UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended DECEMBER 31, 1993 Commission File 1-8525
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _______________ to _______________
WORTHEN BANKING CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
ARKANSAS 71-6066857
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Worthen National Bank of Arkansas Bldg.,
200 West Capitol Ave., Little Rock, Arkansas 72201
- - --------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 378-1521
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------ ----------------------------
Common Stock, $1.00 Par Value American Stock Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 16, 1994, 17,005,430 shares of the Registrant's Common Stock,
$1.00 par value, were issued and outstanding (excluding 8,006 treasury shares),
and the aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $162,035,000.1
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of Registrant's 1993 Annual Report to Stockholders for the
year ending December 31, 1993 (Part I, Part II and Part IV of Form 10-K). Pages
7 - 45 of Registrant's Annual Report to Stockholders for the year ending
December 31, 1993 are filed with this electronic filing as Exhibit 13 to this
Form 10-K.
(2) Definitive Proxy Statement to Stockholders to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Registrant's fiscal year (Part III of Form 10-K).
- ------------------------------------------------------------------------------
1 The Registrant in reliance upon the instructional note pertaining to the
aggregate market value of voting stock held by nonaffiliates of the Registrant
has relied upon Schedules 13D filed by certain shareholders of the Registrant in
determining whether such shareholders are affiliates of the Registrant.
2
WORTHEN BANKING CORPORATION
ANNUAL REPORT ON FORM 10-K
December 31, 1993
CROSS REFERENCE SHEET AND INDEX
ITEM NO. PART I LOCATION*
Item 1. Business. . . . . . . . . . . . . . . . . . Page 5 and in 1993
Annual Report to
Stockholders
Item 2. Properties. . . . . . . . . . . . . . . . . Page 11
Item 3. Legal Proceedings . . . . . . . . . . . . . Page 12
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . Page 13
PART II
Item 5. Market for Registrant's Common Stock
and Related Stockholder Matters . . . . . . Page 14 and in 1993
Annual Report to
Stockholders
Item 6. Selected Financial Data . . . . . . . . . . Page 14 and in 1993
Annual Report to
Stockholders
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . Page 14 and in 1993
Annual Report to
Stockholders
Item 8. Financial Statements and
Supplementary Data. . . . . . . . . . . . . Page 14 and in 1993
Annual Report to
Stockholders
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosures . . . . . . . . . . . . . . . . Page 14
3
WORTHEN BANKING CORPORATION
ANNUAL REPORT ON FORM 10-K
December 31, 1993
CROSS REFERENCE SHEET AND INDEX (Continued)
ITEM NO. PART III LOCATION*
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . Page 14 and in
Definitive Proxy
Statement
Item 11. Executive Compensation. . . . . . . . . . . Page 14 and in
Definitive Proxy
Statement
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . Page 15 and in
Definitive Proxy
Statement
Item 13. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . Page 15 and in
Definitive Proxy
Statement
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . Page 15
* Page number references are to the locations of the listed items contained in
this Annual Report on Form 10-K for the year ended December 31, 1993. The
Registrant's 1993 Annual Report to Stockholders and Definitive Proxy Statement
are referred to above where such information is incorporated by reference into
this Annual Report on Form 10-K from such 1993 Annual Report to Stockholders and
Definitive Proxy Statement.
4
WORTHEN BANKING CORPORATION
Annual Report on Form 10-K
For The Fiscal Year Ended December 31, 1993
PARTI
ITEM 1. BUSINESS.
GENERAL
Worthen Banking Corporation (hereinafter referred to as "WBC", "Company"
or "Registrant" and includes WBC's subsidiaries and affiliates unless the
context otherwise requires), was incorporated in the State of Arkansas in August
1968 to buy, sell, own and operate banks and to offer a diversified range of
commercial banking, trust and other financial services to retail and commercial
customers. The Company is the second largest multi-bank holding company in
Arkansas with corporate headquarters located in the Worthen National Bank
Building in Little Rock, Arkansas. Operations of the Company are conducted
through bank and nonbank subsidiaries and affiliates. The existing and future
activities of the Company are limited by the Bank Holding Company Act of 1956,
as amended, which generally prohibits a bank holding company from acquiring or
engaging in any businesses other than banking, managing or controlling banks,
and furnishing or performing certain bank related services and activities.
The Company is primarily engaged in buying, selling, owning, managing and
operating commercial banks and other financial services companies and its
subsidiaries are primarily engaged in the commercial banking, trust and
securities brokerage businesses. The income and other operating results of the
nonbank subsidiaries and affiliates as compared to the consolidated operating
results of the Company, are not substantial enough to require financial and
other information concerning industry segments to be included in this Annual
Report on Form 10-K.
The Company commenced active operations in March, 1969 with the
acquisition of a controlling interest in Worthen National Bank of Arkansas,
Little Rock, Arkansas ("WNBA") and became a multi-bank holding company upon the
acquisition of a controlling interest in Worthen National Bank of Hot Springs,
Arkansas ("WNB-Hot Springs") in October, 1970. In 1971, the Arkansas legislature
enacted a law prohibiting the acquisition of additional banks, which law
remained in effect until the passage of Act 128 of 1983, the Arkansas Bank
Holding Company Act of 1983. Act 128, which permits the acquisition of
additional banks in accordance with certain guidelines, became effective
September 30, 1983. During fiscal year 1993, WBC owned eleven banks, which were
located in Arkansas and the Austin, Texas area. All of these are national banks,
chartered pursuant to the laws of the United States. Since its organization and
commencement of operations, WBC's revenues and net income or net losses have
resulted principally from its banking subsidiaries. In addition to commercial
banking, WBC also provides, through its subsidiaries and affiliates, mortgage
banking, appraisal services, trust services, credit life and disability
insurance, investment advisory services, full service and discount brokerage
services, data processing and other related financial services.
On May 7, 1993, Worthen Banking Corporation acquired 100% of the stock of
The Union of Arkansas Corporation ("Union") with the issuance of 4,550,000
shares of WBC common stock to the Union stockholders. Union's principal
subsidiary bank, Union National Bank of Arkansas ("Union-Little Rock"), was
merged with WNBA on May 28, 1993. Union-Little Rock was a commercial bank with
approximately $595 million in assets, $482 million in deposits and $54 million
in equity operating from twenty-two locations in central and southern Arkansas
and had two mortgage banking subsidiaries. Union's only other banking subsidiary
was Union National Bank of Texas ("Union-Texas") operating out of six locations
in Austin, Texas. Union-Texas had approximately $120 million in assets, $112
million in deposits and $6 million in equity at December 31, 1992. Union-Texas
has been renamed Worthen National Bank of Texas. This transaction was accounted
for using the pooling-of-interests method of accounting.
On September 10, 1993, the Company acquired 100% of First Bentonville
Bancshares, Inc., the parent corporation of First Bank of Bentonville, Arkansas
("FirstBank"). WBC paid approximately $3.9 million in cash, $4.1 million in debt
repayment and 250,000 newly-issued shares of WBC's common stock. For the year
ended December 31, 1992, FirstBank reported total assets of $88,546,000, net
interest income of $2,826,000 and net income of $805,000. FirstBank was merged
into Worthen National Bank of Northwest Arkansas on October 31, 1993. This
acquisition was accounted for as a purchase and the results of operations of
FirstBank are included in the Company's consolidated financial statements from
the date of purchase.
5
Each subsidiary of the Company operates with a high degree of autonomy.
WBC, as the corporate parent, provides various technical and advisory services
and establishes general policy for the management and coordination of the
resources of its subsidiaries to more effectively service the credit and
financial services needs of the subsidiaries' customers and communities. The
Company coordinates the activities of its subsidiaries in certain areas,
including without limitation, credit policy, accounting, internal auditing,
regulatory compliance, loan review, investment coordination, asset/liability
management, public relations, and business development. However, the
subsidiaries operate under the direct supervision and day-to-day management of
their own directors and officers who formulate their own policies subject to the
Company's general policy guidelines and regulatory compliance.
WBC's principal sources of income are dividends and management service
fees paid by its subsidiaries. Dividend payments are determined quarterly in
relation to subsidiary income, assets, deposit growth and capital position in
compliance with regulatory guidelines and, in certain cases, prior regulatory
approval. Management service fees represent reimbursements received for services
performed by the corporate parent.
COMMERCIAL BANKING SUBSIDIARIES
The Company's principal source of income is derived from its eleven
subsidiary commercial banks and through certain of its nonbank subsidiaries. The
main offices of these subsidiaries are located in Batesville, Camden, Conway,
Fayetteville, Harrison, Hot Springs, Little Rock, Newark, Pine Bluff and
Russellville, Arkansas and Austin, Texas. All offer a broad range of commercial
bank services to the markets and communities which they serve, as well as
provide other related financial services in a majority of locations.
BANK RELATED SUBSIDIARIES AND AFFILIATES
The Company's non-bank subsidiaries include: 1) a full service and
discount brokerage company, which is a registered broker dealer and investment
adviser, whose business is conducted at a majority of the Company's banking
subsidiaries throughout the state; 2) a mortgage banking company whose business
is originating and servicing mortgage loans; 3) a credit life insurance company
which insures or reinsures credit life and accident and health insurance; 4) a
data processing and operations support company which provides data processing
and transmission services, item processing and similar functions for the
Company's banking subsidiaries; 5) a trust company which provides trust
administration and operations; 6) an appraisal company whose business is
appraising property proposed to be offered as loan collateral; and 7) two small
and relatively inactive companies related to industrial lending and real estate
development.
SUPERVISION AND REGULATION
The following summaries of statutes and regulations affecting bank
holding companies and their commercial banking subsidiaries do not purport to be
complete but are given to provide a general overview. The summaries are
qualified in their entirety by reference to the provisions of the statutes and
regulations summarized.
STATE USURY LAW
Prior to its amendment in 1982, the Constitution of the State of Arkansas
limited the rate of interest which could be charged on borrowed funds to 10% per
annum simple interest, and provided for forfeiture of principal and interest in
the event that a greater amount of interest was charged or received. The effect
of that constitutional limitation had been mitigated to some extent by Public
Law 96-221 (the "Deregulation Act") under which the United States Congress,
pursuant to the Supremacy Clause of the United States Constitution, pre-empted
state constitutions and state usury laws in regard to business-and agricultural
loans over $1,000 in amount and in regard to first mortgage residential real
estate loans. Under the Deregulation Act, WBC's lending affiliates were
permitted to make business and agricultural loans at 5% over the applicable
Federal Reserve Bank discount rate and first mortgage residential real estate
loans without any percentage limitation. The usury pre-emptive provisions of the
Deregulation Act expired generally on April 15, 1985, although loans made prior
to that date continue to be governed by the provisions of the Deregulation Act
The first mortgage real estate loan preemption in the Deregulation Act continues
in effect and will constitute a permanent preemption of the Constitution of the
State of Arkansas in regard to first mortgage residential real estate loans.
6
In 1982, The Interest Rate Control Amendment ("Constitutional Amendment")
to the Constitution of the State of Arkansas was adopted, which provides, in
summary, that "consumer loans and credit sales" have a maximum percentage
limitation of 17% per annum and that all "general loans" have a maximum
limitation of 5% over the Federal Reserve Discount Rate in effect at the time
the loan was made. In 1983, the Arkansas Supreme Court determining that
"consumer loans and credit sales" are "general loans" and are subject to the
limitation of 5% over the Federal Reserve Discount Rate, as well as a maximum
limitation of 17% per annum. The Constitutional Amendment also provided
penalties for usurious "general loans" and "consumer loans and credit sales,"
including forfeiture of all principal and interest on consumer loans and credit
sales made at a greater rate of interest than 17% per annum, and, on "general
loans" made at usurious rates, forfeiture of uncollected interest and refund to
the borrower of twice the interest collected.
The relative importance of the Arkansas usury laws and federal
pre-emption thereof to the financial operations of WBC varies from time to time,
depending on a number of factors, including general economic conditions and
prevailing interest rates. Limitations on the interest earnings of WBC
subsidiary banks occur during periods of high interest rates. The effect of
such limitations cannot be accurately predicted because of the factors
mentioned above.
The Texas usury law establishes different usury limits for various
types of loans. These interest rate limits may vary from time to time. The
interest rate limitations currently in effect are more than sufficient when
compared to prevailing interest rates.
STATE REGULATION
The Arkansas Bank Holding Company Act of 1983 permits Arkansas bank
holding companies to own and control multiple banks and subjects Arkansas bank
holding companies to regulation by the Arkansas State Bank Department. Under
Arkansas law, bank holding companies are limited to owning or controlling banks
having in the aggregate no more than 25% of the total deposits held by all state
and national banks in Arkansas. For purposes of this limitation, deposits
include all individual, partnership, and corporate deposits, but not
correspondent accounts of banks or the fluids of national, state, or local
government authorities.
The Arkansas State Bank Department ("ASBD") is authorized to administer
the provisions of the Arkansas Bank Holding Company Act and to determine those
activities of bank holding companies that it deems to be "directly related to
banking activities." Under current interpretations and regulations of the ASBD,
permissible non-banking activities under the Bank Holding Company Act of 1956,
as amended, are given due consideration as being "directly related to banking
activities" under the Arkansas Act.
During 1988, the Arkansas General Assembly passed Act 539 which
authorized county-wide and eventually statewide branching and regional
interstate banking effective January 1, 1989. Unlimited branching in contiguous
counties will be allowed beginning alter 1993 while unlimited statewide
branching will become effective after 1998.
The Texas Banking Code permits an "out-of state" bank holding company
to acquire control of a bank located in the state of Texas, if such bank
received a charter and was continually operated for at least five years prior
to the acquisition, and subjects the "out-of state" bank holding company to the
supervision and regulation by the Banking Department of Texas. On January 29,
1993, the Company entered into an agreement with the Banking Department of
Texas as required by the Texas Banking Code. Pursuant to the agreement, the
Company represented that Worthen National Bank of Texas ("Worthen-Texas")
would comply with applicable capital adequacy guidelines and that the
consolidated equity capital of Worthen-Texas during the first three years
after the acquisition will at all times equal or exceed the dollar level
existing immediately prior to the acquisition. The Company further agreed that
a majority of the board of directors of Worthen-Texas will reside in the state
of Texas, that it would not acquire an institution located in the state of
Texas, the deposits of which are insured by the Federal Deposit Insurance
Corporation, unless the institution is a bank as defined by the Bank Holding
Company Act of 1956, as amended, and that additional information or reports
would be filed with the Banking Department of Texas upon request.
Under the Texas Banking Code an "out-of state" bank holding company is
limited in that it can not control more than 25% of the total deposits of all
state and national banks domiciled in the state of Texas. For purpose of this
limitation, the term "deposit" is given the meaning assigned to that term in
Section 23 of the Federal Deposit Insurance Act, as amended.
7
ARKANSAS CORPORATE CODE
In 1987, the Arkansas General Assembly passed the Arkansas Business
Corporation Act of 1987 (the "1987 Act"), which was signed into law on April 14,
1987, and which became effective January 1, 1988. As a compromise to the passage
of the 1987 Act, the General Assembly included a provision allowing existing
Arkansas corporations to continue to be governed by the present corporate code
(the "1965 Act"), unless a corporation affirmatively elected to be governed
under the 1987 Act The 1987 Act provides that existing Arkansas corporations,
such as WBC, may elect to be governed by its provisions upon receiving requisite
stockholder approval and further that such an election, once made, is
irrevocable.
On February 23, 1988, WBC's stockholders adopted and approved various
proposals, including a proposal to amend and restate the Articles of
Incorporation adopting the 1987 Act as the corporate law which shall govern the
affairs of WBC. WBC's Amended and Restated Articles of Incorporation were
subsequently filed with the Arkansas Secretary of State and became effective
February 24, 1988. Upon the filing of the Amended and Restated Articles of
Incorporation, the 1987 Act became the applicable state corporate code governing
the affairs of WBC. The 1987 Act was based primarily upon the American Bar
Association's Model Business Corporation Act as substantially revised in 1984
and was legislated in partly the need to update and modernize the law affectIng
Arkansas corporations. In general as compared to the 1965 Act, the 1987 Act is
thought to be more flexible, easier to understand, and to permit corporations to
avail themselves of many modern financIng techniques and management procedures
not available under the 1965 Act. The 1987 Act should result in more predictable
judicial interpretations by Arkansas courts.
BANK HOLDING COMPANY ACT OF 1956, AS AMENDED
WBC is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended ("BHC Act"), and is registered as such with the
Board of Governors of the Federal Reserve System("FRB"). As a bank holding
company, WBC is required to file with the FRB an annual report and such
additional information as the FRB may require pursuant to the BHC Act The FRB
also periodically examines WBC and each of its subsidiaries. Under the terms of
the BHC Act, WBC, as a bank holding company, is generally required to obtain
regulatory approval from the FRB before it may acquire or dispose of a
substantial interest in any bank or bank holding company.
With certain exceptions, the BHC Act further restricts nonbanking
acquisitions by registered bank holding companies to shares of companies whose
activities the FRB deems to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making such
determinations, the FRB is required to consider whether the performance of such
activities by an affiliate can reasonably be expected to produce benefits to the
public, such as increased competition or gains in efficiency, against the risks
of possible adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest or unsound banking practices.
The FRB has determined by regulation that certain activities, including
among others making and servicing loans, operating an industrial loan
institution, performing certain fiduciary functions, leasing real and personal
property, providing certain investment and financing advice and brokerage
services, performing certain data processing operations, acting as an insurance
agent for certain types of insurance, and underwriting credit life and
disability insurance related to credit transactions within the particular
holding company system, among others, are permissible activities for bank
holding companies and their affiliates.
Further the BHC Act and regulations of the FRB prohibit bank holding
companies, such as WBC, from engaging in certain tie-in arrangements in
connection with extensions of credit, lease or sale transactions or the
furnishing of services.
RISK-BASED CAPITAL GUIDELINES
On January 19, 1989, the FRB issued final guidelines to implement
risk-based capital requirements for bank holding companies. The guidelines
establish a systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, takes off-balance sheet exposures into account in assessing
capital adequacy, and minimizes disincentives to holding liquid, low-risk
assets. The Company's year end 1993 total risk based capital ratio of 14.11%
exceeds the current minimum regulatory requirement of 8.00%.
8
FEDERAL RESERVE ACT
The FRB has cease-and-desist powers over parent holding companies and
nonbanking subsidiaries where actions of such holding companies and nonbanking
subsidiaries would constitute a serious threat to the safety, soundness or
stability of a subsidiary bank. The FRB also has authority to regulate debt
obligations, other thin commercial paper, issued by bank holding companies.
The Company is an "affiliate" of its subsidiary banking institutions and
will be an "affiliate" of any other acquired banks within the meaning of the
Federal Reserve Act The Federal Reserve Act imposes restrictions on loans by the
subsidiary banks to WBC or to any other affiliated companies, on investments by
the subsidiary banks in the securities of WBC, and on the use of such securities
as collateral security for loans by subsidiary banks to any borrower. WBC is
also subject to certain restrictions with respect to engaging in the business of
issuing, underwriting, public sale and distribution of securities. In the event
that WBC's subsidiary banks experience significant loan losses or rapid growth
of loans or deposits, WBC may, as the sole or majority shareholder, be required
by regulatory authorities to invest additional capital in order to maintain the
capital of each subsidiary bank at or above applicable regulatory minima.
GENERAL
The national bank subsidiaries of WBC are subject to supervision and
regular examination by the Office of the Comptroller of the Currency ("OCC").
All of WBC's subsidiary banks are members of the Federal Deposit Insurance
Corporation ("FDIC") which currently insures the deposits of each member bank
to a maximum of $100,000 per deposit relationship. For this protection, each
bank pays a semi-annual statutory assessment to the FDIC and is subject to the
rules and regulations of the FDIC and to examinations by the FDIC. WBC and its
subsidiaries (including bank-related subsidiaries) are also subject to
examinations and regulation by the FRB under provisions of the Bank Holding
Company Act of 1956, as amended, and WBC is required to file annual reports with
the FRB and the ASBD, annual and other periodic reports with the United States
Securities and Exchange Commission, and to file such additional reports as the
FRB may require pursuant to that Act.
The bank subsidiaries and their affiliates are subject to various state
and federal statutes and regulations governing capital, reserves, deposits,
investments, loans, mergers, issuance of securities, dividends, establishment of
branches, brokerage and investment advisory services and other aspects of their
operations.
The approval of the OCC is required if the total of all dividends
declared by the Board of Directors of any national bank subsidiary in any
calendar year exceeds the total of the respective bank's net income for that
year combined with retained net profit for the preceding two years, less any
transfers to surplus.
Various bills and regulations including the Financial Institutions
Regulatory and Interest Rate Control Act of 1978, the Depository Institutions
Deregulation and Monetary Control Act of 1980, the Garn-St. Germain Depository
Institutions Act of 1982, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 and the Federal Deposit Insurance Corporation
Improvement Act of 1991 have been enacted or adopted, and other legislation is
being considered in the United States Congress and various other governmental
regulatory and legislative bodies which could result in additional regulation
affecting WBC and its subsidiaries and otherwise affect the powers of banks,
bank holding companies, and bank-related companies.
