<PAGE> 1
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) September 2, 1994
(August 18, 1994)
BOATMEN'S BANCSHARES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Missouri 1-3750 43-0672260
- ---------------------------- ---------------- --------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation Number) Identification No.)
One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63101
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-466-6000
------------------
===============================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS.
- ----------------------
On August 18, 1994, Boatmen's Bancshares, Inc. (the "Registrant") entered
into an Agreement and Plan of Merger to acquire, in a stock transaction,
Worthen Banking Corporation ("Worthen"), located in Little Rock, Arkansas.
A copy of the Registrant's press release announcing the agreement to acquire
Worthen and a copy of the Agreement and Plan of Merger are attached hereto as
exhibits. Also attached as exhibits hereto are copies of Worthen's Annual Report
on Form 10-K for the year ended December 31, 1993 and Quarterly Reports on Form
10-Q for the periods ended March 31, 1994 and June 30, 1994.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
- -------------------------------------------
(a) Financial Statements of Business Acquired - Not applicable
(b) Pro Forma Financial Information - Not applicable
(c) Exhibits - The following exhibits are included with this Report:
Exhibit 99 (a) Press Release dated August 18, 1994
99 (b) Agreement and Plan of Merger, dated August 18,
1994, among Registrant, Worthen and BBI Acquisition
Co, Inc.
99 (c) Worthen Banking Corporation's Annual Report on
Form 10-K for the year ended December 31, 1993
99 (d) Worthen Banking Corporation's Quarterly Report
on Form 10-Q for the three month period ended
March 31, 1994
99 (e) Worthen Banking Corporation's Quarterly Report
on Form 10-Q for the three month and six month
period ended June 30, 1994
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
BOATMEN'S BANCSHARES, INC.
--------------------------
(Registrant)
By /s/ James W. Kienker
----------------------------------
James W. Kienker
Executive Vice President and
Chief Financial Officer
Dated: September 2, 1994
<PAGE> 1
BOATMEN'S BANCSHARES, INC.
Boatmen's Bancshares, Inc.
One Boatmen's Plaza
800 Market Street
St. Louis, Missouri 63101
NEWS
For further information, contact:
Kevin R. Stitt, Boatmen's, 314/466-7662
FOR IMMEDIATE RELEASE
- ---------------------
BOATMEN'S BANCSHARES TO ACQUIRE WORTHEN BANKING CORPORATION
-----------------------------------------------------------
ST. LOUIS, August 18, 1994 - Boatmen's Bancshares, Inc. (NASDAQ:BOAT)
announced today that it has agreed to acquire Worthen Banking Corporation
(ASE:WOR) of Little Rock, Arkansas, in a stock transaction valued at
approximately $595 million.
Boatmen's will exchange one share of its common stock for each share of
Worthen's approximately 17.3 million common shares including shares issued for
stock options. The transaction will be accounted for on a pooling of interest
basis and will be a tax-free exchange for Worthen shareholders.
Worthen is the second largest bank holding company in Arkansas with
approximately $3.5 billion in assets and $3.0 billion in deposits at June 30,
1994, and operates 112 retail banking offices throughout Arkansas and six
offices in the Austin, Texas, area.
"We are extremely pleased with this opportunity to significantly expand
our existing franchise in Arkansas," explained Andrew B. Craig, III, chairman
and chief executive officer of Boatmen's Bancshares. "Worthen fits our
acquisition criteria perfectly, with superior asset quality and an excellent
management team. Moreover, the size of its market share and breadth of its
banking relationships will give us a dominant market position in Arkansas,
as well as enhance our presence in Texas."
-more-
<PAGE> 2
Add One
Boatmen's currently owns Superior Federal Bank, based in Fort Smith,
Arkansas, with assets of about $1.2 billion. Superior has 39 locations in
Arkansas and 18 locations in Oklahoma. Boatmen's also has banking operations
in Amarillo and El Paso, Texas.
Curt Bradbury, chairman and chief executive officer of Worthen, said,
"We are looking forward to being affiliated with Boatmen's, which is one of
the nation's best performing regional bank holding companies. We will be able
to leverage Boatmen's banking strengths to continue providing exceptional
service to our customers in Arkansas and Texas."
In the first half of 1994 Worthen earned $23.8 million, an increase of 16
percent over year-ago results, excluding nonrecurring items, while Boatmen's
posted record net income of $173.6 million, representing an increase of 9
percent over the comparable year-earlier period.
The transaction is expected to close by the first quarter of 1995,
subject to regulatory approval and approval by Worthen shareholders.
Revenue enhancements and cost savings due to increased efficiencies are
projected to total $13 million after-tax in 1995 and $26 million after-tax
in 1996, and will make the transaction accretive to earnings per share during
1996, Boatmen's pointed out.
Boatmen's Bancshares, with assets of approximately $28 billion, is one
of the 30 largest U.S. bank holding companies, operating more than 400
locations in nine states. In addition, Boatmen's is among the nation's
largest providers of trust services with assets under management in excess
of $34 billion.
-tables attached-
<PAGE> 3
<TABLE>
Boatmen's Bancshares
Pro Forma Financial Highlights
<CAPTION>
PRO FORMA
BOATMEN'S WORTHEN COMBINED
<S> <C> <C> <C>
At June 30, 1994 ($ millions)
Assets $27,583 $3,527 $31,110
Loans 15,701 1,783 17,484
Reserve for loan losses 344 34 378
Deposits 20,243 2,968 23,211
Long-term debt 514 43 557
Equity 2,173 293 2,466
Nonperforming assets
(includes past due) 250 18 268
Equity/assets 7.88% 8.32% 7.93%
Tangible equity/assets 7.00% 7.59% 7.07%
Reserve/nonperforming loans 240% 212% 237%
Offices 425 118 543
Employees 14,485 2,215 16,700
<CAPTION>
For the six months ended June 30, 1994 ($ millions)
Net interest income (FTE) $522.0 $71.6
Provision for loan losses 13.0 0.8
Noninterest income 259.9 35.3
Noninterest expense 487.1 67.3
Net income 173.6 23.8
Return on assets 1.29% 1.36%
Return on equity 16.11% 16.86%
Net interest margin 4.33% 4.52%
</TABLE>
<PAGE> 1
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AGREEMENT AND PLAN OF MERGER
by and among
WORTHEN BANKING CORPORATION
an Arkansas corporation,
and
BOATMEN'S BANCSHARES, INC.
a Missouri corporation,
and
BBI ACQUISITIONCO, INC.
an Arkansas corporation,
Dated August 18, 1994
==============================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
ARTICLE ONE TERMS OF THE MERGER & CLOSING
<C> <S> <C>
Section 1.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Merging Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.03. Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.04. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.05. Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.06. The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.07. Exchange Procedures; Surrender of Certificates . . . . . . . . . . . 2
Section 1.08. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.09. Actions At Closing . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE TWO REPRESENTATIONS OF WORTHEN
Section 2.01. Organization and Capital Stock . . . . . . . . . . . . . . . . . . . 4
Section 2.02. Authorization; No Defaults . . . . . . . . . . . . . . . . . . . . . 5
Section 2.03. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.04. Financial Information. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.05. Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.06. Regulatory Enforcement Matters . . . . . . . . . . . . . . . . . . . 6
Section 2.07. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.08. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.09. Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.10. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.11. Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.12. Employee Matters and ERISA . . . . . . . . . . . . . . . . . . . . . 7
Section 2.13. Title to Properties; Insurance . . . . . . . . . . . . . . . . . . . 8
Section 2.14. Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.15. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.16. Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.17. No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . 10
Section 2.18. Statements True and Correct. . . . . . . . . . . . . . . . . . . . . 10
ARTICLE THREE REPRESENTATIONS OF BOATMEN'S AND ACQUISITIONCO
Section 3.01. Organization and Capital Stock . . . . . . . . . . . . . . . . . . . 10
Section 3.02. Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.03. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.04. Financial Information. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.05. Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.06. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.07. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
i
<PAGE> 3
Section 3.08. Compliance With Law. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.09. Statements True and Correct. . . . . . . . . . . . . . . . . . . . . 12
ARTICLE FOUR AGREEMENTS OF WORTHEN
Section 4.01. Business in Ordinary Course. . . . . . . . . . . . . . . . . . . . . 13
Section 4.02. Breaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.03. Submission to Shareholders . . . . . . . . . . . . . . . . . . . . . 15
Section 4.04. Consents to Contracts and Leases . . . . . . . . . . . . . . . . . . 16
Section 4.05. Conforming Accounting and Reserve Policies;
Restructuring Expenses . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.06. Consummation of Agreement. . . . . . . . . . . . . . . . . . . . . . 17
Section 4.07. Environmental Reports. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.08. Restriction on Resales . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.09. Access to Information. . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE FIVE AGREEMENTS OF BOATMEN'S AND ACQUISITIONCO
Section 5.01. Regulatory Approvals and Registration Statement. . . . . . . . . . . 18
Section 5.02. Breaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.03. Consummation of Agreement. . . . . . . . . . . . . . . . . . . . . . 19
Section 5.04. Stock Options and Stock Appreciation Rights. . . . . . . . . . . . . 19
Section 5.05. Directors and Officers' Liability Insurance and Indemnification. . . 20
Section 5.06. Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.07. Access to Information. . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE SIX CONDITIONS PRECEDENT TO THE MERGER
Section 6.01. Conditions to Boatmen's Obligations. . . . . . . . . . . . . . . . . 21
Section 6.02. Conditions to Worthen's Obligations. . . . . . . . . . . . . . . . . 23
ARTICLE SEVEN TERMINATION OR ABANDONMENT
Section 7.01. Mutual Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.02. Breach of Agreements . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.03. Environmental Reports. . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.04. Failure of Conditions. . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.05. Regulatory Approval Denial . . . . . . . . . . . . . . . . . . . . . 24
Section 7.06. Shareholder Approval Denial. . . . . . . . . . . . . . . . . . . . . 25
Section 7.07. Regulatory Enforcement Matters . . . . . . . . . . . . . . . . . . . 25
Section 7.08. Fall-Apart Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.09. Termination Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.10. Superior Transaction . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.11. Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.12. Shareholder Letters. . . . . . . . . . . . . . . . . . . . . . . . . 26
ii
<PAGE> 4
ARTICLE EIGHT GENERAL
Section 8.01. Confidential Information . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.02. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.03. Return of Documents. . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.04. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.05. Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.06. Nonsurvival of Representations, Warranties and Agreements . . . . . .28
Section 8.07. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.08. Headings and Captions. . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.09. Waiver, Amendment or Modification. . . . . . . . . . . . . . . . . . 28
Section 8.10. Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.12. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.14. Governing Law; Assignment. . . . . . . . . . . . . . . . . . . . . . 29
EXHIBIT 1.09(a) - Company's Legal Opinion Matters
EXHIBIT 1.09(b) - Boatmen's Legal Opinion Matters
EXHIBIT 4.08 - Form of Affiliate's Letter
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
----------------------------
This is an AGREEMENT AND PLAN OF MERGER (this "Agreement")
made August 18, 1994, by and among WORTHEN BANKING CORPORATION, an
Arkansas corporation ("Worthen"), BOATMEN'S BANCSHARES, INC., a
Missouri corporation ("Boatmen's"), and BBI ACQUISITIONCO, INC., an
Arkansas corporation and wholly-owned subsidiary of Boatmen's
("AcquisitionCo").
In consideration of the premises and the mutual terms and
provisions set forth in this Agreement, the parties agree as
follows.
ARTICLE ONE
-----------
TERMS OF THE MERGER & CLOSING
-----------------------------
SECTION 1.01. THE MERGER. Pursuant to the terms and
------------ ----------
provisions of this Agreement and the Arkansas Business Corporation
Act (the "Corporate Law"), AcquisitionCo shall merge with and into
Worthen (the "Merger").
SECTION 1.02. MERGING CORPORATION. AcquisitionCo shall be
------------ -------------------
the merging corporation under the Merger and its corporate identity
and existence, separate and apart from Worthen, shall cease on
consummation of the Merger.
SECTION 1.03. SURVIVING CORPORATION. Worthen shall be the
------------ ---------------------
surviving corporation in the Merger. No changes in the articles of
incorporation of Worthen shall be effected by the Merger.
SECTION 1.04. EFFECT OF THE MERGER. The Merger shall have
------------ --------------------
all of the effects provided by this Agreement and the Corporate
Law.
SECTION 1.05. CONVERSION OF SHARES.
------------ --------------------
(a) At the Effective Time (as defined in Section 1.08 hereof),
each share of common stock, par value $1.00, of Worthen (the
"Worthen Common") issued and outstanding immediately prior to the
Effective Time, other than shares the holders of which have duly
exercised and perfected their dissenters' rights under the
Corporate Law, shall be converted into the right to receive one (1)
share of common stock, par value $1.00 per share, of Boatmen's (the
"Boatmen's Common") (together with any cash payment in lieu of
fractional shares, as provided below, the "Merger Consideration").
No fractional shares of Boatmen's Common shall be issued and, in
lieu thereof, holders of shares of Worthen Common who would
otherwise be entitled to a fractional share interest (after taking
into account all shares of Worthen Common held by such holder)
shall be paid an amount in cash equal to the product of such
fractional share interest and the closing price of a share of
Boatmen's Common on the Nasdaq Stock Market's National Market
("Nasdaq") on the business day immediately preceding the date on
which the Effective Time occurs.
(b) At the Effective Time, all of the shares of Worthen
Common, by virtue of the Merger and without any action on the part
of the holders thereof, shall no longer be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of
any certificate or certificates which immediately
<PAGE> 6
prior to the Effective Time represented outstanding shares of Worthen
Common (the "Certificates") shall thereafter cease to have any rights
with respect to such shares, except the right of such holders to
receive, without interest, the Merger Consideration upon the
surrender of such Certificate or Certificates in accordance with
Section 1.07.
(c) At the Effective Time, each share of Worthen Common, if
any, held in the treasury of Worthen or by any direct or indirect
subsidiary of Worthen (other than shares held in trust accounts for
the benefit of others or in other fiduciary, nominee or similar
capacities) immediately prior to the Effective Time shall be
canceled.
(d) Each share of common stock, par value $1.00 per share, of
AcquisitionCo outstanding immediately prior to the Effective Time
shall be converted into and become one share of Worthen Common.
(e) If between the date hereof and the Effective Time a share
of Boatmen's Common shall be changed into a different number of
shares of Boatmen's Common or a different class of shares by reason
of reclassification, recapitalization, splitup, exchange of shares
or readjustment, or if a stock dividend thereon shall be declared
with a record date within such period, then the number of shares of
Boatmen's Common into which a share of Worthen Common shall be
converted pursuant to subsection (a) above shall be appropriately
and proportionately adjusted so that each shareholder of Worthen
shall be entitled to receive such number of shares of Boatmen's
Common as such shareholder would have received pursuant to such
reclassification, recapitalization, splitup, exchange of shares or
readjustment or as a result of such stock dividend had the record
date therefor been immediately following the Effective Time of the
Merger.
(f) If holders of Worthen Common are entitled to dissent from
the Agreement and Merger under the Corporate Law, any issued and
outstanding shares of Worthen Common held by a dissenting holder
shall not be converted as described in this Section 1.05 but from
and after the Effective Time shall represent only the right to
receive such consideration as may be determined to be due to such
dissenting holder pursuant to the Corporate Law; provided, however,
that each share of Worthen Common outstanding immediately prior to
the Effective Time and held by a dissenting holder who shall, after
the Effective Time, withdraw his demand for appraisal or lose his
right to dissent shall have only such rights as are provided under
Corporate Law.
SECTION 1.06. THE CLOSING. The closing of the Merger (the
------------ -----------
"Closing") shall take place at a location mutually agreeable to the
parties at 10:00 A.M. Central Time on the Closing Date described in
Section 1.08 of this Agreement.
SECTION 1.07. EXCHANGE PROCEDURES; SURRENDER OF CERTIFICATES.
------------ ----------------------------------------------
(a) Boatmen's Trust Company, St. Louis, Missouri, shall act
as Exchange Agent in the Merger (the "Exchange Agent").
(b) As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each record holder of any
Certificate or Certificates whose shares were converted into the
right to receive the Merger Consideration, a letter of transmittal
(which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper
delivery of the
2
<PAGE> 7
Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Boatmen's may
reasonably specify) (each such letter, the "Merger Letter of
Transmittal") and instructions for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon
surrender to the Exchange Agent of a Certificate, together with a
Merger Letter of Transmittal duly executed and any other required
documents, the holder of such Certificate shall be entitled to
receive in exchange therefor solely the Merger Consideration. No
interest on the Merger Consideration issuable upon the surrender of
the Certificates shall be paid or accrued for the benefit of
holders of Certificates. If the Merger Consideration is to be
issued to a person other than a person in whose name a surrendered
Certificate is registered, it shall be a condition of issuance that
the surrendered Certificate shall be properly endorsed or otherwise
in proper form for transfer and that the person requesting such
issuance shall pay to the Exchange Agent any required transfer or
other taxes or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not applicable.
(c) No dividends that are otherwise payable on shares of
Boatmen's Common constituting the Merger Consideration shall be
paid to persons entitled to receive such shares of Boatmen's Common
until such persons surrender their Certificates. Upon such
surrender, there shall be paid to the person in whose name the
shares of Boatmen's Common shall be issued any dividends which
shall have become payable with respect to such shares of Boatmen's
Common (without interest and less the amount of taxes, if any,
which may have been imposed thereon), between the Effective Time
and the time of such surrender.
SECTION 1.08. CLOSING DATE. At Boatmen's election, the
------------ ------------
Closing shall take place on (i) the last business day of, or
(ii) the first business day of the month following, in each case,
the month during which each of the conditions in Sections 6.01(d)
and 6.02(d) is satisfied or waived by the appropriate party or on
such other date after such satisfaction or waiver as Worthen and
Boatmen's may agree (the "Closing Date"). The Merger shall be
effective upon the filing of Articles of Merger with the Secretary
of State of the State of Arkansas (the "Effective Time"), which the
parties shall use their best efforts to cause to occur on the
Closing Date.
SECTION 1.09. ACTIONS AT CLOSING.
------------ ------------------
(a) At the Closing, Worthen shall deliver to Boatmen's and
AcquisitionCo:
(i) a certified copy of the Articles of Incorporation of
Worthen and each of its subsidiaries;
(ii) a Certificate signed by an appropriate officer of
Worthen stating that, to the best of his knowledge, all of the
conditions set forth in Sections 6.01(a) and 6.01(b) have been
satisfied as provided therein;
(iii) a certified copy of the resolutions of Worthen's
Board of Directors and shareholders, as required for valid
approval of the execution of this Agreement and the
consummation of the Merger and the other transactions
contemplated hereby;
(iv) Certificate of the Arkansas Secretary of State,
dated a recent date, stating that Worthen is in good standing;
and
3
<PAGE> 8
(v) a legal opinion from counsel for Worthen, in form
reasonably acceptable to Boatmen's counsel, opining with
respect to the matters listed on Exhibit 1.09(a) hereto.
(b) At the Closing, Boatmen's shall deliver to Worthen:
(i) a Certificate signed by an appropriate officer of
Boatmen's and AcquisitionCo stating that, to the best of his
knowledge, all of the conditions set forth in
Sections 6.01(a), 6.02(b) and 6.02(d) (but excluding the
approval of Worthen's shareholders) have been satisfied;
(ii) a certified copy of the resolutions of Boatmen's
Board of Directors authorizing the execution of this Agreement
and the consummation of the transactions contemplated hereby;
(iii) a certified copy of the resolutions of
AcquisitionCo's Board of Directors and shareholder, as
required for valid approval of the execution of this Agreement
and the consummation of the transactions contemplated hereby;
and
(iv) a legal opinion from counsel for Boatmen's, in form
reasonable acceptable to Worthen's counsel, opining with
respect to the matters listed on Exhibit 1.09(b) hereto.
ARTICLE TWO
-----------
REPRESENTATIONS OF WORTHEN
--------------------------
Worthen hereby makes the following representations and
warranties:
SECTION 2.01. ORGANIZATION AND CAPITAL STOCK.
------------ ------------------------------
(a) Worthen is a corporation duly organized, validly existing
and in good standing under the laws of the State of Arkansas and
has the corporate power to own all of its property and assets, to
incur all of its liabilities and to carry on its business as now
being conducted. Worthen is a bank holding company registered with
the Board of Governors of the Federal Reserve System under the Bank
Holding Company Act of 1956.
(b) The authorized capital stock of Worthen consists of
(i) 40,000,000 shares of Worthen Common, of which, as of the date
hereof, 17,033,039 shares are issued and outstanding, and
(ii) 400,000 shares of preferred stock, par value $25.00 per share,
of which no shares are issued and outstanding. All of the issued
and outstanding shares of Worthen Common are duly and validly
issued and outstanding and are fully paid and non-assessable. None
of the outstanding shares of Worthen Common has been issued in
violation of any preemptive rights of the current or past
shareholders of Worthen. As of the date hereof, Worthen had
outstanding employee stock options representing the right to
acquire not more than 650,000 shares of Worthen Common pursuant to
the Stock Option Plans (as defined in Section 5.04 hereof).
(c) Except as set forth in subsection 2.01(b) above, there are
no shares of capital stock or other equity securities of Worthen
outstanding and no outstanding options, warrants, rights to
subscribe for, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or
4
<PAGE> 9
exchangeable for, shares of Worthen Common or other capital stock
of Worthen or contracts, commitments, understandings or
arrangements by which Worthen is or may be obligated to issue
additional shares of its capital stock or options, warrants or
rights to purchase or acquire any additional shares of its capital
stock.
SECTION 2.02. AUTHORIZATION; NO DEFAULTS. Worthen's Board of
------------ --------------------------
Directors has, by all appropriate action, approved this Agreement
and the Merger and authorized the execution hereof on its behalf by
its duly authorized officers and the performance by Worthen of its
obligations hereunder. Except as disclosed in Section 2.02 of that
certain confidential writing delivered by Worthen to Boatmen's and
executed by both Worthen and Boatmen's concurrently with the
execution and delivery of this Agreement (the "Disclosure
Schedule"), nothing in the articles of incorporation or bylaws of
Worthen, as amended, or any other agreement, instrument, decree,
proceeding, law or regulation (except as specifically referred to
in or contemplated by this Agreement) by or to which it or any of
its subsidiaries are bound or subject which is material to Worthen
and its subsidiaries taken as a whole or to the Merger would
prohibit or inhibit Worthen from consummating this Agreement and
the Merger on the terms and conditions herein contained. This
Agreement has been duly and validly executed and delivered by
Worthen and constitutes a legal, valid and binding obligation of
Worthen, enforceable against Worthen in accordance with its terms.
To the best knowledge of Worthen, Worthen and its subsidiaries are
not in default under, nor in violation of, any provision of their
articles of incorporation, bylaws, or any promissory note,
indenture or any evidence of indebtedness or security therefor,
lease, contract, purchase or other commitment or any other
agreement which is material to Worthen and its subsidiaries taken
as a whole, except as disclosed in Section 2.02 of the Disclosure
Schedule.
SECTION 2.03. SUBSIDIARIES. Each of Worthen's banking
------------ ------------
subsidiaries and its other direct or indirect subsidiaries
(collectively, the "subsidiaries") the name and jurisdiction of
incorporation of which is disclosed in Section 2.03 of the
Disclosure Schedule, is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorpo-
ration and has the corporate power to own its respective properties
and assets, to incur its respective liabilities and to carry on its
respective business as now being conducted. The number of issued
and outstanding shares of capital stock of each such subsidiary is
set forth in Section 2.03 of the Disclosure Schedule, all of which
shares (except as may be otherwise there noted) are owned by
Worthen or Worthen's subsidiaries, as the case may be, free and
clear of all liens, encumbrances, rights of first refusal, options
or other restrictions of any nature whatsoever, except for
assessibility under 12 U.S.C. "55 and as may be stated in
Section 2.03 of the Disclosure Schedule. There are no options,
warrants or rights outstanding to acquire any capital stock of any
of Worthen's subsidiaries and no person or entity has any other
right to purchase or acquire any unissued shares of stock of any of
Worthen's subsidiaries, nor does any such subsidiary have any
obligation of any nature with respect to its unissued shares of
stock. Except as may be disclosed in Section 2.03 of the
Disclosure Schedule, neither Worthen nor any of Worthen's
subsidiaries is a party to any partnership or joint venture or owns
an equity interest in any other business or enterprise.
SECTION 2.04. FINANCIAL INFORMATION. The consolidated
------------ ---------------------
balance sheets of Worthen and its subsidiaries as of December 31,
1992 and December 31, 1993 and related consolidated income
statements and statements of changes in shareholders' equity and of
cash flows for the three years ended December 31, 1993, together
with the notes thereto, included in Worthen's Form 10-K for the
year ended December 31, 1993, as currently on file with the
Securities and Exchange Commission (the "S.E.C."), and the
unaudited consolidated balance sheets of Worthen and its
subsidiaries as of March 31, 1994 and June 30, 1994 and the related
unaudited consolidated income statements and statements of changes in
5
<PAGE> 10
shareholders' equity and cash flows for the three months and six
months, respectively, then ended included in Worthen's Quarterly
Reports on Form 10-Q for the quarters then ended, as currently on
file with the S.E.C., and the year-end and quarterly Reports of
Condition and Report of Income of Worthen National Bank of Arkansas
(the "Lead Bank") for 1993 and June 30, 1994, respectively, as
currently on file with the Office of the Comptroller of the
Currency ("O.C.C.") (together, the "Worthen Financial Statements"),
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be
disclosed therein and except for regulatory reporting differences
required by the Lead Bank's reports) and fairly present in all
material respects the consolidated financial position and the
consolidated results of operations, changes in shareholders' equity
and cash flows of the respective entity and its respective
consolidated subsidiaries as of the dates and for the periods
indicated (subject, in the case of interim financial statements, to
normal recurring year-end adjustments, none of which will be
material).
SECTION 2.05. ABSENCE OF CHANGES. Since December 31, 1993,
------------ ------------------
there has not been any material adverse change in the financial
condition, the results of operations or the business of Worthen and
its subsidiaries taken as a whole, nor have there been any events
or transactions having such a material adverse effect which should
be disclosed in order to make the Worthen Financial Statements not
misleading. Since June 30, 1993, there has been no material
adverse change in the financial condition, the results of
operations or the business of the Lead Bank. Notwithstanding the
foregoing, any changes for which Worthen or its subsidiaries,
including the Lead Bank, make provisions or other adjustments
solely pursuant to Section 4.05 hereof shall not be deemed to be a
material adverse change.
SECTION 2.06. REGULATORY ENFORCEMENT MATTERS. Except as may
------------ ------------------------------
be disclosed in Section 2.06 of the Disclosure Schedule, neither
Worthen nor any of its subsidiaries is subject to, or has received
any notice or advice that it may become subject to, any order,
agreement or memorandum of understanding with any federal or state
agency charged with the supervision or regulation of banks or bank
holding companies or engaged in the insurance of bank deposits or
any other governmental agency having supervisory or regulatory
authority with respect to Worthen or any of its subsidiaries.
SECTION 2.07. TAX MATTERS. Worthen and its subsidiaries have
------------ -----------
filed all federal, state and local tax returns due in respect of
any of their businesses or properties in a timely fashion and have
paid or made provision for all amounts due shown on such returns.
All such returns fairly reflect the information required to be pre-
sented therein. All provisions for accrued but unpaid taxes
contained in the Worthen Financial Statements were made in
accordance with generally accepted accounting principles and in the
aggregate do not materially fail to provide for potential tax
liabilities.
SECTION 2.08. LITIGATION. Except as may be disclosed in
------------ ----------
Section 2.08 of the Disclosure Schedule, there is no litigation,
claim or other proceeding pending or, to the best knowledge of
Worthen, threatened, against Worthen or any of its subsidiaries, or
of which the property of Worthen or any of its subsidiaries is or
would be subject which would have a material adverse effect on
Worthen and its subsidiaries taken as a whole.
SECTION 2.09. EMPLOYMENT AGREEMENTS. Except as may be
------------ ---------------------
disclosed in Section 2.09 of the Disclosure Schedule, neither
Worthen nor any of its subsidiaries is a party to or bound by any
contract for the employment, retention or engagement, or with
respect to the severance, of any officer, employee, agent, consul-
tant or other person or entity which, by its terms, is not termi-
nable by Worthen or such
6
<PAGE> 11
subsidiary on thirty (30) days written notice or less without the
payment of any amount by reason of such termination.
SECTION 2.10. REPORTS. Except as may be disclosed in
------------ -------
Section 2.10 of the Disclosure Schedule, Worthen and each of its
subsidiaries has filed all reports and statements, together with
any amendments required to be made with respect thereto, if any,
that it was required to file with (i) the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), (ii) the OCC,
(iii) the S.E.C., (iv) any state securities authorities, (v) the
American Stock Exchange, and (vi) any other governmental authority
with jurisdiction over Worthen or any of its subsidiaries. As of
their respective dates, each of such reports and documents,
including the financial statements, exhibits and schedules thereto,
complied in all material respects with the relevant statutes, rules
and regulations enforced or promulgated by the regulatory authority
with which they were filed, and did not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
SECTION 2.11. LOAN PORTFOLIO. Except as may be disclosed in
------------ --------------
Section 2.11 of the Disclosure Schedule, to the best knowledge of
Worthen, (i) all loans and discounts shown on the Worthen Financial
Statements or which were entered into after the date of the most
recent balance sheet included in the Worthen Financial Statements
were and will be made in all material respects for good, valuable
and adequate consideration in the ordinary course of the business
of Worthen and its subsidiaries, in accordance in all material
respects with sound banking practices, and are not subject to any
material known defenses, setoffs or counterclaims, including
without limitation any such as are afforded by usury or truth in
lending laws, except as may be provided by bankruptcy, insolvency
or similar laws or by general principles of equity; (ii) the notes
or other evidences of indebtedness evidencing such loans and all
forms of pledges, mortgages and other collateral documents and
security agreements are and will be, in all material respects,
enforceable, valid, true and genuine and what they purport to be;
and (iii) Worthen and its subsidiaries have complied and will prior
to the Closing Date comply with all laws and regulations relating
to such loans, or to the extent there has not been such compliance,
such failure to comply will not materially interfere with the
collection of any such loan.
SECTION 2.12. EMPLOYEE MATTERS AND ERISA.
------------ --------------------------
(a) Except as may be disclosed in Section 2.12(a) of the
Disclosure Schedule, neither Worthen nor any of its subsidiaries
has entered into any collective bargaining agreement with any labor
organization with respect to any group of employees of Worthen or
any of its subsidiaries and to the best knowledge of Worthen there
is no present effort nor existing proposal to attempt to unionize
any group of employees of Worthen or any of its subsidiaries.
(b) Except as may be disclosed in Section 2.12(b) of the
Disclosure Schedule, (i) to the best knowledge of Worthen, Worthen
and its subsidiaries are and have been in material compliance with
all applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, including,
without limitation, any such laws respecting employment
discrimination and occupational safety and health requirements, and
neither Worthen nor any of its subsidiaries is engaged in any
unfair labor practice; (ii) there is no material unfair labor
practice complaint against Worthen or any subsidiary pending or, to
the best knowledge of Worthen, threatened before the National Labor
Relations Board; (iii) there is no labor dispute, strike, slowdown
or stoppage actually pending or, to the best knowledge of Worthen,
threatened against or directly affecting Worthen or any subsidiary;
7
<PAGE> 12
and (iv) neither Worthen nor any subsidiary has experienced any
material work stoppage or other material labor difficulty during
the past five years.
(c) Except as may be disclosed in Section 2.12(c) of the
Disclosure Schedule, neither Worthen nor any subsidiary maintains,
contributes to or participates in or has any liability under any
employee benefit plans, as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or
any nonqualified employee benefit plans or deferred compensation,
bonus, stock or incentive plans, or other employee benefit or
fringe benefit programs for the benefit of former or current
employees of Worthen or any subsidiary (the "Employee Plans"). To
the best knowledge of Worthen, no present or former employee of
Worthen or any subsidiary has been charged with breaching nor has
breached a fiduciary duty under any of the Employee Plans. Neither
Worthen nor any of its subsidiaries participates in, nor has it in
the past five years participated in, nor has it any present or
future obligation or liability under, any multiemployer plan (as
defined at Section 3(37) of ERISA). Except as may be disclosed in
Section 2.12(c) of the Disclosure Schedule, neither Worthen nor any
subsidiary maintains, contributes to, or participates in, any plan
that provides health, major medical, disability or life insurance
benefits to former employees of Worthen or any subsidiary.
(d) All liabilities of the Employee Plans have been funded on
the basis of consistent methods in accordance with sound actuarial
assumptions and practices, and no Employee Plan, at the end of any
plan year, or at December 31, 1993, had or has had an accumulated
funding deficiency. No actuarial assumptions have been changed
since the last written report of actuaries on such Employee Plans.
All insurance premiums (including premiums to the Pension Benefit
Guaranty Corporation) have been paid in full, subject only to
normal retrospective adjustments in the ordinary course. Except as
may be noted on the Worthen Financial Statements, Worthen and its
subsidiaries have no contingent or actual liabilities under
Title IV of ERISA as of December 31, 1993. No accumulated funding
deficiency (within the meaning of Section 302 of ERISA or
Section 412 of the Code) has been incurred with respect to any of
the Employee Plans, whether or not waived. No reportable event (as
defined in Section 4043 of ERISA) has occurred with respect to any
of the Employee Plans as to which a notice would be required to be
filed with the Pension Benefit Guaranty Corporation. No claim is
pending, or to the knowledge of Worthen threatened or imminent with
respect to any Employee Plan (other than a routine claim for
benefits for which plan administrative review procedures have not
been exhausted) for which Worthen or any of its subsidiaries would
be liable after December 31, 1993, except as is reflected on the
Worthen Financial Statements. After December 31, 1993, Worthen and
its subsidiaries have no liability for excise taxes under
Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the Code or for
a fine under Section 502 of ERISA with respect to any Employee
Plan. All Employee Plans have been operated, administered and
maintained materially in accordance with the terms thereof and in
material compliance with the requirements of all applicable laws,
including, without limitation, ERISA.
SECTION 2.13. TITLE TO PROPERTIES; INSURANCE. Except as may
------------ ------------------------------
be disclosed in Section 2.13 of the Disclosure Schedule,
(i) Worthen and its subsidiaries have marketable title, insurable
at standard rates, free and clear of all liens, charges and
encumbrances (except taxes which are a lien but not yet payable and
liens, charges or encumbrances reflected in the Worthen Financial
Statements and easements, rights-of-way, and other restrictions
which are not material and further excepting in the case of Other
Real Estate Owned ("O.R.E.O."), as such real estate is internally
classified on the books of Worthen or its subsidiaries, rights of
redemption under applicable law) to all of their real properties;
(ii) all leasehold interests for real property and any material
personal property used by Worthen and its subsidiaries in their
businesses are held pursuant to lease agreements which are valid
and enforceable in accordance with their
8
<PAGE> 13
terms; (iii) to the best knowledge of Worthen, all such properties
comply in all material respects with all applicable private
agreements, zoning requirements and other governmental laws and
regulations relating thereto and there are no condemnation proceedings
pending or threatened with respect to such properties; (iv) to the
best knowledge of Worthen, Worthen and its subsidiaries have valid
title or other ownership rights under licenses to all material
intangible personal or intellectual property used by Worthen or its
subsidiaries in their business, free and clear of any claim,
defense or right of any other person or entity which is material to
such property, subject only to rights of the licensors pursuant to
applicable license agreements, which rights do not materially
adversely interfere with the use of such property; and (v) all
material insurable properties owned or held by Worthen and its
subsidiaries are adequately insured by financially sound and
reputable insurers in such amounts and against fire and other risks
insured against by extended coverage and public liability
insurance, as is customary with bank holding companies of similar
size.
SECTION 2.14. ENVIRONMENTAL MATTERS. As used in this
------------ ---------------------
Agreement, "Environmental Laws" means all local, state and federal
environmental, health and safety laws and regulations in all
jurisdictions in which Worthen and its subsidiaries have done
business or owned, leased or operated property, including, without
limitation, the Federal Resource Conservation and Recovery Act, the
Federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Clean Water Act, the Federal Clean Air
Act, and the Federal Occupational Safety and Health Act.
Except as may be disclosed in Section 2.14 of the Disclosure
Schedule, to the best knowledge of Worthen, neither the conduct nor
operation of Worthen or its subsidiaries nor any condition of any
property presently or previously owned, leased or operated by any
of them violates or violated Environmental Laws in any respect
material to the business of Worthen and its subsidiaries and no
condition has existed or event has occurred with respect to any of
them or any such property that, with notice or the passage of time,
or both, would constitute a violation material to the business of
Worthen and its subsidiaries of Environmental Laws or obligate (or
potentially obligate) Worthen or its subsidiaries to remedy,
stabilize, neutralize or otherwise alter the environmental
condition of any such property where the aggregate cost of such
actions would be material to Worthen and its subsidiaries taken as
a whole. Except as may be disclosed in Section 2.14 of the
Disclosure Schedule, neither Worthen nor any of its subsidiaries
has received any notice from any person or entity that Worthen or
its subsidiaries or the operation or condition of any property ever
owned, leased or operated by any of them are or were in violation
of any Environmental Laws or that any of them are responsible (or
potentially responsible) for the cleanup or other remediation of
any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on or beneath any such property.
SECTION 2.15. COMPLIANCE WITH LAW. Worthen and its sub-
------------ --------------------
sidiaries have all licenses, franchises, permits and other gov-
ernmental authorizations that are legally required to enable them
to conduct their respective businesses in all material respects and
are in compliance in all material respects with all applicable laws
and regulations.
SECTION 2.16. BROKERAGE. Except as may be disclosed in
------------ ---------
Section 2.16 of the Disclosure Statement, there are no existing
claims or agreements for brokerage commissions, finders' fees, or
similar compensation in connection with the transactions
contemplated by this Agreement payable by Worthen or its
subsidiaries.
9
<PAGE> 14
SECTION 2.17. NO UNDISCLOSED LIABILITIES. To the best
------------ --------------------------
knowledge of Worthen, Worthen and its subsidiaries do not have any
material liability, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due,
except (i) for liabilities set forth in the Worthen Financial
Statements, (ii) normal fluctuation in the amount of the
liabilities referred to in clause (i) above occurring in the
ordinary course of business of Worthen and its subsidiaries since
the date of the most recent balance sheet included in the Worthen
Financial Statements, and (iii) as may be disclosed in Section 2.17
of the Disclosure Schedule.
