<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: June 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
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(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)
3l4-466-6000
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(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.
X
Yes ----- 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 July 31, 1996
- --------------------------------------------------------------------------------
$1 Par Value 156,741,130
<PAGE> 2
INDEX
<TABLE>
PART I - FINANCIAL INFORMATION
------------------------------
<CAPTION>
PAGE NO.
-------
<S> <C>
Item 1 - Financial Statements 3
Consolidated Balance Sheet
June 30, 1996 and 1995 and December 31, 1995 4
Consolidated Statement of Income
Three months and six months ended June 30, 1996 and 1995 5
Consolidated Statement of Changes in Stockholders' Equity
Six months ended June 30, 1996 and 1995 6
Consolidated Statement of Cash Flows
Six months ended June 30, 1996 and 1995 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-30
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 31
Item 5 - Other Information None
Item 6 - Exhibits and Reports on Form 8-K 32
SIGNATURE 32
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements for the three months and six
months ended June 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 six months ended June 30,
1996 are not necessarily indicative of the results which may be expected for
any other interim period or for the entire year.
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<PAGE> 4
<TABLE>
Boatmen's Bancshares, Inc.
CONSOLIDATED BALANCE SHEET
<CAPTION>
(dollars in thousands) June 30, 1996 June 30, 1995 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 2,139,433 $ 2,307,342 $ 2,611,765
Short-term investments 36,843 52,750 83,166
Securities:
Held to maturity 1,018,357 7,014,108 923,130
Available for sale 10,705,084 4,492,629 10,347,172
Trading 44,886 28,256 58,361
Federal funds sold and securities purchased
under resale agreements 489,410 784,254 1,225,671
Loans, net of unearned income 24,416,546 24,307,358 24,050,903
Less reserve for loan losses 472,006 457,221 452,560
- ------------------------------------------------------------------------------------------------------------------
Loans, net 23,944,540 23,850,137 23,598,343
- ------------------------------------------------------------------------------------------------------------------
Property and equipment 787,306 801,398 800,502
Other assets 1,516,699 1,562,989 1,475,379
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Total assets $40,682,558 $40,893,863 $41,123,489
==================================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------
Liabilities:
Demand deposits $ 6,560,696 $ 6,222,491 $ 6,894,649
Retail savings deposits and interest-bearing
transaction accounts 13,050,523 12,456,252 13,510,720
Time deposits 11,017,751 11,779,801 11,572,768
- ------------------------------------------------------------------------------------------------------------------
Total deposits 30,628,970 30,458,544 31,978,137
- ------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold
under repurchase agreements 3,753,895 2,708,270 2,902,973
Short-term borrowings 1,454,719 3,123,883 1,474,991
Capital lease obligations 38,352 39,699 39,076
Long-term debt 616,538 522,216 615,129
Other liabilities 597,456 610,321 512,436
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 37,089,930 37,462,933 37,522,742
- ------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock 957 1,132 961
- ------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock 99,091 99,469 99,324
Common stock ($1 par value; 250,000,000 shares authorized) 158,400 157,442 158,068
Surplus 1,212,482 1,204,437 1,212,838
Retained earnings 2,274,298 1,995,542 2,137,176
Treasury stock, at cost (58,894) (23,194) (18,096)
Unrealized net appreciation (depreciation),
available for sale securities (93,706) (3,898) 10,476
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,591,671 3,429,798 3,599,786
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $40,682,558 $40,893,863 $41,123,489
==================================================================================================================
Held to maturity securities, market value $ 1,046,349 $ 6,995,237 $ 973,801
Available for sale securities, amortized cost 10,863,440 4,499,111 10,330,233
Common stock, shares outstanding 156,886,657 156,726,993 157,591,239
Treasury shares 1,513,699 714,980 476,519
==================================================================================================================
</TABLE>
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<PAGE> 5
<TABLE>
Boatmen's Bancshares, Inc.
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
Second quarter ended June 30 Six months ended June 30
- --------------------------------------------------------------------------------------------------------------------
(in thousands except share data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $530,210 $530,404 $1,058,794 $1,029,155
Interest on short-term investments 1,311 1,137 3,224 2,101
Interest on Federal funds sold and securities purchased
under resale agreements 6,308 9,364 17,939 18,165
Interest on held to maturity securities
Taxable 96,093 192,150
Tax-exempt 16,723 13,903 32,204 27,868
- --------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 16,723 109,996 32,204 220,018
Interest on available for sale securities 165,460 72,439 325,648 148,737
Interest on trading securities 719 361 1,483 796
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Total interest income 720,731 723,701 1,439,292 1,418,972
- --------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 247,650 259,633 504,932 497,757
Interest on Federal funds purchased and other
short-term borrowings 61,728 81,880 120,437 162,726
Interest on capital lease obligations 944 975 1,890 1,953
Interest on long-term debt 12,168 11,493 24,618 23,622
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 322,490 353,981 651,877 686,058
- --------------------------------------------------------------------------------------------------------------------
Net interest income 398,241 369,720 787,415 732,914
Provision for loan losses 19,365 10,171 45,582 20,914
- --------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 378,876 359,549 741,833 712,000
- --------------------------------------------------------------------------------------------------------------------
Noninterest income
Trust fees 53,835 51,902 106,642 97,572
Service charges 63,647 57,832 123,998 113,066
Mortgage banking revenues 22,241 16,689 43,880 39,937
Credit card 10,861 14,404 26,414 29,099
Investment banking revenues 12,110 10,490 24,579 20,738
Securities gains (losses), net 871 3,005 1,348 (19,012)
Other 44,802 36,434 94,086 74,015
- --------------------------------------------------------------------------------------------------------------------
Total noninterest income 208,367 190,756 420,947 355,415
- --------------------------------------------------------------------------------------------------------------------
Noninterest expense
Staff 190,361 177,915 381,721 357,150
Net occupancy 25,089 23,665 50,507 48,792
Equipment 30,365 28,520 60,597 57,246
FDIC insurance 2,743 16,593 5,478 33,187
Intangible amortization 10,071 10,756 20,343 21,366
Advertising 12,427 11,495 22,321 21,409
Merger expense 711 42,414 25,978
Other 87,039 86,405 174,205 165,431
- --------------------------------------------------------------------------------------------------------------------
Total noninterest expense 358,095 356,060 757,586 730,559
- --------------------------------------------------------------------------------------------------------------------
Income before income tax expense 229,148 194,245 405,194 336,856
Income tax expense 83,080 66,440 148,002 118,787
- --------------------------------------------------------------------------------------------------------------------
Net income $146,068 $127,805 $ 257,192 $ 218,069
====================================================================================================================
Net income available to common shareholders $144,318 $126,043 $ 253,692 $ 214,538
====================================================================================================================
Net income per share $.92 $.80 $1.61 $1.37
====================================================================================================================
Dividends declared per share $.37 $.34 $ .74 $ .68
====================================================================================================================
</TABLE>
Earnings per share amounts are based on weighted average shares outstanding
after adjusting net income for dividends on preferred stock. For the six
months, average shares outstanding were 157,411,237 in 1996 and 156,541,623 in
1995. Preferred dividends declared totaled $3.5 million in both 1996 and 1995.
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<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) $3,164,430
Net income -- -- -- -- -- 218,069 -- -- -- 218,069
Cash dividends declared:
Common ($.68 per share) -- -- -- -- -- (87,343) -- -- -- (87,343)
Redeemable preferred -- -- -- -- -- (40) -- -- -- (40)
By pooled company prior
to merger--common -- -- -- -- -- (17,753) -- -- -- (17,753)
By pooled company prior
to merger--preferred -- -- -- -- -- (3,492) -- -- (3,492)
Acquisition of treasury stock -- -- -- -- -- -- (800) (25,827) -- (25,827)
Common stock issued pursuant
to dividend reinvestment
and employee plans -- -- 530 530 9,296 -- 305 9,141 -- 18,967
Common stock issued upon
acquisition of subsidiaries -- -- 947 947 27,543 -- 289 8,008 -- 36,498
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 -- (31) 1 1 30 -- -- -- -- --
Common stock issued upon
conversion of convertible
subordinated debentures -- -- 5 5 81 -- -- -- -- 86
Adjustment of available for sale
securities to market value -- -- -- -- -- -- -- -- 130,623 130,623
Other, net -- -- -- -- 209 -- -- -- -- 209
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 249 $ 99,469 157,442 $157,442 $1,204,437 $1,995,542 (715) $(23,194) $(3,898) $3,429,798
===================================================================================================================================
Balance, January 1, 1996 248 $ 99,324 158,068 $158,068 $1,212,838 $2,137,176 (477) $(18,096) $10,476 $3,599,786
Net income -- -- -- -- -- 257,192 -- -- -- 257,192
Cash dividends declared:
Common ($.74 per share) -- -- -- -- -- (116,516) -- -- -- (116,516)
Preferred -- -- -- -- -- (3,467) -- -- -- (3,467)
Redeemable preferred -- -- -- -- -- (33) -- -- -- (33)
Acquisition of treasury stock -- -- -- -- -- (2,136) (83,658) -- (83,658)
Common stock issued pursuant
to dividend reinvestment
and employee plans -- -- 325 325 (177) -- 866 33,284 -- 33,432
Common stock issued upon
acquisition of subsidiaries -- -- -- -- (839) -- 240 9,739 -- 8,900
Common stock issued upon
conversion of preferred
stock -- (233) 8 8 225 -- -- -- -- --
Common stock issued upon
conversion of convertible
subordinated debentures -- -- -- -- (110) -- 5 189 -- 79
Adjustment of available for sale
securities to market value -- -- -- -- -- -- -- -- (104,182) (104,182)
Other, net -- -- (1) (1) 545 (54) (12) (352) -- 138
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 248 $ 99,091 158,400 $158,400 $1,212,482 $2,274,298 (1,514) $(58,894) $(93,706) $3,591,671
===================================================================================================================================
</TABLE>
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<PAGE> 7
<TABLE>
Boatmen's Bancshares, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Six months ended June 30 (in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 487,691 $ 422,362
Investing Activities:
Net decrease in Federal funds sold and securities
purchased under resale agreements 740,786 337,611
Net increase in loans (363,452) (1,446,880)
Proceeds from the sales of foreclosed property 15,173 13,488
Proceeds from the maturity of held to maturity securities 87,948 457,630
Purchases of held to maturity securities (66,507) (279,108)
Proceeds from the maturity of available for sale securities 1,371,304 537,460
Proceeds from the sales of available for sale securities 240,759 560,475
Purchases of available for sale securities (2,254,546) (163,766)
Net (increase) decrease in short-term investments 46,323 (7,534)
Net increase in property and equipment (34,041) (50,422)
Net cash received from purchase acquisitions 3,096 1,636
- -----------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (213,157) (39,410)
===============================================================================================
Financing Activities:
Net increase (decrease) in Federal funds purchased and
securities sold under repurchase agreements 850,922 (279,045)
Net decrease in deposits (1,418,063) (908,458)
Net increase (decrease) in short-term borrowings (20,272) 736,378
Payments on long-term debt (1,174) (77,187)
Proceeds from the issuance of long-term debt 2,583
Payments on capital lease obligations (724) (709)
Cash dividends paid (109,908) (97,645)
Acquisition of treasury stock (83,658) (25,827)
Purchase and retirement of preferred stock (583)
Common stock issued pursuant to dividend
reinvestment and employee plans 33,432 18,967
Decrease in redeemable preferred stock (4) (10)
- -----------------------------------------------------------------------------------------------
Net cash used by financing activities (746,866) (634,119)
- -----------------------------------------------------------------------------------------------
Decrease in cash and due from banks (472,332) (251,167)
Cash and due from banks at beginning of year 2,611,765 2,558,509
- -----------------------------------------------------------------------------------------------
Cash and due from banks at June 30 $ 2,139,433 $ 2,307,342
===============================================================================================
</TABLE>
For the six months ended June 30, 1996 and 1995, interest paid totaled $668
million and $395 million, respectively, and income taxes paid totaled $140
million and $95 million. Loans transferred to foreclosed property totaled $12
million in 1996, and $7 million in 1995. Available for sale securities
transferred to held to maturity totaled $95 million for the six months ended
June 30, 1996. In 1995, assets and liabilities of purchased subsidiaries at
dates of acquisition included investment securities of $93 million, loans of
$168 million, other assets of $37 million, deposits of $258 million and other
liabilities of $3 million.
- 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>
Second quarter ended June 30 Six months ended June 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 $.92 $.80 15.0% $ 1.61 $ 1.37 17.5%
Net income before merger expenses and
securities restructuring charge .92 .80 15.0 1.80 1.58 13.9
Dividends declared .37 .34 8.8 .74 .68 8.8
Book value at period end 22.26 21.25 4.8
Tangible book value at period end 19.57 18.66 4.9
Shares outstanding at period end 156.9 156.7 .1
Average shares outstanding 157.4 156.5 .6
- ----------------------------------------------------------------------------------------------------------------------
For the Period
Net interest income $398.2 $369.7 7.7% $787.4 $732.9 7.4%
Provision for loan losses 19.4 10.2 90.4 45.6 20.9 117.9
Noninterest income 208.4 190.8 9.2 420.9 355.4<F1> 18.4
Noninterest expense 358.1 356.1 .6 757.6<F2> 730.6<F2> 3.7
Net income 146.1 127.8 14.3 257.2 218.1 17.9
Net income before merger expenses and
securities restructuring charge 146.1 128.3 13.8 286.6 251.5 14.0
- ----------------------------------------------------------------------------------------------------------------------
Financial Position at Period End
Total assets $40,682.6 $40,893.9 (.5)%
Loans 24,416.5 24,307.4 .4
Securities 11,723.4 11,506.7 1.9
Deposits 30,629.0 30,458.5 .6
Long-term debt 616.5 522.2 18.1
Stockholders' equity 3,591.7 3,429.8 4.7
- ----------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios
Before merger expenses and securities
restructuring charge:
Return on assets 1.44% 1.27% 1.42% 1.25%
Return on total equity 16.23 15.21 15.79 15.20
Return on common equity 16.49 15.46 16.04 15.45
Noninterest income/operating income 33.8 33.4 34.3 33.3
Efficiency ratio 58.1 62.2 58.3 62.2
After merger expenses and securities
restructuring charge:
Return on assets 1.44 1.27 1.27 1.09
Return on total equity 16.23 15.14 14.18 13.18
Return on common equity 16.49 15.39 14.38 13.37
Net interest margin 4.48 4.19 4.44 4.20
Noninterest income/operating income 33.8 33.4 34.3 32.0
Efficiency ratio 58.1 62.4 61.7 65.8
Capital ratios:
Equity to assets 8.83 8.39
Risk-based capital:
Tier I capital 11.44 10.84
Total capital 14.09 13.56
Tier I leverage ratio 8.29 7.61
- ----------------------------------------------------------------------------------------------------------------------
Asset Quality
Annualized net charge-offs to average loans .18% .15% .22% .14%
Loan reserve to net loans 1.93 1.88
Loan reserve to nonperforming loans 214.27 269.28
Nonperforming loans to total loans .90 .70
Nonperforming assets to total loans and
foreclosed property 1.04 .95
======================================================================================================================
<FN>
<F1>Includes a securities restructuring charge of $22.0 million.
<F2>Includes merger expenses of $42.4 million in 1996 and $26.0 million in
1995.
</TABLE>
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<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 half of 1996, the
Corporation completed nine acquisitions in five states aggregating $12.0
billion in total assets. The Corporation's operations currently span nine
states, with services delivered from over 650 branch locations and over 1,450
ATM's. A summary of the acquisitions consummated in 1996 and 1995 is provided
in Table 2.
<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
- ------------------------------------------------------------------------------------------------------------------------
Total assets of completed transactions $12.0 billion
========================================================================================================================
Pending at June 30, 1996
Canadian Bancshares, Inc.<F1> Texas $ .1 billion $ 8 million stock .2 million Purchase
========================================================================================================================
<FN>
<F1> Completed on July 1, 1996.
</TABLE>
<TABLE>
Table 3: Asset Distribution
<CAPTION>
June 30, 1996 (dollars in billions) Assets % of total Locations
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Missouri $17.9 44.0% 170
Kansas 4.6 11.3 88
Arkansas 4.6 11.3 145
Oklahoma 4.2 10.3 95
New Mexico 3.4 8.3 71
Texas 2.3 5.6 42
Iowa 1.1 2.7 26
Illinois 1.0 2.5 23
Tennessee 1.0 2.5 18
Credit card .6 1.5
- ------------------------------------------------------------------------
Total $40.7 100.0% 678
========================================================================
</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.
