<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------- to---------
Commission File number: 1-3750
BOATMEN'S BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Missouri 43-0672260
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63101
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
314-466-6000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class of Common Stock as of October 31, 1996
- --------------------------------------------------------------------------------
$1 Par Value 154,660,111
<PAGE> 2
<TABLE>
INDEX
<CAPTION>
PART I - FINANCIAL INFORMATION
------------------------------
PAGE NO.
<S> <C>
Item 1 - Financial Statements 3
Consolidated Balance Sheet
September 30, 1996 and 1995 and December 31, 1995 4
Consolidated Statement of Income
Three months and nine months ended September 30, 1996 and 1995 5
Consolidated Statement of Changes in Stockholders' Equity
Nine months ended September 30, 1996 and 1995 6
Consolidated Statement of Cash Flows
Nine months ended September 30, 1996 and 1995 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-31
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings None
Item 2 - Changes in Securities None
Item 3 - Defaults Upon Senior Securities None
Item 4 - Submission of Matters to a Vote of Security Holders None
Item 5 - Other Information None
Item 6 - Exhibits and Reports on Form 8-K 32
SIGNATURE 32
</TABLE>
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements for the three months and nine
months ended September 30, 1996 and 1995 include the accounts of the
Corporation and its subsidiaries after elimination of all material
intercompany transactions. In the opinion of management, all necessary
adjustments, consisting of normal recurring adjustments, have been included
to present fairly the results of operations for the interim periods presented
herein. The results of operations for the three months and nine months ended
September 30, 1996 are not necessarily indicative of the results which may be
expected for any other interim period or for the entire year.
- 3 -
<PAGE> 4
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
(dollars in thousands) September 30, 1996 September 30, 1995 December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 2,232,618 $ 2,205,700 $ 2,611,765
Short-term investments 59,483 61,249 83,166
Securities:
Held to maturity 1,028,881 6,802,763 923,130
Available for sale 10,944,317 4,456,289 10,347,172
Trading 54,946 29,272 58,361
Federal funds sold and securities purchased
under resale agreements 182,944 690,132 1,225,671
Loans, net of unearned income 24,314,765 24,184,336 24,050,903
Less reserve for loan losses 472,161 461,352 452,560
- ------------------------------------------------------------------------------------------------------------
Loans, net 23,842,604 23,722,984 23,598,343
- ------------------------------------------------------------------------------------------------------------
Property and equipment 776,366 802,170 800,502
Other assets 1,571,794 1,496,884 1,475,379
- ------------------------------------------------------------------------------------------------------------
Total assets $ 40,693,953 $ 40,267,443 $ 41,123,489
============================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------
Liabilities:
Demand deposits $ 6,914,124 $ 6,439,523 $ 6,894,649
Retail savings deposits and interest-bearing
transaction accounts 13,006,473 12,558,120 13,510,720
Time deposits 10,641,042 11,543,491 11,572,768
- ------------------------------------------------------------------------------------------------------------
Total deposits 30,561,639 30,541,134 31,978,137
- ------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold
under repurchase agreements 3,277,966 3,022,423 2,902,973
Short-term borrowings 1,944,904 2,161,579 1,474,991
Capital lease obligations 38,039 39,373 39,076
Long-term debt 606,148 524,282 615,129
Other liabilities 683,526 509,015 512,436
- ------------------------------------------------------------------------------------------------------------
Total liabilities 37,112,222 36,797,806 37,522,742
- ------------------------------------------------------------------------------------------------------------
Redeemable preferred stock 949 1,007 961
- ------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock 94,671 99,362 99,324
Common stock ($1 par value; 250,000,000 shares
authorized) 158,400 157,562 158,068
Surplus 1,209,335 1,205,870 1,212,838
Retained earnings 2,332,005 2,071,651 2,137,176
Treasury stock, at cost (151,597) (59,205) (18,096)
Unrealized net appreciation (depreciation),
available for sale securities (62,032) (6,610) 10,476
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,580,782 3,468,630 3,599,786
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 40,693,953 $ 40,267,443 $ 41,123,489
============================================================================================================
Held to maturity securities, market value $ 1,062,445 $ 6,785,734 $ 973,801
Available for sale securities, amortized cost 11,050,447 4,467,128 10,330,233
Common stock, shares outstanding 155,256,583 155,912,820 157,591,239
Treasury shares 3,143,773 1,648,866 476,519
============================================================================================================
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Third quarter ended September 30 Nine months ended September 30
- ---------------------------------------------------------------------------------------------------------------------
(in thousands except share data) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $523,691 $540,212 $1,582,485 $1,569,367
Interest on short-term investments 1,207 1,146 4,431 3,247
Interest on Federal funds sold and securities purchased
under resale agreements 3,196 10,218 21,135 28,383
Interest on held to maturity securities
Taxable 93,539 285,689
Tax-exempt 16,254 13,915 48,458 41,783
- ---------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 16,254 107,454 48,458 327,472
Interest on available for sale securities 174,378 68,367 500,026 217,104
Interest on trading securities 1,265 547 2,748 1,343
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 719,991 727,944 2,159,283 2,146,916
- ---------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 246,189 262,652 751,121 760,409
Interest on Federal funds purchased and other
short-term borrowings 63,679 77,862 184,116 240,588
Interest on capital lease obligations 941 972 2,831 2,925
Interest on long-term debt 12,289 11,334 36,907 34,956
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 323,098 352,820 974,975 1,038,878
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 396,893 375,124 1,184,308 1,108,038
Provision for loan losses 19,260 12,391 64,842 33,305
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 377,633 362,733 1,119,466 1,074,733
- ---------------------------------------------------------------------------------------------------------------------
Noninterest income
Trust fees 52,926 50,444 159,568 148,016
Service charges 63,238 58,822 187,236 171,888
Mortgage banking revenues 23,286 20,344 67,166 60,281
Credit card 11,287 16,200 37,701 45,299
Investment banking revenues 11,788 10,588 36,367 31,326
Securities gains (losses), net 576 938 1,924 (18,074)
Other 53,164 38,091 147,250 112,106
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest income 216,265 195,427 637,212 550,842
- ---------------------------------------------------------------------------------------------------------------------
Noninterest expense
Staff 191,412 182,726 573,133 539,876
Net occupancy 26,454 25,617 76,961 74,409
Equipment 30,541 28,335 91,138 85,581
FDIC/SAIF insurance 26,326 1,156 31,804 34,343
Intangible amortization 9,934 11,121 30,277 32,487
Advertising 10,844 9,752 33,165 31,161
Merger expense 18,049 60,463 25,978
Other 83,419 92,778 257,624 258,209
- ---------------------------------------------------------------------------------------------------------------------
Total noninterest expense 396,979 351,485 1,154,565 1,082,044
- ---------------------------------------------------------------------------------------------------------------------
Income before income tax expense 196,919 206,675 602,113 543,531
Income tax expense 71,590 72,994 219,592 191,781
- ---------------------------------------------------------------------------------------------------------------------
Net income $125,329 $133,681 $ 382,521 $ 351,750
=====================================================================================================================
Net income available to common shareholders $123,596 $131,923 $ 377,288 $ 346,461
=====================================================================================================================
Net income per share $.79 $.84 $2.40 $2.21
=====================================================================================================================
Dividends declared per share $.42 $.37 $1.16 $1.05
=====================================================================================================================
</TABLE>
Earnings per share amounts are based on weighted average shares outstanding
after adjusting net income for dividends on preferred stock. For the nine
months, average shares outstanding were 157,215,972 in 1996 and 156,577,693 in
1995. Preferred dividends declared totaled $5.2 million in 1996 and $5.3 million
in 1995.
- 5 -
<PAGE> 6
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Unrealized Net
Appreciation,
(Depreciation)
Preferred Stock Common Stock Treasury Stock Available
---------------- ---------------- Retained ------------------ for Sale
(in thousands) Shares Amount Shares Amount Surplus Earnings Shares Amount Securities Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 250 $100,000 156,084 $156,084 $1,171,184 $1,886,199 (509) $ (14,516) $(134,521) $3,164,430
Net income -- -- -- -- -- 351,750 -- -- -- 351,750
Cash dividends declared:
Common ($1.05 per share) -- -- -- -- -- (135,144) -- -- -- (135,144)
Redeemable preferred -- -- -- -- -- (58) -- -- -- (58)
By pooled company prior
to merger--common -- -- -- -- -- (25,764) -- -- -- (25,764)
By pooled company prior
to merger--preferred -- -- -- -- -- (5,232) -- -- (5,232)
Acquisition of treasury stock -- -- -- -- -- -- (1,962) (68,965) -- (68,965)
Common stock issued pursuant
to dividend reinvestment
and employee plans -- -- 646 646 10,694 -- 532 16,234 -- 27,574
Common stock issued upon
acquisition of subsidiaries -- -- 947 947 27,566 -- 289 8,008 -- 36,521
Adjustment for purchase of
treasury stock--pooled
companies -- -- (125) (125) (3,921) -- -- -- -- (4,046)
Retirement of preferred stock (1) (500) -- -- 15 (98) -- -- -- (583)
Common stock issued upon
conversion of preferred
stock -- (138) 5 5 133 -- -- -- -- --
Common stock issued upon
conversion of convertible
subordinated debentures -- -- 5 5 65 -- 1 34 -- 104
Adjustment of available for
sale securities to market
value -- -- -- -- -- -- -- -- 127,911 127,911
Other, net -- -- -- -- 134 (2) -- -- -- 132
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995 249 $ 99,362 157,562 $157,562 $1,205,870 $2,071,651 (1,649) $ (59,205) $ (6,610) $3,468,630
====================================================================================================================================
BALANCE, JANUARY 1, 1996 248 $ 99,324 158,068 $158,068 $1,212,838 $2,137,176 (477) $ (18,096) $ 10,476 $3,599,786
Net income -- -- -- -- -- 382,521 -- -- -- 382,521
Cash dividends declared:
Common ($1.16 per share) -- -- -- -- -- (182,407) -- -- -- (182,407)
Preferred -- -- -- -- -- (5,183) -- -- -- (5,183)
Redeemable preferred -- -- -- -- -- (50) -- -- -- (50)
Acquisition of treasury stock -- -- -- -- -- (4,476) (203,851) -- (203,851)
Common stock issued pursuant
to dividend reinvestment
and employee plans -- -- 325 325 (2,649) -- 1,232 47,454 -- 45,130
Common stock issued upon
acquisition of subsidiaries -- -- -- -- 621 -- 431 17,076 -- 17,697
Common stock issued upon
conversion of preferred
stock (8) (4,653) 8 8 (1,303) -- 152 5,948 -- --
Common stock issued upon
conversion of convertible
subordinated debentures -- -- -- -- (130) -- 6 224 -- 94
Adjustment of available for
sale securities to market
value -- -- -- -- -- -- -- -- (72,508) (72,508)
Other, net -- -- (1) (1) (42) (52) (12) (352) -- (447)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 240 $ 94,671 158,400 $158,400 $1,209,335 $2,332,005 (3,144) $(151,597) $ (62,032) $3,580,782
====================================================================================================================================
</TABLE>
- 6 -
<PAGE> 7
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Nine months ended September 30 (in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 657,895 $ 554,032
Investing Activities:
Net decrease in Federal funds sold and securities purchased under resale agreements 1,047,252 431,733
Net increase in loans (282,525) (1,335,019)
Proceeds from the sales of foreclosed property 21,457 30,170
Proceeds from the maturity of held to maturity securities 101,877 764,771
Purchases of held to maturity securities (90,942) (377,940)
Proceeds from the maturity of available for sale securities 1,920,142 842,903
Proceeds from the sales of available for sale securities 418,523 584,183
Purchases of available for sale securities (3,173,360) (468,732)
Net (increase) decrease in short-term investments 23,683 (16,033)
Net increase in property and equipment (48,598) (75,718)
Net cash received from purchase acquisitions 4,376 1,636
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (58,115) 381,954
========================================================================================================================
Financing Activities:
Net increase in Federal funds purchased and
securities sold under repurchase agreements 374,993 35,108
Net decrease in deposits (1,485,394) (825,868)
Net increase (decrease) in short-term borrowings 459,913 (225,926)
Payments on long-term debt (1,515) (77,594)
Proceeds from the issuance of long-term debt 2,534
Payments on capital lease obligations (1,037) (1,035)
Cash dividends paid (169,688) (151,371)
Acquisition of treasury stock (203,851) (68,965)
Purchase and retirement of preferred stock (583)
Common stock issued pursuant to dividend
reinvestment and employee plans 45,130 27,574
Decrease in redeemable preferred stock (12) (135)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (978,927) (1,288,795)
- ------------------------------------------------------------------------------------------------------------------------
Decrease in cash and due from banks (379,147) (352,809)
Cash and due from banks at beginning of year 2,611,765 2,558,509
- ------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at September 30 $ 2,232,618 $ 2,205,700
========================================================================================================================
</TABLE>
For the nine months ended September 30, 1996 and September 30, 1995, interest
paid totaled $1.0 million in each period and income taxes paid totaled $224
million and $157 million, respectively. Loans transferred to foreclosed
property totaled $14 million in 1996, and $9 million in 1995. Available for
sale securities transferred to held to maturity totaled $95 million for the
nine months ended September 30, 1996.
- 7 -
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
Table 1: Summary of Selected Financial Information
<CAPTION>
Third quarter ended September 30 Nine months ended September 30
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions except per share data) 1996 1995 % change 1996 1995 % change
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Share Data
Net income $.79 $.84 (6.0)% $ 2.40 $ 2.21 8.6 %
Net income before nonoperating items .96 .84 14.3 2.76 2.42 14.0
Dividends declared .42 .37 13.5 1.16 1.05 10.5
Book value at period end 22.45 21.61 3.9
Tangible book value at period end 19.75 18.93 4.3
Shares outstanding at period end 155.3 155.9 (.4)
Average shares outstanding 157.2 156.6 .4
- ---------------------------------------------------------------------------------------------------------------------------------
For the Period
Net interest income $396.9 $375.1 5.8% $1,184.3 $1,108.0 6.9 %
Provision for loan losses 19.3 12.4 55.4 64.8 33.3 94.7
Noninterest income 216.3 195.4 10.7 637.2 550.8<F1> 15.7
Noninterest expense 397.0<F2> 351.5 12.9 1,154.6<F3> 1,082.0<F3> 6.7
Net income 125.3 133.7 (6.2) 382.5 351.8 8.7
Net income before nonoperating items 152.5 133.7 14.1 439.1 385.2 14.0
- ---------------------------------------------------------------------------------------------------------------------------------
Financial Position at Period End
Total assets $40,694.0 $40,267.4 1.1 %
Loans 24,314.8 24,184.3 .5
Securities 11,973.2 11,259.1 6.3
Deposits 30,561.6 30,541.1 .1
Long-term debt 606.1 524.3 15.6
Stockholders' equity 3,580.8 3,468.6 3.2
- ---------------------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios
Before nonoperating items:
Return on assets 1.51% 1.32% 1.45% 1.27%
Return on total equity 16.81 15.49 16.13 15.29
Return on common equity 17.08 15.74 16.39 15.54
Noninterest income/operating income 34.7 33.7 34.4 33.5
Efficiency ratio 57.0 60.5 57.9 61.7
After nonoperating items:
Return on assets 1.24 1.32 1.26 1.16
Return on total equity 13.81 15.49 14.05 13.97
Return on common equity 14.00 15.74 14.25 14.18
Net interest margin 4.43 4.20 4.44 4.20
Noninterest income/operating income 34.7 33.7 34.4 32.6
Efficiency ratio 63.7 60.5 62.4 64.0
Capital ratios:
Equity to assets 8.80 8.61
Risk-based capital:
Tier I capital 11.29 11.04
Total capital 13.82 13.75
Tier I leverage ratio 8.21 7.86
- ---------------------------------------------------------------------------------------------------------------------------------
Asset Quality
Annualized net charge-offs to average loans .33% .16% .26% .15%
Loan reserve to net loans 1.94 1.91
Loan reserve to nonperforming loans 227.81 271.42
Nonperforming loans to total loans .85 .70
Nonperforming assets to total loans and
foreclosed property .98 .90
=================================================================================================================================
<FN>
<F1>Includes a securities restructuring charge of $22.0 million.
<F2>Includes merger expenses of $18.1 million and SAIF assessment of $23.6
million.
<F3>Includes merger expenses of $60.5 million in 1996 and $26.0 million in
1995, and SAIF assessment of $23.6 million in 1996.
</TABLE>
- 8 -
<PAGE> 9
ACQUISITION OVERVIEW
Over the last several years the Corporation has made numerous
acquisitions, thereby establishing leading market positions in Missouri,
Arkansas, Kansas, New Mexico and Oklahoma, and sizable presences in southern
Illinois, Iowa, western Tennessee and west Texas. The Corporation's geographic
profile provides credit and economic risk diversification in that the operation
is not significantly dependent on any major market, and currently the
Corporation's major markets are experiencing satisfactory economic conditions.
In 1995 and through the first nine months of 1996, the Corporation completed ten
acquisitions in five states aggregating $12.1 billion in total assets. The
Corporation's operations currently span nine states, with services delivered
from approximately 650 branch locations and approximately 1,470 ATM's. A summary
of the acquisitions consummated in 1996 and 1995 is provided in Table 2.
On August 30, 1996, the Corporation announced a definitive merger
agreement with NationsBank Corporation (NationsBank) in a transaction to be
accounted for as a purchase. Under terms of the agreement, each share of the
Corporation's common stock will be converted into the right to receive .6525
shares of NationsBank common stock or, at the election of the Corporation's
common shareholder, an equivalent amount of cash. However, such cash
consideration paid by NationsBank shall not exceed 40% of the aggregate
consideration. At the date of announcement, the total indicated purchase
price approximated $9.6 billion. The combined company will have total assets
approximating $230 billion, serving more than 13 million customers in 16
states in the Midwest, Southwest, Southeast and Mid-Atlantic. The merger,
which is subject to approval by the Corporation's and NationBank's
shareholders and appropriate regulatory authorities, is expected to be
completed early in the first quarter of 1997.
<TABLE>
Table 2: Acquisitions--1996 and 1995
<CAPTION>
Common Accounting
Date State Assets Price shares issued method
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Completed
Dalhart Bancshares, Inc. 1/95 Texas $ .1 billion $ 23 million stock .7 million Pooling
National Mortgage Company 1/95 Tennessee .2 billion 153 million stock 5.0 million Pooling
Worthen Banking Corporation 2/95 Arkansas 3.5 billion 595 million stock 17.1 million Pooling
Salem Community Bancorp, Inc. 2/95 Illinois .1 billion 8 million stock .3 million Purchase
West Side Bancshares, Inc. 4/95 Texas .1 billion 18 million stock .6 million Purchase
First National Bank in Pampa 5/95 Texas .2 billion 42 million stock 1.4 million Pooling
Citizens Bancshares Corporation 10/95 Arkansas .2 billion 41 million stock 1.1 million Purchase
Fourth Financial Corporation 1/96 Kansas 7.5 billion 1.2 billion stock 28.5 million Pooling
Tom Green National Bank 3/96 Texas .1 billion 9 million stock .2 million Purchase
Canadian Bancshares, Inc. 7/96 Texas .1 billion 8 million stock .2 million Purchase
- -----------------------------------------------------------------------------------------------------------------------------
Total assets of completed transactions $12.1 billion
=============================================================================================================================
</TABLE>
<TABLE>
Table 3: Asset Distribution
<CAPTION>
September 30, 1996
(dollars in billions) Assets % of total Locations
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Missouri $17.7 43.5% 166
Kansas 4.6 11.3 88
Arkansas 4.5 11.0 132
Oklahoma 4.4 10.8 95
New Mexico 3.4 8.3 71
Texas 2.4 5.9 43
Iowa 1.1 2.7 22
Illinois 1.0 2.5 23
Tennessee 1.0 2.5 18
Credit card .6 1.5
- ------------------------------------------------------------------------
Total $40.7 100.0% 658
========================================================================
</TABLE>
Kansas Acquisition
On January 31, 1996, the Corporation acquired Fourth Financial
Corporation (Fourth Financial), headquartered in Wichita, Kansas, in a
transaction accounted for as a pooling of interests. Under terms of the
agreement, the Corporation exchanged one share of its common stock for each
Fourth Financial common share, resulting in the issuance of approximately
28.5 million shares of common stock. In addition, the Corporation effectively
replaced Fourth Financial's $100 million convertible preferred stock by
issuance of an identical new security. Fourth Financial had $7.5 billion in
assets, operating 87 retail banking offices in Kansas and 56 in Oklahoma. The
acquisition of Fourth Financial gave the Corporation the leading deposit
market share in Kansas and Oklahoma.
