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
For the quarterly period ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_________ EXCHANGE ACT OF 1934
For the transition period from to
Commission File 0-5519
ASSOCIATED BANC-CORP
(Exact Name of Registrant as Specified in Its Charter)
Wisconsin 39-1098068
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
112 North Adams Street, Green Bay, Wisconsin 54301
(Address of principal executive offices)
(414) 433-3166
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
_________ __________
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $0.01
per share, at March 31, 1995, was 12,602,273 shares.
ASSOCIATED BANC-CORP
TABLE OF CONTENTS
Page No.
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition - March 31, 1995 and
December 31, 1994......................................1-2
Consolidated Statements of Income -
Three Months Ended
March 31, 1995 and 1994................................3-4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1994.............5-6
Notes to Consolidated Financial Statements.............7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........8-24
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................25-26
Signatures....................................................................27
i
<PAGE> 1
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Statements of Financial Condition
(Unaudited)
March 31 December 31
1995 1994
(In Thousands)
ASSETS
Cash and due from banks.............................$ 134,224 $ 196,385
Interest-bearing deposits in other
financial institutions............................ 300 300
Federal funds sold and securities
purchased under agreements to resell.............. 13,360 57,635
Trading account securities.......................... --- ---
Investment securities: (Note 3)
Held to maturity (Fair value of approximately
$352,000 and $347,000 at March 31, 1995, and
December 31, 1994, respectively).................. 360,003 360,972
Available for sale-stated at fair value........... 309,489 305,903
Loans, net of unearned income....................... 2,323,936 2,277,283
Less: Allowance for possible loan losses (Note 4).. (37,341) (36,369)
Loans, net 2,286,595 2,240,914
Premises and equipment 52,103 52,145
Other assets 70,205 70,064
--------- ---------
Total assets $3,226,279 $3,284,318
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits........................$ 477,788 $ 589,313
Interest-bearing deposits........................... 2,077,202 2,074,300
--------- ---------
Total deposits.................................... 2,554,990 2,663,613
Short-term borrowings............................... 354,083 315,979
Accrued expenses and other liabilities.............. 29,025 26,278
Long-term borrowings................................ 3,866 3,866
--------- ---------
Total liabilities................................... 2,941,964 3,009,736
Commitments and contingent liabilities.............. --- ---
Stockholders' equity
Preferred stock................................... --- ---
Common stock (Par value $0.01 per share,
authorized 48,000,000 shares, issued
12,826,863 and 12,826,752 shares,
respectively)................................... 128 128
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Financial Condition
(Unaudited)
March 31 December 31
1995 1994
(In Thousands)
Surplus............................................ 146,924 147,132
Retained earnings.................................. 141,206 134,182
Net unrealized gains (losses) on securities avail-
able for sale.................................... 275 (2,817)
Less: Treasury stock (224,590 and 220,244 shares
at cost)......................................... (4,218) (4,043)
-------- --------
Total stockholders' equity......................... 284,315 274,582
-------- -------
Total liabilities and stockholders' equity......... $3,226,279 $3,284,318
========= =========
(See accompanying notes to Consolidated Financial Statements.)
<PAGE> 3
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31
1995 1994
(In Thousands)
INTEREST INCOME
Interest and fees on loans............................... $ 49,935 $ 38,508
Interest and dividends on investment securities:
Taxable................................................ 8,507 7,409
Tax-exempt............................................. 1,489 1,376
Interest on deposits in other financial
institutions........................................... 5 2
Interest on federal funds sold and securities
purchased under agreements to resell................... 439 416
Interest on trading account securities................... --- ---
------ ------
Total interest income 60,375 47,711
INTEREST EXPENSE
Interest on deposits................................... 21,241 15,383
Interest on short-term borrowings...................... 4,628 2,019
Interest on long-term borrowings....................... 88 110
------ ------
Total interest expense................................. 25,957 17,512
====== ======
NET INTEREST INCOME........................................ 34,418 30,199
Provision for possible loan losses (Note 4)................ 981 725
------ ------
Net interest income after provision for
possible loan losses..................................... 33,437 29,474
------ ------
NONINTEREST INCOME
Trust service fees....................................... 5,496 4,969
Data processing fees..................................... 273 426
Service charges on deposit accounts...................... 2,608 2,700
Investment securities gains, net......................... 21 39
Loan servicing fees...................................... 955 817
Residential real estate loan origination fees............ 80 509
Retail investment income................................. 450 587
Other.................................................... 2,649 2,956
------ ------
Total noninterest income............................... 12,532 13,003
====== ======
NONINTEREST EXPENSE
Salaries and employee benefits........................... 15,415 14,834
Net occupancy expense.................................... 2,451 2,232
Equipment rentals, depreciation and maintenance.......... 1,561 1,467
<PAGE> 4
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31
1995 1994
(In Thousands)
Data processing expense.................................. $ 1,823 $ 1,830
Stationery and supplies.................................. 791 780
Business development and advertising..................... 865 669
FDIC expense............................................. 1,469 1,345
Legal and professional fees.............................. 241 480
Other.................................................... 5,066 4,845
------ ------
Total noninterest expense.............................. 29,682 28,482
====== ======
Income before income taxes................................. 16,287 13,995
Income tax expense......................................... 5,859 4,584
------ ------
NET INCOME................................................. $ 10,428 $ 9,411
====== ======
Per share (Note 5)
Net income............................................... $ 0.83 $ 0.75
Dividends................................................ $ 0.27 $ 0.25
Weighted average shares outstanding........................ 12,610 12,605
(See accompanying notes to Consolidated Financial Statements.)