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
- 9 -
<PAGE> 10
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. At the
date of announcement, the transaction had a value of approximately $153
million, which represented 1.2% of National Mortgage's mortgage servicing
portfolio. 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 the first and second quarters of
1995, resulted in 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. The major components of the merger
expenses are quantified in Table 4. At June 30, 1996, the remaining accrued
liability for the merger-related expenses recognized in the first quarter of
this year totaled approximately $15 million.
<TABLE>
Table 4: Merger Expense
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Six months ended June 30 (in millions) 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equipment and software write-offs, and branch closings $17.9 $ 6.4
Compensation costs 11.1 4.6
Investment banking, legal, and other professional fees 5.9 9.7
Other 7.5 5.3
- ------------------------------------------------------------------------------------------------------------------
Total $42.4 $26.0
==================================================================================================================
</TABLE>
Earnings Overview
Net income for the second quarter of 1996 increased to $146.1 million,
up 14.3% from the same period last year, and net income per common share was
$.92, an increase of 15.0%. For the year-to-date period, net income was
impacted by merger expenses stemming from the aforementioned pooling
acquisitions completed in 1996 and 1995, and the securities restructuring
charge recognized by Fourth Financial in the first quarter of last year. Net
income for the six months of 1996 was reduced by after-tax merger expenses
totaling $29.4 million or $.19 per share. Net income in 1995 was reduced by
after-tax merger expenses totaling $20.0 million or $.13 per share and an
after-tax securities restructuring charge of $13.4 million or $.08 per share.
Net income before the impact of the merger expenses and the securities
restructuring charge (nonoperating items) increased to $286.6 million for the
six months of 1996, up 14.0% from the same period of last year, and net
income per common share was $1.80, an increase of 13.9%. The earnings growth
in the second quarter and six months reflected higher net interest income and
noninterest income, partially offset by a higher provision for loan losses
and slightly higher noninterest expense levels. Including nonoperating items,
net income for the six months increased 17.9% to $257.2 million, and net
income per common share increased 17.5% to $1.61. The purchase acquisitions
completed in 1995 and 1996 had no material impact on results of operations.
For the second quarter, the return on average assets was 1.44% and the
return on common equity was 16.49%, compared to 1.27% and 15.39%,
respectively, for the same period last year. For the six months, the return
on average assets was 1.42% and the return on common equity was 16.04%,
compared to 1.25% and 15.45%, respectively, in 1995. Including nonoperating
items, the return on assets and return on common equity were 1.27% and
14.38%, respectively, in 1996, and 1.09% and 13.37%, respectively, in 1995.
Net interest income, on a fully-taxable equivalent basis, increased
7.2% over the second quarter of 1995 and 6.9% for the six months, primarily
due to an improvement in the net interest margin. The net interest margin was
4.48% for the second quarter of
- 10 -
<PAGE> 11
1996 and 4.44% for the six months, increases of 29 and 24 basis points from
the prior year periods, respectively.
Noninterest income before securities gains and losses increased 10.5%
over the second quarter of 1995 and 12.1% for the six months, primarily due
to growth in trust fees, service charges, mortgage banking revenues and
investment banking revenues, offset in part by lower credit card revenues.
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 and gains of approximately $9 million in the second quarter
resulting from the sale of six branch locations, five of which were required
to be sold under regulatory conditions of the Fourth Financial acquisition
agreement. 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 merger expenses, increased .8% from the
second quarter of 1995 and 1.5% for the six months. Including merger
expenses, noninterest expense for the six months increased 3.7%. The
efficiency ratio, before nonoperating items, improved to 58.3% for the six
months of 1996, compared to 62.2% for the prior year period.
The provision for loan losses for the second quarter of 1996 totaled
$19.4 million, up from $10.2 million for the same period of last year. For
the six months, the provision for loan losses totaled $45.6 million, compared
to $20.9 million in 1995. The year-to-date provision for loan losses exceeded
net charge-offs by $18.5 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 six months of 1996, net loan
charge-offs were $27.1 million, compared to $17.0 million in the same period
last year; and annualized net charge-offs as a percentage of average loans
were .22% in 1996, compared to .14% 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 six months ended June 30, 1996, compared
to the same periods last year and the three months ended March 31, 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>
2nd Qtr. '96 2nd Qtr. '96 YTD '96
Per share vs. 2nd Qtr. '95 vs. 1st Qtr. '96 vs. YTD '95
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per share prior period $.80 $.69 $1.37
- -----------------------------------------------------------------------------------------------------
Net interest income .18 .06 .35
Provision for loan losses (.06) .05 (.16)
Noninterest income .11 (.03) .42
Noninterest expense (.01) (.01) (.06)
Merger expense .27 (.11)
Income tax expense (.10) (.11) (.19)
Impact of additional shares of common stock (.01)
- -----------------------------------------------------------------------------------------------------
Net increase .12 .23 .24
- -----------------------------------------------------------------------------------------------------
Net income per share current period $.92 $.92 $1.61
=====================================================================================================
</TABLE>
Net Interest Income and Interest Rate Risk Management
<TABLE>
Table 6: Summary of Net Interest Income
<CAPTION>
Second quarter ended June 30 Six months ended June 30
- -------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average loans $24,355.1 $23,859.1 2.1% $24,242.8 $23,482.8 3.2%
Average earning assets 36,626.7 36,373.5 .7 36,512.8 36,210.9 .8
Average core deposits 27,361.6 26,472.4 3.4 27,442.1 26,192.6 4.8
Average purchased funds 6,188.5 7,284.5 (15.0) 6,028.4 7,414.3 (18.7)
Net interest income (FTE) 407.6 380.3 7.2 806.5 754.6 6.9
Net interest margin 4.48% 4.19% 4.44% 4.20%
===================================================================================================================
</TABLE>
Net interest income, on a fully-taxable equivalent basis, increased
7.2% over the second quarter of 1995 and 6.9% for the six months, primarily
due to an improvement in the net interest margin and a modest increase in
average earning assets.
The net interest margin for the second quarter of 1996 was 4.48%,
compared to 4.19% for the same period last year and 4.41% for the first
quarter of 1996. For the six 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 six months was
- 11 -
<PAGE> 12
essentially unchanged from the same period last year; while the average rate
paid on interest-bearing liabilities decreased 14 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.
The net interest margin improvement also reflects a favorable shift in
earning asset mix. Average earning assets increased .7% over the second
quarter and .8% for the six months, as loan growth was offset to a large
extent by a decline in the securities portfolio. Loans, the highest yielding
earning asset, increased 2.1% over the second quarter of 1995 and 3.2% for
the six months. As a percentage of average earning assets, loans were 66.4%
for the six months of 1996, compared to 64.9% for the same period last year.
Held to maturity and available for sale securities decreased 4.7% for the six
months, and represented 31.4% of average earning assets, down from 33.2% in
1995. The decline in the securities portfolio reflects redeployment of
proceeds from maturing securities to the loan portfolio and the sale of
approximately $425 million of fixed-rate securities by Fourth Financial in
the first quarter of last year as a means to realign its balance sheet to
reduce interest rate sensitivity.
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 2%, 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.
In 1996, $1.5 billion of interest rate floors were added and $1.5
billion of interest rate swaps matured such that at June 30, 1996, interest
rate derivative contracts totaled $2.8 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 June 30, 1996, was 5.53% on a
notional amount of $1.3 billion, compared to an average rate paid of 5.62%,
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 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 $1.5
million in the second quarter and $2.8 million for the six months, resulting
in reductions in the net interest margin of approximately 2 basis points in
each period. In 1995, the derivative portfolio decreased net interest income
by $4.2 million for the second quarter and $7.2 million for the six months,
reducing the margin by approximately 4 basis points. Based on interest rates
at June 30, 1996, it is anticipated that the existing derivative portfolio
will reduce net interest income by approximately $5 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 June 30, 1996, and June 30, 1995. The
derivative portfolio's estimated unrealized loss, based on dealer quotes, was
$12.8 million at June 30, 1996, compared to an unrealized loss of $41.4
million at June 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.
- 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 (622) (776) (81) (1,479) (1,479)
- ---------------------------------------------------------------------------------------------------------------------
Notional amount, June 30, 1996 $1,206 $103 $16 $1,325 $1,500 $2,825
=====================================================================================================================
Average remaining maturity (years) .6 -- .4 .6 2.8 1.8
Weighted average rate received 5.52% 5.53% 6.15% 5.53%
Weighted average rate paid 5.59 5.93 5.59 5.62
=====================================================================================================================
</TABLE>
<TABLE>
Table 8: Derivative Portfolio
<CAPTION>
Weighted Estimated
Average Rate --------------------
June 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 $1,106 5.55% 5.59% .7 $(10.4)
Basis swaps 16 6.15 5.59 .4
- ------------------------------------------------------------------------------------------------------
Total 1,122 5.55 5.59 .7 (10.4)
Long-term debt swaps 100 5.18 5.56 .3 (.2)
Bank note liability swaps 100 5.53 5.86 -- (.1)
Other 3 6.86 7.85 .5
- ------------------------------------------------------------------------------------------------------
Total interest rate swaps 1,325 5.53% 5.62% .6 (10.7)
Interest rate floors 1,500 2.8 (2.1)
- ------------------------------------------------------------------------------------------------------
Total $2,825 1.8 $(12.8)
======================================================================================================
<CAPTION>
Weighted Estimated
Average Rate --------------------
June 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 $1,884 5.63% 6.33% 1.4 $(36.1)
Basis swaps 159 6.22 6.35 .6 .2
- ------------------------------------------------------------------------------------------------------
Total 2,043 5.67 6.33 1.3 (35.9)
Long-term debt swaps 200 4.87 6.21 1.0 (2.1)
Bank note liability swaps 850 6.12 6.21 1.0 (3.0)
Other 80 6.35 7.13 .4 (.4)
- ------------------------------------------------------------------------------------------------------
Total $3,173 5.76% 6.31% 1.2 $(41.4)
======================================================================================================
</TABLE>
Approximately 82% 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 June 30, 1996, totaled approximately
$1.0 billion.
- 13 -
<PAGE> 14
Noninterest Income
<TABLE>
Table 9: Summary of Noninterest Income
<CAPTION>
Second quarter ended June 30 Six months ended June 30
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trust fees $ 53.8 $ 51.9 3.7% $106.6 $ 97.6 9.3%
Service charges 63.7 57.8 10.1 124.0 113.1 9.7
Mortgage banking revenues 22.2 16.7 33.3 43.9 39.9 9.9
Credit card 10.9 14.4 (24.6) 26.4 29.1 (9.2)
Investment banking revenues 12.1 10.5 15.4 24.6 20.7 18.5
Other 44.8 36.5 23.0 94.1 74.0 27.1
- ------------------------------------------------------------------------------------------------------------------
Noninterest income before
securities gains (losses) 207.5 187.8 10.5 419.6 374.4 12.1
Securities gains (losses), net .9 3.0 (71.0) 1.3 (19.0) (107.1)
- ------------------------------------------------------------------------------------------------------------------
Total noninterest income $208.4 $190.8 9.2% $420.9 $355.4 18.4%
==================================================================================================================
As % of operating income 33.8% 33.4% 34.3% 32.0%
As % of operating income before securities
restructuring charge 33.8 33.4 34.3 33.3
Revenue per full-time equivalent employee
(in thousands) $120.0 $112.1 $119.3 $108.6
==================================================================================================================
</TABLE>
Noninterest income before securities gains and losses increased 10.5%
over the second quarter of 1995 and 12.1% for the six months, primarily due
to growth in trust fees, service charges, mortgage banking revenues and
investment banking revenues, offset in part by lower credit card revenues.
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 and gains on branch
dispositions of approximately $9 million in the second quarter resulting from
the sale of six branch locations, five of which were required to be sold
under regulatory conditions of the Fourth Financial acquisition agreement.
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 percentage of
operating revenues improved to 34.3% for the six months of 1996, from 33.3%
for the same period of last year, before the impact of the aforementioned
securities restructuring charge.
Trust fees increased 3.7% over the second quarter of 1995 and 9.3% for
the six months. Excluding a large personal trust estate distribution fee
recognized in the second quarter of last year, trust fees increased 8.5% for
the quarter and 11.9% for the six 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 bond and equity
financial markets resulting in an increase in market values of trust assets
on which some fees are based. Trust assets under management totaled $41.6
billion at June 30, 1996.
<TABLE>
Table 10: Trust Fees by Component
<CAPTION>
Second quarter ended June 30 Six months ended June 30
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Personal trust $32.5 $32.9 (1.2)% $ 64.1 $61.5 4.2%
Pension and institutional 15.7 14.5 8.3 31.2 27.4 13.9
Corporate trust 3.1 3.2 (3.1) 6.5 6.2 4.8
Mutual funds 2.5 1.3 92.3 4.8 2.5 92.0
- ------------------------------------------------------------------------------------------------------------------
Total $53.8 $51.9 3.7% $106.6 $97.6 9.3%
==================================================================================================================
</TABLE>
Service charge income totaled $63.7 million in the second quarter of
1996 and $124.0 million for the six months, increases of 10.1% and 9.7% over
the prior year periods, respectively. This growth reflected increases in
fees from both retail and corporate customers. Credit card income decreased
24.6% from the second quarter of last year and 9.2% for the six 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 $1.6 million over the second quarter of
1995 and $3.9 million for the six months, primarily due to increased sales
volume within the retail and institutional sectors.
Mortgage banking revenues totaled $22.2 million in the second quarter
of 1996 and $43.9 million for the six months, increases of 33.3% and 9.9%
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
- 14 -
<PAGE> 15
revenues increased 37.0% for the six months, primarily due to higher
production volume resulting in increased origination fees and gains
on sales of loans. The servicing portfolio increased to $19.9 billion at June
30, 1996, from $18.9 billion at June 30, 1995, primarily due to acquisitions
of no-cost contract servicing agreements, supplemented by internal growth.
Retail and correspondent loan originations totaled approximately $1.0 billion
in the six months of 1996, compared to $.5 billion in the prior year. At June
30, 1996, mortgage servicing rights totaled $73.4 million, with a fair value
of approximately $102.9 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 six 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>
Second quarter ended June 30 Six months ended June 30
- ----------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Servicing fees <F1> $12.7 $13.6 $26.3 $27.1
Late fees 2.8 2.5 6.0 5.0
Gains (losses) on sales of loans 2.9 (1.0) 5.0 (2.0)
Origination fees 3.8 1.6 6.6 1.9
Gain on sale of mortgage servicing rights 7.9
- ----------------------------------------------------------------------------------------------------------
Total mortgage banking revenues $22.2 $16.7 $43.9 $39.9
==========================================================================================================
<FN>
<F1> Net of mortgage servicing rights amortization.
</TABLE>
For the six months of 1996, securities gains totaled $1.3 million,
compared to securities losses of $19.0 million last year when Fourth
Financial sold approximately $425 million of fixed rate securities as a
means to realign its balance sheet to reduce interest rate sensitivity.
Other noninterest income increased $20.1 million or 27.1% over the six
months of 1995 primarily due to the aforementioned gains from the sale of
credit card merchant contracts and branch locations. Other noninterest
income in 1996 also reflected increases in revenues from debit cards,
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>
Second quarter ended June 30 Six months ended June 30
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 % change 1996 1995 % change
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Staff expense $190.4 $177.9 7.0% $381.7 $357.2 6.9%
Occupancy 25.1 23.7 6.0 50.5 48.8 3.5
Equipment 30.4 28.5 6.5 60.6 57.2 5.9
FDIC insurance 2.7 16.6 (83.5) 5.5 33.2 (83.5)
Credit card 2.9 3.6 (19.4) 7.5 7.5
Printing, postage, paper 14.8 14.8 31.0 29.3 5.8
Intangible amortization 10.1 10.8 (6.4) 20.3 21.4 (4.8)
Professional fees 7.8 6.6 18.2 15.0 12.7 18.1
Federal Reserve processing charges 3.1 2.9 6.9 5.8 5.9 (1.7)
Advertising 12.4 11.5 8.1 22.3 21.4 4.3
Communications 8.8 8.2 7.3 17.9 15.5 15.5
Merger expense .7 (100.0) 42.4 26.0 63.3
Other 49.6 50.3 (1.4) 97.1 94.5 2.8
- ------------------------------------------------------------------------------------------------------------------
Total noninterest expense $358.1 $356.1 .6% $757.6 $730.6 3.7%
==================================================================================================================
Efficiency ratio excluding merger expenses
and securities restructuring charge 58.1% 62.2% 58.3% 62.2%
Number of full-time equivalent employees 20,629 20,460
==================================================================================================================
</TABLE>
Noninterest expense, excluding merger expenses, increased .8% from the
second quarter of 1995, and 1.5% for the six months. Noninterest expense in
1996 includes merger expenses totaling approximately $42.4 million resulting
from the first quarter acquisition of Fourth Financial, and in 1995 included
$26.0 million of such expenses related to the acquisitions of Worthen,
National Mortgage and Pampa. Including merger expenses, noninterest expense
was $757.6 million for the six months of 1996 and $730.6 million in 1995, an
increase of 3.7%. The efficiency ratio before merger expenses and the
securities restructuring charge in 1995 improved to 58.3% for the six months
of 1996, compared to 62.2% for the prior year period.
