<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Mark one
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended: March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- ---------
Commission File No. 1-8525
WORTHEN BANKING CORPORATION
(Exact name of registrant as specified in its charter)
ARKANSAS 71-6066857
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Worthen National Bank Building,
200 West Capitol,
Little Rock, Arkansas 72201
(Address of principal executive offices) (Zip Code)
(501) 378-1521
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of April 30, 1994,
17,011,562 shares of the registrant's common stock, $1.00 par value, were
issued and outstanding (excluding 12,606 treasury shares).
<PAGE>
QUARTERLY REPORT ON
FORM 10-Q
WORTHEN BANKING CORPORATION
MARCH 31, 1994
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - 3
March 31, 1994 and 1993 and
December 31, 1993
Consolidated Statements of Earnings - 4
Three Months Ended March 31, 1994
and 1993
Consolidated Statements of Cash Flows - 5
Three Months Ended March 31, 1994 and 1993
Notes to Consolidated Financial Statements - 7
March 31, 1994
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 4. Submission of Matters to a Vote of
Security Holders 19
ITEM 6. Exhibits and Reports on Form 8-K 20
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1994 1993 1993
--------------------------------
<S> <C> <C> <C>
Cash and due from banks . . . . . . . . $ 169,392 $ 187,314 $ 166,466
Interest bearing deposits with other
banks . . . . . . . . . . . . . . . . 637 1,232 245
Federal funds sold and securities
purchased under agreements to
resell. . . . . . . . . . . . . . . . 129,313 82,063 158,527
Trading account assets . . . . . . . . 43,345 65,324 41,002
Investment securities available for
sale. . . . . . . . . . . . . . . . . 171,965 -- --
Investment securities held to maturity
(market value - $1,230,808, $1,459,764
and $1,397,709, respectively) . . . . 1,228,881 1,446,259 1,375,427
Loans, net of unearned interest of $805,
$986 and $1,508, respectively . . . . 1,674,151 1,647,019 1,529,574
Less: Allowance for loan losses. . (33,590) (33,300) (31,270)
---------- ---------- ----------
Total Loans, Net. . . . . . . . . 1,640,561 1,613,719 1,498,304
---------- ---------- ----------
Premises and equipment. . . . . . . . . 101,685 101,347 98,712
Other assets. . . . . . . . . . . . . . 82,031 81,824 80,975
---------- ---------- ----------
Total Assets. . . . . . . . . . . $3,567,810 $3,579,082 $3,419,658
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing. . . . . . . . . $ 566,346 $ 596,514 $ 533,692
Interest bearing. . . . . . . . . . . 2,467,902 2,446,105 2,450,590
---------- ---------- ----------
Total Deposits. . . . . . . . . . 3,034,248 3,042,619 2,984,282
Federal funds purchased and securities
sold under agreement to repurchase. . 125,521 127,980 98,949
Short-term borrowings . . . . . . . . . 50,044 57,838 16,886
Other liabilities . . . . . . . . . . . 28,662 28,438 32,500
Capital lease obligations . . . . . . . 1,902 1,951 2,100
Long-term debt. . . . . . . . . . . . . 43,469 43,608 24,987
Capital notes . . . . . . . . . . . . . -- -- 9,561
---------- ---------- ----------
Total Liabilities . . . . . . . . 3,283,846 3,302,434 3,169,265
---------- ---------- ----------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $25 per
share - authorized 400,000 shares;
none issued . . . . . . . . . . . . -- -- --
Common stock , par value $1 per
share - authorized
40,000,000 shares; issued 17,019,436,
17,011,783 and 16,726,350,
respectively. . . . . . . . . . . . 17,019 17,012 16,726
Additional paid-in capital. . . . . . 164,509 164,438 158,106
Retained earnings . . . . . . . . . . 103,037 95,426 75,626
Less cost of 11,106, 8,106 and 2,267
shares of common stock in treasury,
respectively. . . . . . . . . . . . (301) (228) (65)
Unrealized valuation on available
for sale securities (300) -- --
---------- ---------- ----------
Total Stockholders' Equity. . . . 283,964 276,648 250,393
---------- ---------- ----------
Total Liabilities and
Stockholders' Equity. . . . . . $3,567,810 $3,579,082 $3,419,658
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
1994 1993
---------------------------
<S> <C> <C>
Interest Income:
Loans, including fees . . . . . . . $34,209 $ 31,990
Investment securities:
Available for sale. . . . . . . . 1,636 --
Taxable . . . . . . . . . . . . . 14,847 18,622
Tax-exempt. . . . . . . . . . . . 976 619
------- --------
Total . . . . . . . . . . . 17,459 19,241
------- --------
Other interest income . . . . . . . 853 1,255
------- --------
Total Interest Income . . . . 52,521 52,486
Interest Expense:
Deposits . . . . . . . . . . . . . 16,046 18,577
Short-term borrowings . . . . . . . 918 774
Long-term borrowings . . . . . . . 950 813
------- --------
Total Interest Expense . . . 17,914 20,164
------- --------
Net Interest Income . . . . . . . . . 34,607 32,322
Provision for Loan Losses . . . . . . 385 773
------- --------
Net Interest Income after Provision
for Loan Losses 34,222 31,549
------- --------
Other Income:
Service charges on deposit
accounts . . . . . . . . . . . . 5,598 5,514
Trust fees . . . . . . . . . . . . 2,507 2,841
Full service and discount brokerage
commissions . . . . . . . . . . . 1,379 1,605
Investment security gains . . . . . -- 9
Repurchase agreement recovery, net -- 190
Other . . . . . . . . . . . . . . . 5,237 5,525
------- --------
Total Other Income. . . . . . 14,721 15,684
------- --------
Other Expense:
Salaries and employee benefits. . . 15,455 16,949
Net occupancy expense . . . . . . . 3,075 3,456
Other . . . . . . . . . . . . . . . 14,548 14,473
------- --------
Total Other Expense . . . . . 33,078 34,878
------- --------
Net income before taxes and
cumulative effect of a change in
accounting principle. . . . . . . . 15,865 12,355
Income taxes . . . . . . . . . . . . 5,704 3,300
------- --------
Income before cumulative effect of a
change in accounting principle. . . 10,161 9,055
Cumulative effect of a change in