<PAGE> 5
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31
1995 1994
(In Thousands)
OPERATING ACTIVITIES
Net income............................................... $ 10,428 $ 9,411
Adjustments to reconcile net income to net
cash used by operating activities:
Provision for possible loan losses..................... 981 725
Depreciation and amortization.......................... 1,716 1,606
Amortization of purchased mortgage servicing rights.... 108 68
Amortization of goodwill............................... 591 295
Net amortization and accretion of premiums and
discounts............................................ 231 (26)
Gain on sales of investment securities, net............ (21) (39)
Increase in interest receivable and other assets....... (2,462) (2,773)
Increase in interest payable and other
liabilities.......................................... 2,197 5,979
Amortization of loan fees and costs.................... (392) (408)
Purchases of trading account securities................ (64) (253)
Proceeds from sales of trading account securities...... 78 6
Net (increase) decrease in mortgage loans
acquired for resale.................................. (2,312) 22,514
Gain on sales of mortgage loans held for resale........ (34) (364)
Other, net............................................. (302) 355
------ ------
Net cash provided by operating activities.................. $ 10,743 $ 37,096
====== ======
INVESTING ACTIVITIES
Net decrease in federal funds sold and securities
purchased under agreements to resell................... 44,275 17,640
Purchases of held to maturity securities................. (22,730) (62,455)
Purchases of available for sale securities............... (24,173) (37,517)
Proceeds from sales of available for sale securities..... 84 ---
Maturities of held to maturity securities................ 23,575 73,652
Maturities of available for sale securities.............. 25,435 36,779
Net increase in loans.................................... (43,990) (29,413)
Reductions of other real estate.......................... 726 581
Purchases of premises and equipment, net of disposals.... (1,609) (1,748)
Purchases of mortgage servicing rights................... (153) (521)
------ ------
Net cash provided (used) by investing activities........... $ 1,440 $ (3,002)
====== ======
<PAGE> 6
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31
1995 1994
(In Thousands)
FINANCING ACTIVITIES
Net decrease in deposits................................. (108,623) (16,868)
Net increase (decrease) in short-term borrowings......... 38,066 (22,785)
Cash dividends........................................... (3,404) (3,151)
Repayments of long-term borrowings....................... --- (680)
Proceeds from exercise of stock options.................. 158 133
Purchase of treasury stock............................... (541) ---
------ ------
Net cash (used) by financing activities.................... $(74,344) $(43,351)
====== ======
Net decrease in cash and cash equivalents.................. $(62,161) $ (9,257)
Cash and cash equivalents beginning of period.............. 196,385 157,293
------ ------
Cash and cash equivalents at end of period................. $134,224 $148,036
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................... $ 23,225 $ 15,944
Income taxes........................................... 2,905 969
Supplemental schedule of noncash investing activities:
Loans transferred to other real estate................ $ 195 $ 476
Loans made in connection with the disposition of
other real estate................................... 46 100
<PAGE> 7
(See accompanying notes to Consolidated Financial Statements.)
ITEM 1. Financial Statements continued:
ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
NOTE 1: In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments necessary to
present fairly Associated Banc-Corp's financial position, results of
its operations and cash flows for the periods presented. All
adjustments necessary to the fair presentation of the financial
statements are of a normal recurring nature. The results of
operations for the interim periods are not necessarily indicative of
the results to be expected for the full year.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. All material intercompany transactions and balances are
eliminated. The corporation has not changed its accounting and
reporting policies from those stated in the corporation's
1994 Annual Report on Form 10-K.
NOTE 3: INVESTMENT SECURITIES
The amortized cost and fair values of investment securities held to
maturity and securities available for sale for the periods indicated
were as follows:
Investment Securities Held to Maturity
----------------------------------------------------------------------
(In thousands) March 31, 1995
----------------------------------------------------------------------
Amortized Cost Fair Value
----------------------------------------------------------------------
U.S. Treasury and federal agency
securities................................. $176,162 $170,433
Obligations of states and political
subdivisions............................... 117,134 116,196
Other securities............................. 66,707 65,326
----------------------------------------------------------------------
Total........................................ $360,003 $351,955
======================================================================
(In thousands) December 31, 1994
----------------------------------------------------------------------
Amortized Cost Fair Value
----------------------------------------------------------------------
U.S. Treasury and federal agency
securities................................. $ 183,524 $ 174,398
Obligations of states and political
subdivisions............................... 117,490 115,253
Other securities............................. 59,958 57,372
----------------------------------------------------------------------
Total........................................ $ 360,972 $ 347,023
======================================================================
<PAGE> 8
Investment Securities Available for Sale
----------------------------------------------------------------------
(In thousands) March 31, 1995
----------------------------------------------------------------------
Amortized Cost Fair Value
----------------------------------------------------------------------
U.S. Treasury and federal agency
securities................................. $ 306,494 $ 302,921
Other securities............................. 2,724 6,568
----------------------------------------------------------------------
Total........................................ $ 309,218 $ 309,489
======================================================================
(In thousands) December 31, 1994
----------------------------------------------------------------------
Amortized Cost Fair Value
----------------------------------------------------------------------
U.S. Treasury and federal agency
securities................................. $ 308,680 $ 300,461
Other securities............................. 1,969 5,442
----------------------------------------------------------------------
Total........................................ $ 310,649 $ 305,903
======================================================================
NOTE 4: ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of the changes in the allowance for possible loan losses for
the periods indicated is as follows:
For the Three For the Year
Months Ended Ended
March 31, December 31,
1995 1994
(In Thousands)
Balance at beginning of period................. $ 36,369 $ 33,939
Balance related to acquisitions --- 1,675
Provisions charged to operating expense........ 981 2,788
Loan losses net of recoveries.................. (9) (2,033)
------ ------
Balance at end of period....................... $ 37,341 $ 36,369
====== ======
NOTE 5: PER SHARE COMPUTATIONS
Per share computations are computed based on the weighted average
number of common shares outstanding for the three months ended
March 31, 1995, and 1994.