MONETARY POLICY
The monetary policy of the FRB has a significant effect on the operating
results of bank holding companies and their subsidiary banks as a result of its
controlling influence upon the national supply and cost of bank credit. The FRB
implements monetary policy principally through open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and change in reserve requirements against member bank deposits. These means are
used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use affects interest rates
charged on loans or paid for deposits. The policies of the FRB have a direct
effect on the amount of bank loans and deposits and the interest rates charged
and paid thereon.
FRB monetary policies have materially affected the operating results of
commercial banks in the past and are expected to continue to do so in the
future. WBC's financial statements reflect the various effects of monetary
policies. The nature of future monetary policies and the effect of such policies
on the future business and earnings of WBC cannot be accurately predicted;
however, such economic policies can materially affect the revenues and net
income of commercial banks.
9
PATENTS, SEASONALITY OF BUSINESS AND CUSTOMERS
Patents or trademarks are not material to the conduct of the Company's
business. Historically, the business of the Company has not been seasonal in
nature nor does management of WBC anticipate any differences or seasonal trends
in the future. Although certain depositors and loan customers are important to
the Company's banking subsidiaries, the Company is not dependent upon any single
customer or a few customers, the loss of any one or more of which would have a
material adverse effect on the financial condition or results of operations of
the Company on a consolidated basis.
COMPETITION
The activities engaged in by WBC and its subsidiaries are highly
competitive. With each activity engaged in, the Company encounters intense
competition from other banks, lending institutions, credit unions, savings and
loan associations, brokerage firms, mortgage companies, industrial loan
associations, finance companies, and several other financial and financial
service institutions. The amount of competition has increased significantly over
the past few years since the deregulation of the banking industry. The Company's
subsidiary banks actively compete with other banks and financial institutions in
their efforts to obtain deposits and make loans, in the scope and type of
services offered, in interest rates paid on time deposits and charged on loans
and in other aspects of commercial banking. They are also in competition with
major international retail establishments, brokerage firms and other financial
institutions within and outside Arkansas. Competition with these financial
institutions is expected to increase, especially with the passage of
legislation authorizing interstate banking.
According to information obtained from the Arkansas Association of Bank
Holding Companies, during 1993 there were approximately 34 multi-bank holding
companies in Arkansas and an approximate 104 additional single bank holding
companies. As of December 31, 1993, the Company was the second largest
multi-bank holding company in Arkansas in terms of total assets and total
deposits.
EMPLOYEES
As of December 31, 1993, the Company and its subsidiaries employed 2,252
persons. None of the employees are represented by any union or similar groups
and the Company has not experienced any labor disputes or strikes arising from
any such organized labor groups. The Company considers its relationship with its
employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 16, 1994, the executive officers of the Registrant are as follows:
SERVED AS AN
CURRENT TITLE EXECUTIVE
NAME AND POSITION AGE OFFICER SINCE
- ----- ------------ --- -------------
Curtis F. Bradbury, Jr. Chairman, President 44 1985
and Chief Executive
Officer of WBC and
Chairman and
Chief Executive
Officer of WNBA
Andrew T. Melton Executive Vice 47 1986
President, Chief
Financial Officer
and Treasurer
James C. Patridge Executive Vice 43 1987
President
10
SERVED AS AN
CURRENT TITLE EXECUTIVE
NAME AND POSITION AGE OFFICER SINCE
- ----- ------------ --- -------------
Michael F. Heald Senior Vice President 34 1988
and Director of Audit
William G. Hobbs Senior Vice President 44 1986
Asset/Liability and
Funds Management
Alan C. King Senior Vice President, 42 1987
Controller and Chief
Accounting Officer
Gary A. Rickenbach Senior Vice President 36 1988
Director of Loan
Review and Mergers
and Acquisitions
Gary L. Smith Senior Vice President and 40 1985
Assistant to the Chairman
The Executive Officers are elected and employed by WBC's Board of Directors
to serve for terms set from time to time by the Board in its discretion until
re-elected or replaced. Each executive officer has held the same position or
another executive position with the Company or one of its subsidiaries during
the past five years.
In addition to the foregoing persons, executive officers of the Company's
banking subsidiaries are members of a committee that exercises certain policy
making functions. Therefore, although not employed by or occupying officer
positions with the Company, they may for certain purposes be deemed as
"executive officers." As of March 16, 1994, the persons occupying such
positions include: Dale E. Cole, Worthen National Bank, Batesville and Worthen
National Bank of Newark; Edwin M Horton, Worthen National Bank of South
Arkansas; Marlin D. Jackson and Frank Oldham, Worthen National Bank of Conway;
Brooks H. Morris, Worthen National Bank of Harrison; David Bartlett, Worthen
National Bank of Hot Springs; Thomas Spillyards, Worthen National Bank of Pine
Bluff; Robert Y. Taylor, Worthen Bank National Bank of Russellville; James F.
Stobaugh and Rick L. Parsons, Worthen National Bank of Northwest Arkansas; and
John I. Fleischauer, Jr., Worthen National Bank of Arkansas. With the guidance
of the Board of Directors and executive management of the Company, each of these
persons is employed by the Boards of Directors of the respective banking
subsidiaries to serve for terms set from time to time by such Boards until
re-elected or replaced.
SELECTED STATISTICAL INFORMATION
The information required in response to this portion of Item 1 is
incorporated by reference from the disclosures contained in the Registrant's
1993 Annual Report to Stockholders, portions of which are included herein as
Exhibit 13.
ITEM 2. PROPERTIES.
The principal offices of the Company and its largest subsidiary, WNBA, are
located in the Worthen National Bank of Arkansas building at 200 West Capitol
Avenue in downtown Little Rock, Arkansas. The building is owned by WNBA.
The Company and its banking subsidiaries maintain 119 locations throughout
the State of Arkansas and the Austin, Texas area. The majority of these offices
are owned by the respective subsidiary banks. In the opinion of management of
the Company, the physical properties of the Company and its subsidiaries are
adequate and fully utilized.
11
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, there are various legal proceedings
pending against the Company, its subsidiaries and affiliates, most of which are
considered litigation incidental to the conduct of business, including, among
other matters, defense of routine corporate, employment, banking, lender
liability and securities related litigation. Management, after consultation with
legal counsel and based upon available facts and proceedings to date which are
preliminary in certain instances, is of the opinion that the ultimate resolution
of these proceedings will have no material adverse effect on the consolidated
financial position of the Company. However, certain matters disclosed in this
Annual Report on Form 10-K for the fiscal year ended December 31, 1993, may be
considered to be material in amount or nature.
In January of 1993, the Company, its directors, and certain of its officers
and shareholders were sued in the United States District Court for the Southern
District of New York, in WINICKI V. WORTHEN BANKING CORPORATION, ET AL..
93-CIV-0135. The complaint alleged that the defendants violated Section 14(a) of
the Securities Exchange Act of 1934 ("Exchange Act"), Rule 14a-9 of the
Securities and Exchange Commission ("SEC" or "Commission"), and certain state
law provisions relating to fiduciary duties in connection with the matters
disclosed in the Company's proxy statement distributed in December of 1992. The
complaint was filed as a class action and sought an injunction to prevent the
Company from holding a special meeting or from consummating certain transactions
which were the subject of the proxy statement, and unspecified monetary damages.
The Company has denied all material allegations in the complaint and in
January 1993, the parties entered into a Memorandum of Understanding ("MOU")
under which the Company agreed to distribute revised disclosure material to its
shareholders and not to oppose an application by plaintiff's counsel for fees
in an agreed amount.
On January 21, 1994, the Court provisionally certified a class for purposes
of settlement. The settlement remains subject to Court approval following a
fairness hearing at which class members may raise any objections to the
settlement. Notice of the settlement was sent to class members beginning on
February 9, 1994, and a fairness hearing is scheduled for April 5, 1994.
On March 31, 1993, the Board of Governors of the Federal Reserve System
("FED") advised WBC that the Company's application to merge The Union of
Arkansas Corporation with a subsidiary of WBC had been approved. The FED
approved the merger, in part, in reliance upon representations and commitments
made to the FED by the Company, by Stephens Group, Inc.
and by certain Stephens family members. These included a representation that
Stephens Group, Inc. does not and will not exert control over the management and
policies of WBC and that Stephens Group, Inc. and its subsidiaries will comply
with the restrictions imposed by Sections 23A and 23B of the Federal Reserve
Act. Management believes that such representations and commitments will not
materially affect the Company's general business policies, financial condition,
or results of operations. The Company has also been advised that the FED has
made a determination that Stephens Group, Inc. and its affiliates, are
affiliates of the Company, as that term is defined in Sections 23A and 23B of
the Federal Reserve Act.
The Board of Governors also notified the Company on March 31, 1993 that the
Board of Governors had ordered an investigation to review the ownership and
control of the Company for compliance with the Bank Holding Company Act and the
Change in Bank Control Act, including the nature and extent of the relationships
between the Company and Stephens Group, Inc. and its subsidiaries. The Company
is not aware of any assertion by the Board of Governors that the Company is not
in compliance with the Bank Holding Company Act or the Change in Bank Control
Act. In the event the Board of Governors determines that there has been a
violation of the Bank Holding Company Act, it is authorized to initiate certain
administrative enforcement actions against the Company and its
institution-affiliated parties. These actions could include, among other things,
the issuance of an order to cease and desist or the assessment of monetary
penalties against the Company or its institution-affiliated parties. The amount
of such monetary penalties, if any, would be determined by the Board of
Governors on the basis of the facts and circumstances surrounding the alleged
violations and might or might not have a material adverse effect upon the
Company's financial condition or results of operations. In addition, under
regulations promulgated by the Board of Governors, in the event it determines
that an impermissible control relationship exists, it would have discretion to
order either termination of the impermissible control relationship, or the
filing of an application seeking the approval of such control relationship, or
to pursue other remedial actions. However, the Company cannot now predict the
results or the final outcome of the investigation. The Company intends to
continue to cooperate with the Board of Governors in this investigation.
12
WILKINS V. UNION NATIONAL BANK Case No. 90 CH 9203, in the Circuit Court of
Cook County, Illinois, County Department, Chancery Division. In September of
1990, plaintiffs Herbert L. Wilkins and Mary Wilkins sued Union National Bank
("Union") in a purported class action complaint which sought remedies against
both Union and WNBA as successor of Union, including: (1) a declaration that
Union's method of calculating escrow deposit requirements was unlawful, (2)
refunds of excess escrow balances existing in mortgage escrow accounts (through
application of such balances as prepayments of mortgage principal or through
direct refunds), (3) payment of interest on excess escrow balances carried in
such escrow accounts, (4) punitive damages in an unspecified amount, (5) an
injunction prohibiting defendant from imposing excessive escrow requirements in
the future, and (6) attorney's fees.
Union and WNBA have denied all material allegations of the complaint.
Management of WNBA believes that WNBA has valid and meritorious defenses to
the allegations set forth in the complaint and intends to defend this matter
vigorously unless a settlement satisfactory to WNBA can be reached. WNBA has
reached a settlement agreement on a basis favorable to WNBA with counsel for
plaintiffs. The settlement is subject to court approval, which has not yet
been obtained.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No vote of holders of securities issued by WBC was taken on
any matter during the fourth quarter of 1993.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Earnings, Dividends
and Price Range Per Share" on Page 21 of the Registrant's 1993 Annual Report to
Stockholders. The last trade price for the Company's common stock on March 16,
1994 was $21.50.
ITEM 6. SELECTED FINANCIAL DATA
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Selected Financial
Data" on page 7 of the Registrant's 1993 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 8 through 22 of the Registrant's 1993 Annual Report to Stockholders.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in response to this Item, including the opinion of
KPMG Peat Marwick, is incorporated by reference from the disclosures contained
under the captions "Consolidated Financial Statements" and "Selected Quarterly
Financial Data" on pages 23 through 45 and page 22, respectively, of the
Registrant's 1993 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ThE REGISTRANT.
The information required in response to this Item is incorporated by
reference from the Registrant's Definitive Proxy Statement which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1993 fiscal year covered by this Annual Report on Form 10-K
See also the caption "Executive Officers of the Registrant" under Item 1 of
this Annual Report on Form lo-K
ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this Item is incorporated by
reference from the Registrant's Definitive Proxy Statement which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1993 fiscal year covered by this Annual Report on Form 10-K.
14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information required in response to this Item is incorporated by
reference from the Registrant's Definitive Proxy Statement which wall be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1993 fiscal year covered by this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this Item is incorporated by
reference from the Registrant's Definitive Proxy Statement which will be filed
with the Securities and Exchange Commission no later than 120 days after the end
of the 1993 fiscal year covered by this Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.
ITEM 14(a)(1) AND (2)
WORTHEN BANKING CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements and the report of
independent auditors of Worthen Banking Corporation and subsidiaries for the
year ended December 31, 1993 as required by Item 8, are:
Page(s) In 1993 Annual
Report to Stockholders
Reports of Management and Independent
Auditors....................................................................... Page 23
Consolidated Balance Sheets as of December 31, 1993, 1992, and 1991................ Page 24
Consolidated Statements of Earnings
for the three years ended December 31, 1993, 1992, and 1991..................... Page 25
Consolidated Statements of Stockholders' Equity for the three years ended
December 31, 1993, 1992, and 1991............................................... Page 26
Consolidated Statements of Cash Flows for the three years ended December 31,
1993, 1992, and 1991 .......................................................... Pages 27-28
Notes to Consolidated Financial Statements ........................................ Pages 29-45
The report of independent auditors of The Union of Arkansas Corporation and
subsidiaries for the years ended December 31, 1992 and 1991 is included as
Exhibit 99 of the Exhibits in Item 14(a)(3).
15
The following consolidated financial statement schedule of Worthen Banking
Corporation and subsidiaries, including the independent auditors' report
thereon, is included in Item 14(d):
Schedule II - Guarantees of Securities of Other Issuers at December 31,
1993.
Schedules other than those listed above (or columns omitted from the
Schedule filed herein) required by Article 9 of Regulation S-X are not required
under the related instructions or are inapplicable, and, therefore, have been
omitted.
ITEM 14(a)(3) - EXHIBITS
The exhibits required by Item 601 of Regulation S-K which are required to be
filed in response to this Item 14(a)(3) are submitted as a separate section of
this Annual Report on Form 10-K under the caption "Exhibit Index."
ITEM 14(b) - REPORTS ON FORM 8-K
No current reports on Form 8-K were filed by the Company during the three
months ended December 31, 1993.
ITEM 14(c) - EXHIBITS
The exhibits required by Item 601 of Regulation S-K which are required to be
filed in response to this Item 14(c) are submitted as a separate section of this
Annual Report on Form 10-K under the caption "Exhibit Index."
ITEM 14(d) - FINANCIAL STATEMENT SCHEDULES
The response to this portion of Item 14 is submitted as a separate section
of this Annual Report on Form 10-K immediately following the signature pages of
this Annual Report on Form 10-K.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, there unto duly authorized, on the
30th day of March, 1993.
WORTHEN BANKING CORPORATION
By: \s\ Curtis F. Bradbury. Jr.
---------------------------
Curtis F. Bradbury, Jr.
Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Curtis
F. Bradbury, Jr., or Andrew T. Melton, to file one or more amendments to this
Annual Report on Form 10-K, which amendments may make such changes, additions,
deletions or modifications to the Annual Report on Form 10-K as they deem
appropriate, and each such person hereby appoints Curtis F. Bradbury, Jr. or
Andrew T. Melton as his lawful attorney-in-fact to execute in the name and on
behalf of each such person individually, and in each capacity stated below, any
such amendments to the Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Curtis F. Bradbury, Jr. Chief Executive Officer March 30, 1994
- --------------------------- and Director
Curtis F. Bradbury, Jr.
/s/ Andrew T. Melton Chief Financial Officer March 30, 1994
- ----------------------------
Andrew T. Melton
/s/ Alan C. King Controller and Chief March 30, 1994
- ---------------------------- Accounting Officer
Alan C. King
/s/ James H. Atkins Director March 30, 1994
- ----------------------------
James H. Atkins
/s/ Gus M. Blass, II Director March 30, 1994
- ----------------------------
Gus M. Blass, II
/s/ Fred I. Brown, Jr. Director March 30, 1994
- ----------------------------
Fred I. Brown, Jr.
/s/Alex Dillard Director March 30, 1994
- ----------------------------
Alex Dillard
/s/ Michael T. Flynn Director March 30, 1994
- ----------------------------
Michael T. Flynn
/s/ Kaneaster Hodges, Jr. Director March 30, 1994
- ----------------------------
Kaneaster Hodges, Jr.
17
/s/T. Milton Honea Director March 30, 1994
- ----------------------------
T.Milton Honea
/s/George C. Kell Director March 30, 1994
- ----------------------------
George C. Kell
/s/Herbert H. McAdams. II Director March 30, 1994
- ----------------------------
Herbert H. McAdams, II
/s/Raymond P. Miller, M.D. Director March 30, 1994
- ----------------------------
Raymond P. Miller, M.D.
/s/A. Dan Phillips Director March 30, 1994
- ----------------------------
A.Dan Phillips
/s/Winthrop Paul Rockefeller Director March 30, 1994
- ----------------------------
Winthrop Paul Rockefeller
/s/David Solomon Director March 30, 1994
- ----------------------------
David Solomon
/s/Leland E. Tollett Director March 30, 1994
- ----------------------------
Leland E. Tollett
18
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Worthen Banking Corporation
Under date of February 25, 1994, we reported on the consolidated balance sheet
of Worthen Banking Corporation and Subsidiaries as of December 31, 1993 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the year then ended as contained in the 1993 Annual Report to Stockholders.
These consolidated financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K for the year 1993. In connection
with our audit of the aforementioned consolidated financial statements, we have
audited the financial statement schedule listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audit
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ KPMG Peat Marwick
-----------------------------
KPMG PEAT MARWICK
Little Rock, Arkansas
February 25, 1994
19
SCHEDULE II
GUARANTEES OF SECURITIES OF OTHER ISSUERS
WORTHEN BANKING CORPORATION
DECEMBER 31, 1993
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
- -------------------- ---------------------- ------------ ----------------- ----------- ----------- ----------------
Nature of any De-
fault By Issuer of
Securities Guar-
anteed in
Amounts in Principal Interest
Name of Issuer of Amount Owned By Treasury of Sinking Fund or
Securities Guaranteed Title of Issue of Each Total Amount Person or Persons Issuer if Redemption Provi-
By Person for Which Class of Securities Guaranteed and For Which State- Securities Nature of sion or Payment
Statement is Filed Guaranteed Outstanding ment is filed Guaranteed Guarantee* of Dividends
- -------------------- ----------------------- -------------- ----------------- ---------- ------------ ----------------
Century Tube City of Pine Bluff $ 324,725 $ - $ - Guarantee of
Corporation (1046) AR Industrial Principal
Revenue Bonds and Interest
(Century Tube Project)
Series 1983
<FN>
*Standby Letters of Credit
20
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- -----
3(a) Amended and Restated Articles of N/A
Incorporation of Registrant (filed
as Exhibit 3(a) to Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1987 and incorporated by
reference herein).
3(b) Amended and Restated Bylaws of Registrant N/A
(filed as Exhibit 3 to Registrant's
Quarterly Report on Form 10-Q for the
period ended June 30, 1988 and incorporated
by reference herein).
3(c) Amended and Restated Articles of Incorporation N/A
(filed as Exhibit 3(i) to Registrant's Quarterly
Report on Form 10-Q for the period ended
June 30, 1993) incorporated by reference herein.
11 Statement of computation of per share N/A
earnings (see Consolidated Financial
Statements of the Registrant contained
in the Registrant's 1993 Annual Report)
which is included herein as Exhibit 13.
13 Pages 7 - 45 of the Registrant's 1993 Annual Report. ---
21 Subsidiaries of the Registrant. ---
23(a) Consent of KPMG Peat Marwick. ---
23(b) Consent of Frost and Company.
24 Power of Attorney (see Signature Page). 17
99 Report of independent auditors of The Union of ---
Arkansas Corporation and subsidiaries for the
years ended December 31, 1992 and 1991.