SECTION 2.18. STATEMENTS TRUE AND CORRECT. None of the
------------ ---------------------------
information supplied or to be supplied by Worthen or its
subsidiaries for inclusion in (i) the Registration Statement (as
defined in Section 4.06 hereof), (ii) the Proxy
Statement/Prospectus (as defined in Section 4.03 hereof) and
(iii) any other documents to be filed with the S.E.C., Nasdaq, the
American Stock Exchange or any banking or other regulatory
authority in connection with the transactions contemplated hereby,
will, at the respective times such documents are filed, and, in the
case of the Registration Statement, when it becomes effective, and
with respect to the Proxy Statement/Prospectus, when first mailed
to the stockholders of Worthen and at the time of such stockholder
meeting, contain any untrue statement of a material fact, or omit
to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which
they are made, not misleading. All documents that Worthen is
responsible for filing with the S.E.C., the American Stock Exchange
or any other regulatory authority in connection with the
transactions contemplated hereby will comply as to form in all
material respects with the provisions of applicable law and the
applicable rules and regulations thereunder.
ARTICLE THREE
--------------
REPRESENTATIONS OF BOATMEN'S AND ACQUISITIONCO
----------------------------------------------
Boatmen's and AcquisitionCo hereby make the following
representations and warranties:
SECTION 3.01. ORGANIZATION AND CAPITAL STOCK.
------------ ------------------------------
(a) Boatmen's is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of
Missouri with full corporate power and authority to carry on its
business as it is now being conducted. Boatmen's is a bank holding
company registered with the Board of Governors of the Federal
Reserve System under the Bank Holding Company Act of 1956.
AcquisitionCo is a corporation duly incorporated, validly existing,
and in good standing under the laws of the State of Arkansas with
full corporate power and authority to carry on its business as it
is now being conducted.
(b) The authorized capital stock of Boatmen's consists of
(i) 150,000,000 shares of Boatmen's Common, of which, as of
July 31, 1994, 104,739,985 shares were issued and outstanding, and
(ii) 10,300,000 Cumulative Preferred Shares, no par value per
share, of which 35,045 shares are designated "7% Cumulative
Redeemable Preferred Stock, Series B", $100.00 stated value per
share (the "Boatmen's Series B Preferred Stock"), and 1,500,000
shares are designated "Junior Participating Preferred Stock, Series
C", no par value per share (the "Boatmen's Series C Preferred
Stock"). No shares of the Boatmen's Series C Preferred Stock are
issued and outstanding and 11,421 shares of the Boatmen's Series B
Preferred Stock were issued and outstanding as of July 31, 1994.
All of the issued and outstanding shares of Boatmen's Common and
Boatmen's Series B Preferred Stock are duly and
10
<PAGE> 15
validly issued and outstanding and are fully paid and non-assessable.
None of the outstanding shares of Boatmen's Common has been issued in
violation of any preemptive rights of the current or past stockholders
of Boatmen's. As of July 31, 1994, Boatmen's had outstanding options
and other rights to acquire not more than 3,426,552 shares of
Boatmen's Common and no shares of the Boatmen's Series B Preferred
Stock or the Boatmen's Series C Preferred Stock.
(c) AcquisitionCo has authorized capital of ten thousand
(10,000) shares of common stock, par value one dollar ($1.00) per
share (the "AcquisitionCo Common"). As of the date hereof, 1,000
shares of AcquisitionCo Common are issued and outstanding, fully
paid and non-assessable and owned by Boatmen's.
(d) The shares of Boatmen's Common that are to be issued to
the stockholders of Worthen pursuant to the Merger have been duly
authorized and, when so issued in accordance with the terms of this
Agreement, will be validly issued and outstanding, fully paid and
nonassessable, with no personal liability attaching to the
ownership thereof.
SECTION 3.02. AUTHORIZATION. The Board of Directors of
------------ -------------
Boatmen's and the Board of Directors of AcquisitionCo have, by all
appropriate action, approved this Agreement and the Merger and
authorized the execution hereof on their behalf by their respective
duly authorized officers and the performance by such respective
entity of their obligations hereunder. Nothing in the articles of
incorporation or bylaws of Boatmen's or AcquisitionCo, as amended,
or any other agreement, instrument, decree, proceeding, law or
regulation (except as specifically referred to in or contemplated
by this Agreement) by or to which either of them or any of their
subsidiaries are bound or subject would prohibit or inhibit
Boatmen's or AcquisitionCo from entering into and consummating this
Agreement and the Merger on the terms and conditions herein
contained. This Agreement has been duly and validly executed and
delivered by Boatmen's and AcquisitionCo and constitutes a legal,
valid and binding obligation of Boatmen's and AcquisitionCo,
enforceable against Boatmen's and AcquisitionCo in accordance with
its terms and no other corporate acts or proceedings are required
to be taken by Boatmen's or AcquisitionCo (including any approvals
by the shareholders of Boatmen's or further approval of the
shareholder of AcquisitionCo) to authorize the execution, delivery
and performance of this Agreement. Except for the requisite
approval of the Federal Reserve Board, the Arkansas State Bank
Commissioner and the Finance Commission of the State of Texas no
notice to, filing with, authorization by, or consent or approval
of, any federal or state bank regulatory authority is necessary for
the execution and delivery of this Agreement or consummation of the
Merger by Boatmen's or AcquisitionCo.
SECTION 3.03. SUBSIDIARIES. Each of Boatmen's and
------------ ------------
AcquisitionCo, and, to the extent material to Boatmen's and its
subsidiaries taken as a whole, each subsidiary of Boatmen's, is
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the corporate
power to own its respective properties and assets, to incur its
respective liabilities and to carry on its respective business as
now being conducted.
SECTION 3.04. FINANCIAL INFORMATION. The consolidated
------------ ---------------------
balance sheets of Boatmen's and its subsidiaries as of December 31,
1992 and 1993 and related consolidated statements of income,
changes in stockholders' equity and cash flows for the three years
ended December 31, 1993, together with the notes thereto, included
in Boatmen's Form 10-K for the year ended December 31, 1993, as
currently on file with the S.E.C., and the unaudited consolidated
balance sheets of Boatmen's and its subsidiaries as of March 31,
1994 and June 30, 1994 and the related unaudited consolidated
income statements and
11
<PAGE> 16
statements of changes in shareholders' equity and cash flows for the
three months and six months, respectively, then ended included in
Boatmen's Quarterly Reports on Form 10-Q for the quarters then ended,
as currently on file with the S.E.C. (together, the "Boatmen's
Financial Statements"), have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
(except as may be disclosed therein) and fairly present in all
material respects the consolidated financial position and the
consolidated results of operations, changes in stockholders' equity
and cash flows of Boatmen's and its consolidated subsidiaries as of
the dates and for the periods indicated (subject, in the case of
interim financial statements, to normal recurring year-end
adjustments, none of which will be material).
SECTION 3.05. ABSENCE OF CHANGES. Since December 31, 1993,
------------ ------------------
there has not been any material adverse change in the financial
condition, the results of operations or the business of Boatmen's
and its subsidiaries taken as a whole, nor have there been any
events or transactions having such a material adverse effect which
should be disclosed in order to make the Boatmen's Financial
Statements not misleading.
SECTION 3.06. LITIGATION. There is no litigation, claim or
------------ ----------
other proceeding pending or, to the knowledge of Boatmen's,
threatened, against Boatmen's or any of its subsidiaries, or of
which the property of Boatmen's or any of its subsidiaries is or
would be subject which would have a material adverse effect on the
business of Boatmen's and its subsidiaries taken as a whole.
SECTION 3.07. REPORTS. Boatmen's and each of its
------------ -------
subsidiaries has filed all material reports and statements,
together with any amendments required to be made with respect
thereto, that it was required to file with (i) the S.E.C., (ii) the
Federal Reserve Board, (iii) the Office of the Comptroller of the
Currency, (iv) the FDIC, (v) any applicable state securities or
banking authorities having jurisdiction, (vi) Nasdaq, and (vii) any
other governmental authority with jurisdiction over Boatmen's or
any of its significant subsidiaries, except where the failure to
file any such reports or statements is not material to Boatmen's
and its subsidiaries taken as a whole. As of their respective
dates, each of such reports and documents, as amended, including
the financial statements, exhibits and schedules thereto, complied
in all material respects with the relevant statutes, rules and
regulations enforced or promulgated by the regulatory authority
with which they were filed, and did not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
SECTION 3.08. COMPLIANCE WITH LAW. Boatmen's and, to the
------------ -------------------
extent material to Boatmen's and its subsidiaries taken as a whole,
the subsidiaries of Boatmen's, have all licenses, franchises,
permits and other governmental authorizations that are legally
required to enable them to conduct their respective businesses in
all material respects and are in compliance in all material
respects with all applicable laws and regulations.
SECTION 3.09. STATEMENTS TRUE AND CORRECT. None of the
------------ ---------------------------
information supplied or to be supplied by Boatmen's or
AcquisitionCo for inclusion in (i) the Registration Statement (as
defined in Section 4.06 hereof), (ii) the Proxy
Statement/Prospectus (as defined in Section 4.03 hereof) and
(iii) any other documents to be filed with the S.E.C., Nasdaq, the
American Stock Exchange or any banking or other regulatory
authority in connection with the transactions contemplated hereby,
will, at the respective times such documents are filed, and, in the
case of the Registration Statement, when it becomes effective, and
with respect to the Proxy Statement/Prospectus, when first mailed
to the stockholders of Worthen and at the time of such stockholders
meeting, contain any untrue statement of a material fact, or omit
to state
12
<PAGE> 17
any material fact necessary in order to make the statements made
therein, in light of the circumstances under which
they are made, not misleading. All documents that Boatmen's is
responsible for filing with the S.E.C., Nasdaq or any other
regulatory authority in connection with the transactions
contemplated hereby will comply as to form in all material respects
with the provisions of applicable law and any rules and regulations
thereunder.
ARTICLE FOUR
------------
AGREEMENTS OF WORTHEN
---------------------
SECTION 4.01. BUSINESS IN ORDINARY COURSE.
------------ ---------------------------
(a) Worthen shall not declare or pay any dividend or make any
other distribution to shareholders, whether in cash, stock or other
property, after the date of this Agreement, except that Worthen may
declare and pay its regular quarterly dividend on the Worthen
Common not to exceed $0.15 per share at approximately the same time
during each quarter which it has historically declared and paid
such dividend; provided, however, that Worthen and Boatmen's shall
cooperate with each other to coordinate the record and payment
dates of their respective dividends for the quarter in which the
Effective Time occurs such that the Worthen shareholders shall
receive a quarterly dividend from either Worthen or Boatmen's but
not from both with respect to such quarter.
(b) Worthen shall, and shall cause each of its subsidiaries
to, continue to carry on after the date hereof its respective
business and the discharge or incurrence of obligations and lia-
bilities, only in the usual, regular and ordinary course of
business, as heretofore conducted, and by way of amplification and
not limitation, Worthen and each of its subsidiaries will not,
without the prior written consent of Boatmen's (which shall not be
unreasonably withheld):
(i) issue any Worthen Common or other capital stock or
any options, warrants, or other rights to subscribe for or
purchase Worthen Common or any other capital stock or any
securities convertible into or exchangeable for any capital
stock of Worthen or any of its subsidiaries (except for the
issuance of Worthen Common pursuant to the valid exercise of
Worthen Stock Options, as defined in Section 5.04 hereof,
which are outstanding on the date of this Agreement); or
(ii) directly or indirectly redeem, purchase or otherwise
acquire any Worthen Common or any other capital stock of
Worthen or its subsidiaries; or
(iii) effect a reclassification, recapitalization,
splitup, exchange of shares, readjustment or other similar
change in or to any capital stock or otherwise reorganize or
recapitalize; or
(iv) change its certificate or articles of incorporation
or association, as the case may be, or bylaws; or
(v) grant any increase, other than ordinary and normal
increases consistent with past practices, in the compensation
payable or to become payable to officers or salaried
employees, grant any stock options or, except as required by
law, adopt or make any change in any bonus,
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<PAGE> 18
insurance, pension, or other Employee Plan, agreement, payment
or arrangement made to, for or with any of such officers or
employees; or
(vi) borrow or agree to borrow any amount of funds except
in the ordinary course of business, or directly or indirectly
guarantee or agree to guarantee any obligations of others; or
(vii) make or commit to make any new loan or letter of
credit or any new or additional discretionary advance under
any existing line of credit, in principal amounts in excess of
$2,000,000 or that would increase the aggregate credit
outstanding to any one borrower (or group of affiliated
borrowers) to more than $15,000,000 (excluding for this
purpose any accrued interest or overdrafts), without the prior
written consent of Boatmen's, acting through its Executive
Vice President-Loan Administration or such other designee as
Boatmen's may give notice of to Worthen; or
(viii) purchase or otherwise acquire any investment
security for its own account having an average remaining life
to maturity greater than five years or any asset-backed
securities other than those issued or guaranteed by the
Government National Mortgage Association, the Federal National
Mortgage Association or the Federal Home Loan Mortgage
Corporation; or
(ix) increase or decrease the rate of interest paid on
time deposits, or on certificates of deposit, except in a
manner and pursuant to policies consistent with past
practices; or
(x) enter into any agreement, contract or commitment out
of the ordinary course of business or having a term in excess
of three (3) months other than letters of credit, loan
agreements, deposit agreements, and other lending, credit and
deposit agreements and documents made in the ordinary course
of business; or
(xi) except in the ordinary course of business, place on
any of its assets or properties any mortgage, pledge, lien,
charge, or other encumbrance; or
(xii) except in the ordinary course of business, cancel or
accelerate any material indebtedness owing to Worthen or its
subsidiaries or any claims which Worthen or its subsidiaries
may possess or waive any material rights of substantial value;
or
(xiii) sell or otherwise dispose of any real property or
any material amount of any tangible or intangible personal
property other than properties acquired in foreclosure or
otherwise in the ordinary collection of indebtedness to
Worthen and its subsidiaries; or
(xiv) foreclose upon or otherwise take title to or
possession or control of any real property without first
obtaining a phase one environmental report thereon which
indicates that the property is free of pollutants,
contaminants or hazardous or toxic waste materials; provided,
however, that Worthen and its subsidiaries shall not be
required to obtain such a report with respect to single
family, non-agricultural residential property of one acre or
less to be foreclosed upon unless it has reason to believe
that such property might contain any such waste materials or
otherwise might be contaminated; or
14
<PAGE> 19
(xv) commit any act or fail to do any act which will
cause a breach of any agreement, contract or commitment and
which will have a material adverse effect on Worthen's and its
subsidiaries' business, financial condition, or earnings;
(xvi) violate any law, statute, rule, governmental
regulation, or order, which violation might have a material
adverse effect on Worthen's and its subsidiaries' business,
financial condition, or earnings; or
(xvii) purchase any real or personal property or make any
other capital expenditure where the amount paid or committed
therefor is in excess of $1,000,000.
(c) Worthen and its subsidiaries shall not, without the prior
written consent of Boatmen's, engage in any transaction or take any
action that would knowingly render untrue in any material respect
any of the representations and warranties of Worthen contained in
Article Two hereof, if such representations and warranties were
given as of the date of such transaction or action.
(d) Worthen shall promptly notify Boatmen's in writing of the
occurrence of any matter or event known to and directly involving
Worthen, which would not include any changes in conditions that
affect the banking industry generally, that is materially adverse
to the business, operations, properties, assets, or condition
(financial or otherwise) of Worthen and its subsidiaries taken as
a whole.
(e) Worthen shall not, on or before the earlier of the Closing
Date or the date of termination of this Agreement, solicit or
encourage, or, subject to the fiduciary duties of its directors as
advised by counsel, negotiate with or provide any information to,
any person in connection with, any proposal from any person for the
acquisition of all or any substantial portion of the business,
assets, shares of Worthen Common or other securities of Worthen and
its subsidiaries. Worthen shall promptly (which for this purpose
shall mean within twenty-four hours) advise Boatmen's of its
receipt of any such proposal or inquiry concerning any possible
such proposal, the substance of such proposal or inquiry, and the
identity of such person.
SECTION 4.02. BREACHES. Worthen shall, in the event it has
------------ --------
knowledge of the occurrence, or impending or threatened occurrence,
of any event or condition which would cause or constitute a failure
of any condition precedent to either party's obligation to effect
the Merger or a material breach (or would have caused or
constituted a material breach had such event occurred or been known
prior to the date hereof) of any of its representations or
agreements contained or referred to herein, give prompt written
notice thereof to Boatmen's and use its best efforts to prevent or
promptly remedy the same.
SECTION 4.03. SUBMISSION TO SHAREHOLDERS. Worthen shall
------------ --------------------------
cause to be duly called and held, on a date mutually selected by
Boatmen's and Worthen, a special meeting of its shareholders (the
"Shareholders' Meeting") for submission of this Agreement and the
Merger for approval of such Worthen shareholders as required by the
Corporate Law. In connection with the Shareholders' Meeting,
(i) Worthen shall cooperate and assist Boatmen's in preparing and
filing a Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") with the S.E.C., (ii) such Proxy
Statement/Prospectus shall be subject to approval by Worthen at the
time that the Registration Statement is filed by Boatmen's, at the
time any amendment thereto is filed, at the time the Proxy
Statement/Prospectus is mailed to Worthen's shareholders and at the
time of the Shareholders' Meeting, (iii) Boatmen's shall keep
Worthen and its counsel fully informed of all comments received on
the Registration Statement, as received, and to the
15
<PAGE> 20
extent comments or other proposed changes in the Proxy
Statement/Prospectus relates to Worthen, Boatmen's shall permit
Worthen and its counsel to participate in responding to such comments,
(iv) Worthen shall furnish Boatmen's all information concerning itself
that Boatmen's may reasonably request in connection with such Proxy
Statement/Prospectus, and (v) the Board of Directors of Worthen
shall (subject to compliance with its fiduciary duties as advised
by counsel) recommend to its shareholders the approval of this
Agreement and the Merger contemplated hereby, mail the Proxy
Statement/Prospectus to its shareholders, and use its best efforts
to obtain such shareholder approval.
SECTION 4.04. CONSENTS TO CONTRACTS AND LEASES. Worthen
------------ --------------------------------
shall use its best efforts to obtain all necessary consents with
respect to all interests of Worthen and its subsidiaries in any
material leases, licenses, contracts, instruments and rights which
require the consent of another person for their transfer or
assumption pursuant to the Merger, if any.
SECTION 4.05. CONFORMING ACCOUNTING AND RESERVE POLICIES;
------------ ------------------------------------------
RESTRUCTURING EXPENSES.
- ----------------------
(a) Notwithstanding that Worthen believes that it and its
subsidiaries have established all reserves and taken all provisions
for possible loan losses required by generally accepted accounting
principles and applicable laws, rules and regulations, Worthen
recognizes that Boatmen's may have adopted different loan, accrual
and reserve policies (including loan classifications and levels of
reserves for possible loan losses). From and after the date of
this Agreement to the Effective Time, Worthen and Boatmen's shall
consult and cooperate with each other with respect to conforming,
as specified in a written notice from Boatmen's to Worthen, based
upon such consultation and as hereinafter provided, the loan,
accrual and reserve policies of Worthen and its subsidiaries to
those policies of Boatmen's.
(b) In addition, from and after the date of this Agreement to
the Effective Time, Worthen and Boatmen's shall consult and
cooperate with each other with respect to determining, as specified
in a written notice from Boatmen's to Worthen, based upon such
consultation and as hereinafter provided, appropriate accruals,
reserves and charges to establish and take in respect of excess
equipment write-off or write-down of various assets and other
appropriate charges and accounting adjustments taking into account
the parties' business plans following the Merger.
(c) Worthen and Boatmen's shall consult and cooperate with
each other with respect to determining, as specified in a written
notice from Boatmen's to Worthen, based upon such consultation and
as hereinafter provided, the amount and the timing for recognizing
for financial accounting purposes the expenses of the Merger and
the restructuring charges related to or to be incurred in
connection with the Merger.
(d) At the request of Boatmen's, Worthen shall establish and
take such reserves and accruals as Boatmen's shall request to
conform Worthen's loan, accrual and reserve policies to Boatmen's
policies, shall establish and take such accruals, reserves and
charges in order to implement such policies in respect of excess
facilities and equipment capacity, severance costs, litigation
matters, write-off or write-down of various assets and other
appropriate accounting adjustments, and to recognize for financial
accounting purposes such expenses of the Merger and restructuring
charges related to or to be incurred in connection with the Merger,
in each case at such times as are mutually agreeable to Boatmen's
and Worthen; provided, however, that it is the objective of
Boatmen's and Worthen that such reserves, accruals and charges
referred to in this Section 4.05 be taken as at or immediately
prior to December 31, 1994, and, in all events, not later than as
of immediately prior to the Closing Date, provided that if such reserves,
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<PAGE> 21
accruals and charges are to be taken as at or prior to
December 31, 1994 and the Closing Date is to occur thereafter,
Boatmen's shall certify to Worthen on or prior to January 15, 1995,
that the bank regulatory approval conditions to its obligations
contemplated by Section 6.01(d) have been satisfied or waived
(except to the extent that any waiting period associated therewith
may then have commenced but not expired) and Boatmen's and Worthen
shall have mutually agreed by January 15, 1995 to the scheduling of
the Closing Date to be no later than February 15, 1995; and
provided, further, that Worthen shall not be required to take any
such action that is not consistent with generally accepted
accounting principles.
SECTION 4.06. CONSUMMATION OF AGREEMENT. Worthen shall,
------------ -------------------------
subject to the fulfillment of the fiduciary duties of the Board of
Directors of Worthen, use its best efforts to perform and fulfill
all conditions and obligations on its part to be performed or
fulfilled under this Agreement and to effect the Merger in
accordance with the terms and provisions hereof. Worthen shall
furnish to Boatmen's in a timely manner all information, data and
documents in the possession of Worthen requested by Boatmen's as
may be required to obtain any necessary regulatory or other
approvals of the Merger or to file with the S.E.C. a registration
statement on Form S-4 (the "Registration Statement") relating to
the shares of Boatmen's Common to be issued to the shareholders of
Worthen pursuant to the Merger and this Agreement and shall
otherwise cooperate fully with Boatmen's to carry out the purpose
and intent of this Agreement.
SECTION 4.07. ENVIRONMENTAL REPORTS. Worthen shall provide
------------ ---------------------
to Boatmen's, as soon as reasonably practical, but not later than
sixty (60) days after the date hereof, a report of a phase one
environmental investigation on all real property owned, leased or
operated by Worthen or its subsidiaries as of the date hereof (but
excluding space in retail and similar establishments leased by
Worthen for automatic teller machines or bank branch facilities
where the space leased comprises less than 20% of the total space
leased to all tenants of such property) and within ten (10) days
after the acquisition or lease of any real property acquired or
leased by Worthen or its subsidiaries after the date hereof (but
excluding space in retail and similar establishments leased by
Worthen for automatic teller machines or bank branch facilities
where the space leased comprises less than 20% of the total space
leased to all tenants of such property), except as otherwise
provided in Section 4.01(b)(xiv). If required by the phase one
investigation in Boatmen's reasonable opinion, Worthen shall
provide to Boatmen's a report of a phase two investigation on
properties requiring such additional study. Boatmen's shall have
fifteen (15) business days from the receipt of any such phase two
investigation report to notify Worthen of any dissatisfaction with
the contents of such report. Should the cost of taking all
remedial or other corrective actions and measures (i) required by
applicable law, or (ii) recommended or suggested by such report or
reports or prudent in light of serious life, health or safety
concerns, in the aggregate, exceed the sum of Ten Million Dollars
($10,000,000) as reasonably estimated by an environmental expert
retained for such purpose by Boatmen's and reasonably acceptable to
Worthen, or if the cost of such actions and measures cannot be so
reasonably estimated by such expert to be such amount or less with
any reasonable degree of certainty, then Boatmen's shall have the
right pursuant to Section 7.03 hereof, for a period of fifteen (15)
business days following receipt of such estimate or indication that
the cost of such actions and measures can not be so reasonably
estimated, to terminate this Agreement, which shall be Boatmen's
sole remedy in such event.
SECTION 4.08. RESTRICTION ON RESALES. Worthen shall obtain
------------ ----------------------
and deliver to Boatmen's, within forty-five (45) days after the
date of this Agreement, the signed agreement, in the form of
Exhibit 4.08 hereto (the "Shareholder Letters"), of each person who
may reasonably be deemed an "affiliate" of Worthen within the
meaning of such term as used in Rule 145 under the Securities Act
of 1933, as
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<PAGE> 22
amended (the "Securities Act"), and of any person who
may become an affiliate of Worthen after the date of this Agreement
within forty-five (45) days after such person becomes such an
affiliate, regarding (i) compliance with the provisions of such
Rule 145, and (ii) compliance with the requirements of Accounting
Principles Board Opinion No. 16 regarding the disposition of shares
of Worthen Common or Boatmen's Common (or reduction of risk with
respect thereto) until such time as financial results covering at
least thirty (30) days of post-Merger combined operations have been
published. Worthen shall notify all affiliates as far in advance
as is reasonably practicable of the date on which the thirty (30)
day period prior to the Closing Date is likely to begin.
SECTION 4.09. ACCESS TO INFORMATION. Worthen shall permit
------------ ---------------------
Boatmen's reasonable access in a manner which will avoid undue
disruption or interference with Worthen's normal operations to its
properties and shall disclose and make available to Boatmen's all
books, documents, papers and records relating to its assets, stock,
ownership, properties, operations, obligations and liabilities,
including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and
stockholders' meetings, organizational documents, material
contracts and agreements, loan files, filings with any regulatory
authority, accountants' workpapers (if available and subject to the
respective independent accountants' consent), litigation files (but
only to the extent that such review would not result in a material
waiver of the attorney-client or attorney work product privileges
under the rules of evidence), plans affecting employees, and any
other business activities or prospects in which Boatmen's may have
a reasonable and legitimate interest in furtherance of the
transactions contemplated by this Agreement. Worthen shall deliver
to Boatmen's within ten (10) business days after the date hereof a
true, accurate and complete copy of each written plan or program
disclosed in Section 2.12(c) of the Disclosure Schedule and, with
respect to each such plan or program, all (i) amendments or
supplements thereto, (ii) summary plan descriptions, (iii) lists of
all current participants and all participants with benefit
entitlements, (iv) contracts relating to plan documents,
(v) actuarial valuations for any defined benefit plan, (vi)
valuations for any plan as of the most recent date,
(vii) determination letters from the Internal Revenue Service,
(viii) the most recent annual report filed with the Internal
Revenue Service, (ix) registration statements on Form S-8 and
prospectuses, (x) trust agreements, and (xi) a copy of each
agreement described in Section 2.09. Boatmen's will hold any such
information which is nonpublic in confidence in accordance with the
provisions of Section 8.01 hereof.
ARTICLE FIVE
------------
AGREEMENTS OF BOATMEN'S AND ACQUISITIONCO
-----------------------------------------
SECTION 5.01. REGULATORY APPROVALS AND REGISTRATION
------------ -------------------------------------
STATEMENT. Boatmen's shall file all regulatory applications
- ---------
required in order to consummate the Merger, including but not
limited to the necessary applications for the prior approval of the
Federal Reserve Board, the Arkansas State Bank Commissioner and the
Finance Commission of the State of Texas. Boatmen's shall file
with the S.E.C. the Registration Statement relating to the shares
of Boatmen's Common to be issued to the shareholders of Worthen
pursuant to this Agreement, and shall use its best efforts to cause
the Registration Statement to become effective. Boatmen's shall
keep Worthen reasonably informed as to the status of such
applications and filings and make available to Worthen, prior to
making all such applications and filings and upon reasonable
request by Worthen from time to time, copies of such applications
and any supplementally filed materials and promptly make available
to Worthen copies of any comment letters and any other materials
received by Boatmen's in connection therewith, and Worthen shall be
permitted
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<PAGE> 23
to participate in the processing of each application and
responses thereto. At the time the Registration Statement becomes
effective, the Registration Statement shall comply in all material
respects with the provisions of the Securities Act and the
published rules and regulations thereunder, and shall not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not false or misleading, and at the time of
mailing thereof to the shareholders of Worthen, at the time of the
Shareholders' Meeting and at the Effective Time the Proxy
Statement/Prospectus included as part of the Registration
Statement, as amended or supplemented by any amendment or
supplement, shall not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein not false or misleading. Boatmen's shall timely
file all documents required to obtain all necessary Blue Sky
permits and approvals, if any, required to carry out the
transactions contemplated by this Agreement, shall pay all expenses
incident thereto and shall use its best efforts to obtain such
permits and approvals on a timely basis. Boatmen's shall promptly
and properly prepare and file (i) any application required to list
on Nasdaq the shares of Boatmen's Common to be issued pursuant to
the Merger, and (ii) any filings required under the Securities
Exchange Act of 1934 (the "Exchange Act") relating to the Merger
and the transactions contemplated herein. Boatmen's shall not take
any action at any time after the Effective Time which would cause
the Merger not to qualify as a reorganization within the meaning of
Section 368 of the Code.
SECTION 5.02. BREACHES. Boatmen's shall, in the event it has
------------ --------
knowledge of the occurrence, or impending or threatened occurrence,
of any event or condition which would cause or constitute a failure
of any condition precedent to either party's obligations to effect
the Merger or a material breach (or would have caused or
constituted a material breach had such event occurred or been known
prior to the date hereof) of any of its representations or
agreements contained or referred to herein, give prompt written
notice thereof to Worthen and use its best efforts to prevent or
promptly remedy the same.
SECTION 5.03. CONSUMMATION OF AGREEMENT. Boatmen's and
------------ -------------------------
AcquisitionCo shall use their respective best efforts to perform
and fulfill all conditions and obligations on their part to be
performed or fulfilled under this Agreement and to effect the
Merger in accordance with the terms and conditions of this
Agreement.
SECTION 5.04. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
------------ -------------------------------------------
(a) At the Effective Time, each outstanding option to purchase
shares of Worthen Common (a "Worthen Stock Option") issued pursuant
to the Worthen Banking Corporation 1984 Amended and Substituted
Stock Option Plan and the Worthen Banking Corporation 1993 Stock
Option Plan (together the "Stock Option Plans") whether or not
exercisable or vested, shall be assumed by Boatmen's as hereinafter
provided. Each Worthen Stock Option shall be deemed to constitute
an option to acquire, on the same terms and conditions as were
applicable under such Worthen Stock Option, the same number of full
shares of Boatmen's Common as the holder of such Worthen Stock
Option would have been entitled to receive pursuant to the Merger
had such holder exercised such option in full immediately prior to
the Effective Time, at a price per share equal to (y) the aggregate
exercise price for Worthen Common otherwise purchasable pursuant to
such Worthen Stock Option divided by (z) the number of full shares
of Boatmen's Common deemed purchasable pursuant to such Worthen
Stock Option. In no event shall Boatmen's be required to issue
fractional shares of Boatmen's Common.
(b) At the Effective Time, each outstanding stock appreciation
right (a "Worthen SAR") issued pursuant to the Stock Option Plans
shall be assumed by Boatmen's as hereinafter provided. Each
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<PAGE> 24
Worthen SAR shall be deemed to constitute a right to receive, on
the same terms and conditions as were applicable under such Worthen
SAR, an amount equal to the value of such Worthen SAR determined on
the applicable exercise date. From and after the Effective Time,
any references in the Stock Option Plans to the fair value of
Worthen Common shall mean and refer to the fair market value of the
number of shares of Boatmen's Common included in the Merger
Consideration.
(c) As soon as practicable after the Effective Time, Boatmen's
shall deliver to each holder of Worthen Stock Options and Worthen
SARs appropriate notices setting forth such holders' rights
pursuant to the Stock Option Plans, and the agreements evidencing
the grants of such Worthen Stock Options and Worthen SARs shall
continue in effect on the same terms and conditions (subject to the
conversion required by this Section 5.04 after giving effect to the
Merger and the assumption by Boatmen's as set forth above). To the
extent necessary to effectuate the provisions of this Section 5.04,
Boatmen's may deliver new or amended agreements reflecting the
terms of each Worthen Stock Option or Worthen SAR option assumed by
Boatmen's and amend the Stock Option Plans to reflect the terms
hereof.
(d) As soon as practicable after the Effective Time, Boatmen's
shall file with the S.E.C. a registration statement on an
appropriate form with respect to the shares of Boatmen's Common
subject to such options and shall use its best efforts to maintain
the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or
prospectuses with respect thereto) for so long as such options
remain outstanding.
SECTION 5.05. DIRECTORS AND OFFICERS' LIABILITY INSURANCE AND
------------ -----------------------------------------------
INDEMNIFICATION.
- ---------------
(a) Following the Effective Time, Boatmen's will provide the
directors and officers of Worthen and its subsidiaries with the
same directors' and officers' liability insurance coverage that
Boatmen's provides to directors and officers of its other banking
subsidiaries generally, and, in addition, for a period of three
years will use its best efforts to continue Worthen's directors'
and officers' liability insurance coverage with respect to actions
occurring prior to the Effective Time to the extent that such
coverage is obtainable for an aggregate premium not to exceed the
annual premium presently being paid by Worthen. If the aggregate
premium of such insurance would exceed such maximum amount,
Boatmen's shall use its best efforts to procure such level of
insurance having the coverage described above as can be obtained
for an aggregate premium equal to such maximum amount.
(b) For ten years after the Effective Time, Boatmen's shall
cause the Surviving Corporation (the survivor of the Merger of
Worthen and AcquisitionCo following the Effective Time, the
"Surviving Corporation") to indemnify, defend and hold harmless the
present and former officers, directors, employees and agents of
Worthen and its subsidiaries (each, an "Indemnified Party") against
all losses, expenses, attorneys fees, claims, damages or
liabilities arising out of their status as such officer, director,
employee or agent or actions or omissions occurring on or prior to
the Effective Time (including, without limitation, the transactions
contemplated by this Agreement and, further, including without
limitation, any proceeding in which an Indemnified Party becomes or
may become involved as a witness, defendant or otherwise as a
result of any such action or omission) to the fullest extent
permitted under the Corporate Law and by Worthen's Articles of
Incorporation and bylaws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense
of any action or suit. Boatmen's shall cause the Surviving
Corporation to provide indemnification in all situations in which
the Surviving Corporation board of directors could lawfully grant
such indemnification.
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<PAGE> 25
(c) If after the Effective Time the Surviving Corporation or
any of its successors or assigns (i) shall consolidate with or
merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation
or merger or (ii) shall transfer all or substantially all of its
properties and assets to any individual, corporation or other
entity, then and in each such case, proper provision shall be made
so that the successors and assigns of the Surviving Corporation
shall assume any remaining obligations set forth in this Section
5.05. If the Surviving Corporation shall liquidate, dissolve or
otherwise wind up its business, then Boatmen's shall indemnify,
defend and hold harmless each Indemnified Party to the same extent
and on the same terms that the Surviving Corporation was so
obligated pursuant to this Section 5.05.
SECTION 5.06. EMPLOYEE BENEFITS. Boatmen's shall, with
------------ -----------------
respect to each person who remains an employee of Worthen or its
subsidiaries following the Closing Date (each a "Continued
Employee"), provide the benefits described in this Section 5.06.
Subject to the right of subsequent amendment or termination in
Boatmen's discretion, each Continued Employee shall be entitled, as
a new employee of a subsidiary of Boatmen's, to participate in such
employee benefit plans, as defined in Section 3(3) of ERISA, or any
non-qualified employee benefit plans or deferred compensation,
stock option, bonus or incentive plans, or other employee benefit
or fringe benefit programs that may be in effect generally for
employees of all of Boatmen's subsidiaries (the "Boatmen's Plans"),
if and as a Continued Employee shall be eligible and, if required,
selected for participation therein and otherwise shall not be
participating in a similar plan maintained by Worthen after the
Effective Time. Worthen employees will be eligible to participate
on the same basis as similarly situated employees of other
Boatmen's subsidiaries. All such participation shall be subject to
such terms of such plans as may be in effect from time to time and
this Section 5.06 is not intended to give Continued Employees any
rights or privileges superior to those of other employees of
Boatmen's subsidiaries. Boatmen's may terminate or modify all
Employee Plans except insofar as benefits thereunder shall have
vested on the Closing Date and cannot be modified and Boatmen's
obligation under this Section 5.06 shall not be deemed or construed
so as to provide duplication of similar benefits but, subject to
that qualification, Boatmen's shall, for purposes of vesting and
any age or period of service requirements for commencement of
participation with respect to any Boatmen's Plans in which
Continued Employees may participate, credit each Continued Employee
with his or her term of service with Worthen and its subsidiaries.
SECTION 5.07. ACCESS TO INFORMATION. Boatmen's shall permit
------------ ---------------------
Worthen reasonable access in a manner which will avoid undue
disruption or interference with Boatmen's normal operations to its
properties and shall disclose and make available to Worthen all
books, documents, papers and records relating to its assets, stock,
ownership, properties, operations, obligations and liabilities,
including, but not limited to, all books of account (including the
general ledger), tax records, minute books of directors' and
stockholders' meetings, organizational documents, material
contracts and agreements, loan files, filings with any regulatory
authority, accountants' workpapers (if available and subject to the
respective independent accountants' consent), litigation files (but
only to the extent that such review would not result in a material
waiver of the attorney-client or attorney work product privileges
under the rules of evidence), plans affecting employees, and any
other business activities or prospects in which Worthen may have a
reasonable and legitimate interest in furtherance of the
transactions contemplated by this Agreement. Worthen will hold any
such information which is nonpublic in confidence in accordance
with the provisions of Section 8.01 hereof.