Staff expense, which represents approximately 50% of total noninterest
expense, increased 7.0% from the second quarter of 1995 and 6.9% for the six
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 20,629 at June 30, 1996, 20,644 at March 31, 1996 and 20,460 at
June 30, 1995. Staffing levels are expected to decline from existing levels
through consolidation and integration of duplicate functions at Fourth
Financial over the balance of the year and into the first half of 1997.
FDIC insurance expense totaled $2.7 million for the second quarter of
1996 and $5.5 million for the six months, decreases of $13.9 million and $27.7
million from the prior year periods, respectively. These declines reflect
action taken by the FDIC which reduced the rate paid by most financial
institutions from 23 cents per $100 of insured deposits to a $2,000 minimum
per bank. Thrift deposits continue to be assessed at 23 cents per $100 of
insured deposits.
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed Of," became effective January 1, 1996.
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by a company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If such conditions exist, companies must
estimate the future cash flows from use of the asset and, if the sum of the
undiscounted estimated future cash flows is less than the carrying amount of
the asset, an impairment writedown would be recognized. Adoption of this
pronouncement had no material effect on the Corporation's financial results.
Taxes
The Corporation's effective tax rate was 36.5% for the six 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 34.4% in 1995.
- 16 -
<PAGE> 17
Provision For Loan Losses And Asset Quality
<TABLE>
Table 13: Summary of Reserve for Loan Losses
<CAPTION>
Second quarter ended June 30 Six months ended June 30
- ----------------------------------------------------------------------------------------------------------
June 30 (in millions) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period $463.7 $454.7 $452.6 $449.5
Loans charged off:
Commercial (7.3) (7.2) (14.9) (10.9)
Real estate:
Commercial real estate (1.1) (1.0) (2.2) (1.7)
Construction (.2) (.2) (.6) (.3)
1-4 family residential (.8) (.5) (1.4) (1.0)
Consumer:
Credit card (6.7) (6.4) (14.5) (12.9)
Other (11.7) (7.5) (25.4) (15.7)
- ----------------------------------------------------------------------------------------------------------
Total charge-offs (27.8) (22.8) (59.0) (42.5)
- ----------------------------------------------------------------------------------------------------------
Recoveries on loans previously charged off:
Commercial 8.8 4.7 14.8 9.7
Real estate:
Commercial real estate 2.4 3.5 5.0 4.5
Construction .1 .7 .3 1.0
1-4 family residential .5 .5 1.2 1.1
Consumer:
Credit card 1.0 1.1 1.8 2.1
Other 3.9 3.4 8.8 7.1
- ----------------------------------------------------------------------------------------------------------
Total recoveries 16.7 13.9 31.9 25.5
- ----------------------------------------------------------------------------------------------------------
Net charge-offs (11.1) (8.9) (27.1) (17.0)
- ----------------------------------------------------------------------------------------------------------
Provision for loan losses 19.4 10.2 45.6 20.9
Loan reserve from acquisitions 1.2 .9 3.8
- ----------------------------------------------------------------------------------------------------------
Balance, end of period $472.0 $457.2 $472.0 $457.2
==========================================================================================================
Annualized net charge-offs as %
of average loans .18% .15% .22% .14%
At end of period:
Loan reserve as % of net loans 1.93 1.88
Loan reserve as % of nonperforming loans 214.27 269.28
==========================================================================================================
</TABLE>
<TABLE>
Table 14: Summary of Nonperforming Assets
<CAPTION>
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual $169.6 $165.4 $129.4
Restructured 2.8 8.0 7.2
Past due 90 days or more 47.9 37.4 33.2
- ---------------------------------------------------------------------------------------------------------------
Total nonperforming loans 220.3 210.8 169.8
- ---------------------------------------------------------------------------------------------------------------
Foreclosed property 35.9 35.1 62.4
===============================================================================================================
Total nonperforming assets $256.2 $245.9 $232.2
===============================================================================================================
Nonperforming loans as % of total loans .90% .87% .70%
Nonperforming assets as % of total loans and foreclosed property 1.04 1.02 .95
Nonperforming assets as % of total assets .63 .60 .57
Loan reserve as % of nonperforming loans 214.27 214.70 269.28
===============================================================================================================
</TABLE>
The provision for loan losses totaled $19.4 million in the second
quarter of 1996, compared to $10.2 million in the same period last year. Net
charge-offs in the second quarter totaled $11.1 million, compared to $8.9
million in the same period last year. For the six months, the provision for
loan losses totaled $45.6 million, compared to $20.9 million in 1995. The
year-to-date provision for loan losses exceeded net charge-offs by $18.5
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 214% of nonperforming loans at
June 30, 1996, compared to 215% at December 31,
- 17 -
<PAGE> 18
1995, and 269% at June 30, 1995. The reserve for loan losses as a percentage
of net loans was 1.93%, compared to 1.88% at June 30, 1995, and 1.88% at
year-end 1995. Net loan charge-offs for the six months of 1996 totaled $27.1
million, compared to $17.0 million for the same period of 1995. Annualized net
charge-offs as a percentage of average loans were .22% for the six months of
1996, compared to .14% for the same period last year, and .27% for all of
1995.
Nonperforming assets, which include nonperforming loans and foreclosed
property, declined $4.3 million from March 31, 1996, but were up $24.0
million or 10.3% from June 30, 1995, and $10.3 million or 4.2% from year-end
1995. The increase from December 31, 1995 reflects an adjustment to conform
Fourth Financial to the Corporation's nonaccrual policies and increases in
past due loans, partially offset by decreases in nonaccrual and restructured
loans at other banking units. The increase from June 30, 1995, reflects the
conforming adjustment and a large corporate borrower who filed for bankruptcy
in the fourth quarter of 1995, partially offset by declines at most other
banking units as illustrated in Table 15. As a percent of total loans and
foreclosed property, nonperforming assets were 1.04%, compared to .95% at
June 30, 1995, and 1.02% at December 31, 1995. As a percentage of total
assets, nonperforming assets were .63% at June 30, 1996, compared to .57% at
June 30, 1995, and .60% at December 31, 1995. Nonperforming loans at June
30, 1996, were $220.3 million or .90% of total loans, compared to .87% at
December 31, 1995, and .70% at June 30, 1995.
<TABLE>
Table 15: Nonperforming Assets by Banking Unit
<CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------
% of % of % of
Total Total Total
(in millions) Amount Assets Amount Assets Amount Assets
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Missouri $100.7 .56% $ 99.7 .57% $ 97.7 .55%
Oklahoma 53.3 1.27 41.7 .95 38.1 .87
New Mexico 23.6 .69 25.9 .78 30.6 .96
Kansas 22.3 .48 17.4 .34 16.4 .32
Arkansas 21.0 .46 22.9 .48 19.5 .44
Iowa 13.3 1.21 12.9 1.08 5.1 .43
Texas 6.7 .29 8.6 .37 10.0 .45
Illinois 4.2 .42 4.9 .45 5.5 .50
Tennessee 4.6 .46 4.9 .54 3.6 .40
Credit Card 6.5 1.08 7.0 1.40 5.7 1.14
- ------------------------------------------------------------------------------------------------------
Total $256.2 .63% $245.9 .60% $232.2 .57%
======================================================================================================
</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
$951.4 million or 3.88% of loans at June 30, 1996, compared to $868.9 million
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 .92% for the six months of 1996 and .63% in the
same period of last year, and included credit card losses of 4.16% and 3.43%,
respectively. Credit card loan losses totaled $5.7 million in the second
quarter of 1996, down $1.3 million from the first quarter level and expressed
as a percentage of the related average loan balance declined to 3.82%. This
decline and the lower level of credit card delinquencies at June 30, 1996
reflect the sale of a private label credit card portfolio and general
improvement in loan performance.
- 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
==========================================================================================
As % of loans at June 30, 1996 .90% 2.98% 3.88%
==========================================================================================
</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
=========================================================================================================
</TABLE>
At June 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
$152.5 million and consisted of nonaccrual and restructured commercial,
commercial real estate, and real estate construction loans. At June 30, 1996,
the reserve for loan losses included approximately $3.3 million allocated to
$19.6 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 six 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 June 30, 1996, segregated
assets totaled $71.6 million, net of a $12.8 million credit valuation
allowance, and are classified as other assets for reporting purposes. At June
30, 1996, segregated assets consisted of $15.1 million of commercial loans,
$12.3 million of industrial revenue bond loans, $52.3 million of commercial
real estate related loans and $4.7 million of foreclosed property. All other
loans covered under the loss-sharing arrangement are included in the loan
portfolio and totaled $161.9 million at June 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 six 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 from the Corporation's
nonperforming asset statistics. At June 30, 1996, $77.9 million of segregated
assets were accorded classification treatment consistent with nonaccrual
reporting, $4.7 million represented foreclosed property, and the balance of
$1.8 million were past due 90 days or more. The Corpo-
- 19 -
<PAGE> 20
ration'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 $3.2 million in the six months of 1996 and $6.3 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>
June 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 (4.7) (.8)
Recoveries 1.7 .3
Net transfers (10.5)
Payments on segregated assets (18.7)
- ------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 $ 84.4 $12.8 $ 71.6
======================================================================================================
</TABLE>
Loan Portfolio
At June 30, 1996, loans totaled $24.4 billion, an increase of .4% over
the same period of last year, and were up 1.5% from December 31, 1995. Based
on average balances, loans increased 2.1% over the second quarter of 1995,
and 3.2% for the six months. Loan growth from June 30, 1995, was primarily
due to increases in consumer and commercial loans, partially offset by
decreases in both residential and commercial real estate loans. The increase
in consumer loans was due primarily to indirect installment loan growth, as
well as increases in home equity loans, partially offset by a decline in
credit card outstandings and the sale of approximately $300 million in
consumer loans through an auto-loan securitization sale completed in the
third quarter of 1995. Excluding the impact of the aforementioned auto-loan
securitization, consumer loans increased approximately 10.7% from June 30,
1995. The decline in the credit card portfolio from December 31, 1995,
reflects the sale of a small private label credit card portfolio and
seasonal fluctuations. The increase in commercial loans was primarily due to
growth in the middle-market sector as well as increases in loans to Fortune
1,000 companies. 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>
June 30, 1996 December 31, 1995 June 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 $11,253.4 46.1% $10,524.2 43.7% $10,914.1 44.9%
Arkansas 2,745.2 11.2 2,745.8 11.4 2,543.4 10.5
Kansas 2,418.8 9.9 2,683.2 11.2 2,736.7 11.3
Oklahoma 2,461.6 10.1 2,597.6 10.8 2,653.7 10.9
New Mexico 1,422.8 5.8 1,447.3 6.0 1,479.5 6.1
Texas 1,105.8 4.5 1,087.6 4.5 1,057.5 4.4
Tennessee 929.1 3.8 784.1 3.3 763.1 3.1
Illinois 771.1 3.2 788.4 3.3 779.2 3.2
Iowa 708.0 2.9 718.1 3.0 761.8 3.1
Credit card 600.7 2.5 674.6 2.8 618.4 2.5
- ------------------------------------------------------------------------------------------------------------------
Total $24,416.5 100.0% $24,050.9 100.0% $24,307.4 100.0%
==================================================================================================================
<FN>
<F1>Net of unearned income.
</TABLE>
- 20 -
<PAGE> 21
<TABLE>
Table 20: Summary of Loan Portfolio
<CAPTION>
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $12,091.8 $11,834.5 $12,109.4
Real estate mortgage 4,383.0 4,565.3 4,739.3
Real estate construction 1,101.6 1,107.7 1,037.6
Consumer 6,534.0 6,284.1 6,204.7
Lease financing 370.1 325.4 278.9
- ------------------------------------------------------------------------------------------------------------------
Total domestic loans 24,480.5 24,117.0 24,369.9
Foreign loans 20.1 20.9 24.7
- ------------------------------------------------------------------------------------------------------------------
Total loans, before deduction of unearned income 24,500.6 24,137.9 24,394.6
Less unearned income 84.1 87.0 87.2
- ------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned income $24,416.5 $24,050.9 $24,307.4
==================================================================================================================
</TABLE>
<TABLE>
Table 21: Composition of Loan Portfolio
<CAPTION>
June 30, 1996 December 31, 1995 June 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 $ 4,383.0 17.9% $ 4,565.3 18.9% $ 4,739.3 19.4%
Land acquisition 262.0 1.1 215.4 .9 223.6 .9
Residential construction 316.3 1.3 380.2 1.6 387.6 1.6
Commercial construction 523.3 2.1 512.1 2.1 426.4 1.8
Commercial real estate 3,751.4 15.3 3,822.5 15.8 3,932.7 16.1
- ---------------------------------------------------------------------------------------------------------------------
Total real estate 9,236.0 37.7 9,495.5 39.3 9,709.6 39.8
Commercial loans to Fortune 1,000 companies
and other large corporate borrowers 1,297.9 5.3 1,127.0 4.7 1,217.0 5.0
Middle market commercial 5,790.7 23.6 5,675.5 23.5 5,738.9 23.5
Bank stock loans 226.9 .9 204.8 .9 245.4 1.0
Agriculture 1,024.9 4.2 1,004.7 4.2 975.4 4.0
Consumer:
Home equity 699.2 2.9 642.8 2.7 561.6 2.3
Credit card 600.7 2.5 674.6 2.8 618.4 2.5
Indirect installment 3,263.6 13.3 2,929.3 12.1 3,042.7 12.5
Installment 1,970.5 8.0 2,037.4 8.4 1,982.0 8.1
- ---------------------------------------------------------------------------------------------------------------------
Total consumer 6,534.0 26.7 6,284.1 26.0 6,204.7 25.4
Lease financing 370.1 1.5 325.4 1.3 278.9 1.2
Foreign 20.1 .1 20.9 .1 24.7 .1
- ---------------------------------------------------------------------------------------------------------------------
Total loans $24,500.6 100.0% $24,137.9 100.0% $24,394.6 100.0%
=====================================================================================================================
</TABLE>
The section that follows addresses 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 $8.3 billion at June 30, 1996, representing approximately
34.0% of the total portfolio, compared to 33.5% at June 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 June 30, 1996, middle-market commercial loans represented
23.6% of the total loan portfolio and loans to Fortune 1,000 companies
comprised 5.3% 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 basis depending on the risk
assessment of the specific
- 21 -
<PAGE> 22
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 June 30, 1996, of the Corporation's eight largest borrowers,
there were only five relationships with aggregate outstandings in the $50-$80
million range and three borrowers with aggregate outstandings in the $40-$49
million range.
