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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) March 14, 1995
(February 28, 1995)
BOATMEN'S BANCSHARES, INC.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-466-6000
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<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
----------------------------------------------
On February 28, 1995, Boatmen's Bancshares, Inc. ("Boatmen's")
acquired Worthen Banking Corporation ("Worthen") pursuant to an Agreement
and Plan of Merger ("Merger Agreement"), dated August 18, 1994. Under
terms of the Merger Agreement, a wholly owned subsidiary of Boatmen's was
merged with and into Worthen, and each of the 17,126,652 shares of Worthen
common stock outstanding at February 28, 1995, was converted into one share
of common stock of Boatmen's. No shares of Worthen common stock were owned
by Boatmen's. The merger was accounted for as a "pooling of interests" for
accounting and financial reporting purposes.
Worthen is a multi-bank holding company headquartered in Little Rock,
Arkansas. At December 31, 1994, Worthen had consolidated assets of
approximately $3.5 billion and shareholders' equity of approximately $311
million, making it the second largest bank holding company based in
Arkansas. Through its 11 banking subsidiaries, Worthen operates 112 retail
banking offices throughout the State of Arkansas and six such offices in
the Austin, Texas area. Through its non-banking subsidiaries, Worthen also
operates, among other businesses, a full service retail brokerage company,
a mortgage banking company and a trust company.
Prior to the merger, there were no material relationships between
Worthen and its shareholders, and Boatmen's, or any of the affiliates,
directors or officers of Boatmen's or any associates of any such directors
or officers.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
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(a) Financial Statements of Business Acquired
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Audited Financial Statements of Worthen. The following financial
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statements of Worthen are submitted herewith:
1. Report of Independent Auditors.
2. Consolidated Balance Sheets as of December 31, 1994 and 1993.
3. Consolidated Statements of Income for the Years Ended December
31, 1994, 1993 and 1992.
4. Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1994, 1993 and 1992.
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992.
6. Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information
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Pro forma financial information required by Item 7 of Form 8-K giving
effect to the acquisition of Worthen will be filed not later than 60
days after the filing of this Report on Form 8-K.
<PAGE> 3
(c) Exhibits
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The following exhibit is incorporated herein by reference:
Exhibit 2(a) Agreement and Plan of Merger, dated August 18,
1994, among Boatmen's, Worthen and BBI
AcquisitionCo, Inc., is incorporated herein by
reference from Boatmen's Report on Form 8-K
filed with the Securities and Exchange
Commission on September 2, 1994.
The following exhibits are included with this Report:
Exhibit 99 (a) Press Release dated February 28, 1995
Exhibit 99 (b) Audited Financial Statements of Worthen Banking
Corporation and Report of Independent Auditors
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
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James W. Kienker
Executive Vice President and
Chief Financial Officer
Dated: March 14, 1995
<PAGE> 1
BOATMEN'S(R)
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, 314/466-7662
BOATMEN'S BANCSHARES COMPLETES ACQUISITIONS OF WORTHEN
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BANKING CORPORATION, SALEM COMMUNITY BANCORP, INC.
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ST. LOUIS, February 28, 1995 -- Boatmen's Bancshares, Inc. (NASDAQ: BOAT)
reported today that it completed the previously announced acquisition of
Worthen Banking Company, headquartered in Little Rock, Arkansas, with assets
of about $3.5 billion. Boatmen's exchanged approximately 17.3 million shares
of its common stock for Worthen.
In addition, Boatmen's completed the acquisition of Salem Community
Bancorp, Inc., located in Salem, Illinois, with assets of about $80 million.
Boatmen's exchanged 289,000 shares of common stock for Salem.
Boatmen's Bancshares, with assets of approximately $32 billion, is
one of the 30 largest U.S. bank holding companies, operating from more than
500 locations in nine states. Boatmen's also ranks among the nation's largest
providers of trust services with approximately $36 billion in assets under
management.
<PAGE> 1
Report of Independent Auditors
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The Board of Directors and Stockholders
Worthen Banking Corporation:
We have audited the accompanying consolidated balance sheets of Worthen
Banking Corporation and Subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, stockholders' equity and
cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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 as of December 31, 1994 and
1993, and the results of their operations and their cash flows for the
years 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 year ended December 31, 1992, prior to their restatement for
the 1993 pooling of interests. The contribution of Worthen Banking
Corporation and Subsidiaries to total assets represented 79% of the
respective restated total as of December 31, 1992; 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. Separate financial statements of the other companies included in the
1992 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 year
ended December 31, 1992, 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 E to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities, in 1994. Also, 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 LLP
Little Rock, Arkansas
February 24, 1995
WORTHEN BANKING CORPORATION 1
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<TABLE>
Consolidated Balance Sheets
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(Dollars in thousands, except share data)
<CAPTION>
December 31
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1994 1993 1992
--------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 228,731 $ 187,314 $ 194,819
Interest bearing deposits with other banks 857 1,232 1,243
Federal funds sold and securities purchased under agreement
to resell 25,300 82,063 190,958
Mortgage warehouse loans held for sale 15,715 65,324 37,462
Investment securities available for sale 129,543 - -
Investment securities held to maturity (market value - $976,651,
$1,459,764 and $1,362,415 at December 31, 1994, 1993 and
1992, respectively) 1,001,099 1,446,259 1,345,078
Loans, net of unearned interest of $492, $986 and $1,775
in 1994, 1993 and 1992, respectively 1,958,862 1,647,019 1,561,135
Less: Allowance for loan losses (32,695) (33,300) (30,145)
--------------------------------------------------
Net Loans 1,926,167 1,613,719 1,530,990
Premises and equipment 95,616 101,347 98,533
Other assets 75,192 81,824 70,589
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Total Assets $3,498,220 $3,579,082 $3,469,672
--------------------------------------------------
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 614,218 $ 596,514 $ 546,662
Interest bearing 2,321,750 2,446,105 2,491,724
--------------------------------------------------
Total Deposits 2,935,968 3,042,619 3,038,386
Federal funds purchased and securities sold under agreement
to repurchase 162,238 127,980 101,124
Short-term borrowings 22,777 57,838 20,571
Other liabilities 21,693 28,438 31,407
Capital lease obligations 1,739 1,951 2,146
Long-term debt 43,005 43,608 25,626
Capital notes - - 9,561
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Total Liabilities 3,187,420 3,302,434 3,228,821
--------------------------------------------------
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 17,056,219, 17,011,783 and 16,707,289
in 1994, 1993, and 1992, respectively 17,056 17,012 16,707
Additional paid-in capital 164,835 164,438 157,898
Retained earnings 132,857 95,426 66,311
Unrealized valuation on securities available for sale (3,663) - -
Less cost of 10,811, 8,106 and 2,265, respectively,
shares of Common Stock in treasury (285) (228) (65)
--------------------------------------------------
Total Stockholders' Equity 310,800 276,648 240,851