- 9 -
<PAGE> 10
Arkansas Acquisition
On February 28, 1995, the Corporation acquired Worthen Banking
Corporation (Worthen), headquartered in Little Rock, Arkansas, in a
transaction accounted for as a pooling of interests. Under terms of the
agreement the Corporation exchanged one share of its common stock for each
Worthen share, resulting in the issuance of approximately 17.1 million
shares. Worthen was the second largest banking organization in Arkansas, with
approximately $3.5 billion in assets, operating 101 retail banking offices
throughout Arkansas and six such offices in the Austin, Texas area. The
acquisition of Worthen increased the Corporation's assets in Arkansas to over
$4 billion, making the Corporation the market leader in Arkansas.
Mortgage Banking Acquisition
On January 31, 1995, the Corporation acquired National Mortgage Company
and certain affiliates (National Mortgage), headquartered in Memphis,
Tennessee, in a transaction accounted for as a pooling of interests. Under
terms of the agreement, the Corporation exchanged approximately 5.0 million
shares of its common stock for all of the stock of National Mortgage.
National Mortgage is a full-service mortgage banking company which originates
home loans through company-operated offices as well as through a network of
approximately 300 correspondents located in the southern and midwestern
United States.
Other Acquisitions
In 1995, the Corporation completed acquisitions of five other financial
institutions aggregating $.7 billion in assets to strengthen its retail
presence within existing markets in Texas, Arkansas and Illinois. More
specific information regarding these acquisitions is provided in Table 2.
On March 1, 1996, the Corporation acquired Tom Green National Bank,
located in San Angelo, Texas, in a stock transaction accounted for as a
purchase. The acquisition of Tom Green National Bank, with assets of
approximately $80 million, resulted in the issuance of approximately .2 million
shares of common stock from treasury stock acquired in the open market.
On July 1, 1996, the Corporation completed the acquisition of Canadian
Bancshares, Inc. (Canadian), located in Canadian, Texas, in a stock
transaction accounted for as a purchase. The acquisition of Canadian, with
assets of approximately $40 million, resulted in the issuance of
approximately .2 million shares of common stock from treasury stock acquired
in the open market.
The acquisitions of Fourth Financial in the first quarter of 1996, and
Worthen, National Mortgage and Pampa in 1995, required recognition of
pre-tax merger expenses, consisting primarily of obsolete equipment
write-offs and estimated costs to close duplicate branches, severance and
retention costs, and investment banking, legal and other professional fees. In
the third quarter of 1996, the Corporation recognized merger-related expenses
associated with the proposed merger with NationsBank totaling $18.1 million.
Such expenses were comprised of costs related to stock compensation plans and
investment banking fees. The major components of the merger expenses are
quantified in Table 4. At September 30, 1996, the remaining accrued liability
for merger-related expenses totaled approximately $29 million.
<TABLE>
Table 4: Merger Expense
<CAPTION>
- ------------------------------------------------------------------------------------
Nine months ended September 30 (in millions) 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Equipment and software write-offs, and branch closings $17.9 $ 6.4
Compensation costs 27.2 4.6
Investment banking, legal, and other professional fees 7.9 9.7
Other 7.5 5.3
- ------------------------------------------------------------------------------------
Total $60.5 $26.0
====================================================================================
</TABLE>
EARNINGS OVERVIEW
Net income in 1996 and 1995 was impacted by merger-related expenses
stemming from the aforementioned pooling acquisitions and the securities
restructuring charge recognized by Fourth Financial in the first quarter of
last year. In addition, in the third quarter of 1996, net income was impacted
by merger-related expenses associated with the proposed merger with
NationsBank and the one-time assessment to recapitalize the Savings
Association Insurance Fund (SAIF). For the nine months of 1996, net income
before the impact of the merger expenses, SAIF assessment and securities
restructuring charge (nonoperating items) increased to $439.1 million, up
14.0% from the same period of last year, and net income per common share was
$2.76, an increase of 14.0%. For the third quarter, net income before
nonoperating items increased to $152.5 million, up 14.1% from the same period
last year, and net income per common share was $.96, an increase of 14.3%.
The earnings growth in the third quarter and nine months reflected higher net
interest income and noninterest income, offset in part by increases in the
provision for loan losses and slightly higher noninterest expense levels. On a
year-to-date basis, net income in 1996 was reduced by after-tax merger expenses
totaling $41.8 million or $.27 per common share, including $12.4 million or $.08
per common share recognized in the third quarter, and the after-
- 10 -
<PAGE> 11
ax SAIF assessment totaling $14.8 million or $.09 per common share. Net income
in 1995 was reduced by after-tax merger expenses totaling $20.0 million or $.13
per common share and an after-tax securities restructuring charge of $13.4
million or $.08 per common share. Including nonoperating items, net income for
the nine months increased 8.7% to $382.5 million, and net income per common
share increased 8.6% to $2.40. For the third quarter of 1996, net income
including nonoperating items was $125.3 million, or $.79 per common share,
compared to $133.7 million or $.84 per common share in the third quarter of last
year. The purchase acquisitions completed in 1995 and 1996 had no material
impact on results of operations.
For the third quarter, the return on average assets was 1.51% and the
return on common equity was 17.08%, compared to 1.32% and 15.74%,
respectively, for the same period last year. For the nine months, the return
on average assets was 1.45% and the return on common equity was 16.39%,
compared to 1.27% and 15.54%, respectively, in 1995. Including nonoperating
items, the return on average assets and return on common equity were 1.26% and
14.25%, respectively, for the nine months of 1996, and 1.16% and 14.18%,
respectively, in 1995. For the third quarter of 1996, the return on average
assets and return on common equity including nonoperating items were 1.24% and
14.00%, respectively.
Net interest income, on a fully-taxable equivalent basis, increased
5.6% over the third quarter of 1995 and 6.4% for the nine months, primarily
due to an improvement in the net interest margin. The net interest margin was
4.43% for the third quarter of 1996 and 4.44% for the nine months, increases
of 23 and 24 basis points from the prior year periods, respectively.
Noninterest income before securities gains and losses increased 10.9%
over the third quarter of 1995 and 11.7% for the nine months, due to growth
in most major categories of fee based revenues, supplemented by gains
resulting from sales of branch locations. Noninterest income in 1996 also
included a $12.0 million gain from the consummation of a merchant processing
credit card joint venture during the first quarter. Gains resulting from the
sale of 10 branch locations, five of which were required to be sold under
regulatory conditions of the Fourth Financial acquisition agreement, totaled
approximately $19 million and were recognized in the second and third
quarters of this year. Noninterest income in 1995 included gains of $7.9
million from the sale of mortgage loan servicing, a $4.9 million gain from
the sale of an ownership interest in a regional electronic funds transfer
network, and a gain of $1.2 million on a branch divestiture.
Noninterest expense, excluding nonoperating items, increased 1.1% from
the third quarter of 1995 and 1.4% for the nine months. Including
nonoperating items, noninterest expense increased 12.9% for the third quarter
and 6.7% for the nine months. The efficiency ratio, before nonoperating
items, improved to 57.9% for the nine months of 1996, compared to 61.7% for
the prior year period.
The provision for loan losses for the third quarter of 1996 totaled
$19.3 million, up from $12.4 million for the same period of last year. For
the nine months, the provision for loan losses totaled $64.8 million,
compared to $33.3 million in 1995. The year-to-date provision for loan losses
exceeded net charge-offs by $18.1 million, and included an additional
provision in the first quarter of approximately $9 million to conform Fourth
Financial to the Corporation's loan reserve policies. For the nine months of
1996, net loan charge-offs were $46.7 million, compared to $26.7 million in
the same period last year; and annualized net charge-offs as a percentage of
average loans were .26% in 1996, compared to .15% in the same period last
year and .27% for the full year 1995.
Presented in Table 5 is an income statement analysis expressed on a per
share basis for the three months and nine months ended September 30, 1996,
compared to the same periods last year and the three months ended June 30,
1996. A more detailed discussion and analysis of the major factors impacting
the comparability between periods is provided throughout this report.
<TABLE>
Table 5: Earnings Per Share Analysis
<CAPTION>
3rd Qtr. '96 3rd Qtr. '96 YTD '96
Per share vs. 3rd Qtr. '95 vs. 2nd Qtr. '96 vs. YTD '95
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per share prior period $ .84 $ .92 $2.21
- ------------------------------------------------------------------------------------------------
Net interest income .14 (.01) .49
Provision for loan losses (.04) (.20)
Noninterest income .13 .05 .55
Noninterest expense (.02) .03 (.09)
Merger expense, pre-tax (.12) (.12) (.22)
SAIF assessment, pre-tax (.15) (.15) (.15)
Income tax expense .01 .07 (.18)
Impact of additional shares of common stock (.01)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) (.05) (.13) .19
- ------------------------------------------------------------------------------------------------
Net income per share current period $ .79 $ .79 $2.40
================================================================================================
</TABLE>
- 11 -
<PAGE> 12
NET INTEREST INCOME AND INTEREST RATE RISK MANAGEMENT
<TABLE>
Table 6: Summary of Net Interest Income
<CAPTION>
Third quarter ended September 30 Nine months ended September 30
- ------------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average loans $24,096.5 $24,207.4 (.5)% $24,193.7 $23,727.0 2.0%
Average earning assets 36,483.0 36,345.1 .4 36,502.8 36,256.2 .7
Average core deposits 27,035.7 26,840.8 .7 27,305.7 26,411.0 3.4
Average purchased funds 6,301.3 6,880.4 (8.4) 6,119.9 7,234.4 (15.4)
Net interest income (FTE) 406.7 385.2 5.6 1,213.2 1,139.8 6.4
Net interest margin 4.43% 4.20% 4.44% 4.20%
==============================================================================================================================
</TABLE>
Net interest income, on a fully-taxable equivalent basis, increased
5.6% over the third quarter of 1995 and 6.4% for the nine months, primarily
due to an improvement in the net interest margin.
The net interest margin for the third quarter of 1996 was 4.43%,
compared to 4.20% for the same period last year and 4.48% for the second
quarter of 1996. For the nine months, the net interest margin was 4.44%,
compared to 4.20% in 1995. The increase in the net interest margin was
primarily due to a decline in funding costs, coupled with a higher
contribution from noninterest-bearing fund sources and interest recoveries on
nonaccrual loans. The average yield on earning assets for the nine months was
essentially unchanged from the same period last year; while the average rate
paid on interest-bearing liabilities decreased 19 basis points. For the third
quarter, the average yield on earning assets declined 10 basis points from
the same period last year, but was more than offset by a decline in the rate
paid on interest-bearing liabilities of 28 basis points. The increased
contribution from noninterest-bearing fund sources reflects growth in escrow
balances related to the mortgage servicing portfolio and lower deposit
reserve positions maintained on certain classes of deposit liabilities.
Average earning assets increased .7% for the nine months, as loan
growth of 2.0% was partially offset by a decline in the securities
portfolio. As a percentage of average earning assets, loans were 66.3% for
the nine months of 1996, compared to 65.4% for the same period last year.
Held to maturity and available for sale securities decreased 1.3% for the
nine months, and represented 31.9% of average earning assets, down from 32.5%
in 1995. In the third quarter of 1996, the earning asset mix shifted
moderately as loans decreased .5% from the third quarter of last year, while
the securities portfolio increased 5.8%. For the third quarter of 1996, loans
represented 66.0% of average earning assets, compared to 66.6% for the same
period last year. Held to maturity and available for sale securities
represented 32.9% of average earning assets for the third quarter of 1996,
compared to 31.1% during the same period last year. This increase reflects a
temporary expansion of the securities portfolio in response to favorable
market conditions.
Interest rate risk is the extent to which net interest income may be
affected by changes in market driven interest rates, and the Corporation
assumes varying degrees of interest rate risk as part of its normal banking
operations. It is the role of the asset/liability management committee to
manage and control the level of interest rate risk contained in the balance
sheet as well as off-balance sheet financial instruments. The Corporation's
interest rate risk policy is to maintain a stable level of net interest
income while also enhancing earnings potential through limited risk
positioning based on the forecast of future interest rates. Interest rate
risk exposure (earnings at risk exposure) is currently limited, by policy, to
5% of projected annual net income. Adherence to these risk limits is
controlled and monitored through simulation modeling techniques that consider
the impact that alternative interest rate scenarios will have on the
Corporation's financial results. In its simulations, the Corporation
estimates the impact on net interest income and net income resulting from
various changes in market interest rates. Utilization of the simulation
modeling results enables management to develop strategies to control the
Corporation's overall interest rate risk exposure and to monitor specific
risks associated with on-balance sheet financial instruments and off-balance
sheet interest rate derivative contracts such as interest rate swaps and
floors. Based on the current interest rate sensitivity position, the
simulation model indicates that the earnings at risk exposure over the next
12 months is less than 3%, assuming a gradual 200 basis point increase in
interest rates, and no active management of the balance sheet components in
response to the interest rate increase.
An effective asset/liability management function is required to address
the interest rate risk inherent in the Corporation's core banking activities.
If no other management action is taken, these core banking activities, which
include lending and deposit products, result in an asset-sensitive position.
Accordingly, the Corporation utilizes a variety of discretionary on- and
off-balance sheet strategies to manage the overall interest rate sensitivity
position. Asset securitizations and interest rate derivative contracts are
effective mechanisms to manage interest rate risk due to the inherent
advantages related to flexibility in product structure, size, liquidity,
capital and market timing. The contribution of derivatives over time will
expand or contract with movements in market rates; however, this risk cannot
be viewed in isolation and it is controlled and monitored within the overall
context of the aforementioned asset/liability management policies.
- 12 -
<PAGE> 13
<TABLE>
Table 7: Derivative Portfolio Activity
<CAPTION>
Interest Rate Swaps
--------------------------------------------------------
(in millions) Receive Fixed Pay Fixed Basis Swaps Total Floors Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Notional amount, December 31, 1995 $1,828 $ 879 $ 97 $ 2,804 -- $ 2,804
Additions -- 1,500 1,500
Maturities (639) (876) (85) (1,600) (1,600)
- ------------------------------------------------------------------------------------------------------------------------
Notional amount, September 30, 1996 $1,189 $ 3 $ 12 $ 1,204 $1,500 $ 2,704
========================================================================================================================
Average remaining maturity (years) .4 .1 .2 .4 2.5 1.6
Weighted average rate received 5.51% 5.62% 6.31% 5.52%
Weighted average rate paid 5.62 8.71 5.75 5.63
========================================================================================================================
</TABLE>
<TABLE>
Table 8: Derivative Portfolio
<CAPTION>
Weighted Estimated
Average Rate -----------------------
September 30, 1996 Notional ------------------------- Maturity Unrealized
(in millions) Amount Receive Pay (years) Gain(Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate swaps:
Prime loan swaps:
Receive fixed $1,089 5.54% 5.61% .4 $(3.6)
Basis swaps 12 6.31 5.75 .2
- ---------------------------------------------------------------------------------------------------------------------------
Total 1,101 5.55 5.61 .4 (3.6)
Long-term debt swaps 100 5.18 5.69 -- .5
Other 3 6.87 7.86 .2 --
- ---------------------------------------------------------------------------------------------------------------------------
Total interest rate swaps 1,204 5.52% 5.63% .4 (3.1)
Interest rate floors 1,500 2.5 (1.4)
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,704 1.6 $(4.5)
===========================================================================================================================
<CAPTION>
Weighted Estimated
Average Rate -----------------------
September 30, 1995 Notional ------------------------- Maturity Unrealized
(in millions) Amount Receive Pay (years) Gain(Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate swaps:
Prime loan swaps:
Receive fixed $1,787 5.64% 6.07% 1.2 $(23.7)
Basis swaps 127 6.50 6.05 .5 .5
- ---------------------------------------------------------------------------------------------------------------------------
Total 1,914 5.69 6.07 1.1 (23.2)
Long-term debt swaps 200 4.87 5.99 .7 (.3)
Bank note liability swaps 850 5.93 6.21 .7 (2.1)
Other 30 6.24 8.71 .6 (.6)
- ---------------------------------------------------------------------------------------------------------------------------
Total $2,994 5.71% 6.13% 1.0 $(26.2)
===========================================================================================================================
</TABLE>
In 1996, $1.5 billion of interest rate floors were added and $1.6
billion of interest rate swaps matured such that at September 30, 1996, the
notional value of interest rate derivative contracts totaled $2.7 billion.
The interest rate floors added in 1996 were purchased as a means to offset
the potential impact of an implicit floor in the Corporation's
administered-rate retail deposits in a low rate environment. The Corporation
will receive interest payments on the floor contracts if the 3 year U.S.
Treasury rate falls below 5.40%. The contracts are effective from April 1997
until April 1999. Interest rate swaps added in 1995 were executed as a means to
convert a portion of the Corporation's variable rate bank notes to fixed rate
instruments. Interest rate swaps executed in years prior to 1995 were
undertaken to modify the interest rate sensitivity of the Corporation's
prime-based loan portfolio, converting a portion of these loans to fixed rate
instruments. Additionally, the Corporation has utilized swaps to convert a
portion of its long-term fixed rate debt to a floating rate basis. Periodic
correlation assessments are performed to ensure that the derivative
instruments are effectively modifying the interest rate characteristics of
the respective balance sheet items.
As summarized in Table 7, the swap portfolio is primarily comprised of
contracts wherein the Corporation receives a fixed rate of interest while
paying a variable rate. As such, the contribution from the swap portfolio
will decrease in a rising rate environment and increase in a falling rate
environment. The average rate received at September 30, 1996, was 5.52% on a
notional amount of $1.2 billion, compared to an average rate paid of 5.63%,
and the average remaining maturity of the total portfolio was less than one
year. The variable rate component of the interest rate swaps is based on
LIBOR as of the most recent reset date. The interest
- 13 -
<PAGE> 14
rate swaps are not leveraged in that they reset in step with rate movements in
the underlying index.
The derivative portfolio had minimal impact on the Corporation's
operating results in 1996, reducing net interest income by approximately $.8
million in the third quarter and $3.6 million for the nine months, resulting
in reductions in the net interest margin of approximately 1 basis point in
each period. In 1995, the derivative portfolio decreased net interest income
by $3.2 million for the third quarter and $10.3 million for the nine months,
reducing the margin by approximately 4 basis points. Based on interest rates
at September 30, 1996, it is anticipated that the existing derivative
portfolio will reduce net interest income by approximately $4 million in
1996.
Table 8 provides information related to weighted average rates received
and paid, unrealized gains(losses) and maturity profile of the major
derivative programs in place at September 30, 1996, and September 30, 1995.
The derivative portfolio's estimated unrealized loss, based on dealer quotes,
was $4.5 million at September 30, 1996, compared to an unrealized loss of
$26.2 million at September 30, 1995. The Corporation's operating and
liquidity position is not expected to be materially impacted by the
unrealized loss inherent in the derivative portfolio.
Approximately 91% of the interest rate swap portfolio is comprised of
indexed amortizing swaps, whereby the maturity distribution could lengthen
if interest rates increase from current levels. Assuming interest rates were
to increase 200 basis points from their current levels, the average maturity
distribution of the swap portfolio would extend by approximately two years,
but in no event would any component of the swap portfolio extend beyond four
years. The specific indexed amortizing swaps used by the Corporation have a
minimum term which can potentially lengthen to a specified final maturity
depending on the level of movement in interest rates. While the underlying
characteristics of the specific indexed amortizing swaps used by the
Corporation are similar to on-balance sheet mortgage-backed securities,
prepayment and other risk factors are more predictable due to the structural
features inherent in the swaps. Any future utilization of off-balance sheet
financial instruments will be determined based upon the Corporation's overall
interest rate sensitivity position and asset/liability management strategies.
While the Corporation is primarily an end-user of derivative
instruments, it also acts as an intermediary to meet the financial needs of
its customers. Interest rate risk associated with this portfolio is
controlled by entering into offsetting positions with third parties.
Including these offsetting positions, the notional amount of the customer
interest rate derivative portfolio at September 30, 1996, totaled
approximately $1.2 billion.