ITEM 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations
The purpose of this discussion is to focus on information about the
corporation's financial condition and results of operations that are
not otherwise apparent from the consolidated financial statements
included in this report. Reference should be made to those statements
<PAGE> 9
presented elsewhere in this report for an understanding of the
following discussion and analysis.
EARNINGS
Earnings for the first quarter of 1995 increased 10.8% over 1994 while
earnings per share were up 10.7% over the same periods.
Net Income
Quarterly Trends
($ in Thousands)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Net Income $10,428 $10,704 $10,357 $ 9,956 $ 9,411
E.P.S. .83 .85 .82 .79 .75
Return on Average
Equity - Quarter 15.30% 15.73% 15.35% 15.28% 14.83%
Return on Average
Equity - Year 15.30% 15.31% 15.16% 15.06% 14.83%
Return on Average
Assets - Quarter 1.32% 1.34% 1.36% 1.34% 1.31%
Return on Average
Assets - Year 1.32% 1.34% 1.34% 1.33% 1.31%
----------------------------------------------------------------------
Return on average assets (ROA) for the first quarter of 1995 was
1.32%, up from 1.31% during the same period last year. ROA rose
slightly because first quarter 1995 net income grew at a rate of
10.8%, compared with 1994, while average assets grew at 10.1%,
resulting in a 1 basis point increase in ROA. ROA declined when
comparing the first quarter of 1995 to the fourth quarter of 1994,
because net income declined 2.6% while average assets grew at a 1.1%
pace.
Return on average equity (ROE) for the first quarter was 15.30%, up
from 14.83% during the same period last year. ROE increased
significantly in the first quarter of 1995 over 1994 because average
equity grew only 7.3% as a result of the decline in the average
balance of the equity component for unrealized gains on securities
available for sale. ROE decreased when compared with the fourth
quarter of 1994 due primarily to the decline in net income. Without
the available for sale equity component, first quarter 1995 ROE would
have been 15.23%, compared with an adjusted ROE of 15.14% in the first
quarter of 1994.
NET INTEREST INCOME
Tax equivalent net interest income in the first quarter of 1995 was
$35.4 million, a decrease of $1.1 million or 3% from the fourth
quarter of 1994. The decrease from the 1994 fourth quarter was
essentially rate driven as the rate on earning assets increased 28
basis points while the rate on interest-bearing liabilities increased
<PAGE> 10
41 basis points between the two quarters causing a decline in the
overall interest rate spread.
Net Interest Income
Tax Equivalent Basis
($ in Thousands)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Interest Income $60,375 $58,860 $53,803 $50,577 $47,711
Tax Equivalent Adjustment 968 891 877 953 972
------ ------ ------ ------ ------
Tax Equivalent Interest
Income 61,343 59,751 54,680 51,530 48,683
Interest Expense 25,957 23,259 20,262 18,647 17,512
------ ------ ------ ------ ------
Tax Equivalent Net
Interest Income $35,386 $36,492 $34,418 $32,883 $31,171
----------------------------------------------------------------------
The net interest margin in the first quarter of 1995 was 4.77%
compared to 4.88% in the fourth quarter of 1994. The decrease in
margin since last quarter was primarily due to the decline in interest
rate spread. Spread declined due to the greater rise in the cost of
funds, which was caused by deposit migration from savings and money
market deposits into time deposits and the higher volumes of short-
term borrowings.
First quarter 1995 average loans grew 1.8% since the fourth quarter of
1994 while interest-bearing deposits rose just .9%, noninterest-
bearing deposits declined 8.1%, and short-term borrowings rose 19.5%.
Net Interest Margin
Quarterly Trends
(Quarterly Info Only)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Yield on Earning Assets 8.28% 8.00% 7.70% 7.47% 7.29%
Cost of Interest-Bearing
Liabilities 4.32 3.91 3.58 3.36 3.27
Interest Rate Spread 3.96 4.09 4.12 4.11 4.02
Net Interest Margin 4.77 4.88 4.85 4.77 4.67
Average Earning Assets to
Average Assets 93.50 93.21 93.39 93.21 92.69
Free Funds Ratio 19.02 20.31 20.23 19.47 19.73
----------------------------------------------------------------------
The net interest margin for the first quarter of 1995 was 4.77%
compared with 4.67% in 1994. The net interest margin increased
largely as a result of the increase in the level of interest rates.
The rate on earning assets increased 99 basis points, while the rate
on interest bearing liabilities increased 105 basis points. The
<PAGE> 11
changes due to the level of rates were partially offset by a 6 basis
point decline in spread and a 71 basis point decline in the level of
free funds.
Earning Asset and Interest-Bearing Liability Volumes
Quarterly Trends
($ in Thousands)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Average Loans $2,300,378 $2,258,683 $2,144,889 $2,091,148 $2,039,352
Average Earning
Assets 3,005,849 2,964,312 2,817,301 2,767,586 2,706,852
Average
Noninterest-
Bearing
Deposits 476,984 518,818 475,261 452,767 464,256
Average Interest-
Bearing
Deposits 2,099,330 2,081,248 1,975,756 1,936,636 1,913,329
Average Deposits 2,576,314 2,600,066 2,451,017 2,389,403 2,377,585
Average Interest-
Bearing
Liabilities 2,434,265 2,362,311 2,247,432 2,228,628 2,172,745
----------------------------------------------------------------------
LOAN LOSS
The loan loss provision for the first quarter of 1995 was $981,000, an
increase of $256,000 from the same period in 1994 and $252,000 higher
than the fourth quarter of 1994.
