1996 ANNUAL
REPORT
Management's
Discussion
And Analysis
ON FEBRUARY 27, 1997, NATIONSBANK COMPLETED A 2-FOR-1 SPLIT OF ITS COMMON STOCK.
ALL FINANCIAL DATA INCLUDED IN THE 1996 ANNUAL REPORT HAS BEEN RESTATED TO
REFLECT THE IMPACT OF THE STOCK SPLIT.
1996 COMPARED TO 1995
OVERVIEW
NationsBank Corporation (the Corporation), a multi-bank holding company
headquartered in Charlotte, North Carolina, provides a diversified range of
banking and certain non-banking financial services both domestically and
internationally through three major Business Units: the GENERAL BANK, GLOBAL
FINANCE and FINANCIAL SERVICES. After the acquisition of Boatmen's Bancshares,
Inc. on January 7, 1997, the Corporation had approximately $227 billion in
assets, making it the fourth largest banking company in the United States.
The Corporation's continued earnings momentum was demonstrated through a
26-percent increase in operating net income to $2.45 billion in 1996 compared to
$1.95 billion in 1995. Operating earnings per common share for 1996 increased 16
percent to $4.13 from $3.56 in 1995 and fully diluted operating earnings per
share increased 15 percent to $4.05. Including a merger-related charge of $118
million ($77 million, net of tax), net income increased 22 percent to $2.38
billion, earnings per share rose 12 percent to $4.00 and fully diluted earnings
per share increased 11 percent to $3.92.
KEY PERFORMANCE HIGHLIGHTS FOR
1996 WERE:
(bullet) Operating return on average common shareholders' equity increased 152
basis points to 18.53 percent from 17.01 percent in 1995. Including
the merger-related charge, return on average common shareholders'
equity increased to 17.95 percent for 1996.
(bullet) Taxable-equivalent net interest income rose 16 percent to $6.4
billion in 1996 due to the impact of acquisitions, higher spreads
in the securities portfolio, growth in average consumer loans and
an increase in noninterest-bearing deposits. The net interest yield
increased to 3.62 percent compared to 3.33 percent in 1995.
(bullet) Provision for credit losses covered net charge-offs and totaled $605
million in 1996 compared to $382 million in 1995, reflecting the
continuation of a return to more normalized levels of credit losses
following periods of unusually low credit losses. Net charge-offs
totaled $598 million, or .48 percent of average loans, leases and
factored accounts receivable, versus .38 percent in 1995.
Nonperforming assets increased to $1.0 billion on December 31, 1996
compared to $853 million on December 31, 1995 due primarily to
acquisitions.
(bullet) Noninterest income increased 18.5 percent to $3.6 billion in 1996,
driven primarily by higher deposit account service charges,
investment banking income and mortgage servicing and mortgage-related
fees.
(bullet) Noninterest expense increased 9.7 percent to $5.7 billion. Excluding
the impact of acquisitions, noninterest expense increased only 4
percent.
(bullet) Revenue growth continued to outpace expense growth in 1996,
improving the efficiency ratio 351 basis points to 56.3 percent.
(bullet) Cash basis ratios, which measure operating performance excluding
intangible assets and the related amortization expense, improved with
cash basis earnings per share rising 15 percent to $4.34 and return
Management's Discussion And Analysis 17
TABLE ONE. FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
===================================================================================================================================
(DOLLARS IN MILLIONS EXCEPT PER-SHARE INFORMATION)
1996 1995 1994 1993 1992
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INCOME STATEMENT
Income from earning assets........................................ $13,796 $13,220 $10,529 $8,327 $7,780
Interest expense.................................................. 7,467 7,773 5,318 3,690 3,682
Net interest income (taxable-equivalent).......................... 6,423 5,560 5,305 4,723 4,190
Net interest income............................................... 6,329 5,447 5,211 4,637 4,098
Provision for credit losses....................................... 605 382 310 430 715
Gains (losses) on sales of securities............................. 67 29 (13) 84 249
Noninterest income................................................ 3,646 3,078 2,597 2,101 1,913
Other real estate owned expense (income).......................... 20 18 (12) 78 183
Merger-related charge............................................. 118 - - 30 -
Other noninterest expense......................................... 5,665 5,163 4,942 4,293 3,966
Income before taxes and effect of change
in method of accounting for income taxes........................ 3,634 2,991 2,555 1,991 1,396
Income tax expense................................................ 1,259 1,041 865 690 251
Income before effect of change in method of
accounting for income taxes..................................... 2,375 1,950 1,690 1,301 1,145
Effect of change in method of accounting for income taxes......... - - - 200 -
Net income........................................................ 2,375 1,950 1,690 1,501 1,145
Net income available to common shareholders....................... 2,360 1,942 1,680 1,491 1,121
Net income (excluding merger-related charge)...................... 2,452 1,950 1,690 1,521 1,145
Average common shares issued (in thousands)....................... 590,216 544,959 549,312 515,938 487,496
PER COMMON SHARE
Earnings before effect of change in method of
accounting for income taxes...................................... $4.00 $3.56 $3.06 $2.50 $2.30
Earnings............................................................ 4.00 3.56 3.06 2.89 2.30
Earnings (excluding merger-related charge).......................... 4.13 3.56 3.06 2.93 2.30
Fully diluted earnings per share.................................... 3.92 3.52 3.03 2.86 2.26
Fully diluted earnings per share (excluding merger-related charge).. 4.05 3.52 3.03 2.90 2.26
Cash basis earnings (excluding merger-related charge) (1)........... 4.34 3.78 3.28 3.10 2.48
Cash dividends paid................................................. 1.20 1.04 .94 .82 .76
Shareholders' equity (year-end)..................................... 23.69 23.26 19.85 18.20 15.40
BALANCE SHEET (YEAR-END)
Total loans, leases and factored accounts receivable,
net of unearned income...........................................122,630 117,033 103,371 92,007 72,714
Total assets.......................................................185,794 187,298 169,604 157,686 118,059
Total deposits.....................................................106,498 100,691 100,470 91,113 82,727
Long-term debt..................................................... 22,985 17,775 8,488 8,352 3,066
Common shareholders' equity........................................ 13,586 12,759 10,976 9,859 7,793
Total shareholders' equity......................................... 13,709 12,801 11,011 9,979 7,814
PERFORMANCE RATIOS
Return on average assets........................................... 1.18% 1.03% 1.02% .97% 1.00%
Return on average assets (excluding merger-related charge)......... 1.22 1.03 1.02 .98 1.00
Return on average tangible assets
(excluding merger-related charge) (1)............................ 1.30 1.11 1.10 1.06 1.08
Return on average common shareholders' equity (2).................. 17.95 17.01 16.10 15.00 15.83
Return on average common shareholders' equity
(excluding merger-related charge) (2)............................ 18.53 17.01 16.10 15.23 15.83
Return on average tangible common shareholders' equity
(excluding merger-related charge) (1)(2)......................... 22.80 20.74 19.85 18.34 19.46
Tier 1 capital ratio............................................... 7.76 7.24 7.43 7.41 7.54
Total capital ratio................................................ 12.66 11.58 11.47 11.73 11.52
Leverage capital ratio............................................. 7.09 6.27 6.18 6.00 6.16
Total equity to total assets....................................... 7.38 6.83 6.49 6.33 6.62
MARKET PRICE PER SHARE OF COMMON STOCK
Market price of common stock (close at the end of the year)........ $48 7/8 $34 13/16 $22 9/16 $24 1/2 $25 11/16
High for the year.................................................. 52 5/8 37 3/8 28 11/16 29 26 11/16
Low for the year................................................... 32 3/16 22 5/16 21 11/16 22 1/4 19 13/16
(1) CASH BASIS RATIOS EXCLUDE INTANGIBLE ASSETS AND THE RELATED AMORTIZATION
EXPENSE.
(2) AVERAGE COMMON SHAREHOLDERS' EQUITY DOES NOT INCLUDE THE EFFECT OF MARKET
VALUE ADJUSTMENTS TO SECURITIES AVAILABLE FOR SALE AND MARKETABLE EQUITY
SECURITIES.
IN 1993, RETURN ON AVERAGE ASSETS AND RETURN ON EQUITY AFTER THE TAX BENEFIT
FROM THE IMPACT OF ADOPTING A NEW INCOME TAX ACCOUNTING STANDARD WERE 1.12% AND
17.33%, RESPECTIVELY.
18 NationsBank Corporation Annual Report 1996
on average tangible common shareholders' equity increasing over 200 basis points
to 22.80 percent.
HIGHLIGHTS FROM A BUSINESS UNIT
PERSPECTIVE WERE:
(bullet) The GENERAL BANK'S 1996 earnings increased 35 percent to $1.6 billion.
Return on equity increased approximately 300 basis points to 22
percent in 1996. Revenue growth and expense control led to a 520
basis-point improvement in the efficiency ratio in 1996 to 58.6
percent.
(bullet) GLOBAL FINANCE's earnings rose to $635 million in 1996. Return on
equity remained constant at 16 percent in 1996. The efficiency ratio
improved slightly to 53.5 percent.
(bullet) FINANCIAL SERVICES' earnings rose 29 percent to $166 million in 1996.
Return on equity remained constant at 14 percent in 1996. The
efficiency ratio was 45.1 percent in 1996 compared to 42.1 percent in
1995 due primarily to office consolidation costs in 1996.
The remainder of management's discussion and analysis of the consolidated
results of operations and financial condition of the Corporation should be read
together with the consolidated financial statements and related notes presented
on pages 49 through 71.
BUSINESS UNIT OPERATIONS
The Business Units are managed with a focus on numerous performance
objectives including return on equity, operating efficiency and net income.
TABLE TWO summarizes key performance measures for each of the Business Units.
The net interest income of the Business Units reflects the results of a funds
transfer pricing process which derives net interest
TABLE TWO. BUSINESS UNIT SUMMARY
================================================================================================================================
(DOLLARS IN MILLIONS)
GENERAL BANK GLOBAL FINANCE FINANCIAL SERVICES
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income (taxable-equivalent) ................ $4,602 $3,817 $1,202 $1,186 $572 $527
Noninterest income ...................................... 2,500 2,100 1,019 910 122 68
---------------------------------------------------------------------
Total revenue ........................................ 7,102 5,917 2,221 2,096 694 595
Provision for credit losses ............................. 438 267 43 - 124 115
Gains on sales of securities ............................ 25 - - - - -
Other real estate owned expense (income) ................ 16 11 (5) (7) 9 14
Noninterest expense ..................................... 4,165 3,776 1,188 1,136 313 250
--------------------------------------------------------------------
Income before income taxes .............................. 2,508 1,863 995 967 248 216
Income tax expense ...................................... 916 688 360 358 82 87
--------------------------------------------------------------------
Net income (1) .......................................... $1,592 $1,175 $635 $609 $166 $129
======================================================================
Net interest yield (2) .................................. 4.68% 4.69% 3.09% (3) 3.39% (3) 7.10% 7.30%
Average equity to assets ................................ 6.8% 6.8% 4.9% 5.4% 14.1% 12.2%
Return on equity ........................................ 22% 19% 16% 16% 14% 14%
Efficiency ratio ........................................ 58.6% 63.8% 53.5% 54.2% 45.1% 42.1%
Average (2)(4)
Total loans and leases, net of unearned income .......$78,708 $68,607 $36,117 $34,195 $8,022 $7,204
Total deposits ....................................... 87,904 77,333 8,212 7,160 - -
Total assets .........................................104,395 88,918 78,368 71,833 8,528 7,699
Year-end (2)(4)
Total loans and leases, net of unearned income ....... 76,815 74,031 36,763 35,187 8,279 7,798
Total deposits ....................................... 90,080 79,549 8,321 7,861 - -
(1) BUSINESS UNIT RESULTS ARE PRESENTED ON A FULLY ALLOCATED BASIS EXCEPT FOR
MINOR AMOUNTS ASSOCIATED WITH UNASSIGNED CAPITAL, GAINS ON SALES OF CERTAIN
SECURITIES, MERGER-RELATED CHARGES AND OTHER CORPORATE ACTIVITIES.
(2) 1995 NET INTEREST YIELDS AND AVERAGE AND YEAR-END BALANCES HAVE BEEN
RESTATED TO REFLECT THE CURRENT ORGANIZATIONAL STRUCTURE.
(3) GLOBAL FINANCE'S NET INTEREST YIELD EXCLUDES THE IMPACT OF TRADING-RELATED
ACTIVITIES. INCLUDING TRADING-RELATED ACTIVITIES, THE NET INTEREST YIELD WAS
1.78 PERCENT FOR 1996 AND 1.95 PERCENT FOR 1995.
(4) THE SUMS OF BALANCE SHEET AMOUNTS DIFFER FROM CONSOLIDATED AMOUNTS DUE TO
ACTIVITIES BETWEEN THE BUSINESS UNITS.
Management's Discussion And Analysis 19
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.
The GENERAL BANK provides comprehensive services in the retail and commercial
banking fields. Within the GENERAL BANK, the BANKING GROUP, which contains the
retail banking network, is the service provider for small and medium-size
companies and individuals. On December 31, 1996, the BANKING GROUP had 1,979
banking offices located in the states of Florida, Georgia, Kentucky, Maryland,
North Carolina, South Carolina, Tennessee, Texas and Virginia and the District
of Columbia. In addition, fully-automated, 24-hour cash dispensing and
depositing services are provided throughout these states through 3,948 automated
teller machines. 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 of the GENERAL BANK. The GENERAL BANK also
contains the ASSET MANAGEMENT GROUP which includes INVESTING AND INVESTMENT
MANAGEMENT, which provides retirement services for defined benefit and defined
contribution plans, full service and discount brokerage services and investment
advisory services, including advising the Nations Funds family of mutual funds,
and THE PRIVATE CLIENT GROUP, which offers banking, fiduciary and investment
management services.
The GENERAL BANK'S earnings increased 35 percent to $1.6 billion in 1996. The
BANKING GROUP'S strong loan growth and growth in fee income accounted for most
of the increased earnings over 1995. The GENERAL BANK'S return on equity rose
approximately 300 basis points to 22 percent. Taxable-equivalent net interest
income increased 21 percent including the impact of acquisitions. Excluding the
impact of acquisitions and securitizations, net interest income increased 10
percent. Average loans and leases in the GENERAL BANK increased 15 percent
primarily attributable to residential mortgages acquired through acquisitions.
Noninterest income rose 19 percent to $2.5 billion led by increases in
deposit service fee income, increased mortgage servicing and production fees, a
gain related to the change in control of Gartmore plc and a gain on the sale of
certain consumer loans. Noninterest expense increased 10 percent, which was
significantly below the total revenue growth of 20 percent. Acquisition-related
and other increases in personnel and higher general operating expense accounted
for most of the expense growth. Excluding acquisitions, noninterest expense
increased only 3 percent. Strong revenue growth offset moderate expense growth,
resulting in a 520 basis-point improvement in the efficiency ratio.
GLOBAL FINANCE provides comprehensive corporate and investment banking
services to domestic and international customers through its CORPORATE
FINANCE/CAPITAL MARKETS, SPECIALIZED LENDING and REAL ESTATE units. The GLOBAL
FINANCE group serves as a principal lender and investor as well as an advisor,
and manages treasury and trade transactions for clients and customers. Loan
origination and syndication, asset-backed lending, leasing, factoring, project
finance and mergers and acquisitions are representative of the services
provided. These services are provided through various domestic offices as well
as offices located in London, Singapore, Bogota, Mexico City, Grand Cayman,
Nassau, Seoul, Tokyo, Osaka, Bombay, Jakarta, Taipei, Sao Paulo and Hong Kong.
Through its Section 20 subsidiary, NATIONSBANC CAPITAL MARKETS, INC., GLOBAL
FINANCE underwrites, distributes and makes markets in high-grade and high-yield
securities. Additionally, GLOBAL FINANCE is a primary dealer of U.S. Government
securities and is a market maker in derivatives products which include swap
agreements, option contracts, forward settlement contracts, financial futures
and other derivative products in certain interest rate, foreign exchange,
commodity and equity markets. In support of these activities, GLOBAL FINANCE
takes positions to support client demands and its own account. Major centers for
the above activities are Charlotte, Chicago, London, New York, Singapore and
Tokyo.
GLOBAL FINANCE'S earnings increased 4 percent to $635 million in 1996,
resulting in a consistent return on equity of 16 percent. Taxable-equivalent net
interest income increased $16 million over 1995 due to loan growth which was
partially offset by competitive loan pricing. Loan growth, primarily commercial,
was concentrated in the CORPORATE FINANCE/CAPITAL MARKETS and SPECIALIZED
LENDING units.
20 NationsBank Corporation Annual Report 1996
TABLE THREE. 12-MONTH TAXABLE-EQUIVALENT DATA
===================================================================================================================================
(DOLLARS IN MILLIONS)
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
BALANCE INCOME BALANCE INCOME BALANCE INCOME
SHEET OR YIELDS/ SHEET OR YIELDS/ SHEET OR YIELDS/
AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES
- -----------------------------------------------------------------------------------------------------------------------------------
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2) ............................. $49,553 $4,042 8.16% $46,358 $3,797 8.19%$41,606 $3,147 7.56%
Real estate commercial .................... 6,090 550 9.03 7,195 669 9.30 7,780 636 8.18
Real estate construction .................. 3,165 281 8.89 3,106 302 9.73 3,155 268 8.49
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Total commercial ........................ 58,808 4,873 8.29 56,659 4,768 8.42 52,541 4,051 7.71
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Residential mortgage ...................... 27,813 2,169 7.80 20,562 1,600 7.78 14,980 1,141 7.62
Credit card ............................... 6,228 733 11.77 5,013 641 12.78 3,956 508 12.84
Other consumer ............................ 22,467 2,218 9.87 21,940 2,209 10.07 19,768 1,831 9.26
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Total consumer .......................... 56,508 5,120 9.06 47,515 4,450 9.37 38,704 3,480 8.99
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Foreign ................................... 2,664 183 6.87 2,036 157 7.71 1,417 86 6.10
Lease financing ........................... 4,288 324 7.58 3,277 249 7.59 2,344 176 7.50
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Total loans and leases, net ............. 122,268 10,500 8.59 109,487 9,624 8.79 95,006 7,793 8.20
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Securities
Held for investment ....................... 3,442 193 5.59 15,521 864 5.57 15,048 761 5.06
Available for sale (3) .................... 17,295 1,146 6.63 10,272 642 6.25 12,386 644 5.20
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Total securities ........................ 20,737 1,339 6.46 25,793 1,506 5.84 27,434 1,405 5.12
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Loans held for sale ......................... 1,078 79 7.30 322 24 7.47 339 23 6.63
Federal funds sold .......................... 389 23 5.95 774 47 6.10 983 45 4.59
Securities purchased under agreements to resell 12,445 643 5.16 14,385 890 6.19 12,406 502 4.05
Time deposits placed and other
short-term investments .................... 1,436 80 5.54 2,066 142 6.87 1,762 90 5.12
Trading account securities (4) .............. 19,047 1,226 6.44 14,177 1,100 7.76 10,451 765 7.32
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Total earning assets (5) ................ 177,400 13,890 7.83 167,004 13,333 7.98 148,381 10,623 7.16
Cash and cash equivalents ...................... 7,807 7,820 8,271
Factored accounts receivable ................... 1,135 1,163 1,252
Other assets, less allowance for credit losses . 14,543 12,560 8,415
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Total assets ............................ $200,885 $188,547 $166,319
===================================================================================================================================
Interest-bearing liabilities
Savings ..................................... $9,024 201 2.22 $8,575 204 2.37 $9,116 212 2.33
NOW and money market deposit accounts ....... 30,243 763 2.52 27,640 740 2.68 29,724 696 2.34
Consumer CDs and IRAs (6) ................... 30,034 1,585 5.28 24,840 1,290 5.19 23,937 999 4.17
Negotiated CDs, public funds
and other time deposits ................... 3,114 171 5.49 2,992 166 5.56 3,319 133 4.02
Foreign time deposits ....................... 11,180 602 5.38 14,103 881 6.25 7,544 375 4.98
Federal funds purchased ..................... 4,694 251 5.35 5,455 322 5.91 5,397 219 4.07
Securities sold under agreements to
repurchase (6) ............................. 28,517 1,531 5.37 30,336 1,863 6.14 24,903 1,075 4.32
Commercial paper ............................ 2,966 165 5.57 2,804 171 6.10 2,482 111 4.46
Other short-term borrowings (6) ............. 3,344 208 6.22 5,690 354 6.20 5,015 213 4.25
Trading account liabilities (4) ............. 10,137 653 6.44 12,025 896 7.45 10,526 735 6.98
Long-term debt (7) .......................... 20,603 1,337 6.51 12,652 886 7.00 8,033 550 6.85
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Total interest-bearing liabilities ...... 153,856 7,467 4.85 147,112 7,773 5.28 129,996 5,318 4.09
Noninterest-bearing sources
Noninterest-bearing deposits ................ 23,990 21,128 20,097
Other liabilities ........................... 9,776 8,856 5,742
Shareholders' equity ........................ 13,263 11,451 10,484
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Total liabilities and shareholders'
equity ................................ $200,885 $188,547 $166,319
===================================================================================================================================
Net interest spread ............................ 2.98 2.70 3.07
Impact of noninterest-bearing sources .......... .64 .63 .51
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Net interest income/yield on earning assets .... $6,423 3.62% $5,560 3.33% $5,305 3.58%
===================================================================================================================================
(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 INCREASED (DECREASED) INTEREST INCOME $26, ($209) AND
$62 IN 1996, 1995 AND 1994, 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 $94, $113 AND
$94 IN 1996, 1995 AND 1994, RESPECTIVELY.
(6) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, OTHER SHORT-TERM BORROWINGS
AND CONSUMER CDS INTEREST EXPENSE INCLUDES NET INTEREST RATE SWAP EXPENSE
RELATED TO SWAPS FIXING THE COST OF CERTAIN OF THESE LIABILITIES. INTEREST
RATE SWAPS INCREASED INTEREST EXPENSE $66, $28 AND $35 IN 1996, 1995 AND
1994, 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. INTEREST RATE SWAPS INCREASED (DECREASED) INTEREST EXPENSE
($12) AND $2 IN 1996 AND 1995, RESPECTIVELY.
Management's Discussion And Analysis 21
Continued progress was made in reducing average commercial real estate
outstandings by $1.3 billion in 1996.
Noninterest income increased 12 percent over 1995, with most of the growth
concentrated in investment banking income. Noninterest expense rose only 4.6
percent, contributing to a 70 basis-point improvement in the efficiency ratio.
FINANCIAL SERVICES is primarily comprised 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, which has 293 branches in 33 states, provides personal, mortgage
and automobile loans to consumers, and retail finance programs to dealers.
NATIONSCREDIT COMMERCIAL CORPORATION consists of divisions that specialize in
the following commercial financing areas: equipment loans and leases; 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 $166 million increased 29 percent over 1995.
Consistent with 1995, earnings represented 7 percent of consolidated earnings
and return on equity was 14 percent. Taxable-equivalent net interest income
increased 9 percent as average loans and leases increased 11 percent. Market
demand in the consumer lending, commercial real estate and distribution finance
businesses continued to contribute to loan growth. The increase in provision for
credit losses was mainly driven by loan growth and higher consumer loss rates.
The net interest yield decreased 20 basis points to 7.10 percent in 1996 due to
higher funding costs combined with more competitive loan pricing. Noninterest
income increased $54 million reflecting higher warrant gains and higher loan
prepayment fees. Noninterest expense increased $63 million driven by office
consolidation costs and operating expenses for acquisitions, resulting in an
efficiency ratio of 45.1 percent for 1996.
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 three years is presented in TABLE
THREE. The changes in net interest income from year to year are analyzed in
TABLE FOUR.
Taxable-equivalent net interest income increased 16 percent to $6.4 billion
in 1996 compared to $5.6 billion in 1995 due to acquisitions of several banking
operations, higher spreads in the securities portfolio, core loan growth and an
increase in noninterest-bearing deposits, partially offset by the impact of
securitizations and a shift in funding to term debt. While securitizations
lowered net interest income by $264 million in 1996, they do not significantly
affect the Corporation's earnings. As the Corporation continues to securitize
loans, its role becomes that of a servicer and the income related to securitized
loans is reflected in noninterest income.
The net interest yield increased 29 basis points to 3.62 percent in 1996
compared to 1995 due to the sale of low-yielding securities and the reinvestment
of proceeds from the sale of low-yielding securities into higher-spread
products.
Loan growth 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 and
geographic concentrations.
PROVISION FOR CREDIT LOSSES
The provision for credit losses covered net charge-offs and was $605 million
in 1996 compared to $382 million in the prior year. Net charge-offs increased
$177 million to $598 million in 1996 compared to 1995 due primarily to increases
in commercial, other consumer and credit card net charge-offs. Management
expects the charge-off trends experienced in 1996 to continue as the Corporation
maintains its efforts to shift the mix of the loan portfolio to a higher
consumer concentration and credit losses return to more normalized levels.
NET INTEREST INCOME
(Billions)
(chart appears along the right side of
page and its plot points are as follows)
1992 4.1
1993 4.6
1994 5.2
1995 5.4
1996 6.3
22 NationsBank Corporation Annual Report 1996
The allowance for credit losses was $2.3 billion, or 1.89 percent of net
loans, leases and factored accounts receivable, on December 31, 1996 compared to
$2.2 billion, or 1.85 percent, at the end of 1995. The allowance for credit
losses was 260 percent of nonperforming loans on December 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.
TABLE TWELVE provides an analysis of the activity in the Corporation's
allowance for
TABLE FOUR. CHANGES IN TAXABLE-EQUIVALENT NET INTEREST INCOME
===================================================================================================================================
(DOLLARS IN MILLIONS)
THIS TABLE PRESENTS AN ANALYSIS OF THE YEAR-TO-YEAR
CHANGES IN NET INTEREST INCOME ON A FULLY
TAXABLE-EQUIVALENT BASIS FOR THE YEARS SHOWN. THE
CHANGES FOR EACH CATEGORY OF INCOME AND EXPENSE ARE
DIVIDED BETWEEN THE PORTION OF CHANGE ATTRIBUTABLE TO
THE VARIANCE IN AVERAGE LEVELS OR YIELDS/RATES FOR THAT
CATEGORY. THE AMOUNT OF CHANGE THAT CANNOT BE SEPARATED
IS ALLOCATED TO EACH VARIANCE PROPORTIONATELY.