accounting principle. . . . . . . . -- 868
------- --------
Net Income . . . . . . . . . . . . . $10,161 $ 9,923
------- --------
------- --------
Income per share:
Income before cumulative effect of a
change in accounting principle. . . $ 0.60 $ 0.54
Net Income . . . . . . . . . . . . . 0.60 0.59
Weighted average number of shares
outstanding . . . . . . . . . . . . 17,008,130 16,709,704
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
1994 1993
---------------------------
<S> <C> <C>
Operating Activities:
Net Income $ 10,161 $ 9,923
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 6,603 5,635
Provision for loan losses 385 773
Writedowns on properties acquired
in settlement of loans 10 55
Loans for resale (trading assets) funded (88,195) (58,069)
Loans for resale (trading assets) sold 110,174 54,529
Loss (gain) on sale of investment
securities -- (4)
Decrease (increase) in other assets (1,661) (13,964)
Increase in other liabilities 224 1,122
-------- --------
Net Cash Provided (Used) by Operating
Activities 37,701 --
-------- --------
Investing Activities:
Maturities of held to maturity ("HTM")
securities 168,421 160,862
Proceeds from sale of HTM securities -- 4,995
Purchase of HTM securities (163,460) (198,821)
Maturities of available for sale
("AFS") securities 38,839 --
Proceeds from sale of AFS securities 9 --
Purchase of AFS securities (2,166) --
Net (increase) decrease in short-term
investments (46,655) 33,429
Net (increase) decrease in loans (27,227) 31,913
Purchases of premises and equipment (2,354) (2,242)
Proceeds from sale of properties
acquired in settlement of loans 332 2,585
-------- --------
Net Cash Provided (Used) by
Investing Activities (34,261) 32,721
-------- --------
Financing Activities:
Net increase (decrease) in
non-interest bearing deposits (30,168) (12,970)
Net increase (decrease) in interest
bearing deposits 21,797 (41,134)
Principal payments on long-term
borrowings (144) (687)
Principal payments on capital leases (49) (46)
Dividends paid (2,550) (608)
Acquisition of treasury shares (73) --
Proceeds from issuance of common stock 78 227
Net decrease in short-term borrowings (7,794) (3,681)
Net decrease in federal funds purchased (2,459) (2,175)
-------- --------
Net Cash Provided (Used) by Financing
Activities (21,362) (61,074)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (17,922) (28,353)
Cash and Cash Equivalents at beginning of period 187,314 194,819
-------- --------
Cash and Cash Equivalents at end of period $169,392 $166,466
-------- --------
-------- --------
</TABLE>
5
<PAGE>
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
1994 1993
---------------------------
<S> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $17,290 $20,198
Income taxes 700 2,125
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1994
NOTE 1 - FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements of Worthen Banking
Corporation and subsidiaries ("WBC", the "Company" or "Worthen") have been
prepared in accordance with generally accepted accounting principles and with
the instructions to the Quarterly Report of Form 10-Q and Rules 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1994 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1994. For further information, refer to the Consolidated
Financial Statements and notes thereto included as part of Exhibit 13 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993,
Commission File No. 1-8525 ("1993 Form 10-K"). The Company's March 31, 1993
financial statements have been restated to reflect the 1993 acquisition of The
Union of Arkansas Corporation using the pooling-of-interests method of
accounting.
NOTE 2 - LOAN PORTFOLIO BY TYPE
A summary of loan portfolio by type is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1994 1993 1993
-------- ----------- --------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 435,198 $ 437,072 $ 400,414
Bankers' acceptances and commercial
paper . . . . . . . . . . . . . . . -- -- 47,722
Real estate mortgage. . . . . . . . . 716,276 710,955 635,951
Real estate construction. . . . . . . 84,231 73,241 60,921
Installment and other . . . . . . . . 437,923 425,304 384,240
Direct lease financing. . . . . . . . 1,257 1,383 1,734
Foreign . . . . . . . . . . . . . . . 71 50 50
Unearned interest . . . . . . . . . . (805) (986) (1,508)
---------- ---------- ----------
Total. . . . . . . . . . . . . . $1,674,151 $1,647,019 $1,529,574
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 3 - OTHER EXPENSE
In addition to Salaries and Employee Benefits and Net Occupancy Expense, other
expense includes the following components, with no item except as specified
exceeding one percent (1%) of total income:
<TABLE>
<CAPTION>
(Dollars in thousands)
THREE MONTHS ENDED
MARCH 31
1994 1993
------- -------
<S> <C> <C>
Equipment expense . . . . . . . . . . $ 1,662 $ 1,697
Professional fees . . . . . . . . . . 1,446 1,716
Data processing fees. . . . . . . . . 1,957 1,571
Amortization. . . . . . . . . . . . . 1,112 916
Advertising . . . . . . . . . . . . . 710 638
Business development. . . . . . . . . 588 872
Office expense. . . . . . . . . . . . 2,526 2,508
FDIC insurance. . . . . . . . . . . . 1,750 1,851
Other . . . . . . . . . . . . . . . . 2,797 2,704
------- -------
Total. . . . . . . . . . . . . . $14,548 $14,473
------- -------
------- -------
</TABLE>
7
<PAGE>
NOTE 4 - REPURCHASE AGREEMENT LOSS/RECOVERY
In accordance with the bankruptcy plan of distribution of Bevill, Bresler and
Schulman, Inc. and Bevill, Bresler and Schulman Asset Management Corporation,
Worthen National Bank of Arkansas received gross distributions of
approximately $482,000 during the first quarter of 1993. Payments of
approximately $292,000 were made to insurance carriers in accordance with
various agreements, resulting in net recoveries of $190,000 as shown in the
accompanying consolidated financial statements. The final distribution
in connection with the BBS bankruptcy was received by the Company in the third
quarter of 1993.
