<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Date of Report(Date of Earliest Event Reported): March 20, 1995
NATIONSBANK CORPORATION
------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
North Carolina 1-6523 56-0906609
------------------------ ------------- -------------------
(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
NationsBank Corporate Center, Charlotte, North Carolina 28255
- ------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(704) 386-5000
- ------------------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
<PAGE>
ITEM 5. OTHER EVENTS.
On March 20, 1995, the Registrant intends to initiate the public offering of
senior debt securities pursuant to the Registrant's Registration Statement on
Form S-3, Registration No. 33-57533
The financial information included in Item 7 is being filed to facilitate the
sale of such securities.
-2-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
12.1 Computation of Ratio of Earnings to Fixed Charges for
each of the years in the five-year period ended December
31, 1994
23 Consent of Price Waterhouse LLP
28.1 Financial Summary, Management's Discussion and Analysis
of Financial Condition and Results of Operations
Six-Year Consolidated Statistical Summary
28.2 Financial Statements of NationsBank Corporation including
the following:
Report of Management
Report of Independent Accountants
Consolidated Statement of Income for the three years
ended December 31, 1994
Consolidated Balance Sheet at December 31, 1994 and 1993
Consolidated Statement of Cash Flows for the three years
ended December 31, 1994
Consolidated Statement of Changes in Shareholders' Equity
for the three years ended December 31, 1994
Notes to Consolidated Financial Statements
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereto duly authorized.
NATIONSBANK CORPORATION
By: /s/ Marc. D. Oken
----------------------------
Marc D. Oken
Executive Vice President
and Chief Accounting Officer
Dated: March 20, 1995
-4-
<PAGE>
NATIONSBANK CORPORATION
FORM 8-K
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
12.1 Computation of Ratio of Earnings to Fixed
Charges for each of the years in the five-year
period ended December 31, 1994
23 Consent of Price Waterhouse LLP
28.1 Financial Summary, Management's Discussion and
Analysis of Financial Condition and Results of
Operations
Six-Year Consolidated Statistical Summary
28.2 Financial Statements of NationsBank
Corporation including the following:
Report of Management
Report of Independent Accountants
Consolidated Statement of Income for the three
years ended December 31, 1994
Consolidated Balance Sheet at December 31,
1994 and 1993
Consolidated Statement of Cash Flows for the
three years ended December 31, 1994
Consolidated Statement of Changes in
Shareholders' Equity for the three years
ended December 31, 1994
Notes to Consolidated Financial Statements
-5-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12.1
NATIONSBANK CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended
December 31
------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Excluding Interest on Deposits
- ------------------------------
Income before taxes........................ $2,554,778 $1,991,103 $1,396,213 $ 108,524 $ 625,467
Equity in undistributed earnings
of unconsolidated subsidiaries........... (2,604) (4,756) (1,426) (1,114) (668)
Fixed charges:
Interest expense (including
capitalized interest)............... 2,895,569 1,420,800 915,880 1,290,755 1,851,513
Amortization of debt discount and
appropriate issuance costs.......... 8,194 6,377 3,000 2,093 2,872
1/3 of net rent expense............... 114,414 95,786 90,667 81,909 66,195
---------- ---------- ---------- ---------- ----------
Total fixed charges........................ 3,018,177 1,522,963 1,009,547 1,374,757 1,920,580
Earnings (excluding capitalized interest).. $5,570,351 $3,509,310 $2,398,329 $1,470,621 $2,533,093
========== ========== ========== ========== ==========
Fixed charges.............................. $3,018,177 $1,522,963 $1,009,547 $1,374,757 $1,920,580
========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges......... 1.85 2.30 2.38 1.07 1.32
Including Interest on Deposits
- ------------------------------
Income before taxes........................ $2,554,778 $1,991,103 $1,396,213 $ 108,524 $ 625,467
Equity in undistributed earnings
of unconsolidated subsidiaries........... (2,604) (4,756) (1,426) (1,114) (668)
Fixed charges:
Interest expense (including
capitalized interest)............... 5,310,419 3,570,079 3,687,650 5,611,057 6,683,262
Amortization of debt discount and
appropriate issuance costs.......... 8,194 6,377 3,000 2,093 2,872
1/3 of net rent expense............... 114,414 95,786 90,667 81,909 66,195
---------- ---------- ---------- ---------- ----------
Total fixed charges........................ 5,433,027 3,672,242 3,781,317 5,695,059 6,752,329
Earnings (excluding capitalized interest).. $7,985,201 $5,658,589 $5,170,099 $5,790,923 $7,364,842
========== ========== ========== ========== ==========
Fixed charges.............................. $5,433,027 $3,672,242 $3,781,317 $5,695,059 $6,752,329
========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges......... 1.47 1.54 1.37 1.02 1.09
</TABLE>
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-44826,
33-49881 and 33-57533); the Prospectuses constituting part of the Registration
Statements on Form S-4 (Nos. 33-43125 and Post-Effective Amendment No. 1
thereto, and 33-55145 and Post-Effective Amendment No. 1 thereto); and the
Prospectuses constituting part of the Registration Statements on Form S-8 (Nos.
2-91958; 2-73761; 2-80406 and Post-Effective Amendments No. 1, 2, 3 and 4
thereto; No. 33-43125 and Post-Effective Amendment No. 1 thereto, originally
filed on Form S-4 (No. 33-43125); No. 33-55145 and Post-Effective Amendment No.
1 thereto, originally filed on Form S-4 (No. 33-55145); No. 33-45279 and No.
33-48883) of NationsBank Corporation of our report dated January 13, 1995,
which appears in Exhibit 28.2 to the Current Report on Form 8-K dated March 20,
1995.
PRICE WATERHOUSE LLP
Charlotte, North Carolina
March 20, 1995
<PAGE>
NationsBank Corporation and Subsidiaries
Financial Summary
- --------------------------------------------------------------------------------
(Dollars in Millions Except Per-Share Information)
<TABLE>
<CAPTION>
1994 1993 Change
-------------------------------------
<S> <C> <C> <C> <C>
For the Year Net income before effect of change in method
of accounting for income taxes.......................... $ 1,690 $ 1,301 29.9 %
Net income................................................ 1,690 1,501 12.6
Earnings per common share before effect of change
in method of accounting for income taxes................ 6.12 5.00 22.4
Earnings per common share................................. 6.12 5.78 5.9
Cash dividends paid on common shares...................... 517 423 22.2
Dividends per common share................................ 1.88 1.64 14.6
Return on average common shareholders' equity............. 16.10 % 15.00 %
At Year-End Assets.................................................... $ 169,604 $ 157,686
Deposits.................................................. 100,470 91,113
Loans, leases and factored accounts receivable,
net of unearned income.................................. 103,371 92,007
Securities................................................ 25,825 29,054
Earning assets............................................ 151,722 140,890
Total shareholders' equity................................ 11,011 9,979
Per common share........................................ 39.70 36.39
Common shares issued (thousands).......................... 276,452 270,905
Market price per share of common stock.................... $ 45 1/8 $ 49
Daily Average Assets.................................................... $ 166,319 $ 134,400
for the Year Deposits.................................................. 93,757 83,471
Loans and leases, net of unearned income.................. 95,006 78,984
Securities................................................ 27,434 25,840
Earning assets............................................ 148,381 119,182
Total shareholders' equity................................ 10,484 8,651
Common shares issued (thousands).......................... 274,656 257,969
Risk-Based Tier 1.................................................... 7.43 % 7.41 %
Capital Ratios Total..................................................... 11.47 11.73
</TABLE>
<PAGE>
Management's Discussion And Analysis
1994 Compared To 1993
Overview
NationsBank Corporation (NationsBank or the Corporation) is a bank
holding company headquartered in Charlotte, North Carolina, which provides
financial products and services, both domestically and internationally. With
$170 billion of total assets on December 31, 1994, NationsBank is the fourth
largest banking company in the United States.
Results for 1994 demonstrated the power and breadth of the
Corporation's franchise and the diversity of its business activities. Despite
the pressures of steadily rising interest rates and difficult financial
markets in 1994, the Corporation's net income of $1.7 billion represented an
increase of $389 million, or 30 percent, over 1993. Earnings in 1993 were
$1.3 billion, excluding the impact of adopting a new income tax accounting
standard. Earnings per common share were $6.12 and $5.00 for 1994 and 1993,
respectively. Including the $200-million, or $.78-per-share impact of the new
accounting standard, net income for 1993 was $1.5 billion, or $5.78 per
common share.
- --------------------------------------------------------------------------------
1 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in Millions Except Per-Share Information)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement
Income from earning assets...................................... $10,529 $8,327 $7,780 $9,398 $10,278
Interest expense................................................ 5,318 3,690 3,682 5,599 6,670
Net interest income (taxable-equivalent)........................ 5,305 4,723 4,190 3,940 3,771
Net interest income............................................. 5,211 4,637 4,098 3,799 3,608
Provision for credit losses..................................... 310 430 715 1,582 1,025
Gains (losses) on sales of securities........................... (13) 84 249 454 67
Noninterest income.............................................. 2,597 2,101 1,913 1,742 1,605
Other real estate owned expense (income)........................ (12) 78 183 127 65
Restructuring expense........................................... - 30 - 330 91
Other noninterest expense....................................... 4,942 4,293 3,966 3,847 3,473
Income tax expense (benefit).................................... 865 690 251 (93) 31
Effect of change in method of accounting for income taxes....... - 200 - - -
Net income...................................................... 1,690 1,501 1,145 202 595
Per common share
Earnings before effect of change in method of
accounting for income taxes.................................... 6.12 5.00 4.60 .76 2.61
Earnings........................................................ 6.12 5.78 4.60 .76 2.61
Cash dividends paid............................................. 1.88 1.64 1.51 1.48 1.42
Shareholders' equity (year-end)................................. 39.70 36.39 30.80 27.03 27.30
Market price of common stock (close at year end)................ 45 1/8 49 51 3/8 40 5/8 22 7/8
Balance sheet (year-end)
Total loans, leases and factored accounts receivable,
net of unearned income......................................... 103,371 92,007 72,714 69,108 70,891
Total assets.................................................... 169,604 157,686 118,059 110,319 112,791
Total deposits.................................................. 100,470 91,113 82,727 88,075 89,065
Long-term debt and obligations under capital leases............. 8,488 8,352 3,066 2,876 2,766
Total shareholders' equity...................................... 11,011 9,979 7,814 6,518 6,283
Performance ratios
Return on average assets........................................ 1.02% .97% 1.00% .17% .52%
Return on average common shareholders' equity (1)............... 16.10 15.00 15.83 2.70 9.56
Market price per share of common stock
High for the period............................................. $ 57 3/8 $ 58 $ 53 3/8 $ 42 3/4 $ 47 1/4
Low for the period.............................................. 43 3/8 44 1/2 39 5/8 21 1/2 16 7/8
</TABLE>
(1) Average common shareholders' equity does not include the effect of market
value adjustments to securities available for sale and marketable equity
securities.
In 1993, return on average assets and return on average common shareholders'
equity after the tax benefit from the impact of adopting the new income tax
accounting standard was 1.12% and 17.33%, respectively.
Management's Discussion and Analysis 25
<PAGE>
KEY PERFORMANCE HIGHLIGHTS FOR 1994 WERE:
. Return on average common shareholders' equity increased to 16.10 percent
from 15.00 percent in 1993.
. Taxable-equivalent net interest income increased $582 million, or 12
percent, compared to 1993, resulting from a 24-percent increase in average
earning assets. Average loans and leases rose 20 percent in 1994.
Adjusting for acquisitions, internal loan growth was 12 percent.
. Provision for credit losses decreased 28 percent to $310 million, compared
to 1993, and OREO expense declined from $78 million in 1993 to a net
recovery of $12 million in 1994. Nonperforming asset levels declined 36
percent and net charge-offs declined 23 percent.
. Noninterest income increased to $2.6 billion, or 24 percent, over 1993
levels. After adjusting for acquisitions, noninterest income increased 11
percent reflecting higher trading account profits, investment banking
income, service charges on deposit accounts and trust fees.
. Noninterest expense increased 15 percent to $4.9 billion in 1994.
Adjusting for acquisitions, expense growth was held to approximately two
and one-half percent in 1994, reflecting the results of corporate-wide
efforts to contain expense levels. The Corporation's efficiency ratio
improved to 62.54 percent in 1994 from 62.91 percent in 1993.
HIGHLIGHTS FROM A CUSTOMER GROUP PERSPECTIVE WERE:
. The General Bank's 1994 earnings of $932 million increased $192 million,
or 26 percent, from 1993. Return on average
- --------------------------------------------------------------------------------
2 CUSTOMER GROUP SUMMARY
(Dollars in Millions)
<TABLE>
<CAPTION>
General Bank Institutional Group Financial Services Other
-----------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income (taxable-equivalent).... $ 3,689 $ 3,479 $ 1,180 $ 1,040 $ 413 $ 204 $ 24 $ -
Noninterest income.......................... 1,712 1,430 834 626 51 45 - -
-----------------------------------------------------------------------------------
Total revenue............................. 5,401 4,909 2,014 1,666 464 249 24 -
Provision for credit losses................. 283 364 (46) 31 73 35 - -
Gains (losses) on sales of securities....... - - - - - - (13) 84
Other real estate owned expense (income).... 8 30 (27) 43 7 5 - -
Restructuring expense....................... - - - - - - - 30
Noninterest expense......................... 3,644 3,342 1,087 798 212 153 - -
-----------------------------------------------------------------------------------
Income before income taxes and effect of
changes in method of accounting for
income taxes.............................. 1,466 1,173 1,000 794 172 56 11 54
Income tax expense.......................... 534 433 369 302 69 21 (13) 20
-----------------------------------------------------------------------------------
Income before effect of change in method
of accounting for income taxes............ 932 740 631 492 103 35 24 34
Effect of change in method of accounting
for income taxes.......................... - - - - - - - 200
-----------------------------------------------------------------------------------
Net income.................................. $ 932 $ 740 $ 631 $ 492 $ 103 $ 35 $ 24 $ 234
===================================================================================
Net interest yield.......................... 4.52% 4.76% 2.81% (1) 3.17% (1) 7.45% 7.80%
Return on equity............................ 17% 16% 16% 16% 13% 13%
Efficiency ratio............................ 67.46 68.08 53.95 47.90 45.64 61.62
Average (2)
Total loans and leases,
net of unearned income.................. $58,582 $50,055 $31,109 $26,855 $5,537 $2,622
Total deposits............................ 77,665 71,967 11,273 8,721 - -
Total assets.............................. 86,860 77,976 66,496 44,599 6,064 3,102
Year end (2)
Total loans and leases,
net of unearned income.................. 63,578 59,591 33,193 28,244 6,380 5,164
Total deposits............................ 79,905 79,573 13,614 8,926 - -
</TABLE>
(1) Institutional Group's net interest yield excludes the impact of the primary
government securities dealer. Including the primary government securities
dealer, the net interest yield was 1.98 percent in 1994 and 2.66 percent in
1993.
(2) The sums of balance sheet amounts will differ from consolidated amounts
due to intercompany balances.
26 NationsBank Corporation Annual Report 1994
<PAGE>
[PIE CHART APPEARS HERE
1994 EARNINGS CONTRIBUTION BY CUSTOMER GROUP
<TABLE>
<CAPTION>
General Institutional Financial
Bank Group Services
-------- ------- ----------
<S> <C> <C> <C>
Percent of
net income (excludes other) 56% 38% 6%]
</TABLE>
. common shareholders' equity increased to 17 percent in 1994 from 16
percent in 1993.
. Earnings for the Institutional Group grew 28 percent to $631 million,
compared to 1993 earnings of $492 million. Return on average common
shareholders' equity was 16 percent in both 1994 and 1993.
. Financial Services earnings were $103 million in 1994 compared to $35
million in the prior year, primarily reflecting the full-year impact of
the 1993 acquisition of U S WEST Financial Services Inc. Return on average
common shareholders' equity was 13 percent in both 1994 and 1993 .
The analysis of the results of operations and financial condition of
the Corporation is impacted by acquisitions. As more fully discussed in Note
2 to the consolidated financial statements, the more significant
acquisitions, all of which were accounted for as purchases, included:
. MNC Financial Inc. (MNC), a bank holding company headquartered in
Baltimore, Maryland, with total assets of approximately $16.5 billion.
Acquired October 1, 1993.
. Approximately $2.0 billion in net receivables and the ongoing business of
U S WEST Financial Services Inc., now known as Greyrock Capital Group Inc.
Acquired December 1, 1993.
. Primarily $12 billion of trading account assets and certain of the
liabilities of Chicago Research & Trading Group Ltd. (CRT), an options
market-making and trading firm and a primary government securities dealer.
Acquired July 2, 1993.
. Approximately $3.7 billion of finance receivables and certain of the
liabilities of Chrysler First Inc., the non-automotive finance subsidiary
of Chrysler Financial Corporation, which now operates as NationsCredit.
Acquired February 1, 1993.
. Several smaller banking organizations, including aggregate loans of $654
million and deposits of $5.1 billion. Several mortgage banking operations,
including mortgage servicing rights of $8.6 billion.
The remainder of management's discussion and analysis of the
consolidated results of operations and financial condition of NationsBank
Corporation should be read together with the consolidated financial
statements and related notes presented on pages 58 through 77.
Customer Group Review
The Corporation is segregated into three major internal management
units, or Customer Groups. These units, shown in TABLE 2, are managed with a
focus on numerous performance objectives including return on equity,
operating efficiency and net income.
The net income of the customer groups reflects a funds transfer
pricing system which derives net interest income by matching assets and
liabilities with similar interest rate sensitivity and maturity
characteristics. Equity capital is allocated to each customer group based on
an assessment of its inherent risk.
The General Bank includes the Banking Group, which contains the retail
banking network and is the service provider for small and medium-size
companies; Financial Products, which provides specialized services such as
credit cards, residential mortgages, indirect lending and brokerage on a
national basis; and Trust and Private Banking.
The General Bank earned $932 million in 1994, an increase of 26 percent
over 1993. Return on equity improved to 17 percent. Groups with the largest
contribution toward the higher returns included the Banking Group and Card
Services, driven primarily by improvement in operating efficiency and credit
quality. Net interest income in the General Bank grew six percent over 1993
reflecting the benefits of deposit cost containment efforts as well as
17-percent loan growth. Approximately two-thirds of this loan growth was
internally generated while the remainder resulted from acquisitions.
Internally generated loan growth was concentrated in residential mortgages
and commercial loans. The increase in net interest income resulting from loan
growth and deposit pricing was partially offset by a narrowing of the spread
between securities and market-based funds. The General Bank's efficiency
ratio continued to improve in 1994, declining 62 basis points to 67.46
percent, reflecting the benefits of operational consolidation and increases
in fee income. The efficiency improvement was realized despite Model Banking
development expense totaling $80 million in 1994. Model Banking is a system
designed and in the process of being implemented across the Corporation's
franchise to enhance retail customer sales and product delivery.
The Banking Group contributed 58 percent of the General Bank's earnings
in 1994 with a return on equity of 15 percent. In 1993, the Banking Group's
return on equity was 14 percent. During 1994, average loans increased 25
percent, or $8.4 billion, with
Management's Discussion and Analysis 27
<PAGE>
- --------------------------------------------------------------------------------
3 12-MONTH TAXABLE-EQUIVALENT DATA
(Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------
AVERAGE Average Average
BALANCE INCOME Balance Income Balance Income
SHEET OR YIELDS/ Sheet or Yields/ Sheet or Yields/
AMOUNTS EXPENSE RATES Amounts Expense Rates Amounts Expense Rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2).............................. $ 41,606 $ 3,147 7.56% $ 35,050 $ 2,438 6.96% $ 29,206 $ 2,067 7.08%
Real estate commercial...................... 7,780 636 8.18 6,667 506 7.59 6,769 527 7.78
Real estate construction.................... 3,155 268 8.49 2,894 217 7.50 3,718 266 7.17
------------------------------------------------------------------------------
Total commercial.......................... 52,541 4,051 7.71 44,611 3,161 7.09 39,693 2,860 7.20
------------------------------------------------------------------------------
Residential mortgage........................ 14,980 1,141 7.62 10,904 902 8.27 8,245 769 9.33
Home equity................................. 2,531 202 7.99 2,173 155 7.14 2,109 148 7.05
Credit card................................. 3,956 508 12.84 4,376 596 13.62 3,969 574 14.45
Other consumer.............................. 17,237 1,629 9.45 14,289 1,366 9.56 12,047 1,277 10.60
------------------------------------------------------------------------------
Total consumer............................ 38,704 3,480 8.99 31,742 3,019 9.51 26,370 2,768 10.50
------------------------------------------------------------------------------
Foreign..................................... 1,417 86 6.10 961 52 5.49 823 55 6.63
Lease financing............................. 2,344 176 7.50 1,670 133 7.96 1,301 107 8.25
------------------------------------------------------------------------------
Total loans and leases, net............... 95,006 7,793 8.20 78,984 6,365 8.06 68,187 5,790 8.49
------------------------------------------------------------------------------
Securities
Held for investment......................... 15,048 761 5.06 24,823 1,375 5.54 22,541 1,542 6.84
Available for sale (3)...................... 12,386 644 5.20 1,017 49 4.80 1,785 103 5.77
------------------------------------------------------------------------------
Total securities.......................... 27,434 1,405 5.12 25,840 1,424 5.51 24,326 1,645 6.76
------------------------------------------------------------------------------
Loans held for sale......................... 339 23 6.63 790 53 6.73 967 70 7.22
Federal funds sold and securities
purchased under agreements to resell...... 13,389 547 4.09 6,049 194 3.21 5,346 201 3.77
Time deposits placed and other
short-term investments.................... 1,762 90 5.12 2,037 79 3.91 1,802 92 5.09
Trading account securities (4).............. 10,451 765 7.32 5,482 298 5.43 1,592 74 4.64
------------------------------------------------------------------------------
Total earning assets (5).................. 148,381 10,623 7.16 119,182 8,413 7.06 102,220 7,872 7.70
Cash and cash equivalents....................... 8,271 7,275 6,512
Factored accounts receivable.................... 1,252 1,074 949
Other assets, less allowance for credit losses
and excluding Special Asset Division.......... 8,415 6,869 5,366
------------------------------------------------------------------------------
Total assets, excluding Special
Asset Division............................ $166,319 $134,400 $115,047
==============================================================================
Interest-bearing liabilities
Savings....................................... $9,116 212 2.33 $ 6,774 161 2.38 $ 5,646 161 2.86
NOW and money market deposit accounts......... 29,724 696 2.34 28,641 641 2.24 28,283 798 2.82
Consumer CDs and IRAs......................... 23,937 999 4.17 23,387 1,057 4.52 25,835 1,443 5.58
Negotiated CDs, public funds
and other time deposits..................... 3,319 133 4.02 4,211 167 3.97 5,663 279 4.93
Foreign time deposits......................... 7,544 375 4.98 3,033 123 4.05 1,648 91 5.52
Borrowed funds and trading
account liabilities (4)(6).................. 48,323 2,353 4.87 33,293 1,149 3.45 19,204 639 3.33
Long-term debt and obligations under
capital leases.............................. 8,033 550 6.85 5,268 392 7.44 3,036 271 8.92
Special Asset Division net
funding allocation.......................... - - - - - - - - -
------------------------------------------------------------------------------
Total interest-bearing liabilities........ 129,996 5,318 4.09 104,607 3,690 3.53 89,315 3,682 4.12
Noninterest-bearing sources
Noninterest-bearing deposits.................. 20,097 17,425 15,597
Other liabilities............................. 5,742 3,717 2,849
FDIC interest in NationsBank of Texas......... - - -
Shareholders' equity.......................... 10,484 8,651 7,286
------------------------------------------------------------------------------
Total liabilities and shareholders'
equity................................... $166,319 $134,400 $115,047
==============================================================================
Net interest spread............................. 3.07 3.53 3.58
Impact of noninterest-bearing sources........... .51 .43 .52
------------------------------------------------------------------------------
Net interest income/yield on earning assets..... $ 5,305 3.58% $4,723 3.96% $4,190 4.10%
==============================================================================
</TABLE>
(1) Nonperforming loans are included in the respective average loan balances.
Income on such nonperforming loans is recognized on a cash basis.
(2) Commercial loan interest income includes net interest rate swap revenues
related to asset conversion swaps converting variable-rate commercial loans
to fixed rate. Such amounts were $62 and $120 in 1994 and 1993,
respectively.
(3) The average balance sheet amounts and yields on securities available for
sale are based on the average of historical amortized cost balances.
(4) Gross unrealized gains and losses on off-balance sheet trading positions
are reported in other assets and liabilities, respectively.
(5) Interest income includes taxable-equivalent adjustments of $94, $86, $92,
$141, $163 and $217 for 1994, 1993, 1992, 1991, 1990 and 1989, respectively.
(6) Borrowed funds and trading account liabilities interest expense includes net
interest rate swap expense related to liability conversion swaps fixing the
cost of certain variable-rate liabilities, primarily market-based borrowed
funds. Such amounts were $31 and $3 in 1994 and 1993, respectively.
