<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
For the quarterly period ended March 31, 1996
------------------------------
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
For the transition period from to
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Commission file number 1-6523
--------
NationsBank Corporation
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(Exact name of registrant as specified in its charter)
North Carolina 56-0906609
----------------------------------- ------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
NationsBank Corporate Center, Charlotte, North Carolina 28255
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(Address of principal executive offices and zip code)
(704) 386-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
On April 30, 1996, there were 299,472,502 shares of NationsBank Corporation
Common Stock outstanding.
1
<PAGE>
NationsBank Corporation
March 31, 1996 Form 10-Q
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Income for the Three Months
Ended March 31, 1996 and 1995................................. 3
Consolidated Balance Sheet on March 31, 1996 and
December 31, 1995............................................. 4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1996 and 1995....................................... 5
Consolidated Statement of Changes in Shareholders' Equity for
the Three Months Ended March 31, 1996 and 1995................ 6
Notes to Consolidated Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition............................................. 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................. 40
Signature.................................................................. 41
Index to Exhibits.......................................................... 42
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
NationsBank Corporation and Subsidiaries
Consolidated Statement of Income
- -------------------------------------------------------------------------------------------------------------
(Dollars in Millions Except Per-Share Information)
<CAPTION>
Three Months
Ended March 31
----------------------------
1996 1995
----------------------------
<S> <C> <C>
Income from Earning Assets
Interest and fees on loans................................................ $ 2,573 $ 2,176
Lease financing income.................................................... 66 50
Interest and dividends on securities
Held for investment................................................... 58 234
Available for sale.................................................... 356 106
Interest and fees on loans held for sale.................................. 25 1
Interest on time deposits placed and other short-term investments......... 18 40
Federal funds sold........................................................ 8 16
Securities purchased under agreements to resell........................... 183 214
Trading account securities................................................ 286 233
-----------------------------
Total income from earning assets..................................... 3,573 3,070
-----------------------------
Interest Expense
Deposits.................................................................. 858 783
Borrowed funds............................................................ 651 598
Trading account liabilities............................................... 191 222
Long-term debt............................................................ 316 160
-----------------------------
Total interest expense............................................... 2,016 1,763
-----------------------------
Net interest income............................................................ 1,557 1,307
Provision for credit losses.................................................... 155 70
-----------------------------
Net credit income.............................................................. 1,402 1,237
Gains on sales of securities................................................... 14 1
Noninterest income............................................................. 885 726
Other real estate owned expense................................................ - 2
Merger-related charge.......................................................... 118 -
Other noninterest expense...................................................... 1,394 1,288
-----------------------------
Income before income taxes..................................................... 789 674
Income tax expense............................................................. 276 231
-----------------------------
Net income..................................................................... $ 513 $ 443
=============================
Net income available to common shareholders.................................... $ 509 $ 441
=============================
Per-share information
Earnings per common share................................................ $ 1.70 $ 1.60
=============================
Fully diluted earnings per common share.................................. $ 1.67 $ 1.58
=============================
Dividends per common share............................................... $ .58 $ .50
=============================
Average common shares issued (in thousands).................................... 300,279 276,415
=============================
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
NationsBank Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in Millions)
<CAPTION>
March 31 December 31
1996 1995
<S> <C> <C>
Assets
Cash and cash equivalents................................................ $ 7,465 $ 8,448
Time deposits placed and other short-term investments.................... 1,026 1,296
Securities
Held for investment, at cost (market value - $4,087 and $4,432)......... 4,104 4,432
Available for sale...................................................... 17,771 19,415
----------------------------
Total securities....................................................... 21,875 23,847
----------------------------
Loans held for sale...................................................... 2,221 1,663
Federal funds sold....................................................... 105 111
Securities purchased under agreements to resell.......................... 6,088 6,119
Trading account assets................................................... 19,569 18,867
Loans and leases, net of unearned income................................. 123,169 116,042
Factored accounts receivable............................................. 1,175 991
----------------------------
Loans, leases and factored accounts receivable, net of unearned income. 124,344 117,033
----------------------------
Allowance for credit losses.............................................. (2,253) (2,163)
Premises, equipment and lease rights, net................................ 2,634 2,508
Customers' acceptance liability.......................................... 1,134 918
Interest receivable...................................................... 1,478 1,597
Mortgage servicing rights................................................ 782 707
Goodwill................................................................. 1,438 1,139
Core deposit and other intangibles....................................... 376 375
Other assets............................................................. 6,093 4,833
----------------------------
$ 194,375 $ 187,298
============================
Liabilities
Deposits
Noninterest-bearing.................................................... $ 24,101 $ 23,414
Savings................................................................ 9,479 8,257
NOW and money market deposit accounts.................................. 30,432 28,160
Time................................................................... 33,104 27,971
Foreign time........................................................... 12,506 12,889
----------------------------
Total deposits........................................................ 109,622 100,691
----------------------------
Federal funds purchased.................................................. 4,896 5,940
Securities sold under agreements to repurchase........................... 23,402 23,034
Trading account liabilities.............................................. 11,109 15,177
Commercial paper......................................................... 2,883 2,773
Other short-term borrowings.............................................. 4,317 4,143
Liability to factoring clients........................................... 681 580
Acceptances outstanding.................................................. 1,134 918
Accrued expenses and other liabilities................................... 4,115 3,466
Long-term debt........................................................... 18,659 17,775
----------------------------
Total liabilities..................................................... 180,818 174,497
----------------------------
Contingent liabilities and other financial commitments (Note 5)
Shareholders' Equity
Preferred stock: authorized - 45,000,000 shares; issued - 5,346,543 and
2,473,081 shares. 176 105
Common stock: authorized - 800,000,000 shares; issued - 299,317,787 and
274,268,773 shares. 5,020 4,655
Retained earnings......................................................... 8,353 7,826
Other, including loan to ESOP trust....................................... 8 215
----------------------------
Total shareholders' equity.............................................. 13,557 12,801
----------------------------
$ 194,375 $ 187,298
============================
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
NationsBank Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in Millions)
<CAPTION>
Three Months
Ended March 31
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Operating Activities
Net income......................................................................... $ 513 $ 443
Reconciliation of net income to net cash used by operating activities
Provision for credit losses...................................................... 155 70
Gains on sales of securities..................................................... (14) (1)
Depreciation and premises improvements amortization.............................. 75 68
Amortization of intangibles...................................................... 26 30
Deferred income tax expense...................................................... 43 60
Net change in trading instruments................................................ (4,803) (3,459)
Net decrease in interest receivable.............................................. 190 152
Net increase (decrease) in interest payable...................................... (410) 81
Net (increase) decrease in loans held for sale................................... (557) 32
Net increase in liability to factoring clients................................... 102 96
Other operating activities....................................................... 150 (507)
-----------------------------
Net cash used by operating activities.......................................... (4,530) (2,935)
-----------------------------
Investing Activities
Proceeds from maturities of securities held for investment......................... 332 275
Purchases of securities held for investment........................................ (2) (25)
Proceeds from sales and maturities of securities available for sale................ 9,757 5,415
Purchases of securities available for sale......................................... (4,667) (6,216)
Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell............................................. 314 (2,576)
Net (increase) decrease in time deposits placed and other short-term investments... 252 (591)
Net originations of loans and leases............................................... (2,329) (2,873)
Purchases of loans and leases...................................................... (1,499) (793)
Proceeds from sales and securitizations of loans and leases........................ 2,414 262
Purchases and originations of mortgage servicing rights............................ (107) (517)
Purchases of factored accounts receivable.......................................... (1,844) (1,963)
Collections of factored accounts receivable........................................ 1,655 1,740
Net purchases of premises and equipment............................................ (79) (80)
Proceeds from sales of other real estate owned..................................... 42 56
Sales/(acquisitions) of business activities, net of cash........................... (19) (155)
------------------------------
Net cash provided (used) by investing activities................................. 4,220 (8,041)
------------------------------
Financing Activities
Net increase (decrease) in deposits................................................ (10) 273
Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase.............................................. (1,640) 6,912
Net increase (decrease) in other short-term borrowings and commercial paper........ (19) 1,050
Proceeds from issuance of long-term debt........................................... 1,753 1,503
Retirement of long-term debt....................................................... (455) (95)
Proceeds from issuance of common stock............................................. 35 28
Cash dividends paid................................................................ (178) (140)
Common stock repurchased........................................................... (157) (79)
Other financing activities......................................................... (2) (83)
------------------------------
Net cash provided (used) by financing activities................................. (673) 9,369
------------------------------
Net decrease in cash and cash equivalents............................................ (983) (1,607)
Cash and cash equivalents on January 1............................................... 8,448 9,582
------------------------------
Cash and cash equivalents on March 31................................................ $ 7,465 $ 7,975
==============================
Loans transferred to other real estate owned amounted to $46 and $18 for the three months ended March 31, 1996 and 1995,
respectively.
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
NationsBank Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in Millions, Shares in Thousands)
<CAPTION>
Total
Share-
Preferred Common Stock Retained Loan to holders'
--------------------
Stock Shares Amount Earnings ESOP Trust Other Equity
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance on December 31, 1994.................. $ 111 276,452 $ 4,740 $ 6,451 $ (76) $ (215) $ 11,011
Net income.................................. 443 443
Cash dividends
Common.................................... (138) (138)
Preferred................................. (2) (2)
Common stock issued under dividend
reinvestment and employee plans........... 517 23 5 28
Common stock repurchased.................... (1,551) (79) (79)
Valuation reserve for securities available
for sale and marketable equity securities. 90 90
Other....................................... (1) (1) (5) (7)
-------------------------------------------------------------------------------
Balance on March 31, 1995..................... $ 110 275,418 $ 4,684 $ 6,753 $ (76) $ (125) $ 11,346
===============================================================================
Balance on December 31, 1995.................. $ 105 274,269 $ 4,655 $ 7,826 $ (63) $ 278 $ 12,801
Net income.................................. 513 513
Cash dividends
Common.................................... (174) (174)
Preferred................................. (4) (4)
Common stock issued under dividend
reinvestment and employee plans........... 831 28 7 35
Stock issued in acquisitions................ 73 26,305 491 192 2 758
Common stock repurchased.................... (2,110) (157) (157)
Net change in unrealized gains/(losses)
on securities available for sale and
marketable equity securities.............. (215) (215)
Other....................................... (2) 23 3 (1) -
---------------------------------------------------------------------------------
Balance on March 31, 1996..................... $ 176 299,318 $ 5,020 $ 8,353 $ (63) $ 71 $ 13,557
==================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
NationsBank Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Accounting Policies
The consolidated financial statements include the accounts of NationsBank
Corporation and its subsidiaries (the Corporation). Significant intercompany
accounts and transactions have been eliminated in consolidation.
The information contained in the consolidated financial statements is
unaudited. In the opinion of management, all normal recurring adjustments
necessary for a fair presentation of the results of interim periods have been
made. Certain prior period amounts have been reclassified to conform to current
period classifications.
Accounting policies followed in the presentation of interim financial
results are presented on pages 51, 52 and 53 of the 1995 Annual Report to
Shareholders, incorporated by reference into the Annual Report on Form 10-K, for
the year ended December 31, 1995.
Note 2 - Acquisition Activity
On January 9, 1996, the Corporation completed the acquisition of Bank South
Corporation (Bank South), headquartered in Atlanta, Georgia. Each outstanding
share of Bank South common stock was converted into .44 shares of Corporation
common stock, resulting in the net issuance of 26,304,617 shares of common stock
by the Corporation. Bank South's total assets, total deposits and total
shareholders' equity were $7.4 billion, $5.1 billion and $685 million,
respectively, on the date of acquisition. This acquisition was accounted for as
a pooling of interests and does not have a material impact on the results of
operations or financial condition of the Corporation.
During January and February 1996, the Corporation acquired a banking
organization in Florida and one in Texas. Combined total loans and total
deposits acquired were $3.1 billion and $3.9 billion, respectively. These
acquisitions were accounted for as purchases.
During the first quarter of 1996, the Corporation recorded a merger-related
charge of $118 million pre-tax, as discussed in Note 7.
The Corporation had ownership of 42 percent of Charter Bancshares, Inc.
(Charter), a multi-bank holding company headquartered in Houston, Texas. On
January 25, 1996, the Corporation entered an agreement to acquire the remaining
outstanding common shares of Charter for 1.4 million shares of the Corporation's
common stock. Charter had total assets and total deposits of $896 million and
$732 million, respectively, on March 31, 1996. This acquisition will be
accounted for as a purchase. The acquisition is subject to approval by Charter
shareholders and is expected to be completed in the second quarter of 1996.
On February 15, 1996, NationsCredit Commercial Corporation, a wholly owned
subsidiary of the Corporation, entered into an agreement to acquire LDI
Corporation (LDI) by purchasing all of the outstanding shares of capital stock
of LDI at an aggregate purchase price of approximately $28 million, payable in
cash. On March 31, 1996, LDI had assets of $285 million. This acquisition was
accounted for as a purchase and was consummated on April 29, 1996.
On April 25, 1996, the Corporation entered into an agreement to acquire
from Bluebonnet Savings Bank, FSB (Bluebonnet) 21 branches, with aggregate
deposits at March 31, 1996 of $992 million, for approximately $47 million,
payable in cash. This acquisition will be accounted for as a purchase. The
acquisition is subject to approval by Bluebonnet shareholders and various
regulatory agencies and is expected to be completed in the third quarter of
1996.