Credit risk associated with the commercial portfolio is primarily
influenced by economic conditions and the level of under-writing 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
June 30, 1996 Commercial Loans<F1> Total Loans
- --------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing:
Metal, machinery and fabrication 5.1% 1.8%
Food products 2.5 .9
Chemical, rubber and petroleum 1.9 .6
Printing and paper 1.9 .7
All other manufacturing 5.5 1.9
Services:
Health care 3.5 1.2
Amusement/recreation 1.3 .4
All other services 11.1 3.8
Finance, insurance, real estate 12.2 4.1
Retail trade:
Retail (non-auto) 8.3 2.8
Retail (auto) 1.5 .5
Agriculture, forestry and fishing 12.3 4.2
Wholesale trade--durable goods 6.6 2.2
Wholesale trade--non-durable goods 4.2 1.4
Individual personal loans 8.0 2.7
Transportation 3.5 1.2
Construction 3.3 1.1
Communication 1.8 .6
Other 5.5 1.9
- --------------------------------------------------------------------------------
Total 100.0% 34.0%
================================================================================
<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 June 30, 1996, commercial real estate loans totaled $4.9 billion,
representing approximately 19.8% of total loans, compared to 20.4% at June
30, 1995. 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
June 30, 1996 (in millions) Performing Nonperforming Total as % of Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial real estate:
Multi-family $ 489.8 $ 2.2 $ 492.0 .45%
Office/showroom 966.5 8.9 975.4 .91
Industrial/warehouse 510.3 5.6 515.9 1.09
Retail strip 327.8 2.3 330.1 .68
Retail, other 482.4 8.9 491.3 1.82
Lodging 634.3 6.1 640.4 .95
Land 279.8 8.4 288.2 2.91
Residential construction 312.1 4.2 316.3 1.32
Other 793.4 10.0 803.4 1.25
- ---------------------------------------------------------------------------------------------------------
Total commercial real estate 4,796.4 56.6 4,853.0 1.17
1-4 family residential 4,348.0 35.0 4,383.0 .80
- ---------------------------------------------------------------------------------------------------------
Total real estate $9,144.4 $91.6 $9,236.0 .99%
=========================================================================================================
</TABLE>
Consumer Loans
The consumer loan category consists primarily of direct and indirect
installment, credit card, and home equity lending. At June 30, 1996, consumer
loans totaled $6.5 billion, representing approximately 26.7% of total loans,
compared to 25.4% at June 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 62% 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 $600.7 million at June 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 $4.4 billion at June
30, 1996, and represented 17.9% of total loans compared to 19.4% at June 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 second quarter and
fourth quarter of 1995. At June 30, 1996, assets totaled $40.7 billion
compared to $40.9 billion at June 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 $27.4 billion for the second quarter of
1996, an increase of $.9 billion or 3.4% from the same period last year. Much
of the core deposit growth has occurred within the retail money market
deposit accounts through increased
- 23 -
<PAGE> 24
penetration of the retail customer base. In addition, the core deposit base mix
has been altered somewhat in recent periods as customers have redirected
balances from traditionally lower-cost savings deposits to the higher-rate
retail money market accounts. The deposit growth during this period has exceeded
earning asset growth; accordingly, the excess liquidity has been used to reduce
purchased funds. Average core deposits supported 74.7% of earning assets for the
second quarter of 1996, compared to 72.8% during the same period last year.
Purchased funds supported 16.9% of average earning assets, compared to 20.0% for
the second quarter of last year. Purchased funds at June 30, 1996, and June 30,
1995, included short-term bank notes which were issued by several of the
Corporation's banking subsidiaries totaling $.7 billion and $2.0 billion,
respectively. The Corporation's need for purchased funds was also reduced due to
proceeds received from the $300 million auto-loan securitization completed in
the third quarter of last year.
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 June 30, 1996, the available for sale
portfolio totaled $10.7 billion, compared to $4.5 billion at June 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 June 30, 1996,
unrealized depreciation in the available for sale portfolio was approximately
$158.4 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 30% 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 $7.6
billion at June 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 June 30, 1996, which
would materially impact the Corporation's liquidity position.
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.
<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
Capital Structure
<TABLE>
Table 25: Capital Structure
<CAPTION>
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt $ 616.5 $ 615.1 $ 522.2
Stockholders' equity:
Preferred equity 99.1 99.3 99.5
Common equity 3,492.6 3,500.5 3,330.3
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,591.7 3,599.8 3,429.8
- ------------------------------------------------------------------------------------------------------------------
Total capitalization $4,208.2 $4,214.9 $3,952.0
==================================================================================================================
Tangible equity $3,168.9 $3,164.2 $3,023.5
==================================================================================================================
Ratios
- ------------------------------------------------------------------------------------------------------------------
Equity/assets 8.83% 8.75% 8.39%
Tangible equity/assets 7.87 7.78 7.47
Long-term debt as % of total capitalization 14.65 14.59 13.21
Double leverage 107.55 106.35 106.71
Dividends paid (for the period, in thousands):
Preferred<F1> $ 3,500 $ 7,049 $ 3,535
Common<F1> 106,408 206,692 94,110
Total dividends as % of net income 42.7% 44.5% 44.8%
==================================================================================================================
<FN>
<F1> Includes dividends of pooled companies.
</TABLE>
<TABLE>
Table 26: Intangible Assets
<CAPTION>
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill--Parent Company $ 81.7 $ 84.4 $ 87.1
- ------------------------------------------------------------------------------------------------------------------
Subsidiaries:
Goodwill 189.8 193.6 183.1
Core deposit premium 60.3 69.5 78.3
Mortgage servicing rights 73.4 67.5 47.6
Credit card premium 17.6 20.6 10.2
- ------------------------------------------------------------------------------------------------------------------
Total subsidiaries 341.1 351.2 319.2
- ------------------------------------------------------------------------------------------------------------------
Total intangible assets $422.8 $435.6 $406.3
==================================================================================================================
</TABLE>
The Corporation continues to rank among the most strongly capitalized
bank holding companies in the country. This strong capital position and
overall financial strength provide a good base for future expansion when
profitable investment opportunities arise. The cornerstone of the
Corporation's capital structure is its common equity, totaling $3.5 billion
or approximately 83.0% of total capitalization at June 30, 1996, an increase
of 4.9% from June 30, 1995. The equity to asset ratio was 8.83% at June 30,
1996, compared to 8.39% at June 30, 1995, and 8.75% at December 31, 1995. At
June 30, 1996, the Corporation held 1,513,699 common shares in Treasury at a
cost of $58.9 million. The repurchased shares will be used to meet periodic
stock requirements of benefit plans and for the pending purchase acquisition.
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 3.4 million common shares would be required.
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
11.44% for Tier I and 14.09% for total capital substantially exceed the
regulatory required minimums. At June 30, 1996, the Corporation's Tier I
leverage ratio was 8.29%, well in excess of required minimums. At June 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%.
- 25 -
<PAGE> 26
<TABLE>
Table 27: Risk-Based Capital
<CAPTION>
(in millions) June 30, 1996 December 31, 1995 June 30, 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I capital:
Stockholders' equity $ 3,591.7 $ 3,599.8 $ 3,429.8
Unrealized net (appreciation) depreciation,
available for sale securities 93.7 (10.5) 3.9
- --------------------------------------------------------------------------------------------------------
Stockholders' equity, net 3,685.4 3,589.3 3,433.7
Minority interest .7 .7 .7
Intangible assets:
Goodwill (271.5) (278.0) (270.2)
Core deposit premium (60.3) (69.5) (78.3)
- --------------------------------------------------------------------------------------------------------
Total Tier I 3,354.3 3,242.5 3,085.9
- --------------------------------------------------------------------------------------------------------
Tier II capital:
Allowable reserve for loan losses 367.9 360.1 356.8
Qualifying long-term debt 410.0 410.0 415.0
- --------------------------------------------------------------------------------------------------------
Total Tier II 777.9 770.1 771.8
- --------------------------------------------------------------------------------------------------------
Total capital $ 4,132.2 $ 4,012.6 $ 3,857.7
========================================================================================================
Risk-adjusted assets $29,325.9 $28,721.2 $28,454.6
========================================================================================================
Risk-based capital ratios:
Tier I 11.44% 11.29% 10.84%
========================================================================================================
Total 14.09% 13.97% 13.56%
========================================================================================================
Tier I leverage ratio 8.29% 7.95% 7.61%
========================================================================================================
</TABLE>
- 26 -
<PAGE> 27
<TABLE>
Boatmen's Bancshares, Inc.
CONSOLIDATED QUARTERLY EARNINGS TREND
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------------------------------
(in thousands) Second First Fourth Third Second First
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $530,210 $528,584 $538,382 $540,212 $530,404 $498,751
Interest on short-term investments 1,311 1,913 1,540 1,146 1,137 964
Interest on Federal funds sold and securities
purchased under resale agreements 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 16,723 15,077 14,325 13,915 13,903 13,965
- --------------------------------------------------------------------------------------------------------------------------
Total interest on held to maturity securities 16,723 15,481 86,389 107,454 109,996 110,022
Interest on available for sale securities 165,460 160,188 87,712 68,367 72,439 76,298
Interest on trading securities 719 764 706 547 361 435
- --------------------------------------------------------------------------------------------------------------------------
Total interest income 720,731 718,561 726,374 727,944 723,701 695,271
Interest expense:
Interest on deposits 247,650 257,282 265,050 262,652 259,633 238,124
Interest on Federal funds purchased
and other short-term borrowings 61,728 58,709 63,921 77,862 81,880 80,846
Interest on capital lease obligations 944 946 971 972 975 978
Interest on long-term debt 12,168 12,450 12,498 11,334 11,493 12,129
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 322,490 329,387 342,440 352,820 353,981 332,077
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 398,241 389,174 383,934 375,124 369,720 363,194
Provision for loan losses 19,365 26,217 26,451 12,391 10,171 10,743
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 378,876 362,957 357,483 362,733 359,549 352,451
Noninterest income:
Trust fees 53,835 52,807 52,226 50,444 51,902 45,670
Service charges 63,647 60,351 59,760 58,822 57,832 55,234
Mortgage banking revenues 22,241 21,639 20,421 20,344 16,689 23,248
Credit card 10,861 15,553 16,184 16,200 14,404 14,695
Investment banking revenues 12,110 12,469 10,832 10,588 10,490 10,248
Securities gains (losses), net 871 477 11,034 938 3,005 (22,017)
Other 44,802 49,284 38,331 38,091 36,434 37,581
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest income 208,367 212,580 208,788 195,427 190,756 164,659
- --------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Staff 190,361 191,360 186,596 182,726 177,915 179,235
Net occupancy 25,089 25,418 24,368 25,617 23,665 25,127
Equipment 30,365 30,232 31,123 28,335 28,520 28,726
FDIC insurance 2,743 2,735 4,945 1,156 16,593 16,594
Intangible amortization 10,071 10,272 11,268 11,121 10,756 10,610
Advertising 12,427 9,894 11,705 9,752 11,495 9,914
Merger expense 42,414 711 25,267
Other 87,039 87,166 98,776 92,778 86,405 79,026
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 358,095 399,491 368,781 351,485 356,060 374,499
- --------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 229,148 176,046 197,490 206,675 194,245 142,611
Income tax expense 83,080 64,922 69,229 72,994 66,440 52,347
- --------------------------------------------------------------------------------------------------------------------------
Net income $146,068 $111,124 $128,261 $133,681 $127,805 $ 90,264
==========================================================================================================================
Net income available to common shareholders $144,318 $109,374 $126,407 $131,923 $126,043 $ 88,495
==========================================================================================================================
Net income per share $.92 $.69 $.81 $.84 $.80 $.57
==========================================================================================================================
Dividends declared per share $.37 $.37 $.37 $.37 $.34 $.34
==========================================================================================================================
Returns:
Return on assets 1.44% 1.10% 1.27% 1.32% 1.27% .90%
Return on total equity 16.23 12.15 14.49 15.49 15.14 11.13
Return on common equity 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 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Average balances (in millions) Second Quarter First Quarter Fourth Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income/ Yields/ Income/ Yields/ Income/ Yields/
Assets Balance Expense Rates Balance Expense Rates Balance Expense Rates
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income $24,355.1 $531.5 8.78% $24,130.6 $530.3 8.84% $24,184.4 $540.1 8.86%
Short-term investments 81.3 1.3 6.48 121.1 1.9 6.36 92.4 1.5 6.61
Federal funds sold and securities
purchased under resale agreements 476.3 6.3 5.33 845.2 11.7 5.53 796.9 11.6 5.80
Held to maturity securities:
Taxable 4,584.8 72.1 6.24
Tax-exempt 994.6 24.5 9.89 917.4 22.3 9.79 891.4 21.4 9.52
- ----------------------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 994.6 24.5 9.89 917.4 22.3 9.79 5,476.2 93.5 6.77
Available for sale securities 10,671.2 165.7 6.24 10,333.1 161.3 6.28 5,696.6 89.0 6.19
Trading securities 48.2 .8 6.60 51.5 .8 6.55 49.2 .7 6.01
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 36,626.7 730.1 8.02 36,398.9 728.3 8.05 36,295.7 736.4 8.05
Less reserve for loan losses (468.4) (454.0) (463.9)
Cash and due from banks 2,076.7 2,093.5 2,142.2
All other assets 2,249.1 2,313.8 2,324.3
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $40,484.1 $40,352.2 $40,298.3
==================================================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $13,262.8 $ 98.7 2.99% $13,247.8 $100.9 3.06% $12,995.1 $103.5 3.16%
Time deposits 11,156.5 148.9 5.37 11,486.5 156.4 5.47 11,574.1 161.5 5.54
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,419.3 247.6 4.08 24,734.3 257.3 4.18 24,569.2 265.0 4.28
Federal funds purchased and
other short-term borrowings 4,674.6 61.7 5.31 4,354.2 58.7 5.42 4,449.4 63.9 5.70
Capital lease obligations 38.6 1.0 9.84 38.9 1.0 9.77 39.2 1.0 9.82
Long-term debt 616.6 12.2 7.94 616.2 12.4 8.13 599.4 12.5 8.27
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 29,749.1 322.5 4.36 29,743.6 329.4 4.45 29,657.2 342.4 4.58
Demand deposits 6,532.8 6,395.8 6,544.7
All other liabilities 601.7 554.9 555.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 36,883.6 36,694.3 36,756.9
Redeemable preferred stock 1.0 1.0 1.0
Total stockholders' equity 3,599.5 3,656.9 3,540.4
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,484.1 $40,352.2 $40,298.3
==================================================================================================================================
Interest rate spread 3.66% 3.60% 3.47%
Effect of noninterest-bearing funds .82 .81 .84
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest margin $407.6 4.48% $398.9 4.41% $394.0 4.31%
==================================================================================================================================
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 $1.3 $1.7 $ 1.7
Held to maturity securities 7.8 6.8 7.1
Available for sale securities .2 1.1 1.2
Trading securities .1 .1
- ----------------------------------------------------------------------------------------------------------------------------------
Total $9.4 $9.7 $10.0
==================================================================================================================================
</TABLE>
- 28 -
<PAGE> 29
<TABLE>
Boatmen's Bancshares, Inc.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
<CAPTION>
1995
- ----------------------------------------------------------------------------------------------------------------------------
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 $24,207.4 $541.8 8.88% $23,859.1 $532.2 8.95% $23,102.3 $500.8 8.79%
Short-term investments 76.1 1.1 5.97 77.5 1.1 5.88 69.9 1.0 5.60
Federal funds sold and securities
purchased under resale agreements 695.2 10.2 5.83 611.6 9.4 6.14 595.3 8.8 6.00
Held to maturity securities:
Taxable 6,040.5 93.5 6.14 6,297.8 96.1 6.12 6,396.5 96.1 6.09
Tax-exempt 862.5 20.8 9.58 856.3 20.9 9.78 846.2 21.0 10.06
- ----------------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 6,903.0 114.3 6.57 7,154.1 117.0 6.56 7,242.7 117.1 6.55
Available for sale securities 4,430.6 70.0 6.26 4,649.0 74.2 6.41 5,007.2 78.3 6.34
Trading securities 32.8 .6 7.08 22.2 .4 6.87 29.2 .4 6.31
- ----------------------------------------------------------------------------------------------------------------------------
Total earning assets 36,345.1 738.0 8.06 36,373.5 734.3 8.10 36,046.6 706.4 7.95
Less reserve for loan losses (461.9) (460.1) (453.6)
Cash and due from banks 2,274.4 2,213.9 2,251.6
All other assets 2,365.7 2,208.6 2,149.7
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $40,523.3 $40,335.9 $39,994.3
============================================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $12,636.3 $100.4 3.15% $12,431.4 $ 99.0 3.20% $12,331.8 $ 91.9 3.02%
Time deposits 11,641.1 162.2 5.53 11,916.2 160.6 5.40 11,809.0 146.2 5.02
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,277.4 262.6 4.29 24,347.6 259.6 4.28 24,140.8 238.1 4.00
Federal funds purchased and
other short-term borrowings 5,353.3 77.9 5.77 5,483.9 81.9 5.99 5,632.7 80.9 5.82
Capital lease obligations 39.3 1.0 9.81 39.9 1.0 9.81 40.2 1.0 9.86
Long-term debt 522.5 11.3 8.61 529.0 11.5 8.71 572.6 12.1 8.59
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 30,192.5 352.8 4.64 30,400.4 354.0 4.67 30,386.3 332.1 4.43
Demand deposits 6,365.0 6,139.3 5,933.4
All other liabilities 512.5 419.0 430.1
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 37,070.0 36,958.7 36,749.8
Redeemable preferred stock 1.1 1.1 1.1
Total stockholders' equity 3,452.2 3,376.1 3,243.4
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,523.3 $40,335.9 $39,994.3
============================================================================================================================
Interest rate spread 3.42% 3.43% 3.52%
Effect of noninterest-bearing funds .78 .76 .69
- ----------------------------------------------------------------------------------------------------------------------------
Net interest margin $385.2 4.20% $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 $ 1.5 $ 1.8 $ 2.1
Held to maturity securities 6.9 7.0 7.0
Available for sale securities 1.6 1.8 2.0
Trading securities .1
- ----------------------------------------------------------------------------------------------------------------------------
Total $10.1 $10.6 $11.1
============================================================================================================================
</TABLE>
- 29 -
<PAGE> 30
<TABLE>
Boatmen's Bancshares, Inc.