NONINTEREST INCOME
<TABLE>
Table 9: Summary of Noninterest Income
<CAPTION>
Third quarter ended September 30 Nine months ended September 30
- ---------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trust fees $ 52.9 $ 50.5 4.9% $159.6 $148.0 7.8%
Service charges 63.2 58.8 7.5 187.2 171.9 8.9
Mortgage banking revenues 23.3 20.3 14.5 67.2 60.3 11.4
Credit card 11.3 16.2 (30.3) 37.7 45.3 (16.8)
Investment banking revenues 11.8 10.6 11.3 36.4 31.3 16.1
Other 53.2 38.1 39.6 147.2 112.1 31.3
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest income before
securities gains (losses) 215.7 194.5 10.9 635.3 568.9 11.7
Securities gains (losses), net .6 .9 (38.6) 1.9 (18.1) 110.6
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income $216.3 $195.4 10.7% $637.2 $550.8 15.7%
===========================================================================================================================
As % of operating income 34.7% 33.7% 34.4% 32.6%
As % of operating income before securities
restructuring charge 34.7 33.7 34.4 33.5
Revenue per full-time equivalent employee
(in thousands) $121.2 $113.7 $119.9 $110.3
===========================================================================================================================
</TABLE>
Noninterest income before securities gains and losses increased 10.9%
over the third quarter of 1995 and 11.7% for the nine months, primarily due
to growth in most major categories of fee-based revenues, supplemented by
gains resulting from sales of certain branch locations. Noninterest income in
1996 also included a $12.0 million gain from the sale of credit card merchant
contracts upon formation of a joint venture with a third party processor
during the first quarter. Gains resulting from the sale of 10 branch
locations, five of which were required to be sold under regulatory conditions
of the Fourth Financial acquisition agreement, totaled $19 million for the
nine months, of which approximately $10 million was recognized in the third
quarter. Noninterest income in 1995 included a gain of $7.9 million from the
sale of mortgage loan servicing, a $4.9 million gain from the sale of an
ownership interest in a regional electronic funds transfer network, and a
gain of $1.2 million on a branch divestiture. Noninterest income as a
- 14 -
<PAGE> 15
percentage of operating revenues improved to 34.4% for the nine months of
1996, from 33.5% for the same period of last year, before the impact of the
aforementioned securities restructuring charge.
Trust fees increased 4.9% over the third quarter of 1995 and 7.8% for
the nine months, primarily due to increases in pension/institutional fees
and in the personal trust line of business. This growth was due to new
customer accounts and favorable equity financial markets resulting in an
increase in market values of trust assets on which some fees are based. Trust
assets under management totaled $42.7 billion at September 30, 1996.
<TABLE>
Table 10: Trust Fees by Component
<CAPTION>
Third quarter ended September 30 Nine months ended September 30
- ------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personal trust $31.8 $30.8 3.2% $ 95.9 $ 92.3 3.9%
Pension and institutional 15.1 14.7 2.7 46.3 42.0 10.2
Corporate trust 3.0 3.1 (3.2) 9.6 9.3 3.2
Mutual funds 3.0 1.9 57.9 7.8 4.4 77.3
- ------------------------------------------------------------------------------------------------------------------------
Total $52.9 $50.5 4.9% $159.6 $148.0 7.8%
========================================================================================================================
</TABLE>
Service charge income totaled $63.2 million in the third quarter of
1996 and $187.2 million for the nine months, increases of 7.5% and 8.9% over
the prior year periods, respectively. This growth reflected increases in
fees from both retail and corporate customers. Credit card income decreased
30.3% from the third quarter of last year and 16.8% for the nine months due
to the sharing of merchant processing income upon the formation of a joint
venture with a third party processor late in the first quarter of 1996.
Investment banking revenues increased 11.3% over the third quarter of 1995
and 16.1% for the nine months, primarily due to increased sales volume within
the retail sector.
Mortgage banking revenues totaled $23.3 million in the third quarter of
1996 and $67.2 million for the nine months, increases of 14.5% and 11.4%
from the prior year periods, respectively. Mortgage banking revenues in the
first quarter of 1995 included a $7.9 million gain on the sale of
approximately $700 million of mortgage servicing. Excluding this gain,
mortgage banking revenues increased 28.2% for the nine months, primarily due
to higher production volume resulting in increased origination fees and gains
on sales of loans. The servicing portfolio increased to $20.0 billion at
September 30, 1996, from $19.1 billion at September 30, 1995, primarily due
to acquisitions of no-cost contract servicing agreements, supplemented by
internal growth. Retail and correspondent loan originations totaled
approximately $1.4 billion in the nine months of 1996, compared to $1.0
billion in the prior year. At September 30, 1996, mortgage servicing rights
totaled $78.5 million, with a fair value of approximately $106.2 million.
Mortgage servicing rights are stratified by loan type and interest rate for
purposes of impairment measurement. An impairment loss is recognized to the
extent the unamortized mortgage servicing rights for each stratum exceed the
current market value. During 1995 and through the first nine months of 1996,
no impairment valuation writedowns were required. Table 11 summarizes the
components of mortgage banking revenues.
<TABLE>
Table 11: Summary of Mortgage Banking Revenues
<CAPTION>
Third quarter ended September 30 Nine months ended September 30
- ---------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Servicing fees<F1> $14.3 $14.3 $40.6 $41.4
Late fees 2.8 2.7 8.8 7.7
Gains (losses) on sales of loans 3.2 .5 8.2 (1.5)
Origination fees 3.0 2.8 9.6 4.8
Gain on sale of mortgage servicing rights 7.9
- ---------------------------------------------------------------------------------------------------------------------
Total mortgage banking revenues $23.3 $20.3 $67.2 $60.3
=====================================================================================================================
<FN>
<F1> Net of mortgage servicing rights amortization.
</TABLE>
For the nine months of 1996, securities gains totaled $1.9 million,
compared to securities losses of $18.1 million in 1995 when Fourth Financial
sold approximately $425 million of fixed rate securities in the first quarter
of last year as a means to realign its balance sheet to reduce interest rate
sensitivity.
Other noninterest income increased $35.1 million or 31.3% over the nine
months of 1995 primarily due to the aforementioned gains from the
divestiture of branch locations and the sale of credit card merchant
contracts upon formation of the joint venture with a third party processor.
Other noninterest income in 1996 also reflected increases in electronic
banking revenues, investment appreciation in bank owned life insurance,
higher syndication fees and servicing income from securitized loans. Other
noninterest income in 1995 included the aforementioned $4.9 million gain from
the sale of an ownership interest in a regional electronic funds transfer
network and a branch divestiture gain of $1.2 million.
- 15 -
<PAGE> 16
NONINTEREST EXPENSE
<TABLE>
Table 12: Summary of Noninterest Expense
<CAPTION>
Third quarter ended September 30 Nine months ended September 30
- ---------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Staff expense $191.4 $182.7 4.8% $ 573.1 $ 539.9 6.2%
Occupancy 26.5 25.6 3.3 77.0 74.4 3.4
Equipment 30.5 28.3 7.8 91.1 85.6 6.5
FDIC/SAIF insurance 26.3 1.2 31.8 34.3 (7.4)
Credit card 3.1 4.6 (32.6) 10.6 12.2 (13.1)
Printing, postage, paper 14.8 14.7 .7 45.8 44.0 4.1
Intangible amortization 9.9 11.1 (10.7) 30.3 32.5 (6.8)
Professional fees 7.3 6.8 7.4 22.5 19.7 14.2
Federal Reserve processing charges 2.9 2.9 8.6 8.8 (2.3)
Advertising 10.8 9.8 11.2 33.2 31.2 6.4
Communications 9.3 8.2 13.4 27.2 23.7 14.8
Merger expense 18.0 60.5 26.0 132.7
Other 46.2 55.6 (16.9) 142.9 149.7 (4.5)
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $397.0 $351.5 12.9% $1,154.6 $1,082.0 6.7%
===========================================================================================================================
Efficiency ratio before nonoperating items 57.0% 60.5% 57.9% 61.7%
Number of full-time equivalent employees 20,342 20,303
===========================================================================================================================
</TABLE>
Noninterest expense levels in both 1996 and 1995 include various
nonoperating items which have distorted expense trends. Excluding
nonoperating items, noninterest expense increased 1.1% from the third quarter
of 1995, and 1.4% for the nine months. Noninterest expense in 1996 includes
merger expenses totaling approximately $42.4 million resulting from the first
quarter acquisition of Fourth Financial, and merger expenses totaling
approximately $18.1 million in the third quarter associated with the pending
NationsBank merger. In addition, noninterest expense includes a one-time
assessment of $23.6 million recognized in the third quarter of 1996 for the
recapitalization of the SAIF. In 1995, noninterest expense included $26.0
million of merger expenses primarily related to the acquisitions of Worthen
and National Mortgage. The efficiency ratio before nonoperating items
improved to 57.9% for the nine months of 1996, compared to 61.7% for the
prior year period. Including nonoperating items, noninterest expense
increased 12.9% from the third quarter of 1995 and 6.7% for the nine months.
Staff expense, which represents approximately 50% of total noninterest
expense, increased 4.8% from the third quarter of 1995 and 6.2% for the nine
months, primarily due to higher costs associated with employee benefit and
incentive compensation plans, normal merit increases and additional staff
from purchase acquisitions. The number of full-time equivalent employees
(FTE's) was 20,342 at September 30, 1996, down from 20,629 at June 30, 1996.
Staffing levels are expected to continue to decline from existing levels
through consolidation and integration of duplicate functions at Fourth
Financial over the balance of the year and through implementation of a hiring
freeze upon announcement of the pending NationsBank merger.
FDIC/SAIF insurance expense, including the one-time SAIF assessment,
totaled $31.8 million for the nine months of 1996, compared to $34.3 million
in the prior year period. Excluding the one-time SAIF charge, assessments
decreased $26.1 million on a year-to-year basis, reflective of action taken
by the FDIC in 1995 which reduced the rate paid by most financial
institutions from 23 cents per $100 of insured deposits to a $2,000 minimum
per bank. As a result of the Omnibus Appropriations Package signed into law
on September 30, 1996, effective January, 1997, banking and thrift institutions
will also share in FICO assessments based on a pre-determined formula.
BIF-insured institutions will pay at an annual rate of 1.29 cents for every $100
in domestic deposits and SAIF-insured institutions will pay at an annual rate of
6.44 cents per $100 of domestic deposits.
TAXES
The Corporation's effective tax rate was 36.5% for the nine months of
1996, compared to 35.3% for the same period of last year. The Corporation's
effective tax rate reflects nondeductible merger expenses associated with
pooling-of-interests acquisitions, a continued decline in the amount of
tax-exempt income as a percentage of operating income and increased state
income taxes. Excluding the impact of the nondeductible merger expenses, the
effective tax rate was 36.0% in 1996 and 34.7% in 1995.
- 16 -
<PAGE> 17
PROVISION FOR LOAN LOSSES AND ASSET QUALITY
<TABLE>
Table 13: Summary of Reserve for Loan Losses
<CAPTION>
Third quarter ended September 30 Nine months ended September 30
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $472.0 $457.2 $452.6 $449.5
Loans charged off:
Commercial (8.3) (6.0) (23.1) (16.9)
Real estate:
Commercial real estate (.5) (.4) (2.7) (2.2)
Construction (.1) (.7) (.4)
1-4 family residential (.4) (.5) (1.8) (1.4)
Consumer:
Credit card (6.5) (7.0) (20.9) (19.8)
Other (14.8) (10.8) (40.3) (26.5)
- ------------------------------------------------------------------------------------------------------------------
Total charge-offs (30.6) (24.7) (89.5) (67.2)
- ------------------------------------------------------------------------------------------------------------------
Recoveries on loans previously charged off:
Commercial 4.9 7.0 19.7 16.7
Real estate:
Commercial real estate .8 1.4 5.8 5.9
Construction .2 .9 .5 1.9
1-4 family residential .4 .7 1.6 1.8
Consumer:
Credit card .8 1.4 2.6 3.5
Other 3.8 3.6 12.6 10.7
- ------------------------------------------------------------------------------------------------------------------
Total recoveries 10.9 15.0 42.8 40.5
- ------------------------------------------------------------------------------------------------------------------
Net charge-offs (19.7) (9.7) (46.7) (26.7)
- ------------------------------------------------------------------------------------------------------------------
Provision for loan losses 19.3 12.4 64.8 33.3
Loan reserve from acquisitions .6 1.5 1.5 5.3
- ------------------------------------------------------------------------------------------------------------------
Balance, end of period $472.2 $461.4 $472.2 $461.4
==================================================================================================================
Annualized net charge-offs as % of average loans .33% .16% .26% .15%
At end of period:
Loan reserve as % of net loans 1.94 1.91
Loan reserve as % of nonperforming loans 227.81 271.42
==================================================================================================================
</TABLE>
<TABLE>
Table 14: Summary of Nonperforming Assets
<CAPTION>
(in millions) September 30, 1996 December 31, 1995 September 30, 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual $164.0 $165.4 $124.0
Restructured 2.4 8.0 7.2
Past due 90 days or more 40.8 37.4 38.8
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 207.2 210.8 170.0
- ------------------------------------------------------------------------------------------------------------------------
Foreclosed property 33.2 35.1 49.9
========================================================================================================================
Total nonperforming assets $240.4 $245.9 $219.9
========================================================================================================================
Nonperforming loans as % of total loans .85% .87% .70%
Nonperforming assets as % of total loans and foreclosed property .98 1.02 .90
Nonperforming assets as % of total assets .59 .60 .55
Loan reserve as % of nonperforming loans 227.81 214.70 271.42
========================================================================================================================
</TABLE>
The provision for loan losses totaled $19.3 million in the third
quarter of 1996, compared to $12.4 million in the same period last year. Net
charge-offs in the third quarter totaled $19.7 million, compared to $9.7
million in the same period last year. For the nine months, the provision for
loan losses totaled $64.8 million, compared to $33.3 million in 1995. The
year-to-date provision for loan losses exceeded net charge-offs by $18.1
million, due to recognition of an additional provision in the first quarter
totaling approximately $9 million to conform Fourth Financial to the
Corporation's loan reserve policies, coupled with management's intent to
maintain the loan reserve coverage at targeted levels as the loan portfolio
expands.
The reserve for loan losses represented 228% of nonperforming loans at
September 30, 1996, compared to 215% at Decem-
- 17 -
<PAGE> 18
ber 31, 1995, and 271% at September 30, 1995. The reserve for loan losses as a
percentage of net loans was 1.94%, compared to 1.91% at September 30, 1995, and
1.88% at year-end 1995. Net loan charge-offs for the nine months of 1996 totaled
$46.7 million, compared to $26.7 million for the same period of 1995. The
increase in net loan charge-offs in 1996 is primarily due to higher loan losses
experienced within the consumer loan portfolio. Annualized net charge-offs as a
percentage of average loans were .26% for the nine months of 1996, compared
to .15% for the same period last year, and .27% for all of 1995.
Nonperforming assets, which include nonperforming loans and foreclosed
property, declined $15.8 million from June 30, 1996, and $5.5 million from
year-end 1995, but were up $20.5 million or 9.3% from September 30, 1995. The
decrease from June 30, 1996 reflects a recent sale of a large nonperforming
loan, partially offset by other loans migrating to nonaccrual status. The
increase from September 30, 1995, was due to an adjustment to conform Fourth
Financial to the Corporation's nonaccrual policies and net increases at other
banking units as illustrated in Table 15. As a percent of total loans and
foreclosed property, nonperforming assets were .98% at September 30, 1996,
compared to .90% at September 30, 1995, and 1.02% at December 31, 1995. As a
percentage of total assets, nonperforming assets were .59% at September 30,
1996, compared to .55% at September 30, 1995, and .60% at December 31, 1995.
Nonperforming loans at September 30, 1996, were $207.2 million or .85% of
total loans, compared to .87% at December 31, 1995, and .70% at September 30,
1995.
<TABLE>
Table 15: Nonperforming Assets by Banking Unit
<CAPTION>
September 30, 1996 December 31, 1995 September 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount Assets Amount Assets Amount Assets
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Missouri $ 87.5 .49% $ 99.7 . 57% $ 79.3 .46%
Oklahoma 52.3 1.19 41.7 .95 41.6 .97
New Mexico 22.1 .65 25.9 .78 27.6 .84
Kansas 20.3 .44 17.4 .34 22.1 .43
Arkansas 21.6 .48 22.9 .48 19.2 .45
Iowa 12.3 1.12 12.9 1.08 5.5 .46
Texas 6.5 .27 8.6 .37 9.7 .44
Illinois 6.0 .60 4.9 .45 4.6 .42
Tennessee 4.6 .46 4.9 .54 3.7 .41
Credit Card 7.2 1.20 7.0 1.40 6.6 1.32
- ---------------------------------------------------------------------------------------------------------------------------
Total $240.4 .59% $245.9 .60% $219.9 .55%
===========================================================================================================================
</TABLE>
As part of management's overall portfolio analysis, ongoing credit
quality reviews are performed to evaluate risk inherent in the portfolio and
potential risk that may develop in the future. A critical element in
assessing portfolio risk is the level of criticized loans. The Corporation's
internal risk rating system designates specific credits as criticized loans,
which include all nonperforming loans and other loans which contain features
presenting more than the normal risk of collectibility. Criticized and
classified assets from regulatory examinations are an integral component of
the risk rating system. As displayed in Table 16, criticized loans totaled
$956.4 million or 3.92% of loans at September 30, 1996, compared to $868.9
million or 3.60% of loans at December 31, 1995. The increase from year end
primarily reflects application of the Corporation's credit administration
classification criteria to Fourth Financial's loan portfolio. Management
carefully analyzes changes and trends in both nonperforming and criticized loans
in assessing the risk characteristics of the loan portfolio. Delinquency trends
are another tracking mechanism used by management to assess portfolio risk. As
illustrated in Table 17, consumer loan delinquencies gradually trended upward
through 1995 as the industry experienced some moderate deterioration in
consumer credit. Credit risk associated with the consumer loan portfolio,
which is primarily comprised of credit card, home equity and direct/indirect
installment loans, is controlled through the use of standardized credit
scoring techniques and consistent adherence to standard underwriting policies
throughout the Corporation's nine state region. Annualized net loan losses
from the consumer loan portfolio expressed as a percentage of the related
average loan balances were .96% for the nine months of 1996 and .70% in the
same period of last year, and included credit card losses of 4.02% and 3.40%,
respectively. Credit card loan losses totaled $5.7 million in the third
quarter of 1996, essentially unchanged from the second quarter level and were
down $1.3 million from the first quarter.
- 18 -
<PAGE> 19
<TABLE>
Table 16: Loans Designated as Criticized Loans by Internal Risk Rating
System
<CAPTION>
Criticized Loans
- ------------------------------------------------------------------------------------------------
(in millions) Nonperforming Performing Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
March 31 $170.7 $598.7 $769.4
June 30 169.8 646.2 816.0
September 30 170.0 693.9 863.9
December 31 210.8 658.1 868.9
================================================================================================
1996
March 31 $226.9 $741.5 $968.4
June 30 220.3 731.1 951.4
September 30 207.2 749.2 956.4
================================================================================================
As % of loans at September 30, 1996 .85% 3.07% 3.92%
================================================================================================
</TABLE>
<TABLE>
Table 17: Consumer Loan Delinquency Trend
<CAPTION>
Past Due 30 Days or More Past Due 90 Days or More
- ------------------------------------------------------------------------------------------------------------
As a % of outstandings Credit Card Loans Installment Loans Residential Loans
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
March 31 3.08% .92% .36%
June 30 3.45 1.12 .41
September 30 3.72 1.42 .44
December 31 3.75 1.68 .44
1996
March 31 3.34% 1.21% .50%
June 30 3.16 1.38 .56
September 30 3.45 1.45 .58
============================================================================================================
</TABLE>
At September 30, 1996, the recorded investment in loans that are
considered to be impaired under Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for the Impairment of a Loan," totaled
approximately $141.2 million and consisted of nonaccrual and restructured
commercial, commercial real estate, and real estate construction loans. At
September 30, 1996, the reserve for loan losses included approximately $2.8
million allocated to $12.8 million of impaired loans. It is the Corporation's
policy to discontinue the accrual of interest on loans when the full
collectibility of principal or interest is doubtful. Nonaccrual loans are
reduced by the direct application of interest receipts to loan principal, for
accounting purposes only. If the principal amount of the loan is well
collateralized, interest income on such loans may be recognized in the
periods in which payments are received. Interest income recognized on
impaired loans for the nine months of 1996 was less than $1 million.