On April 26, 1996, the Corporation agreed to acquire TAC Bancshares, Inc.
(TAC) and its subsidiary, Chase Federal Bank FSB (Chase Federal), headquartered
in Miami, Florida, for approximately $280 million, in the aggregate, payable in
cash. On March 31, 1996, TAC and Chase Federal had total assets and total
deposits of $2.8 billion and $2.0 billion, respectively. These acquisitions
will be accounted for as purchases. The acquisitions are subject to approval by
Chase Federal shareholders and various regulatory agencies and are expected to
be completed simultaneously in the third quarter of 1996.
The acquisitions discussed above are not expected to have a material impact
on the results of operations or financial condition of the Corporation.
7
<PAGE>
Note 3 - Trading Account Assets and Liabilities
The fair values of the components of trading account assets and liabilities
on March 31, 1996 and December 31, 1995 and the average market values for the
three months ended March 31, 1996 were (dollars in millions):
<TABLE>
<CAPTION>
First
Quarter
March 31 December 31 1996
1996 1995 Average
------------------------------
<S> <C> <C> <C>
Securities owned
U.S. Treasury securities..................... $ 10,596 $ 10,364 $ 12,774
Securities of other U.S. Government agencies
and corporations........................... 1,675 1,508 1,747
Certificates of deposit, bankers' acceptances
and commercial paper....................... 515 555 981
Corporate debentures......................... 784 1,443 1,170
Foreign sovereign instruments.............. 685 576 74
Other securities........................... 1,034 402 1,467
------------------------------
Total securities owned................... 15,289 14,848 18,213
Derivatives-dealer positions................... 4,280 4,019 3,534
------------------------------
Total trading account assets............. $ 19,569 $ 18,867 $ 21,747
==============================
Short sales
U.S. Treasury securities..................... $ 6,488 $ 11,066 $ 11,161
Securities of other U.S. Government agencies
and corporations........................... 5 16 14
Corporate debentures....................... 509 683 502
Other securities........................... 331 17 808
------------------------------
Total short sales........................ 7,333 11,782 12,485
Derivatives-dealer positions................... 3,776 3,395 3,070
------------------------------
Total trading account liabilities........ $ 11,109 $ 15,177 $ 15,555
==============================
</TABLE>
Derivative-dealer positions presented in the table above represent the fair
values of interest rate, foreign exchange, equity and commodity-related
products, including financial futures, forward settlement and option contracts
and swap agreements associated with the Corporation's derivative trading
activities.
Note 4 - Debt
In the first quarter of 1996, the Corporation issued $752 million of senior
notes due 2001 to 2006, $257 million of which bear interest at floating rates
and $495 million of which bear interest at fixed rates ranging from 5.60 % to
6.95 %. Subordinated notes in the amount of $401 million were issued, due 2006
through 2011 with interest rates ranging from 6.375 % to 7.383 %.
Of debt issued in the three months ended March 31, 1996, $896 million of
fixed-rate debt with rates ranging from 5.60 % to 7.383 % was swapped to
floating rates at spreads over LIBOR.
Under the bank note program jointly maintained by NationsBank, N.A.,
NationsBank, N.A. (South) and NationsBank of Texas, N.A., bank notes may be
offered from time to time up to $9.0 billion with fixed or floating rates and
maturities from 30 days to 15 years from date of issue. On March 31, 1996,
there were short-term bank notes outstanding of $3.1 billion. In addition,
NationsBank of Texas, N.A. and NationsBank, N.A. together had outstanding bank
notes of $2.5 billion on March 31, 1996 that were classified as long-term debt.
On March 15, 1996, the Corporation redeemed $300 million of 10 1/2%
subordinated notes, due 1999.
Between March 31, 1996 and May 7, 1996, the Corporation issued an
additional $155 million of senior notes due 2002 to 2006, $15 million of which
bears interest at a floating rate and $140 million of which bear interest at
fixed rates ranging from 6.65 % to 7.125 %. During this same period, the
Corporation issued a $25 million subordinated note bearing interest at 7.58 %,
maturing in 2011. As of May 7, 1996, the Corporation had approximately $2.1
billion of capacity available under its existing shelf registration statement
and $1.2 billion available under a Euro medium-term note program.
On March 31, 1996 and December 31, 1995, the Corporation had unused
commercial paper back-up lines of credit totaling $1.5 billion which will expire
in 1997. These lines were supported by fees paid directly by the Corporation to
unaffiliated banks.
8
<PAGE>
Note 5 - Commitments and Contingencies
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 (dollars in millions):
<TABLE>
<CAPTION>
March December
1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit
Credit card commitments............ $ 22,296 $ 21,033
Other loan commitments............. 66,797 66,638
Standby letters of credit and
financial guarantees............... 8,592 8,356
Commercial letters of credit.......... 922 986
</TABLE>
On March 31, 1996 and December 31, 1995, indemnified securities lending
transactions totaled $2.5 billion and $2.6 billion, respectively. Collateral,
with a market value of $2.6 billion and $2.7 billion for the respective periods,
was obtained by the Corporation in support of these transactions.
On March 31, 1996, the Corporation had commitments to purchase and sell
when-issued securities of $5.9 billion and $6.1 billion, respectively. This
compares to commitments to purchase and sell when-issued securities of $4.4
billion and $4.3 billion, respectively, on December 31, 1995.
See Tables 12 and 13 and the accompanying discussion in Item 2 regarding
the Corporation's derivatives used for risk management purposes.
In the ordinary course of business, the Corporation and its subsidiaries
are routinely defendants in or parties to a number of pending and threatened
legal actions and proceedings, including several actions brought on behalf of
various classes of claimants. In certain of these actions and proceedings,
substantial money damages are asserted against the Corporation and its
subsidiaries, and certain of these actions and proceedings are based on alleged
violations of consumer protection, securities, environmental, banking and other
laws. Management believes, based upon the advice of counsel, that these actions
and proceedings and losses, if any, resulting from the final outcome thereof,
will not be material in the aggregate to the Corporation's financial position or
results of operations.
9
<PAGE>
Note 6 - Loans, Leases and Factored Accounts Receivable
The distribution of loans, leases and factored accounts receivable on March
31, 1996 and December 31, 1995 was as follows (dollars in millions):
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
--------------------- ---------------------
Amount Percent Amount Percent
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic
Commercial.....................$ 50,375 40.6 % $ 47,989 41.0 %
Real estate commercial......... 6,131 4.9 6,183 5.3
Real estate construction....... 3,154 2.5 2,976 2.5
--------------------- ---------------------
Total commercial............. 59,660 48.0 57,148 48.8
--------------------- ---------------------
Residential mortgage........... 27,667 22.3 24,026 20.6
Credit card.................... 5,741 4.6 6,532 5.6
Other consumer................. 23,615 19.0 22,287 19.0
--------------------- ---------------------
Total consumer............... 57,023 45.9 52,845 45.2
--------------------- ---------------------
Lease financing................ 3,398 2.7 3,264 2.8
Factored accounts receivable... 1,175 .9 991 .8
--------------------- ---------------------
121,256 97.5 114,248 97.6
--------------------- ---------------------
Foreign........................ 3,088 2.5 2,785 2.4
--------------------- ---------------------
Total loans, leases and factored
accounts receivable, net
of unearned income...........$ 124,344 100.0 % $ 117,033 100.0 %
===================== =====================
</TABLE>
On March 31, 1996, the recorded investment in certain loans that were
considered to be impaired was $554 million, all of which were classified as
nonperforming. Impaired loans on March 31, 1996 were comprised of commercial
loans of $359 million, real estate commercial loans of $180 million and real
estate construction loans of $15 million. Of these impaired loans, $376 million
had a valuation allowance of $58 million and $178 million did not have a
valuation allowance primarily due to the application of interest payments
against book balances or write-downs previously made with respect to these
loans.
On March 31, 1996 and December 31, 1995, nonperforming loans, including
certain loans which are considered to be impaired, totaled $841 million and $706
million, respectively. Other real estate owned amounted to $144 million and
$147 million on March 31, 1996 and December 31, 1995, respectively.
Note 7 - Merger-Related Charge
During the first quarter of 1996, primarily in connection with the
acquisition of Bank South, the Corporation recorded a pre-tax merger-related
charge of $118 million. The charge consisted of $34 million of severance costs,
$28 million for facilities consolidations and branch closures, $11 million
related to cancellations of contractual obligations, and other merger-related
expenses. Of the $118 million accrued charge, approximately $77 million remained
at March 31, 1996 and is expected to be used in 1996.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Earnings Review
The continued operating momentum under way at the Corporation was
demonstrated through a 33-percent increase in operating net income to $590
million, or $1.95 per share, in the first quarter of 1996 over the same quarter
of 1995. Including a one-time merger-related charge of $118 million ($77
million, net of tax), the Corporation earned $513 million in the first quarter
of 1996.
Key performance highlights for the first quarter of 1996 were:
Operating return on average common shareholders' equity rose to 18.07
percent in the first quarter of 1996 compared to 16.03 percent in the first
quarter of 1995. Including the merger-related charge, the return on average
common shareholders' equity was 15.71 percent.
Taxable-equivalent net interest income increased 19 percent to $1.6 billion
in the first quarter of 1996 over the same prior year quarter due to 12-percent
internal growth in average loans and leases, higher spreads in the securities
portfolio and the impact of acquisitions.
Noninterest income increased 22 percent to $885 million in the first
quarter of 1996 over the first quarter of 1995, driven primarily by higher
investment banking fees, service fees and mortgage servicing fees.
Revenue growth continued to outpace expense growth in the first quarter of
1996, improving the efficiency ratio to 56.4 percent compared to 62.5 percent in
the first quarter of 1995.
Excluding the impact of acquisitions, noninterest expense increased 3
percent during the first quarter of 1996 compared to the first quarter of 1995.
Including the impact of acquisitions, noninterest expense increased 8 percent.
Provision for credit losses increased to $155 million for the first quarter
of 1996 compared to $70 million for the first quarter of 1995, reflecting both
growth in consumer lending as well as the continuation of a return to more
normalized levels following periods of unusually low net credit losses.
Nonperforming assets increased to $985 million on March 31, 1996 compared
to $853 million at the end of 1995, due principally to acquisitions.
Business Unit Operations
The Corporation provides a diversified range of banking and certain
nonbanking financial services and products through its various subsidiaries. The
Corporation manages its business activities through three major Business Units:
the General Bank, Global Finance and Financial Services. The Business Units are
managed with a focus on numerous performance objectives including return on
equity, operating efficiency and net income. Table 2 summarizes key performance
measures for each of the Business Units.
The net interest income of the Business Units reflects a funds transfer
pricing process which derives net interest income by matching assets and
liabilities with similar interest rate sensitivity and maturity characteristics.
Equity capital is allocated to each Business Unit based on an assessment of its
inherent risk.
11
<PAGE>
The General Bank includes the Banking Group, which contains the retail
banking network and is the service provider for the consumer sector as well as
small and medium-size companies. Within the General Bank, specialized services,
such as the origination and servicing of home mortgage loans, the issuance and
servicing of credit cards, indirect lending, dealer finance and certain
insurance services, are provided throughout the Corporation's franchise, and on
a nationwide basis for certain products, through the Financial Products Group.
The General Bank also contains the Asset Management Group which contains
NationsBank Investments and Investment Management, which includes the full-
service and discount brokerage companies and provides mutual fund and investment
management services, and the Private Client Group, which offers investment
management, banking and fiduciary services.
The General Bank earned $386 million in the first quarter of 1996, an
increase of 55 percent over the same period in 1995. The Banking Group's 15-
percent loan growth net of acquisitions and growth in deposit fee income
reflected the full impact of recent acquisitions and accounted for most of the
General Bank's increased earnings over the same period last year. The General
Bank's return on equity rose 500 basis points to 22 percent in the first quarter
of 1996 compared to the first quarter of 1995. Taxable-equivalent net interest
income in the General Bank increased $245 million reflecting the impact of
acquisitions, broad-based loan growth and deposit cost containment efforts.
Acquisitions accounted for just under one-half of the net interest income
growth. Excluding acquisitions, loan growth of $9.5 billion was driven by
residential mortgage loans, up $6.3 billion, and credit card loans, up $2.0
billion net of securitizations.
Noninterest income rose 21 percent from the first quarter of 1995 to $580
million in the first quarter of 1996 led by increases in deposit service fee
income, acquisition-related mortgage servicing fees and brokerage income.
Noninterest expense increased 6 percent, significantly below the total revenue
growth of 25 percent. Acquisition-related increases in personnel and higher
general operating expense accounted for most of the year-over-year growth. These
increases were partly offset by reduced deposit insurance expense and the
continued optimization of General Bank's retail banking center delivery network
combined with efficiencies gained in commercial banking. Strong revenue growth,
a moderate increase in operating expense and the initial integration of recent
acquisitions led to the improvement in the efficiency ratio, down to 58.4%
compared to 68.6% in the same period in 1995.