28 NationsBank Corporation Annual Report 1994
<PAGE>
- --------------------------------------------------------------------------------
3 12-MONTH TAXABLE-EQUIVALENT DATA
(Dollars in Millions)
<TABLE>
<CAPTION>
1991 1990
-----------------------------------------------------------
Average Average
Balance Income Balance Income
Sheet or Yields/ Sheet or Yields/
Amounts Expense Rates Amounts Expense Rates
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2).............................. $ 29,731 $2,586 8.70% $ 29,890 $ 3,122 10.44%
Real estate commercial...................... 6,473 591 9.13 5,931 622 10.49
Real estate construction.................... 5,085 449 8.82 5,289 573 10.84
-----------------------------------------------------------
Total commercial.......................... 41,289 3,626 8.78 41,110 4,317 10.50
-----------------------------------------------------------
Residential mortgage........................ 7,713 807 10.47 9,079 867 9.55
Home equity................................. 1,883 179 9.53 1,625 182 11.18
Credit card................................. 3,411 519 15.22 3,018 476 15.78
Other consumer.............................. 13,045 1,483 11.37 11,215 1,419 12.66
-----------------------------------------------------------
Total consumer............................ 26,052 2,988 11.47 24,937 2,944 11.81
-----------------------------------------------------------
Foreign..................................... 734 62 8.47 838 112 13.28
Lease financing............................. 1,292 141 10.89 1,240 118 9.53
-----------------------------------------------------------
Total loans and leases, net............... 69,367 6,817 9.83 68,125 7,491 11.00
-----------------------------------------------------------
Securities
Held for investment......................... 25,412 2,189 8.61 25,984 2,377 9.15
Available for sale (3)...................... - - - - - -
-----------------------------------------------------------
Total securities.......................... 25,412 2,189 8.61 25,984 2,377 9.15
-----------------------------------------------------------
Loans held for sale......................... 425 37 8.74 379 44 11.49
Federal funds sold and securities
purchased under agreements to resell...... 4,904 289 5.89 2,148 175 8.16
Time deposits placed and other
short-term investments.................... 1,661 115 6.89 2,810 251 8.95
Trading account securities (4).............. 1,321 92 6.99 1,211 103 8.43
-----------------------------------------------------------
Total earning assets (5).................. 103,090 9,539 9.25 100,657 10,441 10.37
Cash and cash equivalents....................... 6,387 6,622
Factored accounts receivable.................... 829 845
Other assets, less allowance for credit losses
and excluding Special Asset Division.......... 5,486 5,568
-----------------------------------------------------------
Total assets, excluding Special
Asset Division............................ $115,792 $113,692
===========================================================
Interest-bearing liabilities
Savings....................................... $ 4,732 216 4.55 $ 5,003 258 5.15
NOW and money market deposit accounts......... 26,854 1,331 4.96 24,536 1,477 6.02
Consumer CDs and IRAs......................... 27,261 1,912 7.01 24,713 1,962 7.94
Negotiated CDs, public funds
and other time deposits..................... 11,684 827 7.08 13,738 1,116 8.13
Foreign time deposits......................... 2,548 171 6.70 2,603 231 8.89
Borrowed funds and trading
account liabilities (4)(6).................. 18,948 1,068 5.64 21,256 1,685 7.93
Long-term debt and obligations under
capital leases.............................. 2,816 250 8.88 2,669 245 9.18
Special Asset Division net
funding allocation.......................... (2,845) (176) (6.20) (4,057) (304) (7.49)
-----------------------------------------------------------
Total interest-bearing liabilities........ 91,998 5,599 6.09 90,461 6,670 7.37
Noninterest-bearing sources
Noninterest-bearing deposits.................. 14,491 14,067
Other liabilities............................. 2,698 2,942
FDIC interest in NationsBank of Texas......... - -
Shareholders' equity.......................... 6,605 6,222
-----------------------------------------------------------
Total liabilities and shareholders'
equity................................... $115,792 $113,692
===========================================================
Net interest spread............................. 3.16 3.00
Impact of noninterest-bearing sources........... .66 .75
-----------------------------------------------------------
Net interest income/yield on earning assets..... $3,940 3.82% $3,771 3.75%
===========================================================
<CAPTION>
- -------------------------------------------------------------------------------
Five-Year
1989 Compounded
------------------------- Growth Rate
Average 1989/94
Balance Income -------------------
Sheet or Yields/ Average Income or
Amounts Expense Rates Balances Expense
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2).............................. $ 28,060 $3,299 11.76% 8% (1)%
Real estate commercial...................... 5,173 573 11.08 9 2
Real estate construction.................... 4,848 580 11.96 (8) (14)
--------------------------
Total commercial.......................... 38,081 4,452 11.69 7 (2)
--------------------------
Residential mortgage........................ 7,003 774 11.06 16 8
Home equity................................. 1,506 178 11.80 11 3
Credit card................................. 2,513 413 16.45 9 4
Other consumer.............................. 11,636 1,354 11.64 8 4
--------------------------
Total consumer............................ 22,658 2,719 12.00 11 5
--------------------------
Foreign..................................... 954 109 11.38 8 (5)
Lease financing............................. 1,178 107 9.08 15 10
--------------------------
Total loans and leases, net............... 62,871 7,387 11.75 9 1
--------------------------
Securities
Held for investment......................... 20,475 1,903 9.29 (6) (17)
Available for sale (3)...................... - - -
--------------------------
Total securities.......................... 20,475 1,903 9.29 6 (6)
--------------------------
251 31 12.36 6 (6)
Loans held for sale.........................
Federal funds sold and securities 2,314 213 9.20 42 21
purchased under agreements to resell......
Time deposits placed and other 3,022 294 9.72 (10) (21)
short-term investments.................... 605 55 9.08 77 69
Trading account securities (4).............. --------------------------
Total earning assets (5).................. 89,538 9,883 11.04 11 1
Cash and cash equivalents....................... 6,474 5
Factored accounts receivable.................... 683 13
Other assets, less allowance for credit losses
and excluding Special Asset Division.......... 4,644 13
--------------------------
Total assets, excluding Special
Asset Division............................ $101,339 10
==========================
Interest-bearing liabilities
Savings....................................... $6,203 364 5.86 8 (10)
NOW and money market deposit accounts......... 18,695 1,159 6.20 10 (10)
Consumer CDs and IRAs......................... 20,446 1,735 8.48 3 (10)
Negotiated CDs, public funds
and other time deposits..................... 15,685 1,379 8.79 (27) (37)
Foreign time deposits......................... 2,670 257 9.63 23 8
Borrowed funds and trading
account liabilities (4)(6).................. 17,854 1,606 8.99 22 8
Long-term debt and obligations under
capital leases.............................. 2,061 203 9.84 31 22
Special Asset Division net
funding allocation.......................... (5,164) (424) (8.20)
--------------------------
Total interest-bearing liabilities........ 78,450 6,279 8.00 11 (3)
Noninterest-bearing sources
Noninterest-bearing deposits.................. 13,976 8
Other liabilities............................. 3,235 12
FDIC interest in NationsBank of Texas......... 412
Shareholders' equity.......................... 5,266 15
--------------------------
Total liabilities and shareholders'
equity................................... $101,339 10
==========================
Net interest spread............................. 3.04
Impact of noninterest-bearing sources........... .99
--------------------------
Net interest income/yield on earning assets..... $3,604 4.03% 8
==========================
</TABLE>
Management's Disussion and Analysis 29
<PAGE>
MNC accounting for approximately 40 percent of the increase. The $4.9 billion
increase in average deposits reflected the full-year impact of MNC and four in-
market acquisitions in Texas, Florida and South Carolina. The Financial Products
group contributed 31 percent of the General Bank's earnings with a return on
equity of 28 percent. Card Services accounted for over 50 percent of Financial
Products' earnings and generated a return on equity of 46 percent. In 1993, the
Card Services' return on equity was 27 percent. Dealer Finance is the next
largest component of Financial Products and produced a return on equity of 17
percent in 1994. The 1993 return was 15 percent.
The Institutional Group includes Corporate and Investment Banking
activities, the Real Estate Banking Group, Specialized Lending and the
Capital Markets Group, which includes customer-related derivatives, foreign
exchange, securities trading and securities underwriting activities. Housed
in this unit are NationsBanc-CRT and NationsBanc Capital Markets, Inc., which
with its Section 20/Tier II powers, underwrites and deals in various types of
corporate debt and has the power to underwrite and deal in equity securities.
The Institutional Group earned $631 million in 1994, representing a
return on equity of 16 percent. Continued asset quality improvements in the
Real Estate Banking Group drove the increased return on equity for the
Institutional Group overall. The increase in net interest income resulting from
loan growth of 16 percent over 1993 was constrained by a narrowing of the spread
between securities and market-based funds. Noninterest income for the
Institutional Group rose $208 million, or 33 percent, reflecting higher trading
gains (due to the full-year impact of CRT) and growth in investment banking and
deposit fees. Investments committed to expand capital markets activities and the
full-year impact of CRT largely drove the $289 million increase in operating
expense and the change in the efficiency ratio. Real Estate Banking Group asset
quality improvement contributed to the negative provision for credit losses and
OREO recoveries for 1994. Combined, these two categories accounted for $147
million of the Institutional Group's $206 million growth in pretax earnings over
1993.
Financial Services consists of NationsCredit and Greyrock Capital Group.
In 1994, Financial Services contributed $103 million, or six percent, of
consolidated earnings reflecting their first full year of NationsBank
operations as well as strong growth throughout the year. On a year-end basis,
loan growth of 24 percent included strength in consumer lending and inventory
financing. The 13-percent return on equity was impacted by a higher
equity-to-asset ratio of 13 percent in 1994, necessary to posture this unit
for raising funds in the financial markets.
The Other category in TABLE 2 includes gains and losses on sales of
securities and earnings on unallocated equity.
Results Of Operations
NET INTEREST INCOME
TABLE 3 presents an analysis of the Corporation's taxable-equivalent
net interest income and average balance sheet levels for the last six years.
TABLE 4 analyzes changes in net interest income from year to year.
Taxable-equivalent net interest income increased $582 million to $5.3
billion in 1994, compared to $4.7 billion in 1993. The increase was due to
higher earning asset levels, primarily loans and leases which increased $16.0
billion, or 20 percent. Loan growth in the General Bank approximated $9.0
billion, centered in commercial, residential mortgage and other consumer
loans. The Institutional Group experienced loan growth of approximately $4.0
billion, reflecting primarily an increase in commercial loans. The
$3.0-billion increase in average loans in Financial Services primarily
reflects the full-year impact of Greyrock Capital Group. On a consolidated
basis, after adjusting for acquisitions and the securitization of credit card
receivables, loan levels increased by $9.1 billion, or 12 percent. The
aggregate of average federal funds sold, securities purchased under
agreements to resell and trading account assets increased $12.3 billion,
primarily due to the 1993 acquisition and higher trading asset levels of the
Corporation's primary government securities dealer. The increase in net
interest income resulting from higher loan levels and deposit cost
containment efforts was partially offset by a narrowing of the spread between
fixed-rate investment securities and market-based funds. As more fully
discussed in the Interest Rate Risk Management section, actions taken in the
second half of 1994 to reposition the balance sheet in light of rising
interest rates had a slight negative impact on net interest income.
[PIE CHART APPEARS HERE
1994 CUSTOMER GROUP DISTRIBUTION OF LOANS AND REVENUES
<TABLE>
<CAPTION>
General Institutional Financial
Bank Group Services
------- ------- -----------
<S> <C> <C> <C>
Percent of net loans
and leases........................... 62% 32% 6%
Percent of revenues................... 68% 26% 6%]
</TABLE>
30 NationsBank Corporation Annual Report 1994
<PAGE>
The net interest yield declined 38 basis points to 3.58 percent in
1994, compared to 3.96 percent in 1993. Excluding the impact of the
Corporation's primary government securities dealer, for which revenues are
recorded in noninterest income, the net interest yield declined 14 basis
points to 4.04 percent, compared to 4.18 percent in 1993. The decline in the
yield reflected the decreased spread between fixed-rate investment securities
and market-based funds, partially offset by increased net interest yields
resulting from loan growth and deposit cost containment efforts.
The yield on average earning assets increased 10 basis points to 7.16
percent in 1994 from 7.06 percent in 1993. Excluding the impact of the
trading assets of the Corporation's primary government securities dealer, the
yield on average earning assets increased 16 basis points to 7.33 percent in
1994, compared to 7.17 percent in 1993. The yield on total loans and leases
increased 14 basis points to 8.20 percent in 1994, reflecting loan growth in
a rising interest rate environment. The Corporation's prime interest rate
rose from an average of 6.00 percent in 1993 to 7.14 percent in 1994.
- --------------------------------------------------------------------------------
4 CHANGES IN TAXABLE-EQUIVALENT NET INTEREST INCOME
(Dollars in Millions)
This table presents an analysis of the year-to-year changes in net
interest income on a fully taxable-equivalent basis for the years shown.
The changes for each category of income and expense are divided between
the portion of change attributable to the variance in average levels or
yields/rates for that category. The amount of change that cannot be
separated is allocated to each variance proportionately.
<TABLE>
<CAPTION>
From 1993 to 1994 From 1992 to 1993
---------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
in Income/Expense in Income/Expense
Due to Change in Due to Change in
---------------------------------------------------------------------------------
Percentage Percentage
Average Yields/ Increase Average Yields/ Increase
Levels Rates Total (Decrease) Levels Rates Total (Decrease)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from earning assets
Loans and leases, net of unearned income
Commercial................................. $ 483 $ 226 $ 709 29.1% $ 407 $ (36) $ 371 17.9%
Real estate commercial..................... 89 41 130 25.7 (8) (13) (21) (4.0)
Real estate construction................... 21 30 51 23.5 (61) 12 (49) (18.4)
------ -----
Total commercial......................... 595 295 890 28.2 349 (48) 301 10.5
------ -----
Residential mortgage....................... 315 (76) 239 26.5 227 (94) 133 17.3
Home equity................................ 27 20 47 30.3 5 2 7 4.7
Credit card................................ (55) (33) (88) (14.8) 57 (35) 22 3.8
Other consumer............................. 279 (16) 263 19.3 222 (133) 89 7.0
------ -----
Total consumer........................... 633 (172) 461 15.3 528 (277) 251 9.1
------ -----
Foreign.................................... 27 7 34 65.4 8 (11) (3) (5.5)
Lease financing............................ 51 (8) 43 32.3 29 (3) 26 24.3
------ -----
Total loans and leases, net.............. 1,312 116 1,428 22.4 881 (306) 575 9.9
------ -----
Securities
Held for investment........................ (503) (111) (614) (44.7) 146 (313) (167) (10.8)
Available for sale......................... 591 4 595 n/m (39) (15) (54) (52.4)
------ -----
Total securities......................... 85 (104) (19) (1.3) 98 (319) (221) (13.4)
------ -----
Loans held for sale........................ (31) 1 (30) (56.6) (12) (5) (17) (24.3)
Federal funds sold and securities purchased
under agreements to resell............... 287 66 353 182.0 25 (32) (7) (3.5)
Time deposits placed and other short-term
investments.............................. (12) 23 11 13.9 11 (24) (13) (14.1)
Trading account securities................. 339 128 467 156.7 209 15 224 302.7
------ -----
Total interest income.................... 2,089 121 2,210 26.3 1,234 (693) 541 6.9
------ -----
Interest expense
Savings.................................... 55 (4) 51 31.7 29 (29) - -
NOW and money market deposit accounts...... 26 29 55 8.6 10 (167) (157) (19.7)
Consumer CDs and IRAs...................... 24 (82) (58) (5.5) (128) (258) (386) (26.7)
Negotiated CDs, public funds and other
time deposits............................ (36) 2 (34) (20.4) (64) (48) (112) (40.1)
Foreign time deposits...................... 219 33 252 204.9 61 (29) 32 35.2
Borrowed funds and trading
account liabilities...................... 629 575 1,204 104.8 485 25 510 79.8
Long-term debt and obligations under
capital leases........................... 191 (33) 158 40.3 172 (51) 121 44.6
------ -----
Total interest expense................. 982 646 1,628 44.1 581 (573) 8 .2
------ -----
Net interest income.......................... 1,076 (494) $ 582 12.3 676 (143) $ 533 12.7
====== =====
</TABLE>
n/m - not meaningful.
Management's Discussion and Analysis 31
<PAGE>
The Corporation did not fully reinvest proceeds from the 1994 maturities
and sales of certain higher yielding securities during 1994. As a result, the
yield on the securities portfolio declined 39 basis points to 5.12 percent in
1994. The average yield of the remaining securities portfolio on December 31,
1994 was 5.37 percent.
Average interest-bearing liabilities increased $25.4 billion in 1994
compared to 1993. Borrowed funds and trading liabilities increased $15.0
billion, to $48.3 billion, resulting primarily from the acquisition and funding
of the Corporation's primary government securities dealer and increased trading
activities. Long-term debt increased $2.8 billion due to debt acquired in the
MNC acquisition and debt securities issued in connection with financing
Financial Services. Interest-bearing deposits increased $7.6 billion,
principally due to acquisitions. Excluding deposits acquired from MNC in 1993
and California Federal Savings Bank in 1994, average interest-bearing deposit
levels remained relatively flat. Consumer CDs and money market savings accounts
declined, offset by increases in foreign time deposits. The increase in foreign
time deposits resulted from wholesale funding initiatives.
The rate on average interest-bearing liabilities increased 56 basis points
to 4.09 percent in 1994, from 3.53 percent in 1993. Excluding the impact of the
trading liabilities of the Corporation's primary government securities dealer,
the rate on average interest-bearing liabilities increased 39 basis points to
3.83 percent in 1994, compared to 3.44 percent in 1993. This rate increase
resulted from the Corporation's efforts to extend liability maturities through
its use of longer-term bank notes and foreign time deposits in lieu of utilizing
overnight funding.
Net interest income in 1994 was impacted by the fourth quarter 1993
securitization of credit card receivables. The Corporation periodically
securitizes credit card receivables which changes the Corporation's role from
that of a lender to that of a loan servicer. During 1994, the Corporation
managed an average credit card portfolio of $5.4 billion, including $1.4
billion which had been securitized. For the securitized portion of the credit
card portfolio, residual net interest income after paying certificate holders
and after credit losses is reported as servicing fees in noninterest income.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $310 million in 1994, compared to $430
million in the prior year. A strengthening economy, coupled with the
Corporation's continued loan workout activities, resulted in an overall
improvement in credit quality trends which led to lower credit costs. Excluding
the fourth quarter 1993 impact of MNC, nonperforming asset levels declined every
quarter of 1994 and 1993. Net charge-offs declined $96 million to $316 million
in 1994.
On December 31, 1994, the allowance for credit losses was $2.2 billion, or
2.11 percent of loans, leases and factored accounts receivable, compared to an
allowance of $2.2 billion, or 2.36 percent, at the end of 1993. The allowance
for credit losses was 273 percent of nonperforming loans on December 31, 1994,
compared to 193 percent on December 31, 1993.
TABLE 12 provides an analysis of the activity in the Corporation's
allowance for credit losses for each of the last five years. Allowance levels,
net charge-offs and nonperforming assets are discussed in the Asset Quality
Review and Credit Risk Management section.
SECURITIES GAINS AND LOSSES
Losses from the sales of securities were $13 million in 1994, as
securities were sold in the last quarter of 1994 as a part of interest rate
repositioning efforts. Gains in 1993 were $84 million.
NONINTEREST INCOME
TABLE 5 compares the major categories of noninterest income for 1994 and
1993.
Noninterest income totaled $2.6 billion in 1994, an increase of $496
million, or 24 percent, from $2.1 billion in 1993. Adjusted for acquisitions,
growth in noninterest income was 11 percent in 1994.
Trading account profits and fees, including foreign exchange income,
increased $121 million, or 80 percent, in 1994 compared to 1993. This increase,
resulting primarily from the acquisition of CRT, is concentrated in interest
rate derivatives trading and is consistent with the expansion efforts in capital
markets activities.
An analysis of trading account profits
[GRAPH APPEARS HERE
Net Interest Income
(Dollars in Billions)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net interest income....... $3.771 $3.940 $4.190 $4.723 $5.305]
</TABLE>
32 NationsBank Corporation Annual Report 1994
<PAGE>
and fees by major business activity is as follows (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Securities trading............................. $ 82 $ 73
Interest rate contracts........................ 119 21
Foreign exchange contracts 27 27
Other.......................................... 45 31
Total trading account ---- ----
profits and fees........................... $273 $152
==== ====
</TABLE>
Growth, excluding acquisitions, occurred in most major categories of
noninterest income as described below:
. General Bank trust fees increased $22 million, or six percent, in 1994
compared to 1993. Increased fees were realized primarily due to growth in
mutual fund investment advisory services, other trust related services and
increased volume of securities lending activities. Partially offsetting
these increases were fee decreases resulting from the rising interest rate
environment which caused declines in the discretionary assets under
management portfolio, principally in the market values of debt
instruments. Discretionary assets under management and total assets under
administration by the Trust Group were $57.4 billion and $163.6 billion,
respectively, on December 31, 1994.
. Service charges on deposit accounts increased $33 million, or five
percent, from 1993. Concentrated emphasis on fee collections was the
primary contributor to this growth.
. Mortgage servicing and related fees increased $2 million, or three
percent, in 1994 compared to 1993. Including acquisitions, the average
portfolio of loans serviced increased 35 percent from $26.3 billion in
1993 to $35.5 billion in 1994. On December 31, 1994, the servicing
portfolio totaled $39.0 billion. Mortgage loan originations through the
Corporation's mortgage company decreased 38 percent during 1994 to $6.9
billion. The majority of this decrease was in retail loan volume coupled
with a slight decline in correspondent wholesale volume. These declines
reflected industry-wide trends of lower origination levels resulting from
increases in interest rates.
. Higher syndication fees and venture capital income in the Institutional
Group contributed the majority of the $44-million, or 47-percent increase
in investment banking income in 1994 compared to 1993. The Capital Markets
syndication group led 362 deals totaling $195.5 billion during 1994,
compared to 234 deals totaling $115.9 billion in 1993.
. Credit card income increased $81 million in 1994, or 41 percent, compared
to 1993.
- --------------------------------------------------------------------------------
5 NONINTEREST INCOME
(Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------
Percent Percent
of Taxable- Of Taxable-
Equivalent Equivalent Change
Net Interest Net Interest ------------------
Amount Income Amount Income Amount Percent
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trust fees........................... $ 435 8.2% $ 371 7.9% $ 64 17.3%
-------------------------------------------------------------------
Service charges on deposit accounts.. 797 15.0 681 14.4 116 17.0
-------------------------------------------------------------------
Nondeposit-related service fees
Safe deposit rent................ 27 .5 25 .5 2 8.0
Mortgage servicing and related
fees............................ 86 1.6 77 1.6 9 11.7
Fees on factored accounts
receivable...................... 74 1.4 74 1.6 - -
Investment banking income........ 138 2.6 94 2.0 44 46.8
Other service fees............... 111 2.1 93 2.0 18 19.4
-------------------------------------------------------------------
Total nondeposit-related service
fees............................ 436 8.2 363 7.7 73 20.1
-------------------------------------------------------------------
Credit card income
Merchant discount fees........... 27 .5 30 .6 (3) (10.0)
Annual credit card fees.......... 21 .4 24 .5 (3) (12.5)
Other credit card fees........... 232 4.4 144 3.1 88 61.1
-------------------------------------------------------------------
Total credit card income......... 280 5.3 198 4.2 82 41.4
-------------------------------------------------------------------
Other income
Brokerage income................. 44 .8 41 .9 3 7.3
Trading account profits and fees. 273 5.1 152 3.2 121 79.6
Bankers' acceptances and letters
of credit....................... 67 1.3 65 1.4 2 3.1
Insurance commissions and
earnings........................ 49 .9 39 .8 10 25.6
Miscellaneous.................... 216 4.2 191 4.0 25 13.1
-------------------------------------------------------------------
Total other income............... 649 12.3 488 10.3 161 33.0
-------------------------------------------------------------------
$2,597 49.0% $2,101 44.5% $ 496 23.6
===================================================================
</TABLE>
Management's Discussion and Analysis 33
<PAGE>
A large portion of the increase in other credit card fees is
related to the securitization of certain credit card loans during the
fourth quarter of 1993. While this transaction served to increase this
component of noninterest income, it also served to decrease net interest
income and net charge-offs for 1994 compared to 1993. The overall effect
on net income from the securitization of this portfolio was approximately
neutral. The remainder of the increase relates to other new credit card
initiatives including an increase in co-branding card income.
OTHER REAL ESTATE OWNED EXPENSE
OREO expense declined $90 million to a net recovery of $12 million in 1994
compared to expense of $78 million in 1993, consistent with the improvement in
asset quality. Improved real estate markets resulted in lower OREO write-downs
and increased gains on sales of these properties.
NONINTEREST EXPENSE
The Corporation's noninterest expense, as shown in TABLE 6, increased $649
million, or 15 percent, in 1994 compared to 1993. Most categories of noninterest
expense were significantly influenced by acquisitions.
Adjusting for the impact of acquisitions, noninterest expense in the
current year increased approximately two and one-half percent, primarily in the
categories described below:
. Personnel expense increased $143 million, or eight percent, primarily due
to increased incentives as well as salaries and wages. Additionally,
within the Capital Markets Group, investments in personnel to expand the
Corporation's capital markets and trading activities and growth in the
business activities of the Institutional Bank and Financial Services
resulted in increases in the number of associates in these customer
groups. Also, contributing to the increase were higher pension costs and
other employee benefits.
. Equipment expense increased $20 million, or seven percent, in 1994
compared to 1993. This increase is primarily due to enhancements to
computer resources, including higher rental expense for upgraded mainframe
equipment and increased costs relating to product delivery systems.
. Marketing expense increased $14 million, or 10 percent, in 1994 compared
to 1993, due to the continuation of a "brand image" campaign that began in
1993 focusing on the NationsBank name and the Corporation's range of
financial products and services. Increased credit card solicitations were
also a primary factor.
. Professional fees decreased $14 million, or nine percent, compared to
1993. The decline was largely the result of focused expense management
efforts in this area.
. The Corporation's FDIC insurance expense for 1994 decreased $13 million,
or six percent, as a result of higher capital levels of certain of the
Corporation's subsidiary banks as well as upgrades in supervisory risk
- --------------------------------------------------------------------------------
6 NONINTEREST EXPENSE
(Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------
Percent Percent
of Taxable- of Taxable-
Equivalent Equivalent Change
Net Interest Net Interest ---------------------
Amount Income Amount Income Amount Percent
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personnel..................................... $2,311 43.6% $1,903 40.3% $408 21.4%
Occupancy, net................................ 487 9.2 434 9.2 53 12.2
Equipment..................................... 364 6.9 317 6.7 47 14.8
Marketing..................................... 161 3.0 138 2.9 23 16.7
Professional fees............................. 171 3.2 168 3.6 3 1.8
Amortization of intangibles................... 141 2.7 110 2.3 31 28.2
Credit card................................... 44 .8 49 1.0 (5) (10.2)
Private label credit card..................... 27 .5 37 .8 (10) (27.0)
FDIC insurance................................ 211 4.0 205 4.3 6 2.9
Processing.................................... 235 4.4 190 4.0 45 23.7
Telecommunications............................ 137 2.6 122 2.6 15 12.3
Postage and courier........................... 126 2.4 120 2.6 6 5.0
Other general operating....................... 388 7.3 370 7.8 18 4.9
General administrative and miscellaneous...... 139 2.6 130 2.8 9 6.9
-------------------------------------------------------------------------
$4,942 93.2% $4,293 90.9% $649 15.1
=========================================================================
</TABLE>
34 NationsBank Corporation Annual Report 1994
<PAGE>
classifications due to improved asset quality. These factors decreased
assessment rates under the risk-based assessment system mandated by the
Federal Deposit Insurance Corporation.
. The Corporation's combined general operating and general administrative
and miscellaneous expenses decreased $9 million due to focused expense
management efforts resulting in reduced expenses for postage, relocation
and supplies, partially offset by increased expenses for
telecommunications.
INCOME TAXES
The Corporation's income tax expense for 1994 was $865 million, for
an effective tax rate of 33.9 percent of pretax income. Tax expense for 1993
was $690 million, for an effective tax rate of 34.7 percent.
Note 13 to the consolidated financial statements includes a
reconciliation of federal income tax expense computed using the federal
statutory rate of 35 percent, to the actual income tax expense reported for
1994 and 1993.
See Notes 1 and 13 to the consolidated financial statements for
additional information on income taxes.
Risk Management
In conducting its business activities, the Corporation is exposed to
interest rate, liquidity and credit risk. The successful management of risk
is integral to the continued growth and profitability of the Corporation. The
following sections address the Corporation's approach to managing risk. The
first section presents a review of the Corporation's balance sheet and
liquidity risk management practices. The Corporation's asset quality results
for 1994 combined with a discussion of credit risk management policies and
procedures are presented in the second section. The third section discusses
the tools used to manage interest rate risk and outlines certain balance
sheet repositioning efforts undertaken by the Corporation during 1994. The
Corporation's capital resources and the management practices surrounding
capital are discussed in the final section.