FROM 1995 TO 1996 FROM 1994 TO 1995
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INCREASE (DECREASE) INCREASE (DECREASE)
IN INCOME/EXPENSE IN INCOME/EXPENSE
DUE TO CHANGE IN DUE TO CHANGE IN
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE
AVERAGE YIELDS/ INCREASE AVERAGE YIELDS/ INCREASE
LEVELS RATES TOTAL (DECREASE) LEVELS RATES TOTAL (DECREASE)
- -----------------------------------------------------------------------------------------------------------------------------------
Income from earning assets
Loans and leases, net of unearned income
Commercial ................................ $ 261 $(16) $245 6.5% $377 $ 273 $650 20.7%
Real estate commercial .................... (100) (19) (119) (17.8) (50) 83 33 5.2
Real estate construction .................. 6 (27) (21) (7.0) (4) 38 34 12.7
----- -----
Total commercial ........................ 179 (74) 105 2.2 331 386 717 17.7
----- -----
Residential mortgage ...................... 565 4 569 35.6 434 25 459 40.2
Credit card ............................... 146 (54) 92 14.4 135 (2) 133 26.2
Other consumer ............................ 52 (43) 9 .4 211 167 378 20.6
----- -----
Total consumer .......................... 819 (149) 670 15.1 820 150 970 27.9
----- -----
Foreign ................................... 45 (19) 26 16.6 44 27 71 82.6
Lease financing ........................... 76 (1) 75 30.1 71 2 73 41.5
----- -----
Total loans and leases, net ............. 1,102 (226) 876 9.1 1,246 585 1,831 23.5
Securities
----- -----
Held for investment ....................... (677) 6 (671) (77.7) 24 79 103 13.5
Available for sale ........................ 463 41 504 78.5 (120) 118 (2) (.3)
----- -----
Total securities ........................ (316) 149 (167) (11.1) (88) 189 101 7.2
----- -----
Loans held for sale ......................... 55 - 55 229.2 (1) 2 1 4.3
Federal funds sold .......................... (23) (1) (24) (51.1) (11) 13 2 4.4
Securities purchased under agreements
to resell ................................. (111) (136) (247) (27.8) 90 298 388 77.3
Time deposits placed and other
short-term investments .................... (38) (24) (62) (43.7) 17 35 52 57.8
Trading account securities .................. 335 (209) 126 11.5 287 48 335 43.8
----- -----
Total income from earning assets ........ 818 (261) 557 4.2 1,413 1,297 2,710 25.5
----- -----
Interest expense
Savings ..................................... 10 (13) (3) (1.5) (13) 5 (8) (3.8)
NOW and money market deposit accounts ....... 67 (44) 23 3.1 (51) 95 44 6.3
Consumer CDs and IRAs ....................... 274 21 295 22.9 39 252 291 29.1
Negotiated CDs, public funds
and other time deposits ................... 7 (2) 5 3.0 (14) 47 33 24.8
Foreign time deposits ....................... (167) (112) (279) (31.7) 391 115 506 134.9
Federal funds purchased ..................... (42) (29) (71) (22.0) 2 101 103 47.0
Securities sold under agreements
to repurchase ............................. (107) (225) (332) (17.8) 268 520 788 73.3
Commercial paper ............................ 10 (16) (6) (3.5) 16 44 60 54.1
Other short-term borrowings ................. (146) - (146) (41.2) 32 109 141 66.2
Trading account liabilities ................. (130) (113) (243) (27.1) 109 52 161 21.9
Long-term debt .............................. 520 (69) 451 50.9 323 13 336 61.1
----- -----
Total interest expense .................. 346 (652) (306) (3.9) 764 1,691 2,455 46.2
----- -----
Net interest income ............................ 359 504 $863 15.5 636 (381) $255 4.8
===== =====
Management's Discussion And Analysis 23
credit losses for each of the last five years. Allowance levels, net charge-offs
and nonperforming assets are discussed in the Credit Risk Management and Credit
Portfolio Review section beginning on page 32.
NONINTEREST INCOME
As presented in TABLE FIVE, noninterest income increased 18.5 percent to $3.6
billion in 1996, reflecting strong growth in most categories as described below:
(bullet) Service charges on deposit accounts increased 27 percent over 1995,
attributable to growth in number of households served, in part due to
acquisitions, higher fees and emphasis on fee collection.
(bullet) Mortgage servicing and mortgage-related fees grew 54 percent to $213
million in 1996. Including acquisitions, the average portfolio of
loans serviced increased 30 percent from $69.3 billion in 1995 to
$89.9 billion in 1996. On December 31, 1996, the servicing portfolio,
which includes mortgage loans originated by the Corporation's mortgage
subsidiary as well as loans serviced on behalf of the Corporation's
banking subsidiaries, totaled $96.4 billion compared to $81.4 billion
on December 31, 1995. Mortgage loan originations through the
Corporation's mortgage subsidiary increased $901 million to $12.0
billion in 1996, compared to $11.1 billion in 1995, primarily
reflecting changes in the interest rate environment in 1996.
Origination volume in 1996 consisted of approximately $4.7 billion
of retail loan volume and $7.3 billion of correspondent and wholesale
loan volume.
In conducting its mortgage banking activities, the Corporation is
exposed to interest rate risk for the period between loan commitment
date and subsequent delivery date. The value of the Corporation's
mortgage servicing rights is also affected by changes in prepayment
rates. To manage risk associated with mortgage banking activities,
the Corporation enters into various financial instruments including
option contracts, forward delivery contracts and certain rate swaps.
The contract notional amount of these instruments approximated $7.8
billion on December 31, 1996. Net unrealized gains associated with
these contracts were insignificant on December 31,1996.
(bullet) Investment banking income increased 85 percent to $356 million in
1996, primarily reflecting increased syndication, securities
underwriting activity and gains on principal investment activity
(investing
TABLE FIVE. NONINTEREST INCOME
===================================================================================================================================
(DOLLARS IN MILLIONS)
CHANGE
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts ......................................... $1,121 $884 $237 26.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Nondeposit-related service fees
Safe deposit rent ........................................................ 28 27 1 3.7
Mortgage servicing and mortgage-related fees ............................. 213 138 75 54.3
Fees on factored accounts receivable ..................................... 64 68 (4) (5.9)
Investment banking income ................................................ 356 192 164 85.4
Other service fees ....................................................... 170 129 41 31.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total nondeposit-related service fees .................................. 831 554 277 50.0
- -----------------------------------------------------------------------------------------------------------------------------------
Asset management and fiduciary service fees ................................. 432 444 (12) (2.7)
- -----------------------------------------------------------------------------------------------------------------------------------
Credit card income
Merchant discount fees ................................................... 6 7 (1) (14.3)
Annual credit card fees .................................................. 25 24 1 4.2
Other credit card fees ................................................... 283 246 37 15.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total credit card income ............................................... 314 277 37 13.4
- -----------------------------------------------------------------------------------------------------------------------------------
Other income
Brokerage income ......................................................... 110 114 (4) (3.5)
Trading account profits and fees ......................................... 274 306 (32) (10.5)
Bankers' acceptances and letters of credit fees .......................... 67 74 (7) (9.5)
Insurance commissions and earnings ....................................... 79 65 14 21.5
Miscellaneous ............................................................ 418 360 58 16.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total other income ..................................................... 948 919 29 3.2
- -----------------------------------------------------------------------------------------------------------------------------------
$3,646 $3,078 $568 18.5
===================================================================================================================================
24 NationsBank Corporation Annual Report 1996
in equity or equity-related transactions on behalf of clients). The GLOBAL
FINANCE syndication group was agent or co-agent on 566 deals totaling $346.0
billion in 1996, compared to 420 deals totaling $281.6 billion in 1995.
An analysis of investment banking income by major business activity
follows (in millions):
1996 1995
- -------------------------------------------------
INVESTMENT BANKING INCOME
Syndications .............. $108 $93
Securities underwriting ... 84 40
Principal investment
activities .............. 77 19
Other ..................... 87 40
- -------------------------------------------------
Total investment
banking income ........ $356 $192
=================================================
(bullet) GENERAL BANK asset management and fiduciary service fees declined $12
million to $432 million in 1996, reflecting the impact of the late
1995 sale of the Corporate Trust business. Excluding the impact of
this sale, asset management fees increased 17 percent in 1996. An
analysis of asset management and fiduciary service fees by major
business activity for 1996 and 1995 as well as the market values of
assets under management and administration on December 31 are
presented below (in millions):
1996 1995
- --------------------------------------------------
ASSET MANAGEMENT AND
FIDUCIARY SERVICE FEES
Private Client Group ...... $271 $241
Retirement services and
corporate trust ......... 66 107
Mutual funds .............. 29 28
Investment management
subsidiaries and other .. 66 68
- --------------------------------------------------
Total asset
management and
fiduciary service
fees ................ $ 432 $444
==================================================
MARKET VALUE OF ASSETS
Assets under
management ............ $72,270 $66,200
Assets under
administration ........ 180,269 183,200
The Private Client Group provides investment management, fiduciary and tax
services primarily to individuals and investors. These fees increased $30
million in 1996 over 1995, principally due to increased sales, market
appreciation associated with assets under management and acquisitions.
Retirement services and corporate trust encompass a wide range of services
including investment advisory, administrative and record-keeping services for
customers' employee benefit plans, securities lending and investment management
services offered to corporations, municipalities and others. The decline in
retirement services and corporate trust fees in 1996 reflects the impact of
management's repositioning of this business in an effort to concentrate on the
most profitable product lines. Mutual fund revenues reflect fees received for
providing advisory services to the Nations Funds family. Investment management
subsidiaries' fees include revenues of SOVRAN CAPITAL MANAGEMENT, ASB CAPITAL
MANAGEMENT and TRADESTREET INVESTMENT ASSOCIATES, INC., which provide
institutional investors with investment management services.
(bullet) Credit card income increased 13 percent to $314 million in 1996,
primarily due to increased purchase volume and interchange rates.
Credit card income includes $58 million from the impact of credit
card securitizations.
(bullet) Trading account profits and fees totaled $274 million in 1996, a
decrease of $32 million from $306 million in 1995, reflecting a
continued expansion of the Corporation's client-driven business more
than offset by less favorable gains on position-taking.
An analysis of GLOBAL FINANCE'S trading account profits and fees by major
business activity follows (in millions):
1996 1995
- ---------------------------------------------------
TRADING ACCOUNT PROFITS AND FEES
Securities trading ........... $96 $103
Interest rate contracts ......... 136 151
Foreign exchange contracts ...... 4 26
Other ..................... 38 26
- ---------------------------------------------------
Total trading account
profits and fees ......... $274 $306
===================================================
(bullet) Miscellaneous income totaled $418 million in 1996, an increase of $58
million over 1995. Miscellaneous income includes certain prepayment
fees and other fees such as net gains on sales of miscellaneous
investments, business activities, premises, venture capital
investments and other similar items.
NONINTEREST EXPENSE
As presented in TABLE SIX, the Corporation's noninterest expense increased
9.7 percent to $5.7 billion in 1996 from $5.2 billion in 1995.
Approximately two-thirds of the increase in 1996 over 1995 resulted from
acquisitions of several smaller banking organizations. Additionally, increased
expenditures in selected areas to enhance revenue growth contributed to the
year-over-year increase, including the costs of ongoing initiatives related to
enhancing customer sales and optimizing product delivery channels. For example,
the Model Banking project was implemented in the District of Columbia and four
states of the Corporation's franchise to facilitate and enhance the GENERAL
BANK'S retail customer sales and product delivery. PC Banking was also
introduced in 9 states of the Corporation's franchise providing instant on-line
account access and personal finance management capabilities for customers.
A discussion of the significant components of noninterest expense in 1996
compared to 1995 is as follows:
(bullet)Personnel expense increased $240 million over 1995, primarily due to the
impact of acquisitions and an increase in personnel and contracted temporary
services for the implementation of revenue enhancement projects.
(bullet)Equipment expense increased 14 percent in 1996 over 1995, reflecting
acquisitions and enhancements to computer resources throughout the
Corporation and to product delivery systems, such as PC banking, direct
banking and data base management. This investment in infrastructure is
expected to continue due to the Corpor-ation's commitment to maintaining
state-of-the-art capabilities in sales, information, processing and delivery
to customers and across lines of business.
(bullet) Marketing expense increased $35 million to $252 million in 1996,
primarily attributable to the Corporation's sponsorship of the 1996 Olympic
Summer Games.
(bullet) Professional fees increased $74 million, reflecting higher consulting
and technical support fees for projects to enhance revenue growth and for
the development and installation of infrastructure enhancements.
(bullet)The Corporation's deposit insurance expense totaled $26 million in 1996
compared to $118 million in 1995, reflecting reductions beginning June 1,
1995 in insurance rates charged by the FDIC.
(bullet)Other general operating expenses increased $79 million to $490 million
in 1996. Included in 1996 expenses are $43 million in pretax charges
reflecting the estimated losses associated with certain customers' fraudulent
commercial transactions.
TABLE SIX. NONINTEREST EXPENSE
===========================================================================================================================
(DOLLARS IN MILLIONS)
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
PERCENT PERCENT
OF TAXABLE- OF TAXABLE-
EQUIVALENT EQUIVALENT
NET INTEREST NET INTEREST
AND AND
NONINTEREST NONINTEREST CHANGE
AMOUNT INCOME AMOUNT INCOME AMOUNT PERCENT
- ---------------------------------------------------------------------------------------------------------------------------------
Personnel ........................................... $2,731 27.1% $2,491 28.8% $ 240 9.6%
Occupancy, net ...................................... 523 5.2 495 5.7 28 5.7
Equipment ........................................... 451 4.5 397 4.6 54 13.6
Marketing ........................................... 252 2.5 217 2.5 35 16.1
Professional fees ................................... 256 2.5 182 2.1 74 40.7
Amortization of intangibles ......................... 128 1.3 119 1.4 9 7.6
Credit card ......................................... 64 .6 55 .6 9 16.4
Deposit insurance ................................... 26 .3 118 1.4 (92) (78.0)
Data processing ..................................... 237 2.4 229 2.7 8 3.5
Telecommunications .................................. 172 1.7 150 1.7 22 14.7
Postage and courier ................................. 148 1.5 135 1.6 13 9.6
Other general operating ............................. 490 4.8 411 4.8 79 19.2
General administrative and miscellaneous ............ 187 1.9 164 1.9 23 14.0
-------------------------------------------------------------------------
$5,665 56.3% $5,163 59.8% $ 502 9.7
=========================================================================
26 NationsBank Corporation Annual Report 1996
INCOME TAXES
The Corporation's income tax expense for 1996 was $1.3 billion, for an
effective tax rate of 34.6 percent of pretax income. Income tax expense for 1995
was $1.0 billion, for an effective rate of 34.8 percent.
Note Twelve to the consolidated financial statements includes a reconciliation
of federal income tax expense computed using the federal statutory rate of 35
percent to actual income tax expense.
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.
Average customer-based funds increased $11.1 billion in 1996 compared to 1995
primarily due to deposits acquired in acquisitions. As a percentage of the total
funding mix, average customer-based funds increased to 46 percent in 1996 from
44 percent in 1995.
Average market-based funds decreased $9.5 billion in 1996 compared to 1995
and comprised a smaller portion of total sources of funds at 32 percent for 1996
compared to 39 percent in 1995, the result of a shift towards term debt for
funding. Average long-term debt increased $8.0 billion in 1996 over 1995 and
represented 10 percent of total sources of funds compared to 7 percent during
1995.
Average loans and leases, the Corporation's primary utilization of funds,
increased $12.8 billion during 1996 due to the impact of acquisitions and core
loan growth partially offset by the impact of securitizations, and comprised 61
percent of total uses of funds compared to 58 percent during 1995. The ratio of
average loans and leases to customer-based funds was approximately 130 percent
in both 1996 and 1995.
The average securities portfolio as a percentage of total uses decreased to
10 percent in 1996 from 14 percent in 1995 due to management's focus on the
reduction of low-yielding assets.
Cash and cash equivalents were $8.9 billion on December 31, 1996, an increase
of $485 million from December 31, 1995. During 1996, net cash provided by
operating activities was $1.8 billion, net cash provided by investing activities
was $15.9 billion and net cash used in financing activities was $17.2 billion.
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 monitors its assets and liabilities and
modifies 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 of
liquidity.
SECURITIES
The securities portfolio serves a primary role in the overall context of
balance sheet management by the Corporation. The decision to purchase or sell
securities is based upon the current assessment of economic and financial
conditions, including the interest rate environment, liquidity requirements and
on- and off-balance sheet positions.
The securities portfolio on December 31, 1996 consisted of securities held
for investment totaling $2.1 billion and securities available for sale totaling
$12.3 billion compared to $4.4 billion and $19.4 billion, respectively, on
December 31, 1995. The decrease in the securities portfolio from December 31,
1995 to December 31, 1996 was attributable to management's focus on the
reduction of low-yielding assets.
On December 31, 1996 and 1995, the market value of the Corporation's
portfolio of securities held for investment approximated the book value of the
portfolio.
The valuation reserve for securities available for sale and marketable equity
securities increased shareholders' equity by $86 million on December 31, 1996,
reflecting pretax appreciation of $8 million on securities available for sale
and $123 million on marketable equity securities. The valuation reserve
increased shareholders' equity by $323 million on December 31, 1995. The
decrease in
Management's Discussion And Analysis 27
the valuation reserve was primarily attributable to maturities and sales of
securities and the general increase in interest rates when comparing December
31, 1996 to December 31, 1995.
The average expected maturity of the securities held for investment and
securities available for sale portfolios were 1.47 years and 6.91 years,
respectively, on December 31, 1996 compared to 1.65 years and 2.96 years,
respectively, on December 31, 1995. The increase in the average expected
maturity of the available for sale portfolio reflects the sale and maturity of
shorter average life securities and the addition of mortgage-backed securities
obtained primarily through securitization of the Corporation's residential
mortgages and acquisitions.
On December 31, 1996, the Corporation had forward agreements to purchase $1.5
billion of mortgage-backed securities.
LOANS AND LEASES
Total loans and leases increased approximately 5 percent to $121.6 billion
on December 31, 1996 compared to $116.0 billion on December 31, 1995. Average
loans and leases increased 12 percent to $122.3 billion in 1996 compared to
1995 due primarily to growth in residential mortgage, commercial and credit
card loans partially offset by the impact of securitizations.
Average residential mortgage loans increased 35 percent to $27.8 billion in
1996 compared to $20.6 billion in 1995, primarily as a result of acquisitions.
Average total commercial loans increased to $58.8 billion in 1996 compared to
$56.7 billion in 1995, primarily due to acquisitions. Average real estate
commercial and construction loans decreased to $9.3 billion in 1996 as a result
of the Corporation's efforts to lower its exposure to this line of business.
Average credit card and other consumer loans, including direct and indirect
consumer loans and home equity loans, increased $1.7 billion including the
impact of securitizations in 1996. Higher levels of consumer
AVERAGE LOANS
AND LEASES
(BILLIONS)
(Chart appears on the right side of the
page and its plot points are as follows)
'92 '93 '94 '95 '96
68 79 95 109 122
TABLE SEVEN. DISTRIBUTION OF LOANS, LEASES AND FACTORED ACCOUNTS RECEIVABLE
=================================================================================================================================
DECEMBER 31
(DOLLARS IN MILLIONS)
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- -------------------------------------------------------------------------------------------------------------------------------
Domestic
Commercial .................. $ 50,270 41.0% $ 47,989 41.0% $ 44,665 43.1% $ 40,808 44.3% $ 32,260 44.4%
Real estate commercial ...... 5,445 4.4 6,183 5.3 7,349 7.1 8,239 9.0 6,324 8.7
Real estate construction .... 2,863 2.3 2,976 2.5 2,981 2.9 3,256 3.5 3,065 4.2
-------------------------------------------------------------------------------------------------
Total commercial .......... 58,578 47.7 57,148 48.8 54,995 53.1 52,303 56.8 41,649 57.3
-------------------------------------------------------------------------------------------------
Residential mortgage ........ 27,963 22.8 24,026 20.6 17,244 16.7 12,689 13.8 9,262 12.7
Credit card ................. 6,747 5.5 6,532 5.6 4,753 4.6 3,728 4.1 4,297 5.9
Other consumer .............. 20,595 16.8 22,287 19.0 20,511 19.9 19,326 21.0 14,152 19.4
-------------------------------------------------------------------------------------------------
Total consumer ............ 55,305 45.1 52,845 45.2 42,508 41.2 35,743 38.9 27,711 38.0
-------------------------------------------------------------------------------------------------
Lease financing ............. 4,198 3.4 3,264 2.8 2,440 2.4 1,729 1.9 1,301 1.8
Factored accounts receivable 1,047 .9 991 .8 1,004 1.0 1,001 1.1 917 1.3
-------------------------------------------------------------------------------------------------
119,128 97.1 114,248 97.6 100,947 97.7 90,776 98.7 71,578 98.4
-------------------------------------------------------------------------------------------------
Foreign
Commercial and industrial
companies ................. 2,229 1.8 1,635 1.4 1,183 1.1 510 .5 634 .9
Banks and other financial
institutions .............. 599 .5 609 .5 795 .8 446 .5 304 .4
Governments and
official institutions ..... -- -- 7 -- 6 -- 22 -- 2 --
Lease financing ............. 674 .6 534 .5 440 .4 253 .3 196 .3
-----------------------------------------------------------------------------------------------
3,502 2.9 2,785 2.4 2,424 2.3 1,231 1.3 1,136 1.6
-----------------------------------------------------------------------------------------------
Total loans, leases and factored
accounts receivable, net
of unearned income .......... $122,630 100.0% $117,033 100.0% $103,371 100.0% $ 92,007 100.0% $ 72,714 100.0%
=================================================================================================
28 NationsBank Corporation Annual Report 1996
loans are the result of the Corporation's efforts to shift the mix of the loan
portfolio to a higher consumer concentration and the impact of acquisitions.
A significant source of liquidity for the Corporation is the repayment and
maturities of loans. TABLE EIGHT shows selected loan maturity data on December
31, 1996 and indicates that approximately 38 percent of the selected loans had
maturities of one year or less. The securitization and sale of certain loans and
the use of loans as collateral in asset-backed financing arrangements are also
sources of liquidity. The Corporation securitized approximately $900 million of
credit card loans in the second quarter of 1996 and approximately $2.1 billion
of indirect auto loans in the third quarter of 1996.
DEPOSITS
TABLE THREE provides information on the average amounts of deposits and the
rates paid by deposit category. Through the Corporation's diverse retail banking
network, deposits remain a primary source of funds for the Corporation. Average
deposits increased 8 percent in 1996 compared to 1995 primarily due to deposits
acquired in acquisitions.
On December 31, 1996, the Corporation had domestic certificates of deposit
greater than $100 thousand totaling $7.3 billion, with $3.6 billion maturing
within three months or less, $1.5 billion maturing within three to six months,
$1.1 billion maturing within six to twelve months and $1.1 billion maturing
after twelve months. Additionally, on December 31, 1996, the Corporation had
other domestic time deposits greater than $100 thousand totaling $499 million,
with $59 million maturing within three months or less, $47 million maturing
within three to six months, $55 million maturing within six to twelve months and
$338 million maturing after twelve months. Foreign office certificates of
deposit and other time deposits of $100 thousand or more totaled $8.1 billion
and $12.9 billion on December 31, 1996 and 1995, respectively.
TABLE EIGHT. SELECTED LOAN MATURITY DATA
================================================================================
DECEMBER 31, 1996
(DOLLARS IN MILLIONS)
THIS TABLE PRESENTS THE MATURITY DISTRIBUTION AND INTEREST
SENSITIVITY OF SELECTED LOAN CATEGORIES (EXCLUDING RESIDENTIAL
MORTGAGE, CREDIT CARD, OTHER CONSUMER LOANS, LEASE FINANCING AND
FACTORED ACCOUNTS RECEIVABLE). MATURITIES ARE PRESENTED ON A
CONTRACTUAL BASIS.
DUE AFTER
DUE IN 1 1 YEAR
YEAR THROUGH DUE AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
- -----------------------------------------------------------------------------------------------------------------------
Commercial ................................................................ $17,950 $23,082 $ 9,238 $50,270
Real estate commercial .................................................... 1,615 3,014 816 5,445
Real estate construction .................................................. 1,736 1,038 89 2,863
Foreign ................................................................... 2,149 434 245 2,828
-----------------------------------------
Total selected loans, net of unearned income ........................... $23,450 $27,568 $10,388 $61,406
=========================================
Percent of total .......................................................... 38.2% 44.9% 16.9% 100.0%
Cumulative percent of total ............................................... 38.2 83.1 100.0
Sensitivity of loans to changes in interest rates--loans due after one year
Predetermined interest rate ............................................ $ 7,182 $ 4,661 $11,843
Floating or adjustable interest rate ................................... 20,386 5,727 26,113
--------------------------------------------------
$27,568 $10,388 $37,956
==================================================
Management's Discussion And Analysis 29
SHORT-TERM BORROWINGS AND TRADING ACCOUNT LIABILITIES
The Corporation uses short-term borrowings as a funding source and in its
management of interest rate risk. TABLE NINE presents the categories of
short-term borrowings.
As of December 31, 1996, short-term bank notes outstanding under the
Corporation's bank note program were $872 million compared to $3.1 billion on
December 31, 1995.
Total average short-term borrowings decreased 11 percent to $39.5 billion and
average short sales decreased 16 percent to $10.1 billion in 1996 compared to
1995 levels.