As of March 31, 1995, the allowance for possible loan losses of $37.3
million represented 1.61% of total loans, up from 1.60% at December
31, 1994, but down from 1.68% at March 31, 1994.
<PAGE> 12
Provision for Possible Loan Losses
Quarterly Trends
($ in Thousands)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Provision -
Quarter $ 981 $ 729 $ 662 $ 672 $ 725
Provision -
Year 981 2,788 2,059 1,397 725
Net Charge-offs-
Quarter 9 670 799 272 292
Net Charge-offs-
Year 9 2,033 1,363 564 292
Allowance at
Period End 37,341 36,369 34,885 34,772 34,372
Allowance to
Period End
Loans 1.61% 1.60% 1.59% 1.64% 1.68%
Net Charge-offs
to Average Loans
(Annualized) -
Quarter .00% .12% .15% .05% .06%
Net Charge-offs
to Average Loans
(Annualized -
Year .00% .10% .09% .05% .06%
----------------------------------------------------------------------
Charge-offs for the quarter ending March 31, 1995, of $1.047 million
were reduced by recoveries of $1.038 million, creating net charge-offs
of $9,000. This activity compares with fourth quarter 1994 net
charge-offs of $670,000 and third quarter 1994 net charge-offs of
$799,000.
The ratio of year-to-date 1995 annualized net charge-offs to average
loans was .00%, down from .06% in 1994.
NON-PERFORMING LOANS
Management is committed to an aggressive non-accrual and problem loan
identification philosophy. This philosophy is embodied through the
monitoring and reviewing of credit policies and procedures to ensure
that all problem loans are identified quickly and the risk of loss is
minimized.
Non-performing loans are considered a leading indicator of future loan
losses. Non-performing loans are defined as non-accrual loans, loans
90 days or more past due but still accruing and restructured loans.
Loans are normally placed in non-accrual status when contractually
past due 90 days or more as to interest or principal payments.
Additionally, whenever management becomes aware of facts or
<PAGE> 13
circumstances that may adversely impact on the collectibility of
principal or interest on loans, it is management's practice to place
such loans on non-accrual status immediately, rather than delaying
such action until the loans become 90 days past due. Previously
accrued and uncollected interest on such loans is reversed and income
is recorded only to the extent that interest payments are
subsequently received in cash and a determination has been made that
the principal balance of the loan is collectible. If collectibility
of the principal is in doubt, payments received are applied to loan
principal.
Loans past due 90 days or more but still accruing interest are also
included in non-performing loans. Loans past due 90 days or more but
still accruing are classified as such where the underlying loans are
both well-secured (the collateral value is sufficient to cover
principal and accrued interest) and in the process of collection.
Also included in non-performing loans are "restructured" loans.
Restructured loans involve the granting of some concession to the
borrower involving the modification of terms of the loan, such as
changes in payment schedule or interest rate.
Total nonperforming loans at March 31, 1995, were $13.6 million, a
decline of $2.7 million from December 31, 1994. The ratio of
nonperforming loans to total loans at March 31, 1995, was .58%
compared to .71% at December 31, 1994, and 1.02% at March 31, 1994.
Non-Performing Loans and Other Real Estate
($ in Thousands)
----------------------------------------------------------------------
3/31/95 12/31/94 9/30/94 6/30/94 3/31/94
Nonaccrual Loans $11,323 $13,111 $15,323 $17,126 $16,644
Accruing Loans Past Due
90 Days or More 1,064 1,247 1,496 920 1,636
Restructured Loans 1,190 1,888 1,721 2,629 2,637
------ ------ ------ ------ ------
Total Nonperforming
Loans $13,577 $16,246 $18,540 $20,675 $20,917
Nonperforming Loans as
a Percent of Loans .58% .71% .85% .97% 1.02%
Other Real Estate Owned $ 1,327 $ 1,571 $ 1,306 $ 2,128 $ 2,103
----------------------------------------------------------------------
Impaired loans are defined, by SFAS 114 and SFAS 118 adopted in the
first quarter of 1995, as those loans where it is probable that all
amounts due according to contractual terms, including principal and
interest, will not be collected. The corporation has determined that
nonaccrual loans meet this definition. Impaired loans are measured at
the fair value of the collateral, if the loan is collateral dependent,
or alternatively at the present value of expected future cash flows.
Interest income on impaired loans is recognized only at the time that
cash is received, unless applied to reduce principal.
At March 31, 1995, the recorded investment in impaired loans totaled
<PAGE> 14
$11.3 million. Included in this amount is $7 million of impaired
loans that do not require a related allowance for possible loan
losses, and $4.3 million of impaired loans for which the related
allowance for possible loan losses totaled $1.2 million. The average
recorded investment in impaired loans during the three months ended
March 31, 1995, was approximately $12.1 million. Interest income
recognized on a cash basis on impaired loans during the first three
months of 1995 totaled $148,000.
The following table shows, for those loans accounted for on a
non-accrual basis and restructured loans for the three months ended
March 31, 1995, the gross interest that would have been recorded if
the loans had been current in accordance with their original terms and
the amount of interest income that was included in net income for
the period.
For the Three
Months Ended
March 31, 1995
($ In Thousands)
Interest income in accordance with original terms $ 508
Interest income recognized 228
---
Reduction in interest income $ 280
===
Potential problem loans are loans where there are doubts as to the
ability of the borrower to comply with present repayment terms. The
decision of management to place loans in this category does not
necessarily mean that the corporation expects losses to occur, but
that management recognizes that a higher degree of risk is
associated with these performing loans.