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEET AND NET INTEREST MARGIN
<CAPTION>
Six Months Ended June 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 $24,242.8 $1,061.9 8.81% $23,482.8 $1,033.0 8.87%
Short-term investments 101.2 3.2 6.41 73.7 2.1 5.75
Federal funds sold and securities
purchased under resale agreements 660.7 17.9 5.46 603.5 18.2 6.07
Held to maturity securities:
Taxable 6,346.9 192.1 6.11
Tax-exempt 956.0 46.8 9.84 851.3 41.9 9.92
- ----------------------------------------------------------------------------------------------------------------------
Total held to maturity securities 956.0 46.8 9.84 7,198.2 234.0 6.56
Available for sale securities 10,502.2 327.0 6.26 4,827.1 152.5 6.37
Trading securities 49.9 1.6 6.58 25.6 .8 6.55
- ----------------------------------------------------------------------------------------------------------------------
Total earning assets 36,512.8 1,458.4 8.03 36,210.9 1,440.6 8.02
Less reserve for loan losses (461.2) (456.9)
Cash and due from banks 2,085.1 2,232.7
All other assets 2,281.4 2,179.3
- ----------------------------------------------------------------------------------------------------------------------
Total assets $40,418.1 $40,166.0
======================================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------
Retail savings deposits and interest-
bearing transaction accounts $13,255.3 $ 199.6 3.03% $12,381.9 $ 191.0 3.11%
Time deposits 11,321.5 305.3 5.42 11,862.9 306.8 5.21
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 24,576.8 504.9 4.13 24,244.8 497.8 4.14
Federal funds purchased and
other short-term borrowings 4,514.4 120.5 5.36 5,557.8 162.7 5.90
Capital lease obligations 38.8 1.9 9.81 40.1 1.9 9.83
Long-term debt 616.4 24.6 8.03 550.7 23.6 8.65
- ----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 29,746.4 651.9 4.41 30,393.4 686.0 4.55
Demand deposits 6,464.3 6,036.9
All other liabilities 578.2 424.5
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 36,788.9 36,854.8
Redeemable preferred stock 1.0 1.1
Total stockholders' equity 3,628.2 3,310.1
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $40,418.1 $40,166.0
======================================================================================================================
Interest rate spread 3.62% 3.47%
Effect of noninterest-bearing funds .82 .73
- ----------------------------------------------------------------------------------------------------------------------
Net interest margin $ 806.5 4.44% $ 754.6 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 $ 3.0 $ 3.9
Held to maturity securities 14.6 14.0
Available for sale securities 1.3 3.8
Trading securities .2
- ----------------------------------------------------------------------------------------------------------------------
Total $19.1 $21.7
======================================================================================================================
</TABLE>
- 30 -
<PAGE> 31
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
Registrant's Annual Meeting of Shareholders was held on April 23, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
At this annual meeting, the shareholders (1) elected management's five
director nominees, (2) approved an amendment to the Registrant's Restated
Articles of Incorporation increasing the authorized shares of Common Stock
from 200,000,000 to 250,000,000, (3) approved an amendment to the
Registrant's 1990 Stock Purchase Plan for Employees increasing the number of
authorized shares of Common Stock issuable under the Plan and (4) approved
the Registrant's 1996 Stock Incentive Plan. The amendment increasing the
authorized shares has no effect on the rights of the holders of Common Stock.
There was no solicitation in opposition to management's director nominees.
Following is a tabulation of the voting for directors:
Voting Cast
------------------------------
Nominee For Withheld
------- --- --------
Andrew B. Craig, III 125,996,260 1,457,162
Russell W. Meyer, Jr. 126,016,870 1,457,162
Albert E. Suter 125,997,880 1,457,162
Dwight D. Sutherland 125,679,326 1,457,162
Theodore C. Wetterau 125,907,414 1,457,162
With respect to the amendment to the Restated Articles of
Incorporation, there were 119,535,738 shares voted "For" and 5,346,744
shares voted "Against", with 1,713,242 shares abstaining and 780,988 broker
non-votes.
With respect to the amendment to the 1990 Stock Purchase Plan for
Employees, there were 114,101,123 shares voted "For" and 9,608,798 shares
voted "Against", with 2,428,052 shares abstaining and 1,238,740 broker
non-votes.
With respect to the approval of the 1996 Stock Incentive Plan, there
were 103,228,028 shares voted "For" and 20,352,444 shares voted "Against",
with 2,587,501 shares abstaining and 1,208,740 broker non-votes.
- 31 -
<PAGE> 32
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(a) Restated Articles of Incorporation of the Corporation
3(c) Amended Bylaws of the Corporation
10(p) Letter Agreement, dated May 17, 1996, supplementing Employment
Agreement between the Corporation and Andrew B. Craig, III
10(q) Boatmen's Deferred Compensation Plan for Directors
27 Boatmen's Bancshares, Inc. Financial Data
Schedule for the Period Ended June 30, 1996.
(b) Registrant filed a current report on Form 8-K dated May 3, 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: August 9, 1996
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/s/ JAMES W. KIENKER
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James W. Kienker, Executive Vice President
and Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial and Accounting Officer)
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<PAGE> 1
RESTATED ARTICLES OF INCORPORATION
OF
BOATMEN'S BANCSHARES, INC.
On June 11, 1996, Restated Articles of Incorporation, as set forth
below, were adopted pursuant to Section 351.106(1) R.S.Mo., 1990, as amended,
by the affirmative vote of a majority of the Board of Directors of Boatmen's
Bancshares, Inc., a Missouri corporation. The following Restated Articles of
Incorporation correctly set forth without change the corresponding provisions
of the Articles of Incorporation as (theretofore) amended and supersede the
original Articles of Incorporation and all amendments thereto.
ARTICLE I
The name of the corporation is Boatmen's Bancshares, Inc.
ARTICLE II
The address of its registered office in the State of Missouri is One
Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63101, and the name
of its registered agent at such address is Forrest S. FitzRoy.
ARTICLE III
The aggregate number of shares of all classes which this corporation
shall have authority to issue is Two Hundred Sixty Million Three Hundred
Thousand (260,300,000) shares, of which Two Hundred Fifty Million
(250,000,000) shares shall be common shares of a par value of One Dollar
($1.00) each and Ten Million Three Hundred Thousand (10,300,000) shares shall
be preferred shares without par value. The powers, designations, preferences
and relative, participating, optional and other rights, and qualifications,
limitations and restrictions thereof, are as follows:
Common Shares: Subject to the rights of the preferred shares,
established as hereinafter set forth, the common shares shall have all such
powers and rights as provided by The General and Business Corporation Law of
Missouri and as are customarily attendant to such shares; and
Preferred Shares: Except with respect to the 7% Cumulative Redeemable
Preferred Stock, Series B (Stated Value $100.00 Per Share), as to which the
powers, designations, preferences and relative, participating, optional and
other rights, and qualifications, limitations and restrictions thereof, are
set forth below, the Board of Directors of the corporation is hereby
expressly authorized to cause the preferred shares to be issued from time to
time, in series, and to provide, by resolution adopted prior to the issue of
shares of a particular series, the powers, designations, preferences and
relative, participating, optional and other rights (including special rights
to elect two (2) Directors), and qualifications, limitations and restrictions
thereof and all other matters with respect thereto, as may be so provided for
under The General and Business Corporation Law of Missouri, as amended from
time to time.
7% Cumulative Redeemable Preferred Stock, Series B
1. Designation. The designation of this series is "7% Cumulative
Redeemable Preferred Stock, Series B" (hereinafter referred to as the "Series
B Preferred Stock") and the number of shares constituting such series is
Thirty-Five Thousand and Forty-Five (35,045). Shares of Series B Preferred
Stock shall have a stated value of $100.00 per share.
2. Dividends. The holders of record of the shares of the Series B
Preferred Stock shall be entitled to receive, when and as declared by the
Board of Directors of the corporation, out of any funds legally available for
such purpose, cumulative cash dividends at an annual dividend rate per share
of 7% of the stated value thereof, which amount is $7.00 per annum, per
share, and no more. Such dividends shall be payable each calendar quarter at
the rate of $1.75 per share on such dates as shall be fixed by resolution of
the Board of Directors of the corporation. The date from which dividends
<PAGE> 2
on such shares shall be cumulative shall be the first day after said shares are
issued. Accumulations of dividends shall not bear interest. No cash
dividend shall be declared, paid or set apart for any shares of common stock
unless all dividends on all shares of the Series B Preferred Stock at the
time outstanding for all past dividend periods and for the then current
dividend shall have been paid, or shall have been declared and a sum
sufficient for the payment thereof, shall have been set apart. Subject to
the foregoing provisions of this paragraph (2), cash dividends or other cash
distributions as may be determined by the Board of Directors of the
corporation, may be declared and paid upon the shares of the common stock of
the corporation from time to time out of funds legally available therefor,
and the shares of the Series B Preferred Stock shall not be entitled to
participate in any such cash dividend or other such cash distribution so
declared and paid or made on such shares of common stock.
3. Redemption. From and after October 31, 1988, any holder may, by
written request, call upon the corporation to redeem all or any part of said
holder's shares of said Series B Preferred Stock at a redemption price of
$100.00 per share plus accumulated unpaid dividends to the date said request
for redemption is received by the corporation and no more (the "Redemption
Price"). Any such request for redemption shall be accompanied by the
certificates for which redemption is requested, duly endorsed or with
appropriate stock power attached, in either case with signature guaranteed.
Upon receipt by the corporation of any such request for redemption from any
holder of the Series B Preferred Stock, the corporation shall forthwith
redeem said stock at the Redemption Price, provided that: (i) full
cumulative dividends have been paid or declared and set apart for payment
upon all shares of any series of preferred stock ranking superior to the
Series B Preferred Stock as to dividends or other distributions (collectively
the "Superior Stock"); and (ii) the corporation is not then in default or in
arrears with respect to any sinking or analogous fund or call for tenders
obligation or agreement for the purchase, redemption or retirement of any
shares of Superior Stock. In the event that, upon receipt of a request for
redemption, either or both of the conditions set forth in clauses (i) and
(ii) above are not met, the corporation shall forthwith return said request
to the submitting shareholder along with a statement that the corporation is
unable to honor such request and explanation of the reasons therefor. From
and after the receipt by the corporation of a request for redemption from any
holder of said Series B Preferred Stock, which request may be honored
consistent with the foregoing provisions, all rights of such holder in the
Series B Preferred Stock for which redemption is requested shall cease and
terminate, except only the right to receive the Redemption Price thereof, but
without interest.
4. Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the corporation, the
holders of the Series B Preferred Stock shall be entitled to receive, subject
to the provisions of paragraph 7 and before any payment shall be made to the
holders of the shares of common stock, the amount of $100.00 each share, plus
accumulated dividends. After payment to the holders of the Series B
Preferred Stock of the full amount as aforesaid, the holders of the Series B
Preferred Stock as such shall have no right or claim to any of the remaining
assets which shall be distributed ratably to the holders of the corporation's
common stock. If, upon any such liquidation, dissolution or winding up, the
assets available therefore are not sufficient to permit payments to the
holders of Series B Preferred Stock of the full amount as aforesaid, then
subject to the provisions of paragraph 7, the holders of the Series B
Preferred Stock then outstanding shall share ratably in the distribution of
assets in accordance with the sums which would be payable if such holders
were to receive the full amounts as aforesaid.
5. Sinking Fund. There shall be no sinking fund applicable to the
shares of Series B Preferred Stock.
6. Conversion. The shares of Series B Preferred Stock shall not be
convertible into any shares of common stock or any other class of shares, nor
exchanged for any shares of common stock or any other class of shares.
7. Superior Stock. The corporation may issue stock with preferences
superior or equal to the shares of the Series B Preferred Stock without the
consent of the holders thereof.
8. Voting Rights. Each share of the Series B Preferred Stock shall
be entitled to equal voting rights, share for share, with each share of the
common stock of the corporation.
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ARTICLE IV
No holder of stock of the corporation shall be entitled as a matter of
right to subscribe for or purchase any part of any new or additional issue of
stock, or securities convertible into stock, of any class whatsoever, whether
now or hereafter authorized, and all such additional shares of stock or other
securities convertible into stock may be issued and disposed of by the Board
of Directors to such person or persons and on such terms and for such
consideration (so far as may be permitted by law) as the Board of Directors,
in its absolute discretion, may deem advisable.
ARTICLE V
The number and class of shares to be issued before the corporation
shall commence business shall be one hundred (100) shares of common stock
with a par value of Ten Dollars ($10.00) per share. The consideration to be
paid therefor and the capital with which the corporation shall commence
business shall be One Thousand Dollars ($1,000.00). The corporation shall
not commence business until consideration of the value of at least One
Thousand Dollars ($1,000.00) has been received for the issuance of shares.
ARTICLE VI
The name and place of residence of the incorporators are as follows:
Names Residences
----- ----------
Arthur Blumeyer 41 Washington Terrace
St. Louis, Missouri
W. E. Burtelow 3999 Holly Hills Blvd.
St. Louis, Missouri
P. W. Herzog 43 Clermont Lane
Ladue Village
St. Louis County, Missouri
ARTICLE VII
The number of Directors to constitute the Board of Directors shall be
twenty-seven (27); provided, however, that such number may be fixed, from
time to time, at not less than a minimum of fifteen (15) nor more than a
maximum (subject to the rights of the holders of preferred shares as set
forth below) of twenty-seven (27), by, or in the manner provided in, the
Bylaws of the corporation, and any such change shall be reported to the
Secretary of State of Missouri within thirty (30) calendar days of such
change. There are currently seventeen (17) Directors constituting the Board
of Directors. The Directors shall be divided into three classes: Class I,
Class II and Class III. Such classes shall be as nearly equal in number as
possible. The term of office of the initial Class I Directors shall expire
at the annual meeting of shareholders of the corporation in 1988; the term of
office of the initial Class II Directors shall expire at the annual meeting
of shareholders of the corporation in 1986; and the term of office of the
initial Class III Directors shall expire at the annual meeting of
shareholders of the corporation in 1987; or in each case when their
respective successors are elected and have qualified. At each annual
election held after 1984, the Directors chosen to succeed those whose terms
then expire shall be identified as being of the same class as the Directors
they succeed and shall be elected for a term of three (3) years expiring at
the third succeeding annual meeting or thereafter when their respective
successors are elected and have qualified. If the number of Directors is
changed, any increase or decrease in Directors shall be apportioned among the
classes so as to maintain all classes as nearly equal in number as possible,
and any additional Director elected to any class shall hold office for a term
which shall expire with the term of the directors in such class.
Notwithstanding the foregoing provisions respecting the maximum number of
directors and the terms of office and classification of Directors, during any
period when the holders of preferred shares, voting as a class, have the
special right to elect two (2) Directors pursuant to Article III hereof, then
and during the time as such special right continues: (a) if the number of
Directors constituting the Board
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of Directors is in excess of twenty (20) then the Board of Directors shall
be decreased to twenty (20) in number; and (b) the Board of Directors shall
then be increased by two (2) Directors who shall be elected by the holders
of preferred shares pursuant to such special right, voting as a class, at
the next annual meeting of shareholders, for a term of one (1) year until
the next annual meeting of shareholders and the election of their
successors by the holders of the preferred shares, or until the earlier
termination of such special right of the holders of preferred shares to
elect such Directors, all as provided for in Article III hereof. At a
meeting called expressly for that purpose, a Director of the corporation
or the entire Board of Directors (other than a Director or Directors elected
by the holders of preferred shares voting as a class pursuant to their
special right) may be removed without cause only upon the affirmative vote of
the holders of not less than eighty percent (80%) of the shares entitled to
vote generally in the election of Directors; provided, however, that, if less
than the entire Board of Directors is to be so removed without cause, no one
of the Directors may be removed if the votes cast against such Director's
removal would be sufficient to elect such Director if then cumulatively voted
at an election of the class of Directors of which such Director is a part.