Balance Sheet Review And
Liquidity Risk Management
Liquidity, a measure of the Corporation's ability to fulfill its cash
requirements, is managed by the Corporation through its asset and liability
management process. This entails measuring and managing the relative balance
between asset, liability and off-balance sheet positions. This process,
coupled with the Corporation's ability to raise capital and debt financing,
ensures the maintenance of sufficient funds to meet the liquidity needs of
the Corporation.
TABLE 7 presents an analysis of the major
- --------------------------------------------------------------------------------
7 SOURCES AND USES OF FUNDS
(Average Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------
Amount Percent Amount Percent
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Composition of sources
Savings, NOW, money market deposit accounts,
and consumer CDs and IRAs........................................ $ 62,777 37.7% $ 58,802 43.8%
Noninterest-bearing funds........................................ 20,097 12.1 17,425 13.0
Customer-based portion of negotiated CDs......................... 1,328 .8 1,690 1.2
------------------------------------------------------
Customer-based funds............................................. 84,202 50.6 77,917 58.0
Market-based funds............................................... 57,858 34.8 38,847 28.9
Long-term debt and obligations under capital leases.............. 8,033 4.8 5,268 3.9
Other liabilities................................................ 5,742 3.5 3,717 2.8
Shareholders' equity............................................. 10,484 6.3 8,651 6.4
------------------------------------------------------
Total sources.................................................... $166,319 100.0% $134,400 100.0%
======================================================
Composition of uses
Loans and leases, net of unearned income......................... $ 95,006 57.1% $ 78,984 58.8%
Securities held for investment................................... 15,048 9.1 24,823 18.5
Securities available for sale.................................... 12,386 7.4 1,017 .7
Loans held for sale.............................................. 339 .2 790 .6
Time deposits placed and other short-term investments............ 1,762 1.1 2,037 1.5
Other earning assets............................................. 23,840 14.3 11,531 8.6
------------------------------------------------------
Total earning assets............................................. 148,381 89.2 119,182 88.7
Factored accounts receivable..................................... 1,252 .8 1,074 .8
Other assets..................................................... 16,686 10.0 14,144 10.5
------------------------------------------------------
Total uses....................................................... $166,319 100.0% $134,400 100.0%
======================================================
</TABLE>
Management's Discussion and Analysis 35
<PAGE>
sources and uses of funds for 1994 and 1993 based on average levels.
The composition of sources of funds reflected a 49-percent increase in
market-based funds to $57.9 billion in 1994 from $38.8 billion in the prior
year. These funds represented 35 percent of total sources of funds in 1994
compared to 29 percent in 1993. Excluding the impact of trading account
liabilities associated with the Corporation's primary government securities
dealer, market-based funds increased 25 percent in 1994 from the prior year,
primarily attributable to the extension of liability maturities through the
use of bank notes and foreign time deposits. Customer-based funds increased
to $84.2 billion from $77.9 billion in 1993 and represented 51 percent of
total sources of funds in 1994, compared to 58 percent in 1993.
The Corporation's primary use of funds, loans and leases, increased
$16.0 billion, or 20 percent, to $95.0 billion in 1994, compared to $79.0
billion in 1993. This increase reflects both internal loan growth as well as
acquisitions. Loans represent 57 percent of the Corporation's uses of funds.
The Corporation's ratio of average loans and leases to customer-based funds
was 113 percent in 1994, compared to 101 percent in the prior year. The
change in this ratio is primarily due to loan growth of 20 percent, coupled
with industry-wide disintermediation.
Average other earning assets rose $12.3 billion, or 107 percent, to
$23.8 billion in 1994 from $11.5 billion in 1993. Approximately $10.9 billion
of this increase resulted from higher levels of trading account assets
associated with the Corporation's primary government securities dealer.
Cash and cash equivalents increased $1.9 billion from December 31, 1993
to December 31, 1994, due to net cash provided by operating activities of
$9.1 billion, and $1.8 billion in cash provided by financing activities,
offset by $9.0 billion in cash used in investing activities.
The net increase in cash provided by operating activities of $7.0
billion from December 31, 1993 to December 31, 1994, was primarily
attributable to the net change in trading instruments of $3.8 billion during
1994 as compared to $707 million during 1993. Cash used in investing
activities decreased $1.6 billion in 1994 compared to 1993, as proceeds from
the sales and maturities of securities available for sale exceeded the
purchases of those securities. This increase in cash was offset by a decrease
in the proceeds from the sales and securitizations of loans of $4.6 billion
from year to year.
- --------------------------------------------------------------------------------
8 DISTRIBUTION OF LOANS, LEASES AND FACTORED ACCOUNTS RECEIVABLE
December 31
(Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------------------
AMOUNT PERCENT Amount Percent Amount Percent Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Commercial............... $ 44,665 43.1% $40,808 44.3% $32,260 44.4% $28,701 41.5% $30,951 43.7%
Real estate commercial... 7,349 7.1 8,239 9.0 6,324 8.7 6,756 9.8 5,847 8.2
Real estate construction. 2,981 2.9 3,256 3.5 3,065 4.2 4,212 6.1 5,453 7.7
------------------------------------------------------------------------------------------------------
Total commercial....... 54,995 53.1 52,303 56.8 41,649 57.3 39,669 57.4 42,251 59.6
------------------------------------------------------------------------------------------------------
Residential mortgage..... 17,244 16.7 12,689 13.8 9,262 12.7 7,571 11.0 8,133 11.5
Home equity.............. 2,644 2.6 2,565 2.8 2,061 2.8 2,121 3.1 1,687 2.4
Credit card.............. 4,753 4.6 3,728 4.1 4,297 5.9 4,178 6.0 3,501 4.9
Other consumer........... 17,867 17.3 16,761 18.2 12,091 16.6 12,524 18.1 12,392 17.5
------------------------------------------------------------------------------------------------------
Total consumer......... 42,508 41.2 35,743 38.9 27,711 38.0 26,394 38.2 25,713 36.3
------------------------------------------------------------------------------------------------------
Lease financing.......... 2,440 2.4 1,729 1.9 1,301 1.8 1,229 1.8 1,236 1.7
Factored accounts
receivable.............. 1,004 1.0 1,001 1.1 917 1.3 817 1.2 760 1.1
------------------------------------------------------------------------------------------------------
100,947 97.7 90,776 98.7 71,578 98.4 68,109 98.6 69,960 98.7
------------------------------------------------------------------------------------------------------
Foreign
Governments and
official institutions... 6 - 22 - 2 - 42 .1 88 .1
Banks and other financial
institutions............ 795 .8 446 .5 304 .4 177 .2 197 .3
Commercial and industrial
companies............... 1,183 1.1 510 .5 634 .9 634 .9 584 .8
Lease financing.......... 440 .4 253 .3 196 .3 146 .2 62 .1
------------------------------------------------------------------------------------------------------
2,424 2.3 1,231 1.3 1,136 1.6 999 1.4 931 1.3
------------------------------------------------------------------------------------------------------
Total loans, leases and
factored accounts
receivable, net of
unearned income.......... $103,371 100.0% $92,007 100.0% $72,714 100.0% $69,108 100.0% $70,891 100.0%
======================================================================================================
</TABLE>
36 NationsBank Corporation Annual Report 1994
<PAGE>
The net cash provided by financing activities decreased $6.5 billion from
December 31, 1993 to December 31, 1994. During 1994, proceeds from the issuances
of long-term debt and subordinated capital notes exceeded principal payments and
retirements by $181 million, as compared to net proceeds in 1993 of $3.7
billion. Also, in 1994, cash provided by the net increase in deposits, federal
funds purchased and securities sold under agreements to repurchase was $1.7
billion as compared to a net increase of $2.9 billion in 1993.
SECURITIES
The securities portfolio on December 31, 1994, consisted of securities
held for investment totaling $17.8 billion and securities available for sale
totaling $8.0 billion compared to $13.6 billion and $15.5 billion, respectively,
on December 31, 1993.
On December 31, 1994, the Corporation's portfolio of securities held for
investment reflected unrealized net depreciation of $699 million compared to
unrealized net appreciation of $20 million on December 31, 1993.
The valuation reserve for securities available for sale and marketable
equity securities reduced shareholders' equity by $136 million on December 31,
1994, reflecting $264 million of pretax depreciation on securities available for
sale, offset by $48 million of pretax appreciation on marketable equity
securities. The valuation amount increased shareholders' equity by $104 million
on December 31, 1993. The changes in depreciation for both the securities held
for investment and the securities available for sale portfolios were primarily
due to the rise in interest rates. Further increases in interest rates would
cause further depreciation due to the fixed-rate nature of the portfolios.
The estimated average maturity was 2.48 years and 2.73 years for
securities held for investment and securities available for sale on December 31,
1994, respectively, compared to 1.83 years and 1.44 years on December 31, 1993.
The estimated average maturity of the combined securities portfolio was 2.56
years on December 31, 1994, compared to 1.63 years on December 31, 1993. The
increase in the estimated average maturity was primarily attributable to 1994
maturities and sales which served to decrease the aggregate period-end
securities portfolio balance 11 percent and shift the composition of the
remaining portfolio to a longer maturity.
The securities portfolio serves a primary role in the overall context
of balance sheet management by the Corporation. The decision to purchase or
sell securities is based upon the current assessment of economic and
financial conditions, including the interest rate environment and other on-
or off-balance sheet positions. The portfolio's scheduled maturities and the
liquid nature of securities, in general, represent a significant source of
liquidity. Approximately $8.0 billion, or 31 percent, of the securities
portfolio matures in 1995. No liquidations other than scheduled maturities
are currently anticipated. As such, no significant securities losses are
expected to result from the unrealized depreciation in the
- --------------------------------------------------------------------------------
9 SELECTED LOAN MATURITY DATA
December 31, 1994
(Dollars in Millions)
This table presents the maturity distribution and interest sensitivity of
selected loan categories (excluding residential mortgage, home equity,
credit card, other consumer loans, lease financing and factored accounts
receivable). Maturities are presented on a contractual basis.
<TABLE>
<CAPTION>
Due after
Due in 1 1 year
year through Due after
or less 5 years 5 years Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial................................................................... $18,713 $18,443 $7,509 $44,665
Real estate commercial....................................................... 1,852 4,438 1,059 7,349
Real estate construction..................................................... 1,624 1,248 109 2,981
Foreign...................................................................... 1,653 247 84 1,984
--------------------------------------------
Total selected loans, net of unearned income............................... $23,842 $24,376 $8,761 $56,979
============================================
Percent of total............................................................. 41.8% 42.8% 15.4% 100.0%
Cumulative percent of total.................................................. 41.8 84.6 100.0
Sensitivity of loans to changes in interest rates--loans due after one year
Predetermined interest rate................................................ $ 6,823 $3,320 $10,143
Floating or adjustable interest rate....................................... 17,553 5,441 22,994
--------------------------------
$24,376 $8,761 $33,137
================================
</TABLE>
Management's Discussion and Analysis 37
<PAGE>
securities portfolio on December 31, 1994. For additional information on
securities see Note 3 to the consolidated financial statements.
LOANS AND LEASES
Total loans and leases increased $11.4 billion to $102.4 billion on
December 31, 1994, compared to $91.0 billion on December 31, 1993. Average loans
and leases increased $16.0 billion to $95.0 billion in 1994 compared to $79.0
billion one year earlier. Approximately $9.1 billion, or 57 percent, of the
increase in average loans and leases reflects internal loan growth, while the
remainder of the increase is the result of acquisitions.
Average loan growth in the commercial loan category increased $6.5
billion, or 19 percent, to $41.6 billion in 1994 from $35.1 billion in 1993.
Internal loan growth, primarily in the General Bank and Institutional Bank,
contributed $3.1 billion of the increase.
Real estate commercial and construction loans averaged $10.9 billion, a
$1.4 billion increase in average levels from the prior year. Excluding
acquisitions, average levels decreased $595 million.
Residential mortgage loans increased $4.1 billion, or 37 percent, to an
average of $15.0 billion in 1994. The majority of this growth was due to
increased origination of residential mortgages through the General Bank's vast
banking center network coupled with a higher retention level of adjustable-rate
mortgages generated through the Corporation's mortgage company.
The scheduled repayments and maturities of loans also represent a
substantial source of liquidity for the Corporation. TABLE 9 shows selected loan
maturity data on December 31, 1994. Approximately 42 percent of the selected
loans presented had maturities of one year or less.
Other sources of liquidity, such as the securitization and sale of certain
loans or portfolios, are also available to the Corporation.
OTHER EARNING ASSETS
As presented in TABLE 3, average other earning assets, including federal
funds sold, securities purchased under agreements to resell and trading account
securities, increased $12.3 billion to $23.8 billion in 1994, compared to 1993.
Other earning assets represented 14 percent of total uses of funds in 1994,
compared to 9 percent in 1993. Increases in trading account securities primarily
reflected the acquisition and higher trading asset levels of the Corporation's
primary government securities dealer.
DEPOSITS
TABLE 3 provides information on the average amounts of deposits and the
rates paid by deposit category. Deposits are the Corporation's primary source of
funds. Through its diverse retail banking network, the Corporation has access to
customers who provide a highly stable source of funds. Average deposits
increased $10.3 billion in 1994, compared to 1993, primarily due to
acquisitions. TABLE 10 provides information on the maturity distribution of
domestic certificates of deposit and other time deposits in amounts of $100
thousand or more for 1994. Domestic certificates of deposit and other time
deposits in denominations of $100 thousand or more amounted to $6.2 billion on
December 31, 1994, compared to $6.5 billion on December 31, 1993. Certificates
of deposit and other time deposits of $100 thousand or more of foreign offices
amounted to $12.6 billion and $3.8 billion on December 31, 1994 and 1993,
respectively.
SHORT-TERM BORROWINGS
The Corporation uses short-term borrowings as a funding source and in
its management of interest rate risk. TABLE 11 presents
<TABLE>
<CAPTION>
===============================================================================
10 MATURITY DISTRIBUTION OF DOMESTIC CERTIFICATES OF DEPOSIT AND
OTHER TIME DEPOSITS IN AMOUNTS OF $100 THOUSAND OR MORE
December 31, 1994
(Dollars in Millions)
Certificates Other Time
of Deposit Deposits Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Maturing in 3 months or less................. $2,679 $ 32 $2,711
Maturing in over 3 through 6 months.......... 1,121 20 1,141
Maturing in over 6 through 12 months......... 939 35 974
Maturing in over 12 months................... 1,093 236 1,329
--------------------------------
$5,832 $323 $6,155
================================
</TABLE>
[BAR GRAPH APPEARS HERE
Average Loans and Leases
(Dollars in Billions)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Average loans and leases........ $68.125 $69.367 $68.187 $78.984 $95.006]
</TABLE>
38 NationsBank Corporation Annual Report 1994
<PAGE>
the categories of short-term borrowings. The increase in commercial paper
outstanding in 1994 and 1993 primarily reflects the use of this funding source
to finance Financial Services, a nonbank subsidiary of the parent company.
The Corporation diversified its funding sources in 1993 by implementing
a short-term bank note program. In 1994, the banking subsidiaries increased the
maximum available issuance under this program by $3.0 billion to $6.0 billion.
Outstandings on December 31, 1994, which are included in other short-term
borrowings, were $4.5 billion under this program.
TRADING ACCOUNT LIABILITIES
Trading activities are primarily financed with funds from short sales.
During 1994, average short sales approximated $10.5 billion.
LONG-TERM DEBT
On December 31, 1994 and 1993, long-term debt was $8.5 billion and $8.3
billion, respectively. During 1994, the Corporation issued approximately $1.2
billion in long-term senior and subordinated debt. This new debt was used for
general corporate purposes including replacing debt repurchased due to its
higher cost and funding for the internal loan growth of Financial Services.
As a source of term liquidity, the Corporation has a medium-term note
program which provides for issuance from time to time of medium-term notes with
maturities of nine months or longer. See Note 7 to the consolidated financial
statements for further details on long-term debt.
OTHER
On September 30, 1994, the Corporation renegotiated its commercial
paper back-up lines establishing a single committed, $1.5 billion, three-year
credit facility. No borrowings have been made under this credit facility.
The Corporation's principal debt ratings on December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
Commercial Senior
Paper Debt
- ---------------------------------------------------------------------------
<S> <C> <C>
Moody's Investors Service.......................... P-1 A2
Standard & Poor's Corporation...................... A-1 A
Duff and Phelps, Inc. ............................. Duff 1+ A+
Fitch Investors Service, Inc. ..................... F-1 A+
Thomson BankWatch.................................. TBW-1 A+
</TABLE>
In managing liquidity, the Corporation takes into account the ability of
the subsidiary banks to pay dividends to the parent corporation. See Note 10 to
the consolidated financial statements for further details on dividends.
<TABLE>
<CAPTION>
===============================================================================================================================
11 SHORT-TERM BORROWINGS
(Dollars in Millions)
Federal funds purchased generally represent overnight borrowings and
repurchase agreements represent borrowings which generally range from one
day to three months in maturity. Commercial paper is issued in maturities
not to exceed nine months. Other short-term borrowings principally consist
of bank notes and U.S. Treasury note balances.
1994 1993 1992
------------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased
On December 31.............................................. $ 3,993 5.19% $ 7,135 2.92% $ 6,420 2.94%
Average during year......................................... 5,397 4.07 6,479 3.03 5,634 3.37
Maximum month-end balance during year....................... 7,264 - 7,899 - 8,644 -
Securities sold under agreements to repurchase
On December 31.............................................. 21,977 5.36 21,236 3.11 9,632 3.23
Average during year......................................... 24,903 4.32 17,283 3.13 10,382 3.25
Maximum month-end balance during year....................... 27,532 - 22,733 - 13,210 -
Commercial paper
On December 31.............................................. 2,519 5.22 2,056 3.26 784 3.29
Average during year......................................... 2,482 4.46 1,379 3.26 534 3.78
Maximum month-end balance during year....................... 2,871 - 2,056 - 784 -
Other short-term borrowings
On December 31.............................................. 5,640 7.21 5,522 3.08 4,560 3.18
Average during year......................................... 5,015 4.25 4,006 3.45 1,962 3.49
Maximum month-end balance during year....................... 6,634 - 8,187 - 4,781 -
</TABLE>
Management's Discussion and Analysis 39
<PAGE>
Asset Quality Review And Credit Risk Management
In conducting business activities, the Corporation is exposed to the
possibility that borrowers or counterparties may default on their obligations
to the Corporation. Credit risk arises through the extension of loans,
leases, factored accounts receivable and certain securities, financial
guarantees, and through counterparty risk on trading and capital markets
transactions. To manage this risk, the Credit Policy group establishes
policies and procedures to manage both on- and off-balance sheet risk and
communicates and monitors the application of these policies and procedures
throughout the Corporation.
================================================================================
12 ALLOWANCE FOR CREDIT LOSSES
(Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance on January 1....................................................... $ 2,169 $ 1,454 $ 1,605 $ 1,322 $ 878
--------------------------------------------------
Loans, leases and factored accounts receivable charged off
Commercial.............................................................. (113) (107) (245) (436) (206)
Real estate commercial.................................................. (32) (84) (279) (316) (101)
Real estate construction................................................ (27) (17) (114) (276) (58)
--------------------------------------------------
Total commercial...................................................... (172) (208) (638) (1,028) (365)
--------------------------------------------------
Residential mortgage.................................................... (7) (10) (18) (33) (15)
Home equity............................................................. (2) (3) (4) (4) (2)
Credit card............................................................. (126) (184) (172) (138) (91)
Other consumer.......................................................... (190) (169) (162) (181) (160)
--------------------------------------------------
Total consumer........................................................ (325) (366) (356) (356) (268)
--------------------------------------------------
Foreign................................................................. - - (7) (3) (28)
Lease financing......................................................... (4) (5) (8) (7) (9)
Factored accounts receivable............................................ (32) (30) (17) (23) (29)
--------------------------------------------------
Total loans, leases and factored accounts
receivable charged off.............................................. (533) (609) (1,026) (1,417) (699)
--------------------------------------------------
NationsBank of Texas charge-offs reimbursed by the FDIC.................... - - - - 13
--------------------------------------------------
Recoveries of loans, leases and factored accounts
receivable previously charged off
Commercial.............................................................. 69 67 62 36 27
Real estate commercial.................................................. 17 21 13 5 3
Real estate construction................................................ 26 12 8 3 -
--------------------------------------------------
Total commercial...................................................... 112 100 83 44 30
--------------------------------------------------
Residential mortgage.................................................... 2 3 4 3 2
Home equity............................................................. 1 1 1 1 -
Credit card............................................................. 22 19 13 19 12
Other consumer.......................................................... 66 64 47 36 30
--------------------------------------------------
Total consumer........................................................ 91 87 65 59 44
--------------------------------------------------
Foreign................................................................. - 1 1 1 2
Lease financing......................................................... 3 2 2 2 1
Factored accounts receivable............................................ 11 7 9 3 2
--------------------------------------------------
Total recoveries of loans, leases and
factored accounts receivable previously charged off................. 217 197 160 109 79
--------------------------------------------------
Net charge-offs....................................................... (316) (412) (866) (1,308) (607)
--------------------------------------------------
Provision for credit losses................................................ 310 430 715 1,582 1,025
Allowance applicable to loans of purchased companies....................... 23 697 - 9 26
--------------------------------------------------
Balance on December 31..................................................... $ 2,186 $ 2,169 $ 1,454 $ 1,605 $ 1,322
==================================================
Loans, leases and factored accounts receivable,
net of unearned income, outstanding on December 31...................... $103,371 $92,007 $72,714 $69,108 $70,891
Allowance for credit losses as a percentage of
loans, leases and factored accounts receivable,
net of unearned income, outstanding on December 31...................... 2.11% 2.36% 2.00% 2.32% 1.86%
Average loans, leases and factored accounts receivable,
net of unearned income, outstanding during the year..................... $96,258 $80,058 $69,136 $70,196 $68,970
Net charge-offs as a percentage of average loans,
leases and factored accounts receivable,
net of unearned income, outstanding during the year..................... .33% .51% 1.25% 1.86% .88%
Ratio of the allowance for credit losses
on December 31 to net charge-offs....................................... 6.93 5.27 1.68 1.23 2.18
Allowance for credit losses as a percentage of nonperforming loans......... 273.07% 193.38% 103.11% 81.82% 100.46%
</TABLE>
40 NationsBank Corporation Annual Report 1994
<PAGE>
[BAR GRAPH APPEARS HERE
Net Charge-offs As A Percentage of Average Net Loans
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net charge-offs as a
percentage of
average net loans....... 0.88% 1.86% 1.25% 0.51% 0.33%]
</TABLE>
Loan and Lease Portfolio -- The Corporation's credit risk is centered
in its loan and lease portfolio which on December 31, 1994 totaled $102.4
billion, or 67 percent, of total earning assets. The Corporation's overall
objective in managing loan portfolio risk is to minimize the adverse impact
of any single event or set of occurrences. To achieve this objective, the
Corporation strives to maintain a loan portfolio that is diverse in terms of
loan type, industry concentration, geographic distribution and borrower
concentration.
The Credit Policy group works with lending officers and is involved
with the implementation, refinement and monitoring of credit policies and
procedures.
For commercial loans, loan officers prepare proposals supporting the
extension of credit. These proposals contain an analysis of the borrower and
an evaluation of the ability of the borrower to repay the potential credit.
The proposals are subject to varying levels of approval by senior line and
credit policy management prior to extension of credit. Commercial loans
receive an initial risk rating by the originating loan officer. This rating
is based on the amount of credit risk inherent in the loan and is reviewed
for appropriateness by senior line and credit policy management. Credits are
monitored by line and credit policy personnel for deterioration in a
borrower's financial condition which would impact the borrower's ability to
repay the credit. Risk ratings are adjusted as necessary.
For consumer loans, approval and funding is conducted in centralized
locations. Generally, credit scoring systems are utilized to provide
standards for extension of credit. Consumer portfolio credit risk is
monitored primarily using statistical models to predict portfolio behavior.
Additionally, product and geographic concentrations are monitored.
An independent credit review group conducts ongoing reviews of the
loan and lease portfolio, reexamining on a regular basis risk assessments for
loans and leases and overall compliance with policy.
To limit credit exposure, the Corporation obtains collateral to
support credit extensions and commitments when deemed necessary. The most
significant categories of collateral are real and personal property, cash on
deposit and marketable securities. The Corporation obtains real property as
security for some loans that are made on the basis of the general
creditworthiness of the borrower and whose proceeds were not used for real
estate-related purposes.
The Corporation also manages exposure to a single borrower, industry,
loan-type or other concentration through syndications of credits,
participations, loan sales and securitizations. Through the Corporation's
Capital Markets Group, the Corporation is a major participant in the
syndications market. In a syndicated facility, each participating lender funds
only their portion of the syndicated facility, therefore limiting their exposure
to the borrower. The Corporation also identifies and reduces its exposure to
funded borrower or industry concentrations through loan sales. Generally, these
sales are without recourse to the Corporation.
================================================================================
13 ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
December 31
(Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial...................... $444 20.3% $403 18.6% $303 20.9% $524 32.6% $498 37.7%
Real estate commercial.......... 214 9.8 230 10.6 220 15.1 282 17.6 123 9.3
Real estate construction........ 83 3.8 123 5.7 141 9.7 252 15.7 239 18.1
------------------------------------------------------------------------------------------
Total commercial.............. 741 33.9 756 34.9 664 45.7 1,058 65.9 860 65.1
------------------------------------------------------------------------------------------
Residential mortgage............ 34 1.6 24 1.1 21 1.4 50 3.1 64 4.9
Home equity..................... 3 .1 23 1.1 18 1.2 26 1.6 23 1.7
Credit card..................... 117 5.4 92 4.2 125 8.6 104 6.5 78 5.9
Other consumer.................. 225 10.3 201 9.3 117 8.1 135 8.4 168 12.7
------------------------------------------------------------------------------------------
Total consumer................ 379 17.4 340 15.7 281 19.3 315 19.6 333 25.2
------------------------------------------------------------------------------------------
Foreign......................... 11 .5 13 .6 17 1.2 6 .4 5 .4
Lease financing................. 17 .8 13 .6 12 .8 12 .7 20 1.5
Factored accounts receivable.... 23 1.0 19 .9 18 1.2 17 1.1 11 .8
Unallocated..................... 1,015 46.4 1,028 47.3 462 31.8 197 12.3 93 7.0
------------------------------------------------------------------------------------------
$2,186 100.0% $2,169 100.0% $1,454 100.0% $1,605 100.0% $1,322 100.0%
==========================================================================================
</TABLE>
Management's Discussion and Analysis 41
<PAGE>
Allowance for Credit Losses -- The Corporation's allowance for credit
losses was $2.2 billion on December 31, 1994 and 1993. Continued improvements
in credit quality during 1994, as evidenced by a 36-percent decline in
nonperforming asset levels and a 23-percent decline in net charge-offs,
resulted in a lower provision for credit losses in 1994. The allowance
coverage of nonperforming loans increased to 273 percent on December 31,
1994, up from 193 percent at the end of 1993. Although credit quality has
improved steadily, management continues to carefully monitor asset quality
trends and reserve levels.
Based on the risk rating process described above, an amount is
allocated within the allowance for credit losses to cover the amount of loss
estimated to be inherent in particular risk categories of loans. The
allocation of the allowance for credit losses is presented in TABLE 13 and
reflects a refinement in methodology of allocating the allowance for credit
losses. The amount allocated is based upon the Corporation's loss experience
within risk categories of loans over a period of years and is adjusted for
existing economic conditions as well as performance trends within specific
industries.