NOTE 5 - ACQUISITIONS
On May 7, 1993, the Company issued 4,550,000 shares of its common stock to
acquire all the outstanding common stock of The Union of Arkansas Corporation
("Union"), an Arkansas bank-holding company. The business combination has
been accounted for as a pooling-of-interests combination and, accordingly,
the Company's historical consolidated financial statements presented in this
report have been restated to include the accounts and results of operations of
Union as if the companies had always been combined. On December 31, 1992,
Union reported total assets of $713,474,000.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below:
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1993
------------------
<S> <C>
Interest Income:
WBC $42,835
Union 9,651
-------
$52,486
-------
-------
Interest Expense:
WBC $16,913
Union 3,251
-------
$20,164
-------
-------
Net Income:
WBC $ 8,958
Union 965
-------
$ 9,923
-------
-------
</TABLE>
On September 10, 1993, the Company acquired 100% of First Bentonville
Bancshares, Inc., the parent corporation of First Bank of Bentonville,
Arkansas ("FirstBank"). WBC paid approximately $3.9 million in cash,
$4.1 million in debt repayment and 250,000 newly-issued shares of WBC's
common stock. For the year ended December 31, 1992, FirstBank reported
total assets of $88,546,000, net interest income of $2,826,000 and net
income of $805,000. FirstBank was merged into Worthen National Bank of
Northwest Arkansas on October 31, 1993. This acquisition was accounted
for as a purchase and the results of operations of FirstBank are included
in the Company's consolidated financial statements from the date of purchase.
8
<PAGE>
NOTE 6 - CHANGE IN ACCOUNTING PRINCIPLE - INCOME TAXES
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under the asset
and liability method of Statement 109, deferred tax assets and liabilities are
recognized for future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates which apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change
in tax rate is recognized as income or expense in the period that includes the
enactment date. The Company previously used the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 96. In adopting
Statement 109 the Company recorded income and a deferred tax asset equal to
the cumulative effect of a change in accounting principle of $868,000.
NOTE 7 - CHANGE IN ACCOUNTING PRINCIPLE - INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("Statement 115"). Statement 115 prescribes classifying
investments into three categories: held to maturity securities, trading
securities, and available for sale securities. Held to maturity securities
are debt securities that the Company has the positive intent and ability to
hold to maturity and are reported at amortized cost. Trading securities are
debt and equity securities that are bought and held for the purpose of selling
in the near term and are reported at fair value, with unrealized gains and
losses included in earnings. Available for sale securities are those
securities neither classified as held to maturity or trading and are reported
at fair value, with unrealized gains and losses reported as a separate
component of stockholders' equity (net of tax effects).
Adoption of Statement 115 resulted in an increase of $544,000 to the Company's
stockholders' equity as of January 1, 1994, representing the unrealized
appreciation, net of taxes, for those securities having a fair value of
approximately $197,000,000 classified by the Company as available for sale,
previously carried at amortized cost. The unrealized valuation on these
available for sale securities decreased during the first quarter of 1994 to a
net unrealized loss of $300,000 as of March 31, 1994. The Company has no
securities deemed to be trading securities.
NOTE 8 - TRADING ACCOUNT ASSETS
Trading account assets consist solely of real estate loans held for resale by
the Company's mortgage banking subsidiary. Trading account assets are valued
at the lower of cost or market on an aggregate basis.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HIGHLIGHTS
The Company's net income for the first quarter of 1994 of $10.2 million was
12.2% higher than the $9.1 of income before a change in accounting principle
recorded in the same quarter of last year and 9.2% higher than in 1993's
fourth quarter. The improvement in 1994's first quarter as compared to the
first quarter of 1993 was primarily the result of a higher net interest margin
and lower noninterest expenses resulting from savings realized in the Union
merger. The net interest margin increase was the result of an increase in net
earning assets, growth of higher yielding loans and close monitoring of rates
paid on deposits. Net earning assets increased as a result of the retention
of earnings, the acquisition of FirstBank, lower levels of nonperforming
assets and higher levels of demand deposits. Despite additional operating
expenses incurred as a result of the acquisition of FirstBank in
September 1993, expense levels declined by $1.8 million from the first quarter
of 1993. Approximately $1.5 million of these savings were from salaries and
benefits resulting from staffing efficiencies of the Union merger.
Income taxes increased from $3.3 million or an effective tax rate of 26.7% in
the first quarter of 1993 to $5.7 million or an effective tax rate of 36.0% in
the first quarter of 1994. Pretax income before this change in accounting
principle increased from $12.4 million to $15.9 million, an increase of $3.5
million or approximately 28%.