LONG-TERM DEBT
On December 31, 1996 and 1995, long-term debt was $23.0 billion and $17.8
billion, respectively. The Corporation continued to diversify its funding
sources through increasing its Euro medium-term note program to offer up to $4.5
billion in senior and subordinated notes and the issuance of $965 million of
trust preferred securities. During 1996, the Corporation issued approximately
$7.2 billion in long-term senior and subordinated debt, including $2.8 billion
which was issued under its medium-term note programs.
Proceeds from the issuance of long-term debt were used primarily to fund
average earning asset growth of 6 percent, various common stock repurchase
programs and certain banking acquisitions. See Note Six to the consolidated
financial statements for further details on long-term debt.
OTHER
The Corporation has commercial paper back-up lines totaling $1.5 billion
which mature in 1997. No borrowings have been made under these lines.
The strength of the Corporation's overall
TABLE NINE. SHORT-TERM BORROWINGS
================================================================================
(DOLLARS IN MILLIONS)
FEDERAL FUNDS PURCHASED GENERALLY REPRESENT OVERNIGHT BORROWINGS,
AND REPURCHASE AGREEMENTS REPRESENT BORROWINGS WHICH GENERALLY RANGE
FROM ONE DAY TO THREE MONTHS IN MATURITY. COMMERCIAL PAPER IS ISSUED
IN MATURITIES NOT TO EXCEED NINE MONTHS. OTHER SHORT-TERM BORROWINGS
PRINCIPALLY CONSIST OF BANK NOTES AND U.S. TREASURY NOTE BALANCES.
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
- -----------------------------------------------------------------------------------------------------
Federal funds purchased
On December 31 ............................ $ 3,536 6.58% $ 5,940 5.26% $ 3,993 5.19%
Average during year ....................... 4,694 5.35 5,455 5.91 5,397 4.07
Maximum month-end balance during year ..... 8,585 -- 7,317 -- 7,264 --
Securities sold under agreements to repurchase
On December 31 ............................ 15,842 5.40 23,034 5.66 21,977 5.36
Average during year ....................... 28,517 5.37 30,336 6.14 24,903 4.32
Maximum month-end balance during year ..... 29,582 -- 38,926 -- 27,532 --
Commercial paper
On December 31 ............................ 2,787 5.41 2,773 5.65 2,519 5.22
Average during year ....................... 2,966 5.57 2,804 6.10 2,482 4.46
Maximum month-end balance during year ..... 3,276 -- 2,930 -- 2,871 --
Other short-term borrowings
On December 31 ............................ 1,836 5.20 4,143 5.94 5,640 7.21
Average during year ....................... 3,344 6.22 5,690 6.20 5,015 4.25
Maximum month-end balance during year ..... 4,954 -- 7,378 -- 6,634 --
30 NationsBank Corporation Annual Report 1996
financial position is reflected in the following December 31, 1996 debt ratings
which reflect upgrades since December 31, 1995:
COMMERCIAL SENIOR
PAPER DEBT
- --------------------------------------------------------------------------------
Moody's Investors
Service ................. P-1 A1
Standard & Poor's
Corporation ............ A-1 A+
Duff and Phelps, Inc....... D-1+ A+
Fitch Investors
Service, Inc. .......... F-1 A+
IBCA ...................... A1 A+
Thomson BankWatch ......... TBW-1 A+
In managing liquidity, the Corporation takes into consideration the ability
of the subsidiary banks to pay dividends to the parent company. See Note Nine to
the consolidated financial statements for further details on dividend
capabilities of the subsidiary banks.
OFF-BALANCE SHEET
DERIVATIVES -- ASSET AND LIABILITY MANAGEMENT POSITIONS
The Corporation utilizes interest rate contracts in its asset and liability
management (ALM) process. Interest rate contracts allow the Corporation to
efficiently manage its interest rate risk position.
The Corporation primarily uses non-leveraged generic and basis swaps. Generic
swaps involve the exchange of fixed-rate and variable-rate interest payments
based on the contractual underlying notional amounts. Basis swaps involve the
exchange of interest payments based on the contractual underlying notional
amounts, where both the pay rate and the receive rate are floating rates based
on different indices. As presented in the footnotes to TABLE THREE, net interest
receipts and payments on these contracts have been included in interest income
and expense on the underlying instruments.
TABLE TEN summarizes the notional amount and the activity of ALM interest
rate contracts for the year ended December 31, 1996. As reflected in the table,
the gross notional amount of the Corporation's ALM swap program on December 31,
1996 was $30.1 billion, with the Corporation receiving fixed on $27.7 billion,
primarily converting variable-rate commercial loans to fixed rate, and receiving
variable on $1.0 billion, fixing the cost of certain liabilities. Subsequent to
the sale and securitization of fixed-rate assets during 1996, the Corporation
increased the net receive fixed position to $26.7 billion on December 31, 1996
from $3.9 billion on December 31, 1995 in order to maintain the Corporation's
relatively neutral posture to changes in interest rates. The net receive fixed
position modifies the interest rate characteristics of certain variable-rate
assets.
TABLE ELEVEN summarizes the expected maturities, weighted average pay and
receive rates and the unrealized gain/loss on December 31, 1996 of the
Corporation's ALM swaps. Floating rates represent the last repricing and will
change in the future primarily based on movements in one-, three- and six-month
LIBOR rates. The net unrealized appreciation of the ALM swap portfolio on
December 31, 1996 was $69 million compared to net unrealized depreciation of $75
million on December 31, 1995, reflecting
TABLE TEN. ASSET AND LIABILITY MANAGEMENT INTEREST RATE NOTIONAL CONTRACTS
================================================================================================================================
(DOLLARS IN MILLIONS)
CMO AND INDEX
GENERIC AMORTIZING TOTAL
TOTAL
--------------------------------------------- INTEREST
RECEIVE PAY RECEIVE PAY RECEIVE PAY TOTAL OPTION RATE
FIXED FIXED FIXED FIXED FIXED FIXED BASIS SWAPS PRODUCTS CONTRACTS
- --------------------------------------------------------------------------------------------------------------------------------
Balance on December 31, 1995.... $5,963 $9,908 $7,875 $75 $13,838 $9,983 $486 $24,307 $80 $24,387
Additions.................... 26,271 478 1,256 - 27,527 478 960 28,965 7,249 36,214
Maturities, terminations
and other.................. (4,494) (9,351) (9,131) (75) (13,625) (9,426) (100) (23,151) (934) (24,085)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1996 $27,740 $1,035 $- $- $27,740 $1,035 $1,346 $30,121 $6,395 $36,516
================================================================================================================================
Management's Discussion And Analysis 31
the maturity and termination during 1996 of certain contracts in a loss
position. The amount of net realized deferred losses associated with ALM swaps
terminated during 1996 was $48 million on December 31, 1996.
In its ALM process, the Corporation also utilizes interest rate option
products, primarily 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, respectively. TABLE TEN includes a summary of the notional amount
and the activity of ALM interest rate option contracts for the year ended
December 31, 1996. At December 31, 1996, the Corporation had a gross notional
amount of $6.4 billion in outstanding interest rate option contracts used for
ALM purposes. Such instruments are primarily linked to term debt, short-term
borrowings and pools of residential mortgages. TABLE ELEVEN includes a summary
of the expected maturities and the net unrealized gain of the Corporation's
ALM option contracts. On December 31, 1996, the net unrealized appreciation of
option products was $2 million.
The net unrealized appreciation in the estimated value of the ALM interest
rate contract 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 positions should not be viewed in isolation.
For a discussion of the Corporation's management of risk associated with
mortgage banking activities, see Noninterest Income beginning on page 24.
CREDIT RISK MANAGEMENT
AND CREDIT PORTFOLIO REVIEW
In conducting business activities, the Corporation is exposed to the
possibility that borrowers or counterparties may default on their obligations to
the Corporation. Credit risk arises through the extension of loans, leases and
factored accounts receivable, certain securities, letters of credit, financial
guarantees and through counterparty risk on trading and capital markets
transactions. To manage this risk, the Credit Policy group establishes policies
and procedures to manage both on- and off-balance sheet credit risk and
communicates and monitors the application of these policies and procedures
throughout the Corporation.
The Corporation's overall objective in managing credit risk is to minimize
the adverse impact of any single event or set of occurrences. To achieve this
objective, the Corporation strives to maintain a credit risk profile that is
diverse in terms of product type, industry concentration, geographic
distribution and borrower or counterparty concentration.
The Credit Policy group works with lending officers, trading personnel and
various other line personnel in areas that conduct activities involving credit
risk and is involved in the implementation, refinement and monitoring of credit
policies and procedures.
The Corporation manages credit exposure to individual borrowers and
counterparties on an aggregate basis including loans, leases, factored accounts
receivable, securities, letters of credit, bankers' acceptances, derivatives and
unfunded commitments. The creditworthiness of a borrower or counterparty is
determined by experienced personnel, and limits are established for the total
credit exposure to any one borrower or counterparty. Credit limits are subject
to varying levels of approval by senior line and credit policy management. Total
exposure to a borrower or counterparty is aggregated and measured against
established limits.
The originating credit officer assigns borrowers or counterparties an initial
risk rating which is based on the amount of inherent credit risk and reviewed
for appropriateness by senior line and credit policy personnel. Credits are
monitored by line and credit policy personnel for deterioration in a borrower's
or counterparty's financial condition which would impact the ability of the
borrower or counterparty to perform under the contract. Risk ratings are
adjusted as necessary.
For consumer lending, credit scoring systems are utilized to provide
standards for extension of credit. Consumer portfolio credit risk is monitored
primarily using statistical models to predict portfolio behavior.
Whenever possible, the Corporation obtains collateral to support credit
extensions and commitments. Generally, such collateral is in the form of real
and personal property, cash on deposit or other highly liquid instruments. In
certain circumstances, the Corporation obtains real property as security for
loans that are made on the general
32 NationsBank Corporation Annual Report 1996
creditworthiness of the borrower and whose proceeds were not used for real
estate-related purposes.
The Corporation also manages exposure to a single borrower, industry,
product-type or other concentration through syndications
TABLE ELEVEN. ASSET AND LIABILITY MANAGEMENT INTEREST RATE CONTRACTS
===========================================================================================================================
DECEMBER 31, 1996
(DOLLARS IN MILLIONS, AVERAGE EXPECTED MATURITY IN YEARS)
EXPECTED MATURITY
------------------------------------------------------------------------------- AVERAGE
UNREALIZED AFTER EXPECTED
GAIN/(LOSS) TOTAL 1997 1998 1999 2000 2001 2001 MATURITY
- ---------------------------------------------------------------------------------------------------------------------------
ASSET CONVERSION SWAPS
Receive fixed generic .......... $ 121 3.44
Notional amount .............. $ 23,510 $ 500 $ 2,000 $ 5,800 $ 7,060 $ 8,150 --
Weighted average receive rate. 6.42% 4.59% 5.89% 6.48% 6.48% 6.57% --
Weighted average pay rate .... 5.58
Pay fixed generic .............. (1) 4.76
--------
Notional amount .............. $ 10 $ 1 $ 1 $ 1 $ 1 $ 1 $ 5
Weighted average pay rate .... 9.78% 9.78% 9.78% 9.78% 9.78% 9.78% 9.78%
Weighted average receive rate. 6.80
Total asset conversion swaps ... $ 120
========
Notional amount .............. $ 23,520 $ 501 $ 2,001 $ 5,801 $ 7,061 $ 8,151 $ 5
LIABILITY CONVERSION SWAPS
Receive fixed generic .......... $ (38) 6.19
Notional amount .............. $ 4,230 $ 175 $ 28 $ 679 $ 308 $ 1,439 $1,601
Weighted average receive rate 6.81% 6.77% 6.32% 7.36% 6.79% 6.41% 6.94%
Weighted average pay rate .... 5.86
Pay fixed generic .............. (13) .39
--------
Notional amount .............. $ 1,025 $ 925 $ 100 -- -- -- --
Weighted average pay rate .... 8.24% 8.13% 9.31% -- -- -- --
Weighted average receive rate 5.71
Total liability conversion swaps $ (51)
========
Notional amount .............. $ 5,255 $ 1,100 $ 128 $ 679 $ 308 $ 1,439 $ 1,601
- ------------------------------------------------------------------------------------------------------------------------------------
Total receive fixed swaps ...... $ 83 3.86
Notional amount .............. $ 27,740 $ 675 $ 2,028 $6,479 $ 7,368 $ 9,589 $ 1,601
Weighted average receive rate. 6.48% 5.15% 5.89% 6.57% 6.49% 6.55% 6.94%
Weighted average pay rate .... 5.62
Total pay fixed swaps .......... (14) .43
Notional amount .............. $ 1,035 $ 926 $ 101 $ 1 $ 1 $ 1 $ 5
Weighted average pay rate .... 8.26% 8.13% 9.31% 9.78% 9.78% 9.78% 9.78%
Weighted average receive rate. 5.72
Basis swaps .................... -- 1.40
--------
Notional amount .............. $ 1,346 $ 371 $ 700 $ 250 -- $ 25 --
Weighted average receive rate. 5.53%
Weighted average pay rate .... 5.55
Total swaps .................... $ 69
========
Notional amount .............. $ 30,121 $ 1,972 $ 2,829 $6,730 $ 7,369 $ 9,615 $ 1,606
- ----------------------------------------------------------------------------------------------------------------------------------
OPTION PRODUCTS ................... $ 2
========
Notional amount .............. $ 6,395 $ 600 $ 2,425 $ 2,075 $ 10 $ 1,086 $ 199
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest rate contracts .. $ 71
========
Notional amount .............. $ 36,516 $ 2,572 $ 5,254 $ 8,805 $ 7,379 $ 10,701 $ 1,805
ON DECEMBER 31, 1996, IN ADDITION TO THE ABOVE INTEREST RATE SWAPS, THE
CORPORATION HAD A $500 MILLION NOTIONAL RECEIVE FIXED GENERIC INTEREST RATE SWAP
ASSOCIATED WITH A CREDIT CARD SECURITIZATION. ON DECEMBER 31, 1996, THIS
POSITION HAD AN UNREALIZED MARKET VALUE OF NEGATIVE $17 MILLION, A WEIGHTED
AVERAGE RECEIVE RATE OF 5.96 PERCENT, A PAY RATE OF 5.61 PERCENT AND AN EXPECTED
MATURITY OF 6.96 YEARS.
Management's Discussion And Analysis 33
of credits, participations, loan sales and securitizations. Through GLOBAL
FINANCE, the Corporation is a major participant in the syndications market. In a
syndicated facility, each participating lender funds only its portion of the
syndicated facility, therefore limiting its exposure to the borrower. The
Corporation also identifies and reduces its exposure to funded borrower, product
or industry concentrations through loan sales. Generally, these sales are
without recourse to the Corporation. For instance, in the second quarter of
1996, to further reduce real estate exposures, the Corporation sold $110 million
of primarily lower quality commercial real estate loans.
TABLE TWELVE. ALLOWANCE FOR CREDIT LOSSES
===============================================================================================================================
(DOLLARS IN MILLIONS)
1996 1995 1994 1993 1992
----------------------------------------------------------
Balance on January 1............................................... $2,163 $2,186 $2,169 $1,454 $1,605
----------------------------------------------------------
Loans, leases and factored accounts receivable charged off
Commercial ..................................................... (150) (98) (113) (107) (245)
Real estate commercial ......................................... (38) (25) (32) (84) (279)
Real estate construction ....................................... (5) (17) (27) (17) (114)
-----------------------------------------------------------
Total commercial ............................................. (193) (140) (172) (208) (638)
----------------------------------------------------------
Residential mortgage ........................................... (12) (8) (7) (10) (18)
Credit card .................................................... (272) (189) (126) (184) (172)
Other consumer ................................................. (329) (263) (192) (172) (166)
-----------------------------------------------------------
Total consumer ............................................... (613) (460) (325) (366) (356)
-----------------------------------------------------------
Foreign ........................................................ -- -- -- -- (7)
Lease financing ................................................ (4) (2) (4) (5) (8)
Factored accounts receivable ................................... (26) (34) (32) (30) (17)
-----------------------------------------------------------
Total loans, leases and factored accounts receivable charged off (836) (636) (533) (609) (1,026)
-----------------------------------------------------------
Recoveries of loans, leases and factored accounts
receivable previously charged off
Commercial ..................................................... 66 78 69 67 62
Real estate commercial ......................................... 13 15 17 21 13
Real estate construction ....................................... 2 9 26 12 8
----------------------------------------------------------
Total commercial ............................................. 81 102 112 100 83
----------------------------------------------------------
Residential mortgage ........................................... 2 2 2 3 4
Credit card .................................................... 60 26 22 19 13
Other consumer ................................................. 85 72 67 65 48
----------------------------------------------------------
Total consumer ............................................... 147 100 91 87 65
----------------------------------------------------------
Foreign ........................................................ -- -- -- 1 1
Lease financing ................................................ 1 1 3 2 2
Factored accounts receivable ................................... 9 12 11 7 9
----------------------------------------------------------
Total recoveries of loans, leases and
factored accounts receivable previously charged off .......... 238 215 217 197 160
----------------------------------------------------------
Net charge-offs ................................................ (598) (421) (316) (412) (866)
----------------------------------------------------------
Provision for credit losses ....................................... 605 382 310 430 715
Allowance applicable to loans of purchased companies and other .... 145 16 23 697 --
-----------------------------------------------------------
Balance on December 31 ............................................ $ 2,315 $ 2,163 $ 2,186 $ 2,169 $ 1,454
===========================================================
Loans, leases and factored accounts receivable,
net of unearned income, outstanding on December 31 ............. $ 122,630 $ 117,033 $ 103,371 $ 92,007 $ 72,714
Allowance for credit losses as a percentage of
loans, leases and factored accounts receivable,
net of unearned income, outstanding on December 31 ............. 1.89% 1.85% 2.11% 2.36% 2.00%
Average loans, leases and factored accounts receivable,
net of unearned income, outstanding during the year ............ $ 123,403 $ 110,650 $ 96,258 $ 80,058 $ 69,136
Net charge-offs as a percentage of average loans,
leases and factored accounts receivable,
net of unearned income, outstanding during the year ............ .48% .38% .33% .51% 1.25%
Ratio of the allowance for credit losses
on December 31 to net charge-offs .............................. 3.87 5.14 6.93 5.27 1.68
Allowance for credit losses as a percentage of nonperforming loans. 260.02% 306.49% 273.07% 193.38% 103.11%
34 NationsBank Corporation Annual Report 1996
(Chart appears here as follows)
Net Charge-Offs
As A Percentage Of
Average Net Loans
(Percent)
(Chart appears along right side of
page and its plot points are as follows):
92 1.25
93 .51
94 .33
95 .38
96 .48
In conducting derivatives activities in certain jurisdictions, the
Corporation reduces risk to any one counterparty through the use of legally
enforceable master netting agreements which allow the Corporation to settle
positive and negative positions with the same counterparty on a net basis.
An independent credit review group conducts ongoing reviews of credit
activities and portfolios, reexamining on a regular basis risk assessments for
credit exposures and overall compliance with policy.
LOAN, LEASE AND FACTORED ACCOUNTS RECEIVABLE PORTFOLIO - The Corporation's
credit exposure is centered in its loan, lease and factored accounts receivable
portfolio which on December 31, 1996 totaled $122.6 billion. TABLE SEVEN on page
28 presents a distribution of loans by product type.
ALLOWANCE FOR CREDIT LOSSES - The Corporation's allowance for credit losses
was $2.3 billion and $2.2 billion on December 31, 1996 and 1995, respectively.
TABLE TWELVE provides an analysis of the changes in the allowance for credit
losses. The provision for credit losses increased $223 million to $605 million
in 1996 compared to 1995, reflecting the industry-wide trend towards more normal
losses compared to lower levels in prior periods. Total net charge-offs
increased $177 million in 1996 to $598 million, or .48 percent of average loans,
leases and factored accounts receivable, versus $421 million, or .38 percent, in
1995. The increases were experienced primarily in commercial, other consumer and
credit card net charge-offs, which increased $64 million, $53 million and $49
million, respectively. The increase in credit card net charge-offs was partially
due to the seasoning of the credit card portfolio and an increase in the rate of
personal bankruptcies in 1996. Management expects the charge-offs trends
experienced in 1996 to continue as the Corporation maintains its efforts to
shift the mix of the loan portfolio to a higher consumer concentration and
credit losses return to more normalized levels.
Portions of the allowance for credit losses are allocated to cover the
estimated losses inherent in particular categories of credit risk. The
allocation of the allowance for credit losses, as presented in TABLE THIRTEEN,
is based upon the Corporation's loss experience over a period of years and is
adjusted for existing economic conditions as well as performance trends within
specific portfolio segments and individual concentrations of credit. In 1996,
the Corporation modified its allocation methodology to include historical peak
loss conditions. Prior year allocations have been restated to reflect the
current allocation methodology.
The nature of the process by which the Corporation determines the
appropriate allowance for credit losses requires the exercise of considerable
judgment. Management believes that the allowance for credit losses is
appropriate given its analysis of inherent credit losses on December 31, 1996.
TABLE THIRTEEN. ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
===================================================================================================================================
DECEMBER 31
(DOLLARS IN MILLIONS)
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial ....................... $665 28.7% $626 28.9% $569 26.0% $510 23.5% $389 26.8%
Real estate commercial ........... 267 11.5 311 14.4 397 18.2 403 18.6 310 21.3
Real estate construction ......... 140 6.1 146 6.7 147 6.7 160 7.4 150 10.3
-----------------------------------------------------------------------------------------------
Total commercial .............. 1,072 46.3 1,083 50.0 1,113 50.9 1,073 49.5 849 58.4
-----------------------------------------------------------------------------------------------
Residential mortgage ............. 78 3.4 64 3.0 45 2.0 32 1.4 24 1.6
Credit card ...................... 216 9.3 209 9.7 152 7.0 119 5.5 136 9.4
Other consumer ................... 281 12.1 291 13.4 211 9.7 199 9.2 144 9.9
-----------------------------------------------------------------------------------------------
Total consumer ................ 575 24.8 564 26.1 408 18.7 350 16.1 304 20.9
-----------------------------------------------------------------------------------------------
Foreign .......................... 23 1.0 21 1.0 19 .9 8 .4 8 .6
Lease financing .................. 61 2.6 36 1.7 26 1.2 16 .7 12 .8
Factored accounts receivable ..... 20 .9 20 .9 13 .6 13 .6 12 .8
Unallocated ...................... 564 24.4 439 20.3 607 27.7 709 32.7 269 18.5
-----------------------------------------------------------------------------------------------
$2,315 100.0% $2,163 100.0% $2,186 100.0% $2,169 100.0% $1,454 100.0%
===============================================================================================
Management's Discussion and Analysis 35
NONPERFORMING ASSETS - On December 31, 1996, nonperforming assets were $1.0
billion, or .85 percent of net loans, leases, factored accounts receivable and
other real estate owned, compared to $853 million, or .73 percent, on December
31, 1995. As presented in TABLE FOURTEEN, nonperforming loans were $890 million
at the end of 1996 compared to $706 million at the end of 1995. The allowance
coverage of nonperforming loans was 260 percent on December 31, 1996 compared to
306 percent at the end of 1995.
TABLE FOURTEEN. NONPERFORMING ASSETS
===================================================================================================================================
DECEMBER 31
(DOLLARS IN MILLIONS)
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans
Commercial ......................................................... $342 $271 $362 $474 $650
Real estate commercial ............................................. 145 196 201 318 404
Real estate construction ........................................... 28 16 66 142 210
---------------------------------------------------------
Total commercial ................................................. 515 483 629 934 1,264
_________________________________________________________
Residential mortgage ............................................... 215 87 66 77 88
Other consumer ..................................................... 135 130 94 93 34
---------------------------------------------------------
Total consumer ................................................... 350 217 160 170 122
_________________________________________________________
Foreign ............................................................ - - 3 8 9
Lease financing .................................................... 25 6 9 10 15
---------------------------------------------------------
Total nonperforming loans ...................................... 890 706 801 1,122 1,410
_________________________________________________________
Other real estate owned ............................................... 153 147 337 661 587
_________________________________________________________
Total nonperforming assets ................................... $1,043 $853 $1,138 $1,783 $1,997
=========================================================
Nonperforming assets as a percentage of
Total assets .56% .46% .67% 1.13% 1.69%
Loans, leases and factored accounts receivable,
net of unearned income, and other real estate owned .85 .73 1.10 1.92 2.72
The loss of income associated with nonperforming loans on December 31 and
the cost of carrying other real estate owned were:
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Income that would have been recorded in accordance
with original terms ................................................... $103 $102 $96 $80 $105
Less income actually recorded ............................................ (35) (27) (31) (34) (31)
-------------------------------------------------------
Loss of income ........................................................... $68 $75 $65 $46 $74
=======================================================
Cost of carrying other real estate owned ................................. $8 $13 $24 $18 $25
=======================================================
ON DECEMBER 31, 1996, THERE WERE NO MATERIAL COMMITMENTS TO LEND ADDITIONAL
FUNDS WITH RESPECT TO NONPERFORMING LOANS.
TABLE FIFTEEN. LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
===================================================================================================================================
DECEMBER 31
(DOLLARS IN MILLIONS)
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT PERCENT (1) AMOUNT PERCENT (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial ................................................................ $38 .08% $24 .05%
Real estate commercial .................................................... 13 .24 6 .10
Real estate construction .................................................. 5 .17 - -
--------------------------------------------------
Total commercial ........................................................ 56 .10 30 .05
________________________________________________
Residential mortgage ...................................................... 45 .16 22 .09
Credit card ............................................................... 105 1.56 70 1.07
Other consumer ............................................................ 30 .15 34 .15
--------------------------------------------------
Total consumer .......................................................... 180 .33 126 .24
__________________________________________________
Foreign ................................................................... - - 10 .36
Factored accounts receivable .............................................. 9 .86 8 .81
--------------------------------------------------
Total ................................................................. $245 .20 $174 .15
==================================================
(1)REPRESENTS AMOUNTS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST AS A
PERCENTAGE OF NET LOANS, LEASES AND FACTORED ACCOUNTS RECEIVABLE FOR EACH
RESPECTIVE CATEGORY.