In addition to the allocation by risk category, the Corporation
reviews significant individual credits and concentrations of credits and
makes additional allocations to the allowance when deemed necessary. The
nature of the process by which the Corporation determines the appropriate
allowance for credit losses requires the exercise of considerable judgment.
Management believes that the allowance for credit losses is appropriate given
inherent credit losses on December 31, 1994.
As presented in TABLE 12, net charge-offs for 1994 were $316 million,
or .33 percent of average loans, leases and factored accounts receivable,
versus $412 million, or .51 per-
================================================================================
14 NONPERFORMING ASSETS
December 31
(Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Commercial.............................................................. $ 362 $ 474 $ 650 $ 831 $ 537
Real estate commercial.................................................. 201 318 404 535 374
Real estate construction................................................ 66 142 210 480 349
---------------------------------------------------
Total commercial...................................................... 629 934 1,264 1,846 1,260
---------------------------------------------------
Residential mortgage.................................................... 66 77 88 114 56
Home equity (1)......................................................... 10 7 5 - -
Other consumer (1)...................................................... 84 86 29 - -
---------------------------------------------------
Total consumer........................................................ 160 170 122 114 56
---------------------------------------------------
Foreign................................................................. 3 8 9 1 -
Lease financing (1)..................................................... 9 10 15 - -
---------------------------------------------------
Total nonperforming loans............................................. 801 1,122 1,410 1,961 1,316
---------------------------------------------------
Other real estate owned..................................................... 337 661 587 843 335
---------------------------------------------------
Total nonperforming assets............................................ $1,138 $1,783 $1,997 $2,804 $1,651
===================================================
Nonperforming assets as a percentage of
Total assets, excluding Special Asset Division.......................... .67% 1.13% 1.69% 2.54% 1.46%
Loans, leases and factored accounts receivable,
net of unearned income, and other real estate owned................... 1.10 1.92 2.72 4.01 2.32
Total loans past due 90 days or more and
not classified as nonperforming......................................... $ 146 $ 167 $ 215 $ 223 $ 406
</TABLE>
The loss of income associated with nonperforming loans on December 31 and the
cost of carrying other real estate owned were:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income that would have been recorded in accordance with
original terms........................................................ $ 96 $ 80 $ 105 $ 205 $ 140
Income actually recorded.................................................. (31) (34) (31) (82) (44)
---------------------------------------------------
Loss of income............................................................ $ 65 $ 46 $ 74 $ 123 $ 96
===================================================
Cost of carrying other real estate owned.................................. $ 24 $ 18 $ 25 $ 36 $ 19
</TABLE>
On December 31, 1994, there were no material outstanding commitments to lend
additional funds with respect to nonperforming loans.
(1) Included in commercial nonperforming loans in 1991 and 1990.
42 NationsBank Corporation Annual Report 1994
<PAGE>
[BAR GRAPH APPEARS HERE
Nonperforming Assets
(Dollars in Billions)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonperforming assets.............. $1.651 $2.804 $1.997 $1.783 $1.138
Nonperforming loans............ 1.316 1.961 1.410 1.122 0.801
OREO........................... 0.335 0.843 0.587 0.661 0.337]
</TABLE>
cent, in 1993. After adjusting for the impact of acquisitions, net charge-offs
declined $173 million, or 47 percent, from the prior year. Including
acquisitions, the most significant declines were centered in credit card and
real estate commercial loan net charge-offs which fell $61 million and $48
million, respectively. The decrease in credit card net charge-offs is
attributable to lower levels of outstanding receivables due to the fourth
quarter 1993 securitization of credit card receivables. Net charge-offs as a
percentage of managed average credit card loans were 3.46 percent in 1994,
compared to 3.78 percent in 1993. The decline in real estate commercial loan
charge-offs is due to improvements in real estate markets, primarily the Mid-
Atlantic, and the strengthened financial condition of borrowers. These declines
were partially offset by net charge-offs of other consumer loans which increased
$19 million, or 18 percent, in 1994. This increase is consistent with the 21
percent growth in average levels of the other consumer portfolio during 1994.
Net charge-offs as a percentage of average other consumer loans were .72 percent
in 1994 compared to .73 percent in 1993.
Nonperforming Assets -- On December 31, 1994, nonperforming assets
were $1.1 billion, or 1.10 percent of net loans, leases, factored accounts
receivable and other real estate owned, compared to $1.8 billion, or 1.92
percent, at the end of 1993. As presented in TABLE 14, nonperforming loans
were $801 million at the end of 1994, compared to $1.1 billion at the end of
1993. The decrease in nonperforming loan levels was centered in real estate
commercial and construction nonperforming loans, which declined $193 million,
or 42 percent, and in commercial nonperforming loans which declined $112
million, or 24 percent, from 1993. These declines primarily reflected
payments resulting from the improved financial condition of borrowers and the
results of the Corporation's continuing loan workout activities. Lease
financing, other consumer and home equity nonperforming loan levels have
increased slightly throughout the second half of 1994. These increases are
primarily reflective of the 40-percent, 21-percent and 16-percent growth,
respectively, in the average levels of these portfolios during 1994.
Other real estate owned, which
===============================================================================
15 REAL ESTATE COMMERCIAL AND CONSTRUCTION LOANS AND
OTHER REAL ESTATE OWNED BY GEOGRAPHIC REGION
December 31, 1994
(Dollars in Millions)
<TABLE>
<CAPTION>
Loans OREO
--------------------------------------------- ---------------
Outstanding Percent Nonperforming Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maryland, District of Columbia and Virginia................. $ 3,005 29.1% $134 50.2% $122 46.4%
North Carolina and South Carolina........................... 1,951 18.9 27 10.1 33 12.5
Florida..................................................... 1,899 18.4 55 20.6 87 33.1
Other states................................................ 3,475 33.6 51 19.1 21 8.0
------------------------------------------ ------------
$10,330 100.0% $267 100.0% $263 100.0%
========================================== ============
</TABLE>
Distribution based on geographic location of collateral.
================================================================================
16 REAL ESTATE COMMERCIAL AND CONSTRUCTION LOANS AND
OTHER REAL ESTATE OWNED BY PROPERTY TYPE
December 31, 1994
(Dollars in Millions)
<TABLE>
<CAPTION>
Loans OREO
--------------------------------------------- ---------------
Outstanding Percent Nonperforming Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping centers/retail..................................... $ 1,990 19.3% $ 31 11.6% $ 37 14.1%
Office buildings............................................ 1,786 17.3 40 15.0 39 14.8
Apartments.................................................. 1,478 14.3 19 7.1 5 1.9
Hotels...................................................... 965 9.3 17 6.4 3 1.1
Land and land development................................... 890 8.6 58 21.7 109 41.4
Residential................................................. 845 8.2 23 8.6 15 5.7
Industrial/warehouse........................................ 737 7.1 19 7.1 17 6.5
Commercial-other............................................ 372 3.6 10 3.7 10 3.8
Multiple use................................................ 349 3.4 4 1.5 1 .4
Resorts/golf courses........................................ 172 1.7 16 6.0 3 1.1
Other....................................................... 746 7.2 30 11.3 24 9.2
---------------------------------------------------------------
$10,330 100.0% $267 100.0% $263 100.0%
===============================================================
</TABLE>
Management's Discussion and Analysis 43
<PAGE>
represents real estate acquired through foreclosure and in-substance
foreclosures, decreased $324 million, or 49 percent, to $337 million at the end
of 1994 from $661 million at the end of 1993.
Internal loan workout units are devoted to the management and/or
collection of certain nonperforming assets as well as certain performing
loans. Aggressive collection strategies and a proactive approach to managing
overall credit risk has expedited the Corporation's disposition, collection
and renegotiation of nonperforming and other lower-quality assets and allowed
loan officers to concentrate on generating new business.
The Corporation continues its efforts to expedite disposition,
collection and renegotiation of nonperforming and other lower-quality assets.
As a part of this process, the Corporation routinely evaluates all reasonable
alternatives, including the sale of assets individually or in groups. The
final decision to proceed with any alternative is evaluated in the context of
the overall credit-risk profile of the Corporation.
Concentrations of Credit Risk -- As previously discussed, the
Corporation strives to maintain a diverse credit portfolio in an effort to
minimize the adverse impact of any single event or set of occurrences.
Summarized below are areas of credit risk with exposures in excess of 25 per-
cent of shareholders' equity and a discussion of foreign outstandings.
Real Estate -- Total nonresidential real estate commercial and
construction loans declined to $10.3 billion, or 10 percent of total loans,
leases and factored accounts receivable on December 31, 1994, from $11.5
billion, or 12 percent, at year-end 1993. TABLES 15 and 16 summarize the
geographic and property-type distribution of these loans. During 1994, the
Corporation recorded real estate net charge-offs of $16 million, or .15
percent of average real estate loans compared to net charge-offs of $68
million, or .71 percent in 1993. Nonperforming real estate loans totaled $267
million and $460 million on December 31, 1994 and 1993, respectively.
Commercial -- Commercial loan outstandings totaled $44.7 billion, or
43 percent, of total loans, leases and factored accounts receivable on
December 31, 1994, compared to $40.8 billion, or 44 percent, at year-end
1993. TABLE 17 presents selected commercial loans by industry. Net
charge-offs of commercial loans totaled $44 million, or .11 percent of
average commercial loans in 1994 versus $40 million, or .11 percent, in 1993.
Nonperforming commercial loans were $362 million and $474 million on December
31, 1994 and 1993, respectively.
Consumer -- On December 31, 1994, consumer loan outstandings totaled
$42.5 billion, representing 41 percent of total loans, leases and factored
accounts receivable. This compares to outstandings of $35.7 billion, or 39
percent, on December 31, 1993. TABLE 8 shows the components of the
Corporation's consumer loan portfolio. Net charge-offs in the consumer
portfolio were $234 million in 1994 compared to $279 million in 1993. Net
charge-offs as a percentage of average loans in 1994 were 2.63 percent for
credit card, .03 percent for residential mortgage, .04 percent for home
equity and .72 percent for other consumer loans. This compares to net
charge-off ratios of 3.77 percent, .06 percent, .09 percent and .73 percent,
respectively, in 1993.
Foreign -- Foreign outstandings, which exclude contingencies and the
local currency transactions of each country, include loans and
================================================================================
17 SELECTED COMMERCIAL LOANS
December 31, 1994
(Dollars in Millions)
<TABLE>
<CAPTION>
Unfunded
Outstanding Commitments Nonperforming
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Health care........................................................... $3,690 $1,947 $35
Oil and gas........................................................... 3,571 3,463 2
Leisure and sports.................................................... 3,300 1,947 42
Communications........................................................ 3,255 3,165 4
Food.................................................................. 3,081 2,933 28
Retail................................................................ 2,666 2,940 25
Textiles and apparel.................................................. 2,594 1,475 26
Automotive............................................................ 2,402 1,539 12
Machinery and equipment............................................... 1,978 2,197 9
Construction.......................................................... 1,856 1,125 36
Electronics........................................................... 1,779 1,713 5
Forest products and paper............................................. 1,678 1,398 3
Utilities............................................................. 1,202 1,622 1
Finance companies..................................................... 1,070 4,713 -
</TABLE>
44 NationsBank Corporation Annual Report 1994
<PAGE>
leases, interest-bearing deposits with foreign banks, bankers' acceptances and
other investments. The Corporation has no significant medium- or long-term
outstandings to restructuring countries. The Corporation's foreign outstandings
totaled $4.6 billion on December 31, 1994, compared to $2.1 billion on December
31, 1993.
Interest Rate Risk Management
The Corporation's asset and liability management process is utilized
to manage the Corporation's interest rate risk through structuring the
balance sheet and off-balance sheet portfolios to maximize net interest
income while maintaining acceptable levels of risk to changes in market
interest rates. While achievement of this goal requires a balance between
profitability, liquidity and interest rate risk, there are opportunities to
enhance revenues through controlled risk.
Interest rate risk is managed by the Corporation's Finance Committee
which formulates strategies based on a desirable level of interest rate risk.
In setting desirable levels of interest rate risk, the Finance Committee
considers the impact on earnings and capital of the current outlook on
interest rates, potential changes in the outlook on interest rates, world and
regional economies, liquidity, business strategies and other factors.
To effectively measure and manage interest rate risk, the Corporation
uses computer simulations which determine the impact on net interest income
of various interest rate scenarios, balance sheet trends and strategies.
These simulations incorporate assumptions about balance sheet dynamics, such
as loan and deposit growth, loan and deposit pricing, changes in funding mix
and asset and liability repricing and maturity characteristics. Simulations
based on numerous assumptions are run under various interest rate scenarios
to determine the impact on net interest income and capital. From these
scenarios, interest rate risk is quantified and appropriate strategies are
developed and implemented. The overall interest rate risk position and
strategies are reviewed on an ongoing basis by executive management.
Additionally, duration and market value sensitivity measures are
selectively utilized where they provide added value to the overall interest
rate risk management process.
In implementing strategies to manage interest rate risk, the primary
tools used by the Corporation are the discretionary portfolio, which is
comprised of the securities portfolio and interest rate swaps, and management
of the mix, rates and maturities of the wholesale and retail funding sources
of the Corporation.
The investment securities portfolio serves a primary role in
positioning the Corporation based on the long-term interest rate outlook.
Securities available for sale serve as a key tool for near-term interest rate
risk management and can be utilized to take advantage of market opportunities
that are medium-term in nature. Interest rate swaps allow the Corporation to
adjust its interest rate risk position without exposure to risk of loss of
principal and funding requirements, as swaps do not involve the exchange of
notional amounts, only net interest payments. The interest payments can be
based on a fixed rate or a variable index.
The Corporation uses non-leveraged generic swaps, index amortizing
swaps and collateralized mortgage obligation (CMO) swaps. Generic swaps
involve the exchange of fixed and variable interest rates based on the
contractual underlying notional amounts. Index amortizing and CMO swaps also
involve the exchange of fixed and variable interest rates, however, their
notional amounts decline and their maturities vary based on certain interest
rate indices in the case of index amortizing swaps, or mortgage prepayment
rates in the case of CMO swaps. Such instruments are subjected to the same
credit risk
================================================================================
18 ASSET AND LIABILITY MANAGEMENT INTEREST RATE SWAPS
NOTIONAL CONTRACTS
(Dollars in Millions)
<TABLE>
<CAPTION>
Index
Generic Amortizing CMO Total
----------------- ---------- --------------- -----------------
Receive Pay Receive Receive Pay Receive Pay
Fixed Fixed Fixed Fixed Fixed Fixed Fixed Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance on December 31, 1993............... $6,500 $ - $6,150 $1,076 $182 $13,726 $ 182 $13,908
Additions............................... 320 8,469 2,300 2,000 - 4,620 8,469 13,089
Maturities.............................. (292) (23) - (572) (85) (864) (108) (972)
--------------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1994............... $6,528 $8,446 $8,450 $2,504 $ 97 $17,482 $ 8,543 $26,025
================================================================================
</TABLE>
Management's Discussion and Analysis 45
<PAGE>
management policies and procedures as trading instruments as described on page
49.
In light of the economic momentum in the U.S. economy, and the
associated tightening of credit by the Federal Reserve Bank through increases
in interest rates, the Corporation shifted, in the latter half of 1994, its
interest rate risk position from one postured to benefit modestly from stable
to declining rates to a more neutral position. The actions taken by the
Corporation to shift its position included reduction of the net swap
position, reduction of fixed-rate assets, and extension of maturities of
fixed-rate deposits and borrowings.
In the third quarter of 1994, in order to reduce the net swap
position, the Corporation entered into two-year maturity, pay fixed, interest
rate swaps with a notional amount of $8.0 billion. As a result, the
Corporation's net receive fixed position on December 31, 1994 was $8.9
billion, compared to $13.5 billion on December 31, 1993. TABLE 18 summarizes
the notional contracts and the activity for the
================================================================================
19 ASSET AND LIABILITY MANAGEMENT INTEREST RATE SWAPS
December 31, 1994
(Dollars in Millions, Average Maturity in Years)
<TABLE>
<CAPTION>
Maturities
--------------------------------------------------------------
Market After Average
Value Total 1995 1996 1997 1998 1999 1999 Maturity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSET CONVERSION SWAPS
Receive fixed generic.................... $(188) 1.14
Notional value......................... $ 6,528 $3,137 $ 2,705 $ 575 $ 3 - $ 108
Weighted average receive rate.......... 4.52% 4.30% 4.63% 4.45% 6.58% - 8.25%
Weighted average pay rate.............. 5.84
Receive fixed amortizing................. (619) 2.61
Notional value......................... $ 8,450 $ 110 $ 186 $6,140 $2,014 - -
Weighted average receive rate.......... 4.92% 5.73% 5.69% 4.85% 5.01% - -
Weighted average pay rate.............. 6.02
Receive fixed CMO........................ (149) 2.25
-----
Notional value......................... $ 2,504 $ 708 $ 488 $ 349 $ 474 $ 485 -
Weighted average receive rate.......... 5.12% 5.12% 5.10% 5.11% 5.07% 5.21% -
Weighted average pay rate.............. 6.10
Total asset conversion swaps............. $(956) 2.01
=====
Notional value......................... $17,482 $3,955 $ 3,379 $7,064 $2,491 $ 485 $ 108
Weighted average receive rate.......... 4.80% 4.49% 4.76% 4.83% 5.02% 5.21% 8.25%
Weighted average pay rate.............. 5.96
LIABILITY CONVERSION SWAPS
Pay fixed generic........................ $ 223 1.69
Notional value......................... $ 8,446 $ 110 $ 8,037 $ 125 $ 100 - $ 74
Weighted average pay rate.............. 6.39% 6.64% 6.44% 4.52% 5.12% - 5.37%
Weighted average receive rate.......... 5.35
Pay fixed CMO............................ 7 2.08
-----
Notional value......................... $ 97 $ 24 $ 19 $ 14 $ 40 - -
Weighted average pay rate.............. 4.44% 4.44% 4.44% 4.44% 4.44% - -
Weighted average receive rate.......... 6.19
Total liability conversion swaps......... $ 230 1.69
=====
Notional value......................... $ 8,543 $ 134 $ 8,056 $ 139 $ 140 - $ 74
Weighted average pay rate.............. 6.37% 6.25% 6.44% 4.51% 4.93% - 5.37%
Weighted average receive rate.......... 5.35
Total.................................... $(726)
=====
Notional value......................... $26,025 $4,089 $11,435 $7,203 $2,631 $ 485 $ 182
Weighted average receive rate.......... 4.98%
Weighted average pay rate.............. 6.10
</TABLE>
Floating rates represent the last repricing and will change in the future
based on movements in one, three or six month LIBOR rates.
Maturities are based on interest rates implied by the forward curve on
December 31, 1994, and may differ from actual maturities, depending on future
interest rate movements and resultant prepayment patterns.
In addition to the above asset and liability management interest rate swaps, on
December 31, 1994, the Corporation had approximately $1.2 billion notional of
net receive fixed generic interest rate swaps associated primarily with the
credit card securitization. On December 31, 1994, these positions had an
unrealized market value of negative $115 million. The weighted average receive
rate is 5.19 percent and the pay rate on December 31, 1994 was 6.94 percent.
46 NationsBank Corporation Annual Report 1994
<PAGE>
year ended December 31, 1994 of asset and liability management interest rate
swaps (ALM swaps). The interest rate swap transactions entered into during 1994
increased the gross notional amount of the Corporation's ALM swaps program on
December 31, 1994, to $26.0 billion with the Corporation receiving fixed on
$17.5 billion, converting variable-rate commercial loans to fixed rate and
receiving variable on $8.5 billion, fixing the cost of certain variable-rate
liabilities, primarily market-based borrowed funds.
Secondly, the Corporation adjusted its interest rate risk position by
reducing the level of fixed-rate securities. As securities matured in 1994,
the Corporation did not fully reinvest these proceeds. Additionally, during
the fourth quarter, approximately $1.5 billion of securities were sold,
without reinvestment of those proceeds. These actions give the Corporation
the flexibility to reinvest as deemed appropriate.
The third action taken to adjust the interest rate risk position was
extension of the maturities of market-based funds, primarily bank notes and
foreign time deposits.
In addition to these efforts, the acquisition of approximately $3.9
billion of customer-based deposits from California Federal Savings Bank in
1994 helped adjust the interest rate risk sensitivity of the Corporation's
liabilities, as approximately one-half of these deposits are not rate
sensitive and are longer-term.
The above actions shifted the Corporation's interest rate position
from one postured to benefit modestly from stable to declining interest rates
to a more neutral position. On December 31, 1994, the impact of a gradual
100-basis point rise in interest rates over the next 12 months was estimated
to have an insignificant impact on net income when compared to stable rates.
TABLE 19 summarizes the maturities, average pay and receive rates and
the market value on December 31, 1994, of the Corporation's ALM swaps. The
weighted average interest receive rate was 4.98 percent and pay rate was 6.10
percent as of
================================================================================
20 INTEREST RATE GAP ANALYSIS
December 31, 1994
(Dollars in Millions)
<TABLE>
<CAPTION>
Over 12
Interest-Sensitive Months and
--------------------------------------------- Noninterest-
30-Day 3-Month 6-Month 12-Month Total Sensitive Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Loans and leases, net of
unearned income.................................... $ 45,946 $ 9,243 $ 4,713 $ 6,343 $66,245 $36,122 $102,367
Securities held for investment....................... 49 88 222 4,485 4,844 12,956 17,800
Securities available for sale........................ 523 1,844 407 152 2,926 5,099 8,025
Loans held for sale.................................. 318 - - - 318 - 318
Time deposits placed and other
short-term investments............................. 1,530 572 52 3 2,157 2 2,159
Other earning assets................................. 21,053 - - - 21,053 - 21,053
--------------------------------------------------------------------
Total............................................ 69,419 11,747 5,394 10,983 97,543 54,179 $151,722
--------------------------------------------------------------------
Interest-bearing liabilities
Savings.............................................. 9,037 - - - 9,037 - $ 9,037
NOW and money market deposit
accounts........................................... 21,881 - - - 21,881 7,871 29,752
Consumer CDs and IRAs................................ 3,212 3,785 4,992 4,881 16,870 8,070 24,940
Negotiated CDs, public funds and
other time deposits................................ 776 725 614 345 2,460 298 2,758
Foreign time deposits................................ 5,754 1,542 3,513 1,794 12,603 - 12,603
Borrowed funds and trading account liabilities....... 39,614 1,449 2,188 2,304 45,555 - 45,555
Long-term debt and obligations under
capital leases..................................... 552 1,605 2 565 2,724 5,764 8,488
--------------------------------------------------------------------
Total............................................ 80,826 9,106 11,309 9,889 111,130 22,003 133,133
Noninterest-bearing, net................................. - - - - - 18,589 18,589
--------------------------------------------------------------------
Total............................................ 80,826 9,106 11,309 9,889 111,130 40,592 $151,722
--------------------------------------------------------------------
Interest rate gap........................................ (11,407) 2,641 (5,915) 1,094 (13,587) 13,587
Effect of asset and liability management
interest rate swaps, futures and
other off-balance sheet items........................ (6,289) (198) (2,306) 2,662 (6,131) 6,131
---------------------------------------------------------
Adjusted interest rate gap............................... $(17,696) $ 2,443 $ (8,221) $ 3,756 $(19,718) $19,718
=========================================================
Cumulative adjusted interest rate gap.................... $(17,696) $(15,253) $(23,474) $(19,718)
======================================
</TABLE>
Management's Discussion and Analysis 47
<PAGE>
December 31, 1994. Net interest receipts and payments have been included in
interest income and expense on the underlying instruments. Deferred gains and
losses relating to any terminated contracts are insignificant.
The unrealized depreciation in the estimated value of the ALM swap
portfolio should be viewed in the context of the overall balance sheet. The
value of any single component of the balance sheet or off-balance sheet
position should not be viewed in isolation. For example, the value of core
deposits and other fixed-rate longer-term liabilities increased as interest
rates rose, offsetting the decline in value of swaps and other fixed-rate
assets. The overall impact of a 100-basis point parallel increase in interest
rates from December 31, 1994 levels is estimated to have an insignificant
impact on the market value of equity.
Table 20 represents the Corporation's interest rate gap position on
December 31, 1994. Based on contractual maturities or repricing dates, or
anticipated dates where no contractual maturity or repricing date exists,
interest sensitive assets and liabilities are placed in maturity categories.
The Corporation's negative cumulative interest rate gap position in the near
term reflects the strong customer-deposit gathering franchise which provides
a relatively stable core deposit base. These available funds have been
deployed in longer-term interest-earning assets including certain loans and
securities. A gap analysis is limited in its usefulness as it represents a
one-day position which is continually changing and not necessarily indicative
of the Corporation's position at any other time. Additionally, the gap
analysis does not consider the many factors accompanying interest rate
movements.
Capital Resources And Capital Management
Shareholders' equity on December 31, 1994, was $11.0 billion,
compared to $10.0 billion on December 31, 1993.
The Federal Reserve Board, the Office of the Comptroller of the
Currency and the FDIC have issued risk-based capital guidelines for U.S.
banking organizations. These guidelines provide a capital framework that is
sensitive to differences in risk profiles among banking companies.
The guidelines define a two-tier capital framework. Tier 1 Capital
consists of common and qualifying preferred shareholders' equity less
goodwill and other adjustments. Tier 2 Capital consists of mandatory
convertible, subordinated and other qualifying term debt, preferred stock not
qualifying as Tier 1 Capital and the allowance for credit losses up to 1.25
percent of risk-weighted assets.
The risk-based capital guidelines are designed to measure Tier 1 and
Total Capital in relation to the credit risk of both on- and off-balance
sheet items. Under the guidelines, one of four risk weights is applied to the
different on-balance sheet assets. Off-balance sheet items, such as loan
commitments and derivatives, are also applied a risk weight after conversion
to balance sheet equivalent amounts.
On December 31, 1994, the Corporation's Tier 1 ratio was 7.43
percent, compared to 7.41 percent on December 31, 1993. The total risk-based
capital ratio was 11.47 percent, compared to 11.73 percent on December 31,
1993. Both of these measures compare favorably with the regulatory minimums
of four percent for Tier 1 and eight percent for total risk-based capital.
The leverage ratio consists of Tier 1 Capital divided by total
average quarterly assets, excluding goodwill and certain other items. The
minimum leverage ratio guideline is three percent, although most banking
organizations are expected to maintain ratios of at least 100 to 200 basis
points above the three-percent minimum. The Corporation's leverage ratio was
6.18 percent on December 31, 1994, compared to 6.00 percent on December 31,
1993.