At a meeting called expressly for that purpose, a Director (other than a
Director elected by the holders of preferred shares voting as a class
pursuant to their special right) may be removed by the shareholders for cause
by the affirmative vote of the holders of a majority of the shares entitled
to vote upon his election.
ARTICLE VIII
The duration of the corporation shall be perpetual.
ARTICLE IX
The corporation is formed for the following purposes:
1. To purchase, subscribe for or otherwise acquire and own, hold as
an investment or otherwise, use, sell, assign, deal in, transfer, mortgage,
pledge, exchange or otherwise dispose of, alone or in syndicates or otherwise
in conjunction with others, shares of capital stock, bonds, debentures,
notes, evidences of indebtedness and other securities, contracts or
obligations of any corporation, association, partnership, entity, or
governmental, municipal or public authority, domestic or foreign, and to pay
therefor in whole or in part, in cash or by exchanging therefor shares of the
capital stock, bonds, debentures, debenture stock, notes or other obligations
of this corporation or any other corporation, and while the owner or holder
of any such property to receive, collect and dispose of the interest,
dividends and income arising from such property, and to possess and exercise
in respect thereof all the rights, powers and privileges of ownership,
including all voting powers of any securities so owned;
2. To purchase or otherwise acquire the whole or any part of the
property, assets, business, goodwill or rights and to undertake or assume the
whole or any part of the bonds, mortgages, franchises, leases, contracts,
indebtedness, guaranties, liabilities and obligations of any person, firm,
association, corporation or organization, and to pay for the same or any part
or combination thereof in cash, shares of the capital stock, bonds,
debentures, debenture stock, notes, and other obligations of this corporation
or otherwise, or by undertaking and assuming the whole or any part of the
liabilities or obligations of the transferor; and to hold or in any manner
dispose of the whole or any part of the property and assets so acquired or
purchased, and to conduct in any lawful manner the whole or any part of the
business so acquired and to exercise all the powers necessary or convenient
in and about the conduct, management and carrying on of such business;
3. To purchase or otherwise acquire, hold, sell, pledge, transfer or
otherwise dispose of, and to reissue or cancel the shares of its own capital
stock or any securities or other obligations of this corporation;
4. To promote or assist financially, by loan, subsidy, guaranty,
contribution to capital or surplus, or otherwise, corporations, syndicates,
partnerships, individuals or associations of all kinds, foreign or domestic,
and in connection therewith to execute mortgages, deeds of trust, other forms
of encumbrances, contracts and other types of written instruments;
5. To purchase or otherwise acquire and own, hold, lease, develop,
sell, exchange or otherwise use, deal in or
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dispose of, mortgage or otherwise encumber, real property or any interest
therein and to purchase or otherwise acquire and own, hold, build,
construct, erect, manage, operate, repair, restore, and to dispose of by
sale, lease, mortgage or otherwise, buildings and structures of all types;
6. To purchase or otherwise acquire and own, hold, lease, sell, or
otherwise use, deal in or dispose of, mortgage or otherwise encumber personal
property of every kind and description or any interest therein, and to
operate, manage and maintain the same;
7. To acquire, own, hold, buy, sell, transfer and otherwise dispose
of patents and patent rights, trademarks and trade names, copyrights,
licenses, franchises, permits and other evidences of right;
8. In general to carry on any other lawful business whatsoever in
connection with the foregoing or which is calculated, directly or indirectly,
to promote the interest of the corporation or to enhance the value of its
properties;
9. To have and to exercise all powers necessary or incident to
carrying out its corporate purposes, to exercise all other powers permitted
by law, and to possess and enjoy all rights and powers which now or at any
time hereafter may be granted to or exercised by a corporation of this
character.
ARTICLE X
The Board of Directors shall have the power to make, alter, amend or
repeal the Bylaws of the corporation from time to time.
ARTICLE XI
The approval of any Business Combination shall, in addition to any
affirmative vote required by law, require the affirmative vote of the holders
of not less than eighty percent (80%) of the common shares of the corporation
then entitled to vote generally in the election of directors of the
corporation; provided, however, that any such Business Combination may be
approved on the affirmative vote required by law if such Business Combination
is approved by not less than seventy-five percent (75%) of the entire Board
of Directors of the corporation. As used herein the term "Business
Combination" shall mean:
(i) Any merger or consolidation of the corporation or any subsidiary
of the corporation with (a) any Substantial Shareholder or (b) any other
corporation which, after such merger or consolidation, would be a Substantial
Shareholder, regardless of which entity survives;
(ii) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Substantial Shareholder of all or substantially all of the assets of the
corporation or any subsidiary of the corporation, or both;
(iii) The adoption of any plan or proposal for the liquidation of the
corporation proposed by or on behalf of a Substantial Shareholder; or
(iv) Any transaction involving the corporation or any of its
subsidiaries, including the issuance or transfer of any securities of, any
reclassification of securities of, or any recapitalization of, the
corporation or any of its subsidiaries, or any merger or consolidation of the
corporation with any of its subsidiaries (whether or not involving a
Substantial Shareholder), if the transaction would have the effect, directly
or indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the corporation or
any subsidiary, of which a Substantial Shareholder is the Beneficial Owner.
As used herein, the term "Substantial Shareholder" shall mean and
include any individual, corporation, partnership or other person or entity
which, together with its "Affiliates" and "Associates" (as such terms were
defined as of February
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29, 1984 in Rule 12b-2 under the Securities Exchange Act of 1934), is the
"Beneficial Owner" (as determined in accordance with the criteria set forth
as of February 29, 1984 under Rule 13d-3 under the Securities Exchange Act
of 1934) in the aggregate of more than five percent (5%) of the outstanding
shares of the corporation entitled to vote generally in an election of
Directors; and any Affiliate or Associate of any such individual,
corporation, partnership or other person or entity.
ARTICLE XII
The corporation reserves the right to amend, alter, change or repeal
any provisions contained in these Articles of Incorporation in the manner now
or hereafter prescribed by law, and all rights conferred upon shareholders
herein are granted subject to this reservation; provided, however, that any
amendment, alteration or repeal of the provisions of Article VII, Article XI
or this proviso to Article XII shall, in addition to any affirmative vote
required by law, require the affirmative vote of the holders of eighty
percent (80%) of the common shares of the corporation then entitled to vote
at a meeting of shareholders called for such purpose.
ARTICLE XIII
(1) The corporation shall indemnify each of its Directors, its
Chairman of the Board, its Vice Chairman of the Board, its President and its
Vice Presidents to the full extent specified by Section 351.355 of the
Revised Statutes of Missouri, as amended from time to time, (the
"Indemnification Statute") and, in addition, shall indemnify each of them
against all expenses (including without limitation all attorneys' fees,
judgments, fines and amounts paid in settlement) incurred by him in
connection with any claim (including, without limitation, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether or not by or in the right of any
corporation) by reason of the fact that he is or was serving the corporation
or at the request of the corporation in any of the capacities referred to in
the Indemnification Statute or arising out of his status in any such
capacity, provided that the corporation shall not indemnify any person from
or on account of such person's conduct which was finally adjudged to have
been knowingly fraudulent, deliberately dishonest or willful misconduct.
(2) The corporation may, to such extent as it deems appropriate and
as may be permitted by the Indemnification Statute, indemnify any other
person referred to in the Indemnification Statute against any such expenses
incurred by him in connection with any such claim by reason of the fact that
he is or was serving the corporation or at the request of the corporation in
any of such capacities or arising out of his status in any such capacity.
(3) The corporation is authorized to give or supplement any of the
aforesaid indemnifications by bylaw, agreement or otherwise and fund them by
insurance to the extent it deems appropriate. Amounts to be paid under this
Article shall be disbursed at such times and upon such procedures as the
corporation shall determine. All such indemnification shall continue as to
any person who has ceased to serve in any of the aforesaid capacities and
shall inure to the benefit of the heirs, devisees and personal
representatives of such person. Indemnification given under section (1) or
given or supplemented under this section (3) of this Article XIII shall
survive elimination or modification of this Article with respect to any such
expenses incurred in connection with claims arising out of acts or omissions
occurring prior to such elimination or modification and persons to whom such
indemnification is given shall be entitled to rely upon such indemnification
as a contract with the corporation.
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IN WITNESS WHEREOF, these Restated Articles of Incorporation have been
executed in duplicate on behalf of said corporation this 11th day of June,
1996.
BOATMEN'S BANCSHARES, INC.
By_____________________________
Andrew B. Craig, III
Chairman of the Board
and Chief Executive Officer
(SEAL)
By_____________________________
Forrest S. FitzRoy
Secretary
ATTEST:
__________________________________________
Forrest S. FitzRoy
Secretary
STATE OF MISSOURI )
) SS.
CITY OF ST. LOUIS )
I, Susan M. Hill, a notary public, do hereby certify that on this 11th
day of June, 1996, personally appeared before me Andrew B. Craig, III and
Forrest S. FitzRoy, who, being by me first duly sworn, declared that they
are, respectively, the Chairman of the Board and Chief Executive Officer and
Secretary of Boatmen's Bancshares, Inc., that they signed the foregoing
document as, respectively, Chairman of the Board and Chief Executive Officer
and Secretary of the corporation, and that the statements therein contained
are true.
(NOTARIAL SEAL)
___________________________________________
Susan M. Hill
Notary Public
My Commission expires: September 9, 1998.
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Adopted as of April 23, 1996
AMENDED BYLAWS
OF
BOATMEN'S BANCSHARES, INC.
ARTICLE I
Offices
The general offices of the Corporation shall be in the City of St.
Louis, State of Missouri, unless the Board of Directors shall otherwise
determine. The Corporation may also have other offices, both within and
without the State of Missouri.
ARTICLE II
Shareholders Meetings
Section 1. Annual Meeting. The annual meeting of the shareholders of
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the Corporation for the election of Directors and for the transaction of such
other business as may properly come before the meeting shall be held on the
fourth Tuesday in April, in each year, if not a legal holiday, and if a legal
holiday, then on the next succeeding business day. The annual meeting of
shareholders shall be held at the general offices of the Corporation in St.
Louis, Missouri, and shall be convened at ten o'clock A.M. unless the Board
of Directors shall specify a different place or time at which the meeting
shall be convened.
Section 2. Special Meetings. Special meetings of the shareholders may
----------------
be called by the Chairman of the Board or the President or by resolution of
the Board of Directors whenever deemed necessary. The business transacted at
any special meeting of the shareholders shall be confined to the purpose or
purposes specified in the notice therefor and to matters germane thereto.
Section 3. Notice. Notice of each meeting of the shareholders stating
------
the place, the date and the hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called shall be
mailed or caused to be mailed not less than ten (10) days nor more than fifty
(50) days before the date of the meeting by or at the direction of the
Secretary (otherwise as permitted by law) to each shareholder of record
entitled to vote at such meeting at his address as it appears on the records
of the Corporation. Notice may be waived by a writing signed by the
shareholder, or by his duly authorized attorney, either before or after the
time of such meeting, and the presence of any shareholder in person or by
proxy at any meeting shall constitute a waiver of notice of such meeting
except where a shareholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. In order
for any nomination for Director to be entertained at any meeting or for any
business to be transacted at any annual meeting of the shareholders, other
than nominations or business made or proposed by or at the direction of the
Board of Directors, notice thereof must be received from the nominating or
proposing shareholder by the Secretary of the Corporation, accompanied or
promptly followed by such supporting information as he shall reasonably
request, not less than seventy-five (75) days
<PAGE> 2
prior to the date of any annual meeting or more than seven (7) days after
the mailing of notice of any special meeting.
Section 4. Quorum. A majority of the outstanding shares entitled to
------
vote at a meeting represented in person or by proxy shall constitute a quorum
at a meeting of the shareholders. Every decision of a majority of the shares
present, in person or by proxy, entitled to vote, provided a quorum is
present, shall be valid as a corporate act unless by reason of the particular
nature of such action a different vote is required by law or by the Articles
of Incorporation of the Corporation.
Section 5. Adjournment. Any meeting of shareholders may adjourn from
-----------
time to time until its business is completed. In the absence of a quorum, a
majority of the shares represented, in person or by proxy, shall have the
right successively to adjourn the meeting to a specified date not more than
ninety (90) days after such adjournment. Any business which may have been
transacted at the meeting at which the adjournment is taken may be transacted
at the adjourned meeting. No notice need be given of an adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken.
Section 6. Voting. At all meetings of the shareholders, subject to
------
the provisions of the Articles of Incorporation of the Corporation and these
Bylaws, each outstanding share shall be entitled to one vote on each matter
submitted to a vote, but no share belonging or hypothecated to the
Corporation shall be voted. In all elections for Directors of the
Corporation, each shareholder shall have the right to cast as many votes in
the aggregate as shall equal the number of voting shares held by him or her
in the Corporation, multiplied by the number of Directors to be elected by
the class to which he or she belongs at such election, and each shareholder
may cast the whole number of votes, either in person or by proxy, for one
candidate or distribute them among two or more candidates.
Section 7. Proxies. A shareholder may vote either in person or by
-------
proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Every proxy must be filed with the Secretary of the
Corporation at the meeting at which the same is to be used, and until so
filed, it cannot be used at such meeting. No proxy shall be valid after the
expiration of eleven (11) months from its date unless the person executing it
shall have specified therein the length of time for which said proxy is to
continue in force.
Section 8. List of Shareholders. At least ten (10) days before each
--------------------
meeting of the shareholders, the Secretary of the Corporation shall make a
complete list of the shareholders entitled to vote at such meeting, arranged
in alphabetical order, and showing the address of each shareholder and the
number of shares registered in the name of each shareholder. Such list shall
be kept on file for a period of ten (10) days prior to such meeting in the
registered office of the Corporation and shall be subject to inspection by
any shareholder at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting during
the whole time thereof and may be inspected by any shareholder who is
present.
Section 9. Inspectors. At any meeting of the shareholders at which
----------
Directors are to be elected or a vote of the shareholders is to be taken on
any proposition, the Chairman of the meeting may appoint not less than two
persons, who are not Directors, inspectors to receive and
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canvass the votes given at such meeting, and certify the results to him.
In all cases where the right to vote upon any share or shares shall be
questioned, it shall be the duty of the inspectors, if any, or persons
conducting the vote to require the transfer books of the Corporation as
evidence of shares held and the question shall be determined in accordance
with said transfer books.
Section 10. Presiding Officer. The Chairman of the Board shall
-----------------
preside at all meetings of the shareholders and shall act as Chairman
thereof. In his absence, the Board of Directors may designate a substitute
Chairman to preside at any meeting of shareholders. At any meeting of
shareholders, the Chairman of such meeting may, from time to time during such
meeting, appoint a temporary Chairman to preside at such meeting.
ARTICLE III
Board of Directors
Section 1. Powers and Number. The property and business of the
-----------------
Corporation shall be controlled and managed by the Board of Directors. The
number of Directors to constitute the Board of Directors shall be seventeen
(17); provided, however, that such number may be fixed, from time to time, at
not less than a minimum of fifteen (15) nor more than a maximum of
twenty-seven (27), by amendment of these Bylaws, and any such change shall be
reported to the Secretary of State of the State of Missouri within thirty
(30) calendar days of such change.
Section 2. Classes of Directors, Election and Term of Office. The
-------------------------------------------------
Directors shall be divided into three classes: Class I, Class II and Class
III. Such classes shall be as nearly equal in number as possible. The term
of office of the initial Class I Directors expired at the annual meeting of
shareholders of the Corporation in 1985; the term of office of the initial
Class II Directors expired at the annual meeting of shareholders of the
Corporation in 1986; and the term of office of the initial Class III
Directors expired at the annual meeting of shareholders of the Corporation in
1987. At each annual election, the Directors chosen to succeed those whose
terms then expire shall be identified as being of the same class as the
Directors they succeed and shall be elected for a term of three (3) years
expiring at the third succeeding annual meeting or thereafter when their
respective successors are elected and have qualified. If the number of
Directors is changed, any increase or decrease in Directors shall be
apportioned among the classes so as to maintain all classes as nearly equal
in number as possible, and any additional Director elected to any class shall
hold office for a term which shall expire with the term of the Directors in
such class.