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Total Liabilities and Stockholders' Equity $3,498,220 $3,579,082 $3,469,672
--------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
WORTHEN BANKING CORPORATION 2
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<TABLE>
Consolidated Statements of Income
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(Dollars in thousands, except share data)
<CAPTION>
December 31
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1994 1993 1992
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<S> <C> <C> <C>
Interest Income:
Loans, including fees $ 148,069 $ 133,536 $ 139,625
Investment securities:
Available for sale 8,831 - -
Taxable 54,543 70,479 79,082
Tax-exempt 3,948 3,034 1,627
--------------------------------------------------
Total 67,322 73,513 80,709
Other interest income 3,061 5,033 9,634
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Total Interest Income 218,452 212,082 229,968
Interest Expense:
Deposits 68,939 71,625 92,778
Short-term borrowings 4,554 3,553 3,276
Long-term borrowings 3,678 4,086 3,726
--------------------------------------------------
Total Interest Expense 77,171 79,264 99,780
--------------------------------------------------
Net Interest Income 141,281 132,818 130,188
Provision for Loan Losses 1,399 4,628 2,849
--------------------------------------------------
Net Interest Income After Provision for Loan Losses 139,882 128,190 127,339
--------------------------------------------------
Other Income:
Service charges on deposit accounts 23,053 22,915 22,757
Trust fees 9,890 9,772 9,325
Full service and discount brokerage commissions 5,539 6,334 5,299
Investment security gains (losses) (3) 5,446 283
Repurchase agreement recoveries, net - 309 -
Net gains on disposal of premises and equipment and other assets 5,636 2,624 923
Other 20,781 20,429 19,661
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Total Other Income 64,896 67,829 58,248
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Other Expense:
Salaries and employee benefits 61,192 66,834 66,909
Net occupancy expense 12,177 13,783 13,389
Other 58,744 67,820 64,642
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Total Other Expense 132,113 148,437 144,940
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Income before income taxes and cumulative effect of a change in
accounting principle 72,665 47,582 40,647
Income taxes 25,022 16,200 6,710
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Income before cumulative effect of a change in accounting principle 47,643 31,382 33,937
Cumulative effect of a change in accounting principle - 868 -
--------------------------------------------------
Net Income $ 47,643 $ 32,250 $ 33,937
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Income Per Share:
Income before cumulative effect of a change in accounting principle $ 2.80 $ 1.87 $ 2.05
Net Income 2.80 1.92 2.05
Weighted average number of shares outstanding during the year 17,024,144 16,817,339 16,589,066
See notes to consolidated financial statements.
</TABLE>
WORTHEN BANKING CORPORATION 3
<PAGE> 4
<TABLE>
Consolidated Statements of Stockholders' Equity
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(Dollars in thousands, except share data)
<CAPTION>
Unrealized
Additional Cost of Valuation on
Common Paid-in Retained Common Stock Securities
Stock Capital Earnings in Treasury Available for Sale Total
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<S> <C> <C> <C> <C> <C> <C>
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
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Balances at December 31, 1992 16,707 157,898 66,311 (65) - 240,851
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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
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Balances at December 31, 1993 17,012 164,438 95,426 (228) - 276,648
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Net income for the year - - 47,643 - - 47,643
Cash dividends declared -
$0.60 a share - - (10,212) - - (10,212)
Acquisition of treasury shares
for stock option plan - - - (128) - (128)
Treasury stock issued for
stock option plan - (41) - 71 - 30
Common stock issued:
Stock option plan
(44,436 shares) 44 438 - - - 482
Unrealized valuation
on securities available
for sale - - - - (3,663) (3,663)
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Balances at December 31, 1994 $17,056 $164,835 $132,857 $(285) $(3,663) $310,800
---------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
WORTHEN BANKING CORPORATION 4
<PAGE> 5
<TABLE>
Consolidated Statements of Cash Flows
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(Dollars in thousands)
<CAPTION>
December 31
--------------------------------------------------
1994 1993 1992
--------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Income $ 47,643 $ 32,250 $ 33,937
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 8,142 8,078 11,202
Amortization of discount on long-term debt 10 613 258
Amortization of intangibles 3,936 5,600 2,026
Net amortization of premiums and accretion of discounts 10,414 12,487 13,126
Provision for loan losses 1,399 4,628 2,849
Writedowns on properties acquired in settlement of loans 182 420 1,026
Mortgage warehouse loans funded (203,085) (364,240) (199,331)
Mortgage warehouse loans sold 252,694 336,378 195,980
Loss (gain) on sale of investment securities 3 (5,446) (283)
Net gain on disposal of premises and equipment and other assets (3,815) (436) (7)
Increase in other assets (3,983) (12,425) (5,118)
Decrease in other liabilities (6,737) (3,987) (353)
--------------------------------------------------
Net Cash Provided by Operating Activities 106,803 13,920 55,312
--------------------------------------------------
Investing Activities
Proceeds from maturities of:
Held to maturity ("HTM") securities 516,322 828,503 953,547
Available for sale ("AFS") securities 86,977 - -
Proceeds from sale of:
HTM securities 39 79,817 47,704
AFS securities 9 - -
Premises and equipment 10,835 436 7
Properties acquired in settlement of loans 6,463 5,548 5,083
Payments for purchase of:
HTM securities (289,503) (990,952) (1,136,012)
AFS securities (12,307) - -
Premises and equipment (9,452) (8,464) (8,890)
Minority interest in subsidiary - - (42)
Net decrease in short-term investments 57,138 108,906 33,990
Net increase in loans (314,210) (20,335) (3,364)
Net cash received (paid) in acquisition of subsidiary - (618) 861
Branch sale, including cash and cash equivalents sold (7,603) - -
--------------------------------------------------
Net Cash Provided (Used) by Investing Activities 44,708 2,841 (107,116)
--------------------------------------------------
</TABLE>
WORTHEN BANKING CORPORATION 5
<PAGE> 6
<TABLE>
Consolidated Statements of Cash Flows (continued)
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(Dollars in thousands)
<CAPTION>
December 31
--------------------------------------------------
1994 1993 1992
--------------------------------------------------
<S> <C> <C> <C>
Financing Activities
Proceeds from:
Long-term debt - 43,000 15,000
Issuance of common stock 512 646 264
Payments for:
Long-term debt (613) (29,690) (4,687)
Capital lease obligations (212) (195) (174)
Capital notes - (9,561) (1,243)
Cash dividends (10,212) (3,135) (1,873)
Repurchase of common stock (128) (163) -
Net increase (decrease) in:
Non-interest bearing deposits 17,920 40,858 56,159
Interest bearing deposits (116,558) (117,892) (3,641)
Short-term borrowings (35,061) 26,142 (5,757)
Federal funds purchased 34,258 25,724 354
--------------------------------------------------
Net Cash Provided (Used) by Financing Activities (110,094) (24,266) 54,402
--------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 41,417 (7,505) 2,598
Cash and Cash Equivalents at beginning of year 187,314 194,819 192,221
--------------------------------------------------
Cash and Cash Equivalents at end of year 228,731 187,314 194,819
--------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 75,959 $ 82,123 $ 103,587
Cash paid for income taxes $ 23,653 $ 17,863 $ 10,862
--------------------------------------------------
Supplemental schedule of non-cash 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 sold 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
Less 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
--------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
WORTHEN BANKING CORPORATION 6
<PAGE> 7
Notes to Consolidated Financial Statements
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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.