21
<PAGE> 26
ARTICLE SIX
-----------
CONDITIONS PRECEDENT TO THE MERGER
----------------------------------
SECTION 6.01. CONDITIONS TO BOATMEN'S OBLIGATIONS. Boatmen's
------------ -----------------------------------
and AcquisitionCo's obligations to effect the Merger shall be
subject to the satisfaction (or waiver by Boatmen's) prior to or on
the Closing Date of the following conditions:
(a) The representations and warranties made by Worthen in this
Agreement (i) which are not qualified as to the best knowledge of
Worthen, shall be true in all respects material to the financial
condition, results of operations, business or prospects of Worthen
and its subsidiaries taken as a whole (except that the
representations and warranties made in Sections 2.01 and 2.02 shall
be true and correct in all respects material to the subject matter
thereof in light of the transaction contemplated hereby) on and as
of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of
the Closing Date, and (ii) which are qualified as to the best
knowledge of Worthen, shall be true in all respects material to the
financial condition, results of operations, business or prospects
of Worthen and its subsidiaries taken as a whole, even if such best
knowledge qualification is disregarded (i.e., even if, for purposes
of this Section 6.01(a) only, the words "to the best knowledge of
Worthen" had not been included in such representation and warranty)
on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of
the Closing Date;
(b) Worthen shall have performed and complied in all material
respects with all of its obligations and agreements required to be
performed prior to the Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank regulatory authority
or other person seeking any of the foregoing be pending. There
shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger
which makes the consummation of the Merger illegal;
(d) All necessary regulatory approvals, consents,
authorizations and other approvals required by law for consummation
of the Merger shall have been obtained and all waiting periods
required by law shall have expired;
(e) Boatmen's shall have received the Shareholder Letters and
all other documents required to be received from Worthen on or
prior to the Closing Date, all in form and substance reasonably
satisfactory to Boatmen's;
(f) Boatmen's shall have received an opinion letter, dated as
of the Closing Date, from Ernst & Young, its independent public
accountants, to the effect that the Merger will qualify for pooling
of interests accounting treatment under Accounting Principles Board
Opinion No. 16 if closed and consummated in accordance with this
Agreement; provided, however, that this condition shall be deemed
to have been waived by Boatmen's if it takes any unilateral action
after the date of this Agreement without the written consent of
Worthen, which such action constitutes the sole reason for Ernst &
Young to be unable to render such opinion;
22
<PAGE> 27
(g) The Registration Statement shall be effective under the
Securities Act and no stop orders suspending the effectiveness of
the Registration Statement shall be in effect or proceedings for
such purpose pending before or threatened by the S.E.C. or any
state securities agency; and
(h) Boatmen's shall have received a ruling of the Internal
Revenue Service, if obtainable pursuant to Internal Revenue Service
Rev. Proc. 93-3, or, if not so obtainable or if the parties
mutually agree, an opinion of counsel mutually acceptable to
Boatmen's and Worthen to the effect that if the Merger is
consummated in accordance with the terms set forth in this
Agreement (i) the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code; (ii) no gain or loss
will be recognized by the holders of shares of Worthen Common upon
receipt of Merger Consideration (except for cash received in lieu
of fractional shares); (iii) the basis of shares of Boatmen's
Common received by the shareholders of Worthen will be the same as
the basis of shares of Worthen Common exchanged therefor; and
(iv) the holding period of the shares of Boatmen's Common received
by such shareholders will include the holding period of the shares
of Worthen Common exchanged therefor, provided such shares were
held as capital assets as of the Effective Time.
SECTION 6.02. CONDITIONS TO WORTHEN'S OBLIGATIONS. Worthen's
------------ -----------------------------------
obligation to effect the Merger shall be subject to the
satisfaction (or waiver by Worthen) prior to or on the Closing Date
of the following conditions:
(a) The representations and warranties made by Boatmen's and
AcquisitionCo in this Agreement shall be true in all respects
material to the financial condition, results of operations,
business or prospects of Boatmen's and its subsidiaries taken as a
whole (except that the representations and warranties made in
Sections 3.01 and 3.02 shall be true and correct in all respects
material to the subject matter thereof in light of the transaction
contemplated hereby) on and as of the Closing Date with the same
effect as though such representations and warranties had been made
or given on the Closing Date;
(b) Boatmen's and AcquisitionCo shall have performed and
complied in all material respects with all of their obligations and
agreements hereunder required to be performed prior to the Closing
Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank regulatory authority
or other governmental agency seeking any of the foregoing be
pending. There shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger
illegal;
(d) All necessary regulatory approvals, consents,
authorizations and other approvals, including the requisite
approval of this Agreement and the Merger by the shareholders of
Worthen, required by law for the consummation of the Merger shall
have been obtained and all waiting periods required by law shall
have expired;
(e) Worthen shall have received, on or before the date of the
mailing of the Proxy Statement/Prospectus, from its investment
banker, PaineWebber, Inc., the reaffirmation of the opinion of such
investment banker, originally rendered and delivered to Worthen at
the meeting of the Board of Directors of Worthen at which this
Agreement was approved by such Board of Directors, to the effect
23
<PAGE> 28
that the transaction contemplated hereby is fair to the Worthen
shareholders from a financial point of view;
(f) Worthen shall have received all documents required to be
received from Boatmen's on or prior to the Closing Date, all in
form and substance reasonably satisfactory to Worthen;
(g) The Registration Statement shall be effective under the
Securities Act and no stop orders suspending the effectiveness of
the Registration Statement shall be in effect or proceedings for
such purpose pending before or threatened by the S.E.C. or any
state securities agency; and
(h) Worthen shall have received the pooling letter of Ernst
& Young contemplated by Section 6.01(f) hereof.
(i) Worthen shall have received a ruling of the Internal
Revenue Service, if obtainable pursuant to Internal Revenue Service
Rev. Proc. 93-3, or, if not so obtainable or if the parties
mutually agree, an opinion of counsel mutually acceptable to
Worthen and Boatmen's to the effect that if the Merger is
consummated in accordance with the terms set forth in this
Agreement (i) the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code; (ii) no gain or loss
will be recognized by the holders of shares of Worthen Common upon
receipt of Merger Consideration (except for cash received in lieu
of fractional shares); (iii) the basis of shares of Boatmen's
Common received by the shareholders of Worthen will be the same as
the basis of shares of Worthen Common exchanged therefor; and
(iv) the holding period of the shares of Boatmen's Common received
by such shareholders will include the holding period of the shares
of Worthen Common exchanged therefor, provided such shares were
held as capital assets as of the Effective Time.
ARTICLE SEVEN
-------------
TERMINATION OR ABANDONMENT
--------------------------
SECTION 7.01. MUTUAL AGREEMENT. This Agreement may be
------------ ----------------
terminated by the mutual written agreement of Boatmen's and Worthen
at any time prior to the Closing Date, regardless of whether
approval of this Agreement and the Merger by the shareholders of
Worthen shall have been previously obtained.
SECTION 7.02. BREACH OF AGREEMENTS. In the event that there
------------ --------------------
is a breach in any of the representations and warranties or
agreements of Boatmen's or Worthen which, if not cured, would cause
a condition set forth in Sections 6.01(a) or (b), or 6.02(a) or
(b), respectively, not to be satisfied, which breach is not cured
within thirty (30) days after notice to cure such breach is given
to the breaching party by the non-breaching party, then the non-
breaching party, regardless of whether approval of this Agreement
and the Merger by the shareholders of Worthen shall have been
previously obtained, may terminate and cancel this Agreement by
providing written notice of such action to the other party hereto.
SECTION 7.03. ENVIRONMENTAL REPORTS. Boatmen's may terminate
------------ ---------------------
this Agreement to the extent provided by Section 4.07 and this
Section 7.03 by giving written notice thereof to Worthen.
24
<PAGE> 29
SECTION 7.04. FAILURE OF CONDITIONS. In the event any of the
------------ ---------------------
conditions to the obligations of either party are not satisfied or
waived on or prior to the Closing Date, and if any applicable cure
period provided in Section 7.02 hereof has lapsed, then such party
may, regardless of whether approval of this Agreement and the
Merger by the shareholders of Worthen shall have been previously
obtained, terminate and cancel this Agreement by delivery of
written notice of such action to the other party on such date.
SECTION 7.05. REGULATORY APPROVAL DENIAL. If any regulatory
------------ --------------------------
application filed pursuant to Section 5.01 hereof should be finally
denied or disapproved by the respective regulatory authority, then
this Agreement thereupon shall be deemed terminated and canceled.
A request for additional information or undertaking by Boatmen's,
as a condition for approval, shall not be deemed to be a denial or
disapproval so long as Boatmen's diligently provides the requested
information or undertaking. In the event an application is denied
pending an appeal, petition for review, or similar such act on the
part of Boatmen's (hereinafter referred to as the "appeal") then
the application will be deemed denied unless Boatmen's prepares and
timely files such appeal and continues the appellate process for
purposes of obtaining the necessary approval.
SECTION 7.06. SHAREHOLDER APPROVAL DENIAL. If this Agreement
------------ ---------------------------
and the Merger is not approved by the requisite vote of the
shareholders of Worthen at the Shareholders' Meeting, then either
party may terminate this Agreement.
SECTION 7.07. REGULATORY ENFORCEMENT MATTERS. In the event
------------ ------------------------------
that Worthen or any of its subsidiaries shall become a party or
subject to any new or amended written agreement, memorandum of
understanding, cease and desist order, imposition of civil money
penalties or other regulatory enforcement action or proceeding with
any federal or state agency charged with the supervision or
regulation of banks or bank holding companies (a "Regulatory
Matter") after the date of this Agreement, which such Regulatory
Matter is material to the financial condition, results of
operations, business or prospects of Worthen and its subsidiaries
taken as a whole, then Boatmen's may terminate this Agreement.
SECTION 7.08. FALL-APART DATE. If the Closing Date does not
------------ ---------------
occur on or prior to the expiration of the first anniversary of the
date of this Agreement, then this Agreement may be terminated by
either party by giving written notice thereof to the other.
SECTION 7.09. TERMINATION FEE. Upon the occurrence of a
------------ ---------------
Triggering Event (as defined below in this Section 7.09) after the
termination of this Agreement pursuant to Section 7.06 hereof,
Worthen shall pay to Boatmen's, within two (2) business days after
the occurrence of the Triggering Event, by wire transfer of
immediately available funds, the sum of Eighteen Million Dollars
($18,000,000). As used herein, the term Triggering Event shall
mean the occurrence, prior to eighteen (18) months after the
termination of this Agreement as provided in the first sentence of
this Section 7.09, of any of the following: Worthen shall have
authorized, recommended, proposed or announced an intention to
authorize, recommend or propose, or entered into, an agreement with
any person (other than Boatmen's or a subsidiary thereof) to
(A) effect a merger, consolidation or similar transaction involving
Worthen, (B) sell, lease, or otherwise dispose of assets of Worthen
or its subsidiaries representing 15% or more of the consolidated
assets of Worthen and its subsidiaries, or (C) issue, sell or
otherwise dispose of (including by way of merger, consolidation,
share exchange or any similar transaction) securities representing
20% or more of the voting power of Worthen or any subsidiaries
thereof. Notwithstanding the foregoing, no Triggering Event shall
occur and no termination fee shall be payable as a result of
Worthen's acquisition by means of any merger, consolidation, share
exchange, stock issuance, purchase
25
<PAGE> 30
or any similar transaction of any entity having total consolidated
assets equal to or less than 50% of the total consolidated assets of
Worthen, provided Worthen is the surviving parent corporation in any
such transaction.
SECTION 7.10. SUPERIOR TRANSACTION. (a) Worthen may
------------ --------------------
terminate this Agreement if a corporation, partnership, person or
other entity or group shall have made an Acquisition Proposal (as
defined below) and, without causing a breach of any agreement of
Worthen as set forth in Article Four hereof, the Worthen Board of
Directors reasonably determines, in its good faith judgment and in
the exercise of its fiduciary duties (based as to legal matters on
the written opinion of legal counsel and as to financial matters on
the written opinion of an investment banking firm of national
reputation), that such Acquisition Proposal is more favorable to
the Worthen stockholders than this Agreement from a financial point
of view and that the failure to terminate this Agreement and accept
such alternative Acquisition Proposal would constitute a breach of
such fiduciary duties.
(b) The term "Acquisition Proposal" shall mean the making by
a qualified and financially capable person of any bona fide
proposal or offer to Worthen to effect a merger, consolidation or
similar transaction with Worthen, to acquire from Worthen
securities representing 20% or more of the voting power of Worthen
or to acquire subsidiaries or other assets of Worthen or its
subsidiaries representing 15% or more of the consolidated assets of
Worthen and its subsidiaries.
(c) In the event Worthen terminates this Agreement pursuant
to this Section 7.10, then Worthen shall pay to Boatmen's, within
two (2) business days of such termination by a wire transfer of
immediately available funds, the sum of Eighteen Million Dollars
($18,000,000). The provisions of this Section 7.10 shall be an
alternative to, but not in addition to, the termination fee
provisions of Section 7.09 hereof.
SECTION 7.11. DUE DILIGENCE REVIEW. In accordance with
------------ --------------------
Section 4.09 hereof, Worthen shall provide Boatmen's full and
complete access to its books, records and staff and those of its
subsidiaries to facilitate Boatmen's due diligence review of the
asset quality of Worthen and its subsidiaries. If Boatmen's, in
its sole and absolute discretion, should not be satisfied with the
results of such asset quality due diligence review or the asset
quality of Worthen and its subsidiaries generally, then Boatmen's
may terminate this Agreement by providing written notice thereof to
Worthen on or before the fifth (5th) business day after the date of
this Agreement.
SECTION 7.12. SHAREHOLDER LETTERS. Boatmen's may terminate
------------ -------------------
this Agreement if Worthen shall fail to obtain and deliver to
Boatmen's all of the Shareholder Letters of affiliates of Worthen
as of the date of this Agreement, as provided in Section 4.08
hereof, by giving written notice thereof to Worthen within a
reasonable time after such Shareholder Letters should have been
delivered, which shall be Boatmen's sole remedy in such event.
ARTICLE EIGHT
-------------
GENERAL
-------
SECTION 8.01. CONFIDENTIAL INFORMATION. The parties
------------ ------------------------
acknowledge the confidential and proprietary nature of the
"Information" (as herein described) which has heretofore been
exchanged and
26
<PAGE> 31
which will be received from each other hereunder and agree to hold and
keep the same confidential. Such Information will include any and all
financial, technical, commercial, marketing, customer or other
information concerning the business, operations and affairs of a party
that may be provided to the other, irrespective of the form of the
communications, by such party's employees or agents. Such Information
shall not include information which is or becomes generally available
to the public other than as a result of a disclosure by a party or its
representatives in violation of this Agreement. The parties agree
that the Information will be used solely for the purposes
contemplated by this Agreement and that such Information will not
be disclosed to any person other than employees and agents of a
party who are directly involved in evaluating the transaction. The
Information shall not be used in any way detrimental to a party,
including use directly or indirectly in the conduct of the other
party's business or any business or enterprise in which such party
may have an interest, now or in the future, and whether or not now
in competition with such other party.
SECTION 8.02. PUBLICITY. Boatmen's and Worthen shall
------------ ---------
cooperate with each other in the development and distribution of
all news releases and other public disclosures concerning this
Agreement and the Merger and shall not issue any news release or
make any other public disclosure without the prior consent of the
other party, unless it reasonably believes such is required by law
upon the advice of counsel or is in response to published newspaper
or other mass media reports regarding the transaction contemplated
hereby, in which such latter event the parties shall give
reasonable notice, and to the extent practicable, consult with each
other regarding such responsive public disclosure.
SECTION 8.03. RETURN OF DOCUMENTS. Upon termination of this
------------ -------------------
Agreement without the Merger becoming effective, each party shall
deliver to the other originals and all copies of all Information
made available to such party and will not retain any copies,
extracts or other reproductions in whole or in part of such
Information.
SECTION 8.04. NOTICES. Any notice or other communication
------------ -------
shall be in writing and shall be deemed to have been given or made
on the date of delivery, in the case of hand delivery, or three (3)
business days after deposit in the United States Registered Mail,
postage prepaid, or upon receipt if transmitted by facsimile
telecopy or any other means, addressed (in any case) as follows:
(a) if to Boatmen's:
Boatmen's Bancshares, Inc.
One Boatmen's Plaza
800 Market Street
St. Louis, Missouri 63102
Attention: Gregory L. Curl
Facsimile: 314/466-5645
with a copy to:
Lewis, Rice & Fingersh
500 North Broadway, Suite 2000
St. Louis, Missouri 63102
Attention: Thomas C. Erb
Facsimile: 314/241-6056
27
<PAGE> 32
and
(b) if to Worthen:
Worthen Banking Corporation
Worthen National Bank of Arkansas Building
200 West Capitol Avenue
Little Rock, Arkansas 72201
Attention: Curt Bradbury
Facsimile: (501) 378-1506
with copies to:
Ivester, Skinner & Camp, P.A.
111 Center St., Suite 1200
Little Rock, Arkansas
Attention: Hermann Ivester
Facsimile: (501) 376-8536
or to such other address as any party may from time to time
designate by notice to the others.
SECTION 8.05. LIABILITIES. In the event that this Agreement
------------ -----------
is terminated pursuant to the provisions of Article Seven hereof,
no party hereto shall have any liability to any other party for
costs, expenses, damages or otherwise; provided, however, that,
notwithstanding the foregoing, (i) in the event that this Agreement
is terminated pursuant to Section 7.02 hereof solely on account of
an intentional breach of any of the representations and warranties
set forth herein or any breach of any of the agreements set forth
herein, then the non-breaching party shall be entitled to recover
appropriate damages from the breaching party, and (ii) in the event
that this Agreement is terminated for any reason other than a
breach by Worthen of any of its representations, warranties or
agreements hereunder or pursuant to Section 7.06 hereof, then
Boatmen's shall reimburse Worthen, not later than three business
days after the date of such termination, for the cost of any
reports of phase one environmental investigations undertaken
pursuant to Section 4.07 hereof.
SECTION 8.06. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
------------ ----------------------------------------------
AGREEMENTS. Except for and as provided in this Section 8.06, no
- ----------
representation, warranty or agreement contained in this Agreement
shall survive the Effective Time or the earlier termination of this
Agreement. The agreements set forth in Sections 5.04, 5.05 and
5.06 shall survive the Effective Time and the agreements set forth
in Sections 1.07, the last sentence of 5.01, 7.09, 7.10, 8.01,
8.02, 8.03 and 8.05 shall survive the Effective Time or the earlier
termination of this Agreement.
SECTION 8.07. ENTIRE AGREEMENT. This Agreement constitutes
------------ ----------------
the entire agreement between the parties and supersedes and cancels
any and all prior discussions, negotiations, undertakings,
agreements in principle or other agreements between the parties
relating to the subject matter hereof.
SECTION 8.08. HEADINGS AND CAPTIONS. The captions of
------------ ---------------------
Articles and Sections hereof are for convenience only and shall not
control or affect the meaning or construction of any of the
provisions of this Agreement.
28
<PAGE> 33
SECTION 8.09. WAIVER, AMENDMENT OR MODIFICATION. The con-
------------ ---------------------------------
ditions of this Agreement which may be waived may only be waived by
notice to the other party waiving such condition. The failure of
any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later
time to enforce the same. This Agreement may be amended or
modified by the parties hereto, at any time before or after
approval of the Agreement by the shareholders of Worthen; provided,
however, that after any such approval no such amendment or
modification shall alter the amount or change the form of the
Merger Consideration contemplated by this Agreement to be received
by shareholders of Worthen. This Agreement not be amended or
modified except by a written document duly executed by the parties
hereto.
SECTION 8.10. RULES OF CONSTRUCTION. Unless the context
------------- ---------------------
otherwise requires: (i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles; (iii) "or" is not exclusive; (iv) words in the singular
may include the plural and in the plural include the singular; and
(v) "to the best knowledge of Worthen" shall mean the actual
knowledge of any director or officer of Worthen of the rank of
senior vice president or above.
SECTION 8.11. COUNTERPARTS. This Agreement may be executed
------------ ------------
in two or more counterparts, each of which shall be deemed an
original and all of which shall be deemed one and the same
instrument.
SECTION 8.12. SUCCESSORS AND ASSIGNS. This Agreement shall
------------ ----------------------
be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns. There shall be no third
party beneficiaries hereof except for the Indemnified Parties
entitled to indemnification pursuant to Section 5.05 hereof and
those persons entitled to Stock Options and Stock Appreciation
Rights under Section 5.04 hereof, each of whom shall have the right
to enforce such agreements.
SECTION 8.13. SEVERABILITY. In the event that any provisions
------------ ------------
of this Agreement or any portion thereof shall be finally
determined to be unlawful or unenforceable, such provision or
portion thereof shall be deemed to be severed from this Agreement,
and every other provision, and any portion of a provision, that is
not invalidated by such determination, shall remain in full force
and effect. To the extent that a provision is deemed unenforceable
by virtue of its scope but may be made enforceable by limitation
thereof, such provision shall be enforceable to the fullest extent
permitted under the laws and public policies of the State whose
laws are deemed to cover enforceability. It is declared to be the
intention of the parties that they would have executed the
remaining provisions without including any that may be declared
unenforceable.
SECTION 8.14. GOVERNING LAW; ASSIGNMENT. This Agreement
------------ -------------------------
shall be governed by the laws of the State of Missouri, except to
the extent that the Corporate Law must govern the Merger
procedures, and applicable federal laws and regulations. This
Agreement may not be assigned by either of the parties hereto.
29
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
WORTHEN BANKING CORPORATION
By /s/ Curt Bradbury
-----------------------------------
Curt Bradbury
Chairman and Chief Executive Officer
BOATMEN'S BANCSHARES, INC.
By /s/ Gregory L. Curl
-----------------------------------
Gregory L. Curl
Vice Chairman
BBI ACQUISITIONCO, INC.
By: /s/ Gregory L. Curl
-----------------------------------
Gregory L. Curl
President
30
<PAGE> 35
EXHIBIT 1.09(a)
---------------
WORTHEN'S LEGAL OPINION MATTERS
1. The due incorporation, valid existence and good standing
of Worthen under the laws of the State of Arkansas, its power and
authority to own and operate its properties and to carry on its
business as now conducted, and its power and authority to enter
into the Agreement, to merge with AcquisitionCo in accordance with
the terms of the Agreement and to consummate the transactions
contemplated by the Agreement.
2. The due incorporation or organization, valid existence and
good standing of each of the other subsidiaries of Worthen and any
subsidiary of any such subsidiary listed in Section 2.03 of the
Disclosure Schedule, their power and authority to own and operate
their properties, the possession of all licenses, permits and
authorizations necessary to carry on their respective businesses as
now conducted.
3. With respect to Worthen, (i) the number of authorized,
issued and outstanding shares of capital stock of Worthen on the
Closing Date, (ii) the nonexistence of any violation of the
preemptive or subscription rights of any person, (iii) the number
of outstanding Stock Options, warrants, or other rights to acquire,
or securities convertible into, any equity security of Worthen,
(iv) the nonexistence of any obligation, contingent or otherwise,
to reacquire any shares of capital stock of Worthen, and (v) the
nonexistence of any outstanding stock appreciation, phantom stock
or similar rights, except as disclosed in the Agreement.
4. The due and proper performance of all corporate acts and
other proceedings necessary or required to be taken by Worthen to
authorize the execution, delivery and performance of the Agreement,
the due execution and delivery of the Agreement by Worthen, and the
Agreement as a valid and binding obligation of Worthen, enforceable
against Worthen in accordance with its terms (subject to the
provisions of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally from time to time in
effect, and equitable principles relating to the granting of
specific performance and other equitable remedies as a matter of
judicial discretion).
5. The execution of the Agreement by Worthen, and the
consummation of the Merger and the other transactions contemplated
therein, does not violate or cause a default under Worthen's
articles of incorporation or bylaws, or to the best knowledge of
such counsel any statute, regulation or rule or any judgment, order
or decree against or any material agreement binding upon Worthen or
its subsidiaries.
6. To the best knowledge of such counsel, the receipt of all
required consents, approvals (including the requisite approval of
the shareholders of Worthen), orders or authorizations of, or
registrations, declaration or filings with or notices to, any
court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, or any other
person or entity required to be obtained or made by Worthen or its
subsidiaries in connection with the execution and delivery of the
Agreement or the consummation of the transactions contemplated
therein.
<PAGE> 36
EXHIBIT 1.09(b)
---------------
BOATMEN'S LEGAL OPINION MATTERS
1. The due incorporation, valid existence and good standing
of Boatmen's and AcquisitionCo under the laws of the States of
Missouri and Arkansas, respectively, and their respective power and
authority to enter into the Agreement and to consummate the
transactions contemplated thereby.
2. The due incorporation or organization, valid existence and
good standing of each of the significant subsidiaries of Boatmen's,
their power and authority to own and operate their properties, the
possession of all licenses, permits and authorizations necessary to
carry on their respective businesses as now conducted.
3. With respect to Boatmen's, (i) the number of authorized,
issued and outstanding shares of capital stock of Boatmen's on a
date shortly before the Closing Date, (ii) the nonexistence of any
violation of the preemptive or subscription rights of any person,
and (iii) the number of outstanding stock options, warrants, or
other rights to acquire, or securities convertible into any equity
security of Boatmen's.
4. The due and proper performance of all corporate acts and
other proceedings required to be taken by each of Boatmen's and
AcquisitionCo to authorize the execution, delivery and performance
of the Agreement, their due execution and delivery of the
Agreement, and the Agreement as a valid and binding obligation of
Boatmen's and AcquisitionCo enforceable against Boatmen's and
AcquisitionCo in accordance with its terms (subject to the
provisions of bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforceability of creditors' rights
generally from time to time in effect, and equitable principles
relating to the granting of specific performance and other
equitable remedies as a matter of judicial discretion).
5. The due authorization and, when issued to the shareholders
of Worthen in accordance with the terms of the Agreement, the valid
issuance of the shares of Boatmen's Common to be issued pursuant to
the Merger, such shares being fully paid and nonassessable, with no
personal liability attaching to the ownership thereof.
6. The execution and delivery of the Agreement by Boatmen's
and the consummation of the transactions contemplated therein, as
neither conflicting with, in breach of or in default under,
resulting in the acceleration of, creating in any party the right
to accelerate, terminate, modify or cancel, or violate, any
provision of Boatmen's articles of incorporation or bylaws, or to
the best knowledge of such counsel any statute, regulation, rule,
judgment, order or decree binding upon Boatmen's which would be
materially adverse to the business of Boatmen's and its
subsidiaries taken as a whole.
7. To the best knowledge of such counsel, the receipt of all
required consents, approvals, orders or authorizations of, or
registrations, declarations or filings with or without notices to,
any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, or
any other person or entity required to be obtained or made by or
with respect to Boatmen's or AcquisitionCo in connection with the
execution and delivery of the Agreement or the consummation of the
transactions contemplated by the Agreement.
<PAGE> 37
EXHIBIT 4.08
------------
-------------------, 1994
Boatmen's Bancshares, Inc.
One Boatmen's Plaza
800 Market Street
St. Louis, Missouri 63101
Attention: Gregory L. Curl
Vice Chairman
Re: Agreement and Plan of Merger, dated as of August 18, 1994
(the "Merger Agreement"), by and among Worthen Banking
Corporation ("Worthen"), Boatmen's Bancshares, Inc.
("Boatmen's"), and BBI AcquisitionCo, Inc.
("AcquisitionCo")
Gentlemen:
I have been advised that I may be deemed to be an affiliate of
Worthen, as that term is defined for purposes of paragraphs (c) and
(d) of Rule 145 ("Rule 145") of the Rules and Regulations of the
Securities and Exchange Commission (the "Commission") promulgated
under the Securities Act of 1933, as amended (the "Securities
Act").
Pursuant to the terms and conditions of the Merger Agreement,
each share of common stock of Worthen owned by me as of the
effective time of the merger contemplated by the Merger Agreement
(the "Merger") may be converted into the right to receive one (1)
share of common stock of Boatmen's and cash in lieu of any
fractional share. As used in this letter, the shares of common
stock of Worthen owned by me as of the date which is thirty (30)
days prior to the anticipated effective time of the Merger are
referred to as the "Pre-Merger Shares" and the shares of common
stock of Boatmen's which may be received by me in the Merger in
exchange for my Pre-Merger Shares are referred to as the "Post-
Merger Shares." This letter is delivered to Boatmen's pursuant to
Section 4.08 of the Merger Agreement.
A. I represent and warrant to Boatmen's and agree that:
1. I shall not make any sale, transfer or other
disposition of the Post-Merger Shares I receive pursuant to
the Merger in violation of Rule 145 under the Securities Act
(or any successor rule or regulations promulgated by the
Commission).
2. I understand that the issuance of the Post-Merger
Shares to me pursuant to the Merger will be registered with
the Commission under the Securities Act. I also understand
that because I may be deemed an "affiliate" of Worthen and
because any distributions by me of the Post-Merger Shares will
not be registered under the Securities Act, such Post-Merger
Shares must be held by me unless (i) the sale, transfer or
other distribution has been registered under the Securities
Act, (ii) the sale, transfer or other distribution of such
Post-Merger Shares is made in accordance with the provisions
of Rule 145 (or any successor rule or regulations promulgated
by the Commission), or (iii) in the opinion of counsel
reasonably acceptable to Boatmen's some other exemption from
registration under the Securities Act is available with
respect to any such proposed distribution, sale, transfer or
other disposition of such Post-Merger Shares.
<PAGE> 38
Boatmen's Bancshares, Inc.
- --------------------, 1994
Page 2
3. In no event will I sell the Pre-Merger Shares or the
Post-Merger Shares, as the case may be, or otherwise transfer
or reduce my risk relative to the Pre-Merger Shares or Post-
Merger Shares, as the case may be, during the period beginning
30 days prior to the date on which the Merger is consummated
(the "Commencement Date") and ending on the date that
Boatmen's has published financial results covering at least 30
days of the combined operations of Boatmen's and Worthen. I
understand that Worthen has undertaken, in the Merger
Agreement, to give me as much advance notice of the
Commencement Date as is practicable under the circumstances.
B. I understand and agree that:
1. Stop transfer instructions will be issued with
respect to the Post-Merger Shares and there will be placed on
the certificates representing such Post-Merger Shares, or any
certificate delivered in substitution therefor, a legend
stating in substance:
"The shares represented by this Certificate were issued
in a transaction to which Rule 145 under the Securities
Act of 1933, as amended, applied. The shares represented
by this certificate may be transferred only in accordance
with the terms of a letter agreement dated
-----------------, 1994, by the registered holder in favor
of Boatmen's Bancshares, Inc., a copy of which agreement
is on file at the principal offices of Boatmen's
Bancshares, Inc."
2. Unless the transfer by me of Post-Merger Shares is a
sale made in compliance with the provisions of paragraph A.2
above, Boatmen's reserves the right to place the following
legend on the Certificates issued to my transferee:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended,
and were acquired from a person who received such shares
in a transaction to which Rule 145 under the Securities
Act of 1933, as amended, applied. The shares have not
been acquired by the holder with a view to, or for resale
in connection with, any distribution thereof within the
meaning of the Securities Act of 1933, as amended, and may
not be sold, pledged or otherwise transferred unless the
shares have been registered under the Securities Act of
1933, as amended, or an exemption from registration is
available."
I understand and agree that the legends set forth in
paragraphs 1 and 2 above shall be removed by delivery of substitute
Certificates without any legend if I deliver to Boatmen's a copy of
a letter from the staff of the Commission, or an opinion of counsel
in form and substance reasonably satisfactory to Boatmen's, to the
effect that no such legend is required for the purpose of the
Securities Act.
I have carefully read this letter and have had an adequate
opportunity to review the Merger Agreement and understand the
requirements and the limitations imposed upon the distribution,
sale, transfer or other disposition of Pre-Merger Shares or Post-
Merger Shares by me.
Very truly yours,
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended DECEMBER 31, 1993 Commission File 1-8525
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _______________ to _______________
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 of Arkansas Bldg.,
200 West Capitol Ave., Little Rock, Arkansas 72201
- - --------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 378-1521
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------ ----------------------------
Common Stock, $1.00 Par Value American Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 16, 1994, 17,005,430 shares of the Registrant's Common Stock,
$1.00 par value, were issued and outstanding (excluding 8,006 treasury shares),
and the aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $162,035,000.1
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Registrant's 1993 Annual Report to Stockholders for the
year ending December 31, 1993 (Part I, Part II and Part IV of Form 10-K). Pages
7 - 45 of Registrant's Annual Report to Stockholders for the year ending
December 31, 1993 are filed with this electronic filing as Exhibit 13 to this
Form 10-K.
(2) Definitive Proxy Statement to Stockholders to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Registrant's fiscal year (Part III of Form 10-K).
- ------------------------------------------------------------------------------
<PAGE>
1 The Registrant in reliance upon the instructional note pertaining to the
aggregate market value of voting stock held by nonaffiliates of the Registrant
has relied upon Schedules 13D filed by certain shareholders of the Registrant in
determining whether such shareholders are affiliates of the Registrant.
2
<PAGE>
WORTHEN BANKING CORPORATION
ANNUAL REPORT ON FORM 10-K
December 31, 1993
CROSS REFERENCE SHEET AND INDEX
ITEM NO. PART I LOCATION*
Item 1. Business. . . . . . . . . . . . . . . . . . Page 5 and in 1993
Annual Report to
Stockholders
Item 2. Properties. . . . . . . . . . . . . . . . . Page 11
Item 3. Legal Proceedings . . . . . . . . . . . . . Page 12
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . Page 13
PART II
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters . . . . . . Page 14 and in 1993
Annual Report to
Stockholders
Item 6. Selected Financial Data . . . . . . . . . . Page 14 and in 1993
Annual Report to
Stockholders
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . Page 14 and in 1993
Annual Report to
Stockholders
Item 8. Financial Statements and
Supplementary Data. . . . . . . . . . . . . Page 14 and in 1993
Annual Report to
Stockholders
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosures . . . . . . . . . . . . . . . . Page 14
3
<PAGE>
WORTHEN BANKING CORPORATION
ANNUAL REPORT ON FORM 10-K
December 31, 1993
CROSS REFERENCE SHEET AND INDEX (Continued)
ITEM NO. PART III LOCATION*
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . Page 14 and in
Definitive Proxy
Statement
Item 11. Executive Compensation. . . . . . . . . . . Page 14 and in
Definitive Proxy
Statement
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . Page 15 and in
Definitive Proxy
Statement
Item 13. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . Page 15 and in
Definitive Proxy
Statement
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . Page 15
* Page number references are to the locations of the listed items contained in
this Annual Report on Form 10-K for the year ended December 31, 1993. The
Registrant's 1993 Annual Report to Stockholders and Definitive Proxy Statement
are referred to above where such information is incorporated by reference into
this Annual Report on Form 10-K from such 1993 Annual Report to Stockholders and
Definitive Proxy Statement.
4
<PAGE>
WORTHEN BANKING CORPORATION
Annual Report on Form 10-K
For The Fiscal Year Ended December 31, 1993
PARTI
ITEM 1. BUSINESS.
GENERAL
Worthen Banking Corporation (hereinafter referred to as "WBC", "Company"
or "Registrant" and includes WBC's subsidiaries and affiliates unless the
context otherwise requires), was incorporated in the State of Arkansas in August
1968 to buy, sell, own and operate banks and to offer a diversified range of
commercial banking, trust and other financial services to retail and commercial
customers. The Company is the second largest multi-bank holding company in
Arkansas with corporate headquarters located in the Worthen National Bank
Building in Little Rock, Arkansas. Operations of the Company are conducted
through bank and nonbank subsidiaries and affiliates. The existing and future
activities of the Company are limited by the Bank Holding Company Act of 1956,
as amended, which generally prohibits a bank holding company from acquiring or
engaging in any businesses other than banking, managing or controlling banks,
and furnishing or performing certain bank related services and activities.
The Company is primarily engaged in buying, selling, owning, managing and
operating commercial banks and other financial services companies and its
subsidiaries are primarily engaged in the commercial banking, trust and
securities brokerage businesses. The income and other operating results of the
nonbank subsidiaries and affiliates as compared to the consolidated operating
results of the Company, are not substantial enough to require financial and
other information concerning industry segments to be included in this Annual
Report on Form 10-K.
The Company commenced active operations in March, 1969 with the
acquisition of a controlling interest in Worthen National Bank of Arkansas,
Little Rock, Arkansas ("WNBA") and became a multi-bank holding company upon the
acquisition of a controlling interest in Worthen National Bank of Hot Springs,
Arkansas ("WNB-Hot Springs") in October, 1970. In 1971, the Arkansas legislature
enacted a law prohibiting the acquisition of additional banks, which law
remained in effect until the passage of Act 128 of 1983, the Arkansas Bank
Holding Company Act of 1983. Act 128, which permits the acquisition of
additional banks in accordance with certain guidelines, became effective
September 30, 1983. During fiscal year 1993, WBC owned eleven banks, which were
located in Arkansas and the Austin, Texas area. All of these are national banks,
chartered pursuant to the laws of the United States. Since its organization and
commencement of operations, WBC's revenues and net income or net losses have
resulted principally from its banking subsidiaries. In addition to commercial
banking, WBC also provides, through its subsidiaries and affiliates, mortgage
banking, appraisal services, trust services, credit life and disability
insurance, investment advisory services, full service and discount brokerage
services, data processing and other related financial services.
On May 7, 1993, Worthen Banking Corporation acquired 100% of the stock of
The Union of Arkansas Corporation ("Union") with the issuance of 4,550,000
shares of WBC common stock to the Union stockholders. Union's principal
subsidiary bank, Union National Bank of Arkansas ("Union-Little Rock"), was
merged with WNBA on May 28, 1993. Union-Little Rock was a commercial bank with
approximately $595 million in assets, $482 million in deposits and $54 million
in equity operating from twenty-two locations in central and southern Arkansas
and had two mortgage banking subsidiaries. Union's only other banking subsidiary
was Union National Bank of Texas ("Union-Texas") operating out of six locations
in Austin, Texas. Union-Texas had approximately $120 million in assets, $112
million in deposits and $6 million in equity at December 31, 1992. Union-Texas
has been renamed Worthen National Bank of Texas. This transaction was accounted
for using the pooling-of-interests method of accounting.
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.
5
<PAGE>
Each subsidiary of the Company operates with a high degree of autonomy.
WBC, as the corporate parent, provides various technical and advisory services
and establishes general policy for the management and coordination of the
resources of its subsidiaries to more effectively service the credit and
financial services needs of the subsidiaries' customers and communities. The
Company coordinates the activities of its subsidiaries in certain areas,
including without limitation, credit policy, accounting, internal auditing,
regulatory compliance, loan review, investment coordination, asset/liability
management, public relations, and business development. However, the
subsidiaries operate under the direct supervision and day-to-day management of
their own directors and officers who formulate their own policies subject to the
Company's general policy guidelines and regulatory compliance.
WBC's principal sources of income are dividends and management service
fees paid by its subsidiaries. Dividend payments are determined quarterly in
relation to subsidiary income, assets, deposit growth and capital position in
compliance with regulatory guidelines and, in certain cases, prior regulatory
approval. Management service fees represent reimbursements received for services
performed by the corporate parent.
COMMERCIAL BANKING SUBSIDIARIES
The Company's principal source of income is derived from its eleven
subsidiary commercial banks and through certain of its nonbank subsidiaries. The
main offices of these subsidiaries are located in Batesville, Camden, Conway,
Fayetteville, Harrison, Hot Springs, Little Rock, Newark, Pine Bluff and
Russellville, Arkansas and Austin, Texas. All offer a broad range of commercial
bank services to the markets and communities which they serve, as well as
provide other related financial services in a majority of locations.
BANK RELATED SUBSIDIARIES AND AFFILIATES
The Company's non-bank subsidiaries include: 1) a full service and
discount brokerage company, which is a registered broker dealer and investment
adviser, whose business is conducted at a majority of the Company's banking
subsidiaries throughout the state; 2) a mortgage banking company whose business
is originating and servicing mortgage loans; 3) a credit life insurance company
which insures or reinsures credit life and accident and health insurance; 4) a
data processing and operations support company which provides data processing
and transmission services, item processing and similar functions for the
Company's banking subsidiaries; 5) a trust company which provides trust
administration and operations; 6) an appraisal company whose business is
appraising property proposed to be offered as loan collateral; and 7) two small
and relatively inactive companies related to industrial lending and real estate
development.