The components of Tier 1 and Total Capital and on- and off-balance
sheet risk- weighted assets on December 31 were (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
- -----------------------------------------------------------------------
<S> <C> <C>
Common shareholders'
equity.................................. $ 10,976 $ 9,859
Qualifying preferred
stock................................... 35 120
Less: Deductions
from Tier 1 Capital..................... (1,500) (1,444)
----------------------
Tier 1 Capital.............................. 9,511 8,535
----------------------
Allowance for credit
losses.................................. 2,186 2,169
Qualifying debt............................. 3,781 3,667
Less: Deductions from
Tier 2 Capital.......................... (797) (865)
----------------------
Tier 2 Capital.............................. 5,170 4,971
----------------------
Total Capital........................... $ 14,681 $ 13,506
======================
Balance sheet risk-
weighted assets......................... $104,432 $ 95,084
Off-balance sheet risk-
weighted assets......................... 27,252 23,237
Less: Deductions from
risk-weighted assets.................... (3,691) (3,208)
----------------------
Net risk-weighted assets.................... $127,993 $115,113
======================
</TABLE>
[BAR GRAPH APPEARS HERE
Risk-Based Capital
(Dollars in Billions)
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Risk-Based Capital
Tier 1............................. 8.535 13.506
Total.............................. 9.511 14.681]
</TABLE>
48 NationsBank Corporation Annual Report 1994
<PAGE>
Trading Activities
The Corporation maintains trading positions in a variety of cash and
derivative financial instruments. The Corporation offers a number of products
to customers, as well as enters into transactions for its own account. In
setting trading strategies, the Corporation manages these activities to
maximize trading revenues while at the same time taking controlled risk.
Capital markets activities are managed in the Capital Markets Group
and are conducted in two principal divisions, NationsBanc Capital Markets,
Inc. (NCMI) and NationsBanc-CRT. Major trading sites include Charlotte,
Chicago, New York and London.
NCMI underwrites, trades and distributes debt and equity securities.
Its business activities include both customer and proprietary trading
activities. Additionally, NCMI is a primary dealer in U.S. Government
securities.
NationsBanc-CRT manages the Corporation's derivatives and foreign
exchange business activities. Interest rate derivatives are the primary
component of NationsBanc-CRT's customer-based and proprietary derivative
products. Other derivative products consist primarily of commodity-based
transactions.
Note 4 to the consolidated financial statements details the
individual components of the Corporation's trading assets and liabilities.
Additionally, TABLE 21 provides information on the Corporation's derivative
dealer positions.
Credit Risk -- Within the Corporation's Credit Policy organization, a
group is dedicated to managing credit risks associated with trading
activities. The Corporation maintains trading positions in a number of
markets and with a variety of counterparties or obligors (counterparties). To
limit credit exposure arising from such transactions, the Corporation
evaluates the credit standing of counterparties, establishes limits for the
total exposure to any one counterparty, monitors exposure against the
established limits and monitors trading portfolio composition to manage
concentrations.
The Corporation's exposure to credit risk from derivative financial
instruments is represented by the fair value of instruments. Credit risk
amounts represent the replacement cost the Corporation could incur should
counterparties with contracts in a gain position completely fail to perform
under the terms of those contracts and any collateral underlying the
contracts proves to be of no value to the Corporation. Counterparties are
subject to the credit approval and credit
================================================================================
21 DERIVATIVES-DEALER POSITIONS
December 31
(Dollars in Millions)
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------------
Credit Credit
Contract/ Risk Contract/ Risk
Notional Amount (1) Notional Amount (1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Contracts
Swaps................................................... $ 45,179 $ 531 $15,758 $185
Futures and forwards.................................... 124,620 30 32,503 -
Written options......................................... 114,928 - 58,499 -
Purchased options....................................... 118,839 481 55,616 129
Foreign Exchange Contracts
Swaps................................................... 470 - 258 7
Spot, futures and forwards.............................. 26,987 221 12,516 106
Written options......................................... 13,398 - 8,058 -
Purchased options....................................... 13,507 167 8,051 134
Commodity Contracts
Swaps................................................... 570 74 1,470 51
Futures and forwards.................................... 1,984 1 1,661 31
Written options......................................... 12,608 - 6,696 -
Purchased options....................................... 11,591 309 7,339 313
------ ----
$1,814 $956
====== ====
</TABLE>
(1) Represents the replacement cost the Corporation could incur should
counterparties with contracts in a gain position to the Corporation
completely fail to perform under the terms of those contracts. Amounts
include interest.
Management's Discussion and Analysis 49
<PAGE>
monitoring policies and procedures of the Corporation. Certain instruments
require the Corporation or the counterparty to maintain collateral for all or
part of the exposure. Generally, such collateral is in the form of cash or other
highly liquid instruments. Limits for exposure to any particular counterparty
are established and monitored. In certain jurisdictions, counterparty risk is
also reduced through the use of legally enforceable master netting arrangements
which allow the Corporation to settle positions with the same counterparty on a
net basis. The contract or notional amounts associated with the Corporation's
dealer derivative positions are reflected in TABLE 21. The notional or contract
amounts indicate the total volume of transactions and significantly exceed the
amount of the Corporation's credit or market risk associated with these
instruments. The credit risk amount for the instruments reflected in TABLE 21 is
measured by the Corporation as the positive replacement cost on December 31,
1994 and 1993. Of the credit risk amount reported in TABLE 21, $354 million and
$343 million relates to exchange-traded
================================================================================
22 SELECTED QUARTERLY OPERATING RESULTS
(Dollars in Millions Except Per-Share Information)
<TABLE>
<CAPTION>
1994 Quarters 1993 Quarters
------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from earning assets.................... $ 2,918 $ 2,701 $ 2,512 $ 2,398 $ 2,395 $ 2,104 $ 1,932 $ 1,896
Interest expense.............................. 1,618 1,395 1,195 1,110 1,092 956 821 821
Net interest income
(taxable-equivalent)...................... 1,326 1,330 1,339 1,310 1,326 1,168 1,131 1,098
Net interest income........................... 1,300 1,306 1,317 1,288 1,303 1,148 1,111 1,075
Provision for credit losses................... 70 70 70 100 100 100 110 120
Gains (losses) on sales of securities......... (28) (4) 5 14 - 50 22 12
Noninterest income............................ 639 649 629 680 615 524 481 481
Other real estate owned expense (income)...... (8) (6) (3) 5 22 11 21 24
Restructuring expense......................... - - - - - 30 - -
Noninterest expense........................... 1,261 1,234 1,228 1,219 1,222 1,054 1,019 998
Income before income taxes and effect
of change in method of accounting
for income taxes.......................... 588 653 656 658 574 527 464 426
Income tax expense............................ 183 222 219 241 201 186 158 145
Income before effect of change in
method of accounting for
income taxes.............................. 405 431 437 417 373 341 306 281
Effect of change in method of
accounting for income taxes............... - - - - - - - 200
Net income.................................... 405 431 437 417 373 341 306 481
Earnings per common share..................... 1.46 1.55 1.58 1.52 1.37 1.33 1.20 1.89
Dividends per common share.................... .50 .46 .46 .46 .42 .42 .40 .40
Yield on average earning assets............... 7.54% 7.24% 7.00% 6.81% 6.88% 6.96% 7.19% 7.28%
Rate on average interest-
bearing liabilities....................... 4.71 4.22 3.80 3.57 3.53 3.54 3.47 3.57
Net interest spread........................... 2.83 3.02 3.20 3.24 3.35 3.42 3.72 3.71
Net interest yield............................ 3.40 3.54 3.70 3.69 3.77 3.83 4.17 4.16
Average total assets.......................... $174,554 $167,283 $161,989 $161,294 $157,790 $136,195 $122,810 $120,374
Average total deposits........................ 98,574 94,656 91,358 90,260 90,338 80,404 81,264 81,819
Average total shareholders' equity............ 10,906 10,665 10,272 10,080 9,669 8,642 8,344 7,929
Return on average assets...................... .92% 1.02% 1.08% 1.05% .94% .99% 1.00% .95%
Return on average common
shareholders' equity...................... 14.68 16.00 17.04 16.82 15.34 15.60 14.65 14.29
Market price per share of common stock
High for the period....................... $ 50 3/4 $ 56 $ 57 3/8 $ 50 7/8 $ 53 1/4 $ 53 5/8 $ 57 7/8 $ 58
Low for the period........................ 43 3/8 47 1/8 44 1/2 44 3/8 44 1/2 48 1/4 45 49 1/2
Closing price............................. 45 1/8 49 51 3/8 45 3/4 49 51 1/2 49 5/8 54 5/8
Risk-based capital ratios
Tier 1.................................... 7.43% 7.48% 7.63% 7.50% 7.41% 7.60% 7.63% 7.61%
Total..................................... 11.47 11.57 11.57 11.66 11.73 12.15 11.75 11.80
</TABLE>
50 NationsBank Corporation Annual Report 1994
<PAGE>
instruments for 1994 and 1993, respectively. Because exchange-traded instruments
conform to standard terms and are subject to policies set by the exchange
involved, including counterparty approval, margin requirements and security
deposit requirements, the credit risk to the Corporation is minimal.
Market Risk -- Market risk arises due to fluctuations in interest
rates and market prices that may result in changes in the values of trading
instruments. The Corporation manages its exposure to market risk resulting
from trading activities through a risk management function. Each major
trading site is monitored by these risk management units.
Daily earnings at risk limits, which have been approved by the
Corporation's Finance Committee, are generally allocated to the business
units. In addition to limits placed on these individual business units,
limits are imposed on the risks certain individual traders may take. Risk
positions are monitored by line, risk management function personnel and
senior management on a daily basis.
Daily earnings at risk measures the rate of loss for a one-day,
three-standard deviation movement in market prices if traders are unable to
rehedge. In addition to these daily earnings at risk simulations, portfolios
which have significant option positions are stress tested continually to
simulate the potential loss that might occur due to unexpected market
movements in each market. Limits are also established by product for losses
which could result in these stress scenarios.
Fourth Quarter Review
The Corporation recorded net income of $405 million in the fourth
quarter of 1994, compared to $373 million in the same period of the previous
year. Results for the fourth quarter of 1993 reflected a full-quarter impact
of the MNC acquisition. TABLE 22 presents selected quarterly operating
results for each quarter of 1994 and 1993.
TABLE 23 presents an analysis of the Corporation's taxable-equivalent
net interest income for each of the last five quarters ending December 31,
1994. Taxable-equivalent net interest income was $1.3 billion in the fourth
quarter of 1994 and 1993. The net interest yield was 3.40 percent in the
fourth quarter of 1994, compared to 3.77 percent in the same quarter of 1993.
Excluding the impact of the primary government securities dealer, the net
interest yield totaled 3.88 percent in the fourth quarter of 1994 and 4.18
percent in the fourth quarter of 1993. The decline in the net interest yield
is due to the narrowing of the spread between investment securities and
market-based funds and actions taken to reposition the balance sheet in light
of rising interest rates.
Provision for credit losses was $70 million in the fourth quarter of
1994, compared to $100 million in the fourth quarter of 1993. This decline
primarily reflected improved credit quality, as evidenced by decreases in net
charge-offs and lower nonperforming asset levels. Net charge-offs for the
fourth quarter of 1994 were $98 million, compared to $136 million in the
prior year quarter.
Securities losses in the fourth quarter of 1994 were $28 million
resulting from the previously described interest rate risk repositioning
initiatives. There were no securities gains or losses in the fourth quarter
of 1993.
Noninterest income, adjusted for the effects of acquisitions,
increased $14 million in the fourth quarter of 1994 compared to the fourth
quarter of 1993. Significant changes in the components of noninterest income
included increases of $27 million in investment banking income, $8 million in
deposit account service charges and $23 million in credit card income,
primarily due to the impact of the December 1993 credit card securitization.
These increases were partially offset by decreases of $30 million in trading
account profits and fees, due to difficult conditions in the financial
markets in the fourth quarter of 1994, and $17 million in miscellaneous
income.
Other real estate owned expense was a recovery of $8 million in the
fourth quarter of 1994, compared to an expense of $22 million in the same
period of 1993.
Fourth quarter noninterest expense in 1994, adjusted for the effects
of acquisitions, increased $2 million. Increases of $49 million in personnel
expense and $7 million in equipment expense were offset by decreases in all
other noninterest expense categories totaling approximately $54 million.
In the fourth quarter of 1994, the Corporation recorded tax expense
of $183 million for an effective tax rate of 31.1 percent of pretax income,
compared to $201 million, or 35.0 percent of pretax income, recorded in the
same period of 1993. This decrease is a result of adjustment of the
Corporation's effective tax rate for the year, bringing it to 33.9 percent of
pretax income on an annual basis. See Note 13 to the consolidated financial
statements for a discussion of the Corporation's tax position.
Management's Discussion and Analysis 51
<PAGE>
================================================================================
23 QUARTERLY TAXABLE-EQUIVALENT DATA
(Dollars in Millions)
<TABLE>
<CAPTION>
Fourth Quarter 1994 Third Quarter 1994
------------------------------------------------------------
Average Average
Balance Income Balance Income
Sheet or Yields/ Sheet or Yields/
Amounts Expense Rates Amounts Expense Rates
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2)............................................... $ 43,587 $ 855 7.78% $ 42,037 $ 805 7.60%
Real estate commercial....................................... 7,289 162 8.86 7,473 159 8.43
Real estate construction..................................... 3,038 72 9.33 3,106 66 8.50
---------------------------------------------------------
Total commercial........................................... 53,914 1,089 8.01 52,616 1,030 7.77
---------------------------------------------------------
Residential mortgage......................................... 16,680 321 7.70 15,528 296 7.63
Home equity.................................................. 2,580 56 8.71 2,516 55 8.72
Credit card.................................................. 4,357 141 12.80 4,003 131 12.96
Other consumer............................................... 17,714 430 9.63 17,357 412 9.42
---------------------------------------------------------
Total consumer............................................. 41,331 948 9.13 39,404 894 9.03
---------------------------------------------------------
Foreign...................................................... 1,764 30 6.79 1,453 23 6.34
Lease financing.............................................. 2,755 53 7.71 2,474 49 7.90
---------------------------------------------------------
Total loans and leases, net................................ 99,764 2,120 8.44 95,947 1,996 8.27
---------------------------------------------------------
Securities
Held for investment.......................................... 17,966 245 5.40 15,443 197 5.08
Available for sale (3)....................................... 8,560 117 5.44 11,683 152 5.17
---------------------------------------------------------
Total securities........................................... 26,526 362 5.42 27,126 349 5.12
---------------------------------------------------------
Loans held for sale............................................ 109 3 7.65 183 3 6.69
Federal funds sold and securities purchased
under agreements to resell................................... 16,159 203 5.00 13,495 149 4.38
Time deposits placed and other short-term investments.......... 2,231 32 5.75 2,216 29 5.16
Trading account securities (4)................................. 10,318 224 8.64 10,488 199 7.52
---------------------------------------------------------
Total earning assets (5)................................... 155,107 2,944 7.54 149,455 2,725 7.24
Cash and cash equivalents........................................ 8,674 8,372
Factored accounts receivable..................................... 1,235 1,156
Other assets, less allowance for credit losses................... 9,538 8,300
---------------------------------------------------------
Total assets............................................... $174,554 $167,283
=========================================================
Interest-bearing liabilities
Savings........................................................ $ 9,143 54 2.37 $ 9,255 54 2.31
NOW and money market deposit accounts.......................... 29,442 190 2.53 29,507 179 2.41
Consumer CDs and IRAs.......................................... 25,136 277 4.40 24,439 257 4.17
Negotiated CDs, public funds and other time deposits........... 2,825 35 4.80 3,223 34 4.23
Foreign time deposits.......................................... 11,576 162 5.57 8,436 108 5.06
Borrowed funds and trading account liabilities (4)(6).......... 50,110 756 5.99 48,688 629 5.13
Long-term debt and obligations under capital leases............ 8,147 144 7.08 7,731 134 6.95
---------------------------------------------------------
Total interest-bearing liabilities......................... 136,379 1,618 4.71 131,279 1,395 4.22
Noninterest-bearing sources
Noninterest-bearing deposits................................... 20,452 19,796
Other liabilities.............................................. 6,817 5,543
Shareholders' equity........................................... 10,906 10,665
---------------------------------------------------------
Total liabilities and shareholders' equity................. $174,554 $167,283
=========================================================
Net interest spread.............................................. 2.83 3.02
Impact of noninterest-bearing sources............................ .57 .52
---------------------------------------------------------
Net interest income/yield on earning assets...................... $1,326 3.40% $1,330 3.54%
=========================================================
</TABLE>
(1) Nonperforming loans are included in the respective average loan balances.
Income on such nonperforming loans is recognized on a cash basis.
(2) Commercial loan interest income includes net interest rate swap revenues
related to asset conversion swaps converting variable-rate commercial loans
to fixed rate. Such revenue (expense) amounts were $(32), $0, $38 and $56 in
the fourth, third, second and first quarters of 1994, respectively, and $42
in the fourth quarter of 1993.
(3) The average balance sheet amounts and yields on securities available for
sale are based on the average of historical amortized cost balances.
(4) Gross unrealized gains and losses on off-balance sheet trading positions are
reported in other assets and liabilities, respectively.
(5) Interest income includes taxable-equivalent adjustments of $26, $24, $22 and
$22 in the fourth, third, second and first quarters of 1994, respectively,
and $23 in the fourth quarter of 1993.
(6) Borrowed funds and trading account liabilities interest expense includes net
interest rate swap expense related to liability conversion swaps fixing the
cost of certain variable-rate liabilities, primarily market-based borrowed
funds. Such expense (revenue) was $20, $9, $(1) and $3 in the fourth, third,
second and first quarters of 1994, respectively, and $2 in the fourth
quarter of 1993.
52 NationsBank Corporation Annual Report 1994
<PAGE>
================================================================================
23 QUARTERLY TAXABLE-EQUIVALENT DATA
(Dollars in Millions)
<TABLE>
<CAPTION>
Second Quarter 1994 First Quarter 1994
------------------------------------------------------------
Average Average
Balance Income Balance Income
Sheet or Yields/ Sheet or Yields/
Amounts Expense Rates Amounts Expense Rates
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2)............................................... $ 40,339 $ 765 7.61% $ 40,421 $ 722 7.24%
Real estate commercial....................................... 7,955 157 7.92 8,419 158 7.61
Real estate construction..................................... 3,226 68 8.42 3,253 62 7.73
----------------------------------------------------------
Total commercial........................................... 51,520 990 7.71 52,093 942 7.33
----------------------------------------------------------
Residential mortgage......................................... 14,329 270 7.53 13,340 254 7.63
Home equity.................................................. 2,480 46 7.41 2,547 45 7.11
Credit card.................................................. 3,783 115 12.27 3,673 121 13.32
Other consumer............................................... 17,060 397 9.33 16,806 390 9.41
----------------------------------------------------------
Total consumer............................................. 37,652 828 8.82 36,366 810 8.99
----------------------------------------------------------
Foreign...................................................... 1,287 18 5.73 1,157 15 5.15
Lease financing.............................................. 2,146 38 7.08 1,992 36 7.19
----------------------------------------------------------
Total loans and leases, net................................ 92,605 1,874 8.12 91,608 1,803 7.96
----------------------------------------------------------
Securities
Held for investment.......................................... 14,009 167 4.79 12,714 152 4.82
Available for sale (3)....................................... 14,829 191 5.16 14,545 184 5.12
----------------------------------------------------------
Total securities........................................... 28,838 358 4.98 27,259 336 4.98
----------------------------------------------------------
Loans held for sale............................................ 392 6 6.49 681 11 6.46
Federal funds sold and securities purchased
under agreements to resell................................... 11,780 108 3.64 12,073 87 2.95
Time deposits placed and other short-term investments.......... 1,211 15 4.96 1,375 14 4.12
Trading account securities (4)................................. 10,265 173 6.75 10,738 169 6.39
----------------------------------------------------------
Total earning assets (5)................................... 145,091 2,534 7.00 143,734 2,420 6.81
Cash and cash equivalents........................................ 8,051 7,976
Factored accounts receivable..................................... 1,599 1,016
Other assets, less allowance for credit losses................... 7,248 8,568
----------------------------------------------------------
Total assets............................................... $161,989 $161,294
==========================================================
Interest-bearing liabilities
Savings........................................................ $ 9,181 53 2.30 $ 8,879 51 2.33
NOW and money market deposit accounts.......................... 29,816 166 2.24 30,140 161 2.17
Consumer CDs and IRAs.......................................... 22,855 231 4.02 23,295 234 4.09
Negotiated CDs, public funds and other time deposits........... 3,574 33 3.80 3,664 31 3.44
Foreign time deposits.......................................... 5,691 63 4.49 4,385 42 3.86
Borrowed funds and trading account liabilities (4)(6).......... 47,122 514 4.38 47,336 454 3.89
Long-term debt and obligations under capital leases............ 7,952 135 6.75 8,308 137 6.61
----------------------------------------------------------
Total interest-bearing liabilities......................... 126,191 1,195 3.80 126,007 1,110 3.57
Noninterest-bearing sources
Noninterest-bearing deposits................................... 20,241 19,897
Other liabilities.............................................. 5,285 5,310
Shareholders' equity........................................... 10,272 10,080
----------------------------------------------------------
Total liabilities and shareholders' equity................. $161,989 $161,294
==========================================================
Net interest spread.............................................. 3.20 3.24
Impact of noninterest-bearing sources............................ .50 .45
----------------------------------------------------------
Net interest income/yield on earning assets...................... $1,339 3.70% $1,310 3.69%
===============================================================================================================================
</TABLE>
23 QUARTERLY TAXABLE-EQUIVALENT DATA
(Dollars in Millions)
<TABLE>
<CAPTION>
Fourth Quarter 1993
-----------------------------------
Average
Balance Income
Sheet or Yields/
Amounts Expense Rates
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2)............................................... $ 39,233 $ 702 7.10%
Real estate commercial....................................... 7,915 150 7.51
Real estate construction..................................... 3,260 64 7.77
---------------------------------
Total commercial........................................... 50,408 916 7.21
---------------------------------
Residential mortgage......................................... 12,663 249 7.85
Home equity.................................................. 2,586 47 7.24
Credit card.................................................. 4,593 150 12.97
Other consumer............................................... 16,072 378 9.33
---------------------------------
Total consumer............................................. 35,914 824 9.12
---------------------------------
Foreign...................................................... 931 13 5.82
Lease financing.............................................. 1,894 35 7.47
---------------------------------
Total loans and leases, net................................ 89,147 1,788 7.97
---------------------------------
Securities
Held for investment.......................................... 27,273 354 5.16
Available for sale (3)....................................... 2,211 26 4.69
---------------------------------
Total securities........................................... 29,484 380 5.13
---------------------------------
Loans held for sale............................................ 961 16 6.54
Federal funds sold and securities purchased
under agreements to resell................................... 8,237 64 3.08
Time deposits placed and other short-term investments.......... 2,238 20 3.71
Trading account securities (4)................................. 9,590 150 6.19
---------------------------------
Total earning assets (5)................................... 139,657 2,418 6.88
Cash and cash equivalents........................................ 8,318
Factored accounts receivable..................................... 1,207
Other assets, less allowance for credit losses................... 8,608
---------------------------------
Total assets............................................... $157,790
=================================
Interest-bearing liabilities
Savings........................................................ $8,542 52 2.45
NOW and money market deposit accounts.......................... 30,383 168 2.20
Consumer CDs and IRAs.......................................... 23,813 246 4.10
Negotiated CDs, public funds and other time deposits........... 3,717 32 3.36
Foreign time deposits.......................................... 4,031 39 3.80
Borrowed funds and trading account liabilities (4)(6).......... 44,188 421 3.74
Long-term debt and obligations under capital leases............ 8,233 134 6.52
---------------------------------
Total interest-bearing liabilities......................... 122,907 1,092 3.53
Noninterest-bearing sources
Noninterest-bearing deposits................................... 19,852
Other liabilities.............................................. 5,362
Shareholders' equity........................................... 9,669
---------------------------------
Total liabilities and shareholders' equity................. $157,790
=================================
Net interest spread.............................................. 3.35
Impact of noninterest-bearing sources............................ .42
---------------------------------
Net interest income/yield on earning assets...................... $1,326 3.77%
=================================
</TABLE>
Management's Discussion and Analysis 53
<PAGE>
1993 COMPARED TO 1992
The following discussion and analysis provides a comparison of the
Corporation's results of operations for the years ended December 31, 1993 and
1992, and its financial condition as of December 31, 1993 and 1992. This
discussion should be read in conjunction with the consolidated financial
statements and related notes on pages 58 through 77.
OVERVIEW
In 1993, earnings totaled $1.5 billion, or $5.78 per common share,
compared to 1992 earnings of $1.1 billion, or $4.60 per common share. Return
on average common equity was 15.00 percent, excluding the impact of adopting
a new income tax accounting standard in 1993, compared to 15.83 percent the
previous year. The Corporation's results for 1993 reflected strong earnings
in most operating units and improved credit quality. See Note 2 regarding
information about acquisitions occurring in 1993 that affect comparability to
1992.
CUSTOMER GROUP REVIEW
The General Bank earned $740 million in 1993 compared to $660 million
in 1992. The return on equity for the General Bank increased from 15 percent
in 1992 to 16 percent in 1993. The efficiency ratio decreased from 68.64
percent in 1992 to 68.08 percent in 1993.
The Institutional Group earned $492 million, an increase of $347
million from the previous year. Return on equity for the Institutional Group
rose from 5 percent in 1992 to 16 percent in 1993. The group's efficiency
ratio declined to 47.90 percent in 1993, from 52.96 percent in the prior
year.
Financial Services, which consists of NationsCredit and Greyrock
Capital Group, was formed in 1993. For the year, net income totaled $35
million and return on equity was 13 percent. The group had an efficiency
ratio of 61.62 percent in 1993.
NET INTEREST INCOME
Taxable-equivalent net interest income in 1993 was $4.7 billion,
representing an increase of $533 million, or 13 percent, from the $4.2
billion reported in 1992. This increase was attributable to higher earning
asset levels, particularly loan levels.
The net interest yield declined 14 basis points to 3.96 percent in
1993 from 4.10 percent in 1992. The yield on average earning assets declined
64 basis points between the years, to 7.06 percent in 1993 from 7.70 percent
in 1992. Excluding the impact of the Corporation's primary government
securities dealer, the yield on average earning assets declined 53 basis
points. The replacement at lower yields of a substantial portion of the
Corporation's maturing investment securities was the largest contributor to
the 53-basis point decline. The cost of interest-bearing liabilities fell 59
basis points, to 3.53 percent in 1993 from 4.12 percent in 1992, contributing
significantly to the improvement in net interest income. A lower interest
rate environment in 1993, coupled with a change in the mix among deposits,
contributed to a decrease in rates paid on customer deposits.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $430 million in 1993, compared to
$715 million in the prior year. Net charge-offs declined $454 million to $412
million in 1993. On December 31, 1993, the allowance for credit losses was
$2.2 billion, or 2.36 percent of loans, leases and factored accounts
receivable, compared to $1.5 billion, or 2.00 percent, at the end of 1992,
and covered 193 percent of nonperforming loans, compared to 103 percent the
previous year.
SECURITIES GAINS
Gains from the sales of securities were $84 million in 1993, compared
to $249 million in 1992. The 1992 gains followed balance sheet management
strategies to reposition the components and the estimated average maturity of
the securities portfolios at a time when the portfolios contained substantial
net appreciation.
NONINTEREST INCOME
Noninterest income totaled $2.1 billion in 1993, an increase of $188
million, or 10 percent, from $1.9 billion in 1992. After adjusting for
acquisitions, divestitures and the 1992 gain on the sale of a mortgage
servicing unit, noninterest income increased $185 million, or 11 percent, in
1993. Growth in most major categories of noninterest income during 1993 was
partially offset by declines in mortgage servicing and related fees,
brokerage income and asset management fees, all reflecting divestitures.