21
EXHIBIT 13
SELECTED FINANCIAL DATA (Dollars in thousands, except share data and statistics)
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------
Interest income. . . . . . . . . . . . $ 212,082 $ 229,968 $ 240,693 $ 224,833 $ 209,508 $ 194,614
Interest expense . . . . . . . . . . . 79,264 99,780 131,730 126,239 116,433 103,010
--------------------------------------------------------------------------------------
Net interest income. . . . . . . . . . 132,818 130,188 108,963 98,594 93,075 91,604
Provision for loan losses. . . . . . . 4,628 2,849 3,359 6,214 10,547 17,324
--------------------------------------------------------------------------------------
Net interest income after
provision for loan losses. . . . . . 128,190 127,339 105,604 92,380 82,528 74,280
Settlement of shareholder
derivative lawsuits, net . . . . . . -- -- -- -- -- 7,441
Repurchase agreement
recovery, net. . . . . . . . . . . . 309 -- 794 386 850 4,907
Other income . . . . . . . . . . . . . 66,282 57,458 52,556 43,899 39,670 42,105
Other expenses . . . . . . . . . . . . 147,199 144,150 126,306 111,512 108,304 114,838
--------------------------------------------------------------------------------------
Income before income taxes,
discontinued operations and
cumulative effect of a change
in accounting principle. . . . . . . 47,582 40,647 32,648 25,153 14,744 13,895
Income taxes . . . . . . . . . . . . . 16,200 6,710 3,912 2,445 1,216 1,279
--------------------------------------------------------------------------------------
Income before discontinued operations
and cumulative effect of a change
in accounting principle. . . . . . . 31,382 33,937 28,736 22,708 13,528 12,616
Income from discontinued
operations . . . . . . . . . . . . . -- -- -- -- 13,346 --
Cumulative effect of a change in
accounting principle . . . . . . . . 868 -- -- -- -- 916
--------------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736 $ 22,708 $ 26,874 $ 13,532
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Long-term debt*. . . . . . . . . . . . $ 45,559 $ 37,333 $ 28,179 $ 31,998 $ 40,155 $ 43,900
Total assets . . . . . . . . . . . . . 3,579,082 3,469,672 3,141,048 2,854,237 2,420,833 2,333,820
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
PER SHARE DATA:
Average shares outstanding . . . . . . 16,817,339 16,589,066 15,481,724 15,481,399 15,481,400 15,406,601
Income before discontinued operations
and cumulative effect of a change
in accounting principle. . . . . . . $ 1.87 $ 2.05 $ 1.86 $ 1.47 $ 0.87 $ 0.82
Net income . . . . . . . . . . . . . . 1.92 2.05 1.86 1.47 1.74 0.88
Cash dividends declared. . . . . . . . 0.20 0.15 0.13 0.10 0.10 --
Average stockholders' equity . . . . . 15.21 13.35 11.44 9.92 8.39 7.33
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
OTHER KEY STATISTICS (YEAR-END)
Number of
Employees. . . . . . . . . . . . . . 2,252 2,258 2,203 2,076 1,914 1,934
Stockholders . . . . . . . . . . . . 2,720 2,767 2,666 2,739 2,738 2,871
<FN>
*Includes capital notes and capital lease obligations.
7
WORTHEN BANKING CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During May of 1993, Worthen Banking Corporation ("WBC" or the "Company")
merged with The Union of Arkansas Corporation ("Union"), a $700 million bank
holding company headquartered in Little Rock. This transaction was accounted for
using the "pooling-of-interests" method of acquisition accounting. Under this
method, all historical financial information is added together as if the
combining companies had always been one company. Accordingly, no goodwill is
established in a transaction of this type. Also, every number presented in this
report, both current and historical for all periods presented, has been restated
to reflect this method of accounting.
The Company recorded net income of $32.3 million or $1.92 per share in 1993
which was slightly below the $33.9 million or $2.05 per share recorded in 1992.
As a result of the merger described above, the Company recorded approximately
$11.0 million of pre-tax non-recurring expenses related to the merger. Of this
amount, approximately $1.4 million of expense was taken related to a write-down
of purchased mortgage servicing rights to reflect WBC's analysis methods. Also,
a provision for loan losses of $1.5 million and expenses related to foreclosed
property of $0.3 million were recorded. These additional expenses were recorded
to conform the loan loss allowance methodology and policies of Union to WBC's
policies. The remainder of the expenses were net cash outflows for expenses
occurring primarily during the second quarter and also throughout the remainder
of 1993. Additional expenses were non-recurring employment expenses of $0.7
million, legal expenses of $1.5 million, investment banking fees of $2.1
million, expenses related to closed and closing branches of $1.3 million and
office supplies and expenses of $0.3 million. The remainder of the expenses were
for signage, various data processing conversions, accounting fees and other
non-recurring amounts. WBC also recorded gains of approximately $5.4 million
related to the sale of certain investment securities of Union in order to
realign the maturity of Union's investment portfolio consistent with WBC's
investment policies. A gain of $0.8 million was recognized on the sale of the
Union corporate jet airplane. Management of WBC believes that none of these
expenses or gains would have occurred without the merger.
The Company's pretax income for 1993 was $47.6 million compared to $40.6
million in 1992, a 17.2% increase. Excluding the effects of the net expenses
described above, the Company's pretax income would have increased by $4.8
million or 29%.
The effective income tax rate in 1993 was 34.0% compared to 16.5% in 1992.
Income tax expense increased by $9.5 million to $16.2 million. Prior to 1993,
the Company utilized tax loss carry forwards and previously unrecognized
deferred tax assets to reduce income taxes. WBC expects to experience tax
rates in the 34% to 36% range in 1994.
During September of 1993, the Company acquired 100% of First Bentonville
Bancshares, Inc. ("FirstBank"). With assets of approximately $110 million,
FirstBank was merged with another of WBC's affiliate banks, Worthen National
Bank of Northwest Arkansas, in October 1993.
In May of 1993, the Company borrowed $43 million in senior, unsecured notes
from several institutional investors. Approximately $39.3 million, or
substantially all, of the Company's existing term debt was repaid with the
proceeds of these notes. These notes mature in five to seven years and have a
weighted average fixed rate of interest of approximately 7.61%.
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO EARNINGS PER SHARE
- --------------------------------------------------------------------------------
EPS INCREASE
(DECREASE)
-----------------
YEAR ENDED DECEMBER 31 1993 TO 1992 TO
--------------------------
1993 1992 1991 1992 1991
-------------------------- -----------------
Net interest income. . . . . . . . . . . . . . . . . $ 7.90 $ 7.85 $ 7.04 $ 0.05 $ 0.81
Provision for loan losses. . . . . . . . . . . . . . (0.28) (0.17) (0.22) (0.11) 0.05
Service charges on deposit accounts. . . . . . . . . 1.36 1.37 1.22 (0.01) 0.15
Trust fees . . . . . . . . . . . . . . . . . . . . . 0.58 0.56 0.53 0.02 0.03
Full service and discount brokerage commissions. . . 0.38 0.32 0.21 0.06 0.11
Investment security gains. . . . . . . . . . . . . . 0.32 0.02 0.13 0.30 (0.11)
Repurchase agreement recoveries, net . . . . . . . . 0.02 -- 0.05 0.02 (0.05)
Other income . . . . . . . . . . . . . . . . . . . . 1.30 1.19 1.29 0.11 (0.10)
Salaries and employee benefits . . . . . . . . . . . (3.97) (4.03) (3.81) 0.06 (0.22)
Net occupancy expense. . . . . . . . . . . . . . . . (0.82) (0.81) (0.85) (0.01) 0.04
Other expense. . . . . . . . . . . . . . . . . . . . (3.96) (3.85) (3.48) (0.11) (0.37)
Applicable income tax. . . . . . . . . . . . . . . . (0.96) (0.40) (0.25) (0.56) (0.15)
Cumulative effect of change in accounting principle. 0.05 -- -- 0.05 --
-------------------------- -----------------
Net income. . . . . . . . . . . . . . . . . . . . $ 1.92 $ 2.05 $ 1.86 $(0.13) $ 0.19
-------------------------- -----------------
-------------------------- -----------------
Change in net income calculated using previous year
average shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.10) $ 0.34
Change in average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.15)
-----------------
Change in net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(0.13) $ 0.19
-----------------
-----------------
8
LOAN PORTFOLIO RISK, ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The distribution of the Company's loan portfolio is shown in the table below:
- --------------------------------------------------------------------------------
LOAN PORTFOLIO BY TYPE (Dollars in thousands)
- --------------------------------------------------------------------------------
DECEMBER 31
----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------------------------------
Commercial, financial and agricultural . . . . . . $ 437,072 $ 398,230 $ 345,782 $ 307,195 $ 312,838
Bankers' acceptances and
commercial paper. . . . . . . . . . . . . . . . -- 86,966 147,073 347,536 218,881
Real estate mortgage . . . . . . . . . . . . . . . 710,955 635,521 558,872 691,844 568,424
Real estate construction . . . . . . . . . . . . . 73,241 60,074 49,280 44,565 48,006
Installment and other. . . . . . . . . . . . . . . 425,354 380,572 328,797 280,446 245,245
Direct lease financing . . . . . . . . . . . . . . 1,383 1,547 176 210 1,474
Unearned interest. . . . . . . . . . . . . . . . . (986) (1,775) (3,293) (4,264) (5,295)
----------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . $1,647,019 $1,561,135 $1,426,687 $1,667,532 $1,389,573
----------------------------------------------------------------------
----------------------------------------------------------------------
NET CHARGE-OFFS TO AVERAGE LOANS:
Commercial . . . . . . . . . . . . . . . . . . . . 0.14% 0.29% 0.14% 0.36% 0.81%
Real estate. . . . . . . . . . . . . . . . . . . . 0.07 0.40 0.34 0.58 0.94
Installment. . . . . . . . . . . . . . . . . . . . 0.31 0.29 0.45 0.80 0.41
Lease financing. . . . . . . . . . . . . . . . . . -- -- -- -- --
- --------------------------------------------------------------------------------
LOAN LOSS ALLOWANCE ALLOCATION (Dollars in thousands)
- --------------------------------------------------------------------------------
DECEMBER 31
----------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------------------------------------------------------------------------------------------------------
AMOUNT RATIO(1) AMOUNT RATIO(1) AMOUNT RATIO(1) AMOUNT RATIO(1) AMOUNT RATIO(1)
----------------------------------------------------------------------------------------------------------
Commercial,
financial and
agricultural . . . $ 3,582 26.5% $ 4,289 31.0% $ 5,412 34.3% $ 6,960 39.0% $ 9,591 37.9%
Real estate
construction . . . 1,356 4.4 1,005 3.8 826 3.5 991 2.7 838 3.5
Real estate
mortgage . . . . . 13,167 43.2 10,848 40.7 10,096 39.2 9,185 41.5 10,014 40.9
Installment. . . . . 3,796 25.8 3,381 24.4 2,355 23.0 3,459 16.8 4,724 17.6
Lease
financing. . . . . -- 0.1 -- 0.1 -- -- 3 -- 45 0.1
Unallocated. . . . . 11,399 -- 10,622 -- 12,103 -- 10,644 -- 7,417 --
----------------------------------------------------------------------------------------------------------
Total. . . . . . $33,300 100.0% $ 30,145 100.0% $30,792 100.0% $31,242 100.0% $32,629 100.0%
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the ratio of each loan category to gross loans (including
unearned interest).
As shown by the table above, if the effects of changes in the balances of
bankers' acceptances and commercial paper are excluded, the Company's loan
portfolio realized growth of approximately $173 million in 1993, representing
annualized growth of almost 12%. Although approximately $68 million of the loan
growth is attributable to the acquisition of FirstBank in September 1993, the
remaining bank franchise of the Company added $105 million in loans during the
year. Economic conditions in Arkansas were favorable for loan growth during
1993, but management also encouraged the development of good quality loans more
in the current year than was emphasized in the recent past. Improvements in the
asset quality and financial performance of the Company coincided with good
economic conditions to create the appropriate environment for quality loan
portfolio growth.
Roughly half of the 1993 loan growth, or $89 million, was in the real
estate mortgage and real estate construction loan balances. Much of this growth
is the result of the FirstBank acquisition which, at the date of acquisition,
had $56 million in real estate loans. Bentonville is located in the economically
vibrant northwest Arkansas region, resulting in a high proportion of real estate
mortgage and development loans. Several of the other banking affiliates,
primarily those located in the central and river valley regions of the state
also experienced good loan demand in 1993, as reflected in the strong increases
in the commercial and consumer loan balances. Those components grew by $39
million and $45 million, respectively, in the current year. The Company's
extensive branch network and focus on community bank lending produced those
results. The lowest interest rates since the 1970's also provided the impetus
for new construction and refinancings, particularly in the single-family
residential market.
Concentrations in the loan portfolio are monitored as part of our risk
management strategy. As a matter of policy, the Company
9
infrequently provides financing for speculative ventures, preferring instead to
act as a short-term financing source for loan customers that are building or
expanding owner-occupied properties. The exception to this strategy is the
single-family development market, in which the Company is an active lender.
Single family residential lending is an important source of lending volume for
the Company, accounting for approximately $255 million in outstanding loans at
December 31, 1993, or almost one third of the real estate portfolio. The loan
loss and delinquency performance of this portion of the portfolio has been
exceptional, and the Company therefore considers this concentration to contain
little risk. The Company's credit policies discourage the financing of certain
types of properties that have proven to be sources of loan problems in the past,
such as hotels, shopping centers, and multi-family properties. The total of
extensions secured by these property types was approximately $60 million at
December 31, 1993, or less than 10% of the real estate portfolio. Unsecured
lending is tightly controlled, with unsecured loans totalling less than $50
million at the end of 1993. In addition, almost $110 million of outstanding
loans at December 31, 1993 were secured by marketable securities or cash
collateral. Because of the Company's risk management practices, the commercial
and real estate loan portfolio is considered to be well-diversified. The table
depicting the Company's 1993 net charge-off's to average loan ratios underscores
the degree of caution exercised in our lending activities.
During 1993, the Company made notable improvements in the level of
nonperforming assets, reducing the total from $30 million at December 31, 1992
to $23 million at December 31, 1993, in spite of the acquisition of Bentonville
and overall loan portfolio growth of $173 million. At December 31, 1993, the
Company's nonperforming assets equalled just 1.4% of total loans plus
nonperforming assets, after being as high as 3.8% in the earlier periods
presented. Based upon September 30, 1993 data, this ratio is substantially
better than the Company's peer group, which recorded a nonperforming asset ratio
of 1.74% of loans plus nonperforming assets. All components of nonperformings
were improved, which management attributes to diligent workout efforts over the
past year and to the Company's credit risk management practices, which serve to
reduce the number of new relationships that enter nonperforming status.
Management is not aware of any specific relationships or groups of loans whose
trends would indicate a reversal of the recent decline in nonperformings is
anything but permanent, in fact, subsequent to December 31, 1993 the Company
negotiated the sale of one parcel of Other Real Estate Owned with a book value
of $2.4 million. The consummation of the sale, which is expected to occur m the
first or second quarter of 1994, will result in a gain and will produce a
meaningful reduction in nonperforming assets. One other nonperforming asset with
a book balance of $0.8 million was also paid off subsequent to year end.
10
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS (Dollars in thousands)
- --------------------------------------------------------------------------------
LOANS TOTAL OTHER TOTAL
PAST DUE NONACCRUAL RENEGOTIATED NONPERFORMING NONPERFORMING NONPERFORMING % OF
90 DAYS LOANS LOANS LOANS ASSETS ASSETS LOANS(1)
--------------------------------------------------------------------------------------------------
December 31, 1993:
Commercial, financial
and agricultural . . . . . . . $ 198 $ 2,303 $ -- $ 2,501 $ 4,056 $ 6,557 0.40%
Real estate . . . . . . . . . . 716 14,024 -- 14,740 786 15,526 0.94
Installment . . . . . . . . . . 421 254 -- 675 285 960 0.06
Lease finance and other . . . . 28 87 -- 115 -- 115 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 1,363 $ 16,668 $ -- $ 18,031 $ 5,127 $ 23,158 1.40%
% of Loans(1) . . . . . . . . 0.08% 1.01% --% 1.09% 0.31% 1.40%
ALL as a % of . . . . . . . . 184.68% 143.79%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1992:
Commercial, financial
and agricultural . . . . . . . $ 1,342 $ 2,938 $ -- $ 4,280 $ 2,940 $ 7,220 0.46%
Real estate . . . . . . . . . . 971 14,552 -- 15,523 5,136 20,659 1.33
Installment . . . . . . . . . . 303 695 -- 998 455 1,453 0.09
Lease finance and other . . . . -- 75 -- 75 626 701 0.04
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 2,616 $ 18,260 $ -- $ 20,876 $ 9,157 $ 30,033 1.92%
% of Loans(1) . . . . . . . . 0.17% 1.17% --% 1.34% 0.58% 1.92%
ALL as a % of . . . . . . . . 144.40% 100.37%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1991:
Commercial, financial
and agricultural . . . . . . . $ 1,179 $ 4,756 $ 597 $ 6,532 $ 6,295 $ 12,827 0.90%
Real estate . . . . . . . . . . 3,516 11,870 102 15,488 1,853 17,341 1.21
Installment . . . . . . . . . . 970 826 -- 1,796 422 2,218 0.16
Lease finance and other . . . . -- 223 -- 223 14 237 0.02
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 5,665 $ 17,675 $ 699 $ 24,039 $ 8,584 $ 32,623 2.29%
% of Loans(1) . . . . . . . . 0.40% 1.23% 0.05% 1.68% 0.61% 2.29%
ALL as a % of . . . . . . . . 128.09% 94.39%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1990:
Commercial, financial
and agricultural . . . . . . . $ 749 $ 7,245 $ 380 $ 8,374 $ 532 $ 8,906 0.53%
Real estate . . . . . . . . . . 3,106 16,948 103 20,157 10,145 30,302 1.83
Installment . . . . . . . . . . 801 507 -- 1,308 933 2,241 0.13
Lease finance and other . . . . 44 1,289 -- 1,333 -- 1,333 0.08
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 4,700 $ 25,989 $ 483 $ 31,172 $ 11,610 $ 42,782 2.57%
% of Loans(1) . . . . . . . . 0.28% 1.56% 0.03% 1.87% 0.70% 2.57%
ALL as a % of . . . . . . . . 100.22% 73.03%
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1989:
Commercial, financial
and agricultural . . . . . . . $ 714 $ 6,884 $ 185 $ 7,783 $ 938 $ 8,721 0.63%
Real estate . . . . . . . . . . 2,582 27,402 105 30,089 11,087 41,176 2.96
Installment . . . . . . . . . . 1,478 790 -- 2,268 758 3,026 0.22
Lease finance and other . . . . 26 233 -- 259 115 374 0.03
- ----------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $ 4,800 $ 35,309 $ 290 $ 40,399 $ 12,898 $ 53,297 3.84%
% of Loans(1) . . . . . . . . 0.35% 2.54% 0.02% 2.91% 0.93% 3.84%
ALL as a % of . . . . . . . . 80.77% 61.22%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1)Including other nonperforming assets.
11
The activity in the allowance for loan losses is shown below:
- --------------------------------------------------------------------------------
SUMMARY OF LOAN LOSS EXPERIENCE (Dollars in thousands)
- --------------------------------------------------------------------------------
DECEMBER 31
---------------------------------------------------------
1993 1992 1991 1990 1989
---------------------------------------------------------
Balance of allowance for loan losses at beginning of period. . . $ 30,145 $ 30,792 $ 31,242 $ 32,629 $ 33,411
Allowance of purchased bank at date of acquisition . . . . . . . 892 1,690 873 -- --
Loans charged-off:
Commercial, financial and agricultural . . . . . . . . . . . . 1,532 2,414 2,450 3,633 7,098
Real estate construction . . . . . . . . . . . . . . . . . . . 536 1,841 105 160 612
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . 1,453 1,885 3,297 4,927 8,078
Installment. . . . . . . . . . . . . . . . . . . . . . . . . . 2,483 2,282 2,698 2,929 2,309
Lease financing. . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
---------------------------------------------------------
Total loans charged-off. . . . . . . . . . . . . . . . . . . . . 6,004 8,422 8,550 11,649 18,097
---------------------------------------------------------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural . . . . . . . . . . . . 922 1,059 1,707 1,602 2,700
Real estate construction . . . . . . . . . . . . . . . . . . . 364 334 24 43 1,016
Real estate mortgage . . . . . . . . . . . . . . . . . . . . . 1,113 605 1,073 1,380 1,753
Installment. . . . . . . . . . . . . . . . . . . . . . . . . . 1,240 1,238 1,064 1,023 1,299
Lease financing. . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- --
---------------------------------------------------------
Total recoveries . . . . . . . . . . . . . . . . . . . . . . . . 3,639 3,236 3,868 4,048 6,768
---------------------------------------------------------
Net loans charged-off. . . . . . . . . . . . . . . . . . . . . . 2,365 5,186 4,682 7,601 11,329
Additions to allowance charged to operating expenses . . . . . . 4,628 2,849 3,359 6,214 10,547
---------------------------------------------------------
Balance at end of period . . . . . . . . . . . . . . . . . . . . $ 33,300 $ 30,145 $ 30,792 $ 31,242 $ 32,629
---------------------------------------------------------
---------------------------------------------------------
Ratio of net charge-offs during period to average
loans outstanding. . . . . . . . . . . . . . . . . . . . . . . 0.15% 0.34% 0.30% 0.53% 0.80%
Allowance to loans at period end . . . . . . . . . . . . . . . . 2.02 1.93 2.16 1.87 2.35
Allowance to loans at period end, net of bankers'
acceptances and commercial paper . . . . . . . . . . . . . . . 2.02 2.04 2.41 2.37 2.79
---------------------------------------------------------
---------------------------------------------------------
The activity in the allowance for loan losses ("ALLL") is shown in the
previous table. The acquisition of FirstBank is reflected by the $892 thousand
"allowance of purchased bank at date of acquisition" in the 1993 activity.
During 1993, loan losses of $6.0 million were recognized, the lowest total in
the five years presented. This reduction mirrors the trend in asset quality
discussed previously. Approximately $ 1.1 million of the 1993 charge-offs were
realized from two large loan relationships acquired in the Union merger, which
were anticipated by the preacquisition due diligence. The majority of the
remaining charge-offs experienced in 1993 were related to the consumer lending
business, and remained fairly consistent with the experience of previous years.