36 NationsBank Corporation Annual Report 1996
(Chart appears along the
left side of the page and
its plot points are as follows):
Nonperforming Assets
(Billions)
92 2.0
93 1.8
94 1.1
95 .85
96 1.0
Other real estate owned increased to $153 million on December 31, 1996
compared to $147 million on December 31, 1995.
Internal loan workout units are devoted to the management and/or collection
of certain nonperforming assets as well as certain performing loans. Concerted
collection strategies and a proactive approach to managing overall credit risk
has expedited the Corporation's disposition, collection and renegotiation of
nonperforming and other lower-quality assets and allowed loan officers to
concentrate on generating new business. As part of this process, the Corporation
routinely evaluates all reasonable alternatives, including the sale of assets
individually or in groups. The final decision to proceed with any alternative is
evaluated in the context of the overall credit-risk profile of the Corporation.
LOANS PAST DUE 90 DAYS OR MORE - TABLE FIFTEEN presents total loans past due
90 days or more and still accruing interest. On December 31, 1996, loans past
due 90 days or more and still accruing interest were $245 million, or .20
percent of net loans, leases and factored accounts receivable, compared to $174
million, or .15 percent, on December 31, 1995.
DERIVATIVES ACTIVITIES - 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.
TABLE SIXTEEN presents the notional or contract amounts on December 31, 1996
and 1995 and the current credit risk amounts (the net replacement cost of
contracts in a gain position on December 31, 1996 and 1995) of the Corporation's
derivatives-dealer positions which are primarily executed in the
over-the-counter market. The notional or contract amounts indicate the total
volume of transactions and significantly exceed the
TABLE SIXTEEN. DERIVATIVES-DEALER POSITIONS
===================================================================================================================================
DECEMBER 31
(DOLLARS IN MILLIONS)
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
CONTRACT/ CREDIT RISK CONTRACT/ CREDIT RISK
NOTIONAL AMOUNT (1) NOTIONAL AMOUNT (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Rate Contracts
Swaps ............................................................... $252,187 $927 $123,946 $989
Futures and forwards ................................................ 186,333 5 193,774 37
Written options ..................................................... 298,594 - 233,976 -
Purchased options ................................................... 294,591 561 236,317 1,310
Foreign Exchange Contracts
Swaps ............................................................... 1,303 24 1,196 21
Spot, futures and forwards .......................................... 94,028 1,137 70,199 532
Written options ..................................................... 63,081 - 42,227 -
Purchased options ................................................... 61,716 352 44,273 350
Commodity and Other Contracts
Swaps ............................................................... 812 81 757 141
Futures and forwards ................................................ 2,728 - 3,231 3
Written options ..................................................... 14,064 - 15,476 -
Purchased options ................................................... 13,828 357 16,344 600
----- -----
Total before cross product netting ................................ 3,444 3,983
----- -----
Cross product netting ............................................. 286 183
------ ------
Net replacement cost .............................................. $3,158 $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.
Management's Discussion and Analysis 37
amount of the Corporation's credit or market risk associated with these
instruments. The credit risk amounts presented in TABLE SIXTEEN do not consider
the value of any collateral, but generally take into consideration the effects
of legally enforceable master netting agreements. On December 31, 1996, the
credit risk associated with the Corporation's asset and liability management
positions was not significant.
In managing credit risk associated with its derivatives activities, the
Corporation deals with creditworthy counterparties, primarily U.S. and foreign
commercial banks, broker-dealers and corporates.
A portion of the Corporation's derivatives-dealer activity involves
exchange-traded instruments. 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.
During 1996 there were no credit losses associated with derivatives
transactions. In addition, on December 31, 1996, there were no nonperforming
derivatives positions.
CONCENTRATIONS OF CREDIT RISK - As previously discussed, in an effort to
minimize the adverse impact of any single event or set of occurrences, the
Corporation strives to maintain a diverse credit portfolio. Summarized below are
areas of significant 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 SEVENTEEN. 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 continued
to decline in 1996 and totaled $8.3 billion, or 7 percent of net loans, leases
and factored
TABLE SEVENTEEN. REAL ESTATE COMMERCIAL AND CONSTRUCTION LOANS,
OTHER REAL ESTATE OWNED AND OTHER REAL ESTATE CREDIT EXPOSURES
===================================================================================================================================
DECEMBER 31, 1996
(DOLLARS IN MILLIONS)
LOANS (1) OTHER CREDIT
_____________________
OUTSTANDING NONPERFORMING OREO EXPOSURES (2)
- -----------------------------------------------------------------------------------------------------------------------------------
BY GEOGRAPHIC REGION (3):
Maryland, District of Columbia and Virginia ............................ $1,643 $51 $32 $377
Florida ................................................................ 1,746 49 41 172
North Carolina and South Carolina ...................................... 1,369 33 28 29
Other states ........................................................... 3,550 40 11 301
---------------------------------------------------------
$8,308 $173 $112 $879
=========================================================
BY PROPERTY TYPE:
Apartments ............................................................. $1,484 $26 $- $325
Shopping centers/retail ................................................ 1,264 13 2 105
Residential ............................................................ 1,215 12 12 36
Office buildings ....................................................... 1,174 20 13 16
Hotels ................................................................. 630 3 2 48
Land and land development .............................................. 573 20 43 78
Industrial/warehouse ................................................... 551 18 1 19
Commercial-other ....................................................... 404 17 11 11
Resorts/golf courses ................................................... 275 - - -
Unsecured .............................................................. 159 2 - 35
Multiple use ........................................................... 115 5 1 3
Other .................................................................. 464 37 27 203
---------------------------------------------------------
$8,308 $173 $112 $879
=========================================================
(1) ON DECEMBER 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.
(3) DISTRIBUTION BASED ON GEOGRAPHIC LOCATION OF COLLATERAL.
38 NationsBank Corporation Annual Report 1996
accounts receivable, on December 31, 1996 compared to $9.2 billion, or 8
percent, at the end of 1995. During 1996, the Corporation recorded real estate
net charge-offs of $28 million, or .30 percent of average real estate loans,
compared to net charge-offs of $18 million, or .17 percent, in 1995. Of the
increase in total real estate net charge-offs in 1996, $18 million was
attributable to the second quarter bulk sale of $110 million of loans, primarily
commercial real estate. Real estate commercial and construction loans which were
past due 90 days or more and still accruing interest were $18 million, or .22
percent of total real estate loans, on December 31, 1996 compared to $6 million,
or .07 percent, at the end of 1995. Nonperforming real estate commercial and
construction loans decreased $39 million to $173 million on December 31, 1996
compared to December 31, 1995, primarily due to the above-mentioned bulk sale.
The exposures included in TABLE SEVENTEEN 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
tables, on December 31, 1996, the Corporation had approximately $7.9 billion of
commercial loans which were not real estate dependent but for which the
Corporation had obtained real estate as secondary repayment security.
OTHER INDUSTRIES - TABLE EIGHTEEN presents selected industry credit
exposures. Commercial loans, factored accounts receivable and lease financings
are included in the table. Other credit exposures as presented include loans
held for sale, letters of credit, bankers' acceptances and derivatives exposures
in a gain position. Commercial loan outstandings totaled $50.3 billion and $48.0
billion on December 31, 1996 and 1995, respectively, or 41 percent of net loans,
leases and factored accounts receivable. Net charge-offs of commercial loans
totaled $84 million, or .17 percent of average commercial loans, in 1996, versus
$20 million, or .04 percent, in 1995. Commercial loans which were past due 90
days or more and still accruing interest were $38 million, or .08 percent of
commercial loans, on December 31, 1996 compared to $24 million, or .05 percent,
at the end of 1995. Nonperforming commercial loans were $342 million and $271
million on December 31, 1996 and 1995, respectively.
TABLE EIGHTEEN. SELECTED INDUSTRY CREDIT EXPOSURES
===========================================================================================================================
DECEMBER 31, 1996
(DOLLARS IN MILLIONS)
LOANS, LEASES AND FACTORED ACCOUNTS
RECEIVABLE, NET OF UNEARNED INCOME
________________________________________________ OTHER
UNFUNDED CREDIT
OUTSTANDING NONPERFORMING COMMITMENTS EXPOSURES (1)
- -------------------------------------------------------------------------------------------------------------------------------
Communications ................................................... $4,653 $18 $5,669 $449
Health care ...................................................... 3,852 9 3,543 858
Leisure and sports ............................................... 3,133 29 2,104 243
Textiles and apparel ............................................. 2,750 39 1,578 362
Oil and gas ...................................................... 2,734 30 3,852 730
Automotive, excluding trucking ................................... 2,618 9 2,153 92
Retail ........................................................... 2,528 46 3,531 562
Food, including agribusiness ..................................... 2,487 14 2,441 304
Machinery and equipment, excluding defense ....................... 2,412 3 2,665 244
Forest products and paper ........................................ 1,670 16 2,113 303
Services ......................................................... 1,605 14 1,679 293
Computers and electronics ........................................ 1,594 15 2,831 112
Utilities ........................................................ 1,383 1 4,247 222
Finance companies ................................................ 1,042 1 4,570 156
Banks ............................................................ 880 1 1,663 2,646
Brokers and dealers .............................................. 246 - 1,220 1,198
(1) OTHER CREDIT EXPOSURES INCLUDE LOANS HELD FOR SALE, LETTERS OF CREDIT,
BANKERS' ACCEPTANCES AND DERIVATIVES EXPOSURES IN A GAIN POSITION.
Management's Discussion and Analysis 39
CONSUMER - On December 31, 1996 and 1995, consumer loan outstandings totaled
$55.3 billion and $52.8 billion, respectively, representing 45 percent of net
loans, leases and factored accounts receivable. Net charge-offs in the consumer
portfolio were $466 million in 1996 compared to $360 million in 1995, reflecting
the impact of loan growth and the continuation of a return to more normal levels
of credit losses. TABLE SEVEN details the components of the Corporation's
consumer loan portfolio. In addition to the credit card and other consumer loans
reported in the financial statements, the Corporation manages credit card and
consumer receivables which have been sold.
Total average credit card receivables managed by the CARD SERVICES group
(excluding private label credit cards) were $8.1 billion in 1996 compared to
$6.1 billion in 1995. Average securitized credit card loans totaled $2.2 billion
during 1996 and included a $900 million securitization completed during the
second quarter. During 1995, average securitized credit card loans were $1.3
billion. Net charge-off ratios for the managed credit card portfolio were 4.54
percent for 1996 and 3.95 percent for 1995.
Total average managed other consumer loans, including direct and indirect
consumer loans and home equity lines, were $24.6 billion in 1996 including the
impact of the July 31, 1996 securitization of $2.1 billion of indirect auto
loans compared to total average managed other consumer loans of $22.6 billion in
1995. The consumer managed portfolio, which includes both on balance sheet
receivables and indirect auto loan and consumer finance securitizations,
experienced net charge-offs as a percentage of average managed consumer loans of
1.07 percent in 1996 and .87 percent in 1995.
Total consumer loans which were past due 90 days or more and still accruing
interest were $180 million, or .33 percent of total consumer loans, on December
31, 1996 compared to $126 million, or .24 percent, at the end of 1995. Total
consumer nonperforming loans were $350 million and $217 million on December 31,
1996 and 1995, respectively, primarily due to an increase in nonperforming
residential mortgage loans obtained through acquisitions.
FOREIGN - Foreign outstandings include loans and leases, interest-bearing
deposits with foreign banks, bankers' acceptances and other investments. The
Corporation has no significant medium- or long-term outstandings to
restructuring countries. The Corporation's foreign outstandings totaled $8.1
billion on December 31, 1996 compared to $3.8 billion on December 31, 1995.
MARKET RISK MANAGEMENT
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.
Market risk is managed by the Corporation's Finance Committee which
formulates policy based on desirable levels of market risk. In setting desirable
levels of market risk, the Finance Committee considers the impact on both
earnings and capital of the current outlook in market rates, potential changes
in the outlook in market rates, world and regional economies, liquidity,
business strategies and other factors.
The Corporation's asset and liability management process is utilized to
manage interest rate risk through the structuring of balance sheet and
off-balance sheet portfolios. To effectively measure and manage interest rate
risk, the Corporation uses computer simulations which determine the impact on
net interest income of numerous interest rate scenarios, balance sheet trends
and strategies. These simulations incorporate assumptions about balance sheet
dynamics, such as loan and deposit growth and pricing, changes in funding mix
and asset and liability repricing and maturity characteristics. Simulations are
run under various interest
40 NationsBank Corporation Annual Report 1996
rate scenarios to determine the impacts on net income and capital. From these
scenarios, interest rate risk is quantified and appropriate strategies are
developed and implemented. The overall interest rate risk position and
strategies are reviewed on an ongoing basis by executive management.
Additionally, duration and market value sensitivity measures are selectively
utilized where they provide added value to the overall interest rate risk
management process.
In implementing strategies to manage interest rate risk, the primary tools
used by the Corporation are the 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 NINETEEN represents the Corporation's interest rate gap position on
December 31, 1996. Based on contractual maturities or repricing dates (or
anticipated dates where no contractual maturity or repricing date exists or
where prepayments are a factor), 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 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.
TABLE NINETEEN. INTEREST RATE GAP ANALYSIS
===================================================================================================================================
DECEMBER 31, 1996
(DOLLARS IN MILLIONS) OVER 12
MONTHS AND
INTEREST-SENSITIVE NONINTEREST-
________________________________________________
30-DAY 3-MONTH 6-MONTH 12-MONTH TOTAL SENSITIVE TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
Earning assets
Loans and leases, net of unearned income ..... $49,346 $12,268 $4,636 $8,716 $74,966 $46,617 $121,583
Securities held for investment ............... 53 197 308 394 952 1,158 2,110
Securities available for sale ................ 135 275 432 1,143 1,985 10,292 12,277
Loans held for sale .......................... 1,215 - - - 1,215 - 1,215
Time deposits placed and other
short-term investments ..................... 1,402 355 31 55 1,843 - 1,843
Trading account securities ................... 15,391 - - - 15,391 - 15,391
Federal funds sold and securities
purchased under agreements to resell ....... 6,959 - - - 6,959 - 6,959
-------------------------------------------------------------------------------
Total .................................... 74,501 13,095 5,407 10,308 103,311 58,067 161,378
_____________________________________________________________________________
Interest-bearing liabilities
Savings ...................................... 8,498 - - - 8,498 - 8,498
NOW and money market deposit accounts ........ 31,128 - - - 31,128 - 31,128
Consumer CDs and IRAs ........................ 4,352 4,993 6,143 6,583 22,071 8,701 30,772
Negotiated CDs, public funds and
other time deposits ........................ 785 473 385 338 1,981 328 2,309
Foreign time deposits ........................ 7,103 507 347 96 8,053 - 8,053
Borrowed funds ............................... 21,619 1,957 414 11 24,001 - 24,001
Short sales .................................. 7,904 - - - 7,904 - 7,904
Trust preferred securities ................... - - - - - 965 965
Long-term debt ............................... 4,873 7,398 200 208 12,679 10,306 22,985
-------------------------------------------------------------------------------
Total .................................... 86,262 15,328 7,489 7,236 116,315 20,300 136,615
Noninterest-bearing, net ........................ - - - - - 24,763 24,763
-------------------------------------------------------------------------------
Total .................................... 86,262 15,328 7,489 7,236 116,315 45,063 $161,378
-------------------------------------------------------------------------------
Interest rate gap ............................... (11,761) (2,233) (2,082) 3,072 (13,004) 13,004
Effect of asset and liability management
interest rate swaps, futures and
other off-balance sheet items ................ (11,673) (14,188) (790) (103) (26,754) 26,754
------------------------------------------------------------------
Adjusted interest rate gap ...................... $(23,434) $(16,421) $(2,872) $2,969 $(39,758) $39,758
==================================================================
Cumulative adjusted interest rate gap ........... $(23,434) $(39,855) $(42,727) $(39,758)
============================================
Management's Discussion and Analysis 41
Additionally, the gap analysis does not
consider the many factors accompanying interest rate movements.
On December 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 one percent of net income when compared
to stable rates.
The Corporation manages its exposure to market risk resulting from trading
activities through a risk management function which is independent of the
business units. Each major trading site in Charlotte, Chicago, New York, London,
Singapore and Tokyo is monitored by these risk management units. Risk limits
have been approved by the Corporation's Finance Committee, and daily earnings at
risk limits are generally allocated to the business units. In addition to limits
placed on these individual business units, limits are also imposed on the risks
individual traders can take and on the amount of risk that can be concentrated
in a particular product or market. Risk positions are monitored by business
unit, risk management personnel and senior management on a daily basis. Business
unit and risk management personnel are responsible for continual monitoring of
the changing aggregate position of the portfolios under their responsibility,
including projection of the profit or loss levels that could result from both
normal and extreme market moves. If any market risk limits are exceeded, the
risk management units are responsible for taking actions as necessary to bring
portfolios within approved trading limits.
To estimate potential losses that could result from adverse market movements,
the Corporation uses a daily earnings at risk methodology. Earnings at risk
represents a one-day measurement of pretax 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 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 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 December 31,
1996, the gross estimates for aggregate interest rate, foreign exchange and
equity and commodity trading activities were $59 million, $3 million and $2
million, respectively. Alternately, using a statistical measure which is more
likely to capture the effects of market movements, the uncorrelated estimate on
December 31, 1996 for aggregate trading activities was $25 million.
Average daily trading-related revenues in 1996 approximated $1 million.
During 1996, the Corporation's trading-related activities resulted in positive
daily revenues for approximately 74 percent of total trading days. In 1996, the
standard deviation of trading-related revenues was $3 million. Using this data,
one can conclude that the aggregate trading activities should not result in
exposure of more than $7 million for any one day, assuming 99-percent
confidence. When comparing daily earnings at risk to trading-related revenues,
daily earnings at risk will average considerably more 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.
CAPITAL RESOURCES AND
CAPITAL MANAGEMENT
Shareholders' equity on December 31, 1996 was $13.7 billion compared to
$12.8 billion on December 31, 1995. Net earnings retention of $1.7 billion
coupled with the acquisition of Bank South Corporation, which resulted in the
issuance of 52.6 million shares of common stock and an increase of $685 million
in shareholders'
42 NationsBank Corporation Annual Report 1996
equity, were the primary reasons for the increase. The increase was partially
offset by the repurchase of 34.2 million shares of common stock for
approximately $1.5 billion and net depreciation of $240 million in the market
value of securities available for sale and marketable equity securities due to
sales and maturities of securities during 1996.
The Corporation's and significant subsidiaries' regulatory capital ratios,
along with a description of the components of risk-based capital, capital
adequacy requirements and prompt corrective action provisions, are included in
Note Nine to the consolidated financial statements.
FOURTH QUARTER REVIEW
During the fourth quarter of 1996, the Corporation recorded net income of
$632 million compared to $510 million in the fourth quarter of 1995.TABLE TWENTY
presents selected quarterly operating results for each quarter of 1996 and 1995.
TABLE TWENTY-ONE presents an analysis of the Corporation's
taxable-equivalent net interest income for each of the last five quarters.
Taxable-equivalent net interest income was $1.6 billion in the fourth quarter of
1996 compared to $1.4 billion in the comparable 1995 period. The net interest
yield was 3.75 percent in the fourth quarter of 1996 compared to 3.38 percent in
the fourth quarter of 1995. The increase in the net interest yield reflected the
sale of low-yielding securities and the reinvestment of cash from the sale of
low-yielding securities into higher-spread products.
The provision for credit losses was $150 million in the fourth quarter of
1996 compared to $142 million in the same quarter of 1995. Net charge-offs for
the fourth quarter of 1996 were $151 million compared to $156 million in the
fourth quarter of 1995. The increase in the provision for credit losses resulted
from growth in commercial and consumer lending as well as the continuation of a
return to more normalized levels of credit losses following periods of unusually
low credit losses.
Noninterest income was $958 million and $846 million in the fourth quarters
of 1996 and 1995, respectively. The 13-percent increase was driven primarily by
higher deposit account service charges, investment banking income and trading
account profits and fees.
Noninterest expense increased 9 percent in the fourth quarter of 1996
compared to the fourth quarter of 1995, primarily due to acquisitions.
Income tax expense was $326 million in the fourth quarter of 1996, reflecting
an effective tax rate of 34.0 percent of pretax income. This compared to income
tax expense of $278 million, or an effective tax rate of 35.3 percent, in the
fourth quarter of 1995.
1995 COMPARED TO 1994
The following discussion and analysis provides a comparison of the
Corporation's results of operations for the years ended December 31, 1995 and
1994. This discussion should be read in conjunction with the consolidated
financial statements and related notes on pages 49 through 71.
OVERVIEW
The Corporation's net income of $1.95 billion in 1995 reflected an increase
of 15 percent over 1994. Earnings per common share for 1995 increased 16 percent
to $3.56 from $3.06 for 1994. Return on average common shareholders' equity rose
to 17.01 percent from 16.10 percent in 1994. Revenue growth outpaced expense
growth in 1995, bringing the efficiency ratio to 59.8 percent, an improvement of
approximately 280 basis points over 1994.
BUSINESS UNIT OPERATIONS
The GENERAL BANK'S 1995 earnings of $1.2 billion increased 26 percent over
1994. Return on equity increased to 19 percent in 1995 from 17 percent in 1994.
Revenue growth and expense control led to a 365 basis-point improvement in the
efficiency ratio in 1995 to 63.8 percent.
GLOBAL FINANCE produced a return on equity of 16 percent in 1995, consistent
with the return in 1994. Earnings were $609 million compared to $631 million in
1994. Increased investment in personnel resulted in a 27 basis-point rise in the
efficiency ratio to 54.2 percent in 1995.
FINANCIAL SERVICES' earnings increased 25 percent to $129 million in 1995.
Return on equity increased to 14 percent in 1995 from 13 percent in the prior
year. The efficiency ratio improved 352 basis points in 1995 to 42.1 percent.
Management's Discussion and Analysis 43
NET INTEREST INCOME
Taxable-equivalent net interest income increased $255 million to $5.6 billion
in 1995, driven by growth in average earning assets, principally loans and
leases, which increased $14.5 billion to $109.5 billion. The increase in net
interest income resulting primarily from loan growth was partially offset by the
use of higher cost market-based funds and term debt. As the growth in earning
assets outpaced customer deposit growth, the Corporation shifted to alternative
funding sources such as term debt.
The net interest yield of 3.33 percent in 1995 reflected the funding of
earning asset growth principally with market-based funds
TABLE TWENTY. SELECTED QUARTERLY OPERATING RESULTS
===========================================================================================================================
(DOLLARS IN MILLIONS EXCEPT PER-SHARE INFORMATION)
1996 QUARTERS 1995 QUARTERS
___________________________________________________________________________________
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
- ---------------------------------------------------------------------------------------------------------------------------
Income from earning assets ................ $3,358 $3,423 $3,442 $3,573 $3,361 $3,398 $3,391 $3,070
Interest expense .......................... 1,768 1,828 1,855 2,016 1,948 2,007 2,055 1,763
Net interest income (taxable-equivalent) .. 1,612 1,616 1,611 1,584 1,438 1,420 1,367 1,335
Net interest income ....................... 1,590 1,595 1,587 1,557 1,413 1,391 1,336 1,307
Provision for credit losses ............... 150 145 155 155 142 100 70 70
Gains (losses) on sales of securities ..... 33 26 (6) 14 21 3 4 1
Noninterest income ........................ 958 886 917 885 846 776 730 726
Other real estate owned expense ........... 7 6 7 - 8 7 1 2
Merger-related charge ..................... - - - 118 - - - -
Other noninterest expense ................. 1,466 1,400 1,405 1,394 1,342 1,245 1,288 1,288
Income before income taxes ................ 958 956 931 789 788 818 711 674
Income tax expense ........................ 326 331 326 276 278 288 244 231
Net income ................................ 632 625 605 513 510 530 467 443
Net income (excluding merger-related
charge) ................................ 632 625 605 590 510 530 467 443
Earnings per common share ................. 1.09 1.06 1.00 .85 .94 .98 .86 .80
Earnings per common share (excluding
merger-related charge) ................. 1.09 1.06 1.00 .98 .94 .98 .86 .80
Dividends per common share ................ .33 .29 .29 .29 .29 .25 .25 .25
Yield on average earning assets ........... 7.86% 7.87% 7.80% 7.80% 7.95% 8.08% 7.98% 7.93%
Rate on average interest-
bearing liabilities .................... 4.77 4.84 4.83 4.97 5.22 5.38 5.39 5.13
Net interest spread ....................... 3.09 3.03 2.97 2.83 2.73 2.70 2.59 2.80
Net interest yield ........................ 3.75 3.69 3.62 3.43 3.38 3.35 3.19 3.41
Average total assets ......................$194,321 $197,923 $202,796 $208,617 $191,693 $190,501 $194,302 $177,515
Average total deposits .................... 105,765 107,715 109,988 106,906 98,602 98,671 100,569 99,285
Average total shareholders' equity ........ 13,224 13,133 13,552 13,144 11,903 11,487 11,213 11,192
Return on average assets .................. 1.29% 1.26% 1.20% .99% 1.06% 1.10% .96% 1.01%
Return on average assets (excluding
merger-related charge) ................. 1.29 1.26 1.20 1.14 1.06 1.10 .96 1.01
Return on average common
shareholders' equity (1) ............... 19.06 19.00 18.00 15.71 16.98 18.29 16.69 16.03
Return on average common shareholders'
equity (excluding merger-related
charge) (1) ............................ 19.06 19.00 18.00 18.07 16.98 18.29 16.69 16.03
Market price per share of common stock
High for the period .................... $52 5/8 $47 1/16 $42 5/16 $40 11/16 $37 3/8 $34 7/16 $28 7/8 $25 7/8
Low for the period ..................... 43 1/8 38 3/16 37 3/8 32 3/16 32 26 7/8 24 13/16 22 5/16
Closing price .......................... 48 7/8 43 7/16 41 5/16 40 1/16 34 13/16 33 5/8 26 13/16 25 3/8
Tier 1 capital ratio ...................... 7.76% 7.05% 7.58% 7.35% 7.24% 7.16% 7.03% 7.25%
Total capital ratio ....................... 12.66 12.05 11.93 11.71 11.58 11.23 10.90 11.06
(1)AVERAGE COMMON SHAREHOLDERS' EQUITY DOES NOT INCLUDE THE EFFECT OF MARKET
VALUE ADJUSTMENTS TO SECURITIES AVAILABLE FOR SALE AND MARKETABLE EQUITY
SECURITIES.