SEGREGATED ASSETS
As part of the regulatory-assisted acquisition of Missouri Bridge Bank,
N.A. on April 23, 1993, the Corporation entered into a loss-sharing
arrangement with the FDIC with respect to approximately $950 million in
multi-family residential, commercial real estate, construction, and
commercial and industrial loans. During the first five years, the FDIC will
reimburse the Corporation for 80 percent of the first $92.0 million of net
charge-offs on these loans, after which the FDIC will increase its
reimbursement coverage to 95 percent of additional charge-offs. During this
period, and for two years thereafter, the Corporation is obligated to pay the
FDIC 80 percent of all recoveries on charged-off loans.
The Corporation has designated certain loans covered under the
loss-sharing arrangement which possess more than the normal risk of
collectibility as segregated assets. These loans have the same characteristics
as nonaccrual loans and foreclosed properties. At September 30, 1996, segregated
assets totaled $57.2 million, net of a $12.8 million credit valuation allowance,
down from $131.8 million a year ago, and are classified as other assets for
reporting purposes. At September 30, 1996, segregated assets consisted of
$11.4 million of commercial loans, $7.7 million of industrial revenue bond
loans, $44.9 million of commercial real estate related loans and $6.0 million
of foreclosed property. All other loans covered under the loss-sharing
arrangement are included in the loan portfolio and totaled $150.3 million at
September 30, 1996. Net charge-offs of $.5 million, representing the
Corporation's share of losses on the segregated asset pool, were recognized
in the first nine months of 1996. The valuation allowance represents the
Corporation's share of estimated losses upon ultimate liquidation of the
portfolio. The Corporation's primary purpose in managing a portfolio of this
nature is to provide ongoing collection and control activities on behalf of
the FDIC. Accordingly, these assets do not represent loans made in the
ordinary course of business and, due to the underlying nature of this
liquidating asset pool, are excluded
- 19 -
<PAGE> 20
from the Corporation's nonperforming asset statistics. At September 30, 1996,
$60.4 million of segregated assets were accorded classification treatment
consistent with nonaccrual reporting, $6.0 million represented foreclosed
property, and the balance of $3.6 million were past due 90 days or more. The
Corporation's operating results and cash flow position are not expected to be
materially affected by the ongoing collection activities associated with
managing the loans subject to the loss-sharing arrangement. Segregated assets
income totaled $4.4 million in the nine months of 1996 and $8.7 million in the
same period of 1995.
A summary of activity regarding segregated assets is provided in Table 18.
<TABLE>
Table 18: Segregated Assets
<CAPTION>
September 30, 1996 (in millions) Principal balance Allowance for losses Principal balance, net
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $116.6 $13.3 $103.3
Charge-offs (5.9) (1.2)
Recoveries 3.3 .7
Net transfers (15.2)
Payments on segregated assets (28.8)
- ------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 $ 70.0 $12.8 $ 57.2
==================================================================================================================
</TABLE>
LOAN PORTFOLIO
At September 30, 1996, loans totaled $24.3 billion, an increase of .5%
over the same period of last year, and were up 1.1% from December 31, 1995.
Excluding the $300 million auto-loan securitization sale completed in the
third quarter of 1996, loans were up 1.8% from the third quarter of last
year, and 2.3% from year end 1995. Loan growth from September 30, 1995, was
primarily due to increases in consumer loans, partially offset by decreases
in residential loans. The increase in consumer loans was due primarily to
indirect installment loan growth, as well as increases in home equity loans.
The decline in 1-4 family residential loans primarily reflects sales of
current loan production through secondary markets.
The majority of the Corporation's loans are made within its natural
trade territory. The portfolio is highly diversified with originations
stemming from the Corporation's nine state area, and the portfolio is well
balanced between wholesale and consumer lending. The Corporation's geographic
profile provides credit and economic risk diversification in that the
Corporation is not solely dependent on any major market. All of the
Corporation's major markets are currently experiencing satisfactory economic
conditions and unemployment rates. Table 19 summarizes the loan portfolio by
banking location and Table 21 presents the major loan classifications based
upon Management's internal classification criteria. In addition, Table 15
summarizes the nonperforming asset trends experienced throughout the
Corporation's regions.
<TABLE>
Table 19: Loan Portfolio Distribution
<CAPTION>
September 30, 1996 December 31, 1995 September 30, 1995
- --------------------------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount<F1> Loans Amount<F1> Loans Amount<F1> Loans
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Missouri $11,225.8 46.2% $10,524.2 43.7% $10,646.0 44.0%
Arkansas 2,758.8 11.3 2,745.8 11.4 2,598.0 10.7
Oklahoma 2,473.3 10.2 2,597.6 10.8 2,671.4 11.0
Kansas 2,396.6 9.8 2,683.2 11.2 2,747.7 11.4
New Mexico 1,431.3 5.9 1,447.3 6.0 1,468.5 6.1
Texas 1,116.5 4.6 1,087.6 4.5 1,061.7 4.4
Tennessee 931.6 3.8 784.1 3.3 773.1 3.2
Illinois 751.7 3.1 788.4 3.3 799.5 3.3
Iowa 622.6 2.6 718.1 3.0 749.7 3.1
Credit card 606.6 2.5 674.6 2.8 668.7 2.8
- --------------------------------------------------------------------------------------------------------------------------
Total $24,314.8 100.0% $24,050.9 100.0% $24,184.3 100.0%
==========================================================================================================================
<FN>
<F1> Net of unearned income.
</TABLE>
- 20 -
<PAGE> 21
<TABLE>
Table 20: Summary of Loan Portfolio
<CAPTION>
(in millions) September 30, 1996 December 31, 1995 September 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $11,951.2 $11,834.5 $11,997.4
Real estate mortgage 4,325.9 4,565.3 4,786.1
Real estate construction 1,118.1 1,107.7 1,067.3
Consumer 6,586.5 6,284.1 6,091.6
Lease financing 391.8 325.4 306.0
- ---------------------------------------------------------------------------------------------------------------------------
Total domestic loans 24,373.5 24,117.0 24,248.4
Foreign loans 23.3 20.9 26.0
- ---------------------------------------------------------------------------------------------------------------------------
Total loans, before deduction of unearned income 24,396.8 24,137.9 24,274.4
Less unearned income 82.0 87.0 90.1
- ---------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $24,314.8 $24,050.9 $24,184.3
===========================================================================================================================
</TABLE>
<TABLE>
Table 21: Composition of Loan Portfolio
<CAPTION>
September 30, 1996 December 31, 1995 September 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount Loans Amount Loans Amount Loans
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate:
1-4 family residential $ 4,325.9 17.7% $ 4,565.3 18.9% $ 4,786.1 19.7%
Land acquisition 283.3 1.2 215.4 .9 200.2 .8
Residential construction 335.1 1.4 380.2 1.6 391.7 1.6
Commercial construction 499.7 2.0 512.1 2.1 475.4 2.0
Commercial real estate 3,767.9 15.4 3,822.5 15.8 3,826.3 15.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total real estate 9,211.9 37.7 9,495.5 39.3 9,679.7 39.9
Commercial loans to Fortune 1,000 companies
and other large corporate borrowers 1,268.6 5.2 1,127.0 4.7 1,173.2 4.8
Middle market commercial 5,725.8 23.5 5,675.5 23.5 5,782.5 23.8
Bank stock loans 221.7 .9 204.8 .9 235.8 1.0
Agriculture 967.2 4.0 1,004.7 4.2 979.6 4.0
Consumer:
Home equity 728.0 3.0 642.8 2.7 601.3 2.5
Credit card 606.6 2.5 674.6 2.8 668.7 2.7
Indirect installment 3,332.4 13.6 2,929.3 12.1 2,883.3 11.9
Installment 1,919.5 7.9 2,037.4 8.4 1,938.3 8.0
- ---------------------------------------------------------------------------------------------------------------------------------
Total consumer 6,586.5 27.0 6,284.1 26.0 6,091.6 25.1
Lease financing 391.8 1.6 325.4 1.3 306.0 1.3
Foreign 23.3 .1 20.9 .1 26.0 .1
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans $24,396.8 100.0% $24,137.9 100.0% $24,274.4 100.0%
=================================================================================================================================
</TABLE>
The sections that follow address specific risk elements and credit
administration practices related to the major components of the loan
portfolio.
COMMERCIAL LOANS
The Corporation's commercial loan portfolio, excluding commercial real
estate, totaled $8.2 billion at September 30, 1996, representing
approximately 33.6% of the total portfolio, essentially unchanged from the
level at September 30, 1995. The Corporation's objective is to control
credit risk within the commercial loan portfolio through geographic
diversification and adherence to credit administration policies that limit
industry concentrations and establish lending authority and borrower limits.
Within the commercial loan portfolio there are no concentrations of credits
to any borrower or industry in excess of 5% of total loans, and the portfolio
is primarily comprised of middle-market loans to customers within the
Corporation's nine state operating region. At September 30, 1996,
middle-market commercial loans represented 23.5% of the total loan portfolio
and loans to Fortune 1,000 companies comprised 5.2% of total loans. Loans to
middle-market companies, as a general rule, are made on a secured basis, with
personal guarantees and loan covenants appropriate to the individual credit.
These loans are to a diversified group of borrowers conducting business in
the Corporation's immediate market area, predominately in the manufacturing,
wholesale distribution and services industries. Loans to Fortune 1,000
companies and other large corporate borrowers are made on a secured and
unsecured
- 21 -
<PAGE> 22
basis depending on the risk assessment of the specific borrowers.
The composition of the commercial loan portfolio and level of industry
concentrations is reflected in Table 22. The Corporation's legal lending
limit to any individual borrower is in excess of $500 million. However, at
September 30, 1996, of the Corporation's ten largest borrowers, there were
only 3 relationships with aggregate outstandings in the $50-$75 million range
and 7 borrowers with aggregate outstandings in the $35-$49 million range.
Credit risk associated with the commercial portfolio is primarily
influenced by economic conditions and the level of underwriting risk the
Corporation is willing to assume. A primary focus in managing risk when
extending credit is to adequately assess the borrower's capacity to repay
and to follow proper collateral protection policies.
<TABLE>
Table 22: Commercial Industry Concentration
<CAPTION>
% of Total % of
September 30, 1996 Commercial Loans<F1> Total Loans
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing:
Metal, machinery and fabrication 5.6% 1.9%
Food products 2.3 .8
Chemical, rubber and petroleum 1.7 .6
Printing and paper 2.2 .7
All other manufacturing 5.7 1.9
Services:
Health care 3.4 1.2
Amusement/recreation 1.3 .4
All other services 11.1 3.7
Finance, insurance, real estate 10.9 3.7
Retail trade:
Retail (non-auto) 7.7 2.6
Retail (auto) 1.3 .4
Agriculture, forestry and fishing 11.8 4.0
Wholesale trade--durable goods 6.6 2.2
Wholesale trade--non-durable goods 3.8 1.3
Individual personal loans 7.1 2.4
Transportation 3.5 1.2
Construction 3.4 1.1
Communication 2.5 .8
Other 8.1 2.7
- ------------------------------------------------------------------------------------------------------
Total 100.0% 33.6%
======================================================================================================
<FN>
<F1> Excluding commercial real estate
</TABLE>
COMMERCIAL REAL ESTATE
This lending category consists primarily of commercial real estate,
residential construction, commercial construction and land acquisition loans.
At September 30, 1996, commercial real estate-related loans totaled $4.9
billion, representing approximately 20.0% of total loans. Table 23 displays
the composition of the real estate portfolio by property type and carrying
status. The Corporation closely monitors the composition and quality of the
commercial real estate portfolio through established credit review procedures
to ensure that significant credit concentrations do not exist within this
portfolio. The portfolio is geographically dispersed, primarily in areas
where the Corporation has a direct banking presence, and is widely
diversified among residential construction, office and retail properties, and
land acquisition and development loans. Real estate loans are generally
secured by the underlying property at a 75% to 80% loan to value ratio, and
are generally supported by guarantees from project developers. Additional
collateral is required on a project-by-project basis depending on
management's evaluation of the borrower. Approximately one third of the
commercial real estate portfolio is comprised of owner occupied
properties--such as manufacturing facilities for middle market borrowers--for
which the primary source of repayment is not entirely dependent on the real
estate market.
- 22 -
<PAGE> 23
<TABLE>
Table 23: Construction and Mortgage Loans
<CAPTION>
Nonperforming
September 30, 1996 (in millions) Performing Nonperforming Total as % of Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial real estate:
Multi-family $ 514.4 $ 3.2 $ 517.6 .62%
Office/showroom 988.9 8.1 997.0 .81
Industrial/warehouse 514.3 4.3 518.6 .83
Retail strip 339.0 2.4 341.4 .69
Retail, other 509.3 9.2 518.5 1.77
Lodging 545.2 11.9 557.1 2.13
Land 281.3 7.0 288.3 2.44
Residential construction 329.6 5.5 335.1 1.64
Other 799.7 12.7 812.4 1.57
- ---------------------------------------------------------------------------------------------------------------------
Total commercial real estate 4,821.7 64.3 4,886.0 1.32
1-4 family residential 4,284.2 41.7 4,325.9 .96
- ---------------------------------------------------------------------------------------------------------------------
Total real estate $9,105.9 $106.0 $9,211.9 1.15%
=====================================================================================================================
</TABLE>
CONSUMER LOANS
The consumer loan category consists primarily of direct and indirect
installment, credit card, and home equity lending. At September 30, 1996,
consumer loans totaled $6.6 billion, representing approximately 27.0% of
total loans, compared to 25.1% at September 30, 1995. Credit risk in each of
these lending categories is controlled through automated credit scoring
techniques and consistent adherence to conservative underwriting standards
that consider debt to income levels and, where applicable, loan to value
ratios. In the home equity category, loan to value ratios generally are
limited to 80% of collateral value. In certain markets, higher loan to value
ratios are permitted; however, in these situations the Corporation obtains
additional credit protection from third party insurance providers.
Installment loans, both indirect and direct, are subject to similar
underwriting standards. Approximately 63% of the installment category is
comprised of indirect paper of which over 90% are automobile loans. The
remainder of the indirect installment category is primarily limited to marine
and home improvement paper.
Growth in installment lending has occurred through direct originations
made available through the Corporation's extensive branch banking network and
through expansion of the indirect lending program. A primary source for the
indirect automobile loan production is a referral program negotiated with a
major insurance carrier whose customer base has a good credit scoring
profile, resulting in lower delinquencies and charge-offs than that typically
experienced from traditional indirect sources.
Credit card outstandings totaled $606.6 million at September 30, 1996,
representing approximately 2.5% of total loans. The Corporation is not a
participant in pre-approved nationwide mass marketing programs; rather,
marketing efforts target further penetration of its existing customer base.
1-4 FAMILY RESIDENTIAL LOANS
The 1-4 family residential loan portfolio totaled $4.3 billion at
September 30, 1996, and represented 17.7% of total loans compared to 19.7% at
September 30, 1995. Risk exposure in this area is minimized through
underwriting policies that specify conservative loan to value ratios, coupled
with a diversified geographic base that naturally protects the Corporation
from excessive concentrations in any given market. In addition, the majority
of the fixed-rate, long-term production is sold in the secondary market
through the Corporation's mortgage banking subsidiary.
FINANCIAL POSITION AND LIQUIDITY
The basic financial structure of the Corporation's average and
period-end balance sheet changed only moderately from the third quarter and
fourth quarter of 1995. At September 30, 1996, assets totaled $40.7 billion,
compared to $40.3 billion at September 30, 1995, and $41.1 billion at
December 31, 1995.
Liquidity represents the availability of funding to meet the
obligations to depositors, borrowers, and creditors at a reasonable cost
without adverse consequences. Accordingly, the Corporation's liquidity
position is greatly influenced by its funding base and asset mix. Core
deposits, which consist of investable checking account deposits and certain
interest-bearing accounts, represent the Corporation's largest and most
important funding source as these deposits represent a more stable, lower
cost source of funds.
The core deposit base is supplemented by the Corporation's wholesale
and correspondent banking activities which provide a natural access to
short-term purchased funds, such as negotiable certificates of deposit and
overnight surplus funds. These funds can be acquired when needed, principally
from existing customers within the Corporation's natural trade territory and
through access to national money markets. The Corporation's auto-loan
securitization and bank note programs represent additional sources of
liquidity.
Average core deposits totaled $27.0 billion for the third quarter of
1996, an increase of $.2 billion or .7% from the same period last year. The
core deposit base mix has been altered somewhat in recent periods as
customers have redirected balances from
- 23 -
<PAGE> 24
traditionally lower-cost savings deposits to the higher-rate retail money market
accounts. The deposit growth that has occured in recent periods has exceeded
earning asset growth; accordingly, the excess liquidity has been used to reduce
purchased funds. Average core deposits supported 74.1% of earning assets for the
third quarter of 1996, compared to 73.8% during the same period last year.
Purchased funds supported 17.3% of average earning assets, compared to 18.9%
for the third quarter of last year. Purchased funds at September 30, 1996, and
September 30, 1995, included short-term bank notes which were issued by several
of the Corporation's banking subsidiaries totaling $1.0 billion and $1.3
billion, respectively. The Corporation's need for purchased funds was also
reduced due to proceeds received from the securitization of auto loans totaling
$300 million in the third quarter of 1996.
The Corporation's liquidity position is also managed by maintaining
adequate levels of liquid assets such as money market investments and
available for sale securities. At September 30, 1996, the available for sale
portfolio totaled $10.9 billion, compared to $4.5 billion at September 30,
1995. In the fourth quarter of 1995, the Corporation reclassified
approximately $5.7 billion of securities from held to maturity to available
for sale in accordance with the one-time reclassification permitted under
Financial Accounting Standards Board Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." These securities, representing approximately 91% of
the total securities portfolio, may be sold to meet liquidity needs or in
response to significant changes in interest rates or prepayment risks. At
September 30, 1996, unrealized depreciation in the available for sale
portfolio was approximately $106.1 million, compared to appreciation of $16.9
million at December 31, 1995. The decrease in market value from year end was
primarily due to the increase in interest rates, particularly as measured by
the U.S. Treasury yield curve. Approximately 29% of the available for sale
portfolio is comprised of adjustable-rate mortgage-backed securities,
including floating rate CMOs. The remainder of the portfolio is comprised of
Treasury notes, Agency notes, fixed rate mortgage pass throughs and CMO
tranches. The Corporation's mortgage-backed securities portfolio totaled
approximately $7.7 billion at September 30, 1996, of which approximately 86%
represented government agency-backed issues and the remainder of the
portfolio was comprised of private-issue mortgage-backed securities with
credit ratings of AA or better. As a means to control interest rate and
prepayment risk, each security undergoes a thorough analysis prior to
purchase and periodically thereafter to examine the investment performance
using a wide range of interest rate scenarios and prepayment speeds. This
ongoing process insures that the mortgage-backed securities portfolio meets
the Corporation's investment strategies and internal risk guidelines.
The variety of funding options available and strong cash flow provide
the Corporation flexibility in selecting funding alternatives most
appropriate in the circumstances, thereby generally avoiding the necessity to
access capital markets at inopportune times. Maintaining favorable debt
ratings is also critical to liquidity because it can affect the availability
and cost of funds to the Corporation. The Corporation's ability to access the
capital markets on a cost-effective basis is reflected by its debt ratings,
summarized in Table 24. The Corporation currently has a shelf registration
statement filed with the Securities and Exchange Commission providing for the
issuance of up to $500 million of debt, preferred stock or common stock.
There were no commitments for capital expenditures, at September 30, 1996,
which would materially impact the Corporation's liquidity position.