OPERATIONS SUMMARY
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1994 1993
-------- --------
<S> <C> <C>
Net interest income . . . . . . . . . . . . $ 34,607 $32,322
Provision for loan losses . . . . . . . . . 385 773
------- -------
Net interest income after provision for
loan losses . . . . . . . . . . . . . . . 34,222 31,549
Other income. . . . . . . . . . . . . . . . 14,721 15,684
Other expense . . . . . . . . . . . . . . . 33,078 34,878
------- -------
Income before taxes and cumulative effect
of a change in accounting principle . . . 15,865 12,355
Income taxes. . . . . . . . . . . . . . . . 5,704 3,300
------- -------
Income before cumulative effect of a change
in accounting principle . . . . . . . . . 10,161 9,055
Cumulative effect of a change in accounting
principle . . . . . . . . . . . . . . . . -- 868
------- -------
Net income. . . . . . . . . . . . . . . . . $10,161 $ 9,923
------- -------
------- -------
PERFORMANCE RATIOS
Net income to:
Average assets. . . . . . . . . . . . . 1.17% 1.17%
Average stockholders' equity. . . . . . 14.63 16.42
Net overhead to average assets. . . . . . . 2.11 2.27
</TABLE>
10
<PAGE>
CONTRIBUTIONS TO EARNINGS PER SHARE
<TABLE>
<CAPTION>
EPS INCREASE
(DECREASE)
THREE MONTHS ENDED MARCH 31 1993 TO
1994 1993 1994
------ ------ ------
<S> <C> <C> <C>
Net interest income . . . . . . . . $ 2.03 $ 1.93 $0.10
Provision for loan losses . . . . . . (0.02) (0.05) 0.03
Service charges on deposit accounts . 0.33 0.33 --
Trust fees. . . . . . . . . . . . . . 0.15 0.17 (0.02)
Full service and discount brokerage
commissions 0.08 0.10 (0.02)
Investment security gains . . . . . . -- -- --
Repurchase agreement recoveries, net. -- 0.01 (0.01)
Other income. . . . . . . . . . . . . 0.31 0.33 (0.02)
Salaries and employee benefits. . . . (0.91) (1.01) 0.10
Net occupancy expense . . . . . . . . (0.18) (0.21) 0.03
Other expense . . . . . . . . . . . . (0.85) (0.86) 0.01
Applicable income tax . . . . . . . . (0.34) (0.20) (0.14)
Cumulative effect of a change in
accounting principle. . . . . . . . -- 0.05 (0.05)
------ ------ -----
Net income . . . . . . . . . . . $ 0.60 $ 0.59 $0.01
------ ------ -----
------ ------ -----
Change in net income calculated using
previous year's average shares
outstanding . . . . . . . . . . . . $0.01
Change in average shares outstanding. --
Change in net income. . . . . . . . . $0.01
-----
-----
</TABLE>
LOAN PORTFOLIO BY TYPE
The composition of the Company's loan portfolio is presented in the following
table:
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1994 1993 1993
-------- ----------- --------
<S> <C> <C> <C>
Commercial, financial and
agricultural. . . . . . . . . . . . $ 435,198 $ 437,072 $ 400,414
Bankers' acceptances and commercial
paper . . . . . . . . . . . . . . . -- -- 47,722
Real estate mortgage. . . . . . . . . 716,276 710,955 635,951
Real estate construction. . . . . . . 84,231 73,241 60,921
Installment and other . . . . . . . . 437,923 425,304 384,240
Direct lease financing. . . . . . . . 1,257 1,383 1,734
Foreign . . . . . . . . . . . . . . . 71 50 50
Unearned interest . . . . . . . . . . (805) (986) (1,508)
---------- ---------- ----------
Total. . . . . . . . . . . . . . $1,674,151 $1,647,019 $1,529,574
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
During the first quarter of 1994, the loan portfolio increased by approximately
$27 million, representing controlled annualized growth of 6.68%. The bulk of
the growth occurred in the real estate and consumer loan portfolios, while
commercial loans were relatively unchanged during the period. The increase in
real estate lending reflects the economic activity that the Company's Central
and Northwest Arkansas markets, in particular, are experiencing. The consumer
loan portfolio growth is in response to a concerted marketing effort in the
retail sector, with emphasis on the establishment of indirect lending
relationships with dealers and the utilization of the Company's extensive
branch network around the state.
11
<PAGE>
The Company monitors concentrations in the portfolio constantly and is
cognizant of such concentrations in the evaluation of the adequacy of the
allowance for loan losses. The real estate mortgage and construction
portfolios totalled approximately $800.5 million at March 31, 1994,
representing 47.8% of the loan portfolio. While this is a significant
concentration, the real estate portfolio contains $250 million of loans
secured by first mortgage single-family dwellings that management considers
to contain little risk. Additionally, internal lending policies discourage
lending to speculative properties and other types of high-risk loan types such
as hotels and restaurants. As a result, management considers the real estate
loan portfolio to be well-diversified with a manageable risk profile.
The consumer loan portfolio grew to $438 million at March 31, 1994, an
increase of $12.6 million during the first quarter. Within the portfolio,
approximately $255 million of loans are secured by new and used automobiles.
A significant portion of this business is generated through a large dealer
network, an area that several of the Company's subsidiary banks have developed
considerable expertise in over many years. The past due and net charge-off
performance of the consumer loan portfolio has been excellent and the Company
considers the retail segment critical from marketing and competitive
standpoints.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The following table presents total nonperforming assets at March 31, 1994 and
1993, and December 31, 1993:
NONPERFORMING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1994 1993 1993
-------- ----------- --------
<S> <C> <C> <C>
Nonaccrual loans. . . . . . . . . . . $16,528 $16,668 $17,086
Loans 90+ days past due (less
nonaccruals). . . . . . . . . . . . 1,207 1,363 1,905
Renegotiated loans. . . . . . . . . . -- -- --
Other real estate owned and other
nonperforming assets. . . . . . . . 4,928 5,127 6,736
------- ------- -------
Total. . . . . . . . . . . . . . $22,663 $23,158 $25,727
------- ------- -------
------- ------- -------
% of total loans plus other
nonperforming assets. . . . . . . 1.35% 1.40% 1.67%
Nonperforming as a % of equity. . . . 7.98 8.37 10.27
</TABLE>
Nonperforming assets declined slightly in the first quarter of 1994 to
$22.7 million, representing 1.35% of total loans plus other nonperforming
assets. More significant improvement was prevented due to placing a
$1.4 million loan on nonaccrual during the quarter. Management anticipates
that nonperforming assets will improve further in the second quarter of 1994,
based on offers that have been accepted to sell certain foreclosed
properties. The Company's largest nonperforming asset, with a book value of
$2.4 million, is scheduled to sell during the second quarter, along with other
smaller properties. The known sales will reduce nonperforming assets by more
than 10%, which is considered very positive for the asset quality indicators
of the Company. The improved local economic conditions in Arkansas and the
Southwest region have assisted in the disposition of foreclosed properties
and/or the improvement in financial condition of credit relationships that are
on nonaccrual status.