Recoveries of loans previously charged-off totaled $3.6 million in 1993 and
exceeded the experience of 1992; as a result, net loans charged-off declined to
$2.4 million in 1993 compared to $5.2 million in 1992, representing a paltry net
loss ratio of 0.15% of average loans as compared to 0.34% in 1992. Management is
pleased with these results and remains confident that the conservative credit
risk management practices will continue to manifest themselves in manageable
future loan loss experience.
Loan loss provisions charged to operations totaled $4.6 million in 1993
compared to $2.8 million in 1992. As a component of the non-recurring expenses
recorded during the Union merger, a special $ 1.5 million loan loss provision
was made by the Little Rock bank upon consummation of the merger. Additional
loan loss provisions of $2.5 million were recorded by the Little Rock affiliate
throughout 1993 in accordance with the established 1993 budget, primarily to
accommodate the bank's loan growth. Because of the assessment of ALLL adequacy
at the Company's other banking subsidiaries, nominal loan loss provisions were
required to maintain the allowance at an acceptable level.
The ALLL to loans ratio was 2.02% at December 31, 1993 as compared to 1.93%
at the end of 1992. The Company prefers to maintain the allowance ratio at
levels that may not appear to be commensurate with the reported asset quality
and risk profile of the loan portfolio, in order to preserve the flexibility to
absorb temporary fluctuations in asset quality or growth without requiring
abnormal loan loss provisions. The Company's peer group ratio averaged 2.67% at
September 30, 1993 (the latest data available). Further, the ratio of the
allowance to nonperforming loans was a solid 185% at December 31, 1993
versus 144% at the end of 1992 and a corresponding peer ratio of 124% at
September 30, 1993.
The allowance for loan losses is evaluated for adequacy utilizing
methodologies that management believes conform to the documentation and analysis
requirements of the Company's regulatory agencies. The methodologies used
consider the
12
Company's historical loss experience of certain risk categories, portfolio and
borrower concentrations, economic conditions, portfolio growth and asset quality
trends, among other factors, as a means to measure allowance adequacy. Based
upon the latest such evaluation performed as of December 31, 1993, management
considers the allowance fully adequate to absorb the potential losses inherent
in the loan portfolio. Additionally, the Company is examined periodically by its
regulators. Part of the examination procedures include an evaluation of ALLL
adequacy, the results of which were favorable in the last examination performed
in 1993.
- --------------------------------------------------------------------------------
Loan Loss Activity (Dollars in thousands)
- --------------------------------------------------------------------------------
1993 1992 1991
------------------------ ----------------------- ------------------------
NET NET NET
QUARTER LOAN LOSS CHARGE LOAN LOSS CHARGE LOAN LOSS CHARGE
ENDED PROVISIONS OFFS PROVISIONS OFFS PROVISIONS OFFS
March 31 . . . . . . . . . . . . . $ 773 $ 352 $ 363 $ (1,563) $ 1,239 $ (1,200)
June 30. . . . . . . . . . . . . . 2,466 (22) 832 (1,504) 1,317 (1,942)
September 30 . . . . . . . . . . . 540 (1,183) 596 (510) 743 (670)
December 31. . . . . . . . . . . . 849 (1,512) 1,058 (1,609) 60 (870)
-----------------------------------------------------------------------------------
Total . . . . . . . . . . . . . $ 4,628 $ (2,365) $ 2,849 $ (5,186) $ 3,359 $ (4,682)
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
13
INVESTMENTS
Assets managed as investments, including interest-bearing deposits in other
banks, federal funds sold, and investment securities, represent approximately
43% of the total assets of the Company. Management's philosophy remains
unchanged from prior years: to remove virtually all credit risk from the
investment portfolio and to use the maturity structure to maintain liquidity and
interest rate risk within an acceptable range. The over all weighted average
maturity of the investment securities portfolio is 29 months. Approximately 35%
of the portfolio consists of mortgage-related securities, with relatively short
expected maturities. Approximately 56% of the portfolio represents treasury and
agency non-mortgage obligations.
During 1993, holdings in treasury and agency securities and state and
political subdivision securities increased while "other" securities and bankers
acceptances and commercial paper (classified as loans in this report) declined
as a consequence of market conditions and the corporation's tax status.
Management does not foresee any change in its investment
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (Dollars in thousands)
- --------------------------------------------------------------------------------
DECEMBER 31
--------------------------------------
1993 1992 1991
--------------------------------------
U.S. Treasury and
other U.S. Government
agencies . . . . . . . . . . . . $1,269,077 $1,169,363 $1,000,554
States and political
subdivisions . . . . . . . . . . 97,077 64,288 29,964
Other. . . . . . . . . . . . . . . 80,105 111,427 117,331
----------------------------------------
Total. . . . . . . . . . . . . $1,446,259 $1,345,078 $1,147,849
----------------------------------------
----------------------------------------
strategy as a consequence of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." While
it is anticipated that between 10% and 15% of the portfolio will be classified
as "available for sale" in the first quarter of 1994, the basic strategy will
remain that of expecting to hold securities purchased until final maturity. A
complete discussion on the effects of Statement 115 can be found on page 22
under the caption "Effects of Recently Adopted Accounting Standards."
- --------------------------------------------------------------------------------
MATURITY DISTRIBUTION OF INVESTMENT PORTFOLIO (Dollars in thousands)
- --------------------------------------------------------------------------------
UNDER 1-5 5-10 OVER NO FIXED
1 YEAR YEARS YEARS 10 YEARS MATURITY TOTAL YIELD
--------------------------------------------------------------------------------
December 31, 1993:
U.S. Treasury and other
U.S. Government agencies . . . . . . $318,105 $632,444 $168,307 $150,221 $ -- $1,269,077 5.19%
States and political
subdivisions . . . . . . . . . . . . 6,316 29,686 53,587 7,488 -- 97,077 5.07
Other. . . . . . . . . . . . . . . . . 45,473 16,084 4,503 8,149 5,896 80,105 5.31
--------------------------------------------------------------------------------
Total investment securities. . . . $369,894 $678,214 $226,397 $165,858 $5,896 $1,446,259 5.18%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Percentage of total. . . . . . . . . . 25.58% 46.89% 15.65% 11.47% 0.41% 100.0%
Yield. . . . . . . . . . . . . . . . . 4.81 5.26 5.06 5.88 6.00
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
14
DEPOSITS AND SHORT-TERM BORROWINGS
Total average deposits have increased less than 1% from
1992 to 1993 as compared to a $367 million increase from 1991 to
1992. Approximately 66% of the deposit increase in 1992 was due
to acquisitions while the remainder came from growth in the
market place. The deposit base as a percentage of average assets
has decreased slightly to 85.9% at December 31, 1993, compared to
87.9% and 88.1% at December 31, 1992 and 1991, respectively.
The year-end balances of certificates of deposit and other
time deposits over $100,000 has fluctuated from $209.0 million
and $207.0 million at December 31, 1992 and 1991, respectively,
to $209.7 million at December 31, 1993. The accompanying table
presents the maturities of certificates of deposit and other time
deposits of $100,000 and over.
- -------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS OVER $100,000 (Dollars in
thousands)
- -------------------------------------------------------------------------
December 31, 1993
--------------------------------------
Time
Certificates Other Time
of Deposit Deposits Total
--------------------------------------
3 months or less $ 92,080 $ - $ 92,080
Over 3 thru 6 months 73,184 - 73,184
Over 6 thru 12 months 30,696 - 30,696
Over 12 months 13,718 - 13,718
-------------------------------------
Total $ 209,678 $ - $ 209,678
-------------------------------------
-------------------------------------
- ------------------------------------------------------------------------------------------------
Federal Funds Purchased and Securities Sold Under Agreement to Repurchase (Dollars in thousands)
- ------------------------------------------------------------------------------------------------
Maximum
Balance Rate at Outstanding
at End End of Daily Average at any
of Year Year Balance Rate Month End
- --------------------------------------------------------------------------------
1993.................. $127,980 2.22% $112,363 2.34% $128,804
1992.................. 101,124 2.61 93,751 2.85 120,162
1991.................. 98,154 3.74 83,718 4.81 105,700
Short-term borrowings, which consist of U.S. Treasury Note
borrowings (see Note H of the Notes to Consolidated Financial
Statements), have fluctuated from $20.6 million at December 31,
1992 to $57.8 million at December 31, 1993. The fluctuations in
short-term borrowings directly relate to treasury tax deposits
from bank customers at year end in transit through the Federal
Reserve System to the Internal Revenue Service.
Federal funds purchased and securities sold under agreement
to repurchase increased $26.9 million from the previous year. No
categories of short-term borrowings exceeded 30% of stockholders'
equity on average except federal funds purchased and securities
sold under agreement to repurchase as shown in the above table.
15
- ---------------------------------------------------------------------------------------------------------------------------------
VOLUME RATE ANALYSIS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
4th Qtr. 1993/4th Qtr. 1992 1993/1992 1992/1991
Change due to Net Increase/ Change Due to Net Increase/ Change Due to Net Increase/
Volume Yield/Rate (Decrease)(1) Volume Yield/Rate (Decrease)(1) Volume Yield/Rate (Decrease)(1)
----------------------------------------------------------------------------------------------------------
Interest Income:
Loans. . . . . . . . $ 2,059 $ (1,659) $ 400 $ 4,213 $ (9,884) $ (5,671) $ (6,170) $(12,149) $ (18,319)
Trading assets . . . 359 (122) 237 1,111 (966) 145 1,750 (140) 1,610
Taxable investments
securities. . . . . 2,547 (4,102) (1,555) 3,712 (12,315) (8,603) 27,728 (19,523) 8,205
Tax-exempt
investment
securities. . . . . 624 108 732 2,539 234 2,773 643 (189) 454
Interest-bearing
deposits with
other banks . . . . (79) (24) (103) (387) (192) (579) (588) (579) (1,167)
Federal funds sold
and securities
purchased with
agreement to
resell. . . . . . . (1,176) 398 (778) (2,651) (1,371) (4,022) 871 (2,379) (1,508)
---------------------------------------------------------------------------------------------------------
Total. . . . . . $ 4,334 $ (5,401) $ (1,067) $ 8,537 $(24,494) $(15,957) $ 24,234 $ (34,959) $(10,725)
---------------------------------------------------------------------------------------------------------
Interest Expense:
Demand deposits. . . $ 734 $ (1,422) $ (688) $ 1,938 $ (6,213) $ (4,275) $ 7,982 $ (13,069) $ (5,087)
Savings deposits . . 139 (224) (85) 560 (1,078) (518) 615 (1,623) (1,008)
Time deposits. . . . (1,053) (930) (1,983) (5,973) (10,387) (16,360) 1,526 (25,367) (23,841)
Long-term debt(2). . 183 (156) 27 508 (148) 360 1,011 (l,102) (91)
Other(3) . . . . . . 117 (13) 104 721 (444) 277 258 (2,181) (1,923)
---------------------------------------------------------------------------------------------------------
Total. . . . . . . 120 (2,745) (2,625) (2,246) (18,270) (20,516) 11,392 (43,342) (31,950)
---------------------------------------------------------------------------------------------------------
Net interest
income-FTE* .. . . $ 4,214 $ (2,656) $ 1,558 $ 10,783 $ (6,224) $ 4,559 $ 12,842 $ 8,383 $ 21,225
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
<FN>
1 The change in interest due to both rate and volume has been allocated in
proportion to the relationship of the absolute dollar amounts of the change
in each.
2 Includes interest paid on capital notes and capitalized lease obligations.
3 Federal funds purchased and securities sold under agreement to repurchase
comprise the majority of this category.
- -------------------------------------------------------------------------------
Analysis of Net Interest Income (Dollars in thousands)
- -------------------------------------------------------------------------------
December 31
-----------------------------
1993 1992 1991
-----------------------------
Interest income. . . . . . . . . . . . . . . . . $212,082 $ 229,968 $240,693
Fully taxable equivalent adjustment. . . . . . . 1,929 -- --
----------------------------
Interest income - FTE* . . . . . . . . . . . . . 214,011 229,968 240,693
Interest expense . . . . . . . . . . . . . . . . 79,264 99,780 131,730
-----------------------------
Net interest income - FTE . . . . . . . . . $134,747 $ 130,188 $108,963
-----------------------------
-----------------------------
Yield on earning assets - FTE. . . . . . . . . . 6.74% 7.41% 8.83%
Cost of interest bearing liabilities . . . . . . 2.99 3.75 5.52
Net interest spread-FTE. . . . . . . . . . . . . 3.75 3.66 3.31
Net interest margin-FTE. . . . . . . . . . . . . 4.24 4.19 4.00
<FN>
*Fully Taxable Equivalent
16
NET INTEREST INCOME
Both net interest income and the net interest margin improved slightly
during 1993, compared with the prior year. Additional volumes of net earning
assets due to acquisitions and growth contributed approximately 65% or $13.7
million of the $21.2 million increase in net interest income from 1991 to 1992.
The loan to deposit ratio has increased from 50.3% in December 1992 to
53.0% in December 1993, thereby increasing the percentage of loans to total
assets. WBC currently has the largest banks in the northwest and central areas
of the state. Average earning assets increased $70 million in 1993 compared to
1992 and $380 million in 1992 compared to 1991.
Interest rates in the current interest rate cycle peaked in mid-1989 and
have fallen since that time. During this decline in the overall level of
interest rates, the Company's net interest spread narrowed, especially in 1991,
when WBC was affected by deposits acquired from the RTC during the latter part
of 1990. At that time, the Company locked in one to two year rates on
certificates of deposit ("CDs"). As interest rates dropped in 1991, the yield
earned on assets dropped faster than CDs repriced. However, this effect on
spread was mitigated as these CDs matured and were renewed at substantially
lower rates. With a 53.0% loan to deposit ratio at December 31, 1993, the
Company maintains a significant portion of its assets in investment securities
with relatively short maturities which tends to decrease our overall asset
yields.
Interest rate spread increased by 9 basis points (100 basis points equals
one percentage point) from 3.66% in 1992 to 3.75% in 1993. While average earning
asset yields decreased 67 basis points between years, the average cost of
interest bearing liabilities declined 76 basis points, creating the net rate
increase.
Comparing the fourth quarter of 1993 to the fourth quarter of 1992, net
interest income increased $1.6 million. Rate spread decreased 5 basis points
between periods from 3.85% to 3.80%.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Company's negative gap increased by $148 million compared to year-end
1992. Most of the change took place in rate sensitive assets ("RSA"), which
declined by $133 million over the past twelve months. Rate sensitive liabilities
("RSL") also increased by $15 million.
The most significant change in RSA occurred in the federal funds sold and
securities purchased under agreement to resell which declined by $103 million.
This is directly related to the Union transaction. Union had a significant
portion of their balance sheet in these assets at December 31, 1992. Since the
completion of that transaction, management redeployed those assets into higher
yielding, longer-term instruments such as securities and loans. Although it
might appear that interest rate exposure has increased, the shifting of these
assets actually reduced the risk of decreased earnings due to falling rates.
Other factors that contributed to the increase in the negative gap were the
continued shifting of customer dollars from fixed maturity accounts, such as
CDs, into transaction accounts and repurchase agreements ("repos"). As interest
rates have declined steadily over the past three years, the difference in rates
between CDs and transaction accounts and repos has narrowed sharply. In January
1991, the spread between the Company's average six-month CD rate and the rate on
a transaction deposit account and a repo was approximately 2.7% and 2.95%,
respectively. That spread has declined to 1.0% for transaction accounts and
0.57% for repos as of December 1993. In response to this change, customers have
decreased holdings of CDs and increased balances of transaction accounts and
short-term borrowings. Customers perceive little incentive to sacrifice
liquidity and extend the maturity of their funds in CDs given this small spread.
One factor that would tend to decrease the negative gap would
- ---------------------------------------------------------------------------------------
Loan Maturity and Interest Rate Sensitivity on December 31, 1993 (Dollars in thousands)
- ---------------------------------------------------------------------------------------
Remaining Maturities(2)
-------------------------------------------------------
Over 1
1 Year Thru Over 5
or Less 5 Years Years Total
------------------------------------------------------
Loan Maturity(1):
Commercial, financial and agricultural(3). . . . . . . . . . $ 272,712 $ 139,319 $ 25,041 $ 437,072
Real estate construction . . . . . . . . . . . . . . . . . . 45,890 22,734 4,617 73,241
------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 318,602 $ 162,053 $ 29,658 $ 510,313
------------------------------------------------------
------------------------------------------------------
Interest rates floating or adjustable. . . . . . . . . . . . $ 55,069 $ 12,008
Interest rates fixed or predetermined. . . . . . . . . . . . 106,984 17,650
------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 162,053 $ 29,658
------------------------
------------------------
<FN>
1 Based upon scheduled principal payments.
2 Excluding real estate loans secured by 1-4 family residential
properties and loans for household, family and other personal
expenditures.
3 Includes bankers' acceptances and commercial paper.
17
be the representation of maturities on mortgage-backed investment securities,
which represent 34% of total securities. For financial reporting purposes, these
instruments are shown at their stated final maturity. However, these products
are subject to unscheduled payments of principal on the loans underlying the
security. As a result, the average maturity of these instruments is reduced.
This would increase the level of RSA repricing in under one year. Management
attempts to anticipate the possibility of principal prepayments when these
securities are purchased to avoid any unexpected changes in security yields.
Management has analyzed the historical volatility of deposit accounts,
particularly transaction accounts, to determine the risk to earnings posed by
the negative gap. Through this analysis, management has determined that while
these accounts have the option to be repriced immediately, a large percentage of
these instruments are highly stable throughout a wide range of interest rate
cycles. As a result, the gap analysis used by management and the Company's board
of directors is adjusted to account for those instruments, primarily deposits,
with repricing dates that would appear to be more extended than those stated for
that product. Using this approach, the Company's gap position becomes well
balanced. A forecast of changes to earnings under a number of interest rate
scenarios indicates that only a small percentage of the Company's income would
be affected using this adjusted balance sheet position. As interest rates have
changed over the years, the resulting effects on the Company's net interest
margin have confirmed the accuracy of this analysis.
The Company's liquidity position is closely monitored and considered to be
adequate. The aggregate of federal funds sold and securities purchased under
agreement to resell, and securities with maturities of three months or less
represent 6.7% of total liabilities. Securities with repricings in under one
year comprise another 8.2% of the remaining liabilities and would be available
for contingency funding needs.
- --------------------------------------------------------------------------------
Interest Rate Sensitivity Analysis (Dollars in thousands)
- --------------------------------------------------------------------------------
December 31, 1992
December 31, 1993 Total in Total in
0-30 Days 31-90 Days 91-365 Days One Year One Year
------------------------------------------------------------------------
Securities . . . . . . . . . . . . . . . . . . . $ 70,673 $ 68,119 $ 252,716 $ 391,508 $ 413,123
Total loans. . . . . . . . . . . . . . . . . . . 495,427 113,853 362,786 972,066 980,578
Fed funds and repos. . . . . . . . . . . . . . . 82,063 -- -- 82,063 185,416
------------------------------------------------------------------------
Total assets. . . . . . . . . . . . . . . . 648,163 181,972 615,502 1,445,637 1,579,117
-------------------------------------------------------------------------
Transaction accounts . . . . . . . . . . . . . . 1,294,579 -- -- 1,294,579 1,235,674
Time accounts. . . . . . . . . . . . . . . . . . 211,791 265,777 491,769 969,337 1,078,874
Short-term borrowings. . . . . . . . . . . . . . 185,818 -- -- 185,818 118,346
Long-term debt . . . . . . . . . . . . . . . . . 210 170 611 991 2,833
-------------------------------------------------------------------------
Total liabilities . . . . . . . . . . . . . . 1,692,398 265,947 492,380 2,450,725 2,435,727
-------------------------------------------------------------------------
Gap . . . . . . . . . . . . . . . . . . . $ (1,044,235) $ (83,975) $ 123,122 $ (1,005,088) $ (856,610)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
18
CAPITAL RESOURCES
At December 31, 1992 and prior to the restatement for the Union merger,
capital was $189.6 million. At December 31, 1993 and after the Union merger and
other 1993 effects, capital was $276.6 million, an increase of $87 million or
45.9%. The risk-based capital table presented below sets forth various capital
ratios and reveals that all ratios are substantially above regulatory minimums.
Based on regulations issued by the Federal Deposit Insurance Corporation
("FDIC"), all eleven of WBC's affiliate banks were considered "well
capitalized."
WBC reinstated its dividend policy during the second quarter of 1992 and
began paying $0.05 per share each quarter. Dividends paid out during 1993 were
$3.1 million or approximately 9.7% of net income. The Company continuously
evaluates its dividend policy. In the first quarter of 1994, the WBC board of
directors increased the quarterly dividend to $0.15 per share each quarter for
an annualized rate of $0.60 per share. Based on 1993 net income, this amounts to
a payout ratio of over 29%.
The parent company's sources of cash to pay dividends are its net working
capital and the dividends received from subsidiary banks. Based on the
relatively high levels of capital at the banks and their sustained earnings
performance, a special cash dividend of approximately $16.9 million was taken
from the affiliate banks during the fourth quarter of 1993. Currently, the
parent company could receive dividends, without prior regulatory approval, of
approximately $17.9 million plus amounts equal to net income of the affiliate
banks during 1994.
Capital also increased approximately $6.2 million with the shares issued in
the FirstBank acquisition. Nominal increases also occurred due to the exercise
of stock options by various officers of WBC.