<TABLE>
Table 24: Agency Ratings
<CAPTION>
Agency Ratings Moody's Standard & Poor's Thomson Bankwatch
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Boatmen's Bancshares, Inc.: A/B
6-3/4% Subordinated notes due 2003 A3 A- A
7-5/8% Subordinated notes due 2004 A3 A- A
8-5/8% Subordinated notes due 2003 A3 A- A
9-1/4% Subordinated notes due 2001 A3 A- A
6-1/4% Convertible subordinated debentures due 2011 A3 A- A
Commercial paper P1 A-1 TBW-1
The Boatmen's National Bank of St. Louis: A/B
Long-term/short-term deposits and bank notes Aa3/P1 A+/A-1 TBW-1
Boatmen's First National Bank of Kansas City: A/B
Long-term/short-term deposits and bank notes A1/P1 A+/A-1 TBW-1
Multi-bank note program
(8 Boatmen's subsidiary banks) A1/P1 A+/A-1
=======================================================================================================================
</TABLE>
- 24 -
<PAGE> 25
In June, 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125 (SFAS No. 125),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on consistent
application of a financial-components approach that focuses on control. Under
that approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. SFAS No. 125 is effective for
transactions occurring after December 31, 1996, and is to be applied
prospectively. The Corporation is in the process of reviewing this statement
to determine the impact, if any, its adoption will have on the Corporation's
financial results.
CAPITAL STRUCTURE
<TABLE>
Table 25: Capital Structure
<CAPTION>
(in millions) September 30, 1996 December 31, 1995 September 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt $ 606.1 $ 615.1 $ 524.3
Stockholders' equity:
Preferred equity 94.7 99.3 99.4
Common equity 3,486.1 3,500.5 3,369.2
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,580.8 3,599.8 3,468.6
- ---------------------------------------------------------------------------------------------------------------------------
Total capitalization $4,186.9 $4,214.9 $3,992.9
===========================================================================================================================
Tangible equity $3,161.6 $3,164.2 $3,050.5
===========================================================================================================================
Ratios
- ---------------------------------------------------------------------------------------------------------------------------
Equity/assets 8.80% 8.75% 8.61%
Tangible equity/assets 7.85 7.78 7.66
Long-term debt as % of total capitalization 14.48 14.59 13.13
Double leverage 109.43 106.35 106.94
Dividends paid (for the period, in thousands):
Preferred<F1> $ 5,253 $ 7,049 $ 5,295
Common<F1> 164,435 206,692 146,076
Total dividends as % of net income 44.4% 44.5% 43.0%
===========================================================================================================================
<FN>
<F1> Includes dividends of pooled companies.
</TABLE>
The Corporation continues to rank among the most strongly capitalized
bank holding companies in the country. The cornerstone of the Corporation's
capital structure is its common equity, totaling $3.5 billion or
approximately 83.3% of total capitalization at September 30, 1996, an
increase of 3.5% from September 30, 1995. The equity to asset ratio was 8.80%
at September 30, 1996, compared to 8.61% at September 30, 1995, and 8.75% at
December 31, 1995. The preferred stock (Series A) pays a 7% dividend and is
callable by the Corporation, at par, on March 1, 1997. Assuming full
conversion, the issuance of approximately 3.3 million common shares would be
required. At September 30, 1996, the Corporation held 3,143,773 common shares
in Treasury at a cost of $151.6 million.
- 25 -
<PAGE> 26
<TABLE>
Table 26: Intangible Assets
<CAPTION>
(in millions) September 30, 1996 December 31, 1995 September 30, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill--Parent Company $ 80.3 $ 84.4 $ 85.8
- ------------------------------------------------------------------------------------------------------------
Subsidiaries:
Goodwill 186.8 193.6 178.3
Core deposit premium 56.5 69.5 74.4
Mortgage servicing rights 78.5 67.5 58.6
Credit card premium 17.1 20.6 21.0
- ------------------------------------------------------------------------------------------------------------
Total subsidiaries 338.9 351.2 332.3
- ------------------------------------------------------------------------------------------------------------
Total intangible assets $419.2 $435.6 $418.1
============================================================================================================
</TABLE>
An important measure of capital adequacy of a banking institution is
its risk-based capital ratios, which represent the primary capital standard
for regulatory purposes. The Corporation's risk-based capital ratios of
11.29% for Tier I and 13.82% for total capital substantially exceed the
regulatory required minimums. At September 30, 1996, the Corporation's Tier I
leverage ratio was 8.21%, well in excess of required minimums. At September
30, 1996, all of the Corporation's banking subsidiaries were considered "well
capitalized" based on the regulatory defined minimums of a Tier I leverage
ratio of 5%, a Tier I capital ratio of 6% and a total capital ratio of 10%.
<TABLE>
Table 27: Risk-Based Capital
<CAPTION>
(in millions) September 30, 1996 December 31, 1995 September 30, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I capital:
Stockholders' equity $ 3,580.8 $ 3,599.8 $ 3,468.6
Unrealized net (appreciation) depreciation,
available for sale securities 62.0 (10.5) 6.6
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity, net 3,642.8 3,589.3 3,475.2
Minority interest .7 .7 .7
Intangible assets:
Goodwill (267.1) (278.0) (264.1)
Core deposit premium (56.5) (69.5) (74.4)
- ------------------------------------------------------------------------------------------------------------------
Total Tier I 3,319.9 3,242.5 3,137.4
- ------------------------------------------------------------------------------------------------------------------
Tier II capital:
Allowable reserve for loan losses 368.8 360.1 356.5
Qualifying long-term debt 375.0 410.0 415.0
- ------------------------------------------------------------------------------------------------------------------
Total Tier II 743.8 770.1 771.5
- ------------------------------------------------------------------------------------------------------------------
Total capital $ 4,063.7 $ 4,012.6 $ 3,908.9
==================================================================================================================
Risk-adjusted assets $29,403.0 $28,721.2 $28,427.2
==================================================================================================================
Risk-based capital ratios:
Tier I 11.29% 11.29% 11.04%
==================================================================================================================
Total 13.82% 13.97% 13.75%
==================================================================================================================
Tier I leverage ratio 8.21% 7.95% 7.86%
==================================================================================================================
</TABLE>
- 26 -
<PAGE> 27
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED QUARTERLY EARNINGS TREND
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands) Third Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $523,691 $530,210 $528,584 $538,382 $540,212 $530,404 $498,751
Interest on short-term investments 1,207 1,311 1,913 1,540 1,146 1,137 964
Interest on Federal funds sold and securities
purchased under resale agreements 3,196 6,308 11,631 11,645 10,218 9,364 8,801
Interest on held to maturity securities
Taxable 404 72,064 93,539 96,093 96,057
Tax-exempt 16,254 16,723 15,077 14,325 13,915 13,903 13,965
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 16,254 16,723 15,481 86,389 107,454 109,996 110,022
Interest on available for sale securities 174,378 165,460 160,188 87,712 68,367 72,439 76,298
Interest on trading securities 1,265 719 764 706 547 361 435
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 719,991 720,731 718,561 726,374 727,944 723,701 695,271
Interest expense:
Interest on deposits 246,189 247,650 257,282 265,050 262,652 259,633 238,124
Interest on Federal funds purchased
and other short-term borrowings 63,679 61,728 58,709 63,921 77,862 81,880 80,846
Interest on capital lease obligations 941 944 946 971 972 975 978
Interest on long-term debt 12,289 12,168 12,450 12,498 11,334 11,493 12,129
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 323,098 322,490 329,387 342,440 352,820 353,981 332,077
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 396,893 398,241 389,174 383,934 375,124 369,720 363,194
Provision for loan losses 19,260 19,365 26,217 26,451 12,391 10,171 10,743
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 377,633 378,876 362,957 357,483 362,733 359,549 352,451
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Trust fees 52,926 53,835 52,807 52,226 50,444 51,902 45,670
Service charges 63,238 63,647 60,351 59,760 58,822 57,832 55,234
Mortgage banking revenues 23,286 22,241 21,639 20,421 20,344 16,689 23,248
Credit card 11,287 10,861 15,553 16,184 16,200 14,404 14,695
Investment banking revenues 11,788 12,110 12,469 10,832 10,588 10,490 10,248
Securities gains (losses), net 576 871 477 11,034 938 3,005 (22,017)
Other 53,164 44,802 49,284 38,331 38,091 36,434 37,581
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 216,265 208,367 212,580 208,788 195,427 190,756 164,659
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Staff 191,412 190,361 191,360 186,596 182,726 177,915 179,235
Net occupancy 26,454 25,089 25,418 24,368 25,617 23,665 25,127
Equipment 30,541 30,365 30,232 31,123 28,335 28,520 28,726
FDIC/SAIF insurance 26,326 2,743 2,735 4,945 1,156 16,593 16,594
Intangible amortization 9,934 10,071 10,272 11,268 11,121 10,756 10,610
Advertising 10,844 12,427 9,894 11,705 9,752 11,495 9,914
Merger expense 18,049 42,414 711 25,267
Other 83,419 87,039 87,166 98,776 92,778 86,405 79,026
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 396,979 358,095 399,491 368,781 351,485 356,060 374,499
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 196,919 229,148 176,046 197,490 206,675 194,245 142,611
Income tax expense 71,590 83,080 64,922 69,229 72,994 66,440 52,347
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $125,329 $146,068 $111,124 $128,261 $133,681 $127,805 $ 90,264
=================================================================================================================================
Net income available to common shareholders $123,596 $144,318 $109,374 $126,407 $131,923 $126,043 $ 88,495
=================================================================================================================================
Net income per share $.79 $.92 $.69 $.81 $.84 $.80 $.57
=================================================================================================================================
Dividends declared per share $.42 $.37 $.37 $.37 $.37 $.34 $.34
=================================================================================================================================
Returns:
Return on assets 1.24% 1.44% 1.10% 1.27% 1.32% 1.27% .90%
Return on total equity 13.81 16.23 12.15 14.49 15.49 15.14 11.13
Return on common equity 14.00 16.49 12.30 14.69 15.74 15.39 11.26
=================================================================================================================================
</TABLE>
- 27 -
<PAGE> 28
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
<CAPTION>
1996
- --------------------------------------------------------------------------------------------------------------------------------
Average balances (in millions) Third Quarter Second Quarter First Quarter
- --------------------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates Balance Expense Rates
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $24,096.5 $525.4 8.67% $24,355.1 $531.5 8.78% $24,130.6 $530.3 8.84%
Short-term investments 70.6 1.2 6.80 81.3 1.3 6.48 121.1 1.9 6.36
Federal funds sold and securities
purchased under resale agreements 245.0 3.2 5.19 476.3 6.3 5.33 845.2 11.7 5.53
Held to maturity securities:
Taxable
Tax-exempt 1,016.6 24.0 9.39 994.6 24.5 9.89 917.4 22.3 9.79
- --------------------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 1,016.6 24.0 9.39 994.6 24.5 9.89 917.4 22.3 9.79
Available for sale securities 10,973.1 174.7 6.33 10,671.2 165.7 6.24 10,333.1 161.3 6.28
Trading securities 81.2 1.3 6.57 48.2 .8 6.60 51.5 .8 6.55
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets 36,483.0 729.8 7.96 36,626.7 730.1 8.02 36,398.9 728.3 8.05
Less reserve for loan losses (475.0) (468.4) (454.0)
Cash and due from banks 2,063.7 2,076.7 2,093.5
All other assets 2,280.1 2,249.1 2,313.8
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $40,351.8 $40,484.1 $40,352.2
================================================================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $13,159.0 $102.2 3.09% $13,262.8 $ 98.7 2.99% $13,247.8 $100.9 3.06%
Time deposits 10,828.6 144.0 5.29 11,156.5 148.9 5.37 11,486.5 156.4 5.47
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 23,987.6 246.2 4.08 24,419.3 247.6 4.08 24,734.3 257.3 4.18
Federal funds purchased and
other short-term borrowings 4,856.1 63.7 5.22 4,674.6 61.7 5.31 4,354.2 58.7 5.42
Capital lease obligations 38.2 .9 9.80 38.6 1.0 9.84 38.9 1.0 9.77
Long-term debt 616.4 12.3 7.93 616.6 12.2 7.94 616.2 12.4 8.13
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 29,498.3 323.1 4.36 29,749.1 322.5 4.36 29,743.6 329.4 4.45
Demand deposits 6,557.0 6,532.8 6,395.8
All other liabilities 664.6 601.7 554.9
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 36,719.9 36,883.6 36,694.3
Redeemable preferred stock .9 1.0 1.0
Total stockholders' equity 3,631.0 3,599.5 3,656.9
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,351.8 $40,484.1 $40,352.2
================================================================================================================================
Interest rate spread 3.60% 3.66% 3.60%
Effect of noninterest-bearing funds .83 .82 .81
- --------------------------------------------------------------------------------------------------------------------------------
Net interest margin $406.7 4.43% $407.6 4.48% $398.9 4.41%
================================================================================================================================
Nonaccrual loans are included in
average balances and interest
payments on such loans are recognized
as income on a cash basis when
appropriate. Interest income and
yields are presented on a fully-
taxable equivalent basis using the
Federal statutory income tax rate,
net of nondeductible interest expense.
Such adjustments by earning asset
category are as follows:
Loans $1.7 $1.3 $1.7
Held to maturity securities 7.7 7.8 6.8
Available for sale securities .3 .2 1.1
Trading securities .1 .1
- --------------------------------------------------------------------------------------------------------------------------------
Total $9.8 $9.4 $9.7
================================================================================================================================
</TABLE>
- 28 -
<PAGE> 29
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
<CAPTION>
1995
- ---------------------------------------------------------------------------------------------------------------------
Average balances (in millions) Fourth Quarter Third Quarter
- ---------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $24,184.4 $540.1 8.86% $24,207.4 $541.8 8.88%
Short-term investments 92.4 1.5 6.61 76.1 1.1 5.97
Federal funds sold and securities
purchased under resale agreements 796.9 11.6 5.80 695.2 10.2 5.83
Held to maturity securities:
Taxable 4,584.8 72.1 6.24 6,040.5 93.5 6.14
Tax-exempt 891.4 21.4 9.52 862.5 20.8 9.58
- ---------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 5,476.2 93.5 6.77 6,903.0 114.3 6.57
Available for sale securities 5,696.6 89.0 6.19 4,430.6 70.0 6.26
Trading securities 49.2 .7 6.01 32.8 .6 7.08
- ---------------------------------------------------------------------------------------------------------------------
Total earning assets 36,295.7 736.4 8.05 36,345.1 738.0 8.06
Less reserve for loan losses (463.9) (461.9)
Cash and due from banks 2,142.2 2,274.4
All other assets 2,324.3 2,365.7
- ---------------------------------------------------------------------------------------------------------------------
Total assets $40,298.3 $40,523.3
=====================================================================================================================
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $12,995.1 $103.5 3.16% $12,636.3 $100.4 3.15%
Time deposits 11,574.1 161.5 5.54 11,641.1 162.2 5.53
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,569.2 265.0 4.28 24,277.4 262.6 4.29
Federal funds purchased and
other short-term borrowings 4,449.4 63.9 5.70 5,353.3 77.9 5.77
Capital lease obligations 39.2 1.0 9.82 39.3 1.0 9.81
Long-term debt 599.4 12.5 8.27 522.5 11.3 8.61
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 29,657.2 342.4 4.58 30,192.5 352.8 4.64
Demand deposits 6,544.7 6,365.0
All other liabilities 555.0 512.5
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 36,756.9 37,070.0
Redeemable preferred stock 1.0 1.1
Total stockholders' equity 3,540.4 3,452.2
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,298.3 $40,523.3
=====================================================================================================================
Interest rate spread 3.47% 3.42%
Effect of noninterest-bearing funds .84 .78
- ---------------------------------------------------------------------------------------------------------------------
Net interest margin $394.0 4.31% $385.2 4.20%
=====================================================================================================================
Nonaccrual loans are included in
average balances and interest payments
on such loans are recognized as income
on a cash basis when appropriate.
Interest income and yields are presented
on a fully-taxable equivalent basis using
the Federal statutory income tax rate,
net of nondeductible interest expense.
Such adjustments by earning asset
category are as follows:
Loans $ 1.7 $ 1.5
Held to maturity securities 7.1 6.9
Available for sale securities 1.2 1.6
Trading securities .1
- ---------------------------------------------------------------------------------------------------------------------
Total $10.0 $10.1
=====================================================================================================================
</TABLE>
- 29 -
<PAGE> 30
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
1995
- ----------------------------------------------------------------------------------------------------------------------
Average balances (in millions) Second Quarter First Quarter
- ----------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $23,859.1 $532.2 8.95% $23,102.3 $500.8 8.79%
Short-term investments 77.5 1.1 5.88 69.9 1.0 5.60
Federal funds sold and securities
purchased under resale agreements 611.6 9.4 6.14 595.3 8.8 6.00
Held to maturity securities:
Taxable 6,297.8 96.1 6.12 6,396.5 96.1 6.09
Tax-exempt 856.3 20.9 9.78 846.2 21.0 10.06
- ----------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 7,154.1 117.0 6.56 7,242.7 117.1 6.55
Available for sale securities 4,649.0 74.2 6.41 5,007.2 78.3 6.34
Trading securities 22.2 .4 6.87 29.2 .4 6.31
- ----------------------------------------------------------------------------------------------------------------------
Total earning assets 36,373.5 734.3 8.10 36,046.6 706.4 7.95
Less reserve for loan losses (460.1) (453.6)
Cash and due from banks 2,213.9 2,251.6
All other assets 2,208.6 2,149.7
- ----------------------------------------------------------------------------------------------------------------------
Total assets $40,335.9 $39,994.3
======================================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $12,431.4 $ 99.0 3.20% $12,331.8 $ 91.9 3.02%
Time deposits 11,916.2 160.6 5.40 11,809.0 146.2 5.02
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,347.6 259.6 4.28 24,140.8 238.1 4.00
Federal funds purchased and
other short-term borrowings 5,483.9 81.9 5.99 5,632.7 80.9 5.82
Capital lease obligations 39.9 1.0 9.81 40.2 1.0 9.86
Long-term debt 529.0 11.5 8.71 572.6 12.1 8.59
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 30,400.4 354.0 4.67 30,386.3 332.1 4.43
Demand deposits 6,139.3 5,933.4
All other liabilities 419.0 430.1
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 36,958.7 36,749.8
Redeemable preferred stock 1.1 1.1
Total stockholders' equity 3,376.1 3,243.4
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,335.9 $39,994.3
======================================================================================================================
Interest rate spread 3.43% 3.52%
Effect of noninterest-bearing funds .76 .69
- ----------------------------------------------------------------------------------------------------------------------
Net interest margin $380.3 4.19% $374.3 4.21%
======================================================================================================================
Nonaccrual loans are included in
average balances and interest payments
on such loans are recognized as income
on a cash basis when appropriate.
Interest income and yields are presented
on a fully-taxable equivalent basis
using the Federal statutory income tax
rate, net of nondeductible interest
expense. Such adjustments by earning
asset category are as follows:
Loans $ 1.8 $ 2.1
Held to maturity securities 7.0 7.0
Available for sale securities 1.8 2.0
Trading securities
- ----------------------------------------------------------------------------------------------------------------------
Total $10.6 $11.1
======================================================================================================================
</TABLE>
- 30 -
<PAGE> 31
<TABLE>
BOATMEN'S BANCSHARES, INC.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
<CAPTION>
Nine Months Ended September 30
- ---------------------------------------------------------------------------------------------------------------------------
Average balances (in millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $24,193.7 $1,587.2 8.76% $23,727.0 $1,574.8 8.87%
Short-term investments 90.9 4.4 6.51 74.5 3.2 5.82
Federal funds sold and securities
purchased under resale agreements 521.2 21.1 5.42 634.4 28.4 5.98
Held to maturity securities:
Taxable 6,243.6 285.7 6.12
Tax-exempt 976.3 70.8 9.68 855.1 62.7 9.81
- ---------------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 976.3 70.8 9.68 7,098.7 348.4 6.56
Available for sale securities 10,660.3 501.6 6.29 4,693.5 222.5 6.34
Trading securities 60.4 3.0 6.57 28.1 1.4 6.76
- ---------------------------------------------------------------------------------------------------------------------------
Total earning assets 36,502.8 2,188.1 8.01 36,256.2 2,178.7 8.03
Less reserve for loan losses (465.8) (458.6)
Cash and due from banks 2,077.9 2,246.7
All other assets 2,281.0 2,242.1
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $40,395.9 $40,286.4
===========================================================================================================================
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $13,223.0 $ 301.9 3.05% $12,467.6 $ 291.4 3.13%
Time deposits 11,156.0 449.2 5.38 11,788.2 469.0 5.32
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,379.0 751.1 4.12 24,255.8 760.4 4.19
Federal funds purchased and
other short-term borrowings 4,629.1 184.1 5.31 5,488.9 240.6 5.86
Capital lease obligations 38.6 2.8 9.80 39.8 2.9 9.83
Long-term debt 616.4 36.9 8.00 541.2 35.0 8.64
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 29,663.1 974.9 4.39 30,325.7 1,038.9 4.58
Demand deposits 6,495.4 6,147.5
All other liabilities 607.3 454.1
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 36,765.8 36,927.3
Redeemable preferred stock .9 1.1
Total stockholders' equity 3,629.2 3,358.0
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,395.9 $40,286.4
===========================================================================================================================
Interest rate spread 3.62% 3.45%
Effect of noninterest-bearing funds .82 .75
- ---------------------------------------------------------------------------------------------------------------------------
Net interest margin $1,213.2 4.44% $1,139.8 4.20%
===========================================================================================================================
Nonaccrual loans are included in average
balances and interest payments on such
loans are recognized as income on a cash
basis when appropriate. Interest income
and yields are presented on a fully-taxable
equivalent basis using the Federal statutory
income tax rate, net of nondeductible
interest expense. Such adjustments by
earning asset category are as follows:
Loans $ 4.7 $ 5.4
Held to maturity securities 22.3 20.9
Available for sale securities 1.6 5.4
Trading securities .2 .1
- ---------------------------------------------------------------------------------------------------------------------------
Total $28.8 $31.8
===========================================================================================================================
</TABLE>
- 31 -
<PAGE> 32
PART II. OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10(r) First Instrument of Amendment, dated August 13, 1996,
amending Employment Agreement between the Corporation and
Samuel B. Hayes, III
10(s) Employment Agreement, dated August 13, 1996, between the
Corporation and James W. Kienker
10(t) Employment Agreement, dated August 13, 1996, between the
Corporation and John M. Brennan
27 Boatmen's Bancshares, Inc. Financial Data
Schedule for the Period Ended September 30, 1996.