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:
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 cost adjusted
for amortization of premiums and accretion of discounts. 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). Gains and losses on the sale of available for sale securities
are determined using the specific identification method.
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 available for sale securities decreased during 1994 to a
net unrealized loss of $3,663,000 as of December 31, 1994. The Company
has no securities deemed to be trading securities.
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.
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 nonaccrual 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.
WORTHEN BANKING CORPORATION 7
<PAGE> 8
Notes to Consolidated Financial Statements
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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")." Statement 114 was
amended by the FASB in October 1994 with the issuance of Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." Statement
114, as amended, 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
principle 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 Statement 114 will be recorded as a provision for
the 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.
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 market 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, 1994, 1993 and 1992, these properties amounted to
$1,966,000, $4,842,000 and $8,076,000, respectively.
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 $21,178,000,
$23,080,000 and $15,481,000 (net of accumulated amortization of
$26,703,000, $24,927,000 and $23,980,000) at December 31, 1994, 1993
and 1992, respectively. These 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 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("Statement 109"). 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 of Financial Accounting Standards No. 96 ("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.
WORTHEN BANKING CORPORATION 8
<PAGE> 9
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
Cash Equivalents:
For presentation of the Statement of Cash Flows, cash equivalents
include cash and amounts due from banks.
Fair Value of 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 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 1993 and 1992.
NOTE B - ACQUISITIONS
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 1992,
assuming that the acquisition of FNB-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.
WORTHEN BANKING CORPORATION 9
<PAGE> 10
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
<TABLE>
The results of operations previously reported by the separate
enterprises and the combined amounts presented in the accompanying
consolidated financial statements are summarized below:
<CAPTION>
(Dollars in thousands) Four months ended Year ended
April 30, 1993 December 31, 1992
-----------------------------------------
<S> <C> <C>
Interest Income:
WBC $ 57,001 $ 185,351
Union 12,994 44,617
-----------------------------------------
$ 69,995 $ 229,968
-----------------------------------------
Interest Expense:
WBC $ 22,338 $ 83,408
Union 4,286 16,372
-----------------------------------------
$ 26,624 $ 99,780
-----------------------------------------
Net Income:
WBC $ 11,393 $ 30,607
Union 1,391 3,330
-----------------------------------------
$ 12,784 $ 33,937
-----------------------------------------
</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
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, 1994 was approximately
$46,611,000.
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 $105,984,000, $78,665,000 and $67,325,000 at December 31, 1994,
1993 and 1992, respectively. During 1994, $144,965,000 of new loans were
made and repayments totaled $117,646,000. 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.
WORTHEN BANKING CORPORATION 10
<PAGE> 11
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
Transactions with corporations controlled by the Company's principal
stockholders and their various affiliated interests during 1994, 1993
and 1992 included brokerage commissions received by the Company's
investment advisory, full service and discount brokerage services
($5,505,000, $6,498,000 and $5,210,000 in 1994, 1993 and 1992,
respectively) net of commissions retained by the related party
($2,385,000, $2,585,000 and $2,164,000, in 1994, 1993 and 1992,
respectively); payments by the Company for subscriptions to investment
advisory resource services ($152,000, $154,000 and $104,000 in 1994, 1993
and 1992, respectively); payments to the Company's banking subsidiaries
for the rental of bank premises ($102,000, $102,000 and $98,000 in 1994,
1993 and 1992, respectively); payments by the Company for consulting fees
($726,000 in 1993); and payments by the Company for data processing
services ($6,851,000, $6,367,000 and $5,664,000 in 1994, 1993, and 1992,
respectively). Payments were made by the Company to entities controlled by
the Company's principal stockholders for the rental of bank premises
($358,000 and $455,000 in 1994 and 1993, respectively); and the Company
received $950,000 in 1993 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 $1,056,000, $299,000 and
$283,000 in 1994, 1993 and 1992, respectively, all but one 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 $1,021,000, $1,157,000 and
$1,040,000 in 1994, 1993 and 1992; and payments of principal and interest
to entities related to certain directors and executive officers totaling
$68,000 during 1992.