Global Finance provides comprehensive corporate banking and investment
banking services to domestic and international customers. This unit includes the
Corporate Finance, Specialized Lending and Capital Markets groups. Treasury
management, loan syndication, asset-backed lending, leasing, factoring and
arrangement of asset-backed and project financing for clients are representative
of the services provided by Global Finance. The Capital Markets group
underwrites, trades and distributes a wide range of securities (including bank-
eligible securities and, to a limited extent, bank-ineligible securities as
authorized by the Board of Governors of the Federal Reserve System under Section
20 of the Glass-Steagall Act) and trades and distributes financial futures,
forward settlement contracts, option contracts, swap agreements and other
derivative products in certain interest rate, foreign exchange, commodity and
equity markets and spot and forward foreign exchange contracts through two
principal units, NationsBanc - CRT (CRT) and NationsBanc Capital Markets, Inc.
(NCMI).
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Global Finance earned $167 million in the first quarter of 1996 compared to
$163 million in the first quarter of 1995. The return on equity increased to 18
percent versus 17 percent in the same period a year ago. Taxable-equivalent net
interest income for the first quarter of 1996 was $278 million compared to $304
million in the first quarter of 1995 due to narrower commercial loan spreads
resulting from the Corporation's increased use of medium and long-term debt to
fund loan growth and increased competitive pressure on commercial loan pricing,
and the Corporation's efforts to reduce commercial real estate outstandings in
Corporate Finance and Specialized Lending.
Noninterest income in the first quarter of 1996 increased 20 percent over
the same period last year driven by strong investment banking fees, which more
than doubled to $97 million in the first quarter of 1996, and a gain on the sale
of Panmure Gordon, the Corporation's British brokerage firm. Partly offsetting
these increases were lower trading income and foreign exchange losses.
Noninterest expense for the period rose just 3 percent leading to an improved
51.7 percent efficiency ratio, compared to 52.1 percent in the first quarter of
1995.
Financial Services is composed of the holding company, NationsCredit
Corporation, which includes NationsCredit Consumer Corporation, primarily a
consumer finance operation, and NationsCredit Commercial Corporation, primarily
a commercial finance operation. NationsCredit Consumer Corporation provides
personal, mortgage and automobile loans to consumers and retail finance programs
to dealers. NationsCredit Commercial Corporation consists of six divisions that
specialize in one or more of the following commercial financing areas:
equipment loans and leasing; loans for debt restructuring, mergers and
acquisitions and working capital; real estate, golf/recreational and health care
financing; and inventory financing to manufacturers, distributors and dealers.
Financial Services' earnings of $36 million in the first quarter of 1996
increased 38 percent over the same period in 1995. This improvement was the
result of a $1.1-billion, or 17-percent, growth in average loans and leases.
Market demand in the commercial real estate and distribution finance business
coupled with consumer lending resulting primarily from new office expansion
contributed to loan growth. The increase in provision for credit losses was
driven mainly by loan growth, but also by higher loss rates. The net interest
yield of 7.45 percent was up 29 basis points from 1995, due principally to lower
funding costs. Noninterest income grew nearly 70 percent to $27 million in the
first quarter, reflecting increased warrant gains, higher loan prepayment fees
and insurance commissions. Noninterest expense increased $20 million, or 34
percent, driven by office consolidation costs and higher personnel expense
associated with the expansion of consumer finance operations. The return on
equity rose to 13 percent in the first quarter of 1996 compared to 12 percent in
the same period in 1995.
Results of Operations
Net Interest Income
An analysis of the Corporation's taxable-equivalent net interest income and
average balance sheet levels for the last five quarters is presented in Table 3.
Taxable-equivalent net interest income increased $249 million to $1.6
billion in the first quarter of 1996 compared to the first quarter of 1995. The
increase was attributable to internal loan growth of 12 percent, higher spreads
in the securities portfolio and acquisitions of several banking operations. The
increase was partially offset by the use of higher cost market-based funds and
term debt. As the growth in earning assets has outpaced customer deposit growth,
the Corporation has shifted to alternative funding sources such as term debt.
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Of the $502-million increase in interest income, $532 million was due to
higher average earning assets (primarily average loans and leases), which was
partially offset by a $30-million decrease resulting from lower yields on all
average earning assets except for securities. Interest expense increased by
$253 million with $294 million resulting from higher levels of average interest-
bearing liabilities (primarily securities sold under agreements to repurchase
and long-term debt), which more than offset the $41-million impact of lower
rates on average interest-bearing liabilities.
Loan growth is expected to continue, but is dependent on economic
conditions as well as various discretionary factors, such as decisions to
securitize certain loan portfolios, the retention of residential mortgage loans
generated by the Corporation's mortgage subsidiary and the management of
borrower, industry, product or geographic concentrations.
The net interest yield of 3.43 percent in the first quarter of 1996
reflected the funding of earning asset growth principally with market-based
funds and term debt and the addition of $5.5 billion in low-
spread trading-related assets when compared to the first quarter of 1995. Had
the relative mix of low-spread trading-related assets to total average earning
assets remained constant in the first quarter of 1996 compared to the same
period in 1995, the first quarter net interest yield in 1996 would have been
3.50 percent.
Provision for Credit Losses
The provision for credit losses was $155 million in the first quarter of
1996 compared to $70 million in the first quarter of 1995, reflecting the
continuing shift in the mix of the loan portfolio towards consumer lending as
well as the industry-wide trend towards higher losses compared to unusually low
levels in prior periods. Net charge-offs in the first quarter of 1996 increased
to $155 million from $83 million in the comparable 1995 period due to higher
credit card and other consumer net charge-offs. Both higher levels of consumer
loans and loss rates contributed to the higher charge-offs. Management expects
the higher level of charge-offs experienced in the first quarter of 1996 to
continue as the Corporation continues its efforts to shift the mix of the loan
portfolio to a higher consumer concentration, and credit losses continue to
return to more normalized levels.
The allowance for credit losses was $2.3 billion, or 1.81 percent of net
loans, leases and factored accounts receivable, on March 31, 1996 compared to
$2.2 billion, or 1.85 percent, on December 31, 1995. The allowance for credit
losses was 268 percent of nonperforming loans on March 31, 1996 compared to 306
percent on December 31, 1995. Future economic conditions will impact credit
quality and may result in increased net charge-offs and higher provisions for
credit losses.
Gains on Sales of Securities
Gains on the sales of securities were $14 million in the first quarter of
1996 compared to $1 million in the first quarter of 1995, primarily reflecting
the Corporation's sales of lower-yielding U.S. Treasuries and certain securities
acquired in acquisitions.
Noninterest Income
As presented in Table 4, noninterest income increased $159 million to $885
million in the first quarter of 1996, reflecting diverse fee generating
activities as described below:
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* Service charges on deposit accounts increased $52 million, or 25 percent, over
the first quarter of 1995, attributable to growth in the number of households
served, in part due to acquisitions, and higher fees.
* Mortgage servicing and related fees grew $26 million, or 124 percent, to $47
million in the first quarter of 1996, primarily due to acquisitions of several
mortgage banking operations and servicing portfolios. The average portfolio of
loans serviced more than doubled from $40.6 billion in the first quarter of
1995 to $83.1 billion in the first quarter of 1996. Mortgage loan originations
through the Corporation's mortgage banking subsidiary increased $1.6 billion
to $3.1 billion in the first quarter of 1996 compared to $1.5 billion one year
earlier, primarily reflecting changes in the interest rate environment.
* Origination volume in the first quarter of 1996 consisted of approximately
$1.2 billion of retail loan volume and $1.9 billion of correspondent loan
volume.
In conducting its mortgage banking activities, the Corporation is exposed
to fluctuations in interest rates. Loans originated for sale to third parties
expose the Corporation to interest rate risk for the period between loan
commitment date and subsequent delivery. Additionally, the value of the
Corporation's mortgage servicing rights is affected by changes in prepayment
rates. To manage risks associated with mortgage banking activities, the
Corporation enters into various instruments including option contracts,
forward delivery contracts and certain rate swaps. The contract notional
amount of these instruments approximated $6.9 billion on March 31, 1996. Net
unrealized gains associated with these contracts were $20.8 million on
March 31, 1996.
* Investment banking income totaled $99 million in the first quarter of 1996, an
increase of 102 percent over the first quarter of 1995, primarily reflecting
higher gains on venture capital sales and increased debt underwriting volume.
The Global Finance syndication group was agent or co-agent on 84 deals
totaling $37.8 billion this quarter, compared to 64 deals totaling $56.5
billion in the first quarter of 1995. Additionally, fee income associated with
the Capital Markets group's asset-backed financing arrangements on behalf of
customers increased as this group arranged 14 asset-backed financings totaling
$1.8 billion in the first quarter of 1996.
* Other service fee income increased 55 percent to $45 million in the first
quarter of 1996 compared to the first quarter of 1995. The $16 million
increase was primarily due to increased fees associated with leasing
activities and acquisitions.
* Asset management and fiduciary service fees declined $5 million, principally
reflecting the sale of Corporate Trust, the Corporation's trust business that
dealt with bond servicing and administration.
* Miscellaneous income totaled $103 million in the first quarter of 1996, an
increase of $26 million, or 34 percent, over the first quarter of 1995.
Miscellaneous income included certain prepayment fees and net gains on sales
of miscellaneous investments and business activities, premises, venture
capital investments and other similar items.
* Trading account profits and fees, including foreign exchange income, totaled
$68 million in the first quarter of 1996, a decrease of $15 million from $83
million for the same period in 1995 primarily due to a lower level of foreign
exchange income.
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An analysis of trading account profits and fees by major business activity
follows (in millions):
Three Months Ended
March 31
------------------
1996 1995
------------------
Securities trading $ 10 $ 35
Interest rate contracts 56 24
Foreign exchange contracts (7) 9
Other 9 15
------------------
$ 68 $ 83
==================
In addition to trading account profits and fees, the Capital Markets group
also generates investment banking income and brokerage income as described
above.
Noninterest Expense
As presented in Table 5, the Corporation's noninterest expense increased 8
percent to $1.4 billion in the first quarter of 1996 compared to $1.3 billion
for the same period one year earlier. Excluding the impact of acquisitions,
noninterest expense increased only 3 percent in the first quarter of 1996
compared to the first quarter of 1995.
Increased expenditures in selected areas to increase revenue growth, such
as enhancing customer sales and optimizing product delivery channels,
contributed to the year-over-year increase. These increases were partially
offset by lower deposit insurance, lower expenses as a result of selling the
merchant discount credit card unit at the end of the first quarter of 1995 and
Corporate Trust in the fourth quarter of 1995 and expense savings associated
with streamlining and consolidating the infrastructure of several General Bank
administrative and support areas as well as modifying certain business
activities.
A summary of the significant components of noninterest expense for the
first quarter of 1996 compared to the first quarter of 1995 is as follows:
* Personnel expense increased $37 million over 1995, primarily due to the impact
of acquisitions. Excluding the $33 million impact of acquisitions, personnel
expense remained relatively flat between the first quarter of 1996 and the
first quarter of 1995.
* Equipment expense increased 14 percent to $106 million in the first quarter of
1996 over the first quarter of 1995, reflecting enhancements to computer
resources and product delivery systems.
* Marketing expense increased $9 million to $67 million in the first quarter of
1996, primarily attributable to the Corporation's sponsorship of the 1996
Olympic Summer Games.
* Professional fees increased $12 million to $49 million in the first quarter of
1996 compared to the first quarter of 1995. This increase was primarily due to
an increase in consulting fees for projects to enhance revenue growth.
* The Corporation's deposit insurance expense decreased $44 million, or 86
percent, to $7 million in the first quarter of 1996 from $51 million in the
first quarter of 1995, primarily reflecting reductions in insurance rates
charged by the FDIC beginning June 1, 1995.
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* The Corporation's combined other general operating expenses increased $59
million to $148 million in the first quarter of 1996 compared to the first
quarter of 1995. Included in the first quarter 1996 expense was a $40-million
pre-tax charge reflecting the estimated loss associated with fraudulent
commercial loan transactions. Management currently anticipates no additional
charges will be incurred in connection with these transactions.
Income Taxes
The Corporation's income tax expense was $276 million in the first quarter
of 1996 compared to $231 million for the same period of 1995. The effective tax
rate was 35.0 percent of pretax income in the first quarter of 1996, compared to
34.8 percent for the full year 1995 and 34.3 percent in the first quarter of
1995.
Balance Sheet Review And Liquidity Risk Management
The Corporation utilizes an integrated approach in managing its balance
sheet which includes management of interest rate sensitivity, credit risk,
liquidity risk and capital position.
Table 6 provides an analysis of the sources and uses of funds for the
quarters ended March 31, 1996 and 1995 based on average levels. Market-based
funds increased $7.3 billion during the first quarter of 1996 over the same
period during 1995, but comprised a smaller portion of total sources of funds,
at 35 percent for the first quarter of 1996 compared to 38 percent during the
first quarter of 1995. Average long-term debt increased $10.0 billion in the
first quarter of 1996 over levels for the comparable 1995 period and represented
9 percent of total sources of funds compared to 5 percent during the same period
of 1995.
Customer-based funds increased $9.6 billion in the first quarter of 1996
compared to the first quarter of 1995 primarily due to deposits acquired in
recent acquisitions. As a percentage of total sources, customer-based funds
decreased to 45 percent in the first quarter of 1996 from 47 percent in the
first quarter of 1995.