54 NationsBank Corporation Annual Report 1994
<PAGE>
OTHER REAL ESTATE OWNED EXPENSE
OREO expense declined $105 million to $78 million in 1993 from $183
million in 1992, consistent with the improvement in asset quality. The
decline in 1993 was largely due to lower write-downs associated with real
estate values subsequent to foreclosure in the Institutional Group's Real
Estate Banking Group and lower net costs associated with management of a
reduced level of foreclosed properties compared to the previous year.
RESTRUCTURING EXPENSE
Restructuring expense of $30 million in 1993, associated with the
acquisition of MNC Financial Inc., represented the costs of employee
severance and real estate dispositions.
NONINTEREST EXPENSE
Noninterest expense of $4.3 billion in 1993 increased eight percent
from $4.0 billion in 1992. Excluding acquisitions, noninterest expense
increased $132 million or four percent, to $3.9 billion in 1993.
INCOME TAXES
The Corporation's income tax expense for 1993 was $690 million, for
an effective tax rate of 34.7 percent of pretax income. Tax expense for 1992
was $251 million, or 18.0 percent of pretax income. The lower effective rate
in 1992 was primarily attributable to $265 million in tax benefits resulting
from utilization of financial operating loss carryforwards. As a result of
adopting a change in method of accounting for income taxes, the Corporation
recorded its remaining unrecognized benefits of $200 million in 1993. As
such, the 1993 effective rate more closely approximated the statutory rate of
35 percent.
Management's Discussion and Analysis 55
<PAGE>
NationsBank Corporation and Subsidiaries
SIX-YEAR CONSOLIDATED STATISTICAL SUMMARY
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TAXABLE-EQUIVALENT YIELDS EARNED
Loans and leases, net of unearned income
Commercial..................................................... 7.56% 6.96% 7.08% 8.70% 10.44% 11.76%
Real estate commercial......................................... 8.18 7.59 7.78 9.13 10.49 11.08
Real estate construction....................................... 8.49 7.50 7.17 8.82 10.84 11.96
Total commercial............................................. 7.71 7.09 7.20 8.78 10.50 11.69
Residential mortgage........................................... 7.62 8.27 9.33 10.47 9.55 11.06
Home equity.................................................... 7.99 7.14 7.05 9.53 11.18 11.80
Credit card.................................................... 12.84 13.62 14.45 15.22 15.78 16.45
Other consumer................................................. 9.45 9.56 10.60 11.37 12.66 11.64
Total consumer............................................... 8.99 9.51 10.50 11.47 11.81 12.00
Foreign........................................................ 6.10 5.49 6.63 8.47 13.28 11.38
Lease financing................................................ 7.50 7.96 8.25 10.89 9.53 9.08
Total loans and leases, net.................................. 8.20 8.06 8.49 9.83 11.00 11.75
Securities
Held for investment............................................ 5.06 5.54 6.84 8.61 9.15 9.29
Available for sale............................................. 5.20 4.80 5.77 - - -
Total securities............................................. 5.12 5.51 6.76 8.61 9.15 9.29
Loans held for sale.............................................. 6.63 6.73 7.22 8.74 11.49 12.36
Federal funds sold and securities
purchased under agreements to resell........................... 4.09 3.21 3.77 5.89 8.16 9.20
Time deposits placed and other short-term investments............ 5.12 3.91 5.09 6.89 8.95 9.72
Trading account securities....................................... 7.32 5.43 4.64 6.99 8.43 9.08
Total earning assets......................................... 7.16 7.06 7.70 9.25 10.37 11.04
RATES PAID
Savings.......................................................... 2.33 2.38 2.86 4.55 5.15 5.86
NOW and money market deposit accounts............................ 2.34 2.24 2.82 4.96 6.02 6.20
Consumer CDs and IRAs............................................ 4.17 4.52 5.58 7.01 7.94 8.48
Negotiated CDs, public funds and other time deposits............. 4.02 3.97 4.93 7.08 8.13 8.79
Foreign time deposits............................................ 4.98 4.05 5.52 6.70 8.89 9.63
Borrowed funds and trading account liabilities................... 4.87 3.45 3.33 5.64 7.93 8.99
Long-term debt and obligations under capital leases.............. 6.85 7.44 8.92 8.88 9.18 9.84
Special Asset Division net funding allocation.................... - - - (6.20) (7.49) (8.20)
Total interest-bearing liabilities........................... 4.09 3.53 4.12 6.09 7.37 8.00
PROFIT MARGINS
Net interest spread.............................................. 3.07 3.53 3.58 3.16 3.00 3.04
Net interest yield............................................... 3.58 3.96 4.10 3.82 3.75 4.03
YEAR-END DATA
(Dollars in millions)
Loans, leases and factored accounts
receivable, net of unearned income............................. $103,371 $92,007 $72,714 $69,108 $70,891 $66,360
Securities held for investment................................... 17,800 13,584 23,355 16,275 25,530 25,278
Securities available for sale.................................... 8,025 15,470 1,374 8,904 - -
Loans held for sale.............................................. 318 1,697 1,236 585 315 357
Time deposits placed and other short-term investments............ 2,159 1,479 1,994 1,622 1,289 3,499
Total earning assets............................................. 151,722 140,890 103,872 96,491 98,754 96,052
Total assets (1)................................................. 169,604 157,686 118,059 100,319 112,791 110,246
Noninterest-bearing deposits..................................... 21,380 20,723 17,702 16,356 16,850 16,112
Domestic savings and time deposits............................... 66,487 66,356 62,988 70,359 70,091 66,790
Foreign time deposits............................................ 12,603 4,034 2,037 1,360 2,124 2,478
Total savings and time deposits.................................. 79,090 70,390 65,025 71,719 72,215 69,268
Total deposits................................................... 100,470 91,113 82,727 88,075 89,065 85,380
Borrowed funds and trading account liabilities................... 45,555 44,248 21,957 9,846 15,474 17,870
Long-term debt and obligations under capital leases.............. 8,488 8,352 3,066 2,876 2,766 2,517
Total shareholders' equity....................................... 11,011 9,979 7,814 6,518 6,283 6,003
</TABLE>
(1) Excludes assets of NationsBank of Texas Special Asset Division in 1991,
1990 and 1989.
(2) Includes FDIC's interest in earnings of NationsBank of Texas in 1989.
78 NationsBank Corporation Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS RATIOS
Return on average
Total assets (1)(2).......................................... 1.02% .97% 1.00% .17% .52% 1.06%
Earning assets (1)(2)........................................ 1.14 1.09 1.12 .20 .59 1.07
Common shareholders' equity.................................. 16.10 15.00 15.83 2.70 9.56 18.85
EARNINGS ANALYSIS (Taxable-Equivalent)
Noninterest income as a percentage of net
interest income.............................................. 48.96 44.48 45.65 44.22 42.56 39.23
Noninterest expense, excluding restructuring,
as a percentage of net interest income....................... 93.16 90.90 94.64 97.62 92.10 89.44
Efficiency ratio: noninterest expense, excluding
restructuring, divided by the sum of net interest
income and noninterest income................................ 62.54 62.91 64.98 67.69 64.60 64.24
Overhead ratio: noninterest expense, excluding
restructuring, less noninterest income
divided by net interest income............................... 44.20 46.42 48.99 53.40 49.54 50.21
Net income as a percentage of net
interest income.............................................. 31.86 31.79 27.33 5.12 15.77 26.48
ASSET QUALITY
For the year
Net charge-offs as a percentage of average
loans, leases and factored accounts receivable............... .33 .51 1.25 1.86 .88 .48
Net charge-offs as a percentage of the
provision for credit losses.................................. 101.79 95.76 121.15 82.70 59.24 74.38
At year end
Allowance for credit losses as a percentage of net
loans, leases and factored accounts receivable............... 2.11 2.36 2.00 2.32 1.86 1.32
Allowance for credit losses as a percentage of
nonperforming loans.......................................... 273.07 193.38 103.11 81.82 100.46 151.67
Nonperforming assets as a percentage of net
loans, leases, factored accounts receivable,
and other real estate owned.................................. 1.10 1.92 2.72 4.01 2.32 1.08
Nonperforming assets as a percentage of
total assets (1)............................................. .67 1.13 1.69 2.54 1.46 .65
Nonperforming assets (in millions)............................. $1,138 $1,783 $1,997 $2,804 $1,651 $716
RISK-BASED CAPITAL RATIOS
Tier 1......................................................... 7.43% 7.41% 7.54% 6.38% 5.79% --
Total.......................................................... 11.47 11.73 11.52 10.30 9.58 --
Common shareholders' equity as a
percentage of total assets at year end (1)................... 6.47% 6.25% 6.60% 5.67% 5.23% 5.10%
Dividend payout ratio (per common share)....................... 30.78 28.38 33.07 215.36 61.54 30.66
Shareholders' equity per common share
Average...................................................... $37.99 $33.36 $29.05 $27.97 $27.31 $24.97
At year end.................................................. 39.70 36.39 30.80 27.03 27.30 26.41
OTHER STATISTICS
Number of full-time equivalent employees....................... 61,484 57,742 50,828 57,177 58,449 57,069
Rate of increase (decrease) in average
Total loans and leases, net of unearned income............... 20.29% 15.83% (1.70)% 1.82% 8.36% 38.71%
Earning assets............................................... 24.50 16.59 (.84) 2.42 12.42 44.26
Total assets (1)............................................. 23.75 16.82 (.64) 1.85 12.19 43.10
Total deposits............................................... 12.30 .97 (5.59) 3.44 8.99 51.37
Total shareholders' equity................................... 21.19 18.73 10.31 6.16 18.15 23.01
COMMON STOCK INFORMATION
Market price per share
High for the year............................................ $57 3/8 $58 $53 3/8 $42 3/4 $47 1/4 $55
Low for the year............................................. 43 3/8 44 1/2 39 5/8 21 1/2 16 7/8 27
Close at the end of the year................................. 45 1/8 49 51 3/8 40 5/8 22 7/8 46 1/4
Daily average trading volume................................... 753,515 666,591 727,578 397,054 405,087 303,599
Number of shareholders of record............................... 105,774 108,435 89,371 102,209 30,824 29,064
</TABLE>
Six-Year Consolidated Statistical Summary 79
<PAGE>
Report of Management
The management of NationsBank Corporation is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
of the Corporation. The consolidated financial statements and notes have been
prepared by the Corporation in accordance with generally accepted accounting
principles and, in the judgment of management, present fairly the Corporation's
financial position and results of operations. The financial information
contained elsewhere in this report is consistent with that in the financial
statements. The financial statements and other financial information in this
report include amounts that are based on management's best estimates and
judgments and give due consideration to materiality.
The Corporation maintains a system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that transactions
are executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in accordance with generally
accepted accounting principles.
The Internal Audit Division of the Corporation reviews, evaluates,
monitors and makes recommendations on both administrative and accounting
control, which acts as an integral, but independent, part of the system of
internal controls.
The Corporation's independent accountants were engaged to perform an audit
of the consolidated financial statements. This audit provides an objective
review of management's responsibility to report operating results and financial
condition. Working with the Corporation's internal auditors, they review and
make tests as appropriate of the data included in the financial statements.
The Board of Directors discharges its responsibility for the Corporation's
financial statements through its Audit Committee. The Audit Committee meets
periodically with the independent accountants, internal auditors and management.
Both the independent accountants and internal auditors have direct access to the
Audit Committee to discuss the scope and results of their work, the adequacy of
internal accounting controls and the quality of financial reporting.
/s/ Hugh L. McColl Jr. /s/ James H. Hance Jr.
Hugh L. McColl Jr. James H. Hance Jr.
Chairman Vice Chairman and
Chief Financial Officer
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of NationsBank Corporation
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of NationsBank Corporation and its subsidiaries at December 31, 1994
and 1993, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the
Corporation changed its methods of accounting for income taxes, postretirement
benefits other than pensions and certain investments in debt securities in 1993.
/s/ Price Waterhouse LLP
Charlotte, North Carolina
January 13, 1995
<PAGE>
NationsBank Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions Except Per-Share Information)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME FROM EARNING ASSETS
Interest and fees on loans................................................. $ 7,577 $6,198 $5,643
Lease financing income..................................................... 150 110 94
Interest and dividends on securities
Held for investment...................................................... 755 1,347 1,506
Available for sale....................................................... 623 49 103
Interest and fees on loans held for sale................................... 23 53 70
Time deposits placed and other short-term investments...................... 90 79 92
Federal funds sold......................................................... 45 14 44
Securities purchased under agreements to resell............................ 502 180 157
Trading account assets..................................................... 764 297 71
---------------------------------------
Total income from earning assets......................................... 10,529 8,327 7,780
---------------------------------------
INTEREST EXPENSE
Deposits................................................................... 2,415 2,149 2,772
Borrowed funds and trading account liabilities............................. 2,353 1,149 639
Long-term debt and obligations under capital leases........................ 550 392 271
---------------------------------------
Total interest expense................................................... 5,318 3,690 3,682
---------------------------------------
NET INTEREST INCOME............................................................ 5,211 4,637 4,098
PROVISION FOR CREDIT LOSSES.................................................... 310 430 715
---------------------------------------
NET CREDIT INCOME.............................................................. 4,901 4,207 3,383
GAINS (LOSSES) ON SALES OF SECURITIES.......................................... (13) 84 249
NONINTEREST INCOME............................................................. 2,597 2,101 1,913
OTHER REAL ESTATE OWNED EXPENSE (INCOME)....................................... (12) 78 183
RESTRUCTURING EXPENSE.......................................................... - 30 -
OTHER NONINTEREST EXPENSE...................................................... 4,942 4,293 3,966
---------------------------------------
INCOME BEFORE INCOME TAXES AND EFFECT OF CHANGE IN METHOD OF ACCOUNTING
FOR INCOME TAXES............................................................. 2,555 1,991 1,396
INCOME TAX EXPENSE............................................................. 865 690 251
---------------------------------------
INCOME BEFORE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES........ 1,690 1,301 1,145
EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES...................... - 200 -
---------------------------------------
NET INCOME..................................................................... $ 1,690 $1,501 $1,145
=======================================
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS.................................... $ 1,680 $1,491 $1,121
=======================================
PER-SHARE INFORMATION
Earnings per common share before effect of change in method of
accounting for income taxes................................................ $ 6.12 $ 5.00 $ 4.60
Effect of change in method of accounting for income taxes.................... - .78 -
---------------------------------------
Earnings per common share.................................................... $ 6.12 $ 5.78 $ 4.60
=======================================
Fully diluted earnings per common share before effect of change in
method of accounting for income taxes...................................... $ 6.06 $ 4.95 $ 4.52
Effect of change in method of accounting for income taxes.................... - .77 -
---------------------------------------
Fully diluted earnings per common share...................................... $ 6.06 $ 5.72 $ 4.52
=======================================
Dividends per common share................................................... $ 1.88 $ 1.64 $ 1.51
=======================================
AVERAGE COMMON SHARES ISSUED (in thousands).................................... 274,656 257,969 243,748
=======================================
</TABLE>
See accompanying notes to consolidated financial statements.
58 NationsBank Corporation Annual Report 1994
<PAGE>
NationsBank Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
<TABLE>
<CAPTION>
December 31
----------------------
1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................................... $ 9,582 $ 7,649
Time deposits placed and other short-term investments................................... 2,159 1,479
Securities
Held for investment, at cost (market value - $17,101 and $13,604)..................... 17,800 13,584
Available for sale.................................................................... 8,025 15,470
-----------------------
Total securities.................................................................... 25,825 29,054
-----------------------
Loans held for sale..................................................................... 318 1,697
Trading account assets.................................................................. 9,941 10,610
Federal funds sold...................................................................... 960 691
Securities purchased under agreements to resell......................................... 10,152 6,353
Loans and leases, net of unearned income................................................ 102,367 91,006
Factored accounts receivable............................................................ 1,004 1,001
-----------------------
Loans, leases and factored accounts receivable, net of unearned income................ 103,371 92,007
-----------------------
Allowance for credit losses............................................................. (2,186) (2,169)
Premises, equipment and lease rights, net............................................... 2,439 2,259
Customers' acceptance liability......................................................... 684 708
Interest receivable..................................................................... 1,408 1,117
Goodwill................................................................................ 1,047 812
Core deposit and other intangibles...................................................... 665 555
Other assets............................................................................ 3,239 4,864
-----------------------
$169,604 $157,686
=======================
LIABILITIES
Deposits
Noninterest-bearing................................................................... $ 21,380 $ 20,723
Savings............................................................................... 9,037 8,784
NOW and money market deposit accounts................................................. 29,752 30,881
Time.................................................................................. 27,698 26,691
Foreign time.......................................................................... 12,603 4,034
-----------------------
Total deposits...................................................................... 100,470 91,113
-----------------------
Federal funds purchased................................................................. 3,993 7,135
Securities sold under agreements to repurchase.......................................... 21,977 21,236
Commercial paper........................................................................ 2,519 2,056
Other short-term borrowings............................................................. 5,640 5,522
Trading account liabilities............................................................. 11,426 8,299
Liability to factoring clients.......................................................... 586 534
Acceptances outstanding................................................................. 684 708
Accrued expenses and other liabilities.................................................. 2,810 2,752
Long-term debt and obligations under capital leases..................................... 8,488 8,352
-----------------------
Total liabilities..................................................................... 158,593 147,707
-----------------------
Contingent liabilities and other financial commitments (Notes 9 and 11)
SHAREHOLDERS' EQUITY
Preferred stock: authorized - 45,000,000 shares
ESOP Convertible, Series C: issued - 2,606,657 and 2,703,440 shares................... 111 115
Series CC: issued - none and 752,600 shares........................................... - 38
Series DD: issued - none and 1,107,600 shares......................................... - 55
Common stock: authorized - 800,000,000 and 500,000,000 shares;
issued - 276,451,552 and 270,904,656 shares........................................... 4,740 4,594
Retained earnings....................................................................... 6,451 5,247
Other, including loan to ESOP trust..................................................... (291) (70)
-----------------------
Total shareholders' equity.......................................................... 11,011 9,979
-----------------------
$169,604 $157,686
=======================
</TABLE>
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements 59
<PAGE>
NationsBank Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................................... $ 1,690 $ 1,501 $ 1,145
Reconciliation of net income to net cash provided by operating activities
Provision for credit losses................................................ 310 430 715
(Gains) losses on sales of securities...................................... 13 (84) (249)
Gain on sale of mortgage servicing unit.................................... - - (55)
Depreciation and premises improvements amortization........................ 265 242 228
Amortization of intangibles................................................ 141 110 111
Deferred income tax expense................................................ 235 210 14
Effect of change in method of accounting for income taxes.................. - (200) -
Net change in trading instruments.......................................... 3,796 707 (783)
Net (increase) decrease in interest receivable............................. (282) (93) 88
Net increase in interest payable........................................... 299 93 81
Net (increase) decrease in loans held for sale............................. 1,379 (406) (651)
Net increase in liability to factoring clients............................. 52 52 5
Other operating activities................................................. 1,220 (425) (71)
----------------------------------------
Net cash provided by operating activities................................ 9,118 2,137 578
----------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of securities held for investment................... 5,864 9,182 5,154
Purchases of securities held for investment.................................. (10,293) (10,493) (12,234)
Proceeds from sales and maturities of securities available for sale.......... 23,762 18,295 27,981
Purchases of securities available for sale................................... (16,055) (15,805) (20,202)
Net increase in federal funds sold and securities
purchased under agreements to resell....................................... (3,805) (410) (1,963)
Net (increase) decrease in time deposits placed and other
short-term investments..................................................... (670) 816 (407)
Net originations of loans and leases......................................... (12,656) (12,473) (8,702)
Net purchases of premises and equipment...................................... (327) (65) (287)
Purchases of loans and leases................................................ (2,936) (3,830) (2,373)
Proceeds from sales and securitizations of loans............................. 4,126 8,682 6,182
Purchases of mortgage servicing rights....................................... (124) (40) (5)
Purchases of factored accounts receivable.................................... (7,612) (7,343) (6,676)
Collections of factored accounts receivable.................................. 7,577 7,229 6,559
Proceeds from sales of other real estate owned............................... 369 261 352
Acquisitions of subsidiaries, net of cash.................................... 3,778 (4,606) (21)
----------------------------------------
Net cash used in investing activities.................................... (9,002) (10,600) (6,642)
----------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits.......................................... 4,261 (1,581) (5,348)
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase........................................ (2,562) 4,503 8,671
Net increase in other borrowed funds......................................... 491 1,958 2,884
Proceeds from issuance of long-term debt..................................... 1,198 4,125 349
Retirement of long-term debt................................................. (1,017) (405) (128)
Preferred stock repurchased and redeemed..................................... (94) - (10)
Proceeds from issuance of common stock....................................... 267 197 544
Cash dividends paid.......................................................... (527) (433) (395)
Common stock repurchased..................................................... (180) - -
Other financing activities................................................... (20) (23) 13
----------------------------------------
Net cash provided by financing activities................................ 1,817 8,341 6,580
----------------------------------------
Net increase (decrease) in cash and cash equivalents........................... 1,933 (122) 516
Cash and cash equivalents at beginning of year................................. 7,649 7,771 7,255
----------------------------------------
Cash and cash equivalents at end of year....................................... $ 9,582 $ 7,649 $ 7,771
========================================
Supplemental cash flow disclosure
Cash paid for interest....................................................... $ 5,020 $ 3,477 $ 3,601
Cash paid for income taxes................................................... 718 360 88
</TABLE>
Loans transferred to other real estate owned amounted to $207, $251 and $403
in 1994, 1993 and 1992, respectively.
See accompanying notes to consolidated financial statements.
60 NationsBank Corporation Annual Report 1994
<PAGE>
NationsBank Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Millions, Shares in Thousands)
<TABLE>
<CAPTION>
Total
Common Stock Loan to Share-
Preferred -------------------- Retained ESOP holders'
Stock Shares Amount Earnings Trust Other Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE ON DECEMBER 31, 1991.................... $373 231,246 $2,836 $3,429 $(107) $ (13) $ 6,518
Net income...................................... 1,145 1,145
Cash dividends
Common...................................... (371) (371)
Preferred................................... (24) (24)
Redemption and conversion of Series B
preferred stock............................. (250) 6,734 240 (10)
Issuance of common stock........................ 8,050 353 353
Common stock issued under dividend
reinvestment and employee plans............. 6,569 259 (78) 181
Common stock issued upon exercise
of warrants................................. 303 10 10
Other........................................... (4) 88 4 9 3 12
----------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1992.................... 119 252,990 3,702 4,179 (98) (88) 7,814
Net income...................................... 1,501 1,501
Cash dividends
Common...................................... (423) (423)
Preferred................................... (10) (10)
Issued in MNC acquisition
Series CC and DD preferred stock............ 93 93
Common stock................................ 13,608 701 701
Common stock issued under dividend
reinvestment and employee plans............. 4,213 187 10 197
Valuation reserve for securities available
for sale and marketable equity securities... 104 104
Other........................................... (4) 94 4 10 (8) 2
----------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1993.................... 208 270,905 4,594 5,247 (88) 18 9,979
Net income...................................... 1,690 1,690
Cash dividends
Common...................................... (517) (517)
Preferred................................... (10) (10)
Preferred stock repurchased and redeemed........ (93) (1) (94)
Common stock issued under dividend
reinvestment and employee plans............. 5,351 254 13 267
Common stock issued in acquisitions............. 3,510 64 41 105
Common stock repurchased........................ (3,524) (180) (180)
Net change in valuation reserve for
securities available for sale and
marketable equity securities................ (240) (240)
Other........................................... (4) 210 9 12 (6) 11
----------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1994.................... $ 111 276,452 $4,740 $6,451 $ (76) $(215) $11,011
============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements 61
<PAGE>
NationsBank Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NationsBank Corporation (the Corporation) is a multi-bank holding company
organized under the laws of North Carolina in 1968 and registered under the Bank
Holding Company Act of 1956, as amended. The Corporation provides financial
products and services, both domestically and internationally.
The accounting and reporting policies of NationsBank Corporation and its
subsidiaries conform with generally accepted accounting principles. Certain
prior year amounts have been reclassified to conform to current year
classifications. A description of the significant accounting policies is
presented below.
NOTE 1 -- ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NationsBank
Corporation and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Results of operations of
companies purchased are included from the dates of acquisition. Prior year
financial statements are restated to include accounts of companies acquired and
accounted for as poolings of interests. Assets held in an agency or fiduciary
capacity are not included in the consolidated financial statements.
CASH AND CASH EQUIVALENTS
Cash on hand, cash items in the process of collection and amounts due from
correspondent banks and the Federal Reserve Bank are included in cash and cash
equivalents.
SECURITIES
Securities are classified based on management's intention at the time of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held for investment and reported at amortized cost.
All other securities are classified as available for sale and carried at fair
value with net unrealized gains and losses included in shareholders' equity on
an after-tax basis. In addition, marketable equity securities are carried at
fair value with net unrealized gains and losses included in shareholders' equity
net of tax.
Realized gains and losses from the sales of securities are determined
using the specific identification method.
The Corporation adopted Statement of Financial Accounting Standards No.
115 "Accounting for Certain Investments in Debt and Equity Securities"
(SFAS 115), on December 31, 1993 (Note 3).
LOANS HELD FOR SALE
Loans held for sale include mortgage and other loans and are carried at
the lower of aggregate cost or market value.
TRADING INSTRUMENTS
Instruments utilized in trading activities include both securities and
derivatives and are stated at market value. Quoted market prices are generally
used as a basis to determine the market values of trading instruments. If quoted
market prices are not available, market values are estimated on the basis of
dealer quotes, pricing models, or quoted prices for instruments with similar
characteristics. Realized and unrealized gains and losses are recognized as
noninterest income.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is available to absorb losses inherent in
the credit extension process. The entire allowance is available to absorb losses
related to the loan and lease portfolio and other extensions of credit,
including off-balance sheet credit exposures. Credit exposures deemed to be
uncollectible are charged against the allowance for credit losses. Recoveries of
previously charged-off amounts are credited to the allowance for credit losses.
The adequacy of the allowance for credit losses is reviewed regularly by
management. Additions to the allowance for credit losses are made by charges to
the provision for credit losses. On a quarterly basis, a comprehensive review of
the adequacy of the allowance for credit losses is performed. This assessment is
made in the context of historical losses, as well as existing economic
conditions.
In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (SFAS 114), which was amended in 1994 by Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosure" (SFAS 118). These standards address the
accounting for certain loans when it is probable that all amounts due pursuant
to the contractual terms of the loan will not be collected. Individually
identified impaired loans are measured based on the present value of payments
expected to be received, using the historical effective loan rate as the
discount rate. Loans that are to be foreclosed or that are solely dependent on
the collateral for repayment may alternatively be measured based on the fair
value of the collateral for such loans. Measurement may also be based on
observable market prices. If the recorded investment in the loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for credit losses. The Corporation adopted SFAS 114 and SFAS 118
effective January 1, 1995. Adoption of the standards did not have a material
impact on the Corporation's financial position or results of operations.