SUPERVISION AND REGULATION
The following summaries of statutes and regulations affecting bank
holding companies and their commercial banking subsidiaries do not purport to be
complete but are given to provide a general overview. The summaries are
qualified in their entirety by reference to the provisions of the statutes and
regulations summarized.
STATE USURY LAW
Prior to its amendment in 1982, the Constitution of the State of Arkansas
limited the rate of interest which could be charged on borrowed funds to 10% per
annum simple interest, and provided for forfeiture of principal and interest in
the event that a greater amount of interest was charged or received. The effect
of that constitutional limitation had been mitigated to some extent by Public
Law 96-221 (the "Deregulation Act") under which the United States Congress,
pursuant to the Supremacy Clause of the United States Constitution, pre-empted
state constitutions and state usury laws in regard to business-and agricultural
loans over $1,000 in amount and in regard to first mortgage residential real
estate loans. Under the Deregulation Act, WBC's lending affiliates were
permitted to make business and agricultural loans at 5% over the applicable
Federal Reserve Bank discount rate and first mortgage residential real estate
loans without any percentage limitation. The usury pre-emptive provisions of the
Deregulation Act expired generally on April 15, 1985, although loans made prior
to that date continue to be governed by the provisions of the Deregulation Act
The first mortgage real estate loan preemption in the Deregulation Act continues
in effect and will constitute a permanent preemption of the Constitution of the
State of Arkansas in regard to first mortgage residential real estate loans.
6
<PAGE>
In 1982, The Interest Rate Control Amendment ("Constitutional Amendment")
to the Constitution of the State of Arkansas was adopted, which provides, in
summary, that "consumer loans and credit sales" have a maximum percentage
limitation of 17% per annum and that all "general loans" have a maximum
limitation of 5% over the Federal Reserve Discount Rate in effect at the time
the loan was made. In 1983, the Arkansas Supreme Court determining that
"consumer loans and credit sales" are "general loans" and are subject to the
limitation of 5% over the Federal Reserve Discount Rate, as well as a maximum
limitation of 17% per annum. The Constitutional Amendment also provided
penalties for usurious "general loans" and "consumer loans and credit sales,"
including forfeiture of all principal and interest on consumer loans and credit
sales made at a greater rate of interest than 17% per annum, and, on "general
loans" made at usurious rates, forfeiture of uncollected interest and refund to
the borrower of twice the interest collected.
The relative importance of the Arkansas usury laws and federal
pre-emption thereof to the financial operations of WBC varies from time to time,
depending on a number of factors, including general economic conditions and
prevailing interest rates. Limitations on the interest earnings of WBC
subsidiary banks occur during periods of high interest rates. The effect of
such limitations cannot be accurately predicted because of the factors
mentioned above.
The Texas usury law establishes different usury limits for various
types of loans. These interest rate limits may vary from time to time. The
interest rate limitations currently in effect are more than sufficient when
compared to prevailing interest rates.
STATE REGULATION
The Arkansas Bank Holding Company Act of 1983 permits Arkansas bank
holding companies to own and control multiple banks and subjects Arkansas bank
holding companies to regulation by the Arkansas State Bank Department. Under
Arkansas law, bank holding companies are limited to owning or controlling banks
having in the aggregate no more than 25% of the total deposits held by all state
and national banks in Arkansas. For purposes of this limitation, deposits
include all individual, partnership, and corporate deposits, but not
correspondent accounts of banks or the fluids of national, state, or local
government authorities.
The Arkansas State Bank Department ("ASBD") is authorized to administer
the provisions of the Arkansas Bank Holding Company Act and to determine those
activities of bank holding companies that it deems to be "directly related to
banking activities." Under current interpretations and regulations of the ASBD,
permissible non-banking activities under the Bank Holding Company Act of 1956,
as amended, are given due consideration as being "directly related to banking
activities" under the Arkansas Act.
During 1988, the Arkansas General Assembly passed Act 539 which
authorized county-wide and eventually statewide branching and regional
interstate banking effective January 1, 1989. Unlimited branching in contiguous
counties will be allowed beginning alter 1993 while unlimited statewide
branching will become effective after 1998.
The Texas Banking Code permits an "out-of state" bank holding company
to acquire control of a bank located in the state of Texas, if such bank
received a charter and was continually operated for at least five years prior
to the acquisition, and subjects the "out-of state" bank holding company to the
supervision and regulation by the Banking Department of Texas. On January 29,
1993, the Company entered into an agreement with the Banking Department of
Texas as required by the Texas Banking Code. Pursuant to the agreement, the
Company represented that Worthen National Bank of Texas ("Worthen-Texas")
would comply with applicable capital adequacy guidelines and that the
consolidated equity capital of Worthen-Texas during the first three years
after the acquisition will at all times equal or exceed the dollar level
existing immediately prior to the acquisition. The Company further agreed that
a majority of the board of directors of Worthen-Texas will reside in the state
of Texas, that it would not acquire an institution located in the state of
Texas, the deposits of which are insured by the Federal Deposit Insurance
Corporation, unless the institution is a bank as defined by the Bank Holding
Company Act of 1956, as amended, and that additional information or reports
would be filed with the Banking Department of Texas upon request.
Under the Texas Banking Code an "out-of state" bank holding company is
limited in that it can not control more than 25% of the total deposits of all
state and national banks domiciled in the state of Texas. For purpose of this
limitation, the term "deposit" is given the meaning assigned to that term in
Section 23 of the Federal Deposit Insurance Act, as amended.
7
<PAGE>
ARKANSAS CORPORATE CODE
In 1987, the Arkansas General Assembly passed the Arkansas Business
Corporation Act of 1987 (the "1987 Act"), which was signed into law on April 14,
1987, and which became effective January 1, 1988. As a compromise to the passage
of the 1987 Act, the General Assembly included a provision allowing existing
Arkansas corporations to continue to be governed by the present corporate code
(the "1965 Act"), unless a corporation affirmatively elected to be governed
under the 1987 Act The 1987 Act provides that existing Arkansas corporations,
such as WBC, may elect to be governed by its provisions upon receiving requisite
stockholder approval and further that such an election, once made, is
irrevocable.
On February 23, 1988, WBC's stockholders adopted and approved various
proposals, including a proposal to amend and restate the Articles of
Incorporation adopting the 1987 Act as the corporate law which shall govern the
affairs of WBC. WBC's Amended and Restated Articles of Incorporation were
subsequently filed with the Arkansas Secretary of State and became effective
February 24, 1988. Upon the filing of the Amended and Restated Articles of
Incorporation, the 1987 Act became the applicable state corporate code governing
the affairs of WBC. The 1987 Act was based primarily upon the American Bar
Association's Model Business Corporation Act as substantially revised in 1984
and was legislated in partly the need to update and modernize the law affectIng
Arkansas corporations. In general as compared to the 1965 Act, the 1987 Act is
thought to be more flexible, easier to understand, and to permit corporations to
avail themselves of many modern financIng techniques and management procedures
not available under the 1965 Act. The 1987 Act should result in more predictable
judicial interpretations by Arkansas courts.
BANK HOLDING COMPANY ACT OF 1956, AS AMENDED
WBC is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended ("BHC Act"), and is registered as such with the
Board of Governors of the Federal Reserve System("FRB"). As a bank holding
company, WBC is required to file with the FRB an annual report and such
additional information as the FRB may require pursuant to the BHC Act The FRB
also periodically examines WBC and each of its subsidiaries. Under the terms of
the BHC Act, WBC, as a bank holding company, is generally required to obtain
regulatory approval from the FRB before it may acquire or dispose of a
substantial interest in any bank or bank holding company.
With certain exceptions, the BHC Act further restricts nonbanking
acquisitions by registered bank holding companies to shares of companies whose
activities the FRB deems to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making such
determinations, the FRB is required to consider whether the performance of such
activities by an affiliate can reasonably be expected to produce benefits to the
public, such as increased competition or gains in efficiency, against the risks
of possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest or unsound banking practices.
The FRB has determined by regulation that certain activities, including
among others making and servicing loans, operating an industrial loan
institution, performing certain fiduciary functions, leasing real and personal
property, providing certain investment and financing advice and brokerage
services, performing certain data processing operations, acting as an insurance
agent for certain types of insurance, and underwriting credit life and
disability insurance related to credit transactions within the particular
holding company system, among others, are permissible activities for bank
holding companies and their affiliates.
Further the BHC Act and regulations of the FRB prohibit bank holding
companies, such as WBC, from engaging in certain tie-in arrangements in
connection with extensions of credit, lease or sale transactions or the
furnishing of services.
RISK-BASED CAPITAL GUIDELINES
On January 19, 1989, the FRB issued final guidelines to implement
risk-based capital requirements for bank holding companies. The guidelines
establish a systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, takes off-balance sheet exposures into account in assessing
capital adequacy, and minimizes disincentives to holding liquid, low-risk
assets. The Company's year end 1993 total risk based capital ratio of 14.11%
exceeds the current minimum regulatory requirement of 8.00%.
8
<PAGE>
FEDERAL RESERVE ACT
The FRB has cease-and-desist powers over parent holding companies and
nonbanking subsidiaries where actions of such holding companies and nonbanking
subsidiaries would constitute a serious threat to the safety, soundness or
stability of a subsidiary bank. The FRB also has authority to regulate debt
obligations, other thin commercial paper, issued by bank holding companies.
The Company is an "affiliate" of its subsidiary banking institutions and
will be an "affiliate" of any other acquired banks within the meaning of the
Federal Reserve Act The Federal Reserve Act imposes restrictions on loans by the
subsidiary banks to WBC or to any other affiliated companies, on investments by
the subsidiary banks in the securities of WBC, and on the use of such securities
as collateral security for loans by subsidiary banks to any borrower. WBC is
also subject to certain restrictions with respect to engaging in the business of
issuing, underwriting, public sale and distribution of securities. In the event
that WBC's subsidiary banks experience significant loan losses or rapid growth
of loans or deposits, WBC may, as the sole or majority shareholder, be required
by regulatory authorities to invest additional capital in order to maintain the
capital of each subsidiary bank at or above applicable regulatory minima.
GENERAL
The national bank subsidiaries of WBC are subject to supervision and
regular examination by the Office of the Comptroller of the Currency ("OCC").
All of WBC's subsidiary banks are members of the Federal Deposit Insurance
Corporation ("FDIC") which currently insures the deposits of each member bank
to a maximum of $100,000 per deposit relationship. For this protection, each
bank pays a semi-annual statutory assessment to the FDIC and is subject to the
rules and regulations of the FDIC and to examinations by the FDIC. WBC and its
subsidiaries (including bank-related subsidiaries) are also subject to
examinations and regulation by the FRB under provisions of the Bank Holding
Company Act of 1956, as amended, and WBC is required to file annual reports with
the FRB and the ASBD, annual and other periodic reports with the United States
Securities and Exchange Commission, and to file such additional reports as the
FRB may require pursuant to that Act.
The bank subsidiaries and their affiliates are subject to various state
and federal statutes and regulations governing capital, reserves, deposits,
investments, loans, mergers, issuance of securities, dividends, establishment of
branches, brokerage and investment advisory services and other aspects of their
operations.
The approval of the OCC is required if the total of all dividends
declared by the Board of Directors of any national bank subsidiary in any
calendar year exceeds the total of the respective bank's net income for that
year combined with retained net profit for the preceding two years, less any
transfers to surplus.
Various bills and regulations including the Financial Institutions
Regulatory and Interest Rate Control Act of 1978, the Depository Institutions
Deregulation and Monetary Control Act of 1980, the Garn-St. Germain Depository
Institutions Act of 1982, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 and the Federal Deposit Insurance Corporation
Improvement Act of 1991 have been enacted or adopted, and other legislation is
being considered in the United States Congress and various other governmental
regulatory and legislative bodies which could result in additional regulation
affecting WBC and its subsidiaries and otherwise affect the powers of banks,
bank holding companies, and bank-related companies.
MONETARY POLICY
The monetary policy of the FRB has a significant effect on the operating
results of bank holding companies and their subsidiary banks as a result of its
controlling influence upon the national supply and cost of bank credit. The FRB
implements monetary policy principally through open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and change in reserve requirements against member bank deposits. These means are
used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use affects interest rates
charged on loans or paid for deposits. The policies of the FRB have a direct
effect on the amount of bank loans and deposits and the interest rates charged
and paid thereon.
FRB monetary policies have materially affected the operating results of
commercial banks in the past and are expected to continue to do so in the
future. WBC's financial statements reflect the various effects of monetary
policies. The nature of future monetary policies and the effect of such policies
on the future business and earnings of WBC cannot be accurately predicted;
however, such economic policies can materially affect the revenues and net
income of commercial banks.
9
<PAGE>
PATENTS, SEASONALITY OF BUSINESS AND CUSTOMERS
Patents or trademarks are not material to the conduct of the Company's
business. Historically, the business of the Company has not been seasonal in
nature nor does management of WBC anticipate any differences or seasonal trends
in the future. Although certain depositors and loan customers are important to
the Company's banking subsidiaries, the Company is not dependent upon any single
customer or a few customers, the loss of any one or more of which would have a
material adverse effect on the financial condition or results of operations of
the Company on a consolidated basis.
COMPETITION
The activities engaged in by WBC and its subsidiaries are highly
competitive. With each activity engaged in, the Company encounters intense
competition from other banks, lending institutions, credit unions, savings and
loan associations, brokerage firms, mortgage companies, industrial loan
associations, finance companies, and several other financial and financial
service institutions. The amount of competition has increased significantly over
the past few years since the deregulation of the banking industry. The Company's
subsidiary banks actively compete with other banks and financial institutions in
their efforts to obtain deposits and make loans, in the scope and type of
services offered, in interest rates paid on time deposits and charged on loans
and in other aspects of commercial banking. They are also in competition with
major international retail establishments, brokerage firms and other financial
institutions within and outside Arkansas. Competition with these financial
institutions is expected to increase, especially with the passage of
legislation authorizing interstate banking.
According to information obtained from the Arkansas Association of Bank
Holding Companies, during 1993 there were approximately 34 multi-bank holding
companies in Arkansas and an approximate 104 additional single bank holding
companies. As of December 31, 1993, the Company was the second largest
multi-bank holding company in Arkansas in terms of total assets and total
deposits.
EMPLOYEES
As of December 31, 1993, the Company and its subsidiaries employed 2,252
persons. None of the employees are represented by any union or similar groups
and the Company has not experienced any labor disputes or strikes arising from
any such organized labor groups. The Company considers its relationship with its
employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 16, 1994, the executive officers of the Registrant are as follows:
SERVED AS AN
CURRENT TITLE EXECUTIVE
NAME AND POSITION AGE OFFICER SINCE
- ----- ------------ --- -------------
Curtis F. Bradbury, Jr. Chairman, President 44 1985
and Chief Executive
Officer of WBC and
Chairman and
Chief Executive
Officer of WNBA
Andrew T. Melton Executive Vice 47 1986
President, Chief
Financial Officer
and Treasurer
James C. Patridge Executive Vice 43 1987
President
10
<PAGE>
SERVED AS AN
CURRENT TITLE EXECUTIVE
NAME AND POSITION AGE OFFICER SINCE
- ----- ------------ --- -------------
Michael F. Heald Senior Vice President 34 1988
and Director of Audit
William G. Hobbs Senior Vice President 44 1986
Asset/Liability and
Funds Management
Alan C. King Senior Vice President, 42 1987
Controller and Chief
Accounting Officer
Gary A. Rickenbach Senior Vice President 36 1988
Director of Loan
Review and Mergers
and Acquisitions
Gary L. Smith Senior Vice President and 40 1985
Assistant to the Chairman
The Executive Officers are elected and employed by WBC's Board of Directors
to serve for terms set from time to time by the Board in its discretion until
re-elected or replaced. Each executive officer has held the same position or
another executive position with the Company or one of its subsidiaries during
the past five years.
In addition to the foregoing persons, executive officers of the Company's
banking subsidiaries are members of a committee that exercises certain policy
making functions. Therefore, although not employed by or occupying officer
positions with the Company, they may for certain purposes be deemed as
"executive officers." As of March 16, 1994, the persons occupying such
positions include: Dale E. Cole, Worthen National Bank, Batesville and Worthen
National Bank of Newark; Edwin M Horton, Worthen National Bank of South
Arkansas; Marlin D. Jackson and Frank Oldham, Worthen National Bank of Conway;
Brooks H. Morris, Worthen National Bank of Harrison; David Bartlett, Worthen
National Bank of Hot Springs; Thomas Spillyards, Worthen National Bank of Pine
Bluff; Robert Y. Taylor, Worthen Bank National Bank of Russellville; James F.
Stobaugh and Rick L. Parsons, Worthen National Bank of Northwest Arkansas; and
John I. Fleischauer, Jr., Worthen National Bank of Arkansas. With the guidance
of the Board of Directors and executive management of the Company, each of these
persons is employed by the Boards of Directors of the respective banking
subsidiaries to serve for terms set from time to time by such Boards until
re-elected or replaced.
SELECTED STATISTICAL INFORMATION
The information required in response to this portion of Item 1 is
incorporated by reference from the disclosures contained in the Registrant's
1993 Annual Report to Stockholders, portions of which are included herein as
Exhibit 13.
ITEM 2. PROPERTIES.
The principal offices of the Company and its largest subsidiary, WNBA, are
located in the Worthen National Bank of Arkansas building at 200 West Capitol
Avenue in downtown Little Rock, Arkansas. The building is owned by WNBA.
The Company and its banking subsidiaries maintain 119 locations throughout
the State of Arkansas and the Austin, Texas area. The majority of these offices
are owned by the respective subsidiary banks. In the opinion of management of
the Company, the physical properties of the Company and its subsidiaries are
adequate and fully utilized.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, there are various legal proceedings
pending against the Company, 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 have no material adverse effect on the consolidated
financial position of the Company. However, certain matters disclosed in this
Annual Report on Form 10-K for the fiscal year ended December 31, 1993, 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 January 21, 1994, the Court provisionally certified a class for purposes
of settlement. The settlement remains subject to Court approval following a
fairness hearing at which class members may raise any objections to the
settlement. Notice of the settlement was sent to class members beginning on
February 9, 1994, and a fairness hearing is scheduled for April 5, 1994.
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.
12
<PAGE>
WILKINS V. UNION NATIONAL BANK Case No. 90 CH 9203, in the Circuit Court of
Cook County, Illinois, County Department, Chancery Division. In September of
1990, plaintiffs Herbert L. Wilkins and Mary Wilkins sued Union National Bank
("Union") in a purported class action complaint which sought remedies against
both Union and WNBA as successor of Union, including: (1) a declaration that
Union's method of calculating escrow deposit requirements was unlawful, (2)
refunds of excess escrow balances existing in mortgage escrow accounts (through
application of such balances as prepayments of mortgage principal or through
direct refunds), (3) payment of interest on excess escrow balances carried in
such escrow accounts, (4) punitive damages in an unspecified amount, (5) an
injunction prohibiting defendant from imposing excessive escrow requirements in
the future, and (6) attorney's fees.
Union and WNBA have denied all material allegations of the complaint.
Management of WNBA believes that WNBA has valid and meritorious defenses to
the allegations set forth in the complaint and intends to defend this matter
vigorously unless a settlement satisfactory to WNBA can be reached. WNBA has
reached a settlement agreement on a basis favorable to WNBA with counsel for
plaintiffs. The settlement is subject to court approval, which has not yet
been obtained.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No vote of holders of securities issued by WBC was taken on
any matter during the fourth quarter of 1993.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Earnings, Dividends
and Price Range Per Share" on Page 21 of the Registrant's 1993 Annual Report to
Stockholders. The last trade price for the Company's common stock on March 16,
1994 was $21.50.
ITEM 6. SELECTED FINANCIAL DATA
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Selected Financial
Data" on page 7 of the Registrant's 1993 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 8 through 22 of the Registrant's 1993 Annual Report to Stockholders.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this Item, including the opinion of
KPMG Peat Marwick, is incorporated by reference from the disclosures contained
under the captions "Consolidated Financial Statements" and "Selected Quarterly
Financial Data" on pages 23 through 45 and page 22, respectively, of the
Registrant's 1993 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ThE REGISTRANT.
The information required in response to this Item is incorporated by
reference from the Registrant's Definitive Proxy Statement which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1993 fiscal year covered by this Annual Report on Form 10-K
See also the caption "Executive Officers of the Registrant" under Item 1 of
this Annual Report on Form lo-K
ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this Item is incorporated by
reference from the Registrant's Definitive Proxy Statement which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1993 fiscal year covered by this Annual Report on Form 10-K.
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information required in response to this Item is incorporated by
reference from the Registrant's Definitive Proxy Statement which wall be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1993 fiscal year covered by this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this Item is incorporated by
reference from the Registrant's Definitive Proxy Statement which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1993 fiscal year covered by this Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
ITEM 14(a)(1) AND (2)
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements and the report of
independent auditors of Worthen Banking Corporation and subsidiaries for the
year ended December 31, 1993 as required by Item 8, are:
<TABLE>
<CAPTION>
Page(s) In 1993 Annual
Report to Stockholders
<S> <C>
Reports of Management and Independent
Auditors....................................................................... Page 23
Consolidated Balance Sheets as of December 31, 1993, 1992, and 1991................ Page 24
Consolidated Statements of Earnings
for the three years ended December 31, 1993, 1992, and 1991..................... Page 25
Consolidated Statements of Stockholders' Equity for the three years ended
December 31, 1993, 1992, and 1991............................................... Page 26
Consolidated Statements of Cash Flows for the three years ended December 31,
1993, 1992, and 1991 .......................................................... Pages 27-28
Notes to Consolidated Financial Statements ........................................ Pages 29-45
</TABLE>
The report of independent auditors of The Union of Arkansas Corporation and
subsidiaries for the years ended December 31, 1992 and 1991 is included as
Exhibit 99 of the Exhibits in Item 14(a)(3).
15
<PAGE>
The following consolidated financial statement schedule of Worthen Banking
Corporation and subsidiaries, including the independent auditors' report
thereon, is included in Item 14(d):
Schedule II - Guarantees of Securities of Other Issuers at December 31,
1993.
Schedules other than those listed above (or columns omitted from the
Schedule filed herein) required by Article 9 of Regulation S-X are not required
under the related instructions or are inapplicable, and, therefore, have been
omitted.
ITEM 14(a)(3) - EXHIBITS
The exhibits required by Item 601 of Regulation S-K which are required to be
filed in response to this Item 14(a)(3) are submitted as a separate section of
this Annual Report on Form 10-K under the caption "Exhibit Index."
ITEM 14(b) - REPORTS ON FORM 8-K
No current reports on Form 8-K were filed by the Company during the three
months ended December 31, 1993.
ITEM 14(c) - EXHIBITS
The exhibits required by Item 601 of Regulation S-K which are required to be
filed in response to this Item 14(c) are submitted as a separate section of this
Annual Report on Form 10-K under the caption "Exhibit Index."
ITEM 14(d) - FINANCIAL STATEMENT SCHEDULES
The response to this portion of Item 14 is submitted as a separate section
of this Annual Report on Form 10-K immediately following the signature pages of
this Annual Report on Form 10-K.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, there unto duly authorized, on the
30th day of March, 1993.
WORTHEN BANKING CORPORATION
By: \s\ Curtis F. Bradbury. Jr.
---------------------------
Curtis F. Bradbury, Jr.
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Curtis
F. Bradbury, Jr., or Andrew T. Melton, to file one or more amendments to this
Annual Report on Form 10-K, which amendments may make such changes, additions,
deletions or modifications to the Annual Report on Form 10-K as they deem
appropriate, and each such person hereby appoints Curtis F. Bradbury, Jr. or
Andrew T. Melton as his lawful attorney-in-fact to execute in the name and on
behalf of each such person individually, and in each capacity stated below, any
such amendments to the Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Curtis F. Bradbury, Jr. Chief Executive Officer March 30, 1994
- --------------------------- and Director
Curtis F. Bradbury, Jr.
/s/ Andrew T. Melton Chief Financial Officer March 30, 1994
- ----------------------------
Andrew T. Melton
/s/ Alan C. King Controller and Chief March 30, 1994
- ---------------------------- Accounting Officer
Alan C. King
/s/ James H. Atkins Director March 30, 1994
- ----------------------------
James H. Atkins
/s/ Gus M. Blass, II Director March 30, 1994
- ----------------------------
Gus M. Blass, II
/s/ Fred I. Brown, Jr. Director March 30, 1994
- ----------------------------
Fred I. Brown, Jr.
/s/Alex Dillard Director March 30, 1994
- ----------------------------
Alex Dillard
/s/ Michael T. Flynn Director March 30, 1994
- ----------------------------
Michael T. Flynn
/s/ Kaneaster Hodges, Jr. Director March 30, 1994
- ----------------------------
Kaneaster Hodges, Jr.
17
<PAGE>
/s/T. Milton Honea Director March 30, 1994
- ----------------------------
T.Milton Honea
/s/George C. Kell Director March 30, 1994
- ----------------------------
George C. Kell
/s/Herbert H. McAdams. II Director March 30, 1994
- ----------------------------
Herbert H. McAdams, II
/s/Raymond P. Miller, M.D. Director March 30, 1994
- ----------------------------
Raymond P. Miller, M.D.
/s/A. Dan Phillips Director March 30, 1994
- ----------------------------
A.Dan Phillips
/s/Winthrop Paul Rockefeller Director March 30, 1994
- ----------------------------
Winthrop Paul Rockefeller
/s/David Solomon Director March 30, 1994
- ----------------------------
David Solomon
/s/Leland E. Tollett Director March 30, 1994
- ----------------------------
Leland E. Tollett
18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Worthen Banking Corporation
Under date of February 25, 1994, we reported on the consolidated balance sheet
of Worthen Banking Corporation and Subsidiaries as of December 31, 1993 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the year then ended as contained in the 1993 Annual Report to Stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1993. In connection
with our audit of the aforementioned consolidated financial statements, we have
audited the financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audit
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ KPMG Peat Marwick
-----------------------------
KPMG PEAT MARWICK
Little Rock, Arkansas
February 25, 1994
19
<PAGE>
SCHEDULE II
GUARANTEES OF SECURITIES OF OTHER ISSUERS
WORTHEN BANKING CORPORATION
DECEMBER 31, 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
- -------------------- ---------------------- ------------ ----------------- ----------- ----------- ----------------
Nature of any De-
fault By Issuer of
Securities Guar-
anteed in
Amounts in Principal Interest
Name of Issuer of Amount Owned By Treasury of Sinking Fund or
Securities Guaranteed Title of Issue of Each Total Amount Person or Persons Issuer if Redemption Provi-
By Person for Which Class of Securities Guaranteed and For Which State- Securities Nature of sion or Payment
Statement is Filed Guaranteed Outstanding ment is filed Guaranteed Guarantee* of Dividends
- -------------------- ----------------------- -------------- ----------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Century Tube City of Pine Bluff $ 324,725 $ - $ - Guarantee of
Corporation (1046) AR Industrial Principal
Revenue Bonds and Interest
(Century Tube Project)
Series 1983
<FN>
*Standby Letters of Credit
</TABLE>
20
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- -----
3(a) Amended and Restated Articles of N/A
Incorporation of Registrant (filed
as Exhibit 3(a) to Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1987 and incorporated by
reference herein).
3(b) Amended and Restated Bylaws of Registrant N/A
(filed as Exhibit 3 to Registrant's
Quarterly Report on Form 10-Q for the
period ended June 30, 1988 and incorporated
by reference herein).
3(c) Amended and Restated Articles of Incorporation N/A
(filed as Exhibit 3(i) to Registrant's Quarterly
Report on Form 10-Q for the period ended
June 30, 1993) incorporated by reference herein.
11 Statement of computation of per share N/A
earnings (see Consolidated Financial
Statements of the Registrant contained
in the Registrant's 1993 Annual Report)
which is included herein as Exhibit 13.
13 Pages 7 - 45 of the Registrant's 1993 Annual Report. ---
21 Subsidiaries of the Registrant. ---
23(a) Consent of KPMG Peat Marwick. ---
23(b) Consent of Frost and Company.
24 Power of Attorney (see Signature Page). 17
99 Report of independent auditors of The Union of ---
Arkansas Corporation and subsidiaries for the
years ended December 31, 1992 and 1991.
21
<PAGE>
EXHIBIT 13
SELECTED FINANCIAL DATA (Dollars in thousands, except share data and statistics)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income. . . . . . . . . . . . $ 212,082 $ 229,968 $ 240,693 $ 224,833 $ 209,508 $ 194,614
Interest expense . . . . . . . . . . . 79,264 99,780 131,730 126,239 116,433 103,010
--------------------------------------------------------------------------------------
Net interest income. . . . . . . . . . 132,818 130,188 108,963 98,594 93,075 91,604
Provision for loan losses. . . . . . . 4,628 2,849 3,359 6,214 10,547 17,324
--------------------------------------------------------------------------------------
Net interest income after
provision for loan losses. . . . . . 128,190 127,339 105,604 92,380 82,528 74,280
Settlement of shareholder
derivative lawsuits, net . . . . . . -- -- -- -- -- 7,441
Repurchase agreement
recovery, net. . . . . . . . . . . . 309 -- 794 386 850 4,907
Other income . . . . . . . . . . . . . 66,282 57,458 52,556 43,899 39,670 42,105
Other expenses . . . . . . . . . . . . 147,199 144,150 126,306 111,512 108,304 114,838
--------------------------------------------------------------------------------------
Income before income taxes,
discontinued operations and
cumulative effect of a change
in accounting principle. . . . . . . 47,582 40,647 32,648 25,153 14,744 13,895
Income taxes . . . . . . . . . . . . . 16,200 6,710 3,912 2,445 1,216 1,279
--------------------------------------------------------------------------------------
Income before discontinued operations
and cumulative effect of a change
in accounting principle. . . . . . . 31,382 33,937 28,736 22,708 13,528 12,616
Income from discontinued
operations . . . . . . . . . . . . . -- -- -- -- 13,346 --
Cumulative effect of a change in
accounting principle . . . . . . . . 868 -- -- -- -- 916
--------------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736 $ 22,708 $ 26,874 $ 13,532
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Long-term debt*. . . . . . . . . . . . $ 45,559 $ 37,333 $ 28,179 $ 31,998 $ 40,155 $ 43,900
Total assets . . . . . . . . . . . . . 3,579,082 3,469,672 3,141,048 2,854,237 2,420,833 2,333,820
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
PER SHARE DATA:
Average shares outstanding . . . . . . 16,817,339 16,589,066 15,481,724 15,481,399 15,481,400 15,406,601
Income before discontinued operations
and cumulative effect of a change
in accounting principle. . . . . . . $ 1.87 $ 2.05 $ 1.86 $ 1.47 $ 0.87 $ 0.82
Net income . . . . . . . . . . . . . . 1.92 2.05 1.86 1.47 1.74 0.88
Cash dividends declared. . . . . . . . 0.20 0.15 0.13 0.10 0.10 --
Average stockholders' equity . . . . . 15.21 13.35 11.44 9.92 8.39 7.33
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
OTHER KEY STATISTICS (YEAR-END)
Number of
Employees. . . . . . . . . . . . . . 2,252 2,258 2,203 2,076 1,914 1,934
Stockholders . . . . . . . . . . . . 2,720 2,767 2,666 2,739 2,738 2,871
<FN>
*Includes capital notes and capital lease obligations.
</TABLE>
7
<PAGE>
WORTHEN BANKING CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During May of 1993, Worthen Banking Corporation ("WBC" or the "Company")
merged with The Union of Arkansas Corporation ("Union"), a $700 million bank
holding company headquartered in Little Rock. This transaction was accounted for
using the "pooling-of-interests" method of acquisition accounting. Under this
method, all historical financial information is added together as if the
combining companies had always been one company. Accordingly, no goodwill is
established in a transaction of this type. Also, every number presented in this
report, both current and historical for all periods presented, has been restated
to reflect this method of accounting.
The Company recorded net income of $32.3 million or $1.92 per share in 1993
which was slightly below the $33.9 million or $2.05 per share recorded in 1992.
As a result of the merger described above, the Company recorded approximately
$11.0 million of pre-tax non-recurring expenses related to the merger. Of this
amount, approximately $1.4 million of expense was taken related to a write-down
of purchased mortgage servicing rights to reflect WBC's analysis methods. Also,
a provision for loan losses of $1.5 million and expenses related to foreclosed
property of $0.3 million were recorded. These additional expenses were recorded
to conform the loan loss allowance methodology and policies of Union to WBC's
policies. The remainder of the expenses were net cash outflows for expenses
occurring primarily during the second quarter and also throughout the remainder
of 1993. Additional expenses were non-recurring employment expenses of $0.7
million, legal expenses of $1.5 million, investment banking fees of $2.1
million, expenses related to closed and closing branches of $1.3 million and
office supplies and expenses of $0.3 million. The remainder of the expenses were
for signage, various data processing conversions, accounting fees and other
non-recurring amounts. WBC also recorded gains of approximately $5.4 million
related to the sale of certain investment securities of Union in order to
realign the maturity of Union's investment portfolio consistent with WBC's
investment policies. A gain of $0.8 million was recognized on the sale of the
Union corporate jet airplane. Management of WBC believes that none of these
expenses or gains would have occurred without the merger.
The Company's pretax income for 1993 was $47.6 million compared to $40.6
million in 1992, a 17.2% increase. Excluding the effects of the net expenses
described above, the Company's pretax income would have increased by $4.8
million or 29%.
The effective income tax rate in 1993 was 34.0% compared to 16.5% in 1992.
Income tax expense increased by $9.5 million to $16.2 million. Prior to 1993,
the Company utilized tax loss carry forwards and previously unrecognized
deferred tax assets to reduce income taxes. WBC expects to experience tax
rates in the 34% to 36% range in 1994.
During September of 1993, the Company acquired 100% of First Bentonville
Bancshares, Inc. ("FirstBank"). With assets of approximately $110 million,
FirstBank was merged with another of WBC's affiliate banks, Worthen National
Bank of Northwest Arkansas, in October 1993.
In May of 1993, the Company borrowed $43 million in senior, unsecured notes
from several institutional investors. Approximately $39.3 million, or
substantially all, of the Company's existing term debt was repaid with the
proceeds of these notes. These notes mature in five to seven years and have a
weighted average fixed rate of interest of approximately 7.61%.
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO EARNINGS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EPS INCREASE
(DECREASE)
-----------------
YEAR ENDED DECEMBER 31 1993 TO 1992 TO
--------------------------
1993 1992 1991 1992 1991
-------------------------- -----------------
<S> <C> <C> <C> <C> <C>
Net interest income. . . . . . . . . . . . . . . . . $ 7.90 $ 7.85 $ 7.04 $ 0.05 $ 0.81
Provision for loan losses. . . . . . . . . . . . . . (0.28) (0.17) (0.22) (0.11) 0.05
Service charges on deposit accounts. . . . . . . . . 1.36 1.37 1.22 (0.01) 0.15
Trust fees . . . . . . . . . . . . . . . . . . . . . 0.58 0.56 0.53 0.02 0.03
Full service and discount brokerage commissions. . . 0.38 0.32 0.21 0.06 0.11
Investment security gains. . . . . . . . . . . . . . 0.32 0.02 0.13 0.30 (0.11)
Repurchase agreement recoveries, net . . . . . . . . 0.02 -- 0.05 0.02 (0.05)
Other income . . . . . . . . . . . . . . . . . . . . 1.30 1.19 1.29 0.11 (0.10)
Salaries and employee benefits . . . . . . . . . . . (3.97) (4.03) (3.81) 0.06 (0.22)
Net occupancy expense. . . . . . . . . . . . . . . . (0.82) (0.81) (0.85) (0.01) 0.04
Other expense. . . . . . . . . . . . . . . . . . . . (3.96) (3.85) (3.48) (0.11) (0.37)
Applicable income tax. . . . . . . . . . . . . . . . (0.96) (0.40) (0.25) (0.56) (0.15)
Cumulative effect of change in accounting principle. 0.05 -- -- 0.05 --
-------------------------- -----------------
Net income. . . . . . . . . . . . . . . . . . . . $ 1.92 $ 2.05 $ 1.86 $(0.13) $ 0.19
-------------------------- -----------------
-------------------------- -----------------
Change in net income calculated using previous year
average shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.10) $ 0.34
Change in average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.15)
-----------------
Change in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.13) $ 0.19
-----------------
-----------------
</TABLE>
8
<PAGE>
LOAN PORTFOLIO RISK, ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The distribution of the Company's loan portfolio is shown in the table below:
- --------------------------------------------------------------------------------
LOAN PORTFOLIO BY TYPE (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural . . . . . . $ 437,072 $ 398,230 $ 345,782 $ 307,195 $ 312,838
Bankers' acceptances and
commercial paper. . . . . . . . . . . . . . . . -- 86,966 147,073 347,536 218,881
Real estate mortgage . . . . . . . . . . . . . . . 710,955 635,521 558,872 691,844 568,424
Real estate construction . . . . . . . . . . . . . 73,241 60,074 49,280 44,565 48,006
Installment and other. . . . . . . . . . . . . . . 425,354 380,572 328,797 280,446 245,245
Direct lease financing . . . . . . . . . . . . . . 1,383 1,547 176 210 1,474
Unearned interest. . . . . . . . . . . . . . . . . (986) (1,775) (3,293) (4,264) (5,295)
----------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . $1,647,019 $1,561,135 $1,426,687 $1,667,532 $1,389,573
----------------------------------------------------------------------
----------------------------------------------------------------------
NET CHARGE-OFFS TO AVERAGE LOANS:
Commercial . . . . . . . . . . . . . . . . . . . . 0.14% 0.29% 0.14% 0.36% 0.81%
Real estate. . . . . . . . . . . . . . . . . . . . 0.07 0.40 0.34 0.58 0.94
Installment. . . . . . . . . . . . . . . . . . . . 0.31 0.29 0.45 0.80 0.41
Lease financing. . . . . . . . . . . . . . . . . . -- -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
LOAN LOSS ALLOWANCE ALLOCATION (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------------------------------------------------------------------
AMOUNT RATIO(1) AMOUNT RATIO(1) AMOUNT RATIO(1) AMOUNT RATIO(1) AMOUNT RATIO(1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial and
agricultural . . . $ 3,582 26.5% $ 4,289 31.0% $ 5,412 34.3% $ 6,960 39.0% $ 9,591 37.9%
Real estate
construction . . . 1,356 4.4 1,005 3.8 826 3.5 991 2.7 838 3.5
Real estate
mortgage . . . . . 13,167 43.2 10,848 40.7 10,096 39.2 9,185 41.5 10,014 40.9
Installment. . . . . 3,796 25.8 3,381 24.4 2,355 23.0 3,459 16.8 4,724 17.6
Lease
financing. . . . . -- 0.1 -- 0.1 -- -- 3 -- 45 0.1
Unallocated. . . . . 11,399 -- 10,622 -- 12,103 -- 10,644 -- 7,417 --
----------------------------------------------------------------------------------------------------------
Total. . . . . . $33,300 100.0% $ 30,145 100.0% $30,792 100.0% $31,242 100.0% $32,629 100.0%
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the ratio of each loan category to gross loans (including
unearned interest).