Loans and leases, the Corporation's primary use of funds, increased $19.5
billion during the first quarter of 1996 compared to the same period of 1995 and
comprised 59 percent of total uses of funds for both periods. The ratio of
average loans and leases to customer-based funds increased to 132 percent in the
first quarter of 1996 compared to 124 percent in the first quarter of 1995 due
to strong loan growth, including acquisitions, and the use of market-based funds
and term debt to support earning asset growth.
Cash and cash equivalents were $7.5 billion on March 31, 1996, a decrease
of $983 million from December 31, 1995. During the first quarter of 1996, net
cash used in operating activities was $4.5 billion, net cash provided by
investing activities was $4.2 billion and net cash used in financing activities
was $673 million. For further information on cash flows, see the Consolidated
Statement of Cash Flows in the consolidated financial statements.
Liquidity is a measure of the Corporation's ability to fulfill its cash
requirements and is managed by the Corporation through its asset and liability
management process. The Corporation assesses the level of liquidity necessary to
meet its cash requirements by monitoring its assets and liabilities and
modifying these positions as liquidity requirements change. This process,
coupled with the Corporation's ability to raise capital and debt financing, is
designed to cover the liquidity needs of the Corporation. The following
discussion provides an overview of significant on- and off-balance sheet
components.
17
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Securities
The securities portfolio on March 31, 1996 consisted of securities held for
investment totaling $4.1 billion and securities available for sale totaling
$17.8 billion compared to $4.4 billion and $19.4 billion, respectively, on
December 31, 1995.
On March 31, 1996, the market value of the Corporation's portfolio of
securities held for investment reflected net unrealized depreciation of $17
million. On December 31, 1995, the market value of securities held for
investment equaled the book value of the portfolio.
The valuation reserve for securities available for sale and marketable
equity securities increased shareholders' equity by $111 million on March 31,
1996, reflecting pretax appreciation of $31 million and $144 million on
securities available for sale and marketable equity securities, respectively.
The valuation reserve increased shareholders' equity by $323 million on December
31, 1995. The decrease in the valuation reserve was primarily attributable to
maturities and sales of securities during the first quarter of 1996 as well as
the general increase in interest rates when comparing December 31, 1995 to March
31, 1996.
The estimated average maturities of the securities held for investment and
securities available for sale portfolios were 1.45 years and 4.69 years,
respectively, on March 31, 1996 compared with 1.65 years and 2.96 years,
respectively, on December 31, 1995, a reflection of mortgage-backed securities
obtained primarily through acquisitions and the investment activity and
maturities and sales which occurred during the first quarter of 1996.
Nonperforming Assets
As presented in Table 7, on March 31, 1996, nonperforming assets were $985
million, or .79 percent of net loans, leases, factored accounts receivable and
other real estate owned, compared to $853 million, or .73 percent, on December
31, 1995. Nonperforming loans increased to $841 million on March 31, 1996 from
$706 million on December 31, 1995. Approximately one-half of the increase in
nonperforming loans was related to acquisitions while the remainder was
attributable to the continuation of a return to more normal levels of credit
quality. The allowance coverage of nonperforming loans was 268 percent on March
31, 1996 compared to 306 percent on December 31, 1995.
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<PAGE>
Allowance for Credit Losses
The Corporation's allowance for credit losses was $2.3 billion on March 31,
1996 compared to $2.2 billion on December 31, 1995. Table 8 provides an analysis
of the changes in the allowance for credit losses. The provision for credit
losses was $85 million higher in the first quarter of 1996 than in the first
quarter of 1995, primarily as a result of growth and higher charge-offs in the
consumer loan portfolio, which typically has higher loss levels than other types
of lending, compared to unusually low levels in prior periods. Total net
charge-offs increased $72 million in the current quarter to $155 million, or .50
percent of average loans, leases and factored accounts receivable, versus $83
million, or .32 percent, in the prior year's quarter. The increases were
primarily concentrated in credit card and other consumer net charge-offs which
increased $20 million and $24 million, respectively. The 45-percent growth in
average credit card loan levels from the first quarter of 1995 to the first
quarter of 1996 led to increased charge-offs which generally occur as the
portfolios season. Additionally, an increase in the rate of personal
bankruptcies in 1995 and into 1996 contributed to higher charge-offs.
Management anticipates that the credit losses experienced in the first quarter
of 1996 reflect more typical loss levels for this type of lending than the lower
charges experienced in prior periods and that losses at these or higher levels
will continue for the near future. Furthermore, future economic conditions also
will impact credit quality and may result in increased net charge-offs and
higher provisions for credit losses.
Concentrations of Credit Risk
Real Estate - Total nonresidential real estate commercial and construction
loans, the portion of such loans which are nonperforming, OREO and other credit
exposures are presented in Table 9. The exposures presented represent credit
extensions for real estate-related purposes to borrowers or counterparties who
are primarily in the real estate development or investment business and for
which the ultimate repayment of the credit is dependent on the sale, lease,
rental or refinancing of the real estate.
Total nonresidential real estate commercial and construction loans were
$9.3 billion and $9.2 billion on March 31, 1996 and December 31, 1995,
respectively, and declined as a percentage of net loans, leases and factored
accounts receivable to 7 percent on March 31, 1996 from 8 percent on December
31, 1995. During the first quarter of 1996, the Corporation recorded real estate
net charge-offs
of $10 million, or .39 percent of average real estate loans, compared to $3
million, or .13 percent, in the first quarter of 1995. Nonperforming real estate
commercial and construction loans totaled $195 million and $212 million on March
31, 1996 and December 31, 1995, respectively.
The exposures included in Table 9 do not include credit extensions which
were made on the general creditworthiness of the borrower, for which real estate
was obtained as security or as an abundance of caution, and for which the
ultimate repayment of the credit is not dependent on the sale, lease, rental or
refinancing of the real estate. Accordingly, the exposures presented do not
include commercial loans secured by owner-occupied real estate, except where the
borrower is a real estate developer. In addition to the amounts presented in the
table, on March 31, 1996, the Corporation had approximately $7.6 billion of
commercial loans which were not real estate dependent but for which the
Corporation had obtained real estate as secondary repayment security.
19
<PAGE>
Other Industries - Table 10 presents selected industry credit exposures.
Commercial loans, factored accounts receivable and lease financing are included
in the table. Other credit exposures as represented include loans held for sale,
letters of credit, bankers' acceptances and derivatives exposures in a gain
position. Commercial loan outstandings as a percentage of net loans, leases and
factored accounts receivable remained at 41 percent and totaled $50.4 billion
and $48.0 billion on March 31, 1996 and December 31, 1995, respectively. Net
charge-offs of commercial loans totaled $20 million, or .16 percent of average
commercial loans in the first quarter of 1996 compared to $3 million, or .04
percent in the first quarter of 1995. See Note 6 to the consolidated financial
statements for information regarding the distribution of loans on March 31, 1996
and December 31, 1995.
Consumer - Total consumer loan outstandings on March 31, 1996 and December
31, 1995 were $57.0 billion and $52.8 billion, respectively. In addition to the
credit card loans reported in the financial statements, on March 31, 1996, the
Corporation managed $2.2 billion of credit card receivables which had been sold.
Total average credit card receivables managed by the Card Services group totaled
$7.6 billion in the first quarter of 1996 compared to $5.7 billion in the first
quarter of 1995. In December 1995, the Corporation securitized approximately
$1.1 billion of indirect auto loans. On a managed portfolio basis, that is,
taking into account the credit card and indirect auto loan securitizations, net
charge-offs as a percentage of average managed consumer loans in the first
quarter of 1996 were 3.79 percent for credit card and 1.05 percent for other
consumer loans. This compares to net charge-off ratios on a managed basis of
4.12 percent and 1.06 percent, respectively, for the fourth quarter of 1995 and
3.73 percent and .79 percent, respectively, for the first quarter of 1995.
Market Risk
In the normal course of conducting business activities, the Corporation is
exposed to market risk which includes both price and liquidity risk. Price risk
arises from fluctuations in interest rates, foreign exchange rates and commodity
and equity prices that may result in changes in the values of financial
instruments. Liquidity risk arises from the possibility that the Corporation may
not be able to satisfy current and future financial commitments or that the
Corporation may not be able to liquidate financial instruments at market prices.
Risk management procedures and policies have been established and are utilized
to manage the Corporation's exposure to market risk. The strategy of the
Corporation with respect to market risk is to maximize net income while
maintaining an acceptable level of risk to changes in market rates. While
achievement of this goal requires a balance between profitability, liquidity and
market price risk, there are opportunities to enhance revenues through
controlled risks. In implementing strategies to manage interest rate risk, the
primary tools used by the Corporation are the securities portfolio and interest
rate swaps, and management of the mix, yields or rates and maturities of assets
and of the wholesale and retail funding sources of the Corporation.
Table 11 represents the Corporation's interest rate gap position on March
31, 1996. 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 near-term cumulative interest rate gap position is a reflection of
the strength of the customer-deposit gathering franchise which provides the
Corporation with a relatively stable core deposit base. These funds have been
deployed in longer-term interest earning assets, primarily 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.
20
<PAGE>
On March 31, 1996, the interest rate risk position of the Corporation was
relatively neutral as the impact of a gradual parallel 100-basis-point rise or
fall in interest rates over the next 12 months was estimated to be less than 2
percent of net income when compared to stable rates. Additionally, on March 31,
1996, a 100-basis-point parallel increase in interest rates from March 31, 1996
levels was estimated to result in a change of less than 1 percent in the market
value of the Corporation's total shareholders' equity.
To estimate potential losses that could result from adverse market
movements, the Corporation uses a daily earnings at risk methodology. Earnings
at risk estimates are measured on a daily basis at the individual trading unit
level, by type of trading activity and for all trading activities in the
aggregate. Daily reports of estimates compared to respective limits are reviewed
by senior management, and trading strategies are adjusted accordingly. In
addition to these 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.
Earnings at risk represents a one-day measurement of pre-tax earnings at
risk from movements in market prices using the assumption that positions cannot
be rehedged during the period of any prescribed price and volatility change. A
99-percent confidence level is utilized, which indicates that actual trading
profits and losses may deviate from expected levels and exceed estimates
approximately one day out of every 100 days of trading activity. Earnings at
risk is measured on both a gross and uncorrelated basis. The gross measure
assumes that adverse market movements occur simultaneously across all segments
of the trading portfolio, an unlikely assumption. On March 31, 1996, the gross
estimates for aggregate interest rate, foreign exchange and equity and commodity
trading activities were $45.1 million, $7.3 million and $2.9 million,
respectively. Alternatively, using a statistical measure which is more likely to
capture the effects of market movements, the estimate on March 31, 1996 for
aggregate trading activities was $19.8 million.
Average daily Capital Markets-related revenues in the first quarter of 1996
approximated $1.4 million. During the first quarter of 1996, the Corporation's
Capital Markets-related activities resulted in positive daily revenues for
approximately 71 percent of total trading days.
The Capital Markets-related revenue stream is quite stable. In the first
quarter of 1996, the standard deviation of Capital Markets-related revenues was
$3.1 million. Using this data, one can conclude that the aggregate Capital
Markets activities should not result in exposure of more than $5.8 million for
any one day, assuming 99-percent confidence. Daily earnings at risk will
average considerably more than this due to the assumption of no evasive actions
as well as the assumption that adverse market movements occur simultaneously
across all segments of the trading portfolio.
Off Balance Sheet
The Corporation utilizes interest rate contracts in its asset and liability
management (ALM) process. Interest rate contracts allow the Corporation to
adjust its interest rate risk position without exposure to risk of loss of
principal and funding requirements, as these contracts do not involve the
exchange of notional amounts, only payment or receipt of interest. The interest
payments can be based on a fixed rate or a variable index.
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<PAGE>
The Corporation uses non-leveraged generic, index amortizing,
collateralized mortgage obligation (CMO) and basis 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 and mortgage prepayment rates in the case of CMO
swaps. Basis swaps involve the exchange of payments based on the contractual
underlying notional amounts where both the pay rate and the receive rate are
floating rates based on different indices.
In its ALM process, the Corporation also purchases interest rate caps and
floors. Interest rate caps and floors are agreements where, for a fee, the
purchaser obtains the right to receive interest payments when a variable
interest rate moves above or below a specified cap or floor rate.
As presented in the footnotes to Table 3, net interest receipts and
payments on these contracts have been included in interest income and expense on
the underlying instruments. On March 31, 1996, there were no realized deferred
gains or losses associated with terminated ALM contracts.
Table 12 summarizes the notional amount and the activity of ALM interest
rate swaps for the three months ended March 31, 1996. As reflected in the table,
the gross notional amount of the Corporation's ALM swap program on March 31,
1996 was $29.3 billion, with the Corporation receiving fixed on $18.2 billion,
primarily converting variable-rate commercial loans to fixed rate and converting
the cost of certain fixed-rate long-term debt to variable rate, and receiving
variable on $10.2 billion, fixing the cost of certain variable-rate liabilities,
primarily market-based funds. Approximately $2.4 billion of additions to the ALM
swap program, primarily receive fixed swaps, are related to acquisitions. On
March 31, 1996, the net receive fixed position was $8.0 billion, representing an
increase from the net receive fixed position of $3.9 billion on December 31,
1995.