LOANS
Loans are reported at their outstanding principal balances net of any
charge-offs, unamortized deferred fees and costs on originated loans or
premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are deferred
and recognized as adjustments to income over the lives of the related loans.
Discounts and premiums are amortized to income using methods that
approximate the interest method.
NONPERFORMING LOANS
Commercial loans and leases that are past due 90 days or more as to
principal or interest, or where reasonable doubt exists as to timely collection,
are generally classified as nonperforming loans unless well secured and in the
process of collection. Loans whose contractual terms have been restructured in a
manner which grants a concession to a borrower experiencing financial
difficulties, are classified as nonperforming until such time as the loan is
expected to be collected in full and the borrower has demonstrated sustained
performance in
62 NationsBank Corporation Annual Report 1994
<PAGE>
accordance with the restructured terms. Generally, loans which are past due 180
days or more as to principal or interest are classified as nonperforming
regardless of collateral or collection status. Generally, interest accrued but
not collected is reversed when a loan or lease is classified as nonperforming.
Interest collections on nonperforming loans and leases for which the
ultimate collectibility of principal is uncertain are applied as principal
reductions. Otherwise, such collections are credited to income when received.
Consumer loans, including credit card loans, that are past due 90 days or
more are not generally classified as nonperforming assets. Generally, consumer
loans are liquidated or charged off soon after becoming 90 days past due or 180
days past due for credit card loans. Income is generally recognized on past-due
consumer and credit card loans until the loan is charged off.
OTHER REAL ESTATE OWNED
Other real estate owned includes both formally foreclosed and in-substance
foreclosed property and premises no longer used for business operations.
Other real estate owned is carried at the lower of (1) the recorded amount
of the loan or lease for which the foreclosed property previously served as
collateral, or (2) the fair value of the property minus estimated costs to sell.
Prior to foreclosure, the recorded amount of the loan or lease is written down,
if necessary, to the fair value, minus estimated costs to sell, of the real
estate to be acquired by charging the allowance for credit losses.
Subsequent to foreclosure, gains or losses on the sale of and losses on
the periodic revaluation of other real estate owned are credited or charged to
expense. Net costs of maintaining and operating foreclosed properties are
expensed as incurred.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are recognized principally
using the straight-line method over the estimated useful lives of the assets.
INCOME TAXES
There are two components of income tax provision, current and deferred.
Current income tax provisions approximate taxes to be paid or refunded
for the applicable period.
Balance sheet amounts of deferred taxes are recognized on the temporary
differences between the bases of assets and liabilities as measured by tax laws
and their bases as reported in the financial statements. Deferred tax expense or
benefit is then recognized for the change in deferred tax liabilities or assets
between periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards, and tax credits
will be realized. A valuation allowance is recorded for those deferred tax items
for which it is more likely than not that realization will not occur.
During the first quarter of 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). The Corporation had previously recorded income tax expense following
Statement of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" (SFAS 96).
RETIREMENT BENEFITS
The Corporation has established qualified retirement plans covering full-
time, salaried employees and certain part-time employees. Pension expense under
these plans is accrued each year. The costs are charged to current operations
and consist of several components of net pension cost based on various actuarial
assumptions regarding future experience under the plans.
In addition, the Corporation and its subsidiaries have established
unfunded supplemental benefit plans providing any benefits that could not be
paid from a qualified retirement plan because of Internal Revenue Code
restrictions and supplemental executive retirement plans for selected officers
of the Corporation and its subsidiaries. These plans are nonqualified and,
therefore, in general, a participant's or beneficiary's claim to benefits is as
a general creditor.
The Corporation and its subsidiaries have established several
postretirement medical benefit plans which are not funded.
The Corporation adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefit Other Than Pensions"
(SFAS 106), during the first quarter of 1993. Retiree benefits, including health
and life insurance, are accrued under SFAS 106 compared to the Corporation's
prior accounting method of recognizing expense as these benefits were paid.
RISK MANAGEMENT INSTRUMENTS
Revenues or expenses associated with interest rate swap contracts used in
asset and liability management are accounted for on the accrual basis and
recognized as an adjustment to income or expense on the underlying instruments.
Gains and losses associated with futures and forward contracts used as effective
hedges of existing risk positions or anticipated transactions are deferred as an
adjustment to the carrying value of the related asset or liability and
recognized in net interest income over the remaining term of the related asset
or liability.
EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income, reduced by
dividends on preferred stock, by the weighted average number of common shares
outstanding for each period presented.
PURCHASE METHOD OF ACCOUNTING
Net assets of companies acquired in purchase transactions are recorded at
fair value at the date of acquisition. Identified intangibles are amortized on
an accelerated or straight-line basis over the period benefited. Goodwill is
amortized on a straight-line basis over 25 years.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Foreign currency assets and liabilities of the foreign branches and
subsidiaries are translated into U.S. dollars using month-end spot rates of
exchange. Income and expense amounts are translated based on the spot rate in
effect at the date on which the individual transactions are recorded.
Notes to Consolidated Financial Statements 63
<PAGE>
NOTE 2 -- ACQUISITION ACTIVITY
On October 1, 1993, the Corporation completed the acquisition of MNC
Financial Inc. (MNC), a bank holding company headquartered in Baltimore,
Maryland, with total assets of approximately $16.5 billion. The acquisition was
accounted for as a purchase. On an unaudited pro forma basis, combined interest
and other income and net income is $11.4 billion and $1.6 billion, respectively,
for 1993. On an unaudited pro forma basis, the reduction in earnings per common
share and fully diluted earnings per common share is $.03 and $.02,
respectively, for 1993.
On December 1, 1993, the Corporation established Greyrock Capital Group
Inc. (previously named Nations Financial Capital Corporation) upon completion of
its acquisition of a substantial amount of the assets and the ongoing business
of U S WEST Financial Services Inc., a corporate finance subsidiary of U S WEST
Inc. The Corporation acquired approximately $2.0 billion in net receivables.
On July 2, 1993, the Corporation, through a banking subsidiary, completed
its acquisition of substantially all the assets and certain of the liabilities
of Chicago Research & Trading Group Ltd. (CRT) and certain of its subsidiaries,
an options market-making and trading firm and a primary government securities
dealer. Total assets at the date of purchase were approximately $12 billion and
consisted primarily of trading account assets and securities purchased under
agreements to resell.
On February 1, 1993, the Corporation, through a subsidiary, acquired
substantially all of the assets and assumed certain of the liabilities of
Chrysler First Inc., the non-automotive finance subsidiary of Chrysler Financial
Corporation. Finance receivables of approximately $3.7 billion, including $1.5
billion which were securitized, were acquired. NationsCredit was formed as a
result of this purchase.
During 1994, the Corporation acquired several smaller banking
organizations. Aggregate acquired loans and assumed deposits were $654 million
and $5.1 billion, respectively. Additionally, in 1994, several mortgage banking
operations, including mortgage servicing rights, were acquired. Aggregate
acquired mortgage servicing rights approximated $8.6 billion, bringing the
Corporation's total servicing portfolio to approximately $39 billion on December
31, 1994.
<TABLE>
<CAPTION>
====================================================================================================================================
NOTE 3 -- SECURITIES
The book and market values of securities held for investment and
securities available for sale on December 31 were (dollars in millions):
U.S. Treasury
Securities Other
and Agency Taxable Total Tax-Exempt
SECURITIES HELD FOR INVESTMENT Debentures Securities Taxable Securities Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
- ----
Book value.................................................... $ 17,580 $ 79 $ 17,659 $141 $17,800
Gross unrealized gains........................................ 1 - 1 1 2
Gross unrealized losses....................................... (697) (1) (698) (3) (701)
---------------------------------------------------------------
Market value.................................................. $ 16,884 $ 78 $ 16,962 $139 $17,101
===============================================================
1993
- ----
Book value.................................................... $ 13,110 $446 $ 13,556 $28 $13,584
Gross unrealized gains........................................ 35 15 50 2 52
Gross unrealized losses....................................... (30) (2) (32) - (32)
---------------------------------------------------------------
Market value.................................................. $ 13,115 $459 $ 13,574 $30 $13,604
===============================================================
1992
- ----
Book value.................................................... $ 22,352 $486 $ 22,838 $517 $23,355
Gross unrealized gains........................................ 360 5 365 36 401
Gross unrealized losses....................................... (6) (1) (7) (1) (8)
---------------------------------------------------------------
Market value.................................................. $ 22,706 $490 $ 23,196 $552 $23,748
===============================================================
SECURITIES AVAILABLE FOR SALE
- ----------------------------------------------------------------------------------------------------------------------------------
1994
- ----
Cost.......................................................... $ 7,729 $250 $ 7,979 $310 $8,289
Gross unrealized gains........................................ - - - 11 11
Gross unrealized losses....................................... (274) - (274) (1) (275)
---------------------------------------------------------------
Market value.................................................. $ 7,455 $250 $ 7,705 $320 $8,025
===============================================================
1993
- ----
Cost.......................................................... $ 14,960 $ 7 $ 14,967 $378 $15,345
Gross unrealized gains........................................ 100 - 100 30 130
Gross unrealized losses....................................... (5) - (5) - (5)
---------------------------------------------------------------
Market value.................................................. $ 15,055 $ 7 $ 15,062 $408 $15,470
===============================================================
1992
- ----
Book value.................................................... $ 1,374 $ - $ 1,374 $ - $ 1,374
Gross unrealized gains........................................ 3 - 3 - 3
---------------------------------------------------------------
Market value.................................................. $ 1,377 $ - $ 1,377 $ - $ 1,377
===============================================================
</TABLE>
64 NationsBank Corporation Annual Report 1994
<PAGE>
The components of gains and losses on sales of available for sale
securities for the years ended December 31 were (dollars in millions):
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross gains on sales of securities............... $ 36 $166 $ 361
Gross losses on sales of securities.............. (49) (82) (112)
------------------------
Gains (losses) on sales of securities............ $(13) $ 84 $ 249
========================
</TABLE>
There were no sales of securities held for investment in 1994, 1993 or
1992.
The components, expected maturity distribution and yields (computed on a
taxable-equivalent basis) of the Corporation's securities portfolio on December
31, 1994, are summarized below (dollars in millions). Actual maturities may
differ from contractual maturities or maturities shown below since borrowers may
have the right to prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
Due after 1 Due after 5
Due in 1 year through 5 through 10 Due after
or less years years 10 years Total
-----------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Book value of securities held
for investment
U.S. Treasury securities
and agency debentures............ $4,927 4.32% $12,506 5.72% $116 5.96% $ 31 7.39% $17,580 5.33%
Other taxable securities........... 10 5.54 57 6.22 9 6.53 3 6.40 79 6.17
-----------------------------------------------------------------------------------------
Total taxable.................... 4,937 4.32 12,563 5.72 125 6.00 34 7.30 17,659 5.33
Tax-exempt securities.............. 56 5.57 44 8.23 37 10.94 4 10.42 141 7.94
-----------------------------------------------------------------------------------------
Total............................ $4,993 4.34 $12,607 5.73 $162 7.13 $ 38 7.65 $17,800 5.35
=========================================================================================
Market value of securities
held for investment................ $4,893 $12,015 $156 $ 37 $17,101
=========================================================================================
Market value of securities available
for sale
U.S. Treasury securities
and agency debentures............. $2,791 4.23% $ 4,630 5.55% $ 34 7.05% $ - -% $ 7,455 5.08%
Other taxable securities........... - - 25 8.02 11 7.32 214 6.00 250 6.25
----------------------------------------------------------------------------------------
Total taxable...................... 2,791 4.23 4,655 5.56 45 7.12 214 6.00 7,705 5.12
Tax-exempt securities.............. 111 13.27 112 11.69 37 11.29 60 11.83 320 12.21
----------------------------------------------------------------------------------------
Total............................... $2,902 4.57 $ 4,767 5.71 $ 82 9.02 $274 7.29 $ 8,025 5.40
=========================================================================================
Cost of securities available for sale.. $2,908 $ 5,024 $ 84 $273 $ 8,289
=========================================================================================
</TABLE>
There were no investments in obligations of states and political
subdivisions that were payable from and secured by the same source of revenue or
taxing authority and that exceeded 10 percent of consolidated shareholders'
equity on December 31, 1994 or 1993.
The income tax benefit attributable to securities transactions was $5
million for 1994, compared to income tax expense of $29 million and $87 million
for 1993 and 1992, respectively.
Securities are pledged or assigned to secure borrowed funds, government
and trust deposits and for other purposes. The book and market values of pledged
securities were $23.1 billion and $22.4 billion, respectively, on December 31,
1994, compared to $24.0 billion and $24.1 billion, respectively, on December 31,
1993.
On December 31, 1993, the Corporation adopted SFAS 115 related to
accounting for investments in debt and equity securities. Upon adoption, in
light of the MNC acquisition, the restrictive criteria on sales out of the held
for investment portfolio imposed by SFAS 115 and the uncertainty regarding
regulatory capital treatment of securities appreciation and depreciation, the
Corporation transferred approximately $14.6 billion from securities held for
investment to securities available for sale. Along with marketable equity
securities, the securities available for sale portfolio was marked to market
value resulting in net unrealized gains of approximately $164 million which are
included in shareholders' equity at $104 million net of tax.
On December 31, 1994, the valuation reserve for securities available for
sale and marketable equity securities reduced shareholders' equity by $136
million, reflecting $264 million of pretax depreciation on securities available
for sale, offset by $48 million of pretax appreciation on marketable equity
securities.
Notes to Consolidated Financial Statements 65
<PAGE>
NOTE 4 -- TRADING ACCOUNT ASSETS AND LIABILITIES
The market values on December 31 and the average market values for the
year ended December 31, 1994, of the components of trading account assets and
liabilities were (dollars in millions):
<TABLE>
<CAPTION>
1994
1994 1993 Average
- ------------------------------------------------------------------------------------------------------------------ -------
<S> <C> <C> <C>
Securities owned
U.S. Treasury securities................................................................ $ 5,968 $ 8,084 $ 7,713
Securities of other U.S. Government agencies and corporations........................... 1,185 885 1,322
Certificates of deposit, bankers' acceptances and commercial paper...................... 371 703 409
Corporate debt.......................................................................... 581 194 722
Other securities........................................................................ 259 165 285
----------------- -------
Total securities owned................................................................ 8,364 10,031 10,451
Derivatives-dealer positions................................................................ 1,577 579 1,158
----------------- -------
Total trading account assets.......................................................... $ 9,941 $10,610 $11,609
================= =======
Short sales
U.S. Treasury securities................................................................ $ 9,352 $ 7,542 $ 9,840
Securities of other U.S. Government agencies and corporations........................... 182 224 550
Corporate debt.......................................................................... 278 - 134
Other securities........................................................................ - 2 2
----------------- -------
Total short sales..................................................................... 9,812 7,768 10,526
Derivatives-dealer positions................................................................ 1,614 531 1,063
----------------- -------
Total trading account liabilities..................................................... $11,426 $ 8,299 $11,589
================= =======
</TABLE>
A discussion of the Corporation's trading activities is presented
beginning on page 49, including TABLE 21. An analysis of the revenues associated
with the Corporation's trading activities is presented in the table in the
noninterest income section on page 33.
The net change in the unrealized gain or loss on trading securities held
on December 31, 1994, included in noninterest income for 1994, was a loss of $3
million.
Derivatives-dealer positions presented in the table above represent the
market values of interest rate, foreign exchange and commodity products
including swap, futures, forward and option contracts associated with the
Corporation's trading derivatives activities.
A swap contract is an agreement between two parties to exchange cash flows
based on specified underlying notional amounts and indices. A futures or forward
contract is an agreement to buy or sell a quantity of a financial instrument or
commodity at a predetermined future date and rate or price. An option contract
is an agreement that conveys to the purchaser the right, but not the obligation,
to buy or sell a quantity of a financial instrument or commodity at a
predetermined rate or price at a time in the future.
These agreements can be transacted on an organized exchange or directly
between parties.
<TABLE>
<CAPTION>
====================================================================================================================================
NOTE 5 -- LOANS, LEASES AND FACTORED ACCOUNTS RECEIVABLE
Loans, leases and factored accounts receivable on December 31 were (dollars in millions):
1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LOANS
Commercial................................................................................. $ 44,804 $40,940
Real estate commercial..................................................................... 7,350 8,246
Real estate construction................................................................... 2,981 3,256
---------------------
Total commercial........................................................................ 55,135 52,442
---------------------
Residential mortgage....................................................................... 17,311 12,801
Home equity................................................................................ 2,644 2,565
Credit card................................................................................ 4,756 3,728
Other consumer............................................................................. 18,209 17,063
---------------------
Total consumer.......................................................................... 42,920 36,157
---------------------
Foreign.................................................................................... 1,984 978
Factored accounts receivable............................................................... 1,004 1,001
---------------------
Total loans and factored accounts receivable............................................ 101,043 90,578
Less unearned income.................................................................... (552) (553)
---------------------
Loans and factored accounts receivable, net of unearned income.......................... 100,491 90,025
---------------------
LEASES
Lease receivables.......................................................................... 3,056 2,127
Estimated residual value................................................................... 934 557
Less unearned income....................................................................... (1,110) (702)
---------------------
Leases, net of unearned income.......................................................... 2,880 1,982
---------------------
Loans, leases and factored accounts receivable, net of unearned income.................. $103,371 $92,007
=====================
</TABLE>
66 NationsBank Corporation Annual Report 1994
<PAGE>
Transactions in the allowance for credit losses were (dollars in
millions):
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance on January 1......................................................................... $2,169 $1,454 $1,605
----------------------------------
Loans, leases and factored accounts receivable charged off................................... (533) (609) (1,026)
Recoveries of loans, leases and factored accounts receivable previously charged off.......... 217 197 160
----------------------------------
Net charge-offs.......................................................................... (316) (412) (866)
Provision for credit losses.................................................................. 310 430 715
Allowance applicable to loans of purchased companies......................................... 23 697 -
----------------------------------
Balance on December 31....................................................................... $2,186 $2,169 $1,454
==================================
</TABLE>
Loans to directors and executive officers of the Corporation on December
31, 1994, were $142 million and $180 million on January 1 and December 31, 1994,
respectively. An analysis of activity for 1994 with respect to such aggregate
loans is as follows (dollars in millions):
Balance New Balance
January 1 Loans Payments December 31
------------------------------------------------------
$142 $166 $128 $180
================================================================================
Loans to immediate family members of directors and executive officers of
the Corporation totaled $10 million and $17 million on January 1 and December
31, 1994, respectively.
Loans to directors and executive officers who were solely directors and/or
executive officers of the Corporation's significant subsidiaries, excluding the
aggregate loan amount of any loans to members of their immediate families,
amounted to $505 million on December 31, 1994.
Extensions of credit to such persons have been made in the ordinary course
of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time in comparable transactions with
others and did not involve more than normal risk of collectibility or present
other unfavorable features.
On December 31, 1994, 1993 and 1992, nonperforming loans totaled $801
million, $1.1 billion and $1.4 billion, respectively.
The net amount of interest recorded during each year on loans that were
nonperforming or restructured on December 31 was $31 million, $34 million and
$31 million in 1994, 1993 and 1992, respectively. If these loans had been
accruing interest at their originally contracted rates, related income would
have been $96 million in 1994, $80 million in 1993 and $105 million in 1992.
Other real estate owned amounted to $337 million, $661 million and $587
million on December 31, 1994, 1993 and 1992, respectively. The cost of carrying
other real estate owned amounted to $24 million, $18 million and $25 million in
1994, 1993 and 1992, respectively.
================================================================================
<TABLE>
<CAPTION>
NOTE 6 -- PREMISES, EQUIPMENT AND LEASE RIGHTS, NET
Premises, equipment and lease rights, net on December 31 were (dollars in millions):
1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements................................................. $ 387 $ 318
Buildings.................................................................. 1,465 1,408
Capitalized leased premises................................................ 50 55
Leasehold improvements..................................................... 508 525
Furniture and equipment.................................................... 1,782 1,690
Construction in process.................................................... 82 63
-------------------
4,274 4,059
Less accumulated depreciation and amortization............................. (1,835) (1,800)
-------------------
$ 2,439 $ 2,259
===================
</TABLE>
Provisions for depreciation and amortization charged to noninterest
expense were $265 million, $242 million and $228 million for 1994, 1993 and
1992, respectively.
On December 31, 1994, the minimum future noncancelable operating lease
payments for premises and equipment are $236 million, $199 million, $166
million, $144 million and $112 million for each of the succeeding years 1995
through 1999, respectively. Rental expense, excluding executory costs, charged
to operating expenses during 1994, 1993 and 1992 was approximately $343 million,
$287 million and $272 million, respectively.
Notes to Consolidated Financial Statements 67
<PAGE>
NOTE 7 -- SHORT-TERM BORROWINGS AND LONG-TERM DEBT
The Corporation's banking subsidiaries in North Carolina, Georgia and
Texas jointly maintain a program to offer from time to time up to $6 billion in
short-term bank notes with fixed or floating rates and maturities from 30 days
to one year from date of issue. As of December 31, 1994 and 1993, short-term
bank notes outstanding were $4.5 billion and $2.2 billion, respectively.
On September 30, 1994, the Corporation renegotiated its commercial paper
back-up lines establishing a single committed, $1.5 billion, three-year credit
facility. As of December 31, 1994, the facility was unused. On December 31,
1993, established and unused bank lines of credit amounted to $1.0 billion. In
both years, these lines were supported by fees paid directly by the Corporation
to unaffiliated banks.
Long-term debt on December 31 is summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SENIOR DEBT
Parent company
Floating rate notes, due 1994.......................................................... $ - $ 50
5 3/8 percent notes, due 1995.......................................................... 400 399
11.70 percent notes, due 1995.......................................................... 75 75
4 3/4 percent notes, due 1996.......................................................... 399 399
8 1/2 percent notes, due 1996.......................................................... 150 150
Floating rate medium-term notes at spreads over LIBOR, due 1995 through 1999........... 1,438 683
5 1/8 percent notes, due 1998.......................................................... 300 299
6 5/8 percent notes, due 1998.......................................................... 399 399
5.51 percent ESOP secured notes, due 1996 through 1999................................. 125 125
4.36 to 8.20 percent medium-term notes, due 1995 through 2000.......................... 482 477
5 3/8 percent notes, due 2000.......................................................... 397 396
9 1/4 percent unsecured notes, due 2006................................................ 124 124
Other senior notes..................................................................... 101 190
---------------------
4,390 3,766
---------------------
Banking and nonbanking subsidiaries
Floating rate municipal financing, repurchased 1994.................................... - 120
Floating rate collateralized financing, due 1994 through 1996.......................... 477 919
Other senior notes..................................................................... 80 100
---------------------
557 1,139
---------------------
Total senior debt...................................................................... 4,947 4,905
---------------------
SUBORDINATED DEBT
Parent company
Floating rate notes, repurchased 1994.................................................. - 299
9 3/8 percent notes, due 1997.......................................................... 82 84
9 3/4 percent capital notes, due 1999.................................................. 100 99
10 1/2 percent notes, due 1999......................................................... 299 299
9 1/8 percent notes, due 2001.......................................................... 299 299
8 1/8 percent notes, due 2002.......................................................... 349 349
6 1/2 percent notes, due 2003.......................................................... 600 600
6.20 percent medium-term notes, due 2003............................................... 75 75
7 3/4 percent notes, due 2004.......................................................... 299 -
6 7/8 percent notes, due 2005.......................................................... 398 398
9 3/8 percent notes, due 2009.......................................................... 397 397
10.20 percent notes, due 2015.......................................................... 200 200
8.57 percent medium-term notes, due 2024, putable 2004................................. 100 -
Other subordinated notes............................................................... 10 12
---------------------
3,208 3,111
---------------------
Banking and nonbanking subsidiaries
9 1/2 percent notes, due 2004.......................................................... 301 301
Other subordinated notes............................................................... 8 8
---------------------
309 309
---------------------
Total subordinated debt................................................................ 3,517 3,420
---------------------
Total long-term debt................................................................... 8,464 8,325
---------------------
Obligations under capital leases....................................................... 24 27
---------------------
Total long-term debt and obligations under capital leases.............................. $8,488 $8,352
=====================
</TABLE>
Under its $1.1 billion of remaining shelf capacity, in December 1994, the
Corporation initiated a program to issue from time to time up to $1 billion in
aggregate principal amount of certain medium-term notes, which may be senior
debt securities, subordinated debt, or any combination thereof. As of February
28, 1995, approximately $800 million of senior debt notes have been issued under
this program.
As of February 28, 1995, $3 billion of corporate debt securities, and
preferred and common stock was available for issuance under a shelf registration
filed February 1, 1995.
68 NationsBank Corporation Annual Report 1994
<PAGE>
The floating rate collateralized financing consists of $247 million in
consumer loan financing and $230 million in homes financing. Consumer loan
financing consists of revolving credit and closed-end asset-backed certificates
collateralized by a pool of credit lines and loans with a book value of $430
million at December 31, 1994. Homes financing consists of home equity and second
mortgage asset-backed certificates collateralized by a pool of second mortgages
and home equity loans with a book value of $427 million on December 31, 1994.
The components of collateralized financing bear interest at floating rates based
on factors of LIBOR. On December 31, 1994, the rates on both the consumer
financing and homes financing were 6.40 percent.
The indentures covering the parent company's senior long-term debt include
provisions that limit funded debt, long-term lease commitments, issuance of
subsidiary preferred stock, creation of liens upon the property of the
Corporation and the payment of dividends. Under the most restrictive of the
provisions, approximately $2.1 billion was available for payment of dividends on
December 31, 1994.
The floating rate collateralized financing obligations may be redeemed at
any time at the option of the Corporation. The 10 1/2-percent subordinated
notes, due 1999, are redeemable beginning in 1996.
The principal maturities for the next five years of long-term debt
outstanding on December 31, 1994, were (dollars in millions):
<TABLE>
<S> <C>
1995................................................ $1,256
1996................................................ 1,395
1997................................................ 309
1998................................................ 892
1999................................................ 970
</TABLE>
===============================================================================
NOTE 8 -- SHAREHOLDERS' EQUITY
The Corporation has authorized 45 million shares of preferred stock. As
of December 31, 1994, the Corporation had issued 2.6 million shares of ESOP
Convertible Preferred Stock, Series C (ESOP Preferred Stock). The ESOP Preferred
Stock has a stated and liquidation value of $42.50 per share, provides for an
annual cumulative dividend of $3.30 per share and is convertible into .84 shares
of the Corporation's common stock at an initial conversion price of $42.50 per
.84 shares of the Corporation's common stock. In 1994, 1993 and 1992, ESOP
Preferred Stock in the amount of $4 million was converted into the Corporation's
common stock.
In connection with MNC acquisition, Series CC and DD Preferred Stock
was issued. During the first quarter of 1994, the Corporation repurchased and
redeemed all 753 thousand shares of its Series CC Preferred Stock at a
weighted average price of $51.32 per share and all 1.108 million shares of
its Series DD Preferred Stock at a weighted average price of $49.86 per
share. The aggregate redemption price was $94 million.
In 1992, all 5 million shares of Series B Preferred Stock were
converted into the Corporation's common stock or redeemed for cash.