Potential Problem Loans
($ in Thousands)
----------------------------------------------------------------------
3/31/95 12/31/94 9/30/94 6/30/94 3/31/94
Potential Problem Loans $44,061 $51,764 $42,325 $54,282 $47,514
----------------------------------------------------------------------
At March 31, 1995, potential problem loans totaled $44.1 million
compared to $51.8 million at the end of 1994. The loans that have
been reported as potential problem loans are not concentrated in a
particular industry, but rather cover a diverse range of businesses,
e.g. communications, wholesale trade, manufacturing,
finance/insurance/real estate, and services. Management does not
presently expect significant losses for credits in this category.
Other real estate owned totaled to $1.3 million at March 31, 1995,
compared with $2.1 million at March 31, 1994.
<PAGE> 15
LOAN CONCENTRATIONS
Loan concentrations are considered to exist when there are amounts
loaned to a multiple number of borrowers engaged in similar activities
that would cause them to be similarly impacted by economic or other
conditions. The corporation's loans are widely diversified by
borrower, industry group and area. At March 31, 1995, no
concentrations existed in the corporation's loan portfolio in excess
of 10% of total loans.
Real estate construction loans at March 31, 1995, totaled $123.1
million or only 5.3% of loans while agricultural loans were 1.2% of
total loans.
As of March 31, 1995, the corporation did not have any cross-border
outstandings to borrowers in any foreign country where such
outstandings exceeded 1% of total assets.
NONINTEREST INCOME
Noninterest income decreased 3.6% for the three months ended March 31,
1995, when compared with the same period in 1994, but increased 10.5%
compared to the fourth quarter of 1994.
Trust fees were up 10.6% for the first quarter of 1995 compared with
the same period in 1994. The increase was the result of growth in new
business development and consistent investment performance, both
contributing to growth in assets under management.
Noninterest Income
Quarterly Trends
($ in Thousands)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Trust Servicing
Fees $ 5,496 $ 5,118 $ 5,017 $ 5,125 $ 4,969
Data Processing
Fees 273 394 432 422 426
Service Charges on
Deposit Accounts 2,608 2,744 2,802 2,787 2,700
Investment Security
Gains, Net 21 --- 6 157 39
Loan Servicing Fees 955 876 913 829 817
Residential Real
Estate Loan
Origination Fees 80 125 146 247 509
Retail Investment
Income 450 335 389 432 587
Other 2,649 1,749 1,710 2,055 2,956
----- ----- ----- ----- -----
Total $12,532 $11,341 $11,415 $12,054 $13,003
---------------------------------------------------------------------
<PAGE> 16
Service charges on deposits decreased 3.4% for the first quarter of
1995 compared with the 1994 first quarter amount. This followed a
3.9% increase in service charges on deposits when comparing the fourth
quarter of 1994 with the comparable period in 1993. The decrease from
the first quarter of 1994 was essentially due to lower deposit
volumes.
Net investment security gains recognized in the first quarter of 1995
were $21,000 following net security gains of zero in the fourth
quarter of 1994.
Loan servicing fees were up 16.9% for the first quarter of 1995
compared with 1994, following an increase of 13.9% in the fourth
quarter of 1994 compared with the same period in 1993.
Residential real estate loan origination fees for the first quarter of
1995 were down $429,000 from 1994. The majority of the decrease was
at the corporation s residential mortgage company where a decrease of
$242,000 was due to the continued reduction in loan originations
during 1994, which is carrying on into 1995.
Retail investment income decreased $137,000 or 23.3% during the first
quarter of 1995 compared to the same period in 1994.
Other noninterest income declined $307,000 in the first quarter of
1995 compared with the same period in 1994 following a decline of
$263,000 in the fourth quarter of 1994 compared with 1993.
Miscellaneous underwriting fees income decreased $164,000 from the
first quarter of 1994. Other miscellaneous income decreased $282,000
in the first quarter of 1995 compared to the same period in 1994.
During the first quarter of 1995, a subsidiary bank had a $700,000
insurance recovery from a previous lawsuit while in the first quarter
of 1994 the parent company recognized a $1 million in insurance
proceeds on a key-man life insurance policy.
NONINTEREST EXPENSE
Total noninterest expense increased 4.2% for the three months ended
March 31, 1995 when compared with the same period in 1994 and was .8%
higher than the fourth quarter of 1994.
Salaries and employee benefits were up 3.9% or $581,000 over the first
quarter of 1994. Salaries and commissions were up $603,000 over 1994,
an increase of 5.3%. Deferred compensation expense declined $415,000
during the same period.
Profit sharing, retirement savings, and pension expenses showed an
increase of $212,000 or 18.4% for the first quarter of 1995 compared
with 1994. Health insurance expenses increased $84,000 or 14.2% over
the first quarter of 1994 while social security expense was up $59,000
or 6.8%. A portion of these increases was due to the branch office
acquisitions in 1994.
<PAGE> 17
Noninterest Expense
Quarterly Trends
($ in Thousands)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Salaries and
Employee Benefits $15,415 $15,383 $14,735 $14,474 $14,834
Net Occupancy Expense 2,451 2,223 2,119 2,144 2,232
Equipment Rentals,
Depreciation and
Maintenance 1,561 1,630 1,503 1,438 1,467
Data Processing
Expense 1,823 1,947 1,870 1,842 1,830
Stationery and
Supplies 791 728 630 712 780
Business Development
and Advertising 865 660 576 783 669
FDIC Expense 1,469 1,415 1,335 1,340 1,345
Legal and Professional
Fees 241 230 391 263 480
Other 5,066 5,219 4,897 4,849 4,845
----- ----- ----- ----- -----
Total $29,682 $29,435 $28,056 $27,845 $28,482
----------------------------------------------------------------------
Net occupancy expense increased 9.8% or $219,000 in the first quarter
of 1995 compared with the same period in 1994. This followed a 9.8%
increase in the fourth quarter of 1994 over 1993. The first quarter
increase was primarily a result of the branch office acquisitions.