Note E - Investment Securities
<TABLE>
As discussed in Note A, the Company adopted Statement 115 as of January
1, 1994. Carrying value and fair values of investment securities are as
follows (dollars in thousands):
<CAPTION>
U.S. Treasury Securities Obligations of
and Obligations of Other States and
U.S. Government Agencies Political Mortgage-Backed Other Equity
and Corporations Subdivisions Securities Securities Securities Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments held to maturity:
December 31, 1994:
Carrying value $ 619,160 $ 89,546 $ 278,491 $ 13,902 $ - $1,001,099
Unrealized gains 553 471 434 - - 1,458
Unrealized losses (14,138) (2,797) (8,780) (191) - (25,906)
---------- -------- --------- --------- ------- ----------
Fair value $ 605,575 $ 87,220 $ 270,145 $ 13,711 - $ 976,651
---------------------------------------------------------------------------------------------------
December 31, 1993:
Carrying value $ 816,760 $ 97,077 $ 478,489 $ 48,047 $ 5,886 $1,446,259
Unrealized gains 10,776 3,436 2,736 1 - 16,949
Unrealized losses (1,864) (554) (1,016) (10) - (3,444)
---------- -------- --------- --------- ------- ----------
Fair value $ 825,672 $ 99,959 $ 480,209 $ 48,038 $ 5,886 $1,459,764
---------------------------------------------------------------------------------------------------
December 31, 1992:
Carrying value $ 742,312 $ 64,288 $ 466,456 $ 67,019 $ 5,003 $1,345,078
Unrealized gains 13,609 2,478 5,388 - - 21,475
Unrealized losses (1,506) (1,085) (1,546) (1) - (4,138)
---------- -------- --------- --------- ------- ----------
Fair value $ 754,415 $ 65,681 $ 470,298 $ 67,018 $ 5,003 $1,362,415
---------------------------------------------------------------------------------------------------
Investments available for sale:
December 31, 1994:
Cost $ 33,788 $ 1,901 $ 92,824 $ - $ 6,996 $ 135,509
Unrealized gains - - 115 - - 115
Unrealized losses (3,320) (32) (2,729) - - (6,081)
---------- -------- --------- --------- ------- ----------
Fair value $ 30,468 $ 1,869 $ 90,210 $ - $ 6,996 $ 129,543
---------------------------------------------------------------------------------------------------
</TABLE>
WORTHEN BANKING CORPORATION 11
<PAGE> 12
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
<TABLE>
Unrealized gains/losses of investment securities by maturity are as follows (dollars in thousands):
<CAPTION>
Under 1 - 5 5 - 10 Over 10 No Fixed
1 Year Years Years Years Maturity Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investments held to maturity:
December 31, 1994:
Carrying value $208,802 $571,285 $115,854 $105,158 $ - $1,001,099
Unrealized gains 90 712 258 398 - 1,458
Unrealized losses (2,429) (18,825) (3,426) (1,226) - (25,906)
-------- -------- -------- -------- ------- ----------
Fair value $206,463 $553,172 $112,686 $104,330 $ - $ 976,651
---------------------------------------------------------------------
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
---------------------------------------------------------------------
Investments available for sale:
December 31, 1994:
Cost $ 10,382 $ 29,794 $ 40,109 $ 48,228 $ 6,996 $ 135,509
Unrealized gains - 27 - 88 - 115
Unrealized losses (807) (490) (3,310) (1,474) - (6,081)
-------- -------- -------- -------- ------- ----------
Fair value $ 9,575 $ 29,331 $ 36,799 $ 46,842 $ 6,996 $ 129,543
---------------------------------------------------------------------
</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.
Investment securities with a carrying value of approximately
$552,918,000, $505,452,000 and $525,783,000 were pledged as collateral
to secure public deposits and for other purposes at December 31, 1994,
1993 and 1992, 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, 1994. Collateralized
mortgage obligations are presented at their stated, scheduled maturity.
<TABLE>
Summary of sales of investment securities:
<CAPTION>
------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales of investment securities $ 48 $79,817 $47,704
Gross gains realized - 5,446 341
Gross losses realized 3 - 58
-------------------------------
</TABLE>
WORTHEN BANKING CORPORATION 12
<PAGE> 13
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
NOTE F - LOAN DISTRIBUTION, ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING LOANS
<TABLE>
A summary of loan distribution is as follows:
<CAPTION>
---------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial and agricultural $ 479,221 $ 437,072 $ 398,230
Bankers' acceptances and commercial paper - - 86,966
Real estate mortgage 769,659 710,955 635,521
Real estate construction 109,404 73,241 60,074
Installment and other 600,177 425,354 380,572
Direct lease financing 893 1,383 1,547
Unearned interest (492) (986) (1,775)
--------------------------------------------
Total $ 1,958,862 $ 1,647,019 $ 1,561,135
--------------------------------------------
</TABLE>
<TABLE>
Summarized below are the transactions in the allowance for loan losses
for the years ended December 31:
<CAPTION>
---------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 33,300 $ 30,145 $ 30,792
Allowance of purchased bank at date of acquisition - 892 1,690
Provision for loan losses 1,399 4,628 2,849
Net charge-offs:
Charge-offs 6,212 6,004 8,422
Recoveries 4,208 3,639 3,236
--------------------------------------------
Net charge-offs (2,004) (2,365) (5,186)
--------------------------------------------
Balance at December 31 $ 32,695 $ 33,300 $ 30,145
--------------------------------------------
</TABLE>
<TABLE>
The following table presents information concerning the aggregate amount
of nonperforming loans:
<CAPTION>
---------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans<F1> $ 8,163 $ 16,668 $ 18,260
Accruing loans past due 90 days or more as to interest
or principal payments 1,438 1,363 2,616
Interest income that would have been recorded under original
terms for nonaccrual loans 695 1,388 1,999
Interest income recorded during period for nonaccrual loans 248 363 359
<FN>
<F1> There were no significant commitments to lend additional funds to
borrowers included in this category.