The gross notional amount of caps, floors and other option products on
March 31, 1996 was $3.5 billion. Such instruments primarily relate to term debt
and securities available for sale. Approximately $1.0 billion of caps and floors
were acquired through acquisitions. On March 31, 1996, the net unrealized
depreciation of caps, floors and other option products was $2 million.
Table 13 summarizes the maturities, average pay and receive rates and the
market value on March 31, 1996 of the Corporation's ALM contracts. Floating
rates represent the last repricing and will change in the future based on
movements in one-, three- and six-month LIBOR rates. Maturities for CMO and
amortizing swaps are based on interest rates implied by the forward curve on
March 31, 1996 and may differ from actual maturities depending on future
interest rate movements and resultant prepayment patterns.
The net unrealized depreciation of the ALM swap portfolio on March 31, 1996
was $202 million compared to $75 million on December 31, 1995, reflecting the
increase in interest rates. The unrealized depreciation in the estimated value
of the ALM interest rate 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.
Derivative - Dealer Positions
Credit risk associated with derivatives positions is measured as the net
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. In managing derivatives credit risk, the Corporation
considers both the current exposure, which is the replacement cost of contracts
on the measurement date, as well as an estimate of the potential change in value
of contracts over their remaining lives.
22
<PAGE>
Table 14 presents both the notional/contract amounts on March 31, 1996 and
December 31, 1995 and the current credit risk amounts (the net replacement cost
of contracts in a gain position on March 31, 1996 and December 31, 1995) of the
Corporation's derivatives-dealer positions. 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 amounts presented in Table 14 do not consider the value of any
collateral, but generally take into consideration the effects of legally
enforceable master netting agreements. On March 31, 1996, the credit risk
associated with the Corporation's asset and liability management positions was
not material.
In managing credit risk associated with its derivatives activities, the
Corporation deals with creditworthy counterparties, primarily U.S. and foreign
commercial banks and broker-dealers.
A portion of the Corporation's derivatives-dealer activity is exchange-
traded. 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. Of the $4.3-billion current credit risk amount
reported in Table 14, $994 million relates to exchange-traded instruments. This
compares to a total credit risk amount of $3.8 billion on December 31, 1995,
which included $791 million related to exchange-traded instruments.
During the first quarter of 1996, there were no credit losses associated
with derivative transactions. In addition, on March 31, 1996, there were no
nonperforming derivatives positions.
Capital
Shareholders' equity totaled $13.6 billion on March 31, 1996 compared to
$12.8 billion on December 31, 1995. Net earnings retention of $335 million
coupled with the acquisition of Bank South, which resulted in the issuance of
26.3 million shares of common stock and an increase of $685 million in
shareholders' equity, were the primary reasons for the increase. The increase
was partially offset by net depreciation of $215 million in the market value of
securities available for sale during the first quarter of 1996.
Presented below are the Corporation's regulatory capital ratios on March
31, 1996 and December 31, 1995:
March 31 December 31
1996 1995
- ---------------------------------------------------
Risk-Based Capital Ratios
Tier 1 Capital 7.35% 7.24%
Total Capital 11.71 11.58
Leverage Capital Ratio 6.19 6.27
The Corporation's regulatory capital ratios on March 31, 1996 compare
favorably with the regulatory minimums of 4 percent for Tier 1, 8 percent for
total risk-based capital and the leverage guidelines of 100 to 200 basis points
above the minimum ratio of 3 percent.
23
<PAGE>
<TABLE>
Table 1
Selected Operating Results
(Dollars in Millions Except Per-Share Information)
<CAPTION>
Three Months
Ended March 31
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Income statement
Income from earning assets................................... $ 3,573 $ 3,070
Interest expense............................................. 2,016 1,763
Net interest income (taxable-equivalent)..................... 1,584 1,335
Net interest income.......................................... 1,557 1,307
Provision for credit losses.................................. 155 70
Gains on sales of securities................................. 14 1
Noninterest income........................................... 885 726
Other real estate owned expense.............................. - 2
Merger-related charge........................................ 118 -
Other noninterest expense.................................... 1,394 1,288
Income before income taxes................................... 789 674
Income tax expense........................................... 276 231
Net income................................................... 513 443
Net income applicable to common shareholders................. 509 441
Net income (excluding merger-related charge)................. 590 443
Average common shares issued (in thousands).................. 300,279 276,415
Per common share
Earnings..................................................... $ 1.70 $ 1.60
Earnings (excluding merger-related charge)................... 1.95 1.60
Cash dividends paid.......................................... .58 .50
Common shareholders' equity (quarter-end).................... 44.92 41.07
Balance sheet (quarter-end)
Total assets................................................. 194,375 183,854
Total loans, leases and factored accounts receivable,
net of unearned income..................................... 124,344 106,928
Total deposits............................................... 109,622 100,743
Long-term debt............................................... 18,659 9,816
Common shareholders' equity.................................. 13,444 11,312
Total shareholders' equity................................... 13,557 11,346
Performance ratios
Return on average assets..................................... .99 % 1.01 %
Return on average assets (excluding merger-related charge)... 1.14 1.01
Return on average common shareholders' equity (1)............ 15.71 16.03
Return on average common shareholders' equity
(excluding merger-related charge) (1)...................... 18.07 16.03
Risk-based capital ratios
Tier 1..................................................... 7.35 7.25
Total...................................................... 11.71 11.06
Leverage capital ratio....................................... 6.19 6.15
Total equity to total assets................................. 6.97 6.17
Market price per share of common stock
Close at the end of the quarter.............................. $ 80 1/8 $ 50 3/4
High for the quarter......................................... 81 3/8 51 3/4
Low for the quarter.......................................... 64 3/8 44 5/8
(1) Average common shareholders' equity does not include the effect of market value adjustments to securities available
for sale and marketable equity securities.
24
</TABLE>
<PAGE>
<TABLE>
Table 2
Business Unit Summary
For the Three Months Ended March 31
(Dollars in Millions)
<CAPTION>
General Bank Global Finance Financial Services
-------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income (taxable-equivalent)................ $ 1,152 $ 907 $ 278 $ 304 $ 144 $ 117
Noninterest income...................................... 580 479 277 231 27 16
-------------------------------------------------------------------
Total revenue......................................... 1,732 1,386 555 535 171 133
Provision for credit losses............................. 114 41 8 - 33 29
Gains on sale of securities............................. 6 - - - - -
Other real estate owned expense (income)................ 1 1 (3) (2) 3 3
Noninterest expense..................................... 1,011 951 286 279 78 58
-------------------------------------------------------------------
Income before income taxes.............................. 612 393 264 258 57 43
Income tax expense...................................... 226 144 97 95 21 17
-------------------------------------------------------------------
Net income (1).......................................... $ 386 $ 249 $ 167 $ 163 $ 36 $ 26
===================================================================
Net interest yield (4).................................. 4.87 % 4.43 % 2.98 %(2) 3.39 %(2) 7.45 % 7.16 %
Return on equity........................................ 22 % 17 % 18 % 17 % 13 % 12 %
Efficiency ratio........................................ 58.4 % 68.6 % 51.7 % 52.1 % 45.5 % 44.1 %
Average (3)(4)
Total loans and leases, net of unearned income........ $ 81,056 $ 64,008 $ 35,207 $ 33,593 $ 7,734 $ 6,617
Total deposits........................................ 87,059 77,563 7,648 6,805 - -
Total assets.......................................... 102,571 88,352 78,151 66,230 8,286 7,111
Period end (3)(4)
Total loans and leases, net of unearned income........ 80,220 65,181 36,520 34,251 7,720 6,988
Total deposits........................................ 88,625 77,943 7,758 6,471 - -
(1) Business Unit results are presented on a fully allocated basis but do not include $76 million net expense for 1996 and
$5 million net income for 1995, which represents earnings associated with unassigned capital, gains on sales of
securities, merger-related charges and other corporate activities.
(2) Global Finance's net interest yield excludes the impact of trading-related activities. Including trading related activities,
the net interest yield was 1.67 percent and 1.80 percent for the first three months of 1996 and 1995, respectively.
(3) The sums of balance sheet amounts differ from consolidated amounts due to activities between the Business Units.
(4) 1995 average and period end balances and net interest yield have been restated to reflect the current organizational structure.
25
</TABLE>
<PAGE>
<TABLE>
Table 3
Quarterly Taxable-Equivalent Data
(Dollars in Millions)
<CAPTION>
First Quarter 1996 Fourth Quarter 1995
----------------------------------------------------------
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).......................................... $ 49,319 $ 987 8.05 % $ 47,077 $ 971 8.18 %
Real estate commercial.................................. 6,774 149 8.82 6,649 157 9.39
Real estate construction................................ 3,154 69 8.85 3,016 72 9.44
----------------------------------------------------------
Total commercial...................................... 59,247 1,205 8.18 56,742 1,200 8.39
----------------------------------------------------------
Residential mortgage.................................... 27,352 534 7.83 23,573 459 7.78
Credit card............................................. 6,590 206 12.59 5,709 182 12.69
Other consumer.......................................... 23,850 593 9.99 22,852 581 10.09
----------------------------------------------------------
Total consumer........................................ 57,792 1,333 9.26 52,134 1,222 9.33
----------------------------------------------------------
Foreign ................................................ 2,392 45 7.54 2,100 40 7.65
Lease financing......................................... 3,851 72 7.46 3,628 68 7.48
----------------------------------------------------------
Total loans and leases, net........................... 123,282 2,655 8.65 114,604 2,530 8.77
----------------------------------------------------------
Securities
Held for investment..................................... 4,292 60 5.62 12,945 186 5.72
Available for sale (3).................................. 22,997 365 6.37 10,689 174 6.45
----------------------------------------------------------
Total securities...................................... 27,289 425 6.25 23,634 360 6.05
----------------------------------------------------------
Loans held for sale...................................... 1,331 25 7.55 644 12 7.34
Time deposits placed and other
short-term investments.................................. 1,056 18 6.90 1,634 28 6.77
Federal funds sold....................................... 525 8 5.89 534 8 6.02
Securities purchased under agreements to resell.......... 13,870 183 5.29 12,088 163 5.36
Trading account securities (4)........................... 18,213 286 6.33 16,196 285 6.99
----------------------------------------------------------
Total earning assets (5).............................. 185,566 3,600 7.80 169,334 3,386 7.95
Cash and cash equivalents................................. 7,998 7,500
Factored accounts receivable.............................. 1,010 1,221
Other assets, less allowance for credit losses............ 14,043 13,638
----------------------------------------------------------
Total assets.......................................... $ 208,617 $ 191,693
==========================================================
Interest-bearing liabilities
Savings................................................. $ 9,361 55 2.35 $ 8,287 49 2.34
NOW and money market deposit accounts................... 29,692 192 2.61 27,233 185 2.71
Consumer CDs and IRAs................................... 29,469 397 5.42 24,682 339 5.44
Negotiated CDs, public funds and other time deposits.... 3,273 44 5.42 2,946 42 5.74
Foreign time deposits................................... 11,902 170 5.73 13,546 211 6.18
Federal funds purchased................................. 6,817 92 5.41 5,599 81 5.78
Securities sold under agreements to repurchase (6)...... 33,705 455 5.43 30,136 440 5.79
Commercial paper........................................ 2,821 39 5.62 2,871 43 5.89
Other short-term borrowings (6)......................... 4,455 65 5.89 4,550 78 6.72
Trading account liabilities (4)......................... 12,485 191 6.16 11,125 185 6.60
Long-term debt (7)...................................... 18,885 316 6.68 17,276 295 6.83
----------------------------------------------------------
Total interest-bearing liabilities.................... 162,865 2,016 4.97 148,251 1,948 5.22
----------------------------------------------------------
Noninterest-bearing sources
Noninterest-bearing deposits............................ 23,209 21,908
Other liabilities....................................... 9,399 9,631
Shareholders' equity.................................... 13,144 11,903
----------------------------------------------------------
Total liabilities and shareholders' equity............ $ 208,617 $ 191,693
==========================================================
Net interest spread....................................... 2.83 2.73
Impact of noninterest-bearing sources..................... .60 .65
----------------------------------------------------------
Net interest income/yield on earning assets............... $ 1,584 3.43 % $ 1,438 3.38 %
==========================================================
(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 swaps converting variable-rate commercial
loans to fixed rate.
Interest rate swaps decreased interest income $19 in the first quarter of 1996 and $34, $49, $65 and $61 in the fourth,
third, second and first quarters of 1995, 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) The fair values of derivatives-dealer positions are reported in other assets and liabilities, respectively.
(5) Interest income includes taxable-equivalent adjustments of $27 in the first quarter of 1996 and $25, $29, $31 and $28 in
the fourth, third, second and first quarters of 1995, respectively.
(6) Securities sold under agreements to repurchase and other short-term borrowings interest expense includes net interest rate
swap expense related to swaps fixing the cost of certain of these liabilities. Such increases (decreases) in interest
expense were $21 in the first quarter of 1996 and $12, $4, ($1) and $13 in the fourth, third, second and first quarters of
1995, respectively.