Presented in the table on the following page is the summary of activity in the
allowance for loan losses for the three months ended March 31, 1994 and 1993,
as well as the year ended December 31, 1993:
12
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED YEAR ENDED
MARCH 31 DECEMBER 31
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Beginning allowance for loan losses . $33,300 $30,145 $30,145
Allowance of purchased banks. . . . . -- -- 892
Provision for loan losses . . . . . . 385 773 4,628
Net recoveries (charge-offs):
Charge-offs. . . . . . . . . . . (1,503) (943) (6,004)
Recoveries . . . . . . . . . . . 1,408 1,295 3,639
------- ------- -------
Net recoveries (charge-offs) . (95) 352 (2,365)
------- ------- -------
Ending allowance for loan losses. . . $33,590 $31,270 $33,300
------- ------- -------
------- ------- -------
Allowance as of % of:
Gross loans. . . . . . . . . . . 2.01% 2.04% 2.02%
Gross loans (less bankers'
acceptances and commercial
paper) . . . . . . . . . . . . 2.01 2.11 2.02
Nonperforming assets . . . . . . 148.22 121.55 143.79
Nonperforming loans. . . . . . . 189.40 164.66 184.68
</TABLE>
Concurrent with the continued improvement in asset quality of the Company,
loan loss provisions have been reduced accordingly. In addition to the
improvements in asset quality, loan loss recoveries continue to keep pace
with the levels of loan charge-offs which have further negated the need for
current period loan loss provisions. During the first quarter of 1994, loan
loss provisions of $385,000 were made which, when reduced by the nominal
$95,000 of net loan losses, caused the allowance for loan losses to increase
by $290,000 to $33.6 million as of March 31, 1994. The reduction in
nonperforming assets referred to previously elevated the ratio of the
allowance to nonperforming assets to 148% at March 31, and the ratio of the
allowance to nonperforming loans to 189% at quarter-end. Management desires
to maintain at least 100% coverage of the Company's nonperforming loans at all
times, and maintains the overall allowance for loan losses at levels
sufficient to absorb temporary fluctuations in asset quality and/or loan
growth without requiring periodic extraordinary loan loss provisions. The
internal methodologies utilized to assess the adequacy of the allowance have
determined that the allowance is adequate to absorb the loss potential
in the loan portfolio as of March 31, 1994.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company's negative gap increased by $60 million compared to year end
1993. Most of the change took place in rate sensitive assets, which declined
by $84 million. All of that decline ($135 million total) occurred in loans.
During the same period, rate sensitive liabilities declined by $24 million.
The Federal Reserve Bank began to raise the interest rates on short term money
market instruments, particularly federal funds, early in 1994. There have
been two reactions to this movement. One has been taken by Company management
through the increase in balances of federal funds sold ($47 million since year
end 1993). This will permit interest earnings to increase along with rates.
The second change has been a stronger preference by loan customers to lock in
longer term rates and move away from floating rate and short term credits.
This phenomenon accounts for the decrease in loans repriceable in under one
year. As rates increase, management expects the pattern of lengthening loan
maturities to continue.
Management believes that certain types of deposit accounts have a high degree
of stability and less than complete sensitivity to rate changes. This
determination is based on a review of historical activity in these accounts
over a broad range of interest rate cycles. This assessment has been
supported through the most recent increases in short term rates. The rates on
transaction accounts have remained stable without a decline in the balances in
the accounts. Therefore, a large part of the rate sensitivity risk implied by
the negative gap at the thirty day interval is mitigated because it is a
result of stable transaction accounts.
The Company's liquidity position is closely monitored and considered to be
adequate. The aggregate of federal funds sold and securities purchased under
agreement to resell, and securities with maturities of three months or less
represent 8.2% of total liabilities.
13
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
MARCH 31, 1994 TOTAL IN TOTAL IN
0-30 DAYS 31-90 DAYS 91-365 DAYS ONE YEAR ONE YEAR
--------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Securities. . . . . $ 140,019 $ 66,926 $ 188,163 $ 395,108 $ 391,508
Total loans . . . . 458,131 121,669 257,166 836,966 972,066
Fed funds and
repos . . . . . . 129,313 -- -- 129,313 82,063
----------- -------- -------- ----------- -----------
Total assets . 727,463 188,595 445,329 1,361,387 1,445,637
----------- -------- -------- ----------- -----------
Transaction
accounts . . . . . 1,308,955 -- -- 1,308,955 1,294,579
Time accounts . . . 260,482 213,236 467,827 941,545 969,337
Short-term
borrowing . . . . 175,565 -- -- 175,565 185,818
Long-term debt. . . 4 136 339 479 991
----------- -------- -------- ----------- -----------
Total
rate-sensitive
liabilities. . 1,745,006 213,372 468,166 2,426,544 2,450,725
----------- -------- -------- ----------- -----------
GAP . . . . . . . . $(1,017,543) $(24,777) $(22,837) $(1,065,157) $(1,005,088)
----------- -------- -------- ----------- -----------
----------- -------- -------- ----------- -----------
</TABLE>
CAPITAL RESOURCES
As shown in the following table, the capital ratios of the Company continued
to improve during the first quarter of 1994 compared to December 31, 1993 and
March 31, 1993. All of the Company's subsidiary banks maintain leverage and
risk-based capital ratios that exceed regulatory minimums. Worthen announced
in January 1994 that the Board of Directors increased the regular quarterly
dividend to $0.15 per share from $0.05 per share. The dividend increase
reflects the improved capital position of the Company's largest bank resulting
from the merger with Union and management's confidence in the Company's
current operations. The dividend payout ratio reflecting the increased
dividend rate for the first quarter of 1994 is approximately 25.1% compared
to a ratio of 9.7% for the year ended 1993.