Data processing expense decreased $7,000 during the first quarter of
1995 compared with the same period in 1994.
Business development and advertising expense was up 29.3% in the first
quarter of 1995 compared to 1994 following a 4.2% increase in the
fourth quarter of 1994 compared with 1993. The first quarter 1995
increase over 1994 was primarily at two of the corporation s larger
bank subsidiaries due to certain promotional activities.
Legal and professional fees decreased 49.8% or $239,000 for the first
quarter of 1995 compared with the same period in 1994 primarily at the
parent company.
Other noninterest expense increased 4.6% or $221,000 in the first
quarter of 1995 compared with 1994, following an 11.6% increase in the
fourth quarter of 1994 compared with the same period in 1993.
Within other noninterest expense, gains on sale of ORE increased
$338,000 in the first quarter of 1995 compared with the same period in
1994.
<PAGE> 18
Net gains on loans sold declined $373,000 when compared to the first
quarter of 1994. The overall decrease in gains created an increase in
other noninterest expense.
Amortization of branch purchase premium intangibles totaled $336,000
in the first quarter of 1995 compared with no similar expenses in the
same period in 1994.
Real estate market valuation adjustment declined $315,000 for the
first quarter of 1995 compared with the same period in 1994. The
higher 1994 expense was due to valuation at the lower of cost or fair
value of residential real estate loans for resale, including both
warehouse loans and loans in the mortgage pipeline. Valuation expense
recognition was necessary at the end of the 1994 first quarter as
market rates increased, causing a relative decline in the value of
loans for resale.
Repo and foreclosure expense declined $162,000 for the first quarter
of 1995 compared with 1994.
Other miscellaneous expense increased $143,000 for the first quarter
of 1995 compared with 1994.
The efficiency ratio improved to 61.97% for the first quarter of 1995
compared with 66.03% for the same period last year. The ratio
increased during the first quarter of 1995 compared with 61.54% for
the fourth quarter of 1994. The improvement from first quarter 1994
to 1995 was primarily due to the tax-equivalent net interest income
growth outpacing recurring noninterest expense growth. The change
from fourth quarter 1994 to first quarter 1995 was largely due to a
decrease in tax-equivalent net interest income while recurring
noninterest expense grew slightly.
Expense Control
Quarterly Trends
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Efficiency Ratio -
Quarter 61.97% 61.54% 61.22% 62.18% 66.03%
Efficiency Ratio -
Year 61.97% 62.68% 63.09% 64.07% 66.03%
Expense Ratio -
Quarter 2.29% 2.44% 2.36% 2.30% 2.44%
Expense Ratio -
Year 2.29% 2.39% 2.37% 2.37% 2.44%
----------------------------------------------------------------------
The expense ratio improved to 2.29% for the first quarter of 1995
compared to 2.44% at both the first quarter and fourth quarter 1994.
The improvement between the first quarter ratios was due to the growth
of average earning assets outpacing the growth of recurring
noninterest expense. The improvement from fourth quarter 1994 to
<PAGE> 19
first quarter 1995 was the result of growth in average earning assets
while recurring noninterest expense declined 5.1%.
INCOME TAXES
Income tax expense increased 27.8% in the first quarter of 1995
compared with the same period in 1994. The first quarter 1994
effective rate was affected by the $1 million nontaxable life
insurance proceeds recognized. Adjusted for the insurance proceeds,
the first quarter 1994 effective tax rate was 35.3%. Tax expense in
the first quarter of 1995 was primarily affected by a higher level of
book taxable income and a lower level of tax-exempt income.
Income Tax Expense
Quarterly Trends
($ in Thousands)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Income Before Taxes $16,287 $16,778 $16,238 $15,467 $13,995
====== ====== ====== ====== ======
State Tax Expense $ 995 $ 1,038 $ 929 $ 937 $ 808
Federal Tax Expense 4,864 5,036 4,952 4,574 3,776
----- ----- ----- ----- -----
Total Income Tax
Expense 5,859 6,074 5,881 5,511 4,584
Effective Tax Rate 36.0% 36.2% 36.2% 35.6% 32.8%
----------------------------------------------------------------------
BALANCE SHEET
Consolidated assets totaled $3.23 billion as of March 31, 1995, up
9.4% from one year ago. Loans, net of unearned income, were $2.3
billion as of March 31, 1995, up 13.7% from the $2 billion of a year
earlier. Total deposits at March 31, 1995, were $2.6 billion, an
increase of 5.8% from one year ago.
Total assets at March 31, 1995, decreased by $58.0 million from
December 31, 1994. The change in assets during the quarter was
affected by a $62.2 million decline in cash and due from banks. Fed
funds sold decreased $44.3 million since the end of last year while
loans increased $46.7 million. Investment securities increased $2.6
million during the same period.
Total period-end deposits decreased by $108.6 million during the first
quarter of 1995. The change was comprised of a $2.9 million increase
in interest-bearing deposits and an $111.5 million decrease in
noninterest-bearing deposits.
End-of-period short-term borrowings increased $38.1 million since
December 31, 1994.
<PAGE> 20
Since the fourth quarter of 1994, the most significant changes in
average balance sheet composition that provided sources of funds were
an $18.1 million increase in interest-bearing deposits, a $54 million
increase in short-term borrowings, a decrease in cash and due from
banks of $14.3 million, and a decrease in fed funds sold of $12.1
million. Significant changes in average balance sheet composition
that used funds were a $41.7 million increase in loans, a $12.1
million increase in investment securities, and a $41.8 million
decrease in noninterest-bearing deposits.