</TABLE>
As shown by the table above, if the effects of changes in the balances of
bankers' acceptances and commercial paper are excluded, the Company's loan
portfolio realized growth of approximately $173 million in 1993, representing
annualized growth of almost 12%. Although approximately $68 million of the loan
growth is attributable to the acquisition of FirstBank in September 1993, the
remaining bank franchise of the Company added $105 million in loans during the
year. Economic conditions in Arkansas were favorable for loan growth during
1993, but management also encouraged the development of good quality loans more
in the current year than was emphasized in the recent past. Improvements in the
asset quality and financial performance of the Company coincided with good
economic conditions to create the appropriate environment for quality loan
portfolio growth.
Roughly half of the 1993 loan growth, or $89 million, was in the real
estate mortgage and real estate construction loan balances. Much of this growth
is the result of the FirstBank acquisition which, at the date of acquisition,
had $56 million in real estate loans. Bentonville is located in the economically
vibrant northwest Arkansas region, resulting in a high proportion of real estate
mortgage and development loans. Several of the other banking affiliates,
primarily those located in the central and river valley regions of the state
also experienced good loan demand in 1993, as reflected in the strong increases
in the commercial and consumer loan balances. Those components grew by $39
million and $45 million, respectively, in the current year. The Company's
extensive branch network and focus on community bank lending produced those
results. The lowest interest rates since the 1970's also provided the impetus
for new construction and refinancings, particularly in the single-family
residential market.
Concentrations in the loan portfolio are monitored as part of our risk
management strategy. As a matter of policy, the Company
9
<PAGE>
infrequently provides financing for speculative ventures, preferring instead to
act as a short-term financing source for loan customers that are building or
expanding owner-occupied properties. The exception to this strategy is the
single-family development market, in which the Company is an active lender.
Single family residential lending is an important source of lending volume for
the Company, accounting for approximately $255 million in outstanding loans at
December 31, 1993, or almost one third of the real estate portfolio. The loan
loss and delinquency performance of this portion of the portfolio has been
exceptional, and the Company therefore considers this concentration to contain
little risk. The Company's credit policies discourage the financing of certain
types of properties that have proven to be sources of loan problems in the past,
such as hotels, shopping centers, and multi-family properties. The total of
extensions secured by these property types was approximately $60 million at
December 31, 1993, or less than 10% of the real estate portfolio. Unsecured
lending is tightly controlled, with unsecured loans totalling less than $50
million at the end of 1993. In addition, almost $110 million of outstanding
loans at December 31, 1993 were secured by marketable securities or cash
collateral. Because of the Company's risk management practices, the commercial
and real estate loan portfolio is considered to be well-diversified. The table
depicting the Company's 1993 net charge-off's to average loan ratios underscores
the degree of caution exercised in our lending activities.
During 1993, the Company made notable improvements in the level of
nonperforming assets, reducing the total from $30 million at December 31, 1992
to $23 million at December 31, 1993, in spite of the acquisition of Bentonville
and overall loan portfolio growth of $173 million. At December 31, 1993, the
Company's nonperforming assets equalled just 1.4% of total loans plus
nonperforming assets, after being as high as 3.8% in the earlier periods
presented. Based upon September 30, 1993 data, this ratio is substantially
better than the Company's peer group, which recorded a nonperforming asset ratio
of 1.74% of loans plus nonperforming assets. All components of nonperformings
were improved, which management attributes to diligent workout efforts over the
past year and to the Company's credit risk management practices, which serve to
reduce the number of new relationships that enter nonperforming status.
Management is not aware of any specific relationships or groups of loans whose
trends would indicate a reversal of the recent decline in nonperformings is
anything but permanent, in fact, subsequent to December 31, 1993 the Company
negotiated the sale of one parcel of Other Real Estate Owned with a book value
of $2.4 million. The consummation of the sale, which is expected to occur m the
first or second quarter of 1994, will result in a gain and will produce a
meaningful reduction in nonperforming assets. One other nonperforming asset with
a book balance of $0.8 million was also paid off subsequent to year end.
10
<PAGE>
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOANS TOTAL OTHER TOTAL
PAST DUE NONACCRUAL RENEGOTIATED NONPERFORMING NONPERFORMING NONPERFORMING % OF
90 DAYS LOANS LOANS LOANS ASSETS ASSETS LOANS(1)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993:
Commercial, financial
and agricultural . . . . . . . $ 198 $ 2,303 $ -- $ 2,501 $ 4,056 $ 6,557 0.40%
Real estate . . . . . . . . . . 716 14,024 -- 14,740 786 15,526 0.94
Installment . . . . . . . . . . 421 254 -- 675 285 960 0.06
Lease finance and other . . . . 28 87 -- 115 -- 115 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 1,363 $ 16,668 $ -- $ 18,031 $ 5,127 $ 23,158 1.40%
% of Loans(1) . . . . . . . . 0.08% 1.01% --% 1.09% 0.31% 1.40%
ALL as a % of . . . . . . . . 184.68% 143.79%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1992:
Commercial, financial
and agricultural . . . . . . . $ 1,342 $ 2,938 $ -- $ 4,280 $ 2,940 $ 7,220 0.46%
Real estate . . . . . . . . . . 971 14,552 -- 15,523 5,136 20,659 1.33
Installment . . . . . . . . . . 303 695 -- 998 455 1,453 0.09
Lease finance and other . . . . -- 75 -- 75 626 701 0.04
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 2,616 $ 18,260 $ -- $ 20,876 $ 9,157 $ 30,033 1.92%
% of Loans(1) . . . . . . . . 0.17% 1.17% --% 1.34% 0.58% 1.92%
ALL as a % of . . . . . . . . 144.40% 100.37%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1991:
Commercial, financial
and agricultural . . . . . . . $ 1,179 $ 4,756 $ 597 $ 6,532 $ 6,295 $ 12,827 0.90%
Real estate . . . . . . . . . . 3,516 11,870 102 15,488 1,853 17,341 1.21
Installment . . . . . . . . . . 970 826 -- 1,796 422 2,218 0.16
Lease finance and other . . . . -- 223 -- 223 14 237 0.02
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 5,665 $ 17,675 $ 699 $ 24,039 $ 8,584 $ 32,623 2.29%
% of Loans(1) . . . . . . . . 0.40% 1.23% 0.05% 1.68% 0.61% 2.29%
ALL as a % of . . . . . . . . 128.09% 94.39%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1990:
Commercial, financial
and agricultural . . . . . . . $ 749 $ 7,245 $ 380 $ 8,374 $ 532 $ 8,906 0.53%
Real estate . . . . . . . . . . 3,106 16,948 103 20,157 10,145 30,302 1.83
Installment . . . . . . . . . . 801 507 -- 1,308 933 2,241 0.13
Lease finance and other . . . . 44 1,289 -- 1,333 -- 1,333 0.08
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 4,700 $ 25,989 $ 483 $ 31,172 $ 11,610 $ 42,782 2.57%
% of Loans(1) . . . . . . . . 0.28% 1.56% 0.03% 1.87% 0.70% 2.57%
ALL as a % of . . . . . . . . 100.22% 73.03%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1989:
Commercial, financial
and agricultural . . . . . . . $ 714 $ 6,884 $ 185 $ 7,783 $ 938 $ 8,721 0.63%
Real estate . . . . . . . . . . 2,582 27,402 105 30,089 11,087 41,176 2.96
Installment . . . . . . . . . . 1,478 790 -- 2,268 758 3,026 0.22
Lease finance and other . . . . 26 233 -- 259 115 374 0.03
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 4,800 $ 35,309 $ 290 $ 40,399 $ 12,898 $ 53,297 3.84%
% of Loans(1) . . . . . . . . 0.35% 2.54% 0.02% 2.91% 0.93% 3.84%
ALL as a % of . . . . . . . . 80.77% 61.22%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)Including other nonperforming assets.
</TABLE>
11
<PAGE>
The activity in the allowance for loan losses is shown below:
- --------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS EXPERIENCE (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
1993 1992 1991 1990 1989
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance of allowance for loan losses at beginning of period. . . $ 30,145 $ 30,792 $ 31,242 $ 32,629 $ 33,411
Allowance of purchased bank at date of acquisition . . . . . . . 892 1,690 873 -- --
Loans charged-off:
Commercial, financial and agricultural . . . . . . . . . . . . 1,532 2,414 2,450 3,633 7,098
Real estate construction . . . . . . . . . . . . . . . . . . . 536 1,841 105 160 612
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . 1,453 1,885 3,297 4,927 8,078
Installment. . . . . . . . . . . . . . . . . . . . . . . . . . 2,483 2,282 2,698 2,929 2,309
Lease financing. . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
---------------------------------------------------------
Total loans charged-off. . . . . . . . . . . . . . . . . . . . . 6,004 8,422 8,550 11,649 18,097
---------------------------------------------------------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural . . . . . . . . . . . . 922 1,059 1,707 1,602 2,700
Real estate construction . . . . . . . . . . . . . . . . . . . 364 334 24 43 1,016
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . 1,113 605 1,073 1,380 1,753
Installment. . . . . . . . . . . . . . . . . . . . . . . . . . 1,240 1,238 1,064 1,023 1,299
Lease financing. . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
---------------------------------------------------------
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . 3,639 3,236 3,868 4,048 6,768
---------------------------------------------------------
Net loans charged-off. . . . . . . . . . . . . . . . . . . . . . 2,365 5,186 4,682 7,601 11,329
Additions to allowance charged to operating expenses . . . . . . 4,628 2,849 3,359 6,214 10,547
---------------------------------------------------------
Balance at end of period . . . . . . . . . . . . . . . . . . . . $ 33,300 $ 30,145 $ 30,792 $ 31,242 $ 32,629
---------------------------------------------------------
---------------------------------------------------------
Ratio of net charge-offs during period to average
loans outstanding. . . . . . . . . . . . . . . . . . . . . . . 0.15% 0.34% 0.30% 0.53% 0.80%
Allowance to loans at period end . . . . . . . . . . . . . . . . 2.02 1.93 2.16 1.87 2.35
Allowance to loans at period end, net of bankers'
acceptances and commercial paper . . . . . . . . . . . . . . . 2.02 2.04 2.41 2.37 2.79
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
The activity in the allowance for loan losses ("ALLL") is shown in the
previous table. The acquisition of FirstBank is reflected by the $892 thousand
"allowance of purchased bank at date of acquisition" in the 1993 activity.
During 1993, loan losses of $6.0 million were recognized, the lowest total in
the five years presented. This reduction mirrors the trend in asset quality
discussed previously. Approximately $ 1.1 million of the 1993 charge-offs were
realized from two large loan relationships acquired in the Union merger, which
were anticipated by the preacquisition due diligence. The majority of the
remaining charge-offs experienced in 1993 were related to the consumer lending
business, and remained fairly consistent with the experience of previous years.
Recoveries of loans previously charged-off totaled $3.6 million in 1993 and
exceeded the experience of 1992; as a result, net loans charged-off declined to
$2.4 million in 1993 compared to $5.2 million in 1992, representing a paltry net
loss ratio of 0.15% of average loans as compared to 0.34% in 1992. Management is
pleased with these results and remains confident that the conservative credit
risk management practices will continue to manifest themselves in manageable
future loan loss experience.
Loan loss provisions charged to operations totaled $4.6 million in 1993
compared to $2.8 million in 1992. As a component of the non-recurring expenses
recorded during the Union merger, a special $ 1.5 million loan loss provision
was made by the Little Rock bank upon consummation of the merger. Additional
loan loss provisions of $2.5 million were recorded by the Little Rock affiliate
throughout 1993 in accordance with the established 1993 budget, primarily to
accommodate the bank's loan growth. Because of the assessment of ALLL adequacy
at the Company's other banking subsidiaries, nominal loan loss provisions were
required to maintain the allowance at an acceptable level.
The ALLL to loans ratio was 2.02% at December 31, 1993 as compared to 1.93%
at the end of 1992. The Company prefers to maintain the allowance ratio at
levels that may not appear to be commensurate with the reported asset quality
and risk profile of the loan portfolio, in order to preserve the flexibility to
absorb temporary fluctuations in asset quality or growth without requiring
abnormal loan loss provisions. The Company's peer group ratio averaged 2.67% at
September 30, 1993 (the latest data available). Further, the ratio of the
allowance to nonperforming loans was a solid 185% at December 31, 1993
versus 144% at the end of 1992 and a corresponding peer ratio of 124% at
September 30, 1993.
The allowance for loan losses is evaluated for adequacy utilizing
methodologies that management believes conform to the documentation and analysis
requirements of the Company's regulatory agencies. The methodologies used
consider the
12
<PAGE>
Company's historical loss experience of certain risk categories, portfolio and
borrower concentrations, economic conditions, portfolio growth and asset quality
trends, among other factors, as a means to measure allowance adequacy. Based
upon the latest such evaluation performed as of December 31, 1993, management
considers the allowance fully adequate to absorb the potential losses inherent
in the loan portfolio. Additionally, the Company is examined periodically by its
regulators. Part of the examination procedures include an evaluation of ALLL
adequacy, the results of which were favorable in the last examination performed
in 1993.
- --------------------------------------------------------------------------------
Loan Loss Activity (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991
------------------------ ----------------------- ------------------------
NET NET NET
QUARTER LOAN LOSS CHARGE LOAN LOSS CHARGE LOAN LOSS CHARGE
ENDED PROVISIONS OFFS PROVISIONS OFFS PROVISIONS OFFS
<S> <C> <C> <C> <C> <C> <C>
March 31 . . . . . . . . . . . . . $ 773 $ 352 $ 363 $ (1,563) $ 1,239 $ (1,200)
June 30. . . . . . . . . . . . . . 2,466 (22) 832 (1,504) 1,317 (1,942)
September 30 . . . . . . . . . . . 540 (1,183) 596 (510) 743 (670)
December 31. . . . . . . . . . . . 849 (1,512) 1,058 (1,609) 60 (870)
-----------------------------------------------------------------------------------
Total . . . . . . . . . . . . . $ 4,628 $ (2,365) $ 2,849 $ (5,186) $ 3,359 $ (4,682)
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
INVESTMENTS
Assets managed as investments, including interest-bearing deposits in other
banks, federal funds sold, and investment securities, represent approximately
43% of the total assets of the Company. Management's philosophy remains
unchanged from prior years: to remove virtually all credit risk from the
investment portfolio and to use the maturity structure to maintain liquidity and
interest rate risk within an acceptable range. The over all weighted average
maturity of the investment securities portfolio is 29 months. Approximately 35%
of the portfolio consists of mortgage-related securities, with relatively short
expected maturities. Approximately 56% of the portfolio represents treasury and
agency non-mortgage obligations.
During 1993, holdings in treasury and agency securities and state and
political subdivision securities increased while "other" securities and bankers
acceptances and commercial paper (classified as loans in this report) declined
as a consequence of market conditions and the corporation's tax status.
Management does not foresee any change in its investment
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------
1993 1992 1991
--------------------------------------
<S> <C> <C> <C>
U.S. Treasury and
other U.S. Government
agencies . . . . . . . . . . . . $1,269,077 $1,169,363 $1,000,554
States and political
subdivisions . . . . . . . . . . 97,077 64,288 29,964
Other. . . . . . . . . . . . . . . 80,105 111,427 117,331
----------------------------------------
Total. . . . . . . . . . . . . $1,446,259 $1,345,078 $1,147,849
----------------------------------------
----------------------------------------
</TABLE>
strategy as a consequence of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." While
it is anticipated that between 10% and 15% of the portfolio will be classified
as "available for sale" in the first quarter of 1994, the basic strategy will
remain that of expecting to hold securities purchased until final maturity. A
complete discussion on the effects of Statement 115 can be found on page 22
under the caption "Effects of Recently Adopted Accounting Standards."
- --------------------------------------------------------------------------------
MATURITY DISTRIBUTION OF INVESTMENT PORTFOLIO (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDER 1-5 5-10 OVER NO FIXED
1 YEAR YEARS YEARS 10 YEARS MATURITY TOTAL YIELD
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993:
U.S. Treasury and other
U.S. Government agencies . . . . . . $318,105 $632,444 $168,307 $150,221 $ -- $1,269,077 5.19%
States and political
subdivisions . . . . . . . . . . . . 6,316 29,686 53,587 7,488 -- 97,077 5.07
Other. . . . . . . . . . . . . . . . . 45,473 16,084 4,503 8,149 5,896 80,105 5.31
--------------------------------------------------------------------------------
Total investment securities. . . . $369,894 $678,214 $226,397 $165,858 $5,896 $1,446,259 5.18%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Percentage of total. . . . . . . . . . 25.58% 46.89% 15.65% 11.47% 0.41% 100.0%
Yield. . . . . . . . . . . . . . . . . 4.81 5.26 5.06 5.88 6.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
DEPOSITS AND SHORT-TERM BORROWINGS
Total average deposits have increased less than 1% from
1992 to 1993 as compared to a $367 million increase from 1991 to
1992. Approximately 66% of the deposit increase in 1992 was due
to acquisitions while the remainder came from growth in the
market place. The deposit base as a percentage of average assets
has decreased slightly to 85.9% at December 31, 1993, compared to
87.9% and 88.1% at December 31, 1992 and 1991, respectively.
The year-end balances of certificates of deposit and other
time deposits over $100,000 has fluctuated from $209.0 million
and $207.0 million at December 31, 1992 and 1991, respectively,
to $209.7 million at December 31, 1993. The accompanying table
presents the maturities of certificates of deposit and other time
deposits of $100,000 and over.
- -------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS OVER $100,000 (Dollars in
thousands)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
--------------------------------------
Time
Certificates Other Time
of Deposit Deposits Total
--------------------------------------
<S> <C> <C> <C>
3 months or less $ 92,080 $ - $ 92,080
Over 3 thru 6 months 73,184 - 73,184
Over 6 thru 12 months 30,696 - 30,696
Over 12 months 13,718 - 13,718
-------------------------------------
Total $ 209,678 $ - $ 209,678
-------------------------------------
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Federal Funds Purchased and Securities Sold Under Agreement to Repurchase (Dollars in thousands)
- ------------------------------------------------------------------------------------------------
Maximum
Balance Rate at Outstanding
at End End of Daily Average at any
of Year Year Balance Rate Month End
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993.................. $127,980 2.22% $112,363 2.34% $128,804
1992.................. 101,124 2.61 93,751 2.85 120,162
1991.................. 98,154 3.74 83,718 4.81 105,700
</TABLE>
Short-term borrowings, which consist of U.S. Treasury Note
borrowings (see Note H of the Notes to Consolidated Financial
Statements), have fluctuated from $20.6 million at December 31,
1992 to $57.8 million at December 31, 1993. The fluctuations in
short-term borrowings directly relate to treasury tax deposits
from bank customers at year end in transit through the Federal
Reserve System to the Internal Revenue Service.
Federal funds purchased and securities sold under agreement
to repurchase increased $26.9 million from the previous year. No
categories of short-term borrowings exceeded 30% of stockholders'
equity on average except federal funds purchased and securities
sold under agreement to repurchase as shown in the above table.
15
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
VOLUME RATE ANALYSIS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
4th Qtr. 1993/4th Qtr. 1992 1993/1992 1992/1991
Change due to Net Increase/ Change Due to Net Increase/ Change Due to Net Increase/
Volume Yield/Rate (Decrease)(1) Volume Yield/Rate (Decrease)(1) Volume Yield/Rate (Decrease)(1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans. . . . . . . . $ 2,059 $ (1,659) $ 400 $ 4,213 $ (9,884) $ (5,671) $ (6,170) $(12,149) $ (18,319)
Trading assets . . . 359 (122) 237 1,111 (966) 145 1,750 (140) 1,610
Taxable investments
securities. . . . . 2,547 (4,102) (1,555) 3,712 (12,315) (8,603) 27,728 (19,523) 8,205
Tax-exempt
investment
securities. . . . . 624 108 732 2,539 234 2,773 643 (189) 454
Interest-bearing
deposits with
other banks . . . . (79) (24) (103) (387) (192) (579) (588) (579) (1,167)
Federal funds sold
and securities
purchased with
agreement to
resell. . . . . . . (1,176) 398 (778) (2,651) (1,371) (4,022) 871 (2,379) (1,508)
---------------------------------------------------------------------------------------------------------
Total. . . . . . $ 4,334 $ (5,401) $ (1,067) $ 8,537 $(24,494) $(15,957) $ 24,234 $ (34,959) $(10,725)
---------------------------------------------------------------------------------------------------------
Interest Expense:
Demand deposits. . . $ 734 $ (1,422) $ (688) $ 1,938 $ (6,213) $ (4,275) $ 7,982 $ (13,069) $ (5,087)
Savings deposits . . 139 (224) (85) 560 (1,078) (518) 615 (1,623) (1,008)
Time deposits. . . . (1,053) (930) (1,983) (5,973) (10,387) (16,360) 1,526 (25,367) (23,841)
Long-term debt(2). . 183 (156) 27 508 (148) 360 1,011 (l,102) (91)
Other(3) . . . . . . 117 (13) 104 721 (444) 277 258 (2,181) (1,923)
---------------------------------------------------------------------------------------------------------
Total. . . . . . . 120 (2,745) (2,625) (2,246) (18,270) (20,516) 11,392 (43,342) (31,950)
---------------------------------------------------------------------------------------------------------
Net interest
income-FTE* .. . . $ 4,214 $ (2,656) $ 1,558 $ 10,783 $ (6,224) $ 4,559 $ 12,842 $ 8,383 $ 21,225
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
<FN>
1 The change in interest due to both rate and volume has been allocated in
proportion to the relationship of the absolute dollar amounts of the change
in each.
2 Includes interest paid on capital notes and capitalized lease obligations.
3 Federal funds purchased and securities sold under agreement to repurchase
comprise the majority of this category.
</TABLE>
- -------------------------------------------------------------------------------
Analysis of Net Interest Income (Dollars in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
-----------------------------
1993 1992 1991
-----------------------------
<S> <C> <C> <C>
Interest income. . . . . . . . . . . . . . . . . $212,082 $ 229,968 $240,693
Fully taxable equivalent adjustment. . . . . . . 1,929 -- --
----------------------------
Interest income - FTE* . . . . . . . . . . . . . 214,011 229,968 240,693
Interest expense . . . . . . . . . . . . . . . . 79,264 99,780 131,730
-----------------------------
Net interest income - FTE . . . . . . . . . $134,747 $ 130,188 $108,963
-----------------------------
-----------------------------
Yield on earning assets - FTE. . . . . . . . . . 6.74% 7.41% 8.83%
Cost of interest bearing liabilities . . . . . . 2.99 3.75 5.52
Net interest spread-FTE. . . . . . . . . . . . . 3.75 3.66 3.31
Net interest margin-FTE. . . . . . . . . . . . . 4.24 4.19 4.00
<FN>
*Fully Taxable Equivalent
</TABLE>
16
<PAGE>
NET INTEREST INCOME
Both net interest income and the net interest margin improved slightly
during 1993, compared with the prior year. Additional volumes of net earning
assets due to acquisitions and growth contributed approximately 65% or $13.7
million of the $21.2 million increase in net interest income from 1991 to 1992.
The loan to deposit ratio has increased from 50.3% in December 1992 to
53.0% in December 1993, thereby increasing the percentage of loans to total
assets. WBC currently has the largest banks in the northwest and central areas
of the state. Average earning assets increased $70 million in 1993 compared to
1992 and $380 million in 1992 compared to 1991.
Interest rates in the current interest rate cycle peaked in mid-1989 and
have fallen since that time. During this decline in the overall level of
interest rates, the Company's net interest spread narrowed, especially in 1991,
when WBC was affected by deposits acquired from the RTC during the latter part
of 1990. At that time, the Company locked in one to two year rates on
certificates of deposit ("CDs"). As interest rates dropped in 1991, the yield
earned on assets dropped faster than CDs repriced. However, this effect on
spread was mitigated as these CDs matured and were renewed at substantially
lower rates. With a 53.0% loan to deposit ratio at December 31, 1993, the
Company maintains a significant portion of its assets in investment securities
with relatively short maturities which tends to decrease our overall asset
yields.
Interest rate spread increased by 9 basis points (100 basis points equals
one percentage point) from 3.66% in 1992 to 3.75% in 1993. While average earning
asset yields decreased 67 basis points between years, the average cost of
interest bearing liabilities declined 76 basis points, creating the net rate
increase.
Comparing the fourth quarter of 1993 to the fourth quarter of 1992, net
interest income increased $1.6 million. Rate spread decreased 5 basis points
between periods from 3.85% to 3.80%.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company's negative gap increased by $148 million compared to year-end
1992. Most of the change took place in rate sensitive assets ("RSA"), which
declined by $133 million over the past twelve months. Rate sensitive liabilities
("RSL") also increased by $15 million.
The most significant change in RSA occurred in the federal funds sold and
securities purchased under agreement to resell which declined by $103 million.
This is directly related to the Union transaction. Union had a significant
portion of their balance sheet in these assets at December 31, 1992. Since the
completion of that transaction, management redeployed those assets into higher
yielding, longer-term instruments such as securities and loans. Although it
might appear that interest rate exposure has increased, the shifting of these
assets actually reduced the risk of decreased earnings due to falling rates.
Other factors that contributed to the increase in the negative gap were the
continued shifting of customer dollars from fixed maturity accounts, such as
CDs, into transaction accounts and repurchase agreements ("repos"). As interest
rates have declined steadily over the past three years, the difference in rates
between CDs and transaction accounts and repos has narrowed sharply. In January
1991, the spread between the Company's average six-month CD rate and the rate on
a transaction deposit account and a repo was approximately 2.7% and 2.95%,
respectively. That spread has declined to 1.0% for transaction accounts and
0.57% for repos as of December 1993. In response to this change, customers have
decreased holdings of CDs and increased balances of transaction accounts and
short-term borrowings. Customers perceive little incentive to sacrifice
liquidity and extend the maturity of their funds in CDs given this small spread.
One factor that would tend to decrease the negative gap would
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Loan Maturity and Interest Rate Sensitivity on December 31, 1993 (Dollars in thousands)
- ---------------------------------------------------------------------------------------
Remaining Maturities(2)
-------------------------------------------------------
Over 1
1 Year Thru Over 5
or Less 5 Years Years Total
------------------------------------------------------
<S> <C> <C> <C> <C>
Loan Maturity(1):
Commercial, financial and agricultural(3). . . . . . . . . . $ 272,712 $ 139,319 $ 25,041 $ 437,072
Real estate construction . . . . . . . . . . . . . . . . . . 45,890 22,734 4,617 73,241
------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 318,602 $ 162,053 $ 29,658 $ 510,313
------------------------------------------------------
------------------------------------------------------
Interest rates floating or adjustable. . . . . . . . . . . . $ 55,069 $ 12,008
Interest rates fixed or predetermined. . . . . . . . . . . . 106,984 17,650
------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 162,053 $ 29,658
------------------------
------------------------
<FN>
1 Based upon scheduled principal payments.
2 Excluding real estate loans secured by 1-4 family residential
properties and loans for household, family and other personal
expenditures.
3 Includes bankers' acceptances and commercial paper.
</TABLE>
17
<PAGE>
be the representation of maturities on mortgage-backed investment securities,
which represent 34% of total securities. For financial reporting purposes, these
instruments are shown at their stated final maturity. However, these products
are subject to unscheduled payments of principal on the loans underlying the
security. As a result, the average maturity of these instruments is reduced.
This would increase the level of RSA repricing in under one year. Management
attempts to anticipate the possibility of principal prepayments when these
securities are purchased to avoid any unexpected changes in security yields.
Management has analyzed the historical volatility of deposit accounts,
particularly transaction accounts, to determine the risk to earnings posed by
the negative gap. Through this analysis, management has determined that while
these accounts have the option to be repriced immediately, a large percentage of
these instruments are highly stable throughout a wide range of interest rate
cycles. As a result, the gap analysis used by management and the Company's board
of directors is adjusted to account for those instruments, primarily deposits,
with repricing dates that would appear to be more extended than those stated for
that product. Using this approach, the Company's gap position becomes well
balanced. A forecast of changes to earnings under a number of interest rate
scenarios indicates that only a small percentage of the Company's income would
be affected using this adjusted balance sheet position. As interest rates have
changed over the years, the resulting effects on the Company's net interest
margin have confirmed the accuracy of this analysis.
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 6.7% of total liabilities. Securities with repricings in under one
year comprise another 8.2% of the remaining liabilities and would be available
for contingency funding needs.
- --------------------------------------------------------------------------------
Interest Rate Sensitivity Analysis (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1992
December 31, 1993 Total in Total in
0-30 Days 31-90 Days 91-365 Days One Year One Year
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Securities . . . . . . . . . . . . . . . . . . . $ 70,673 $ 68,119 $ 252,716 $ 391,508 $ 413,123
Total loans. . . . . . . . . . . . . . . . . . . 495,427 113,853 362,786 972,066 980,578
Fed funds and repos. . . . . . . . . . . . . . . 82,063 -- -- 82,063 185,416
------------------------------------------------------------------------
Total assets. . . . . . . . . . . . . . . . 648,163 181,972 615,502 1,445,637 1,579,117
-------------------------------------------------------------------------
Transaction accounts . . . . . . . . . . . . . . 1,294,579 -- -- 1,294,579 1,235,674
Time accounts. . . . . . . . . . . . . . . . . . 211,791 265,777 491,769 969,337 1,078,874
Short-term borrowings. . . . . . . . . . . . . . 185,818 -- -- 185,818 118,346
Long-term debt . . . . . . . . . . . . . . . . . 210 170 611 991 2,833
-------------------------------------------------------------------------
Total liabilities . . . . . . . . . . . . . . 1,692,398 265,947 492,380 2,450,725 2,435,727
-------------------------------------------------------------------------
Gap . . . . . . . . . . . . . . . . . . . $ (1,044,235) $ (83,975) $ 123,122 $ (1,005,088) $ (856,610)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
18
<PAGE>
CAPITAL RESOURCES
At December 31, 1992 and prior to the restatement for the Union merger,
capital was $189.6 million. At December 31, 1993 and after the Union merger and
other 1993 effects, capital was $276.6 million, an increase of $87 million or
45.9%. The risk-based capital table presented below sets forth various capital
ratios and reveals that all ratios are substantially above regulatory minimums.
Based on regulations issued by the Federal Deposit Insurance Corporation
("FDIC"), all eleven of WBC's affiliate banks were considered "well
capitalized."
WBC reinstated its dividend policy during the second quarter of 1992 and
began paying $0.05 per share each quarter. Dividends paid out during 1993 were
$3.1 million or approximately 9.7% of net income. The Company continuously
evaluates its dividend policy. In the first quarter of 1994, the WBC board of
directors increased the quarterly dividend to $0.15 per share each quarter for
an annualized rate of $0.60 per share. Based on 1993 net income, this amounts to
a payout ratio of over 29%.
The parent company's sources of cash to pay dividends are its net working
capital and the dividends received from subsidiary banks. Based on the
relatively high levels of capital at the banks and their sustained earnings
performance, a special cash dividend of approximately $16.9 million was taken
from the affiliate banks during the fourth quarter of 1993. Currently, the
parent company could receive dividends, without prior regulatory approval, of
approximately $17.9 million plus amounts equal to net income of the affiliate
banks during 1994.
Capital also increased approximately $6.2 million with the shares issued in
the FirstBank acquisition. Nominal increases also occurred due to the exercise
of stock options by various officers of WBC.
In order to take advantage of low interest rates, in May of 1993, WBC
borrowed $43 million in senior, unsecured fixed rate notes from several
institutional investors. Substantially all (approximately $39.3 million) of the
Company's pre-existing higher cost term-debt was repaid with the proceeds of
these notes.
- -------------------------------------------------------------------------------
Risk-Based Capital (Dollars in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
------------------------------------
1993 1992 1991
------------------------------------
<S> <C> <C> <C>
Stockholders' equity . . . . . . . . . $ 276,648 $ 240,851 $ 190,705
Intangible assets. . . . . . . . . . . (23,080) (18,538) (14,256)
-------------------------------------
Total Tier I capital. . . . . . . . 253,568 222,313 176,449
Allowance for loan losses(1) . . . . . 24,644 23,458 21,665
Capital notes. . . . . . . . . . . . . -- 9,561 10,804
------------------------------------
Total Tier II capital . . . . . . . 24,644 33,019 32,469
------------------------------------
Total qualifying capital. . . . $ 278,212 $ 255,332 $ 208,918
------------------------------------
------------------------------------
Ratios:
Equity to assets . . . . . . . . . . . 7.73% 6.94% 6.07%
Leverage . . . . . . . . . . . . . . 7.13 6.44 5.64
Total capital to adjusted assets (2) . 7.99 7.53 6.91
Risk adjusted assets (including
off-balance sheet exposure). . . . $1,971,522 $1,876,679 $1,733,235
Tier I risk-based capital ratio. . . . 12.86% 11.85% 10.18%
Total risk-based capital ratio
(8.00% required) . . . . . . . . . 14.11 13.61 12.05
------------------------------------
------------------------------------
<FN>
1 Limited to 1.25 percent of risk adjusted assets.
2 Adjusted assets equals total assets plus allowance for loan
losses less intangibles.
</TABLE>
19
<PAGE>
OTHER INCOME
Other income reached $66.6 million in 1993 compared to $57.5 million in
1992. Immediately alter the Union merger, WBC sold securities previously held in
the Union investment portfolio which had characteristics inconsistent with WBC's
asset/liability policy guidelines. These sales produced gains of approximately
$5.4 million. Excluding these gains, other income increased $4.0 million or
almost 7% over 1992. Solid gains were recorded in every reported category.
Worthen Investments, Inc. is the Company's full service and discount
brokerage subsidiary. Commission income increased from $5.3 million in 1992 to
$6.3 million in 1993, a 19.5% increase. Due to the continued high level of stock
market activity, the Company expects the earnings from this enterprise to
continue to grow. The number of sales staff increased from 37 in 1992 to 44 in
1993.
With the merger of Union, Worthen Mortgage Company's mortgage servicing
portfolio grew to almost $1.6 billion at year end. WBC expects to focus more
effort on the profitability of this company during 1994.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
FOURTH QUARTER YEAR ENDED DECEMBER 31
------------------------------------------------------
1993 1992 1993 1992 1991
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts. . . . . . . . . . $ 5,828 $ 5,949 $ 22,915 $ 22,757 $ 18,964
Trust fees . . . . . . . . . . . . . . . . . . . . . . 2,240 2,342 9,772 9,325 8,270
Full service and discount brokerage commissions. . . . 1,549 1,155 6,334 5,299 3,274
Investment security gains. . . . . . . . . . . . . . . 26 48 5,446 283 2,079
Repurchase agreement recoveries, net . . . . . . . . . -- -- 309 -- 794
Other . . . . . . . . . . . . . . . . . . . . . . 5,469 4,260 21,815 19,794 19,969
------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . $ 15,112 $ 13,754 $ 66,591 $ 57,458 $ 53,350
------------------------------------------------------
------------------------------------------------------
</TABLE>
OTHER EXPENSE
Excluding the $9.5 million in non-recurring expenses related to the Union
merger described elsewhere in this report, noninterest expenses fell by $6.5
million or 4.5% in 1993 compared to 1992. Although the effects of the cost
reductions related to the in-market merger with Union are masked in the fourth
quarter by the acquisition of FirstBank, the Company has nevertheless
experienced significant cost savings from the Union merger.
Even after closing 13 overlapping branches resulting from the Union
merger, the Company increased its number of branch offices statewide from 100 in
1992 to 119 at the end of 1993. The expense to maintain this extensive branch
network is significant but is considered vital to the overall corporate
franchise. During 1993, the Company substantially completed the installation of
a new computer system at each of these branch locations to automate the work
performed by our bank tellers. This system is expected to significantly increase
the efficiency of their work. The second phase of this project is to implement
this computer platform to all customer service representatives. This automated
computer network will further increase employee efficiency and allow much better
customer service and is expected to be completed during 1994.
The Company intends to focus increased attention on the level of operating
expenses during 1994 in order to achieve ratios closer to peer levels.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE (Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Fourth Quarter Year Ended December 31
--------------------------- ---------------------------------------------------
%Change %Change
1993 1992 %Change 1993 1992 1991 1993/1992 1992/1991
--------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits . . . . . $ 16,491 $ 16,526 (0.2)% $ 66,834 $ 66,909 $ 58,969 (0.1)% 13.5%
Net occupancy expense. . . . . . . . . . 3,429 3,486 (1.6) 13,783 13,389 13,434 2.9 (0.3)
Equipment expense. . . . . . . . . . . . 1,800 1,453 23.9 6,857 6,650 5,918 3.1 12.4
Professional fees. . . . . . . . . . . . 1,210 2,018 (40.0) 6,570 8,672 8,193 (24.2) 5.8
Data processing fees . . . . . . . . . . 1,941 1,585 22.5 7,252 6,163 5,658 17.7 8.9
Amortization of intangible assets. . . . 1,203 1,482 (18.8) 5,600 4,644 3,619 20.6 28.3
Advertising expense. . . . . . . . . . . 234 645 (63.7) 2,674 3,030 2,683 (11.7) 12.9
Business development . . . . . . . . . . 1,006 1,372 (26.7) 3,571 4,222 3,548 (15.4) 19.0
Office expense . . . . . . . . . . . . . 2,944 2,356 25.0 10,686 9,656 8,984 10.7 7.5
FDIC insurance . . . . . . . . . . . . . 1,748 1,738 0.6 7,028 6,955 5,459 1.0 27.4
Other. . . . . . . . . . . . . . . . . . 3,463 2,522 37.3 16,344 13,860 9,841 17.9 40.8
--------------------------- --------------------------------------------------
Total . . . . . . . . . . . . . . . $ 35,469 $ 35,183 0.8% $147,199 $144,150 $126,306 2.1% 14.1%
--------------------------- --------------------------------------------------
--------------------------- --------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
EARNINGS, DIVIDENDS AND PRICE RANGE PER SHARE
- -------------------------------------------------------------------------------
COMMON
PRIMARY DIVIDENDS MARKET PRICE
-----------------
EARNINGS(1) PAID HIGH LOW
-----------------------------------------
<S> <C> <C> <C> <C>
1993:
First Quarter. . . . . . . . . $ 0.59 $0.05 $27 5/8 $24
Second Quarter . . . . . . . . 0.28 0.05 27 1/2 21 7/8
Third Quarter. . . . . . . . . 0.50 0.05 26 5/8 22 3/4
Fourth Quarter . . . . . . . . 0.55 0.05 25 3/4 20 1/2
----------------------------------------
For the Year 1993. . . . . . $ 1.92 $0.20 $27 5/8 $20 1/2
----------------------------------------
1992:
First Quarter. . . . . . . . . $ 0.43 $ - $22 1/8 $17 5/8
Second Quarter . . . . . . . . 0.57 0.05 21 1/2 19 1/2
Third Quarter. . . . . . . . . 0.49 0.05 22 1/2 20 1/2
Fourth Quarter . . . . . . . . 0.55 0.05 27 3/4 20 1/4
----------------------------------------
For the Year 1992 . . . . . . $ 2.05 $0.15 $27 3/4 $17 5/8
----------------------------------------
1991:
First Quarter. . . . . . . . . $ 0.43 $ - $ 12 3/4 $10 1/8
Second Quarter . . . . . . . . 0.37 - 14 3/4 12 1/2
Third Quarter. . . . . . . . . 0.50 - 17 1/8 13 7/8
Fourth Quarter . . . . . . . . 0.55 0.13 19 1/4 16
----------------------------------------
For the Year 1991 . . . . . . $ 1.86 $0.13 $ 19 1/4 $10 1/8
----------------------------------------
<FN>
(1) Computation based on the average number of shares outstanding. The sum of
the quarterly net income amounts does not necessarily equal the amount reported
for the year, as per share amounts are computed independently for each quarter
and the full year based on respective weighted average common shares
outstanding.