On July 27, 1994, the Board of Directors authorized the Corporation
during the next 12 months to purchase from time to time in the open market up
to 10 million shares of its common stock representing the number of shares of
common stock it intends to issue for its dividend reinvestment and stock
purchase plan, its various employee benefit plans and additional shares
associated with small acquisitions. On December 31, 1994, 3.5 million shares
had been repurchased under this program at a repurchase amount of $180
million. In addition to the above authorization, on September 28, 1994, the
Board authorized the Corporation to purchase up to 20 million shares of its
common stock from time to time in open market or privately negotiated
transactions.
Other shareholders' equity on December 31 was comprised of the
following (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------------
<S> <C> <C>
Restricted stock award plan
deferred compensation............................. $ (62) $(74)
Net unrealized gains (losses) on available for
sale securities and marketable equity
securities, net of tax............................ (136) 104
Foreign currency adjustment and other................. (17) (12)
--------------
$(215) $18
==============
</TABLE>
===============================================================================
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Corporation enters into a number of
off-balance sheet commitments. These instruments expose the Corporation to
varying degrees of credit and market risk and are subject to the same credit and
risk limitation reviews as those recorded on the balance sheet. See the
discussion of credit risk policies and procedures and concentrations of credit
risk beginning on page 40.
CREDIT EXTENSION COMMITMENTS
The Corporation enters into commitments to extend credit, standby
letters of credit and commercial letters of credit to meet the financing
needs of its customers. The commitments shown below have been reduced by
amounts collateralized by cash and participated to other financial
institutions. The following summarizes commitments outstanding on December 31
(dollars in millions):
<TABLE>
<CAPTION>
1994 1993
- -----------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit
Credit card commitments....................... $15,921 $12,808
Other loan commitments........................ 58,813 48,521
Standby letters of credit and
financial guarantees.......................... 6,884 6,265
Commercial letters of credit...................... 1,282 983
</TABLE>
Notes to Consolidated Financial Statements 68
<PAGE>
Commitments to extend credit are legally binding, generally have
specified rates and maturities and are for specified purposes. The
Corporation manages the credit risk on these commitments by subjecting these
commitments to normal credit approval and monitoring processes and protecting
against deterioration in the borrowers' ability to pay through adverse-change
clauses which require borrowers to maintain various credit and liquidity
measures. Credit card lines are unsecured commitments which are reviewed at
least annually by management. Upon evaluation of the customer's
creditworthiness, the Corporation has the right to change or terminate the
terms of the credit card line. Of the December 31, 1994 total other loan
commitments, $24.7 billion is scheduled to expire in less than one year,
$24.7 billion in one to five years and $9.4 billion after five years.
Standby letters of credit (SBLC) and financial guarantees are issued to
support the debt obligations of customers. If a SBLC or financial guarantee
is drawn upon, the Corporation looks to its customer for payment. SBLCs and
financial guarantees are subject to the same approval and collateral policies
as other extensions of credit. Of the December 31, 1994 total SBLCs and
financial guarantees, $4.3 billion is scheduled to expire in less than one
year, $2.4 billion in one to five years and $151 million after five years.
Commercial letters of credit, issued primarily to facilitate customer
trade finance activities, are collateralized by the underlying goods being
shipped by the customer and are generally short term.
For each of these types of instruments, the Corporation's maximum
exposure to credit loss is represented by the contractual amount of these
instruments. Many of the commitments are collateralized or are expected to
expire without being drawn upon; therefore, the total commitment amounts do
not necessarily represent risk of loss or future cash requirements.
DERIVATIVES
Derivative transactions are entered into by the Corporation to meet the
financing needs of its customers, to manage its own interest rate and
currency risks, and as part of its trading activities. See TABLES 18 and 19
on pages 45 and 46 and the first eight paragraphs under Interest Rate Risk
Management beginning on page 45 regarding the Corporation's use of
derivatives for risk management purposes. See TABLE 21 on page 49, the
discussion beginning on page 49 and Note 4 regarding the Corporation's
derivative-dealer activities.
SECURITIES LENDING
The Corporation executes securities lending transactions on behalf of
certain customers. In certain instances, the Corporation indemnifies the
customer against certain losses. The Corporation obtains collateral with a
market value in excess of the market value of the securities loaned. On
December 31, 1994 and 1993, indemnified securities lending transactions
totaled $5.7 billion and $5.1 billion, respectively. Collateral with a market
value of $5.9 billion and $5.2 billion on December 31, 1994 and 1993,
respectively, was obtained by the Corporation in support of these
transactions.
WHEN ISSUED SECURITIES
When issued securities are commitments entered into to purchase or sell
securities in the time period between the announcement of a securities
offering and the issuance of those securities. On December 31, 1994, the
Corporation had commitments to purchase and sell when issued securities of
$2.2 billion and $2.5 billion, respectively. This compares to commitments to
purchase and sell when issued securities of $1.1 billion and $866 million,
respectively, on December 31, 1993.
LITIGATION
The Corporation and its subsidiaries are defendants in or parties to a
number of pending and threatened legal actions and proceedings. Management
believes, based upon the opinion of counsel, that the actions and liability
or loss, if any, resulting from the final outcome of these proceedings, will
not be material in the aggregate.
==============================================================================
NOTE 10 -- REGULATORY REQUIREMENTS AND RESTRICTIONS
The banking subsidiaries are required to maintain average reserve
balances with the Federal Reserve Bank based on a percentage of certain
deposits. The average of those reserve balances amounted to $1.4 billion for
both 1994 and 1993.
Funds for cash distributions by the Corporation to its shareholders are
derived from a variety of sources, including cash and investments. The
primary source of such funds, however, is dividends received from its banking
subsidiaries. The subsidiary banks can initiate dividend payments in 1995,
without prior regulatory approval, of $1.0 billion plus an additional amount
equal to their net profits, as defined by statute, for 1995 up to the date of
any such dividend declaration. The amount of dividends that each subsidiary
bank may declare in a calendar year without approval by the OCC is the bank's
net profits for that year combined with its net retained profits, as defined,
for the preceding two years.
Regulations also restrict banking subsidiaries in lending funds to
affiliates. On December 31, 1994, the total amount which could be loaned to
the Corporation by its banking subsidiaries was approximately $1.2 billion.
On December 31, 1994, no loans to the Corporation from its banking
subsidiaries were outstanding.
On December 31, 1994, as a result of the above regulatory restrictions,
substantially all of the net assets of the Corporation's banking
subsidiaries, in excess of the allowable amounts mentioned above, were
restricted from transfer to the Corporation in the form of cash dividends,
loans or advances.
70 NationsBank Corporation Annual Report 1994
<PAGE>
NOTE 11 -- EMPLOYEE BENEFIT PLANS
The Corporation sponsors noncontributory trusteed pension plans that
cover substantially all officers and employees. The plans provide defined
benefits based on an employee's compensation, age at retirement and years of
service. It is the policy of the Corporation to fund not less than the
minimum funding amount required by the Employee Retirement Income Security
Act.
The following table sets forth the plans' estimated status on December
31 (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation
Accumulated benefit obligation, including vested benefits of $711 and $755......................... $(734) $(781)
==================
Projected benefit obligation for service rendered to date.......................................... $(869) $(917)
Plan assets at fair value, primarily listed stocks, fixed income securities and real estate............ 964 1,046
------------------
Plan assets in excess of projected benefit obligation.................................................. 95 129
Unrecognized net loss.................................................................................. 135 243
Unrecognized net transition asset being amortized...................................................... (15) (18)
Unrecognized prior service benefit being amortized..................................................... (34) (30)
Deferred investment (gain) loss........................................................................ 126 (9)
------------------
Prepaid pension cost............................................................................... $ 307 $ 315
==================
</TABLE>
Net periodic pension expense (income) for the years ended December 31
included the following components (dollars in millions):
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period.......................... $ 39 $ 31 $ 28
Interest cost on projected benefit obligation........................... 72 58 51
Actual return on plan assets............................................. 22 (101) (21)
Net amortization and deferral............................................ (121) 3 (69)
----------------------
Net periodic pension expense (income).................................. $ 12 $ (9) $ (11)
=======================
</TABLE>
For December 31, 1994, the weighted average discount rate and rate of
increase in future compensation used in determining the actuarial present
value of the projected benefit obligation was 8.5 percent and 4.25 percent,
respectively. The related expected long-term rate of return on plan assets
was 10.0 percent. For December 31, 1993, the weighted average discount rate,
rate of increase in future compensation and expected long-term rate of return
on plan assets was 7.75 percent, 4.0 percent and 10.0 percent, respectively.
HEALTH AND LIFE BENEFIT PLANS
In addition to providing retirement benefits, the Corporation provides
health care and life insurance benefits for active and retired employees.
Substantially all of the Corporation's employees, including certain employees
in foreign countries, may become eligible for postretirement benefits if they
reach early retirement age while employed by the Corporation and they have
the required number of years of service. Under the Corporation's current
plan, eligible retirees are entitled to a fixed dollar amount for each year
of service. Additionally, certain current retirees are eligible for different
benefits attributable to prior plans.
All of the Corporation's accrued postretirement benefit liability was
unfunded at year-end 1994. The "projected unit credit" actuarial method was
used to determine the normal cost and actuarial liability.
A reconciliation of the estimated status of the postretirement benefit
obligation on December 31 is as follows (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees....................................... $(128) $(158)
Fully eligible active participants............. (3) (2)
Other active plan participants................. (47) (39)
-------------------
(178) (199)
Unamortized transition obligation.................. 125 135
Unrecognized net loss (gain)....................... (9) 7
-------------------
Accrued postemployment benefit liability....... $ (62) $ (57)
===================
</TABLE>
Net periodic postretirement benefit cost for the years ended December
31 included the following (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------
<S> <C> <C>
Service cost.............................................. $ 3 $ 2
Interest cost on accumulated
postretirement benefit obligation..................... 14 15
Amortization of transition obligation
over 20 years......................................... 7 7
Amortization of gains..................................... (6) -
------------
Net periodic postretirement benefit cost.............. $18 $24
============
</TABLE>
The health care cost trend rates used in determining the accumulated
postretirement benefit obligation were 7.0 percent for pre-65 benefits and
5.75 percent for post-65 benefits. A one-percent change in the average
health care cost trend rates would increase the accumulated postretirement
benefit obligation by 5.1 percent and the aggregate of the service cost
Notes to Consolidated Financial Statements 71
<PAGE>
and interest cost components of net periodic postretirement benefit cost by 3.9
percent. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8.50 percent in 1994 and
7.75 percent in 1993.
SAVINGS AND PROFIT SHARING PLANS
In addition to the retirement plans, the Corporation maintains several
defined contribution savings and profit sharing plans, one of which features
a leveraged employee stock ownership (ESOP) provision.
For 1994, 1993 and 1992, the Corporation contributed approximately $41
million, $35 million and $34 million, respectively, in cash which was
utilized primarily to purchase the Corporation's common stock under the terms
of these plans.
Under the terms of the ESOP provision, payments to the plan for
dividends on the ESOP Preferred Stock were $9 million for 1994, 1993 and
1992. Interest incurred to service the ESOP debt amounted to $5 million for
1994, 1993 and 1992.
STOCK OPTION AND AWARD PLANS
Under the 1992 Associates Stock Option Plan, on July 1, 1992, eligible
full-time and part-time employees received a one-time award of a
predetermined number of stock options entitling them to purchase shares of
the Corporation's common stock at the closing market price of $48 3/8 per
share. The options are exercisable until June 30, 1997.
Additional options under a former plan and restricted stock and stock
options assumed in connection with various acquisitions remain outstanding.
No further options or rights will be granted under such plans.
Under the Corporation's current Restricted Stock Award Plan, key
employees are awarded shares of the Corporation's common stock subject to
certain vesting requirements. Generally, vesting occurs in five equal annual
installments and the related deferred compensation is expensed over the same
period.
During 1994, the Board of Directors approved the Key Employee Stock
Plan, subject to shareholder approval at the 1995 Annual Meeting. The Key
Employee Stock Plan will replace the current Restricted Stock Award Plan and
is anticipated to provide for different types of awards including stock
options, restricted stock and performance shares.
The following table summarizes activity under the option and award
plans for 1994 and the status on December 31, 1994:
<TABLE>
<CAPTION>
Outstanding Exercisable
Options Options
--------------------------------------
Average Average
Option Option
Employee Stock Option Plans Shares Price Shares Price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance on December 31, 1993.................... 8,589,996 $40.88 8,262,677 $41.67
Shares due to acquisition....................... 19,596 29.51 6,996 22.20
Became exercisable.............................. - - 327,319 20.98
Less
Exercised................................... (1,785,281) 38.94 (1,785,281) 38.94
Expired or canceled......................... (453,560) 50.87 (453,560) 50.87
----------------------------------------
Balance on December 31, 1994.................... 6,370,751 40.68 6,358,151 40.69
=======================================
<CAPTION>
Average
Grant
Restricted Stock Award Plan Shares Price
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding unvested grants on December 31, 1993.... 2,150,570 $44.57
Additional stock grants............................. 287,000 51.88
Less
Shares vested..................................... (594,358) 44.06
Shares canceled................................... (26,360) 46.88
-------------------
Outstanding unvested grants on December 31, 1994.... 1,816,852 45.86
===================
</TABLE>
===============================================================================
NOTE 12 -- NONINTEREST INCOME AND EXPENSE
The significant components of noninterest income and expense for the
years ended December 31 are presented below (dollars in millions):
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
NONINTEREST INCOME
Trust fees..................................... $ 435 $371 $331
Service charges on deposit accounts............ 797 681 600
Mortgage servicing and related fees............ 86 77 105
Fees on factored accounts receivable........... 74 74 69
Other nondeposit-related service fees.......... 276 212 144
Credit card income............................. 280 198 199
Trading account profits and fees............... 273 152 71
Other income................................... 376 336 394
---------------------
$2,597 $2,101 $1,913
=====================
</TABLE>
72 NationsBank Corporation Annual Report 1994
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NONINTEREST EXPENSE
Personnel.......................................................... $2,311 $1,903 $1,807
Occupancy, net..................................................... 487 434 435
Equipment.......................................................... 364 317 291
Marketing.......................................................... 161 138 105
Professional fees.................................................. 171 168 182
Amortization of intangibles........................................ 141 110 111
Credit card........................................................ 44 49 41
Private label credit card.......................................... 27 37 43
FDIC insurance..................................................... 211 205 189
Processing......................................................... 235 190 139
Telecommunications................................................. 137 122 109
Postage and courier................................................ 126 120 111
Other general operating............................................ 388 370 281
General administrative and miscellaneous........................... 139 130 122
--------------------------
$4,942 $4,293 $3,966
=========================
</TABLE>
================================================================================
NOTE 13 -- INCOME TAXES
The components of income tax expense for the years ended December 31
were (dollars in millions):
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current portion--expense
Federal..................................................... $559 $419 $222
State....................................................... 54 54 13
Foreign..................................................... 17 7 2
--------------------
630 480 237
--------------------
Deferred portion--expense
Federal..................................................... 223 218 11
State....................................................... 12 (11) 4
Foreign..................................................... - 3 (1)
--------------------
235 210 14
--------------------
Total tax expense......................................... $865 $690 $251
====================
</TABLE>
The Corporation's current income tax expense of $630 million, $480
million and $237 million for 1994, 1993 and 1992, respectively, includes
amounts computed under the regular and alternative minimum tax (AMT) systems
and approximates the amounts payable for those years.
Deferred expense represents the change in the deferred tax asset or
liability.
A reconciliation of the expected federal tax expense, based on the
federal statutory rate of 35 percent for 1994 and 1993 and 34 percent for
1992, to the actual consolidated tax expense for the years ended December 31
is as follows
(dollars in millions):
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected federal tax expense.............................................................. $894 $697 $475
Increase (decrease) in taxes resulting from
Tax-exempt income...................................................................... (34) (33) (38)
Net utilization of operating loss carryforwards for financial reporting purposes....... - - (265)
State tax expense, net of federal benefit.............................................. 50 30 17
Tax rate change on beginning net deferred tax assets................................... - (6) -
Other.................................................................................. (45) 2 62
---------------------
Total tax expense.................................................................... $865 $690 $251
=====================
</TABLE>
Notes to Consolidated Financial Statements 73
<PAGE>
Significant components of the Corporation's deferred tax (liabilities)
and assets on December 31 are as follows (dollars in millions):
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities
Equipment lease financing................................... $ (596) $ (475)
Depreciation................................................ (66) (75)
Securities available for sale............................... - (58)
Intangibles................................................. (53) (69)
Employee retirement benefits................................ (33) (57)
Other, net.................................................. (205) (76)
--------------
Gross deferred tax liabilities............................ (953) (810)
--------------
Deferred tax assets
Securities available for sale............................... 80 -
Federal net operating loss carryforwards.................... 17 8
Allowance for credit losses................................. 730 731
Other real estate owned..................................... 66 73
Loan fees and expenses...................................... 37 55
AMT credit carryforwards.................................... - 58
Other, net.................................................. 181 132
--------------
Gross deferred tax assets................................. 1,111 1,057
Valuation allowance......................................... (60) (77)
--------------
Deferred tax assets, net of valuation allowance........... 1,051 980
---------------
Net deferred tax assets....................................... $ 98 $ 170
===============
</TABLE>
The Corporation's $98-million net deferred tax assets include a
valuation allowance of $60 million representing primarily state net operating
loss carryforwards for which realization is uncertain. The net change in the
valuation allowance for deferred tax assets was a decrease of $17 million,
due to the realization of certain state deferred tax assets.
During the first quarter of 1993, the Corporation adopted SFAS 109,
which superseded SFAS 96. SFAS 109 allows for the recognition of deferred tax
assets with respect to previously unrecognized operating loss and alternative
minimum tax (AMT) credit carryforwards. The cumulative benefit of adopting
the new accounting principle was $200 million.
===============================================================================
NOTE 14 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" (SFAS 107), requires the
disclosure of the estimated fair values of financial instruments. The fair
value of a financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in
a forced or liquidation sale. Quoted market prices, if available, are
utilized as estimates of the fair values of financial instruments. Because no
quoted market prices exist for a significant part of the Corporation's
financial instruments, the fair values of such instruments have been derived
based on management's assumptions with respect to future economic conditions,
the amount and timing of future cash flows and estimated discount rates. The
estimation methods for individual classifications of financial instruments
are more fully described below. Different assumptions could significantly
affect these estimates. Accordingly, the net realizable values could be
materially different from the estimates presented below.
In addition, the estimates are only indicative of individual
financial instruments' values and should not be considered an indication of
the fair value of the combined Corporation. The provisions of SFAS 107 do not
require the disclosure of nonfinancial instruments, including intangible
assets. The value of the Corporation's intangibles such as franchise, credit
card and trust relationships, and mortgage servicing rights, is significant.
SHORT-TERM FINANCIAL INSTRUMENTS
The carrying value of short-term financial instruments, including cash
and cash equivalents, federal funds sold and purchased, resell and repurchase
agreements, and commercial paper and short-term borrowings, approximate the
fair value. These financial instruments generally expose the Corporation to
limited credit risk and have no stated maturities, or have an average
maturity of less than 30 days and carry interest rates which approximate
market.
74 NationsBank Corporation Annual Report 1994
<PAGE>
FINANCIAL INSTRUMENTS TRADED IN THE SECONDARY MARKET WITH QUOTED MARKET
PRICES OR DEALER QUOTES
Securities held for investment, securities available for sale, loans
held for sale, trading account instruments, and long-term debt which are
actively traded in the secondary market have been valued using quoted market
prices.
LOANS
Fair values were estimated for groups of similar loans based upon type
of loan, credit quality and maturity. The fair value of fixed-rate loans was
estimated by discounting estimated cash flows using corporate bond rates
adjusted by credit risk and servicing costs for commercial and real estate
commercial and construction loans; and for consumer loans, the Corporation's
December 31 origination rate for similar loans. Contractual cash flows for
consumer loans were adjusted for prepayments using published industry data.
For variable-rate loans, the carrying amount was considered to approximate
fair value. Where credit deterioration has occurred, cash flows for fixed-
and variable-rate loans have been reduced to incorporate estimated losses.
Where quoted market prices were available, primarily for certain residential
mortgage loans, such market prices were utilized as estimates for fair
values.
DEPOSITS
The fair value for fixed-rate deposits with stated maturities was
calculated by discounting the difference between the cash flows on a
contractual basis and current market rates for instruments with similar
maturities. For variable-rate deposits, the carrying amount was considered to
approximate fair value.
The book and fair values of financial instruments on December 31 were
(dollars in millions):
<TABLE>
<CAPTION>
1994 1993
------------------------------------------
BOOK FAIR Book Fair
VALUE VALUE Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents......................................................... $ 9,582 $ 9,582 $ 7,649 $ 7,649
Time deposits placed and other short-term investments............................. 2,159 2,159 1,479 1,479
Securities held for investment.................................................... 17,800 17,101 13,584 13,604
Securities available for sale..................................................... 8,025 8,025 15,470 15,470
Loans held for sale............................................................... 318 318 1,697 1,697
Trading account assets............................................................ 9,941 9,941 10,610 10,610
Federal funds sold and securities purchased under agreements to resell............ 11,112 11,112 7,044 7,044
Loans, net of unearned income
Commercial and foreign......................................................... 46,649 46,375 41,786 41,812
Real estate commercial and construction........................................ 10,330 10,227 11,495 11,072
Residential mortgage........................................................... 17,244 16,251 12,689 12,898
Credit card.................................................................... 4,753 4,782 3,728 3,839
Other consumer and home equity................................................. 20,511 20,328 19,326 19,413
Allowance for credit losses....................................................... (2,186) - (2,169) -
FINANCIAL LIABILITIES
Deposits
Noninterest-bearing............................................................. 21,380 21,380 20,723 20,723
Savings......................................................................... 9,037 9,037 8,784 8,784
NOW and money market deposit accounts........................................... 29,752 29,752 30,881 30,881
Consumer CDs.................................................................... 19,369 19,001 17,850 17,970
Other time deposits............................................................. 20,932 20,721 12,875 13,014
Federal funds purchased and securities sold under agreements to repurchase........ 25,970 25,970 28,371 28,371
Commercial paper.................................................................. 2,519 2,519 2,056 2,056
Other short-term borrowings....................................................... 5,640 5,640 5,522 5,522
Trading account liabilities....................................................... 11,426 11,426 8,299 8,299
Long-term debt.................................................................... 8,464 8,199 8,325 8,774
</TABLE>
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
For a presentation of the fair value of the Corporation's derivative-
dealer positions, see Note 4. The fair value of the Corporation's asset and
liability management and other interest rate swaps is presented in TABLE 19 on
page 46.
The fair value of liabilities on binding commitments to lend is based
on the net present value of cash flow streams using fee rates currently
charged for similar agreements versus original contractual fee rates, taking
into account the creditworthiness of the borrowers. The fair value was a
liability of $92 million and $111 million on December 31, 1994 and 1993,
respectively.
Notes to Consolidated Financial Statements 75
<PAGE>
NOTE 15 -- PARENT COMPANY FINANCIAL INFORMATION
The following tables present consolidated parent company financial
information:
NationsBank Corporation (Parent Company)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from consolidated
Subsidiary banks and bank holding companies.................................................. $1,864 $ 894 $ 481
Other subsidiaries........................................................................... 5 - 40
Interest from consolidated subsidiaries........................................................ 355 172 85
Other income................................................................................... 501 533 688
-----------------------------
2,725 1,599 1,294
-----------------------------
Expenses
Interest on borrowed funds..................................................................... 582 389 255
Noninterest expense............................................................................ 442 453 645
-----------------------------
1,024 842 900
-----------------------------
Earnings
Income before equity in undistributed earnings of consolidated subsidiaries and taxes.......... 1,701 757 394
-----------------------------
Equity in undistributed earnings of consolidated
Subsidiary banks and bank holding companies.................................................. (247) 742 588
Other subsidiaries...........................................................................
140 73 27
-----------------------------
(107) 815 615
-----------------------------
Income before income taxes and effect of change in method
of accounting for income taxes................................................................. 1,594 1,572 1,009
Income tax benefit............................................................................... (96) (56) (136)
-----------------------------
Income before effect of change in method of accounting for income taxes.......................... 1,690 1,628 1,145
Effect of change in method of accounting for income taxes........................................ - (127) -
-----------------------------
Net income....................................................................................... $1,690 $1,501 $1,145
=============================
Net income available to common shareholders...................................................... $1,680 $1,491 $1,121
=============================
</TABLE>
NationsBank Corporation (Parent Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
<TABLE>
<CAPTION>
December 31
---------------------
1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash held at subsidiary banks.................................................................. $ 4 $ 11
Temporary investments.......................................................................... 583 312
Receivables from consolidated
Subsidiary banks and bank holding companies.................................................. 1,187 1,176
Other subsidiaries........................................................................... 7,407 6,002
Investment in consolidated
Subsidiary banks and bank holding companies.................................................. 10,739 10,696
Other subsidiaries........................................................................... 1,173 1,249
Other assets................................................................................... 616 562
---------------------
$21,709 $20,008
=====================
Liabilities and Shareholders' Equity
Commercial paper and other notes payable....................................................... $ 2,426 $ 2,282
Accrued expenses and other liabilities......................................................... 674 870
Long-term debt................................................................................. 7,598 6,877
Shareholders' equity........................................................................... 11,011 9,979
---------------------
$21,709 $20,008
=====================
</TABLE>
76 NationsBank Corporation Annual Report 1994
<PAGE>
NationsBank Corporation (Parent Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income................................................................................... $ 1,690 $ 1,501 $ 1,145
Reconciliation of net income to net cash provided by operating activities
Gain on sale of mortgage servicing unit...................................................... - - (55)
Equity in undistributed earnings of consolidated subsidiaries................................ 107 (815) (615)
Effect of change in method of accounting for income taxes.................................... - 127 -
Other operating activities................................................................... 142 113 (23)
-------------------------------
Net cash provided by operating activities.................................................... 1,939 926 452
-------------------------------
Investing Activities
Net (increase) decrease in temporary investments............................................. (271) (134) 356
Net increase in receivables from consolidated subsidiaries................................... (1,416) (231) (895)
Additional capital investment in subsidiaries................................................ (764) (1,428) (140)
(Acquisitions) sales of subsidiaries, net of cash............................................ 101 (4,220) (21)
-------------------------------
Net cash used in investing activities........................................................ (2,350) (6,013) (700)
-------------------------------
Financing Activities
Net increase (decrease) in commercial paper and other notes payable.......................... 144 1,332 (124)
Proceeds from issuance of long-term debt..................................................... 1,159 4,125 349
Retirement of long-term debt................................................................. (438) (174) (115)
Preferred stock repurchased and redeemed..................................................... (94) - (10)
Proceeds from issuance of common stock....................................................... 267 197 544
Common stock repurchased..................................................................... (180) - -
Cash dividends paid.......................................................................... (527) (433) (395)
Other financing activities................................................................... 73 30 12
-------------------------------
Net cash provided by financing activities.................................................... 404 5,077 261
-------------------------------
Net increase (decrease) in cash.................................................................. (7) (10) 13
Cash at beginning of year........................................................................ 11 21 8
-------------------------------
Cash at end of year.............................................................................. $ 4 $ 11 $ 21
===============================
</TABLE>
Notes to Consolidated Financial Statements 77