The ratio of average loans to average deposits during the first
quarter of 1995 was 89.3% compared with 86.9% in the fourth quarter of
1994. Year-to-date 1995 average earning assets were 93.5% of average
total assets, up slightly from the year-to-date ratio of 93.2% in
1994.
LIQUIDITY
Liquidity refers to the ability of the corporation to generate
adequate amounts of cash to meet the corporation's needs for cash.
The subsidiary banks and the parent company of the corporation have
different liquidity considerations.
Banking subsidiaries meet their cash flow requirements by having funds
available to satisfy customer credit needs as well as having available
funds to satisfy deposit withdrawal requests. Liquidity at banking
subsidiaries is derived from deposit growth, money market assets,
maturing loans, the maturity of securities, access to other funding
sources and markets, and a strong capital position.
Deposit growth is the primary source of liquidity at the banking
subsidiaries. As a financing activity in the first quarter 1995
Consolidated Statements of Cash Flows, deposits reflected a net cash
outflow of $108.6 million from the end of 1994. The decline was in
noninterest-bearing deposits, which dropped from their substantially
higher year-end balances.
Within the investing activities cash flows, maturities of securities
during the first quarter of 1995 totaled $49 million. As of
March 31, 1995, the securities portfolio contained $306.5 million at
amortized cost of U.S. Treasury and federal agency securities
available for sale, representing 45.8% of the total securities
portfolio. These government securities are highly marketable and had
a market value equal to 98.8% of amortized cost at quarter end.
Additionally, $176.2 million at amortized cost of U.S. Treasury and
federal agency securities that are held to maturity are available, if
necessary, as a source of liquidity. These securities had a quarter-
end market value of $170.4 million or 96.7% of amortized cost.
Money market assets, consisting of federal funds sold and
interest-bearing deposits in other financial institutions, averaged
$30.8 million in the first quarter of 1995 compared to $54.3 million
during the same period in 1994. Being short-term and liquid by
nature, money market assets generally provide a lower yield than other
<PAGE> 21
earning assets. The corporation has a strategy of maintaining a
sufficient level of liquidity to accommodate fluctuations in funding
sources and will periodically take advantage of specific
opportunities to temporarily invest excess funds at narrower than
normal rate spreads while still generating additional net interest
income. At March 31, 1995, the corporation had $13.7 million
outstanding in short-term money market assets, serving as an
essential source of liquidity. The amount at quarter end represents
.4% of total assets compared to 1.8% at December 31, 1994.
Within the classification of short-term borrowings at March 31, 1995,
federal funds purchased and securities sold under agreements to
repurchase totaled $302.7 million compared with $271.3 million at the
end of 1994. Federal funds are purchased from a sizeable network of
correspondent banks while securities sold under agreements to
repurchase are obtained from a base of individual, business and public
entity customers.
The aggregate subsidiary liquidity resources were sufficient in the
first quarter of 1995 to fund the growth in loans and meet other needs
for cash when necessary. As of March 31, 1995, there were no material
commitments for capital expenditures, i.e. to purchase fixed assets.
Deposit growth will continue to be the primary source of bank
subsidiary liquidity on a long-term basis, along with stable earnings,
the resulting cash generated by operating activities and strong
capital positions. Shorter-term liquidity needs will mainly be
derived from growth in short-term borrowings, maturing securities
and money market assets, loan maturities and access to other funding
sources.
Liquidity is also necessary at the parent company level. The parent
company's primary sources of funds are dividends and service fees from
subsidiaries, borrowings and proceeds from the issuance of equity.
The parent company manages its liquidity position to provide the funds
necessary to pay dividends to shareholders, service debt, invest in
subsidiaries and satisfy other operating requirements. Dividends
received from subsidiaries totaled $6.8 million in the first quarter
of 1995 and will continue to be the parent's main source of long-term
liquidity. The dividends from subsidiaries were used to pay cash
dividends to the corporation's shareholders of $3.4 million, to
reduce short-term borrowings by $1.2 million, to purchase investment
securities of $.8 million, and to purchase treasury stock for $.5
million in the first quarter of 1995. No payments of original
long-term borrowings were due during the first quarter of 1995.
At March 31, 1995, the parent company had $100 million of established
lines of credit with non-affiliated banks, of which $25 million was in
use. Of the amount in use, the parent company downstreamed $20.3
million to the corporation's residential and commercial mortgage
banking subsidiaries and leasing company for their use in funding
loans and leases. The parent company also has access to funds from
the issuance of the corporation's commercial paper, although such
<PAGE> 22
funds are also downstreamed to the nonbank subsidiaries. Commercial
paper outstanding at March 31, 1995, totaled $10.1 million.
The parent company's long-term debt to equity ratio at March 31, 1995,
was 1.4%, the same as the level at December 31, 1994.
Management believes that, in the current economic environment, the
corporation's subsidiary and parent company liquidity positions are
adequate. There are no known trends nor any known demands,
commitments, events or uncertainties that will result or are
reasonably likely to result in a material increase or decrease in
the corporation's liquidity.
CAPITAL
Stockholders equity at March 31, 1995, increased 9.1% to $284.3
million or $22.56 per share compared with $260.5 million or $20.67 per
share one year ago. Capital continues to be strong, representing
8.81% of total assets as of March 31, 1995. Quarter-end capital
includes a positive $275,000 equity component compared with a positive
$3.9 million component at March 31, 1994, related to unrealized
gains/losses on securities available for sale. Without the equity
component, the ratio of March 31, 1995, equity to assets would be
8.80% compared with adjusted equity of 8.73% one year ago.