RISK-BASED CAPITAL
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Stockholders' equity. . . . . . . . . $ 283,964 $ 276,648 $ 250,393
Unrealized valuation on available for
sale securities 300 -- --
Goodwill. . . . . . . . . . . . . . . (22,634) (23,080) (15,191)
---------- ---------- ----------
Total Tier I capital . . . . . . 261,630 253,568 235,202
---------- ---------- ----------
Allowance for loan losses*. . . . . . 24,670 24,644 23,379
Capital notes . . . . . . . . . . . . -- -- 9,561
---------- ---------- ----------
Total Tier II capital. . . . . . 24,670 24,644 32,940
---------- ---------- ----------
Total qualifying capital. . $ 286,300 $ 278,212 $ 268,142
---------- ---------- ----------
---------- ---------- ----------
Risk adjusted assets (including
off-balance sheet exposure) . . . . $1,973,619 $1,971,522 $1,870,352
---------- ---------- ----------
---------- ---------- ----------
Ratios:
Equity to assets. . . . . . . . . . . 7.96% 7.73% 7.32%
Leverage. . . . . . . . . . . . . . . 7.37 7.13 6.91
Total capital to adjusted assets. . . 8.24 7.99 7.76
Tier I RBC ratio. . . . . . . . . . . 13.26 12.86 12.58
Total RBC ratio (8.00% required). . . 14.51 14.11 14.34
<FN>
* Limited to 1.25 percent of risk adjusted assets
</TABLE>
14
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE, REVENUE AND EXPENSE, AVERAGE YIELDS
AND RATES
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the quarter ended March 31
1994 1993
TAX EQUIVALENT INTEREST TAX EQUIVALENT INTEREST
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (including
nonaccrual loans) $1,645,585 $33,481 8.25% $1,543,357 $31,493 8.28%
Trading assets. . . . 51,418 870 6.86 42,727 772 7.33
Investment securities:
Available for sale . 130,619 1,636 5.08 -- -- --
Taxable. . . . . . . 1,189,409 14,847 5.06 1,315,571 18,743 5.78
Tax-exempt . . . . . 80,403 1,446 7.29 46,655 707 6.15
Federal funds sold. . . 90,873 848 3.78 164,695 1,253 3.09
Interest-bearing
deposits with other
banks. . . . . . . . . 600 5 3.38 198 2 4.10
---------- ------- ---- ---------- ------- ----
Total interest-
earning assets . . . $3,188,907 $53,133 6.76% $3,113,203 $52,970 6.90%
Non-interest-earning
assets:
Cash and due from
banks. . . . . . . . . 181,406 177,085
Premises and equipment,
net 101,918 98,804
Other assets. . . . . . 92,992 71,154
Less allowance for
loan losses. . . . . . (33,601) (31,216)
---------- ----------
Total assets. . . . . $3,531,622 $3,429,030
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing
liabilities:
Transaction deposits. . $1,047,858 $ 4,860 1.88% $ 980,569 $ 5,745 2.38%
Savings deposits. . . . 257,911 1,225 1.93 233,765 1,405 2.44
Time deposits . . . . . 1,141,980 9,961 3.54 1,250,055 11,427 3.71
Federal funds purchased 109,994 614 2.26 103,400 598 2.35
Short-term borrowings . 37,939 304 3.25 18,817 176 3.79
Long-term borrowings. . 45,538 950 8.46 36,889 813 8.94
---------- ------- ---- ---------- ------- ----
Total interest-
bearing liabilities. $2,641,220 $17,914 2.75% $2,623,495 $20,164 3.12%
Non-interest bearing
liabilities:
Demand deposits . . . . 580,121 519,704
Other . . . . . . . . . 28,580 40,678
Stockholders' equity: . . 281,701 245,153
---------- ----------
Total non-interest-
bearing liabilities. 890,402 805,535
---------- ----------
Total liabilities
and stockholders'
equity . . . . . . . $3,531,622 $3,429,030
---------- ----------
---------- ----------
Net interest income and
interest rate spread . . . $35,219 4.01% $32,806 3.78%
------- -------
------- -------
Net yield on interest-earning
assets 4.48% 4.27%
<FN>
Note: Interest income on tax-exempt securities, loans and leases is calculated
on a tax-equivalent basis, using a federal marginal income tax rate of 35% and
is reduced for non-deductible carrying interest.
</TABLE>
15
<PAGE>
NET INTEREST INCOME
Net interest income in the first quarter of 1994 was $2.4 million higher than
the same period in 1993 for a number of reasons. A higher volume of earning
assets had the largest effect. This was evident mainly in loans, which
increased by $102 million over the period. Since this category of assets had
the highest yield, this contributed positively to earnings. This shift of
assets over the past four quarters was funded, in part, by a decline in
federal funds sold, which declined by $74 million. Interest-bearing
liabilities increased over the period, but by only $18 million.
Non-interest-bearing liabilities also grew by $85 million, which more than
offset a $27 million increase in non-interest-earning assets. The difference
in this growth supported the increase in earning assets, with no associated
interest expense. The combination of these factors helped to create a
favorable effect to earnings due to volume changes.
There were also favorable effects to earnings due to changes in balance sheet
mix. Loans increased as a percentage of earning assets, from 49.6% in 1993 to
51.6% in 1994. On the liability side of the balance sheet, time accounts
declined as a percentage of interest-bearing liabilities from 47.6% to 43.2%.
There were corresponding increases in other deposit accounts with lower
interest rates, particularly transaction and savings accounts.
The Company has been able to deal effectively with the decline of interest
rates that occurred between the first quarter of 1993 and 1994. While asset
yields fell from 6.90% to 6.76%, the cost of interest-bearing liabilities
declined more rapidly from 3.12% to 2.75%. The most significant adjustments
were realized in transaction and savings accounts, where the average cost
declined by half of one percent in the period.