(b) Registrant filed a current report on Form 8-K dated September 6,
1996, covering Item 5 - Other Events and Item 7 - Financial
Statements and Exhibits.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOATMEN'S BANCSHARES, INC.
--------------------------------------------
(Registrant)
Date: November 13, 1996
-----------------
/s/ JAMES W. KIENKER
--------------------------------------------
James W. Kienker, Executive Vice President
and Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial and Accounting Officer)
-32-
<PAGE> 1
FIRST INSTRUMENT OF AMENDMENT
WHEREAS, Boatmen's Bancshares, Inc. (the "Company") has entered into
an employment agreement with Samuel B. Hayes, III (the "Executive"), dated
January 30, 1996;
WHEREAS, the Company and the Executive desire to amend the employment
agreement to provide for a minimum supplemental retirement benefit based on
twenty-five (25) years of credited service with the Company;
NOW THEREFORE, the employment agreement is amended by adding the
following paragraph to section 4.4 of the employment agreement to read in its
entirety as follows:
The Company shall provide the Executive with an additional
supplemental pension benefit equal to the excess, if any, of (i)
the actuarial present value, determined as of the Executive's
Severance of Service Date (as defined in the Company's Retirement
Plan), of the pension to which he would have been entitled under
the Company's Retirement and Supplemental Retirement Plans if he
had twenty-five (25) years of Credited Service (as defined in the
Company's Retirement Plan) with the Company on such date, over
(ii) the actuarial present value, determined as of the Executive's
Severance of Service Date, of the sum of (a) the pension to
which he is entitled under the Company's Retirement and
Supplemental Retirement Plans, excluding any amounts attributable
to the additional age and service credit provided in Section 7.1
of this Agreement, plus (b) his Prior Plans (as defined below).
With respect to the calculation of this additional supplemental
pension benefit, all actuarial equivalents shall be determined
using the same actuarial assumptions utilized under the Company's
Supplemental Retirement Plan and all terms and conditions of this
benefit shall be governed by the terms and conditions of the
Company's Supplemental Retirement Plan (including without
limitation any adjustments in the amount of benefit with respect
to optional forms of benefits, death benefits, and early
retirement benefits). The actuarial present value of the
supplemental benefit, if any, as determined above, and any
pre-retirement or post-retirement death benefits provided with
respect thereto, shall be paid to the Executive or his
beneficiary, as the case may be, at the same time and in the
same manner as his benefits under the Company's Supplemental
Retirement Plan. Prior Plans shall mean any defined benefit
plans maintained by Citibank, the Bank of Oklahoma, or any
affiliates of Citibank or the Bank of Oklahoma under which the
Executive was or is entitled to any benefits.
<PAGE> 2
IN WITNESS WHEREOF, the Company and the Executive have executed this
first instrument of amendment, pursuant to approval of the Compensation
Committee and the approval and ratification by the Board of Directors, as of
August 13, 1996.
Boatmen's Bancshares, Inc. Executive
/s/ Andrew B. Craig, III /s/ Samuel B. Hayes, III
- ----------------------------------- -----------------------------------
2
<PAGE> 1
Employment Agreement For
James W. Kienker
Boatmen's Bancshares, Inc.
August 13, 1996
<PAGE> 2
Boatmen's Bancshares, Inc.
Employment Agreement For James W. Kienker
This EMPLOYMENT AGREEMENT is made, entered into, and is effective,
pursuant to Compensation Committee approval and ratification by the Board of
Directors, as of August 13, 1996 (the "Effective Date"), by and between
Boatmen's Bancshares, Inc., a Missouri corporation, (the "Company"), and
James W. Kienker (the "Executive").
WHEREAS, the Executive is presently employed by the Company in the
capacity of Executive Vice President and Chief Financial Officer; and
WHEREAS, the Executive possesses considerable experience and an
intimate knowledge of the business and affairs of the Company, its policies,
methods, personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contributions
have been substantial and meritorious and, as such, the Executive has
demonstrated unique qualifications to act in an executive capacity for the
Company; and
WHEREAS, the Company is desirous of assuring the continued employment
of the Executive in the above stated capacities, and Executive is desirous of
having such assurance;
NOW THEREFORE, in consideration of the foregoing and of the mutual
convents and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
The Company hereby agrees to employ the Executive and the Executive
hereby agrees to continue to serve the Company, in accordance with the terms
and conditions set forth herein, for an initial period commencing as of the
Effective Date of this Agreement, as indicated above, and ending January 29,
1999 (the "Initial Period"); subject, however, to earlier termination as
expressly provided herein.
The Initial Period of employment automatically shall be extended for
one (1) additional year, at the end of the Initial Period, and then again after
each successive year thereafter. However, either party may terminate this
Agreement at the end of the Initial Period, or at the end of any successive
one (1) year term thereafter, by giving the other party written notice of
intent not to renew, delivered at least three (3) months prior to the end of
such Initial Period or successive term. In the event such notice of intent
not to renew is properly delivered, this Agreement, along with all
corresponding rights, duties, and covenants, automatically shall expire at the
end of the Initial Period or successive term then in progress.
<PAGE> 3
However, regardless of the above, if at any time during the Initial
Period or successive term, a Change in Control of the Company occurs (as
defined in Article 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) two (2) years following the effective date
of such Change in Control; or (b) until all obligations of the Company
hereunder have been fulfilled, and until all benefits provided hereunder have
been paid.
ARTICLE 2. POSITION AND RESPONSIBILITIES
During the term of this Agreement, the Executive agrees to serve as
Executive Vice President and Chief Financial Officer of the Company. In his
capacity as Executive Vice President and Chief Financial Officer of the
Company, the Executive shall report directly to the Chairman and Chief
Executive Officer of the Company, and shall maintain the level of duties and
responsibilities as in effect as of the Effective Date, or such higher level
of duties and responsibilities as he may be assigned during the term of this
Agreement. The Executive shall have the same status, privileges, and
responsibilities normally inherent in such capacities in financial institutions
of similar size and character.
ARTICLE 3. STANDARD OF CARE
During the term of this Agreement, the Executive agrees to devote
substantially his full time, attention, and energies to the Company's business
and shall not be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit, or other pecuniary advantage.
However, subject to Article 9 herein, the Executive may serve as a director of
other companies so long as such service is not injurious to the Company. The
Executive covenants, warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his
employment obligations; and
(b) Exercise the highest degree of loyalty and the highest standards
of conduct in the performance of his duties.
This Article 3 shall not be construed as preventing the Executive
from investing assets in such form or manner as will not require his services
in the daily operations of the affairs of the companies in which such
investments are made.
ARTICLE 4. COMPENSATION
As remuneration for all services to be rendered by the Executive
during the term of this Agreement, and as consideration for complying with the
covenants herein, the Company shall pay and provide to the Executive the
following:
2
<PAGE> 4
4.1 BASE SALARY. The Company shall pay the Executive a Base Salary
in an amount which shall be established from time to time by the Board of
Directors of the Company or the Board's designee; provided, however, that such
Base Salary shall not be less then Three Hundred Twenty Thousand Dollars
($320,000) per year. This Base Salary shall be paid to the Executive in equal
semimonthly installments throughout the year, consistent with the normal
payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following
the Effective Date of this Agreement, while this Agreement is in force, to
ascertain whether, in the judgment of the Board or the Board's designee, such
Base Salary should be increased, based primarily on the performance of the
Executive during the year and on the then current rate of inflation. If so
increased, the Base Salary as stated above shall, likewise, be increased for
all purposes of this Agreement.
4.2 ANNUAL BONUS. In addition to his salary, the Executive shall be
entitled to participate in the Company's short-term incentive program, as such
program may exist from time to time, at a level commensurate with the
Executive's position with the Company, as determined at the sole discretion of
the Compensation Committee.
4.3 LONG-TERM INCENTIVES. The Executive shall be eligible to
participate in the Company's 1996 Stock Incentive Plan, as such shall be
amended or superseded from time to time, at a level commensurate with the
Executive's position, as determined at the sole discretion of the Compensation
Committee.
4.4 RETIREMENT BENEFITS. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. The Executive's retirement benefits shall not be less than those
that would be provided him under the terms of the Boatmen's Bancshares, Inc.
Retirement Plan for Employees and the Boatmen's Supplemental Retirement Plan
in effect as of the Effective Date, or as such benefits shall be increased,
whether or not such benefits shall be decreased or eliminated. The obligations
of the Company pursuant to this Section 4.4 shall survive the termination of
this Agreement.
4.5 EMPLOYEE BENEFITS. The Company shall provide to the Executive
all benefits to which other executives and employees of the Company are
entitled, as commensurate with the Executive's position, subject to the
eligibility requirements and other provisions of such arrangements. Such
benefits shall include, but shall not be limited to, group term life insurance,
comprehensive health and major medical insurance, dental and life insurance,
and short-term and long-term disability.
4.6 PERQUISITES. The Company shall provide to the Executive at the
Company's cost, all perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 RIGHT TO CHANGE PLANS. By reason of Section 4.5 and 4.6 herein,
the Company shall not be obligated to institute, maintain, or refrain from
changing, amending, or
3
<PAGE> 5
discontinuing any benefit plan, or perquisite, so long as such changes are
similarly applicable to executive employees generally.
ARTICLE 5. EXPENSES
The Company shall pay or reimburse the Executive for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies in which the Executive's participation is in
the best interest of the Company.
ARTICLE 6. EMPLOYMENT TERMINATIONS
6.1 TERMINATION DUE TO RETIREMENT OR DEATH. In the event the
Executive's employment is terminated while this Agreement is in force by
reason of retirement (as defined or provided for under the then established
rules of the Company's tax-qualified retirement plan), or death, the
Executive's benefits shall be determined in accordance with the Company's
retirement, survivor's benefits, insurance, and other applicable programs of
the Company then in effect (provided, however, that such benefits shall be no
less than those set forth in Section 4.4 herein) and, upon the effective date
of such termination, the Company's obligation under this Agreement to provide
to the Executive the elements of pay described in Sections 4.1, 4.2, and 4.3
shall immediately expire; provided, however, that the Executive shall receive
all rights and benefits that he is vested in, pursuant to the plan or plans
described in Section 4.3 herein and other plans and programs of the Company;
and provided further, however, that any retirement during the periods set forth
in Section 7.1 herein shall be subject to the provisions of Article 7 herein.
6.2 TERMINATION DUE TO DISABILITY. In the event that the Executive
becomes Disabled (as defined below) during the term of this Agreement and is,
therefore, unable to perform his duties herein for more than one hundred eighty
(180) total calendar days during any period of twelve (12) consecutive months,
or in the event of the Board's reasonable expectation that the Executive's
Disability will exist for more than a period of one hundred eighty (180)
calendar days, the Company shall have the right to terminate the Executive's
active employment as provided in this Agreement. However, the Board shall
deliver written notice to the Executive of the Company's intent to terminate
for Disability at least thirty (30) calendar days prior to the effective
date of such termination.
A termination for Disability shall become effective upon the end of
the thirty (30) day notice period. Upon such effective date, the Company's
obligation to provide to the Executive the elements of pay described in
Section 4.1, 4.2, and 4.3 shall immediately expire; provided, however, that
the Executive shall receive all rights and benefits that he is vested in,
pursuant to the plan or plans described in Section 4.3 herein and to other
plans and programs of the Company.
4
<PAGE> 6
The term "Disability" shall mean, for all purposes of this Agreement,
the incapacity of the Executive, due to injury, illness, disease, or bodily
or mental infirmity, to engage in the performance of substantially all of the
usual duties of employment with the Company as contemplated by Article 2
herein, such Disability to be determined by the Board of Directors of the
Company upon receipt of and in reliance on competent medical advice from
one (1) or more individuals, selected by the Board, who are qualified to give
such professional medical advice.
It is expressly understood that the Disability of the Executive for a
period of one hundred eighty (180) calendar days or less in the aggregate
during any period of twelve (12) consecutive months, in the absence of any
reasonable expectation that his Disability will exist for more than such a
period of time, shall not constitute a failure by him to perform his duties
hereunder and shall not be deemed a breach or default and the Executive shall
receive full compensation for any such period of Disability or for any other
temporary illness or incapacity during the term of this Agreement.
6.3 VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may
terminate this Agreement at any time by giving the Board of Directors of the
Company written notice of intent to terminate, delivered at least three (3)
months prior to the effective date of such termination.
Upon the effective date of such termination, following the expiration
of three (3) months notice period, the Company shall pay the Executive his
full Base Salary, at the rate then in effect as provided in Section 4.1 herein,
through the effective date of termination, plus all other benefits to which
the Executive has a vested right at that time. In the event that the terms
and provisions of Article 7 herein do not apply to such termination, the
Company and the Executive thereafter shall have no further obligations under
this Agreement except as provided in Section 4.4 and Article 9 herein.
However, in the event the terms and provisions of Article 7 herein apply, the
payments and benefits set forth therein shall apply.
6.4 INVOLUNTARY TERMINATION BY THE COMPANY WITHOUT CAUSE. At all
times prior to six (6) full calendar months before the effective date of a
Change in Control, or at any time more than two (2) years after the effective
date of a Change in Control, the Board may terminate the Executive's
employment, as provided under this Agreement, at any time, for reasons other
than death or Disability, or for Cause, by notifying the Executive in writing
of the Company's intent to terminate, at least thirty (30) calendar days prior
to the effective date of such termination.
Upon the effective date of such termination, following the expiration
of the thirty (30) day notice period, the Company shall pay to the Executive a
lump-sum cash payment equal to the greater of: (a) the Base Salary then in
effect for the remaining term of this Agreement (assuming no additional
extensions of this Agreement's term beyond that in effect as of the effective
date of termination), together with continuation of health and welfare benefits
for the remaining term of this Agreement; or (b) one (1) full year of his Base
Salary
5
<PAGE> 7
in effect as of the effective date of termination, plus a one (1) year
continuation of health and welfare benefits.
Further, the Company shall pay the Executive all other benefits to
which the Executive has a vested right at the time, according to the provisions
of the governing plan or program. The Company and the Executive thereafter
shall have no further obligations under this Agreement except as provided in
Section 4.4 and Article 9 herein.
If the Executive's employment is terminated during the periods set
forth in Section 7.1 herein, the Executive shall be entitled to receive the
benefits provided in Section 7.1 herein in lieu of the benefits set forth in
this Section 6.4.
6.5 TERMINATION FOR CAUSE. Nothing in this Agreement shall be
construed to prevent the Board from terminating the Executive's employment
under this Agreement for "Cause."
"Cause" shall be defined as conduct of the Executive which is finally
adjudged to be knowingly fraudulent, deliberately dishonest or willful
misconduct. The Company's Board of Directors, by majority vote, shall make
the determination of whether Cause exists, after providing the Executive with
notice of the reasons the Board believes Cause may exist and after giving the
Executive the opportunity to respond to the allegation that Cause exists.
In the event this Agreement is terminated by the Board for Cause, the
Company shall pay the Executive his Base Salary through the effective date of
the employment termination and the Executive shall immediately thereafter
forfeit all rights and benefits (other than vested benefits) he would otherwise
have been entitled to receive under this Agreement. The Company and the
Executive thereafter shall have no further obligations under this Agreement
except as provided in Article 9 herein.
6.6 TERMINATION FOR GOOD REASON. At any time during the term of this
Agreement, the Executive may terminate this Agreement for Good Reason (as
defined below) by giving the Board of Directors of the Company thirty (30)
calendar days written notice of intent to terminate, which notice sets forth
in reasonable detail the facts and circumstances claimed to provide a basis
for such termination.
Upon the expiration of the thirty (30) day notice period, the Good
Reason termination shall become effective, and the Company shall pay and
provide to the Executive the benefits set forth in this Section 6.6 (or, in
the event of termination for Good Reason within the six (6) full calendar
month period prior to the effective date of a Change in Control, or within
two (2) years following the effective date of a Change in Control, the benefits
set forth in Section 7.1 herein).
Good Reason shall mean, without the Executive's express written
consent, the occurrence of any one or more of the following:
6
<PAGE> 8
(a) The assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities, and
status (including offices, titles, and reporting requirements) as
an officer of the Company, or a reduction or alteration in the
nature or status of the Executive's authorities, duties, or
responsibilities from those in effect during the immediately
preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location
which is at least fifty (50) miles further from the Executive's
primary residence at the time such requirement is imposed than
is such residence from the Company's office at which the
Executive is primarily rendering services at such time, except
for required travel on the Company's business to an extent
substantially consistent with the Executive's business
obligations as of the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in
effect on the Effective Date, as provided in Section 4.1 herein,
or as the same shall be increased from time to time;
(d) A material reduction in the Executive's level of participation
in any of the Company's short-and/or long-term incentive
compensation plans, or employee benefit or retirement plans,
policies, practices, or arrangements in which the Executive
participates as of the Effective Date; provided, however, that
reductions in the levels of participation in any such plans shall
not be deemed to be "Good Reason" if the Executive's reduced
level of participation in each such program remains substantially
consistent with the average level of participation of other
executives who have positions commensurate with the Executive's
position; or
(e) The failure of the Company to obtain a satisfactory agreement
from any successor to the Company to assume and agree to perform
this Agreement, as contemplated in Section 10.1 herein.
Upon a termination of the Executive's employment for Good Reason at
any time other than the six (6) full calendar month period prior to the
effective date of a Change in Control, or the two (2) year period following
the effective date of a Change in Control, the Executive shall be entitled to
receive the same payments and benefits as he is entitled to receive following
an involuntary termination of his employment by the Company without Cause, as
specified in Section 6.4 herein. The payment of Base Salary and pro rata Bonus
shall be made to the Executive within thirty (30) calendar days following the
effective date of employment termination. Upon a termination for Good Reason
within the six (6) full calendar month period prior to the effective date of a
Change in Control, or within the two (2) years following the effective date of
a Change in Control, the Executive shall be entitled to receive
7
<PAGE> 9
the payments and benefits set forth in Section 7.1 herein in lieu of those set
forth in this Section 6.6.
The Executive's right to terminate employment for Good Reason shall
not be affected by the Executive's incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good
Reason herein.