In order to take advantage of low interest rates, in May of 1993, WBC
borrowed $43 million in senior, unsecured fixed rate notes from several
institutional investors. Substantially all (approximately $39.3 million) of the
Company's pre-existing higher cost term-debt was repaid with the proceeds of
these notes.
- -------------------------------------------------------------------------------
Risk-Based Capital (Dollars in thousands)
- -------------------------------------------------------------------------------
December 31
------------------------------------
1993 1992 1991
------------------------------------
Stockholders' equity . . . . . . . . . $ 276,648 $ 240,851 $ 190,705
Intangible assets. . . . . . . . . . . (23,080) (18,538) (14,256)
-------------------------------------
Total Tier I capital. . . . . . . . 253,568 222,313 176,449
Allowance for loan losses(1) . . . . . 24,644 23,458 21,665
Capital notes. . . . . . . . . . . . . -- 9,561 10,804
------------------------------------
Total Tier II capital . . . . . . . 24,644 33,019 32,469
------------------------------------
Total qualifying capital. . . . $ 278,212 $ 255,332 $ 208,918
------------------------------------
------------------------------------
Ratios:
Equity to assets . . . . . . . . . . . 7.73% 6.94% 6.07%
Leverage . . . . . . . . . . . . . . 7.13 6.44 5.64
Total capital to adjusted assets (2) . 7.99 7.53 6.91
Risk adjusted assets (including
off-balance sheet exposure). . . . $1,971,522 $1,876,679 $1,733,235
Tier I risk-based capital ratio. . . . 12.86% 11.85% 10.18%
Total risk-based capital ratio
(8.00% required) . . . . . . . . . 14.11 13.61 12.05
------------------------------------
------------------------------------
<FN>
1 Limited to 1.25 percent of risk adjusted assets.
2 Adjusted assets equals total assets plus allowance for loan
losses less intangibles.
19
OTHER INCOME
Other income reached $66.6 million in 1993 compared to $57.5 million in
1992. Immediately alter the Union merger, WBC sold securities previously held in
the Union investment portfolio which had characteristics inconsistent with WBC's
asset/liability policy guidelines. These sales produced gains of approximately
$5.4 million. Excluding these gains, other income increased $4.0 million or
almost 7% over 1992. Solid gains were recorded in every reported category.
Worthen Investments, Inc. is the Company's full service and discount
brokerage subsidiary. Commission income increased from $5.3 million in 1992 to
$6.3 million in 1993, a 19.5% increase. Due to the continued high level of stock
market activity, the Company expects the earnings from this enterprise to
continue to grow. The number of sales staff increased from 37 in 1992 to 44 in
1993.
With the merger of Union, Worthen Mortgage Company's mortgage servicing
portfolio grew to almost $1.6 billion at year end. WBC expects to focus more
effort on the profitability of this company during 1994.
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
FOURTH QUARTER YEAR ENDED DECEMBER 31
------------------------------------------------------
1993 1992 1993 1992 1991
------------------------------------------------------
Service charges on deposit accounts. . . . . . . . . . $ 5,828 $ 5,949 $ 22,915 $ 22,757 $ 18,964
Trust fees . . . . . . . . . . . . . . . . . . . . . . 2,240 2,342 9,772 9,325 8,270
Full service and discount brokerage commissions. . . . 1,549 1,155 6,334 5,299 3,274
Investment security gains. . . . . . . . . . . . . . . 26 48 5,446 283 2,079
Repurchase agreement recoveries, net . . . . . . . . . -- -- 309 -- 794
Other . . . . . . . . . . . . . . . . . . . . . . 5,469 4,260 21,815 19,794 19,969
------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . $ 15,112 $ 13,754 $ 66,591 $ 57,458 $ 53,350
------------------------------------------------------
------------------------------------------------------
OTHER EXPENSE
Excluding the $9.5 million in non-recurring expenses related to the Union
merger described elsewhere in this report, noninterest expenses fell by $6.5
million or 4.5% in 1993 compared to 1992. Although the effects of the cost
reductions related to the in-market merger with Union are masked in the fourth
quarter by the acquisition of FirstBank, the Company has nevertheless
experienced significant cost savings from the Union merger.
Even after closing 13 overlapping branches resulting from the Union
merger, the Company increased its number of branch offices statewide from 100 in
1992 to 119 at the end of 1993. The expense to maintain this extensive branch
network is significant but is considered vital to the overall corporate
franchise. During 1993, the Company substantially completed the installation of
a new computer system at each of these branch locations to automate the work
performed by our bank tellers. This system is expected to significantly increase
the efficiency of their work. The second phase of this project is to implement
this computer platform to all customer service representatives. This automated
computer network will further increase employee efficiency and allow much better
customer service and is expected to be completed during 1994.
The Company intends to focus increased attention on the level of operating
expenses during 1994 in order to achieve ratios closer to peer levels.
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE (Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Fourth Quarter Year Ended December 31
--------------------------- ---------------------------------------------------
%Change %Change
1993 1992 %Change 1993 1992 1991 1993/1992 1992/1991
--------------------------- ---------------------------------------------------
Salaries and employee benefits . . . . . $ 16,491 $ 16,526 (0.2)% $ 66,834 $ 66,909 $ 58,969 (0.1)% 13.5%
Net occupancy expense. . . . . . . . . . 3,429 3,486 (1.6) 13,783 13,389 13,434 2.9 (0.3)
Equipment expense. . . . . . . . . . . . 1,800 1,453 23.9 6,857 6,650 5,918 3.1 12.4
Professional fees. . . . . . . . . . . . 1,210 2,018 (40.0) 6,570 8,672 8,193 (24.2) 5.8
Data processing fees . . . . . . . . . . 1,941 1,585 22.5 7,252 6,163 5,658 17.7 8.9
Amortization of intangible assets. . . . 1,203 1,482 (18.8) 5,600 4,644 3,619 20.6 28.3
Advertising expense. . . . . . . . . . . 234 645 (63.7) 2,674 3,030 2,683 (11.7) 12.9
Business development . . . . . . . . . . 1,006 1,372 (26.7) 3,571 4,222 3,548 (15.4) 19.0
Office expense . . . . . . . . . . . . . 2,944 2,356 25.0 10,686 9,656 8,984 10.7 7.5
FDIC insurance . . . . . . . . . . . . . 1,748 1,738 0.6 7,028 6,955 5,459 1.0 27.4
Other. . . . . . . . . . . . . . . . . . 3,463 2,522 37.3 16,344 13,860 9,841 17.9 40.8
--------------------------- --------------------------------------------------
Total . . . . . . . . . . . . . . . $ 35,469 $ 35,183 0.8% $147,199 $144,150 $126,306 2.1% 14.1%
--------------------------- --------------------------------------------------
--------------------------- --------------------------------------------------
20
- -------------------------------------------------------------------------------
EARNINGS, DIVIDENDS AND PRICE RANGE PER SHARE
- -------------------------------------------------------------------------------
COMMON
PRIMARY DIVIDENDS MARKET PRICE
-----------------
EARNINGS(1) PAID HIGH LOW
-----------------------------------------
1993:
First Quarter. . . . . . . . . $ 0.59 $0.05 $27 5/8 $24
Second Quarter . . . . . . . . 0.28 0.05 27 1/2 21 7/8
Third Quarter. . . . . . . . . 0.50 0.05 26 5/8 22 3/4
Fourth Quarter . . . . . . . . 0.55 0.05 25 3/4 20 1/2
----------------------------------------
For the Year 1993. . . . . . $ 1.92 $0.20 $27 5/8 $20 1/2
----------------------------------------
1992:
First Quarter. . . . . . . . . $ 0.43 $ - $22 1/8 $17 5/8
Second Quarter . . . . . . . . 0.57 0.05 21 1/2 19 1/2
Third Quarter. . . . . . . . . 0.49 0.05 22 1/2 20 1/2
Fourth Quarter . . . . . . . . 0.55 0.05 27 3/4 20 1/4
----------------------------------------
For the Year 1992 . . . . . . $ 2.05 $0.15 $27 3/4 $17 5/8
----------------------------------------
1991:
First Quarter. . . . . . . . . $ 0.43 $ - $ 12 3/4 $10 1/8
Second Quarter . . . . . . . . 0.37 - 14 3/4 12 1/2
Third Quarter. . . . . . . . . 0.50 - 17 1/8 13 7/8
Fourth Quarter . . . . . . . . 0.55 0.13 19 1/4 16
----------------------------------------
For the Year 1991 . . . . . . $ 1.86 $0.13 $ 19 1/4 $10 1/8
----------------------------------------
<FN>
(1) Computation based on the average number of shares outstanding. The sum of
the quarterly net income amounts does not necessarily equal the amount reported
for the year, as per share amounts are computed independently for each quarter
and the full year based on respective weighted average common shares
outstanding.
The Company's Common Stock, $1.00 par value, is traded on the American Stock
Exchange, Inc. under the AMEX ticker symbol "WOR."
On December 31, 1993, the Company had approximately 2,720 record holders of its
Common Stock. The Board of Directors discontinued the Company's policy of
regular cash dividends on its Common Stock in the second quarter of 1985. The
policy was reinstated during the second quarter of 1992. Dividends were paid by
subsidiaries prior to merger with the Company during the years 1989, 1990 and
1991. There is no assurance as to future cash dividends as they are dependent
upon future earnings, capital requirements and the financial condition of the
Company.
The Company is currently restricted from paying cash dividends in excess of
certain levels on its Common Stock pursuant to the terms of debt agreements
entered into by the Company with its primary lenders. See Note Q of the Notes to
Consolidated Financial Statements for a more complete discussion relating to
restrictions on the transfer of funds to the Company through dividends, loans or
advances from its subsidiaries.
EFFECTS OF INFLATION
The Company makes pricing and investment decisions based upon anticipated
changes in the economic environment. These decisions are based upon an
asset/liability management program which seeks to maintain an appropriate
balance between interest sensitive assets and liabilities while aggressively
pricing services within the competitive constraints of the market. While the
effects of inflation cannot be eliminated, the Company has adopted policies
which effectively manage the effects of inflation on its operating results.
21
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
----------------------------------- ------------------------------- -----------------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
-------------------------------------------------------------------------------------------------------
Interest income. . . . . $53,790 $53,221 $52,585 $52,486 $55,400 $57,227 $58,360 $58,98l $60,304 $61,953 $58,685 $59,751
Interest expense . . . . 19,208 19,854 20,038 20,164 21,833 23,848 26,402 27,697 31,982 34,009 31,896 33,843
Net interest
income . . . . . . . . 34,582 33,367 32,547 32,322 33,567 33,379 31,958 31,284 28,322 27,944 26,789 25,908
Provision for
loan losses . . . . . . 849 540 2,466 773 1,058 596 832 363 60 743 1,317 1,239
Repurchase agree-
ment recoveries,
net . . . . . . . . . . -- 119 -- 190 -- -- -- -- -- -- -- 794
Other income . . . . . . 15,112 13,897 21,779 15,494 13,754 13,566 16,040 14,098 14,565 14,892 11,902 11,197
Other expense. . . . . . 35,469 33,631 43,221 34,878 35,183 36,930 35,613 36,424 33,303 32,606 31,013 29,384
Income before
income taxes. . . . . . 13,376 13,212 8,639 12,355 11,080 9,419 11,553 8,595 9,524 9,487 6,361 7,276
Income tax
expense . . . . . . . . 4,074 4,823 4,003 3,300 1,893 1,239 2,015 1,563 969 1,722 586 635
Change in accounting
principle . . . . . . . -- -- -- 868 -- -- -- -- -- -- -- --
Net income . . . . . . . $ 9,302 $ 8,389 $ 4,636 $ 9,923 $ 9,187 $ 8,180 $ 9,538 $ 7,032 $ 8,555 $ 7,765 $ 5,775 $ 6,641
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Net income
per share(1). . . . . . $ 0.55 $ 0.50 $ 0.28 $ 0.59 $ 0.55 $ 0.49 $ 0.57 $ 0.43 $ 0.55 $ 0.50 $ 0.37 $ 0.43
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
<FN>
(1) Computation based on the average number of shares outstanding
EFFECTS OF RECENTLY ADOPTED ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan." Statement 114 prescribes the recognition criterion
for loan impairment and the measurement methods for certain impaired loans and
loans whose terms are modified in troubled-debt restructurings. Statement 114
prescribes that a loan is impaired when it is probable that a creditor will be
unable to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired loan are required to be discounted at that
loan's effective interest rate. Alternatively, impairment can be measured by
reference to an observable market price, if one exists, or the fair value of the
collateral for a collateral-dependent loan.
Statement 114 must be adopted in 1995. Upon adoption, the impact of
initially applying the Statement will be recorded as a provision for loan losses
as required by Statement 114. Adoption of this standard is expected to have no
material effect on the Company's consolidated financial statements.
Also in May 1993, the FASB issued Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities." Statement 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and all investments in debt securities. The Statement
prescribes classifying investments into three categories: held to maturity
securities, trading securities, and available for sale securities. Held to
maturity securities are debt securities that the enterprise has the positive
intent and ability to hold to maturity and are reported at amortized cost.
Trading securities are debt and equity securities that are bought and held for
the purpose of selling in the near term and are reported at fair value, with
unrealized gains and losses included in earnings. Available for sale securities
are those securities neither classified as held to maturity or trading and are
reported at fair value, with unrealized gains and losses reported as a
separate component of stockholders' equity (net of tax effects).
Statement 115 must be adopted in 1994. Upon adoption, the Company plans to
transfer a portion of its securities currently accounted for at amortized cost
to the available for sale category with the unrealized holding gain or loss, net
of tax, reported as an adjustment to a separate component of stockholders'
equity. Adoption of this standard is not expected to have a material effect on
the Company's consolidated financial statements.
In February 1992, the FASB issued Statement No. 109, "Accounting for Income
Taxes." Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates applied to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company adopted Statement 109 during 1993. The cumulative effect of
this change in accounting for income taxes of $868,000 is reported separately in
the consolidated statement of earnings for the year ended December 31, 1993.
22
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
- -------------------------------------------------------------------------------
The management of Worthen Banking Corporation ("WBC") is responsible for the
integrity and objectivity of the financial statements and other financial
information contained in the Annual Report. The financial statements and related
information were prepared in accordance with generally accepted accounting
principles, based on recorded transactions and management's best judgments and
estimates, in order to set forth a fair presentation of financial position and
results of operations.
WBC and its subsidiaries maintain a system of internal accounting control
designed to provide reasonable assurance that assets are safeguarded and that
the Company's books and records reflect accurately the transactions of the
Company. This system is augmented by written policies, operating procedures, and
a strong program of internal audit and loan review.
The Board of Directors oversees these financial statements through an audit
committee comprised solely of outside directors. The committee meets
periodically with the internal auditors and management to monitor the discharge
of each of its responsibilities. The independent auditors, who are engaged to
express an opinion on the financial statements, meet periodically with and have
free access to the committee, without management present, to discuss control,
audit and financial matters.
KPMG Peat Marwick, certified public accountants, has been engaged to audit the
financial statements of WBC and its subsidiaries. Their report on WBC's
financial statements is set forth below.
Curt Bradbury Andrew T. Melton
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
The Board of Directors and Stockholders
Worthen Banting Corporation:
We have audited the accompanying consolidated balance sheet of Worthen Banking
Corporation and Subsidiaries as of December 31, 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Worthen Banking
Corporation and Subsidiaries at December 31, 1993, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
We previously audited and reported on the consolidated financial statements of
Worthen Banking Corporation and Subsidiaries as of and for the years ended
December 31, 1992 and 1991, prior to their restatement for the 1993 pooling of
interests. The contribution of Worthen Banking Corporation and Subsidiaries to
total assets represented 79% and 78% of the respective restated totals as of
December 31, 1992 and 1991; and, the contribution of Worthen Banking Corporation
and Subsidiaries to net interest income and net income represented 78% and 90%
of the respective restated totals for 1992 and 75% and 80% of the respective
restated totals for 1991. Separate financial statements of the other companies
included in the 1992 and 1991 restated consolidated financial statements were
audited and reported on separately by other auditors. We also audited the
combination of the accompanying consolidated financial statements as of and
for the years ended December 31, 1992 and 1991, after restatement for the 1993
pooling of interests; in our opinion, such consolidated statements have been
properly combined on the basis described in Note B of notes to consolidated
financial statements.
As discussed in Note R to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, in 1993.