</TABLE>
The Company's Common Stock, $1.00 par value, is traded on the American Stock
Exchange, Inc. under the AMEX ticker symbol "WOR."
On December 31, 1993, the Company had approximately 2,720 record holders of its
Common Stock. The Board of Directors discontinued the Company's policy of
regular cash dividends on its Common Stock in the second quarter of 1985. The
policy was reinstated during the second quarter of 1992. Dividends were paid by
subsidiaries prior to merger with the Company during the years 1989, 1990 and
1991. There is no assurance as to future cash dividends as they are dependent
upon future earnings, capital requirements and the financial condition of the
Company.
The Company is currently restricted from paying cash dividends in excess of
certain levels on its Common Stock pursuant to the terms of debt agreements
entered into by the Company with its primary lenders. See Note Q of the Notes to
Consolidated Financial Statements for a more complete discussion relating to
restrictions on the transfer of funds to the Company through dividends, loans or
advances from its subsidiaries.
EFFECTS OF INFLATION
The Company makes pricing and investment decisions based upon anticipated
changes in the economic environment. These decisions are based upon an
asset/liability management program which seeks to maintain an appropriate
balance between interest sensitive assets and liabilities while aggressively
pricing services within the competitive constraints of the market. While the
effects of inflation cannot be eliminated, the Company has adopted policies
which effectively manage the effects of inflation on its operating results.
21
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
----------------------------------- ------------------------------- -----------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income. . . . . $53,790 $53,221 $52,585 $52,486 $55,400 $57,227 $58,360 $58,98l $60,304 $61,953 $58,685 $59,751
Interest expense . . . . 19,208 19,854 20,038 20,164 21,833 23,848 26,402 27,697 31,982 34,009 31,896 33,843
Net interest
income . . . . . . . . 34,582 33,367 32,547 32,322 33,567 33,379 31,958 31,284 28,322 27,944 26,789 25,908
Provision for
loan losses . . . . . . 849 540 2,466 773 1,058 596 832 363 60 743 1,317 1,239
Repurchase agree-
ment recoveries,
net . . . . . . . . . . -- 119 -- 190 -- -- -- -- -- -- -- 794
Other income . . . . . . 15,112 13,897 21,779 15,494 13,754 13,566 16,040 14,098 14,565 14,892 11,902 11,197
Other expense. . . . . . 35,469 33,631 43,221 34,878 35,183 36,930 35,613 36,424 33,303 32,606 31,013 29,384
Income before
income taxes. . . . . . 13,376 13,212 8,639 12,355 11,080 9,419 11,553 8,595 9,524 9,487 6,361 7,276
Income tax
expense . . . . . . . . 4,074 4,823 4,003 3,300 1,893 1,239 2,015 1,563 969 1,722 586 635
Change in accounting
principle . . . . . . . -- -- -- 868 -- -- -- -- -- -- -- --
Net income . . . . . . . $ 9,302 $ 8,389 $ 4,636 $ 9,923 $ 9,187 $ 8,180 $ 9,538 $ 7,032 $ 8,555 $ 7,765 $ 5,775 $ 6,641
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Net income
per share(1). . . . . . $ 0.55 $ 0.50 $ 0.28 $ 0.59 $ 0.55 $ 0.49 $ 0.57 $ 0.43 $ 0.55 $ 0.50 $ 0.37 $ 0.43
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
<FN>
(1) Computation based on the average number of shares outstanding
</TABLE>
EFFECTS OF RECENTLY ADOPTED ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan." Statement 114 prescribes the recognition criterion
for loan impairment and the measurement methods for certain impaired loans and
loans whose terms are modified in troubled-debt restructurings. Statement 114
prescribes that a loan is impaired when it is probable that a creditor will be
unable to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired loan are required to be discounted at that
loan's effective interest rate. Alternatively, impairment can be measured by
reference to an observable market price, if one exists, or the fair value of the
collateral for a collateral-dependent loan.
Statement 114 must be adopted in 1995. Upon adoption, the impact of
initially applying the Statement will be recorded as a provision for loan losses
as required by Statement 114. Adoption of this standard is expected to have no
material effect on the Company's consolidated financial statements.
Also in May 1993, the FASB issued Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities." Statement 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and all investments in debt securities. The Statement
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 enterprise 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).
Statement 115 must be adopted in 1994. Upon adoption, the Company plans to
transfer a portion of its securities currently accounted for at amortized cost
to the available for sale category with the unrealized holding gain or loss, net
of tax, reported as an adjustment to a separate component of stockholders'
equity. Adoption of this standard is not expected to have a material effect on
the Company's consolidated financial statements.
In February 1992, the FASB issued Statement No. 109, "Accounting for Income
Taxes." Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the 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 applied 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 rates is recognized in income in the period that
includes the enactment date.
The Company adopted Statement 109 during 1993. The cumulative effect of
this change in accounting for income taxes of $868,000 is reported separately in
the consolidated statement of earnings for the year ended December 31, 1993.
22
<PAGE>
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
- -------------------------------------------------------------------------------
The management of Worthen Banking Corporation ("WBC") is responsible for the
integrity and objectivity of the financial statements and other financial
information contained in the Annual Report. The financial statements and related
information were prepared in accordance with generally accepted accounting
principles, based on recorded transactions and management's best judgments and
estimates, in order to set forth a fair presentation of financial position and
results of operations.
WBC and its subsidiaries maintain a system of internal accounting control
designed to provide reasonable assurance that assets are safeguarded and that
the Company's books and records reflect accurately the transactions of the
Company. This system is augmented by written policies, operating procedures, and
a strong program of internal audit and loan review.
The Board of Directors oversees these financial statements through an audit
committee comprised solely of outside directors. The committee meets
periodically with the internal auditors and management to monitor the discharge
of each of its responsibilities. The independent auditors, who are engaged to
express an opinion on the financial statements, meet periodically with and have
free access to the committee, without management present, to discuss control,
audit and financial matters.
KPMG Peat Marwick, certified public accountants, has been engaged to audit the
financial statements of WBC and its subsidiaries. Their report on WBC's
financial statements is set forth below.
Curt Bradbury Andrew T. Melton
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
The Board of Directors and Stockholders
Worthen Banting Corporation:
We have audited the accompanying consolidated balance sheet of Worthen Banking
Corporation and Subsidiaries as of December 31, 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Worthen Banking
Corporation and Subsidiaries at December 31, 1993, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
We previously audited and reported on the consolidated financial statements of
Worthen Banking Corporation and Subsidiaries as of and for the years ended
December 31, 1992 and 1991, prior to their restatement for the 1993 pooling of
interests. The contribution of Worthen Banking Corporation and Subsidiaries to
total assets represented 79% and 78% of the respective restated totals as of
December 31, 1992 and 1991; and, the contribution of Worthen Banking Corporation
and Subsidiaries to net interest income and net income represented 78% and 90%
of the respective restated totals for 1992 and 75% and 80% of the respective
restated totals for 1991. Separate financial statements of the other companies
included in the 1992 and 1991 restated consolidated financial statements were
audited and reported on separately by other auditors. We also audited the
combination of the accompanying consolidated financial statements as of and
for the years ended December 31, 1992 and 1991, after restatement for the 1993
pooling of interests; in our opinion, such consolidated statements have been
properly combined on the basis described in Note B of notes to consolidated
financial statements.
As discussed in Note R to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, in 1993.
KPMG Peat Marwick
Little Rock, Arkansas
February 25, 1994
23
<PAGE>
WORTHEN BANKING CORPORATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31
---------------------------------------
1993 1992 1991
---------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . . $ 187,314 $ 194,819 $ 192,221
Interest bearing deposits with other banks . . . . . . . . . . . . . . . . 1,232 1,243 27,148
Federal funds sold and securities purchased under agreement
to resell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,063 190,958 195,293
Trading account assets . . . . . . . . . . . . . . . . . . . . . . . . . . 65,324 37,462 34,111
Investment securities (market value - $1,459,764, $1,362,415 and
$1,180,605 at December 31, 1993, 1992 and 1991, respectively). . . . . . 1,446,259 1,345,078 1,147,849
Loans, net of unearned interest of $986, $1,775 and $3,293
in 1993, 1992 and 1991, respectively . . . . . . . . . . . . . . . . . . 1,647,019 1,561,135 1,426,687
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . (33,300) (30,145) (30,792)
---------------------------------------
Net Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,613,719 1,530,990 1,395,895
---------------------------------------
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 101,347 98,533 83,863
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,824 70,589 64,668
---------------------------------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,579,082 $3,469,672 $3,141,048
---------------------------------------
---------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing. . . . . . . . . . . . . . . . . . . . . . . . . $ 596,514 $ 546,662 $ 456,555
Interest bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,446,105 2,491,724 2,309,358
---------------------------------------
Total Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 3,042,619 3,038,386 2,765,913
Federal funds purchased and securities sold under agreement
to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,980 101,124 98,154
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 57,838 20,571 26,328
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,438 31,407 31,769
Capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . 1,951 2,146 2,320
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,608 25,626 15,055
Capital notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,561 10,804
---------------------------------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 3,302,434 3,228,821 2,950,343
---------------------------------------
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 17,011,783, 16,707,289 and 15,484,914 in 1993,
1992,and 1991, respectively . . . . . . . . . . . . . . . . . . . . 17,012 16,707 15,485
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 164,438 157,898 141,038
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 95,426 66,311 34,247
Less cost of 8,106, 2,265 and 2,265, respectively, shares of
Common Stock in treasury. . . . . . . . . . . . . . . . . . . . . (228) (65) (65)
---------------------------------------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . 276,648 240,851 190,705
---------------------------------------
Total Liabilities and Stockholders' Equity. . . . . . . . . . . $3,579,082 $3,469,672 $3,141,048
---------------------------------------
---------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
WORTHEN BANKING CORPORATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------
1993 1992 1991
----------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees. . . . . . . . . . . . . . . . . . . . . . . . $ 133,536 $ 139,625 $ 156,334
Investment securities:
Taxable 70,479 79,082 70,877
Tax exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,034 1,627 1,173
---------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,513 80,709 72,050
---------------------------------
Other interest income. . . . . . . . . . . . . . . . . . . . . . . . 5,033 9,634 12,309
---------------------------------
Total Interest Income . . . . . . . . . . . . . . . . . . . . . . . 212,082 229,968 240,693
---------------------------------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,625 92,778 122,714
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . 3,553 3,276 5,199
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 4,086 3,726 3,817
---------------------------------
Total Interest Expense . . . . . . . . . . . . . . . . . . . . . 79,264 99,780 131,730
---------------------------------
Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . 132,818 130,188 108,963
Provision for Loan Losses. . . . . . . . . . . . . . . . . . . . . . . 4,628 2,849 3,359
---------------------------------
Net Interest Income After Provision for Loan Losses . . . . . . . . . 128,190 127,339 105,604
---------------------------------
OTHER INCOME:
Service charges on deposit accounts . . . . . . . . . . . . . . . 22,915 22,757 18,964
Trust fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,772 9,325 8,270
Full service and discount brokerage commissions . . . . . . . . . 6,334 5,299 3,274
Investment security gains . . . . . . . . . . . . . . . . . . . . 5,446 283 2,079
Repurchase agreement recoveries, net. . . . . . . . . . . . . . . 309 -- 794
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,815 19,794 19,969
---------------------------------
Total Other Income. . . . . . . . . . . . . . . . . . . . . . 66,591 57,458 53,350
---------------------------------
OTHER EXPENSE:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . 66,834 66,909 58,969
Net occupancy expense. . . . . . . . . . . . . . . . . . . . . . . . 13,783 13,389 13,434
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,582 63,852 53,903
---------------------------------
Total Other Expense. . . . . . . . . . . . . . . . . . . . . . . 147,199 144,150 126,306
---------------------------------
Income before income taxes and cumulative effect of a change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . 47,582 40,647 32,648
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,200 6,710 3,912
---------------------------------
Income before cumulative effect of a change in accounting principle. . 31,382 33,937 28,736
Cumulative effect of a change in accounting principle . . . . . . . . 868 -- --
---------------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736
---------------------------------
---------------------------------
INCOME PER SHARE:
Income before cumulative effect of a change in accounting principle. $ 1.87 $ 2.05 $ 1.86
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.92 2.05 1.86
Weighted average number of shares outstanding during the year. . . . 16,817,339 16,589,066 15,481,724
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE>
WORTHEN BANKING CORPORATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------
ADDITIONAL COST OF
COMMON PAID-IN RETAINED COMMON STOCK
STOCK CAPITAL EARNINGS IN TREASURY TOTAL
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1990. . . . . . . . . . . $ 15,484 $141,024 $ 7,510 $ (65) $163,953
Net income for the year . . . . . . . . . . . . . -- -- 28,736 -- 28,736
Dividends paid by subsidiaries prior
to merger . . . . . . . . . . . . . . . . . . . -- -- (1,999) -- (1,999)
Common stock issued
Stock Option Plan (1,250 shares). . . . . . . . 1 14 -- -- 15
------------------------------------------------------------
Balances at December 31, 1991. . . . . . . . . . . 15,485 141,038 34,247 (65) 190,705
------------------------------------------------------------
Net income for the year . . . . . . . . . . . . . -- -- 33,937 -- 33,937
Capital contribution resulting
from termination of deferred
compensation agreement. . . . . . . . . . . . . -- 886 -- -- 886
Payment for fractional shares arising
from reverse stock split of subsidiary
stock . . . . . . . . . . . . . . . . . . . . . -- 12 -- -- 12
Cash dividends declared-$0.15 a share . . . . . . -- -- (1,873) -- (1,873)
Common stock issued:
Stock option plan (22,375 shares) . . . . . . . 22 242 -- -- 264
Acquisition of subsidiary (1,200,000 shares). . 1,200 15,720 -- -- 16,920
------------------------------------------------------------
Balances at December 31, 1992. . . . . . . . . . . 16,707 157,898 66,311 (65) 240,851
------------------------------------------------------------
Net income for the year . . . . . . . . . . . . . -- -- 32,250 -- 32,250
Cash dividends declared-$0.20 a share . . . . . -- -- (3,135) -- (3,135)
Acquisition of treasury shares for stock option
plan . . . . . . . . . . . . . . . . . . . . . . -- -- -- (163) (163)
Common stock issued:
Stock option plan (54,311 shares) . . . . . . . 55 591 -- -- 646
Acquisition of subsidiary (250,183 shares). . . 250 5,949 -- -- 6,199
------------------------------------------------------------
Balances at December 31, 1993. . . . . . . . . . . $ 17,012 $164,438 $ 95,426 $ (228) $276,648
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
<PAGE>
WORTHEN BANKING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FlOWS (Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1993 1992 1991
---------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 26,778 26,612 15,732
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . 4,628 2,849 3,359
Writedowns of properties acquired in settlement of loans. . . . . . 420 1,026 825
Loans for resale (trading assets) funded. . . . . . . . . . . . . . (364,240) (199,331) (191,102)
Loans for resale (trading assets) sold . . . . . . . . . . . . . . 336,378 195,980 170,289
Gain on sale of investment securities . . . . . . . . . . . . . . . (5,446) (283) (2,079)
Increase in other assets. . . . . . . . . . . . . . . . . . . . . . (12,425) (5,118) (10,174)
Decrease in other liabilities . . . . . . . . . . . . . . . . . . . (3,987) (353) (7,527)
---------------------------------
Net Cash Provided by Operating Activities . . . . . . . . . . . . 14,356 55,319 8,059
---------------------------------
INVESTING ACTIVITIES
Maturities of investment securities . . . . . . . . . . . . . . . . 828,503 953,547 499,319
Proceeds from sale of investment securities . . . . . . . . . . . . 79,817 47,704 144,475
Purchases of investment securities. . . . . . . . . . . . . . . . . (990,952) (1,136,012) (1,153,187)
Net decrease (increase) in short-term investments . . . . . . . . . 108,906 33,990 (2,057)
Net decrease (increase) in loans. . . . . . . . . . . . . . . . . . (20,335) (3,364) 236,125
Purchases of premises and equipment . . . . . . . . . . . . . . . . (8,464) (8,890) (15,399)
Proceeds from sale of properties acquired in settlement ofloans . . 5,548 5,083 5,767
Purchase of certain assets and deposit liabilities . . . . . . . . -- -- (5,476)
Net cash received (paid) in acquisition of subsidiary . . . . . . . (618) 861 --
Purchase of allowance for loan losses . . . . . . . . . . . . . . . -- -- 873
Purchase of minority interest in subsidiary . . . . . . . . . . . . -- (42) --
---------------------------------
Net Cash Provided (Used) by Investing Activities. . . . . . . . . 2,405 (107,123) (289,560)
---------------------------------
FINANCING ACTIVITIES
Net increase in noninterest bearing deposits. . . . . . . . . . . . 40,858 56,159 64,810
Net increase (decrease) in interest bearing deposits. . . . . . . . (117,892) (3,641) 211,850
Principal payments on long-term borrowings. . . . . . . . . . . . . (29,690) (4,687) (3,920)
Principal payments on capital leases. . . . . . . . . . . . . . . . (195) (174) (218)
Net increase (decrease) in short-term borrowings. . . . . . . . . . 26,142 (5,757) 2,289
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . (3,135) (1,873) (1,999)
Acquisition of treasury shares. . . . . . . . . . . . . . . . . . . (163) -- --
Proceeds from issuance of common stock. . . . . . . . . . . . . . . 646 264 15
Proceeds from long-term borrowings. . . . . . . . . . . . . . . . . 43,000 15,000 --
Net increase (decrease) in federal Rinds purchased and
securities sold under agreement to repurchase. . . . . . . . . . . 25,724 354 (7,546)
Principal payments on capital notes . . . . . . . . . . . . . . . . (9,561) (1,243) --
---------------------------------
Net Cash Provided (Used) by Financing Activities . . . . . . . (24,266) 54,402 265,281
---------------------------------
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . (7,505) 2,598 (16,220)
Cash and Cash Equivalents at beginning of year . . . . . . . . . . 194,819 192,221 208,441
--------------------------------
Cash and Cash Equivalents at end of year. . . . . . . . . . . . . $ 187,314 $ 194,819 $ 192,221
--------------------------------
--------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . $ 82,123 $ 103,587 $ 153,066
Cash paid for income taxes. . . . . . . . . . . . . . . . . . . . $ 17,863 $ 10,862 $ 4,908
--------------------------------
--------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
<PAGE>
WORTHEN BANKING CORPORATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Dollars in thousands)
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1993 1992 1991
------------------------------
<S> <C> <C> <C>
Supplemental schedule of noncash transactions
Fair market value of assets acquired and liabilities assumed
upon acquisition:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,588 $ 16,611 $ -
Federal funds sold and securities purchased under agreement to resell . . . - 3,750
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,590 76,021
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,914 136,446
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . (892) (1,690)
Premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,428 13,964
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,378 11,019
Non-interest bearing deposits . . . . . . . . . . . . . . . . . . . . . . . (8,994) (33,948)
Interest bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . (72,273) (186,007)
Federal funds purchased and securities under agreement to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,132) (2,616)
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,125) -
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,018) (880)
Long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,059) --
-----------------------------
Fair market value of net assets acquired including goodwill . . . . . . . . 10,405 32,670
Loss common stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . (6,199) (16,920)
-----------------------------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,206 15,750
Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,588 16,611
-----------------------------
Net cash received (paid) in
acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . $ (618) $ 861 $ -
-----------------------------
-----------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
WORTHEN BANKING CORPORATION
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Worthen Banking Corporation (The "Company" or "WBC") is a multibank holding
company which offers through its subsidiaries a diversified range of banking and
financial services to retail and commercial customers. The Company's revenues
and net income are derived principally from its bank subsidiaries. WBC is
subject to competition from other financial institutions. The Company is subject
to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities. The financial statements have been
prepared in conformity with generally accepted accounting principles. The
Company's financial statements have been restated to reflect the 1993
acquisition of The Union of Arkansas Corporation using the pooling-of-interests
method of accounting.
CONSOLIDATION: The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
INVESTMENT SECURITIES: Investment securities are stated at cost adjusted for
amortization of premiums and accretion of discounts. The adjusted cost of the
specific security sold is used to compute gain or loss on the sale of investment
securities. It is a policy of the Company that all securities purchased will be
held until the final maturity of the instrument. The Company has both the intent
and the ability to hold securities until their final maturity. No securities are
held for trading purposes. Certain investment securities are sold prior to final
maturity due to risk changes subsequent to initial purchase or for liquidity
needs.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." This statement is effective for fiscal years
beginning after December 15, 1993, with earlier application allowed. The Company
has elected to defer adoption of this statement until January 1, 1994. It is
estimated that adoption of Statement 115 will have no material effect upon the
1994 consolidated financial statements.
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.
REVENUE RECOGNITION: Interest on loans other than installment loans is credited
to operations when earned on the simple interest method. Interest on installment
loans is credited to operations when earned on either the simple interest method
or the sum of the years' digits method, depending on the terms of the loan
agreement. Loans are placed on non-accrual status when, in the opinion of
management, the collection of additional interest is unlikely or a specified
loan meets the criteria for nonaccrual status established by regulatory
authority - when principal or interest is in default for 90 days or more unless
the loans are well-secured and in the process of collection. No interest is
recorded on nonaccrual loans unless principal payments are current, the loan is
well-secured, and cash is received. A loan remains on nonaccrual status until
the loan is current as to payment of both principal and interest and the
borrower demonstrates the ability to remain current on payments.
LEASE FINANCING: In prior years the Company provided equipment financing to its
customers through a variety of lease arrangements. Direct financing leases are
carried at the aggregate of lease payments receivable plus estimated residual
values. Unearned income on direct financing leases is amortized over the lease
terms resulting in an approximately level rate of return.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level management believes is adequate to absorb losses inherent in the loan
portfolio. Management's determination of the adequacy of the allowance is based
on the ongoing evaluation of internally identified problem loans, historical
loan loss experience, current economic conditions, volume, growth and
composition of the loan portfolio, the estimated value of underlying collateral
and other relevant factors.
PREMISES AND EQUIPMENT: Premises and equipment owned by the Company are stated
at cost, less accumulated depreciation and amortization. Premises and equipment
leased by the Company under capital leases are stated at an amount equal to the
present value of the minimum lease payments during the lease term less
accumulated amortization. The provision for depreciation and capital lease
amortization (included in depreciation and amortization expense) is computed
generally by the straight-line method.
PROPERTIES ACQUIRED IN SETTLEMENT OF LOANS: Properties acquired in settlement of
loans, included in Other Assets in the consolidated financial statements,
consist of properties acquired through foreclosure or otherwise in settlement of
debt. These properties are initially recorded at the lower of cost or current
fair value determined by appraisal at foreclosure. Losses arising from the
acquisition of such properties are charged against the allowance for loan
losses. Carrying values are subsequently reduced through a charge to operations
when current appraisals indicate a decline in value. At December 31, 1993, 1992
and 1991, these properties amounted to $4,842,000, $8,076,000 and $8,148,000,
respectively.
29
<PAGE>
EXCESS COSTS OF PURCHASED SUBSIDIARIES: Unamortized costs of purchased
subsidiaries in excess of the fair value of underlying net tangible assets
acquired are included in other assets in the consolidated financial statements
and aggregated $23,080,000, $15,481,000 and $10,813,000 (net of accumulated
amortization of $24,927,000, $23,980,000 and $22,788,000) at December 31, 1993,
1992 and 1991, respectively. A portion of such excess costs was allocated to
values associated with the future earnings potential of acquired deposits and
was being amortized over the estimated life of the deposits, an average of
approximately five years. The cost so identified was $ 162,000, net of
amortization, at December 31, 1991, which became fully amortized during 1992.
The remaining costs (goodwill) are being amortized by the straight-line method
over 15 and 25-year periods for purchases after 1982 and over a 40-year period
for purchases prior to 1983.
INCOME TAXES: In February, the Financial Accounting Standards Board issued
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 the 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 expected to 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 rates is recognized in income in the period
that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that change in the method of accounting for income
taxes in the 1993 consolidated statement of earnings.
The Company previously used the asset and liability method under Statement 96.
Under the asset and liability method of Statement 96, deferred tax assets and
liabilities were recognized for all events that had been recognized in the
financial statements. Under Statement 96, the future tax consequences of
recovering assets or settling liabilities at their financial statement carrying
amounts were considered in calculating deferred taxes. Generally Statement 96
prohibited consideration of any other future events in calculating deferred
taxes.
CASH EQUIVALENTS: For presentation of the Statement of Cash flows, cash
equivalents include cash and amounts due from banks.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards
No. 107, "Disclosure about Fair Value of Financial Instruments" (Statement 107),
requires that the Company disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set forth in the
following notes to the consolidated financial statements. The carrying amounts
for cash and due from banks, interest bearing deposits with other banks and
federal funds sold and securities purchased under agreement to resell
approximate fair value because of their short maturities and they do not present
unanticipated credit concerns. Fair value estimates for other financial
instruments are based on relevant market information and information about
the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Company's
entire holding of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. Fair value estimates are based on existing
on-and-off balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For example, the Company has a
substantial trust operation that contributes net fee income annually. The trust
operation is not considered a financial instrument, and its value has not been
incorporated into the fair value estimates. Other significant assets and
liabilities that are not considered financial assets or liabilities include the
mortgage banking operation, deferred tax benefits, and property, plant and
equipment. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered.
INCOME PER SHARE: Per common share amounts were computed by dividing net income
by the weighted average number of shares outstanding during the period.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform
with the current year presentation. Such reclassifications have no effect on net
earnings for 1992 and 1991.
30
<PAGE>
NOTE B - ACQUISITIONS
On July 1, 1991, Worthen National Bank of Arkansas, Little Rock ("WNBA")
acquired approximately $153 million of certain assets and deposit liabilities
from One National Bank, located in North Little Rock, Arkansas for approximately
$5.3 million in cash.
On July 25, 1991, WNBA and Worthen National Bank of Hot Springs assumed
approximately $0.3 million in assets and $111 million of the deposit
liabilities of three First Savings of Arkansas locations in Little Rock, North
Little Rock and Hot Springs from the Resolution Trust Corporation. The
Company paid a premium of approximately $0.4 million to the Resolution Trust
Corporation.
On January 31, 1992, the Company purchased 100% of the common stock of First
National Bank, Fayetteville, Arkansas from One National BancShares, Inc. for
$15,750,000 in cash and the issuance of 1,200,000 shares of the Company's common
stock. For the year ended December 31, 1991, First National Bank, Fayetteville
reported total assets of $252,237,000, net interest income of $10,587,000 and
net income of $3,279,000. Substantially all the assets and liabilities of First
National Bank, Fayetteville and Worthen National Bank of Northwest Arkansas were
combined as of the date of acquisition. This acquisition was accounted for as a
purchase and the results of operations of the bank are included in the Company's
1992 consolidated financial statements from the date of acquisition. The excess
of the purchase price over the recorded value of the net assets acquired is $5.4
million and is being amortized over 15 years using the straight line method. The
proforma unaudited results of operations for the year ended December 31,
1992, assuming that the acquisition of First National Bank, Fayetteville had
been consummated on January 1, 1992, would have been as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) YEAR ENDED DECEMBER 31
1992
------------------------
<S> <C>
Net interest income $ 131,078
Net income 34,080
Net income per share $ 2.05
</TABLE>
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>
FOUR MONTHS ENDED YEAR ENDED DECEMBER 31
(Dollars in thousands) APRIL 30, 1993 1992 1991
----------------- ----------------------
<S> <C> <C> <C>
Interest Income:
WBC . . . . . . . . . . . . . . . . . . . . . $57,001 $185,351 $189,054
Union . . . . . . . . . . . . . . . . . . . . 12,994 44,617 51,639
------- ---------------------
$69,995 $229,968 $240,693
------- ---------------------
------- ---------------------
Interest Expense:
WBC . . . . . . . . . . . . . . . . . . . . . $22,338 $ 83,408 $107,726
Union . . . . . . . . . . . . . . . . . . . . 4,286 16,372 24,004
------- ---------------------
$26,624 $ 99,780 $131,730
------- ---------------------
------- ---------------------
Net Income:
WBC . . . . . . . . . . . . . . . . . . . . . $11,393 $ 30,607 $ 22,884
Union . . . . . . . . . . . . . . . . . . . . 1,391 3,330 5,852
------- ---------------------
$12,784 $ 33,937 $ 28,736
------- ---------------------
------- ---------------------
</TABLE>
31
<PAGE>
On September 10, 1993, the Company acquired 100% of First Bentonville
Bancshares, Inc., the parent corporation of FirstBank 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, First Bank 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 acquisition. The excess of the purchase price over the recorded
value of the net assets acquired is $8.4 million and is being amortized over 15
years using the straight line method. The proforma results of operations for
1993 and 1992, assuming that the acquisition of FirstBank had been consummated
on January 1, 1992, would have been as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) Year ended December 31
1993 1992
-----------------------
<S> <C> <C>
Net interest income....................... $135,752 $133,014
Net income................................ 31,831 34,742
Net income per share...................... $ 1.89 $ 2.06
</TABLE>
NOTE C - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company's bank subsidiaries are required to maintain reserve balances with
the Federal Reserve Bank. The average amount of those reserve balances for the
year ended December 31, 1993 was approximately $43,576,000.
NOTE D - RELATED PARTIES
The Company and its subsidiaries have granted loans to certain officers,
directors and principal stockholders of the Company and its subsidiaries and to
their associates. The aggregate dollar amount of these loans was $73,079,000,
$67,325,000 and $74,371,000 at December 31, 1993, 1992 and 1991,
respectively. During 1993, $108,273,000 of new loans were made and repayments
totaled $102,519,000. In the opinion of management, related party loans are made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time of comparable transactions with unrelated persons
and do not involve more than normal risk of collectibility.
Transactions with corporations controlled by the Company's principal
stockholders and their various affiliated interests during 1993, 1992 and 1991
included brokerage commissions, marketing and finders fees received by the
Company's investment advisory, full service and discount brokerage services
($6,498,000, $5,210,000 and $2,950,000 in 1993, 1992 and 1991, respectively) net
of commissions retained by the related party ($2,585,000, $2,164,000 and
$1,407,000, in 1993, 1992 and 1991, respectively); payments by the Company for
subscriptions to investment advisory resource services ($154,000, $104,000 and
$79,000 in 1993, 1992 and 1991, respectively); payments to the Company's banking
subsidiaries for the rental of bank premises ($102,000, $98,000 and $96,100 in
1993, 1992 and 1991, respectively); payments by the Company for consulting fees
($726,000 and $191,000 in 1993 and 1991, respectively); payments by the Company
for data processing services ($6,367,000, $5,664,000 and $5,615,000 in 1993,
1992 and 1991, respectively). Payments were made by the Company to entities
controlled by the Company's principal stockholders for the rental of bank
premises ($455,000 in 1993); and the Company received $950,000 from principal
stockholders for the sale of an airplane under the terms of the agreement to
purchase Union.
Additional transactions with related parties included: the purchase of
residences of current and former officers for $299,000, $283,000 and
$494,500 in 1993, 1992 and 1991, respectively, all of which have subsequently
been sold at losses immaterial to the financial statements on a consolidated
basis; insurance premiums paid to a company associated with a member of the
Board of Directors aggregating $1,157,000, $1,040,000 and $1,152,000 in 1993,
1992 and 1991; and payments of principal and interest to entities related to
certain directors and executive officers totaling $68,000 for each year of
1992 and 1991, respectively.
32
<PAGE>
NOTE E - INVESTMENT SECURITIES
Carrying value and fair values of investment securities are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in thousands)
- ------------------------------------------------------------------------------
U.S. TREASURY SECURITIES
AND OBLIGATIONS OF OTHER OBLIGATIONS OF STATES
U.S. GOVERNMENT AGENCIES AND POLITICAL OTHER
AND CORPORATIONS SUBDIVISIONS SECURITIES TOTAL
------------------------ ---------------------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993:
Carrying value. . . . . . . . . . . . . $1,269,077 $97,077 $ 80,105 $ 1,446,459
Unrealized gains. . . . . . . . . . . . 13,226 3,436 287 16,949
Unrealized losses . . . . . . . . . . . (2,876) (554) (14) (3,444)
---------- -------- ------------ ----------- -----------
Fair value. . . . . . . . . . . . . . . $1,279,427 99,959 $ 80,378 $ 1,459,764
-------------------------------------------------------------------------
December 31, 1992:
Carrying value. . . . . . . . . . . . . $1,169,363 $64,288 $ 111,427 $ 1,345,078
Unrealized gains. . . . . . . . . . . . 18,505 2,478 492 21,475
Unrealized losses . . . . . . . . . . . (3,026) (1,085) (27) (4,138)
---------- ------- ------------ ----------- -----------
Fair value. . . . . . . . . . . . . . . $1,184,842 $65,681 $ 111,892 $ 1,362,415
-------------------------------------------------------------------------
December 31, 1991:
Carrying value. . . . . . . . . . . . . $1,000,554 $29,964 $ 117,331 $ 1,147,849
Unrealized gains. . . . . . . . . . . . 31,081 1,956 911 33,948
Unrealized losses . . . . . . . . . . . (383) (25) (784) (1,192)
---------- ------- ------------ ----------- -----------
Fair value. . . . . . . . . . . . . . . $1,031,252 $31,895 $ 117,458 $ 1,180,605
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
Unrealized gains/losses of investment securities by maturity are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
UNDER 1-5 5-10 OVER 10 NO FIXED
1 YEAR YEARS YEARS YEARS MATURITY TOTAL
--------- --------- --------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993:
Carrying value. . . . . . . . . . . . . $ 369,894 $ 678,214 $ 226,397 $165,858 $ 5,896 $1,446,259
Unrealized gains. . . . . . . . . . . . 1,549 9,488 3,386 2,526 -- 16,949
Unrealized losses . . . . . . . . . . . (238) (1,433) (1,445) (328) -- (3,444)
--------- --------- --------- -------- ------- ----------
Fair value. . . . . . . . . . . . . . . $ 371,205 $686,269 $228,338 $168,056 $ 5,896 $ 1,459,764
--------------------------------------------------------------------------------
December 31, 1992:
Carrying value. . . . . . . . . . . . . $407,508 $593,383 $130,650 $208,534 $ 5,003 $ 1,345,078
Unrealized gains. . . . . . . . . . . . 2,033 7,874 5,647 5,921 -- 21,475
Unrealized losses . . . . . . . . . . . (140) (1,804) (1,141) (1,053) -- (4,138)
--------- --------- --------- -------- ------- ----------
Fair value. . . . . . . . . . . . . . . $409,401 $599,453 $135,156 $213,402 $ 5,003 $1,362,415
--------------------------------------------------------------------------------
December 31, 1991:
Carrying value. . . . . . . . . . . . . $365,970 $357,987 $ 114,413 $305,395 $ 4,084 $ 1,147,849
Unrealized gains. . . . . . . . . . . . 5,004 12,924 7,123 8,897 -- 33,948
Unrealized losses . . . . . . . . . . . (186) (255) (420) (331) -- (1,192)
--------- --------- --------- -------- ------- ----------
Fair value. . . . . . . . . . . . . . . $370,788 $370,656 $121,116 $313,961 $ 4,084 $1,180,605
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
The fair value of investment securities, except certain obligations of states
and political subdivisions, is estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers. The
fair value of certain obligations of states and political subdivisions is not
readily available through market sources other than dealer quotations, so fair
value estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the instruments
being valued.
33
<PAGE>
Investment securities with a carrying value of approximately $505,452,000,
$525,783,000 and $409,289,000 were pledged as collateral to secure public
deposits and for other purposes at December 31, 1993, 1992 and 1991,
respectively. There are no investments in securities of issuers other than the
U.S. Government, U. S. Government Agencies or government sponsored enterprises
for which aggregate book value exceeds ten percent of equity capital as of
December 31, 1993. Collateralized mortgage obligations are presented at their
stated, scheduled maturity.
<TABLE>
<CAPTION>
Summary of sales of investment securities:
- -------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales of investment securities .... $ 79,817 $ 47,704 $144,475
Gross gains realized ............................ 5,448 341 2,114
Gross losses realized............................ 2 58 35
---------------------------
---------------------------
</TABLE>
NOTE F - LOAN DISTRIBUTION, ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING LOANS
<TABLE>
<CAPTION>
A summary of loan distribution is as follows:
- -------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial and agricultural...... $ 437,072 $ 398,230 $ 345,782
Bankers' acceptances and commercial paper... -- 86,966 147,073
Real estate mortgage........................ 710,955 635,521 558,872
Real estate construction.................... 73,241 60,074 49,280
Installment and other....................... 425,354 380,572 328,797
Direct lease financing...................... 1,383 1,547 176
Unearned interest........................... (986) (1,775) (3,293)
----------------------------------
Total $1,647,019 $1,561,135 $1,426,687
---------------------------------
---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Summarized below are the transactions in the allowance for loan losses for the years ended December 31:
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1........................................... $ 30,145 $ 30,792 $ 31,242
Allowance of purchased bank at date of acquisition............. 892 1,690 873
Provision for loan losses ..................................... 4,628 2,849 3,359
Net charge-offs:
Chargeoffs.................................................. 6,004 8,422 8,550
Recoveries.................................................. 3,639 3,236 3,868
------------------------------------
Net chargeoffs................................................. (2,365) (5,186) (4,682)
------------------------------------
Balance at December 31......................................... $ 33,300 $ 30,145 $ 30,792
------------------------------------
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The following table presents information concerning the aggregate amount of non-performing loans:
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans1............................................. $ 16,668 $ 18,260 $ 17,675
Accruing loans past due 90 days or more as to interest or
principal payments............................................ 1,363 2,616 5,665
Renegotiated loans............................................. -- -- 699
Interest income that would have been recorded under original terms:
Non-accrual loans ............................................ 1,388 1,999 2,038
Renegotiated loans............................................ -- -- 62
Interest income recorded during that period:
Non-accrual loans......................................... 363 359 293
Renegotiated loans........................................ -- -- 49
<FN>
1 THERE WERE NO SIGNIFICANT COMMITMENTS TO LEND ADDITIONAL FUNDS TO BORROWERS
INCLUDED IN THIS CATEGORY.