</TABLE>
WORTHEN BANKING CORPORATION 13
<PAGE> 14
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
NOTE G - PREMISES AND EQUIPMENT
<TABLE>
A summary of premises and equipment is as follows:
<CAPTION>
-------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and land improvements $ 15,231 $ 15,935 $ 15,213
Buildings and building improvements 87,888 97,493 96,803
Capital building leases 3,613 3,613 3,682
Leasehold improvements 7,315 7,686 4,683
Furniture, fixtures and equipment 54,435 51,241 52,084
Construction in progress 2,251 2,468 1,941
Less accumulated depreciation and amortization (including
$2,770, $2,524 and $2,439, in 1994, 1993 and 1992,
respectively, related to capital leases) (75,117) (77,089) (75,873)
----------------------------------
Total $ 95,616 $ 101,347 $ 98,533
----------------------------------
</TABLE>
NOTE H - SHORT-TERM BORROWINGS
<TABLE>
Short-term borrowings include the following components:
<CAPTION>
-------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U. S. Treasury notes $ 22,777 $ 57,838 $ 17,205
Notes payable to unrelated bank - - 3,366
----------------------------------
Total $ 22,777 $ 57,838 $ 20,571
----------------------------------
</TABLE>
NOTE I - LEASES
<TABLE>
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 $2,573,000, $2,835,000 and $3,220,000
for 1994, 1993 and 1992, respectively. Future minimum payments, by year
and in the aggregate, under capital leases and noncancelable operating
leases with initial or remaining terms of one year or more consist of
the following at December 31, 1994:
<CAPTION>
Capital Operating
(Dollars in thousands) Leases Leases
-------------------------------------------------------------------------------------------------
<S> <C> <C>
1995 $ 413 $ 1,586
1996 413 1,538
1997 413 1,325
1998 393 1,262
1999 334 1,226
Thereafter 398 3,085
----------------------
Total minimum lease payments 2,364 $10,022
-------
Less amounts representing interest 625
------
Present value of net minimum capital lease payments $1,739
------
</TABLE>
WORTHEN BANKING CORPORATION 14
<PAGE> 15
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
NOTE J - LONG-TERM DEBT AND CAPITAL NOTES
<TABLE>
Long-term debt consists of the following:
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
<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 related 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 $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 - - 20,630
Other 5 608 4,996
--------------------------------
Total $43,005 $43,608 $25,626
--------------------------------
</TABLE>
<TABLE>
<CAPTION>
Capital notes are unsecured obligations and consist of the following: 1994 1993 1992
--------------------------------
<S> <C> <C> <C>
Parent company:
10% due 1995 (net of $220 owned by a subsidiary bank)
(retired October 1993) $ - $ - $ 4,311
Prime rate due 1999 (retired May 1993) - - 5,000
Bank subsidiaries:
Prime rate due 2001 (retired May 1993) - - 250
--------------------------------
Total $ - $ - $ 9,561
--------------------------------
</TABLE>
<TABLE>
Annual maturities of long-term debt through 1999 are as follows:
<CAPTION>
1995 1996 1997 1998 1999
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-term debt $ 5 $ - $ - $10,000 $10,000
--------------------------------------------------------
</TABLE>
WORTHEN BANKING CORPORATION 15
<PAGE> 16
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
NOTE K - DEPOSITS
The aggregate amounts of time certificates of deposit in denominations
of $100,000 or more at December 31, 1994, 1993 and 1992 were $220,967,000,
$209,678,000 and $208,990,000, respectively. Interest expense on the
deposits was $7,579,000, $7,179,000 and $9,053,000 in 1994, 1993 and 1992,
respectively.
<TABLE>
The average daily amount of total deposits and rates paid are
summarized for the periods indicated:
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 579,652 -% $ 556,510 -% $ 506,283 -%
Interest bearing demand deposits 1,036,979 2.05 1,007,836 2.16 934,298 2.79
Savings deposits 255,170 2.02 242,969 2.32 221,614 2.78
Time deposits 1,122,177 3.79 1,210,550 3.65 1,353,314 4.47
----------------------------------------------------------------------
Total deposits $2,993,978 $3,017,865 $3,015,509
----------------------------------------------------------------------
</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.
<TABLE>
Transactions in stock options are as follows:
<CAPTION>
-------------------------------------------------------------------------------------
(Number of shares) 1994 1993 1992
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, January 1 685,214 529,675 378,425
Granted 10,000 210,850 174,875
Exercised (57,284) (54,311) (22,375)
Forfeited or cancelled (28,750) (1,000) (1,250)
--------------------------------
Outstanding, December 31 609,180 685,214 529,675
--------------------------------
</TABLE>
Generally, stock options are exercisable in specified increments over a
nine or ten year period and expire ten years after 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, 1994,
353,536 options were exercisable at prices from $8.75 to $28.31 per
share; the weighted average price was $13.66.
In 1987, stock appreciation rights for 115,000 shares and an associated
grant of 100,000 options were cancelled 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. At December 31,
1994, 115,000 rights were outstanding and exercisable. Compensation
expense of $246,000 and $400,000 was recorded in 1994 and 1992,
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 plan which authorized grants of options and rights for an
aggregate of 750,000 shares terminated in 1994. Therefore, no additional
grants will be made under the 1984 plan. The 1993 plan authorized grants
of options and rights for an aggregate of 720,000 shares. At December 31,
1994, options and rights for 522,650 shares were available to be granted
under the 1993 plan. Under the Plans, upon a change in control of the
Company (see Note V), all of the outstanding, unvested stock options at
the date of change in control will be accelerated and vested.
WORTHEN BANKING CORPORATION 16
<PAGE> 17
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
NOTE M - SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
Other expenses include the following components, with no items except
as specified exceeding one percent of total revenue:
<CAPTION>
-------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment expense $ 7,091 $ 6,857 $ 6,650
Professional fees 4,757 6,570 8,672
Data processing fees 7,754 7,252 6,163
Amortization of intangible assets 3,935 5,600 4,644
Advertising expense 2,688 2,674 3,030
Business development 2,989 3,571 4,222
Office expense 9,907 10,686 9,656
FDIC insurance 6,946 7,028 6,955
Other 12,677 17,582 14,650
--------------------------------
Total $58,744 $67,820 $64,642
--------------------------------
</TABLE>
NOTE N - EMPLOYEE BENEFIT 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, $1,460,000 and $1,374,000 for 1994, 1993 and 1992,
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 1994, 1993 and 1992, the Company
made discretionary contributions of $161,000, $306,000 and $229,000,
respectively.
On July 27, 1994, the board of directors of Worthen established two
plans for the benefit of Worthen and its employees. These plans are the
Worthen Banking Corporation 1994 Performance and Retention Plan (the
"Retention Plan") and the Worthen Banking Corporation Key Employee
Protection Plan (the "Protection Plan"). Both of these plans are
designed to retain the services of key employees during the period
leading up to a change of control of Worthen and for a period of years
thereafter. The vesting provisions for each plan are different, but both
plans essentially vest upon the earlier of (i) termination of employment
by Worthen without cause or (ii) termination of employment by the
employee for good reason during the period beginning on August 18, 1994,
and ending on the earlier of the termination of the Merger Agreement
(see Note V) or the expiration of the two-year period immediately
following a change of control. For purposes of these plans, the Merger
described in Note V would constitute a change of control.
