently enacted federal Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 contains various provisions that will
increase the ability of Fourth Financial and other bank holding
companies to make interstate acquisitions and to operate their
subsidiary banks. Commencing on September 29, 1995, adequately
capitalized and adequately managed bank holding companies will be
permitted to make acquisitions of banks located anywhere in the United
States without regard to the provisions of any state laws that may
presently prohibit such acquisitions. Interstate acquisitions will not
be permitted, however, if the potential acquiror would control more
than ten percent of the insured deposits in the United States or more
than 30 percent of insured deposits in the home state of the bank to be
acquired or in any state in which such bank has a branch. States may
enact statutes increasing the 30 percent limit and may also lower such
limit if they do so on a non-discriminatory basis. States will also be
permitted to prohibit acquisitions of banks that have been established
for fewer than five years. The Board of Governors of the Federal
Reserve System is required to consider the applicant's record under the
federal Community Reinvestment Act in determining whether to approve an
interstate banking acquisition.
The new statute also permits, after June 1, 1997, interstate branch
banking in all states by adequately capitalized and adequately managed
banks, but a state may enact specific legislation before June 1, 1997
prohibiting interstate branch banking in that state, in which event
banks headquartered in the state will not be permitted to branch into
other states. A state may also enact legislation permitting non-
discriminatory interstate branch banking in such state before June 1,
1997. Applications for interstate branching authority will be
subjected to regulatory scrutiny of compliance with both federal and
state community reinvestment statutes with respect to all of the banks
involved in the proposed transaction.
Fourth Financial is unable to predict the effect, if any, of such
new legislation on it.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed herewith:
2 Agreement and Plan of Reorganization, dated as of September 2,
1994, among Fourth Financial Corporation, Standard
Bancorporation, Inc., and all of the Stockholders of Standard
Bancorporation, Inc. and exhibits thereto. (Exhibit 10.2 to
Form S-4 Registration Statement Reg. No. 33-55797) *
27 Article 9 of Regulation S-X Financial Data Schedule for the
September 30, 1994 Form 10-Q.
* Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
September 30, 1994.
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.
FOURTH FINANCIAL CORPORATION
Date November 14, 1994 /s/ Darrell G. Knudson
-------------------------- ---------------------------------------
Darrell G. Knudson
Chairman of the Board
(Chief Executive Officer)
Date November 14, 1994 /s/ Michael J. Shonka
-------------------------- ---------------------------------------
Michael J. Shonka
Sr. Vice President and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE SEPTEMBER 30, 1994 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 339595
<INT-BEARING-DEPOSITS> 1591
<FED-FUNDS-SOLD> 4900
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<INVESTMENTS-MARKET> 1939451
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<TOTAL-ASSETS> 7547903
<DEPOSITS> 5658108
<SHORT-TERM> 1224507
<LIABILITIES-OTHER> 62743
<LONG-TERM> 5099
<COMMON> 136156
0
100000
<OTHER-SE> 361290
<TOTAL-LIABILITIES-AND-EQUITY> 7547903
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<INCOME-PRETAX> 92253
<INCOME-PRE-EXTRAORDINARY> 61065
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61065
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<LOANS-NON> 26081
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<ALLOWANCE-OPEN> 67617
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