</TABLE>
34
<PAGE>
NOTE G - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and land improvements ................................................ $ 15,935 $ 15,213 $ 14,915
Buildings and building improvements ....................................... 97,493 96,803 80,936
Capital building leases ................................................... 3,613 3,682 3,682
Leasehold improvements .................................................... 7,686 4,683 3,804
Furniture, fixtures and equipment ......................................... 51,241 52,084 48,565
Construction in progress .................................................. 2,468 1,941 1,468
Less accumulated depreciation and amortization (including $1,089,
$2,439 and $2,289, in 1993, 1992 and 1991, respectively, related
to capital leases) ...................................................... (77,089) (75,873) (69,507)
----------------------------
Total ................................................................. $101,347 $ 98,533 $ 83,863
----------------------------
----------------------------
</TABLE>
NOTE H - SHORT-TERM BORROWINGS
Short-term borrowings include the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S.Treasury notes ......................................................... $ 57,838 $ 17,205 $ 18,407
Notes payable to unrelated bank ............................................ - 3,366 7,921
----------------------------
Total .................................................................. $ 57,838 $ 20,571 $ 26,328
----------------------------
----------------------------
</TABLE>
NOTE I - LEASES
The Company's subsidiaries lease premises and equipment under agreements which
contain options to renew at various dates for periods ranging from
approximately five to fifty years. The Company and one of its banking
subsidiaries lease premises and equipment from entities related to principal
stockholders and directors of the Company. Rental expense for all operating
leases amounted to $2,835,000, $3,220,000 and $3,131,000 for 1993, 1992 and
1991, respectively. Future minimum payments, by year and in the aggregate,
under the capital leases and non-cancelable operating leases with initial
or remaining terms of one year or more consisted of the following at
December 31, 1993:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(Dollars in thousands)
- -----------------------------------------------------------------------------
Capital Operating
Leases Leases
--------------------
<S> <C> <C>
1994 .................................................... $ 413 $ 1,860
1995 .................................................... 413 1,586
1996 .................................................... 413 1,538
1997 .................................................... 413 1,325
1998 .................................................... 393 1,262
Thereafter .............................................. 732 4,452
--------------------
Total minimum lease payments ............................ 2,777 $ 12,023
--------
--------
Less amounts representing interest 826
-------
Present value of net minimum capital lease payments ..... $ 1,951
-------
-------
</TABLE>
35
<PAGE>
NOTE J - LONG-TERM DEBT AND CAPITAL NOTES
<TABLE>
<CAPTION>
Long-term debt consists of the following:
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Parent company promissory notes:
Payable to several institutional investors with Continental
Bank, N.A., Chicago, Illinois as agent. The three notes
provide for payment of interest only semi-annually with principal
payable at maturity. Maturities are $10 million due in 1998
priced to yield 7.21%, $10 million due in 1999 priced to yield
7.56% and $23 million due in 2000 priced to yield 7.81%. The
terms of the note agreement include certain covenants which
provide, among other things, restrictions relating to various
financial ratios, maintenance of minimum levels of equity,
limitations on the payment of dividends and the incurrence of
additional debt. These notes are unsecured .......................... $ 43,000 $ - $ -
Payable to an unrelated bank (three notes) at interest rates
ranging from the bank's prime lending rate plus 1/2% (6.5%
at December 31, 1992) to 7.84%. All notes were retired in May
1993. The notes were collateralized by certain of the Company's
common stock ownership in its subsidiaries excluding
those pledged below .................................................. - 20,630 7,700
Payable to individuals at an interest rate of 9% in equal annual
installments through 1992 (net of unamortized discount of $47
in 1991 based on imputed interest rate of 13%) collateralized
by Worthen National Bank of Northwest Arkansas common stock........... - - 1,469
Payable to individuals at interest rates ranging from 7% to 10%
in monthly and annual installments through 1994 (net of
unamortized discount of $558 and $692 in 1992 and 1991,
respectively, based on imputed interest rates of 13% and 14%),
collateralized by Worthen National Bank of Batesville common
stock ................................................................ 33 3,919 4,350
Payable to an insurance company at an interest rate of 6.75% in
quarterly installments through 1994 (net of unamortized discount
of $14, $66 and $142 in 1993, 1992 and 1991, respectively,
based on an imputed interest rate of 13%), collateralized by the
Worthen National Bank of Arkansas building (net book value of
$11,052, $11,343 and $11,634 in 1993, 1992 and 1991, respectively) ... 566 1,065 1,503
Other 9 12 15
--------------------------------
Total Parent 43,608 25,626 15,037
Various notes payable by subsidiaries at an interest rate of 10% ......... - - 18
--------------------------------
Total $43,608 $25,626 $15,055
--------------------------------
--------------------------------
Capital notes are unsecured obligations and consist of the following: 1993 1992 1991
--------------------------------
Parent company:
10% due 1995 (net of $220 owned by a subsidiary bank) (retired
October 1993) ........................................................ $ - $ 4,311 $ 4,311
Prime rate due 1999 (retired May 1993) ................................. - 5,000 5,000
Bank subsidiaries:
8-1/4% to 9% Series 1984 through 1992 Subordinated Notes ............... - - 1,243
Prime rate due 2001 (retired May 1993) ................................. - 250 250
--------------------------------
Total ............................................................... $ - $ 9,561 $10,804
--------------------------------
--------------------------------
</TABLE>
Annual maturities of long-term debt for 1994 through 1998 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1994 1995 1996 1997 1998
------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-term debt ......... $604 $ 4 $ - $ - $ 10,000
------------------------------------------
------------------------------------------
</TABLE>
The Company also has an existing line of credit with NationsBank of Texas, N.A.
of $20,000,000. No balance is outstanding at December 31, 1993, on this line of
credit which expires September 1, 1994.
36
<PAGE>
NOTE K - DEPOSITS
The aggregate amounts of time certificates of deposit in denominations
of $100,000 or more at December 31, 1993, 1992 and 1991 were $209,678,000,
$208,990,000 and $206,958,000, respectively. Interest expense on the deposits
was $7,179,000, $9,053,000 and $14,932,000 in 1993, 1992 and 1991, respectively.
The average daily amount of total deposits and rates paid are summarized for the
periods indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits.. $ 556,510 -% $ 506,283 -% $ 401,226 -%
Interest bering demand deposits ..... 1,007,836 2.16 934,298 2.79 715,382 4.36
Savings deposits .................... 242,969 2.32 221,614 2.78 202,982 3.53
Time deposits ....................... 1,210,550 3.65 1,353,314 4.47 1,328,899 6.35
---------- ---------- ----------
Total deposits ................... $3,017,865 $3,015,509 $2,648,489
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE L - STOCK OPTIONS
The Company grants stock options and/or stock appreciation rights under its 1984
stock option plan, as amended, and its 1993 stock option plan to key officers
and employees of the Company and subsidiaries at prices no less than the market
price of the Company's common shares on the date of grant.
Transactions in stock options are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(Number of shares) 1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, January 1 ......... 529,675 378,425 351,754
Granted ........................ 205,850 174,875 135,000
Exercised ...................... (54,311) (22,375) (1,250)
Forfeited or canceled .......... (1,000) (1,250) (107,079)
----------------------------
Outstanding, December 31 ....... 680,214 529,675 378,425
----------------------------
----------------------------
</TABLE>
Generally, stock options are exercisable in specified increments over a nine or
ten year period and expire ten years alter date of grant; certain options become
exercisable immediately upon occurrence of events specified in the grant. The
exercise price may be paid in cash, in already-owned shares, or in a combination
of both. At December 31, 1993, 274,745 options were exercisable at prices from
$8.75 to $24.25 per share; the weighted average price was $10.88.
In 1987, stock appreciation rights for 115,000 shares and an associated grant of
100,000 options were canceled and reissued at a price of $8.75. DurIng 1991, the
expiration of these rights and options was extended an additional five years.
The rights are exercisable only for cash limited to the amount of income tax
incurred by the optionee upon exercise of the options and rights, as determined
by a formula in the grant. The rights are exercisable over a specific period or
within one year of a "taxable event," as defined in the grant. There were new
grants of options totalIng 205,850 during 1993, 174,875 during 1992 and 135,000
during 1991. At December 31, 1993, 115,000 rights were outstanding and
exercisable. Compensation expense of $400,000 and $826,000 was recorded in 1992
and 1991, respectively, for the difference between exercisable stock
appreciation rights and the market price of these instruments. No such
compensation expense was recognized for 1993.
The 1984 pian authorizes grants of options and rights for an aggregate of
750,000 shares. At December 31,1993, options and rights for 181,948 shares were
available to be granted under the 1984 plan. The 1993 plan authorized grants of
options and rights for an aggregate of 500,000 shares. At December 31, 1993,
options and rights for 298,900 shares were available to be granted under the
1993 plan.
37
<PAGE>
NOTE M - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Other expenses include the following components, with no items except as
specified exceeding one percent of total revenue:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Equipment expense ..................... $ 6,857 $ 6,650 $ 5,918
Professional fees ..................... 6,570 8,672 8,193
Data processing fees .................. 7,252 6,163 5,658
Amortization of intangible assets ..... 5,600 4,644 3,619
Advertising expense ................... 2,674 3,030 2,683
Business development .................. 3,571 4,222 3,548
Office expense ........................ 10,686 9,656 8,984
FDIC insurance ........................ 7,028 6,955 5,459
Other ................................. 16,344 13,860 9,841
------------------------------
Total ............................... $66,582 $ 63,852 $ 53,903
------------------------------
------------------------------
</TABLE>
NOTE N - PENSION PLANS
During 1986, the Company instituted a defined contribution savings and profit
sharing plan to replace its defined benefit pension plan, which was terminated
effective December 31, 1985. All employees are eligible to participate in the
defined contribution plan upon attaining a minimum age and period of
employment. The plan allows eligible employees to contribute a portion of their
salaries to the savings plan and obligates the Company to make contributions
equal to fifty percent of matchable compensation, which is the amount of
participants' contributions that are not in excess of six percent of their
annual compensation determined in accordance with the plan. Additionally,
except in certain circumstances, the Company must make an annual contribution
of the Company's common stock or of cash to be used to purchase such stock
equal to ten percent of participants' matchable compensation. The Company's
expense for contributions it made pursuant to the plan was $1,460,000,
$1,374,000 and $945,000 for 1993, 1992 and 1991, respectively.
The amount, if any, of the Company's discretionary contribution made pursuant to
the profit sharing component of the plan is determined annually by the Board of
Directors. In 1993, 1992 and 1991, the Company made discretionary contributions
of $306,000, $229,000 and $193,000, respectively.
NOTE O - REPURCHASE AGREEMENT LOSS/RECOVERY
During 1985, WNBA suffered a loss of $52,147,000 in connection with repurchase
agreements entered into with Bevill, Bresler and Schulman, Inc. and certain of
its affiliates (collectively "BBS") on behalf of a customer. BBS failed to honor
the repurchase agreements and subsequently filed bankruptcy. The Company
collected $20,000,000 initially from the proceeds of a professional liability
insurance policy which was recorded as a reduction of the loss. The Company
entered into an agreement with the insurance carrier whereby 40% of bankruptcy
distribution recoveries received by WNBA net of 40% of WNBA's expenses incurred
in effecting such recoveries would be paid to the carrier. The Company has an
additional agreement whereby approximately 21% of BBS recoveries are paid to a
separate insurance carrier who provided directors' and officers' liability
coverage to the Company.
WNBA received gross recoveries of $783,000 and $2,136,000 in 1993 and 1991,
respectively. Payments and accruals of $474,000 and $1,342,000 in 1993 and 1991,
respectively, were paid to insurance carriers in accordance with the agreements
mentioned above. No gross recoveries were received or payments made during 1992.
The distributions received in 1993 are the final recoveries the Company will
receive in connection with the BBS bankruptcy.
The United States District Court approved an amended agreement in 1988 which
settled all pending shareholder derivative lawsuits arising from, among other
matters, the repurchase agreement loss involving the Company and WNBA. The terms
of the agreement stipulate a number of actions to be taken by the Company in
regards to related party transactions and regulatory compliance among other
matters. Management believes that the Company is in compliance with the terms of
the settlement agreement.
38
<PAGE>
NOTE P - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
Financial instruments with off-balance sheet risk consist of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
CONTRACT OF
NOTIONAL AMOUNTS
----------------------------------
1993 1992 1991
----------------------------------
<S> <C> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit. . . . . . . . . . . . . . . . . . . . . . $552,575 $224,206 $165,950
Standby letters of credit and financial guarantees written. . . . . . . 26,854 13,745 14,912
----------------------------------
----------------------------------
</TABLE>
The financial statements do not reflect various commitments and contingencies,
such as commitments to extend credit, letters of credit, guarantees and
liabilities for assets held in trust, all of which arise in the normal course of
the Company's business. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit and financial guarantees written is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for balance-sheet instruments. Commitments generally have fixed
maturity dates, most of which expire within a year, or other termination clauses
and may require payment of a fee. The terms of standby letters of credit are
generally less than five years. Fees are recognized as income on the
straight-line method over the term of the debt guaranteed. Unearned fee income
was not material at December 31, 1993, 1992 or 1991. Potential losses on standby
letters of credit are provided for in the allowance for loan losses. The amount
and type of collateral obtained upon extension of credit is based upon credit
policy. Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial properties. The
Company has a diversified loan portfolio with no concentrations of credit risk
deemed significant Most of the Company's lending activity is with customers
located within the State of Arkansas and the Austin, Texas area.
The fair value of commitments to extend credit, standby letters of credit and
financial guarantees would be estimated using the fees currently charged for
similar agreements. Due to the insignificance of the fees that would currently
be charged for such agreements and the short term nature of current agreements,
no fair value estimates have been made for financial instruments with
off-balance sheet risk.
In the ordinary course of business, There are various legal proceedings pending
against the Company, 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, alter 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 have no material adverse effect on the consolidated
financial position or future results of operations of the Company.
NOTE Q - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of the bank subsidiaries to
transfer funds to the Company in the form of cash dividends, loans or advances.
The approval of the Office of the Comptroller of the Currency ("OCC") is
required for the Company's national bank subsidiaries to pay dividends in excess
of earnings retained in the current year plus retained net profits with certain
adjustments for the preceding two years.
Under Federal Reserve regulations, the bank subsidiaries are also limited as to
the amount they may loan to The Company, unless such loans are collateralized by
specified obligations. At December 31, 1993, the maximum amour available for
transfer from the banks to the Company in the form of loans approximated 23% of
consolidated equity. Under current Federal Reserve regulations, the subsidiary
banks are limited to the amount they may loan to other affiliates, including the
Company. Loans to a single affiliate may not exceed 10% and loans to all
affiliates may not exceed 20% of the lender's capital, surplus and undivided
profits after adding back the allowance for loan losses.
39
<PAGE>
NOTE R - INCOME TAXES
As discussed in Note A, the Company adopted Statement 109 as of January 1, 1993.
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.
In order to fully realize the deferred tax asset the Company will need to
generate future federal taxable income of approximately $2,500,000. The Company
has federal taxable income and pre-tax book income for the years ended as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable income before NOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,279 $35,407 $30,518
Net operating loss deduction (NOL) . . . . . . . . . . . . . . . . . . . . . . . . . . - - (13,669)
Taxable income after NOL deduction . . . . . . . . . . . . . . . . . . . . . . . . . . 48,279 35,407 16,849
Pre-tax book income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,582 40,647 32,648
</TABLE>
In 1991, the Company utilized the remainder of a NOL carryforward which was
generated in 1985-1987. Based on the Company's historical and current taxable
income before NOL deductions, management believes it is more likely than not
that the Company will generate sufficient future federal taxable income in the
periods in which the existing deductible temporary differences reverse.
Federal and state income taxes (benefit) consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,950 $10,243 $ 7,065
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (750) (3,533) (3,153)
-------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,200 $ 6,710 $ 3,912
-------------------------------
-------------------------------
</TABLE>
The reasons for the difference between tax expense and the amount computed by
applying the statutory federal income tax rate to income before income taxes are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
35% of pre-tax income in 1993 and 34%in 1992 and 1991. . . . . . . . . . . . . . . . . $16,654 $13,820 $11,100
Add (deduct):
Adjustment to deferred tax assets and liabilities for enacted changes in tax rates . (93) -- --
Tax-free interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,328) (892) (727)
Goodwill amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 191 545
Discount accretion on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 216 88 109
Non-deductible acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . 922 429 --
Utilization of previously unrecognized deferred tax assets . . . . . . . . . . . . . -- (4,329) (2,904)
Prior year over accrual to return. . . . . . . . . . . . . . . . . . . . . . . . . . (730) (328) (189)
Refunds of prior year taxes and other miscellaneous adjustments
not previously recorded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,474) --
Utilization of NOL carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (4,328)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 (795) 306
-------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,200 $ 6,710 $ 3,912
-------------------------------
-------------------------------
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the year ended
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Deferred tax expense (exclusive of the effects
of other components listed below) . . . . . . . . . . . . . . . . . . . . . . . . . $(488)
Adjustments to deferred tax assets and liabilities
for enacted changes in tax rates. . . . . . . . . . . . . . . . . . . . . . . . . . (93)
Decrease in beginning-of-the-year balance
of the valuation allowance for deferred tax assets. . . . . . . . . . . . . . . . . (169)
------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(750)
------
------
</TABLE>
40
<PAGE>
For the years ended December 31, 1992 and 1991, deferred income tax benefit
results from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 735 $ (174)
Accelerated depreciation for tax purposes. . . . . . . . . . . . . . . . . . . . . . . (455) 151
Accrued compensation for financial reporting purposes. . . . . . . . . . . . . . . . . 469 (345)
Prepaid expenses for financial reporting purposes. . . . . . . . . . . . . . . . . . . -- --
Amortization of deposit base intangibles . . . . . . . . . . . . . . . . . . . . . . . 597 666
Net income (loss) from other real estate owned transactions. . . . . . . . . . . . . . (39) (14)
Conversion from cash to accrual basis for tax purposes . . . . . . . . . . . . . . . . -- (150)
Utilization of previously unrecognized deferred tax assets . . . . . . . . . . . . . . (4,329) (2,904)
Adjustment to deferred tax assets and liabilities for enacted changes in tax rates . . -- --
Decrease in beginning-of-the-year balance of the valuation allowance for
state deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (511) (383)
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,533) $(3,153)
-------------------
-------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1993:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------
<S> <C>
Deferred tax assets:
Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,326
Other real estate owned due to writedowns not deductible for tax purposes. . . . . . 299
Compensated absences and other accrued benefits due to accrual for financial
reporting purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265
Other assets - unamortized core deposit premiums for tax purposes. . . . . . . . . . 354
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570
-------
Total gross deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . 15,814
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,245
-------
Net deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,569
-------
Deferred tax liabilities:
Premises and equipment, due to differences in depreciation and acquisition basis . . (7,915)
Investment securities due to differences in acquisition basis. . . . . . . . . . . . (1,148)
Prepaid expenses for financial reporting purposes. . . . . . . . . . . . . . . . . . (722)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,118)
-------
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . (10,903)
-------
Net deferred tax assets (included in other assets on balance sheet). . . . . . . . $ 3,666
-------
-------
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
established a valuation allowance for a portion of its state deferred tax
assets. State law prohibits the carryback of NOL's, limits NOL carryforwards to
five years, and historically, the Company has not generated sufficient state
taxable income to warrant full recognition of the deferred tax assets. The
valuation allowance for deferred tax assets as of January 1, 1993 was
$1,414,000. The net change in the total valuation allowance for the year ended
December 31, 1993 was a decrease of $169,000.
At December 31, 1993, 1992 and 1991, the Company had current income taxes
payable of$2,371,000, $3,162,000 and $3, 103,000, respectively, included in
Other Liabilities on the consolidated balance sheets. At December 31, 1992 and
1991, the Company had a net deferred tax asset of $2,444,000 and a net deferred
tax liability of $1,466,000 included in Other Assets and Other Liabilities,
respectively. The Company acquired deferred tax liabilities of $3 96,000 and
deferred tax assets of $377,000 during 1993 and 1992, respectively, in
conjunction with the acquisition of First National Bank, Fayetteville and
FirstBank.
41
<PAGE>
NOTE S - WORTHEN BANKING CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STATEMENTS OF EARNINGS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1993 1992 1991
------------------------------
<S> <C> <C> <C>
INCOME
Dividends from:
Bank subsidiaries(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,864 $ 16,296 $ 10,211
Non-bank subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - -
Service fees from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 4,176 3,822 3,775
Repurchase agreement recovery, insurance reimbursement . . . . . . . . . . . . . . (474) - (1,342)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 641 571
------------------------------
50,013 20,759 13,215
------------------------------
EXPENSES
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 5,561 5,142 4,730
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,761 3,259 3,199
Provisions for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (109) (200) -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,174 5,029 3,532
------------------------------
18,387 13,230 11,461
------------------------------
Income before income taxes(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,626 7,529 1,754
Applicable income tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,161) (7,108) (5,806)
------------------------------
Income before equity in undistributed earnings of subsidiaries . . . . . . . . . . . 35,787 14,637 7,560
Equity in undistributed earnings
Bank subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,566) 18,911 20,894
Non-bank subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,029 389 282
------------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736
------------------------------
------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1993 1992 1991
------------------------------
<S> <C> <C> <C>
ASSETS
Investment in subsidiaries:
Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $274,590 $261,174 $209,269
Non-banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,219 11,821 9,182
------------------------------
292,809 272,995 218,451
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 319 111
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,756 4,006 7,881
Furniture and equipment net of accumulated depreciation. . . . . . . . . . . . . . 2,212 749 725
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,915 8,185 1,488
------------------------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $324,919 $286,254 $228,656
------------------------------
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 2,185 $ 6,775
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,608 25,626 15,037
Capital notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9,531 9,531
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,663 8,061 6,608
------------------------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,271 45,403 37,951
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,648 240,851 190,705
------------------------------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . . $324,919 $286,254 $228,656
------------------------------
------------------------------
<FN>
1 Includes $783,000 and $2,136,000 in 1993 and 1991, respectively, approved by
regulators alter the BBS recoveries (see Note O).
2 Before equity in undistributed earnings of subsidiaries.
</TABLE>
42
<PAGE>
NOTE S - CONTINUED
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1993 1992 1991
------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 1,365 1,034 1,573
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . (109) (200) -
Equity in undistributed earnings of subsidiaries (net of dividends received) . 3,537 (19,300) (21,176)
Decrease (increase) in other assets. . . . . . . . . . . . . . . . . . . . . . (904) (157) 27
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . 2,115 (2,716) (2,414)
Net income tax payments from subsidiaries. . . . . . . . . . . . . . . . . . . 5,972 5,188 9,982
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,161) (7,108) (5,806)
------------------------------
Net Cash Provided by Operating Activities. . . . . . . . . . . . . . . . . 40,065 10,678 10,922
------------------------------
INVESTING ACTIVITIES
Decrease (increase) in short-term investments. . . . . . . . . . . . . . . . . . . (23,750) 3,875 (1,775)
Principal collected on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 187 611
Loans originated or acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . (464) (208) (787)
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . (1,777) (223) (510)
Proceeds from liquidation of subsidiaries. . . . . . . . . . . . . . . . . . . . . - 310 -
Purchase of minority interest in subsidiary. . . . . . . . . . . . . . . . . . . . - (42) -
Cash paid in acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . (4,206) (15,750) -
Additional investment in subsidiaries. . . . . . . . . . . . . . . . . . . . . . . (9,025) (2,751) (950)
------------------------------
Net Cash Used by Investing Activities. . . . . . . . . . . . . . . . . . . . . . (39,099) (14,602) (3,411)
------------------------------
FINANCING ACTIVITIES
Principal payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . (29,690) (4,669) (3,564)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,135) (1,873) (1,999)
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 43,000 15,000 -
Principal payments on capital notes. . . . . . . . . . . . . . . . . . . . . . . . (9,531) - -
Accquisition of treasury shares. . . . . . . . . . . . . . . . . . . . . . . . . . (163) - -
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . 646 264 15
Net repayments on short-term borrowings. . . . . . . . . . . . . . . . . . . . . . (2,185) (4,590) (1,875)
------------------------------
Net Cash Provided (Used) by Financing Activities . . . . . . . . . . . . . . . . (1,058) 4,132 (7,423)
------------------------------
Increase in Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . (92) 208 88
Cash and Cash Equivalents at beginning of year . . . . . . . . . . . . . . . . . . . 319 111 23
------------------------------
Cash and Cash Equivalents at end of year . . . . . . . . . . . . . . . . . . . $ 227 $ 319 $ 111
------------------------------
------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,188 $ 3,101 $ 3,194
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,863 $ 10,862 $ 4,908
------------------------------
------------------------------
Supplemental schedule of non-ash transactions:
Fair market value of net assets acquired in acquisition of subsidiary. . . . . . . . $ 10,405 $ 32,670 $ -
Common stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,199) (16,920) -
------------------------------
Cash paid in acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . $ 4,206 $ 15,750 $ -
------------------------------
------------------------------
</TABLE>
43
<PAGE>
NOTE T - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are the fair value estimates, methods and assumptions for the
Company's financial instruments for which the fair value differs from the
carrying value, except for investment securities which are disclosed in Note E.
See Note P for a discussion of the fair values of financial instruments with
off-balance sheet risk.
LOANS: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, financial and
agricultural, bankers' acceptances and commercial paper; real estate mortgage,
real estate construction, installment and other; and direct lease financing.
Each loan category is further segmented into fixed and variable rate interest
terms and by performing and non-performing (nonaccrual) categories. The fair
value of performing fixed rate loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan. The fair
value of performing variable rate loans is equal to the carrying value of such
loans, due to the regular repricing at market rates. The fair value of
nonperforming loans is based on estimated cash flows discounted using a rate
commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, timing of cash flows, and
discount rates are judgmentally determined using available market and specific
borrower information.
The following table presents carrying values and estimated fair values of loans
at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- ---------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------------------- -----------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural:
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . $ 278,403 $ 275,101 $ 245,400 $ 244,153
Variable rate. . . . . . . . . . . . . . . . . . . . . . . 155,985 155,985 149,879 149,879
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . 2,684 2,233 2,951 2,570
---------- ---------- ---------- ----------
Total commercial, financial and agricultural . . . . . . 437,072 433,319 398,230 396,602
Bankers' acceptances and commercial paper. . . . . . . . . . - - 86,966 86,935
Real estate mortgage:
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . 602,090 592,607 443,104 443,290
Variable rate. . . . . . . . . . . . . . . . . . . . . . . 95,971 95,971 177,705 177,705
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . 12,894 10,732 14,712 12,815
---------- ---------- ---------- ----------
Total real estate mortgage . . . . . . . . . . . . . . . 710,955 699,310 635,521 633,810
Real estate construction:
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . 61,942 61,255 43,817 43,533
Variable rate. . . . . . . . . . . . . . . . . . . . . . . 10,612 10,612 16,097 16,097
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . 687 574 160 139
---------- ---------- ---------- ----------
Total real estate construction . . . . . . . . . . . . . 73,241 72,441 60,074 59,769
Installment and other:
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . 400,525 396,229 339,659 340,369
Variable rate. . . . . . . . . . . . . . . . . . . . . . . 24,636 24,636 40,762 40,762
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . 193 159 151 131
---------- ---------- ---------- ----------
Total installment and other. . . . . . . . . . . . . . . 425,354 421,024 380,572 381,262
Direct lease financing . . . . . . . . . . . . . . . . . . . 1,383 1,381 1,547 1,544
Unearned interest. . . . . . . . . . . . . . . . . . . . . . (986) - (1,775) -
---------- ---------- ---------- ----------
Total loans. . . . . . . . . . . . . . . . . . . . . . . . 1,647,019 1,627,475 1,561,135 1,559,922
Allowance for loan losses. . . . . . . . . . . . . . . . . . (33,300) - (30,145) -
---------- ---------- ---------- ----------
$1,613,719 $1,627,475 $1,530,990 $1,559,922
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
44
<PAGE>
TRADING ACCOUNT ASSETS: The fair value of the Company's trading account assets
is based upon quoted market sources of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued. At
December 31, 1993, the carrying value and estimated fair value of trading
account assets is $65,324,000 and $65,254,000, respectively. At December 31,
1992, the carrying value and estimated fair value of trading account assets is
$37,462,000 and $37,518,000, respectively.
DEPOSITS: The fair value of deposits with no stated maturity, such as demand
deposits and savings, is equal to the carrying value amount payable on demand as
of December 31, 1993 and 1992. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits with similar remaining maturities.
The following table presents the carrying value and estimated fair values of
deposits at December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- ----------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------------------- -------------------------
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits . . . . . . . . $ 596,514 $ 596,514 $ 546,662 $ 546,662
Interest bearing demand deposits . . . . . . . . . . 1,040,117 1,040,117 959,497 959,497
Savings deposits . . . . . . . . . . . . . . . . . . 256,436 256,436 311,351 311,351
Time deposits:
Maturing in six months or less . . . . . . . . . . 355,289 351,725 851,402 852,684
Maturing between six months and one year . . . . . 336,712 338,441 210,830 212,156
Maturing beyond one year . . . . . . . . . . . . . 457,551 461,971 158,644 162,613
---------- ---------- ---------- ----------
$3,042,619 $3,045,204 $3,038,386 $3,044,963
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
LONG-TERM DEBT, CAPITAL NOTES AND CAPITAL LEASE OBLIGATIONS: The fair value of
the Company's long-term debt, capital notes and capital lease obligations is
based on the discounted value of contractual cash flows. The discounted rate is
estimated using the Company's current borrowing rate for debt of comparable
maturity. The following table presents the carrying value and estimated fair
values at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- ---------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------------------- -------------------------
<S> <C> <C> <C> <C>
Long-term debt . . . . . . . . . . . . . . . . . . . $ 43,608 $ 44,623 $ 25,626 $ 26,729
Capital notes. . . . . . . . . . . . . . . . . . . . -- -- 9,561 9,972
Capital lease obligations. . . . . . . . . . . . . . 1,951 2,005 2,146 2,182
---------- ---------- ---------- ----------
$ 45,559 $ 46,628 $ 37,333 $ 38,883
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE U - REGULATORY MATTERS
On March 31, 1993, the Company was notified by the Board of Governors of the
Federal Reserve System ("FED") that its approval of the Company's application to
merge with The Union of Arkansas Corporation was given in reliance upon
representations and commitments made to the FED by the Company, Stephens Group,
Inc., and certain Stephens family members in connection with the application,
including representations and commitments to the effect that Stephens Group,
Inc., and its subsidiaries do not and will not exert control over the management
or policies of the Company, and that Stephens Group, Inc., and its subsidiaries
will comply with the restrictions imposed by Sections 23A and 23B of the Federal
Reserve Act, as amended, in connection with any business transacted between
subsidiary banks of the Company and Stephens Group, Inc. Management does not
believe that any of such regulations have been violated and management of the
Company believes that such representations and commitments will not
significantly affect the general business policies or financial performance of
the Company.
In addition, the FED notified the Company in March of 1993 that the Board has
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
tephens Group, Inc., and its subsidiaries. The Company is cooperating with the
FED in this investigation. However, the Company cannot accurately predict the
results of the final outcome of the investigation.
45
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
ENTITY JURISDICTION OWNERSHIP
<S> <C> <C>
Worthen National Bank of Arkansas, Little Rock United States 100.0%
Worthen Investments, Inc. (1) Arkansas 100.0%
Worthen Mortgage Company (1) Arkansas 100.0%
The Union Modern Mortgage Corporation(1) Arkansas 100.0%
U. N. Service Corporation(1) Arkansas 100.0%
Worthen National Bank of Batesville United States 100.0%
Worthen National Bank of Conway United States 100.0%
Worthen National Bank of Harrison United States 100.0%
Worthen National Bank of Hot Springs United States 100.0%
WHS Appraisal Corp. (1) Arkansas 100.0%
Worthen National Bank of Newark United States 100.0%
Worthen National Bank of Pine Bluff United States 100.0%
Worthen National Bank of Russellville United States 100.0%
Worthen National Bank of South Arkansas United States 100.0%
Worthen National Bank of Northwest Arkansas United States 100.0%
Worthen National Bank of Texas Texas 100.0%
Consumers Protective Life Insurance Company Arkansas 100.0%
National Credit Corporation, an Industrial Loan Institution Arkansas 98.8%
Worthen Development Corporation, Inc. Arkansas 100.0%
Worthen Financial Corporation Arkansas 100.0%
Worthen Services Corporation Arkansas 100.0%
Worthen Trust Company, Inc. Arkansas 100.0%
<FN>
(1) Subsidiary of the bank listed immediately above.
</TABLE>
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
WORTHEN BANKING CORPORATION
We consent to the incorporation by reference in Registration Statement Numbers
33-7733 as amended, 33-68212, 33-68214, 33-68216 and 33-68210 on Forms S-8, of
Worthen Banking Corporation of our report dated February 25, 1994, relating to
the consolidated balance sheet of Worthen Banking Corporation and Subsidiaries
as of December 31, 1993 and the related consolidated statements of earnings,
stockholders' equity and cash flows and related schedule for the year then
ended which report appears in the December 31, 1993 Annual Report on
Form 10-K of Worthen Banking Corporation.
/s/ KPMG Peat Marwick
---------------------------
KPMG PEAT MARWICK
Little Rock, Arkansas
March 30, 1994
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
WORTHEN BANKING CORPORATION
We consent to the incorporation by reference in Registration Statement Numbers
33-7733, as amended, 33-68212, 33-68214, 33-68216 and 33-68210 on Forms S-8 of
Worthen Banking of our report dated January 22, 1993, relating to the
consolidated balance sheets of The Union of Arkansas Corporation and
Subsidiaries as of December 31, 1992 and 1991 and the related consolidated
statements of income, retained earnings and cash flows for the years then ended
(not presented separately herein) which report appears in the December 31, 1993
Annual Report on Form 10-K of Worthen Banking Corporation.
/s/ Frost & Company
---------------------------
FROST AND COMPANY
Little Rock, Arkansas
March 30, 1994
<PAGE>
EXHIBIT 99
INDEPENDENT AUDITOR'S REPORT
Board of Directors
The Union of Arkansas Corporation
Little Rock, Arkansas
We have audited the consolidated and parent only balance sheets of The
Union of Arkansas Corporation as of December 31, 1992 and 1991, and the
related consolidated and parent only statements of income, retained
earnings and cash flows for the years then ended (not presented
separately herein). These consolidated and parent only financial
statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on the consolidated and
parent only financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated and parent only financial
statements are free of material misstatement. An audit Includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
and parent only financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated and parent only financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated and parent only financial statements
referred to above present fairly, in all material respects, the consolidated and
parent only financial position of The Union of Arkansas Corporation as of
December 31, 1992 and 1991, and the consolidated and parent only results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Frost & Company
------------------------------
FROST & COMPANY
Little Rock, Arkansas
January 22, 1993
<PAGE> 1
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.