KPMG Peat Marwick
Little Rock, Arkansas
February 25, 1994
23
WORTHEN BANKING CORPORATION
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------
DECEMBER 31
---------------------------------------
1993 1992 1991
---------------------------------------
ASSETS
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . . $ 187,314 $ 194,819 $ 192,221
Interest bearing deposits with other banks . . . . . . . . . . . . . . . . 1,232 1,243 27,148
Federal funds sold and securities purchased under agreement
to resell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,063 190,958 195,293
Trading account assets . . . . . . . . . . . . . . . . . . . . . . . . . . 65,324 37,462 34,111
Investment securities (market value - $1,459,764, $1,362,415 and
$1,180,605 at December 31, 1993, 1992 and 1991, respectively). . . . . . 1,446,259 1,345,078 1,147,849
Loans, net of unearned interest of $986, $1,775 and $3,293
in 1993, 1992 and 1991, respectively . . . . . . . . . . . . . . . . . . 1,647,019 1,561,135 1,426,687
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . (33,300) (30,145) (30,792)
---------------------------------------
Net Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,613,719 1,530,990 1,395,895
---------------------------------------
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 101,347 98,533 83,863
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,824 70,589 64,668
---------------------------------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,579,082 $3,469,672 $3,141,048
---------------------------------------
---------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing. . . . . . . . . . . . . . . . . . . . . . . . . $ 596,514 $ 546,662 $ 456,555
Interest bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,446,105 2,491,724 2,309,358
---------------------------------------
Total Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . 3,042,619 3,038,386 2,765,913
Federal funds purchased and securities sold under agreement
to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,980 101,124 98,154
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 57,838 20,571 26,328
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,438 31,407 31,769
Capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . 1,951 2,146 2,320
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,608 25,626 15,055
Capital notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,561 10,804
---------------------------------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 3,302,434 3,228,821 2,950,343
---------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $25 per share - authorized 400,000
shares, none issued . . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Common Stock, par value $1 per share - authorized 40,000,000
shares, issued 17,011,783, 16,707,289 and 15,484,914 in 1993,
1992,and 1991, respectively . . . . . . . . . . . . . . . . . . . . 17,012 16,707 15,485
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 164,438 157,898 141,038
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 95,426 66,311 34,247
Less cost of 8,106, 2,265 and 2,265, respectively, shares of
Common Stock in treasury. . . . . . . . . . . . . . . . . . . . . (228) (65) (65)
---------------------------------------
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . 276,648 240,851 190,705
---------------------------------------
Total Liabilities and Stockholders' Equity. . . . . . . . . . . $3,579,082 $3,469,672 $3,141,048
---------------------------------------
---------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
WORTHEN BANKING CORPORATION
- ------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------
1993 1992 1991
----------------------------------
INTEREST INCOME:
Loans, including fees. . . . . . . . . . . . . . . . . . . . . . . . $ 133,536 $ 139,625 $ 156,334
Investment securities:
Taxable 70,479 79,082 70,877
Tax exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,034 1,627 1,173
---------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,513 80,709 72,050
---------------------------------
Other interest income. . . . . . . . . . . . . . . . . . . . . . . . 5,033 9,634 12,309
---------------------------------
Total Interest Income . . . . . . . . . . . . . . . . . . . . . . . 212,082 229,968 240,693
---------------------------------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,625 92,778 122,714
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . 3,553 3,276 5,199
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 4,086 3,726 3,817
---------------------------------
Total Interest Expense . . . . . . . . . . . . . . . . . . . . . 79,264 99,780 131,730
---------------------------------
Net Interest Income. . . . . . . . . . . . . . . . . . . . . . . . . . 132,818 130,188 108,963
Provision for Loan Losses. . . . . . . . . . . . . . . . . . . . . . . 4,628 2,849 3,359
---------------------------------
Net Interest Income After Provision for Loan Losses . . . . . . . . . 128,190 127,339 105,604
---------------------------------
OTHER INCOME:
Service charges on deposit accounts . . . . . . . . . . . . . . . 22,915 22,757 18,964
Trust fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,772 9,325 8,270
Full service and discount brokerage commissions . . . . . . . . . 6,334 5,299 3,274
Investment security gains . . . . . . . . . . . . . . . . . . . . 5,446 283 2,079
Repurchase agreement recoveries, net. . . . . . . . . . . . . . . 309 -- 794
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,815 19,794 19,969
---------------------------------
Total Other Income. . . . . . . . . . . . . . . . . . . . . . 66,591 57,458 53,350
---------------------------------
OTHER EXPENSE:
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . 66,834 66,909 58,969
Net occupancy expense. . . . . . . . . . . . . . . . . . . . . . . . 13,783 13,389 13,434
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,582 63,852 53,903
---------------------------------
Total Other Expense. . . . . . . . . . . . . . . . . . . . . . . 147,199 144,150 126,306
---------------------------------
Income before income taxes and cumulative effect of a change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . 47,582 40,647 32,648
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,200 6,710 3,912
---------------------------------
Income before cumulative effect of a change in accounting principle. . 31,382 33,937 28,736
Cumulative effect of a change in accounting principle . . . . . . . . 868 -- --
---------------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736
---------------------------------
---------------------------------
INCOME PER SHARE:
Income before cumulative effect of a change in accounting principle. $ 1.87 $ 2.05 $ 1.86
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.92 2.05 1.86
Weighted average number of shares outstanding during the year. . . . 16,817,339 16,589,066 15,481,724
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
WORTHEN BANKING CORPORATION
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------
ADDITIONAL COST OF
COMMON PAID-IN RETAINED COMMON STOCK
STOCK CAPITAL EARNINGS IN TREASURY TOTAL
------------------------------------------------------------
Balances at December 31, 1990. . . . . . . . . . . $ 15,484 $141,024 $ 7,510 $ (65) $163,953
Net income for the year . . . . . . . . . . . . . -- -- 28,736 -- 28,736
Dividends paid by subsidiaries prior
to merger . . . . . . . . . . . . . . . . . . . -- -- (1,999) -- (1,999)
Common stock issued
Stock Option Plan (1,250 shares). . . . . . . . 1 14 -- -- 15
------------------------------------------------------------
Balances at December 31, 1991. . . . . . . . . . . 15,485 141,038 34,247 (65) 190,705
------------------------------------------------------------
Net income for the year . . . . . . . . . . . . . -- -- 33,937 -- 33,937
Capital contribution resulting
from termination of deferred
compensation agreement. . . . . . . . . . . . . -- 886 -- -- 886
Payment for fractional shares arising
from reverse stock split of subsidiary
stock . . . . . . . . . . . . . . . . . . . . . -- 12 -- -- 12
Cash dividends declared-$0.15 a share . . . . . . -- -- (1,873) -- (1,873)
Common stock issued:
Stock option plan (22,375 shares) . . . . . . . 22 242 -- -- 264
Acquisition of subsidiary (1,200,000 shares). . 1,200 15,720 -- -- 16,920
------------------------------------------------------------
Balances at December 31, 1992. . . . . . . . . . . 16,707 157,898 66,311 (65) 240,851
------------------------------------------------------------
Net income for the year . . . . . . . . . . . . . -- -- 32,250 -- 32,250
Cash dividends declared-$0.20 a share . . . . . -- -- (3,135) -- (3,135)
Acquisition of treasury shares for stock option
plan . . . . . . . . . . . . . . . . . . . . . . -- -- -- (163) (163)
Common stock issued:
Stock option plan (54,311 shares) . . . . . . . 55 591 -- -- 646
Acquisition of subsidiary (250,183 shares). . . 250 5,949 -- -- 6,199
------------------------------------------------------------
Balances at December 31, 1993. . . . . . . . . . . $ 17,012 $164,438 $ 95,426 $ (228) $276,648
------------------------------------------------------------
------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
WORTHEN BANKING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FlOWS (Dollars in thousands)
YEAR ENDED DECEMBER 31
--------------------------------
1993 1992 1991
---------------------------------
OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 26,778 26,612 15,732
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . 4,628 2,849 3,359
Writedowns of properties acquired in settlement of loans. . . . . . 420 1,026 825
Loans for resale (trading assets) funded. . . . . . . . . . . . . . (364,240) (199,331) (191,102)
Loans for resale (trading assets) sold . . . . . . . . . . . . . . 336,378 195,980 170,289
Gain on sale of investment securities . . . . . . . . . . . . . . . (5,446) (283) (2,079)
Increase in other assets. . . . . . . . . . . . . . . . . . . . . . (12,425) (5,118) (10,174)
Decrease in other liabilities . . . . . . . . . . . . . . . . . . . (3,987) (353) (7,527)
---------------------------------
Net Cash Provided by Operating Activities . . . . . . . . . . . . 14,356 55,319 8,059
---------------------------------
INVESTING ACTIVITIES
Maturities of investment securities . . . . . . . . . . . . . . . . 828,503 953,547 499,319
Proceeds from sale of investment securities . . . . . . . . . . . . 79,817 47,704 144,475
Purchases of investment securities. . . . . . . . . . . . . . . . . (990,952) (1,136,012) (1,153,187)
Net decrease (increase) in short-term investments . . . . . . . . . 108,906 33,990 (2,057)
Net decrease (increase) in loans. . . . . . . . . . . . . . . . . . (20,335) (3,364) 236,125
Purchases of premises and equipment . . . . . . . . . . . . . . . . (8,464) (8,890) (15,399)
Proceeds from sale of properties acquired in settlement ofloans . . 5,548 5,083 5,767
Purchase of certain assets and deposit liabilities . . . . . . . . -- -- (5,476)
Net cash received (paid) in acquisition of subsidiary . . . . . . . (618) 861 --
Purchase of allowance for loan losses . . . . . . . . . . . . . . . -- -- 873
Purchase of minority interest in subsidiary . . . . . . . . . . . . -- (42) --
---------------------------------
Net Cash Provided (Used) by Investing Activities. . . . . . . . . 2,405 (107,123) (289,560)
---------------------------------
FINANCING ACTIVITIES
Net increase in noninterest bearing deposits. . . . . . . . . . . . 40,858 56,159 64,810
Net increase (decrease) in interest bearing deposits. . . . . . . . (117,892) (3,641) 211,850
Principal payments on long-term borrowings. . . . . . . . . . . . . (29,690) (4,687) (3,920)
Principal payments on capital leases. . . . . . . . . . . . . . . . (195) (174) (218)
Net increase (decrease) in short-term borrowings. . . . . . . . . . 26,142 (5,757) 2,289
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . (3,135) (1,873) (1,999)
Acquisition of treasury shares. . . . . . . . . . . . . . . . . . . (163) -- --
Proceeds from issuance of common stock. . . . . . . . . . . . . . . 646 264 15
Proceeds from long-term borrowings. . . . . . . . . . . . . . . . . 43,000 15,000 --
Net increase (decrease) in federal Rinds purchased and
securities sold under agreement to repurchase. . . . . . . . . . . 25,724 354 (7,546)
Principal payments on capital notes . . . . . . . . . . . . . . . . (9,561) (1,243) --
---------------------------------
Net Cash Provided (Used) by Financing Activities . . . . . . . (24,266) 54,402 265,281
---------------------------------
Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . (7,505) 2,598 (16,220)
Cash and Cash Equivalents at beginning of year . . . . . . . . . . 194,819 192,221 208,441
--------------------------------
Cash and Cash Equivalents at end of year. . . . . . . . . . . . . $ 187,314 $ 194,819 $ 192,221
--------------------------------
--------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . $ 82,123 $ 103,587 $ 153,066
Cash paid for income taxes. . . . . . . . . . . . . . . . . . . . $ 17,863 $ 10,862 $ 4,908
--------------------------------
--------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27
WORTHEN BANKING CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Dollars in thousands)
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1993 1992 1991
------------------------------
Supplemental schedule of noncash transactions
Fair market value of assets acquired and liabilities assumed
upon acquisition:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,588 $ 16,611 $ -
Federal funds sold and securities purchased under agreement to resell . . . - 3,750
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,590 76,021
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,914 136,446
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . (892) (1,690)
Premises and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,428 13,964
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,378 11,019
Non-interest bearing deposits . . . . . . . . . . . . . . . . . . . . . . . (8,994) (33,948)
Interest bearing deposits . . . . . . . . . . . . . . . . . . . . . . . . . (72,273) (186,007)
Federal funds purchased and securities under agreement to
repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,132) (2,616)
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,125) -
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,018) (880)
Long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,059) --
-----------------------------
Fair market value of net assets acquired including goodwill . . . . . . . . 10,405 32,670
Loss common stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . (6,199) (16,920)
-----------------------------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,206 15,750
Cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,588 16,611
-----------------------------
Net cash received (paid) in
acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . $ (618) $ 861 $ -
-----------------------------
-----------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
WORTHEN BANKING CORPORATION
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Worthen Banking Corporation (The "Company" or "WBC") is a multibank holding
company which offers through its subsidiaries a diversified range of banking and
financial services to retail and commercial customers. The Company's revenues
and net income are derived principally from its bank subsidiaries. WBC is
subject to competition from other financial institutions. The Company is subject
to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities. The financial statements have been
prepared in conformity with generally accepted accounting principles. The
Company's financial statements have been restated to reflect the 1993
acquisition of The Union of Arkansas Corporation using the pooling-of-interests
method of accounting.
CONSOLIDATION: The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
INVESTMENT SECURITIES: Investment securities are stated at cost adjusted for
amortization of premiums and accretion of discounts. The adjusted cost of the
specific security sold is used to compute gain or loss on the sale of investment
securities. It is a policy of the Company that all securities purchased will be
held until the final maturity of the instrument. The Company has both the intent
and the ability to hold securities until their final maturity. No securities are
held for trading purposes. Certain investment securities are sold prior to final
maturity due to risk changes subsequent to initial purchase or for liquidity
needs.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." This statement is effective for fiscal years
beginning after December 15, 1993, with earlier application allowed. The Company
has elected to defer adoption of this statement until January 1, 1994. It is
estimated that adoption of Statement 115 will have no material effect upon the
1994 consolidated financial statements.
TRADING ACCOUNT ASSETS: Trading account assets consist solely of real estate
loans held for resale by the Company's mortgage banking subsidiary. Trading
account assets are valued at the lower of cost or market on an aggregate basis.
REVENUE RECOGNITION: Interest on loans other than installment loans is credited
to operations when earned on the simple interest method. Interest on installment
loans is credited to operations when earned on either the simple interest method
or the sum of the years' digits method, depending on the terms of the loan
agreement. Loans are placed on non-accrual status when, in the opinion of
management, the collection of additional interest is unlikely or a specified
loan meets the criteria for nonaccrual status established by regulatory
authority - when principal or interest is in default for 90 days or more unless
the loans are well-secured and in the process of collection. No interest is
recorded on nonaccrual loans unless principal payments are current, the loan is
well-secured, and cash is received. A loan remains on nonaccrual status until
the loan is current as to payment of both principal and interest and the
borrower demonstrates the ability to remain current on payments.
LEASE FINANCING: In prior years the Company provided equipment financing to its
customers through a variety of lease arrangements. Direct financing leases are
carried at the aggregate of lease payments receivable plus estimated residual
values. Unearned income on direct financing leases is amortized over the lease
terms resulting in an approximately level rate of return.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level management believes is adequate to absorb losses inherent in the loan
portfolio. Management's determination of the adequacy of the allowance is based
on the ongoing evaluation of internally identified problem loans, historical
loan loss experience, current economic conditions, volume, growth and
composition of the loan portfolio, the estimated value of underlying collateral
and other relevant factors.
PREMISES AND EQUIPMENT: Premises and equipment owned by the Company are stated
at cost, less accumulated depreciation and amortization. Premises and equipment
leased by the Company under capital leases are stated at an amount equal to the
present value of the minimum lease payments during the lease term less
accumulated amortization. The provision for depreciation and capital lease
amortization (included in depreciation and amortization expense) is computed
generally by the straight-line method.
PROPERTIES ACQUIRED IN SETTLEMENT OF LOANS: Properties acquired in settlement of
loans, included in Other Assets in the consolidated financial statements,
consist of properties acquired through foreclosure or otherwise in settlement of
debt. These properties are initially recorded at the lower of cost or current
fair value determined by appraisal at foreclosure. Losses arising from the
acquisition of such properties are charged against the allowance for loan
losses. Carrying values are subsequently reduced through a charge to operations
when current appraisals indicate a decline in value. At December 31, 1993, 1992
and 1991, these properties amounted to $4,842,000, $8,076,000 and $8,148,000,
respectively.
29
EXCESS COSTS OF PURCHASED SUBSIDIARIES: Unamortized costs of purchased
subsidiaries in excess of the fair value of underlying net tangible assets
acquired are included in other assets in the consolidated financial statements
and aggregated $23,080,000, $15,481,000 and $10,813,000 (net of accumulated
amortization of $24,927,000, $23,980,000 and $22,788,000) at December 31, 1993,
1992 and 1991, respectively. A portion of such excess costs was allocated to
values associated with the future earnings potential of acquired deposits and
was being amortized over the estimated life of the deposits, an average of
approximately five years. The cost so identified was $ 162,000, net of
amortization, at December 31, 1991, which became fully amortized during 1992.
The remaining costs (goodwill) are being amortized by the straight-line method
over 15 and 25-year periods for purchases after 1982 and over a 40-year period
for purchases prior to 1983.
INCOME TAXES: In February, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes." Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and has reported
the cumulative effect of that change in the method of accounting for income
taxes in the 1993 consolidated statement of earnings.
The Company previously used the asset and liability method under Statement 96.
Under the asset and liability method of Statement 96, deferred tax assets and
liabilities were recognized for all events that had been recognized in the
financial statements. Under Statement 96, the future tax consequences of
recovering assets or settling liabilities at their financial statement carrying
amounts were considered in calculating deferred taxes. Generally Statement 96
prohibited consideration of any other future events in calculating deferred
taxes.
CASH EQUIVALENTS: For presentation of the Statement of Cash flows, cash
equivalents include cash and amounts due from banks.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards
No. 107, "Disclosure about Fair Value of Financial Instruments" (Statement 107),
requires that the Company disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set forth in the
following notes to the consolidated financial statements. The carrying amounts
for cash and due from banks, interest bearing deposits with other banks and
federal funds sold and securities purchased under agreement to resell
approximate fair value because of their short maturities and they do not present
unanticipated credit concerns. Fair value estimates for other financial
instruments are based on relevant market information and information about
the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Company's
entire holding of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. Fair value estimates are based on existing
on-and-off balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For example, the Company has a
substantial trust operation that contributes net fee income annually. The trust
operation is not considered a financial instrument, and its value has not been
incorporated into the fair value estimates. Other significant assets and
liabilities that are not considered financial assets or liabilities include the
mortgage banking operation, deferred tax benefits, and property, plant and
equipment. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered.
INCOME PER SHARE: Per common share amounts were computed by dividing net income
by the weighted average number of shares outstanding during the period.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform
with the current year presentation. Such reclassifications have no effect on net
earnings for 1992 and 1991.
30
NOTE B - ACQUISITIONS
On July 1, 1991, Worthen National Bank of Arkansas, Little Rock ("WNBA")
acquired approximately $153 million of certain assets and deposit liabilities
from One National Bank, located in North Little Rock, Arkansas for approximately
$5.3 million in cash.
On July 25, 1991, WNBA and Worthen National Bank of Hot Springs assumed
approximately $0.3 million in assets and $111 million of the deposit
liabilities of three First Savings of Arkansas locations in Little Rock, North
Little Rock and Hot Springs from the Resolution Trust Corporation. The
Company paid a premium of approximately $0.4 million to the Resolution Trust
Corporation.
On January 31, 1992, the Company purchased 100% of the common stock of First
National Bank, Fayetteville, Arkansas from One National BancShares, Inc. for
$15,750,000 in cash and the issuance of 1,200,000 shares of the Company's common
stock. For the year ended December 31, 1991, First National Bank, Fayetteville
reported total assets of $252,237,000, net interest income of $10,587,000 and
net income of $3,279,000. Substantially all the assets and liabilities of First
National Bank, Fayetteville and Worthen National Bank of Northwest Arkansas were
combined as of the date of acquisition. This acquisition was accounted for as a
purchase and the results of operations of the bank are included in the Company's
1992 consolidated financial statements from the date of acquisition. The excess
of the purchase price over the recorded value of the net assets acquired is $5.4
million and is being amortized over 15 years using the straight line method. The
proforma unaudited results of operations for the year ended December 31,
1992, assuming that the acquisition of First National Bank, Fayetteville had
been consummated on January 1, 1992, would have been as follows:
(Dollars in thousands, except share data) YEAR ENDED DECEMBER 31
1992
------------------------
Net interest income $ 131,078
Net income 34,080
Net income per share $ 2.05
On May 7, 1993, the Company issued 4,550,000 shares of its common stock to
acquire all the outstanding common stock of The Union of Arkansas Corporation
("Union"), an Arkansas bank-holding company. The business combination has been
accounted for as a pooling-of-interests combination and, accordingly, the
Company's historical consolidated financial statements presented in this report
have been restated to include the accounts and results of operations of Union as
if the companies had always been combined. On December 31, 1992, Union reported
total assets of $713,474,000.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below:
FOUR MONTHS ENDED YEAR ENDED DECEMBER 31
(Dollars in thousands) APRIL 30, 1993 1992 1991
----------------- ----------------------
Interest Income:
WBC . . . . . . . . . . . . . . . . . . . . . $57,001 $185,351 $189,054
Union . . . . . . . . . . . . . . . . . . . . 12,994 44,617 51,639
------- ---------------------
$69,995 $229,968 $240,693
------- ---------------------
------- ---------------------
Interest Expense:
WBC . . . . . . . . . . . . . . . . . . . . . $22,338 $ 83,408 $107,726
Union . . . . . . . . . . . . . . . . . . . . 4,286 16,372 24,004
------- ---------------------
$26,624 $ 99,780 $131,730
------- ---------------------
------- ---------------------
Net Income:
WBC . . . . . . . . . . . . . . . . . . . . . $11,393 $ 30,607 $ 22,884
Union . . . . . . . . . . . . . . . . . . . . 1,391 3,330 5,852
------- ---------------------
$12,784 $ 33,937 $ 28,736
------- ---------------------
------- ---------------------
31
On September 10, 1993, the Company acquired 100% of First Bentonville
Bancshares, Inc., the parent corporation of FirstBank of Bentonville, Arkansas
("FirstBank"). WBC paid approximately $3.9 million in cash, $4.1 million in debt
repayment and 250,000 newly-issued shares of WBC's common stock. For the year
ended December 31, 1992, First Bank reported total assets of $88,546,000, net
interest income of $2,826,000 and net income of $805,000. FirstBank was merged
into Worthen National Bank of Northwest Arkansas on October 31, 1993. This
acquisition was accounted for as a purchase and the results of operations of
FirstBank are included in the Company's consolidated financial statements from
the date of acquisition. The excess of the purchase price over the recorded
value of the net assets acquired is $8.4 million and is being amortized over 15
years using the straight line method. The proforma results of operations for
1993 and 1992, assuming that the acquisition of FirstBank had been consummated
on January 1, 1992, would have been as follows:
(Dollars in thousands, except share data) Year ended December 31
1993 1992
-----------------------
Net interest income....................... $135,752 $133,014
Net income................................ 31,831 34,742
Net income per share...................... $ 1.89 $ 2.06
NOTE C - RESTRICTIONS ON CASH AND DUE FROM BANKS
The Company's bank subsidiaries are required to maintain reserve balances with
the Federal Reserve Bank. The average amount of those reserve balances for the
year ended December 31, 1993 was approximately $43,576,000.
NOTE D - RELATED PARTIES
The Company and its subsidiaries have granted loans to certain officers,
directors and principal stockholders of the Company and its subsidiaries and to
their associates. The aggregate dollar amount of these loans was $73,079,000,
$67,325,000 and $74,371,000 at December 31, 1993, 1992 and 1991,
respectively. During 1993, $108,273,000 of new loans were made and repayments
totaled $102,519,000. In the opinion of management, related party loans are made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time of comparable transactions with unrelated persons
and do not involve more than normal risk of collectibility.
Transactions with corporations controlled by the Company's principal
stockholders and their various affiliated interests during 1993, 1992 and 1991
included brokerage commissions, marketing and finders fees received by the
Company's investment advisory, full service and discount brokerage services
($6,498,000, $5,210,000 and $2,950,000 in 1993, 1992 and 1991, respectively) net
of commissions retained by the related party ($2,585,000, $2,164,000 and
$1,407,000, in 1993, 1992 and 1991, respectively); payments by the Company for
subscriptions to investment advisory resource services ($154,000, $104,000 and
$79,000 in 1993, 1992 and 1991, respectively); payments to the Company's banking
subsidiaries for the rental of bank premises ($102,000, $98,000 and $96,100 in
1993, 1992 and 1991, respectively); payments by the Company for consulting fees
($726,000 and $191,000 in 1993 and 1991, respectively); payments by the Company
for data processing services ($6,367,000, $5,664,000 and $5,615,000 in 1993,
1992 and 1991, respectively). Payments were made by the Company to entities
controlled by the Company's principal stockholders for the rental of bank
premises ($455,000 in 1993); and the Company received $950,000 from principal
stockholders for the sale of an airplane under the terms of the agreement to
purchase Union.
Additional transactions with related parties included: the purchase of
residences of current and former officers for $299,000, $283,000 and
$494,500 in 1993, 1992 and 1991, respectively, all of which have subsequently
been sold at losses immaterial to the financial statements on a consolidated
basis; insurance premiums paid to a company associated with a member of the
Board of Directors aggregating $1,157,000, $1,040,000 and $1,152,000 in 1993,
1992 and 1991; and payments of principal and interest to entities related to
certain directors and executive officers totaling $68,000 for each year of
1992 and 1991, respectively.