44 NationsBank Corporation Annual Report 1996
and term debt and the addition of $6.5 billion in low-spread trading-related
assets when compared to 1994.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $382 million in 1995 compared to $310
million in the prior year, reflecting increased loans, the continuing shift in
the mix of the loan portfolio towards consumer lending and the maturing credit
cycle. The level of provision expense in 1995 was consistent with credit quality
indicators. Net charge-offs in 1995 increased by $105 million compared to 1994
due to higher levels of credit card and other consumer loan charge-offs coupled
with a lower level of recoveries in 1995.
The allowance for credit losses was $2.2 billion, or 1.85 percent of net
loans, leases and factored accounts receivable, on December 31, 1995 compared to
$2.2 billion, or 2.11 percent, at the end of 1994. The allowance for credit
losses was 306 percent of nonperforming loans on December 31, 1995 compared to
273 percent on December 31, 1994.
NONINTEREST INCOME
Noninterest income increased 19 percent to $3.1 billion in 1995, reflecting
the diverse fee-generating activities of the Corporation. Capital markets
revenues, deposit and other service fees and acquisition-related mortgage
servicing fees were factors in the year-over-year increase.
NONINTEREST EXPENSE
Noninterest expense increased 4 percent to $5.2 billion. Excluding the impact
of acquisitions, noninterest expense increased 3 percent reflecting additional
investment in personnel in selected areas, expanded marketing efforts to support
revenue growth and increased expenditures related to technology initiatives,
partially offset by reduced deposit insurance expense.
INCOME TAXES
The Corporation's income tax expense for 1995 was $1.0 billion, for an
effective tax rate of 34.8 percent of pretax income. Income tax expense for 1994
was $865 million, reflecting an effective tax rate of 33.9 percent.
Management's Discussion And Analysis 45
TABLE TWENTY-ONE. QUARTERLY TAXABLE-EQUIVALENT DATA
- ----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS)
FOURTH QUARTER 1996 THIRD QUARTER 1996
-----------------------------------------------------------
AVERAGE AVERAGE
BALANCE INCOME BALANCE INCOME
SHEET OR YIELDS/ SHEET OR YIELDS/
AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES
- ----------------------------------------------------------------------------------------------------------------------
Earning assets
Loans and leases, net of unearned income (1)
Commercial (2)....................................... 49,987 $1,044 8.30% $ 48,920 $1,011 8.23%
Real estate commercial............................... 5,388 122 9.00 5,921 138 9.25
Real estate construction............................. 3,084 67 8.74 3,195 74 9.15
------------------------------------------------------------
Total commercial................................... 58,459 1,233 8.39 58,036 1,223 8.38
------------------------------------------------------------
Residential mortgage................................. 28,174 548 7.77 27,990 545 7.77
Credit card.......................................... 6,363 185 11.58 5,903 169 11.38
Other consumer....................................... 20,581 503 9.69 22,026 544 9.84
------------------------------------------------------------
Total consumer..................................... 55,118 1,236 8.93 55,919 1,258 8.97
------------------------------------------------------------
Foreign.............................................. 2,701 47 6.89 2,813 46 6.59
Lease financing...................................... 4,614 87 7.66 4,429 85 7.60
------------------------------------------------------------
Total loans and leases, net........................ 120,892 2,603 8.57 121,197 2,612 8.58
------------------------------------------------------------
Securities
Held for investment.................................. 2,585 36 5.55 3,173 46 5.73
Available for sale (3)............................... 11,540 205 7.10 16,388 273 6.66
------------------------------------------------------------
Total securities................................... 14,125 241 6.82 19,561 319 6.51
------------------------------------------------------------
Loans held for sale.................................... 802 15 7.31 1,025 20 7.87
Federal funds sold..................................... 273 4 5.79 361 6 6.39
Securities purchased under agreements to resell........ 12,018 158 5.21 11,828 153 5.14
Time deposits placed and other
short-term investments............................... 1,991 25 4.86 1,430 20 5.74
Trading account securities (4)......................... 21,148 334 6.32 18,897 314 6.60
------------------------------------------------------------
Total earning assets (5)............................. 171,249 3,380 7.86 174,299 3,444 7.87
Cash and cash equivalents................................ 7,720 7,597
Factored accounts receivable............................. 1,256 1,150
Other assets, less allowance for credit losses........... 14,096 14,877
------------------------------------------------------------
Total assets......................................... $194,321 $197,923
============================================================
Interest-bearing liabilities
Savings................................................ $ 8,607 46 2.12 $ 8,798 48 2.15
NOW and money market deposit accounts.................. 30,634 191 2.47 30,485 189 2.49
Consumer CDs and IRAs (6).............................. 30,870 405 5.22 30,092 394 5.21
Negotiated CDs, public funds and other time
deposits............................................. 2,544 35 5.53 3,314 46 5.50
Foreign time deposits.................................. 9,139 117 5.10 10,836 145 5.31
Federal funds purchased................................ 3,915 51 5.21 3,631 49 5.39
Securities sold under agreements to repurchase (6)..... 25,192 330 5.22 26,309 355 5.36
Commercial paper....................................... 2,850 40 5.59 3,129 44 5.59
Other short-term borrowings (6)........................ 1,971 34 6.99 2,999 51 6.76
Trading account liabilities (4)........................ 9,314 152 6.48 9,848 163 6.57
Long-term debt (7)..................................... 22,702 367 6.53 21,067 344 6.53
------------------------------------------------------------
Total interest-bearing liabilities................... 147,738 1,768 4.77 150,508 1,828 4.84
------------------------------------------------------------
Noninterest-bearing sources
Noninterest-bearing deposits........................... 23,971 24,190
Other liabilities...................................... 9,388 10,092
Shareholders' equity................................... 13,224 13,133
------------------------------------------------------------
Total liabilities and shareholders' equity........... $194,321 $197,923
=============================================================
Net interest spread...................................... 3.09 3.03
Impact of noninterest-bearing sources.................... .66 .66
------------------------------------------------------------
Net interest income/yield on earning assets.............. $1,612 3.75% $1,616 3.69%
=============================================================
(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 INCREASED (DECREASED) INTEREST INCOME $31, $11, $3 AND
($19) IN THE FOURTH, THIRD, SECOND AND FIRST QUARTERS OF 1996,
RESPECTIVELY, AND ($34) IN THE FOURTH QUARTER OF 1995.
(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 $22, $21, $24
AND $27 IN THE FOURTH, THIRD, SECOND AND FIRST QUARTERS OF 1996,
RESPECTIVELY, AND $25 IN THE FOURTH QUARTER OF 1995.
(6) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, OTHER SHORT-TERM BORROWINGS
AND CONSUMER CDS INTEREST EXPENSE INCLUDES NET INTEREST RATE SWAP EXPENSE
RELATED TO SWAPS FIXING THE COST OF CERTAIN OF THESE LIABILITIES. INTEREST
RATE SWAPS INCREASED INTEREST EXPENSE $3, $16, $26 AND $21 IN THE FOURTH,
THIRD, SECOND AND FIRST QUARTERS OF 1996, RESPECTIVELY, AND $12 IN THE
FOURTH QUARTER OF 1995.
(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. INTEREST RATE SWAPS DECREASED INTEREST EXPENSE $4, $3, $2
AND $3 IN THE FOURTH, THIRD, SECOND AND FIRST QUARTERS OF 1996,
RESPECTIVELY.
46 NationsBank Corporation Annual Report 1996
- ------------------------------------------------------------------------------------------
SECOND QUARTER 1996 FIRST QUARTER 1996 FOURTH QUARTER 1995
- ------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
BALANCE INCOME BALANCE INCOME BALANCE INCOME
SHEET OR YIELDS/ SHEET OR YIELDS/ SHEET OR YIELDS/
AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES AMOUNTS EXPENSE RATES
- ------------------------------------------------------------------------------------------
$ 49,983 $1,000 8.04% $ 49,319 $ 987 8.05% $ 47,077 $ 971 8.18%
6,288 141 9.07 6,774 149 8.82 6,649 157 9.39
3,229 71 8.83 3,154 69 8.85 3,016 72 9.44
- ------------------------------------------------------------------------------------------
59,500 1,212 8.19 59,247 1,205 8.18 56,742 1,200 8.39
- ------------------------------------------------------------------------------------------
27,728 542 7.82 27,352 534 7.83 23,573 459 7.78
6,057 173 11.45 6,590 206 12.59 5,709 182 12.69
23,441 578 9.93 23,850 593 9.99 22,852 581 10.09
- ------------------------------------------------------------------------------------------
57,226 1,293 9.07 57,792 1,333 9.26 52,134 1,222 9.33
- ------------------------------------------------------------------------------------------
2,746 45 6.56 2,392 45 7.54 2,100 40 7.65
4,254 80 7.59 3,851 72 7.46 3,628 68 7.48
- ------------------------------------------------------------------------------------------
123,726 2,630 8.54 123,282 2,655 8.65 114,604 2,530 8.77
- ------------------------------------------------------------------------------------------
3,731 51 5.45 4,292 60 5.62 12,945 186 5.72
18,328 303 6.64 22,997 365 6.37 10,689 174 6.45
- ------------------------------------------------------------------------------------------
22,059 354 6.44 27,289 425 6.25 23,634 360 6.05
- ------------------------------------------------------------------------------------------
1,156 19 6.49 1,331 25 7.55 644 12 7.34
397 5 5.75 525 8 5.89 534 8 6.02
12,075 149 4.99 13,870 183 5.29 12,088 163 5.36
1,263 17 5.28 1,056 18 6.90 1,634 28 6.77
17,912 292 6.53 18,213 286 6.33 16,196 285 6.99
- ------------------------------------------------------------------------------------------
178,588 3,466 7.80 185,566 3,600 7.80 169,334 3,386 7.95
7,928 7,998 7,500
1,124 1,010 1,221
15,156 14,043 13,638
- ------------------------------------------------------------------------------------------
$202,796 $208,617 $191,693
===========================================================================================
$ 9,336 52 2.27 $ 9,361 55 2.35 $ 8,287 49 2.34
30,155 191 2.52 29,692 192 2.61 27,233 185 2.71
29,698 389 5.28 29,469 397 5.42 24,682 339 5.44
3,331 46 5.53 3,273 44 5.42 2,946 42 5.74
12,867 170 5.34 11,902 170 5.73 13,546 211 6.18
4,433 59 5.37 6,817 92 5.41 5,599 81 5.78
28,924 391 5.44 33,705 455 5.43 30,136 440 5.79
3,064 42 5.49 2,821 39 5.62 2,871 43 5.89
3,968 58 5.80 4,455 65 5.89 4,550 78 6.72
8,912 147 6.63 12,485 191 6.16 11,125 185 6.60
19,730 310 6.30 18,885 316 6.68 17,276 295 6.83
- ------------------------------------------------------------------------------------------
154,418 1,855 4.83 162,865 2,016 4.97 148,251 1,948 5.22
- ------------------------------------------------------------------------------------------
24,601 23,209 21,908
10,225 9,399 9,631
13,552 13,144 11,903
- ------------------------------------------------------------------------------------------
$202,796 $208,617 $191,693
===========================================================================================
2.97 2.83 2.73
.65 .60 .65
- ------------------------------------------------------------------------------------------
$1,611 3.62% $1,584 3.43% $1,438 3.38%
===========================================================================================
Management's Discussion And Analysis 47
- -------------------------------------------------------------------------------
Report Of Management
The management of NationsBank Corporation is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
of the Corporation. The consolidated financial statements and notes have been
prepared by the Corporation in accordance with generally accepted accounting
principles and, in the judgment of management, present fairly the Corporation's
financial position and results of operations. The financial information
contained elsewhere in this report is consistent with that in the financial
statements. The financial statements and other financial information in this
report include amounts that are based on management's best estimates and
judgments and give due consideration to materiality.
The Corporation maintains a system of internal accounting controls to
provide reasonable assurance that assets are safeguarded and that transactions
are executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in accordance with generally
accepted accounting principles. Management recognizes that even a highly
effective internal control system has inherent risks, including the possibility
of human error and the circumvention or overriding of controls, and that the
effectiveness of an internal control system can change with circumstances.
However, management believes that the internal control system provides
reasonable assurance that errors or irregularities that could be material to the
financial statements are prevented or would be detected on a timely basis and
corrected through the normal course of business. As of December 31, 1996,
management believes that the internal controls are in place and operating
effectively.
The Internal Audit Division of the Corporation reviews, evaluates, monitors
and makes recommendations on both administrative and accounting control, which
acts as an integral, but independent, part of the system of internal controls.
The independent accountants were engaged to perform an independent audit of
the consolidated financial statements. In determining the nature and extent of
their auditing procedures, they have evaluated the Corporation's accounting
policies and procedures and the effectiveness of the related internal control
system. An independent audit provides an objective review of management's
responsibility to report operating results and financial condition. Their report
appears below.
The Board of Directors discharges its responsibility for the Corporation's
financial statements through its Audit Committee. The Audit Committee meets
periodically with the independent accountants, internal auditors and management.
Both the independent accountants and internal auditors have direct access to the
Audit Committee to discuss the scope and results of their work, the adequacy of
internal accounting controls and the quality of financial reporting.
(Signature of Hugh L. McColl, Jr.) (Signature of James H. Hance Jr.)
Hugh L. McColl Jr. James H. Hance Jr.
Chief Executive Officer Vice Chairman and
Chief Financial Officer
Report Of Independent Accountants
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF NATIONSBANK CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
NationsBank Corporation and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Corporation's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
(Signature of Price Waterhouse LLP)
Charlotte, North Carolina
January 10, 1997
48 NationsBank Corporation Annual Report 1996
- -------------------------------------------------------------------------------------------
NationsBank Corporation And Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS EXCEPT PER-SHARE INFORMATION)
YEAR ENDED DECEMBER 31
-----------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------
INCOME FROM EARNING ASSETS
Interest and fees on loans................................ $10,138 $ 9,331 $ 7,577
Lease financing income.................................... 302 221 150
Interest and dividends on securities
Held for investment..................................... 186 851 755
Available for sale...................................... 1,120 617 623
Interest and fees on loans held for sale.................. 79 24 23
Interest on time deposits placed and
other short-term investments............................ 80 142 90
Federal funds sold........................................ 23 47 45
Securities purchased under agreements to resell........... 643 890 502
Trading account securities................................ 1,225 1,097 764
-------------------------------
Total income from earning assets...................... 13,796 13,220 10,529
-------------------------------
INTEREST EXPENSE
Deposits.................................................. 3,322 3,281 2,415
Borrowed funds............................................ 2,155 2,710 1,618
Trading account liabilities............................... 653 896 735
Long-term debt............................................ 1,337 886 550
-------------------------------
Total interest expense................................ 7,467 7,773 5,318
-------------------------------
NET INTEREST INCOME......................................... 6,329 5,447 5,211
PROVISION FOR CREDIT LOSSES................................. 605 382 310
-------------------------------
NET CREDIT INCOME........................................... 5,724 5,065 4,901
GAINS (LOSSES) ON SALES OF SECURITIES....................... 67 29 (13)
NONINTEREST INCOME.......................................... 3,646 3,078 2,597
OTHER REAL ESTATE OWNED EXPENSE (INCOME).................... 20 18 (12)
MERGER-RELATED CHARGE....................................... 118 - -
OTHER NONINTEREST EXPENSE................................... 5,665 5,163 4,942
-------------------------------
INCOME BEFORE INCOME TAXES.................................. 3,634 2,991 2,555
INCOME TAX EXPENSE.......................................... 1,259 1,041 865
-------------------------------
NET INCOME.................................................. $ 2,375 $ 1,950 $ 1,690
===============================
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS................. $ 2,360 $ 1,942 $ 1,680
===============================
PER-SHARE INFORMATION (RESTATED FOR 2-FOR-1 STOCK SPLIT ON
FEBRUARY 27, 1997)
Earnings per common share................................. $ 4.00 $ 3.56 $ 3.06
===============================
Fully diluted earnings per common share................... $ 3.92 $ 3.52 $ 3.03
===============================
Dividends per common share................................ $ 1.20 $ 1.04 $ .94
===============================
AVERAGE COMMON SHARES ISSUED (in thousands)................. 590,216 544,959 549,312
===============================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Consolidated Financial Statements 49
- -----------------------------------------------------------------------------------
NationsBank Corporation And Subsidiaries
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
DECEMBER 31
----------------------
1996 1995
- -----------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents................................. $ 8,933 $ 8,448
Time deposits placed and other short-term
investments............................................. 1,843 1,296
Securities
Held for investment, at cost (market value -
$2,110 and $4,432).................................... 2,110 4,432
Available for sale...................................... 12,277 19,415
----------------------
Total securities...................................... 14,387 23,847
----------------------
Loans held for sale....................................... 1,215 1,663
Federal funds sold........................................ 77 111
Securities purchased under agreements to resell........... 6,882 6,119
Trading account assets.................................... 18,689 18,867
Loans and leases, net of unearned income.................. 121,583 116,042
Factored accounts receivable.............................. 1,047 991
Allowance for credit losses............................... (2,315) (2,163)
----------------------
Loans, leases and factored accounts receivable,
net of unearned income
and allowance for credit losses....................... 120,315 114,870
----------------------
Premises, equipment and lease rights, net................. 2,712 2,508
Customers' acceptance liability........................... 858 918
Interest receivable....................................... 1,159 1,597
Mortgage servicing rights................................. 946 707
Goodwill.................................................. 1,640 1,139
Core deposit and other intangibles........................ 390 375
Other assets.............................................. 5,748 4,833
----------------------
$185,794 $187,298
=======================
LIABILITIES
Deposits
Noninterest-bearing..................................... $ 25,738 $ 23,414
Savings................................................. 8,498 8,257
NOW and money market deposit accounts................... 31,128 28,160
Time.................................................... 33,081 27,971
Foreign time............................................ 8,053 12,889
----------------------
Total deposits........................................ 106,498 100,691
----------------------
Federal funds purchased................................... 3,536 5,940
Securities sold under agreements to repurchase............ 15,842 23,034
Trading account liabilities............................... 11,752 15,177
Commercial paper.......................................... 2,787 2,773
Other short-term borrowings............................... 1,836 4,143
Liability to factoring clients............................ 597 580
Acceptances outstanding................................... 858 918
Accrued expenses and other liabilities.................... 4,429 3,466
Trust preferred securities................................ 965 -
Long-term debt............................................ 22,985 17,775
----------------------
Total liabilities..................................... 172,085 174,497
----------------------
Contingent liabilities and other financial
commitments (Notes Eight and Ten)
SHAREHOLDERS' EQUITY
Preferred stock: authorized - 45,000,000 shares;
issued - 5,220,459 and 2,473,081 shares................. 171 105
Common stock: authorized - 1,250,000,000 shares;
issued - 573,492,308 and 548,537,546 shares (Note One).. 3,855 4,655
Retained earnings......................................... 9,673 7,826
Other, including loan to ESOP trust...................... 10 215
----------------------
Total shareholders' equity............................ 13,709 12,801
----------------------
$185,794 $187,298
======================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
50 NationsBank Corporation Annual Report 1996
- -----------------------------------------------------------------------------------------------
NationsBank Corporation And Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31
-----------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------
Operating Activities
Net income................................................ $ 2,375 $ 1,950 $ 1,690
Reconciliation of net income to net cash provided by
(used in) operating activities
Provision for credit losses............................. 605 382 310
(Gains) losses on sales of securities................... (67) (29) 13
Depreciation and premises improvements
amortization.......................................... 314 280 265
Amortization of intangibles............................. 128 119 141
Deferred income tax expense............................. 304 159 372
Net change in trading instruments....................... (3,280) (5,175) 3,796
Net decrease (increase) in interest receivable.......... 518 (182) (282)
Net (decrease) increase in interest payable............. (545) 208 299
Net decrease (increase) in loans held for sale.......... 449 (1,345) 1,379
Net increase (decrease) in liability to factoring
clients............................................... 17 (6) 52
Other operating activities.............................. 986 (1,294) 1,083
-----------------------------------
Net cash provided by (used in) operating
activities.......................................... 1,804 (4,933) 9,118
-----------------------------------
Investing Activities
Proceeds from maturities of securities held for
investment.............................................. 2,329 5,547 5,864
Purchases of securities held for investment............... (14) (545) (10,293)
Proceeds from sales and maturities of securities
available for sale...................................... 28,998 25,556 23,762
Purchases of securities available for sale................ (12,708) (27,594) (16,055)
Net (increase) decrease in federal funds sold and
securities
purchased under agreements to resell.................... (424) 4,931 (3,805)
Net (increase) decrease in time deposits placed and
other short-term investments............................ (565) 863 (670)
Purchases and net originations of loans and leases........ (13,822) (18,331) (15,592)
Proceeds from sales and securitizations of loans and
leases.................................................. 12,286 4,681 4,126
Purchases and originations of mortgage servicing
rights.................................................. (366) (598) (124)
Purchases of factored accounts receivable................. (7,738) (7,856) (7,612)
Collections of factored accounts receivable............... 7,656 7,834 7,577
Net purchases of premises and equipment................... (348) (307) (327)
Proceeds from sales of other real estate owned............ 174 204 369
Sales (acquisitions) of business activities, net of
cash.................................................... 416 (567) 3,778
-----------------------------------
Net cash provided by (used in) investing
activities.......................................... 15,874 (6,182) (9,002)
-----------------------------------
Financing Activities
Net (decrease) increase in deposits....................... (6,573) (158) 4,261
Net (decrease) increase in federal funds purchased and
securities
sold under agreements to repurchase..................... (10,601) 2,909 (2,562)
Net (decrease) increase in other short-term borrowings
and commercial paper.................................... (3,171) (1,244) 491
Proceeds from issuance of trust preferred
securities.............................................. 965 - -
Proceeds from issuance of long-term debt.................. 7,230 11,393 1,198
Retirement of long-term debt.............................. (3,093) (2,061) (1,017)
Preferred stock repurchased and redeemed.................. - - (94)
Proceeds from issuance of common stock.................... 136 239 267
Cash dividends paid....................................... (722) (575) (527)
Common stock repurchased.................................. (1,503) (522) (180)
Other financing activities................................ 139 - (20)
-----------------------------------
Net cash (used in) provided by financing
activities.......................................... (17,193) 9,981 1,817
-----------------------------------
Net increase (decrease) in cash and cash equivalents........ 485 (1,134) 1,933
Cash and cash equivalents on January 1...................... 8,448 9,582 7,649
-----------------------------------
Cash and cash equivalents on December 31.................... $ 8,933 $ 8,448 $ 9,582
===================================
Supplemental cash flow disclosure:
Cash paid for interest.................................... $ 7,974 $ 7,565 $ 5,020
Cash paid for income taxes................................ 786 675 718
LOANS TRANSFERRED TO OTHER REAL ESTATE OWNED AMOUNTED TO $160, $98 AND $207 IN
1996, 1995 AND 1994, RESPECTIVELY. MORTGAGE LOANS CONVERTED TO MORTGAGE-BACKED
SECURITIES AMOUNTED TO $4,302 FOR THE YEAR ENDED DECEMBER 31, 1996.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Consolidated Financial Statements 51
- -----------------------------------------------------------------------------------------------------------------------
NationsBank Corporation And Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS, SHARES IN THOUSANDS)
TOTAL
COMMON STOCK LOAN TO SHARE-
PREFERRED ----------------- RETAINED ESOP HOLDERS'
STOCK SHARES AMOUNT EARNINGS TRUST OTHER EQUITY
- -----------------------------------------------------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1993................. $208 541,810 $ 4,594 $5,247 $ (88) $ 18 $ 9,979
Net income................................. 1,690 1,690
Cash dividends
Common................................... (517) (517)
Preferred................................ (10) (10)
Preferred stock repurchased and redeemed... (93) (1) (94)
Common stock issued under dividend
reinvestment and employee plans.......... 10,702 254 13 267
Common stock issued in acquisitions........ 7,020 64 41 105
Common stock repurchased................... (7,048) (180) (180)
Net change in unrealized gains (losses)
on securities available for sale and
marketable equity securities............. (240) (240)
Other...................................... (4) 420 9 12 (6) 11
--------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1994................. 111 552,904 4,740 6,451 (76) (215) 11,011
Net income................................. 1,950 1,950
Cash dividends
Common................................... (567) (567)
Preferred................................ (8) (8)
Common stock issued under dividend
reinvestment and employee plans.......... 8,878 214 25 239
Common stock issued in acquisitions........ 5,996 217 217
Common stock repurchased................... (19,466) (522) (522)
Net change in unrealized gains (losses)
on securities available for sale and
marketable equity securities............. 460 460
Other...................................... (6) 226 6 13 8 21
--------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1995................. 105 548,538 4,655 7,826 (63) 278 12,801
Net income................................. 2,375 2,375
Cash dividends
Common................................... (707) (707)
Preferred................................ (15) (15)
Common stock issued under dividend
reinvestment and employee plans.......... 3,456 109 27 136
Stock issued in acquisitions............... 73 55,436 586 192 2 853
Common stock repurchased................... (34,196) (1,503) (1,503)
Net change in unrealized gains (losses)
on securities available for sale and
marketable equity securities............. (240) (240)
Other...................................... (7) 258 8 2 15 (9) 9
--------------------------------------------------------------------------
BALANCE ON DECEMBER 31, 1996................. $171 573,492 $ 3,855 $9,673 $ (48) $ 58 $13,709
==========================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
52 NationsBank Corporation Annual Report 1996
NationsBank Corporation And Subsidiaries
Notes To Consolidated Financial Statements
NationsBank Corporation (the Corporation) is a multi-bank holding company
organized under the laws of North Carolina in 1968 and registered under the Bank
Holding Company Act of 1956, as amended. As discussed more fully in the first
and fourth full paragraphs on page 20 and the second full paragraph on page 22,
through its banking subsidiaries and its various nonbanking subsidiaries, the
Corporation provides banking and banking-related services, primarily throughout
the Southeast and Mid-Atlantic states and Texas. The geographic region served by
the Corporation has been expanded through the acquisition of Boatmen's
Bancshares, Inc. (Boatmen's) on January 7, 1997 to include the Midwestern
states.
NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Corporation and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Results of operations of
companies purchased are included from the dates of acquisition. Certain prior
period amounts have been reclassified to conform to current year
classifications.
Net assets of companies acquired in purchase transactions are recorded at
fair value at the date of acquisition. Identified intangibles are amortized on
an accelerated or straight-line basis over the period benefited. Goodwill is
amortized on a straight-line basis over 25 years.
Assets held in an agency or fiduciary capacity are not included in the
consolidated financial statements.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures. Actual results could
differ from those estimates. Significant estimates made by management are
discussed in these footnotes as applicable.
On February 27, 1997, the Corporation completed a 2-for-1 split of its
common stock. Accordingly, the financial statements for all years presented have
been restated to reflect the impact of the stock split.
CASH AND CASH EQUIVALENTS
Cash on hand, cash items in the process of collection and amounts due from
correspondent banks and the Federal Reserve Bank are included in cash and cash
equivalents.
SECURITIES
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held for investment and reported at amortized cost.
All other securities, except those used in trading activities, are classified as
available for sale and carried at fair value with net unrealized gains and
losses included in shareholders' equity on an after-tax basis. In addition,
marketable equity securities are carried at fair value with net unrealized gains
and losses included in shareholders' equity, net of tax.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
LOANS HELD FOR SALE
Loans held for sale include residential mortgage, commercial real estate and
other loans and are carried at the lower of aggregate cost or market value.
Generally, such loans are originated with the intent of sale.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are treated as collateralized financing transactions
and are recorded at the amounts at which the securities were acquired or sold
plus accrued interest. It is the Corporation's policy to obtain control or take
possession of securities purchased under agreements to resell. The Corporation
monitors the market value of the underlying securities which collateralize the
related receivable on resale agreements, including accrued interest, and
requests additional collateral when deemed appropriate.
TRADING INSTRUMENTS
Instruments utilized in trading activities include both securities and
derivatives and are stated at fair value. Fair value is generally based on
quoted market prices. If quoted market prices are not available, fair values are
estimated on the basis of dealer quotes, pricing models or quoted prices for
instruments with similar characteristics. Gross unrealized gains and losses on
trading derivative positions with the same counterparty are generally presented
on a net basis for balance sheet reporting purposes where legally enforceable
master netting agreements have been executed. Realized and unrealized gains and
losses are recognized as noninterest income.
LOANS
Loans are reported at their outstanding principal balances net of any
charge-offs, unamortized deferred fees and costs on originated loans and
premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are deferred and
recognized as adjustments to income over the lives of the related loans.
Discounts and premiums are amortized to income using methods that
approximate the interest method.
Notes to Consolidated Financial Statements 53
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is primarily available to absorb losses
inherent in the loan and lease portfolio. Credit exposures deemed to be
uncollectible are charged against the allowance for credit losses. Recoveries of
previously charged-off amounts are credited to the allowance for credit losses.
Individually identified impaired loans are measured based on the present
value of payments expected to be received, observable market prices, or for
loans that are solely dependent on the collateral for repayment, the estimated
fair value of the collateral. If the recorded investment in the impaired loan
exceeds the measure of estimated fair value, a valuation allowance is
established as a component of the allowance for credit losses.
The Corporation's process for determining an appropriate allowance for
credit losses includes management's judgment and use of estimates. The adequacy
of the allowance for credit losses is reviewed regularly by management. On a
quarterly basis, a comprehensive review of the adequacy of the allowance for
credit losses is performed. This assessment is made in the context of historical
losses as well as existing economic conditions and performance trends within
specific portfolio segments and individual concentrations of credit. Additions
to the allowance for credit losses are made by charges to the provision for
credit losses.
NONPERFORMING LOANS
Commercial loans and leases that are past due 90 days or more as to
principal or interest, or where reasonable doubt exists as to timely collection,
including loans that are individually identified as being impaired, are
generally classified as nonperforming loans unless well secured and in the
process of collection. Loans whose contractual terms have been restructured in a
manner which grants a concession to a borrower experiencing financial
difficulties, and loans similarly restructured prior to 1995 that are impaired,
are classified as nonperforming until such time as the loan is not impaired
based on the terms of the restructured agreement and the interest rate is a
market rate as measured at the restructuring date. Generally, loans which are
past due 180 days or more as to principal or interest are classified as
nonperforming regardless of collateral or collection status. Generally, interest
accrued but not collected is reversed when a loan or lease is classified as
nonperforming.
Interest collections on nonperforming loans and leases for which the
ultimate collectibility of principal is uncertain are applied as principal
reductions. Otherwise, such collections are credited to income when received.
Credit card loans that are 180 days past due are charged off and not
classified as nonperforming. All other consumer loans and residential mortgages
are generally charged off at 120 days or placed on nonperforming status upon
repossession or the inception of foreclosure proceedings. Ordinarily, interest
accrued but not collected is charged off along with the principal.
OTHER REAL ESTATE OWNED
Loans are classified as other real estate owned when the Corporation
forecloses on a property or when physical possession of the collateral is taken
regardless of whether foreclosure proceedings have taken place. In addition,
other real estate owned includes premises no longer used for business
operations.
Other real estate owned is carried at the lower of (1) the recorded amount
of the loan or lease for which the property previously served as collateral, or
(2) the fair value of the property minus estimated costs to sell. Prior to
foreclosure, the recorded amount of the loan or lease is reduced, if necessary,
to the fair value, minus estimated costs to sell, of the real estate to be
acquired by charging the allowance for credit losses.
Subsequent to foreclosure, gains or losses on the sale of and losses on the
periodic revaluation of other real estate owned are credited or charged to
expense. Net costs of maintaining and operating foreclosed properties are
expensed as incurred.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are recognized principally using the
straight-line method over the estimated useful lives of the assets.
MORTGAGE SERVICING RIGHTS
Beginning April 1, 1995, the Corporation revised its accounting for Mortgage
Servicing Rights (MSRs). The total cost of mortgage loans originated or
purchased is allocated between the cost of the loans and the MSRs based on the
relative fair values of the loans and the MSRs. MSRs acquired separately are
capitalized at their cost. During 1996, the Corporation capitalized $366 million
of MSRs. Prior to April 1, 1995, only MSRs purchased separately were recorded as
assets. The cost of the MSRs is amortized in proportion to and over the
estimated period of net servicing revenues. During 1996 and 1995, amortization
was $127 million and $86 million, respectively.
The fair value on December 31, 1996 of servicing for which the Corporation
has capitalized an acquisition cost was $1.1 billion compared to a carrying
value of $946 million. Additionally, there is value associated with servicing
originated prior to April 1995 for which the carrying value is zero. Total loans
serviced approximated $96.4 billion on December 31, 1996, including loans
serviced on behalf of the Corporation's banking subsidiaries. The Corporation
evaluates MSRs strata for impairment by estimating the fair value based on
anticipated future net cash flows, taking into consideration prepayment
predictions. The predominant characteristics used as the basis for stratifying
MSRs are loan type and period of origination. MSRs acquired prior to April 1,
1995 are evaluated for impairment separately. If the carrying value of the MSRs
exceeds the estimated fair value, a valuation allowance is established. Changes
to the valuation allowance are charged against or credited to mortgage servicing
income and fees. The valuation allowance on December 31, 1996 and 1995 and
changes in the valuation allowance during 1996 were insignificant.
INCOME TAXES
There are two components of income tax provision: current and deferred.
Current income tax provisions approximate taxes to be paid or refunded for
the applicable period.
Balance sheet amounts of deferred taxes are recognized on
54 NationsBank Corporation Annual Report 1996
the temporary differences between the bases of assets and liabilities as
measured by tax laws and their bases as reported in the financial statements.
Deferred tax expense or benefit is then recognized for the change in deferred
tax liabilities or assets between periods.
Recognition of deferred tax assets is based on management's belief that it
is more likely than not that the tax benefit associated with certain temporary
differences, tax operating loss carryforwards and tax credits will be realized.
A valuation allowance is recorded for those deferred tax items for which it is
more likely than not that realization will not occur.
RETIREMENT BENEFITS
The Corporation has established qualified retirement plans covering full-
time, salaried employees and certain part-time employees. Pension expense under
these plans is accrued each year. The costs are charged to current operations
and consist of several components of net pension cost based on various actuarial
assumptions regarding future experience under the plans.
In addition, the Corporation and its subsidiaries have established unfunded
supplemental benefit plans providing any benefits that could not be paid from a
qualified retirement plan because of Internal Revenue Code restrictions and
supplemental executive retirement plans for selected officers of the Corporation
and its subsidiaries. These plans are nonqualified and, therefore, in general, a
participant's or beneficiary's claim to benefits is as a general creditor.
The Corporation and its subsidiaries have established several postretirement
medical benefit plans which are not funded.
RISK MANAGEMENT INSTRUMENTS
Risk management instruments are utilized to modify the interest rate
characteristics of related assets or liabilities or hedge against changes in
interest rates, currency fluctuations or other such exposures as part of the
Corporation's asset and liability management process. Instruments must be
designated as hedges and must be effective throughout the hedge period.
Swaps, principally interest rate, used in the asset and liability management
process are accounted for on the accrual basis with revenues or expenses
recognized as adjustments to income or expense on the underlying linked assets
or liabilities. Risk management swaps generally are not terminated. When
terminations do occur, gains or losses are recorded as adjustments to the
carrying value of the underlying assets or liabilities and recognized as income
or expense over the shorter of either the remaining expected lives of such
underlying assets or liabilities or the remaining life of the swap. In
circumstances where the underlying assets or liabilities are sold, any remaining
carrying value adjustments and the cumulative change in value of any open
positions are recognized immediately as a component of the gain or loss on
disposition of such underlying assets and liabilities.
Gains and losses associated with futures and forward contracts used as
effective hedges of existing risk positions or anticipated transactions are
deferred as an adjustment to the carrying value of the related asset or
liability and recognized in income over the remaining term of the related asset
or liability.
Risk management instruments used to hedge or modify the interest rate
characteristics of debt securities classified as available for sale are carried
at fair value with unrealized gains or losses deferred as a component of
shareholders' equity.
The Corporation also purchases options in the interest rate market to
protect the value of certain assets, principally mortgage servicing rights,
against changes in prepayment rates. Option premiums are amortized over the
option life on a straight-line basis. Such contracts are designated as hedges,
and gains or losses are recorded as adjustments to the carrying value of the
underlying assets. As such, they are included in the basis of mortgage servicing
rights which are subjected to impairment valuations as described in the Mortgage
Servicing Rights accounting policy.
The Corporation also utilizes forward delivery contracts and options to
reduce the interest rate risk inherent in mortgage loans held for sale and the
commitments made to borrowers for mortgage loans which have not been funded.
These financial instruments are considered in the Corporation's valuation of its
mortgage loans held for sale which are carried at the lower of cost or market.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income, reduced by
dividends on preferred stock, by the weighted average number of common shares
outstanding for each period presented. Fully diluted earnings per share are
computed by dividing net income available to common shareholders, adjusted for
preferred dividends paid on dilutive convertible preferred stock, by average
fully dilutive shares outstanding, which include convertible preferred stock and
stock options.
NOTE TWO. MERGER-RELATED ACTIVITY
On January 7, 1997, the Corporation completed the acquisition of Boatmen's,
headquartered in St. Louis, Missouri. Each outstanding share of Boatmen's common
stock was converted into 1.305 shares of the Corporation's common stock
(adjusted for 2-for-1 stock split) or, at the election of each holder of
Boatmen's common stock, an amount in cash as specified in the merger agreement,
resulting in the net issuance of approximately 195 million shares of the
Corporation's common stock valued at $9.4 billion on the date of the merger and
aggregate cash payments of $371 million to Boatmen's shareholders. Boatmen's
unaudited total assets and total deposits were approximately $41.2 billion and
$32.0 billion, respectively, on the date of the acquisition. The Corporation
will account for this acquisition as a purchase; therefore, the results of
operations of Boatmen's will be included in the consolidated financial
statements of the Corporation from the date of acquisition.
The following table presents condensed pro forma consolidated results of
operations as if the acquisition of Boatmen's had occurred on January 1, 1996.
This information combines
Notes To Consolidated Financial Statements 55
the historical results of operations of the Corporation and Boatmen's after
the effect of estimated preliminary purchase accounting adjustments. Actual
adjustments will be made on the basis of appraisals and evaluations and may
differ from those reflected below. A cash election of 40 percent in the
Boatmen's acquisition has been assumed. The Corporation currently expects to
repurchase shares of its common stock from time to time so that the pro forma
impact of the Boatmen's acquisition will be the issuance of approximately 60
percent of the aggregate consideration in the Corporation's common stock and 40
percent of the aggregate consideration in cash. The actual cash election in the
transaction was approximately 4 percent. The pro forma information does not
purport to be indicative of the results that would have been obtained if the
operations had actually been combined during the period presented and is not
necessarily indicative of operating results to be expected in future periods.
UNAUDITED PRO FORMA RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE INFORMATION)
1996
- -----------------------------------------------------
Net interest income........................... $7,573
Net income.................................... 2,379
Net income available to common shareholders... 2,357
Earnings per common share..................... 3.30
Fully diluted earnings per common share....... 3.25
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 .88 shares of Corporation
common stock (adjusted for 2-for-1 stock split), resulting in the net issuance
of 52,609,234 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 did not have a
material impact on the results of operations or financial condition of the
Corporation.
During 1996, the Corporation acquired several small banking organizations
and banking centers in Florida and Texas. Combined total loans and total
deposits of these entities acquired were $5.1 billion and $7.6 billion,
respectively. These acquisitions were accounted for as purchases and did not
have a material impact on the results of operations or financial condition of
the Corporation.
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. An immaterial amount of the $118 million accrued charge remained at
December 31, 1996.
NOTE THREE. SECURITIES
The book and market values of securities held for investment and securities
available for sale on December 31 were (dollars in millions):
GROSS GROSS
BOOK UNREALIZED UNREALIZED MARKET
SECURITIES HELD FOR INVESTMENT VALUE GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------
1996
- ----
U.S. Treasury securities and agency debentures... $ 862 $ - $ (3) $ 859
Foreign sovereign securities..................... 25 - - 25
Mortgage-backed securities....................... 1,101 3 (4) 1,100
Other taxable securities......................... 5 - - 5
------------------------------------------------
Total taxable.................................. 1,993 3 (7) 1,989
------------------------------------------------
Tax-exempt securities............................ 117 4 - 121
------------------------------------------------
Total.......................................... $ 2,110 $ 7 $ (7) $ 2,110
================================================
1995
- ----
U.S. Treasury securities and agency debentures... $ 2,309 $ 7 $ (10) $ 2,306
Foreign sovereign securities..................... 22 - - 22
Mortgage-backed securities....................... 1,883 5 (8) 1,880
Other taxable securities......................... 18 - - 18
------------------------------------------------
Total taxable.................................. 4,232 12 (18) 4,226
------------------------------------------------
Tax-exempt securities............................ 200 7 (1) 206
------------------------------------------------
Total.......................................... $ 4,432 $ 19 $ (19) $ 4,432
================================================
1994
- ----
U.S. Treasury securities and agency debentures... $15,097 $ 1 $ (593) $14,505
Foreign sovereign securities..................... 19 - - 19
Mortgage-backed securities....................... 2,492 - (101) 2,391
Other taxable securities......................... 51 - (4) 47
------------------------------------------------
Total taxable.................................. 17,659 1 (698) 16,962
------------------------------------------------
Tax-exempt securities............................ 141 1 (3) 139
------------------------------------------------
Total.......................................... $17,800 $ 2 $ (701) $17,101
================================================
56 NationsBank Corporation Annual Report 1996
GROSS GROSS
UNREALIZED UNREALIZED MARKET
SECURITIES AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------
1996
- ----
U.S. Treasury securities and agency debentures... $ 1,437 $ 5 $ (26) $ 1,416
Foreign sovereign securities..................... 952 2 (8) 946
Mortgage-backed securities....................... 8,805 58 (45) 8,818
Other taxable securities......................... 484 5 (1) 488
------------------------------------------------
Total taxable.................................. 11,678 70 (80) 11,668
------------------------------------------------
Tax-exempt securities............................ 591 20 (2) 609
------------------------------------------------
Total.......................................... $12,269 $ 90 $ (82) $12,277
================================================
1995
- ----
U.S. Treasury securities and agency debentures... $16,909 $ 407 $ (16) $17,300
Foreign sovereign securities..................... 1,591 22 - 1,613
Mortgage-backed securities....................... 63 1 - 64
Other taxable securities......................... 392 3 - 395
------------------------------------------------
Total taxable.................................. 18,955 433 (16) 19,372
------------------------------------------------
Tax-exempt securities............................ 42 1 - 43
------------------------------------------------
Total.......................................... $18,997 $ 434 $ (16) $19,415
================================================
1994
- ----
U.S. Treasury securities and agency debentures... $ 7,729 $ - $ (274) $ 7,455
Mortgage-backed securities....................... 1 - - 1
Other taxable securities......................... 249 - - 249
------------------------------------------------
Total taxable.................................. 7,979 - (274) 7,705
------------------------------------------------
Tax-exempt securities............................ 310 11 (1) 320
------------------------------------------------
Total.......................................... $ 8,289 $ 11 $ (275) $ 8,025
================================================
The components, expected maturity distribution and yields (computed on a
taxable-equivalent basis) of the Corporation's securities portfolio on December
31, 1996 are summarized below (dollars in millions). Actual maturities may
differ from contractual maturities or maturities shown below since borrowers may
have the right to prepay obligations with or without prepayment penalties.
DUE AFTER 1 DUE AFTER 5
DUE IN 1 YEAR THROUGH 5 THROUGH 10 DUE AFTER
OR LESS YEARS YEARS 10 YEARS TOTAL
---------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- -------------------------------------------------------------------------------------------------------------------------------
Book value of securities held
for investment
U.S. Treasury securities
and agency debentures............. $364 4.79% $ 498 5.66% $ - -% $ - -% $ 862 5.30%
Foreign sovereign securities........ 3 7.48 13 7.71 8 6.52 1 6.17 25 7.25
Mortgage-backed securities.......... 483 5.74 594 6.11 24 5.32 - - 1,101 5.93
Other taxable securities............ 2 1.41 - - - - 3 6.35 5 4.08
---------------------------------------------------------------------------------------
Total taxable..................... 852 5.33 1,105 5.93 32 5.62 4 6.33 1,993 5.67
Tax-exempt securities............... 26 10.93 55 10.22 19 9.90 17 8.77 117 10.07
---------------------------------------------------------------------------------------
Total............................. $878 5.50 $1,160 6.12 $ 51 7.25 $ 21 8.36 $ 2,110 5.91
=======================================================================================
Market value of securities
held for investment................... $877 $1,159 $ 52 $ 22 $ 2,110
=======================================================================================
Market value of securities available
for sale
U.S. Treasury securities
and agency debentures............. $ 58 5.20% $ 470 6.01% $ 870 6.15% $ 18 8.57% $ 1,416 6.09%
Foreign sovereign securities........ 61 24.10 206 4.49 158 6.01 521 6.28 946 7.00
Mortgage-backed securities.......... 71 7.30 3,419 7.32 3,944 7.03 1,384 7.32 8,818 7.19
Other taxable securities............ 8 7.24 45 6.97 168 7.07 267 6.17 488 6.57
---------------------------------------------------------------------------------------
Total taxable..................... 198 11.88 4,140 7.03 5,140 6.85 2,190 6.94 11,668 7.02
Tax-exempt securities............... 4 10.93 11 7.71 88 8.31 506 9.02 609 8.90
---------------------------------------------------------------------------------------
Total............................. $202 11.87 $4,151 7.03 $5,228 6.88 $2,696 7.33 $12,277 7.11
=======================================================================================
Cost of securities available for sale... $202 $4,135 $5,236 $2,696 $12,269
=======================================================================================
Notes To Consolidated Financial Statements 57
The components of gains and losses on sales of available for sale securities
for the years ended December 31 were (dollars in millions):
1996 1995 1994
- -------------------------------------------------------------------
Gross gains on sales of securities...... $ 200 $ 74 $ 36
Gross losses on sales of securities..... (133) (45) (49)
---------------------------
Gains (losses) on sales of securities... $ 67 $ 29 $ (13)
===========================
There were no sales of securities held for investment in 1996, 1995 or 1994.
There were no investments in obligations of states and political
subdivisions that were payable from and secured by the same source of revenue or
taxing authority and that exceeded 10 percent of consolidated shareholders'
equity on December 31, 1996 or 1995.
The income tax expense attributable to securities transactions was $23
million for 1996 compared to $10 million in 1995 and an income tax benefit of $5
million in 1994.
Securities are pledged or assigned to secure borrowed funds, government and
trust deposits and for other purposes. The carrying value of pledged securities
was $12.6 billion and $22.5 billion on December 31, 1996 and December 31, 1995.
On December 31, 1996, the valuation reserve for securities available for
sale and marketable equity securities increased shareholders' equity by $86
million, reflecting $8 million of pretax appreciation on securities available
for sale and $123 million of pretax appreciation on marketable equity
securities.
NOTE FOUR. TRADING ACCOUNT ASSETS AND LIABILITIES
The fair values on December 31 and the average fair values for the years
ended December 31 of the components of trading account assets and liabilities
were (dollars in millions):
AVERAGE BALANCES
------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------- ------------------
Securities owned
U.S. Treasury securities.................................. $ 6,914 $10,364 $13,168 $10,254
Securities of other U.S. Government agencies and
corporations............................................ 2,096 1,508 1,843 1,541
Certificates of deposit, bankers' acceptances and
commercial paper........................................ 501 555 553 524
Corporate debt............................................ 1,552 1,443 1,589 1,031
Foreign sovereign debt.................................... 3,396 576 1,044 200
Other securities.......................................... 932 402 850 627
------------------ ------------------
Total securities owned.................................. 15,391 14,848 19,047 14,177
Derivatives-dealer positions................................ 3,298 4,019 3,791 3,230
------------------ ------------------
Total trading account assets............................ $18,689 $18,867 $22,838 $17,407
================== ==================
Short sales
U.S. Treasury securities.................................. $ 7,143 $11,066 $ 9,287 $11,416
Corporate debt............................................ 452 683 535 591
Other securities.......................................... 309 33 315 18
------------------ ------------------
Total short sales....................................... 7,904 11,782 10,137 12,025
Derivatives-dealer positions................................ 3,848 3,395 3,170 2,970
------------------ ------------------
Total trading account liabilities....................... $11,752 $15,177 $13,307 $14,995
================== ==================
A discussion of the Corporation's trading activities and an analysis of the
revenues associated with the Corporation's trading activities is presented on
page 25. The Corporation's derivatives-dealer positions are presented in the
discussion beginning on page 37 and TABLE SIXTEEN.
The net change in the unrealized gain or loss on trading securities held on
December 31, 1996 and 1995, included in noninterest income, was a gain of $68
million for 1996 and a gain of $44 million for 1995.
Derivatives-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.
A swap agreement is a contract between two parties to exchange cash flows
based on specified underlying notional amounts and indices. Financial futures or
forward settlement contracts are agreements to buy or sell a quantity of a
financial instrument or commodity at a predetermined future date and rate or
price. An option contract is an agreement that conveys to the purchaser the
right, but not the obligation, to buy or sell a quantity of a financial
instrument, index or commodity at a predetermined rate or price at a time or
during a period in the future. These agreements can be transacted on organized
exchanges or directly between parties.
58 NationsBank Corporation Annual Report 1996
NOTE FIVE. LOANS, LEASES AND FACTORED ACCOUNTS RECEIVABLE
Loans, leases and factored accounts receivable on December 31 were (dollars
in millions):
1996 1995
- -----------------------------------------------------------------------------------
LOANS
Commercial................................................ $ 50,488 $ 48,186
Real estate commercial.................................... 5,445 6,183
Real estate construction.................................. 2,863 2,976
----------------------
Total commercial........................................ 58,796 57,345
----------------------
Residential mortgage...................................... 27,948 24,043
Credit card............................................... 6,747 6,532
Other consumer............................................ 20,993 22,751
----------------------
Total consumer.......................................... 55,688 53,326
----------------------
Foreign................................................... 2,829 2,251
Factored accounts receivable.............................. 1,047 991
----------------------
Total loans and factored accounts receivable............ 118,360 113,913
Less unearned income.................................... (602) (678)
----------------------
Loans and factored accounts receivable, net of
unearned income....................................... 117,758 113,235
----------------------
LEASES
Lease receivables......................................... 5,134 3,915
Estimated residual value.................................. 1,537 1,192
Less unearned income...................................... (1,799) (1,309)
----------------------
Leases, net of unearned income.......................... 4,872 3,798
----------------------
Loans, leases and factored accounts receivable,
net of unearned income................................ $122,630 $117,033
======================
Transactions in the allowance for credit losses were (dollars in millions):
1996 1995 1994
- ------------------------------------------------------------------------------------------
Balance on January 1........................................ $2,163 $2,186 $2,169
-----------------------------
Loans, leases and factored accounts receivable charged
off....................................................... (836) (636) (533)
Recoveries of loans, leases and factored accounts
receivable previously charged off......................... 238 215 217
-----------------------------
Net charge-offs........................................... (598) (421) (316)
Provision for credit losses................................. 605 382 310
Allowance applicable to loans of purchased companies and
other..................................................... 145 16 23
-----------------------------
Balance on December 31...................................... $2,315 $2,163 $2,186
=============================
The following table presents the recorded investment in certain loans that
were considered to be impaired, all of which were classified as nonperforming,
on December 31 (dollars in millions):
1996 1995
- ----------------------------------------
Commercial................. $342 $271
Real estate commercial..... 145 196
Real estate construction... 28 16
------------
Total impaired loans..... $515 $483
============
The average recorded investment in certain impaired loans for the years
ended December 31, 1996 and 1995 was approximately $542 million and $598
million, respectively. For the years ended December 31, 1996 and 1995, interest
income recognized on impaired loans totaled $26 million each year, all of which
was recognized on a cash basis.