Section 3. Removal of Directors. At a meeting called expressly for
--------------------
that purpose, a Director of the Corporation or the entire Board of Directors
may be removed without cause only upon the affirmative vote of the holders of
not less than eighty percent (80%) of the shares entitled to vote generally
in the election of Directors; provided, however, that, if less than the
entire Board of Directors is to be so removed without cause, no one of the
Directors may be removed if the votes cast against such Director's removal
would be sufficient to elect such Director if then cumulatively voted at an
election of the class of Directors of which such Director is a part. At a
meeting called expressly for the purpose, a Director may be removed by the
shareholders for cause by the affirmative vote of the holders of a majority
of the shares entitled to vote upon his election.
3
<PAGE> 4
Section 4. Vacancies. In case of vacancies occurring on the Board of
---------
Directors, any such vacancy may be filled by a vote of a majority of the
surviving or remaining Directors then in office. Such Director as may be
elected by the Board of Directors to fill a vacancy shall hold office for the
unexpired term of the Director whose place shall be vacated or until the
election and qualification of his successor.
Section 5. Annual Meeting. The annual meeting of the Directors for
--------------
the purpose of electing officers and transacting such other business as may
come before the meeting shall be held immediately following the annual
meeting of shareholders or at such time as shall be fixed by the vote of the
shareholders at the annual meeting or at any special meeting at which an
election of Directors shall occur. Alternatively, the annual meeting shall
be at such time as shall be fixed by the consent in writing of all the
Directors or at such time as shall be fixed by an officer authorized to call
special meetings of the Board of Directors.
Section 6. Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held during each calendar quarter of each year on such day
thereof as shall be determined by the Chairman of the Board.
Section 7. Special Meetings. Special meetings of the Board of
----------------
Directors may be called by the Chairman of the Board or the acting chief
executive officer.
Section 8. Notice of Meetings. No notice shall be required to be
------------------
given of the annual meeting of the Board of Directors if it is held
immediately following the annual meeting of shareholders or if a majority of
the whole Board shall have been present at the meeting of shareholders.
Otherwise, notice of the annual meeting of the Board of Directors shall be
given as is provided below for regular or special meetings. Notice of every
regular or special meeting of the Board of Directors, stating the date, time,
and place of the meeting, shall be given by or at the direction of the
Secretary to each Director by mailing, or sending by telegraph or other
electronic means, a written notice to the Director, addressed to his last
known place of business, not less than three days before the date of the
meeting, in the case of mailing, or twenty-four hours before the hour of the
meeting, in the case of such other sending, or by contacting the Director in
person or by telephone not less than six hours before the hour of the
meeting.
Section 9. Waiver of Notice. Any Director may waive notice of any
----------------
meeting of the Board of Directors by a writing signed by him, either before
or after the time of such meeting. Any Director present in person at any
meeting shall be deemed to have thereby waived notice of such meeting except
where such attendance is for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 10. Quorum. A majority of the full Board of Directors as
------
prescribed by these Bylaws shall be required to be present at any meeting to
constitute a quorum for the transaction of business and, except as otherwise
specifically provided in these Bylaws, the concurring vote of at least a
majority of the Directors at a meeting at which a quorum is present shall be
required to determine all questions coming before the Board. In the absence
of a quorum, the Directors present shall have the right successively to
adjourn the meeting to a specified date and no notice need be given of such
adjournment.
4
<PAGE> 5
Section 11. Presiding Officer. The Chairman of the Board shall
-----------------
preside at all meetings of the Board of Directors. In his absence, the Board
of Directors may designate a substitute Chairman to preside at any meeting of
the Board of Directors. At a meeting of the Board of Directors, the
presiding officer may, from time to time during such meeting, appoint a
temporary Chairman to preside at such meeting.
Section 12. Minutes and Statements. The Board of Directors shall
----------------------
cause to be kept a complete record of their meetings and acts, and of the
proceedings of the shareholders. The business and proceedings of the Board
shall, however, be kept confidential.
Section 13. Powers of the Board. In addition to the power and
-------------------
authority conferred upon them by law, the Board of Directors may exercise all
such powers of the Corporation and do all such lawful things as are not by
law prohibited or limited.
Section 14. Advisory Directors. The Board of Directors of the
------------------
Corporation shall have the power at any time, and from time to time, to
appoint one or more advisory directors (hereinafter referred to as "Advisory
Directors"), who shall advise and counsel the Board. Advisory Directors
shall not be, nor shall they have any of the duties, responsibilities or
liabilities of, Directors of the Corporation or members of the Board of
Directors or of any committees thereof, but may attend meetings of the Board
with no right to vote at such meetings.
Section 15. Compensation of Directors and Advisory Directors. The
------------------------------------------------
Compensation to be paid the Directors of the Corporation and Advisory
Directors for services at all meetings of the Board of Directors shall be
determined from time to time by the Board of Directors.
ARTICLE IV
Committees
Section 1. Committees. The Board of Directors may, upon
----------
recommendation of the Chairman of the Board, by resolution adopted by a
majority of the whole Board, designate two or more Directors to constitute
such Committee or Committees as the Board shall deem advisable and shall
designate Directors to constitute the Committees provided for in the
following Sections of this Article IV. Each such Committee, to the extent
provided in such resolution, shall have and exercise all of the authority of
the Board of Directors in the management of the Corporation; provided that
the designation of such Committee or Committees and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed upon it or him by law.
Section 2. Executive Committee. The Board of Directors may designate
-------------------
five or more Directors to constitute an Executive Committee, which Committee
shall have and exercise all of the authority of the Board of Directors in the
management of the Corporation. The Chairman of the Board shall be a member
of such Committee and shall act as Chairman thereof; at least three other
members of such Committee shall be Directors who are not officers or
employees of the Corporation.
Section 3. Audit Committee. The Board of Directors shall designate
---------------
three or more Directors to constitute an Audit Committee, of which no officer
or employee of the Corporation shall be a member, and who shall be appointed
by the Board annually or more often. The Audit
5
<PAGE> 6
Committee shall have and exercise all of the authority of the Board of Directors
with respect to the review and examination of the financial affairs of the
Corporation and its subsidiaries. It shall also be the duty of the Audit
Committee to nominate the independent auditors of the Corporation for
appointment by the Board of Directors; to arrange for and review the
Corporation's annual audit; to ratify all accountants' fees rendered during the
year; to review the scope and results of internal audit controls and procedures;
and to provide for independent review of the adequacy of the Corporation's
system of internal control.
Section 4. Compensation Committee. The Board of Directors shall
----------------------
designate three or more Directors to constitute a Compensation Committee, of
which no officer or employee of the Corporation shall be a member, and who
shall be appointed by the Board annually or more often. The Compensation
Committee shall have and exercise all of the authority of the Board of
Directors with respect to the selection and review of the competency and
effectiveness of management of the Corporation and its subsidiaries; the
review of the soundness and adequacy of compensation programs, including
fringe programs, compliance with regulations and the like; the approval of
salaries of Corporation officers and the review of salaries of senior top
management of its subsidiaries; and the formulation of policy on and
administration of special Corporation programs such as stock option plans,
executive incentive plans, stock purchase plans for employees and the like.
Section 5. Finance Committee. The Board of Directors may designate
-----------------
three or more Directors to constitute a Finance Committee. At least a
majority of the members shall be Directors who are not officers or employees
of the Corporation. The members of the Committee shall be appointed by the
Board annually or more often. The Finance Committee shall review the
financial matters related to the general business of the Corporation and its
subsidiaries, such as interest rate risk management practices, investment
portfolios, financial plans and projections, capital planning, investment
performance of benefit plans, operating insurance coverages, and the like.
The Finance Committee shall have and exercise all of the authority of the
Board of Directors to approve the price and terms of debt and equity
instruments issued or to be issued by the Corporation or its subsidiaries or
modifications or renewals thereof.
Section 6. Nominating Committee. The Board of Directors shall
--------------------
designate three or more Directors to constitute a Nominating Committee, of
which no officer or employee of the Corporation shall be a member, and who
shall be appointed by the Board annually or more often. The Nominating
Committee shall recommend to the Board a slate of nominees for directors to
be presented on behalf of the Board for election by shareholders at each
annual meeting of the Corporation and shall recommend to the Board persons to
fill vacancies on the Board.
Section 7. Compensation of Committee Members. The Board of Directors
---------------------------------
shall determine the compensation to be paid to each member of any Committee
appointed by it for service on such committee.
Section 8. Notice of Meetings. Notice of Committee meetings shall be
------------------
given in the same manner as notices of meetings of the Board of Directors.
6
<PAGE> 7
ARTICLE V
Officers
Section 1. Required Officers. The Corporation shall have a Chairman
-----------------
of the Board, a President and a Secretary, all of whom shall be chosen by the
Board of Directors. The Chairman of the Board and President shall be chosen
from among the Directors. Any two offices may be held by the same person.
Section 2. Other Officers. The Board of Directors may, upon the
--------------
recommendation of the Chairman of the Board or otherwise, appoint such other
officers as it may deem necessary, who shall have such authority and perform
such duties as from time to time may be prescribed by the Chairman of the
Board or the Board of Directors.
Section 3. Tenure of Office and Removal. The tenure of office of each
----------------------------
of the officers of the Corporation, subject to prior removal, shall be until
the close of the next annual meeting of the shareholders following his
election and until the election of his successor. Any officer may be removed
at any time prior to the expiration of his term by affirmative vote of a
majority of the Directors. If the office of any officer of the Corporation
becomes vacant, the Board of Directors may choose a successor for such
officer who shall hold office for such term as may be prescribed by the Board
of Directors but no longer than the unexpired portion of the term of the
officer whose place is vacant and until his successor shall have been duly
elected.
Section 4. Powers and Duties. The Chairman of the Board shall be the
-----------------
chief executive officer of the Corporation. Such chief executive officer
shall have general executive powers in conducting the affairs of the
Corporation, as well as the specific powers conferred by these Bylaws. He
shall have the power to suspend any officer and to dismiss any other employee
of the Corporation when he shall deem it proper. He shall exercise all
powers of the Board of Directors pertaining to the management of the business
of the Corporation between meetings of the Board of Directors and the
Executive Committee and such further powers and duties as may be conferred
upon him by these Bylaws and the Board of Directors or the Executive
Committee from time to time. He shall have the power to appoint an acting
chief executive officer to serve between meetings of the Board of Directors
and the Executive Committee in the event that he is unable to serve. The
Chairman of the Board shall be a member of all Committees appointed by the
Board of Directors, except the Audit Committee, the Compensation Committee,
and the Nominating Committee, unless excused by the Board from being a member
thereof.
The President shall have such powers and duties as may be assigned to
him by the Chairman of the Board or the Board of Directors or the Executive
Committee from time to time.
The Secretary shall keep accurate minutes of all meetings of the
shareholders and of the Board of Directors and shall attend to the giving of
all notices required to be given under these Bylaws. He shall be custodian
of the corporate records and seal of the Corporation and he or an Assistant
Secretary shall have the authority to affix the seal to any documents
requiring such and to attest the same. He shall also perform such other
duties as may be assigned to him from time to time by the Chairman of the
Board or the Board of Directors or any Committee thereof.
Otherwise, all other officers shall have such powers and duties in the
management of the business, property and affairs of the Corporation as
generally pertain to their respective offices, as
7
<PAGE> 8
well as such powers and duties as may from time to time be conferred by the
Chairman of the Board or the Board of Directors or any Committee thereof.
Section 5. Compensation. The compensation of all senior officers of
------------
the Corporation shall be fixed by or pursuant to the authority of the Board
of Directors.
Section 6. Officers' Bonds. The Board of Directors may require any
---------------
officer or officers to furnish the Corporation a bond in such sum and in form
and with security satisfactory to the Board of Directors for the faithful
performance of the duties of the offices.
ARTICLE VI
Certificate of Stock and Transfers
Section 1. Forms and Execution of Certificates. The shares of stock
-----------------------------------
of the Corporation shall be represented by certificates (except fractional
shares which may be represented by certificates or, in the discretion of the
Board of Directors, scrip) and shall be signed by the Chairman of the Board,
the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and sealed with the
seal of the Corporation. Any and all such signatures may be facsimile and
such seal may be facsimile, engraved or printed. In case any such officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon any such certificate shall cease to be such officer,
transfer agent or registrar before such certificate is issued, such
certificate may nevertheless be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were such officer,
transfer agent or registrar at the date of its issue.
Section 2. Transfer of Stock. Shares of stock, after certificates
-----------------
thereof have been issued, shall be transferable only on the stock transfer
books of the Corporation which shall be in the possession of the Secretary or
a transfer agent or registrar for the Corporation. No transfer shall be
valid against the Corporation until the same is so entered upon its books and
the old certificate is surrendered for cancellation.
Section 3. Transfer and Registration Agents. The Board of Directors
--------------------------------
may appoint a transfer agent or agents who shall have and exercise
supervision over the transfer of shares of stock and the issuance of stock
certificates, subject to such conditions and regulations as the Board of
Directors may prescribe; and the Board of Directors may appoint a registrar
who shall register all transfers of shares of stock and the issuance of stock
certificates, subject to such conditions and regulations as the Board may
prescribe.
Section 4. Fixing of Record Date. The Board of Directors shall have
---------------------
power to fix in advance a date, not exceeding seventy (70) days preceding the
date of any meeting of stockholders, or the date for the payment of any
dividend, or the date for the allotment or rights, or the date when any
change or conversion or exchange of shares shall go into effect, as a record
date for the determination of the shareholders entitled to notice of, and to
vote at, any such meeting, and any
8
<PAGE> 9
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of shares, and in such case such shareholders and
only such shareholders as shall be shareholders of record on the date so fixed
shall be entitled to notice of, and to vote at, such meeting, and any
adjournment thereof, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid. If the Board of Directors does not set
a record date for the determination of the stockholders entitled to notice of,
and to vote at, a meeting of shareholders, only the shareholders who are
shareholders of record at the close of business on the twentieth day preceding
the date of the meeting shall be entitled to notice of, and to vote at, the
meeting, and any adjournment of the meeting.
ARTICLE VII
Miscellaneous Provisions
Section 1. Fiscal Year. The fiscal year of the Corporation shall
-----------
cover such period of twelve calendar months as the Board of Directors may
determine. In the absence of any such determination, the accounts of the
Corporation shall be kept on a calendar year basis.
Section 2. Consents. Any action which is required to be or may be
--------
taken at a meeting of the Directors or by the Executive Committee or any
other Committee of the Directors may be taken without a meeting if consents
in writing, setting forth the action so taken, are signed by all of the
Directors or by all members of the Committee as the case may be. The consent
shall have the same force and effect as a unanimous vote at a meeting duly
held and may be stated as such in any certificate or document filed under the
General and Business Corporation Law of Missouri. The Secretary shall file
the consents with the minutes of the meetings of the Board of Directors or of
the Committee as the case may be.
Section 3. Tele-participation at Meetings. Members of the Board of
------------------------------
Directors or any Committee designated by the Board of Directors may
participate in a meeting of the Board of Directors or of any Committee by
means of a conference telephone or similar communications equipment whereby
all persons participating in the meeting can hear each other, and
participation in the meeting in this manner shall constitute presence in
person at the meeting.
Section 4. Amendments to Bylaws. The Board of Directors shall have
--------------------
the power to make, alter, amend or repeal the Bylaws of the Corporation from
time to time.
9
<PAGE> 1
May 17, 1996
Andrew B. Craig, III
Chairman and Chief Executive Officer
Boatmen's Bancshares, Inc.
One Boatmen's Plaza
800 Market Street, 13th Floor
St. Louis, Missouri 63101
Dear Mr. Craig:
This letter agreement is in consideration of your not retiring this
spring; it supplements your Employment Agreement dated as of January 30,
1996. If you had retired and had elected to receive lump-sum payments, your
benefits as of May 1, 1996, would have been $423,294.79 under the Boatmen's
Bancshares, Inc. Retirement Plan for Employees (the "Retirement Plan") and
$6,952,466.40 under the Boatmen's Supplemental Retirement Plan (the "BSRP").