ARTICLE 7. CHANGE IN CONTROL
7.1 EMPLOYMENT TERMINATIONS IN CONNECTION WITH A CHANGE IN CONTROL.
In the event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
two years following the effective date of a Change in Control, then in lieu of
all other benefits provided to the Executive under the provisions of this
Agreement (other than the first sentence of Section 4.4 herein and without
derogation of his rights to receive vested benefits under the Company's
Amended 1982 Long Term Incentive Plan and the plan or plans described in
Section 4.3 herein), the Company shall pay to the Executive and provide him
with the following severance benefits (hereinafter referred to as the
"Severance Benefits"):
(a) An amount equal to three (3) times the highest rate of the
Executive's annualized Base Salary rate in effect at any time
up to and including the effective date of termination;
(b) An amount equal to three (3) times the greater of: (i) the
Executive's average annual bonus earned over the three (3) fiscal
years prior to the Change in Control (whether or not deferred); or
(ii) the Executive's target bonus established for the fiscal year
in which the Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued
vacation pay through the effective date of termination;
(d) A continuation of the welfare benefits of medical insurance,
dental insurance, and life insurance for three (3) full years
after the effective date of termination. These benefits shall
be provided to the Executive at the same premium cost, and at
the same coverage level, as in effect as of the Executive's
effective date of termination. However, in the event the
premium cost and/or level of coverage shall change for all
employees of the Company, the cost and/or coverage level,
likewise, shall change for the Executive in a corresponding
manner.
The continuation of these welfare benefits shall be discontinued
prior to the end of the three (3) year period in the event the
Executive has available substantially similar benefits from a
subsequent employer, as
8
<PAGE> 10
determined by the Company's Board of Directors or the Board's
designee.
(e) A lump-sum cash payment of the actuarial present value equivalent
of the aggregate benefits accrued by the Executive as of the
effective date of termination under the terms of any and all
supplemental retirement plans in which the Executive participates
(subject to the provisions of the second sentence of Section 4.4
herein). For this purpose, such benefits shall be calculated
under the assumption that the Executive's employment continued
following the effective date of termination for three (3) full
years (i.e., three (3) additional years of age and service
credits shall be added); provided, however, that for purposes of
determining "final average pay" under such programs, the
Executive's actual pay history as of the effective date of
termination shall be used.
(f) A lump-sum cash payment of the entire balance of the Executive's
compensation which has been deferred under the Company's
nonqualified deferred compensation plan(s) together with all
interest that has been credited with respect to such deferred
compensation balance.
For purposes of this Article 7, a Qualifying Termination shall mean
any termination of the Executive's employment other than: (1) by the Company
for Cause (as provided in Section 6.5 herein); (2) by reason of death,
Disability (as provided in Section 6.2 herein), or voluntary retirement;
provided, however, that a termination which qualifies as a retirement and
which occurs within the thirty (30) day period described in clause (3) of this
Section 7.1 below will be deemed to be a Qualifying Termination); or (3) by the
Executive without Good Reason (as provided in Section 6.6 herein, but
specifically excluding voluntary terminations within the period beginning on
the first anniversary of the effective date of the Change in Control and
ending thirty (30) days after such date--i.e., any voluntary termination by the
Executive within such period shall be deemed to be a Qualifying Termination).
7.2 DEFINITION OF "CHANGE IN CONTROL."
A Change in Control of the Company shall be deemed to have occurred as
of the first day any one or more of the following conditions shall have been
satisfied:
(a) Any individual, corporation (other than the Company), partnership,
trust, association, pool, syndicate, or any other entity or any
group of persons acting in concert becomes the beneficial owner,
as that concept is defined in Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Securities
Exchange Act of 1934, of securities of the Company possessing
twenty percent (20%) or more of the voting power for the election
of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other
business combination involving the Company or the securities of
the
9
<PAGE> 11
Company in which holders of voting securities of the Company
immediately prior to such consummation own, as a group,
immediately after such consummation, voting securities of the
Company (or, if the Company does not survive such transaction,
voting securities of the corporation surviving such transaction)
having less than sixty percent (60%) of the total voting power
in an election of directors of the Company (or such other
surviving corporation);
(c) During any period of two (2) consecutive years, individuals who
at the beginning of such period constitute the directors of the
Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by
the Company's shareholders, of each new director of the Company
was approved by a vote of at least two-thirds (2/3) of the
directors of the Company then still in office who were directors
of the Company at the beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions)
of all, or substantially all, of the assets of the Company (on a
consolidated basis) to a party which is not controlled by or
under common control with the Company.
7.3 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive
becomes entitled to Severance Benefits or any other payment or benefit under
this Agreement, or under any other agreement with or plan of the Company (in
the aggregate, the "Total Payments"), if any of the Total Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed), the Company shall pay to the
Executive in cash an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive after deduction of any Excise Tax upon
the Total Payments and any Federal, state and local income tax and Excise Tax
upon the Gross-Up Payment provided for by this Section 7.3 (including FICA and
FUTA), shall be equal to the Total Payments. Such payment shall be made by the
Company to the Executive as soon as practical following the effective date of
termination, but in no event beyond thirty (30) days from such date.
7.4 TAX COMPUTATION. For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the amounts of such
Excise Tax:
(a) Any other payments or benefits received or to be received by the
Executive in connection with a Change of Control of the Company
or the Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement,
or agreement with the Company, or with any person (which shall
have the meaning set forth in Section 3(a)(9) of the Securities
Exchange Act of 1934, including a "group" as defined in Section
13(d) therein) whose actions result in a
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<PAGE> 12
Change in Control of the Company or any person affiliated with
the Company or such persons) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel as supported by the
Company's independent auditors and acceptable to the Executive,
such other payments or benefits (in whole or in part) do not
constitute parachute payments, or unless such excess parachute
payments (in whole or in part) represent reasonable compensation
for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of:
(i) the total amount of the Total Payments; or (ii) the amount
of excess parachute payments within the meaning of Section
280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay Federal income taxes at the highest marginal
rate of Federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the Executive's
residence on the effective date of termination, net of the maximum reduction in
Federal income taxes which could be obtained from deduction of such state and
local taxes.
7.5 SUBSEQUENT RECALCULATION. In the event the Internal Revenue
Service adjusts the computation of the Company under Section 7.4 herein so
that the Executive did not receive the greatest net benefit, the Company shall
reimburse the Executive for the full amount necessary to make the Executive
whole, plus a market rate of interest, as determined by the Committee.
ARTICLE 8. OUTPLACEMENT ASSISTANCE
Following a Qualifying Termination (as defined in Section 7.1 herein)
the Executive shall be reimbursed by the Company for the costs of all
outplacement services obtained by the Executive; provided, however, that the
total reimbursement shall be limited to an amount equal to fifteen percent
(15%) of the Executive's Base Salary as of the effective date of termination.
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<PAGE> 13
ARTICLE 9. NONCOMPETITION
9.1 PROHIBITION ON COMPETITION. Without the prior written consent of
the Company, during the term of this Agreement, and for twelve (12) months
following the expiration or other termination of this Agreement the Executive
shall not, as an employee or an officer, engage directly or indirectly in any
business or enterprise which is "in competition" with the Company or its
successors or assigns. For purposes of this Agreement, a business or
enterprise will be deemed to be "in competition" if it is engaged in any
significant business activity of the Company or its subsidiaries within the
state (or states, if changed from time to time) within which, during the
two (2) years immediately preceding such termination of employment, the
Executive has been principally engaged in business for the Company or its
subsidiaries.
However, the Executive shall be allowed to purchase and hold for
investment less than three percent (3%) of the shares of any corporation
whose shares are regularly traded on a national securities exchange or in the
over-the-counter market.
9.2 DISCLOSURE OF INFORMATION. The Executive recognizes that he has
access to and knowledge of certain confidential and proprietary information of
the Company which is essential to the performance of his duties under this
Agreement. The Executive will not, during or after the term of his employment
by the Company, in whole or in part, disclose such information to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall he make use of any such information for his own purposes.
9.3 COVENANTS REGARDING OTHER EMPLOYEES. During the term of this
Agreement, and for a period of twenty four (24) months following the expiration
of this Agreement, the Executive agrees not to attempt to induce any employee
of the Company to terminate his or her employment with the Company, to accept
employment with any competitor of the Company, or to interfere in a similar
manner with the business of the Company.
ARTICLE 10. ASSIGNMENT
10.1 ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned
or transferred to, and shall be binding upon and shall inure to the benefit of,
any successor of the Company, and any such successor shall be deemed
substituted for all purposes for the "Company" under the terms of this
Agreement. As used in this Agreement, the term "successor" shall mean any
person, firm, corporation, or business entity which at any time, whether by
merger, purchase, or otherwise, acquires all or substantially all of the assets
or the business of the Company. Notwithstanding such assignment, the Company
shall remain, with such successor, jointly and severally liable for all its
obligations hereunder.
Failure of the Company to obtain the agreement of any successor to be
bound by the terms of this Agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement, and shall immediately entitle
the Executive to compensation from
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the Company in the same amount and on the same terms as the Executive would be
entitled in the event of a termination of employment for Good Reason within
two (2) years after a Change in Control, as provided in Article 7 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
10.2 ASSIGNMENT BY EXECUTIVE. The services to be provided by the
Executive to the Company hereunder are personal to the Executive, and the
Executive's duties may not be assigned by the Executive; provided, however,
that this Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, and administrators,
successors, heirs, distributees, devisees, and legatees. If the Executive dies
while any amounts payable to the Executive hereunder remain outstanding, all
such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, in the absence of such designee, to the Executive's estate.
ARTICLE 11. DISPUTE RESOLUTION AND NOTICE
11.1 DISPUTE RESOLUTION. The Executive shall have the right and
option to elect to have any good faith dispute or controversy arising under or
in connection with this Agreement settled by litigation or by arbitration.
If arbitration is selected, such proceeding shall be conducted before
a panel of three (3) arbitrators sitting in a location selected by the
Executive within fifty (50) miles from the location of his principal place of
employment, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the award of the
arbitrators in any court having competent jurisdiction.
11.2 NOTICE. Any notices, requests, demands, or other communications
provided for by this Agreement shall be sufficient if in writing and if sent
by registered or certified mail to the Executive at the last address he has
filed in writing with the Company or, in the case of the Company, at its
principal offices.
ARTICLE 12. MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements
or understandings, oral or written, between the parties hereto, with respect
to the subject matter hereof, and constitutes the entire agreement of the
parties with respect thereto. Without limiting the generality of the foregoing
sentence, this Agreement completely replaces and supersedes any and all prior
employment agreements entered into by and between the Company and the
Executive, all amendments thereto, and the Company's Change-in-Control
Severance Plan, in their entirety.
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12.2 MODIFICATION. This Agreement shall not be varied, altered,
modified, canceled, changed, or in any way amended except by mutual agreement
of the parties in a written instrument executed by the parties hereto or their
legal representatives.
12.3 SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
12.4 COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
12.5 TAX WITHHOLDING. The Company may withhold from any benefits
payable under this Agreement all Federal, state, city, or other taxes as may
be required pursuant to any law or governmental regulation or ruling.
12.6 BENEFICIARIES. The Executive may designate one or more persons
or entities as the primary and/or contingent beneficiaries of any amounts to
be received under this Agreement. Such designation must be in the form of a
signed writing acceptable to the Board or the Board's designee. The Executive
may make or change such designation at any time.
12.7 PAYMENT OBLIGATION ABSOLUTE. The Company's obligation to make
the payments and the arrangement provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or
demand. Each and every payment made hereunder by the Company shall be final,
and the Company shall not seek to recover all or any part of such payment from
the Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.
The Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Agreement, and the obtaining of any such other employment shall in no
event effect any reduction of the Company's obligations to make the payments
and arrangements required to be made under this Agreement, except to the extent
provided in Section 7.1(d) herein.
12.8 CONTRACTUAL RIGHTS TO BENEFITS. This Agreement establishes and
vests in the Executive a contractual right to the benefits to which he is
entitled hereunder. However, nothing herein contained shall require or be
deemed to require, or prohibit or be deemed to prohibit, the Company to
segregate, earmark, or otherwise set aside any funds or other assets, in trust
or otherwise, to provide for any payments to be made or required hereunder.
12.9 PAYMENT OF LEGAL FEES. To the extent permitted by law, the
Company shall pay all legal fees, costs of arbitration and litigation,
prejudgment interest, and other
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expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the benefits to which the Executive becomes entitled under
this Agreement, or as a result of the Company's contesting the validity,
enforceability, or interpretation of this Agreement, or as a result of any
conflict between the parties pertaining to this Agreement.
ARTICLE 13. GOVERNING LAW
To the extent not preempted by Federal law, the provisions of this
Agreement shall be construed and enforced in accordance with the laws of the
state of Missouri.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement, pursuant to Compensation Committee approval and ratification by the
Board of Directors, as of the Effective Date.
BOATMEN'S BANCSHARES, INC. EXECUTIVE:
By: /s/ Andrew B. Craig, III /s/ James W. Kienker
------------------------------ ----------------------------------
<PAGE> 1
Exhibit 10(t)
Employment Agreement For
John M. Brennan
Boatmen's Bancshares, Inc.
August 13, 1996
<PAGE> 2
Boatmen's Bancshares, Inc.
Employment Agreement For John M. Brennan
This EMPLOYMENT AGREEMENT is made, entered into, and is effective,
pursuant to Compensation Committee approval and ratification by the Board
of Directors, as of August 13, 1996 (the "Effective Date"), by and between
Boatmen's Bancshares, Inc., a Missouri corporation, (the "Company"), and
John M. Brennan (the "Executive").
WHEREAS, the Executive is presently employed by the Company in the
capacity of Executive Vice President; and
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contributions have
been substantial and meritorious and, as such, the Executive has demonstrated
unique qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of
the Executive in the above stated capacities, and Executive is desirous of
having such assurance;
NOW THEREFORE, in consideration of the foregoing and of the mutual
convents and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1. TERM OF EMPLOYMENT
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period commencing as of the
Effective Date of this Agreement, as indicated above, and ending January 29,
1999 (the "Initial Period"), subject, however, to earlier termination as
expressly provided herein.
The Initial Period of employment automatically shall be extended for
one (1) additional year, at the end of the Initial Period, and then again
after each successive year thereafter. However, either party may terminate
this Agreement at the end of the Initial Period, or at the end of any
successive one (1) year term thereafter, by giving the other party written
notice of intent not to renew, delivered at least three (3) months prior to
the end of such Initial Period or successive term. In the event such notice
of intent not to renew is properly delivered, this Agreement, along with all
corresponding rights, duties, and covenants, automatically shall expire at
the end of the Initial Period or successive term then in progress.
<PAGE> 3
However, regardless of the above, if at any time during the Initial
Period or successive term, a Change in Control of the Company occurs (as
defined in Article 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (1) two (2) years following the effective
date of such Change in Control; or (b) until all obligations of the Company
hereunder have been fulfilled, and until all benefits provided hereunder
have been paid.
ARTICLE 2. POSITION AND RESPONSIBILITIES
During the term of this Agreement, the Executive agrees to serve as
Executive Vice President of the Company. In his capacity as Executive Vice
President of the Company, the Executive shall report directly to the Vice
Chairman of the Company, and shall maintain the level of duties and
responsibilities as in effect as of the Effective Date, or such higher level
of duties and responsibilities as he may be assigned during the term of
this Agreement. The Executive shall have the same status, privileges, and
responsibilities normally inherent in such capacities in financial
institutions of similar size and character.
ARTICLE 3. STANDARD OF CARE
During the term of this Agreement, the Executive agrees to devote
substantially his full time, attention, and energies to the Company's
business and shall not be engaged in any other business activity, whether
or not such business activity is pursued for gain, profit, or other
pecuniary advantage. However, subject to Article 9 herein, the Executive
may serve as a director of other companies so long as such service is not
injurious to the Company. The Executive covenants, warrants, and represents
that he shall:
(a) Devote his full and best efforts to the fulfillment of his
employment obligations; and
(b) Exercise the highest degree of loyalty and the highest standards
of conduct in the performance of his duties.
This Article 3 shall not be construed as preventing the Executive from
investing assets in such form or manner as will not require his services
in the daily operations of the affairs of the companies in which such
investments are made.
ARTICLE 4. COMPENSATION
As remuneration for all services to be rendered by the Executive
during the term of this Agreement, and as consideration for complying with
the covenants herein, the Company shall pay and provide to the Executive
the following:
4.1 BASE SALARY. The Company shall pay the Executive a Base Salary
in an amount which shall be established from time to time by the Board of
Directors of the
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<PAGE> 4
Company or the Board's designee; provided, however, that such Base Salary
shall not be less than Two Hundred Eighty Three Thousand Nine Hundred
Dollars ($283,900) per year. This Base Salary shall be paid to the Executive
in equal semi-monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to
ascertain whether, in the judgment of the Board or the Board's designee,
such Base Salary should be increased, based primarily on the performance of
the Executive during the year and on the then current rate of inflation. If
so increased, the Base Salary as stated above shall, likewise, be increased
for all purposes of this Agreement.
4.2 ANNUAL BONUS. In addition to his salary, the Executive shall be
entitled to participate in the Company's short-term incentive program, as
such program may exist from time to time, at a level commensurate with the
Executive's position with the Company, as determined at the sole discretion
of the Compensation Committee.
4.3 LONG-TERM INCENTIVES. The Executive shall be eligible to
participate in the Company's 1996 Stock Incentive Plan, as such shall be
amended or superseded from time to time, at a level commensurate with the
Executive's position, as determined at the sole discretion of the
Compensation Committee.
4.4 RETIREMENT BENEFITS. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined
contribution retirement plans, subject to the eligibility and participation
requirements of such plans. The Executive's retirement benefits shall not
be less than those that would be provided him under the terms of the
Boatmen's Bancshares, Inc. Retirement Plan for Employees and the Boatmen's
Supplemental Retirement Plan in effect as of the Effective Date, or as such
benefits shall be increased, whether or not such benefits shall be decreased
or eliminated. The obligations of the Company pursuant to this Section 4.4
shall survive the termination of this Agreement.
The Company shall provide the Executive with an additional supplemental
pension benefit equal to the excess, if any, of (i) the actuarial present
value, determined as of the Executive's Severance of Service Date (as
defined in the Company's Retirement Plan), of the pension to which he would
have been entitled under the Company's Retirement and Supplemental
Retirement Plans if he had thirty (30) years of Credited Service (as defined
in the Company's Retirement Plan) with the Company on such date, over (ii)
the actuarial present value, determined as of the Executive's Severance of
Service Date, of the pension to which he is entitled under the Company's
Retirement and Supplemental Retirement Plans, including any amounts
attributable to the additional age and service credit provided in Section 7.1
of this Agreement. With respect to the calculation of this additional
supplemental pension benefit, all actuarial equivalents shall be determined
using the same actuarial assumptions utilized under the Company's
Supplemental Retirement Plan and all terms and conditions of this benefit
shall be governed by the terms and conditions of the Company's Supplemental
Retirement Plan (including without limitation any adjustments in the amount
of benefit with respect to optional
3
<PAGE> 5
forms of benefits, death benefits, and early retirement benefits). The
actuarial present value of the supplemental benefit, if any, as determined
above, and any pre-retirement or post-retirement death benefits provided
with respect thereto, shall be paid to the Executive or his beneficiary,
as the case may be, at the same time and in the same manner as his benefits
under the Company's Supplemental Retirement Plan.
4.5 EMPLOYEE BENEFITS. The Company shall provide to the Executive all
benefits to which other executives and employees of the Company are entitled,
as commensurate with the Executive's position, subject to the eligibility
requirements and other provisions of such arrangements. Such benefits shall
include, but shall not be limited to, group term life insurance, comprehensive
health and major medical insurance, dental and life insurance, and short-term
and long-term disability.
4.6 PERQUISITES. The Company shall provide to the Executive at the
Company's cost, all perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of
his duties hereunder.
4.7 RIGHT TO CHANGE PLANS. By reason of Section 4.5 and 4.6 herein,
the Company shall not be obligated to institute, maintain, or refrain from
changing, amending, or discontinuing any benefit plan, or perquisite, so
long as such changes are similarly applicable to executive employees generally.
ARTICLE 5. EXPENSES
The Company shall pay or reimburse the Executive for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues,
fees, and expenses associated with membership in various professional,
business, and civic associations and societies in which the Executive's
participation is in the best interest of the Company.
ARTICLE 6. EMPLOYMENT TERMINATIONS
6.1 TERMINATION DUE TO RETIREMENT OR DEATH. In the event the
Executive's employment is terminated while this Agreement is in force by
reason of retirement (as defined or provided for under the then established
rules of the Company's tax-qualified retirement plan), or death, the
Executive's benefits shall be determined in accordance with the Company's
retirement, survivor's benefits, insurance, and other applicable programs
of the Company then in effect (provided, however, that such benefits shall
be no less than those set forth in Section 4.4 herein) and, upon the
effective date of such termination, the Company's obligation under this
Agreement to provide to the Executive the elements of pay described in
Sections 4.1, 4.2, and 4.3 shall immediately expire; provided, however,
that the Executive shall receive all rights and benefits that he is vested
in, pursuant to the plan or plans described in Section 4.3 herein and other
plans and programs of the Company; and provided further,
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<PAGE> 6
however, that any retirement during the periods set forth in Section 7.1
herein shall be subject to the provisions of Article 7 herein.