ANALYSIS OF NET INTEREST INCOME
(FTE = Fully Taxable Equivalent)
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31 DECEMBER 31
1994 1993 1993
------- ------- -------
<S> <C> <C> <C>
Interest income . . . . . . . . . $52,521 $52,486 $53,790
Fully taxable equivalent
adjustment. . . . . . . . . . . 612 484 543
------- ------- -------
Interest income - FTE . . . . . . 53,133 52,970 54,333
Interest expense. . . . . . . . . 17,914 20,164 19,208
------- ------- -------
Net interest income - FTE. . $35,219 $32,806 $35,125
------- ------- -------
------- ------- -------
Yield on earning assets - FTE . . 6.76% 6.90% 6.63%
Cost of interest bearing
liabilities. . . . . . . . . . . 2.75 3.12 2.83
Net interest spread - FTE . . . . 4.01 3.78 3.80
Net interest margin - FTE . . . . 4.48 4.27 4.28
</TABLE>
CHANGES IN FULLY TAXABLE EQUIVALENT NET INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
$ CHANGE 1994/1993
THREE MONTHS ENDED
MARCH 31
------------------
<S> <C>
Increase due to increase in earning assets. . . . $ 1,261
Decrease due to lower earning asset yield . . . . (1,098)
Increase due to lower interest rates paid on
interest-bearing liabilities . . . . . . . . . . 2,386
Decrease due to increase in interest-bearing
liabilities. . . . . . . . . . . . . . . . . . . (136)
-------
Increase in net interest income - FTE . . . . $ 2,413
-------
-------
</TABLE>
16
<PAGE>
OTHER INCOME
The Company continues to emphasize the importance of growth in noninterest
related sources of income. Other income includes fees for deposit services,
trust services provided by Worthen Trust Company, full service and discount
brokerage commissions provided by Worthen Investments, Inc. ("WII"), mortgage
loan servicing fees and many other corporate and retail products.
During the first quarter of 1994, other income was $14.7 million or
approximately $1.0 million below the $15.7 million recorded in the first
quarter of 1993. Trust fees were down by approximately $.3 million primarily
as a result of adjusting from the cash to accrual basis of recording income at
one of the Company's affiliate trust locations in January 1993. Brokerage
commissions were down by approximately $.2 million. The overall decline in
stock market activity in the first quarter of 1994 as compared to the first
quarter of 1993 resulted in lower commission sales. The Company continues to
emphasize this business and believes that the results of WII will follow the
stock market activity. Additionally, first quarter 1993 results included
$.2 million of nonrecurring income related to net repurchase agreement
recoveries.
A summary of other income is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31
1994 1993
------- -------
<S> <C> <C>
Service charges on deposit accounts . . . . . . . . . $ 5,598 $ 5,514
Trust fees and commissions. . . . . . . . . . . . . . 2,507 2,841
Full service and discount brokerage commissions . . . 1,379 1,605
Investment security gains . . . . . . . . . . . . . . -- 9
Repurchase agreement recoveries, net. . . . . . . . . -- 190
Other . . . . . . . . . . . . . . . . . . . . . . . . 5,237 5,525
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . $14,721 $15,684
------- -------
------- -------
</TABLE>
OTHER EXPENSE
During the first quarter of 1994, other expense decreased 5.2% compared to the
first quarter of 1993 and 6.7% from the fourth quarter of 1994. Reductions in
salaries and employee benefits, net occupancy, professional fees and business
development are direct results of savings realized in the Union merger. The
24.6% increase in data processing fees reflects the installation of an
automated computer network at each branch location to increase employee
efficiency and provide much better customer service. The company intends to
continue focusing attention on the level of noninterest expenses in order to
achieve better operating efficiencies.
A summary of other expense is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 %
1994 1993 CHANGE
------- ------- ------
<S> <C> <C> <C>
Salaries and employee benefits. . . . . . . $15,455 $16,949 (8.8)%
Net occupancy expense . . . . . . . . . . . 3,075 3,456 (11.0)
Equipment expense . . . . . . . . . . . . . 1,662 1,697 (2.1)
Professional fees . . . . . . . . . . . . . 1,446 1,716 (15.7)
Data processing . . . . . . . . . . . . . . 1,957 1,571 24.6
Amortization. . . . . . . . . . . . . . . . 1,112 916 21.4
Advertising . . . . . . . . . . . . . . . . 710 638 11.3
Business development. . . . . . . . . . . . 588 872 (32.6)
Office expense. . . . . . . . . . . . . . . 2,526 2,508 0.7
FDIC insurance. . . . . . . . . . . . . . . 1,750 1,851 (5.5)
Other . . . . . . . . . . . . . . . . . . . 2,797 2,704 3.4
------- -------
Total. . . . . . . . . . . . . . . . . $33,078 $34,878 (5.2)%
------- -------
------- -------
</TABLE>
17
<PAGE>
REGULATORY MATTERS
On March 31, 1993, the Board of Governors of the Federal Reserve System ("FED")
advised WBC that the Company's application to merge The Union of Arkansas
Corporation with a subsidiary of WBC had been approved. The FED approved the
merger, in part, in reliance upon representations and commitments made to the
FED by the Company, by Stephens Group, Inc. and by certain Stephens family
members. These included a representation that Stephens Group, Inc. does not and
will not exert control over the management and policies of WBC and that Stephens
Group, Inc. and its subsidiaries will comply with the restrictions imposed by
Sections 23A and 23B of the Federal Reserve Act. Management believes that such
representations and commitments will not materially affect the Company's general
business policies, financial condition, or results of operations. The Company
has also been advised that the FED has made a determination that Stephens Group,
Inc. and its affiliates, are affiliates of the Company, as that term is defined
in Sections 23A and 23B of the Federal Reserve Act.