(7) Long-term debt interest expense includes net interest rate swap expense related to swaps primarily converting the cost of
certain fixed-rate debt to variable rate. Such increases (decreases) in interest expense were ($3) in the first quarter of
1996 and $1 in both the second and first quarters of 1995, respectively.
26
</TABLE>
<PAGE>
<TABLE>
Table 3 (continued)
Quarterly Taxable-Equivalent Data
(Dollars in Millions)
<CAPTION>
Third Quarter 1995 Second Quarter 1995
----------------------------------------------------------
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)......................................... $ 46,574 $ 953 8.12 % $ 46,525 $ 954 8.22 %
Real estate commercial.................................. 7,116 168 9.38 7,395 171 9.29
Real estate construction................................ 3,091 75 9.63 3,216 78 9.76
----------------------------------------------------------
Total commercial...................................... 56,781 1,196 8.36 57,136 1,203 8.45
----------------------------------------------------------
Residential mortgage.................................... 21,581 420 7.78 19,242 378 7.84
Credit card............................................. 5,014 164 12.94 4,775 156 13.13
Other consumer.......................................... 22,638 583 10.19 21,609 544 10.11
----------------------------------------------------------
Total consumer........................................ 49,233 1,167 9.41 45,626 1,078 9.47
----------------------------------------------------------
Foreign ................................................ 2,034 40 7.73 2,048 41 7.96
Lease financing......................................... 3,407 65 7.65 3,114 58 7.43
----------------------------------------------------------
Total loans and leases, net........................... 111,455 2,468 8.79 107,924 2,380 8.84
----------------------------------------------------------
Securities
Held for investment .................................... 14,101 205 5.77 17,457 235 5.40
Available for sale (3).................................. 11,891 188 6.28 10,730 170 6.33
----------------------------------------------------------
Total securities...................................... 25,992 393 6.01 28,187 405 5.76
----------------------------------------------------------
Loans held for sale...................................... 424 8 7.36 153 3 8.06
Time deposits placed and other
short-term investments.................................. 2,031 32 6.32 2,310 42 7.29
Federal funds sold....................................... 747 11 6.14 714 12 6.24
Securities purchased under agreements to resell.......... 14,740 240 6.45 16,820 273 6.53
Trading account securities (4)........................... 13,063 275 8.37 15,834 307 7.77
----------------------------------------------------------
Total earning assets (5).............................. 168,452 3,427 8.08 171,942 3,422 7.98
Cash and cash equivalents................................. 7,449 8,024
Factored accounts receivable.............................. 1,201 1,181
Other assets, less allowance for credit losses............ 13,399 13,155
----------------------------------------------------------
Total assets.......................................... $ 190,501 $ 194,302
==========================================================
Interest-bearing liabilities
Savings................................................. $ 8,455 51 2.37 $ 8,656 51 2.40
NOW and money market deposit accounts................... 27,160 183 2.67 27,608 185 2.68
Consumer CDs and IRAs................................... 24,786 335 5.36 25,075 325 5.20
Negotiated CDs, public funds and other time deposits.... 2,830 41 5.72 3,046 42 5.51
Foreign time deposits................................... 13,921 220 6.27 15,107 239 6.36
Federal funds purchased................................. 6,109 90 5.84 5,654 87 6.17
Securities sold under agreements to repurchase (6)...... 30,179 465 6.11 34,445 547 6.37
Commercial paper........................................ 2,803 43 6.10 2,806 44 6.30
Other short-term borrowings (6)......................... 5,833 93 6.30 6,546 101 6.16
Trading account liabilities (4)......................... 11,891 240 8.03 13,660 249 7.31
Long-term debt (7)...................................... 14,127 246 6.98 10,209 185 7.22
----------------------------------------------------------
Total interest-bearing liabilities.................... 148,094 2,007 5.38 152,812 2,055 5.39
----------------------------------------------------------
Noninterest-bearing sources
Noninterest-bearing deposits............................ 21,519 21,077
Other liabilities....................................... 9,401 9,200
Shareholders' equity.................................... 11,487 11,213
----------------------------------------------------------
Total liabilities and shareholders' equity............ $ 190,501 $ 194,302
==========================================================
Net interest spread....................................... 2.70 2.59
Impact of noninterest-bearing sources..................... .65 .60
----------------------------------------------------------
Net interest income/yield on earning assets............... $ 1,420 3.35 % $ 1,367 3.19 %
==========================================================
(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 swaps converting variable-rate commercial
loans to fixed rate.
Interest rate swaps decreased interest income $19 in the first quarter of 1996 and $34, $49, $65 and $61 in the fourth,
third, second and first quarters of 1995, 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) The fair values of derivatives-dealer positions are reported in other assets and liabilities, respectively.
(5) Interest income includes taxable-equivalent adjustments of $27 in the first quarter of 1996 and $25, $29, $31 and $28 in the
fourth, third, second and first quarters of 1995, respectively.
(6) Securities sold under agreements to repurchase and other short-term borrowings interest expense includes net interest rate
swap expense related to swaps fixing the cost of certain of these liabilities. Such increases (decreases) in interest
expense were $21 in the first quarter of 1996 and $12, $4, ($1) and $13 in the fourth, third, second and first quarters of
1995, respectively.
(7) Long-term debt interest expense includes net interest rate swap expense related to swaps primarily converting the cost of
certain fixed-rate debt to variable rate. Such increases (decreases) in interest expense were ($3) in the first quarter of
1996 and $1 in both the second and first quarters of 1995, respectively.
27
</TABLE>
<PAGE>
<TABLE>
Table 3 (continued)
Quarterly Taxable-Equivalent Data
(Dollars in Millions)
<CAPTION>
First Quarter 1995
----------------------------
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)......................................... $ 45,238 $ 919 8.24 %
Real estate commercial.................................. 7,630 173 9.16
Real estate construction................................ 3,100 77 10.07
----------------------------
Total commercial ..................................... 55,968 1,169 8.47
----------------------------
Residential mortgage.................................... 17,780 343 7.76
Credit card............................................. 4,543 139 12.36
Other consumer.......................................... 20,624 501 9.85
----------------------------
Total consumer........................................ 42,947 983 9.25
----------------------------
Foreign ................................................ 1,961 36 7.50
Lease financing......................................... 2,951 58 7.86
----------------------------
Total loans and leases, net........................... 103,827 2,246 8.76
----------------------------
Securities
Held for investment .................................... 17,648 238 5.45
Available for sale (3).................................. 7,728 110 5.80
----------------------------
Total securities...................................... 25,376 348 5.56
----------------------------
Loans held for sale...................................... 61 1 9.10
Time deposits placed and other
short-term investments.................................. 2,297 40 7.01
Federal funds sold....................................... 1,105 16 6.02
Securities purchased under agreements to resell.......... 13,909 214 6.23
Trading account securities (4)........................... 11,574 233 8.16
----------------------------
Total earning assets (5).............................. 158,149 3,098 7.93
Cash and cash equivalents................................. 8,321
Factored accounts receivable.............................. 1,048
Other assets, less allowance for credit losses............ 9,997
----------------------------
Total assets.......................................... $ 177,515
============================
Interest-bearing liabilities
Savings................................................. $ 8,911 53 2.39
NOW and money market deposit accounts................... 28,577 187 2.66
Consumer CDs and IRAs................................... 24,818 291 4.76
Negotiated CDs, public funds and other time deposits.... 3,151 41 5.30
Foreign time deposits................................... 13,844 211 6.18
Federal funds purchased................................. 4,438 64 5.83
Securities sold under agreements to repurchase (6)...... 26,547 411 6.28
Commercial paper........................................ 2,734 41 6.13
Other short-term borrowings (6)......................... 5,847 82 5.74
Trading account liabilities (4)......................... 11,427 222 7.87
Long-term debt (7)...................................... 8,888 160 7.22
----------------------------
Total interest-bearing liabilities.................... 139,182 1,763 5.13
----------------------------
Noninterest-bearing sources
Noninterest-bearing deposits............................ 19,984
Other liabilities....................................... 7,157
Shareholders' equity.................................... 11,192
----------------------------
Total liabilities and shareholders' equity............ $ 177,515
============================
Net interest spread....................................... 2.80
Impact of noninterest-bearing sources..................... .61
----------------------------
Net interest income/yield on earning assets............... $ 1,335 3.41 %
============================
(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 swaps converting variable-rate commercial
loans to fixed rate.
Interest rate swaps decreased interest income $19 in the first quarter of 1996 and $34, $49, $65 and $61 in the fourth,
third, second and first quarters of 1995, 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) The fair values of derivatives-dealer positions are reported in other assets and liabilities, respectively.
(5) Interest income includes taxable-equivalent adjustments of $27 in the first quarter of 1996 and $25, $29, $31 and $28 in the
fourth, third, second and first quarters of 1995, respectively.
(6) Securities sold under agreements to repurchase and other short-term borrowings interest expense includes net interest rate
swap expense related to swaps fixing the cost of certain of these liabilities. Such increases (decreases) in interest
expense were $21 in the first quarter of 1996 and $12, $4, ($1) and $13 in the fourth, third, second and first quarters of
1995, respectively.
(7) Long-term debt interest expense includes net interest rate swap expense related to swaps primarily converting the cost of
certain fixed-rate debt to variable rate. Such increases (decreases) in interest expense were ($3) in the first quarter of
1996 and $1 in both the second and first quarters of 1995, respectively.