32
NOTE E - INVESTMENT SECURITIES
Carrying value and fair values of investment securities are as follows:
- ------------------------------------------------------------------------------
(Dollars in thousands)
- ------------------------------------------------------------------------------
U.S. TREASURY SECURITIES
AND OBLIGATIONS OF OTHER OBLIGATIONS OF STATES
U.S. GOVERNMENT AGENCIES AND POLITICAL OTHER
AND CORPORATIONS SUBDIVISIONS SECURITIES TOTAL
------------------------ ---------------------- ---------- ----------
DECEMBER 31, 1993:
Carrying value. . . . . . . . . . . . . $1,269,077 $97,077 $ 80,105 $ 1,446,459
Unrealized gains. . . . . . . . . . . . 13,226 3,436 287 16,949
Unrealized losses . . . . . . . . . . . (2,876) (554) (14) (3,444)
---------- -------- ------------ ----------- -----------
Fair value. . . . . . . . . . . . . . . $1,279,427 99,959 $ 80,378 $ 1,459,764
-------------------------------------------------------------------------
December 31, 1992:
Carrying value. . . . . . . . . . . . . $1,169,363 $64,288 $ 111,427 $ 1,345,078
Unrealized gains. . . . . . . . . . . . 18,505 2,478 492 21,475
Unrealized losses . . . . . . . . . . . (3,026) (1,085) (27) (4,138)
---------- ------- ------------ ----------- -----------
Fair value. . . . . . . . . . . . . . . $1,184,842 $65,681 $ 111,892 $ 1,362,415
-------------------------------------------------------------------------
December 31, 1991:
Carrying value. . . . . . . . . . . . . $1,000,554 $29,964 $ 117,331 $ 1,147,849
Unrealized gains. . . . . . . . . . . . 31,081 1,956 911 33,948
Unrealized losses . . . . . . . . . . . (383) (25) (784) (1,192)
---------- ------- ------------ ----------- -----------
Fair value. . . . . . . . . . . . . . . $1,031,252 $31,895 $ 117,458 $ 1,180,605
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unrealized gains/losses of investment securities by maturity are as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
UNDER 1-5 5-10 OVER 10 NO FIXED
1 YEAR YEARS YEARS YEARS MATURITY TOTAL
--------- --------- --------- -------- ------- ----------
December 31, 1993:
Carrying value. . . . . . . . . . . . . $ 369,894 $ 678,214 $ 226,397 $165,858 $ 5,896 $1,446,259
Unrealized gains. . . . . . . . . . . . 1,549 9,488 3,386 2,526 -- 16,949
Unrealized losses . . . . . . . . . . . (238) (1,433) (1,445) (328) -- (3,444)
--------- --------- --------- -------- ------- ----------
Fair value. . . . . . . . . . . . . . . $ 371,205 $686,269 $228,338 $168,056 $ 5,896 $ 1,459,764
--------------------------------------------------------------------------------
December 31, 1992:
Carrying value. . . . . . . . . . . . . $407,508 $593,383 $130,650 $208,534 $ 5,003 $ 1,345,078
Unrealized gains. . . . . . . . . . . . 2,033 7,874 5,647 5,921 -- 21,475
Unrealized losses . . . . . . . . . . . (140) (1,804) (1,141) (1,053) -- (4,138)
--------- --------- --------- -------- ------- ----------
Fair value. . . . . . . . . . . . . . . $409,401 $599,453 $135,156 $213,402 $ 5,003 $1,362,415
--------------------------------------------------------------------------------
December 31, 1991:
Carrying value. . . . . . . . . . . . . $365,970 $357,987 $ 114,413 $305,395 $ 4,084 $ 1,147,849
Unrealized gains. . . . . . . . . . . . 5,004 12,924 7,123 8,897 -- 33,948
Unrealized losses . . . . . . . . . . . (186) (255) (420) (331) -- (1,192)
--------- --------- --------- -------- ------- ----------
Fair value. . . . . . . . . . . . . . . $370,788 $370,656 $121,116 $313,961 $ 4,084 $1,180,605
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The fair value of investment securities, except certain obligations of states
and political subdivisions, is estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers. The
fair value of certain obligations of states and political subdivisions is not
readily available through market sources other than dealer quotations, so fair
value estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the instruments
being valued.
33
Investment securities with a carrying value of approximately $505,452,000,
$525,783,000 and $409,289,000 were pledged as collateral to secure public
deposits and for other purposes at December 31, 1993, 1992 and 1991,
respectively. There are no investments in securities of issuers other than the
U.S. Government, U. S. Government Agencies or government sponsored enterprises
for which aggregate book value exceeds ten percent of equity capital as of
December 31, 1993. Collateralized mortgage obligations are presented at their
stated, scheduled maturity.
Summary of sales of investment securities:
- -------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
Proceeds from sales of investment securities .... $ 79,817 $ 47,704 $144,475
Gross gains realized ............................ 5,448 341 2,114
Gross losses realized............................ 2 58 35
---------------------------
---------------------------
NOTE F - LOAN DISTRIBUTION, ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING LOANS
A summary of loan distribution is as follows:
- -------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
Commercial, financial and agricultural...... $ 437,072 $ 398,230 $ 345,782
Bankers' acceptances and commercial paper... -- 86,966 147,073
Real estate mortgage........................ 710,955 635,521 558,872
Real estate construction.................... 73,241 60,074 49,280
Installment and other....................... 425,354 380,572 328,797
Direct lease financing...................... 1,383 1,547 176
Unearned interest........................... (986) (1,775) (3,293)
----------------------------------
Total $1,647,019 $1,561,135 $1,426,687
---------------------------------
---------------------------------
Summarized below are the transactions in the allowance for loan losses for the years ended December 31:
- -------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
Balance at January 1........................................... $ 30,145 $ 30,792 $ 31,242
Allowance of purchased bank at date of acquisition............. 892 1,690 873
Provision for loan losses ..................................... 4,628 2,849 3,359
Net charge-offs:
Chargeoffs.................................................. 6,004 8,422 8,550
Recoveries.................................................. 3,639 3,236 3,868
------------------------------------
Net chargeoffs................................................. (2,365) (5,186) (4,682)
------------------------------------
Balance at December 31......................................... $ 33,300 $ 30,145 $ 30,792
------------------------------------
------------------------------------
The following table presents information concerning the aggregate amount of non-performing loans:
- ------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------
Non-accrual loans1............................................. $ 16,668 $ 18,260 $ 17,675
Accruing loans past due 90 days or more as to interest or
principal payments............................................ 1,363 2,616 5,665
Renegotiated loans............................................. -- -- 699
Interest income that would have been recorded under original terms:
Non-accrual loans ............................................ 1,388 1,999 2,038
Renegotiated loans............................................ -- -- 62
Interest income recorded during that period:
Non-accrual loans......................................... 363 359 293
Renegotiated loans........................................ -- -- 49
<FN>
1 THERE WERE NO SIGNIFICANT COMMITMENTS TO LEND ADDITIONAL FUNDS TO BORROWERS
INCLUDED IN THIS CATEGORY.
34
NOTE G - PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
Land and land improvements ................................................ $ 15,935 $ 15,213 $ 14,915
Buildings and building improvements ....................................... 97,493 96,803 80,936
Capital building leases ................................................... 3,613 3,682 3,682
Leasehold improvements .................................................... 7,686 4,683 3,804
Furniture, fixtures and equipment ......................................... 51,241 52,084 48,565
Construction in progress .................................................. 2,468 1,941 1,468
Less accumulated depreciation and amortization (including $1,089,
$2,439 and $2,289, in 1993, 1992 and 1991, respectively, related
to capital leases) ...................................................... (77,089) (75,873) (69,507)
----------------------------
Total ................................................................. $101,347 $ 98,533 $ 83,863
----------------------------
----------------------------
NOTE H - SHORT-TERM BORROWINGS
Short-term borrowings include the following components:
- ------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
U.S.Treasury notes ......................................................... $ 57,838 $ 17,205 $ 18,407
Notes payable to unrelated bank ............................................ - 3,366 7,921
----------------------------
Total .................................................................. $ 57,838 $ 20,571 $ 26,328
----------------------------
----------------------------
NOTE I - LEASES
The Company's subsidiaries lease premises and equipment under agreements which
contain options to renew at various dates for periods ranging from
approximately five to fifty years. The Company and one of its banking
subsidiaries lease premises and equipment from entities related to principal
stockholders and directors of the Company. Rental expense for all operating
leases amounted to $2,835,000, $3,220,000 and $3,131,000 for 1993, 1992 and
1991, respectively. Future minimum payments, by year and in the aggregate,
under the capital leases and non-cancelable operating leases with initial
or remaining terms of one year or more consisted of the following at
December 31, 1993:
- -----------------------------------------------------------------------------
(Dollars in thousands)
- -----------------------------------------------------------------------------
Capital Operating
Leases Leases
--------------------
1994 .................................................... $ 413 $ 1,860
1995 .................................................... 413 1,586
1996 .................................................... 413 1,538
1997 .................................................... 413 1,325
1998 .................................................... 393 1,262
Thereafter .............................................. 732 4,452
--------------------
Total minimum lease payments ............................ 2,777 $ 12,023
--------
--------
Less amounts representing interest 826
-------
Present value of net minimum capital lease payments ..... $ 1,951
-------
-------
35
NOTE J - LONG-TERM DEBT AND CAPITAL NOTES
Long-term debt consists of the following:
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
Parent company promissory notes:
Payable to several institutional investors with Continental
Bank, N.A., Chicago, Illinois as agent. The three notes
provide for payment of interest only semi-annually with principal
payable at maturity. Maturities are $10 million due in 1998
priced to yield 7.21%, $10 million due in 1999 priced to yield
7.56% and $23 million due in 2000 priced to yield 7.81%. The
terms of the note agreement include certain covenants which
provide, among other things, restrictions relating to various
financial ratios, maintenance of minimum levels of equity,
limitations on the payment of dividends and the incurrence of
additional debt. These notes are unsecured .......................... $ 43,000 $ - $ -
Payable to an unrelated bank (three notes) at interest rates
ranging from the bank's prime lending rate plus 1/2% (6.5%
at December 31, 1992) to 7.84%. All notes were retired in May
1993. The notes were collateralized by certain of the Company's
common stock ownership in its subsidiaries excluding
those pledged below .................................................. - 20,630 7,700
Payable to individuals at an interest rate of 9% in equal annual
installments through 1992 (net of unamortized discount of $47
in 1991 based on imputed interest rate of 13%) collateralized
by Worthen National Bank of Northwest Arkansas common stock........... - - 1,469
Payable to individuals at interest rates ranging from 7% to 10%
in monthly and annual installments through 1994 (net of
unamortized discount of $558 and $692 in 1992 and 1991,
respectively, based on imputed interest rates of 13% and 14%),
collateralized by Worthen National Bank of Batesville common
stock ................................................................ 33 3,919 4,350
Payable to an insurance company at an interest rate of 6.75% in
quarterly installments through 1994 (net of unamortized discount
of $14, $66 and $142 in 1993, 1992 and 1991, respectively,
based on an imputed interest rate of 13%), collateralized by the
Worthen National Bank of Arkansas building (net book value of
$11,052, $11,343 and $11,634 in 1993, 1992 and 1991, respectively) ... 566 1,065 1,503
Other 9 12 15
--------------------------------
Total Parent 43,608 25,626 15,037
Various notes payable by subsidiaries at an interest rate of 10% ......... - - 18
--------------------------------
Total $43,608 $25,626 $15,055
--------------------------------
--------------------------------
Capital notes are unsecured obligations and consist of the following: 1993 1992 1991
--------------------------------
Parent company:
10% due 1995 (net of $220 owned by a subsidiary bank) (retired
October 1993) ........................................................ $ - $ 4,311 $ 4,311
Prime rate due 1999 (retired May 1993) ................................. - 5,000 5,000
Bank subsidiaries:
8-1/4% to 9% Series 1984 through 1992 Subordinated Notes ............... - - 1,243
Prime rate due 2001 (retired May 1993) ................................. - 250 250
--------------------------------
Total ............................................................... $ - $ 9,561 $10,804
--------------------------------
--------------------------------
Annual maturities of long-term debt for 1994 through 1998 are as follows:
- ----------------------------------------------------------------------
1994 1995 1996 1997 1998
------------------------------------------
Long-term debt ......... $604 $ 4 $ - $ - $ 10,000
------------------------------------------
------------------------------------------
The Company also has an existing line of credit with NationsBank of Texas, N.A.
of $20,000,000. No balance is outstanding at December 31, 1993, on this line of
credit which expires September 1, 1994.
36
NOTE K - DEPOSITS
The aggregate amounts of time certificates of deposit in denominations
of $100,000 or more at December 31, 1993, 1992 and 1991 were $209,678,000,
$208,990,000 and $206,958,000, respectively. Interest expense on the deposits
was $7,179,000, $9,053,000 and $14,932,000 in 1993, 1992 and 1991, respectively.
The average daily amount of total deposits and rates paid are summarized for the
periods indicated:
- -----------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
---------------------------------------------------------
Noninterest bearing demand deposits.. $ 556,510 -% $ 506,283 -% $ 401,226 -%
Interest bering demand deposits ..... 1,007,836 2.16 934,298 2.79 715,382 4.36
Savings deposits .................... 242,969 2.32 221,614 2.78 202,982 3.53
Time deposits ....................... 1,210,550 3.65 1,353,314 4.47 1,328,899 6.35
---------- ---------- ----------
Total deposits ................... $3,017,865 $3,015,509 $2,648,489
---------- ---------- ----------
---------- ---------- ----------
NOTE L - STOCK OPTIONS
The Company grants stock options and/or stock appreciation rights under its 1984
stock option plan, as amended, and its 1993 stock option plan to key officers
and employees of the Company and subsidiaries at prices no less than the market
price of the Company's common shares on the date of grant.
Transactions in stock options are as follows:
- -----------------------------------------------------------------
(Number of shares) 1993 1992 1991
- -----------------------------------------------------------------
Outstanding, January 1 ......... 529,675 378,425 351,754
Granted ........................ 205,850 174,875 135,000
Exercised ...................... (54,311) (22,375) (1,250)
Forfeited or canceled .......... (1,000) (1,250) (107,079)
----------------------------
Outstanding, December 31 ....... 680,214 529,675 378,425
----------------------------
----------------------------
Generally, stock options are exercisable in specified increments over a nine or
ten year period and expire ten years alter date of grant; certain options become
exercisable immediately upon occurrence of events specified in the grant. The
exercise price may be paid in cash, in already-owned shares, or in a combination
of both. At December 31, 1993, 274,745 options were exercisable at prices from
$8.75 to $24.25 per share; the weighted average price was $10.88.
In 1987, stock appreciation rights for 115,000 shares and an associated grant of
100,000 options were canceled and reissued at a price of $8.75. DurIng 1991, the
expiration of these rights and options was extended an additional five years.
The rights are exercisable only for cash limited to the amount of income tax
incurred by the optionee upon exercise of the options and rights, as determined
by a formula in the grant. The rights are exercisable over a specific period or
within one year of a "taxable event," as defined in the grant. There were new
grants of options totalIng 205,850 during 1993, 174,875 during 1992 and 135,000
during 1991. At December 31, 1993, 115,000 rights were outstanding and
exercisable. Compensation expense of $400,000 and $826,000 was recorded in 1992
and 1991, respectively, for the difference between exercisable stock
appreciation rights and the market price of these instruments. No such
compensation expense was recognized for 1993.
The 1984 pian authorizes grants of options and rights for an aggregate of
750,000 shares. At December 31,1993, options and rights for 181,948 shares were
available to be granted under the 1984 plan. The 1993 plan authorized grants of
options and rights for an aggregate of 500,000 shares. At December 31, 1993,
options and rights for 298,900 shares were available to be granted under the
1993 plan.
37
NOTE M - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Other expenses include the following components, with no items except as
specified exceeding one percent of total revenue:
- -----------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------
Equipment expense ..................... $ 6,857 $ 6,650 $ 5,918
Professional fees ..................... 6,570 8,672 8,193
Data processing fees .................. 7,252 6,163 5,658
Amortization of intangible assets ..... 5,600 4,644 3,619
Advertising expense ................... 2,674 3,030 2,683
Business development .................. 3,571 4,222 3,548
Office expense ........................ 10,686 9,656 8,984
FDIC insurance ........................ 7,028 6,955 5,459
Other ................................. 16,344 13,860 9,841
------------------------------
Total ............................... $66,582 $ 63,852 $ 53,903
------------------------------
------------------------------
NOTE N - PENSION PLANS
During 1986, the Company instituted a defined contribution savings and profit
sharing plan to replace its defined benefit pension plan, which was terminated
effective December 31, 1985. All employees are eligible to participate in the
defined contribution plan upon attaining a minimum age and period of
employment. The plan allows eligible employees to contribute a portion of their
salaries to the savings plan and obligates the Company to make contributions
equal to fifty percent of matchable compensation, which is the amount of
participants' contributions that are not in excess of six percent of their
annual compensation determined in accordance with the plan. Additionally,
except in certain circumstances, the Company must make an annual contribution
of the Company's common stock or of cash to be used to purchase such stock
equal to ten percent of participants' matchable compensation. The Company's
expense for contributions it made pursuant to the plan was $1,460,000,
$1,374,000 and $945,000 for 1993, 1992 and 1991, respectively.
The amount, if any, of the Company's discretionary contribution made pursuant to
the profit sharing component of the plan is determined annually by the Board of
Directors. In 1993, 1992 and 1991, the Company made discretionary contributions
of $306,000, $229,000 and $193,000, respectively.
NOTE O - REPURCHASE AGREEMENT LOSS/RECOVERY
During 1985, WNBA suffered a loss of $52,147,000 in connection with repurchase
agreements entered into with Bevill, Bresler and Schulman, Inc. and certain of
its affiliates (collectively "BBS") on behalf of a customer. BBS failed to honor
the repurchase agreements and subsequently filed bankruptcy. The Company
collected $20,000,000 initially from the proceeds of a professional liability
insurance policy which was recorded as a reduction of the loss. The Company
entered into an agreement with the insurance carrier whereby 40% of bankruptcy
distribution recoveries received by WNBA net of 40% of WNBA's expenses incurred
in effecting such recoveries would be paid to the carrier. The Company has an
additional agreement whereby approximately 21% of BBS recoveries are paid to a
separate insurance carrier who provided directors' and officers' liability
coverage to the Company.
WNBA received gross recoveries of $783,000 and $2,136,000 in 1993 and 1991,
respectively. Payments and accruals of $474,000 and $1,342,000 in 1993 and 1991,
respectively, were paid to insurance carriers in accordance with the agreements
mentioned above. No gross recoveries were received or payments made during 1992.
The distributions received in 1993 are the final recoveries the Company will
receive in connection with the BBS bankruptcy.
The United States District Court approved an amended agreement in 1988 which
settled all pending shareholder derivative lawsuits arising from, among other
matters, the repurchase agreement loss involving the Company and WNBA. The terms
of the agreement stipulate a number of actions to be taken by the Company in
regards to related party transactions and regulatory compliance among other
matters. Management believes that the Company is in compliance with the terms of
the settlement agreement.
38
NOTE P - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK
Financial instruments with off-balance sheet risk consist of the following:
- -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------
CONTRACT OF
NOTIONAL AMOUNTS
----------------------------------
1993 1992 1991
----------------------------------
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit. . . . . . . . . . . . . . . . . . . . . . $552,575 $224,206 $165,950
Standby letters of credit and financial guarantees written. . . . . . . 26,854 13,745 14,912
----------------------------------
----------------------------------
The financial statements do not reflect various commitments and contingencies,
such as commitments to extend credit, letters of credit, guarantees and
liabilities for assets held in trust, all of which arise in the normal course of
the Company's business. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit and financial guarantees written is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for balance-sheet instruments. Commitments generally have fixed
maturity dates, most of which expire within a year, or other termination clauses
and may require payment of a fee. The terms of standby letters of credit are
generally less than five years. Fees are recognized as income on the
straight-line method over the term of the debt guaranteed. Unearned fee income
was not material at December 31, 1993, 1992 or 1991. Potential losses on standby
letters of credit are provided for in the allowance for loan losses. The amount
and type of collateral obtained upon extension of credit is based upon credit
policy. Collateral held varies but may include accounts receivable, inventory,
property, plant, and equipment, and income-producing commercial properties. The
Company has a diversified loan portfolio with no concentrations of credit risk
deemed significant Most of the Company's lending activity is with customers
located within the State of Arkansas and the Austin, Texas area.
The fair value of commitments to extend credit, standby letters of credit and
financial guarantees would be estimated using the fees currently charged for
similar agreements. Due to the insignificance of the fees that would currently
be charged for such agreements and the short term nature of current agreements,
no fair value estimates have been made for financial instruments with
off-balance sheet risk.
In the ordinary course of business, There are various legal proceedings pending
against the Company, its subsidiaries and affiliates, most of which are
considered litigation incidental to the conduct of business, including, among
other matters, defense of routine corporate, employment, banking, lender
liability and securities related litigation. Management, alter consultation with
legal counsel and based upon available facts and proceedings to date which are
preliminary in certain instances, is of the opinion that the ultimate resolution
of these proceedings will have no material adverse effect on the consolidated
financial position or future results of operations of the Company.
NOTE Q - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of the bank subsidiaries to
transfer funds to the Company in the form of cash dividends, loans or advances.
The approval of the Office of the Comptroller of the Currency ("OCC") is
required for the Company's national bank subsidiaries to pay dividends in excess
of earnings retained in the current year plus retained net profits with certain
adjustments for the preceding two years.