20
<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)
21
<PAGE> 1
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: June 30, 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 July 31, 1994,
17,032,289 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
JUNE 30, 1994
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
ITEM 1. Financial Statements (Unaudited)
<S> <C>
Consolidated Balance Sheets - 3
June 30, 1994 and 1993 and
December 31, 1993
Consolidated Statements of Earnings - 4
Three Months and Six Months Ended June 30, 1994
and 1993
Consolidated Statements of Cash Flows - 5
Six Months Ended June 30, 1994 and 1993
Notes to Consolidated Financial Statements - 7
June 30, 1994
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
<CAPTION>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 22
ITEM 6. Exhibits and Reports on Form 8-K 22
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data) JUNE 30 DECEMBER 31 JUNE 30
1994 1993 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash and due from banks................................. $ 224,425 $ 187,314 $ 152,223
Interest bearing deposits with other banks.............. 941 1,232 798
Federal funds sold and securities purchased
under agreements to resell............................ 42,300 82,063 230,463
Mortgage warehouse loans held for sale.................. 26,943 65,324 66,520
Investment securities available for sale................ 157,845 --- ---
Investment securities held to maturity (market value -
$1,128,327, $1,459,764 and $1,357,331, respectively).. 1,140,717 1,446,259 1,346,490
Loans, net of unearned interest of $677, $986
and $1,368, respectively.............................. 1,782,598 1,647,019 1,527,225
Less: Allowance for loan losses...................... (33,541) (33,300) (33,714)
---------- ---------- ----------
Total Loans, Net........................................ 1,749,057 1,613,719 1,493,511
---------- ---------- ----------
Premises and equipment.................................. 96,207 101,347 98,945
Other assets............................................ 88,399 81,824 84,804
---------- ---------- ----------
Total Assets........................................ $3,526,834 $3,579,082 $3,473,754
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing.................................. $ 580,268 $ 596,514 $ 559,537
Interest bearing...................................... 2,388,152 2,446,105 2,391,372
---------- ---------- ----------
Total Deposits...................................... 2,968,420 3,042,619 2,950,909
Federal funds purchased and securities sold
under agreement to repurchase......................... 140,767 127,980 115,108
Short-term borrowings................................... 39,616 57,838 63,102
Other liabilities....................................... 39,797 28,438 40,214
Capital lease obligations............................... 1,850 1,951 2,052
Long-term debt.......................................... 43,035 43,608 43,391
Capital notes........................................... --- --- 4,561
---------- ---------- ----------
Total Liabilities................................... 3,233,485 3,302,434 3,219,337
---------- ---------- ----------
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 17,044,895, 17,011,783 and
16,756,600, respectively............................. 17,045 17,012 16,757
Additional paid-in capital............................. 164,770 164,438 158,405
Retained earnings...................................... 114,153 95,426 79,424
Less cost of 12,606, 8,106 and 6,515
shares of common stock in treasury, respectively..... (329) (228) (169)
Unrealized valuation on available for sale securities.. (2,290) --- ---
---------- ---------- ----------
Total Stockholders' Equity........................... 293,349 276,648 254,417
---------- ---------- ----------
Total Liabilities and Stockholders' Equity........... $3,526,834 $3,579,082 $3,473,754
========== ========== ==========
</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) (UNAUDITED)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
1994 1993 1994 1993
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees................................. $ 36,296 $ 32,680 $ 70,505 $ 64,670
Investment securities:
Available for sale.................................. 2,973 --- 4,609 ---
Taxable............................................. 13,455 17,650 28,302 36,272
Tax-exempt.......................................... 979 711 1,955 1,330
----------- ----------- ----------- -----------
Total............................................. 17,407 18,361 34,866 37,602
Other interest income................................. 646 1,544 1,499 2,799
----------- ----------- ----------- -----------
Total Interest Income............................. 54,349 52,585 106,870 105,071
Interest Expense:
Deposits.............................................. 16,521 17,920 32,567 36,497
Short-term borrowings................................. 1,114 799 2,032 1,573
Long-term borrowings.................................. 916 1,319 1,866 2,132
----------- ----------- ----------- -----------
Total Interest Expense............................ 18,551 20,038 36,465 40,202
----------- ----------- ----------- -----------
Net Interest Income..................................... 35,798 32,547 70,405 64,869
Provision for Loan Losses............................... 368 2,466 753 3,239
----------- ----------- ----------- -----------
Net Interest Income after Provision for Loan Losses..... 35,430 30,081 69,652 61,630
----------- ----------- ----------- -----------
Other Income:
Service charges on deposit accounts................... 5,929 5,905 11,527 11,419
Trust fees............................................ 2,483 2,364 4,990 5,205
Full service and discount brokerage commissions....... 1,414 1,639 2,793 3,244
Investment security gains (losses).................... (3) 5,345 (3) 5,354
Net gains on disposal of premises and equipment
and other assets..................................... 5,067 401 5,169 1,284
Other................................................. 5,683 6,125 10,818 10,957
----------- ----------- ----------- -----------
Total Other Income................................ 20,573 21,779 35,294 37,463
----------- ----------- ----------- -----------
Other Expense:
Salaries and employee benefits........................ 15,429 17,182 30,884 34,131
Net occupancy expense................................. 3,020 3,477 6,095 6,933
Other................................................. 15,751 22,562 30,299 37,035
----------- ----------- ----------- -----------
Total Other Expense............................... 34,200 43,221 67,278 78,099
----------- ----------- ----------- -----------
Income before taxes and cumulative effect
of a change in accounting principle................. 21,803 8,639 37,668 20,994
Income taxes............................................ 8,135 4,003 13,839 7,303
----------- ----------- ----------- -----------
Income before cumulative effect of a change
in accounting principle............................. 13,668 4,636 23,829 13,691
Cumulative effect of a change in accounting principle... --- --- --- 868
----------- ----------- ----------- -----------
Net Income.............................................. $ 13,668 $ 4,636 $ 23,829 $ 14,559
=========== =========== =========== ===========
Income per share:
Income before cumulative effect of a change
in accounting principle............................. $0.80 $0.28 $1.40 $0.82
Net Income.............................................. 0.80 0.28 1.40 0.87
Weighted average number of shares outstanding........... 17,021,450 16,744,680 17,013,087 16,727,288
</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)
SIX MONTHS ENDED JUNE 30
1994 1993
------------------------
<S> <C> <C>
Operating Activities:
Net Income......................................................... $ 23,829 $ 14,559
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of premises and equipment.......... 4,199 4,087
Amortization of discount on long-term debt....................... 10 590
Amortization of intangibles...................................... 2,159 3,317
Net amortization of premiums and accretion of discounts.......... 6,342 5,202
Provision for loan losses........................................ 753 3,239
Writedowns on properties acquired in settlement of loans......... 109 309
Mortgage warehouse loans funded.................................. (133,995) (151,081)
Mortgage warehouse loans sold.................................... 172,376 122,023
Loss (gain) on sale of investment securities..................... 3 (5,354)
Net gain on disposal of premises and equipment and other assets.. (5,169) (1,284)
Decrease (increase) in other assets.............................. (12,104) (20,331)
Increase in other liabilities.................................... 11,367 8,807
--------- ---------
Net Cash Provided (Used) by Operating Activities............. 69,879 (15,917)
--------- ---------
Investing Activities:
Proceeds from maturities of:
Held to maturity ("HTM") securities............................. 323,458 366,203
Available for sale ("AFS") securities.......................... 60,420 ---
Proceeds from sale of:
HTM securities.................................................. 3 38,024
AFS securities.................................................. 9 ---
Premises and equipment.......................................... 10,774 ---
Properties acquired in settlement of loans...................... 4,642 3,774
Payments for purchase of:
HTM securities.................................................. (232,521) (405,487)
AFS securities.................................................. (12,307) ---
Premises and equipment.......................................... (6,079) (4,499)
Net (increase) decrease in short-term investments................. 40,054 (39,060)
Net (increase) decrease in loans.................................. (136,091) 34,240
Branch sale, including cash and cash equivalents sold............. (1,302) ---
--------- ---------
Net Cash Provided (Used) by Investing Activities............. 51,060 (6,805)
--------- ---------
</TABLE>
5
<PAGE>
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JUNE 30
1994 1993
----------------------------
<S> <C> <C>
Financing Activities:
Proceeds from:
Long-term debt..................................... $ --- $ 43,000
Issuance of common stock........................... 365 453
Payments for:
Long-term debt..................................... (583) (25,825)
Capital lease obligations.......................... (101) (94)
Capital notes...................................... --- (5,000)
Cash dividends..................................... (5,102) (1,446)
Repurchase of common stock......................... (101) ---
Net increase (decrease) in:
Non-interest bearing deposits...................... (16,181) 12,875
Interest bearing deposits.......................... (56,690) (100,352)
Short-term borrowings.............................. (18,222) 42,531
Federal funds purchased............................ 12,787 13,984
-------- ---------
Net Cash Provided (Used) by Financing Activities. (83,828) (19,874)
-------- ---------
Increase (Decrease) in Cash and Cash Equivalents....... 37,111 (42,596)
Cash and Cash Equivalents at beginning of period....... 187,314 194,819
-------- ---------
Cash and Cash Equivalents at end of period........... $224,425 $ 152,223
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................. $ 36,356 $ 39,959
Income taxes......................................... 11,598 10,182
======== =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 and six month period ended June 30, 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").
NOTE 2 - LOAN PORTFOLIO BY TYPE
<TABLE>
<CAPTION>
A summary of the loan portfolio by type is as follows:
(Dollars in thousands)
JUNE 30 DECEMBER 31 JUNE 30
1994 1993 1993
------------ ------------ ------------
<S> <C> <C> <C>
Commercial, financial and agricultural..... $ 472,084 $ 437,072 $ 399,794
Bankers' acceptances and commercial paper.. --- --- 27,345
Real estate mortgage....................... 725,456 710,955 643,406
Real estate construction................... 93,461 73,241 59,388
Installment and other...................... 491,083 425,304 397,000
Direct lease financing..................... 1,141 1,383 1,610
Foreign.................................... 50 50 50
Unearned interest.......................... (677) (986) (1,368)
---------- ---------- ----------
Total.................................... $1,782,598 $1,647,019 $1,527,225
========== ========== ==========
</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 SIX
MONTHS ENDED MONTHS ENDED
JUNE 30 JUNE 30
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Equipment expense....... $ 1,857 $ 1,652 $ 3,519 $ 3,349
Professional fees....... 1,428 2,349 2,874 4,065
Data processing fees.... 1,938 1,905 3,895 3,476
Amortization............ 1,047 2,401 2,159 3,317
Advertising............. 647 1,117 1,357 1,755
Business development.... 776 949 1,364 1,821
Office expense.......... 2,467 2,551 4,993 5,059
FDIC insurance.......... 1,757 1,708 3,507 3,559
Other................... 3,834 7,930 6,631 10,634
------- ------- ------- -------
Total.............. $15,751 $22,562 $30,299 $37,035
======= ======= ======= =======
</TABLE>
7
<PAGE>
NOTE 4 - 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.
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.
NOTE 5 - 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 6 - 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 $1,990,000 during the second quarter of
1994 to a net unrealized loss of $2,290,000 as of June 30, 1994. The Company
has no securities deemed to be trading securities.
8
<PAGE>
NOTE 7 - MORTGAGE WAREHOUSE LOANS HELD FOR SALE
Mortgage warehouse loans held for sale consist solely of real estate loans held
for resale by the Company's mortgage banking subsidiary. Mortgage warehouse
loans held for sale are valued at the lower of cost or market on an aggregate
basis.
NOTE 8 - INTANGIBLE ASSETS
A summary of intangible assets (net of accumulated amortization) is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31 JUNE 30
1994 1993 1993
-------- ----------- --------
<S> <C> <C> <C>
Goodwill............................. $22,157 $23,080 $15,522
Purchased mortgage servicing rights.. 5,488 4,762 5,704
------- ------- -------
Total.............................. $27,645 $27,842 $21,226
======= ======= =======
</TABLE>
Intangible assets are included in other assets in the consolidated financial
statements. During 1993, goodwill increased approximately $8.4 million due to
the acquisition of First Bentonville Bancshares, Inc. In January 1994, the
Company's mortgage banking subsidiary acquired $1.7 million in mortgage
servicing rights.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HIGHLIGHTS
Net income for the second quarter of 1994 was $13.7 million or $0.80 per common
share as compared to net income of $4.6 million or $0.28 per common share for
the second quarter of 1993. The 1994 second quarter results include
nonrecurring income, gains on the sale of a foreclosed property and the former
Union headquarters building, approximating $0.16 per share after tax. Excluding
this nonrecurring income, net income would have been $0.64 per common share for
the second quarter of 1994. During the second quarter of 1993, the Company
recorded net nonrecurring items, approximating $0.19 per share after tax,
related to the Union merger. Excluding these nonrecurring items, last year's
second quarter net income would have been $0.47 per share. Omitting all
nonrecurring items, 1994 second quarter net income is approximately 36% higher
than the second quarter of 1993.
The Company's net income for the first six months of 1994 of $23.8 million was
63% higher than the $14.6 of income recorded in the same period of last year.
Omitting all nonrecurring items, the 1994 year to date net income is 16% higher
than the same period in 1993. The improvement in 1994's first six months as
compared to the first six months 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 increased to 4.55% in the
second quarter of 1994 and was the result of an increase in net earning assets,
growth of higher yielding loans and close monitoring of rates paid on deposits.
Loan growth was strong with an annualized growth rate of over 26% for the
quarter and 16.5% for the six month period. Nonperforming assets declined to
1.02% of loans.
Income taxes recorded in the second quarter of 1993 were $4.0 million or an
effective tax rate of 46.3% compared to $8.1 million or an effective tax rate of
37.3% in the second quarter of 1994. The higher effective tax rate for the
second quarter of 1993 was due to a significant amount of acquisition costs
incurred during the quarter which were nondeductible for tax purposes.
Nonrecurring items were recorded in both the second quarter of 1993 and 1994.
During the second quarter of 1994, nonrecurring income of $4.9 million was
recorded representing gains on the sale of a foreclosed shopping center and the
former Union headquarters building. In 1993, as a result of the Union merger,
the Company recorded approximately $11.0 million of pre-tax nonrecurring
expenses during the second quarter of 1993.
Jim G. Farmer joined the executive management team of Worthen Banking
Corporation as president and chief operating officer of the Company in June,
1994. Prior to joining the Company, Farmer was president and CEO of two private
sector St. Louis-based companies, and previously served as an executive vice
president for Mark Twain Bancshares, a $2.5 billion banking organization. The
hiring of Farmer completes the senior management team of Andrew T. Melton,
executive vice president, treasurer and chief financial officer, Jim Patridge,
executive vice president and senior credit officer, and Gary Smith, executive
vice president. Another change in management during the second quarter was the
resignation of Jack Fleischauer, Jr. as president and chief operating officer of
Worthen National Bank of Arkansas ("WNBA"), the Company's largest banking
subsidiary. Curtis F. Bradbury, chairman of the board, and chief executive
officer of the Company will remain chairman and chief executive officer of WNBA.
Mr. Bradbury has served as chairman of the board of WNBA since August, 1988 and
as chief executive officer of WNBA since September, 1989. He will continue to
serve as chairman of the board and chief executive officer of the Company.
The price of Worthen's common stock rose 39% during the quarter from a closing
price of $21 at March 31, 1994 to $29 1/8 at June 30, 1994, amid speculation
regarding changes in management and a possible business combination. The
Company is engaged in a comprehensive evaluation of its various strategic
alternatives in an effort to determine which are in the best interests of the
Company and its shareholders. This evaluation is being conducted through a
methodical process which involves a comprehensive evaluation of possible
strategic alternatives for Worthen, including the alternative of remaining an
independent company. PaineWebber Incorporated has been engaged to assist with
the Company's review of these strategic alternatives. No decision has been made
to change Worthen's strategy of building long-range value for its shareholders
by working to achieve improvements in expense control, efficiency of operations
and profitability.
10
<PAGE>
<TABLE>
<CAPTION>
OPERATIONS SUMMARY THREE SIX
(Dollars in thousands) MONTHS ENDED MONTHS ENDED
JUNE 30 JUNE 30
1994 1993 1994 1993
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Net interest income.................................... $35,798 $32,547 $70,405 $64,869
Provision for loan losses.............................. 368 2,466 753 3,239
------- ------- ------- -------
Net interest income after provision for loan losses.... 35,430 30,081 69,652 61,630
Other income........................................... 20,573 21,779 35,294 37,463
Other expense.......................................... 34,200 43,221 67,278 78,099
------- ------- ------- -------
Income before taxes and cumulative effect of a change
in accounting principle.............................. 21,803 8,639 37,668 20,994
Income taxes........................................... 8,135 4,003 13,839 7,303
------- ------- ------- -------
Income before cumulative effect of a change in
accounting principle................................. 13,668 4,636 23,829 13,691
Cumulative effect of a change in accounting principle.. --- --- --- 868
------- ------- ------- -------
Net income............................................. $13,668 $ 4,636 $23,829 $14,559
======= ======= ======= =======
PERFORMANCE RATIOS
Net income to:
Average assets....................................... 1.55% 0.54% 1.36% 0.85%
Average stockholders' equity......................... 19.02 7.32 16.86 11.76
Net overhead to average assets......................... 1.54 2.48 1.82 2.38
</TABLE>
LOAN PORTFOLIO BY TYPE
The composition of the Company's loan portfolio is presented in the following
table:
<TABLE>
<CAPTION>
(Dollars in thousands)
JUNE 30 DECEMBER 31 JUNE 30
1994 1993 1993
------------ ------------ ------------
<S> <C> <C> <C>
Commercial, financial and agricultural..... $ 472,084 $ 437,072 $ 399,794
Bankers' acceptances and commercial paper.. --- --- 27,345
Real estate mortgage....................... 725,456 710,955 643,406
Real estate construction................... 93,461 73,241 59,388
Installment and other...................... 491,083 425,304 397,000
Direct lease financing..................... 1,141 1,383 1,610
Foreign.................................... 50 50 50
Unearned interest.......................... (677) (986) (1,368)
---------- ---------- ----------
Total................................. $1,782,598 $1,647,019 $1,527,225
========== ========== ==========
</TABLE>
The Company experienced unusually high loan growth in the second quarter,
especially in consumer loans. The quarterly growth of $108.4 million represents
an annualized growth rate of almost 26%, significantly higher than expected for
1994. The Company does not expect the growth rate to be sustained at levels
this high. For the first six months of 1994, loans have increased by $135.6
million or 16.5% on an annualized basis. Growth in the consumer, commercial and
real estate components was $65.8 million, $35.0 million and $34.7 million for
the first six months of 1994.
The consumer loan growth is the result of strong automobile sales in Arkansas
and a concerted marketing effort that targeted the indirect lending market.
Throughout the first half of 1994, relationships with several new customers were
established which produced significant new volume for the Little Rock affiliate.
At June 30, 1994 automobile loans totaled $288 million or approximately 58% of
the consumer loan outstandings, predominantly originated through the indirect
lending program.
11
<PAGE>
Loans secured by real estate continue to dominate the loan portfolio,
constituting $819 million or 46% of total loans. Management carefully manages
this concentration and explicitly considers the real estate concentration in the
evaluation of the allowance for loan losses. Mitigating the overall risk of
this concentration is a high level of single-family loans totaling $255 million
and credit risk policies that restrict certain types of real estate lending
known to contain higher than acceptable risk, such as speculative investment
properties, hotels and restaurants. Generally, the real estate lending of the
Company is restricted to properties located in the State of Arkansas as a matter
of policy. As a result, management considers the real estate loan portfolio to
be well-diversified with a manageable risk profile.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The following table presents total nonperforming assets at June 30, 1994 and
1993, and December 31, 1993:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
(Dollars in thousands) JUNE 30 DECEMBER 31 JUNE 30
1994 1993 1993
--------- ------------ ---------
<S> <C> <C> <C>
Nonaccrual loans........................................ $14,109 $16,668 $15,276
Loans 90+ days past due (less nonaccruals).............. 1,748 1,363 2,983
Renegotiated loans...................................... --- --- ---
Other real estate owned and other nonperforming assets.. 2,375 5,127 6,368
------- ------- -------
Total.................................................. $18,232 $23,158 $24,627
======= ======= =======
% of total loans plus other
nonperforming assets................................... 1.02% 1.40% 1.61%
Nonperforming as a % of equity.......................... 6.22 8.37 9.68
</TABLE>
Total nonperforming assets have declined from $23.2 million at December 31, 1993
to $18.2 million at June 30, 1994, a reduction of $5.0 million or 21%. The sale
of a foreclosed shopping center during the quarter ended June 30 resulted in a
reduction in nonperforming assets of $2.4 million, which was the most
significant event influencing these results. Additionally, two loans to
unrelated borrowers totaling $2.9 million that had been on nonaccrual status in
accordance with the Company's policies were returned to accruing status during
the quarter when the collection of principal and interest due was no longer
considered unlikely. Both of these loans are current as to principal and
interest due and collateral values are considered sufficient in relation to the
loan balances. Offsetting these events was a loan relationship totaling $2.6
million that was placed on nonearning status during the quarter. At the time
the relationship was placed on nonaccrual all principal and interest payments
were current; however, due to concerns with the value of the commercial building
collateralizing the loans and the borrower's ability to maintain the loans in
current status, it was determined that the recognition of interest income was no
longer appropriate.
Management is not aware of any trends or conditions that would forecast any
meaningful change in the level of problem assets in the near term. It is
management's opinion that the Company has reduced nonperforming assets to a
level such that additional improvements will likely be nominal, given that some
level of nonperforming assets will always exist due to the inherent risks of
lending. It is a management priority to minimize the dollar level of problem
assets at any point in time.
12
<PAGE>
Presented in the following table is the summary of activity in the allowance for
loan losses for the three months and six months ended June 30, 1994 and 1993, as
well as the year ended December 31, 1993:
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands) THREE SIX
MONTHS ENDED MONTHS ENDED YEAR ENDED
JUNE 30 JUNE 30 DECEMBER 31
1994 1993 1994 1993 1993
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Beginning allowance for loan losses.. $33,590 $31,270 $33,300 $30,145 $30,145
Allowance of purchased banks......... --- --- --- --- 892
Provision for loan losses............ 368 2,466 753 3,239 4,628
Net recoveries (charge-offs):
Charge-offs...................... (1,243) (749) (2,746) (1,692) (6,004)
Recoveries....................... 826 727 2,234 2,022 3,639
------- ------- ------- ------- -------
Net recoveries (charge-offs)..... (417) (22) (512) 330 (2,365)
------- ------- ------- ------- -------
Ending allowance for loan losses..... $33,541 $33,714 $33,541 $33,714 $33,300
======= ======= ======= ======= =======
Allowance as a % of:
Gross loans.......................... 1.88% 2.21% 2.02%
Nonperforming assets................. 183.97 136.90 143.79
Nonperforming loans.................. 211.52 184.64 184.68
</TABLE>
Over the past several years, with the exception of 1993 which was distorted
somewhat due to the acquisition of Union, the Company has steadily been reducing
the amount of annual loan loss provisions in correlation with the improvements
in asset quality. The three month and six month periods ended June 30, 1994 are
no exception to this trend. For the quarter ended June 30, 1994, loan loss
provisions of $368,000 were recorded compared to $2.5 million in the comparable
quarter of 1993; for the six months ended June 30, 1994, loan loss provisions
were $753,000 compared to $3.2 million recorded in the same period of 1993.
Both 1993 periods include a special provision of $1.5 million that was made as a
result of the acquisition of Union. Excluding the special provision, the 1994
provision level is still considerably less than the 1993 provision, reflecting
the continuing improvement in asset quality of the Company. Net loan losses are
somewhat higher in 1994 than the levels of the prior year, but are still nominal
in relation to the loan portfolio, representing an annualized net charge-off
ratio of 0.06% of average loans. In addition to low levels of loan losses, the
Company has realized strong recoveries which has been a significant factor in
the declining net losses in 1993 and 1994.
The ending allowance in all periods presented has hovered near the $33 million
level, which, according to the internal evaluation methodologies, is an adequate
level given all factors considered. Because the allowance balance has remained
somewhat flat, however, the allowance as a percentage of loans has declined to
1.88% at June 30, 1994 due to the exceptional loan growth the Company has
realized in the first half of the year. Should the loan growth continue at the
recent pace, it may result in modest increases in the level of provisions in the
second half of 1994 and into 1995 in order to prevent an erosion in the
allowance as a percentage of loans.
13
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company's negative gap increased by $88 million from year end 1993. This
reflects a $189 million decrease in assets repricing within one year, of which
$98 million occurred in loans. During the same period rate sensitive
liabilities declined by $100 million.
The decline in interest rate sensitive assets reflects a changing balance sheet
structure. Loan volume increased in the first six months of 1994, particularly
in installment loans. Installment loans are generally fixed rate and have an
initial maturity of greater than one year. There has also been a stronger
preference by loan customers to lock in longer term rates and move away from
floating rates. This is evidenced by the $146 million decline in loans
repriceable under 30 days. Another result of the increase in loans was a
decline in security and federal funds sold balances, which decreased by $187
million in total during 1994. However, securities with repricings under 30 days
increased by $68 million in an effort to take advantage of higher short term
rates and ensure adequate liquidity.
Interest-bearing deposits decreased by $58 million during the first six months
of 1994. This decline was more pronounced for deposits with repricing dates
under one year, which decreased by $94 million. Most of this decline occured in
time accounts as customers added balances to certificates with due dates beyond
one year ($36 million increase) to lock in more attractive yields.
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.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in thousands) DECEMBER 31, 1993
JUNE 30, 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.......................... $ 138,498 $ 34,404 $168,052 $ 340,954 $ 391,508
Total loans......................... 349,918 119,600 404,266 873,784 972,066
Fed funds and repos................. 42,300 --- --- 42,300 82,063
----------- -------- -------- ----------- -----------
Total assets...................... 530,716 154,004 572,318 1,257,038 1,445,637
----------- -------- -------- ----------- -----------
Transaction accounts................ 1,277,839 ---- ---- 1,277,839 1,294,579
Time accounts....................... 232,329 223,108 436,738 892,175 969,337
Short-term borrowings............... 180,383 ---- ---- 180,383 185,818
Long-term debt...................... 15 30 170 215 991
----------- -------- -------- ----------- -----------
Total rate-sensitive liabilities.. 1,690,566 223,138 436,908 2,350,612 2,450,725
----------- -------- -------- ----------- -----------
GAP................................. $(1,159,850) $(69,134) $135,410 $(1,093,574) $(1,005,088)
=========== ======== ======== =========== ===========
</TABLE>
14
<PAGE>
CAPITAL RESOURCES
As shown in the following table, the capital ratios of the Company continued to
improve during the second quarter of 1994 compared to December 31, 1993 and June
30, 1993. All of the Company's subsidiary banks maintain a rating of "well
capitalized" as defined by the Federal Deposit Insurance Corporation Improvement
Act of 1991. The Company's risk-based capital ratio's of 13.41% for Tier I and
14.66% for total capital well exceed the regulatory required 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 for the six month
period ending June 30, 1994 is approximately 21.4% compared to a ratio of 9.9%
for the first six months of 1993.
In April 1994, the Board of Directors approved a stock repurchase plan giving
management the authority to periodically repurchase up to a maximum of 450,000
shares of WBC common stock. These shares would then be reissued to individuals
participating in various employee stock incentive plans as the need arose. No
shares have been repurchased under this plan as of June 30, 1994.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL
(Dollars in thousands) JUNE 30 DECEMBER 31 JUNE 30
1994 1993 1993
------------ ------------ -----------
<S> <C> <C> <C>
Stockholders' equity......................................... $ 293,349 $ 276,648 $ 254,417
Unrealized valuation on available for sale securities........ 2,290 --- ---
Goodwill..................................................... (22,157) (23,080) (15,522)
---------- ---------- ----------
Total Tier I capital....................................... 273,482 253,568 238,895
---------- ---------- ----------
Allowance for loan losses*................................... 25,501 24,644 23,879
Capital notes................................................ --- --- 4,561
---------- ---------- ----------
Total Tier II capital...................................... 25,501 24,644 28,440
---------- ---------- ----------
Total qualifying capital............................... $ 298,983 $ 278,212 $ 267,335
========== ========== ==========
Risk adjusted assets (including off-balance sheet exposure).. $2,040,095 $1,971,522 $1,910,351
========== ========== ==========
Ratios:
Equity to assets............................................. 8.32% 7.73% 7.32%
Leverage..................................................... 7.74 7.13 6.91
Tier I leverage.............................................. 7.80 7.13 6.91
Total capital to adjusted assets............................. 8.61 7.99 7.94
Tier I RBC ratio............................................. 13.41 12.86 12.51
Total RBC ratio (8.00% required)............................. 14.66 14.11 13.99
</TABLE>
* Limited to 1.25 percent of risk adjusted assets
15
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE, REVENUE AND EXPENSE, AVERAGE YIELDS AND
RATES
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the quarter ended June 30 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)......... $1,736,531 $35,704 8.25% $1,535,483 $32,052 8.32%
Mortgage warehouse loans held for sale..... 40,308 729 7.25 55,885 637 4.57
Investment securities:
Available for sale....................... 164,763 2,973 7.24 --- --- ---
Taxable.................................. 1,125,655 13,455 4.79 1,292,939 17,529 5.44
Tax-exempt............................... 81,165 1,455 7.19 53,565 1,214 9.09
Federal funds sold......................... 59,983 642 4.29 198,803 1,540 3.11
Interest-bearing deposits with other banks. 520 4 3.09 854 4 1.88
---------- ------- ---- ---------- ------- -----
Total interest-earning assets............ $3,208,925 $54,962 6.87% $3,137,529 $52,976 6.77%
Non-interest-earning assets:
Cash and due from banks.................... 173,178 171,663
Premises and equipment, net................ 102,116 99,180
Other assets............................... 91,606 92,048
Less allowance for loan losses............. (33,739) (32,382)
---------- ----------
Total assets............................. $3,542,086 $3,468,038
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits........................ $1,052,552 $ 5,183 1.98% $ 987,099 $ 5,308 2.16%
Savings deposits............................ 259,587 1,290 1.99 239,773 1,464 2.45
Time deposits............................... 1,126,954 10,048 3.58 1,216,573 11,148 3.68
Federal funds purchased..................... 131,648 817 2.49 108,208 637 2.36
Short-term borrowings....................... 29,313 297 4.06 24,173 162 2.69
Long-term borrowings........................ 44,968 916 8.17 45,669 1,319 11.58
---------- ------- ---- ---------- ------- -----
Total interest-bearing liabilities....... $2,645,022 $18,551 2.81% $2,621,495 $20,038 3.07%
Non-interest bearing liabilities and equity:
Demand deposits............................. 575,387 547,926
Other....................................... 33,372 44,626
Stockholders' equity........................ 288,305 253,991
---------- ----------
Total liabilities and
stockholders' equity..................... $3,542,086 $3,468,038
========== ==========
------- -------
Net interest income and interest rate spread... $36,411 4.06% $32,938 3.71%
======= =======
Net yield on interest-earning assets........... 4.55 4.21
</TABLE>
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.
16
<PAGE>
CONSOLIDATED DAILY AVERAGE BALANCE, REVENUE AND EXPENSE, AVERAGE YIELDS AND
RATES
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the six months ended June 30 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).......... $1,691,058 $ 69,185 8.25% $1,539,420 $ 63,545 8.32%
Mortgage warehouse loans held for sale...... 45,863 1,599 7.03 49,306 1,409 5.76
Investment securities:
Available for sale........................ 147,691 4,609 6.29 --- --- ---
Taxable................................... 1,157,532 28,302 4.93 1,304,255 36,272 5.61
Tax-exempt................................ 80,784 2,901 7.24 50,110 1,921 7.73
Federal funds sold.......................... 75,428 1,490 3.98 181,749 2,793 3.10
Interest-bearing deposits with other banks.. 560 9 3.24 526 6 2.30
---------- -------- ---- ---------- -------- -----
Total interest-earning assets............. $3,198,916 $108,095 6.81% $3,125,366 $105,946 6.84%
Non-interest-earning assets:
Cash and due from banks..................... 177,292 174,374
Premises and equipment, net................. 102,017 98,992
Other assets................................ 92,299 81,601
Less allowance for loan losses.............. (33,670) (31,799)
---------- ----------
Total assets.............................. $3,536,854 $3,448,534
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Transaction deposits........................ $1,050,205 $ 10,043 1.93% $ 983,834 $ 11,053 2.27%
Savings deposits............................ 258,749 2,515 1.96 236,769 2,869 2.44
Time deposits............................... 1,134,467 20,009 3.56 1,233,314 22,575 3.69
Federal funds purchased..................... 120,821 1,431 2.39 105,804 1,235 2.35
Short-term borrowings....................... 33,626 601 3.60 21,495 338 3.17
Long-term borrowings........................ 45,253 1,866 8.32 41,279 2,132 10.42
---------- -------- ---- ---------- -------- -----
Total interest-bearing liabilities........ $2,643,121 $ 36,465 2.78% $2,622,495 $ 40,202 3.09%
Non-interest bearing liabilities and equity:
Demand deposits............................. 577,754 533,815
Other....................................... 30,976 42,652
Stockholders' equity........................ 285,003 249,572
---------- ----------
Total liabilities and
stockholders' equity..................... $3,536,854 $3,448,534
========== ==========
-------- --------
Net interest income and interest rate spread... $ 71,630 4.03% $ 65,744 3.74%
======== ========
Net yield on interest-earning assets........... 4.52 4.24
</TABLE>
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.
17
<PAGE>
NET INTEREST INCOME
Measured on a fully taxable equivalent basis, net interest income for the first
six months of 1994 was $5.9 million higher than the same period in 1993 for a
number of reasons. A higher volume of earning assets had a positive impact.
This was evident mainly in loans, which increased by $152 million over the
period. Since this category of assets has 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 $106
million. Interest-bearing liabilities increased over the period, but by only $21
million. Non-interest-bearing liabilities also grew by $68 million, which more
than offset a $15 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.
Interest income increased for the quarter because of volume growth and mix
changes. Loans increased as a percentage of earning assets, from 49% in 1993 to
54% in 1994. The total balance of loans grew by $201 million for the quarter.
These factors, along with a slight increase in market interest rates, were
responsible for the increase in interest income. Interest expense declined
during this period mainly because of a shift from time accounts to transaction
deposits and a decrease in the rates for savings and transaction accounts.
For the first six months of 1994, interest income was relatively unchanged. The
average yield of earning assets declined slightly, despite a general increase in
market rates. This was caused by an increase in consumer related loans at low
introductory rates. This was undertaken to gain a foothold in this highly
competitive market. For the period, loans grew by $152 million, although the
average yield on loans declined by seven basis points. Another factor that
prevented an increase in income was a $106 million decline in federal funds
sold, which experienced an increase in yield of almost one percent. These
liquid funds were used to support the growth of loans. Interest expense
declined for virtually the same reasons as mentioned above. Customers shifted
balances from time accounts into more liquid transaction accounts to take
advantage of expected increases in rates. Management has been able to keep the
costs of these accounts well controlled as market rates have increased.
Net interest income in the second quarter of 1994 was $3.5 million higher than
the second quarter of 1993. Net interest margin increased to 4.55% as compared
to 4.48% for the first quarter of 1994 and 4.28% for the fourth quarter of 1993.
ANALYSIS OF NET INTEREST INCOME
(FTE = Fully Taxable Equivalent)
<TABLE>
<CAPTION>
(Dollars in thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1994 1993 1994 1993
------------------ --------------------
<S> <C> <C> <C> <C>
Interest income....................... $54,349 $52,585 $106,870 $105,071
Fully taxable equivalent adjustment... 613 391 1,225 875
------- ------- -------- --------
Interest income - FTE................. 54,962 52,976 108,095 105,946
Interest expense...................... 18,551 20,038 36,465 40,202
------- ------- -------- --------
Net interest income - FTE........... $36,411 $32,938 $ 71,630 $ 65,744
======= ======= ======== ========
Yield on earning assets - FTE......... 6.87% 6.77% 6.81% 6.84%
Cost of interest bearing liabilities.. 2.81 3.07 2.78 3.09
Net interest spread - FTE............. 4.06 3.71 4.03 3.74
Net interest margin - FTE............. 4.55 4.21 4.52 4.24
</TABLE>
18
<PAGE>
CHANGES IN FULLY TAXABLE EQUIVALENT NET INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
$ CHANGE 1994/1993
THREE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30 JUNE 30
------------ ------------
<S> <C> <C>
Increase due to increase in earnings assets................................ $1,204 $2,595
Increase (decrease) due to higher/lower earning asset yield................ 782 (446)
Increase due to lower interest rates paid on interest-bearing liabilities.. 1,670 4,051
Decrease due to increase in interest-bearing liabilities................... (183) (314)
------ ------
Increase in net interest income - FTE..................................... $3,473 $5,886
====== ======
</TABLE>
OTHER INCOME
During the second quarter of 1994, nonrecurring income of $4.9 million was
recorded representing gains on the sale of a foreclosed shopping center and the
former Union headquarters building. The Company recorded $6.2 million in
nonrecurring income during the second quarter of 1993 including gains on sales
of securities acquired from Union and a gain on the sale of Union's corporate
jet. The Company sold all of Union's treasury securities with maturities in
excess of seven years to adjust Union's investment portfolio to Worthen's
investment policy guidelines. Excluding these nonrecurring items, other income
was $15.7 million in the second quarter of 1994 compared to $15.6 million in
1993. During the first six months of 1994, other income (excluding nonrecurring
items) was $30.4 million as compared to $31.3 million recorded during the same
period in 1993.
Year to date trust fees were down 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 $.0.5 million year to date. The overall decline in stock market
activity in the first six months of 1994 as compared to the first six months of
1993 resulted in lower commission sales.
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.
A summary of other income is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30 JUNE 30
1994 1993 1994 1993
------------------ ------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts.............. $ 5,929 $ 5,905 $11,527 $11,419
Trust fees and commissions....................... 2,483 2,364 4,990 5,205
Full service and discount brokerage commissions.. 1,414 1,639 2,793 3,244
Investment security gains (losses)............... (3) 5,345 (3) 5,354
Net gains on disposal of premises and equipment
and other assets............................ 5,067 401 5,169 1,284
Other............................................ 5,683 6,125 10,818 10,957
------- ------- ------- -------
Total........................................ $20,573 $21,779 $35,294 $37,463
======= ======= ======= =======
</TABLE>
19
<PAGE>
OTHER EXPENSE
Excluding the nonrecurring items totalling $9.5 million in the second quarter of
1993 detailed below, operating expenses for the second quarter of 1994 increased
only 1.4% compared to 1993. Salaries and employee benefits include a $459,000
provision for stock appreciation rights expense during the second quarter of
1994 due to a 39% increase in WBC's common stock price during the quarter. Year
to date operating expenses decreased 1.9% from 1993 to 1994, excluding
nonrecurring items. Reductions in salaries and employee benefits, net
occupancy, advertising and business development are direct results of savings
realized in the Union merger. These reductions are impressive since 1994
results also include operating expenses attributable to First Bank of
Bentonville, which was acquired in September 1993. The 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 sale of the former Union headquarters building will result
in additional savings in the net occupancy category in future quarters.
Approximately $9.5 million of nonrecurring other expenses related to the Union
merger were recorded during the second quarter of 1993. These nonrecurring
expenses include: employment expenses of $0.7 million, legal expenses of $1.5
million, investment banking fees of $2.1 million, expenses related to closing
branches of $1.3 million and $1.4 million in expense from writedowns of
purchased mortgage serving rights. The remainder of the expenses were for
signage, office supplies, various data processing conversions and various other
charges related to the merger.
The net overhead ratio was 1.82% for the first six months of 1994 as compared to
2.38% for the comparable period in 1993. Adjusting net overhead for the
nonrecurring other income and expense items, the net overhead ratio for the
first six months of 1994 was 2.10% as compared to 2.18% for 1993. 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 SIX
MONTHS ENDED MONTHS ENDED
JUNE 30 JUNE 30 %
1994 1993 1994 1993 CHANGE
-------- -------- ------- --------- -------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits............. $15,429 $17,182 $30,884 $34,131 (-9.5)%
Net occupancy expense...................... 3,020 3,477 6,095 6,933 (12.1)
Equipment expense.......................... 1,857 1,652 3,519 3,349 5.1
Data processing fees....................... 1,938 1,905 3,895 3,476 12.1
Professional fees.......................... 1,428 2,349 2,874 4,065 (29.3)
Amortization............................... 1,047 2,401 2,159 3,317 (34.9)
Advertising................................ 647 1,117 1,357 1,755 (22.7)
Business development....................... 776 949 1,364 1,821 (25.1)
Office expense............................. 2,467 2,551 4,993 5,059 (1.3)
FDIC insurance............................. 1,757 1,708 3,507 3,559 (1.5)
Other...................................... 3,834 7,930 6,631 10,634 (37.6)
------- ------- ------- ------- ------
Total..................................... $34,200 $43,221 $67,278 $78,099 (13.9)%
======= ======= ======= ======= ======
</TABLE>
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.
20
<PAGE>
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 $8,135,000 for the second quarter of 1994
compared to $5,704,000 for the first quarter of 1994 and $4,003,000 for the
second quarter of 1993. The effective tax rates for the respective quarters
were 37.3%, 36.0% and 46.3%. The higher effective tax rate for the second
quarter of 1993 was due to a significant amount of acquisition costs incurred
during the quarter which were nondeductible for tax purposes. 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 5 (Change in
Accounting Principle - Income Taxes) to the financial statements.
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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.
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.
The Company filed a current report on Form 8-K dated May 13, 1994,
reporting under Item 5 the resignation of Jack Fleischauer, Jr. as
president and chief operating officer of WNBA, the Company's lead bank. In
addition, it was reported that Jim G. Farmer joined WBC as president and
chief operating officer of the holding company.
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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: August 12, 1994 /s/ Andrew T. Melton
----------------------------
Andrew T. Melton
Executive Vice President and
Chief Financial Officer
Date: August 12, 1994 /s/ Alan C. King
----------------------------
Alan C. King
Senior Vice President and
Controller
(Chief Accounting Officer)
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