28
</TABLE>
<PAGE>
<TABLE>
Table 4
Noninterest Income
(Dollars in Millions)
<CAPTION>
Three Months
Ended March 31 Change
------------------------------------
1996 1995 Amount Percent
------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts.................... $ 259 $ 207 $ 52 25.1 %
------------------------------------
Nondeposit-related service fees
Safe deposit rent.................................... 9 9 - -
Mortgage servicing and related fees.................. 47 21 26 123.8
Fees on factored accounts receivable................. 16 17 (1) (5.9)
Investment banking income............................ 99 49 50 102.0
Other service fees................................... 45 29 16 55.2
------------------------------------
Total nondeposit-related service fees.............. 216 125 91 72.8
------------------------------------
Asset management and fiduciary service fees............ 105 110 (5) (4.5)
------------------------------------
Credit card income
Merchant discount fees............................... 4 7 (3) (42.9)
Annual credit card fees.............................. 7 6 1 16.7
Other credit card fees............................... 58 54 4 7.4
------------------------------------
Total credit card income........................... 69 67 2 3.0
------------------------------------
Other income
Brokerage income..................................... 28 24 4 16.7
Trading account profits and fees..................... 68 83 (15) (18.1)
Bankers' acceptances and letters of credit fees...... 18 18 - -
Insurance commissions and earnings................... 19 15 4 26.7
Miscellaneous........................................ 103 77 26 33.8
------------------------------------
Total other income................................. 236 217 19 8.8
------------------------------------
$ 885 $ 726 $ 159 21.9
====================================
29
</TABLE>
<PAGE>
<TABLE>
Table 5
Noninterest Expense
(Dollars in Millions)
<CAPTION>
Three Months
Ended March 31 Change
-----------------------------------------
1996 1995 Amount Percent
-----------------------------------------
<S> <C> <C> <C> <C>
Personnel................................................... $ 662 $ 625 $ 37 5.9 %
Occupancy, net.............................................. 127 121 6 5.0
Equipment................................................... 106 93 13 14.0
Marketing................................................... 67 58 9 15.5
Professional fees........................................... 49 37 12 32.4
Amortization of intangibles................................. 26 30 (4) (13.3)
Credit card................................................. 17 14 3 21.4
Deposit insurance........................................... 7 51 (44) (86.3)
Data processing............................................. 61 63 (2) (3.2)
Telecommunications.......................................... 41 36 5 13.9
Postage and courier......................................... 38 34 4 11.8
Other general operating..................................... 148 89 59 66.3
General administrative and miscellaneous.................... 45 37 8 21.6
-----------------------------------------
$ 1,394 $ 1,288 $ 106 8.2
=========================================
30
</TABLE>
<PAGE>
<TABLE>
Table 6
Sources and Uses of Funds
(Average Dollars in Millions)
<CAPTION>
Three Months Ended March 31
-------------------------------------------------
1996 1995
-------------------------------------------------
Amount Percent Amount Percent
-------------------------------------------------
<S> <C> <C> <C> <C>
Composition of sources
Savings, NOW, money market deposit accounts
and consumer CDs and IRAs................... $ 68,522 32.8 % $ 62,306 35.1 %
Noninterest-bearing deposits................... 23,209 11.1 19,984 11.3
Customer-based portion of negotiated CDs....... 1,695 .8 1,502 .8
-------------------------------------------------
Customer-based funds........................ 93,426 44.7 83,792 47.2
Market-based funds............................. 73,763 35.4 66,486 37.5
Long-term debt................................. 18,885 9.1 8,888 5.0
Other liabilities.............................. 9,399 4.5 7,157 4.0
Shareholders' equity........................... 13,144 6.3 11,192 6.3
-------------------------------------------------
Total sources............................... $ 208,617 100.0 % $ 177,515 100.0 %
=================================================
Composition of uses
Loans and leases, net of unearned income....... $ 123,282 59.1 % $ 103,827 58.5 %
Securities held for investment................. 4,292 2.1 17,648 9.9
Securities available for sale.................. 22,997 11.0 7,728 4.4
Federal funds sold and securities purchased
under agreements to resell.................. 14,395 6.9 15,014 8.5
Trading account securities..................... 18,213 8.7 11,574 6.5
Other.......................................... 2,387 1.2 2,358 1.3
-------------------------------------------------
Total earning assets........................ 185,566 89.0 158,149 89.1
Factored accounts receivable................... 1,010 .5 1,048 .6
Other assets................................... 22,041 10.5 18,318 10.3
-------------------------------------------------
Total uses.................................. $ 208,617 100.0 % $ 177,515 100.0 %
=================================================
31
</TABLE>
<PAGE>
<TABLE>
Table 7
Nonperforming Assets
(Dollars in Millions)
<CAPTION>
March 31 December 31 September 30 June 30 March 31
1996 1995 1995 1995 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Commercial.............................. $ 359 $ 271 $ 412 $ 463 $ 406
Real estate commercial.................. 180 196 176 184 209
Real estate construction................ 15 16 46 65 71
------------------------------------------------------------
Total commercial.................. 554 483 634 712 686
------------------------------------------------------------
Residential mortgage.................... 138 87 81 76 66
Other consumer ......................... 136 130 126 111 88
------------------------------------------------------------
Total consumer.................... 274 217 207 187 154
------------------------------------------------------------
Foreign................................. - - - 3 6
Lease financing ........................ 13 6 7 3 8
------------------------------------------------------------
Total nonperforming loans........... 841 706 848 905 854
------------------------------------------------------------
Other real estate owned................... 144 147 190 194 221
------------------------------------------------------------
Total nonperforming assets.......... $ 985 $ 853 $ 1,038 $ 1,099 $ 1,075
============================================================
Nonperforming assets as a percentage of
Total assets............................ .51 % .46 % .57 % .60 % .58 %
Loans, leases and factored accounts
receivable, net of unearned income,
and other real estate owned........... .79 .73 .90 .99 1.00
Loans past due 90 days or more and not
classified as nonperforming............. $ 173 $ 174 $ 137 $ 143 $ 129
32
</TABLE>
<PAGE>
<TABLE>
Table 8
Allowance For Credit Losses
(Dollars in Millions)
<CAPTION>
Three Months
Ended March 31
--------------------------------------
1996 1995
--------------------------------------
<S> <C> <C>
Balance on January 1............................................... $ 2,163 $ 2,186
--------------------------------------
Loans, leases and factored accounts receivable charged off
Commercial....................................................... (34) (20)
Real estate commercial........................................... (13) (7)
Real estate construction......................................... - (3)
--------------------------------------
Total commercial............................................... (47) (30)
--------------------------------------
Residential mortgage............................................. (4) (2)
Credit card...................................................... (65) (39)
Other consumer................................................... (87) (59)
--------------------------------------
Total consumer................................................. (156) (100)
--------------------------------------
Foreign.......................................................... - -
Lease financing.................................................. (1) -
Factored accounts receivable..................................... (6) (4)
--------------------------------------
Total loans, leases and factored accounts
receivable charged off....................................... (210) (134)
--------------------------------------
Recoveries of loans, leases and factored accounts
receivable previously charged off
Commercial....................................................... 14 17
Real estate commercial........................................... 3 3
Real estate construction......................................... - 4
--------------------------------------
Total commercial............................................... 17 24
--------------------------------------
Residential mortgage............................................. 1 -
Credit card...................................................... 12 6
Other consumer................................................... 22 18
--------------------------------------
Total consumer................................................. 35 24
--------------------------------------
Foreign.......................................................... - -
Lease financing.................................................. - 1
Factored accounts receivable..................................... 3 2
--------------------------------------
Total recoveries of loans, leases and
factored accounts receivable previously charged off.......... 55 51
--------------------------------------
Net charge-offs................................................ (155) (83)
--------------------------------------
Provision for credit losses........................................ 155 70
Allowance applicable to loans of purchased companies and other..... 90 1
--------------------------------------
Balance on March 31 ............................................... $ 2,253 $ 2,174
======================================
Loans, leases and factored accounts receivable,
net of unearned income, outstanding on March 31.................. $ 124,344 $ 106,928
Allowance for credit losses as a percentage of
loans, leases and factored accounts receivable,
net of unearned income, outstanding on March 31.................. 1.81 % 2.03 %
Average loans, leases and factored accounts receivable,
net of unearned income, outstanding during the period............ $ 124,292 $ 104,875
Net charge-offs as a percentage of average loans, leases and
factored accounts recevable, net of unearned income,
outstanding during the period.................................... .50 % .32 %
Allowance for credit losses as a percentage of nonperforming loans. 267.71 254.49
33
</TABLE>
<PAGE>
<TABLE>
Table 9
Real Estate Commercial and Construction Loans, Other Real Estate Owned and
Other Real Estate Credit Exposures
March 31, 1996
(Dollars in Millions)
<CAPTION>
Other
Loans (1) Credit
--------------------------
Outstanding Nonperforming OREO Exposures (2)
---------------------------------------------------
<S> <C> <C> <C> <C>
By Geographic Region:
Maryland, District of Columbia and Virginia.......... $ 2,067 $ 80 $ 56 $ 434
Florida.............................................. 1,926 40 14 155
North Carolina and South Carolina.................... 1,615 38 13 65
Other states......................................... 3,677 37 16 813
-----------------------------------------------------
$ 9,285 $ 195 $ 99 $ 1,467
=====================================================
By Property Type:
Shopping centers/retail.............................. $ 1,501 $ 21 $ 5 $ 153
Apartments........................................... 1,472 11 - 650
Office buildings..................................... 1,362 28 14 26
Residential.......................................... 1,275 10 5 31
Hotels............................................... 836 9 1 58
Land and land development............................ 698 31 51 79
Industrial/warehouse................................. 597 19 4 37
Commercial-other..................................... 349 35 9 325
Resorts/golf courses................................. 209 1 - -
Multiple use......................................... 81 5 1 6
Other................................................ 905 25 9 102
------------------------------------------------------
$ 9,285 $ 195 $ 99 $ 1,467
======================================================
(1) On March 31, 1996, the Corporation had unfunded binding real estate commercial and construction loan
commitments.
(2) Other credit exposures include letters of credit and loans held for sale.
34
</TABLE>
<PAGE>
<TABLE>
Table 10
Selected Industry Credit Exposures
March 31, 1996
(Dollars in Millions)
<CAPTION>
Loans, Leases and Factored Accounts
Receivable, net of unearned income Other
-------------------------------------------- Credit
Outstanding Nonperforming Unfunded Exposures (1)
-------------------------------------------- -------------
<S> <C> <C> <C> <C>
Communications...................... $ 4,003 $ 3 $ 4,163 $ 329
Health care......................... 3,613 19 2,832 791
Leisure and sports.................. 3,245 25 2,117 368
Oil and gas......................... 2,894 33 3,015 695
Retail.............................. 2,871 84 2,964 566
Textiles and apparel................ 2,677 34 1,158 419
Automotive.......................... 2,651 9 1,483 93
Food................................ 2,640 21 2,555 380
Machinery and equipment............. 2,577 7 2,342 223
Finance companies................... 1,908 1 5,396 104
Construction........................ 1,657 26 1,067 178
Electronics......................... 1,451 22 1,848 153
Forest products and paper........... 1,442 8 1,734 254
Utilities........................... 969 - 2,506 215
Banks............................... 673 - 1,479 2,185
Brokers and dealers................. 419 - 1,039 982
(1) Other credit exposures include loans held for sale, letters of credit, bankers' acceptances and
derivatives exposures in a gain position.
35
</TABLE>
<PAGE>
<TABLE>
Table 11
Interest Rate Gap Analysis
March 31, 1996
(Dollars in Millions)
<CAPTION>
Interest-Sensitive Over 12
--------------------------------------------------------- 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....................$ 50,204 $ 12,356 $ 5,001 $ 8,848 $ 76,409 $ 46,760 $ 123,169
Securities held for investment....... 93 189 750 1,190 2,222 1,882 4,104
Securities available for sale........ 91 279 288 1,685 2,343 15,428 17,771
Loans held for sale.................. 2,221 - - - 2,221 - 2,221
Time deposits placed and other
short-term investments............. 688 127 134 61 1,010 16 1,026
Trading account securities........... 15,289 - - - 15,289 - 15,289
Federal funds sold and securities
purchased under agreements
to resell.......................... 6,193 - - - 6,193 - 6,193
-----------------------------------------------------------------------------------
Total.............................. 74,779 12,951 6,173 11,784 105,687 64,086 169,773
-----------------------------------------------------------------------------------
Interest-bearing liabilities
Savings.............................. 9,479 - - - 9,479 - 9,479
NOW and money market deposit
accounts.......................... 30,432 - - - 30,432 - 30,432
Consumer CDs and IRAs................ 4,590 4,679 6,450 6,459 22,178 7,553 29,731
Negotiated CDs, public funds and
other time deposits............... 946 959 650 425 2,980 393 3,373
Foreign time deposits................ 6,699 2,126 2,359 1,297 12,481 25 12,506
Borrowed funds....................... 30,653 3,479 666 700 35,498 - 35,498
Short sales.......................... 7,333 - - - 7,333 - 7,333
Long-term debt....................... 4,325 5,264 571 470 10,630 8,029 18,659
------------------------------------------------------------------------------------
Total............................. 94,457 16,507 10,696 9,351 131,011 16,000 147,011
Noninterest-bearing, net................ - - - - - 22,762 22,762
------------------------------------------------------------------------------------
Total............................. 94,457 16,507 10,696 9,351 131,011 38,762 $ 169,773
------------------------------------------------------------------------------------
Interest rate gap....................... (19,678) (3,556) (4,523) 2,433 (25,324) 25,324
Effect of asset and liability management
interest rate swaps, futures and
other off-balance sheet items........ (7,313) (8,291) 334 2,488 (12,782) 12,782
-------------------------------------------------------------------------
Adjusted interest rate gap..............$(26,991) $(11,847) $ (4,189) $ 4,921 $(38,106) $38,106
=========================================================================
Cumulative adjusted interest rate gap...$(26,991) $(38,838) $(43,027) $(38,106)
==============================================
36
</TABLE>
<PAGE>
<TABLE>
Table 12
Asset and Liability Management Interest Rate Swaps Notional Contracts
(Dollars in Millions)
<CAPTION>
Index Total
Generic Amortizing CMO Total Interest
Receive Pay Receive Receive Pay Receive Pay Rate
Fixed Fixed Fixed Fixed Fixed Fixed Fixed Basis Swaps
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance on December 31, 1995.... $ 5,963 $ 9,908 $ 5,911 $ 1,964 $ 75 $ 13,838 $ 9,983 $ 486 $ 24,307
Additions...................... 6,882 474 295 961 - 8,138 474 500 9,112
Maturities/Other............... (2,356) (285) (1,236) (214) (4) (3,806) (289) - (4,095)
--------------------------------------------------------------------------------------------------
Balance on March 31, 1996....... $ 10,489 $ 10,097 $ 4,970 $ 2,711 $ 71 $ 18,170 $ 10,168 $ 986 $ 29,324
==================================================================================================
37
</TABLE>
<PAGE>
<TABLE>
Table 13
Asset and Liability Management Interest Rate Swaps
March 31, 1996
(Dollars in Millions, Average Maturity in Years)
<CAPTION>
Expected Maturity
------------------------------------------------------------------------------- Average
Market After Expected
Value Total 1996 1997 1998 1999 2000 2000 Maturity
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <S>
Asset Conversion Swaps
Receive fixed generic............ $ (34) 2.58
Notional amount................ $ 8,175 $ 1,350 $ 575 $ 2,000 $ 2,250 $ 2,000 -
Weighted average receive rate.. 5.72 % 4.72 % 4.45 % 5.89 % 6.09 % 6.19 % -
Weighted average pay rate...... 5.48
Receive fixed amortizing......... (51) 1.03
Notional amount................ $ 4,970 $ 2,165 $ 1,982 $ 708 $ 14 $ 101 -
Weighted average receive rate.. 5.00 % 4.91 % 4.93 % 5.14 % 6.98 % 6.98 % -
Weighted average pay rate...... 5.49
Receive fixed CMO................ (24) 2.13
Notional amount................ $ 2,711 $ 622 $ 446 $ 493 $ 1,150 - -
Weighted average receive rate.. 5.70 % 5.71 % 5.15 % 5.11 % 6.16 % - -
Weighted average pay rate...... 5.38
Pay fixed generic................ (17) 3.09
---------
Notional amount................ $ 461 $ 58 $ 15 $ 7 $ 374 $ 1 $ 6
Weighted average pay rate...... 7.48 % 7.53 % 7.64 % 7.82 % 7.41 % 9.78 % 9.78 %
Weighted average receive rate.. 5.44
Total asset conversion swaps..... $ (126)
=========
Notional amount................ $ 16,317 $ 4,195 $ 3,018 $ 3,208 $ 3,788 $ 2,102 $ 6
Liability Conversion Swaps
Receive fixed generic............ $ (24) 5.67
Notional amount................ $ 2,314 $ 27 $ 583 $ 6 $ 34 $ 312 $ 1,352
Weighted average receive rate.. 6.62 % 6.29 % 6.61 % 6.54 % 9.80 % 6.79 % 6.51 %
Weighted average pay rate...... 5.57
Pay fixed generic................ (53) .49
Notional amount................ $ 9,636 $ 8,537 $ 925 $ 100 - $ 74 -
Weighted average pay rate...... 6.60 % 6.50 % 7.52 % 6.10 % - 7.42 % -
Weighted average receive rate.. 5.28
Pay fixed CMO.................... 1 1.45
---------
Notional amount................ $ 71 $ 16 $ 16 $ 39 - - -
Weighted average pay rate...... 4.44 % 4.44 % 4.44 % 4.44 % - - -
Weighted average receive rate.. 5.31
Total liability conversion swaps. $ (76)
=========
Notional amount................ $ 12,021 $ 8,580 $ 1,524 $ 145 $ 34 $ 386 $ 1,352
- ------------------------------------------------------------------------------------------------------------------------------------
Total receive fixed swaps $ (133) 2.48
Notional amount................ $ 18,170 $ 4,164 $ 3,586 $ 3,207 $ 3,448 $ 2,413 $ 1,352
Weighted average receive rate.. 5.64 % 4.98 % 5.16 % 5.60 % 6.15 % 6.30 % 6.51 %
Weighted average pay rate...... 5.48
Total pay fixed swaps (69) .62
Notional amount................ $ 10,168 $ 8,611 $ 956 $ 146 $ 374 $ 75 $ 6
Weighted average pay rate...... 6.62 % 6.50 % 7.47 % 5.74 % 7.41 % 7.46 % 9.78 %
Weighted average receive rate.. 5.29
Basis Swaps - 1.61
---------
Notional amount................ $ 986 $ 100 $ 371 $ 500 - - $ 15
Weighted average receive rate.. 5.46 %
Weighted average pay rate...... 5.39
Total Swaps...................... $ (202)
=========
Notional amount................ $ 29,324 $12,875 $ 4,913 $ 3,853 $ 3,822 $ 2,488 $ 1,373
- ------------------------------------------------------------------------------------------------------------------------------------
On March 31, 1996, in addition to the above interest rate swaps, the Corporation had approximately $2.3 billion notional
of receive fixed generic interest rate swaps associated primarily with credit card securitizations. On March 31, 1996,
these positions had an unrealized market value of negative $19 million, a weighted average receive rate of 5.80 percent,
a pay rate of 5.48 percent and an average maturity of 3.90 years.