Under Federal Reserve regulations, the bank subsidiaries are also limited as to
the amount they may loan to The Company, unless such loans are collateralized by
specified obligations. At December 31, 1993, the maximum amour available for
transfer from the banks to the Company in the form of loans approximated 23% of
consolidated equity. Under current Federal Reserve regulations, the subsidiary
banks are limited to the amount they may loan to other affiliates, including the
Company. Loans to a single affiliate may not exceed 10% and loans to all
affiliates may not exceed 20% of the lender's capital, surplus and undivided
profits after adding back the allowance for loan losses.
39
NOTE R - INCOME TAXES
As discussed in Note A, the Company adopted Statement 109 as of January 1, 1993.
In adopting Statement 109, the Company recorded income and a deferred tax asset
equal to the cumulative effect of a change in accounting principle of $868,000.
In order to fully realize the deferred tax asset the Company will need to
generate future federal taxable income of approximately $2,500,000. The Company
has federal taxable income and pre-tax book income for the years ended as
follows:
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
Taxable income before NOL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $48,279 $35,407 $30,518
Net operating loss deduction (NOL) . . . . . . . . . . . . . . . . . . . . . . . . . . - - (13,669)
Taxable income after NOL deduction . . . . . . . . . . . . . . . . . . . . . . . . . . 48,279 35,407 16,849
Pre-tax book income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,582 40,647 32,648
In 1991, the Company utilized the remainder of a NOL carryforward which was
generated in 1985-1987. Based on the Company's historical and current taxable
income before NOL deductions, management believes it is more likely than not
that the Company will generate sufficient future federal taxable income in the
periods in which the existing deductible temporary differences reverse.
Federal and state income taxes (benefit) consist of the following:
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
Current. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,950 $10,243 $ 7,065
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (750) (3,533) (3,153)
-------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,200 $ 6,710 $ 3,912
-------------------------------
-------------------------------
The reasons for the difference between tax expense and the amount computed by
applying the statutory federal income tax rate to income before income taxes are
as follows:
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
35% of pre-tax income in 1993 and 34%in 1992 and 1991. . . . . . . . . . . . . . . . . $16,654 $13,820 $11,100
Add (deduct):
Adjustment to deferred tax assets and liabilities for enacted changes in tax rates . (93) -- --
Tax-free interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,328) (892) (727)
Goodwill amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320 191 545
Discount accretion on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 216 88 109
Non-deductible acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . 922 429 --
Utilization of previously unrecognized deferred tax assets . . . . . . . . . . . . . -- (4,329) (2,904)
Prior year over accrual to return. . . . . . . . . . . . . . . . . . . . . . . . . . (730) (328) (189)
Refunds of prior year taxes and other miscellaneous adjustments
not previously recorded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,474) --
Utilization of NOL carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (4,328)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 (795) 306
-------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,200 $ 6,710 $ 3,912
-------------------------------
-------------------------------
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the year ended
December 31, 1993 are as follows:
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax expense (exclusive of the effects
of other components listed below) . . . . . . . . . . . . . . . . . . . . . . . . . $(488)
Adjustments to deferred tax assets and liabilities
for enacted changes in tax rates. . . . . . . . . . . . . . . . . . . . . . . . . . (93)
Decrease in beginning-of-the-year balance
of the valuation allowance for deferred tax assets. . . . . . . . . . . . . . . . . (169)
------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(750)
------
------
40
For the years ended December 31, 1992 and 1991, deferred income tax benefit
results from timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax effects of
those timing differences are presented below:
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 735 $ (174)
Accelerated depreciation for tax purposes. . . . . . . . . . . . . . . . . . . . . . . (455) 151
Accrued compensation for financial reporting purposes. . . . . . . . . . . . . . . . . 469 (345)
Prepaid expenses for financial reporting purposes. . . . . . . . . . . . . . . . . . . -- --
Amortization of deposit base intangibles . . . . . . . . . . . . . . . . . . . . . . . 597 666
Net income (loss) from other real estate owned transactions. . . . . . . . . . . . . . (39) (14)
Conversion from cash to accrual basis for tax purposes . . . . . . . . . . . . . . . . -- (150)
Utilization of previously unrecognized deferred tax assets . . . . . . . . . . . . . . (4,329) (2,904)
Adjustment to deferred tax assets and liabilities for enacted changes in tax rates . . -- --
Decrease in beginning-of-the-year balance of the valuation allowance for
state deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (511) (383)
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,533) $(3,153)
-------------------
-------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1993:
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,326
Other real estate owned due to writedowns not deductible for tax purposes. . . . . . 299
Compensated absences and other accrued benefits due to accrual for financial
reporting purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,265
Other assets - unamortized core deposit premiums for tax purposes. . . . . . . . . . 354
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570
-------
Total gross deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . 15,814
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,245
-------
Net deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,569
-------
Deferred tax liabilities:
Premises and equipment, due to differences in depreciation and acquisition basis . . (7,915)
Investment securities due to differences in acquisition basis. . . . . . . . . . . . (1,148)
Prepaid expenses for financial reporting purposes. . . . . . . . . . . . . . . . . . (722)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,118)
-------
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . (10,903)
-------
Net deferred tax assets (included in other assets on balance sheet). . . . . . . . $ 3,666
-------
-------
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
established a valuation allowance for a portion of its state deferred tax
assets. State law prohibits the carryback of NOL's, limits NOL carryforwards to
five years, and historically, the Company has not generated sufficient state
taxable income to warrant full recognition of the deferred tax assets. The
valuation allowance for deferred tax assets as of January 1, 1993 was
$1,414,000. The net change in the total valuation allowance for the year ended
December 31, 1993 was a decrease of $169,000.
At December 31, 1993, 1992 and 1991, the Company had current income taxes
payable of$2,371,000, $3,162,000 and $3, 103,000, respectively, included in
Other Liabilities on the consolidated balance sheets. At December 31, 1992 and
1991, the Company had a net deferred tax asset of $2,444,000 and a net deferred
tax liability of $1,466,000 included in Other Assets and Other Liabilities,
respectively. The Company acquired deferred tax liabilities of $3 96,000 and
deferred tax assets of $377,000 during 1993 and 1992, respectively, in
conjunction with the acquisition of First National Bank, Fayetteville and
FirstBank.
41
NOTE S - WORTHEN BANKING CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
- ---------------------------------------------------------------------------------------------------------------------
STATEMENTS OF EARNINGS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1993 1992 1991
------------------------------
INCOME
Dividends from:
Bank subsidiaries(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,864 $ 16,296 $ 10,211
Non-bank subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - -
Service fees from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 4,176 3,822 3,775
Repurchase agreement recovery, insurance reimbursement . . . . . . . . . . . . . . (474) - (1,342)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 641 571
------------------------------
50,013 20,759 13,215
------------------------------
EXPENSES
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 5,561 5,142 4,730
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,761 3,259 3,199
Provisions for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . (109) (200) -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,174 5,029 3,532
------------------------------
18,387 13,230 11,461
------------------------------
Income before income taxes(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,626 7,529 1,754
Applicable income tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,161) (7,108) (5,806)
------------------------------
Income before equity in undistributed earnings of subsidiaries . . . . . . . . . . . 35,787 14,637 7,560
Equity in undistributed earnings
Bank subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,566) 18,911 20,894
Non-bank subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,029 389 282
------------------------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736
------------------------------
------------------------------
- ---------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1993 1992 1991
------------------------------
ASSETS
Investment in subsidiaries:
Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $274,590 $261,174 $209,269
Non-banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,219 11,821 9,182
------------------------------
292,809 272,995 218,451
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 319 111
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,756 4,006 7,881
Furniture and equipment net of accumulated depreciation. . . . . . . . . . . . . . 2,212 749 725
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,915 8,185 1,488
------------------------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $324,919 $286,254 $228,656
------------------------------
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 2,185 $ 6,775
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,608 25,626 15,037
Capital notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9,531 9,531
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,663 8,061 6,608
------------------------------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,271 45,403 37,951
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276,648 240,851 190,705
------------------------------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . . $324,919 $286,254 $228,656
------------------------------
------------------------------
<FN>
1 Includes $783,000 and $2,136,000 in 1993 and 1991, respectively, approved by
regulators alter the BBS recoveries (see Note O).
2 Before equity in undistributed earnings of subsidiaries.
42
NOTE S - CONTINUED
- ---------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1993 1992 1991
------------------------------
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,250 $ 33,937 $ 28,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 1,365 1,034 1,573
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . (109) (200) -
Equity in undistributed earnings of subsidiaries (net of dividends received) . 3,537 (19,300) (21,176)
Decrease (increase) in other assets. . . . . . . . . . . . . . . . . . . . . . (904) (157) 27
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . 2,115 (2,716) (2,414)
Net income tax payments from subsidiaries. . . . . . . . . . . . . . . . . . . 5,972 5,188 9,982
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,161) (7,108) (5,806)
------------------------------
Net Cash Provided by Operating Activities. . . . . . . . . . . . . . . . . 40,065 10,678 10,922
------------------------------
INVESTING ACTIVITIES
Decrease (increase) in short-term investments. . . . . . . . . . . . . . . . . . . (23,750) 3,875 (1,775)
Principal collected on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 187 611
Loans originated or acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . (464) (208) (787)
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . (1,777) (223) (510)
Proceeds from liquidation of subsidiaries. . . . . . . . . . . . . . . . . . . . . - 310 -
Purchase of minority interest in subsidiary. . . . . . . . . . . . . . . . . . . . - (42) -
Cash paid in acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . (4,206) (15,750) -
Additional investment in subsidiaries. . . . . . . . . . . . . . . . . . . . . . . (9,025) (2,751) (950)
------------------------------
Net Cash Used by Investing Activities. . . . . . . . . . . . . . . . . . . . . . (39,099) (14,602) (3,411)
------------------------------
FINANCING ACTIVITIES
Principal payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . (29,690) (4,669) (3,564)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,135) (1,873) (1,999)
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 43,000 15,000 -
Principal payments on capital notes. . . . . . . . . . . . . . . . . . . . . . . . (9,531) - -
Accquisition of treasury shares. . . . . . . . . . . . . . . . . . . . . . . . . . (163) - -
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . 646 264 15
Net repayments on short-term borrowings. . . . . . . . . . . . . . . . . . . . . . (2,185) (4,590) (1,875)
------------------------------
Net Cash Provided (Used) by Financing Activities . . . . . . . . . . . . . . . . (1,058) 4,132 (7,423)
------------------------------
Increase in Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . (92) 208 88
Cash and Cash Equivalents at beginning of year . . . . . . . . . . . . . . . . . . . 319 111 23
------------------------------
Cash and Cash Equivalents at end of year . . . . . . . . . . . . . . . . . . . $ 227 $ 319 $ 111
------------------------------
------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,188 $ 3,101 $ 3,194
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,863 $ 10,862 $ 4,908
------------------------------
------------------------------
Supplemental schedule of non-ash transactions:
Fair market value of net assets acquired in acquisition of subsidiary. . . . . . . . $ 10,405 $ 32,670 $ -
Common stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,199) (16,920) -
------------------------------
Cash paid in acquisition of subsidiary . . . . . . . . . . . . . . . . . . . . . . . $ 4,206 $ 15,750 $ -
------------------------------
------------------------------
43
NOTE T - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are the fair value estimates, methods and assumptions for the
Company's financial instruments for which the fair value differs from the
carrying value, except for investment securities which are disclosed in Note E.
See Note P for a discussion of the fair values of financial instruments with
off-balance sheet risk.
LOANS: Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, financial and
agricultural, bankers' acceptances and commercial paper; real estate mortgage,
real estate construction, installment and other; and direct lease financing.
Each loan category is further segmented into fixed and variable rate interest
terms and by performing and non-performing (nonaccrual) categories. The fair
value of performing fixed rate loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan. The fair
value of performing variable rate loans is equal to the carrying value of such
loans, due to the regular repricing at market rates. The fair value of
nonperforming loans is based on estimated cash flows discounted using a rate
commensurate with the risk associated with the estimated cash flows.
Assumptions regarding credit risk, cash flows, timing of cash flows, and
discount rates are judgmentally determined using available market and specific
borrower information.
The following table presents carrying values and estimated fair values of loans
at December 31:
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- ---------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------------------- -----------------------
Commercial, financial and agricultural:
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . $ 278,403 $ 275,101 $ 245,400 $ 244,153
Variable rate. . . . . . . . . . . . . . . . . . . . . . . 155,985 155,985 149,879 149,879
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . 2,684 2,233 2,951 2,570
---------- ---------- ---------- ----------
Total commercial, financial and agricultural . . . . . . 437,072 433,319 398,230 396,602
Bankers' acceptances and commercial paper. . . . . . . . . . - - 86,966 86,935
Real estate mortgage:
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . 602,090 592,607 443,104 443,290
Variable rate. . . . . . . . . . . . . . . . . . . . . . . 95,971 95,971 177,705 177,705
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . 12,894 10,732 14,712 12,815
---------- ---------- ---------- ----------
Total real estate mortgage . . . . . . . . . . . . . . . 710,955 699,310 635,521 633,810
Real estate construction:
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . 61,942 61,255 43,817 43,533
Variable rate. . . . . . . . . . . . . . . . . . . . . . . 10,612 10,612 16,097 16,097
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . 687 574 160 139
---------- ---------- ---------- ----------
Total real estate construction . . . . . . . . . . . . . 73,241 72,441 60,074 59,769
Installment and other:
Fixed rate . . . . . . . . . . . . . . . . . . . . . . . . 400,525 396,229 339,659 340,369
Variable rate. . . . . . . . . . . . . . . . . . . . . . . 24,636 24,636 40,762 40,762
Nonaccrual . . . . . . . . . . . . . . . . . . . . . . . . 193 159 151 131
---------- ---------- ---------- ----------
Total installment and other. . . . . . . . . . . . . . . 425,354 421,024 380,572 381,262
Direct lease financing . . . . . . . . . . . . . . . . . . . 1,383 1,381 1,547 1,544
Unearned interest. . . . . . . . . . . . . . . . . . . . . . (986) - (1,775) -
---------- ---------- ---------- ----------
Total loans. . . . . . . . . . . . . . . . . . . . . . . . 1,647,019 1,627,475 1,561,135 1,559,922
Allowance for loan losses. . . . . . . . . . . . . . . . . . (33,300) - (30,145) -
---------- ---------- ---------- ----------
$1,613,719 $1,627,475 $1,530,990 $1,559,922
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
44
TRADING ACCOUNT ASSETS: The fair value of the Company's trading account assets
is based upon quoted market sources of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued. At
December 31, 1993, the carrying value and estimated fair value of trading
account assets is $65,324,000 and $65,254,000, respectively. At December 31,
1992, the carrying value and estimated fair value of trading account assets is
$37,462,000 and $37,518,000, respectively.
DEPOSITS: The fair value of deposits with no stated maturity, such as demand
deposits and savings, is equal to the carrying value amount payable on demand as
of December 31, 1993 and 1992. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits with similar remaining maturities.
The following table presents the carrying value and estimated fair values of
deposits at December 31:
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- ----------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------------------- -------------------------
Non-interest bearing demand deposits . . . . . . . . $ 596,514 $ 596,514 $ 546,662 $ 546,662
Interest bearing demand deposits . . . . . . . . . . 1,040,117 1,040,117 959,497 959,497
Savings deposits . . . . . . . . . . . . . . . . . . 256,436 256,436 311,351 311,351
Time deposits:
Maturing in six months or less . . . . . . . . . . 355,289 351,725 851,402 852,684
Maturing between six months and one year . . . . . 336,712 338,441 210,830 212,156
Maturing beyond one year . . . . . . . . . . . . . 457,551 461,971 158,644 162,613
---------- ---------- ---------- ----------
$3,042,619 $3,045,204 $3,038,386 $3,044,963
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LONG-TERM DEBT, CAPITAL NOTES AND CAPITAL LEASE OBLIGATIONS: The fair value of
the Company's long-term debt, capital notes and capital lease obligations is
based on the discounted value of contractual cash flows. The discounted rate is
estimated using the Company's current borrowing rate for debt of comparable
maturity. The following table presents the carrying value and estimated fair
values at December 31:
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- ---------------------------------------------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------------------- -------------------------
Long-term debt . . . . . . . . . . . . . . . . . . . $ 43,608 $ 44,623 $ 25,626 $ 26,729
Capital notes. . . . . . . . . . . . . . . . . . . . -- -- 9,561 9,972
Capital lease obligations. . . . . . . . . . . . . . 1,951 2,005 2,146 2,182
---------- ---------- ---------- ----------
$ 45,559 $ 46,628 $ 37,333 $ 38,883
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NOTE U - REGULATORY MATTERS
On March 31, 1993, the Company was notified by the Board of Governors of the
Federal Reserve System ("FED") that its approval of the Company's application to
merge with The Union of Arkansas Corporation was given in reliance upon
representations and commitments made to the FED by the Company, Stephens Group,
Inc., and certain Stephens family members in connection with the application,
including representations and commitments to the effect that Stephens Group,
Inc., and its subsidiaries do not and will not exert control over the management
or policies of the Company, and that Stephens Group, Inc., and its subsidiaries
will comply with the restrictions imposed by Sections 23A and 23B of the Federal
Reserve Act, as amended, in connection with any business transacted between
subsidiary banks of the Company and Stephens Group, Inc. Management does not
believe that any of such regulations have been violated and management of the
Company believes that such representations and commitments will not
significantly affect the general business policies or financial performance of
the Company.
In addition, the FED notified the Company in March of 1993 that the Board has
ordered an investigation to review the ownership and control of the Company for
compliance with the Bank Holding Company Act and the Change in Bank Control Act,
including the nature and extent of the relationships between the Company and
tephens Group, Inc., and its subsidiaries. The Company is cooperating with the
FED in this investigation. However, the Company cannot accurately predict the
results of the final outcome of the investigation.
45
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
ENTITY JURISDICTION OWNERSHIP
Worthen National Bank of Arkansas, Little Rock United States 100.0%
Worthen Investments, Inc. (1) Arkansas 100.0%
Worthen Mortgage Company (1) Arkansas 100.0%
The Union Modern Mortgage Corporation(1) Arkansas 100.0%
U. N. Service Corporation(1) Arkansas 100.0%
Worthen National Bank of Batesville United States 100.0%
Worthen National Bank of Conway United States 100.0%
Worthen National Bank of Harrison United States 100.0%
Worthen National Bank of Hot Springs United States 100.0%
WHS Appraisal Corp. (1) Arkansas 100.0%
Worthen National Bank of Newark United States 100.0%
Worthen National Bank of Pine Bluff United States 100.0%
Worthen National Bank of Russellville United States 100.0%
Worthen National Bank of South Arkansas United States 100.0%
Worthen National Bank of Northwest Arkansas United States 100.0%
Worthen National Bank of Texas Texas 100.0%
Consumers Protective Life Insurance Company Arkansas 100.0%
National Credit Corporation, an Industrial Loan Institution Arkansas 98.8%
Worthen Development Corporation, Inc. Arkansas 100.0%
Worthen Financial Corporation Arkansas 100.0%
Worthen Services Corporation Arkansas 100.0%
Worthen Trust Company, Inc. Arkansas 100.0%
<FN>
(1) Subsidiary of the bank listed immediately above.
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
WORTHEN BANKING CORPORATION
We consent to the incorporation by reference in Registration Statement Numbers
33-7733 as amended, 33-68212, 33-68214, 33-68216 and 33-68210 on Forms S-8, of
Worthen Banking Corporation of our report dated February 25, 1994, relating to
the consolidated balance sheet of Worthen Banking Corporation and Subsidiaries
as of December 31, 1993 and the related consolidated statements of earnings,
stockholders' equity and cash flows and related schedule for the year then
ended which report appears in the December 31, 1993 Annual Report on
Form 10-K of Worthen Banking Corporation.
/s/ KPMG Peat Marwick
---------------------------
KPMG PEAT MARWICK
Little Rock, Arkansas
March 30, 1994
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
WORTHEN BANKING CORPORATION
We consent to the incorporation by reference in Registration Statement Numbers
33-7733, as amended, 33-68212, 33-68214, 33-68216 and 33-68210 on Forms S-8 of
Worthen Banking of our report dated January 22, 1993, relating to the
consolidated balance sheets of The Union of Arkansas Corporation and
Subsidiaries as of December 31, 1992 and 1991 and the related consolidated
statements of income, retained earnings and cash flows for the years then ended
(not presented separately herein) which report appears in the December 31, 1993
Annual Report on Form 10-K of Worthen Banking Corporation.
/s/ Frost & Company
---------------------------
FROST AND COMPANY
Little Rock, Arkansas
March 30, 1994
EXHIBIT 99
INDEPENDENT AUDITOR'S REPORT
Board of Directors
The Union of Arkansas Corporation
Little Rock, Arkansas
We have audited the consolidated and parent only balance sheets of The
Union of Arkansas Corporation as of December 31, 1992 and 1991, and the
related consolidated and parent only statements of income, retained
earnings and cash flows for the years then ended (not presented
separately herein). These consolidated and parent only financial
statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on the consolidated and
parent only financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated and parent only financial
statements are free of material misstatement. An audit Includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
and parent only financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated and parent only financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated and parent only financial statements
referred to above present fairly, in all material respects, the consolidated and
parent only financial position of The Union of Arkansas Corporation as of
December 31, 1992 and 1991, and the consolidated and parent only results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Frost & Company
------------------------------
FROST & COMPANY
Little Rock, Arkansas
January 22, 1993