<PAGE> 23
Capital
Quarterly Trends)
($ in Thousands)
----------------------------------------------------------------------
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1995 1994 1994 1994 1994
----------------------------------------------------------------------
Stockholders' Equity $284,315 $274,582 $270,434 $264,133 $260,534
Average Equity to
Average Assets 8.60% 8.49% 8.87% 8.80% 8.82%
Equity to Assets -
Period End 8.81% 8.36% 8.78% 8.81% 8.84%
Tier 1 Capital to Risk
Weighted Assets -
Period End 10.61% 10.35% 11.24% 11.51% 11.53%
Total Capital to Risk
Weighted Assets -
Period End 11.88% 11.62% 12.51% 12.79% 12.82%
Tier 1 Leverage
Ratio - Period End 8.04% 7.89% 8.53% 8.52% 8.41%
Market Value Per Share
- Period End 36.13 35.50 35.25 37.50 31.25
Book Value Per Share -
Period End 22.56 21.78 21.44 20.94 20.67
Market Value Per Share
to Book Value Per
Share 160.2% 163.0% 164.4% 179.1% 151.2%
Dividends Per Share -
This Quarter .27 .27 .27 .27 .25
Dividends Per Share -
Year to Date .27 1.06 .79 .52 .25
Earnings Per Share -
This Quarter .83 .85 .82 .79 .75
Earnings Per Share -
Year to Date .83 3.21 2.36 1.54 .75
Dividend Payout Ratio
- This Quarter 32.53% 31.76% 32.93% 34.18% 33.33%
Dividend Payout Ratio
- Year to Date 32.53% 33.02% 33.47% 33.77% 33.33%
----------------------------------------------------------------------
Net income in the first quarter of 1995 was $10.4 million while
dividends paid to the corporation s shareholders amounted to $3.4
million. Equity decreased $383,000 from the effects of treasury stock
and stock option activity.
Cash dividends during the first quarter were $.27 per share, up 8.0%
from one year ago. The year-to-date dividend payout ratio represents
32.5% of 1995 earnings per share.
The adequacy of the corporation's capital is regularly reviewed to
ensure that sufficient capital is available for current and future
needs and is in compliance with regulatory guidelines. The assessment
of overall capital adequacy depends on a variety of factors,
<PAGE> 24
including asset quality, liquidity, stability of earnings, changing
competitive forces, economic conditions in markets served and strength
of management.
As of March 31, 1995, the corporation's tier 1 risk-based capital
ratio, total risk-based capital (tier 1 and tier 2) ratio and tier 1
leverage ratio were well in excess of regulatory minimums. Management
of the corporation expects to continue to exceed the minimum standards
in the future.
Similar capital guidelines are also required of the individual banking
subsidiaries of the corporation. As of March 31, 1995, each banking
subsidiary exceeded the minimum ratios for tier 1 capital, total
capital and the tier 1 leverage ratio.
Management actively reviews capital strategies for the corporation and
each of its subsidiaries to ensure that capital levels are appropriate
based on the perceived business risks, future growth opportunities,
industry standards and regulatory requirements.
RECENT DEVELOPMENTS
On March 23, 1995, the corporation announced the signing of a
definitive agreement to acquire GN Bancorp, Chicago, in a stock-for-
stock merger transaction. GN is the parent company of the $130
million Gladstone-Norwood Trust & Savings Bank, with two offices
located in northwest Chicago.
Contingent on the approval of regulatory authorities and the
shareholders of GN Bancorp, the transaction is expected to be
completed in the third quarter of 1995. When the merger is completed,
the corporation will have over $400 million in assets and five banking
offices in its Chicago region.
On April 14, 1995, the corporation also reached an agreement to
acquire a mortgage loan company on the northwest side of Chicago.
Privately owned, the company operates primarily in the suburban
Chicago areas with evolving relationships beyond Chicago.
At the Annual Shareholders Meeting on April 26, 1995, the
corporation s Board of Directors declared a regular quarterly cash
dividend of 27 cents per share and also announced the declaration of a
5-for-4 stock split to be effected in the form of a stock dividend.
The 25% stock dividend is payable on June 15, 1995, to shareholders of
record at the close of business on June 1, 1995.
<PAGE> 25
ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION
Page No.
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
(11) Statements re Computation of Per Share Earnings
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended
March 31, 1995.
<PAGE> 26
ASSOCIATED BANC-CORP
EXHIBIT (11)
Statement Re Computation of Per Share Earnings
March 31, 1995 March 31, 1994
As Reported:
Net income $10,428,482 $ 9,410,871
Weighted average common shares
outstanding 12,609,703 12,605,081
Net income per share $ .83 $ 0.75
Primary:
Net income $10,428,482 $ 9,410,871
Weighted average common shares
outstanding 12,609,703 12,605,081
Common stock equivalents 140,830 124,847
Adjusted weighted average common
shares outstanding 12,750,533 12,729,928
Net income per share $ .82 $ 0.74
Fully Diluted:
Net income $10,428,482 $ 9,410,871
Weighted average common shares
outstanding 12,609,703 12,605,081
Common stock equivalents 142,927 133,577
Adjusted weighted average common
shares outstanding 12,752,630 12,738,658
Net income per share $ .82 $ 0.74
Note: The primary and fully diluted numbers are not disclosed in the reported
financials because any dilution that is less than 3% of earnings per common
shares outstanding is not considered to be material.
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASSOCIATED BANC-CORP
(Registrant)
Date: May 12, 1995
Harry B. Conlon
Chairman & Chief Executive Officer
Date: May 12, 1995
Joseph B. Selner
Principal Financial Officer
INDEX TO EXHIBITS
Exhibit No. Page No.
(11) Computations of Earnings Per Share and Average
Number of Common Shares Outstanding 26
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<ARTICLE> 9
<CIK> 0000007789
<NAME> ASSOCIATED BANC-CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
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