38
</TABLE>
<PAGE>
<TABLE>
Table 14
Derivatives - Dealer Positions
(Dollars in Millions)
<CAPTION>
March 31 December 31
1996 1995
--------------------------------------------------------------
Contract/ Credit Risk Contract/ Credit Risk
Notional Amount (1) Notional Amount (1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Contracts
Swaps.......................... $ 146,502 $ 1,026 $ 123,946 $ 989
Futures and forwards........... 185,104 33 193,774 37
Written options................ 273,986 - 233,976 -
Purchased options.............. 262,834 1,364 236,317 1,310
----------- -----------
Foreign Exchange Contracts
Swaps.......................... 1,132 25 1,196 21
Spot, futures and forwards..... 93,852 562 70,199 532
Written options................ 53,993 - 42,227 -
Purchased options.............. 58,797 422 44,273 350
----------- -----------
Commodity and Other Contracts
Swaps.......................... 636 115 757 141
Futures and forwards........... 3,264 2 3,231 3
Written options................ 11,345 - 15,476 -
Purchased options.............. 15,990 808 16,344 600
----------- -----------
Total before cross product netting 4,357 3,983
----------- -----------
Cross product netting........ 104 183
----------- -----------
Net replacement cost......... $ 4,253 3,800
=========== ===========
(1) Represents the net 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 accrued interest.
39
</TABLE>
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11 - Earnings Per Common Share Computation
Exhibit 12(a) - Ratio of Earnings to Fixed Charges
Exhibit 12(b) - Ratio of Earnings to Fixed Charges
and Preferred Dividends
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
The following reports on Form 8-K were filed by
the Corporation during the quarter ended March 31, 1996:
Current Report on Form 8-K dated January 10, 1996,
and filed January 12, 1996, Items 5 and 7.
Current Report on Form 8-K dated December 21,
1995, and filed February 1, 1996, Items 5 and 7.
Current Report on Form 8-K dated March 5, 1996,
and filed March 8, 1996, Items 5 and 7.
40
<PAGE>
Signature
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 thereunto duly authorized.
NationsBank Corporation
-----------------------
Registrant
Date: May 10, 1996 /s/ Marc D. Oken
------------------------
Marc D. Oken
Executive Vice President
and Chief Accounting Officer
(Duly Authorized Officer and
Principal Accounting Officer)
41
<PAGE>
NationsBank Corporation
Form 10-Q
Index to Exhibits
Exhibit Description Page
- ------- ----------- ----
11 Earnings Per Common Share Computation.................. 43
12(a) Ratio of Earnings to Fixed Charges..................... 44
12(b) Ratio of Earnings to Fixed Charges and Preferred
Dividends........................................... 45
27 Financial Data Schedule................................ 46
42
<PAGE>
Exhibit 11
Fully Diluted Earnings Per Common Share and Fully Diluted Average Common Shares
Outstanding
For fully diluted earnings per common share, net income available to common
shareholders can be affected by the conversion of the registrants convertible
preferred stock. Where the effect of this conversion would have been dilutive,
net income available to common shareholders is adjusted by the associated
preferred dividends. This adjusted net income is divided by the weighted
average number of common shares outstanding for each period plus amounts
representing the dilutive effect of stock options outstanding and the dilution
resulting from the conversion of the registrant's convertible preferred stock,
if applicable. The effect of convertible preferred stock is excluded from the
computation of fully diluted earnings per share in periods in which the effect
would be antidilutive.
Fully diluted earnings per common share was determined as follows (shares
in thousands, dollars in millions except per-share information):
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
1996 1995
-------- --------
<S> <C> <C>
Average common shares outstanding................... 300,279 276,415
Dilutive effect of
Convertible preferred stock........................ 2,263 2,358
Stock Options...................................... 2,931 1,224
-------- --------
Total fully dilutive shares......................... 305,473 279,997
======== ========
Income available to common shareholders............. $ 509 $ 441
Preferred dividends paid on dilutive convertible
preferred stock.................................... 2 2
-------- --------
Total net income available for common shareholders..
adjusted for full dilution..................... $ 511 $ 443
======== ========
Fully diluted earnings per share.................... $ 1.67 $ 1.58
======== ========
43
</TABLE>
<PAGE>
<TABLE>
NationsBank Corporation and Subsidiaries Exhibit 12(a)
Ratio of Earnings to Fixed Charges
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions)
<CAPTION>
Year ended December 31
----------------------------------------------------------
Three Months
Ended
March 31, 1996 1995 1994 1993 1992 1991
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excluding Interest on Deposits
- ---------------------------------------------
Income before taxes........................... $ 789 $ 2,991 $ 2,555 $ 1,991 $ 1,396 $ 109
Equity in undistributed earnings
of unconsolidated subsidiaries.............. (2) (7) (3) (5) (1) (1)
Fixed charges:
Interest expense (including
capitalized interest)...................... 1,153 4,480 2,896 1,421 916 1,291
Amortization of debt discount and
appropriate issuance costs................. 5 12 8 6 3 2
1/3 of net rent expense..................... 31 125 114 96 91 82
-------------------------------------------------------------------------
Total fixed charges....................... 1,189 4,617 3,018 1,523 1,010 1,375
Earnings (excluding capitalized interest)..... $ 1,976 $ 7,601 $ 5,570 $ 3,509 $ 2,398 $ 1,471
=========================================================================
Fixed charges................................. $ 1,189 $ 4,617 $ 3,018 $ 1,523 $ 1,010 $ 1,375
=========================================================================
Ratio of Earnings to Fixed Charges............ 1.66 1.65 1.85 2.30 2.38 1.07
Including Interest on Deposits
Income before taxes........................... $ 789 $ 2,991 $ 2,555 $ 1,991 $ 1,396 $ 109
Equity in undistributed earnings
of unconsolidated subsidiaries............... (2) (7) (3) (5) (1) (1)
Fixed charges:
Interest expense (including
capitalized interest)....................... 2,011 7,761 5,310 3,570 3,688 5,611
Amortization of debt discount and
appropriate issuance costs.................. 5 12 8 6 3 2
1/3 of net rent expense....................... 31 125 114 96 91 82
Total fixed charges....................... 2,047 7,898 5,432 3,672 3,782 5,695
-------------------------------------------------------------------------
Earnings (excluding capitalized interest)..... $ 2,834 $ 10,882 $ 7,984 $ 5,658 $ 5,170 $ 5,791
=========================================================================
Fixed charges................................. $ 2,047 $ 7,898 $ 5,432 $ 3,672 $ 3,782 $ 5,695
=========================================================================
Ratio of Earnings to Fixed Charges............ 1.38 1.38 1.47 1.54 1.37 1.02
44
</TABLE>
<PAGE>
<TABLE>
NationsBank Corporation and Subsidiaries Exhibit 12(b)
Ratio of Earnings to Fixed Charges and Preferred Dividends
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in Millions)
<CAPTION>
Three Months -------------------Year Ended December 31----------------
Ended
March 31, 1996 1995 1994 1993 1992 1991
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excluding Interest on Deposits
- -------------------------------------------
Income before taxes........................... $ 789 $ 2,991 $ 2,555 $ 1,991 $ 1,396 $ 109
Equity in undistributed earnings
of unconsolidated subsidiaries.............. (2) (7) (3) (5) (1) (1)
Fixed charges:
Interest expense (including
capitalized interest)....................... 1,153 4,480 2,896 1,421 916 1,291
Amortization of debt discount and
appropriate issuance costs.................. 5 12 8 6 3 2
1/3 of net rent expense....................... 31 125 114 96 91 82
------------------------------------------------------------------------
Total fixed charges...................... 1,189 4,617 3,018 1,523 1,010 1,375
Preferred dividend requirements............... 6 13 15 16 29 31
Earnings (excluding capitalized interest)..... $ 1,976 $ 7,601 $ 5,570 $ 3,509 $ 2,398 $ 1,471
========================================================================
Fixed charges................................. $ 1,195 $ 4,630 $ 3,033 $ 1,539 $ 1,039 $ 1,406
========================================================================
Ratio of Earnings to Fixed Charges............ 1.65 1.64 1.84 2.28 2.31 1.05
Including Interest on Deposits
- ----------------------------------------------
Income before taxes........................... $ 789 $ 2,991 $ 2,555 $ 1,991 $ 1,396 $ 109
Equity in undistributed earnings
of unconsolidated subsidiaries.............. (2) (7) (3) (5) (1) (1)
Fixed charges:
Interest expense (including
capitalized interest)....................... 2,011 7,761 5,310 3,570 3,688 5,611
Amortization of debt discount and
appropriate issuance costs.................. 5 12 8 6 3 2
1/3 of net rent expense....................... 31 125 114 96 91 82
------------------------------------------------------------------------
Total fixed charges................... 2,047 7,898 5,432 3,672 3,782 5,695
Preferred dividend requirements............... 6 13 15 16 29 31
Earnings (excluding capitalized interest)..... $ 2,834 $ 10,882 $ 7,984 $ 5,658 $ 5,170 $ 5,791
========================================================================
Fixed charges................................. $ 2,053 $ 7,911 $ 5,447 $ 3,688 $ 3,811 $ 5,726
========================================================================
Ratio of Earnings to Fixed Charges............ 1.38 1.38 1.47 1.53 1.36 1.01
45
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary information extracted from the March 31, 1996,
Form 10-Q for NationsBank Corporation and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,465
<INT-BEARING-DEPOSITS> 1,026
<FED-FUNDS-SOLD> 6,193
<TRADING-ASSETS> 19,569
<INVESTMENTS-HELD-FOR-SALE> 17,771
<INVESTMENTS-CARRYING> 4,104
<INVESTMENTS-MARKET> 4,087
<LOANS> 124,344
<ALLOWANCE> (2,253)
<TOTAL-ASSETS> 194,375
<DEPOSITS> 109,622
<SHORT-TERM> 46,607
<LIABILITIES-OTHER> 5,930
<LONG-TERM> 18,659
<COMMON> 5,020
0
176
<OTHER-SE> 8,361
<TOTAL-LIABILITIES-AND-EQUITY> 194,375
<INTEREST-LOAN> 2,573
<INTEREST-INVEST> 414
<INTEREST-OTHER> 586
<INTEREST-TOTAL> 3,573
<INTEREST-DEPOSIT> 858
<INTEREST-EXPENSE> 2,016
<INTEREST-INCOME-NET> 1,557
<LOAN-LOSSES> 155
<SECURITIES-GAINS> 14
<EXPENSE-OTHER> 1,512
<INCOME-PRETAX> 789
<INCOME-PRE-EXTRAORDINARY> 789
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 3.43
<LOANS-NON> 841
<LOANS-PAST> 173
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,163
<CHARGE-OFFS> (210)
<RECOVERIES> 55
<ALLOWANCE-CLOSE> 2,253
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