Under the Retention Plan, certain of Worthen's key employees are granted
performance and retention units ("PARs"). The PARs are a form of incentive
compensation, the value of which is related to the appreciation and value
of the common stock of Worthen. PARs will vest upon the earlier of any of
the vesting provisions identified above or (i) participant's death or
disability, or (ii) July 27, 1999. PARs terminate and payment is due to
PAR owners thirty days after vesting. The value of PARs is determined by
the relative performance of Worthen's stock as of the change of control
and vesting date, but is not expected to exceed $4 million for the
participants who have been granted PARs as of December 31, 1994.
The Protection Plan was established by the board of directors of Worthen
to retain the services of certain key employees and to ensure their
continued dedication and productivity. The Protection Plan provides that
participants are entitled to receive a severance benefit based upon a
multiple of their base salary together with certain other considerations,
if a "change of control" occurs and either the participant's employment is
terminated without good cause, or the participant terminates his
or her employment for good cause, and, in either case, such termination
occurs during the pendency of an agreement for a change of control or
within the two-year period following the change of control. Benefits to
be paid to the participant are based upon a multiple of the participant's
base salary and also include payment provisions based upon the
participant's age and years of service with Worthen. The multiple may not
exceed 2.99.
WORTHEN BANKING CORPORATION 17
<PAGE> 18
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
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 in 1993. Payments and
accruals of $474,000 in 1993 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.
NOTE P - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
<TABLE>
Financial instruments with off-balance sheet risk consist of the
following (dollars in thousands):
<CAPTION>
Contract or Notional Amounts
----------------------------------
1994 1993 1992
----------------------------------
<S> <C> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $616,633 $552,575 $224,206
Standby letters of credit and financial guarantees written 24,556 26,854 13,745
</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, 1994, 1993 or 1992. 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.
WORTHEN BANKING CORPORATION 18
<PAGE> 19
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
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 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,
1994, the maximum amount available for transfer from the banks to the
Company in the form of loans approximated 22% 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.
NOTE R - INCOME TAXES
<TABLE>
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 recorded at December 31, 1994, the Company will need to generate
future federal taxable income of approximately $43,000,000. Based on the
Company's historical and current taxable income, 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. The Company has federal taxable income and
pre-tax book income for the years ended as follows:
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable income $66,258 $48,279 $35,407
Pre-tax book income 72,665 47,582 40,647
Total tax expense (benefit) was allocated as follows:
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $25,022 $16,200 $6,710
Stockholders' equity for unrealized valuation on available for sale securities (2,303) - -
--------------------------------
Total $22,719 $16,200 $6,710
--------------------------------
Federal and state income taxes (benefit) attributable to continuing
operations consist of the following:
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $23,100 $16,950 $10,243
Deferred 1,922 (750) (3,533)
--------------------------------
Total $25,022 $16,200 $ 6,710
--------------------------------
</TABLE>
WORTHEN BANKING CORPORATION 19
<PAGE> 20
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
<TABLE>
The reasons for the difference between tax expense attributable to
continuing operations and the amount computed by applying the statutory
federal income tax rate to income before income taxes are as follows:
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
35% of pre-tax income in 1994 and 1993, and 34% in 1992 $25,433 $16,654 $13,820
Add (deduct):
Adjustment to deferred tax assets and liabilities for enacted changes in tax rates - (93) -
Tax-free municipal interest income (1,584) (1,328) (892)
Goodwill amortization 414 320 191
Discount accretion on long-term debt - 216 88
Non-deductible acquisition costs 122 922 429
Utilization of previously unrecognized deferred tax assets - - (4,329)
Prior year over accrual to return (544) (730) (328)
Refunds of prior year taxes and other miscellaneous adjustments
not previously recorded - - (1,474)
Other, net 1,191 239 (795)
--------------------------------
Total $25,022 $16,200 $ 6,710
--------------------------------
</TABLE>
<TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended
December 31, 1994 and 1993 are as follows:
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax expense (exclusive of the effects of other
components listed below) $ 3,167 $ (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 (1,245) (169)
--------------------
Total $ 1,922 $ (750)
--------------------
</TABLE>
<TABLE>
For the year ended December 31, 1992, 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
(dollars in thousands):
<S> <C>
Provision for loan losses $ 735
Accelerated depreciation for tax purposes (455)
Accrued compensation for financial reporting purposes 469
Amortization of deposit base intangibles 597
Net income (loss) from other real estate owned transactions (39)
Utilization of previously unrecognized deferred tax assets (4,329)
Other, net (511)
--------
Total $(3,533)
--------
</TABLE>
WORTHEN BANKING CORPORATION 20
<PAGE> 21
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
<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, 1994 and 1993 are as follows:
<CAPTION>
-------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $12,765 $13,326
Other real estate owned due to write-downs not deductible for tax purposes 121 299
Compensated absences and other accrued benefits due to accrual for financial
reporting purposes 961 1,265
Other assets - unamortized core deposit premiums for tax purposes - 354
Unrealized valuation on securities held for sale 2,303 -
Other 805 570
--------------------
Total gross deferred tax assets 16,955 15,814
Less valuation allowance - 1,245
--------------------
Net deferred tax assets 16,955 14,569
--------------------
Deferred tax liabilities:
Premises and equipment, due to differences in depreciation and acquisition basis (8,292) (7,915)
Investment securities due to differences in acquisition basis (2,564) (1,148)
Prepaid expenses for financial reporting purposes (725) (722)
Other (1,327) (1,118)
--------------------
Total gross deferred tax liabilities (12,908) (10,903)
--------------------
Net deferred tax assets $ 4,047 $ 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
had previously established a valuation allowance for a portion of its
state deferred tax assets. Based upon the levels of state taxable income
in the current year and expected levels of future state taxable income,
management believes it is more likely than not the Company will realize
the existing state deductible temporary differences in future periods. The
valuation allowance for deferred tax assets as of January 1, 1993 was
$1,414,000.