The Board of Governors also notified the Company on March 31, 1993 that the
Board of Governors had ordered an investigation to review the ownership and
control of the Company for compliance with the Bank Holding Company Act and the
Change in Bank Control Act, including the nature and extent of the relationships
between the Company and Stephens Group, Inc. and its subsidiaries. The Company
is not aware of any assertion by the Board of Governors that the Company is not
in compliance with the Bank Holding Company Act or the Change in Bank Control
Act. In the event the Board of Governors determines that there has been a
violation of the Bank Holding Company Act, it is authorized to initiate certain
administrative enforcement actions against the Company and its institution-
affiliated parties. These actions could include, among other things, the
issuance of an order to cease and desist or the assessment of monetary penalties
against the Company or its institution-affiliated parties. The amount of such
monetary penalties, if any, would be determined by the Board of Governors on the
basis of the facts and circumstances surrounding the alleged violations and
might or might not have a material adverse effect upon the Company's financial
condition or results of operations. In addition, under regulations promulgated
by the Board of Governors, in the event it determines that an impermissible
control relationship exists, it would have discretion to order either
termination of the impermissible control relationship, or the filing of an
application seeking the approval of such control relationship, or to pursue
other remedial actions. However, the Company cannot now predict the results or
the final outcome of the investigation. The Company intends to continue to
cooperate with the Board of Governors in this investigation.
INCOME TAXES
The provision for income taxes was $5,704,000 for the first quarter of 1994
compared to $4,074,000 for the fourth quarter of 1993 and $3,300,000 for the
first quarter of 1993. The effective tax rates for the respective quarters
were 36.0%, 30.0% and 26.7%. The Company expects to be taxable at an
approximate effective rate of 36% during the remainder of 1994.
A complete discussion of the $868,000 gain recorded in the first quarter of
1993 related to the adoption of the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," can be found at Note 6
(Change in Accounting Principle - Income Taxes) to the financial statements.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, there are various legal proceedings
pending against WBC, its subsidiaries and affiliates, most of which are
considered litigation incidental to the conduct of business, including, among
other matters, defense of routine corporate, employment, banking, lender
liability and securities related litigation. Management, after consultation
with legal counsel and based upon available facts and proceedings to date
which are preliminary in certain instances, is of the opinion that the ultimate
resolution of these proceedings will not have a material adverse effect on
the consolidated financial position or results of operations of WBC. However,
certain matters disclosed in this Form 10-Q may be considered to be material in
amount or nature.
In January of 1993, the Company, its directors, and certain of its officers and
shareholders were sued in the United States District Court for the Southern
District of New York, in WINICKI V. WORTHEN BANKING CORPORATION, ET AL.
93-CIV-0135. The complaint alleged that the defendants violated Section 14(a) of
the Securities Exchange Act of 1934 ("Exchange Act"), Rule 14a-9 of the
Securities and Exchange Commission ("SEC" or "Commission"), and certain state
law provisions relating to fiduciary duties in connection with the matters
disclosed in the Company's proxy statement distributed in December of 1992. The
complaint was filed as a class action and sought an injunction to prevent the
Company from holding a special meeting or from consummating certain transactions
which were the subject of the proxy statement, and unspecified monetary damages.
The Company has denied all material allegations in the complaint and in January
1993, the parties entered into a Memorandum of Understanding ("MOU") under which
the Company agreed to distribute revised disclosure material to its shareholders
and not to oppose an application by plaintiff's counsel for fees in an agreed
amount. On April 5, 1994, the Court held a fairness hearing on the proposed
settlement. On the basis of that hearing, the Court approved the settlement, and
the matter has been settled pursuant to the approval of the Court, on terms
believed by WBC's management to be favorable to WBC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of WBC was held April 26, 1994. At the
annual meeting, the following persons were re-elected as directors of WBC for
the upcoming year:
<TABLE>
<CAPTION>
AUTHORITY
DIRECTORS ELECTED VOTES FOR WITHHELD
----------------- --------- --------
<S> <C> <C>
James H. Atkins 14,943,470 13,679
Gus M. Blass, II 14,898,048 59,101
Curtis F. Bradbury, Jr. 14,943,458 13,691
Fred I. Brown, Jr. 14,942,370 14,779
Alex Dillard 14,939,170 17,979
Mike Flynn 14,943,270 13,879
Kaneaster Hodges, Jr. 14,931,809 25,340
T. Milton Honea 14,897,055 60,094
George C. Kell 14,942,216 14,933
Herbert H. McAdams, II 14,937,796 19,353
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AUTHORITY
DIRECTORS ELECTED VOTES FOR WITHHELD
----------------- --------- --------
<S> <C> <C>
Raymond P. Miller, Sr., M.D. 14,943,270 13,879
A. Dan Phillips 14,943,470 13,679
Winthrop Paul Rockefeller 14,939,591 17,558
David Solomon 14,888,855 68,294
Leland E. Tollett 14,899,555 57,594
</TABLE>
In addition to the election of Directors, the stockholders of WBC voted on
the following items:
1) The stockholders elected to amend the Worthen Banking Corporation 1991
Stock Option Plan. The number of shares voted in favor of this
resolution was 13,520,405; the number of shares voted against this
resolution was 1,361,698 and 75,046 abstained.
2) The stockholders ratified the appointment of KPMG Peat Marwick as
independent auditors of the Company for the fiscal year ending December 31,
1994. The number of shares voted in favor of this resolution was
14,891,527; the number of shares voted against this resolution was 15,258
and 50,344 abstained.
The stockholders also approved the actions taken by the directors and officers
of the Company during the preceding year and voted to give discretionary
authority to the proxies to vote for other business properly coming before
the Annual Meeting, but no other business was presented at the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index.
EXHIBIT NUMBER DESCRIPTION PAGE
- - -------------- ----------- ----
11 Statement re: Computation of per share
earnings (see Consolidated Statement of
Earnings). 4
(b) Current Reports on Form 8-K.
No current reports of Form 8-K were filed by the Company during the three
months ended March 31, 1994.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORTHEN BANKING CORPORATION
(Registrant)
Date: May 16, 1994 /s/ Andrew T. Melton
-----------------------------
Andrew T. Melton
Executive Vice President and
Chief Financial Officer
Date: May 16, 1994 /s/ Alan C. King
-----------------------------
Alan C. King
Senior Vice President and
Controller
(Chief Accounting Officer)
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