6.2 TERMINATION DUE TO DISABILITY. In the event that the Executive
becomes Disabled (as defined below) during the term of this Agreement and is,
therefore, unable to perform his duties herein for more than one hundred
eighty (180) total calendar days during any period of twelve (12) consecutive
months, or in the event of the Board's reasonable expectation that the
Executive's Disability will exist for more than a period of one hundred
eighty (180) calendar days, the Company shall have the right to terminate
the Executive's active employment as provided in this Agreement. However,
the Board shall deliver written notice to the Executive of the Company's
intent to terminate for Disability at least thirty (30) calendar days prior
to the effective date of such termination.
A termination for Disability shall become effective upon the end of the
thirty (30) day notice period. Upon such effective date, the Company's
obligation to provide to the Executive the elements of pay described in
Section 4.1, 4.2, and 4.3 shall immediately expire; provided, however, that
the Executive shall receive all rights and benefits that he is vested in,
pursuant to the plan or plans described in Section 4.3 herein and to other
plans and programs of the Company.
The term "Disability" shall mean, for all purposes of this Agreement,
the incapacity of the Executive, due to injury, illness, disease, or bodily
or mental infirmity, to engage in the performance of substantially all of
the usual duties of employment with the Company as contemplated by Article 2
herein, such Disability to be determined by the Board of Directors of the
Company upon receipt of and in reliance on competent medical advice from
one (1) or more individuals, selected by the Board, who are qualified to
give such professional medical advice.
It is expressly understood that the Disability of the Executive for a
period of one hundred eighty (180) calendar days or less in the aggregate
during any period of twelve (12) consecutive months, in the absence of any
reasonable expectation that his Disability will exist for more than such a
period of time, shall not constitute a failure by him to perform his duties
hereunder and shall not be deemed a breach or default and the Executive shall
receive full compensation for any such period of Disability or for any other
temporary illness or incapacity during the term of this Agreement.
6.3 VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may terminate
this Agreement at any time by giving the Board of Directors of the Company
written notice of intent to terminate, delivered at least three (3) months
prior to the effective date of such termination.
Upon the effective date of such termination, following the expiration
of three (3) months notice period, the Company shall pay the Executive his
full Base Salary, at the rate then in effect as provided in Section 4.1
herein, through the effective date of termination, plus all other benefits
to which the Executive has a vested right at that time. In the event that the
terms and provisions of Article 7 herein do not apply to such termination,
the Company and
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<PAGE> 7
the Executive thereafter shall have no further obligations under this Agreement
except as provided in Section 4.4 and Article 9 herein. However, in the event
the terms and provisions of Article 7 herein apply, the payments and benefits
set forth therein shall apply.
6.4 INVOLUNTARY TERMINATION BY THE COMPANY WITHOUT CAUSE. At all
times prior to six (6) full calendar months before the effective date of a
Change in Control, or at any time more than two (2) years after the
effective date of a Change in Control, the Board may terminate the
Executive's employment, as provided under this Agreement, at any time, for
reasons other than death or Disability, or for Cause, by notifying the
Executive in writing of the Company's intent to terminate, at least thirty (30)
calendar days prior to the effective date of such termination.
Upon the effective date of such termination, following the expiration of
the thirty (30) day notice period, the Company shall pay to the Executive a
lump-sum cash payment equal to the greater of: (a) the Base Salary then in
effect for the remaining term of this Agreement (assuming no additional
extensions of this Agreement's term beyond that in effect as of the effective
date of termination), together with continuation of health and welfare benefits
for the remaining term of this Agreement; or (b) one (1) full year of his
Base Salary in effect as of the effective date of termination, plus a one (1)
year continuation of health and welfare benefits.
Further, the Company shall pay the Executive all other benefits to which
the Executive has a vested right at the time, according to the provisions of
the governing plan or program. The Company and the Executive thereafter shall
have no further obligations under this Agreement except as provided in
Section 4.4 and Article 9 herein.
If the Executive's employment is terminated during the periods set forth
in Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this
Section 6.4.
6.5 TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed
to prevent the Board from terminating the Executive's employment under this
Agreement for "Cause."
"Cause" shall be defined as conduct of the Executive which is finally
adjudged to be knowingly fraudulent, deliberately dishonest or willful
misconduct. The Company's Board of Directors, by majority vote, shall make
the determination of whether Cause exists, after providing the Executive with
notice of the reasons the Board believes Cause may exist and after giving
the Executive the opportunity to respond to the allegation that Cause exists.
In the event this Agreement is terminated by the Board for Cause, the
Company shall pay the Executive his Base Salary through the effective date
of the employment termination and the Executive shall immediately thereafter
forfeit all rights and benefits (other than vested benefits) he would
otherwise have been entitled to receive under this Agreement. The Company
and the Executive thereafter shall have no further obligations under this
Agreement except as provided in Article 9 herein.
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<PAGE> 8
6.6 TERMINATION FOR GOOD REASON. At any time during the term of this
Agreement, the Executive may terminate this Agreement for Good Reason (as
defined below) by giving the Board of Directors of the Company thirty (30)
calendar days written notice of intent to terminate, which notice sets forth
in reasonable detail the facts and circumstances claimed to provide a basis
for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide
to the Executive the benefits set forth in this Section 6.6 (or, in the event
of termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within two (2) years
following the effective date of a Change in Control, the benefits set forth
in Section 7.1 herein).
Good Reason shall mean, without the Executive's express written consent,
the occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities, and
status (including offices, titles, and reporting requirements) as
an officer of the Company, or a reduction or alteration in the nature
or status of the Executive's authorities, duties, or responsibilities
from those in effect during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location
which is at least fifty (50) miles further from the Executive's
primary residence at the time such requirement is imposed than is
such residence from the Company's office at which the Executive is
primarily rendering services at such time, except for required
travel on the Company's business to an extent substantially
consistent with the Executive's business obligations as of the
Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in
effect on the Effective Date, as provided in Section 4.1 herein,
or as the same shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in
any of the Company's short-and/or long-term incentive compensation
plans, or employee benefit or retirement plans, policies, practices,
or arrangements in which the Executive participates as of the
Effective Date; provided, however, that reductions in the levels of
participation in any such plans shall not be deemed to be "Good
Reason" if the Executive's reduced level of participation in each
such program remains substantially consistent with the average level
of participation of other executives who have positions commensurate
with the Executive's position; or
7
<PAGE> 9
(e) The failure of the Company to obtain a satisfactory agreement from
any successor to the Company to assume and agree to perform this
Agreement, as contemplated in Section 10.1 herein.
Upon a termination of the Executive's employment for Good Reason at any
time other than the six (6) full calendar month period prior to the effective
date of a Change in Control, or the two (2) year period following the
effective date of a Change in Control, the Executive shall be entitled to
receive the same payments and benefits as he is entitled to receive following
an involuntary termination of his employment by the Company without Cause,
as specified in Section 6.4 herein. The payment of Base Salary and pro rata
Bonus shall be made to the Executive within thirty (30) calendar days
following the effective date of employment termination. Upon a termination
for Good Reason within the six (6) full calendar month period prior to the
effective date of a Change in Control, or within the two (2) years following
the effective date of a Change in Control, the Executive shall be entitled to
receive the payments and benefits set forth in Section 7.1 herein in lieu of
those set forth in this Section 6.6.
The Executive's right to terminate employment for Good Reason shall not
be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
herein.
ARTICLE 7. CHANGE IN CONTROL
7.1 EMPLOYMENT TERMINATIONS IN CONNECTION WITH A CHANGE IN CONTROL. In
the event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
two years following the effective date of a Change in Control, then in lieu
of all other benefits provided to the Executive under the provisions of this
Agreement (other than the first sentence of Section 4.4 herein and without
derogation of his rights to receive vested benefits under the Company's
Amended 1982 Long Term Incentive Plan and the plan or plans described in
Section 4.3 herein), the Company shall pay to the Executive and provide him
with the following severance benefits (hereinafter referred to as the
"Severance Benefits"):
(a) An amount equal to three (3) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including
the effective date of termination;
(b) An amount equal to three (3) times the greater of: (i) the Executive's
average annual bonus earned over the three (3) fiscal years prior to
the Change in Control (whether or not deferred); or (ii) the
Executive's target bonus established for the fiscal year in which
the Executive's effective date of termination occurs;
8
<PAGE> 10
(c) An amount equal to the Executive's unpaid Base Salary and accrued
vacation pay through the effective date of termination;
(d) A continuation of the welfare benefits of medical insurance, dental
insurance, and life insurance for three (3) full years after the
effective date of termination. These benefits shall be provided to
the Executive at the same premium cost, and at the same coverage
level, as in effect as of the Executive's effective date of
termination. However, in the event the premium cost and/or level of
coverage shall change for all employees of the Company, the cost
and/or coverage level, likewise, shall change for the Executive in a
corresponding manner.
The continuation of these welfare benefits shall be discontinued
prior to the end of the three (3) year period in the event the
Executive has available substantially similar benefits from a
subsequent employer, as determined by the Company's Board of
Directors or the Board's designee.
(e) A lump-sum cash payment of the actuarial present value equivalent of
the aggregate benefits accrued by the Executive as of the effective
date of termination under the terms of any and all supplemental
retirement plans in which the Executive participates (subject to
the provisions of the second sentence of Section 4.4 herein). For
this purpose, such benefits shall be calculated under the assumption
that the Executive's employment continued following the effective
date of termination for three (3) full years (i.e., three (3)
additional years of age and service credits shall be added);
provided, however, that for purposes of determining "final average
pay" under such programs, the Executive's actual pay history as of
the effective date of termination shall be used.
(f) A lump-sum cash payment of the entire balance of the Executive's
compensation which has been deferred under the Company's
nonqualified deferred compensation plan(s) together with all interest
that has been credited with respect to such deferred compensation
balance.
For purposes of this Article 7, a Qualifying Termination shall mean any
termination of the Executive's employment other than: (1) by the Company
for Cause (as provided in Section 6.5 herein); (2) by reason of death,
Disability (as provided in Section 6.2 herein), or voluntary retirement;
provided, however, that a termination which qualifies as a retirement and which
occurs within the thirty (30) day period described in clause (3) of this
Section 7.1 below will be deemed to be a Qualifying Termination); or (3) by
the Executive without Good Reason (as provided in Section 6.6 herein, but
specifically excluding voluntary terminations within the period beginning on
the first anniversary of the effective date of the Change in Control and
ending thirty (30) days after such date--i.e., any voluntary termination by
the Executive within such period shall be deemed to be a Qualifying
Termination).
9
<PAGE> 11
7.2 DEFINITION OF "CHANGE IN CONTROL."
A Change in Control of the Company shall be deemed to have occurred as of
the first day any one or more of the following conditions shall have been
satisfied:
(a) Any individual, corporation (other than the Company), partnership,
trust, association, pool, syndicate, or any other entity or any
group of persons acting in concert becomes the beneficial owner, as
that concept is defined in Rule 13d-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934,
of securities of the Company possessing twenty percent (20%) or more
of the voting power for the election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other
business combination involving the Company or the securities of the
Company in which holders of voting securities of the Company
immediately prior to such consummation own, as a group, immediately
after such consummation, voting securities of the Company (or, if
the Company does not survive such transaction, voting securities of
the corporation surviving such transaction) having less than sixty
percent (60%) of the total voting power in an election of directors
of the Company (or such other surviving corporation);
(c) During any period of two (2) consecutive years, individuals who at
the beginning of such period constitute the directors of the Company
cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by the Company's
shareholders, of each new director of the Company was approved by
a vote of at least two-thirds (2/3) of the directors of the Company
then still in office who were directors of the Company at the
beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company (on a
consolidated basis) to a party which is not controlled by or under
common control with the Company.
7.3 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive
becomes entitled to Severance Benefits or any other payment or benefit under
this Agreement, or under any other agreement with or plan of the Company (in
the aggregate, the "Total Payments"), if any of the Total Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed), the Company shall pay to the
Executive in cash an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive after deduction of any Excise Tax upon
the Total Payments and any Federal, state and local income tax and Excise
Tax upon the Gross-Up Payment provided for by this Section 7.3 (including
FICA and FUTA), shall be equal to the
10
<PAGE> 12
Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 TAX COMPUTATION. For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the amounts of such
Excise Tax:
(a) Any other payments or benefits received or to be received by the
Executive in connection with a Change in Control of the Company or
the Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement, or agreement
with the Company, or with any person (which shall have the meaning
set forth in Section 3(a)(9) of the Securities Exchange Act of 1934,
including a "group" as defined in Section 13(d) therein) whose
actions result in a Change in Control of the Company or any person
affiliated with the Company or such persons) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel as supported by the Company's
independent auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or unless such excess parachute payments (in
whole or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
(b) The amount of the Total Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of: (i) the total
amount of the Total Payments; or (ii) the amount of excess
parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of
the Code.
For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay Federal income taxes at the highest marginal
rate of Federal income taxation in the calendar year in which the Gross-Up
Payment is to be made, and state and local income taxes at the highest
marginal rate of taxation in the sate and locality of the Executive's
residence on the effective date of termination, net of the maximum reduction
in Federal income taxes which could be obtained from deduction of such
state and local taxes.
7.5 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 7.4 herein so that the
Executive did not
11
<PAGE> 13
receive the greatest net benefit, the Company shall reimburse the Executive
for the full amount necessary to make the Executive whole, plus a market rate
of interest, as determined by the Committee.
ARTICLE 8. OUTPLACEMENT ASSISTANCE
Following a Qualifying Termination (as defined in Section 7.1 herein) the
Executive shall be reimbursed by the Company for the costs of all outplacement
services obtained by the Executive; provided, however, that the total
reimbursement shall be limited to an amount equal to fifteen percent (15%)
of the Executive's Base Salary as of the effective date of termination.
ARTICLE 9. NONCOMPETITION
9.1 PROHIBITION ON COMPETITION. Without the prior written consent of
the Company, during the term of this Agreement, and for twelve (12) months
following the expiration or other termination of this Agreement the Executive
shall not, as an employee or an officer, engage directly or indirectly in any
business or enterprise which is "in competition" with the Company or its
successors or assigns. For purposes of this Agreement, a business or
enterprise will be deemed to be "in competition" if it is engaged in any
significant business activity of the Company or its subsidiaries within the
state (or states, if changed from time to time) within which, during the two
(2) years immediately preceding such termination of employment, the Executive
has been principally engaged in business for the Company or its subsidiaries.
However the Executive shall be allowed to purchase and hold for investment
less than three percent (3%) of the shares of any corporation whose shares
are regularly traded on a national securities exchange or in the over-the-
counter market.
9.2 DISCLOSURE OF INFORMATION. The Executive recognizes that he has
access to and knowledge of certain confidential and proprietary information of
the Company which is essential to the performance of his duties under this
Agreement. The Executive will not, during or after the term of his
employment by the Company, in whole or in part, disclose such information
to any person, firm, corporation, association, or other entity for any reason
or purpose whatsoever, nor shall he make use of any such information for his
own purposes.
9.3 COVENANTS REGARDING OTHER EMPLOYEES. During the term of this
Agreement, and for a period of twenty four (24) months following the
expiration of this Agreement, the Executive agrees not to attempt to induce
any employee of the Company to terminate his or her employment with the
Company, to accept employment with any competitor of the Company, or to
interfere in a similar manner with the business of the Company.
12
<PAGE> 14
ARTICLE 10. ASSIGNMENT
10.1 ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned
or transferred to, and shall be binding upon and shall inure to the benefit of,
any successor of the Company, and any such successor shall be deemed substituted
for all purposes for the "Company" under the terms of this Agreement. As used
in this Agreement, the term "successor" shall mean any person, firm,
corporation, or business entity which at any time, whether by merger, purchase,
or otherwise, acquires all or substantially all of the assets or the business
of the Company. Notwithstanding such assignment, the Company shall remain,
with such successor, jointly and severally liable for all its obligations
hereunder.
Failure of the Company to obtain the agreement of any successor to be
bound by the terms of this Agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement, and shall immediately entitle
the Executive to compensation from the Company in the same amount and on the
same terms as the Executive would be entitled in the event of a termination of
employment for Good Reason within two (2) years after a Change in Control,
as provided in Article 7 herein. Except as herein provided, this Agreement may
not otherwise be assigned by the Company.
10.2 ASSIGNMENT BY EXECUTIVE. The services to be provided by the
Executive to the Company hereunder are personal to the Executive, and the
Executive's duties may not be assigned by the Executive; provided, however,
that this Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, and administrators,
successors, heirs, distributees, devisees, and legatees. If the Executive dies
while any amounts payable to the Executive hereunder remain outstanding, all
such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, in the absence of such designee, to the Executive's estate.
ARTICLE 11. DISPUTE RESOLUTION AND NOTICE
11.1 DISPUTE RESOLUTION. The Executive shall have the right and option
to elect to have any good faith dispute or controversy arising under or in
connection with this Agreement settled by litigation or by arbitration.
If arbitration is selected, such proceeding shall be conducted before a
panel of three (3) arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of his principal place of employment,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the award of the arbitrators in any court
having competent jurisdiction.
11.2 NOTICE. Any notices, requests, demands, or other communications
provided for by this Agreement shall be sufficient if in writing and if sent
by registered or certified mail to the Executive at the last address he has
filed in writing with the Company or, in the case of the Company, at its
principal offices.
13
<PAGE> 15
ARTICLE 12. MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements
or understandings, oral or written, between the parties hereto, with respect
to the subject matter hereof, and constitutes the entire agreement of the
parties with respect thereto. Without limiting the generality of the
foregoing sentence, this Agreement completely replaces and supersedes any and
all prior employment agreements entered into by and between the Company and
the Executive, all amendments thereto, and the Company's Change-in-Control
Severance Plan, in their entirety.
12.2 MODIFICATION. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
12.3 SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
12.4 COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same Agreement.
12.5 TAX WITHHOLDING. The Company may withhold from any benefits
payable under this Agreement all Federal, state, city, or other taxes as may
be required pursuant to any law or governmental regulation or ruling.
12.6 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a
signed writing acceptable to the Board or the Board's designee. The Executive
may make or change such designation at any time.
12.7 PAYMENT OBLIGATION ABSOLUTE. The Company's obligation to make the
payments and the arrangement provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against the Executive or anyone else. All
amounts payable by the Company hereunder shall be paid without notice or
demand. Each and every payment made hereunder by the Company shall be final,
and the Company shall not seek to recover all or any part of such payment from
the Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.
The Executive shall not be obligated to seek other employment in mitigation
of the amounts payable or arrangements made under any provision of this
Agreement, and the obtaining of any such other employment shall in no event
effect any reduction of the Company's obligations to make the payments and
arrangements required to be made under this Agreement, except to the extent
provided in Section 7.1(d) herein.
14
<PAGE> 16
12.8 CONTRACTUAL RIGHTS TO BENEFITS. This Agreement establishes and
vests in the Executive a contractual right to the benefits to which he is
entitled hereunder. However, nothing herein contained shall require or be
deemed to require, or prohibit or be deemed to prohibit, the Company to
segregate, earmark, or otherwise set aside any funds or other assets, in
trust or otherwise, to provide for any payments to be made or required
hereunder.
12.9 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company
shall pay all legal fees, costs of arbitration and litigation, prejudgment
interest, and other expenses incurred in good faith by the Executive as a
result of the Company's refusal to provide the benefits to which the
Executive becomes entitled under this Agreement, or as a result of the
Company's contesting the validity, enforceability, or interpretation of this
Agreement, or as a result of any conflict between the parties pertaining to
this Agreement.
ARTICLE 13. GOVERNING LAW
To the extent not preempted by Federal law, the provisions of this
Agreement shall be construed and enforced in accordance with the laws of the
state of Missouri.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement, pursuant to Compensation Committee approval and ratification by
the Board of Directors, as of the Effective Date.
BOATMEN'S BANCSHARES, INC. EXECUTIVE:
By: /s/ Andrew B. Craig, III /s/ John M. Brennan
----------------------------------- ---------------------------------
15
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