On December 31, 1996, 1995 and 1994, nonperforming loans, including certain
loans which are considered impaired, totaled $890 million, $706 million and
$801 million, respectively.
The net amount of interest recorded during each year on loans that were
classified as nonperforming or restructured on December 31, 1996, 1995 and 1994
was $35 million, $27 million and $31 million, respectively. If these loans had
been accruing interest at their originally contracted rates, related income
would have been $103 million in 1996, $102 million in 1995 and $96 million in
1994.
Other real estate owned amounted to $153 million, $147 million and $337
million on December 31, 1996, 1995 and 1994, respectively. On January 1, 1995,
$80 million of in-substance foreclosed loans previously reported as other real
estate owned was reclassified to nonperforming loans. The cost of carrying other
real estate owned amounted to $8 million, $13 million and $24 million in 1996,
1995 and 1994, respectively.
Notes To Consolidated Financial Statements 59
NOTE SIX. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Certain of the Corporation's banking subsidiaries, NationsBank, N.A.,
NationsBank, N.A. (South) and NationsBank of Texas, N.A., jointly maintain a
program to offer up to $9.0 billion of bank notes from time to time with fixed
or floating rates and maturities from 30 days to 15 years from date of issue. On
December 31, 1996 and 1995, there were short-term bank notes outstanding of $872
million and $3.1 billion, respectively. In addition, there were bank notes
outstanding on December 31, 1996 and 1995 totaling $3.5 billion and $1.9
billion, respectively, which were classified as long-term debt.
On December 31, 1996 and 1995, the Corporation had unused commercial back-up
lines of credit totaling $1.5 billion which expire in 1997. These lines were
supported by fees paid directly by the Corporation to unaffiliated banks.
The maturities of long-term debt on December 31 were (dollars in millions):
1996
-------------------------------------
VARIOUS VARIOUS
FIXED-RATE FLOATING-RATE 1995
DEBT DEBT AMOUNT AMOUNT
OBLIGATIONS OBLIGATIONS OUTSTANDING OUTSTANDING
- ------------------------------------------------------------------------------------------------ -----------
PARENT COMPANY
Senior debt
Due in 1996............................................. $ - $ - $ - $ 1,194
Due in 1997............................................. 337 405 742 743
Due in 1998............................................. 889 525 1,414 1,414
Due in 1999............................................. 116 1,209 1,325 917
Due in 2000............................................. 698 868 1,566 1,513
Due in 2001............................................. - 1,602 1,602 602
Thereafter.............................................. 651 2,129 2,780 369
----------------------------------- -----------
2,691 6,738 9,429 6,752
----------------------------------- -----------
Subordinated debt
Due in 1997............................................. 75 - 75 75
Due in 1999............................................. 130 - 130 399
Due in 2001............................................. 299 - 299 299
Thereafter.............................................. 4,257 1,060 5,317 3,674
----------------------------------- -----------
4,761 1,060 5,821 4,447
----------------------------------- -----------
Total parent company long-term debt..................... 7,452 7,798 15,250 11,199
----------------------------------- -----------
BANKING AND NONBANKING SUBSIDIARIES
Senior debt
Due in 1996............................................. - - - 244
Due in 1997............................................. 307 995 1,302 908
Due in 1998............................................. 110 2,776 2,886 1,809
Due in 1999............................................. 25 199 224 84
Due in 2000............................................. 28 1,900 1,928 3,001
Due in 2001............................................. 30 317 347 33
Thereafter.............................................. 88 351 439 167
----------------------------------- -----------
588 6,538 7,126 6,246
----------------------------------- -----------
Subordinated debt
Due in 1997............................................. 5 - 5 -
Due in 2004 and thereafter.............................. 300 8 308 308
----------------------------------- -----------
305 8 313 308
----------------------------------- -----------
Total banking and nonbanking subsidiaries long-
term debt............................................. 893 6,546 7,439 6,554
----------------------------------- -----------
$8,345 $14,344 22,689 17,753
----------------------------------- -----------
Obligations under capital leases........................ 296 22
---------- -----------
Total long-term debt.................................... $ 22,985 $17,775
========== ===========
60 NationsBank Corporation Annual Report 1996
As part of its interest rate risk management activities, the Corporation
enters into interest rate swap agreements for certain long-term debt issuances.
Through the use of interest rate swaps, $1.7 billion of fixed-rate debt with
rates ranging from 5.60 percent to 8.57 percent have been effectively converted
to floating rates primarily at spreads over LIBOR. In addition, $300 million of
notes with floating rates have been converted to fixed rates ranging from 8.02
percent to 8.12 percent.
On December 31, 1996, including the effects of interest rate swap agreements
entered into for certain long-term debt issuances, the weighted average
effective interest rates for total long-term debt, total fixed-rate debt and
total floating-rate debt (based on the rates in effect on December 31, 1996)
were 6.39 percent, 7.39 percent and 5.80 percent, respectively.
Two series of mortgage-backed bonds were issued during 1995 through Main
Place Real Estate Investment Trust (MPREIT), formerly Main Place Funding
Corporation, a limited-purpose subsidiary of NationsBank, N.A., a wholly owned
banking subsidiary of the Corporation. Outstandings under these issuances were
$3.0 billion on December 31, 1996. On December 31, 1996, MPREIT had $14.7
billion of 1-4 family mortgage loans, of which $4.4 billion served as collateral
for the two series of mortgage-backed bonds. On February 10, 1997, $1.0 billion
was available for issuance under a shelf registration statement filed by MPREIT.
On March 15, 1996, the Corporation redeemed $300 million of 101/2-percent
subordinated notes originally due 1999. Certain other debt obligations may be
redeemed prior to maturity at the option of the Corporation. Of total long-term
debt on December 31, 1996, $28 million of debt scheduled to mature in 2002 has
been redeemable since 1982, $500 million scheduled to mature in 2000 is
redeemable beginning in 1998, an aggregate of $70 million scheduled to mature in
either 2006 or 2010 is redeemable beginning in 1999, an aggregate of $513
million scheduled to mature in either 2005, 2006, 2010 or 2011 is redeemable
beginning in 2000 and $20 million scheduled to mature in 2006 is redeemable
beginning in 2003.
On July 5, 1996, the Corporation increased its Euro medium-term note program
to offer up to $4.5 billion of senior or subordinated notes exclusively to non-
United States residents. The notes bear interest at fixed or floating rates and
may be denominated in foreign currencies. The Corporation uses foreign currency
swaps to convert foreign-denominated debt into U.S. dollars. As of February 10,
1997, the Corporation had issued $1.4 billion under this program.
During the fourth quarter of 1996, the Corporation formed three wholly owned
grantor trust subsidiaries (the Trusts) to issue preferred securities (Preferred
Securities) representing undivided beneficial interests in the assets of the
respective Trusts and to invest the gross proceeds of such Preferred Securities
into notes of the Corporation. The sole assets of the Trusts are $619 million
aggregate principal amount of the Corporation's 7.84% Junior Subordinated
Deferrable Interest Notes due 2026 which are redeemable beginning in 2001 and
$376 million aggregate principal amount of the Corporation's 7.83% Junior
Subordinated Deferrable Interest Notes due 2026 which are redeemable in 2006.
Such securities qualify as Tier 1 Capital for regulatory purposes. On January
22, 1997, the Trusts issued an additional $500 million of Preferred Securities.
As of February 10, 1997, two additional wholly owned grantor trust subsidiaries
formed by the Corporation had the authority to issue $500 million of Preferred
Securities.
Payment of periodic cash distributions and payment upon liquidation or
redemption with respect to Preferred Securities is guaranteed by the Corporation
to the extent of funds held by the Trust (the Preferred Securities Guarantee).
The Preferred Securities Guarantee, when taken together with the Corporation's
other obligations including its obligations under the Junior Subordinated
Deferrable Interest Notes, will constitute a full and unconditional guarantee,
on a subordinated basis, by the Corporation of payments due on the Preferred
Securities.
As of February 10, 1997, the Corporation had the authority to issue
approximately $5.0 billion of corporate debt securities and preferred and common
stock under its existing shelf registration statements and $3.1 billion of
corporate debt securities under the Euro medium-term note program.
NOTE SEVEN. SHAREHOLDERS' EQUITY
The Corporation has authorized 45 million shares of preferred stock. As of
December 31, 1996, the Corporation had issued 2.3 million shares of ESOP
Convertible Preferred Stock, Series C (ESOP Preferred Stock). The ESOP Preferred
Stock has a stated and liquidation value of $42.50 per share, provides for an
annual cumulative dividend of $3.30 per share and is convertible into 1.68
shares of the Corporation's common stock at an initial conversion price of
$21.25 per 1.68 shares of the Corporation's common stock. ESOP Preferred Stock
in the amount of $7.0 million in 1996, $6.0 million in 1995 and $4.0 million in
1994 was converted into the Corporation's common stock.
In connection with the acquisition of a small Florida banking organization
(Citizens Federal), a banking subsidiary of the Corporation issued
approximately .5 million shares of 8.50% Series H Noncumulative Preferred Stock
(Series H Preferred Stock) to holders of the 8.50% Series H Noncumulative
Preferred Stock of Citizens Federal and 2.4 million shares of 8.75% Series
1993A Noncumulative Preferred Stock (1993A Preferred Stock) to holders of 8.75%
Series 1993A Noncumulative Preferred Stock of Citizens Federal. The Series H
Preferred Stock has a stated and liquidation value of $25 per share and
provides for an annual noncumulative dividend of $2.125 per share. The 1993A
Preferred
Notes To Consolidated Financial Statements 61
Stock has a stated and liquidation value of $25 per share and provides for an
annual noncumulative dividend of $2.1875 per share.
During 1996 and 1995, the Corporation repurchased 34.2 million shares and
19.5 million shares, respectively, of its common stock under various stock
repurchase programs authorized by the Board of Directors. Additionally, on
August 29, 1996, the Board of Directors authorized the Corporation to repurchase
shares of its common stock from time to time so that the pro forma impact of the
Boatmen's acquisition will be the issuance of approximately 60 percent of the
aggregate consideration in the Corporation's common stock and 40 percent of the
aggregate consideration in cash. On January 14, 1997, the Corporation purchased
24 million shares of its common stock pursuant to a purchase agreement with an
agent of the Corporation.
On January 22, 1997, the Board of Directors approved a 2-for-1 split of the
Corporation's common stock payable on February 27, 1997 to shareholders of
record February 7, 1997.
Other shareholders' equity on December 31 was comprised of the following
(dollars in millions):
1996 1995
- ---------------------------------------------------------
Restricted stock award plan
deferred compensation.................. $ (10) $ (37)
Net unrealized gains on available for
sale securities and marketable equity
securities, net of tax................. 86 323
Foreign exchange translation adjustments
and other.............................. (18) (8)
----------------
$ 58 $ 278
================
NOTE EIGHT. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Corporation enters into a number of
off-balance sheet commitments. These instruments expose the Corporation to
varying degrees of credit and market risk and are subject to the same credit and
risk limitation reviews as those recorded on the balance sheet. See the
discussion of credit risk policies and procedures beginning on page 32 through
the second full paragraph on page 35.
CREDIT EXTENSION COMMITMENTS
The Corporation enters into commitments to extend credit, standby letters of
credit and commercial letters of credit to meet the financing needs of its
customers. The commitments shown below have been reduced by amounts
collateralized by cash and amounts participated to other financial institutions.
The following summarizes commitments outstanding on December 31 (dollars in
millions):
1996 1995
- --------------------------------------------------
Commitments to extend credit
Credit card commitments...... $24,255 $21,033
Other loan commitments....... 82,506 66,638
Standby letters of credit and
financial guarantees......... 10,060 8,356
Commercial letters of credit... 761 986
Commitments to extend credit are legally binding, generally have specified
rates and maturities and are for specified purposes. The Corporation manages the
credit risk on these commitments by subjecting these commitments to normal
credit approval and monitoring processes and protecting against deterioration in
the borrowers' ability to pay through adverse-change clauses which require
borrowers to maintain various credit and liquidity measures. Credit card lines
are unsecured commitments which are reviewed at least annually by management.
Upon evaluation of the customers' credit-worthiness, the Corporation has the
right to terminate or change the terms of the credit card lines. Of the December
31, 1996 total other loan commitments, $33.8 billion is scheduled to expire in
less than one year, $36.8 billion in one to five years and $11.9 billion after
five years.
Standby letters of credit (SBLC) and financial guarantees are issued to
support the debt obligations of customers. If a SBLC or financial guarantee is
drawn upon, the Corporation looks to its customer for payment. SBLCs and
financial guarantees are subject to the same approval and collateral policies as
other extensions of credit. Of the December 31, 1996 total SBLCs and financial
guarantees, $6.7 billion is scheduled to expire in less than one year, $3.1
billion in one to five years and $282 million after five years.
Commercial letters of credit, issued primarily to facilitate customer trade
finance activities, are collateralized by the underlying goods being shipped by
the customer and are generally short term.
For each of these types of instruments, the Corporation's maximum exposure
to credit loss is represented by the contractual amount of these instruments.
Many of the commitments are collateralized or are expected to expire without
being drawn upon; therefore, the total commitment amounts do not necessarily
represent risk of loss or future cash requirements.
DERIVATIVES
Derivative transactions are entered into by the Corporation to meet the
financing needs of its customers, to manage its own interest rate and currency
risks, and as part of its dealer activities. See TABLES TEN and ELEVEN on pages
31 and 33, the first two paragraphs under Off-Balance Sheet Derivatives - Asset
and Liability Management Positions on page 31 and the second full paragraph
under the mortgage servicing discussion on page 24 for derivatives used for risk
management purposes. See TABLE SIXTEEN on page 37, the discussion beginning on
page 37 and Note Four regarding the Corporation's derivative dealer activities.
62 NationsBank Corporation Annual Report 1996
SECURITIES LENDING
The Corporation executes securities lending transactions on behalf of
certain customers. In certain instances, the Corporation indemnifies the
customer against certain losses. The Corporation obtains collateral with a
market value in excess of the market value of the securities loaned. On December
31, 1996 and 1995, indemnified securities lending transactions totaled $7.1
billion and $2.6 billion, respectively. Collateral with a market value of $7.2
billion and $2.7 billion on December 31, 1996 and 1995, respectively, was
obtained by the Corporation in support of these transactions.
WHEN ISSUED SECURITIES
When issued securities are commitments entered into to purchase or sell
securities in the time period between the announcement of a securities offering
and the issuance of those securities. On December 31, 1996, the Corporation had
commitments to purchase and sell when issued securities of $7.4 billion each. On
December 31, 1995, commitments to purchase and sell when issued securities were
$4.4 billion and $4.3 billion, respectively.
LITIGATION
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 the 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.
NOTE NINE. REGULATORY REQUIREMENTS AND RESTRICTIONS
The Corporation's banking subsidiaries are required to maintain average
reserve balances with the Federal Reserve Bank based on a percentage of certain
deposits. The average of those reserve balances amounted to $873 million and
$1.1 billion for 1996 and 1995, respectively.
The primary source of funds for cash distributions by the Corporation to its
shareholders is dividends received from its banking subsidiaries. The subsidiary
banks, including those acquired through the Boatmen's acquisition, can initiate
dividend payments in 1997, without prior regulatory approval, of $1.4 billion
plus an additional amount equal to their net profits for 1997, as defined by
statute, up to the date of any such dividend declaration. The amount of
dividends that each subsidiary bank may declare in a calendar year without
approval by the Office of the Comptroller of the Currency (OCC) is the bank's
net profits for that year combined with its net retained profits, as defined,
for the preceding two years.
Regulations also restrict banking subsidiaries in lending funds to
affiliates. On December 31, 1996, the total amount which could be loaned to the
Corporation by its banking subsidiaries was approximately $1.6 billion. On
December 31, 1996, no loans to the Corporation from its banking subsidiaries
were outstanding.
The Federal Reserve Board (FRB), the OCC and the Federal Deposit Insurance
Corporation have issued risk-based capital guidelines for U.S. banking
organizations. As of December 31, 1996, the Corporation and its banking
subsidiaries were well capitalized under this regulatory framework. Failure to
meet the capital requirements can initiate certain mandatory and discretionary
actions by regulators that could have a material effect on the Corporation's
financial statements. There are no conditions or events since December 31, 1996
that management believes have changed either the Corporation's or its banking
subsidiaries' capital classifications.
The risk-based capital guidelines measure capital in relation to the credit
risk of both on- and off-balance sheet items using various risk weights. Under
the risk-based capital guidelines, Total Capital consists of two tiers of
capital. Tier 1 Capital includes common shareholders' equity and qualifying
preferred stock, less goodwill and other adjustments. Tier 2 Capital consists of
preferred stock not qualifying as Tier 1, mandatory convertible debt, limited
amounts of subordinated debt, other qualifying term debt and the allowance for
credit losses up to 1.25 percent of risk-weighted assets. Additionally, in
accordance with the FRB's capital adequacy guidelines, the Corporation is
required to exclude the equity, assets and off-balance sheet exposures of its
broker-dealer subsidiary, NATIONSBANC CAPITAL MARKETS, INC., when calculating
regulatory capital ratios.
A well-capitalized institution must maintain a Tier 1 Capital ratio of six
percent and a Total Capital ratio of ten percent. In order to meet minimum
regulatory capital requirements, an institution must maintain a Tier 1 Capital
ratio of four percent and a Total Capital ratio of eight percent.
The leverage ratio guidelines establish a minimum ratio of Tier 1 Capital to
quarterly average assets, excluding goodwill and certain other items, of three
to four percent. Banking organizations must maintain a leverage capital ratio of
at least five percent to be classified as well capitalized.
Notes To Consolidated Financial Statements 63
The following table presents the actual capital ratios and amounts and
minimum required capital amounts for the Corporation and its significant
banking subsidiaries on December 31 (dollars in millions):
1996 1995
------------------------------------------------------------------
AMOUNT REQUIRED AMOUNT REQUIRED
ACTUAL FOR MINIMUM ACTUAL FOR MINIMUM
------------------ CAPITAL --------------- CAPITAL
RATIO AMOUNT ADEQUACY RATIO AMOUNT ADEQUACY
- ------------------------------------------------------------------------------------------------
TIER 1 CAPITAL
NATIONSBANK CORPORATION...... 7.76% $12,384 $ 6,384 7.24% $10,799 $ 5,966
NationsBank, N.A............. 7.54 5,137 2,725 7.60 4,623 2,433
NationsBank, N.A. (South).... 8.05 2,899 1,440 8.65 2,500 1,156
NationsBank of Texas, N.A.... 6.78 2,468 1,456 6.37 2,487 1,562
TOTAL CAPITAL
NATIONSBANK CORPORATION...... 12.66 20,208 12,770 11.58 17,264 11,927
NationsBank, N.A............. 10.41 7,093 5,451 10.19 6,199 4,867
NationsBank, N.A. (South).... 10.56 3,801 2,880 11.46 3,312 2,312
NationsBank of Texas, N.A.... 10.19 3,706 2,910 8.93 3,490 3,127
LEVERAGE CAPITAL
NATIONSBANK CORPORATION...... 7.09 12,384 6,987 6.27 10,799 6,889
NationsBank, N.A............. 6.21 5,137 3,309 5.66 4,623 3,267
NationsBank, N.A. (South).... 6.46 2,899 1,795 6.71 2,500 1,490
NationsBank of Texas, N.A.... 6.23 2,468 1,585 5.30 2,487 1,877
NOTE TEN. EMPLOYEE BENEFIT PLANS
The Corporation sponsors noncontributory trusteed pension plans that cover
substantially all officers and employees. The plans provide defined benefits
based on an employee's compensation, age at retirement and years of service. It
is the policy of the Corporation to fund not less than the minimum funding
amount required by the Employee Retirement Income Security Act.
The following table sets forth the plans' estimated status on December 31
(dollars in millions):
1996 1995
- ----------------------------------------------------------------------------------
Actuarial present value of benefit obligation
Accumulated benefit obligation, including vested
benefits of $813 and $864............................... $ (840) $ (884)
=====================
Projected benefit obligation for service rendered to
date.................................................... $ (997) $ (1,047)
Plan assets at fair value, primarily listed stocks, fixed-
income securities and real estate......................... 1,202 1,091
---------------------
Plan assets in excess of projected benefit obligation....... 205 44
Unrecognized net loss....................................... 187 398
Unrecognized net transition asset being amortized........... (12) (13)
Unrecognized prior service benefit being amortized.......... (33) (29)
Deferred investment gain.................................... (39) (97)
---------------------
Prepaid pension cost...................................... $ 308 $ 303
=====================
Net periodic pension expense for the years ended December 31 included the
following components (dollars in millions):
1996 1995 1994
- ----------------------------------------------------------------------------
Service cost-benefits earned during the period... $ 43 $ 35 $ 39
Interest cost on projected benefit obligation.... 77 74 72
Actual return on plan assets..................... (148) (199) 22
Net amortization and deferral.................... 39 95 (121)
--------------------------
Net periodic pension expense................... $ 11 $ 5 $ 12
==========================
For December 31, 1996, the weighted average discount rate and rate of
increase in future compensation used in determining the actuarial present value
of the projected benefit obligation were 8.0 percent and 4.0 percent,
respectively. The related expected long-term rate of return on plan assets was
10.0 percent. For December 31, 1995, the weighted average discount rate, rate of
increase in future compensation and expected long-term rate of return on plan
assets were 7.5 percent, 4.0 percent and 10.0 percent, respectively.
64 NationsBank Corporation Annual Report 1996
HEALTH AND LIFE BENEFIT PLANS
In addition to providing retirement benefits, the Corporation provides
health care and life insurance benefits for active and retired employees.
Substantially all of the Corporation's employees, including certain employees in
foreign countries, may become eligible for postretirement benefits if they reach
early retirement age while employed by the Corporation and they have the
required number of years of service. Under the Corporation's current plan,
eligible retirees are entitled to a fixed dollar amount for each year of
service. Additionally, certain current retirees are eligible for different
benefits attributable to prior plans.
All of the Corporation's accrued postretirement benefit liability was
unfunded at year-end 1996. The "projected unit credit" actuarial method was used
to determine the normal cost and actuarial liability.
A reconciliation of the estimated status of the postretirement benefit
obligation on December 31 is as follows (dollars in millions):
1996 1995
- ----------------------------------------------------------------
Accumulated postretirement benefit obligation
Retirees................................... $ (148) $ (136)
Fully eligible active participants......... (3) (2)
Other active plan participants............. (42) (49)
------------------
(193) (187)
Unamortized transition obligation............ 116 118
Unamortized service cost..................... 1 -
Unrecognized net (gain) loss................. (1) 3
------------------
Accrued postemployment benefit liability... $ (77) $ (66)
==================
Net periodic postretirement benefit cost for the years ended December 31
included the following (dollars in millions):
1996 1995 1994
- ------------------------------------------------------------------------------------
Service cost................................................ $ 3 $ 2 $ 3
Interest cost on accumulated postretirement benefit
obligation................................................ 15 15 14
Amortization of transition obligation over 20 years......... 7 7 7
Amortization of gains....................................... (1) (5) (6)
----------------------
Net periodic postretirement benefit cost.................. $ 24 $ 19 $ 18
======================
The health care cost trend rates used in determining the accumulated
postretirement benefit obligation were 6.50 percent for pre-65 benefits and 5.25
percent for post-65 benefits. A one-percent change in the average health care
cost trend rates would increase the accumulated postretirement benefit
obligation by 5 percent and the aggregate of the service cost and interest cost
components of net periodic postretirement benefit cost by 3 percent. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0 percent and 7.5 percent at December
31, 1996 and 1995, respectively.
SAVINGS AND PROFIT SHARING PLANS
In addition to the retirement plans, the Corporation maintains several
defined contribution savings and profit sharing plans, one of which features a
leveraged employee stock ownership (ESOP) provision.
For 1996, 1995 and 1994, the Corporation contributed approximately $39
million, $43 million and $41 million, respectively, in cash which was utilized
primarily to purchase the Corporation's common stock under the terms of these
plans. On December 31, 1996, an aggregate of 17,491,082 shares of the
Corporation's common stock and 2,319,060 shares of ESOP preferred stock were
held by the Corporation's various savings and profit sharing plans.
Under the terms of the ESOP provision, payments to the plan for dividends on
the ESOP Preferred Stock were $8 million for 1996, $8 million for 1995 and $9
million for 1994. Interest incurred to service the ESOP debt amounted to $3
million, $4 million and $5 million for 1996, 1995 and 1994, respectively.
STOCK OPTION AND AWARD PLANS
At December 31, 1996, the Corporation had certain stock-based compensation
plans (the Plans) which are described below. The Corporation has elected to
provide SFAS 123 disclosures as if the Corporation had adopted the fair-value
based method of measuring employee stock options in 1996 and 1995 as indicated
below (dollars in millions except per share data):
AS REPORTED PRO FORMA
------------------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------
Net income.................................... $2,375 $1,950 $2,282 $1,933
Net income available to common shareholders... 2,360 1,942 2,267 1,925
Earnings per common share..................... 4.00 3.56 3.84 3.53
Fully diluted earnings per common share....... 3.92 3.52 3.77 3.49
The table above does not include the 1997 stock awards disclosed on the
next page.