At December 31, 1994, 1993 and 1992, the Company had current income
taxes payable of $1,811,000, $2,371,000 and $3,162,000, respectively,
included in Other Liabilities on the consolidated balance sheets. At
December 31, 1992, the Company had a net deferred tax asset of $2,444,000
included in Other Assets. The Company acquired deferred tax liabilities
of $396,000 during 1993, in conjunction with the acquisition of First
National Bank, Fayetteville and FirstBank.
WORTHEN BANKING CORPORATION 21
<PAGE> 22
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
NOTE S - WORTHEN BANKING CORPORATION (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
<TABLE>
Statements of Income (Dollars in thousands)
-------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31
---------------------------------
1994 1993 1992
---------------------------------
<S> <C> <C> <C>
Income
Dividends from subsidiaries<F1> $ 21,587 $ 45,864 $ 16,296
Service fees from subsidiaries 6,332 4,176 3,822
Repurchase agreement recovery, insurance reimbursement - (474) -
Other 1,380 447 641
---------------------------------
29,299 50,013 20,759
---------------------------------
Expenses
Salaries and employee benefits 6,452 5,561 5,142
Interest 3,463 3,761 3,259
Provisions for loan losses - (109) (200)
Other 5,817 9,174 5,029
---------------------------------
15,732 18,387 13,230
---------------------------------
Income before income taxes<F2> 13,567 31,626 7,529
Applicable income tax benefit (4,392) (4,161) (7,108)
---------------------------------
Income before equity in undistributed earnings of subsidiaries 17,959 35,787 14,637
Equity in undistributed earnings of subsidiaries 29,684 (3,537) 19,300
---------------------------------
Net Income $ 47,643 $ 32,250 $ 33,937
---------------------------------
</TABLE>
<TABLE>
Balance Sheets (Dollars in thousands)
-------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31
---------------------------------
1994 1993 1992
---------------------------------
<S> <C> <C> <C>
Assets
Investment in subsidiaries $318,704 $292,809 $272,995
Cash 158 227 319
Other investments 31,555 27,756 4,006
Furniture and equipment net of accumulated depreciation 1,636 2,212 749
Other assets 6,490 1,915 8,185
---------------------------------
Total Assets $358,543 $324,919 $286,254
---------------------------------
Liabilities and Stockholders' Equity
Short-term borrowings $ - $ - $ 2,185
Long-term debt 43,005 43,608 25,626
Capital notes - - 9,531
Other liabilities 4,738 4,663 8,061
---------------------------------
Total Liabilities 47,743 48,271 45,403
Stockholders' Equity 310,800 276,648 240,851
---------------------------------
Total Liabilities and Stockholders' Equity $358,543 $324,919 $286,254
---------------------------------
<FN>
<F1> Includes $783,000 in 1993, approved by regulators after the BBS recoveries (see Note O).
<F2> Before equity in undistributed earnings of subsidiaries.
</TABLE>
WORTHEN BANKING CORPORATION 22
<PAGE> 23
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
<TABLE>
Statements of Cash Flows (Dollars in thousands)
-------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31
----------------------------------
1994 1993 1992
----------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 47,643 $ 32,250 $ 33,937
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 735 1,365 1,034
Provision for loan losses - (109) (200)
Equity in undistributed earnings of subsidiaries
(net of dividends received) (29,684) 3,537 (19,300)
Decrease (increase) in other assets (3,341) 6,721 (157)
Increase (decrease) in other liabilities 75 (3,699) (4,636)
----------------------------------
Net Cash Provided by Operating Activities 15,428 40,065 10,678
----------------------------------
Investing Activities
Decrease (increase) in short-term investments (2,050) (23,750) 3,875
Purchases of investments held to maturity (1,749) - -
Principal collected on loans 31 123 187
Loans originated or acquired (366) (464) (208)
Purchases of property, plant and equipment and other real estate (1,791) (1,777) (223)
Proceeds from disposal of property, plant and equipment 1,159 - -
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 (300) (9,025) (2,751)
----------------------------------
Net Cash Used by Investing Activities (5,066) (39,099) (14,602)
----------------------------------
Financing Activities
Principal payments on long-term borrowings (603) (29,690) (4,669)
Dividends paid (10,212) (3,135) (1,873)
Proceeds from long-term borrowings - 43,000 15,000
Principal payments on capital notes - (9,531) -
Acquisition of treasury stock (128) (163) -
Proceeds from issuance of common stock 512 646 264
Net repayments on short-term borrowings - (2,185) (4,590)
----------------------------------
Net Cash Provided (Used) by Financing Activities (10,431) (1,058) 4,132
----------------------------------
Increase in Cash and Cash Equivalents (69) (92) 208
Cash and Cash Equivalents at beginning of year 227 319 111
----------------------------------
Cash and Cash Equivalents at end of year $ 158 $ 227 $ 319
----------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 3,430 $ 3,188 $ 3,101
Cash paid for income taxes $ 23,653 $ 17,863 $ 10,862
----------------------------------
Supplemental schedule of non-cash 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>
WORTHEN BANKING CORPORATION 23
<PAGE> 24
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
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 nonperforming
(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.