Boatmen's Bancshares, Inc. ("Boatmen's") will pay you, in a lump sum
promptly upon the termination of your employment for reasons other than death
or Cause under your Employment Agreement, in addition to the Retirement Plan
and BSRP benefits to which you become entitled at that time, any amount by
which the total lump-sum benefits under the Retirement Plan and the BSRP at
that time would be less than the total of the two dollar amounts in the first
paragraph. If you die while still in Boatmen's employ and your wife does not
survive you or if you die in a common disaster, there would be no benefits
under the Retirement Plan or the BSRP; in such case, Boatmen's will promptly
pay the two amounts in the first paragraph to the trustees of your revocable
trust dated July 23, 1993, as amended. If you die while still in Boatmen's
employ but your wife does survive you, she will receive a 50%
periodic-payment benefit under the Retirement Plan and will be entitled to
benefits under the BSRP; in that case, Boatmen's will also pay her one-half the
Retirement Plan amount in the first paragraph and, if she waives her BSRP
benefits, the entire BSRP amount in the first paragraph.
BOATMEN'S BANCSHARES, INC.
By ________________________________________
Arthur J. Fleischer
Senior Vice President - Human Resources
ACCEPTED AND APPROVED:
________________________
Andrew B. Craig, III
<PAGE> 1
Boatmen's Deferred Compensation Plan for Directors
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
Article 1. Purpose 1
Article 2. Definitions 1
Article 3. Administration 2
Article 4. Eligibility and Participation 2
Article 5. Deferral of Compensation 3
Article 6. Phantom Shares 3
Article 7. Additions to Deferred Compensation Account 4
Article 8. Payment of Benefits 4
Article 9. Former Directors of Centerre Bancorporation 5
Article 10. Rights of Participants 5
<PAGE> 3
Article 11. Miscellaneous Provisions 6
Article 12. Requirements of Law 6
<PAGE> 4
Boatmen's Deferred Compensation Plan for Directors
Article 1. Purpose
The purposes of the Plan are to align the economic interests of the
Corporation's non-employee Directors with those of shareholders by linking
the compensation of Directors to increases in value of the Corporation and to
attract and retain Directors of outstanding competence, as well as to provide
a means for them to defer some or all of their compensation.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
2.1 "Additions" means all amounts credited to a Participant's Deferred
Compensation Account pursuant to Article 7 herein.
2.2 "Beneficiary" means any person (including but not limited to any
trust, estate, fiduciary, corporation, foundation, but excluding the
Participant) designated by the Participant in a written document delivered to
the Corporation to receive any benefit under this Plan after the death of the
Participant, all in accordance with the provisions hereof.
2.3 "Board of Directors" or "Board" means the Board of Directors of
the Corporation.
2.4 "Committee" means the Compensation Committee of Boatmen's
Bancshares, Inc.
2.5 "Compensation" means the Retainer and other fees payable to a
Director of the Corporation for his services as such during the Plan Year.
2.6 "Corporation" means Boatmen's Bancshares, Inc., a Missouri
corporation, and any successor thereto, as provided in Section 11.3 hereof.
2.7 "Deferral Amount" means the Compensation which a Participant
elects to defer under the Plan for any Plan Year.
2.8 "Deferred Compensation Account" means a bookkeeping account
maintained by the Corporation for each Participant which reflects accumulated
Deferral Amounts credited in the form of cash or Phantom Shares in accordance
with Section 5.1 herein and Phantom Shares credited in accordance with
Section 6.1 herein, plus Additions thereto calculated as set forth in Article
7 herein.
2.9 "Director" means an individual who is a member of the Board of
Directors of the Corporation.
2.10 "Effective Date" means April 23, 1996, the effective date of this
amendment and restatement of the Plan.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor thereto.
2.12 "Normal Retirement" means termination of a Director's service to
the Corporation in such capacity for reasons other than death.
2.13 "Participant" means an eligible Director of the Corporation who
has completed a Participation Agreement as provided in Article 4 herein.
2.14 "Phantom Share" means a measure of participation in the Plan
determined pursuant to Section 6.2 herein.
2.15 "Plan" means the Boatmen's Deferred Compensation Plan for
Directors, as set forth herein.
2.16 "Plan Year" means the twelve-month period commencing January 1.
2.17 "Retainer" means the annual retainer payable by the Corporation
and earned by a Director with respect to the Director's service on the Board
and which is exclusive of meeting fees.
<PAGE> 5
Article 3. Administration
3.1 The Committee. The Plan shall be administered by the Committee.
The Committee shall administer the Plan in accordance with its terms and
shall have all powers necessary to carry out the provisions of the Plan.
3.2 Authority of the Committee. The Committee shall, with respect to
the general management of the Plan, have the sole, final and absolute right
to reconcile any inconsistency in the Plan, to interpret and construe the
provisions of the Plan in all particulars in such manner and to such extent
as it deems proper and to take all action and make all decisions and
determinations necessary under the Plan or in connection with its
administration, interpretation and application. Any interpretation or
construction placed upon any term or provisions of the Plan by the Committee,
any decision of the Committee with regard to the rights of a Director, former
Director or Beneficiary or any other person, any reconciliation of an
inconsistency in the Plan made by the Committee and any other action,
determination or decision whatsoever taken by the Committee shall be final,
conclusive and binding upon all persons or parties interested or concerned in
the Plan.
3.3 Amendment, Modification, and Termination. The Board, at its
discretion, without prior notice, at any time and from time to time, may
modify, or amend, in whole or in part, any or all of the provisions of the
Plan, or may suspend or terminate the Plan at any time. Notwithstanding the
foregoing, other than as permitted by the Plan, no such amendment,
modification, suspension, or termination by the Board may materially
adversely affect any rights or benefits accrued by a Participant as of the
effective date of any such amendment, modification, suspension, or
termination without the written consent of the Participant (or Beneficiary,
as appropriate).
Article 4. Eligibility and Participation
Eligibility for participation in the Plan is limited to non-employee
Directors of the Corporation, as identified by the Committee. Such a
Director is eligible to participate in the Plan if he completes a
Participation Agreement indicating his agreement to the terms of the Plan, a
copy of which is attached hereto as Exhibit A.
Article 5. Deferral of Compensation
5.1 Deferral Elections. A Participant shall have the right to elect
annually to defer all of his Compensation for the Plan Year, except that
which is required to be credited to his Deferred Compensation Account in the
form of Phantom Shares pursuant to Section 6.1 herein, and to indicate
whether his Deferral Amount for such Plan Year will be credited to his
Deferred Compensation Account in the form of cash or Phantom Shares;
provided, however, that a Director who first becomes eligible to participate
in the Plan after the commencement of a Plan Year may only, with respect to
such Plan Year, elect to defer that portion of his Compensation which is
attributable to services to be rendered after the filing of his Annual
Election Form pursuant to Section 5.2 herein.
5.2 Deferral Election Form. A Participant shall notify the
Corporation of his election to defer for any Plan Year by completing an
Annual Election Form, a copy of which is attached hereto as Exhibit B.
5.3 Effective Date of Deferral Election. To be effective, the Annual
Election Form must be received before the first day of the Plan Year to which
the election relates; provided, however, that a Director who first becomes
eligible to participate in this Plan after the commencement of a Plan Year,
must, in order to defer compensation for the remainder of such Plan Year,
submit a Annual Election Form to the Company within 30 calendar days after
the Director first becomes eligible to participate in this Plan during such
partial Plan Year and such election shall be effective for compensation
attributable to services to be rendered after the date of the Annual Election
Form.
5.4 Irrevocability of Election. An election to defer Compensation for
any Plan Year shall be irrevocable.
5.5 Form of Deferral. The Deferral Amount shall be credited to a
Participant's Deferred Compensation Account as a cash amount or as Phantom
Shares, depending upon the form selected for the year in question, in either
case as of the date the Deferral Amount would otherwise have been paid to the
Participant.
Article 6. Phantom Shares
6.1 Automatic Grant of Phantom Shares. As of the Effective Date
hereof and as of the date of each annual meeting of shareholders of the
Corporation at which Directors are elected following the Effective Date, each
Participant shall be granted a number of Phantom Shares having a value, as
determined by the Committee pursuant to Section 6.2 herein, equal to one-half
of the Participant's Retainer in effect as of such date of grant, which shall
be credited to the Participant's Deferred Compensation Account.
6.2 Value of Phantom Shares. Each Phantom Share shall have a value as
of the applicable valuation date which is equal to the closing trade price of
the Corporation's common stock on the Nasdaq Stock Market's National Market
(or, if not applicable, the most appropriate equivalent) on the trading day
coinciding with (or, if none, next preceding) such date.
2
<PAGE> 6
Such calculation shall be made by the Committee in its discretion, subject to
the terms of the Plan.
6.3 Adjustments. In the event of any change in corporate
capitalization, such as a stock split or a corporate transaction such as any
merger, consolidation, separation, including a spin-off or other distribution
of stock or property of the Corporation, any reorganization (whether or not
such reorganization comes within the definition of such term in Section 368
of the Internal Revenue Code) or any partial or complete liquidation of the
Corporation, such adjustment shall be made in the number of Phantom Shares
subject to the Plan, as may be determined to be appropriate and equitable by
the Board, in its sole discretion, to prevent dilution or enlargement of
rights.
Article 7. Additions to Deferred Compensation Account
7.1 Interest. The Corporation on the last day of each month will
credit the Director's Deferred Compensation Account with interest Additions
thereon. Interest Additions shall be calculated by multiplying the balance
of the Deferred Compensation Account representing elective deferrals in cash
pursuant to Section 5.1 herein as of the last day of each month by a rate
equal to one-twelfth of the average of the weekly Moody's Long-Term Aa
Corporate Bond Rates for October of the preceding Plan Year. Effective
January 1, 1997, interest Additions shall be calculated by multiplying the
balance of the Deferred Compensation Account representing elective deferrals
in cash pursuant to Section 5.1 herein as of the last day of each month by a
rate equal to one-twelfth of the ten-year U.S. Treasury Bond rate on October
31 of the preceding Plan Year, as determined by the Committee.
7.2 Dividend Equivalents. As of each dividend payment date with
respect to the Corporation's common stock, each Participant's Deferred
Compensation Account shall be credited with additional Phantom Shares having
an aggregate value equivalent to the value of the dividend payment which the
Director would have received had his or her Phantom Shares been actual shares
of common stock of the Corporation.
Article 8. Payment of Benefits
8.1 Commencement of Benefits Upon the Normal Retirement or death of a
Participant, the amount credited to the Participant's Deferred Compensation
Account shall be payable to the Participant, in cash, in the manner provided
in this Article 8. For purposes of this Section 8.1, the date of death shall
be the date the Corporation is notified of the Participant's death.
8.2 Payment of Normal Retirement Benefits. At the time of executing
his Participation Agreement, a Director must elect to receive amounts
credited to his Deferred Compensation Account under one of the following
benefit payment schedules:
(a) one lump sum, payable not later than thirty (30) days after the
Director's Normal Retirement; or
(b) a series of substantially equal yearly installments over a five
(5) year period, payable each January following the Director's Normal
Retirement.
The election made under this Section 8.2 shall be in writing and shall be
irrevocable by the Participant.
The total amount to be paid with respect to each annual installment
payable under this Section 8.2 shall be an amount equal to (i) the total
balance then in the Participant's Deferred Compensation Account, divided by
(ii) the total number of then remaining installment payments elected by the
Participant. The amount of each installment payment attributable to Phantom
Shares shall be an amount equal to (i) the number of Phantom Shares payable
with respect to such installment, multiplied by (ii) the value of such
Phantom Shares as of the date the installment became payable under this
Section 8.2, determined as provided in Section 6.2 hereof.
8.3 Payment of Death Benefits. Any unpaid deferred amounts shall be
paid to the Participant's Beneficiary in the event of the Participant's
death. In such event, payment shall be made in a single lump sum, in cash,
within thirty (30) calendar days after the Corporation receives notice of the
Participant's death.
Article 9. Former Directors of Centerre Bancorporation
Benefits resulting from deferrals under the Centerre Bancorporation
Deferred Compensation Plan for Directors prior to February 14, 1989 will be
determined under the provisions of that plan as of February 14, 1989,
attached hereto as Exhibit C.
3
<PAGE> 7
Article 10. Rights of Participants
10.1 Service. No provision of this Plan nor any action taken
hereunder shall be construed as giving a Participant or any other Director
any right to be retained by the Corporation.
10.2 Unsecured General Creditor. To the extent that any person
acquires the right to receive payment of benefits from the Corporation under
this Plan, such right shall be no greater than the rights of any unsecured
general creditor of the Corporation.
10.3 Nonassignment. Neither the Participant, his Beneficiary, heirs,
assigns, trust, estate, nor any other person claiming through or under the
Participant shall have any right to commute, encumber, or dispose of the
right to receive payments hereunder, all of which payments and the right
thereto are expressly declared to be nonassignable and any such attempt at
assignment shall be void and of no effect.
10.4 Beneficiary Designation. Except as otherwise provided herein,
each Participant may, from time to time, name a Beneficiary to whom any
amount under the Plan is to be paid in case of the Participant's death before
receipt of any or all of such amounts. Each designation shall revoke all
prior designations by the same Participant, shall be in a form prescribed by
the Committee, and will be effective only when filed by the Participant in
writing with the Corporation during his or her lifetime. In the event a
Participant fails to designate a Beneficiary or if no such designated
Beneficiary is living upon the death of the Participant or if, for any
reason, such designation shall be legally ineffective, then in any of said
events the amounts which would have been paid to the designated living
Beneficiary shall be paid to the trustee of the Participant's revocable
living trust and, if none, to such Participant's living spouse and, if none,
to such Participant's surviving children and the descendants of any deceased
child by right of representation and, if none, to the personal representative
of such Participant's estate.
10.5 No Trust. Nothing contained in this Plan and no action taken
pursuant to the provisions thereof shall create or be construed to create a
trust of any kind or a fiduciary relationship between the Corporation and the
Participant, the Participant's Beneficiary or any other person.
Article 11. Miscellaneous Provisions
11.1 Accounting. The Corporation shall maintain a record of each
Participant's accumulated Deferral Amounts, Phantom Shares and Additions
thereto by means of a Deferred Compensation Account. As the value of each
Phantom Share changes, the Deferred Compensation Account maintained on behalf
of a Participant with to Phantom Shares shall be deemed adjusted accordingly.
Such Deferred Compensation Accounts shall be maintained solely for accounting
purposes, and shall not require a segregation of any Corporation assets.
11.2 Costs of the Plan. All costs of the Plan, including, but not
limited to, payment of benefits and administrative expenses, shall be
incurred and paid by the Corporation out of the Corporation's general assets.
Although not prohibited from doing so, the Corporation is not required in any
way to segregate assets in any manner or specifically to fund the benefits
provided under this Plan.
11.3 Successors. All obligations of the Corporation under this Plan
shall be binding on any successor to the Corporation, whether the existence
of such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise of all or substantially all of the voting
interests, the business and/or the assets of the Corporation.
11.4 Indemnification. Each person who is or shall have been a member
of the Board shall be indemnified and held harmless by the Corporation
against and from any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by him or her in connection with or resulting
from any claim, action, suit, or proceeding to which he or she may be a party
or in which he or she may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid
by him or her in settlement thereof, with the Corporation's approval, or paid
by him or her in satisfaction of any judgment in any such action, suit, or
proceeding against him or her, provided he or she shall give the Corporation
an opportunity, at its own expense, to handle and defend the same before he
or she undertakes to handle and defend it on his or her own behalf.
The foregoing right to indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled through
any authority that the Corporation may have to indemnify them or hold them
harmless, or by operation of law.
11.5 Withholding. The Corporation shall, to the extent permitted by
law, have the right to deduct from any payments of any kind with respect to
the benefit otherwise due to the Participant any Federal, state or local
taxes of any kind required by law to be withheld from such payments.
11.6 Gender References. Whenever used in the Plan, words in the
masculine gender shall include the feminine gender.
4
<PAGE> 8
Article 12. Requirements of Law
12.1 Requirements of Law. The granting, administration, and payment
of benefits under this Plan shall be subject to all applicable laws, rules,
and regulations and to such approvals by any governmental agencies or
national securities markets or exchanges as may be required.
Further, with respect to persons subject to Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with all applicable
conditions necessary to qualify Phantom Shares granted under the Plan as
"cash-only" securities under Rule 16a-1(c)(3)(ii) under the Exchange Act. To
the extent any provision of the Plan or action by the Board fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Board.
12.2 Governing Law. The Plan shall be governed and construed in
accordance with the laws of the State of Missouri. In the event any
provision of this Plan is held invalid, void or unenforceable, the same shall
not affect, in any respect whatsoever, the validity of any other provision of
this Plan.
5
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