Notes To Consolidated Financial Statements 65
In determining the pro forma disclosures on the previous page, the fair
value of options granted under the 1996 Associates Stock Option Award Plan
and the Key Employee Stock Plan was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
RISK FREE DIVIDEND EXPECTED
INTEREST RATES YIELD LIVES VOLATILITY
------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------
1996 Associates Stock Option Award Plan... 6.44% -% 3.55% -% 4 years - 20.8% -%
Key Employee Stock Plan................... 5.52 6.15 3.55 3.55 7 years 7 years 24.6 25.3
The effects of applying SFAS 123 in the pro forma disclosures are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995.
1996 ASSOCIATES STOCK OPTION AWARD PLAN:
On June 26, 1996, the Corporation's Board of Directors approved the 1996
Associates Stock Option Award Plan. Under the plan, eligible full-time and part-
time employees at the level of Vice President and below received an award of a
predetermined number of stock options entitling them to purchase shares of the
Corporation's common stock at the closing price of $42 1/8 per share on July 1,
1996. Options to purchase approximately 32 million shares of the Corporation's
common stock were granted on July 1, 1996. Options to purchase approximately 10
million shares were granted on January 7, 1997 to eligible Boatmen's associates.
One-half of the options became exercisable after the Corporation's common stock
closed at or above $50 per share for ten consecutive trading days, which
occurred in January 1997. The remainder of the options are exercisable after the
Corporation's common stock closes at or above $60 per share for ten consecutive
trading days. Regardless of the stock price, all options will be fully
exercisable July 1, 2000. No option could be exercised before January 1, 1997.
The options expire on July 1, 2001.
KEY EMPLOYEE STOCK PLAN:
The Key Employee Stock Plan provides for different types of awards including
stock options, restricted stock and performance shares. Under this plan, certain
key employees received stock options effective July 1, 1995, entitling them to
purchase shares of the Corporation's common stock at the previous day's closing
market price of $26 13/16 per share. Options to purchase 7.92 million shares of
common stock were granted. Fifty percent of the options are currently vested and
exercisable. The remaining fifty percent vest and become exercisable in two
equal installments on July 1, 1997 and 1998. Any unexercised options will expire
on July 1, 2005.
Under the Key Employee Stock Plan, on January 2, 1996, ten-year options to
purchase 3.6 million shares of common stock at $34 11/16 per share were granted
to certain employees. On February 1, 1996, ten-year options to purchase 1.8
million shares of common stock at $34 3/8 per share were granted to certain
employees. In January 1997, ten-year options to purchase 2.31 million shares of
common stock at $49 7/16 were granted to certain employees. For these grants,
twenty-five percent of the options immediately vested and became exercisable.
The remainder vest and become exercisable in three equal annual installments. In
addition, in January 1997, 620,000 shares of restricted stock were granted to
certain former Boatmen's executives in connection with their employment with the
Corporation. These shares vest in three substantially equal installments
beginning January 1998.
RESTRICTED STOCK AWARD PLAN:
Under the Corporation's Restricted Stock Award Plan, key employees were
awarded shares of the Corporation's common stock subject to certain vesting
requirements. Generally, vesting occurred in five equal annual installments with
related deferred compensation expensed over the same period.
OTHER PLANS:
Additional options under former plans and restricted stock and stock options
assumed in connection with various acquisitions remain outstanding and are
insignificant in amount. No further options or rights will be granted under such
plans.
The following tables present the status of the Plans as of December 31,
1996, 1995 and 1994, and changes during the years then ended:
1996 1995 1994
----------------------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
Employee Stock Option Plans SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year.... 12,788,762 $23.52 12,741,502 $20.34 17,179,992 $20.44
Shares due to acquisitions.......... 1,098,580 17.26 264,446 19.55 39,192 14.76
Granted............................. 38,259,496 41.08 7,920,000 26.82 - -
Exercised........................... (3,783,170) 20.69 (7,691,186) 21.39 (3,570,562) 19.47
Forfeited........................... (3,823,518) 40.57 (446,000) 25.43 (907,120) 25.44
---------------------------------------------------------------------------------------
Outstanding at end of year.......... 44,540,150 37.22 12,788,762 23.52 12,741,502 20.34
=======================================================================================
Options exercisable at year end..... 7,591,598 24.38 6,805,944 20.66 12,716,302 20.35
Weighted-average fair value of
options granted during the year... $ 7.82 $ 6.91
=========== ===========
66 NationsBank Corporation Annual Report 1996
1996 1995 1994
------------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
Restricted Stock Award Plan SHARES GRANT PRICE SHARES GRANT PRICE SHARES GRANT PRICE
- ---------------------------------------------------------------------------------------------------------------
Outstanding unvested grants at
beginning of year........... 2,520,892 $23.23 3,633,704 $22.93 4,301,140 $22.29
Granted....................... - - 125,000 24.50 574,000 25.94
Vested........................ (1,106,062) 22.76 (1,136,732) 22.39 (1,188,716) 22.03
Canceled...................... (73,280) 24.36 (101,080) 22.75 (52,720) 23.44
-------------------------------------------------------------------------------
Outstanding unvested grants
at end of year.............. 1,341,550 23.55 2,520,892 23.23 3,633,704 22.93
===============================================================================
The following table summarizes information about stock options outstanding
on December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT DECEMBER 31 CONTRACTUAL LIFE EXERCISE PRICE AT DECEMBER 31 EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------
$ 6.00 - $30.00....... 9,941,194 6.9 years $23.93 6,335,694 $22.31
$30.01 - $46.50....... 34,598,956 5.2 years 41.03 1,255,904 34.84
-------------- ---------
$ 6.00 - $46.50....... 44,540,150 5.6 years 37.22 7,591,598 24.38
============== =========
NOTE ELEVEN. NONINTEREST INCOME AND EXPENSE
- --------------------------------------------------------------------------------
The significant components of noninterest income and expense for the years
ended December 31 are presented below (dollars in millions):
1996 1995 1994
- -----------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts............ $1,121 $ 884 $ 797
Mortgage servicing and mortgage-related fees... 213 138 86
Fees on factored accounts receivable........... 64 68 74
Investment banking income...................... 356 192 138
Other nondeposit-related service fees.......... 198 156 138
Asset management and fiduciary service fees.... 432 444 435
Credit card income............................. 314 277 280
Trading account profits and fees............... 274 306 273
Other income................................... 674 613 376
---------------------------
$3,646 $3,078 $2,597
---------------------------
- -----------------------------------------------------------------------------
NONINTEREST EXPENSE
Personnel...................................... $2,731 $2,491 $2,311
Occupancy, net................................. 523 495 487
Equipment...................................... 451 397 364
Marketing...................................... 252 217 161
Professional fees.............................. 256 182 171
Amortization of intangibles.................... 128 119 141
Credit card.................................... 64 55 71
Deposit insurance.............................. 26 118 211
Data processing................................ 237 229 235
Telecommunications............................. 172 150 137
Postage and courier............................ 148 135 126
Other general operating........................ 490 411 388
General administrative and miscellaneous....... 187 164 139
--------------------------
$5,665 $5,163 $4,942
==========================
Notes To Consolidated Financial Statements 67
NOTE TWELVE. INCOME TAXES
The components of income tax expense for the years ended December 31 were
(dollars in millions):
1996 1995 1994
- ---------------------------------------------------------------
Current portion - expense
Federal........................... $ 889 $ 814 $451
State............................. 45 55 37
Foreign........................... 21 13 5
-------------------------
955 882 493
-------------------------
Deferred portion - expense (benefit)
Federal........................... 299 147 350
State............................. 19 12 21
Foreign........................... (14) - 1
-------------------------
304 159 372
-------------------------
Total tax expense............... $1,259 $1,041 $865
=========================
The Corporation's current income tax expense of $955 million, $882 million
and $493 million for 1996, 1995 and 1994, respectively, approximates the amounts
payable for those years.
Deferred expense represents the change in the deferred tax asset or
liability and is discussed further below.
A reconciliation of the expected federal tax expense, based on the federal
statutory rate of 35 percent for 1996, 1995 and 1994, to the actual consolidated
tax expense for the years ended December 31 is as follows (dollars in millions):
1996 1995 1994
- --------------------------------------------------------------------------
Expected federal tax expense.................. $1,272 $1,047 $894
Increase (decrease) in taxes resulting from
Tax-exempt income........................... (35) (32) (35)
State tax expense, net of federal benefit... 48 55 46
Other....................................... (26) (29) (40)
----------------------------
Total tax expense......................... $1,259 $1,041 $865
============================
Significant components of the Corporation's deferred tax (liabilities) and
assets on December 31 are as follows (dollars in millions):
1996 1995
- --------------------------------------------------------------
Deferred tax liabilities
Securities available for sale.......... $ (45) $ (192)
Equipment lease financing.............. (1,008) (750)
Depreciation........................... (132) (140)
Intangibles............................ (84) (66)
Employee retirement benefits........... (108) (109)
Other, net...,......................... (255) (180)
--------------------
Gross deferred tax liabilities....... (1,632) (1,437)
--------------------
Deferred tax assets
Employee benefits...................... 118 89
Net operating loss carryforwards....... 42 16
Allowance for credit losses............ 773 754
Other real estate owned................ 16 16
Loan fees and expenses................. 33 26
General business credit carryforwards.. 6 11
Other, net............................. 193 154
---------------------
Gross deferred tax assets............ 1,181 1,066
Valuation allowance.................... (15) (16)
---------------------
Deferred tax assets, net of valuation
allowance.......................... 1,166 1,050
---------------------
Net deferred tax liabilities............. $ (466) $ (387)
=====================
The Corporation's deferred tax assets on December 31, 1996 include a
valuation allowance of $15 million representing primarily state net operating
loss carryforwards for which it is more likely than not that realization will
not occur. The net change in the valuation allowance for deferred tax assets was
a decrease of $1 million, due to the realization of certain state deferred tax
assets.
68 NationsBank Corporation Annual Report 1996
NOTE THIRTEEN. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS 107), requires the disclosure of the
estimated fair values of financial instruments. The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Quoted market prices, if available, are utilized as estimates of the fair values
of financial instruments. Because no quoted market prices exist for a
significant part of the Corporation's financial instruments, the fair values of
such instruments have been derived based on management's assumptions, the amount
and timing of future cash flows and estimated discount rates. The estimation
methods for individual classifications of financial instruments are described
more fully below. Different assumptions could significantly affect these
estimates. Accordingly, the net realizable values could be materially different
from the estimates presented below.
In addition, the estimates are only indicative of the value of individual
financial instruments and should not be considered an indication of the fair
value of the combined Corporation.
The provisions of SFAS 107 do not require the disclosure of nonfinancial
instruments, including intangible assets. The value of the Corporation's
intangibles, such as franchise, credit card and trust relationships and mortgage
servicing rights, is significant.
SHORT-TERM FINANCIAL INSTRUMENTS
The carrying values of short-term financial instruments, including cash and
cash equivalents, federal funds sold and purchased, resale and repurchase
agreements, and commercial paper and short-term borrowings, approximate the fair
values of these instruments. These financial instruments generally expose the
Corporation to limited credit risk and have no stated maturities, or have an
average maturity of less than 30 days and carry interest rates which approximate
market.
FINANCIAL INSTRUMENTS TRADED
IN THE SECONDARY MARKET
Securities held for investment, securities available for sale, loans held
for sale, trading account instruments, long-term debt and trust preferred
securities traded actively in the secondary market have been valued using quoted
market prices.
LOANS
Fair values were estimated for groups of similar loans based upon type of
loan, credit quality and maturity. The fair value of fixed-rate loans was
determined by discounting estimated cash flows using interest rates
approximating the Corporation's December 31 origination rates for similar loans.
Where quoted market prices were available, primarily for certain residential
mortgage loans, such market prices were utilized as estimates for fair values.
Contractual cash flows for residential mortgage loans were adjusted for
estimated prepayments using published industry data. For most variable-rate
loans, the carrying amounts were considered to approximate fair value. Where
credit deterioration has occurred, estimated cash flows for fixed- and variable-
rate loans have been reduced to incorporate estimated losses.
DEPOSITS
The fair value for fixed-rate deposits with stated maturities was calculated
by discounting the difference between the cash flows on a contractual basis and
current market rates for instruments with similar maturities. For variable-rate
deposits, the carrying amount was considered to approximate fair value.
The book and fair values of financial instruments for which book and fair
value differed on December 31 were (dollars in millions):
1996 1995
-----------------------------------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS
Loans, net of unearned income............................. $116,711 $117,525 $112,244 $112,785
Allowance for credit losses............................... (2,315) - (2,163) -
FINANCIAL LIABILITIES
Deposits.................................................. 106,498 106,512 100,691 100,843
Long-term debt (excluding obligations under capital
leases)................................................. 22,689 22,739 17,753 18,077
For all other financial instruments, book value approximates fair value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair value of the Corporation's asset and liability management and other
interest rate contracts is presented in TABLE ELEVEN on page 33 and in the
second full paragraph in the mortgage servicing discussion in the Noninterest
Income section on page 24. The fair value of liabilities on binding
commitments to lend is based on the net present value of cash flow streams
using fee rates currently charged for similar agreements versus original
contractual fee rates, taking into account the creditworthiness of the
borrowers. The fair value was a liability of approximately $190 million and
$111 million on December 31, 1996 and 1995, respectively.
Notes To Consolidated Financial Statements 69
NOTE FOURTEEN. PARENT COMPANY FINANCIAL INFORMATION
The following tables present consolidated parent company financial
information:
NationsBank Corporation (Parent Company)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31
-----------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Income
Dividends from consolidated
Subsidiary banks and bank holding companies.... $2,309 $ 999 $1,864
Other subsidiaries............................. 210 7 5
Interest from consolidated subsidiaries.......... 799 635 355
Other income..................................... 593 547 501
-----------------------------
3,911 2,188 2,725
-----------------------------
Expenses
Interest on borrowed funds....................... 1,051 835 582
Noninterest expense.............................. 519 462 442
-----------------------------
1,570 1,297 1,024
-----------------------------
Earnings
Income before equity in undistributed earnings of
consolidated subsidiaries and taxes............ 2,341 891 1,701
-----------------------------
Equity in undistributed earnings of consolidated
Subsidiary banks and bank holding companies.... (63) 830 (247)
Other subsidiaries............................. 34 208 140
------------------------------
(29) 1,038 (107)
------------------------------
Income before income taxes......................... 2,312 1,929 1,594
Income tax benefit................................. (63) (21) (96)
------------------------------
Net income......................................... $2,375 $1,950 $1,690
==============================
Net income available to common shareholders........ $2,360 $1,942 $1,680
==============================
NationsBank Corporation (Parent Company)
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
DECEMBER 31
-------------------
1996 1995
- ---------------------------------------------------------------------
Assets
Cash held at subsidiary banks................... $ 8 $ 8
Temporary investments........................... 4,250 396
Receivables from consolidated
Subsidiary banks and bank holding companies... 2,936 3,116
Other subsidiaries............................ 8,851 8,633
Investment in consolidated
Subsidiary banks and bank holding companies... 13,985 12,255
Other subsidiaries............................ 1,705 1,728
Other assets.................................... 1,176 1,095
--------------------
$32,911 $27,231
====================
Liabilities and Shareholders' Equity
Commercial paper and other notes payable........ $ 2,344 $ 2,494
Accrued expenses and other liabilities.......... 678 737
Payables to consolidated susidiaries............ 995 -
Long-term debt.................................. 15,250 11,199
Shareholders' equity............................ 13,644 12,801
--------------------
$32,911 $27,231
====================
70 NationsBank Corporation Annual Report 1996
NationsBank Corporation (Parent Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------
Operating Activities
Net income................................................ $ 2,375 $ 1,950 $ 1,690
Reconciliation of net income to net cash provided by
operating activities
Equity in undistributed earnings of consolidated
subsidiaries.......................................... 29 (1,038) 107
Other operating activities.............................. 802 (380) 142
---------------------------------
Net cash provided by operating activities............. 3,206 532 1,939
---------------------------------
Investing Activities
Net (increase) decrease in temporary investments.......... (3,854) 187 (271)
Net increase in receivables from consolidated
subsidiaries............................................ (38) (3,155) (1,416)
Additional capital investment in subsidiaries............. (424) (384) (764)
(Acquisitions) sales of subsidiaries, net of cash......... (726) - 101
---------------------------------
Net cash used by investing activities................... (5,042) (3,352) (2,350)
---------------------------------
Financing Activities
Net (decrease) increase in commercial paper and other
notes payable........................................... (150) 68 144
Proceeds from issuance of long-term debt.................. 5,560 4,606 1,159
Retirement of long-term debt.............................. (1,509) (1,005) (438)
Preferred stock repurchased and redeemed.................. - - (94)
Proceeds from issuance of common stock.................... 136 239 267
Common stock repurchased.................................. (1,503) (522) (180)
Cash dividends paid....................................... (715) (575) (527)
Other financing activities................................ 17 13 73
---------------------------------
Net cash provided by financing activities............... 1,836 2,824 404
---------------------------------
Net increase (decrease) in cash held at subsidiary
banks..................................................... - 4 (7)
Cash held at subsidiary banks on January 1.................. 8 4 11
---------------------------------
Cash held at subsidiary banks on December 31................ $ 8 $ 8 $ 4
==================================
Notes To Consolidated Financial Statements 71
NationsBank Corporation And Subsidiaries
SIX-YEAR CONSOLIDATED STATISTICAL SUMMARY
1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
TAXABLE-EQUIVALENT YIELDS EARNED
Loans and leases, net of unearned income
Commercial............................................ 8.16% 8.19% 7.56% 6.96% 7.08% 8.70%
Real estate commercial................................ 9.03 9.30 8.18 7.59 7.78 9.13
Real estate construction.............................. 8.89 9.73 8.49 7.50 7.17 8.82
Total commercial.................................... 8.29 8.42 7.71 7.09 7.20 8.78
Residential mortgage.................................. 7.80 7.78 7.62 8.27 9.33 10.47
Credit card........................................... 11.77 12.78 12.84 13.62 14.45 15.22
Other consumer........................................ 9.87 10.07 9.26 9.24 10.07 11.13
Total consumer...................................... 9.06 9.37 8.99 9.51 10.50 11.47
Foreign............................................... 6.87 7.71 6.10 5.49 6.63 8.47
Lease financing....................................... 7.58 7.59 7.50 7.96 8.25 10.89
Total loans and leases, net......................... 8.59 8.79 8.20 8.06 8.49 9.83
Securities
Held for investment................................... 5.59 5.57 5.06 5.54 6.84 8.61
Available for sale.................................... 6.63 6.25 5.20 4.80 5.77 -
Total securities.................................... 6.46 5.84 5.12 5.51 6.76 8.61
Loans held for sale..................................... 7.30 7.47 6.63 6.73 7.22 8.74
Federal funds sold and securities
purchased under agreements to resell.................. 5.19 6.18 4.09 3.21 3.77 5.89
Time deposits placed and other short-term investments... 5.54 6.87 5.12 3.91 5.09 6.89
Trading account securities.............................. 6.44 7.76 7.32 5.43 4.64 6.99
Total earning assets................................ 7.83 7.98 7.16 7.06 7.70 9.25
RATES PAID
Savings................................................. 2.22 2.37 2.33 2.38 2.86 4.55
NOW and money market deposit accounts................... 2.52 2.68 2.34 2.24 2.82 4.96
Consumer CDs and IRAs................................... 5.28 5.19 4.17 4.52 5.58 7.01
Negotiated CDs, public funds and other time deposits.... 5.49 5.56 4.02 3.97 4.93 7.08
Foreign time deposits................................... 5.38 6.25 4.98 4.05 5.52 6.70
Borrowed funds and trading account liabilities.......... 5.65 6.40 4.87 3.45 3.33 5.64
Long-term debt.......................................... 6.51 7.00 6.85 7.44 8.92 8.88
Special Asset Division net funding allocation........... - - - - - (6.20)
Total interest-bearing liabilities.................. 4.85 5.28 4.09 3.53 4.12 6.09
PROFIT MARGINS
Net interest spread..................................... 2.98 2.70 3.07 3.53 3.58 3.16
Net interest yield...................................... 3.62 3.33 3.58 3.96 4.10 3.82
YEAR-END DATA
(DOLLARS IN MILLIONS)
Loans, leases and factored accounts
receivable, net of unearned income.................... $122,630 $117,033 $103,371 $ 92,007 $ 72,714 $ 69,108
Securities held for investment.......................... 2,110 4,432 17,800 13,584 23,355 16,275
Securities available for sale........................... 12,277 19,415 8,025 15,470 1,374 8,904
Loans held for sale..................................... 1,215 1,663 318 1,697 1,236 585
Time deposits placed and other short-term investments... 1,843 1,296 2,159 1,479 1,994 1,622
Total earning assets.................................... 164,676 167,945 151,722 140,890 103,872 96,491
Total assets (1)........................................ 185,794 187,298 169,604 157,686 118,059 110,319
Noninterest-bearing deposits............................ 25,738 23,414 21,380 20,723 17,702 16,356
Domestic savings and time deposits...................... 72,707 64,388 66,487 66,356 62,988 70,359
Foreign time deposits................................... 8,053 12,889 12,603 4,034 2,037 1,360
Total savings and time deposits......................... 80,760 77,277 79,090 70,390 65,025 71,719
Total deposits.......................................... 106,498 100,691 100,470 91,113 82,727 88,075
Borrowed funds and trading account liabilities.......... 35,753 51,067 45,555 44,248 21,957 9,846
Long-term debt.......................................... 22,985 17,775 8,488 8,352 3,066 2,876
Total shareholders' equity.............................. 13,709 12,801 11,011 9,979 7,814 6,518
(1) EXCLUDES ASSETS OF NATIONSBANK OF TEXAS SPECIAL ASSET DIVISION IN 1991.
72 NationsBank Corporation Annual Report 1996
1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS RATIOS
Return on average
Total assets (1)......................................... 1.18% 1.03% 1.02% .97% 1.00% .17%
Earning assets (1)....................................... 1.34 1.17 1.14 1.09 1.12 .20
Common shareholders' equity.............................. 17.95 17.01 16.10 15.00 15.83 2.70
EARNINGS ANALYSIS (TAXABLE-EQUIVALENT)
Noninterest income as a percentage of net interest
income................................................... 56.76 55.36 48.96 44.48 45.65 44.22
Noninterest expense, excluding merger-related charge,
as a percentage of net interest income................... 88.20 92.85 93.16 90.90 94.64 97.62
Efficiency ratio: noninterest expense, excluding
merger-related charge, divided by the sum of net
interest income and noninterest income................. 56.3 59.8 62.5 62.9 65.0 67.7
Overhead ratio: noninterest expense, excluding
merger-related charge, less noninterest income
divided by net interest income........................... 31.44 37.50 44.20 46.42 48.99 53.40
Net income as a percentage of net
interest income.......................................... 36.98 35.07 31.86 31.79 27.33 5.12
ASSET QUALITY
FOR THE YEAR
Net charge-offs as a percentage of average
loans, leases and factored accounts receivable........... .48 .38 .33 .51 1.25 1.86
Net charge-offs as a percentage of the
provision for credit losses.............................. 98.84 110.21 101.79 95.76 121.15 82.70
AT YEAR END
Allowance for credit losses as a percentage of net
loans, leases and factored accounts receivable........... 1.89 1.85 2.11 2.36 2.00 2.32
Allowance for credit losses as a percentage of
nonperforming loans...................................... 260.02 306.49 273.07 193.38 103.11 81.82
Nonperforming assets as a percentage of net
loans, leases, factored accounts receivable
and other real estate owned.............................. .85 .73 1.10 1.92 2.72 4.01
Nonperforming assets as a percentage of total assets (1)... .56 .46 .67 1.13 1.69 2.54
Nonperforming assets (in millions)......................... $ 1,043 $ 853 $ 1,138 $ 1,783 $ 1,997 $ 2,804
RISK-BASED CAPITAL RATIOS
Tier 1..................................................... 7.76% 7.24% 7.43% 7.41% 7.54% 6.38%
Total...................................................... 12.66 11.58 11.47 11.73 11.52 10.30
OTHER CAPITAL RATIOS
Common shareholders' equity as a
percentage of total assets at year end (1)............... 7.31 6.81 6.47 6.25 6.60 5.67
Dividend payout ratio (per common share)................... 29.95 29.17 30.78 28.38 33.07 215.36
Shareholders' equity per common share
Average.................................................. $ 22.28 $ 20.95 $ 19.00 $ 16.68 $ 14.53 $ 13.98
At year end.............................................. 23.69 23.26 19.85 18.20 15.40 13.52
OTHER STATISTICS
Number of full-time equivalent employees................... 62,971 58,322 61,484 57,742 50,828 57,177
Rate of increase (decrease) in average
Total loans and leases, net of unearned income........... 11.67% 15.24% 20.29% 15.83% (1.70)% 1.82%
Earning assets........................................... 6.23 12.55 24.50 16.59 (.84) 2.42
Total assets (1)......................................... 6.54 13.36 23.75 16.82 (.64) 1.85
Total deposits........................................... 8.37 5.91 12.30 .97 (5.59) 3.44
Total shareholders' equity............................... 15.82 9.22 21.19 18.73 10.31 6.16
COMMON STOCK INFORMATION
Market price per share
High for the year........................................ $ 52 5/8 $37 3/8 $28 11/16 $ 29 $26 11/16 $21 3/8
Low for the year......................................... 32 3/16 22 5/16 21 11/16 22 1/4 19 13/16 10 3/4
Close at the end of the year............................. 48 7/8 34 13/16 22 9/16 24 1/2 25 11/16 20 5/16
Daily average trading volume............................... 1,937,938 1,452,934 1,507,030 1,333,182 1,455,156 794,108
Number of shareholders of record........................... 106,345 103,137 105,774 108,435 89,371 102,209
Six-Year Consolidated Statistical Summary 73