<TABLE>
The following table presents carrying values and estimated fair values
of loans at December 31:
<CAPTION>
-------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value Value Fair Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural:
Fixed rate $ 319,011 $ 312,687 $ 278,403 $ 275,101 $ 245,400 $ 244,153
Variable rate 157,988 157,988 155,985 155,985 149,879 149,879
Nonaccrual 2,222 1,807 2,684 2,233 2,951 2,570
-----------------------------------------------------------------------
Total commercial, financial
and agricultural 479,221 472,482 437,072 433,319 398,230 396,602
-----------------------------------------------------------------------
Bankers' acceptances and
commercial paper - - - - 86,966 86,935
Real estate mortgage:
Fixed rate 670,925 654,478 602,090 592,607 443,104 443,290
Variable rate 93,750 93,750 95,971 95,971 177,705 177,705
Nonaccrual 4,984 4,056 12,894 10,732 14,712 12,815
-----------------------------------------------------------------------
Total real estate
mortgage 769,659 752,284 710,955 699,310 635,521 633,810
-----------------------------------------------------------------------
Real estate construction:
Fixed rate 98,092 94,344 61,942 61,255 43,817 43,533
Variable rate 10,797 10,797 10,612 10,612 16,097 16,097
Nonaccrual 515 418 687 574 160 139
-----------------------------------------------------------------------
Total real estate
construction 109,404 105,559 73,241 72,441 60,074 59,769
-----------------------------------------------------------------------
Installment and other:
Fixed rate 566,930 553,856 400,525 396,229 339,659 340,369
Variable rate 33,132 33,132 24,636 24,636 40,762 40,762
Nonaccrual 115 93 193 159 151 131
-----------------------------------------------------------------------
Total installment
and other 600,177 587,081 425,354 421,024 380,572 381,262
Direct lease financing 893 894 1,383 1,381 1,547 1,544
Unearned interest (492) - (986) - (1,775) -
-----------------------------------------------------------------------
Total loans 1,958,862 1,918,301 1,647,019 1,627,475 1,561,135 1,559,922
Allowance for loan losses (32,695) - (33,300) - (30,145) -
-----------------------------------------------------------------------
$1,926,167 $1,918,301 $1,613,719 $1,627,475 $1,530,990 $1,559,922
-----------------------------------------------------------------------
</TABLE>
WORTHEN BANKING CORPORATION 24
<PAGE> 25
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
Mortgage Warehouse Loans Held for Sale:
The fair value of the Company's mortgage warehouse loans held for sale
is based upon quoted market sources of similar instruments, adjusted for
differences between the quoted instruments and the instruments being
valued. At December 31, 1994, the carrying value and estimated fair value
of mortgage warehouse loans held for sale is $15,715,000 and $15,674,000,
respectively. At December 31, 1993, the carrying value and estimated fair
value of mortgage warehouse loans held for sale is $65,324,000 and
$65,254,000, respectively. At December 31, 1992, the carrying value and
estimated fair value of mortgage loans held for sale 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, 1994, 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.
<TABLE>
The following table presents the carrying value and estimated fair
values of deposits at December 31:
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value Value Fair Value
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 614,218 $ 614,218 $ 596,514 $ 596,514 $ 546,662 $ 546,662
Interest bearing demand
deposits 974,193 974,193 1,040,117 1,040,117 959,497 959,497
Savings deposits 241,671 241,671 256,436 256,436 311,351 311,351
Time deposits:
Maturing in six months
or less 347,412 347,410 355,289 351,725 851,402 852,684
Maturing between six
months and one year 296,131 296,036 336,712 338,441 210,830 212,156
Maturing beyond one year 462,343 457,525 457,551 461,971 158,644 162,613
--------------------------------------------------------------------------------------
$2,935,968 $2,931,053 $3,042,619 $3,045,204 $3,038,386 $3,044,963
--------------------------------------------------------------------------------------
</TABLE>
Long-term Debt, Capital Notes and Capital Lease Obligations:
<TABLE>
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:
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992
----------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value Value Fair Value
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt $ 43,005 $ 43,338 $ 43,608 $ 44,623 $ 25,626 $ 26,729
Capital notes - - - - 9,561 9,972
Capital lease obligations 1,739 1,655 1,951 2,005 2,146 2,182
--------------------------------------------------------------------------------------
$ 44,744 $ 44,993 $ 45,559 $ 46,628 $ 37,333 $ 38,883
--------------------------------------------------------------------------------------
</TABLE>
WORTHEN BANKING CORPORATION 25
<PAGE> 26
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
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 Stephens Group, Inc., and its
subsidiaries. The Company has cooperated with the FED in this
investigation. Management of the Company understands that the
investigation is likely to be concluded with respect to the Company in
the very near future and that no action is likely to be taken against
the Company in connection with the investigation.
NOTE V - SUBSEQUENT EVENT
On August 18, 1994, the Company entered into an Agreement and Plan of
Merger by and among the Company, Boatmen's Bancshares, Inc. ("Boatmens")
and BBI AcquisitionCo, Inc. under which Boatmens would acquire the
Company through a merger of BBI AcquisitionCo, Inc. with and into the
Company. Upon consummation of the Merger, each issued and outstanding
share of Worthen common stock would be converted into the right to receive
one share of Boatmens common stock. The Plan of Merger was approved by the
Worthen shareholders on February 24, 1995 and will be consummated on or
about February 28, 1995.
WORTHEN BANKING CORPORATION 26
<PAGE> 27
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------
NOTE W - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
Selected Quarterly Financial Data (Dollars in thousands, except share data)
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
----------------------------------- ----------------------------------- -----------------------------------
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 $56,310 $55,272 $54,349 $52,521 $53,790 $53,221 $52,585 $52,486 $55,400 $57,227 $58,360 $58,981
Interest expense 20,974 19,732 18,551 17,914 19,208 19,854 20,038 20,164 21,833 23,848 26,402 27,697
Net interest
income 35,336 35,540 35,798 34,607 34,582 33,367 32,547 32,322 33,567 33,379 31,958 31,284
Provision for
loan losses 349 297 368 385 849 540 2,466 773 1,058 596 832 363
Repurchase
agreement
recoveries, net - - - - - 119 - 190 - - - -
Other income 14,312 15,290 20,573 14,721 15,112 15,135 21,779 15,494 13,754 14,356 16,040 14,098
Other expense 32,282 32,553 34,200 33,078 35,469 34,869 43,221 34,878 35,183 37,720 35,613 36,424
Income before
income taxes 17,017 17,980 21,803 15,865 13,376 13,212 8,639 12,355 11,080 9,419 11,553 8,595
Income tax
expense 4,923 6,260 8,135 5,704 4,074 4,823 4,003 3,300 1,893 1,239 2,015 1,563
Change in
accounting
principle - - - - - - - 868 - - - -
Net income $12,094 $11,720 $13,668 $10,161 $ 9,302 $ 8,389 $ 4,636 $ 9,923 $ 9,187 $ 8,180 $ 9,538 $ 7,032
----------------------------------- ----------------------------------- -----------------------------------
Net income
per share<F1> $ 0.71 $ 0.69 $ 0.80 $ 0.60 $ 0.55 $ 0.50 $ 0.28 $ 0.59 $ 0.55 $ 0.49 $ 0.57 $ 0.43
----------------------------------- ----------------------------------- -----------------------------------
<FN>
<F1> Computation based on the average number of shares outstanding.
</TABLE>
WORTHEN BANKING CORPORATION 27
